Africa Oil Corp. (TSX:AOI)(OMX:AOI) ("Africa Oil" or the "Company") is pleased
to provide first quarter 2014 financial results and an update on its operations
in Kenya and Ethiopia.
The Company currently has six rigs operating in Kenya and Ethiopia which are
focused on three main activities; 1) Drilling new basin opening wells; 2)
Drilling new prospects in the discovered basin in Northern Kenya; and 3)
appraising and testing existing discoveries.
Two basin opening wells are currently drilling with results expected in the
second quarter of 2014. The Sala prospect, on Block 9, is being drilled in the
Cretaceous Anza graben and will test a large anticlinal feature along the
northern basin bounding fault. This well is operated by Africa Oil which holds a
50% interest and operatorship with partner Marathon Kenya Limited B.V. holding
the remaining 50%.
The other new basin opening well is the Shimela well being drilled in the Chew
Bahir basin on the South Omo block in Ethiopia. This basin is located along the
Tertiary rift trend and has many similarities to the recent discoveries in
Kenya. The rig will move to the Gardim prospect following the completion of
Shimela which is a basin bounded fault prospect located in the southern portion
of this basin. The Company holds a 30% working interest in this block along with
operator Tullow Oil plc ("Tullow") (50%) and partner Marathon Ethiopia Limited
B.V. (20%).
Plans are also underway to drill prospects in three additional new basins this
year. The Dyepa-1 well will spud in the second quarter and will target the South
Kerio basin which is proximal and geologically similar to the discovered basin
in Northern Kenya in Block 10BB. This well is designed to test a basin bounding
fault prospect on the western flank of the basin similar to the string of pearls
field discoveries such as the initial Ngamia discovery. A number of additional
prospects have been identified in this basin which would be de-risked if Dyepa
is a discovery. This rig will then move to test the Aze prospect which is
located in the North Kerio basin and is comprised of a large, four-way dip
closed anticline on the southern shore of Lake Turkana.
The last basin to be targeted this year is the West Turkana basin in Block 10BA
in Kenya and the first well in this program is expected to spud later this year.
The first prospect to be drilled will be the Engomo (formerly Kiboko) prospect
on the western shore of Lake Turkana. It is also a basin bounding fault prospect
and has similar potential to prove a petroleum system that would lead to
accelerated drilling on a number of identified prospects. In both of these
basins, as in the discovered basin in Northern Kenya, the Company holds a 50%
working interest along with Operator Tullow Oil plc (50%).
The only well which is currently being drilled on a new prospect in the
discovered basin in Northern Kenya is 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.
This rig will now be moved to the Agete-2 location.
Three additional rigs are currently pursuing appraisal and testing activities on
the existing discoveries. The Sakson PR5 rig is continuing drilling operations
on the Twiga-2 up-dip appraisal well. 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. This rig will
then move to drill a down-dip appraisal of the Amosing discovery, which appears
to have high quality reservoir and may be one of the largest discoveries in the
basin to date.
The PR Marriott 46 rig is currently drilling ahead on the Ngamia-2 appraisal
well which is expected to be completed by the end of the second quarter. This
rig will then drill the Ngamia-3 appraisal well.
Testing operations are ongoing on the Agete-1 well using the SMP-5 rig and
expected to be completed by the end of May. The plan is for this rig to continue
testing operations on discovery and appraisal wells in the discovered basin in
Northern Kenya.
Additionally in Ethiopia, the Company has 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.
Africa Oil CEO Keith Hill stated: "We are looking forward to the results of the
new basin opening wells which have the potential to unlock significant value in
terms of new prospects and resources. The ongoing drilling in the discovered
basin in Northern Kenya has been quite helpful in understanding the distribution
of the best reservoir facies and will no doubt be enhanced by the ongoing 3D
seismic survey. We remain very bullish in not only the existing discoveries but
in the remaining prospects in the discovered basin in Northern Kenya such as
Etom, the largest remaining prospect along the Western 'String of Pearls' trend,
which will be drilled in the third quarter of this year. Our goal is to open up
at least one new basin and to move a significant number of barrels from
prospective to contingent resources by the end of 2014 as we move the field
development program forward."
The Company is also actively pursuing development studies in the Block 10BB/13T
area including commencement of the pre-front end engineering design (pre-FEED)
and environmental and social impact assessment (ESIA) studies for the pipeline,
export terminal and field facilities. It is the goal the Government of Kenya and
the joint venture partnership to achieve project sanction, including the
approval of an export pipeline, by the end of 2015/early 2016.
As was previously announced, the company has now graduated to the main board of
the TSX and plans to apply for graduation to the NASDAQ OMX Stockholm main
board.
Further Significant Events During The First Quarter of 2014:
-- Africa Oil ended the quarter with cash of $434.3 million and working
capital of $360.1 million.
-- In January, 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 indicated 160 to 200
meters of potential net oil pay in good quality sandstone reservoirs.
-- In January, 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 discovered basin in Northern Kenya in
Block 10BB. Logs indicated potential net pay of 20 to 80 meters to be
confirmed by well testing.
-- 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 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 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.
-- In Blocks 10BB and 13T, the 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 March, the Company completed a farmout transaction with Marathon
whereby Marathon acquired a 50% interest in the Rift Basin Area leaving
the Company with a 50% working interest. In accordance with the farmout
agreement, Marathon was obligated to pay the Company $3.0 million in
consideration of past exploration expenditures, and has agreed to fund
the Company's working interest share of future joint venture
expenditures to a maximum of $15.0 million with an effective date of
June 30, 2012. Upon closing of the farmout, Marathon paid the Company
$3.0 million in consideration of past exploration expenditures.
Subsequent to the quarter end, Marathon paid the Company $10.2 million
being Marathon's and the Company's share of exploration expenditures
from the effective date to the closing date of the farmout.
-- In March, the Company completed a farmout transaction with New Age
whereby New Age acquired an additional 40% interest in the Company's
Adigala Block leaving AOC with 10% working interest. In accordance with
the farmout agreement, New Age is obligated to fund the Company's 10%
working interest share of expenditures related to the acquisition of a
planned 1,000 kilometer 2D seismic program to a maximum expenditure of
$10.0 million on a gross basis, following which the Company would be
responsible for its working interest share of expenditures.
-- 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 development studies towards project sanction in the
discovered basin in Northern Kenya. This significant program in 2014 is
fully funded.
First Quarter 2014 Financial and Operating Highlights
Consolidated Statement of Net Loss and Comprehensive Loss
(Thousands of United States Dollars)
(Unaudited)
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Three months Three months
ended ended
March 31, 2014 March 31, 2013
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Operating expenses
Salaries and benefits $ 458 $ 563
Stock-based compensation 9,552 697
Travel 309 281
Office and general 184 203
Donation 750 100
Depreciation 17 13
Professional fees 195 103
Stock exchange and filing fees 189 200
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11,654 2,160
Finance income (436) (3,099)
Finance expense 126 1,051
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Net loss and comprehensive loss 11,344 112
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Net (income) loss and comprehensive (income)
loss attributable to non-controlling 206 (1,762)
Net loss and comprehensive loss attributable
to common shareholders 11,138 1,874
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Net loss attributable to common shareholders
per share
Basic $ 0.04 $ 0.01
Diluted $ 0.04 $ 0.01
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Weighted average number of shares outstanding
for the purpose of calculating earnings per
share
Basic 309,967,060 252,165,938
Diluted 309,967,060 252,165,938
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Operating expenses increased $9.5 million for the three months ended March 31,
2014 compared to the same period in the prior year. The increase of $8.9 million
in stock-based compensation is attributable to 5,958,500 stock options of AOC
issued to directors, officers and employees in the first quarter of 2014 of
which one-third vested immediately. The Company made $0.8 million and $0.1
million of donations to the Lundin Foundation in the first quarter of 2014 and
2013, respectively, resulting in a $0.7 million increase in operating expenses.
Financial income and expense is made up of the following items:
(Thousands of United States Dollars)
(Unaudited)
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March 31, March 31,
2014 2013
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Fair value adjustment - warrants (4) 2,727
Interest and other income 436 372
Bank charges (6) (8)
Foreign exchange loss (116) (1,043)
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Finance income 436 3,099
Finance expense (126) (1,051)
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At March 31, 2014, nil warrants were outstanding in AOC and 9.5 million warrants
were outstanding in Horn. AOC holds 2.2 million of the warrants outstanding in
Horn. The Company recorded a $0.004 million loss on the revaluation of warrants
for the three months ended March 31, 2014 due to an increase in Horn's share
price. The Company will record fair market value adjustments on the Horn
warrants until they are exercised or they expire (all expire in June 2014).
Interest income increased in the first quarter of 2014 due to an increase in
cash as a result of the brokered private placement in October of 2013.
Foreign exchange gains and losses are primarily related to changes in the value
of the Canadian dollar in comparison to the US dollar. Historically, the Company
has recorded foreign exchange gains when the Canadian dollar has strengthened
versus the US dollar, and has recorded losses when the Canadian dollar has
weakened versus the US dollar.
Consolidated Balance Sheets
(Thousands United States Dollars)
(Unaudited)
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March 31, December 31,
2014 2013
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ASSETS
Current assets
Cash and cash equivalents $ 434,333 $ 493,209
Accounts receivable 11,926 3,195
Prepaid expenses 1,332 1,379
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447,591 497,783
Long-term assets
Restricted cash 1,700 1,250
Property and equipment 94 103
Intangible exploration assets 567,907 488,688
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569,701 490,041
Total assets $ 1,017,292 $ 987,824
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LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 87,482 $ 57,976
Current portion of warrants 5 1
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87,487 57,977
Total liabilities 87,487 57,977
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Equity attributable to common shareholders
Share capital 1,009,953 1,007,414
Contributed surplus 33,159 24,396
Deficit (161,874) (150,736)
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881,238 881,074
Non-controlling interest 48,567 48,773
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Total equity 929,805 929,847
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Total liabilities and equity $ 1,017,292 $ 987,824
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The increase in total assets from December 2013 to March 2014 is primarily
attributable to intangible exploration expenditures incurred during the quarter
in Kenya, Ethiopia and Puntland (Somalia).
Consolidated Statement of Cash Flows
(Thousands United States Dollars)
(Unaudited)
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Three months Three months
ended ended
March 31, March 31,
2014 2013
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Cash flows provided by (used in):
Operations:
Net loss and comprehensive loss for the
period $ (11,344) $ (112)
Items not affecting cash:
Stock-based compensation 9,552 697
Depreciation 17 13
Fair value adjustment - warrants 4 (2,727)
Unrealized foreign exchange loss 117 1,119
Changes in non-cash operating working
capital (731) (750)
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(2,385) (1,760)
Investing:
Property and equipment expenditures (8) (14)
Intangible exploration expenditures (92,426) (39,266)
Farmout proceeds 13,207 -
Changes in non-cash investing working
capital 21,553 6,834
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(57,674) (32,446)
Financing:
Common shares issued 1,750 -
Deposit of cash for bank guarantee (450) -
Release of bank guarantee - 294
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1,300 294
Effect of exchange rate changes on cash and
cash equivalents denominated in foreign
currency (117) (1,119)
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Decrease in cash and cash equivalents (58,876) (35,031)
Cash and cash equivalents, beginning of
period 493,209 $ 272,175
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Cash and cash equivalents, end of period 434,333 $ 237,144
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Supplementary information:
Interest paid Nil Nil
Income taxes paid Nil Nil
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The decrease in cash for the three months ended March 31, 2014 is mainly the
result of intangible exploration expenditures and cash-based operating expenses,
offset partially by proceeds received on the Rift Basin Area farmout.
Consolidated Statement of Equity
(Thousands United States Dollars)
(Unaudited)
----------------------------------------------------------------------------
March 31, March 31,
2014 2013
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Share capital:
Balance, beginning of period $ 1,007,414 $ 558,555
Exercise of options 2,539 -
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Balance, end of period 1,009,953 558,555
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Contributed surplus:
Balance, beginning of period $ 24,396 $ 12,123
Stock based compensation 9,552 697
Exercise of options (789) -
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Balance, end of period 33,159 12,820
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Deficit:
Balance, beginning of period $ (150,736) $ (98,076)
Net loss and comprehensive loss
attributable to common shareholders (11,138) (1,874)
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Balance, end of period (161,874) (99,950)
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Total equity attributable to common
shareholders $ 881,238 471,425
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Non-controlling interest:
Balance, beginning of period $ 48,773 $ 47,551
Net income (loss) and comprehensive income
(loss) attributable to non-controlling
interest (206) 1,762
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Balance, end of period 48,567 49,313
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Total equity $ 929,805 $ 520,738
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The Company's consolidated financial statements, notes to the financial
statements, management's discussion and analysis for the three months ended
March 31, 2014 and the 2013 Annual Information Form have been filed on SEDAR
(www.sedar.com) and are available on the Company's website
(www.africaoilcorp.com).
Outlook
The Company expects to have six drilling rigs operating through the remainder of
2014, one of which is currently being utilized as a testing and completion rig.
Completion of the brokered private placement in October 2013 increased the
Company's liquidity and capital resource position which is expected to fully
fund the Company's portion of 2014 exploration, appraisal and development
activities.
The near term focus of exploration is to continue drilling and testing wells in
the discovered basin in Northern Kenya improving on recent cost efficiencies
realized while continuing to grow the Company's contingent resource base, and to
drill potential basin-opening wells in the Turkana, Chew Bahir, Kerio, and Anza
basins within Kenya and Ethiopia.
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 2014, the Company expects to drill six new basin opening wells, drill all key
prospects in the discovered basin in Northern Kenya, appraise existing
discoveries, and progress development studies towards project sanction in the
discovered basin in Northern Kenya.
Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya and
Ethiopia as well as Puntland (Somalia) through its 45% equity interest in Horn
Petroleum Corporation. Africa Oil's East African holdings are in within a
world-class exploration play fairway with a total gross land package in this
prolific region in excess of 215,000 square kilometers. The East African Rift
Basin system is one of the last of the great rift basins to be explored. Seven
new significant discoveries have been announced in the discovered basin in
Northern Kenya in which the Company holds a 50% interest along with operator
Tullow Oil plc. Good quality existing seismic show robust leads and prospects
throughout Africa Oil's project areas. The Company is listed on the TSX and on
First North at NASDAQ OMX-Stockholm under the symbol "AOI".
FORWARD LOOKING INFORMATION
Certain statements made and information contained herein constitute
"forward-looking information" (within the meaning of applicable Canadian
securities legislation). Such statements and information (together, "forward
looking statements") relate to future events or the Company's future
performance, business prospects or opportunities. Forward-looking statements
include, but are not limited to, statements with respect to estimates of
reserves and or resources, future production levels, future capital expenditures
and their allocation to exploration and development activities, future drilling
and other exploration and development activities, ultimate recovery of reserves
or resources and dates by which certain areas will be explored, developed or
reach expected operating capacity, that are based on forecasts of future
results, estimates of amounts not yet determinable and assumptions of
management.
All statements other than statements of historical fact may be forward-looking
statements. Statements concerning proven and probable reserves and resource
estimates may also be deemed to constitute forward-looking statements and
reflect conclusions that are based on certain assumptions that the reserves and
resources can be economically exploited. Any statements that express or involve
discussions with respect to predictions, expectations, beliefs, plans,
projections, objectives, assumptions or future events or performance (often, but
not always, using words or phrases such as "seek", "anticipate", "plan",
"continue", "estimate", "expect, "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe" and
similar expressions) are not statements of historical fact and may be
"forward-looking statements". Forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such forward-looking
statements. The Company believes that the expectations reflected in those
forward-looking statements are reasonable, but no assurance can be given that
these expectations will prove to be correct and such forward-looking statements
should not be unduly relied upon. The Company does not intend, and does not
assume any obligation, to update these forward- looking statements, except as
required by applicable laws. These forward-looking statements involve risks and
uncertainties relating to, among other things, changes in oil prices, results of
exploration and development activities, uninsured risks, regulatory changes,
defects in title, availability of materials and equipment, timeliness of
government or other regulatory approvals, actual performance of facilities,
availability of financing on reasonable terms, availability of third party
service providers, equipment and processes relative to specifications and
expectations and unanticipated environmental impacts on operations. Actual
results may differ materially from those expressed or implied by such
forward-looking statements.
ON BEHALF OF THE BOARD
Keith C. Hill, President and CEO
Africa Oil's Certified Advisor on NASDAQ OMX First North is Pareto Ohman AB.
FOR FURTHER INFORMATION PLEASE CONTACT:
Africa Oil Corp.
Sophia Shane
Corporate Development
(604) 689-7842
(604) 689-4250 (FAX)
africaoilcorp@namdo.com
www.africaoilcorp.com
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