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.


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 ΒΌ" 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.


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.


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.


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.