2014 First Quarter Update

On the back of the successful exploration activities in Kenya during 2013, the Company and its partners ramped up its exploration program in Kenya and Ethiopia. Entering the year, the Company and its partners had seven drilling rigs operating in the region. Four Tullow-Africa Oil joint venture rigs are operating in the discovered basin in Northern Kenya in Blocks 10BB and 13T, one of which is a testing and completions unit. In addition, the Company and its partners have a rig operating in Block 9 in Kenya. In Ethiopia, the Company and its partners in the South Omo Block and Block 7/8 have a rig operating in each block. Drilling operations in Block 7/8 have recently been completed, and the rig is in the process of being released. The Company expects to have six drilling rigs operating in the region through the remainder of 2014.

In January, the Company announced further drilling success with its sixth and seventh consecutive discoveries in the discovered basin in Northern Kenya at Amosing-1 and Ewoi-1. Amosing-1 is located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play in Block 10BB. Logs indicated 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014. Ewoi-1 is located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the discovered basin in Northern Kenya also in Block 10BB. Logs indicated potential net pay of 20 to 80 meters to be confirmed by well testing which is planned for the first half of 2014.

In February, the Company announced the results of five well tests conducted on five Lokhone pay intervals at Etuko-1 located on the Basin Flank Play in Block 10BB. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the previously announced Etuko discovery. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In March, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T (Kenya). The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. This well, which was trying to establish an additional play, has no impact on the potential of the Ngamia oil accumulation or any other prospectivity in the discovered basin in Northern Kenya.

Also in March, the Company announced the results of a well test on the Ekales-1 discovery drilled in 2013 and located on the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Testing operations on the Ekales-1 well confirmed this significant oil discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

In May, the Company and its partner drilled a new prospect in the discovered basin in Northern Kenya, the Ekunyuk-1 well, which is located on the eastern flank play on trend with recent discoveries at Etuko and Ewoi. The well has now reached a final total depth of 1,802 meters and has encountered some 5 meters of net oil pay, within approximately 150 meters of reservoir quality water-bearing sandstone and an equal thickness of a basin-wide rich oil shale.

Four rigs are currently operating in the discovered basin in Northern Kenya. The rig that recently completed drilling Ekunyuk-1 is mobilizing to drill Agete-2. Appraisal wells at Ngamia-2 and Twiga South-2 and testing operations at the Agete-1 discovery made in 2013 are also ongoing.

The initial wellbore at Twiga-2 was drilled near the basin bounding fault and encountered some 18 meters of net oil pay within alluvial fan facies, with limited reservoir quality. A decision was made to sidetrack the well away from the fault to explore north of Twiga-1 and some 62 meters of vertical net oil pay has been discovered in the Auwerwer formation, similar in quality to the initial Twiga-1 discovery. The well is currently being deepened to evaluate the Lower Lokhone sand reservoirs and a testing program for this successful well is planned to be conducted later this year.

Given the significant volumes discovered and the extensive exploration and appraisal program planned to fully assess the upside potential of the basin, the Tullow-Africa Oil joint venture has agreed with the Government of Kenya to commence development studies. In addition, the partnership is involved in a comprehensive pre-FEED study of the export pipeline. The current ambition of the Government of Kenya and the joint venture partnership is to reach project sanction for development, including an export pipeline, by the end of 2015 or early 2016. The Government is already making progress, having recently announced its intention to invite Expressions of Interest for the feasibility study, engineering design and development of a Kenya crude export pipeline. If further exploration success opens additional basins there will be scope for the development to be expanded.

In addition to further exploration and appraisal drilling in the discovered basin in Northern Kenya, the Company and its partners plan to drill new basin opening wells in 2014 in the Anza (Block9), Chew Bahir (South Omo), South Kerio (Block 10BB), North Kerio (Block 10BB/10BA) and West Turkana (Block 10BA) basins.

In Block 9 (Kenya), the Company, as operator, and its partner are currently drilling the Sala-1 exploration well which will test a large prospect on the northeastern flank of the Cretaceous Anza rift, which is up-dip of two wells that had significant hydrocarbon shows. Results from Sala-1 are expected in June.

In the South Omo Block (Ethiopia), the Company and its partner are currently drilling the Shimela-1 exploration well to test a new basin in the Tertiary trend, the Chew Bahir Basin, located on the eastern side of the South Omo Block. Results from Shimela-1 are expected near the end of May. The rig will next drill the Gardim prospect in the southern portion of the Chew Bahir Basin. Both wells are basin bounding fault prospects similar to the Ngamia, Amosing, Twiga, Ekales, and Agete discoveries in the discovered basin in Northern Kenya.

Additionally in Ethiopia, the Company and its partners have recently completed the drilling of the El Kuran-3 appraisal well on Block 8. El Kuran-3 was an appraisal of a discovery made by Tenneco in the 1970's, and encountered a significant but tight gas-condensate zone in Jurassic Hammanlei carbonates. The well has been suspended pending a decision on conducting a fracture stimulation, which will be required to assess the long-term productivity of the formation. Discussions are ongoing with the Government of Ethiopia to secure an extension to the Exploration Period under the PSC to assess the economic viability of the discovery.

The Company and its partners continue to actively acquire and process seismic data in Blocks 12A, 10BA, 10BB and 13T in Kenya. In Block 12A, a 425 kilometer 2D seismic program was completed in the first quarter and the crew has recently demobilized. In Block 10BB, a 676 kilometer North Kerio Basin 2D seismic program was completed in the first quarter and the crew is mobilizing to acquire a 600 kilometer 2D program split between Blocks 10BA, 10BB and 13T over the North Lokichar Basin. In Blocks 10BB and 13T, acquisition of a 550 square kilometer 3D seismic program over the discoveries and prospects along the Basin Bounding Fault Play in the discovered basin in Northern Kenya is ongoing and is scheduled to complete at the end of the third quarter. In Ethiopia, the Company, as operator, and its partner are making preparations to acquire a minimum 400 kilometer 2D seismic program over the Rift Basin Area commencing in the fourth quarter. Also in Ethiopia, the Company and its partners have commenced a 1,000 kilometer 2D seismic program on the Adigala Block.

In September 2013, the Company announced details of an independent assessment of the Company's contingent and prospective resources on its Kenyan and Ethiopian exploration properties. The Company is currently working with its independent resource evaluator and expects to release an update to the contingent and prospective resources for the discovered basin in Northern Kenya in Blocks 10BB and 13T during June.

The Company has a significant exploration and appraisal program set out for 2014 which will see over 20 wells completed. The program is focused on drilling out the remaining prospect inventory in the discovered basin in Northern Kenya, appraising existing and future discoveries with the aid of the new 3D Seismic survey, drilling six new basin opening wells and progressing the development studies towards project sanction in the discovered basin in Northern Kenya. This significant exploration program in 2014 is fully funded.

KENYA


The Company and its partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

On the back of the very successful exploration results in the discovered basin in Northern Kenya, the Company and its partner have accelerated the pace of exploration along the Basin Bounding Fault Play in Block 10BB and Block 13T. The Company and its partner currently have four drilling rigs operating in the discovered basin in Northern Kenya, one of which is currently being utilized as a testing and completion rig.

In January, the Company announced further drilling success with its sixth and seventh consecutive discoveries in the discovered basin in Northern Kenya at Amosing-1 and Ewoi-1. Amosing-1 is located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play in Block 10BB. Logs indicated 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014. Ewoi-1 is located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the discovered basin in Northern Kenya also in Block 10BB. Logs indicated potential net pay of 20 to 80 meters to be confirmed by well testing which is planned for the first half of 2014.

In February, the Company announced the results of five well tests conducted on five Lokhone pay intervals in Etuko-1 located on the Basin Flank Play in Block 10BB. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the previously announced Etuko discovery. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In May, the Ekunyuk-1 well, located south of the Ewoi and Etuko discoveries on the eastern Basin Flank Play, reached a final total depth of 1,802 meters and has encountered some 5 meters of net oil pay, within approximately 150 meters of reservoir quality water-bearing sandstone and an equal thickness of a basin-wide rich oil shale.

An appraisal well is currently drilling at Ngamia-2. Results are expected by the end of the second quarter.

The 2D seismic crew operating in Block 10BB completed 676 kilometers of 2D seismic during the quarter. Fast-track processing of this newly acquired survey is being integrated into subsurface mapping to finalize exploration drilling locations for the 2014 campaign, the first of which will be the basin opening test of the Dyepa prospect in the South Kerio Basin which is expected to spud mid-2014. This 2D seismic program identified a significant number of follow-on prospects should Dyepa be successful. The seismic crew is now mobilizing to the North Lokichar Basin for an infill program that will further define prospects for the 2015 drilling campaign. Using a second crew, the Company and its partner have completed approximately 25% of a 550 square kilometer 3D seismic survey that covers the Amosing, Ngamia, Ekales, Twiga South and Agete discoveries along the Basin Bounding Fault Play in Block 10BB and Block 13T combined.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB will exceed the PSC commitment. The intention of the Block 10BB partners is to enter the final two year exploration period under the PSC.

Block 13T

In March, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T (Kenya). The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. This well, which was trying to establish an additional play, has no impact on the potential of the Ngamia oil accumulation or any other prospectivity in the discovered basin in Northern Kenya.

Also in March, the Company announced the results of a well test on the Ekales-1 discovery drilled in 2013 and located on the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Testing operations on the Ekales-1 well confirmed this significant oil discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

An appraisal well is currently drilling at Twiga South-2. The initial wellbore was drilled near the basin bounding fault and encountered some 18 meters of net oil pay within alluvial fan facies, with limited reservoir quality. A decision was made to sidetrack the well away from the fault to explore north of Twiga-1 and some 62 meters of vertical net oil pay has been discovered in the Auwerwer formation, similar in quality to the initial Twiga-1 discovery. The well is currently being deepened to evaluate the Lower Lokhone sand reservoirs and a testing program for this successful well is planned to be conducted later this year.

Testing operations at the Agete-1 discovery made in 2013 are also ongoing. Results are expected by the end of May.

The Company and its partner have completed approximately 25% of the 550 square kilometer 3D seismic survey that covers the discoveries and prospects along the Basin Bounding Fault Play in Block 10BB and Block 13T combined. Using a second crew, the plan is to acquire an additional 200 kilometers of 2D seismic over the block during 2014 to define prospects in the North Lokichar Basin.

The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T will exceed the PSC commitment. The intention of the Block 13T partners is to enter the final two year exploration period under the PSC.

Block 10BA

During the first quarter, the Company and its partner on Block 10BA demobilized a seismic crew that completed a 1,450 kilometer 2D seismic program in 2012/2013. The plan in 2014 is to acquire a further 200 kilometers of 2D seismic in the North Lokichar Basin that extends onto Block 10BA. Preparations are underway to drill two exploration wells in the West Turkana Basin commencing with the Engomo (previously referred to as Kiboko) prospect later this year. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expired in April 2014. The Company and its partner have notified the Ministry of Energy for the Republic of Kenya of their intention to enter the next two year exploration period under the PSC.

Block 12A

The Company and its partners on Block 12A have recently completed a 425 kilometer 2D seismic acquisition program that began in 2013. The 2D seismic program is mainly focused in the Kerio Valley in the southwestern portion of the block. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 12A PSC which expires in September 2014.

Block 9

Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields. The Company and its partner are currently drilling the Sala-1 well which has a planned total depth of 3,450 meters and is expected to complete in June. The Sala prospect is a large three way dip closed structure against the rift bounding fault in the Cretaceous Anza Basin in a similar structural setting to the Tertiary Ngamia-1 discovery in Block 10BB. The Sala prospect is up-dip of the Bogal-1 and Ndovu-1 wells both of which encountered significant hydrocarbon shows. The Company and its partner are currently in the final exploration period under the PSC which expires in December 2015. Drilling of the Sala-1 well will fulfill the remaining work commitments in Block 9.

ETHIOPIA


South Omo Block

The Company and its partners are currently drilling the Shimela-1 exploration well to test a new basin in the Tertiary trend, the Chew Bahir Basin, located on the eastern side of the South Omo Block. Results from Shimela-1 are expected near the end of May. The rig will next drill the Gardim prospect in the southern portion of the Chew Bahir Basin. Both wells are basin bounding fault prospects similar to the Ngamia, Amosing, Twiga, Ekales, and Agete discoveries in the discovered basin in Northern Kenya. The current exploration period under the PSC expires in January 2015 and the work completed on the block to date has exceeded the minimum work obligation.

Rift Basin Area

The Rift Basin Area is located north of the South Omo Block and is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company completed the acquisition of a 36,500 line kilometer Full Tensor Gradiometry ("FTG") survey in October 2013. The Company has completed an exhaustive environmental and social impact assessment over the block in preparation for a 400 to 1,200 kilometer 2D seismic program, which is expected to commence in the fourth quarter. The initial exploration period, which expires in February 2016, will be met by the planned work program.

Ogaden Blocks 7/8

The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company and its partners focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its partners have recently completed the drilling of the El Kuran-3 appraisal well, which encountered a significant but tight gas-condensate zone in Jurassic Hammanlei carbonates. The well has been suspended pending a decision on conducting a fracture stimulation, which will be required to assess the long-term productivity of the formation. Discussions are ongoing with the Government of Ethiopia to secure an extension to the initial exploration period under the PSC to assess the economic viability of the discovery.

Adigala Block

As part of work obligations for the second exploration period which expired July 2013, the Company and its partners incorporated newly acquired FTG data with seismic data to improve the subsurface interpretation of the block. The Company and its partners also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. The parties to the block agreed to enter the final exploration period under the PSC, which expires in July 2015 and carries a 500 kilometer 2D seismic work commitment. The Company and its partners have committed to a 1,000 kilometer 2D seismic program which is underway. The Company has farmed down its interest in the Adigala Block to 10%.

PUNTLAND (SOMALIA)


Dharoor Valley and Nugaal Valley Blocks

The Company and its partners continue to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, and its partners committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the drilling at the Shabeel-1 and Shabeel North-1 locations in 2012. The Company and its partners continue to pursue efforts to drill an exploration well in the Nugaal Valley block and are working with the Puntland government to move this project forward. During the quarter, the Company and its partners completed an on the ground review of the operating environment which is encouraging regarding community support to conduct work.

Somalia is going through an unprecedented period in its history with a real opportunity for all stakeholders to assist in the rebuilding of the country. The first internationally recognized Federal government took power in 2012 following over 20 years of transitional or no government. The Company and its partners actively engage with a range of governments and organizations, domestic and international, around how Somalia can best develop a stable Federal state including the institutions and systems it needs to properly manage its natural resources.

Additionally, Horn is reviewing new venture opportunities in the region.

RECENT DEVELOPMENTS


Commenced Trading on the TSX

On Tuesday, May 6, 2014, the Company's common shares commenced trading on the TSX. The common shares were concurrently delisted from the TSX Venture Exchange. The Company's trading symbol and CUSIP remain the same. The Company's common shares also currently trade on the NASDAQ OMX First North and, as with the graduation to the TSX, the Company intends to apply for a graduation to the NASDAQ OMX Stockholm main board.

2013 Year End Report

On the back of the successful exploration activities in Kenya during 2012, the Company, together with its partners, ramped up its exploration program in Kenya and Ethiopia. Entering the year, two Tullow-Africa Oil joint venture rigs were operating in Kenya and one joint venture rig was operating in Ethiopia. Two additional Tullow-Africa Oil joint venture rigs (one of which is a testing and completion unit) were mobilized, the drilling unit commenced operations in November 2013 and the testing and completions unit commenced operations in February 2014. The Company, as operator, and its partner in Block 9 (Kenya) secured a sixth rig, which commenced drilling operations in September 2013. In addition, the Company and its partners in Block 7/8 (Ethiopia) mobilized a seventh rig for a one well commitment, which commenced drilling operations in October 2013. Currently, the Company has seven rigs operating; however, it will shortly release the second drilling unit operating in Ethiopia, and then expects to have five drilling rigs and one testing and completion rig operating in the region through the rest of 2014. During 2013, the Company completed seven exploration wells and two multi-zone well tests across its blocks and exited the year with three wells drilling and one well under test.

All operations in Block 10BB and Block 13T in Northern Kenya were temporarily suspended for approximately 12 days beginning on October 28, 2013 as a precautionary measure following demonstrations by members of local communities. Operations resumed after successful discussions relating to the operating environment with central and regional government and local community leaders. These discussions led to the signing of a Memorandum of Understanding which clearly lays out a plan for the Government of Kenya, county government, local communities in Northern Kenya and the Tullow-Africa Oil joint venture to work together inclusively over the long-term and to ensure operations can continue without disruption in the future.

During the first half of 2013, the Company completed a series of well tests at both Twiga South-1 and Ngamia-1 on Blocks 13T and 10BB in Kenya, respectively. These successful well tests confirmed over 5,000 barrels of oil per day ("bopd") flow potential per well and doubled the previous estimates of net oil pay. Transient Pressure Analysis has been conducted on the Twiga South-1 and Ngamia-1 well tests. No pressure depletion was recorded over the duration of the tests.

In July 2013, the Company announced a new oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and was the first test of the Basin Flank Play in the eastern part of the South Lokichar Basin. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval based on log analysis. In February 2014, the Company announced the results of five well tests conducted on five Lokhone pay intervals in Etuko-1. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March 2014, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the previously announced Etuko discovery. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In September 2013, the Company announced a new oil discovery at Ekales-1 located in the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Logs indicated a potential pay zone of 60 to 100 meters to be confirmed by flow testing. Well testing was conducted utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig. In March 2014, the company announced the results of testing operations on the Ekales-1 well which confirmed this significant discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

In November 2013, the Company announced a new oil discovery at Agete-1 located seven kilometers north of the Twiga South-1 discovery along the Basin Bounding Fault Play in Block 13T. Logs indicate a significant oil column with an estimated 100 meters of net oil pay in good quality sandstone reservoirs. Well testing will commence imminently and an appraisal well is planned in the first half of 2014.

In January 2014, the Company announced a new oil discovery at Amosing-1 located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play in Block 10BB. Logs indicate 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014.

Also in January 2014, the Company announced a new oil discovery at Ewoi-1 located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the South Lokichar Basin in Block 10BB. Logs indicate potential net pay of 20 to 80 meters to be confirmed by well testing.

In March 2014, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T. The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. The results are not expected to impact the thickness and quality of reservoir throughout the main Ngamia field area.

Given the significant volumes discovered and the extensive exploration and appraisal program planned to fully assess the upside potential of the basin, the Tullow-Africa Oil joint venture has agreed with the Government of Kenya to commence development studies. In addition, the partnership is involved in a comprehensive pre-FEED study of the export pipeline. The current ambition of the Government of Kenya and the joint venture partnership is to reach project sanction for development, including an export pipeline, by the end of 2015 or early 2016.

To facilitate these development activities in parallel with exploration and appraisal, an "Area of Interest" (AOI) encompassing the South Lokichar Basin discoveries and further prospects in Blocks 10BB and 13T, was agreed with the Government of Kenya in February 2013. This agreement allows a multiple field approach to development of the resources while permitting the continued focus on exploration to increase the resource base while concurrently appraising discoveries.

In the first quarter of 2013, the Tullow-Africa Oil joint venture tested a Cretaceous play in the Anza Basin with the Paipai-1 commitment well in Block 10A (Kenya), encountering light hydrocarbon shows. Due to concerns over economic viability, the Company and its partners have relinquished Block 10A as the partnership focuses its activities on the main Tertiary Rift Play across Kenya and Ethiopia.

In December 2013, the Company reported that the Bahasi-1 well on Block 9 in Kenya, had only encountered minor shows of gas. The rig then moved to drill Sala-1 on the northeastern flank of the basin to test a large prospect in the Cretaceous Anza rift, which is up-dip of two wells that had significant hydrocarbon shows. The Sala-1 well is currently drilling and is expected to complete in the second quarter of 2014.

In July 2013, the Company reported that the Sabisa-1 well on the South Omo Block in Ethiopia, the most northerly well drilled on the Tertiary rift trend to date, had confirmed a viable hydrocarbon system with oil and heavy gas shows. In December 2013, the Company announced that the potential hydrocarbon bearing sands in Sabisa-1 were not present at the Tultule-1 well location. There were gas shows in the section, which point to a potential hydrocarbon source, and the results of these two wells will be analyzed to determine the future exploration program direction in the North Turkana Basin. Preparations are underway to drill two exploration wells in the Chew Bahir Basin, located to the east of the South Omo Block, in 2014. The first of these wells, Shimela-1, will spud imminently.

The Company and its partners continued to actively acquire, process and interpret an extensive 2D seismic program totaling approximately 3,044 kilometers during 2013 over Blocks 10BA, 10BB, 12A, 13T in Kenya and the South Omo Block in Ethiopia with two onshore and one offshore 2D seismic crews operating through the year. A third onshore 2D seismic crew operating in the South Omo Block was released in May 2013 after completing 1,174 kilometers of 2D seismic. During 2014, the Company is planning to acquire 1,270 km 2D seismic over the North Lokichar and Kerio Basins covering Blocks 10BB, 10BA and 13T. In addition, the Company and its partner in Blocks 10BB and 13T have commenced the acquisition a 550 square kilometer 3D seismic survey over the discoveries and prospects along the western basin bounding fault in the South Lokichar Basin.

In September 2013, the Company announced details of an updated independent assessment of the Company's contingent and prospective resources on its Kenyan and Ethiopian exploration properties. The effective date of this assessment was 31 July 2013 and it 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 assessment confirmed that the discovered South Lokichar Basin in Northern Kenya contains gross contingent resources of 368 million barrels of oil in the first three of seven discoveries in the basin, an increase of 557% over the assessment conducted in mid 2012. In addition, gross risked prospective resources of 1,213 million barrels of oil are estimated for the South Lokichar Basin. Net Contingent Resources for the Company are estimated at 231 million barrels of oil. Net Unrisked Prospective Resources for the Company are estimated at 9,647 million barrels of oil (excluding Puntland) and Net Risked Prospective Resources at 1,294 million barrels of oil (excluding Puntland). Please refer to the Company's press release dated September 3, 2013 for details of the prospective and contingent resources by prospect and lead, including the geologic chance of success. Plans are underway to update this independent resource assessment to include well results since July 2013 for release in the second quarter of 2014.

The Company has a significant exploration and appraisal program set out for 2014 which will see over 20 wells completed. The program is focused on drilling out the remaining prospect inventory in the South Lokichar Basin, appraising existing and future discoveries with the aid of the new 3D Seismic survey, drilling six new basin opening wells and progressing the South Lokichar Basin development studies towards project sanction. This significant program in 2014 is fully funded.

KENYA

The Company and its operating partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

Based on the very positive results at Ngamia-1 on Block 10BB in 2012, the Company and its partner, Tullow, have accelerated the pace of exploration along the Ngamia trend in Block 10BB and Block 13T. The Company currently has three drilling rigs and a testing and completion rig operating in the South Lokichar Basin in Northern Kenya. The Company completed three exploration wells and two multi-zone well tests across Blocks 10BB and 13T during 2013. In addition, on exiting the year the Company had two exploration wells drilling and one well under test.

The Company has completed a series of six well tests at the Ngamia-1 discovery. The cumulative flow rate from the six well tests was over 3,200 bopd constrained by completion techniques and surface equipment. With optimized completion techniques and surface equipment it is estimated that these combined flow rates would increase to a rate of 5,400 bopd. Five of the well tests were completed over the Auwerwer sandstones to verify reservoir quality and fluid content which appears of similar quality to those tested at the Twiga South-1 well in the same basin. High quality waxy sweet crude (25-35 degrees API) was flowed from all five zones in the Auwerwer formation with good quality reservoir sands encountered. One well test was conducted in the Lower Lokhone sandstone proving it to be a productive reservoir with 30 degree API oil. All zones produced dry oil with no water produced and no pressure depletion. As a result of testing several previously indeterminate zones in the well, net oil pay in the Ngamia-1 well has double to over 200 meters over a gross oil column of over 1,100 meters.

In July 2013, the Company announced a new oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and is the first test of the Basin Flank Play in the eastern part of the South Lokichar Basin. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval. In February 2014, the Company announced the results of five well tests conducted on five Lokhone pay intervals in Etuko-1. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March 2014, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the discovered Lokhone pay intervals identified in Etuko-1. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir, but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In January 2014, the Company announced a new oil discovery at Ewoi-1 located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the South Lokichar Basin. Logs indicate potential net pay of 20 to 80 meters to be confirmed by well testing.

Also in January 2014, the Company announced a new oil discovery at Amosing-1 located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play. Logs indicate 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014.

The 2D seismic crews operating in Block 10BB acquired approximately 1,128 kilometers of 2D seismic during 2013. Much of this program focused on defining prospects in the Kerio Basin, with the aim of defining drilling prospects for the 2014 exploratory drilling program. The plan is to acquire an additional 720 kilometers of 2D seismic over the block during 2014 to define prospects in the Kerio and North Lokichar Basins. Preparations are underway to drill the Dyepa prospect in the Kerio Basin spudding around mid 2014. In addition, the Company and its partner have commenced a 550 square kilometer 3D seismic survey over the Ngamia and Twiga South structures in Block 10BB and Block 13T combined.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB will exceed the PSC commitment.

Block 13T

During the first quarter of 2013, the Company and its partner, Tullow, conducted well testing operations at Twiga South-1, which resulted in a cumulative flow rate of 2,812 bopd from three zones, despite being constrained by surface equipment. With optimized production equipment, the cumulative flow rate is anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The well was suspended as a potential future production well.

In September 2013, the Company announced a new oil discovery at Ekales-1 located in the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Logs indicate a potential pay zone of 60 to 100 meters to be confirmed by flow testing. Well testing was conducted utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig. In March 2014, the company announced the results of testing operations on the Ekales-1 well which confirmed this significant discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

In November 2013, the Company announced a new oil discovery at Agete-1 located seven kilometers north of the Twiga South-1 discovery along the Basin Bounding Fault Play in Block 13T. Logs indicated a significant oil column with an estimated 100 meters of net oil pay in good quality sandstone reservoirs. Well testing will commence imminently and an appraisal well is planned in the first half of 2014.

In March 2014, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T. The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. The results are not expected to impact the thickness and quality of reservoir throughout the main Ngamia field area.

The Company has recently commenced the acquisition a 550 square kilometer 3D seismic survey over the Twiga South and Ngamia structures, in Blocks 13T and 10BB combined. The plan is to acquire an additional 200 kilometers of 2D seismic over the block during 2014 to define prospects in the North Lokichar Basin.

The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T will exceed the PSC commitment.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, have completed a 1,450 kilometer 2D seismic program, split evenly between onshore and offshore, half of which was acquired in 2013. The plan is to acquire an additional 350 kilometers of onshore 2D seismic over the block during 2014 to define prospects in the Kerio and North Lokichar Basins. Preparations are underway to drill two exploration wells in the West Turkana Basin commencing with the Kiboko prospect in the second half of 2014. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2014.

Block 12A

The Company and its partners on Block 12A have completed a 548 kilometer 2D seismic acquisition program in 2013, and committed to an additional 120 kilometer infill program that was completed in February 2014. The 2D seismic program is mainly focused in the Kerio Valley in the southwestern portion of the block. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 12A PSC which expires in September 2014.

Block 10A

In the first quarter of 2013, the Company and its operating partners on Block 10A completed drilling the Paipai-1 exploration well. The Paipai-1 well tested a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and completed drilling in the first quarter of 2013 to a total depth of 4,255 meters. Light hydrocarbons were encountered while drilling but attempts to sample the reservoir fluid were unsuccessful. The license has subsequently been relinquished as the Tullow-Africa Oil partnership focuses its activities on the main Tertiary Rift Play across Kenya and Ethiopia. The Paipai-1 well fully satisfied the remaining work obligations under the Block 10A PSC.

Block 9

Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields. In December 2013, the Company announced that it had drilled the Bahasi-1 well to a depth of 2,900 meters, encountering basement at 2,850 meters. The well encountered a thick section of Tertiary and Cretaceous inter-bedded sands and shales, but with only minor hydrocarbon shows. The Company is currently drilling the Sala-1 well which has a planned total depth of 3,450 meters and is expected to complete in the second quarter of 2014. The Sala prospect is a large three way dip closed structure against the rift bounding fault in the Cretaceous Anza Basin in a similar structural setting to the Tertiary Ngamia-1 discovery in Block 10BB. The Sala prospect is up-dip of the Bogal-1 and Nduvo-1 wells both of which encountered significant hydrocarbon shows. The Bahasi-1 well satisfied the remaining work commitment in the first additional exploration period under the Block 9 PSC, which expired in December 2013. The Company and its joint venture partner elected to enter the second additional exploration period under the PSC, which will expire in December 2015, and required the relinquishment of 50% of the block area and the commitment to an exploration well, which will be satisfied by the drilling of Sala-1.

ETHIOPIA

South Omo Block

The South Omo Block is located in the northern portion of the Tertiary East African Rift trend where Africa Oil and their partners have made seven significant oil discoveries in Northern Kenya. In January 2013, the Company and its partners on the South Omo Block spudded the Sabisa-1 well which is located in the North Turkana Basin. The Sabisa-1 well was drilled to a preliminary total depth of 1,810 meters. Hydrocarbon indications in sands beneath a thick claystone top seal were recorded while drilling, but hole instability issues required the drilling of a sidetrack to comprehensively log and sample these zones of interest. The sidetrack was drilled to a total depth of 2,082 meters. The well encountered reservoir quality sands, oil shows and heavy gas shows indicating an oil prone source rock and thick shale section which should provide a good seals for the numerous fault bounded traps identified in the basin. Only the lowermost sands appeared to be in trapping configuration at Sabisa-1.

Based on the encouragement of the results of the Sabisa well, the Company decided to drill the nearby Tultule prospect, which was drilled to a total depth of 2,101 meters. The Tultule-1 well encountered a section similar to the nearby Sabisa-1 well in the upper portion of the well but the sands which appeared to be hydrocarbon bearing in the Sabisa-1 well were not present on the Tultule horst block feature with multiple volcanic units and shales in this section. There were gas shows in the section which indicate a potential hydrocarbon source. The results of these two wells will be analyzed to determine the future exploration program direction in the North Turkana Basin.

During 2013, the Company and its partners completed a 1,174 kilometer 2D seismic program in the Chew Bahir Basin on the eastern portion of the South Omo Block, which identified a number of prospects and leads. Shimela-1 has been identified as the first well in the area and is expected to spud imminently. A second well on the Gardim prospect will follow Shimela-1.

The current exploration period under the PSC expires in January 2015 and the work completed on the block to date has exceeded the minimum work obligation.

Rift Basin Area

In first quarter of 2013, the Company executed a PSC for the Rift Basin Area in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company completed the acquisition of a 36,500 line kilometer Full Tensor Gradiometry ("FTG") survey in October 2013. The Company has completed an exhaustive environmental and social impact assessment over the block in preparation for a 1,200 kilometer 2D seismic program which is expected to commence in the second half of 2014. The initial exploration period, which expires in February 2016, includes a commitment to acquire an FTG survey and 400 kilometers of 2D seismic.

Ogaden Blocks 7/8

The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its partners have recently announced that drilling of the El Kuran-3 well, in the Somali region of Ethiopia, reached a total depth of 3528 meters and is currently undergoing logging and evaluation prior to taking a decision on the way forward on the well. There have been numerous oil and gas shows in the well which is a follow up to a discovery made by Tenneco in the 1970's. There appears to be a significant amount of oil and gas in several intervals and the primary issues are the quality of the reservoir and potential commerciality give the remote location.

Adigala Block

As part of work obligations for the second exploration period which expired July 2013, the Company and its partner incorporated newly acquired FTG data with seismic data to improve the subsurface interpretation of the block. The Company and its partner also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. The parties to the block agreed to enter the final exploration period under the PSC, which expires in July 2015 and carries a 500 kilometer 2D seismic work commitment. The Company and its partner have committed to a 1,000 kilometer 2D seismic program which commenced acquisition recently. The Company has farmed down its interest in the Adigala Block to 10%.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

The Company continues to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the drilling at the Shabeel-1 and Shabeel North-1 locations in 2012. The Company continues to pursue efforts to drill an exploration well in the Nugaal Valley block and is working with the Puntland government to move this project forward.

Horn has been in discussion with potential joint venture partners and is reviewing new venture opportunities in the region. Somalia is going through an unprecedented period in its history with a real opportunity for all stakeholders to assist in the rebuilding of the country. The first internationally recognized Federal government took power in 2012 following over 20 years of transitional or no government. The Company actively engages with a range of governments and organizations, domestic and international, around how Somalia can best develop a stable Federal state including the institutions and systems it needs to properly manage its natural resources.

MALI

Blocks 7 and 11

The deteriorating security and political situation in Mali halted operations on the Company's blocks. As a consequence, the Company impaired $3.1 million of capitalized intangible exploration assets during the first quarter of 2012. During the first quarter of 2013, the Company and its operating partner, Heritage, terminated their interest in Block 7 and 11 and have been released from all future PSC obligations in relation to these blocks by the Ministry of Mines in the Republic of Mali.

2013 Third Quarter Update

On the back of the successful exploration activities in Kenya during 2012, the Company, together with its partners, continues to ramp up its exploration program in Kenya and Ethiopia. Entering the year, two Tullow-Africa Oil joint venture rigs were operating in Kenya and one joint venture rig was operating in Ethiopia. Two additional Tullow-Africa Oil joint venture rigs (one of which is a testing and completion unit) have been mobilized and will commence operations in Kenya during November 2013. The Company, as operator, and its partner in Block 9 (Kenya) secured a sixth rig, which commenced drilling operations in September 2013. In addition, the Company and its partners in Block 7/8 (Ethiopia) mobilized a seventh rig for a one well commitment, which commenced drilling operations in October 2013. For a period, the Company will have seven rigs operating and expects to exit the year with five drilling rigs and one testing and completion rig operating in the region. The Company expects that at year end it will have completed eight exploration wells and two multi-zone well tests across its exploration blocks during 2013, and will exit the year with four wells drilling and two wells under test

All operations in Block 10BB and Block 13T in Northern Kenya were temporarily suspended on October 28, 2013 as a precautionary measure following demonstrations by members of local communities. Operations resumed on November 8, 2013 after successful discussions relating to the operating environment with central and regional government and local community leaders. These discussions led to the signing of a Memorandum of Understanding which clearly lays out a plan for the Government of Kenya, county government, local communities in Northern Kenya and the Tullow-Africa Oil joint venture to work together inclusively over the long-term and to ensure operations can continue without disruption in the future.

During the first half of the year, the Company completed a series of well tests at both Twiga South-1 and Ngamia-1 on Blocks 13T and 10BB in Kenya, respectively. These successful well tests confirmed over 5,000 barrels of oil per day ("bopd") flow potential per well and a doubling of our previous estimates of net oil pay. Transient Pressure Analysis has been conducted on the Twiga South-1 and Ngamia-1 well tests. No pressure depletion was recorded over the duration of the tests. Flow periods ranged from 0.5 to 2.5 days and build up periods ranged between three to twelve days.

In July, the Company announced a new major oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and is the first test of the Basin Flank Play in the eastern part of the discovered basin in Northern Kenya. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval. Well testing will commence later in November utilizing one of the recently mobilized Tullow-Africa Oil joint venture rigs. Following testing operations, an appraisal well will be drilled from the same well pad to test a shallow Auwerwer zone that was not able to be properly evaluated in the Etuko-1 discovery well.

In September, the Company announced a new oil discovery at Ekales-1 located in the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Logs indicate a potential pay zone of 60 to 100 meters which will be confirmed by flow testing. Well testing will commence later in November utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig.

In November, the Company announced a new oil discovery at Agete-1 located seven kilometers north of the Twiga South-1 discovery along the Basin Bounding Fault Play in Block 13T. The Agete-1 well is the fifth consecutive oil discovery by the Tullow-Africa Oil joint venture in the Northern Kenyan basin. Logs indicate a significant oil column with an estimated 100 meters of net oil pay in good quality sandstone reservoirs. Well testing will commence early in 2014 utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig.

The Amosing-1 exploration well, located south of the Ngamia discovery and also along the Basin Bounding Fault Play, is scheduled to commence later this month.

The Ewoi-1 exploration is scheduled to commence before the end of the year, and will be the second exploration well drilled by the Tullow-Africa Oil joint venture in the Basin Flank Play in the eastern part of the discovered basin in Northern Kenya.

The excellent results to date onshore Kenya are an important step towards understanding the overall potential and commerciality of the discovered basin in Northern Kenya. Resources discovered to date are of a scale that the Tullow-Africa Oil joint venture will initiate discussions with the Government of Kenya and other relevant stakeholders to consider development options. These discussions include consideration of a "start-up phase" oil production system with potential to deliver significant production rates with oil export via road or rail in advance of a full-scale pipeline development. It is understood that discussions are ongoing between the Governments of Kenya, Uganda and Sudan regarding a regional crude oil pipeline export system to Lamu in Kenya and the Government of Kenya has indicated that it will issue an Expression of Interest within the next few months seeking parties willing to fund, build and operate the pipeline system.

To facilitate these development activities in parallel with exploration and appraisal, an "Area of Interest" (AOI) encompassing the Basin discoveries and further prospects in Blocks 13T and 10BB, was agreed with the Government of Kenya in February 2013. This agreement allows a multiple field approach to development of the resources while permitting the continued focus on exploration to increase the resource base while concurrently appraising discoveries.

In July, the Company reported that the Sabisa-1 well on the South Omo Block in Ethiopia, the most northerly well drilled on the Tertiary rift trend to date, had confirmed a viable hydrocarbon system with oil and heavy gas shows. Based on the encouragement of the results, the decision was made to drill Tultule-1 as the next well on the South Omo Block. This well is currently drilling and results are expected in December. Preparations are also underway to drill two exploration wells in the Chew Bahir basin, located to the east of the South Omo Block, in 2014.

The Company and its partners plan to continue to actively acquire, process and interpret an extensive 2D seismic program totaling approximately 2,648 kilometers during 2013 over Blocks 10BA, 10BB, 12A, 13T in Kenya and the South Omo Block in Ethiopia with two onshore and one offshore 2D seismic crews operating throughout the remainder of the year. A third onshore 2D seismic crew operating in the South Omo Block was released in May 2013 after completing 1,174 kilometers of 2D seismic. In addition, the Company and its partner in Blocks 10BB and 13T have mobilized a 3D seismic crew to begin a 550 square kilometer 3D seismic survey over the Ngamia-1 and Twiga South-1 discoveries.

In September, the Company announced details of an updated independent assessment of the Company's contingent and prospective resources on its Kenyan and Ethiopian exploration properties. The effective date of this assessment was 31 July 2013 and it 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 assessment confirmed that the discovered basin in Northern Kenya contains gross contingent resources of 368 million barrels of oil, an increase of 557% over the assessment conducted in mid 2012. In addition, gross risked prospective resources of 1,213 million barrels of oil are estimated for the discovered basin in Northern Kenya. Net Contingent Resources for the Company are estimated at 231 million barrels of oil. Net Unrisked Prospective Resources for the Company are estimated at 9,647 million barrels of oil (excluding Puntland) and Net Risked Prospective Resources at 1,294 million barrels of oil (excluding Puntland). Please refer to the Company's press release dated September 3, 2013 for details of the prospective and contingent resources by prospect and lead, including the geologic chance of success.

KENYA

The Company and its operating partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB
Based on the very positive results at Ngamia-1 on Block 10BB in 2012, the Company and its partner, Tullow, have accelerated the pace of exploration along the Ngamia trend in Block 10BB and Block 13T. The Company currently has three drilling rigs and a testing and completion rig operating in the discovered basin in Northern Kenya. At year end, the Company will have drilled three exploration wells and will have tested two wells across Blocks 10BB and 13T during 2013. In addition, on exiting the year the Company will have two exploration wells drilling and two wells under test.

The Company has completed a series of six well tests at the Ngamia-1 discovery. The cumulative flow rate from the six well tests was over 3,200 bopd constrained by completion techniques and surface equipment. With optimized completion techniques and surface equipment it is estimated that these combined flow rates would increase to a rate of 5,400 bopd. Five of the well tests were completed over the Auwerwer sandstones to verify reservoir quality and fluid content which appears of similar quality to those tested at the Twiga South-1 well in the same basin. High quality waxy sweet crude (25-35 degrees API) was flowed from all five zones in the Auwerwer formation with good quality reservoir sands encountered. One well test was conducted in the Lower Lokhone sandstone proving it to be a productive reservoir with 30 degree API oil. All zones produced dry oil with no water produced and no pressure depletion. As a result of testing several previously indeterminate zones in the well, net oil pay in the Ngamia-1 well has double to over 200 meters over a gross oil column of over 1,100 meters.

In July, the Company announced a new major oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and is the first test of the Basin Flank Play in the eastern part of the discovered basin in Northern Kenya. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval. Testing of the well will commence during November. Following testing operations an appraisal well will be drilled from the same well pad to test a shallow Auwerwer zone that was not able to be properly evaluated in the Etuko discovery well. There are a number of follow-on prospects on trend with Etuko-1, the first of which is Ewoi-1, which is expected to spud before year-end.

The Amosing-1 exploration well, located south of the Ngamia-1 discovery and also along the Basin Bounding Fault Play, is scheduled to commence later this month.

The 2D seismic crews operating in Block 10BB intend to acquire approximately 1,128 kilometers of 2D seismic during 2013. Much of this program will be focused on defining prospects in the South and North Kerio Basins, with the aim of defining drilling prospects for the 2014 exploratory drilling program. In addition, the Company and its partner have commenced a 550 square kilometers 3D seismic survey over the Ngamia and Twiga South structures in Block 10BB and Block 13T combined.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB will exceed the PSC commitment.

Block 13T
During the first quarter of 2013, the Company and its partner, Tullow, conducted well testing operations at Twiga South-1, which resulted in a cumulative flow rate of 2,812 bopd from three zones, despite being constrained by surface equipment. With optimized production equipment, the cumulative flow rate is anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The well was suspended as a potential future production well.

In September, the Company announced a new oil discovery at Ekales-1 located in the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Logs indicate a potential pay zone of 60 to 100 meters which will be confirmed by flow testing. Well testing will commence later in November utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig.

In November, the Company announced a new oil discovery at Agete-1. Logs indicate a significant oil column with an estimated 100 meters of net oil pay in good quality sandstone reservoirs. Well testing will commence early in 2014 utilizing the recently mobilized Tullow-Africa Oil joint venture testing and completion rig.

The Company has recently commenced the acquisition a 550 square kilometer 3D seismic survey over the Twiga South and Ngamia structures, in Blocks 13T and 10BB combined.


The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T will exceed the PSC commitment.

Block 10A
In the first quarter of 2013, the Company and its operating partners on Block 10A completed drilling the Paipai-1 exploration well. The Paipai-1 well tested a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and completed drilling in the first quarter of 2013 to a total depth of 4,255 meters. Light hydrocarbons were encountered while drilling a 55 meter thick gross sandstone interval. Attempts to sample the reservoir fluid were unsuccessful and the hydrocarbons encountered while drilling were not recovered to surface. The Company and its partners were unable to test the well at the time due to the unavailability, in country, of testing equipment capable of handling the higher reservoir pressures encountered at this depth. As a result, the well has been temporarily suspended pending further data evaluation. A well test for Paipai-1 is being scheduled for 2014. Paipai-1 fully satisfied the remaining work obligations for the initial exploration period, which was extended to January 2014 to allow for evaluation of the well results. The rig was subsequently mobilized to Block 10BB (Kenya) to drill follow-up prospects in the discovered basin in Northern Kenya.

Block 10BA
The Company and its operating partner on Block 10BA, Tullow, have concluded a 1,450 kilometer 2D seismic program, split evenly between onshore and offshore, half of which was acquired in 2013. Plans are currently being made to acquire an additional 250 kilometers of 2D seismic program offshore. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2014.

Block 12A
The Company and its partners on Block 12A expect to complete a 520 kilometer 2D seismic acquisition program by the end of the year. The 2D seismic program is mainly focused in the Kerio Valley in the southwestern portion of the block. The Block 12A 2D seismic program commenced shooting near the end of the second quarter of 2013. The planned 2D seismic program will satisfy the 500 kilometer 2D seismic work obligation for the initial exploration period under the Block 12A PSC which was recently extended and now expires in September 2014.

Block 9
The Company and its partner are currently drilling the Bahasi-1 exploration well in Block 9, and expect to complete the well in November. Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields and the play concept was confirmed by the recent Paipai-1 well drilled in Block 10A. Two major prospects, Bahasi-1 and Sala-1, with large volume potential were identified by 2D seismic. Following drilling of the Bahasi-1 well, the Company and its partners will mobilize the rig to drill the Sala-1 exploration well, which will spud around year-end. Access road and well site construction are ongoing for the Sala-1 well. The Bahasi-1 well will satisfy the remaining exploration commitment for the second exploration period under the PSC which expires in December 2013. Discussions are ongoing with the Government of Kenya to enter the final exploration period under the PSC which will expire in December 2015. The Sala-1 well would fulfill the minimum work obligation under the final exploration period.

ETHIOPIA

South Omo Block
The South Omo Block is located in the northern portion of the Tertiary East African Rift trend where Africa Oil and their partners have made five significant oil discoveries in Northern Kenya. The Company and its partners on the South Omo Block spudded the Sabisa-1 well in January 2013 and the well was drilled to a preliminary total depth of 1,810 meters. Hydrocarbon indications in sands beneath a thick claystone top seal have been recorded while drilling, but hole instability issues required the drilling of a sidetrack to comprehensively log and sample these zones of interest. The sidetrack was drilled to a total depth of 2,082 meters. The well encountered reservoir quality sands, oil shows and heavy gas shows indicating an oil prone source rock and thick shale section which should provide a good seals for the numerous fault bounded traps identified in the basin. Only the lowermost sands appeared to be in trapping configuration at Sabisa-1. Based on the encouragement of the results of this well, the Company decided to drill the nearby Tultule prospect, which appears to be a horst-block structure four kilometers to the east of Sabisa-1. The Tultule-1 well is currently drilling and is expected to complete in December.

The Company and its partners have completed a 1,174 kilometer 2D seismic program in the Chew Bahir Basin on the eastern portion of the South Omo Block. This survey has identified a number of prospects and leads. The Shimela prospect has been identified as the first well in the area and is expected to spud in 2014. A second well location is also being considered for 2014.

The current exploration period under the PSC expires in January 2015. The remaining work commitments on the block will be satisfied by the completion of the Tultule-1 well.

Ogaden Blocks 7/8
The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its joint operating partners on Blocks 7/8 are currently drilling the El Kuran-3 appraisal well which is expected to complete around end November. Should the well show encouragement, a multi-zone acid fracture stimulation well test is planned during 2014. The initial exploration period under the PSC has been extended to April 2014 to allow drilling and testing of the well. The Company's remaining work obligation for the Block will be satisfied by the completion of the El Kuran-3 well.

Adigala Block
As part of work obligations for the second exploration period which expired July 2013, the Company and its partner incorporated newly acquired Full Tensor Gradiometry data with seismic data to improve the subsurface interpretation of the block. The Company and its partner also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. The parties to the block agreed to enter the final exploration period under the PSC, which expires in July 2015 and carries a 500 kilometer 2D seismic work commitment. The Company and its partner have committed to a 1,000 kilometer 2D seismic program which will commence in December.

Rift Basin Area
In first quarter of 2013, the Company executed a PSC for the Rift Basin Area in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company commenced acquiring a Full Tensor Gradiometry survey in May 2013, which is approximately 90% complete, and is conducting an exhaustive environmental and social impact assessment over the block in preparation for a seismic program in 2014. The initial exploration period, which expires in February 2016, includes a commitment to acquire a Full Tensor Gradiometry survey and 400 kilometers of 2D seismic.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks
The Company continues to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the recent drilling at the Shabeel-1 and Shabeel North-1 locations. The Company continues to pursue efforts to drill an exploration well in the Nugaal Valley block and is working with the Puntland government to move this project forward.

Horn has been in discussion with potential joint venture partners and is reviewing new venture opportunities in the region. Somalia is going through an unprecedented period in its history with a real opportunity for all stakeholders to assist in the rebuilding of the country. The first internationally recognized Federal government took power in 2012 following over 20 years of transitional or no government. Africa Oil actively engages with a range of governments and organizations, domestic and international, around how Somalia can best develop a stable Federal state including the institutions and systems it needs to properly manage its natural resources.

MALI

Blocks 7 and 11
The deteriorating security and political situation in Mali halted operations on the Company's blocks. As a consequence, the Company impaired $3.1 million of capitalized intangible exploration assets during the first quarter of 2012. During the first quarter of 2013, the Company and its operating partner, Heritage, terminated their interest in Block 7 and 11 and have been released from all future PSC obligations in relation to these blocks by the Ministry of Mines in the Republic of Mali.

2013 Second Quarter Update

On the back of the successful exploration activities in Kenya during 2012, the Company, together with its partners, continues to ramp up its exploration program in Kenya and Ethiopia. Entering the year, two Tullow-Africa Oil joint venture rigs were operating in Kenya and one joint venture rig was operating in Ethiopia. A fourth Tullow-Africa Oil joint venture rig has been secured and is expected to commence testing and drilling operations in Kenya on Blocks 10BB and 13T during October 2013. The Company, as operator, and its partner in Block 9 (Kenya) have secured a fifth rig, which will commence drilling operations in September 2013. In addition, the Company and its partners in Block 7/8 (Ethiopia) have secured a sixth rig, which will commence drilling operations in September 2013. For a period, the Company will have six drilling rigs operating and expects to exit the year with five rigs operating in the region. The Company plans to drill ten exploration wells and test four wells across its exploration blocks during 2013.

During the first half of the year, the Company completed a series of well tests at both Twiga South-1 and Ngamia-1 on Blocks 13T and 10BB in Kenya, respectively. These successful well tests confirmed over 5,000 barrels of oil per day ("bopd") flow potential per well and a doubling of our previous estimates of net oil pay. Ekales-1, the next exploration well in the Basin Bounding Fault Play and on trend with Ngamia-1 and Twiga South-1, commenced drilling in July. Transient Pressure Analysis has been conducted on the Twiga South-1 and Ngamia-1 well tests. No pressure depletion was recorded over the duration of the tests. Flow periods ranged from 0.5 to 2.5 days and build up periods ranged between 3 to 12 days.

In July, the Company announced a new major oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and is the first test of the Basin Flank Play in the eastern part of the Basin. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval. The well will be tested later in the year with the fourth Tullow-Africa Oil joint venture rig which is expected to mobilize in the fourth quarter of the year.

The excellent results to date onshore Kenya are an important step towards understanding the overall Lokichar Basin potential and its commerciality. Resources discovered to date are of a scale that the Tullow-Africa Oil joint venture partnership will initiate discussions with the Government of Kenya and other relevant stakeholders to consider development options. These discussions include consideration of a "start-up phase" oil production system with potential to deliver significant production rates with oil export via road or rail in advance of a full-scale pipeline development. To facilitate these development activities in parallel with exploration and appraisal, an "Area of Interest" (AOI) encompassing the Basin discoveries and further prospects in Blocks 13T and 10BB, was agreed with the Government of Kenya in February 2013. This agreement allows a multiple field approach to development of the resources while permitting the continued focus on exploration to increase the resource base while concurrently appraising discoveries.

In July, the Company reported that the Sabisa-1 well on the South Omo Block in Ethiopia, the most northerly well drilled on the Tertiary rift trend to date, had confirmed a viable hydrocarbon system with oil and heavy gas shows. Based on the encouragement of the results, the decision was made to drill Tultule-1 as the next well on the South Omo Block. This well is expected to spud around the end August.

The Company and its partners plan to continue to actively acquire, process and interpret an extensive 2D seismic program totaling approximately 2,900 kilometers during 2013 over Blocks 10BA, 10BB, 12A, 13T in Kenya and the South Omo Block in Ethiopia with two onshore and one offshore 2D seismic crews operating throughout the remainder of the year. A third onshore 2D seismic crew operating in the South Omo Block was released in May 2013 after completing 1,174 kilometer of 2D seismic. In addition, the Company and its partner in Blocks 10BB and 13T will mobilize a 3D seismic crew to complete a 550 square kilometer 3D seismic survey over the Ngamia and Twiga discoveries later in 2013.

KENYA

The Company and its operating partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

Based on the very positive results at Ngamia-1 on Block 10BB in 2012, the Company and its partner, Tullow, have accelerated the pace of exploration along the Ngamia trend in Block 10BB and Block 13T. The Company currently has two drilling rigs operating in the Lokichar Basin and has committed to mobilize a third light drilling/testing rig to the area to commence operations in October. The Company plans to have drilled five exploration wells and to have tested three wells across Blocks 10BB and 13T during 2013.

The Company has completed a series of six well tests at the Ngamia-1 discovery. The cumulative flow rate from the six well tests was over 3,200 bopd constrained by completion techniques and surface equipment. With optimized completion techniques and surface equipment it is estimated that these combined flow rates would increase to a rate of 5,400 bopd. Five of the well tests were completed over the Auwerwer sandstones to verify reservoir quality and fluid content which appears of similar quality to those tested at the Twiga South-1 well in the same basin. High quality waxy sweet crude (25-35 degrees API) was flowed from all five zones in the Auwerwer formation with good quality reservoir sands encountered. One well test was conducted in the Lower Lokhone sandstone proving it to be a productive reservoir with 30 degree API oil. All zones produced dry oil with no water produced and no pressure depletion. As a result of testing several previously indeterminate zones in the well, net oil pay in the Ngamia-1 well has double to over 200 meters over a gross oil column of over 1,100 meters. The Weatherford 804 rig that was used to test the Ngamia-1 well was mobilized to drill the Ekales-1 well in Block 13T.

In July, the Company announced a new major oil discovery at Etuko-1. Etuko-1 is located 14 kilometers east of Twiga South-1 in Block 10BB and is the first test of the Basin Flank Play in the eastern part of the Lokichar Basin. The well encountered approximately 40 meters of net oil pay in the Auwerwer and Upper Lokhone targets and approximately 50 meters of additional potential net pay in the Lower Lokhone interval. The well has been suspended and will be tested later in the year upon mobilization of the PR Marriot 46 rig in October. There are a number of follow-on prospects on trend with Etuko-1, which will be evaluated over the next year.

The 2D seismic crews operating in Block 10BB intend to acquire approximately 1,270 kilometers of 2D seismic during 2013. Much of this program will be focused on defining prospects in the South and North Kerio Sub-Basins, with the aim of defining drilling prospects for the 2014 exploratory drilling program. The Company and its partner have also committed to acquire 550 square kilometers of 3D seismic over the Ngamia and Twiga structures in Block 10BB and Block 13T combined. Acquisition will commence later in the year.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB will exceed the PSC commitment.

Block 13T

During the first quarter of 2013, the Company and its partner, Tullow, conducted well testing operations at Twiga South-1, which resulted in a cumulative flow rate of 2,812 bopd from three zones, despite being constrained by surface equipment. With optimized production equipment, the cumulative flow rate is anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The well was suspended as a potential future production well.

Upon completing testing operations at Ngamia-1 in Block 10BB, the Weatherford 804 rig mobilized to the Ekales-1 well in Block 13T. The Ekales prospect is located on the main basin bounding fault midway between the Ngamia-1 and Twiga South-1 discoveries and is targeting the same formations that were productive in these discoveries. The well spud in July and is expected to be completed around end September.

Upon completion of the Etuko-1 well in Block 10BB, the Sakson PR-5 rig will mobilize to drill the Agete-1 well in Block 13T. The Agete prospect is another closure against the basin bounding fault and lies just to the north of the Twiga South-1 discovery. Agete-1 is expected to spud around end September.

In addition to the above wells, the Company and its partner have plans to spud an appraisal well at the Twiga South discovery before year-end.

In 2013, the Company plans to commence acquiring a 550 square kilometer 3D seismic survey over the Twiga South and Ngamia structures, in Blocks 13T and 10BB combined.

The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T during 2013 will exceed the PSC commitment.

Block 10A

In the first quarter of 2013, the Company and its operating partners on Block 10A completed drilling the Paipai-1 exploration well. The Paipai-1 well tested a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and completed drilling in the first quarter of 2013 to a total depth of 4,255 meters. Light hydrocarbons were encountered while drilling a 55 meter thick gross sandstone interval. Attempts to sample the reservoir fluid were unsuccessful and the hydrocarbons encountered while drilling were not recovered to surface. The Company and its partners were unable to test the well at the time due to the unavailability, in country, of testing equipment capable of handling the higher reservoir pressures encountered at this depth. As a result, the well has been temporarily suspended pending further data evaluation. Paipai-1 fully satisfied the remaining work obligations for the initial exploration period, which was extended to January 2014 to allow for evaluation of the well results. The rig was subsequently mobilized to Block 10BB (Kenya) to drill follow-up prospects in the Lokichar Sub-Basin commencing with Etuko-1.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, are conducting a 1,350 kilometer 2D seismic program. The onshore program has largely been completed and the offshore and near shore portions of the 2D program commenced in January 2013 and are approximately 45% complete. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2014.

Block 12A

The Company and its partners on Block 12A have determined that a 600 kilometer 2D seismic acquisition program will mainly be focused in the Kerio Valley in the southwestern portion of the block or the Saguta basin in the eastern portion of the block. The Block 12A 2D seismic program commenced shooting near the end of the second quarter of 2013. The planned 2D seismic program will satisfy the 500 kilometer 2D seismic work obligation for the initial exploration period under the Block 12A PSC which expires in September 2013.

Block 9

The Company and its partner on Block 9 are currently planning to drill one exploration well in 2013. Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields and the play concept was confirmed by the recent Paipai-1 well drilled in Block 10A. Two major prospects, Bahasi-1 and Sala-1, with large volume potential have been identified. The Company, as operator, and its partners in Block 9 have completed construction of the access road and well site for the Bahasi-1 exploration well. The Greatwall GW190 rig has commenced mobilization to site and the well is expected to spud in September. The Bahasi-1 well will satisfy the remaining exploration commitment for the second exploration period under the PSC, which expires in December 2013. The potential to spud the Sala-1 well in early 2014 is being evaluated.

ETHIOPIA

South Omo Block

The South Omo Block is located in the northern portion of the Tertiary East African Rift trend where Africa Oil and their partner, Tullow, have made three significant oil discoveries in the Lokichar Basin of Kenya. The Company and its partners on the South Omo Block (Tullow operated) spudded the Sabisa-1 well in January 2013 and the well was drilled to a preliminary total depth of 1,810 meters. Hydrocarbon indications in sands beneath a thick claystone top seal have been recorded while drilling, but hole instability issues required the drilling of a sidetrack to comprehensively log and sample these zones of interest. The sidetrack was drilled to a total depth of 2,082 meters. The well encountered reservoir quality sands, oil shows and heavy gas shows indicating an oil prone source rock and thick shale section which should provide a good seals for the numerous fault bounded traps identified in the basin. Only the lowermost sands appeared to be in trapping configuration at Sabisa-1. Based on the encouragement of the results of this well, the Company decided to drill the nearby Tultule prospect, which appears to be a horst-block structure 4 kilometers to the east of Sabisa-1. The Exalo N-75 rig is mobilizing to site and is expected to spud Tultule-1 around end August.

The Company and its partners have completed a 1,174 kilometer 2D seismic program in the Chew Bahir Sub-Basin on the eastern portion of the South Omo Block. This survey has identified a number of prospects and leads. The Shimela prospect has been identified as the first well in the area and is expected to spud late in the fourth quarter of 2013. The current exploration period under the PSC expires in January 2015. The remaining work commitments on the block will be satisfied by the completion of the Tultule-1 well.

Ogaden Blocks 7/8

The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its joint operating partners on Blocks 7/8 (New Age operated) are planning to drill and test the El Kuran-3 appraisal well. The well site has been constructed, erection of the rig is ongoing at site and the well is expected to spud in September 2013. Should the well show encouragement, a multi-zone acid fracture stimulation well test is planned during early 2014. The initial exploration period under the PSC has been extended to April 2014 to allow drilling and testing of the well.

Adigala Block

As part of work obligations for the second exploration period which expired July 2013, the Company and its partner (NewAge operated) incorporated newly acquired Full Tensor Gradiometry data with seismic data to improve the subsurface interpretation of the block. The Company also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. All work obligations on this block have been completed.

Rift Basin Area

In first quarter of 2013, the Company executed a PSC for the Rift Basin Area in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company commenced acquiring a Full Tensor Gradiometry survey in May 2013, which is approximately 70% complete, and is conducting an exhaustive environmental and social impact assessment over the block in preparation for a seismic program in 2014. The initial exploration period, which expires in February 2016, includes a commitment to acquire a Full Tensor Gradiometry survey and 400 kilometers of 2D seismic.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

The Company continues to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the recent drilling at the Shabeel-1 and Shabeel North-1 locations. The Company continues to pursue efforts to drill an exploration well in the Nugaal Valley block and is working with the Puntland government to move this project forward.

Horn has been in discussion with potential joint venture partners and is reviewing new venture opportunities in the region. Somalia is going through an unprecedented period in its history with a real opportunity for all stakeholders to assist in the rebuilding of the country. The first internationally recognized Federal government took power in 2012 following over 20 years of transitional or no government. Africa Oil actively engages with a range of governments and organizations, domestic and international, around how Somalia can best develop a stable Federal state including the institutions and systems it needs to properly manage its natural resources.

MALI

Blocks 7 and 11

The deteriorating security and political situation in Mali halted operations on the Company's blocks. As a consequence, the Company impaired $3.1 million of capitalized intangible exploration assets during the first quarter of 2012. During the first quarter of 2013, the Company and its operating partner, Heritage, terminated their interest in Block 7 and 11 and have been released from all future PSC obligations in relation to these blocks by the Ministry of Mines in the Republic of Mali.

2013 First Quarter Update

On the back of the successful exploration activities in Kenya during 2012, the Company, together with its partners, continues to ramp up its exploration program in Kenya and Ethiopia. Entering the year, two Tullow-Africa Oil joint venture rigs were operating in Kenya and one joint venture rig was operating in Ethiopia. A fourth Tullow-Africa Oil joint venture rig has been secured and is expected to commence testing and drilling operations in Kenya on Blocks 10BB and 13T during the third quarter of 2013. The Company, as operator, and its partner in Block 9 (Kenya) have secured a fifth rig, which will commence drilling operations in the third quarter of 2013. In addition, the Company and its partners in Block 7/8 (Ethiopia) have secured a sixth rig, which will commence drilling operations in June 2013. For a period, the Company will have 6 drilling rigs operating and expects to exit the year with 5 rigs operating in the region. The Company plans to drill 10 to 12 wells and perform up to 5 well tests across its exploration blocks during 2013.

The Ministry of Energy in Kenya has been provided with the Twiga South-1 testing results, which accompanied a formal Notice of Discovery under the terms of the Block 13T PSC. Following this Notice of Discovery, the Ministry of Energy has agreed to the Tullow proposal, as operator of Blocks 10BB and 13T, to carry out a combined exploration and evaluation program over a defined Area of Interest ("AOI") including all of the mapped prospects and leads along the basin bounding fault on the western edge of the Lokichar Basin. The basis of the AOI approach is to adopt a basin-wide approach to concurrently explore and evaluate the area as opposed to undertaking well-by-well appraisals for each discovery well. This basin-wide approach, with regards to the AOI, is mutually agreed to be the most efficient and quickest approach to moving the exploration and evaluation work program forward towards reaching a commercial threshold of reserves required to justify any large scale oil development.

The Company and its partners plan to continue to actively acquire, process and interpret an extensive 2D seismic program totaling approximately 3,600 kilometers during 2013 over Blocks 10BA, 10BB, 12A, 13T and South Omo with 2 onshore and one offshore 2D seismic crews operating throughout the remainder of the year. A third 2D seismic crew operating in South Omo was released in May 2013 after completing 1,174 km of 2D seismic. In addition, the Company and its partner in Blocks 10BB and 13T will mobilize a 3D seismic crew to complete a 550 square kilometer 3D seismic survey over the Ngamia and Twiga structures later in 2013.

KENYA

The Company and its operating partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

Based on the very positive results at Ngamia-1 on Block 10BB in 2012, the Company and its partner, Tullow, have accelerated the pace of exploration along the Ngamia trend in Block 10BB and Block 13T. The Company currently has 2 drilling rigs operating in the Lokichar Basin and has committed to mobilize a third light drilling/testing rig to the area in the third quarter of 2013. Up to six exploration wells and up to four well tests are planned to be completed across Blocks 10BB and 13T during 2013.

The Company and its operating partner on Block 10BB are currently conducting tests on a series of six zones at the Ngamia-1 discovery. Ngamia-1 was drilled in 2012 but testing operations were postponed until appropriate artificial lift equipment was sourced to properly assess the accumulation. The first of these tests was in the Lower Lokhone formation where up to 43 meters of potential pay had previously been identified by logging and MDT sampling. The well flowed 281 barrels of 30 degree API oil per day from this zone. The remaining 5 tests are being conducted in the Auwerwer formation which are the highest quality reservoirs penetrated in the Ngamia well and which produced very well in the Twiga South-1 well. Results of these remaining Ngamia-1 tests are expected to be announced in June 2013.

The rig that drilled the Paipai-1 well in Block 10A has mobilized to the Lokichar Basin in Block 10BB to drill the Etuko prospect in the flank play where oil was discovered in 1992 by Shell at the Loperot-1 well. The Etuko-1 well spud in early May 2013 and results from the well are expected in July 2013. Should Etuko-1 be successful, there are a number of drill ready follow-up prospects on the same trend.

The Company and its partner have plans to drill up to two additional wells in Block 10BB in 2013; either one exploration well on the Ngamia trend and an appraisal well on the Ngamia structure, or in the event of success at Etuko-1, possibly two follow-up prospects on the flank play trend.

The 2D seismic crews operating in Block 10BB intend to acquire approximately 1,200 kilometers of 2D seismic during 2013. Much of this program will be focused on defining prospects in the South and North Kerio Sub-Basins, with the aim of defining drilling prospects for the 2014 program. The Company and its partner have also committed to acquire 550 square kilometers of 3D seismic over the Ngamia and Twiga structures in Block 10BB and Block 13T combined.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB during 2013 will exceed the PSC commitment.

Block 13T

During the first quarter of 2013, the Company and its partner, Tullow, conducted well testing operations at Twiga South-1, which resulted in a cumulative flow rate of 2,812 barrels of oil per day ("bopd") from three zones, despite being constrained by surface equipment. With optimized production equipment, the cumulative flow rate is anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The well was suspended as a potential future production well.

The rig currently completing the Ngamia-1 well test is next scheduled to drill the Ekales prospect that sits on a similar structure along the main bounding fault mid-way between the Ngamia-1 and Twiga South-1 discoveries. The Ekales-1 well is expected to spud in the third quarter of 2013.

Two exploration wells and one appraisal well are planned on Block 13T in 2013. Besides Ekales, an exploration well on the Agete structure, just to the north of the Twiga South-1 well, and an appraisal well up dip on the Twiga South structure are planned to be drilled. Further drill ready prospects exist on this trend.

In 2013, the Company plans to acquire a 550 square kilometer 3D seismic survey over the Twiga South and Ngamia structures, in Blocks 13T and 10BB combined.

The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T during 2013 will exceed the PSC commitment.

Block 10A

In the first quarter of 2013, the Company and its operating partners on Block 10A completed drilling the Paipai-1 exploration well. The Paipai-1 well tested a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and completed drilling in the first quarter of 2013 to a total depth of 4,255 meters. Light hydrocarbons were encountered while drilling a 55 meter thick gross sandstone interval. Attempts to sample the reservoir fluid were unsuccessful and the hydrocarbons encountered while drilling were not recovered to surface. The Company and its partners were unable to test the well at the time due to the unavailability, in country, of testing equipment capable of handling the higher reservoir pressures encountered at this depth. As a result, the well has been temporarily suspended pending further data evaluation. Paipai-1 fully satisfied the remaining work obligations for the initial exploration period, which was extended to January 2014 to allow for evaluation of the well results. The rig was subsequently mobilized to Block 10BB (Kenya) to drill follow-up prospects in the Lokichar Sub-Basin commencing with Etuko-1.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, are conducting a 1,350 kilometer 2D seismic program. The onshore program has largely been completed and the offshore and near shore portions of the 2D program commenced in January 2013 and are approximately 45% complete. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2014.

Block 12A

The Company and its partners on Block 12A have determined that a 600 kilometer 2D seismic acquisition program will mainly be focused in the Kerio Valley in the southwestern portion of the block or the Saguta basin in the eastern portion of the block. The Block 12A 2D seismic program commenced shooting near the end of the second quarter of 2013. The planned 2D seismic program will satisfy the 500 kilometer 2D seismic work obligation for the initial exploration period under the Block 12A PSC which expires in September 2013.

Block 9

The Company and its partner on Block 9 are currently planning to drill one exploration well in 2013. Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields and the play concept was confirmed by the recent Paipai-1 well drilled in Block 10A. Two major prospects, Bahasi-1 and Sala-1, with large volume potential have been identified. The Company, as operator, and its partners in Block 9 have secured a rig to drill the Bahasi-1 exploration well. Site construction for Bahasi-1 commenced in May and the well is expected to spud in the third quarter of 2013. The Bahasi-1 well will satisfy the remaining exploration commitment for the second exploration period under the PSC, which expires in December 2013. The potential to spud the Sala-1 well in late 2013 is being evaluated.

ETHIOPIA

South Omo Block

The South Omo Block is located in the northern portion of the Tertiary East African Rift trend where Africa Oil and their partner, Tullow, have made two significant oil discoveries in the Lokichar Basin of Kenya. The Company and its partners on the South Omo Block (Tullow operated) spudded the Sabisa-1 well in January 2013 and the well was drilled to a preliminary total depth of 1,810 meters. Hydrocarbon indications in sands beneath a thick claystone top seal have been recorded while drilling, but hole instability issues have required the drilling of a sidetrack to comprehensively log and sample these zones of interest. The sidetrack is underway and a result is expected in late May/early June. There are a number of interesting drill ready follow-on prospects that have been identified on the 2D seismic survey that was completed in 2012 on the western portion of the South Omo Block. Should Sabisa-1 show encouragement, the Tultule location has been prepared as an immediate follow-on prospect located 10 kilometers to the east of Sabisa-1.

The Company and its partners have just completed a 1,174 kilometer 2D seismic program in the Chew Bahir Sub-Basin on the eastern portion of the South Omo Block. This survey has identified a number of prospects and leads some of which are supported by amplitude anomalies indicative of possible hydrocarbon fill. The Shimela prospect has been identified as the first well in the area and is expected to spud in the fourth quarter of 2013. The current exploration period under the PSC expires in January 2015. The remaining work commitments on the block will be satisfied by the completion of Sabisa-1 and the drilling of one additional exploration well.

Ogaden Blocks 7/8

The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its joint operating partners on Blocks 7/8 (New Age operated) are planning to drill and test the El Kuran-3 appraisal well. A rig has been secured, the well site has been constructed and the well is expected to spud towards the end of June 2013. Should the well show encouragement, a multi-zone acid fracture stimulation well test is planned during 2013. The initial exploration period under the PSC expires in July 2013 and requires that the El Kuran-3 well be completed before then. The Company expects to receive an extension to the initial exploration period sufficient to drill and test the El Kuran-3 well.

Adigala Block

As part of work obligations for the second exploration period which expires July 2013, the Company and its partner (NewAge operated) incorporated newly acquired Full Tensor Gradiometry data with seismic data to improve the subsurface interpretation of the block. The Company also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. All work obligations on this block have been completed.

Rift Basin Area

In first quarter of 2013, the Company executed a PSC for the Rift Basin Area in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company commenced acquiring a Full Tensor Gradiometry survey in May 2013 and will conduct an exhaustive environmental and social impact assessment over the block later in the year in preparation for a seismic program in 2014. The initial exploration period, which expires in February 2016, includes a commitment to acquire a Full Tensor Gradiometry survey and 400 kilometers of 2D seismic.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

The Company continues to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the recent drilling at the Shabeel-1 and Shabeel North-1 locations. The Company continues to pursue efforts to drill an exploration well in the Nugaal Valley block and is working with the Puntland government to move this project forward.

Horn has been in discussions with potential joint venture partners and is also reviewing new venture opportunities in the region.

MALI

Blocks 7 and 11

The deteriorating security and political situation in Mali halted operations on the Company's blocks. As a consequence, the Company impaired $3.1 million of capitalized intangible exploration assets during the first quarter of 2012. During the first quarter of 2013, the Company and its operating partner, Heritage, terminated their interest in Block 7 and 11 and have been released from all future PSC obligations in relation to these blocks by the Ministry of Mines in the Republic of Mali.

2012 Year End Report

During the first quarter of 2012, the company discovered over 100 meters of net oil pay in Ngamia-1 in Block 10BB (Kenya), the first Tullow-Africa Oil joint venture exploration well drilled. In response to the successful Ngamia-1 well, the Company together with its partners ramped up its exploration program in Kenya and Ethiopia, and at year-end had two rigs operating in Kenya and one rig operating in Ethiopia. A fourth Tullow-Africa Oil joint venture rig is in the process of being sourced and is intended to commence testing and drilling operations in the second half of 2013.

Following completion of the Ngamia-1 well, the Company and its partner Tullow moved the rig to drill the Twiga South-1 exploration well in Block 13T (Kenya) which is on trend with Ngamia-1. Twiga South-1 successfully encountered 30 meters of net oil pay. The Company and its partners performed a drill stem test ("DST") which resulted in a cumulative flow rate of 2,812 barrels of oil per day ("bopd") from three zones, despite being constrained by surface equipment. With optimized testing equipment, the cumulative flow rate is anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The well was suspended as a potential future production well. The rig has now been moved to Ngamia-1 where testing operations on five to six zones have commenced.

The Ministry of Energy in Kenya has been provided with the Twiga South-1 testing results, which accompanied a formal Notice of Discovery under the terms of the Block 13T PSC. Following this Notice of Discovery, the Ministry of Energy has agreed to the Tullow proposal, as operator of Blocks 10BB and 13T, to carry out a combined exploration and evaluation program over a defined Area of Interest ("AOI") including all of the mapped prospects and leads along the basin bounding fault on the western edge of the Lokichar Basin. The basis of the AOI approach is to adopt a basin-wide approach to concurrently explore and evaluate the area as opposed to undertaking well-by-well appraisals for each discovery well. This basin-wide approach, with regards to the AOI, is mutually agreed to be the most efficient and quickest approach to moving the exploration and evaluation work program forward towards reaching a commercial threshold of reserves required to justify any large scale oil development.

The first additional rig was mobilized to Block 10A (Kenya) to drill Paipai-1 which spud in the fourth quarter of 2012 and was completed in the first quarter of 2013. Light hydrocarbons were encountered while drilling a 55 meter thick gross sandstone interval; however attempts to recover samples were unsuccessful. The Company and its partners were not able to test the well due to the unavailability, in country, of testing equipment capable of handling the higher reservoir pressures encountered. As a result, the well was temporarily suspended pending further data evaluation. The rig is currently mobilizing to the South Lokichar Basin in Block 10BB to drill the Etuko prospect in the undrilled flank play which is expected to spud in the second quarter of 2013.

The second additional rig was mobilized to Ethiopia to drill Sabisa-1, which is the first exploration well on the South Omo Block. Sabisa-1 spud in early 2013 and is currently drilling.

The Company, as operator, and its partners in Block 9 (Kenya) have commenced planning to mobilize an additional rig to drill the Bahasi-1 exploration well which is expected to spud in the second half of 2013. The Company and its operating partner, New Age, also plan on mobilizing a rig to drill an appraisal well on the El Kuran oil discovery in Block 8 (Ethiopia) with spud planned for the second quarter of 2013.

In the first quarter of 2013, the Company executed a PSA for the Rift Basin Area (formerly referred to as the Rift Valley Block) in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers and includes the extension of the Tertiary-age East Africa Rift Trend. The Company plans to complete a Full Tensor Gradiometry survey and exhaustive environmental and social impact assessment over the block in 2013.

KENYA

The Company and its operating partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

The Company and its operating partner on Block 10BB, Tullow, spudded the partnership's first well, Ngamia-1, in January 2012. The well encountered in excess of 100 meters of net oil pay in multiple reservoir zones over a gross interval of 650 meters of the Auwerwer Sandstone interval (855 meters to 1,500 meters). The reservoirs are composed of good quality Tertiary age sandstones. Moveable oil with an API of around 30 degrees has been recovered to surface from four representative intervals. This oil has similar properties to the light waxy crude, which has been discovered in Uganda by Tullow. After testing and evaluation of the Auwerwer pay zones, the well was drilled through the Lokhone Sandstone interval and encountered an additional 43 meters of potential oil pay based on logs and the recovery of light oil on an MDT sample over a gross interval of 150 meters. The well was drilled to a total depth of 2,340 meters after penetrating the Lokhone objective sequence. Immediate testing was not possible due to the low reservoir pressures requiring artificial lift equipment, which was not immediately available in country. As a consequence, the rig moved to drill Twiga South-1 in Block 13T. The Twiga South-1 drilling and testing operations were completed in February 2013 and the rig has now moved back to Ngamia-1 and commenced testing operations in March 2013.

Due to the positive results of the Ngamia-1 well, the Company and its partner accelerated the pace of exploration activities along the Ngamia-1 trend in Block 10BB and adjacent Block 13T. The Company and its partner elected to accelerate additional 2D seismic in Block 10BB and acquired 1,282 kilometers in 2012 and plans to acquire 1,080 kilometers in 2013 to further delineate additional prospects and leads. In 2013, the Company also plans to acquire 550 square kilometers of 3D seismic over the Ngamia and Twiga structures in Blocks 10BB and 13T combined. A follow-up well on the Ngamia structure is also being planned for 2013 in addition to two exploration wells within the block.

The drilling of the Ngamia-1 well satisfied the remaining work obligations of the initial exploration period under the Block 10BB PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. A relinquishment of 30% of the original contract area coincided with entry into the next exploration period which expires in July 2014. The next phase of exploration includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic.

Block 13T

Following the Ngamia-1 discovery, the Company and its operating partner on Block 13T, Tullow, focused additional efforts to better delineate the prospects along the Ngamia-1 trend northward into Block 13T. Based upon 1,013 kilometers of 2D seismic data that was acquired to date, at least six additional prospects similar to the Ngamia-1 discovery have been mapped in Block 13T, including Twiga South-1, which spud in August 2012. The Twiga South-1 well is located 22 kilometers north of Ngamia-1 and was drilled to a total depth of 3,250 meters. The well encountered 30 meters of net oil pay in three Auwerwer sandstone intervals analogous to Ngamia-1. Good quality movable oil was recovered to surface with MDT testing from all three zones. Further potential exists updip, which will be tested by a well in 2013. In addition, the well also encountered a thick sequence of fractured rock section exhibiting oil and wet gas shows over a gross interval of 796 meters. Movable oil with an API greater than 30 degrees was also successfully sampled from this section.

The Company and its partner performed a DST on five intervals at Twiga South-1. The DST on three Auwerwer sandstone intervals resulted in a cumulative flow rate of 2,812 bopd, constrained by surface equipment. With optimized testing equipment, these flow rates are anticipated to have increased to a cumulative rate of approximately 5,200 bopd. High quality 37 degree API waxy sweet crude flowed from all three zones in the Auwerwer formation with good quality reservoir sands encountered. The reservoir quality of the Auwerwer sands was significantly better than predicted based on core analysis data with several values over 1 darcy permeability. Due to the low reservoir pressure, a Progressive Cavity Pump (PCP) was utilized to flow oil in two of the Auwerwer zones tested. Two deeper tests were also completed on the tight reservoir rock at the bottom of the well, and despite reconfirming the presence of movable oil, both zones produced at sub-commercial flow rates. The well has been suspended as a potential future production well.

In 2013, the Company plans to acquire 90 kilometers of infill 2D seismic program in Block 13T and 550 square kilometers of 3D seismic over the Twiga South and Ngamia structures, in Blocks 13T and 10BB combined. An up dip well on the Twiga South structure is also being planned for 2013 along with two additional exploration wells within the block.

The Company fully satisfied its work obligations for the initial exploration period under the Block 13T PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. A relinquishment of 25% of the original contract area coincided with entry into the next exploration period, which expires in September 2014. The work commitment for the next phase of exploration includes a commitment to drill one exploratory well, which was satisfied with the drilling of the Twiga South-1 well, and a commitment to acquire 200 square kilometers of 3D seismic.

Block 10A

The Company and its operating partners on Block 10A agreed on Paipai-1 as the location of the first exploratory well in Block 10A. The Paipai-1 well tested a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and was drilled to a total depth of 4,255 meters. Light hydrocarbons were encountered while drilling a 55 meter thick gross sandstone interval. Attempts to sample the reservoir fluid were unsuccessful and the hydrocarbons encountered while drilling were not recovered to surface. The Company and its partners were unable to test the well at the time due to the unavailability, in country, of testing equipment capable of handling the higher reservoir pressures encountered at this depth. As a result, the well has been temporarily suspended pending further data evaluation. Paipai-1 fully satisfied the remaining work obligations for the initial exploration period, which was extended to January 2014 to allow for evaluation of the well results. The rig is currently being mobilized to Block 10BB (Kenya) to drill follow-up prospects in the Lokichar Sub-Basin commencing with Etuko-1.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, have completed approximately 45% of the planned 1,350 kilometer 2D seismic program in Block 10BA. The onshore portion of the survey has largely been completed and the offshore and near shore portions of the 2D program commenced in January 2013. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2014.

Block 12A

The Company and its partners on Block 12A (Tullow operated) have determined that the 500 kilometer 2D seismic acquisition obligation will be focused in the Kerio Valley in the southwestern portion of the block. The Block 12A seismic program commenced shooting in early 2013. The 500 kilometer 2D seismic program will satisfy the work obligations for the initial exploration period under the Block 12A PSC which expires in September 2013.

Block 9

During 2011, a 750 kilometer 2D seismic program was completed. The new data was acquired over the Kaisut sub-basin in the northwestern portion of Block 9. Based upon the new data set, several large prospects have been mapped and resources have been estimated. The Company is currently planning to drill the Bahasi-1 exploratory well in the second half of 2013 which will satisfy the remaining exploration commitment for the second exploration period which expires in December 2013. The potential to spud a second well late in 2013 is being evaluated.

ETHIOPIA

South Omo Block

The Company and its joint operating partners on the South Omo Block (Tullow operated) have completed a 1,002 kilometer 2D seismic program in the western portion of the South Omo Block. A number of interesting prospects and leads have been identified and some infill seismic data has already been acquired, maturing leads into drillable prospects. The Company and its partners have selected Sabisa-1 as the first drilling location in the South Omo Block. Should this well be successful, there are a number of follow-on prospects that are drill ready. Sabisa-1 spud in January 2013 and is currently drilling. Additionally, the Company and its partners are substantially completed 1,250 kilometers of 2D seismic in the eastern portion of the South Omo Block (Chew B'hir Sub-Basin). The seismic acquired to date and drilling of Sabisa-1 will satisfy the remaining work obligations for the initial exploration period which expired in January 2013. The Company and its partners elected to go into the first additional exploration period which expires in January 2015 and carries a work commitment of 200 kilometers of 2D seismic and one exploration well. A relinquishment of 25% of the original block area coincided with entry into the first additional exploration period. In addition to Sabisa-1, the Company is planning one or two additional exploration wells on the block in 2013.

Ogaden Blocks 7/8

The Company and its partners continue their focus on the El Kuran oil accumulation in Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. In the second quarter of 2012, the Company received formal approval for a one year extension of the initial exploration period to July 2013. Planning for an appraisal well on the El Kuran oil accumulation to spud in the second quarter of 2013 is ongoing.

Adigala Block

As part of work obligations for the second exploration period which expires July 2013, the Company and its partner incorporated newly acquired Full Tensor Gradiometry data with seismic data to improve the subsurface interpretation of the block. The Company also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. All work obligations on this block have been completed.

Rift Basin Area

In first quarter of 2013, the Company executed a PSA for the Rift Basin Area in Ethiopia. Located north of the South Omo Block, the Rift Basin Area covers 42,519 square kilometers. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company plans to complete a Full Tensor Gradiometry survey and exhaustive environmental and social impact assessment over the block in 2013. The initial exploration period, which expires in February 2016, includes a commitment to acquire a Full Tensor Gradiometry survey and 400 kilometers of 2D seismic.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

In the first half of the year, the Company drilled the Shabeel-1 exploration well to a total depth of 3,470 meters before ending in metamorphic basement. The well encountered significant oil and gas shows in the Upper Cretaceous Jesomma sandstones and Jurassic and Triassic sandstones deeper in the wellbore, but failed to encounter Lower Cretaceous sandstone reservoirs that were considered the primary objective. Petrophysical analysis indicated that potential hydrocarbon pay zones in the Jurassic and Triassic sandstones were thin and did not warrant further testing and the well was suspended pending further consideration of the Jesomma sandstone section.

Following results of the Shabeel-1 well, which provided evidence for a working petroleum system, the Sakson drilling rig was relocated 3.5 kilometers north of the Shabeel-1 well to test an adjacent structural trap, Shabeel North-1. The Shabeel North-1 exploration well was spud in June 2012 and encountered oil and gas shows in the Upper Cretaceous Jesomma sandstone section from 1,905 meters to 2,095 meters, similar to those encountered in the Shabeel-1 exploration well. An open-hole drill stem test was performed but failed to flow hydrocarbons. Although the test was unsuccessful, the Company and its partners were encouraged by the positive evidence of oil shows and the presence of good quality reservoirs and decided to deepen the well in order to evaluate the potential of the Lower Cretaceous, Jurassic and Triassic sections. The Shabeel North-1 well reached a total depth of 3,945 meters and encountered metamorphic basement at a depth of 3,919 meters. The well penetrated 149 meters of inter-bedded sands and shales of the Triassic Adigrat Formation with no oil or gas shows and only minor porosity exhibited on electric logs. Accordingly, the well was plugged and abandoned.

As the Upper Cretaceous Jesomma sands in Shabeel North-1, which exhibited porosity and hydrocarbon shows but produced only fresh water on a drill stem test, were similar to the Jesomma sands encountered in the previously drilled Shabeel-1 well in respect of log response and oil and gas shows, the Company and its partners determined that additional testing of these zones in the previously drilled Shabeel-1 well was not warranted. Accordingly, the well has been plugged and abandoned.

While the Company was disappointed that the first two exploration wells in Puntland (Somalia) did not flow oil, the Company remains highly encouraged that all of the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on the encouragement provided by the Shabeel wells, the Company and its partners entered the next exploration period in both the Dharoor Valley and Nugaal Valley PSC's which carry a commitment to drill one well in each block within an additional three year term ending October 2015.

Horn has demobilized the drilling rig and associated equipment and has completed restoration of both drilling locations. Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the recent drilling at the Shabeel-1 and Shabeel North-1 locations. This seismic program is expected to commence late in 2013. The Company continues to pursue efforts to drill an exploration well in the Nugaal PSC and is working with the Puntland government authorities to move this project forward.

Horn has been in discussions with potential joint venture partners and is also reviewing new venture opportunities in the region.

MALI

Blocks 7 and 11

The deteriorating security and political situation in Mali halted operations on the Company's blocks. As a consequence, the Company impaired $3.1 million of capitalized intangible exploration assets during the first quarter of 2012. Subsequent to the end of the year, the Company and its operating partner, Heritage, terminated their interest in Block 7 and 11 and have been released from all future PSC obligations in relation to these blocks by the Ministry of Mines in the Republic of Mali.

2012 Third Quarter Report

During the third quarter of 2012, the Company together with its partners continued to ramp up its exploration program in Kenya and Ethiopia in response to the successful Ngamia-1 oil discovery in Block 10BB (Kenya) and completed the second well of a two well exploration drilling program in Somalia (Puntland).

Following completion of the Ngamia-1 well, the Company and its partner Tullow moved the rig to drill the Twiga South-1 exploration well in Block 13T (Kenya) which is on trend with Ngamia-1. Twiga South-1 has successfully encountered oil, drilling is ongoing and an announcement of the well results is expected in late November after target depth has been achieved and necessary sampling and analysis has been completed. Upon completion of Twiga South-1 drilling, the rig will be utilized to conduct testing operations at Twiga South-1 and then move to test Ngamia-1.

With the discovery at Ngamia-1, two additional rigs were mobilized into the Company's areas of operation in Kenya and Ethiopia. The first additional rig has commenced drilling operations in Block 10A (Kenya) on the Paipai-1 exploration well which is scheduled to be completed around the end of 2012. This rig will then mobilize to Block 10BB (Kenya) to drill follow-up prospects in the Lokichar Sub-Basin where the Ngamia-1 and Twiga South-1 oil discoveries are located. The second additional rig is currently being mobilized in Ethiopia to drill Sabisa-1 which is our first exploration well on the South Omo Block, and is expected to spud around the end of 2012.

In addition, the Company has commenced planning to mobilize a rig to drill an operated exploration well on Block 9 (Kenya) commencing in mid-2013. The Company's partner, New Age, also plan on drilling an appraisal well on the El Kuran Oil Discovery in Ogaden Block 8 (Ethiopia) in mid-2013.

The Company will also continue to actively acquire, process and interpret 2D seismic over Blocks 10BA, 10BB, 12A, 13T and South Omo. In addition, 3D seismic acquisition is being planned over the Ngamia/Twiga structures in 2013.

In Puntland (Somalia), the Company, through its 44.6% ownership interest in Horn, completed Shabeel North-1, the second well of a two well exploration program. Both well sites have been restored to original condition and demobilization from Puntland has been completed. While the Company was disappointed that the first two exploration wells in Puntland did not flow oil, the Company remains highly encouraged that all of the critical elements exist for oil accumulations and based on this encouragement the Company and its partners have entered into the next exploration period in both the Dharoor Valley and Nugaal Valley PSC's which carry a commitment to drill one exploration well in each block.

KENYA

The Company and Tullow, its operating partner in each of the Kenyan blocks other than Block 9, are actively exploring for oil as described below.

Block 10BB

The Company and its operating partner on Block 10BB, Tullow, spudded the partnership's first well, Ngamia-1, in January 2012. The well encountered in excess of 100 meters of net oil pay in multiple reservoir zones over a gross interval of 650 meters of the Upper Lokhone Sandstone interval (855 meters to 1,500 meters). The reservoirs are composed of good quality Tertiary age sandstones. Moveable oil with an API greater than 30 degrees has been recovered to surface from four representative intervals. This oil has similar properties to the light waxy crude which has been discovered in Uganda by Tullow. After testing and evaluation of the Upper Lokhone pay zones, the well was drilled through the Lower Lokhone Sandstone interval and encountered an additional 43 meters of potential oil pay based on logs and the recovery of light oil on an MDT sample over a gross interval of 150 meters. The well was drilled to a total depth of 2,340 meters after penetrating the Lower Lokhone objective sequence. The well is now suspended for future flow testing. Testing equipment, including downhole pumps, is being mobilized and the intention is to flow test a number of prospective zones in the Upper and Lower Lokhone Sandstones to confirm the full potential of this discovery. Testing of Ngamia-1 will follow completion of operations on the Twiga South-1 well.

The positive results of the Ngamia-1 well have led the Company and its operating partner to accelerate the pace of exploration activities along the Ngamia-1 trend in Block 10BB and adjacent Block 13T. In 2012, the Company and its partner elected to accelerate an additional 1,783 kilometers of 2D seismic in Block 10BB which is approximately 50% complete. In 2013, the Company also plans to acquire 300 square kilometers of 3D seismic over the Ngamia structure and an additional 430 kilometers of 2D seismic to further delineate additional prospects and leads. A follow-up well on the Ngamia structure is also being planned for 2013 along with one or two additional wells within the block.

The drilling of the Ngamia-1 well satisfied the remaining work obligations of the initial exploration period under the Block 10BB PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. The next exploration period which expires in July 2014 includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic.

Block 13T

Following the Ngamia-1 discovery, the Company and its operating partner on Block 13T, Tullow, focused additional efforts to better delineate the prospects along the Ngamia-1 trend northward into Block 13T. Based upon the recently acquired 500 kilometers of 2D seismic data, at least six additional prospects similar to the Ngamia-1 discovery have been mapped in Block 13T, including the Company and its partner's next exploration well, Twiga South-1, which spud in August 2012. The Twiga South-1 well is planned to a total depth of 3,155 meters and targets the same structural trend and reservoirs as the recent Ngamia-1 oil discovery 23 kilometers to the south. Twiga South-1 has successfully encountered oil, drilling is ongoing and an announcement on the well results is expected late-November after target depth has been achieved and necessary sampling and analysis has been completed. Upon completion of Twiga South-1 operations, the rig will be utilized to conduct testing operations at Ngamia-1.

An additional 500 kilometers of 2D seismic, which has largely been acquired, in conjunction with the additional seismic acquisition in Block 10BB is aimed at maturing further leads into drillable prospects. In 2013, the Company plans to acquire 300 square kilometers of 3D seismic over the Twiga South-1 structure and an additional 90 kilometers of infill 2D seismic program.

With the completion of the original 500 kilometers of 2D seismic, the Company fully satisfied its work obligations for the initial exploration period under the Block 13T PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. The next exploration period which expires in September 2014 includes a commitment to drill one exploratory well, which will be satisfied with the drilling of the Twiga South-1 well, and a commitment to acquire 200 square kilometers of 3D seismic.

Block 10A

The Company and its operating partners on Block 10A agreed on Paipai-1 as the location of the first exploratory well in Block 10A. The Paipai-1 well is planned to a total depth of 4,500 meters, and will test a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. Paipai-1 spudded in September 2012 and is scheduled to be completed early-2013. Paipai-1 will fully satisfy the required work obligations for the initial exploration period which was recently extended to April 2013. Following completion of Paipai-1, the rig will mobilize to Block 10BB (Kenya) to drill follow-up prospects in the Lokichar Sub-Basin in the area of the Ngamia-1 and Twiga South-1 oil discoveries.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, have completed approximately 40% of the planned 1,350 kilometer 2D seismic program in Block 10BA. The onshore portion of the survey has largely been completed and the offshore and near shore portions of the 2D program is planned to commence before year end. The 2D seismic program which is expected to be complete in the first quarter of 2013 will fulfill the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2013.

Block 12A

During the third quarter, the Company completed the farmout of 15% interest in Block 12A to Marathon Oil Corporation ("Marathon"), retaining a 20% interest in the block. Based upon the acquired FTG gravity survey, the Company and its operating partner on Block 12A, Tullow, have determined that the 500 kilometer 2D seismic acquisition obligation will be focused in the Kerio Valley in the southwestern portion of the block. The Block 12A program is scheduled to follow the completion of work in Blocks 10BB and 13T whose programs were expanded after the Ngamia-1 discovery. As a result, the Company and its partner obtained an extension of the initial exploration term to September 2013. The 500 kilometer 2D seismic program will satisfy the work obligations for the initial period under the Block 12A PSC and is expected to commence in first quarter of 2013.

Block 9

During the third quarter, the Company completed the farmout of 50% interest in Block 9 to Marathon. The Company retained a 50% interest in Block 9 and operatorship during the exploration phase. During 2011, a 750 kilometer 2D seismic program was completed. The new data was acquired over the Kaisut sub-basin in the northwestern portion of Block 9. Based upon the new data set, several large prospects have been mapped and resources have been estimated. The Company is currently planning to drill an exploratory well in mid-2013 that will satisfy the remaining exploration commitment for the second exploration period which expires in December 2013. The potential to drill a second well in 2013 is being evaluated.

ETHIOPIA

South Omo Block

The Company and its joint operating partners on the South Omo Block have completed a 1,002 kilometer 2D seismic program in the western portion of the South Omo Block. A number of interesting prospects and leads have been identified and some infill seismic data has already been acquired to mature leads into drillable prospects. The Company and its partners have selected Sabisa-1 as the first drilling location in the South Omo Block. Should this well be successful, there are a number of follow-on prospects that are drill ready. The Sabisa-1 well site has been prepared and the rig and associated equipment is in the process of being mobilized within country to the well site. Sabisa-1 is expected to spud around the end of 2012. The seismic acquired to date and drilling of Sabisa-1 will satisfy the remaining work obligations for the initial exploration period which expires in January 2013. Additionally, work has commenced on the acquisition of an additional 500 kilometers of 2D seismic in the eastern portion of the South Omo Block (Chew B'hir Sub-Basin).

Ogaden Blocks 7/8

The Company and its partners continue their focus on the El Kuran oil accumulation in Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. In the second quarter, the Company received formal approval for a one year extension of the initial exploration period to July 2013. During the third quarter, the Company completed the farmout of 25% of its 55% working interest and operatorship to New Age. Planning for an appraisal well on the El Kuran oil accumulation in mid-2013 is ongoing.

Adigala Block

As part of work obligations for the second exploration period which expires July 2013, the Company and its partner incorporated newly acquired FTG gravity data with seismic data to improve the subsurface interpretation of the block. The Company also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality.

Rift Valley Joint Study Block

The Company has completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block as part of a Joint Study Agreement with Ministry of Mines in Ethiopia. This block is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company has submitted an application to convert the Rift Valley Block to a formal production sharing contract.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

In the first half of the year, the Company drilled the Shabeel-1 exploration well to a total depth of 3,470 meters before ending in metamorphic basement. The well encountered significant oil and gas shows in the Upper Cretaceous Jesomma Sandstones and Jurassic and Triassic sandstones deeper in the wellbore, but failed to encounter Lower Cretaceous sandstone reservoirs that were considered a primary objective. Petrophysical analysis indicated that potential hydrocarbon pay zones in the Jurassic and Triassic sandstones are thin and did not warrant further testing and the well was suspended pending further consideration of the Jesomma sandstone section.

Following results of the Shabeel-1 well, which provided evidence for a working petroleum system, the Sakson drilling rig was relocated 3.5 kilometers north of the Shabeel-1 well to test an adjacent structural trap, Shabeel North-1. The Shabeel North-1 exploration well was spud in June 2012 and encountered oil and gas shows in the Upper Cretaceous Jesomma sandstone section from 1,905 meters to 2,095 meters, similar to those encountered in the Shabeel-1 exploration well. An open-hole drill stem test was performed but failed to flow hydrocarbons. Although the test was unsuccessful, the Company and its partners were encouraged by the positive evidence of oil shows and the presence of good quality reservoirs and decided to deepen the well in order to evaluate the potential of the Lower Cretaceous, Jurassic and Triassic sections. The Shabeel North-1 well reached a total depth of 3,945 meters and encountered metamorphic basement at a depth of 3,919 meters. The well penetrated 149 meters of inter-bedded sands and shales of the Triassic Adigrat Formation with no oil or gas shows and only minor porosity exhibited on electric logs. Accordingly, the well was plugged and abandoned.

As the Upper Cretaceous Jesomma sands in Shabeel North-1, which exhibited porosity and hydrocarbon shows but produced only fresh water on a drill stem test, were similar to the Jesomma sands encountered in the previously drilled Shabeel-1 well in respect of log response and oil and gas shows, the Company and its partners determined that additional testing of these zones in the previously drilled Shabeel-1 well was not warranted. Accordingly, the well has been plugged and abandoned.

While the Company was disappointed that the first two exploration wells in Puntland (Somalia) did not flow oil, the Company remains highly encouraged that all of the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on the encouragement provided by the Shabeel wells, the Company and its partners entered the next exploration period in both the Dharoor Valley and Nugaal Valley PSA's which carry a commitment to drill one well in each block within an additional three year term ending October 2015.

Horn has demobilized the drilling rig and associated equipment and has completed restoration of both drilling locations. Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor PSA which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the recent drilling at the Shabeel and Shabeel North-1 locations. This seismic program is expected to commence in the first half of 2013. The Company continues to pursue efforts to drill an exploration well in the Nugaal PSA and is working with the Puntland government authorities to move this project forward.

Horn is in active discussions with potential joint venture partners and also is reviewing new venture opportunities in the region.

MALI

Blocks 7 and 11

The deteriorating security and political situation in Mali has halted operations on the Company's blocks. As a consequence, during the first quarter of 2012, the Company impaired $3.1 million of capitalized intangible exploration assets. The Company and its operating partner, Heritage, are in the final stages of exiting the blocks.

2012 Second Quarter Report

During the second quarter of 2012, the Company together with its partners continued a two-rig drilling campaign with exploratory drilling in Kenya and Puntland (Somalia). In Block 10BB (Kenya), the Company and its partner Tullow completed drilling the Ngamia-1 exploration well to a total depth of 2,340 meters and reported a significant light oil discovery. The Ngamia-1 well encountered over 100 meters of net light oil pay in the Upper Lokhone Sand section and an additional 43 meters of potential oil pay in the lower Lokhone Sandstone section.

With the discovery of Ngamia-1, two additional drilling rigs are currently being mobilized into the Company's areas of operation in Kenya and Ethiopia. One of the rigs will be utilized in Ethiopia, drilling Sabisa-1 which is our first exploration well on the South Omo Block, and the second rig will be mobilized into Kenya to commence drilling operations in Block 10A on the Paipai-1 exploration well. The Company will also continue to actively acquire, process and interpret 2D seismic over Blocks 10BA, 10BB, 12A, 13T and South Omo.

In Puntland (Somalia), the Company, through its 44.7% ownership interest in Horn, completed drilling the Shabeel-1 exploration well and commenced drilling the Shabeel North-1 exploration well in June of 2012. Following the positive indications of hydrocarbons in Shabeel-1, the Shabeel North-1 location was drilled to test an adjacent structural trap. The Shabeel North-1 exploration well encountered oil and gas shows in the Cretaceous-aged Jesomma sandstone section similar to those encountered in the Shabeel-1 well. Following this encouragement, an open-hole drill stem test was performed but failed to flow hydrocarbons. Although the test was unsuccessful, the Company and its partners were encouraged by the positive evidence of oil shows and the presence of good quality reservoirs, and as a result, the decision was made to deepen the well in order to evaluate the potential of Lower Cretaceous, Jurassic and Triassic sections. The Shabeel North-1 well has reached a total depth of 3,945 meters and encountered metamorphic basement at a depth of 3,919 meters. The well penetrated 149 meters of interbedded sands and shales of the Triassic Adigrat Formation with no oil or gas shows and only minor porosity exhibited on electric logs. Accordingly, the well is being plugged.

KENYA

The Company and Tullow, its operating partner in each of the Kenyan blocks other than Block 9, are actively exploring for oil as described below.

Block 10BB

The Company and its operating partner on Block 10BB, Tullow, spudded the partnership's first well, Ngamia-1, on January 24, 2012. The well encountered in excess of 100 meters of net oil pay in multiple reservoir zones over a gross interval of 650 meters of the Upper Lokhone Sandstone interval (855 meters to 1,500 meters). The reservoirs are composed of good quality Tertiary age sandstones. Moveable oil with an API greater than 30 degrees has been recovered to surface from four representative intervals. This oil has similar properties to the light waxy crude which has been discovered in Uganda by Tullow. After testing and evaluation of the Upper Lokhone payzones, the well was drilled through the Lower Lokhone Sandstone interval and encountered an additional 43 meters of potential oil pay based on logs and the recovery of light oil on an MDT sample over a gross interval of 150 meters. The well was drilled to a total depth of 2,340 meters after penetrating the Lower Lokhone objective sequence. The well is now suspended for future flow testing. Testing equipment, including downhole pumps, is being mobilized and the intention is to flow test a number of prospective zones in the Upper and Lower Lokhone Sandstones to confirm the full potential of this discovery.

The positive results of the Ngamia-1 well have led the Company and its operating partner to accelerate the pace of exploration activities along the Ngamia-1 trend in Block 10BB and adjacent Block 13T. The Company and its partner have also elected to accelerate an additional 1,783 kilometers of 2D seismic in Block 10BB with plans to acquire 300 square kilometers of 3D seismic in the first half of 2013.

The drilling of the Ngamia-1 well satisfied the remaining work obligations of the initial exploration period under the Block 10BB PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. The next exploration period which expires in July 2014 includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic.

Block 13T

Following the Ngamia-1 discovery, the Company and its operating partner on Block 13T, Tullow, focused additional efforts to better delineate the prospects along the Ngamia-1 trend northward into Block 13T. Based upon the recently acquired 500 kilometers of 2D seismic data, six additional 'Ngamia-style' prospects were mapped in Block 13T, including the Company and its partner's next exploration well, Twiga South-1, which recently spud in Kenya. The Twiga South-1 well is planned to a total depth of 3,114 meters and targets the same structural trend and reservoirs as the recent Ngamia-1 oil discovery 23 kilometers to the south. An additional 500 kilometers of 2D seismic is now being acquired in conjunction with additional seismic acquisition in Block 10BB to mature further leads into drillable prospects.

With the completion of the original 500 kilometers of 2D seismic, the Company fully satisfied its work obligations for the initial exploration period under the Block 13T PSC. The partnership elected to proceed into the next phase of exploration and have received formal government approval. The next exploration period which expires in September 2014 includes a commitment to drill one exploratory well and acquire 200 square kilometers of 3D seismic.

Block 10A

The Company and its operating partners on Block 10A have agreed on Paipai-1 as the location of the first exploratory well in Block 10A. The Paipai-1 well is planned to a total depth of 4,150 meters, and will test a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. The Paipai-1 civil works associated with the location have been completed and sufficient materials have been purchased and mobilized to the location for drilling operations. The Company and its partners have awarded a drilling contract to Sakson Drilling. The drilling rig and all third party services are currently in the final stages of mobilizing to site, and the well is scheduled to spud in September 2012. Paipai-1 will fully satisfy the required work obligations for the initial exploration period which was recently extended to April 2013.

Block 10BA

The Company and its operating partner on Block 10BA, Tullow, have completed approximately 40% of the planned 1,350 kilometer 2D seismic program in Block 10BA. The onshore portion of the survey has been completed and the offshore and near shore portions of the 2D program are currently underway. The 2D seismic program which is expected to be complete in the fourth quarter of 2012 will fulfill the work obligations of the initial exploration period under the Block 10BA PSC which expires in April 2013.

Block 12A

Based upon the acquired FTG survey, the Company and its operating partner on Block 12A, Tullow, have determined that the 500 kilometer 2D seismic acquisition obligation will be focused in the Kerio Valley in the southwestern portion of the block. The Block 12A program is scheduled to follow the completion of work in Blocks 10BB and 13T whose programs were expanded after the Ngamia-1 discovery. As a result, the Company and its partner obtained an extension of the initial exploration term to September 2013. The 500 kilometer 2D seismic program will satisfy the work obligations for the initial period under the Block 12A PSC and is expected to commence in fourth quarter of 2012.

Block 9

The Company currently holds a 100% interest and is the operator in Block 9 where a seismic acquisition program of 750 kilometers was completed in 2011. The new data was acquired over the Kaisut sub-basin in the northwestern portion of Block 9. Based upon the new data set, several large prospects have been mapped and resources have been estimated. The Company is currently planning to drill an exploratory well in 2013 that will satisfy the remaining exploration commitment for the second exploration period which expires in December 2013. The Company recently announced plans to farmout a 50% working interest to Marathon Oil Corporation ("Marathon"). Completion of the farmout is subject to government approval.

Ethiopia

South Omo Block

The Company and its joint operating partners on the South Omo Block have substantially completed a 1,046 kilometer 2D seismic program in the western portion of the South Omo Block. A number of interesting prospects and leads have been identified and some infill seismic data has already been acquired to mature leads into drillable prospects. The Company and its partners have selected Sabisa-1 as the first drilling location in the South Omo Block. Civil works associated with the Sabisa-1 location have recently commenced, and the Company and its partners are in the final stages of rig contract negotiations with spud of Sabisa-1 expected late in the fourth quarter of 2012. The seismic acquired to date and drilling of Sabisa-1 will satisfy the remaining work obligations for the initial exploration period which expires in January 2013. An additional 500 kilometers of 2D seismic is planned for the eastern portion of the South Omo Block (Chew B'hir Sub-Basin) beginning in late 2012.

Ogaden Blocks 7/8

The Company and its partners continue their focus on the El Kuran oil accumulation in Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. During the second quarter of 2012, the Company received and began evaluating tenders for drilling and third party services for a proposed well in the El Kuran field. The Company also received formal approval for a one year extension of the initial exploration period to July 2013. The Company recently announced plans to farmout 25% of its 55% working interest and operatorship to New Age. Completion of the farmout is subject to government approval.

Adigala Block

As part of work obligations for the second exploration period which expires July 2013, the Company and its partner worked during the second quarter to incorporate newly acquired FTG gravity data with seismic data to improve the subsurface interpretation of the block. The Company also integrated results of recent surface geological studies and began reprocessing data acquired in 2009 with the goal of improving the data quality.

Rift Valley Joint Study Block

The Company completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block as part of a Joint Study Agreement with Ministry of Mines in Ethiopia. This block is on trend with highly prospective blocks in the Tertiary rift valley such as Ethiopian South Omo Block, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company has submitted an application to convert the Rift Valley Block to a formal production sharing agreement.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

In the first half of the year, the Company drilled the Shabeel-1 exploration well to a total depth of 3,470 meters before ending in metamorphic basement. The well encountered significant oil and gas shows in the Upper Cretaceous Jesomma Sandstones and Jurassic and Triassic sandstones deeper in the wellbore, but failed to encounter Lower Cretaceous sandstone reservoirs that were considered a primary objective. Petrophysical analysis indicated that potential hydrocarbon pay zones in the Jurassic and Triassic sandstones are thin and did not warrant further testing and the well was suspended pending further consideration of the Jesomma sandstone section.

Following results of the Shabeel-1 well, which provided evidence for a working petroleum system, the Sakson drilling rig was relocated 3.5 kilometers north of the Shabeel-1 well to test an adjacent structural trap, Shabeel North-1. The Shabeel North-1 exploration well was spud in June 2012 and encountered oil and gas shows in the Upper Cretaceous Jesomma sandstone section from 1,905 meters to 2,095 meters, similar to those encountered in the Shabeel-1 exploration well. An open-hole drill stem test was performed but failed to flow hydrocarbons. Although the test was unsuccessful, the Company and its partners were encouraged by the positive evidence of oil shows and the presence of good quality reservoirs and decided to deepen the well in order to evaluate the potential of the Lower Cretaceous, Jurassic and Triassic sections. The Shabeel North-1 well has reached a total depth of 3,945 meters and encountered metamorphic basement at a depth of 3,919 meters. The well penetrated 149 meters of interbedded sands and shales of the Triassic Adigrat Formation with no oil or gas shows and only minor porosity exhibited on electric logs. Accordingly, the well is being plugged.

As the Upper Cretaceous Jesomma sands in Shabeel North-1, which exhibited porosity and hydrocarbon shows but produced only fresh water on a drill stem test, were similar to the Jesomma sands encountered in the previously drilled Shabeel-1 well in respect of log response and oil and gas shows, the Company and its partners have determined that additional testing of these zones in the previously drilled Shabeel-1 well is also not warranted.

While the Company was disappointed that the first two exploration wells in Puntland (Somalia) did not flow oil, the Company remains highly encouraged that all of the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on the encouragement provided by the Shabeel wells, the Company and its partners plan to enter the next exploration period in both the Dharoor Valley and Nugaal Valley PSAs which carry a commitment to drill one well in each block within an additional three year term. The current operational plan would be to contract a seismic crew to acquire additional data in the Dharoor Valley block and to hold discussions with the Puntland Government regarding drill ready prospects in the Nugaal Valley block. The focus of the Dharoor Valley block seismic program will be to delineate new structural prospects for the upcoming drilling campaign.

MALI

Blocks 7 and 11

Recent security issues in Mali are being closely monitored, but currently the operational areas are not accessible. The Company's share of costs for initial seismic and the drilling of the first exploratory well are fully carried by its single partner and operator, Heritage. During the first quarter of 2012, the Company impaired $3.1 million of capitalized intangible exploration assets due to security concerns in Mali which has halted operations on the Company's blocks.

2012 First Quarter Report

A two rig drilling program commenced during the first quarter of 2012 with two wells spud. In Block 10BB (Kenya), the Company discovered over 100 meters of net oil pay in Ngamia-1, the first Tullow-Africa Oil joint venture exploration well to be spud. In the Dharoor Block (Puntland (Somalia)), the Company announced that the Shabeel-1 well has completed drilling and petrophysical analysis indicates a potential net pay zone of 12 to 20 meters in the Upper Cretaceous Jesomma Formation and an additional potential 3 meters of net pay in the Jurassic Adigrat Formation. Additional details are provided below.

It is anticipated that two additional drilling rigs will be secured and mobilized into the Company's areas of operation during the second half of 2012, bringing the total number of rigs in operation to four before the end of the year. It is anticipated that one additional rig will be utilized in Ethiopia and one additional rig will be utilized in Kenya. In addition to the Shabeel-1 and Ngamia-1 wells, which have completed drilling or are in the process of being drilled, four additional wells are currently planned: the Twiga-1well in Block 13T (Kenya), the Paipai-1 well in Block 10A (Kenya), the Shabeel North well in the Dharoor Block (Puntland (Somalia)), and an additional exploration well in the South Omo Block (Ethiopia). The Company will also continue to actively acquire, process and interpret 2D seismic over Blocks 10BA, 10BB, 12A, 13T and South Omo.

KENYA

The Company and Tullow, its operating partner in each of the Kenyan Blocks other than Block 9, are actively exploring for oil as described below.

Block 10BB

The Company and its operating partner on the Block, Tullow, spudded the partnership's first well, Ngamia-1, on January 24, 2012. The Ngamia-1 exploration well in Kenya has now been deepened to a total depth of approximately 1940 meters. The well has encountered in excess of 100 meters of net oil pay in multiple reservoir zones over a gross interval of 650 meters of the upper Lokhone sandstone (855 meters to 1500 meters). The reservoirs in these sections are composed of good quality Tertiary age sandstones. Moveable oil with an API greater than 30 degrees has been recovered to surface from four representative intervals. This oil has similar properties to the light waxy crude which has been discovered in Uganda by Tullow. Plans are in place for at least two drill stem tests upon completion of drilling operations. The Ngamia-1 well is now being drilled to a depth of approximately 2,700 meters to explore for deeper potential including the lower Lokhone sandstone which was one of the primary objectives of this well. The Ngamia-1 well has encountered additional oil and gas shows over a gross interval of 140 metres from a depth of 1,800 meters to 1,940 meters. The reservoirs are similar to those previously encountered at a shallower depth.

The positive results of the Ngamia-1 well have led the Company and its operating partner to accelerate the pace of exploration activities along the Ngamia-1 trend in Block 10BB and adjacent Block 13T. It is planned that one additional rig will be brought into Kenya as soon as possible and an additional 850 km of 2D seismic data will be acquired as infill across the trend which has been de-risked by the Ngamia discovery. The 2D infill seismic is to further evaluate the Ngamia discovery and adjacent prospects.

The drilling of the Ngamia-1 well satisfies the last remaining work obligation (first period) under the Block 10BB PSC.

Block 13T

Following the Ngamia discovery, the Company and its operating partner on the Block, Tullow, have focused additional efforts to better delineate the prospects along the Ngamia trend northward into Block 13T. Based upon the recently acquired 500 km of 2D seismic data, 3 prospects and 3 leads have been mapped in Block 13T. Additional 2D seismic is now being acquired in conjunction with Block 10BB to mature the leads to drillable prospects. The Company has fully satisfied its work obligations (first period) under the Block 13T PSC.

Block 10A

The Company and its operating partner on the Block, Tullow, have agreed on the location of the first exploratory well in Block 10A. The prospect to be drilled is the Paipai prospect with a proposed total depth of 4150m. Paipai-1 will test a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. As part of the accelerated exploration efforts mentioned above, the current plan is to move the Weatherford 804 rig, currently at the Ngamia-1 location, to Block 13T and an additional rig will be mobilized to Paipai-1 as soon as possible. The Paipai civil works associated with the location have been completed and sufficient materials have been purchased and mobilized to the location for drilling operations. The Paipai-1 well will complete the required work obligations (first period) under the Block 10A PSC.

Block 10BA

The Company and its operating partner on the Block, Tullow, have initiated the onshore 2D seismic program along the western shores of Lake Turkana. Approximately 17% of the 1350 km of planned 2D seismic have thus far been acquired. The offshore and nearshore portions of the 2D program will commence in July of this year. The 2D seismic program will fulfill the work obligations (first period) under the Block 10BA PSC.

Block 12A

Based upon the recently acquired FTG survey, the Company and its operating partner on the Block, Tullow have identified a primary area of interest, the Kerio Valley in the southwestern portion of the block where a 500km 2D seismic acquisition program will be focused. The seismic crew in Block 13T is expected mobilize to Block 12A in the second half of 2012 upon completion of seismic in Block 13T. The 500km 2D seismic program will satisfy the work obligations (first period) under the Block 12A PSC.

Block 9

The Company holds a 100% interest and acts as the operator in Block 9 where a major new seismic acquisition program of 750 km was completed in 2011. The new data was acquired over the Kaisut subbasin in northwestern Block 9. Based upon the new data set, several large prospects have been mapped and resources have been estimated. The Company is currently discussing farmout opportunities on this block to bring in one to two partners. One exploration well is expected to be drilled during 2013, which will satisfy the remaining work obligations (second period) under the Block 9 PSC.

Ethiopia

South Omo Block

The Company and its operating partner on the Block, Tullow, have completed approximately 80% of a 1000 km 2D seismic program in the western portion of the South Omo Block. The recently acquired FTG data over the South Omo Block was used extensively to lay out the new seismic program. A number of very interesting leads have thus far been identified and an infill seismic program was partially acquired to mature these leads to drillable prospects. The onset of the rainy season in May has suspended this infill program which is planned recommence late in the second quarter of 2012. An additional 500 km of 2D seismic is currently under review in the eastern portion of the South Omo Block (Chew B'hir Basin) in the second half of 2012. One exploratory well is planned in the block before the end of 2012, which will satisfy the remaining work obligations (first period) under the South Omo PSA.

Ogaden Blocks 7/8

The Company and its partners continue their focus on the El Kuran oil accumulation in Block 8, discovered in the early 1970's. The Company has completed a second phase reservoir characterization study over the El Kuran structure and an economic evaluation. The Company is currently analyzing the economic feasibility of re-drilling and testing the El Kuran structure in hopes of proving up movable, commercial quantities of oil and gas. Additionally, the Company is evaluating recently received tenders for the drilling and third party services for one well on El Kuran.

Adigala Block

The Company and its partner have entered the second exploration period for the Adigala Block following successful negotiations with the Ethiopian Ministry of Mines to alter the PSA work obligations. During the first quarter of 2012, the Company completed an airborne FTG survey, the key work obligation in the amended PSA. Geologic fieldwork was completed in February of this year with a focus on critical outcrops along the periphery of the sedimentary basin. 2D seismic data acquired in 2009 is being reprocessed in hopes of improving the data quality.

Rift Valley Joint Study Block

The Company completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block. The block is on trend with highly prospective blocks in the Tertiary rift valley such as Ethiopian South Omo block, and Kenyan blocks 10BA, 10BB, 13T, and 12A. The Company has submitted an application to convert the Rift Valley Block to a formal production sharing agreement.

PUNTLAND (SOMALIA)

Dharoor and Nugaal Valley Blocks

The Shabeel-1 well has been successfully drilled, reaching a total depth of 3470 meters. Several oil and gas shows were encountered indicating the existence of a working petroleum system. The well encountered metamorphic basement at a depth of 3430 meters and has been suspended for future testing. The well encountered a 355 meter section of Upper Cretaceous sands and shales of the Jesomma Formation at a depth of approximately 1660 meters. The sands in this interval exhibited both oil and gas shows and petrophysical analysis of downhole electrical logs indicates a potential pay zone of between 12 and 20 meters in the section. Attempts to sample formation fluids using a wireline formation tester were not successful and thus the zone will require cased hole testing in the future to confirm whether they are oil bearing. In addition to potential net pay in the Jesomma Formation, the well has encountered additional potential net pay sands in the Jurassic Adigrat Formation at a depth of 3246 to 3430 meters, several of which exhibited oil and gas shows. Petrophysical analysis of the well log data indicates up to 3 meters of potential hydrocarbon pay in several thin sand units. These sands do not warrant testing at this time, but do further indicate the existence of a working petroleum system.

The rig will now move to the Shabeel-North location, which is located 3.5 kilometers north of the Shabeel-1 location. The Shabeel-North drilling site construction has been completed. The primary objective of this well will be to evaluate the Upper Cretaceous Jesomma Sands which appear to be oil bearing at the Shabeel-1 location. Subsequent to the drilling and potential testing of this well, it is the intention of the Company to return to the Shabeel-1 well and test the Jesomma sands once the necessary testing equipment has been mobilized into the country. A surface geochemical survey is being finalized for implementation in the Nugaal Valley Block in the second half of 2012.

A surface geochemical survey is being finalized for implementation in the Nugaal Valley Block in the second half of 2012.

MALI

Blocks 7 and 11

Recent security issues in Mali are being closely monitored, but currently the operational areas are not accessible. The Company's share of costs for initial seismic and the drilling of the first exploratory well are fully carried by its single partner and Operator, Heritage. During the three months ended March 31, 2012, the Company has written-off $3.1M of capitalized intangible exploration assets due to security concerns in Mali which has halted operations on the Company's Blocks.

2011 Year End Report

The Company continues its aggressive exploration efforts. Two high impact oil exploration wells are currently being drilled. The Shabeel-1 well, located on the Dharoor Block in Puntland (Somalia), is currently drilling at a depth of approximately 2,400 meters while the Ngamia-1 well, located on Block 10BB in Kenya, is currently drilling at a depth of over 1,000 meters (additional details on both wells below). It is anticipated that two drilling rigs will operate on the Company's blocks throughout 2012. It is anticipated that the results of these two wells will be available during the second quarter of 2012.

AOC, with partner Tullow, have completed the acquisition and processing of approximately 60,000 line kilometers of Full Tensor Gravity ("FTG") in Blocks 10BB, 10BA, 13T, 12A, 10A, and South Omo of Kenya and Ethiopia. The use of this new technology, developed by the US military, provides much greater resolution than traditional gravity and magnetic reconnaissance methods. This enhanced resolution allows operators to more precisely define prospective areas prior to acquiring seismic data. FTG seismic surveys are being acquired in a timeframe of months, at 5- 10% of the cost of a loose grid of 2D seismic data. This is allowing operators to focus their seismic programs towards prospect-delineation sooner, and get to drillable prospects faster and more cost-effectively. Tullow has successfully used FTG to provide a structural model of fault blocks in the Albert Graben.

During 2012, the Company's planned exploration activities include the drilling of five exploration wells and the acquisition of over 2,100 kilometers of 2D seismic. In addition to the Shabeel-1 and Ngamia-1 wells, which are currently being drilled, it is anticipated that the Shabeel North well will be drilled in Puntland (Somalia), the Paipai well will be drilled on Block 10A in Kenya and an exploration well will be drilled on the South Omo Block in Ethiopia. It is anticipated that 2D seismic will be acquired on Blocks 10BA, 10BB, 12A, 13T and South Omo.

KENYA

The Company and Tullow, its operating partner in each of the Kenyan Blocks other than Block 9, are actively exploring for oil as described below.

Block 10BB

The Company and its operating partner on the Block, Tullow, spudded the partnership's first well, Ngamia-1, on January 24, 2012. The Ngamia prospect will test the oil potential of Miocene age sandstones within a three way dip closure against the West Lokichar rift fault. Ngamia is directly analogous to successful oil accumulations drilled by Tullow and partners early in the exploration efforts in the Lake Albert graben of Uganda. The Company is currently drilling the 12 " section of the well at a depth of 1040m with the Weatherford 804 rig. The well is planned to reach total depth of approximately 2700m. In addition to drilling operations, the Company and its partner are currently acquiring new 2D seismic in adjacent Block 13T and will be extending two lines (approximately 150km) into Block 10BB over the Kamba prospect. The drilling of the Ngamia-1 well satisfies the last remaining work obligation (first period) under the Block 10BB PSC.

Block 13T

The Company and its operating partner on the Block, Tullow, expect to complete acquiring new 2D seismic over the eastern portion of the block by the end of the first quarter of 2012. Approximately 500 km of seismic data will be acquired by the seismic subcontractor Bureau of Geophysical Prospecting ("BGP"). The seismic program has been focused on areas of interest based on the final-processed FTG. Interpretation of reprocessed vintage seismic data, in addition to new preliminary seismic data, has revealed a string of interesting structures on trend with the Ngamia feature of Block 10BB. The current seismic program is focused on further delineation of these leads to mature them to drillable prospects. The acquisition of the 500 km of 2D seismic fully satisfies the work obligations (first period) under the Block 13T PSC

Block 10A

The Company and its operating partner on the Block, Tullow, have agreed on the location of the first exploratory well in Block 10A. The prospect to be drilled is the Paipai prospect with a proposed total depth of 4150m. Paipai is a large four-way closed structure with Cretaceous-age sandstone targets at multiple depths. The Weatherford 804 rig, currently at the Ngamia-1 location, will mobilize to Paipai directly after completion of Ngamia operations. The Paipai civil works associated with the location have been completed and sufficient materials have been purchased and mobilized to the location. The Paipai well will complete the required work obligations under the Block 10A PSC.

Block 10BA

The Company and its operating partner on the Block, Tullow, have completed an FTG survey over most of Block 10BA, covering all of Lake Turkana and most of the adjacent onshore areas. The seismic contractor, BGP has been contracted to acquire approximately 1350 km of mixed offshore, transition zone, and onshore 2D seismic data focused on structural leads identified from both vintage seismic data and the FTG results. Current seismic operations include establishment of the base camp, testing the recording equipment, and working with local stakeholders to ensure the acquisition program avoids any environmentally sensitive areas. The 2D seismic program will fulfill the work obligations (first period) under the Block 10BA PSC.

Block 12A

The Company and its operating partner on the Block, Tullow, have completed a FTG survey over the entire Block 12A. Based upon the FTG results, an area of interest, the Kerio Valley, has been identified in the southwestern portion of the block where future 2D seismic acquisition will be focused. The BGP seismic crew in Block 13T is expected mobilize to Block 12A at the beginning of the second quarter of 2012 upon completion of seismic in Block 13T. Additionally, geologic fieldwork in Block 12A has identified excellent quality reservoir and oil-prone source rocks exposed in outcrop. The 2D seismic program will satisfy the work obligations (first period) under the Block 12A PSC.

Block 9

The Company holds 100% interest in Block 9 where a major new seismic acquisition program of 750 km was completed in 2011. The new data was acquired over the Kaisut sub-basin in northwestern Block 9. Based upon the new data set, several large prospects have been identified. The Company will consider farmout opportunities on this block. One exploration well is expected to be drilled during 2013, which will satisfy the remaining work obligations (second period) under the Block 9 PSC.

Ethiopia

South Omo Block

The Company and its operating partner on the Block, Tullow, have completed approximately 65% of a 1000 km 2D seismic program in the western portion of the South Omo Block. Seismic acquisition is being undertaken by a third BGP crew. The recently acquired FTG data over the South Omo Block has been used extensively to lay out the new seismic program. A number of very interesting leads have thus far been identified and an infill seismic program will be acquired in the current campaign to mature these leads to drillable prospects. One exploratory well is programmed in the block before the end of 2012, which will then satisfy the remaining work obligations (first period) under the South Omo PSA.

Ogaden Blocks 7/8

The Company and its partners continue their focus on the El Kuran oil and gas accumulation in Block 8, discovered in the early 1970's. The Company has completed a second phase reservoir characterization study over the El Kuran structure and an economic evaluation is underway. The Company is currently analyzing the economic feasibility of re-drilling and testing the El Kuran structure in hopes of proving up movable, commercial quantities of oil and gas. Additionally, the Company is seeking tenders for the drilling and third party services for one well on El Kuran.

Adigala Block

The Company and its partner have entered the second exploration period for the Adigala Block following successful negotiations with the Ethiopian Ministry of Mines to alter the PSA work obligations. During the first quarter of 2012, the Company completed an airborne FTG survey, the key work obligation in the amended PSA. Geologic fieldwork commenced in February of this year with a focus on critical outcrops along the periphery of the sedimentary basin. 2D seismic data acquired in 2009 will undergo special reprocessing in hopes of improving the data quality.

Rift Valley Joint Study Block

The Company completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block. The block is on trend with highly prospective blocks in the Tertiary rift valley such as Ethiopian South Omo block, and Kenyan blocks 10BA, 10BB, 13T, and 12A.

PUNTLAND (SOMALIA)

Dharoor and Nugaal Valley Blocks

Horn Petroleum is currently drilling its first well in the Dharoor Valley Block. The Shabeel-1 exploration well spudded in January of 2012 and is currently at a depth of approximately 2400 meters. The upper 1600 meters of section drilled to date includes a thick section of Tertiary limestones and shales that appear to be a regional seal as no oil or gas shows were encountered above this depth. The Company then completed drilling a 400 meter section composed of interbedded sandstones and shales believed to be Upper Cretaceous in age. Most of the sandstone intervals in this section have exhibited oil and gas shows confirming the existence of a working petroleum system. Determination of the quality of the reservoir and prospectivity of any potential oil bearing intervals cannot be determined until downhole electric logs and formation tests are concluded. The last 400 meters drilled was primarily through Cretaceous limestone.

The well has a planned total depth of 3800 meters and has yet to penetrate the main reservoir targets in the Lower Cretaceous and Jurassic. It is expected that the next electrical logging run will be coincident with the running of the 9 5/8" casing at approximately 2400 to 2700 meters. Operations continue to run smoothly with no material security or operational incidents. Drilling of the Shabeel-1 well is expected to be complete during April of 2012 and testing equipment is currently being mobilized to the site. Assuming successful drilling results, it is anticipated that testing results will be available in the second quarter of 2012. Upon completion of drilling the Shabeel-1 well, the rig will move to the Shabeel North-1 well, where 30 inch conductor pipe is in place and a 50 meter pilot hole has already been drilled.

The Puntland Government and Dharoor Valley communities are fully supportive of the drilling project and have ensured they will do all necessary to allow the project to move forward safely and expeditiously.

MALI

Blocks 7 and 11

The Company and its partner, Heritage Oil and Gas Ltd. ("Heritage") in 2011 completed the acquisition of 848 km of 2D seismic in Block 11 and 243 km in Block 7. The new seismic data has been interpreted and technical meetings are scheduled with the Operator to agree on a forward exploration strategy. The Company's share of costs for initial seismic and the drilling of the first exploratory well are fully carried by its single partner and Operator, Heritage.

2011 Third Quarter Report

The Company has launched a major exploration initiative throughout its East Africa portfolio which includes at least 7 seismic acquisition programs (totaling just under 7,000 kilometers), 6 Full Tensor Gravity ("FTG") surveys, extensive environmental studies, acquisition of high resolution gravity and magnetic data, as well as geochemical surveys. Over the next 15 months, multiple exploratory wells are planned to test the numerous prospects identified throughout the blocks.

AOC, with partner Tullow, have acquired more than 50,000 line kilometers of FTG in Blocks 10BB, 10BA, 13T, 12A, 10A, and South Omo of Kenya and Ethiopia. The use of this new technology, developed by the US military, provides much greater resolution than traditional gravity and magnetic reconnaissance methods. This enhanced resolution allows operators to more precisely define prospective areas prior to acquiring seismic data. . FTG seismic surveys are being acquired in a timeframe of months, at 5- 10% of the cost of a loose grid of 2D seismic data. This is allowing operators to focus their seismic programs towards prospect-delineation sooner, and get to drillable prospects faster and more cost-effectively. Tullow has successfully used FTG to provide a structural model of fault blocks in the Albert Graben.

KENYA

The Company and Tullow, its operating partner in each of the Kenyan Blocks other than Block 9, are actively exploring for oil as described below.

Block 10BB

The Company and Tullow have integrated and interpreted all newly acquired (610 km) and vintage 2D seismic data. A number of prospects have been identified and are being high graded for the planned drill program. The Ngamia (Camel) prospect (previously named Fise-1) has been selected by the joint venture for the initial well in Block 10BB. The prospect will test the oil potential in Miocene age sandstones within a three way dip closure against the West Lokichar rift fault. Ngamia is directly analogous to successful oil accumulations drilled by Tullow and partners early in the exploration efforts in the Lake Albert graben of Uganda. The contract for the drilling rig has been awarded to Weatherford International. The Ngamia well is expected to spud in December of 2011. The Company and its partner recently completed a FTG survey to further define prospective areas of the block that lack 2D seismic data.

Block 10BA

The Company and Tullow recently completed a FTG survey over most of Block 10BA, covering all of Lake Turkana and most of the adjacent onshore areas. A seismic acquisition contract has been awarded to the Bureau of Geophysical Prospecting ("BGP") for 1350 km of 2D data to be acquired in both the offshore lake environment and nearshore transitional areas adjacent to Lake Turkana. The offshore data will be acquired using state of the art Ocean Bottom Cable ("OBC"), whereby the recording receivers will be positioned on the bottom of the lakebed. Pre-seismic environmental studies have been completed and the seismic survey is expected to commence in the first quarter of 2012.

Block 10A

The Company and Tullow have integrated and interpreted all newly acquired (750 km) and vintage 2D seismic data. A number of prospects have been identified and are being high graded for the planned drilling program. The Paipai-1 prospect has been selected by the joint venture for the initial well in Block 10A. The prospect will test the oil potential in Cretaceous age sandstones within a four way dip closure downthrown to the Lag Bagal fault, the northern bounding fault on the Anza Trough. Preparations for drilling, including purchase of materials, execution of drilling related contracts, civil works, and environmental permits are either completed or underway. The Block 10A well is expected to spud in the second quarter of 2012 using the same Weatherford rig as will be used in Block 10BB.

Block 13T

The Company and Tullow have awarded contracts for both a FTG survey and seismic acquisition. The FTG survey was completed early in the fourth quarter of 2011. The recording of approximately 600 km of 2D seismic data by BGP is planned to commence late in the fourth quarter of 2011. Environmental impact studies have been completed and government permits have been obtained. Interpretation of reprocessed vintage seismic data has revealed a string of interesting structures on trend with the Ngamia feature of Block 10BB. The seismic program will focus on further delineation of these leads to mature them to drillable prospect status and will explore a newly identified rift basin in the western portion of the block.

Block 12A

The Company and Tullow have awarded contracts for both a FTG survey and seismic acquisition. The FTG survey has recently been completed. The recording of at least 520 km of 2D seismic data by BGP is planned to commence in the second quarter of 2012. Environmental impact studies and Government permitting will precede the seismic survey.

Block 9

The Company holds 100% interest in Block 9 and has recently completed the acquisition of 750 km of 2D seismic data. The survey was focused on delineating a drillable prospect in the oil-prone Kaisut sub-basin in the northwestern portion of the block. Newly acquired data is of excellent quality and a number of interesting leads have been identified. Under the terms of the PSA, there is a one well drilling commitment before the end of 2013. The Company has completed a study associated with potential commercialization of gas resources in the 2010 Bogal discovery which could lead to a Bogal re-entry, and testing program. The Company plans to pursue a partner on Block 9 that brings gas development and marketing experience to the joint venture.

ETHIOPIA

South Omo Block

The Company and its operating partner on the Block, Tullow, have recently completed a FTG survey across most of the southern portion of the South Omo Block. The results of the survey were encouraging and have been used to lay out the current 2D seismic survey. A contract with BGP for the acquisition of approximately 1018 km of 2D seismic data has been executed. The seismic recording has recently commenced and is expected to be completed by the end of the first quarter of 2012. Environmental impact studies and government permitting preceded the seismic survey. One exploration well is planned for the second half of 2012.

Ogaden Blocks 7/8

The Company and its partners have integrated and interpreted all newly acquired (430 km) and vintage 2D seismic data over the two blocks. The joint venture is currently focused on developing a better understanding of the large El Kuran oil and gas accumulation in Block 8, discovered in the early 1970's. The Company has completed a reservoir characterization study and drilling engineering review over the El Kuran structure. A revised analysis of the well data has confirmed the presence of light oil in the Jurassic limestones. Preparations for drilling, including purchase of materials, execution of drilling related contracts, civil works, and environmental permits have commenced. Spud of the El Kuran well is not anticipated until late in 2012, at the earliest.

Ogaden Blocks 2/6

Ogaden Blocks 2/6 have been relinquished and Ministerial approval to waive remaining commitments has been obtained. The Company has written off all incurred oil and gas expenditures relating to Blocks 2/6.

Adigala Block

The Company and its partner have completed the first exploration period of three years and have exceeded the contractual work obligations. The Ministry of Mines approved the Company and its partners' entry into the next exploration period on the Adigala Block with amended minimum work commitments. Under the amended work commitments, the Company and its partners are obligated to complete certain geological and geophysical ("G&G") operations, including acquisition of 7,500 square kilometers of full tensor gravity. The partnership expects to begin the full tensor gravity survey late in December of 2011.

Rift Valley Block

The Company completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block in April 2011. Final processing and interpretation was completed during the third quarter of 2011 which has indicated that a deep sedimentary basin with potential for hydrocarbon charge is located in the southern portion of the block. The block is on trend with highly prospective blocks in the Tertiary rift valley such as Ethiopian South Omo block, and Kenyan blocks 10BA, 10BB, 13T, and 12A. Additionally, the Company mobilized geochemical specialists to collect fluid samples to detect potential oil seeps at the surface and/or margins of the rift lakes, within block. A total of 17 samples were collected of which 3 revealed hydrocarbon signatures.

PUNTLAND (SOMALIA)

Dharoor and Nugaal Valley Blocks

The Company is currently in final preparations to commence a two well drilling campaign in the Dharoor Valley Block, with the first well (Shabeel-1) planned to spud in December of 2011. Drilling locations have been selected over two robust prospects targeting gross best estimated prospective resources of over 300 million barrels each, based on internal estimates. A contract has been awarded to Sakson Drilling and Oil Services who will provide a 1500 horse-power, top drive equipped rig. All drilling related third party service contracts have been executed. The Company has completed sourcing drilling related materials and the majority of materials are on site or on route to the drilling site. Site preparation including the drill site, air strip and ingress route construction have been completed. Water wells are currently being drilled to provide source water for drilling operations.

MALI

Blocks 7 and 11

The Company and its partner, Heritage Oil and Gas Ltd. ("Heritage") have recently completed the acquisition of 848 km of 2D seismic in Block 11 and 243 km in Block 7. Both blocks are located in the Gao Graben which is on trend and adjacent to significant recent gas discoveries. The Company's share of costs for initial seismic and the drilling of the first exploratory well are fully carried by its single partner, Heritage.

2011 Second Quarter Report

The Company has launched a major exploration initiative throughout its East Africa portfolio which includes at least 10 seismic acquisition programs (totaling over 7,000 kilometers), 6 full tensor gravity surveys, extensive environmental studies, acquisition of high resolution gravity and magnetic data, as well as geochemical surveys. Over the next 18 months, multiple exploratory wells are planned to test the numerous prospects identified throughout the blocks.

KENYA

The Company and Tullow Oil plc. ("Tullow"), its operating partner in each of the Kenyan Blocks other than Block 9, have completed the work and/or are proposing the work programs, described below.

Block 10BB

The Company and Tullow have integrated and interpreted all newly acquired (610 km) and vintage 2D seismic data. A number of prospects have been identified and are being high graded for the planned drill program. The Ngamia (Camel) prospect (previously named Fise-1) has been selected by the joint venture for the initial well in Block 10BB. The prospect will test the oil potential in Miocene age sandstones within a three way dip closure against the West Lokichar rift fault. Ngamia is directly analogous to successful oil accumulations drilled by Tullow and partners early in the exploration efforts in the Lake Albert graben of Uganda. The contract for the drilling rig has been awarded to Weatherford International. Additional preparations for drilling, including purchase of materials, execution of drilling related contracts, civil works, and environmental permits are either completed or underway. Spudding of the Ngamia well is slated for the fourth quarter of 2011. In addition to drilling operations, the Company and its partner are currently acquiring a full tensor gravity survey (FTG) to further define prospective areas of the block that lack 2D seismic data. The survey should be completed in the fourth quarter of 2011.

Block 10BA

The Company and Tullow have initiated a FTG survey over most of Block 10BA, covering all of Lake Turkana and most of the adjacent onshore areas. Two FTG contractors are working simultaneously to expedite the survey, which is expected to be completed during the fourth quarter of 2011. A seismic acquisition contract has been awarded to the Bureau of Geophysical Prospecting ("BGP") for 1350 km of 2D data to be acquired in both the offshore lake environment and nearshore transitional areas adjacent to Lake Turkana. The offshore data will be acquired using state of the art Ocean Bottom Cable ("OBC"), whereby the recording receivers will be positioned on the bottom of the lakebed. Pre-seismic environmental studies are underway and the seismic survey is planned to commence in the fourth quarter of 2011.

Block 10A

The Company and Tullow have integrated and interpreted all newly acquired (750 km) and vintage 2D seismic data. A number of prospects have been identified and are being high graded for selection of the first drilling location. Preparations for drilling, including purchase of materials, execution of drilling related contracts, civil works, and environmental permits are either completed or underway. The Block 10A well is expected to spud in early 2012 using the same Weatherford rig as will be used in Block 10BB. In addition to the drilling operations, a small swath of full tensor gravity (FTG) is being acquired to test the applicability of the FTG technology in Block 10A. The swath survey should be completed in the third quarter of 2011.

Block 13T

The Company and Tullow have awarded contracts for both a FTG survey and seismic acquisition. The FTG survey is underway and is anticipated to be completed by the third quarter of 2011. The recording of at least 562 km of 2D seismic data by BGP is planned to commence in the fourth quarter of 2011. Environmental impact studies and government permitting will precede the seismic survey. Interpretation of reprocessed vintage seismic data has revealed a string of interesting structures on trend with the Ngamia feature of Block 10BB. The seismic program will focus on further delineation of these leads to mature them to drillable prospect status.

Block 12A

The Company and Tullow have awarded contracts for both an FTG survey and seismic acquisition. The FTG survey is underway and is expected to be completed during the third quarter of 2011. The recording of at least 520 km of 2D seismic data by BGP is planned to commence in January 2012. Environmental impact studies and Government permitting will precede the seismic survey.

Block 9

The Company holds 100% interest in Block 9 and has recently completed the acquisition of 750 km of 2D seismic data. The survey was focused on delineating a drillable prospect in the oil-prone Kaisut sub-basin in the northwestern portion of the block. Newly acquired data is of excellent quality and a number of interesting leads have been identified. One exploration well is expected to be drilled during 2012. Additionally, the Company has completed a study associated with potential commercialization of gas resources in the 2010 Bogal discovery prior to a potential 2012 Bogal re-entry, and testing program. The Company plans to pursue a partner on Block 9 that brings gas development and marketing experience to the joint venture.

ETHIOPIA

South Omo Block

The Company and its operating partner on the Block, Tullow, have recently completed a FTG survey across most of the southern portion of the South Omo Block. The results of the survey are encouraging and will be used to lay out the upcoming 2D seismic survey. A contract with BGP for the acquisition of at least 1000 km of 2D seismic data has been executed and base camp construction began in July 2011. The seismic recording is estimated to commence during the third quarter of 2011. Environmental impact studies and government permitting will precede the seismic survey.

Ogaden Blocks 7/8

The Company and its partners have integrated and interpreted all newly acquired (430 km) and vintage 2D seismic data over the two blocks. The joint venture is currently focused on developing a better understanding of the large El Kuran oil and gas accumulation in Block 8, discovered in the early 1970's. The Company has completed a reservoir characterization study over the El Kuran structure. A revised analysis of the well data has confirmed the presence of light oil in the Jurassic limestones. The Company is currently analyzing how best to re-drill and test El Kuran in hopes of proving up movable, commercial quantities of oil. Preparations for drilling, including purchase of materials, execution of drilling related contracts, civil works, and environmental permits have commenced. Spud of the El Kuran well is anticipated in the first half of 2012.

Ogaden Blocks 2/6

Ogaden Blocks 2/6 have been relinquished and Ministerial approval to waive remaining commitments is expected shortly. The Company has written off all incurred and expected oil and gas expenditures relating to Blocks 2/6.

Adigala Block

The Company and its partner have completed the first exploration period of three years and have exceeded the contractual work obligations. Negotiations with the Ministry of Mines to enter the second period of exploration for the Adigala Block are ongoing. The Company and its partner are proposing additional geologic and geophysical studies to better understand the subsurface configuration of the block. In addition, the partnership is contemplating drilling a stratigraphic test well if a suitable light rig can be secured at reasonable costs.

Rift Valley Joint Study Block

The Company completed the acquisition of high resolution gravity and magnetic data over the Rift Valley Block in April 2011. Final processing and interpretation is anticipated to be completed during the third quarter of 2011. The gravity and magnetic interpretation will enable the Company to decide whether to commit to a further work program under a formal production sharing agreement. The block is on trend with highly prospective blocks in the Tertiary rift valley such as Ethiopian South Omo block, and Kenyan blocks 10BA, 10BB, 13T, and 12A. Additionally, the Company mobilized geochemical specialists to collect fluid samples to detect potential oil seeps at the surface and/or margins of the major rift lakes Abaya and Chamo, within the southern portion of the block. A total of 17 samples were collected of which 3 revealed hydrocarbon signatures.

PUNTLAND (SOMALIA)

Dharoor and Nugaal Valley Blocks

The Company is currently in final preparations to commence a two well drilling campaign in the Dharoor Valley Block, with the first well planned to spud in the fourth quarter of 2011. Drilling locations have been selected over two robust prospects targeting gross best estimated prospective resources of over 300 million barrels each, based on internal estimates. A contract has been awarded to Sakson Drilling and Oil Services who will provide a 1500 horse-power, top drive equipped rig. The majority of the drilling related third party service contracts have been entered into and all outstanding service contracts are expected to be complete before the end of August.

The Company is actively engaged in sourcing drilling related materials and early stage logistics including drill site and ingress route construction. A contract has been signed with a water well drilling company and water well drilling will commence in early September. Mobilization of required personnel and equipment is planned to allow for spud of the first well, Shabeel-1, during the fourth quarter of this year.

The Puntland Government and Dharoor Valley communities are fully supportive of the drilling project and have ensured they will do all to allow the project to move forward safely and expeditiously. Specific milestone target dates have been adjusted by the Puntland Government allowing the Company and partners to move the drilling start-up to the fourth quarter of 2011. In addition, partial relinquishments in both the Dharoor Valley and Nugaal Valley agreements have been finalized and approved. The Puntland Government has also given its approval for the formation of Horn Petroleum and the proposed transaction with the Company.

MALI

Blocks 7 and 11

The Company and its partner, Heritage Oil and Gas Ltd. ("Heritage") have recently completed the acquisition of 848 km of 2D seismic in Block 11 and 243 km in Block 7. Both blocks are located in the Gao Graben which is thought to be analogous to other Cretaceous age, oil productive, central African rift basins. The Company's share of costs for initial seismic and the drilling of the first exploratory well are fully carried by its single partner, Heritage.

2011 First Quarter Report

The Company anticipates that 2011 will be a pivotal year in its progression with multiple exploration wells planned to spud during the year, over 4,000km (gross) of two dimensional seismic ("2D seismic") to be acquired and an extensive Full Tensor Gravity ("FTG") program planned to aid in assessing the overall prospectivity of the Tertiary and Cretaceous Rifts. The Company's Board of Directors has approved a $43 million (net) capital budget ($163 million gross exploration expenditures).

Tertiary Rift

Tullow has taken over operatorship and are currently in the process of undertaking Full Tensor Gravity ("FTG") surveys and finalizing the prospect and lead inventory on Block 10BB. FTG is an airborne, high resolution gravity mapping tool which has been successfully utilized in the Lake Albert area of Uganda by Tullow, where gross discovered resources are over 2 billion barrels of oil. This technology will be utilized to provide basement image faulting, reduce uncertainty surrounding the structural configuration and to delineate structures to narrow the focus for subsequent 2D seismic surveys. Environmental impact assessments have been completed on Block 10BB over four potential drill sites and Government permits have been issued. Exploratory drilling is expected to commence in the third quarter of 2011.

FTG will be undertaken on the remainder of the Tertiary Rift blocks (South Omo (Ethiopia), Blocks 10BA, 12A, 13T (Kenya)), all of which will be operated by Tullow. The South Omo FTG survey is nearly 50% complete and a second plane has been contracted to accelerate the Kenyan surveys beginning in June of this year. 2D seismic operations are planned to commence during Q3 2011 and continue through the year on all of these blocks. The 2D seismic acquisition programs on these blocks are planned as follows on a gross basis; 1,000km on the South Omo Block, 1,300km on Block 10BA, and 500km on each of Blocks 12A and 13T.

The Company has completed a block-wide airborne high resolution gravity and magnetic survey on the Rift Valley Block in Ethiopia. In addition, the Company has utilized a specialized satellite imagery technique to observe natural oil seepage on several of the rift valley lakes within the new block. A team was mobilized in early March to ground truth and sample the oil slicks. Samples have been collected and are being analyzed in a US based geochemical laboratory.

Cretaceous Rift

In Block 10A, Kenya, the Company completed recording approximately 800km (gross) of 2D seismic in the first quarter of 2011. Seismic data acquired is currently being processed. The Company has reprocessed all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts have been developed based on the reprocessed data in combination with vintage drilling data. Tullow has taken over operatorship of this block and exploratory drilling is expected to commence in the fourth quarter of 2011.

In Block 9, Kenya, previous operator CNOOC and partner OPIC CHAD elected to relinquish their rights to the block subsequent to the drilling of the Bogal gas discovery. The Company and partner Lion Energy opted to continue into the First Additional Exploration Period which spans 3 years and carries a commitment of one exploration well to be drilled to at least 1500 meters. Current exploration activities in Block 9 are focused on the acquisition of 600km (gross) 2D seismic survey focused on the oil prone Kaisut sub-basin. The seismic crew has recently commenced recording and is anticipated to be completed at the end of the third quarter of 2011.

The Company has initiated a gas commercialization study to better understand alternative options for monetizing natural gas in East Africa, in anticipation of performing extended well tests on the potentially significant gas discovery that resulted from drilling the Bogal 1-1 well in 2010.

Permian-Triassic

The Company completed its seismic acquisition program in the Company's Ogaden area of Ethiopia, acquiring 500 km of 2D seismic in December of 2010. The new data has been integrated with existing seismic to generate a series of new prospect maps. The Company continues to focus efforts on the large El Kuran prospect in the Blocks 7/8 license. The feature was de-risked in 1972 with two wells drilled by Tenneco; both wells recovered small amounts of light oil from Jurassic fractured carbonate reservoirs near 5000 feet. The Company contracted a Dubai-based consulting firm with extensive experience in appraising and developing analogous low porosity carbonate oil reservoirs in the Middle East. The consulting firm will evaluate the resource potential of the El Kuran discovery in addition to offering various options for appraisal and development of the accumulation. The Company plans to drill one well on the El Kuran prospect in 2012 in an attempt to establish commercial oil reserves. The Company holds 55% interest in both Blocks 2/6 and 7/8 licenses.

In Ethiopia, in the Adigala Block, the Company has completed interpretation of the 500 km of 2D seismic that was acquired during 2009. Additional geological and geophysical work is being contemplated, as part of a proposed one year extension. Earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

Cretaceous -- Central Africa Rift Trend (Blocks 7 and 11 (Mali))

The Company completed the acquisition of Centric Energy Corp. in the first quarter of 2010, obtaining a 25% interest in Block 7 and 11, which are operated by Heritage Oil Corporation ("Heritage"). Heritage has entered into an agreement with a 2D seismic subcontractor, and is currently in the process of acquiring reconnaissance seismic. The Company's share of seismic expenditures and the drilling of one exploration well will be carried by Heritage.

Jurassic Rift

During 2009, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database which has been mapped to determine exploration well locations. Exploration activities in Puntland are focused on drilling the first exploration well in Somalia in over 20 years. The Company has recently signed a letter of intent with a drilling contractor and plans to spud the first well in the Dharoor Block during the third quarter of 2011. A second well in the Dharoor Block is planned to commence following completion of the first exploration well.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

2010 Third Quarter Report

Seismic Program

In Block 10BB, Kenya, the Company has completed the recording of 610km of 2D seismic. The seismic data acquired is currently being processed. Processing is approximately 50% complete. The Company has reprocessed all available vintage seismic data sharpening the imaging and the amplitude response for use in detecting direct hydrocarbon indicators. A surface geochemical survey was completed during the third quarter of 2010, modules are in the process of being analyzed in order to detect oil and gas seepage from identified prospects and leads on the Block. Drilling is expected to be initiated in the first half of 2011. The Company currently holds an 80% working interest in this Block, which is expected to reduce to 40% upon completion of farmout with Tullow and amendment to the farmout with Lion.

In Block 10A, Kenya, the Company is reprocessing all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts are being developed based on the reprocessed data in combination with vintage drilling data. The Company intends to acquire 750 km of 2D seismic in the Block. The seismic crew is currently being mobilized from Block 10BB as its seismic acquisition program has been completed. The Company holds a 55% working interest in this Block which is expected to reduce to 30% upon completion of farmout with Tullow and amendment to the farmout with Lion.

Seismic acquisition is in progress in the Company's Ogaden area of Ethiopia. It is anticipated that the 500 km 2D seismic acquisition program will be completed during the fourth quarter of 2010. The seismic program is aimed at previously identified leads in order to mature these leads into drillable prospects. The Company holds a 55% working interest in the Ogaden Blocks.

In Ethiopia, in the Adigala Block, the Company has completed interpretation of the 500 km of 2D seismic that was acquired during 2009. Additional geological and geophysical work is being contemplated, potentially including basin modeling, field geology and additional seismic data acquisition. Earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

During 2009, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database which continues to be evaluated to determine exploration well locations.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

Exploration Drilling

In Block 9, Kenya, the CNOOC-operated Bogal-1 exploration well was spud on October 28, 2009. The well reached a total depth of 5,085 meters. Gas shows and petrophysical analysis of wireline logs indicated multiple gas pay zones totaling approximately 91 meters in Lower Cretaceous sandstones. Preliminary testing on two potential gas pay zones has been completed, with only minimal flow of gas from each zone. Analysis of the test results indicates that neither test was in communication with the extensive fracture network proven by the abundant fluid losses during drilling and the Formation Micro Imaging (FMI) log. The well has been plugged pending further analysis of the test results to determine the feasibility of an additional testing program, which might include fracture and acid stimulation, due to potential wellbore damage during drilling. The Company holds a 20% working interest in this Block which contains a number of excellent oil and gas prone prospects.

The Company has completed a comprehensive interpretation of newly acquired 2D seismic data over the Dharoor Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint venture partners are in discussion regarding drilling plans for 2010-2011 and continue to seek drilling contractors willing to operate in Puntland (Somalia) on commercially acceptable terms. The Company holds a 65% working interest in this project which is expected to reduce to 45% upon completion of the farmout agreement with Red Emperor.

Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

2010 Second Quarter Report

Seismic Program

In Block 10BB, Kenya, seismic acquisition is in progress, with over 120km of 2D seismic recorded out of an anticipated 600km program. It is anticipated that the Block 10BB seismic program will be completed during the third quarter of 2010. The Company has reprocessed all available vintage seismic data sharpening the imaging and the amplitude response for use in detecting direct hydrocarbon indicators. A surface geochemical survey is scheduled to commence during the third quarter of 2010 aimed at detecting oil and gas seepage from identified prospects and leads on the Block. Drilling is expected to be initiated in the first quarter of 2011. The Company holds an 80% working interest in this Block.

In Block 10A, Kenya, the Company is reprocessing all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts are being developed based on the reprocessed data in combination with vintage drilling data. The Company intends to acquire 750 km of 2D seismic in the Block following the Block 10BB seismic acquisition program. The Company holds a 55% working interest in this Block.

Seismic acquisition is in progress in the Company's Ogaden area of Ethiopia. It is anticipated that the 500 km 2D seismic acquisition program will be completed during the fourth quarter of 2010. The seismic program is aimed at previously identified leads in order to mature these leads into drillable prospects. The Company holds a 55% working interest in the Ogaden Blocks.

In Ethiopia, in the Adigala Block, the Company has completed interpretation of the 500 km of 2D seismic that was acquired during 2009. Additional geological and geophysical work is being contemplated, potentially including basin modeling, field geology and additional seismic data acquisition. Earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

During 2008, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database and is currently being mapped to finalize exploration well locations.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

Exploration Drilling

In Block 9, Kenya, the CNOOC-operated Bogal-1 exploration well was spud on October 28, 2009. The well reached a total depth of 5,085 meters. Gas shows and petrophysical analysis of wireline logs indicated multiple gas pay zones totaling approximately 91 meters in Lower Cretaceous sandstones. Preliminary testing on two potential gas pay zones has been completed, with only minimal flow of gas from each zone. Analysis of the test results indicates that neither test was in communication with the extensive fracture network proven by the abundant fluid losses during drilling and the Formation Micro Imaging (FMI) log. The well has been plugged pending further analysis of the test results to determine the feasibility of an additional testing program, which might include fracture and acid stimulation, due to potential wellbore damage during drilling. The Company holds a 20% working interest in this Block which contains a number of excellent oil and gas prone prospects.

Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. The basin is filled in places with more than 6,000 meters of Mesozoic and Cenozoic sediments and locally by Plio-Pleistocene basalts. Bouger and residual gravity anomalies have highlighted several sub-basins separated by intra-basin highs. Historic wells drilled in the block have proven the existence of natural gas and possibly oil.

The Company has completed a comprehensive interpretation of newly acquired 2D seismic data over the Dharoor Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint venture partners are in discussion regarding drilling plans for 2010-2011 and continue to seek drilling contractors willing to operate in Puntland (Somalia) on commercially acceptable terms. The Company holds a 65% working interest in this project.

Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

2010 First Quarter Report

Exploration Drilling

In Block 9, Kenya, the CNOOC-operated Bogal-1-1 exploration well was spud on October 28, 2009. The well has reached a total depth of 5,085 meters. Gas shows and petrophysical analysis of wireline logs indicate multiple gas pay zones totaling approximately 91 meters in Lower Cretaceous sandstones. Seven inch casing has been set and testing equipment is currently being mobilized from China. Test results are expected to be available during the second quarter of 2010. The Company holds a 20% working interest in this Block.

Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. The basin is filled in places with more than 6,000 meters of Mesozoic and Cenozoic sediments and locally by Plio-Pleistocene basalts. Bouger and residual gravity anomalies have highlighted several sub-basins separated by intra-basin highs. Historic wells drilled in the block have proven the existence of natural gas and possibly oil.

The Company has completed a comprehensive interpretation of newly acquired 2D seismic data over the Dharoor Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint venture partners have agreed to initially drill one prospect in Dharoor. The well is expected to commence drilling before the end of 2010. The Company holds a 65% working interest in this project.

The Company has completed a re-interpretation of the existing 2D seismic data over the Nugaal Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint venture partners are in discussion regarding drilling plans for 2010-2011. The Company holds a 65% working interest in this project.

Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

Seismic Program

In Ethiopia, in the Adigala Block, the Company completed 500 km of 2D seismic acquisition during the fourth quarter of 2009. The data processing has now been completed and interpretation is underway at the Company's technical office in Calgary. The basin prospectivity, at this early stage, appears excellent with a number of large structural leads having been identified from the seismic data. In addition, earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

Seismic operations have been initiated in the Company's Ogaden area of Ethiopia. A base camp is under construction and supplies are being mobilized. Local labor has been hired and survey and line clearing crews are actively working. Seismic recording is planned to start during the second quarter of 2010. The Company's plans are to acquire 500 km of 2D data over previously identified leads in order to mature these leads into drillable prospects. The Company holds a 55% working interest in the Ogaden Blocks.

In Block 10BB, Kenya, the tendering process for 600 km of 2D seismic has been completed and it is anticipated the contract will be awarded shortly. The acquisition program is expected to commence before the end of the second quarter of 2010. The Company has reprocessed all available vintage seismic data sharpening the imaging and the amplitude response for use in detecting direct hydrocarbon indicators. The Company held its initial meeting with the local community leaders in March in order to formally introduce the Company and outline the planned work program for 2010. The Company holds an 80% working interest in this Block.

In Block 10A, Kenya, the Company is reprocessing all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts are being developed based on the reprocessed data in combination with vintage drilling data. The Company intends to acquire 750 km of 2D seismic in the Block following the Block 10BB seismic acquisition program. The Company holds a 55% working interest in this Block.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

During 2008, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database and is currently being mapped to finalize exploration well locations.

The Company is currently planning to commence drilling of one exploration well in the Dharoor Block before the end of 2010.

2010 Annual Report

The Company anticipates that 2011 will be a pivotal year in its progression with three exploration wells planned to spud during the year, over 4,000km (gross) of two dimensional seismic ("2D seismic") to be acquired and an extensive Full Tensor Gravity ("FTG") program planned to aid in assessing the overall prospectivity of the Tertiary and Cretaceous Rifts. The Company's Board of Directors has approved a $43 million (net) capital budget ($163 million gross exploration expenditures).

Tertiary Rift

In Block 10BB, Kenya, the Company has completed the recording and processing of 610km of 2D seismic. The Company has reprocessed all available vintage seismic data sharpening the imaging and the amplitude response for use in detecting direct hydrocarbon indicators. A surface geochemical survey was completed during the third quarter of 2010, modules were analyzed in order to detect oil and gas seepage from identified prospects and leads on the Block. Tullow has taken over operatorship and are currently in the process of undertaking Full Tensor Gravity ("FTG") surveys and finalizing the prospect and lead inventory. FTG is an airborne, high resolution gravity mapping tool which has been successfully utilized in the Lake Albert area of Uganda by Tullow, where gross discovered resources are over 2 billion barrels of oil. This technology will be utilized to provide basement image faulting, reduce uncertainty surrounding the structural configuration and to delineate structures to narrow the focus for subsequent 2D seismic surveys. Environmental impact assessments have been completed on Block 10BB over four potential drill sites and Government permits have been issued. Exploratory drilling is expected to commence in the third quarter of 2011.

FTG will be undertaken on the remainder of the Tertiary Rift blocks (South Omo (Ethiopia), Blocks 10BA, 12A, 13T (Kenya)), all of which will be operated by Tullow. 2D seismic operations are planned to commence during Q2 2011 and continue through the year on all of these blocks. The 2D seismic acquisition programs on these blocks are planned as follows on a gross basis; 1,000km on the South Omo Block, 1,300km on Block 10BA, and 500km on each of Blocks 12A and 13T.

The Company has initiated a block-wide airborne high resolution gravity and magnetic survey on the Rift Valley Block in Ethiopia. In addition, the Company has utilized a specialized satellite imagery technique to observe natural oil seepage on several of the rift valley lakes within the new block. A team has been mobilized in early March to ground truth and sample the oil slicks.

Cretaceous Rift

In Block 10A, Kenya, the Company expects to be completed recording approximately 850km (gross) of 2D seismic by the end of March 2011. Seismic data acquired is currently being processed. The Company has reprocessed all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts are being developed based on the reprocessed data in combination with vintage drilling data. Tullow has taken over operatorship of this block and exploratory drilling is expected to commence in the fourth quarter of 2011.

In Block 9, Kenya, the CNOOC-operated Bogal-1 exploration well was spud on October 28, 2009. The well reached a total depth of 5,085 meters. Gas shows and petrophysical analysis of wireline logs indicated multiple gas pay zones totaling approximately 91 meters in Lower Cretaceous sandstones. Preliminary testing on two potential gas pay zones has been completed, with only minimal flow of gas from each zone. Analysis of the test results indicated that neither test was in communication with the extensive fracture network proven by the abundant fluid losses during drilling and the Formation Micro Imaging (FMI) log. The well was plugged pending further analysis of the test results to determine the feasibility of an additional testing program. The Company plans to investigate gas commercialization alternatives in East Africa, in anticipation of performing extended well tests on the potentially significant gas discovery that resulted from drilling the Bogal 1-1 well in 2010.

Exploration activities in Block 9 in 2011 are focused on a planned 600km (gross) 2D seismic survey focused on the oil prone Kaisut sub-basin.

Jurassic Rift

During 2009, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database which has been mapped to determine exploration well locations. Exploration activities in Puntland are focused on drilling the first exploration well in Somalia in over 20 years. The Company plans to spud the first well in the Dharoor Block during the third quarter of 2011. Activities are currently focused on the identification and contracting of drilling and drilling support contractors willing to operate in Puntland on commercially acceptable terms. A second well in the Dharoor Block is planned to commence following completion of the first exploration well.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

Permian-Triassic

The Company completed its seismic acquisition program in the Company's Ogaden area of Ethiopia, acquiring 500 km of 2D seismic. The new data has been integrated with existing seismic to generate a series of new prospect maps. The Company continues to focus efforts on the large El Kuran prospect in the Blocks 7/8 license. The feature was de-risked in 1972 with two wells drilled by Tenneco; both wells recovered small amounts of light oil from Jurassic fractured carbonate reservoirs near 5000 feet. The Company plans to drill one well on the El Kuran prospect in early 2012 in an attempt to establish commercial oil reserves. The Company holds 55% interest in both Blocks 2/6 and 7/8 licenses.

In Ethiopia, in the Adigala Block, the Company has completed interpretation of the 500 km of 2D seismic that was acquired during 2009. Additional geological and geophysical work is being contemplated, potentially including basin modeling, field geology and additional seismic data acquisition. Earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

Cretaceous - Central Africa Rift Trend (Blocks 7 and 11 (Mali))

AOC completed the acquisition of Centric Energy Corp. subsequent to year end, obtaining a 25% interest in Block 7 and 11, which are operated by Heritage Oil Corporation ("Heritage"). Heritage has entered into an agreement with a 2D seismic subcontractor, and is currently in the process of acquiring reconnaissance seismic. The Company's share of seismic expenditures and the drilling of one exploration well will be carried by Heritage.

2009 Third Quarter Report

Exploration Drilling

In Block 9, Kenya, the CNOOC-operated Bogal-1 oil exploration well was spud on October 28, 2009. The well is expected to reach total depth of 5,500 meters within approximately 6 months. Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. The basin is filled in places with more than 6,000 meters of Mesozoic and Cenozoic sediments and locally by Plio-Pleistocene basalts. Bouger and residual gravity anomalies have highlighted several sub-basins separated by intra-basin highs. Historic wells drilled in the block have proven the existence of natural gas and possibly oil.

Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

Seismic Program

In Ethiopia, in the Adigala Block, 500 kilometres of 2D seismic has been acquired. Processing and interpretation of the Adigala seismic is ongoing.

Upon completion of the seismic acquisition in Adigala, the Company is planning to commence seismic acquisition in the Ogaden region of Ethiopia. In Blocks 7/8, AOC plans to acquire approximately 150 kilometres of 2D seismic data. In Blocks 2/6, the Company plans to acquire approximately 350 kilometres.

In Block 10A, Kenya, the Company plans to acquire approximately 750 kilometres of 2D seismic data during 2010. In Block 10BB, Kenya, the Company plans to acquire approximately 600 kilometres of 2D seismic data during 2010. Seismic data related to Block 9 was previously acquired and has led to identification of various leads and prospects.

In the Nogal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometres of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

During 2008, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometres of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometres of previously acquired data into the seismic database and is currently being mapped to finalize exploration well locations.

2009 Second Quarter Report

Seismic Program

In Ethiopia, in the Adigala Block, AOC plans to acquire approximately 500 kilometres of 2D seismic. The seismic crew and equipment has mobilized and acquisition commenced inmid-August, 2009. Following completion of the seismic acquisition in Adigala, the seismic crew will move to Blocks 7/8, where AOC plans to acquire approximately 200 kilometres of 2D seismic data. In Blocks 2/6, the Company plans to acquire 300 kilometres with plans to commence after the completion of Blocks 7/8.

In Kenya, in Block 10A, the Company plans to acquire approximately 750 kilometres of 2D seismic data which is expected to commence in Q2 2010. Subsequent to the 10A seismic acquisition, approximately 500 kilometres of 2D seismic is planned for the newly acquired Turkana 10BB Block. Seismic data related to Block 9 was previously acquired and has led to identification of various leads and prospects.

In the Nogal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometres of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

During 2008, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometres of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometres of previously acquired data into the seismic database and is currently being mapped to finalize exploration well locations.

Exploration Drilling

The Company has assigned a full time Drilling Manager to commence efforts on the procurement and mobilization of a drill rig for the proposed Somalia exploration drilling campaign.

In the Kenyan non-operated Block 9, the operator has plans to spud a well during Q4 2009. Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

2009 Fourth Quarter Report

Exploration Drilling

In Block 9, Kenya, the CNOOC-operated Bogal-1-1 exploration well was spud on October 28, 2009. The well is currently at a depth of approximately 5,000 meters of the originally planned total depth of approximately 5,500 meters. A comprehensive set of wireline logs has been run to assess the hydrocarbon potential of numerous Cretaceous age sandstones encountered to date. Evaluation of these logs is ongoing. The Company holds a 20% working interest in this Block.

Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. The basin is filled in places with more than 6,000 meters of Mesozoic and Cenozoic sediments and locally by Plio-Pleistocene basalts. Bouger and residual gravity anomalies have highlighted several sub-basins separated by intra-basin highs. Historic wells drilled in the block have proven the existence of natural gas and possibly oil.

The Company has completed a comprehensive interpretation of newly acquired 2D seismic data over the Dharoor Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint

venture partners have agreed to initially drill one prospect in Dharoor. The well is expected to commence drilling before the end of 2010. The Company holds a 65% working interest in this project.

The Company has completed a re-interpretation of the existing 2D seismic data over the Nugaal Block in Puntland (Somalia). Several large prospects have been identified. Africa Oil and its joint venture partners are in discussion regarding drilling plans for 2010-2011. The Company holds a 65% working interest in this project.

Additional drilling activity in the Kenya Blocks and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.

Seismic Program

In Ethiopia, in the Adigala Block, the Company completed 500 km of 2D seismic acquisition during the fourth quarter of 2009. The data processing has now been completed and interpretation is underway at the Company's technical office in Calgary. The basin prospectivity, at this early stage, appears excellent with a number of large structural leads having been identified from the seismic data. In addition, earlier completed surface geology and sampling has documented the presence of excellent quality source and reservoir along the basin margin. The Company holds a 50% working interest in this Block.

Seismic operations have been initiated in the Company's Ogaden area of Ethiopia. A base camp is under construction and supplies are being mobilized. Local labor has been hired and survey and line clearing crews are actively working. Seismic recording is planned to start during the second quarter of 2010. The Company's plans are to acquire 500 km of 2D data over previously identified leads in order to mature these leads into drillable prospects. The Company holds a 55% working interest in the Ogaden Blocks.

In Block 10BB, Kenya, the tendering process for 600 km of 2D seismic has been completed and it is anticipated the contract will be awarded shortly. The acquisition program is expected to commence before the end of the second quarter of 2010. The Company has reprocessed all available vintage seismic data sharpening the imaging and the amplitude response for use in detecting direct hydrocarbon indicators. The Company held its initial meeting with the local community leaders in March in order to formally introduce the Company and outline the planned work program for 2010. The Company holds a 80% working interest in this Block.

In Block 10A, Kenya, the Company is reprocessing all available vintage seismic data with the objective of improving the imaging of the data acquired in the late 1980s. New play concepts are being developed based on the reprocessed data in combination with vintage drilling data. The Company intends to acquire 750 km of 2D seismic in the Block following the Block 10BB seismic acquisition program. The Company holds a 55% working interest in this Block.

In the Nugaal Block in Puntland, Somalia, AOC acquired more than 4,000 kilometers of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first exploration well locations will be selected.

During 2008, in the Dharoor Block of Puntland, Somalia, the acquisition of 782 kilometers of good quality 2D seismic (comprised of 15 grid lines) was completed. The Company has combined 555 kilometers of previously acquired data into the seismic database and is currently being mapped to finalize exploration well locations.

The Company is currently planning to commence drilling of one exploration well in the Dharoor Block before the end of 2010.

2009 First Quarter Update

Seismic Program

In Somalia, in the Nogal Block, AOC has acquired all of the more than 4,000 kilometres of existing good quality 2D data which was recorded in the late 1980's. This has enabled the Company to work up an inventory of drilling prospects from which the first two well locations will be selected.

At the Dharoor Block, the acquisition of 2D seismic commenced on July 9, 2008. A total of 782 kilometers of good quality data has been acquired, comprised of 15 grid lines. The Company has combined 555 kilometers of previously acquired data into the seismic database.

In Ethiopia, in Blocks 7/8, AOC plans to acquire approximately 200 kilometres of 2D seismic data. It is anticipated that during Q2 2009, the seismic crew and equipment will mobilize. In Blocks 2/6, the Company plans to acquire 300 kilometres with plans to commence after the completion of Blocks 7/8. Finally, in the Adigala Block, AOC is expected to acquire approximately 500 kilometres of 2D seismic beginning in late Q2 2009.

In Kenya, in Block 10A, the Company plans to acquire 750 kilometres of 2D seismic data which is expected to commence in Q4 2009. Seismic data related to Block 9 was previously acquired and has led to identification of various leads and prospects.

Exploration Drilling

In Somalia, AOC has identified numerous potentially large prospects in both the Dharoor and Nogal Blocks on seismic and will select future drilling locations in late Q4 2009. In addition, the Company will start its efforts to procure and mobilize a drilling rig.

In the Kenyan non-operated Block 9, the operator has plans to spud a well during Q4 2009.

Additional drilling activity in Kenya Block 10A and the Ethiopian Blocks will await completion of seismic acquisition, processing, and interpretation.