African Petroleum : Combination with PetroNor E&P and transformation into a material full cycle oil and gas company

African Petroleum announces combination with PetroNor E&P and transformation into a material full cycle oil and gas company

London, 19 March 2019

Extended notice: African Petroleum Corporation Limited (the "Company", "African Petroleum", with OSE ticker: "APCL") is pleased to announce that the Company has entered into an agreement to combine with PetroNor E&P Ltd ("PetroNor") for an all-share consideration of c. 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 ("PNGF Sud") and right to negotiate entry into a 14.7% indirect interest in an exploration license covering the PNGF Bis fields ("PNGF Bis") (collectively the "Congo Assets"). 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 (the "Combined Company").

The Transaction is recommended unanimously by the Board of Directors of African Petroleum and all members of African Petroleum's Board of Directors and executive management holding shares in the Company have provided their pre-commitment to vote for the Transaction in a general meeting expected to be held in April 2019 (the "EGM").

Transaction highlights

•  The Company will combine with PetroNor for an all-share consideration of c. 816 million shares in African Petroleum

•  The existing African Petroleum shareholders will receive one for one (c. 155 million) warrants to preserve potential upside from the Company's existing exploration portfolio in The Gambia and Senegal

•  The Transaction transforms the Company from an exploration-focused player into a cash-flow generating producer with a significant growth profile

•  The Transaction provides the Company with diversified, low risk, long life and high-quality producing assets, with current net (working interest) production of c. 2,300 bbl/d and medium-term exploration upside in a well-established operating jurisdiction

•  During 2018, PetroNor generated a post-tax asset cash flow (pre SG&A) of USD 17m based on an average net (working interest) production of 2,127 bbl/d

•  Strengthened ability to preserve and develop the Company's portfolio in The Gambia and Senegal through access to PetroNor's existing cash,future cash flow and assets with additional debt capacity

•  Subject to shareholder approval and satisfaction of all conditions precedent, the Transaction is expected to close by end of April 2019

•  This is the first step in a renewed strategic focus for the Company that will aim to steadily build and increase its reserve base while using free cash flow to pursue defined exploration targets in selected and highly prospective basins. The PetroNor team has extensive experience doing business in Africa, which, together with African Petroleum's public platform, will be used to grow the Company into a leading African focused E&P independent

Jens Pace, CEO of African Petroleum and proposed CEO of the Combined Company, commented:

"This is a truly transformative transaction that diversifies our portfolio considerably whilst simultaneously strengthening our position with regards to ongoing arbitration and farm-down processes. We have been proactively seeking opportunities to diversify our footprint away from pure-exploration, and this proposed combination with PetroNor delivers all the criteria we sought. The combined company will benefit from a proven reserve base generating strong and predictable cash flow and material upside potential from the Congo assets, as well as considerable exploration upside from our existing portfolio. We believe that this proposed transaction is undoubtedly in the best interest of our shareholders as it will help protect value from our existing portfolio and provide a much stronger platform from which we can deliver long-term value."

Transformational acquisition of producing assets

Through the Transaction, African Petroleum will acquire diversified, low risk, long life and high quality producing assets with competitive unit costs. PNGF Sud is operated by Perenco, a well-regarded, efficient operator, who is also expected to become the operator of PNGF Bis. The Transaction will transform the Company from a pure-play exploration company into a full cycle E&P company with material reserves, cash flow and significant upside potential.

The Congo Assets, which are located in shallow waters offshore Congo (Brazzaville), have estimated net 2P reserves of 8.5 mmbbl and net production of approximately 2,300 bbl/d from four fields currently in production, in addition to net 2C contingent resources of 7.6 mmbbl as at 1 January 2019. In addition to the Congo Assets, PetroNor is in negotiations regarding the acquisition of a producing asset offshore Nigeria with significant upside potential from contingent resources to be developed. Should the Nigeria acquisition materialize, further information will be provided in due course.

With the continued uncertainty related to African Petroleum's licenses in The Gambia and Senegal (the "Existing Assets"), the Transaction will bring much needed stability and downside protection to the Company, while maintaining substantial upside potential towards the Existing Assets. Additionally, through the improved financial strength as well as additional competence, contacts and resources brought to African Petroleum by PetroNor, the Transaction is expected to have a positive impact on African Petroleum's ongoing arbitration and farm-down processes related to the Existing Assets. Furthermore, following the Transaction, the Combined Company will generate substantial free cash flow that can be reinvested into value accretive growth, including, but not limited to, the Existing Assets. Potential upside from the exploration portfolio is preserved through issuance of c. 155m warrants to the existing African Petroleum shareholders.

About PetroNor

PetroNor is a privately held, Africa focused E&P independent, which is owned 50% by Petromal Sole Proprietorship LLC ("Petromal") (economic benefit interest 45.572%) and 50% by NOR Energy AS ("NOR Energy") (economic benefit interest 54.428%). Petromal is the oil and gas arm of National Holding L.L.C., one of Abu Dhabi's leading investment groups with interests in industrial, investment, property, general trading and the oil & gas industry. NOR Energy is a privately owned oil company with its history from the North Sea and Africa.

PetroNor holds a 10.5% indirect interest in PNGF Sud and has a right under the umbrella agreement related to PNGF Sud, to in good faith negotiate with the Republic of Congo an entry into a 14.7% indirect interest in PNGF Bis. Following finalisation of license terms for PNGF Bis, the Combined Company intends to enter into a production sharing contract for this license, with Perenco as the operator.

PetroNor was incorporated in Cyprus as a limited liability Company on 3 April 2017. PetroNor has twelve employees. The Board of Directors of PetroNor consists of Eyas Alhomouz as Chairman (CEO of Petromal), Knut Søvold, Gerhard Ludvigsen and Hawary Marshad.

As of 31 December 2018, PetroNor is estimated to have cash and cash equivalents of USD 6.5 million and debt of USD 10 million. The debt carries an interest rate of 1-month LIBOR +10%, has a maturity date of May 2020 and amortizes in monthly instalments.

The Congo Assets

The Congo Assets are located approximately 25km off the coast of Pointe Noire in water depths of 80-100 metres. PetroNor, through its subsidiary Hemla E&P Congo ("HEPCO") participated in the 2016 tender process with the Congo Ministry of Petroleum for participation in the PNGF Sud license (brown field), and was as of 1 January 2017 awarded a 20% working interest (net 10.5% to PetroNor) and a right to negotiate an entry into an exploration license for the PNGF Bis fields (28% working interest - 14.7% net to PetroNor). Perenco is the operator and largest license holder in PNGF Sud and is expected to become the operator and largest license holder of PNGF Bis, subject to the conclusion of the license negotiations.

PNGF Sud

Based on a competent persons report with effective date 1 January 2018 and prepared by AGR Petroleum Services in October 2018, PNGF Sud is estimated to hold net 2P reserves as at 1 January 2019 of 8.5 mmbbl (adjusted for 2018 production of 0.8 mmbbl) and 2C contingent resources of 3.4 mmbbl.

Initially discovered in 1979, PNGF Sud commenced production in 1987 and is currently producing c. 21,600 bbl/d gross from four oil fields; Tchibouela, Tchendo, Tchibeli and Litanzi. Following the entry of the new license group in 2017, significant operational improvements have been made, increasing gross production from c. 15,000 bbl/d in January 2017 to today's level, and reducing operating costs from circa 26 USD/bbl to current level of less than 11 USD/bbl. The production increase has mainly been driven by work-overs of existing wells and been achieved by minor investments of USD 30 million gross. Through further work-overs, surface and process improvements and infill drilling, gross production from PNGF Sud is expected to continue to grow in the coming years.

The PNGF Sud fields are developed with seven wellhead platforms and currently produce from more than 50 active production wells, with oil exported via the onshore Djeno terminal (Tchibouela, Tchendo and Tchibeli) and the Nkossa FPSO (Litanzi). With its long production history, substantial well count and extensive infrastructure, PNGF Sud offers well diversified and low risk production and reserves with low break-even.

PNGF Bis

Through an umbrella agreement associated with the PNGF Sud license, the PNGF Sud license partnership has the right to, in good faith, negotiate with the Republic of Congo, license terms toenter into PNGF Bis, where PetroNor is expected to have a 14.7% indirect interest (i.e. its pro-rata share of participants in the license negotiations). Following finalization of license terms for PNGF Bis, the Combined Company intends to enter into the license. PNGF Bis is located to the west of PNGF Sud and contains two undeveloped discoveries, Loussima and Loussima SW, discovered in 1985 and 1987/1991 respectively. Loussima SW is estimated to hold net 2C contingent resources of 4.2 mmbbl.

Early production from PNGF Bis is targeted through an extended test production of Loussima SW, estimated to commence in 2020 through the use of an existing mobile offshore production unit. At an estimated gross capex of USD 37 million and 1.9 mmbbl gross recoverable resources, the PNGF Bis test production is expected to both generate positive stand-alone economics and substantially de-risk a full field development. Further development of PNGF Bis is conditional upon the results of the test production, but based on current estimates, economics are very robust with estimated gross 2C resources of 29 mmbbl and expected capex of less than 10 USD/bbl.

Field

LicenseProduction startProduced, mmbbl

2P reserves, mmbbl

2C resources, mmbblCurrent prod.

bbl/dProducing wells

TchibouelaTchibouela

East

Tchendo

Tchibeli

Litanzi

Loussima SWLoussima

PNGF SudPNGF Bis

1987

1998

1991 2000 2006

TBATBA

318

14

69 27 9

47.9

TBA

19.2

10.9

3.2

12.0

10.8

28.9

TBA To be resumed in 2019

12,500

6.7

2.6

TBA

4,700 16

34

TBA

3,000 3

1,400 1

As per 1.1.2019 - CPR by AGR Petroleum Services, reserves and resources per 1.1.2018 adjusted for 2018 production

Key financial information

The table below sets forth key financial information (unaudited) for PetroNor E&P Ltd on a consolidated basis for the financial year ended 31 December 2017 and 2018.

Selected consolidated financial information PetroNor Ltd

Twelve months period ended 31

December

2018 (USDm)	2017 (USDm)
Unaudited	Unaudited
Total revenue	101.1	68.4
Operating profit	50.9	34.8
Net profit	16.9	11.0
Non-controlling interests	9.2	5.2
Majority interests	7.8	5.8
Cash flow from operating activities	21.0	14.3
Working capital changes	(22.0)	1.2
Net cash from operating activities	(1.1)	15.5
Net cash from investment activities	(4.0)	(7.5)
Net cash from financing activities	5.0	0.1
Change in cash and cash equivalents	(0.1)	8.1
Total assets	56.9	34.8
Total equity	26.3	11.5
Corporate update African Petroleum

As of 1 March 2019, African Petroleum had a cash balance of USD 5.3 million (30 June 2018: USD 9.4 million). The cash burn rate since 30 June 2018 has been affected by certain non-recurring costs and is not reflective of the Company's expected burn rate going forward.

The Combined Company

The Combined Company's vision is to be a full-cycle, Africa focused E&P company focusing on producing assets with upside and development of stranded assets, combined with targeted high impact exploration. The Combined Company will aim to steadily build and increase its reserve base and production while using free cash flow to pursue defined exploration targets in selected and highly prospective basins with a view to delivering significant value to its shareholders from high impact wells. With the enhanced financial strength, the Combined Company seeks to rigorously protect its position in The Gambia and Senegal through reinstatement of its licenses and subsequent farm-outs to ensure drilling of wells without exposing the balance sheet of the Combined Company.