Africa Oil has announced financial and operating results for the three months ended March 31, 2020. 

Africa Oil President and CEO Keith Hill commented: 
"I am delighted that today we are reporting on a positive quarterly period for the Company. The highlight is the closing of the Prime acquisition, giving us economic interests in three high quality producing assets. Excellent operations at these fields have resulted in Prime's strong financial performance for the period. Unfortunately, our transformational Prime acquisition has been followed by the COVID-19 pandemic that has impacted the international community to an extent that was unforeseen at start of the year. Our top priority is the safety of our employees, contractors and partners. We will continue to actively monitor the pandemic situation and take the necessary measures to mitigate its impact on our health and business performance. I believe that we should hope for the best and plan for the worst. I take great comfort in Prime's industry leading oil hedging position that provide for stable cash flows. More than 90% of Prime's production is hedged at an average price of $66 per barrel and most of its production for first quarter 2021 is hedged at an average price of $60 per barrel. Also, we have taken immediate steps to cut costs and defer discretionary capital expenditures. I am confident that we are in a robust position to ride out these turbulent markets and to emerge in a strong position to benefit from future business development opportunities."

FINANCIAL POSITION AND EARNINGS

The Company ended 2020 first quarter with cash of $72.5 million and working capital of $1.6 million in comparison to cash of $329.5 million and working capital of $290.7 million at the end of 2019. The reduction in the Company's cash position of $256.9 million is primarily attributed to its acquisition of a 50% shareholding in Prime, as described below.

In January 2020, the Company announced the closing of the acquisition of a 50% interest in Prime. The total payment by Africa Oil to close the acquisition, including the Nigerian Government's consent fee, amounted to $519.5 million. This includes a deferred payment of $24.8 million which is due by end of June 2020. The payment of $519.5 million was funded through a loan facility of $250.0 million with BTG Pactual ("Term Loan") and a cash payment of $269.5 million. A deferred payment of $118.0 million, subject to update, may be due to the seller depending on the date and ultimate OML 127 tract participation in the Agbami field.

The Company recognized a loss of $137.9 million during the first quarter of 2020. The operating income primarily relates to the Company's share of profit from its investment in Prime amounting to $85.6 million. Additionally, the Company recorded a net share of profit from its investments in Eco Atlantic, Impact Oil & Gas and Africa Energy amounting to $1.5 million. The operating income was offset by $218.0 million in operating expenses which primarily relates to the recognition of a $215.6 million impairment of intangible exploration assets relating to the valuation of the Kenyan development project and Block 10BA.

During the three months ended March 31, 2020, Prime paid two dividends for a total of $175.0 million with aggregate net payment to Africa Oil of $87.5 million related to its 50% shareholding interest. The Company applied $45.2 million of the amount received to reduce its BTG loan facility, which at the period end stood at $204.8 million. Africa Oil will apply any future dividends in priority towards the repayment of its BTG loan facility to accelerate the repayment of the loan principal amount, although the BTG loan is not due for repayment until January 2022.

Other than the Prime acquisition, during the three months ended March 31, 2020, the Company:

• Acquired a 20% participating interest in Block 3B/4B Exploration Right in South Africa from Azinam Limited for a consideration of approximately $3.0 million with Africa Oil assuming operatorship for the joint venture partners.
• Participated in a private placement for Impact Oil and Gas ("Impact"), investing approximately $12.0 million to acquire ~45 million shares, increasing the Company's ownership interest in Impact from ~29.9% at end of 2019 to ~32.2%.
• Participated in a private placement for Africa Energy, investing $5.0 million to acquire 20,930,000 million shares from a total of 104,652,174 shares, decreasing the Company's ownership interest in Africa Energy from ~34.5% to ~32.6%.

To finance its future acquisition, exploration, development and operating costs, including the Kenya development project, Africa Oil may require financing from external sources, including issuance of new shares, issuance of debt or executing working interest farmout or disposition arrangements. There can be no assurance that such financing arrangements will be available to the Company or, if available, that it will be offered on terms acceptable to Africa Oil.

SUBSEQUENT EVENTS

The Company's Kenyan Branch, of its wholly owned subsidiary, Africa Oil Kenya B.V., has been assessed for corporate income tax and value added tax by the Kenya Revenue Authority ("KRA") relating to farmout transactions completed during the period 2012 to 2017.

Subsequent to the period end, the Kenyan Tax Appeals Tribunal ("TAT") ruled in favour of the Company with regards to the corporate income tax assessments. However, the TAT ruled in favour of the KRA with regards to the VAT assessments which amount to $22.0 million. The Company maintains its position that the VAT assessment is without merit and has duly filed an appeal with Kenya's High Court to challenge the position. This will be heard in Q2 2020. A ruling against the Company would negatively impact the value of the South Lokichar project.

Prime's Reserve Based Lending Facility ("RBL") semi-annual redetermination was completed with a reduction in the anticipated 2020 principal repayments. Africa Oil had previously guided to a 2020 repayment of $315 million net to its shareholding in Prime. This is now estimated to be $255 million subject to the next redetermination scheduled for third quarter 2020.

COVID-19

Given the extraordinary market situation that the oil and gas business is facing in response to the global Covid-19 outbreak and the resulting reduction in world oil demand, we have witnessed an unprecedented level of volatility and commodity price weakness. We have seen encouraging steps taken by OPEC+, G20 nations and oil producers that we are confident should remove significant supply, helping to deal with the demand destruction we have witnessed and the resultant inventory build. We anticipate that these actions should flatten the curve of inventory builds and set a course to rebalance markets as COVID-19 related restrictions begin to reduce and demand recovers. However, there is no certainty as to the time it will take for oil demand to recover. In these uncertain times, the Company will continue to prioritize repayment of our long term debt, utilizing dividends received from Prime, as we have done in the first quarter. Operational performance at Prime's Nigerian assets has not been materially impacted after significant mitigation strategies were implemented. Prime's robust hedging program has mitigated the commodity price risk to date. In the Company's Kenya business, activities that can be completed safely in home/office environments have continued and all non-essential field activities have been suspended. Uncertainty related to market conditions caused by COVID-19 has resulted in additional non-cash impairment charges associated with the Company's Kenyan business.

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