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.