African Petroleum : Audited Annual Financial Report - 31 December 2018

African Petroleum Corporation Limited

(ABN 87 125 419 730)

Annual Financial Report

for the year ended

31 December 2018

Annual Financial Report 31 December 2018	African Petroleum Corporation Limited
CONTENTS
Corporate Directory	2
Directors' Report	3
Auditor's Independence Declaration	9
Corporate Governance Statement	10
Consolidated Statement of Comprehensive Income	12
Consolidated Statement of Financial Position	13
Consolidated Statement of Changes in Equity	14
Consolidated Statement of Cash Flows	15
Notes to the Consolidated Financial Statements	16
Directors' Declaration	36
Independent Auditor's Report to the Members	37
Unaudited additional Shareholder Information for Oslo Axess	40

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Annual Financial Report 31 December 2018		African Petroleum Corporation Limited
	CORPORATE DIRECTORY
DIRECTORS
David King	Chairman
Jens Pace	Chief Executive Officer
Stephen West	Chief Financial Officer
Anders Bjarne Moe
Timothy Turner

COMPANY SECRETARY

Angeline Hicks

REGISTERED OFFICE

Level 4, 16 Milligan Street

Perth WA 6000

Australia

HEAD OFFICE

48 Dover Street

London W1S 4FF

United Kingdom

Telephone: [phone]

Facsimile: [phone]

AUDITORS

BDO Audit (WA) Pty Ltd

38 Station Street

Subiaco WA 6008

Australia

PO Box 700

West Perth WA 6872

Australia

Telephone: [phone]

Facsimile: [phone]

SHARE REGISTRAR

Computershare Investor Services Pty Ltd

Level 11, 172 St George's Terrace

Perth WA 6000

Australia

Telephone: [phone]

Facsimile: [phone]

STOCK EXCHANGE LISTING

Oslo Axess

Code: APCL

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Annual Financial Report 31 December 2018

African Petroleum Corporation Limited

DIRECTORS' REPORT

Your Directors present their report on African Petroleum Corporation Limited ("African Petroleum" or the "Company") for the year ended 31 December 2018.

DIRECTORS

The names of Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Dr David King	Non-Executive Chairman
Mr Jens Pace	Executive Director and Chief Executive Officer
Mr Stephen West	Executive Director and Chief Financial Officer
Mr Bjarne Moe	Non-Executive Director
Mr Timothy Turner	Non-Executive Director
Mr Anthony Wilson	Non-Executive Director, resigned 12 April 2018

COMPANY SECRETARY

Ms Angeline Hicks

PRINCIPAL ACTIVITY

The Company's principal activity during the year was oil and gas exploration.

REVIEW OF OPERATIONS

Arbitration Proceedings - The Gambia

The Company's subsidiary African Petroleum Gambia Limited initiated arbitration proceedings at the International Centre for the Settlement of Investment Disputes ("ICSID") which were registered on 17 October 2017 to protect its interests in the A1 and A4 licences in The Gambia (ICSID case ARB/17/38). Following the constitution of the tribunal on 26 March 2018 and the filing of preliminary objections by the Republic of The Gambia on 25 April 2018, the first session of the tribunal was held on 27 June 2018 which was predominantly to agree procedural matters. On 30 November 2018, the tribunal held a hearing on preliminary objections under the ICSID Arbitation Rule 41(5), and subsequently issued a decision on 31 December 2018. On 28 February 2019, the Company filed with the tribunal a memorial on admissibility, jurisdiction and the merit, a response to the memorial is expected in due course.

The Company remains open to engaging in constructive dialogue with the Gambian authorities, with a view to establishing a satisfactory solution that is in the interests of all parties.

Arbitration Proceedings - Senegal

The Company's subsidiary African Petroleum Senegal Limited registered a request for arbitration proceedings with ICSID on 11 July 2018 (ICSID case ARB/18/24) to protect its interests in the Senegal Offshore Sud Profond ("SOSP") and Rufisque Offshore Profond ("ROP") blocks in Senegal. On 18 December 2018, the Company filed a request for provisional measures with ICSID. Following the constitution of the tribunal on 23 February 2019, the first session of the tribunal was held on 19 March 2019 which was to predominantly agree procedural matters. On 22 March 2019 the tribunal held a hearing on the provisional measures request lodged by the Company. A decision on the provisional measures request is expected in due course.

The Company remains open to engaging in constructive dialogue with the Senegalese authorities through appropriate and official channels, with a view to establishing a satisfactory solution that is in the interests of all parties.

Licence Relinquishment - Sierra Leone

On 22 November 2018, the Company announced the relinquishment of its interests in licenses SL-03-17 and SL-4A-17 with immediate effect. This followed a period of discussion with the Petroleum Directorate of Sierra Leone, during which the parties failed to agree an extension to the licences on suitable terms. The Company was not able to not commit to an ultra-deep water drilling program and accordingly relinquished these licences. After relinquishment, previous exploration commitments required by the licences that had been capitalised, including surface rental, social and training obligations, as well as past signature bonuses have been written off as an impairment expense within the consolidated statement of comprehensive income.

Licence Relinquishment - Côte d'Ivoire

Following the post-well analysis work of the Ayamé-1X exploration well in May 2017, it was concluded that the remaining prospectivity of the CI-513 block did not represent an attractive investment opportunity that would justify entering the next phase of the PSC and associated work programme and financial commitment therein. Subsequently on 8 March 2018, the Company announced the intention to relinquish its interests in licenses CI-509 and CI-513. The previous year's impairment provision for exploration and evaluation assets has been crystallised.

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Annual Financial Report 31 December 2018

African Petroleum Corporation Limited

DIRECTORS' REPORT

EXPLORATION ACTIVITIES

The Company is an oil and gas exploration group currently focused on exploration offshore West Africa. The Company's assets are located in fast-emerging hydrocarbon basins. The Company has acquired more than 13,400km2 of 3D seismic data on its existing and former licences and participated in the drilling of four exploration wells in West Africa. African Petroleum is a significant net acreage holder in West Africa with estimated net un-risked mean prospective resources of approximately 4.9 billion barrels. Table 1 below shows a detailed overview of the Company's licence interests.

Table 1: Summary of Licences

Country	Licence	Operator	Working	Grant Date	End Current	Area km2	Outstanding commitments
			Interest		Phase		in current phase
Senegal	Rufisque Offshore	African Petroleum	90%1	Oct 2011	Oct 20152	10,357	One exploration well
	Profond	Senegal Limited
Senegal	Senegal Offshore	African Petroleum	90%1	Oct 2011	Dec 20172	5,439	Further geoscience and one
	Sud Profond	Senegal Limited					contingent exploration well
The Gambia	A1	African Petroleum	100%3	Sep 2006	Sep 20164	1,296	One exploration well to be
		Gambia Limited					drilled on either A1 or A4
The Gambia	A4	African Petroleum	100%3	Sep 2006	Sep 20164	1,376	See above
		Gambia Limited

1Société des Pétroles du Sénégal has an option to increase its 10% interest to 20% following exploitation authorisation.

2.These licences are currently in arbitration proceedings with ICSID.

3 The Gambia National Oil Company has an option to acquire a 10% participating interest in the Licence from the development stage. 4 These licences are currently in arbitration proceedings with ICSID.

Assuming the successful resolution of the arbitration processes, as part of the Group's business strategy, it is actively seeking partners to farm-in to its licences in order to share the risk and potential reward of the Company's highly prospective assets whilst also renegotiating some terms of licences. The farm-outs will reduce the Company's working interest and is part of a process of maturing the Group's asset portfolio and is initiated to inter alia reduce the Group's capital commitments, generate cash sales proceeds for funding of future operations as well as the introduction of technically and operationally competent joint venture partners to the Group's licences.

Senegal

Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Senegal Licences and estimates the net unrisked mean prospective oil resources at 1,779MMStb.

The Gambia

Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Gambian Licences and estimates the net unrisked mean prospective oil resources at 3,079MMStb.

RESULT

African Petroleum reported a loss after income tax of US$8,412,162 for the year ended 31 December 2018 (2017: US$35,019,552).

DIVIDENDS PAID OR RECOMMENDED

The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On 19 March 2019, the Company announced the proposed combination with PetroNor E&P Ltd ("PetroNor") for an all-share consideration of approximately 816 million shares in African Petroleum (the "Transaction"). PetroNor is a privately owned, Africa focused E&P independent, that holds a 10.5% indirect interest in the PNGF Sud fields and right to negotiate entry into a 14.7% indirect interest in an exploration license covering the PNGF Bis fields located in Congo Brazzaville. The Transaction is subject to shareholder approval, and certain other customary conditions. African Petroleum will at completion of the Transaction change its name to PetroNor E&P Limited.

On 29 March 2019, notice was given that the General Meeting of Shareholders to approve the Transaction will be held on 24 April 2019. On 24 April 2019, the Company announced that all resolutions put forward at the General Meeting of the Company were passed on a show of hands.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The expected results of the Company will vary significantly dependent on the completion of the Transaction with PetroNor. The Transaction is unanimously recommended by the Board of Directors of African Petroleum. However as at the date of this report, the Transaction has not completed.

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