SALAMANDER ENERGY PURE ASIAN ENERGY Salamander Energy PLC Annual Report 2009 Report Annual PLC Energy Salamander SALAMANDER ENERGY

Salamander Energy PLC Annual Report 2009 About us

Who we are, what we do Our strategy Salamander Energy is an Regional focus Capital allocation discipline Asia-focused independent Asia is home to high growth We maintain an 80/20 exploration and production energy markets, some of the allocation of capital employed company with 21 licenses largest producing basins in whereby 80% of capital across Indonesia, Thailand, the world and a variety of is allocated to lower risk Vietnam, Lao PDR and the exciting, frontier exploration production, development Philippines. regions with significant and appraisal assets, and potential. Regional focus 20% of capital is allocated to Overview Highlights of the year review and Chief Executive’s Chairman’s at a glance Salamander Energy helps the Group to anticipate higher risk exploration assets. and respond to changes in

1 2 4 In this way the Group can the operating and economic have sustained exposure to environment, as well as the benefits of exploration maintain and deepen its without putting the company network of contacts and at significant risk from the relationships. outcome of a single well or exploration drilling campaign. Leveraging regional knowledge and relationships Growing the business We believe our local organically and knowledge and relationships through acquisition with national and regional Our technical and senior governments, national oil management teams have companies, key service a significant breadth and providers and peers provide depth of experience in the us with a sustainable hydrocarbon basins of Asia. competitive edge. On a We also have a corporate

Business review Operational review Financial review Risk management Corporate Social Responsibility of Directors Board reserves and probable Statement of proved technical and operational finance skill set that has level, the Group uses its enabled the company to

10 18 21 23 26 28 knowledge and expertise identify situations it can gained from its producing capitalise on, and to transact and development assets in quickly and efficiently in its exploration and building its portfolio. appraisal activities. Maintaining a balanced portfolio Our portfolio is built upon a foundation of producing and development assets that offer long-life, stable and reliable cash flows. These cash flows are re-invested in high returning development and exploration assets that offer further growth. Moreover,

Corporate governance report Directors’ Corporate governance statement Remuneration report responsibilities Statement of Directors’ we look to ensure we have a portfolio with a blend of 29 33 38 44 different economic regimes and an appropriate mix of both oil and gas. Financial statements Independent auditors’ report Statement of accounting policies and general infomation Consolidated income statement Consolidated statement of changes in equity Consolidated balance sheet Consolidated cash flow statement Notes to the consolidated financial statements company balance sheet Parent company statement of changes Parent In equity company cash flow statement Parent company Notes to the parent financial statements Glossary Corporate directory Our offices 45 47 55 56 57 58 59 77 78 79 80 84 IBC IBC Agreement toacquire 50%interest and • Announcedseparatelytodaylaunchofa • Asiangasmarketscontinuetodevelopwith • Currently drillingBang Nouan-1exploration • Active2010drillingprogramme of12E&Awells • • Outlook netdebtof$115.4million(2008:$41.9million) depositsof$11.4million(2008:$12.1million)), (2008:$115.1million)(includingrestricted bank Year endfundsbalanceof$59.2million • Pre- taxlossof$3.0million(2008:$75.5million) • (2008:$53.3million) EBITDAXincreased by64%to$87.6million • (2008:$100.8million) Revenueincreased by56%to$157.1million • Financials Progressed todrill-ready status12well • Planofdevelopmentapproved forSouth • SuccessfulexplorationdrillingonBualuangdeep • Firstgasfrom theoperatedKambunafield, • 42%increase inproduction to13,600boepd • Operations Highlights oftheyear Northern Vietnam operatorship ofBlock101-100/04, Offshore used tobroaden anddiversifyAsianportfolio Convertible Bond,proceeds ofwhichwillbe dynamics attractive mediumandlongtermdemand well inLaoPDR (75 MMboeofnetriskedresource) targeting 340MMboeof netunriskedresource to be17,000–18,000boepd 2010 averagedailyproduction rateanticipated exploration programme for2010 Sembakung field,Indonesia and SouthSebukuprospects Offshore NorthSumatra Key performanceindicators Gearing 2007 2008 2009 2 1 2007 2008 2009 Three yearaveragefindingcostperboe 2007 2008 2009 per entitlementboe$ Operating cashflowpriortoworkingcapital 2007 2008 2009 Operating costperboe$ 2007 2008 2009 Production (workinginterest basis)boepd 2007 2008 2009 Reserves replacement ratio % 2007 2008 2009 MMboe Proven andprobable reserves (workinginterest basis) 2007 2008 2009 Lost timeincidents Gearing isdefinedasdebtdividedby debtplusequity. in theperiod. expenditures dividedbyworkinginterest reserves additions Finding costperboeisdefinedasexploration andacquisition 2 % 3.99 14.75 23.84 8 21 23 16.08 17.03 20.77 9.93 10.64 13.99 7,800 9,600 13,600 (2.5) 950 42 38.8 67.7 64.8 Zero Zero Zero 1 $

1 Overview Salamander Energy PLC Annual Report 2009 2 Overview Salamander Energy PLC Annual Report 2009 Chief Executive’s review Chairman’s and we planthedrillingprogramme beyond2010. would complementandbroaden thisportfolioas are constantlylookingtoaddfurtherlicencesthat prospects uptoadrillready state.Inaddition,we seismic dataandtoprogress otherleadsand work isbeingconductedtoacquire additional of itstwenty-onelicencesin2010.Furthertechnical programme theGroup willonlybedrillinginseven opportunities. Despitetheactiveexploration to capitaliseonmediumandlongterm Management isfocusedonpositioningtheGroup reward ofourdrillingprogramme. allows Salamandertooptimisetheriskandlikely combination ofriskprofiles andcareful selection technical workandinvestment.We believethis culmination of,insomecases,fouryearsofplanning, wells are operatedbySalamanderandare the with twelvewellsplanned.Nineofthese ratings from stepoutthrough tofrontier exploration test adiversityofplaytypeswithrangerisk value. Salamander’s 2010drillingprogramme will explorer &producer (‘E&P’)istocreate significant Exploration successisimportantifanindependent active yearofexplorationdrillingtodate. production growth whilstembarkingonitsmost regimes. In2010Salamandershouldachievefurther has fiveproducing assetsindifferent economic theKambunafieldnowon-stream theGroupWith flows tofunditsexplorationandappraisalactivity. of producing assetsthatwillgeneratesufficientcash progress towards itsgoalofbuildingadiversebase Over thepastfiveyearsSalamanderhasmadegood appraisal (‘E&A’) expenditure. partner andreduced planned2010explorationand provided theGroup withahighqualitystrategic outtoOriginEnergya fivelicencefarm which achievement duringtheyearwasagreement of daily averageof13,600boepd.Theothermajor for Group production whichrose by42%toa contributed toanotheryearofmaterialgrowth at theBualuangoilfield.Thesedevelopments ENERGY SALAMANDER a secondphaseofdevelopmentdrilling Kambuna field on-stream and completing objectives fortheyearinbringing The Group delivered onitskey were achievedduringtheyear. realisations of$53.97per bbland$4.03perMscf production grew throughout theyear. Average $59.3 million(2008:$25.5million)asdailyaverage Operating cashflowincreased by132%to $0.09 pershare (2008:$0.53). (2008: $66.5million).TheGroup reports alossof hedging charges andaloss aftertaxof$13.5million (2008: $75.5million)inclusiveofmarktomarket Group reports alossbefore taxof$3.0million year at$157.1million(2008:$100.8million).The Group reporting a56%increase inrevenue forthe Increased production levelswere reflected bythe Financials region, suchasSalamander. company withexperienceofoperatinginthe operating environment foranindependentE&P and NOC’s, combinetomakeAsiaanattractive operative nature ofthehostgovernments outlook, thedynamicAsiangasmarkets,andco- The relatively robust regional macro-economic removal ofsubsidiesoncompetingfuels. growing industrialeconomiesandbythecontinued by bothincreased powerdemandfrom these demand isexpectedtorisestrongly, underpinned mix relative tomore mature OECDcountries,gas levels ofgaspenetrationintheAsianprimaryenergy compared low tocirca. 25%inOECDcountries.With approximately 5%ofpowerdemandinAsia, demand forpower. Gasatpresent onlymeets Such strong GDPgrowth isdrivinganincreased forecast ofcirca. 1%intheUnitedKingdom. average 4.6%in2010.Thiscontrastssharplywitha GDP growth will inThailand,IndonesiaandVietnam expected tocontinuewiththeIMFforecasting that forefront oftheglobalreturntogrowth. Thistrend is It hasbeenwelldocumentedthatAsiaisatthe across thesectorin2010. a markedincrease inplannedexplorationdrilling seen thereturnofconfidenceinE&Psector, with an averagepricetodateof$77.00/bbl.Thishas of $39.08/bblandhasstabilisedin2010with The Brent oilpricerecovered from alowin2009 Oil andgasmarkets record ofnolosttimeincidents. report thattheGroup hasmaintaineditstrack commitment ofallstaff, andweare pleasedto made withoutcompromising onsafetyduetothe significant progress. Thisprogress hasbeen for anotheryearinwhichtheGroup hasmade commitment whichhavebeenthefoundation and staff fortheircontinued hard workand The Board would like to thank all of the management experienced andcapableteamsintheregion. Salamander hasassembledoneofthemost thank himforhiscontributiontotheGroup. was muchvaluedbytheBoard andwewouldliketo as aDirector oftheCompany. Mike’s experience Salamander Energy plc,Mike Sibsonhadresigned following theplacingof3i’s equityinterest in On 15May2009theGroup announcedthat, Board andstaff basin inLaoPDRandNortheastThailand. prove uplarge quantitiesofgasintheKhorat experience willbeinvaluableshouldthepartnership mid-stream expertise,webelievethecombined thepoolingofregional E&Pskillsand With Origin isakeystrategicpartnerforSalamander. gas whichislookingtoexpandinSoutheastAsia, with anexcellenttrackrecord ofcommercialising As apredominantly mid-anddownstream player exploration portfolio. Group canredeploy tofurtherbroaden the drilling success.Italsoreleases capitalthatthe with accesstomaterialupsideintheeventof 2010 programme, whilststillproviding investors sheet from exposure tothehigherriskwellsin licences. Thisdealprotects Salamander’s balance material positionsin,andoperatorshipof,allfive of appraisalexpenditure. Salamanderwillretain five blocksanduptoanadditional$40million first $50millionofexplorationspendacross the ofthedeal,Originwillpay Under theterms generation andenergy retailing. and gasexplorationproduction, power leading integratedenergy playerfocusedonoil approximately $14billionandisAustralasia’s listed companywithamarketcapitalisationof across three countries.OriginEnergy isanASX intofiveexplorationlicences (‘Origin’) farm had agreed atransactionthatsawOriginEnergy In December2009theGroup announcedthatit Portfolio management appraisal activities. investment intheGroup’s explorationand growth from ourexistingfieldstosupportcontinued and weexpectfurtherproduction andcashflow diversify itsportfoliothrough selectiveacquisitions base. TheGroup willalsoseektocontinue programme andcontinuestoexpanditsproduction exploration drilling a potentiallytransformational 2010 willbeayearinwhichtheGroup carriesout and developmentexpenditure. appraisal expenditure and$40millionofproduction approximately $55millionofexplorationand capital expenditure budgetfor2010willcomprise reduced theplannedE&Abudgetandtotal approximately downtoOrigin $95million.Thefarm Capital expenditure in2010isforecast tobe and addtoournear-term drillingoptions. to lookforopportunitiesbroaden theportfolio high valuestepouttargets. We are alsocontinuing from highrisk,volumeimpacttolow will target arangeofplaytypesandprospect styles mean prospective resource). Thedrillingprogramme mean prospective resource (75MMboeofnetrisked appraisal wellstargeting 340MMboeofnetunrisked The Group planstodrilltwelveexplorationand on theBualuangfield. Kambuna fieldandbyfurtherdevelopmentdrilling will bedrivenbyafullyearcontributionfrom the to between17,000and18,000boepd.Thisgrowth production forthefullyearisexpectedtoincrease has averaged16,300boepd.Group averagedaily In March 2010todateGroup dailyproduction Production updateandoutlook 17 March 2010 Chairman Charles Jamieson 17 March 2010 Chief ExecutiveOfficer James Menzies

3 Overview Salamander Energy PLC Annual Report 2009 4 Overview Salamander Energy PLC Annual Report 2009 1P reserves 1P reserves Thailand Salamander Energyataglance Prospects/leads Net unriskedresource (mmboe) 2P reserves 2P reserves Contingent resource Contingent resource Production Production Revenue Revenue Indonesia Broad portfoliooffuture opportunities,nearterm drilling provides balancedexposure tooilandgas. Exploration andappraisaldrillingtargetinventory 2 1 Thailand 9 8 Lao PDR 7 6 5 4 3 L13/48 L15/43 Saravan PSC Champasak and Savannakhet PSC B8/38 Bualuangfield L26/50 L27/43 L15/50 field EU1/E5 Sinphuhorm PD A EA E EA EA E E PD 10 Vietnam 0 KutaiPSC 20 19 18 17 16 15 14 3 Glagah-KambunaTAC 13 Indonesia 12 Philippines 11 DBSCL-01 PSC Bontang PSC Sangatta PSC South East Simenggaris JOA Bengara-1 PSC Java PSC Offshore NorthWest Sumantra PSC South East SC41 Block 31PSC E PD E EA E E Total portfolio PD E E ED 3 years+ 1,800 Liquids Liquids 14.5 13.5 35.2 41.5 93.3 70+ 0.4 7.8 5.9 3.8 5.4 P P E D A Key 24 –36months In production Exploration Under development Appraisal Near term 11.0 20.8 19.5 99.5 16.9 16.2 25+ 730 6.4 3.0 1.4 Gas Gas 16 109.5 Drilling 18.8 12.3 35.3 29.5 54.7 99.9 58.4 340 6.8 6.8 2010 Total Total 12 13 7 1 4 3 2 5 6 8 11 10 9 14 15 16 20 19 17 18 12

5 Overview Salamander Energy PLC Annual Report 2009 6 Business review Salamander Energy PLC Annual Report 2009 and appraisalactivities. is usedtofundexploration generated from production to fiveassets.Cashflow base hasbeendiversified in 2009,theproduction been brought on-stream the Kambunafieldhaving or underdevelopment.With fields currently on-stream in thecomingyearsfrom Further growth isexpected since Salamander’s inception. Production increased yearon Production has 7 Business review Salamander Energy PLC Annual Report 2009 Production continued

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Salamander operates over Annual production Mboepd (000s) 60% of its production. Being 2010* 17-18 2009 13.6 an operator of production 2008 9.6 and development assets 2007 7.8 Salamander has the skills * Forecast to work with key regional stakeholders such as NOC’s, host governments and regulators. Business review PLC Annual Report 2009 Salamander Energy 9

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1 3 Helicopter landing on Cats Cradle transferring Rubicon Vantage FPSO workers on to the Salamander successfully Kambuna platform drilled horizontal wells in the The current infrastructure Bualuang field in 2009 leading at the Kambuna field has the to a step up in production. capacity to handle a 20% Two more phases of horizontal increase in volumes above the development drilling are current contracted quantity planned for 2010. of 40 MMscfd. Marketing of these additional volumes 2 is expected to take place in Loading topsides on the H2 2010. Kambuna platform Gas prices at Kambuna 4 average $5.90 per Mscf with Rubicon Vantage FPSO, a 3% per annum inflator. Bualuang field, Thailand There were over 20 bidding The Rubicon Vantage has a parties in the auction 480,000 bbl capacity and sits reflecting the growing above the Bualuang field. In demand for gas across Asia. the event of success in the Gas prices in Indonesia have step out exploration, this more than doubled in the could be tied in to the FPSO past three years. and brought on-stream in a short time frame. 10 Business review Salamander Energy PLC Annual Report 2009 Operational review * 2007 2008 2009 2010* Annual production Mboepd(000s) Production the Group’s 2Preserves were 64.8MMboe. 5.0 MMboe.Asaresult, at 31December2009 total Group production for2009wasapproximately 2.1 MMboewere addedduringtheyear, whilst and anumberofotherminorrevisions, afurther of developmentfortheSouthSembakungfield, interest basis).Followingtheapproval ofaplan proved andprobable (2P)reserves (onaworking The Group started2009with67.7MMboeof 31/12/06 31/12/07 31/12/08 31/12/09 2P ReserveshistoryMMboe Reserves drill twelveexplorationandappraisalwells. the firstphaseofexplorationdrillingwithplansto interpretation andanalysis,2010seesashiftto licence capture, datagathering,seismicacquisition, After considerableeffort todatefocusedon in theexplorationportfoliotodrillablestatus. the Group wasbusymaturingnumerous prospects contribution. Inadditiontoitsdevelopmentactivity, 2010 asKambunaprovides afirstfullyear 13,600 boepdwithfurthergrowth expectedin daily production fortheyearincrease 42%to in Thailand.Thesedevelopmentssawnetaverage of developmentdrillingontheBualuangoilfield ENERGY SALAMANDER Forecast field andcompletingasecondphase on-stream theKambunagas-condensate made in2009withtheGroup bringing Significant operationalprogress was 7.8 9.6 13.6 17-18 42.3 38.8 67.7 64.8 systems onthe FPSO allowalloftheproduced water production andwaterbreakthrough. Water disposal pressure drawdown onthereservoir andbalance oil submersible pump(ESP)ratesare settolimitthe and toavoidexcessivewaterconing theelectrical are highlyproductive andsotoextendwelllife which shouldassistultimateoil recovery. Thewells andtherepermeability isaveryactivewaterdrive modelling andexpectations.Thereservoir hashigh in 2008.Wellislinewithreservoir performance disconnect from itsrisers since production began exceeded 99%andthevesselhasnotneededto barrels byyearend2009. TheuptimeontheFPSO The Bualuangfieldhadproduced 4,211,645million reserves recovery. reservoir simulationandthereby optimise choked backtomanageproduction inlinewith tested atover8,000bopdeachbefore being encountered excellentqualityreservoir rock and 2-3 metres belowthetopofreservoir. Bothwells measuring 250metres were drilledinatarget zone system andputonstream. Horizontalsections and were immediatelytiedintotheproduction in thesecondquarteracrestal area ofthefield two horizontalproduction wellswere completed horizontal producers andawaterdisposalwell.The which sawthedrillingofanexplorationwell,two was successfullycompletedinthefirsthalfof2009, the year. Asecondphaseofdrillingonthefield of Thailandaveraged8,900bopd(gross) through Production from theBualuangoilfieldinGulf (60%, Operator) Bualuang oilfield,BlockB8/38 Thailand Salamander willoperateover60%ofitsproduction. gas accountingforaround 35%ofproduction. to be57%liquidsand43%gaswithfixedprice field. Thecompositionof2010production isforecast by afirstfullyearcontributionfrom theKambuna development drillingontheBualuangoilfieldand boepd. Growth willbedrivenbyfurtherphasesof expected tobebetween17,000and18,000 production in 2010 with the average daily production It isexpectedthatthere willbefurthergrowth in stream inAugust2009. the Kambunagas-condensatefieldthatcameon benefited from afirstfullyearcontribution,and the BualuangoilfieldinThailand,where theGroup attributable totwoSalamanderoperatedassets, 66% liquidsand34%gas.Thisgrowth was increased by42%to13,600boepd.Thiscomprised The Group’s averagedailyproduction for2009 to completeinQ3 2010andwillhavethecapacity to facilities atPangkalan Brandan.Theseare expected Work onshore continues onthepermanent receiving been activated. Belawan. Atakeorpayprovision intheGSAhas and recommissioning ofanothergasturbineat volume inMarch 2010followingrefurbishment and wasrampinguptowards thefullcontracted production recommenced inearlyNovember2009 after Kambunagaswasgivenadedicatedpipeline, investigation, followingrepairs totheturbinesand Salamander’s deliverypoint.Oncompletionofthe the Kambunagasinpipelinedownstream of to othergasesthatwere being co-mingledwith on specificationandthattheproblem was related Kambuna’s gashadconsistentlybeendelivered the causeofproblem, thebuyeragreed that After conductingadetailedinvestigationinto unexpected carryoverofcondensateandwater. attheBelawanPowerPlantdue to burners buyer. Damagehadbeencausedtotheturbine when production wasshutinattherequest ofthe contracted volumeof40MMscfdinlateSeptember The fieldhadjustfinishedrampinguptofull in August2009through earlyproduction facilities. successfully completedandfirstgaswasproduced The developmentoftheKambunafieldwas Glagah-Kambuna TAC, (50%,Operator) Kambuna gasandcondensatefield, Indonesia arepermits received. and thesurveyisplannedforlate2010onceall 3Dseismicprogrammethe Sinphuhorm isadvancing Environmental toallowtheacquisitionof permitting 2010 willseetheworkoveroftwoproduction wells. of 2010averagedailynominationswere 82MMscfd. averaged 92MMscfdandforthefirsttwomonths turbines. Nominationsforthesecondhalfofyear due toanextensivemaintenanceprogramme onthe were atareduced levelintheearlypartofyear year. Nominationsfrom theNamPhongpowerplant Northeast Thailand,averaged85MMscfdforthe Production fromfield,onshore theSinphuhorm Sinphuhorm Field,Production licence(9.5%) in excessofthe2009dailyaveragevolumes. development andshouldsustainproduction atarate slant wellsdrilledinthefirstphaseofBualuang wells drilledinQ42010.Thesewillreplace the wells drilledinlateQ12010andthree horizontal are plannedin2010thatwillseefourhorizontal rate. Two furtherphasesofdevelopmentdrilling injection capacityisthree timesthecurrent water to bere-injected intothereservoir andexisting oil payatthisinterval. Atthedeeperobjective found tobeoil bearing withsome7metres ofnet were encountered abovetheT4reservoir andwere the mainfieldtodate.Three additionalsandstones T4 reservoir sandstones,thethickestpenetrationin encountered a32metre oilcolumninthemain sands belowthemainBualuang reservoir. Thewell exploration welltoinvestigate the potentialof the pilotholeforfirsthorizontalproducer asan Bualuang oilfield,inApril2009theGroup used As partofthesecondphasedrillingon Block B8/38(60%,Operator) Thailand Exploration the consortiumofbuyers. in late2011.Thepipelinewillbeconstructedby plant andproduction isexpected tocommence via pipeline,tothenearbyBunyuIslandMethanol linked tomethanolprices.Thegaswillbesent, a minimumpriceof$3.00perMscfplusaninflator 20 MMscfdofgasoveranelevenyearperiodat The agreement coversthesupplyofapproximately Sembakung field,SimenggarisPSC,EastKalimantan. Medco GasIndonesiaforgassalesfrom theSouth signed withPTPertaminaGas(Pertagas)and In August2009,aGasSalesAgreement was Simenggaris PSC(21.5%) South SembakungDevelopment, to continueinfilldrillinglaterin2010. of 62,000boepd(gross) andtheoperatorhasplans Southeast Sumatrasawproduction atbudgetlevels Production fortheyearwas61,000boepd(gross). is plannedfor2010andalready underway. starting in2011.Anaggressive drillingprogramme APNE developmentin2010withproduction The operatoristargeting commencementofthe submitted aplanofdevelopmentforthesereserves. appraised theAPNEgasfieldandprepared and which hadbeenlaggingbehindbudgetandalso interest. Pertaminawasabletoincrease production operatorship in2009withPertaminabuyingoutBP’s Offshore NorthwestJavasawachangeof Southeast SumatraPSC(5%) Offshore NorthwestJavaPSC/ priority forboththelocalauthoritiesandGroup. bringing additionalvolumeson-stream willbea production facilities, hasswitchedtothepermanent requires additionalbaseloadpowersupply. Once to powergenerationfortheCityofMedanwhich Kambuna gasisalready animportantcontributor handle inexcessofthecurrent contractedvolumes.

11 Business review Salamander Energy PLC Annual Report 2009 12 Business review Salamander Energy PLC Annual Report 2009 provide afollowondrillingtarget for2011. large, potentiallygasbearingstructure whichcould the presence ofanotherpreviously unknown, Initial interpretation of the seismic data also indicates scheduled ontheDaoRuangstructure inQ42010. reservoir tobeenhanced. Two appraisalwellsare Salamander expectstheproductive capacityofthe to locateslantedwellstargeting thosezoneswhere identify thefracture zones withinthestructure and is underway. Thisinterpretation willbeusedto The dataqualityisexcellentandinterpretation Processing ofthis3Ddata hasnowbeencompleted. within thePhaNokKhaocarbonatereservoir. which isdesignedtoidentifythefractures present multi-azimuth 3DseismicsurveyinThailand, 2009 theGroup acquired thefirsthigh resolution, been basedon2Dseismicdata.Attheendof appraisal drillingintheKhoratbasinhastodate 600 Bcfofresource potential.Explorationand Dao Ruangthatisthoughttohaveapproximately Western Khoratandcontainsagasdiscoverycalled Block L15/50istheGroup’s operatedacreage inthe L15/50 (50%,Operator) in 2011andbeyond. additional prospects willbeidentifiedfordrilling of the3Ddataiscompleteitexpectedthat structures isplannedforH22010.Onceprocessing on theEastTerrace andononeofthesatellite and theexplorationprospects. Explorationdrilling across theconcessiontofurtherdefinemainfield Early in2010a3Dseismicsurveywascompleted identified onthecoarsegridofold2Dseismicdata. structures toBualuanghavebeen similarinform contain upto7MMboofrecoverable reserves. Two fault compartment,theEastTerrace, thatcould of themainBualuangoilfieldthere isanundrilled other leadsandprospects. Adjacenttoandeast The B8/38production licensecontainsnumerous been reprocessed andthefield re-mapped. the recently acquired B8/383Dseismicsurveyhas commercial andwillbemore fullyevaluatedonce additional discovered resources are potentially intersected intheT2Oligocenesection.These below theT4reservoir, 8metres ofnetoilpaywere Operational review continued Thai side,ofthe basin.TheBangNouan-1 play fairwaythat isproductive inthewestern, extension ofthePhaNokKhao formation 700 Bcfand1.2Tcf ofresource potentialonan Bang Nouanprospect isestimatedtohavebetween drilling locationfortheBangNouan-1 well.The field surveys,enabledSalamander toselectthe which, alongwithgeo-chemicalsamplingandother acquired todelineatethe BangNouananticline These includedinterpretation ofthe2Dseismicdata the drillingofBangNouan-1wellinQ12010. Preparations were madethroughout 2009for Savannakhet PSC(30%,Operator) Lao PDR sandstones shallowerinthewell. fracture testingonthethinner butbetterquality preparations are furtherhydraulic inhandtoperform tight anddidnotflowontest.Sinceearly2010 porosity volume.Assuch,thezoneremained and didnotopenthewellbore uptoaconnected the hydraulicfracturingtonaturallyweakerzones The tightnessoftherock limitedtheeffectiveness of was undertaken. the LowerNamPhongformation and hydraulicfracture testingofthethicksands The wellencountered gasshowsatnumerous levels sandsintheJurassic andTriassic.low permeability Basin ofNortheastThailand.PhuKheng-1targeted Phu Kheng1explorationwellintheKhoratPlateau Salamander alsoparticipatedinthedrillingof L27/43 (27.2%) below theclosure oftheSiThatstructure. productive horizonsencountered inthewellare Nok Khaobutunfortunatelyitappearsthatthe enhanced thereservoir properties ofthePha results in2010indicatethatthefracturinghas the PhaNokKhaocarbonatereservoir. Drilling over thestructure, wastargeting fractures within The location,chosenonthebasisof2Dseismic of theSiThat-3appraisalwellinNortheastThailand. In late2009Salamanderparticipatedinthedrilling L13/48 (16.3%) future explorationdrillinginBlockL26/50. would therefore encouragetheGroup toconsider prospect andanysuccessintheBangNouanwell to thegassource kitchenthantheBangNouan PSC, LaoPDR.Thestructures inL26/50are closer across theMekongriverinGroup’s Savannakhet characteristics totheBangNouangasprospect potentially gasbearing,structures withsimilar Interpretation ofthisdatahasidentifiedfourlarge, A 2DseismicsurveywascompletedinQ12009. L26/50 (50%,Operator) exploration well spudded on 19 February 2010 Kutai PSC (23.4%) and results are expected in late April 2010. The Kutai PSC comprises first phase relinquishments around a number of giant fields in the Mahakam Indonesia delta including Tunu (1,600 MMboe) and Attaka Bontang (90%, Operator) (800 MMboe). The operator completed a 2D seismic During the first half of 2009 the Group completed survey in 2009 that has firmed up a number of an additional 3D seismic survey over the Bontang drilling prospects thought to have mean prospective PSC to extend coverage to the East where mapping resources in the 35-70 MMboe range. Two of these indicated additional prospectivity. The Bontang PSC prospects are scheduled for drilling in 2010. lies at the northern end of the prolific Kutei basin Vietnam and has been unexplored since the 1980’s. The 3D seismic data has defined multiple prospects with DBSCL-01/Block 31 cumulative mean potential resource in excess of (75% and 35%, Operator respectively) circa. 500 MMboe. The Angklung prospect has been In March 2009 the Group signed a PSC for Block 31, selected as the first exploration drilling target on offshore southern Vietnam. This block is adjacent to the block and the well is expected to spud later in Salamander’s operated DBSCL-01 PSC and the two Q2 2010. Angklung is a fault bounded closure with blocks cover the entire extent of the undrilled Vinh sandstone reservoir targets in the Middle Miocene Chau Graben. Salamander believes that the Vinh and potentially contains unrisked prospective Chau Graben could be analogous to the nearby resources of 125 MMboe. The main risk on the prolific Cuu Long Basin. prospect is the development of sandstone reservoirs The Group completed the acquisition and although sandstones were found by a 1971 Unocal interpretation of new 2D seismic data across both well, Bungalun-1, drilled outside structural closure blocks in the first half of 2009. The data indicates the only a few kilometres from the site of the Angklung-1 presence of basal Tertiary Lacustrine rocks that are well. There are numerous prospects to follow on also developed in the Cuu Long Basin where they from Angklung 1 and Salamander has recently Business review PLC Annual Report 2009 Salamander Energy are the high quality oil source for the reserves found

secured a four year extension to the PSC and a 13 in that basin. The Vinh Chau seismic also revealed rearrangement of licence commitments to allow numerous structural play types including stacked sufficient time to fully evaluate the potential of Tertiary sandstone reservoirs and fractured pre- the block. Tertiary basement. A number of prospects with mean The Group also completed a gas marketing study resource potential of between 50 and 80 MMbo focussed on the local Bontang area. The results each have been identified. Exploration drilling is of this study suggest that the Tutung discovery, planned to commence in H1 2010 with the Rock appraised by Salamander in 2008, could be Lobster 1 well targeting mean prospective resources commercially exploited if tied to an independent of 57 MMbo and the Tiger Prawn 1 well targeting power plant development. The Group plans to mean prospective resources of 82 MMbo. There complete a further appraisal well on Tutung in an are multiple further targets on the block with mean onshore location during 2010 with a view to pursuing cumulative resource potential of circa. 225 MMbo. such a development option in 2011.

On 3 March 2010 the Group announced the acquisition of an additional 20% interest in the Bontang PSC taking its equity interest to 90%.

Bengara PSC (41.7%) The South Sebuku-1 exploration well was drilled Mike Buck Chief Operating Officer in June 2009 and encountered gas in four zones. 17 March 2010 Two of these zones were tested and flowed at a cumulative rate of 10.9 MMscfd. An appraisal well is planned for H2 2010. Providing this is successful, then it is anticipated that South Sebuku discovery would be developed via a tie in to the South Sembakung field, located only 15 kilometres away. In February 2010, the Group increased its equity in the Bengara PSC from 25% to 41.7%. 14 Business review Salamander Energy PLC Annual Report 2009 through tofrontier exploration. of riskrating,from stepout of playtypeswitharange resource across adiversity 340 MMboeofnetunrisked programme willtargetover Salamander’s 2010drilling production (‘E&P’)companies. independent explorationand Exploration unlock valueandtransform Exploration successcan 15 Business review Salamander Energy PLC Annual Report 2009 Exploration continued

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2 3 The Group has a technical team with the depth and experience to compare with any in the region. Understanding the geology of the basins we work in better than anyone is a clear competitive advantage.

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1 to the Bualuang field and 4 The South Sebuku discovery Khorat seismic database possible analogue structures. Drill bit from the Century will be further appraised Database of wells and These are high value barrels 26 rig, Bang Nouan well site, in 2010 and if successful, seismic is prerequisite to that could be on-stream in Lao PDR it is expected this will understanding geology and a short period of time. The Bang Nouan-1 be tied in to the South hydrocarbon plays. Poor exploration well is located Sembakung development 3 imaging in this region has in the Salamander operated 15 km to the South. Structural map led to moderate success. Savannakhet PSC in Lao of geology offshore Salamander’s acquisition of PDR. The well is testing to Southern Vietnam the first hi-resolution 3D in see if there is an eastern Salamander operates two the Khorat is a potential extension of the Khorat basin. blocks covering a graben game changer and drilling Bang Nouan is one of six Tcf system that is geologically on Dao Ruang will be first sized structures located in related to the prolific Cuu targets identified on 3D. Salamander operated acreage Long basin. The Vinh Chau straddling the Mekong river 2 graben lies in a restricted between Thailand and 3D seismic vessel environment the same side Lao PDR. operating in Block B8/38, of the Nam Con High as Gulf of Thailand the Cuu Long. The Group 5 The Group has acquired believes this has lead to the Operations on the 3D seismic across Block development in the Vinh South Sebuku-2 appraisal B8/38 to better image the Chau graben of what appear well, Bengara PSC, Bualuang field and the to be the same high quality, East Kalimantan exploration prospects in the oil prone, lacustrine source The Group completed two acreage around it. These rocks that generate the oil E&A wells in 2009, both include fault terraces adjacent in the Cuu Long. of which were successful. 18 Business review Salamander Energy PLC Annual Report 2009 Financial highlights Financial review in theforward curveduring2009enabled the entitlement oilproduction. Thesubsequent increase programme hedged45%oftheGroup’s 2009 for theperiodJulytoDecember 2009.This purchase of1,500bpdputoptionsat$54.00/bbl period FebruarytoDecember2009 plusthe of 2,500bpdatanaverage$53.83/bbl forthe February 2009onwards byaforward sale(swap) these hedgeswere subsequently replaced from for secondhalf2009.Ascrudepricesstabilised, bpd forfirsthalf2009increasing to4,000bpd the Group hadpurchased $45.00/bblputsfor2,500 protect itscapitalbudget. InNovember2008 a minimumfloorpriceof$45.00/bblandthereby implemented anoilhedgingprogramme tosecure late 2008andearly2009theGroup Commodity marketsremained highlyvolatilein impact ofoilpricehedging. reflecting boththemarketconditionsand oil pricefor2009was$53.97/bbl(2008:$60.52/bbl), on aworkinginterest basis.TheGroup’s realised Production andrevenue Net debt Capital expenditures: Operating cashflow(priortoworkingcapital (Loss)/profit before taxation Operating costsperboe: Proportion ofproduction hedged(workinginterest) Revenue Realised prices: Gearing 2 1 Entitlement production: ENERGY SALAMANDER (development andproduction) Property, plantandequipment Intangibles (explorationandappraisal) per entitlementboe) Gas Oil andliquids Gas Gearing isdefinedasdebtdividedbyplusequity See note21totheconsolidatedfinancialstatementsforfurtherdetails Oil andliquids 2 1 production levelof13,600boepd production growth toadailyaverage $157.1 milliondrivenby42% Revenue in2009grew 56%to Group gasproduction. Fixed priceIndonesiangascontributed64%of averaging $3.20perMscf(2008:$3.00Mscf). Indonesian gascontinuedtotrend upward, (2008: $8.90perMscf).Therealised priceof realised anaveragepriceof$5.50perMscfin2009 gas, whichisindexedtomediumsulphurfueloil, contribution ofThaigastoGroup production. Thai The fallinaveragerealised gaspricesreflected the that secured aminimumfloorpriceof$60.00/bbl. Group tocompleteahedgingprogramme for2010 $’millions $’millions $’millions $’millions $’millions MMscf/d $/Mscf Mbpd $/bbl Units % % $ $ 22,500 20.77 13.99 157.1 53.97 115.4 7,200 85.8 34.6 29.0 4.03 (3.0) 2009 23 21,300 507.9 206.7 17.03 10.64 100.8 60.52 3,100 (75.5) 4.99 41.9 2008 21 – 18,300 16.80 71.75 1,500 (97.3) 13.2 45.4 9.93 18.0 69.6 4.34 2007 8 –

These charges were asfollows: for 2009-2011andcurrency exchangegains. commodity price,interest ratehedgingprogrammes mark tomarketcharges against theGroup’s (2008: gainof$3.6million)comprisednon-cash Other financiallossesin2009of$12.3million period at2.17%. April 2009.Liborwasswapped(fixed)forthe exposure forathree yearperiodcommencing a swapforapproximately 50%ofitsinterest rate what were historicallylowLiborratestoexecute During Q12009,theGroup tookadvantageof Finance charges other explorationexpensesincurred during2009. in 2008,alongwithpre-acquisition expenditures and included write off of Dong Mung-3 drilled inThailand Exploration expenses of $11.4 million (2008: $46.2 million) Exploration expenses take-or-pay obligationsonthebuyers. levels. Kambunaproduction iscovered by remedied andproduction wasreturningtoexpected of February2010thisgasofftake problem hadbeen buyers shutdownofitsgasturbinegenerators.As 24 September2009toyearendduethegas shutdown ofKambunaandrestricted production from the increase on2008beingduetothepartial operating cost was $13.99/boe (2008: $10.64/boe), production on 11 August 2009. The 2009 unit Bualuang field,whilsttheKambunafield commenced ramp upandafirstfullyearofproduction from the up ontheKambunafield.2009sawcontinued production from the Bualuang field and a phased ramp increase in operating costs was a function of a full yearscosts were $69.4million(2008:$37.2million).The (2008: $125.6million),withinwhichdirect operating Cost ofsalesfor2009totalled$123.7million Cost ofsales Loss oninvestments Libor interest rateswapat2.17%forapproximately 50%ofinterest 2010 oilpricehedges(zero costcollarsof2,500bblswith putof Reversal ofgainto31December2008inrespect of2009hedges 2009 oilpricehedges(swapof2,500bpdat$54.00/bblandput of Total Currency exchange gain rate exposure $60.00/bbl andcallof$90.00/bbl) $60.00/bbl andcallof$78.15/bbl &1,500bblswithputof (put of2,500bpdfor1H’09and4,0002H’09$45.00/bbl) 1,500 bpdat$54.00/bbl) $21.1 million(2008:paymentsof$10.8million). by operatingandadministrativepaymentsof from theIndonesiaoperations;offset inpart operations and$18.2million(2008:$27.6million) (2008: $12.8million)from theGroup’s Thailand $20.77 (2008:$17.03).Thiscomprised$86.6million to operatingcashflowperentitlementbblof adjustments (2008:($40.4million),whichequated of operatingcashflowpriortoworkingcapital during 2009.TheGroup generated$83.7million Operating cashflowgrew strongly, by109%, Operating cashflow of $23.6million). a deferred taxcredit of$13.3million(2008:credit tax charge of$23.9million(2008:$14.6million)and (2008: credit of$9.0million)comprisedanincome The 2009taxationcharge of$10.6million Taxation $ ‘millions (12.3) (1.1) (9.2) (2.3) 2009 0.3 – – $ ‘millions (0.2) 2008 2.3 1.5 3.6 – – –

19 Business review Salamander Energy PLC Annual Report 2009 Financial review continued In December 2009, the Group signed a $30.0 million subordinated junior facility as an extension to its existing senior reserves based lending facility. The subordinated facility is with existing lenders BNP, the IFC and Natixis. To date this facility has not been Investing cash flow drawn down. The 2009 cash flow used in investing activities was $119.1 million compared to 2008 of Post balance sheet events $300.5 million. 2008 investing activities included During February 2010 the Group increased its $32.7 million of acquisition costs relating to GFI. equity interest in the Bengara PSC from 25% to Exploration and appraisal expenditure during 2009 41.67% having assumed incremental equity from of $32.1 million (2008: $133.1 million) included PTTEP following the drilling of the South Sebuku investment into Thailand of $14.8 million gas discovery well in 2009. (2008: $37.4 million), Indonesia of $9.4 million (2008: $166.8 million), the Philippines of $1.0 million On 15 February 2010, the Group announced that the (2008: $19.1 million), Lao PDR with credit of Si That-3 had been unsuccessful. Further analysis will $2.1 million farm out proceeds (2008: $7.8 million) be completed during 2010 to determine whether the and Vietnam of $8.7 million (2008: $17.6 million). structure merits further analysis. These programmes delivered necessary preparations On 3 March 2010, the Group increased its equity for drilling activities during 2010. Production position in the Bontang PSC from 70% to 90% by expenditures included investment in Thailand of acquiring PT Eksindo Petroleum Tabuhan’s 20% share $24.4 million (2008: $37.4 million), predominantly in consideration for the issue of 792,942 Salamander being the development drilling of Bualuang; and Energy plc shares. Indonesia, $63.6 million (2008: $166.8 million), predominantly the development expenditures During March, the Group agreed to acquire a 50%

Business review PLC Annual Report 2009 Salamander Energy for Kambuna. operated interest in Block 101-100/04, in the Hanoi

20 Trough offshore Vietnam, from Santos Vietnam Pty Financing cash flow Ltd and Singapore Petroleum Vietnam Song Hong Co Ltd with the proposed drilling of one well 2011. 2009 cash flow from financing activities was $9.9 million (2008: $259.6 million). The 2009 On 18 March 2010, the Group will announce the amount included net additional drawdowns of proposed issue of an up to $100 million convertible $16.9 million against the Group’s senior $200 million bond. It is intended that the funds will be applied seven year reserves based lending facility in addition towards the acquisition of new opportunities. to the $160.9 million drawn in 2008, whereas 2008 included the initial drawdown against the facility on signing of $160.9 million. During 2009, payment of interest against the facility was $5.9 million (2008: $5.9 million). 2008 also saw the Group raise net equity of $179.2 million with a placing and

open offer. Nick Cooper Chief Financial Officer Cash and net debt 17 March 2010 During 2009, the Group’s net cash outflow totalled $55.6 million (2008: $15.4 million). With the additional drawdown of debt against the Group’s $200 million reserve based lending facility, closing net debt increased to $115.4 million compared to year end 2008 of $41.9 million.

At year end 2009 the Group’s cash and cash equivalents was $47.8 million (2008: $103.0 million). In addition, the Group held funds of $11.4 million (2008: $12.1 million) in deposit accounts pledged as security against bank guarantees issued on behalf of the Group. Risk management

The identification of, and mitigation for, risks are of critical importance to the Group as it continues to grow and broaden its operations across Asia in a challenging economic environment.

The Group’s Executive Directors continually monitor the Group’s risk exposures and formally SALAMANDER reportENERGY to the Audit Committee on a six monthly basis, with more frequent updates on particular risks or situations as required. The Audit Committee provides oversight whilst ultimate authority remains with the Board of Directors.

The table below summarises the Group’s key risks, as currently identified, and the related mitigating actions.

Strategic risks

Group’s strategy execution fails to create shareholder value Identification and mitigation of risk • A comprehensive risk register is maintained that covers strategic, operational, financial and other risks together with the specific mitigating factors. Board, Audit Committee and senior management are regularly updated on the Group risk register and profile. Incorrect portfolio mix • Diverse base of oil and gas assets with a mixture of fiscal regimes. Capital allocation • Consistent 80/20 capital allocation (80% capital into discovered reserves and resources; 20% into exploration) • Annual budgeting process approved by Board. Board reviews allocation of capital against stated 80/20 guidance. Organic and acquisition led growth • Board level discussion and approval of growth strategy and any acquisitions.

Regional macroeconomic issues • Regular monitoring of regional economic, political, oil, gas, power market information. Business review PLC Annual Report 2009 Salamander Energy • Specific market analysis by reputed third party experts where required. 21

Operational risks

Operational events that impact on operational delivery, corporate reputation, revenues HSE • Group HSE policy reinforced at all levels of operations. Group compliance with World Bank’s Equator Principles. Clear incident reporting and investigation procedures. • HSE staff professionals active in each country of operations. Drilling operations • Robust internal debate and challenge at all levels of exploration process, consistent approach to technical and commercial risking of drilling activities. Oil/liquids spill at operated asset • Clearly established protocol for dealing with spill or other operational emergencies. Local community issues • Robust public consultation on the ground in operational areas. Corporate Social Responsibility • Detailed CSR policy and programmes implemented across operations. • CSR initiatives lead at the country level and overseen by CSR Committee and Executive Team. • Group compliance with World Bank’s Equator Principles. Rig and services availability • Planning process in place that allows sufficient time for procurement. Insurable risks • The Group maintains insurances to reduce the potential impact of the physical risk associated with its oil and gas activities. • The Group’s insurance programme is in line with standard industry practice and includes insurances against drilling activities, operator’s extra expense, construction all risk, certain business interruptions and general liability. Asset performance • The Group’s portfolio is increasingly diversified, reducing exposure to any individual production, development, exploration or appraisal asset. 22 Business review Salamander Energy PLC Annual Report 2009 Liquidity risk Underperforming assets,financialconstraintsleadtostress forthe Group Financial risks Risk managementcontinued Fiscal regime Market, industryorpoliticalrisksthatmayimpactonGroup operationsorcashflows Other risks Additional detailoncertainfinancialrisksare set-outinnote24totheconsolidatedfinancialstatements. The Group upholdsacodeofgovernance andcontrol policies,coveringallareas ofits • issues Corporate governance Investor sentiment Debt levelsandcapitalstructure Interest raterisk Credit andcounterparty risk Foreign exchangeexposure Capital andoperatingcosts Oil price

RegularlegalappraisalofcompliancewithCombinedCodeandother • TheBoard maintainsaregular dialoguewiththeGroup’s shareholder baseto • TheGroup seekstofosterandmaintainstrong linkswithhostcountrygovernments, • TheGroup hasadoptedaconservativeleveragingofitsbalancesheet,constantly • Approved atBoard level. • TheGroup periodicallyreviews itsinterest rateexposure andhashedgedapproximately • Itmonitorsclosely thefundingpositionofbothJVpartnersandkeycontractors, • TheGroup investssurpluscashwithbanksofstrong, stableinvestment grade. • Credit andcounterpartyrisktotheGroup taketwoforms: • TheGroup accountsandreports inUSDollarsandmakesefforts topreserve fundsinUS • Regularreview ofGroup operatingandoverheadcosts. • Constantmonitoring ofGroup’s capitalinvestment programme andappropriate sourcing • 2010hedging programme implemented(asdescribedpreviously in FinancialReview), • Defensivehedgingstrategyimplementedasappropriate tominimisedownsiderisk • PSCeffects andcertainfixedpricegascontractsinGroup’s production basepartially • Budgets,forecasts andrelated committedanddiscretionary capitalrequirements are • TheGroup managesitsliquidityrisk(ensuringsufficientcapitalisavailabletomeetnear • regulatory guidelines. HSE andCSR. activities includingbusinessethics,financialgovernanceandcontrol, procurement, communicate strategyandunderstandinvestorpreferences. regulators, nationaloilcompaniesandotherdomesticindustrypartners. related covenants. monitoring theamountandstructure ofitsdebtandongoingcompliancewith 50% ofitsLIBORrateexposure. prepares contingencieswhere possible. maintains closedialoguewiththosethoughttobehighrisk,takesmitigatingactionand – – known anddeterminedexposure. Dollars. TheGroup mayenter intoforeign exchangehedgeswhere theGroup hasa of contractorsandservices. 2011 hedgingprogramme underreview atpresent. the Board. to Group cashflows,businessplananddebt related coverageratiosandagreed by hedge oilpricevolatility. monitored toensure compliancewiththecorporate fundingplan. and mediumtermfundingrequirements) viaaformal budgetingandforecasting process. owned assetortofunditscontractualproduct purchases. the riskthatacounterpartycannotcontinuetofunditscontributionsjointly provide aserviceorproduct totheGroup ortosettleoutstandingamounts due,and the riskthatacounterparty, includingfinancialinstitutions,cannotcontinueto Oil inproduced waterdischarged (tonnes) Produced waterdischarged (tonnes) Oil andchemicalspills–released totheenvironment (litres) Key metrics challenge thattheoperatingunitsreadily accept. including localcommunities,ismagnifiedandita Group toactinthebestinterest ofallitsstakeholders, As Salamandercontinuestogrow, theneedfor it isfulfillingitscommitmentsinthis regard. Group isregularly auditedbytheIFCtoensure that a lender, shareholder andpartnertoSalamander, the FinanceCorporation (“IFC”)being the International sound environmental managementpractices.With ensuring projects are sociallyresponsible andreflect Bank Equatorprinciplesthatprovide abenchmarkfor The Group iscommittedtoadheringtheWorld the materialissuesforSalamander. emissions data.Thesekeymetricsidentify first timeis reporting onitshealth,safetyand to broaden itsCSRreporting metricsandforthe Executive. TheGroup hasalsotakenthedecision Steering Committee,headedbytheGroup Chief operating unitsandreport backtotheGroup CSR headed bythegeneralmanagerofrespective in eachoperatingunit.Theselocalcommitteesare oflocalCSRcommittees CSR withtheformation itscommitmentto In 2009Salamanderformalised which we work. and respecting the interests of communities amongst impacted by our activities; protecting the environment;the health and safety of our employees and people Total spilt(litres) Oil andchemicalspills(number) CO Hours worked(millions) Corporate socialresponsibility 1 Total Recordable Incident Frequency Rate(TRIFR) Total Recordable Incidents (TRI) Lost Time IncidentFrequency (LTIFR) Lost Time Incident(LTI) Flaring andventing(MMscf) GHG emissions(tonnesperthousand tonnesproduction) CO ENERGY SALAMANDER Greenhouse Gas Protocol Initiative–http://www.ghgprotocol.org/calculation-tools/all-tools Sources: 2009 GuidelinestoDefra/DECC’s GHG ConversionFactorsforCompany ReportingV2.0 30/9/2009 2 2 emissions(tonnesperthousand tonnesproduction) emissions(tonnes) These responsibilities include: ensuring that growth occurs in a responsible manner. brings with it an associated need to ensure Salamander is aware that rapid growth

power systematourBualuangfieldinThailand. Pangkalan Brandan,andintroduction ofagasfuelled Kambunaproductionpermanent facilitiesat initiatives underwayincludecommissioningthe during thesecondhalfofyear. Reduction increased astheKambunafieldcameon-stream was inthevolumeofgasflared orventedwhich 147. Theonematerialchangecompared with2008 significantly betterthantheOGPaverageforAsiaof Carbon dioxideemissionswere 97,again compared totheOGPaverageforAsiaof179. 105 tonnesperthousandproduction against theOGPindex.Group GHGemissionswere In 2009theGroup considerablyoutperformed own previous yearperformance. OGP indexforSoutheastAsiaandimprove onits basis, withtheGroup aimingtobothoutperform operated activitieswillbepublishedonanannual and operatinglevel.Group levelmetricsfor environmental reporting processes atbothGroup 2009. A focus throughout the year was on formalising There were nosignificantenvironmental incidentsin Environmental performance in linewiththeOGPaverage. recordable incidentfrequency rate(TRIFR)isalso index forSouthEastAsia.Salamander’s total theOilandGasProducers’outperforming (OGP) todateissuchthatthecompany performance recorded andSalamander’s losttimeincidentfree operated activities.Zero losttimeincidentswere 2009 saw2.7millionmanhoursexpendedon Health andsafetyperformance 1 34,020 3,041 0.02 72.8 383 105 2009 9.5 2.7 2.2 97 – 5 6 – N/A N/A N/A 235 2008 9.5 4.7 3.0 5.6 17 0 0 8 – –

23 Business review Salamander Energy PLC Annual Report 2009 24 Business review Salamander Energy PLC Annual Report 2009 disadvantaged andorphanedboys. programme thatreduces riskofdiseaseamongst and sponsored thelocalhospital’s circumcision provided breakfast for local orphans during Ramadan poor sanitationneartotheKambunapipeline, materials forrefurbishing dilapidated housingwith the publichallinvillageofTeluk Meku,provided immediate impact.Attheendof2009werenovated are importanttothecommunities andcanhavean here havefocussedonsmall socialprojects that production from the Kambuna field. Our initial efforts increased inlinewiththe commencement of In Indonesia,ourprojects inNorthSumatrahave local training/employmentopportunities. abouttheGroup’slearns operationalplansandany we canprovide helpandassistance;thecommunity ofthelocalcommunitiesand areasconcerns where representatives: aboutthe Salamanderlearns dialogue betweentheGroup andthecommunity operate. Thesemeetingsallowforaconstructive meetings withinthecommunitiesinwhichwe local communityliaisonofficersorganise frequent relationships withlocalcommunitiesandour The Group adoptsapro-active approach tobuilding Community andsociety local fishstocks. local bird sanctuariesandhelpingtoreplenish monitoring andpreservation, workingtosupport active considerationincludingcoralreef/mangrove environmental focus.Avarietyofprojects are under operations in2010toalsoincludeprojects withan all operatingunitsexpandthescopeoftheirCSR impact. Asaresult thecommitteerequested that efforts tendedtofocusonprojects withasocial The CSRSteeringCommitteenotedthatlocal to theGroup’s offshore Bualuangoilfield. Chumphon NationalParkistheclosestcoastalarea compared torelease intotheopensea.TheMuKok marine lifeandimproves thechancesofsurvival acts asanaturalsanctuaryforreleased juvenile National Park.According toresearch themangrove into themangrove areas oftheMuKokChumphon the release of25,000seabassand1,000,000shrimp Projects successfullycompletedinThailandincluded Corporate socialresponsibility continued reward competitivelyrelative tooursuccess. recognise individualand team contributionsand realise thepotentialofemployees andconsultants, pride inworkingfortheGroup. We willseekto generating bothacommonsenseofpurposeand environment anddevelopment, ofempowerment We are committedtocreating achallenging sexual, physicalormentalharassment. sexual orientationandagewillnottolerate discrimination basedonrace,religion, gender, the basisoftheirabilityforjob.We willprevent and consultantsare recruited andpromoted fairlyon provides aworkingenvironment inwhichemployees The Group isanequalopportunitiesemployerand Employees maimed byunexplodedordnance. rehabilitation servicestopeoplewhohavebeen a charitythatprovides prosthetic, orthoticand of helmets.SalamanderLaoalsosupportsCOPE, motorbike ridingpractices,includingtheprovision tohelp promoteNGO, HandicapInternational, safe projects during2010.Salamanderisworkingwithan Further schoolshavebeenidentifiedforsimilar block andsupplyingfootballs,goalpostsnets. wall, paintingtheroof, buildingaseparatetoilet This involvedrendering andpaintingtheperimeter Ban NaphabangYai schoolhasbeencompleted. exploration well.Afirststage refurbishment ofthe schools nearthelocationofBangNouan-1 In LaoPDR,activityhasfocussedonanumberof on oppositepage). floors and repaving theschoolyard. (Seepictures This comprisedplasteringandpaintingwalls,retiling the DongHaiAPrimarySchoolinTra province. Vinh Dung. In2009wealsocompletedarenovation of Duyen HaiDistricts,andontheislandofCuLao disadvantaged children inHoaBinh,Tra Cuand PetroVietnam, todistribute20,000notebooks project undertakenin2008,conjunctionwith weexpandedthescopeofsuccessful In Vietnam, environmental projects aswellsocial. expanding ouractivitiesineachregion toinclude engage andsupportlocalcommunities,willbe TheGroupour HSEperformance. willcontinueto of commitment toachievingexcellenceinterms inspection tourswillbeincreased toreinforce the programme thenumberofseniormanagement that are inlinewithGroup targets. Aspartofthis see eachoperatingunitgivenspecificHSEtargets an improved HSEmonitoringprogramme thatwill in operatedactivity. Salamanderwillberolling out meet thechallengesassociatedwithanincrease its corporatesocialresponsibility programme to In 2010,theGroup willcontinuetoactivelymanage Outlook published inMay2009. we dobusiness.TheGroup CodeofConductwas expect thesamestandards ofallthosewithwhom dealings honestly, openly, fairlyandsafelywe consultants are expectedtoconducttheirbusiness its businessactivities.AllGroup employeesand laws, regulations andstandards whichapplyto affairs withintegrityandincompliancethe The Group iscommittedtoconductingitsbusiness Ethics refurbishment. Classrooms post 3 refurbishment. Classrooms priorto 2 opening dayofnewterm. to refurbished schoolon Children returning 1 Vietnam Tra Vinh province Dong HaiAPrimarySchool Refurbishment of

3 2 1

25 Business review Salamander Energy PLC Annual Report 2009 26 Business review Salamander Energy PLC Annual Report 2009 Board ofdirectors andadvisers 4 3 2 1 9 8 7 6 5 1 4 3 2 Chairman Charles Jamieson as a vice-president in corporate finance (oil and gas). Sachs, ofwhich twoyearswasspentinSingapore of Salamander, hespentfiveyearsatGoldman at Booz-Allen&Hamilton.Prior tothefounding then wasanupstream consultantfortwoyears five yearsasageophysicistat BG andAmoco Geophysics andanMBAfrom INSEAD.Hespent Geophysical Sciences,aPhDinExploration Chief FinancialOfficer. HeholdsaBSc(Hons)in Nick CooperisafounderofSalamanderandits Chief financialofficer Nick Cooper exploration andproduction experience. in Pakistan.Overallhehas30yearsofinternational managing director inTehran andmanagingdirector in Libya.HethenspentfouryearswithENIas in Vietnam andExploration andgeneralmanager geophysicist inColombia,explorationmanager Indonesia andtheUKContinentalShelf,chief twenty yearswithLASMOplcasageophysicistin and anMScinPetroleum Geology(dist.).Hespent He holdsaBSc(Hons)inGeologywithGeophysics Mike BuckisSalamander’s ChiefOperatingOfficer. Chief operatingofficer Mike Buck of Salamander. at LambertEnergy Advisorypriortothefounding affairs. Hespentfouryearsasaseniorpartner development andheadofstrategycorporate geophysicist inIndonesia,headofcorporate including seniorgeophysicistinVietnam, chief years atLASMOplcholdingavarietyofposts at Schlumberger andERC,hespenteleven Planetary Physics.Afteraperiodasgeophysicist in GeologyandanMScGeophysics its ChiefExecutiveOfficer. HeholdsaBSc(Hons) James MenziesisafounderofSalamanderand Chief executiveofficer James Menzies Energy Ltd. Officer. Heiscurrently alsoChairmanof Vostok including FinanceDirector andChiefExecutive Premier Oilplcwhere heheldanumberofposts, to joiningSalamander, hespentover25yearswith INSEAD andisachartered accountant.Prior a founderofSalamander. HeholdsanMBAfrom Charles JamiesonisSalamander’s Chairmanand (N)

Senior 5 Non-executive Non-executive 7 6 Struan James Robert Group plc. plc, CentralAsiaMetalsLtdandIndigovision director ofVostok Energy Ltd,SOCOInternational Canaccord Europe. He is currently a non-executive also spentfouryearsasHeadofOil&Gasat Corporate SalesatSGSecurities(London)Ltd.He and Schroders SecuritiesaswellHeadof Salamander. Hewasadirector ofVickers daCosta Director oftheCompanyandwasafounder Robert CatheryisanIndependentNon-executive Trust plcandForthPortsplc. Tomkins plc,HendersonTRPacificInvestment directorships withInternationalPowerplc, Group Ltd.Hecurrently holdsnon-executive and 2004hewasGroup ChiefExecutiveofWates and Marketing,basedinLondon.Between2000 Downstream SeniorVice President forTechnology of BPAsiaPacificbasedinSingapore and of OilTrading International,ExecutiveChairman where heheldanumberofposts,includingCEO Business School.Hespentover23yearsatBPplc University ofCapeTown, followedbyWharton educated attheUniversityofNataland Independent Non-executiveDirector andwas Struan Robertson is Salamander’s Senior companies inCanada. and GoldReserve,Inc–allpubliclyquoted of SullidenExploration,Inc,Energold Drilling,Inc Anterra Energy Inc,anda non-executiveChairman He iscurrently aNon-executive Director of was acquired bySalamander on17March 2008. of GFIOil&GasCorporationuntilthatcompany based inCalgaryandwasaboard member of theinternationallawfirmMacleodDixon citizen andaseniorpartnerformerChairman Director oftheCompany. HeisaCanadian James ColemanisanIndependentNon-executive Non-executive

Coleman

Independent Robertson Cathery

Director Director Director

(#R)(N) (#N)(R)(A)

Clifford ChanceLLP Brunswick HSBC Bankplc Goldman SachsandOrielSecuritiesLtd Deloitte LLP 9 Financial Legal Bankers Registered Joint Corporate 8

Ltd, Telecom PlusplcandElizabethFinnCare. non-executive director ofThamesWater Utilities subsidiary ofEDFEnergy plc).Heiscurrently a LASMO plcandthenSEEBOARD(nowa sector, beingfinancedirector ofUKindependent he hashadadistinguishedcareer intheenergy and ChairmanoftheICAEW’s AuditCommittee, the Board inJuly2007.Achartered accountant Director oftheCompanyandwasappointedto Michael PaviaisanIndependentNon-executive Non-executive Michael Non-executive John (A) (R) (N) # Memberships Earth SciencesAdvisoryBoard. plc andamemberoftheDurhamUniversity non-executive director ofRockhopperExploration Cluster, basedinTheHague.Heiscurrently a General ManagerofNewVentures Organisation 2002 and2004hewasatRoyalDutchShellas including Group ExplorationManager. Between Enterprise Oilwhere heheldanumberofposts, Business School.Hespentmore than18yearsat Durham UniversityandStanford University Director oftheCompanyandwaseducatedat John Crowle isanIndependentNon-executive

corporate advisers Audit Committeemember Remuneration Committeemember Nomination Committeemember Committee chairman

Crowle

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(#A) (R)(A)

27 Business review Salamander Energy PLC Annual Report 2009 28 Business review Salamander Energy PLC Annual Report 2009 The 2009reserves replacement ratiowas42%(2008: 950%). 2009 (2008:50.1MMboe). related toeachfield. Total proved andprobable entitlement reserves were 48.4MMboeat31December the share offuture production estimatedtobeattributabletheGroupofPSCs undertheterms The Group provides foramortisationonitsoiland gas properties onanetentitlementsbasis,whichreflects recent information. engineer, RPSEnergy, andsupplementedbytheGroup where necessarywithadditionalandmore Proved andprobable commercial reserves are basedonreports produced bytheGroup’s independent 1 At 1January2009 The Group’s proven andprobable commercial workinginterest at 31December2009were asfollows: Statement ofproved andprobable reserves (workinginterest basis) Addition Revisions Production At 31December2009 All gasreserves are convertedat6.0Bcf/MMbo. 14.0 MMbo 16.3 (0.3) (2.0) Thailand Oil – 93.1 96.1 (3.0) BCF Gas – – 14.5 MMbo 15.8 (1.3) Indonesia Oil – – 124.7 117.4 14.3 (7.0) BCF Gas – 28.5 MMbo 32.1 (0.3) (3.3) Oil – Total 217.8 213.5 (10.0) 14.3 BCF Gas – MMboe 64.8 67.7 (0.3) (5.0) Total 2.4

1 Directors’ current intentionthatthe Companywillpayadividendfor theforeseeable future. The Companyhas declared nodividend for theyear-ended 31December2009 (2008:nil).Itisnotthe loss $66.5million). Statements sectionofthisreport. TheGroup’s lossaftertaxfortheyearwas$13.5 million(2008:post-tax The ConsolidatedFinancialStatements fortheyear-ended 31December2009are assetoutintheFinancial Results anddividends be CharlesJamieson,MichaelPaviaandJamesColeman. nearest toone-third) retire byrotation andoffer themselvesforre-election attheAGM,whichthisyearwill The articlesofassociationtheCompanyrequire thatone-third oftheboard members(orthenumber JamesColeman • MikeSibson(resigned on15May2009) • RobertCathery • JohnCrowle • MichaelPavia • StruanRobertson(SeniorIndependentNon-executiveDirector) • NickCooper • MikeBuck • JamesMenzies(ChiefExecutive) • CharlesJamieson(Chairman) • The Directors whoservedinofficeduringthefinancialyearwere asfollows: Directors Directors’ report • CSR • Riskmanagement • Financialreview • Operationalreview • Chairman’s andChiefExecutive’s review• report andshouldbetreatedpartofthisreport asforming byreference: in thisreport.thatfulfilsthe Theinformation requirement iscontainedinthefollowingsectionsofannual The Companyisrequired bytheSection417of CompaniesAct2006toincludeareview ofitsbusiness Business review and Vietnam. The Group’s headofficeisinLondonwith regional officesinSingapore, Thailand,Indonesia,LaoPDR Entities, whichare setoutinnote16totheconsolidatedFinancialStatements. Asia. TheGroup operatesthrough anumberofsubsidiaryandotherundertakings,includingJointVenture oil andgasexploration,developmentproduction companyfocusedonbuildingaportfolioofassetsin The principalactivitiesoftheGroup whichare intendedtocontinueintothefuture are asanindependent Principal activities to listingonthemainmarketofLondonStockExchange5December2006. Salamander Energy PLCistheholdingcompanyofGroup anditsissuedordinary shares were admitted Statements ofSalamanderEnergy PLCfortheyearended31December2009. The Directors submittheirreport togetherwiththeauditedConsolidatedandParent CompanyFinancial Directors’ report

29 Corporate governance Salamander Energy PLC Annual Report 2009 30 Corporate governance Salamander Energy PLC Annual Report 2009 likely impactonthebusinessofGroup asawhole. arrangements andemployeeshare plans,noneofwhichare consideredoftheir tobe significantinterms are, inaddition,anumber ofotheragreements soaffected, suchascommercial contracts,property lease details oftheBNPPledloanfacilityare setoutinnote21totheconsolidatedFinancialStatements.There In relation toagreements thattakeeffect,uponachangeofcontrol alterorterminate ofthecompany, are availableonrequest, sectionofthisreport. andintheCorporateGovernance General Meeting.Thepowersofdirectors are describedintheBoard Terms ofReference, copiesofwhich included intheArticlesandauthoritytoissueshares isrenewed byshareholders eachyearattheAnnual by specialresolution ofthe shareholders. Powersrelating totheissuingand buybackofshares are also there afterre-election byshareholders atleasteverythree years.TheArticlesthemselvesmaybeamended Directors tosubmitthemselvesforelectionatthefirstAnnualGeneralMeetingfollowingtheirand The Company’s ArticlesofAssociationgivepowertotheBoard toappointDirectors butrequire the Association, theCombinedCode,CompaniesActsandrelated legislation. regardWith tothe appointmentandreplacement ofDirectors,byitsArticles of theCompanyisgoverned fully paid. No personhasanyspecialrightsofcontrol overtheCompany’s share capitalandallissuedshares are shares thatmayresult inrestrictions onthetransferofsecuritiesorvotingrights. absolute discretion. TheDirectors are notaware ofanyagreements betweenholdersoftheCompany’s available totheBoard toexercise from timetotime,andtheBoard isfree toexercise thispowerinits remitted totherelevant CanadianSalamanderShareholder. This compulsorytransferpowerisgenerally in themarketatbestpricereasonably obtainableinthemarketandnetproceeds (ifany)willbe required totransfertheirSalamandershares underArticle55,therelevant Salamandershares willbesold Salamander Shareholders isapproached. Intheevent thatsuchCanadianSalamandershareholders are Salamander shares totransfertheirSalamandershares whenthethreshold of10percentCanadian Company’s ArticlesconfersupontheBoard thepowertorequire Canadiancitizensbeneficiallyowning obligations whichtheCompanymaybesubjecttounderCanadianSecuritiesLaw. Article55ofthe Canadian residentstheCompanytorely tobelow10percentsoaspermit onexemptionsfrom certain Article 55oftheCompany’s Articlesrestricts thepercentage ofSalamandershares thatmaybeheldby consolidated FinancialStatements. Details ofemployeeshare schemesare disclosedintheRemunerationReportandnote27to ordinary shares. the yearare includedinnote26totheConsolidatedFinancialStatements.TheCompanyhasoneclassof Details oftheauthorisedandissuedshare capitaltogetherwithdetailsofmovementsinshare capitalduring Capital structure andtakeoversdirective the Remunerationreport. The Directors’ interests intheordinary shares oftheCompanyandDirectors’ remuneration are assetoutin Directors’ interests Directors report continued Och Ziff Management Black Rock Artemis InvestmentManagementLtd Phineus PartnersLP Legal &General Floriline SA financial statements. Group and hasnotradecreditors. Further detailscanbefoundin note 23totheconsolidated TheCompany istheholdingCompanyof the goodsorservicesandtoabide bythosepaymentterms. The Group’s policyinrespect ofitsvendorsistoagreepayment whencontractingfor andestablishterms Payment policy faces whichare set-outintheRiskManagementsection of thisreport. The Board hasestablished aprocess foridentifying,evaluatingandmanagingthesignificantrisksgroup Principal risksanduncertainties Annual Report. meeting andanexplanatorycircular toshareholders settingouttheAGMbusinessaccompaniesthis Country HallHotel,1AddingtonStreet, LondonSE17RY at2pmonTuesday, 11May2010.Thenoticeof The Company’s fourthAnnualGeneralMeetingasalistedpublic companywillbeheldattheParkPlaza Annual GeneralMeeting that isavailableforviewingontheCompanywebsite. The Companyrequires tothepoliciesoutlinedinBusinessCodeofConduct allemployeestoconform wherever appropriate. and conditionsandtoprovideemployment undersimilarterms training,career developmentandpromotion employees becomedisabled,itistheCompany’s policywherever practicabletoprovide continuing persons where therequirements ofthejobmaybeadequatelyfilledbyadisabledperson.Where existing equal opportunitiesemployerandgiveseveryconsiderationtoapplicationsforemploymentbydisabled The Group hasadiverseworkforce comprisingofa mixture oflocalemployeesandexpatriates.Itisan employed 126peoplecompared with64employeesattheendof2008. 2009 sawanincrease inemployeelevelslinewiththegrowth inoperatedactivity. AtyearendSalamander meetings betweenmanagementandemployeesareideas. heldtoexchangeinformation The Companyhasapolicyofprovidingabouttheandregular employeeswithinformation Employees OchZiff Managementissuedapress release on19January2010statingthatitsholdinghadgonebelowthe5%threshold 1 FinVentures UK with Chapter5oftheDisclosure andTransparency Ruleswere asfollows: significant interests inthevotingrightsofCompany’s issuedordinary shares asnotifiedinaccordance At 17March 2010,beingthelatestpracticabledatepriortopublicationofthisAnnualReport, Significant shareholders Fidelity Investments but didnotprovide details oftheirnewshareholding amount. 1 Voting rightsattachingto issued ordinary shares 13,274,068 15,278,126 19,994,897 10,694,688 4,689,146 6,231,951 6,830,544 7,348,132 Percentage oftotal voting rights 13.0 3.0 8.6 9.9 4.1 4.4 4.8 7.0 Direct/Indirect Direct/Indirect Direct/Indirect Nature ofholding Indirect Direct Direct Direct Direct

31 Corporate governance Salamander Energy PLC Annual Report 2009 32 Corporate governance Salamander Energy PLC Annual Report 2009 subordinated $30 million subordinated junior facility as an extension to its existing senior reserves based lending facility. The based lending facility which is due for renewal in 2015. In addition, in December 2009 the Group signed a development projects and committed exploration and appraisal programme through a $200 million reserves As highlighted in note 21 to the Financial Statements, the Group meets its investments required to realise its within thelevelofitscurrent facility. Group’s forecasts andprojections, demonstratethattheGroup isadequatelyfinancedandableto operate of itsfinancialinstrumentsandhedgingactivities;exposures tocredit riskandliquidityrisk.The objectives, policiesandprocesses formanagingitscapital;financialriskmanagementobjectives;details financial statements.Inaddition,note24totheConsolidatedFinancialStatementsincludesGroup’s position andborrowing facilitiesare describedinthe FinancialReviewandnote21totheconsolidated and positionare setoutintheBusinessReview. ThefinancialpositionoftheGroup, itscashflows,liquidity The Group’s businessactivities,togetherwiththefactorslikelytoaffect itsfuture development,performance Going concern proposed attheforthcomingAnnualGeneralMeeting. willingness tocontinueasAuditors.Aresolution toreappoint DeloitteLLPastheGroup’s Auditorswillbe Deloitte LLPwere firstappointedasAuditorstotheCompanyinSeptember2005andhaveexpressed their provisions ofSection418theCompaniesAct2006. are isgivenandshouldbeinterpreted awareThisconfirmation inaccordance ofthatinformation. withthe order tomakehimselfaware ofanyrelevantandtoestablishthattheCompany’s auditinformation Auditors are unaware. Inaddition,eachDirector hastakenallthestepsthatheoughttohaveasaDirector in As faraseachDirector isaware, there isnorelevantofwhichtheCompany’s auditinformation Auditors Auditors amounted to$38,000(2008:$41,000). During theyearGroup madenopoliticaldonations(2008:nil).CharitablebytheGroup Charitable andpoliticaldonations Directors report continued 17 March 2010 Company Secretary Douglas Barrie Approved bytheBoard on17March 2010 basisinpreparingcontinue toadoptthegoingconcern theAnnualreport andaccounts. have adequateresources tocontinueinoperationalexistencefortheforeseeable future. Accordingly, they After makingenquiries,theDirectors haveareasonable expectationthattheCompany andtheGroup convertible bondforupto$100million. to itscurrent plannedprogrammes, theGroup willannounceon18March 2010aproposed issueofa In additiontoprovide increased flexibilitytotheGroup toadvanceanumber ofstrategicoptionsinaddition the levelofitscurrent reserves basedlendingfacility. changes ineconomicassumptionssuchastheoilprice,show that theGroup willbeabletooperatewithin The Directors believethat theGroup’s forecasts andprojections, takingaccountofreasonably possible a 2009hedgingprogramme andhasundertakena2010hedgingprogramme tomanagethisrisk. is discussedinnote21oftheConsolidatedFinancialStatements. TheGroup undertook from theGroup’s production andtheavailabilityunderreserves basedlendingfacility, thebasisofwhich The current economicconditions create uncertainty, particularlyovertheoilprice,whichaffects revenue

facility

is

with

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BNP,

the

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To

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drawn. Corporate governance statement Corporate governance Company’s overallinvestorrelations programme. Chief ExecutiveOfficerisresponsible formaintainingregular dialoguewithmajor shareholders aspartof the leader oftheexecutiveteam,implementing thedecisionsofBoard anditsCommittees.Inaddition,the developing theGroup’s strategyandoverallcommercial objectivesinconsultation withtheBoard and,as The keyresponsibilities of theChiefExecutiveOfficerare managingtheGroup’s business,proposing and Energy Limited.TheBoard believesthattheChairman’s obligationsare unaffected bythisdirectorship. the Board’s decision-making process. TheChairman’s ofVostok othersignificantcommitmentisasChairman oftheGroup’sconstructive partinthedevelopmentanddetermination strategy, andactingasguardian of key responsibilities are theeffective runningoftheBoard, ensuringthattheBoard playsafulland There isaclearseparation betweentherolesandChiefExecutiveOfficer. oftheChairman TheChairman’s the Group. that these,togetherwiththeGroup’s obligationstoitsstakeholders,are widelyunderstoodthroughout has responsibility forsetting theGroup’s core valuesandstandards ofbusinessconductandforensuring are inplacetoachievethose aims,andreviewsTheBoard managementandfinancialperformance. also assessed andmanagedeffectively. ItsetstheGroup’s strategicaims,ensuringthatthenecessary resources the Board directs andmonitorstheGroup’s affairs withinaframeworkofcontrols whichenablerisktobe shareholderdelivery ofstrong,andlong-term value.To sustainablefinancialperformance achievethis, The role oftheBoard isclearlydefined.TheBoard isaccountabletoshareholders forthecreation and set outintheBoard ofDirectors andAdviserssection. range ofbusinessandcommercial experiencetotheBoard. ThebiographiesoftheBoard membersare senior appointmentsinoilandgascompaniesand,together, theNon-executiveDirectors bringabroad have extensiveupstream oilandgasexperience.ThemajorityoftheNon-executiveDirectors haveheld of 3iQPEPLC’s equityinterest intheCompanywhere uponthisrightceased.AlloftheExecutiveDirectors nomination bytheNominationCommittee.MikeSibsonresigned on15May2009followingtheplacing appoint, remove andre-appoint onenon-executive director oftheCompany, ofits subjecttoconfirmation held notlessthan10percentoftheCompany’s issuedshare capital,3iQPEPLCwould havetherightto pursuant toanunderstandingbetweentheCompanyand3iQPEPLCthatforaslong Non-executive Director. MikeSibsonwasconsidered tobenon-independentsincehewasappointed three ExecutiveDirectors, fiveindependentNon-executive Directors andonenon-Independent During 2009,theBoard comprisedten,andlatterlynine,Directors includingtheNon-executiveChairman, Board ofdirectors The Board considersithascompliedwiththeCodeinallaspectsthroughout thefinancialyear. of theCode. Reporting Council.ItalsodisclosestheextenttowhichCompanyhascompliedwithprovisions (“theCode”)publishedbytheFinancial Section 1ofthe2008CombinedCodeonCorporateGovernance This report andtheRemunerationReportdescribehowCompanyhasappliedprinciplessetoutin Compliance withthefinancial reporting council’s combinedcodeoncorporategovernance ensure opennessandfullaccountability. procedures withinwhichitconductsitsactivitiesalongwithworkingpracticesandabusinessculture to and health,safetyenvironmental control. To thisend,theGroup hasputinplacepoliciesand of Salamanderare committedtoapplyingthehigheststandards ofbusinessethics,corporategovernance Salamander strivestoapplybestindustrypracticeinallofitsactivities.TheBoard, ManagementandStaff

33 Corporate governance Salamander Energy PLC Annual Report 2009 34 Corporate governance Salamander Energy PLC Annual Report 2009 record ofeachDirector isshownbelow. The Board meetsatleastquarterlyduringtheyearandonanadhocbasisasrequired. Theattendance commitment totherole. Committee willreview eachDirector’s toensure performance theycontinuetobeeffective anddemonstrate by shareholders atleasteverythree years.Priorto suchre-elections,andtheNomination theChairman by shareholders atthenextAGMaftertheirappointment.Subsequently, Directors are subjecttore-election All Directors appointedbytheBoard are required bytheCompany’s ArticlesofAssociationtobere-elected through discussionwiththeChiefExecutiveorChairman. Struan Robertson.Inthisrole heisavailabletoshareholdersthatcannotberesolved whohaveconcerns Non-executive Director are availableforinspection. TheSeniorIndependentNon-executiveDirector is or moreThelettersofappointmenteach threesubjecttosatisfactoryperformance. yearterms Non-executive Directors areofthree appointedforaninitial term years.Thereafter, theymayserveone in respect ofnecessaryactionshasnotbeenconsidered applicable. tobesignificant.Thereforeadvised ofanyfailingsorweaknesseswhichithasdetermined aconfirmation During thecourseofitsreviewcontrol, ofthesysteminternal Board hasnotidentifiednorbeen of thekeyrisksfacingGroup andmitigatingactionsisdescribedintheFinancialReview. monitoring. TheAuditCommitteeassiststheBoard indischarging itsreview responsibilities. Asummary and whetheranysignificantweaknessesare promptly remedied andindicateaneedformore extensive from managementtoconsiderwhethersignificantrisksare identified,evaluated,managedandcontrolled operational andcompliancecontrols andriskmanagement.Itisbasedprincipallyonreviewing reports has beeninplacethroughout 2009.TheBoard’s monitoringcoverscontrol matters,includingfinancial, Guidance), theBoard regularly reviews theeffectiveness oftheGroup’s control systemofinternal which In accordance withtherevisedcontrol guidanceoninternal publishedinOctober2005(theTurnbull misstatement orloss. achieve businessobjectives,andcanonlyprovide reasonable andnotabsoluteassuranceagainstmaterial reviewing itseffectiveness. Suchasystemisdesignedtomanageratherthaneliminatetheriskoffailure to Group faces.Additionally, theBoard isresponsible fortheGroup’s control systemofinternal andfor The Board hasestablishedaprocess foridentifying,evaluatingandmanagingthesignificantrisks Board ofdirectors continued statementcontinued Corporate governance Group’s operations. as regards theirarea ofresponsibility andtokeepthem fullybriefedonongoingmatters relating tothe contact withthe otherDirectors theymayhave relating todiscuss anyissuesofconcern totheGroup or meetingsoftheBoard,and Executive Directors,In additiontotheformal theChairman maintain frequent 1 Charles Jamieson James Menzies Number ofMeetings Mike Buck Nick Cooper Struan Robertson Michael Pavia John Crowle Robert Cathery James Coleman Mike Sibson Until dateofresignation on15May2009 1 Board 6 1 6 6 6 6 6 6 6 5 6

Committee N/A N/A N/A N/A N/A N/A N/A Audit 3 3 3 3 Remuneration Committee N/A N/A N/A N/A N/A N/A N/A 2 2 2 2 Nomination Committee N/A N/A N/A N/A N/A N/A N/A 2 2 2 2 Board’s business. inleading theBoard toevaluatehisperformance andchairing meetingstoconductthe Chairman discussion. TheNon-executive Directors, ledbytheSenior IndependentDirector, meetwithoutthe recommendations forimproving effectiveness, are presented tothewholeBoard bytheChairman for Theresultsby individualinterviewsandfeedbackwiththeChairman. ofthesurvey, togetherwithany carried out,withtheevaluationprocess involvingDirectors’ inputtoadetailedquestionnaire followed appraisaloftheBoard,Annual performance itsCommittees,individual Directorsis andtheChairman Board performance to review anyconflictsof interest. TheBoard considersthattheseprocedures are operating effectively. think thisisappropriate. During theyearprocedures, basedupontheGC100 guidance,were inplace Company’s success.TheDirectors are abletoimposelimitsorconditionswhengivingauthorisationifthey decision theDirectors must actinawaytheyconsider, ingoodfaith,would bemostlikelytopromote the have nointerest inthematter beingconsidered are abletoapprove aconflictofinterest and,intakingthe under discussionataBoard meetingmustdeclare thatinterest andabstainfrom voting.Onlydirectors who breaching theirdutytoavoidaconflictofinterest. Directors oftheCompanywhohaveaninterest inmatters which includedprovisions givingtheBoard authority toauthorisematterswhichmayresult intheDirectors approved amendmentstotheCompany’s ArticlesofAssociationatthe2008AnnualGeneral Meeting of interests ofdirectors where theArticlesofAssociationcontainaprovision tothateffect. Shareholders The CompaniesAct2006allowsdirectors ofpubliccompaniestoauthoriseconflictsandpotential Committees, eachofwhichisdescribedinmore detailbelow. executive committee.Certainothermattersare delegatedtotheAudit,RemunerationandNomination Board delegatesauthorityforthemanagementofbusinessprimarilytoChiefExecutiveandasenior contracts andmajorcapitalexpenditure projects and budgets.Subjecttothosereserved matters,the Group’s overallstrategy, approval ofannualandinterimresults, materialacquisitionsanddisposals, scheduleofmattersreservedA formal forBoard approval isinplace.Themattersreserved include:the The Group maintainsdirectors’ andofficers’liability insurancecover, thelevelof which is reviewed annually. briefings. briefings byadvisersandinternal The Companyprovides trainingtoDirectors where required. Training canincludeattendanceatseminars, process foreachnewdirector tailored totheirindividualknowledgeandexperience. The CompanySecretary, andChiefExecutiveprovides inconsultationwiththeChairman aninduction expense, asandwhenrequired. All Directors andBoard Committeeshaveaccessto independentprofessional advice,attheCompany’s register twiceayearwiththeconstantmonitoringofeventsbyExecutiveDirectors. themselves withthekeyassetsandoperationsofGroup. TheBoardreviews formally theGroup’s risk ensure thatallmaterialassetsare considered onacyclicalbasisandtoenableBoard memberstofamiliarise review ofthehistory, andfuture performance potentialofanindividualassetorbusinessunitdesignedto circulated sevendaysinadvanceofBoard meetings.Inaddition,eachformal meetingincludesa managementreportingthe normal cycleundertakenbyseniormanagement.Board papersare generally Company Secretary, toassisttheminthedischargeisprovided oftheirduties.Suchinformation as partof Directors haveaccesstoaregularaswellthe supplyoffinancial,operationalandstrategicinformation, Board ofdirectors continued

35 Corporate governance Salamander Energy PLC Annual Report 2009 36 Corporate governance Salamander Energy PLC Annual Report 2009 www.salamander-energy.com ofreferenceThe terms oftheAuditCommittee are includedonthe Company’s website, Practices Board. Audit Committeeforanynewengagement, reference wasmadetoEthicalStandard 5oftheAuditing andprohibitedpermitted non-audit servicesandafeethreshold requiring priorapproval bythe auditor.of non-auditservicesbytheexternal Incompiling thatpolicy, auditor’s whichsetsouttheexternal and taxmatters.However, toregulate the position,theCommitteehasestablishedapolicyonprovision stage itismore toalsoprovide efficienttouseasingleauditfirm certainnon-auditservicesfortransactions maintained throughout the auditprocess forthefinancialyear. TheCommitteeconsidersthatatthis in viewoftherelatively high leveloftheirnon-auditfees,acceptingthatindependencehadbeen The Committeealsoreviewed theindependenceandeffectivenessauditors,particularly oftheexternal of theGroup hasincreased. The CommitteedecidedinMarch auditfunctionasthesizeandcomplexity 2010toestablishaninternal for approval. auditors.TheCommittee’sby managementandtheexternal recommendations are submittedtotheBoard treatment ofmajortransactions opentodifferent approaches, theCommitteeconsidered writtenreports Committee, aswasthebasisforsignificantestimatesandjudgements. Inassessingtheaccounting announcement. Theclarityofdisclosures includedinthefinancialstatementswas reviewed bytheAudit andhas examined documentation public financialinformation relatingtotheannual report andpreliminary Committee hasreviewed accountingprinciples,policiesandpracticesadoptedinthepreparation of In fulfillingits responsibility ofmonitoringtheintegrityfinancial reportstoshareholders, theAudit ReviewingtheGroup’s inconfidence,aboutpossible arrangementsforitsemployeestoraiseconcerns, • Reviewingtheeffectiveness oftheGroup’s control systemofinternal andcomplianceprocedures. • ReviewingtheintegrityofGroup’s annualandhalf-yearreports, preliminary results announcements • Reviewingtheindependence,objectivityandeffectiveness oftheGroup’s Auditors. • Considerationofmattersrelating totheappointmentofGroup’s Auditors. • The workoftheAuditCommitteeinrespect ofthefinancialyearhasincluded: Management beingpresent. stage. AtleastonceayeartheAuditCommitteewillalsomeetGroup’s auditorswithout external planning stagebefore theauditandonceduringyear-end auditandhalf-yearreview atthereporting where appropriate andtheGroup’s Auditorsare regularly invitedtoattendmeetings,includingonceatthe Meetings are heldatleastthree timesayear. TheChiefFinancialOfficerisinvitedtoattendmeetings have recent andrelevant financialexperience. Other Board membersmayalsobeinvitedtoattendcommitteemeetings.MichaelPaviaisconsidered to The membersoftheAuditCommitteeareStruanRobertsonandJohnCrowle. MichaelPavia(Chairman), Audit committee reviewexternal ofBoard, CommitteeandDirectorduring2010. performance Group suchastarget objectivesandremuneration matters.ItistheintentionofBoard toconduct an meetingswiththeNon-executiveDirectorsChief Executiveholdinformal todiscussissuesaffecting the process isinpartdealtwithbytheBoard Committeesreferred tobelow. Separately, and theChairman review theBoardofexecutivemanagement,bothindividuallyandasateam;thisreview performance Non-executive Directors(withoutexecutivemanagementpresent) willalsomeetformally toexamineand In additiontotheirattendanceatBoard and,asappropriate,andthe Committeemeetings,theChairman Board performancecontinued statementcontinued Corporate governance wrongdoing infinancial reporting orothermatters. announcement relatingand anyotherformal toitsfinancialperformance. Approved bytheBoard ofDirectors on17March 2010 Subsequent eventsare assetoutinnote29totheConsolidated FinancialStatements. Subsequent events to receive thesenewsupdates bye-mailregistering onlineonthewebsite. programmes, are alsoincludedonthewebsite.Shareholders andotherinterested partiescansubscribe com and regular news updates in relation to the Group, including the status of exploration and development market announcementsontheInvestorRelationssectionof Company’s websitewww.salamander-energy. as wellshareholder and investorfeedback.TheGroup publishesitsperiodicresults andotherstock results. TheBoard receives regular investor relations reports coveringkeyinvestormeetings andactivities, investors, aswellgeneralpresentations toanalystsatthetimeofrelease oftheannualandhalf-year Communication withshareholders isgivenhighpriorityandthere isregular dialogue withinstitutional Shareholder relations roles, includingtheExecutiveDirectors, are reviewed onanongoingbasis. selection processesSuccessionplansforkeymanagement wouldapplyfortheappointmentofaChairman. recommendations totheBoard regarding there-election and/or re-appointment ofanydirector. Similar and required capabilities.Candidatesare thenidentifiedforinterview. TheCommitteealsomakes the balanceofskills,knowledgeandexperienceonBoard anddevelopsadescriptionoftherole consideration suitablyqualifiedcandidates.Inmakingsuch recommendations, thecommitteeevaluates Board thattheappointmentofanewdirector isappropriate, thedutyofCommitteeistopresent for facing theGroup, andwhatskillsexpertiseare neededontheBoard. Followingadecisionofthe future considerationsofthecompositionBoard, takingintoaccountthechallengesandopportunities recommendations totheBoard withregard toanychanges.TheNominationsCommitteealsoconsiders skills, knowledgeandexperience)required oftheBoard compared toitscurrent positionandmake www.salamander-energy.com, are toreview regularly thestructure, sizeandcomposition(includingthe The NominationCommittee’s ofreference, terms whichare includedontheCompany’s website, Robert Cathery. The membersoftheNominationCommitteeareCharlesJamiesonand StruanRobertson(Chairman), Nomination committee www.salamander-energy.com ofreferenceThe terms oftheRemunerationCommitteeare includedontheCompany’s website, the Board. NoDirector maybeinvolvedinanydecisionsastotheirownremuneration. The remuneration ofNon-executiveDirectorsandtheexecutivemembers isamatterfortheChairman Company Secretary andsuchothermembersoftheexecutivemanagementasitisdesignatedtoconsider. or broad policyfortheremuneration oftheGroup’s theExecutiveDirectors, ChiefExecutive,Chairman, the andagreeThe primarydutyoftheRemunerationCommitteeistodetermine withBoard theframework Struan Robertson. The membersoftheRemunerationCommitteeare currentlyJohnCrowle RobertCathery(Chairman), and Remuneration committee 17 March 2010 Company Secretary Douglas Barrie

37 Corporate governance Salamander Energy PLC Annual Report 2009 Remuneration report

Remuneration committee

The members of the Remuneration Committee are currently Robert Cathery (Chairman), Struan Robertson and John Crowle. The Committee’s primary duty is to determine and agree with the Board the framework or broad policy for the remuneration of the Group’s Chief Executive, the Chairman, the Executive Directors, the Company Secretary and such other members of the executive management as it is designated to consider. The remuneration of the Non-executive Directors is a matter for the Chairman and the executive members of the Board.

The main responsibilities of the Committee are to: • Assess and set compensation levels for Executive Directors and senior managers. • Review Executive Directors’ and senior managers’ share and other incentive plans prior to award. • Review compensation levels for Executives and senior managers at least annually. • Make recommendations to the Board on matters relating to the remuneration and terms of employment of the Directors of the Company and on proposals for granting of share awards pursuant to any share awards scheme in operation from time to time.

The Chief Executive is invited to attend meetings of the Committee but does not take part in the decision making of the Committee.

The Committee has access to external consultancy services on remuneration and sector issues. New Bridge Street Consultants were employed to assist, as required, only with matters relating to the Company’s Performance Share Plan. New Bridge Street Consultants have no connection with the Company.

The terms of reference of the Remuneration Committee are available on the Company’s website, www.salamander-energy.com.

Historical comparator performance chart

The Company’s IPO and listing on the London Stock Exchange took place on 5 December 2006. The chart below shows the Company’s share price performance since listing compared with the performance in the same period of the FTSE All Share Oil & Gas Producers Index and the FTSE250 Index, which the Committee considers are the closest comparable indices.

140

120

100 Corporate governance PLC Annual Report 2009 Salamander Energy

38 80

60

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% December January February March April May June July August September October November December January February March April May June July August September October November December January February March April May June July August September October November 2006 2007 2008 2009

Salamander Energy FTSE 250 FTSE All share oil and gas

This chart looks at the value of the Company from listing of £100 invested in the Company’s issued ordinary share capital compared with the values of £100 invested in the FTSE All Share Oil & Gas Producers Index and the FTSE250. It is assumed that any dividends are re-invested. additional compensationofanykindwhatsoever. a fixedsum,theExecutiveDirector agrees towaive, release anddischarge anyentitlementtofurtheror fixed sumequaltosixmonths’basesalary(notincludingaccruedbonus).Inforthepaymentofsuch return theExecutiveDirector’sto terminate employment,theExecutiveDirector willbeentitled topaymentofa Director in breach of his Service Agreement of the terms in circumstances where the Company is not entitled If, within12monthsofachangecontrol,theemploymentanExecutive theCompanyterminates excludes bonus)fortheunexpired portionofthedurationanyentitlementtonotice. to theaggregate ofbasicsalaryandthecosttoCompanyproviding othercontractualbenefits(which Director byexercising itsrighttopayinlieuofnotice, theCompanyisrequired tomakeapaymentequal to paytheExecutiveDirectoremploymentofan inlieuofnotice.IftheCompanyterminates byeitherpartyongiving sixmonths’notice.TheCompanyreservesbe terminated therightanddiscretion The ServiceAgreements fortheExecutiveDirectorscircumstances areandmayinnormal fornofixedterm Service agreements share planawards, pensionsandotherbenefitsfor 2009are assetoutbelow: The maindetailsoftheExecutiveDirectors’ ServiceAgreements relating tobasesalary, annualbonus, 2010 andsubsequentyearssubjecttoongoingreview asappropriate. public companiesandbestpracticestandards. Itistheintentionthatthispolicywillcontinuetoapplyfor takes accountofthelevelremuneration paidtoExecutiveDirectors andseniormanagersofcomparable quality required toachievetheGroup’s objectivesandthereby enhanceshareholder value.TheCommittee remuneration packageswhichare sufficientlycompetitivetoattract, retain andmotivateindividualsofthe and seniormanagersare fairlyandresponsibly rewarded fortheircontributions.Theaimistoprovide The Group’s remuneration policyistoprovide remuneration packageswhichensure thatDirectors Executive directors’ remuneration targets set bytheRemunerationCommittee are achievedintherelevant year. their basesalary. Thebonusmay onlybepayabletotheextent thatindividualandcorporate performance Each oftheExecutive Directors iseligible foradiscretionary annual bonusuptoamaximumof100% of Bonus related.performance It isexpectedthatapproximately 33%ofExecutiveDirectors’ remuneration willbefixedwiththe remaining in 2009. theexceptionofMikeBuck,basesalariesweresuch areview notraised tookplaceinDecember 2009.With The salaryofeachExecutiveDirector issubjecttoregular review bytheRemuneration Committeeand Nick Cooper Mike Buck James Menzies The annualbasesalariesoftheExecutiveDirectors fortheyearto31December2009were asfollows: Salary Nick Cooper Mike Buck James Menzies Date ofcontract 29/11/06 29/11/06 29/11/06 Six months Six months Six months Notice period £262,500 £237,930 £315,000 Salary £’s

39 Corporate governance Salamander Energy PLC Annual Report 2009 40 Corporate governance Salamander Energy PLC Annual Report 2009 Hardy Oil&Gas The comparatorgroups for the2008and2009Awards are: Producers sectorwithmarket capitalisationsinexcessof£100millionatoraround thedateofgrant. drawn from theconstituents oftheFTSE250,SmallCapandAIMlistedcompaniesinOilGas relative totalshareholder againstanindustry-specificpeergroup return(‘TSR’)performance ofcompanies Awards granted to all employees, including the Executive Directors, will vest based on Salamander’s of twelvemonths. employee withtheGroup. Awards, remain oncevested,willnormally capableofexercise foraperiod condition(see below)hasbeensatisfiedandprovidedapplicable performance theparticipant remains an the thirdextenttowhich anniversaryofthedategrantonceCommitteehasdetermined the Committeebyexceptionmayexceedthis100%limitatitsdiscretion. Awards vestonorfollowing the Committeeconsidersitappropriate todoso,includingtherecruitment orretention ofanemployee, exceed100%ofthatindividual’sin anyfinancialyearwillnotnormally basesalary. In circumstances where The maximumvalueofshares overwhichawards may begrantedunderthePSPtoanExecutiveDirector arrangement canbeoperatedbytheGroup, whilegivingdueconsiderationtobestandmarketpractice. that thePSPprovides anappropriate degree offlexibilityinthewaywhichashare basedincentive granted toeligibleemployeesincludingtheExecutiveDirectors. TheRemunerationCommitteebelieves Company’s issuedshare capitalof152,781,255ordinary shares attheyearend)were outstandingand At 31December2009,atotalof3,860,196optionsoverordinary shares (representing 2.5%ofthe shares inSalamander, conditionsandcontinuedemployment. subjecttothesatisfactionofperformance their interests withthoseofshareholders byenabling employees,includingExecutiveDirectors, toreceive The PSPisintendedtofacilitatetheretention andincentivisationofemployeestheGroup andtoalign directors, recognising thatthePSPcontinuingtoapply toallemployeeswasnotappropriate. Annual GeneralMeeting,anewdeferred bonusschemereplaced thePSPforcertainemployeesbutnot made toemployeesandExecutiveDirectors. Duringtheyear, asapproved bytheShareholders atthe2009 Company (‘Awards’). TheCommitteesupervisesthe operationofthePSPincludinglevelsawards Committee, alleligibleemployeesincludingExecutiveDirectors maybeawarded Share Optionsinthe In accordance withtheCompany’s Share Performance Plan(‘PSP’)andatthediscretion oftheRemuneration Performance share plan(‘PSP’) Finance • Operationaldelivery • Businessdevelopment • Share priceperformance • targetsPerformance coverthefollowingareas: Bonus continued Remuneration report continued Gulfsands Petroleum Geopark Holdings Faroe Petroleum Emerald Energy Dragon Oil Dana Petroleum Coastal Energy Circle Oil Energy Cairn Afren 2009 Awards Venture Production Valiant Petroleum SOCO International ROC OilCompany Providence Resources Premier Oil Melrose Resources JKX Oil&Gas Heritage Oil Max Petroleum JKX Oil&Gas Imperial Energy Hardy Oil&Gas Gulfsands Petroleum Geopark Holdings Faroe Petroleum Dana Petroleum Bowleven Antrim Energy Afren 2008 Awards Venture Petroleum Valiant Petroleum Urals Energy Sterling Energy Serica Energy ROC OilCompany Regal Petroleum Providence Resources Oilexco Melrose Resources

James Coleman Robert Cathery John Crowle Michael Pavia Struan Robertson at eachAGM. of Associationforone-third oftheDirectors toretire byrotation andoffer themselvesforre-appointment All appointmentsareand the requirements subject tosatisfactoryperformance oftheCompany’s Articles ofthree2007. MichaelPaviaandJamesColemanwillcontinueinoffice foraterm yearsfrom 30June2008. Robertson, JohnCrowleofthree andRobertCatherywillcontinueinofficeforaterm yearsfrom 27June All Non-executiveDirectors havelettersofappointmentwiththeCompany. CharlesJamieson,Struan responsibility foradvising,asrequired, ontechnicalissues. Non-executive Director. JohnCrowle receives anadditional annual feeof£5,000inrecognition ofhis Struan Robertsonalsoreceives anadditionalannualfeeof£10,000forhisrole asSeniorIndependent comprise a£30,000annualbasefeeandanadditionalof£5,000forchairingBoard Committee. Committees. Saveinrelation toCharlesJamieson,thefeesofeachNon-executiveDirector setoutbelow it remains competitive.AdditionalfeesareoftheAudit,RemunerationandNomination paidto thechairmen The Board reviews Non-executiveDirectors’ (includingtheChairman’s) remuneration periodicallytoensure incurred inthecourseoftheirdutiesandtodirectors’ andofficers’liabilityinsurancecover. arrangements. EachoftheNon-executiveDirectors isentitledtoreimbursement ofreasonable expenses with bestpracticestandards. Non-executiveDirectors maynotparticipateintheCompany’s PSPorpension is sufficientlycompetitivetoattract,retain andmotivatehighqualitynon-executivestobeconsistent The Company’s policyonNon-executiveDirectors’ remuneration istosetcompensationatalevelwhich Non-executive directors’ remuneration contributions) equalto15%oftheirsalary, private medicalcoverandlifeassuranceofuptofourtimessalary. Executive Directors receive adefinedpensioncontribution (orsalarysupplementinlieuofpension Benefits financial statements. regardingFurther information Share BasedPaymentsisincludedinnote27totheconsolidated between themedianandupperquartileofpeergroup. in theupperquartileandthere willbestraightlinevestingbetween30%and100%iftheCompanyranks ranks theCompanyatmedianofpeergroup, 100%oftheAward willvestiftheCompanyranks Group belowthemedianofpeergroup. 30%oftheAward willvestiftheCompany’s TSRperformance The Award willnotvestifSalamander’s periodranksthe relativeovertheperformance TSRperformance Performance share plan(‘PSP’)continued Charles Jamieson Annual salary£’s 30,000 35,000 35,000 35,000 45,000 55,000 Date ofcontract 08/05/08 29/11/06 29/11/06 09/07/07 29/11/06 29/11/06 Three months One month One month One month One month One month Notice period

41 Corporate governance Salamander Energy PLC Annual Report 2009 42 Corporate governance Salamander Energy PLC Annual Report 2009 James Menzies Executive directors The remuneration ofDirectors during2009wasas follows: Remuneration ofdirectors (audited) Total Aggregate Remuneration Amounts receivableincentiveschemes underlongterm Emoluments The totalamountofDirectors’ remuneration wasasfollows: Aggregate remuneration ofdirectors (audited) Remuneration report continued provides forafeeof£30,000inclusiveVAT. Onlyexpenseswere paid toMikeSibson.Sibsonresigned from theCompany effective 15May2009. 3 2 withlivingabroad. Thesalaryandbenefitsreported aboveforMikeBuckincludehisnetexpatriatesalarygrossed-up forincometaxpayableinhishostcountry, 1 Nick Cooper Mike Buck Charles Jamieson Non-executive directors James Coleman Andrew Cochran Total remuneration ofdirectors Struan Robertson Michael Pavia John Crowle Robert Cathery Mike Sibson At thetimeofMikeSibson’s appointmentthecompanyentered intoanagreement with3iInvestmentsPLC(whoactasinvestmentadviserstoQPEPLC)which Andrew Cochranresigned effective 31December2008. and otherexpatriatebenefits. In linewiththeGroup’s Policy, expatriateemployeesare paidanetsalarybytheGroup intheirhostcountrybasedonbasesalaryandotherfactorsassociated 1 3 2 1,047,194 237,930 315,000 262,500 Base salary 26,764 55,000 45,000 35,000 35,000 35,000 £’s – – 130,862 173,250 144,375 448,487 Bonus £’s 2009 – – – – – – – – 190,983 95,686 51,975 43,322 Benefits £’s – – – – – – – – 1,686,664 1,686,664 1,686,664 464,478 540,225 450,197 26,764 55,000 45,000 35,000 35,000 35,000 2009 Total £’s £’s – – – 2,171,151 2,171,151 2,171,151 461,674 576,884 424,172 480,799 22,622 55,000 45,000 35,000 35,000 35,000 2008 2008 Total £’s £’s – – Nick Cooper Mike Buck James Menzies At 31December2009,thefollowingAwards hadbeenmadetoExecutiveDirectors underthePSP: Remuneration ofdirectors (audited)continued Charles Jamieson Ordinary Shares oftheCompanyduringfinancial year: The followingsets-outtheinterests ofthepastandservingDirectors andtheirimmediatefamiliesinthe Directors’ interests inshares Further detailsontheCompany’s PSPare set-outintheremuneration report. ThehighestandlowestclosingpricesoftheCompany’s shares duringtheyearwere £2.98and£1.00respectively. Themid-marketpriceoftheCompany’s shares at 4. Theaggregate valueofAwards grantedin2008bytheCommitteetoMikeBuck(ChiefOperatingOfficer)wasequivalent200%ofhisbaseannualsalary, 3 2 1 17 March 2010 oftheRemuneration Committee Chairman Robert Cathery Signed onbehalfoftheBoard The Directors’ RemunerationReporthasbeenapproved bytheBoard ofDirectors oftheCompany. Approval 2 RobertCatheryheld350,000Ordinary Shares at16March 2010.TheotherDirectors’ holdingsinOrdinary Shares at2010March were thesameasreported at 1 James Menzies James Coleman Mike Sibson Mike Buck Nick Cooper Struan Robertson Michael Pavia John Crowle Robert Cathery 31 December2009was£2.97. reflecting hisincreased operational responsibilities andcontributiontotheGroup’s performance. appropriate todoso,includingtherecruitment or retention ofanemployeeorExecutiveDirector, 100%limitatitsdiscretion. the Committee mayexceedthenormal Awards, takingintoconsiderationtheoverallquantum andstructure ofthatindividual’s compensationpackage.Incircumstances where theCommitteeconsidersit The Committeeconsiderstheinterests ofshareholders whendecidingonhowthePSPisoperatedandensures thatnoindividualisgrantedexcessivelevelsof under thePSPare required topaytheCompanynominalvalueof£0.10foreachshare issuedupontheexercise oftheoption. Awards areofanominalcostoptionand nopaymentisrequired intheform forthegrantofanAward. However, participantswhoare grantednominalcostoptions As atdateofresignation. 31 December2009. 2 1 27/03/09 28/03/08 05/10/07 13/12/06 27/03/09 28/03/08 18/12/07 05/10/07 13/12/06 27/03/09 28/03/08 05/10/07 13/12/06 Award Date

Grant price 2.795 2.395 2.795 2.395 2.795 2.395 1.29 1.29 2.67 2.50 2.67 1.29 2.67 £’s Options granted 203,488 104,384 184,442 166,285 244,186 113,605 125,261 112,360 Number 94,671 93,633 44,000 91,858 82,397 Options lapsed 112,360 Number 93,633 82,397 At 1January09 1,961,158 1,755,236 – – – – – – – – – – 659,869 659,869 130,774 55,055 20,000 13,040 Earliest exercise Beneficial shares Number 9,300 27/03/12 28/03/11 05/10/10 13/12/09 27/03/12 28/03/11 18/12/10 05/10/10 13/12/09 27/03/12 28/03/11 05/10/10 13/12/09 – Date At December09 1,981,158 1,755,236 659,869 659,869 130,774 Latest exercise 55,055 20,000 13,040 Number 9,300 27/03/13 28/03/12 05/10/11 13/12/10 27/03/13 28/03/12 18/12/11 05/10/11 13/12/10 27/03/13 28/03/12 05/10/11 13/12/10 – Date At 1January09 At 1 January 09 Non-beneficial shares (PSPs) 350,322 383,550 291,935 Number 291,935 383,550 350,322 Number – – – – – – – At 31 December 09 At December09 483,052 486,585 402,543 402,543 486,585 483,052 Number Number – – – – – – –

43 Corporate governance Salamander Energy PLC Annual Report 2009 44 Corporate governance Salamander Energy PLC Annual Report 2009 By order oftheBoard thebusinessreview, which isincorporatedintothedirectors’ report, includes afairreview ofthe • thefinancialstatements,prepared inaccordance FinancialReportingStandards withInternational give • We thattothebestofourknowledge: confirm Responsibility statement dissemination offinancialstatementsmaydiffer from legislationinotherjurisdictions. included onthecompany’s thepreparation website.LegislationintheUnitedKingdomgoverning and The directors are responsible forthemaintenanceandintegrityofcorporatefinancialinformation steps fortheprevention anddetectionoffraudotherirregularities. 2006. Theyare alsoresponsible forsafeguarding theassetsofcompanyandhencefortakingreasonable of thecompanyandenablethemtoensure thatthefinancialstatementscomplywithCompaniesAct explain theCompany’s transactionsanddisclosewithreasonable accuracyatanytimethe financialposition The Directors are responsible forkeepingadequateaccountingrecords thatare sufficienttoshowand makeanassessmentofthecompany’s abilitytocontinueasagoingconcern. • provide additionaldisclosures whencompliance withthespecificrequirements inIFRSsare insufficientto • presentincludingaccountingpolicies,inamannerthatprovides information, relevant, reliable, • properly selectandapplyaccountingpolicies; • period. InpreparingAccountingStandard thesefinancialstatements,International 1 requires thatdirectors: a trueandfairviewofthestateaffairs ofthecompanyandprofit orlossofthecompanyforthat EU. UndercompanylawtheDirectors mustnotapprove theaccountsunlesstheyare satisfiedthattheygive and havealsochosentoprepare theparent companyFinancialStatementsunderIFRSsasadoptedbythe Financial ReportingStandards (IFRSs)asadoptedbytheEuropean UnionandArticle4oftheIASRegulation law theDirectors are required toprepare theGroup FinancialStatementsinaccordance withInternational Company lawrequires theDirectors toprepare FinancialStatementsforeachfinancialyear. Underthat with applicablelawandregulations. The Directors are responsible forpreparing theAnnualReportandFinancialStatementsinaccordance Statement ofdirectors’ responsibilities fie Chief FinancialOfficer 17 March 2010 Chief ExecutiveOfficer James Menzies uncertainties thattheyface. included intheconsolidationtakenasawhole,togetherwith a descriptionoftheprincipalrisksand ofthebusinessandpositioncompanyundertakings development andperformance undertakings includedintheconsolidationtakenasawhole;and a trueandfairviewoftheassets,liabilities,financialpositionprofit orlossofthecompanyand entity’s and financialpositionandperformance; enable userstounderstandtheimpactofparticulartransactions,othereventsandconditionson comparable andunderstandableinformation; 17 March 2010 Nick Cooper givenintheDirectors’ theinformation Reportforthefinancialyearwhich statementsare • thepartofDirectors’ RemunerationReporttobeauditedhasbeenproperly prepared inaccordance • In ouropinion: Opinion onothermattersprescribed bytheCompaniesAct2006 thefinancialstatementshavebeenprepared inaccordance withtherequirements oftheCompaniesAct • thefinancialstatementshavebeenproperly prepared inaccordance withIFRSsasadoptedbythe • thefinancialstatementsgiveatrueandfairviewofstateGroup’s andof theParent Company’s• In ouropinion: Opinion onfinancialstatements and theoverallpresentation ofthefinancialstatements. and adequatelydisclosed;thereasonableness ofsignificantaccountingestimatesmadebythedirectors; appropriate totheGroup’s andtheParent Company’s circumstances andhavebeenconsistentlyapplied whether causedbyfraudorerror. Thisincludesanassessmentof:whethertheaccountingpoliciesare sufficient togive reasonable assurancethatthefinancialstatements are free from materialmisstatement, An auditinvolvesobtainingevidenceabouttheamountsanddisclosures inthefinancialstatements Scope oftheauditfinancialstatements Board’s (APB’s) EthicalStandards forAuditors. Standards onAuditing(UKandIreland). Thosestandards require ustocomplywiththeAuditingPractices Our responsibility istoauditthefinancialstatementsinaccordance withapplicablelawandInternational the preparation ofthefinancialstatementsandforbeingsatisfiedthattheygiveatruefairview. As explainedmore fullyintheDirectors’ Responsibilities Statement,thedirectors are responsible for Respective responsibilities ofdirectors andauditors opinions wehaveformed. than thecompanyandcompany’s membersasabody, forourauditwork,thisreport, orforthe purpose. To bylaw, thefullestextentpermitted wedonotacceptorassumeresponsibility toanyoneother company’s membersthosemattersweare required tostatetheminanauditors’report andfornoother and 497oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto This report ismadesolelytothecompany’s members,asabody, inaccordance withsections495,496 Reporting Standards (IFRSs)asadoptedbytheEuropean Union. reporting frameworkthathasbeenappliedintheirpreparationFinancial isapplicablelawandInternational and Parent CompanyCashFlowStatements,andtherelated notes1to29and10.Thefinancial Statements ofChangesinEquity, theConsolidatedandParent CompanyBalanceSheets,theConsolidated 2009 whichcomprisetheConsolidatedIncomeStatement,andParent Company We haveauditedthefinancialstatementsofSalamanderEnergy plcfortheyearended31December Independent auditors’report tothememberofSalamanderEnergyPLC prepared isconsistent withthefinancialstatements. with theCompaniesAct2006;and 2006 and,asregards theGroup financialstatements,Article4oftheIASRegulation. European Union;and affairs asat31December 2009andoftheGroup’s lossfortheyearthenended;

45 Financial statements Salamander Energy PLC Annual Report 2009 46 Financial statements Salamander Energy PLC Annual Report 2009 17 March 2010 London, UK Chartered Accountantsand StatutoryAuditors For andonbehalfofDeloitteLLP Bevan Whitehead(SeniorStatutoryAuditor) Statementrelating thepartofCorporateGovernance tocompany’s compliancewiththenine • thedirectors’ statementcontainedwithintheDirector’s Reportinrelationand togoingconcern; • Under theListingRulesweare required toreview: wehavenotreceivedandexplanationsrequire alltheinformation forouraudit. • certaindisclosures ofdirectors’ remuneration specifiedbylaware notmade;or • theParent CompanyfinancialstatementsandthepartofDirectors’ RemunerationReporttobe • adequateaccountingrecords havenotbeenkeptbytheParent Company, orreturnsadequateforour • Under theCompaniesAct2006weare required toreport toyouif,inouropinion: We havenothingtoreport inrespect ofthefollowing: Matters onwhichweare required toreport byexception Independent auditors’report tothemembersofSalamanderEnergyPLCcontinued provisions oftheJune2008CombinedCodespecifiedforour review. audited are notinagreement withtheaccountingrecords andreturns;or audit havenotbeenreceived from branchesnotvisitedbyus;or IFRIC 19* IFRIC 18 IFRIC 17 IFRIC 14(amended) IAS 32(amended)* IAS 28(revised 2008) IAS 27(revised 2008) IAS 24(revised 2009)* IFRS 9* IFRS 3(revised 2008) IFRS 2(amended)* IFRS 1(amended)* IFRS 1(amended)/IAS27(amended) werehave notbeenappliedinthisfinancialinformation issuebutare notyeteffective: thefollowingStandardsAt thedateofauthorisationthisfinancialinformation, andInterpretations which policies setoutlaterinthissection. ispresentedThe financialinformation inUSDollars.Foreign operationsare includedinaccordance with Financial information production companyfocusedonbuildingaportfolioofassetsinSoutheastAsia. operations anditsprincipalactivitiesare asanindependentoilandgasexploration,development the registered officeis5thFloor, 21PalmerStreet, London,SW1H0AD.Thenature oftheGroup’s 2006 undertheCompaniesAct1985,whichservesasaholdingcompanyforGroup. Theaddress of Salamander Energy PLC(‘theCompany’)isacompanyincorporatedinEnglandandWales on13September General informationontheCompanyandGroup Statement ofaccountingpoliciesandgeneralinformation The financialstatements havebeenprepared basis assetoutintheDirectors’ onagoingconcern Report. of certainfinancialinstruments. The financialstatementshave been prepared underthehistoricalcostconvention exceptforthe revaluation for useintheEuropean Unionandtherefore comply withArticle4oftheEU,IASRegulation. The financialstatementshave been prepared inaccordance withIFRSandIFRICinterpretations adopted Basis ofpreparation Accounting policiesandpresentation offinancialinformation material impactonthefinancialpositionofGroup. The Directors anticipatethe adoptionoftheseStandards andInterpretations infuture periodswillnothavea ** NotyetendorsedbyEU. * Improvements toIFRSs(2009)** Improvements witheffective date1January2010havenotyetbeenendorsedbyEU. Extinguishing FinancialLiabilitieswithEquityInstruments Transfers ofAssetsfrom Customers Distributions ofNon-cashAssetstoOwners Prepayment ofaMinimumFundingRequirement Classification ofRightsIssues Investment inAssociates Consolidated andSeparateFinancialStatements Related PartyDisclosures Financial Instruments Business Combinations Group Cash-settledShare-based PaymentTransactions Additional ExemptionsforFirst-timeAdopters or Associate Cost ofanInvestmentinaSubsidiary, JointlyControlled Entity

47 Financial statements Salamander Energy PLC Annual Report 2009 48 Financial statements Salamander Energy PLC Annual Report 2009 the financialstatements ofthe relevant company andclassifiedaccording totheirnature. share ofjointly-controlled assetsandanyliabilitiesincurred jointlywithotherventures’ are recognised in Where aGroup Company undertakesitsactivitiesunderjointventure arrangementsdirectly, theGroup’s activity thatissubjecttojointcontrol. A jointventure isacontractualarrangementwhereby theGroup andotherpartiesundertakeaneconomic Joint ventures and a50%statisticalprobability thatitwillbeless. quantity ofrecoverable reserves willbemore thantheamountestimatedas proven andprobable reserves and whichare considered commercially viable.There shouldbea50%statisticalprobability thattheactual data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs quantities ofcrudeoil,naturalgasandliquidswhich geological,geophysicalandengineering Commercial reserves are proved andprobable oilandgasreserves, whichare definedastheestimated Commercial reserves Accounting PoliciesintolinetothoseusedbytheGroup. Where necessary, adjustmentsare madetotheresults ofSubsidiaryandJointVenture Entities tobringthe from thedatesonwhichcontrol overtheoperating andfinancialdecisionsisobtained. Revenues andtheresults ofsubsidiaryundertakingsare consolidatedintheincomestatement on consolidation. subsidiary undertakings.Allintra-group transactions,balances,incomeandexpensesare eliminated The consolidatedfinancialstatementsconsistoftheCompanyandallits Basis ofconsolidation attributable totheconstructionofqualifyingassetsunderitsexistingaccountingpolicies. IAS 23(March 2007)hadnoimpactontheGroup, astheGroup already capitalisesborrowing costsdirectly no statementofothercomprehensive incomeisincluded. component ofequityforeachperiodpresented. AstheGroup hasnootherlossesintheperiodspresented, statement ofchangesinequityhasbeenincludedtheprimarystatements,showingeach from theincomestatementandofothercomprehensive income.Asaresult, aconsolidated IAS 1(revised) requires thepresentation ofastatementchangesinequityasprimarystatement,separate are alsothereportable segments. Group. TheadoptionofIFRS8hashadnoeffect on theidentifiedoperatingsegmentsforGroup which IFRS 8requires operatingsegmentstobeidentified onthebasisofinternal reportsaboutcomponents AccountingStandardInternational 23‘Borrowing Costs’(March 2007). Accounting StandardSegments’, International 1‘Presentation ofFinancialStatements’(revised 2007)and In thecurrent financialyear, theGroupFinancialReportingStandard hasadoptedInternational 8 ‘Operating Adoption ofnewaccountingstandards is disclosedintheStatementofChangesEquitytoCompanyfinancialstatements. accordance withsection408oftheCompaniesAct2006.Theprofit fortheyearParent Company statement isincluded,aseparateincomefortheParent Companyhasnotbeenincludedin policies are thesameasthosesetoutinAccountingPoliciesthissection.Asaconsolidatedincome with IFRS.Thefinancialstatementshavebeenprepared onthehistoricalcostbasis.Theprincipalaccounting bytheAct,separatefinancialstatementshavebeenpreparedAct 2006.Aspermitted inaccordance The separatefinancialstatementsoftheParent Companyare presented as required bytheCompanies Basis ofpreparation continued Statement ofaccountingpoliciesandgeneralinformation continued On Acquisitions the extentofGroup’s interest inthejointventure. Where theGroup transactswithitsjointly-controlled entities,unrealised profits andlossesare eliminatedto statements onaline-by-linebasis. expenses ofjointly-controlled entitiesare combinedwiththeequivalentitemsinconsolidatedfinancial entities usingproportionate consolidation,thatis,theGroup’s share oftheassets,liabilities,incomeand an interest are referred toasjointly-controlled entities.TheGroup reports itsinterest injointly-controlled Joint venture arrangementswhichinvolvetheestablishmentofaseparateentityineachventurer has associated withthetransactionwillflowto/from theGroup andtheiramountcanbemeasured reliably. assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits for onanaccrualsbasis.Incomefrom thesaleoruseofGroup’s share oftheoutputjointly-controlled Liabilities andexpensesincurred directly inrespect ofinterests injointly-controlled assetsare accounted Joint ventures continued During 2009 and2008 there were noderivatives thatwere designated as hedges foraccounting purposes. Income Statement overthehedgedperiod. Upfront contract feesandrealised gains andlossesuponsettlement are includedwithinrevenue inthe Sheet andtherelated changesinthefair valueare includedinfinance costsintheIncomeStatement. The estimatedfairvalueofthese derivativesisincludedinothercreditors orotherdebtorsintheBalance economic hedgesthatmightqualify asaccountinghedges,butwere notdesignatedassuchatinception. during thelifeofinstrument) are takendirectly totheIncomeStatementin period.Theseinclude Gains orlossesonderivativesthat donotqualifyforhedgeaccountingtreatment (eitherfrom inceptionor at inceptionandthroughout theperiodofinstrument(designation). derivative mustbehighlyeffective inachievingitsobjectiveandthiseffectiveness mustbedocumented The purposeforwhichaderivativeisusedestablishedatinception. To qualifyforhedgeaccounting,the Derivative financialinstrumentsare statedatfairvalue. interest ratesandforeign exchange.TheGroup doesnotusederivativesfor speculativepurposes. The Group usesderivative financialinstrumentstomanageitsexposure tomovementsinoilandgasprices Derivative financialinstrumentsandhedgeaccounting the expectedlifeoffinancialassettothatasset’s netcarrying amount. interest rateapplicable,which istheratethatexactlydiscountsestimatedfuture cashreceipts through Interest revenue isaccruedonatimebasis,byreference totheprincipaloutstandingandateffective Interest revenue deferred income.Revenueisrecognised whengoods are delivered andtitlehaspassed. Revenue received undertake-or-pay salescontractsinrespect ofundelivered volumesisaccountedforas share ofliftingsintheperiodtogetherwithtariff income. Revenue represents thesalesvalue,netofVAT andequivalenttaxes, andoverridingroyalties, oftheGroup’s Revenue or equityisallocatedtotheindividualidentifiableassetsacquired basedontheir relative fairvalue. combination inaccordance withIFRS3–BusinessCombination,thecostofacquired group ofassets If theGroup acquires agroup ofassetsorequityinacompanythatdoesnotconstitutebusiness period of acquisition. below thefairvalues of the identifiable net assets acquired is credited to the Income Statement in the is recognised asgoodwillwhichistreated asanintangible asset.Anydeficiencyofthecostacquisition acquisition. Anyexcessofthecostacquisitionoverfairvaluesidentifiablenetassetsacquired Combination, the assetsandliabilitiesofasubsidiaryare measured attheirfairvalueasthedateof

an

acquisition

that

qualifies

as

a

business

combination

in

accordance

with

IFRS

3

–

Business

49 Financial statements Salamander Energy PLC Annual Report 2009 50 Financial statements Salamander Energy PLC Annual Report 2009 less taxinthefuture haveoccurred atthebalancesheetdate.Deferred taxassetsare recognised onlyto the BalanceSheet datewhere transactions oreventsthatresult in an obligationtopaymore, orrighttopay Deferred corporation taxisrecognised onalltemporarydifferences thathaveoriginated butnotreversed at by theBalanceSheetdate. amounts expectedtobepaidusing thetaxratesandlawsthathavebeenenactedorsubstantively enacted Current anddeferred tax,includingUKcorporationtaxandoverseas tax, are provided at Taxation use orsale. are addedtothecostofthose assets,untilsuchtimeastheassetsare substantiallyready fortheirintended which are assetsthatnecessarily takeasubstantialperiodoftimetoprepare fortheirintendeduseorsale, Borrowing costsdirectly attributabletotheacquisition,constructionorproduction ofqualifyingassets, amortised through ofthedebt. tothe incomestatementasfinancecostsovertheterm the carryingamount.Debtisshownonbalancesheetnet of arrangementfeesandissuecosts, Finance costsofdebtare therelated allocatedtoperiodsovertheterm debtataconstantrateon Finance costsanddebt ruling atthebalancesheetdate,withacorresponding charge orcredit tothe IncomeStatement. the transactiondates.Monetaryassetsandliabilitiesare translatedintoUSDollarsattheexchangerates Transactions inforeign currencies inindividualsubsidiariesare recorded attheratesofexchangeruling the exchangedifferences are recognised asincomeorexpense. differences are classifiedasequityuntildisposalofthesubsidiary. Ondisposalthecumulativeamountsof translated ataverageratesversusclosingrates,are takendirectly toreserves. Allresulting exchange of openingnetassetsforeign subsidiaries,togetherwithdifferences betweenthesubsidiaries’results of exchangerulingatthebalancesheetdate.Currency translationadjustmentsarisingontherestatement operations are translatedattheaveragerateofexchangeforperiodandtheirbalancesheetsrates currency denominatedsubsidiariesare translatedinto USDollarswhereby theresults oftheoverseas The USDollaristhepresentation currency oftheGroup. Onconsolidation,financialstatementsofforeign Foreign currencies of thelease. Rentals underoperatingleasesare charged tothe IncomeStatementonastraight-linebasisovertheterm Operating leases recognised are simultaneouslyaddedbackasanadjustment through equity. line basisoverthevestingperiod,basedonanestimateofshares thatwilleventuallyvest.Theexpensesso atthegrant oftheequitysettledShareThe fairvaluedetermined BasedPaymentisexpensedonastraight schemes are measured atfairvaluethedateof grant. The Group makesequitysettledShare BasedPayment tocertainemployees.Equitysettledshare based The Companyhasappliedtherequirements ofIFRS2–Share BasedPayment. Share basedpayment Profit is recognised onanentitlementsbasis. respectively. Movementsduringanaccountingperiodare adjustedthrough CostofSalessuchthatGross or ‘overlift’.Underliftandoverliftare valuedatmarketvalueandincludedwithindebtorscreditors period. Theresulting imbalancebetweencumulativeentitlementandproduction is‘underlift’ are suchthateachparticipantmaynotreceive andsellitsprecise share oftheoverallproduction ineach Lifting orofftake arrangementsforoilandgasproduced incertainoftheGroup’s jointlyownedoperations Underlift andoverlift Cost ofsales Statement ofaccountingpoliciesandgeneralinformation continued economic lifeofbetween three and fiveyears. write-off the costlessestimatedresidual valueofeachassetona straight-line basisoveritsexpected useful Property, plantandequipment otherthanoilandgasproperties, isdepreciated atratescalculatedto Other fixedassets decommissioning provision isincludedasFinanceCosts. and acorresponding adjustmenttoproperty, plantandequipment. Theunwindingofthediscounton decommissioning costestimates are dealtwithprospectively byrecording anadjustmenttotheprovision, accordance withlocalconditionsandrequirements. Changesintheestimatedtimingofdecommissioning or is theestimatedcostofdecommissioning,discountedtoitsnet present valueandisreassessed eachyearin is alsorecognised aspart ofthecostrelated property, plantandequipment.Theamountrecognised has alegalorconstructiveobligationtodecommission.Acorresponding amountequivalenttotheprovision Provision fordecommissioning isrecognised infullwhentherelated facilities are installed,where theGroup have beencharged since theimpairment. chargeimpairment isalsoreversed asacredit totheincomestatement,netofanydepreciation thatwould and amortisation.Where subsequentlyreverse, conditions givingrisetoimpairment theeffect ofthe identifiedischargedcosts. Anyimpairment totheIncomeStatement asadditionaldepreciation, depletion discounted future cashflows basedonmanagement’s expectationsoffuture oilandgaspricesfuture the recoverability ofthenet bookvaluerelating tothatfieldisassessedbycomparisonwiththeestimated ofafieldpreviouslytobecommerciallycapital) thatindicateapossibleimpairment determined viable, Where there hasbeenachangeineconomicconditions (includingcommodityassumptionsandcostof future fielddevelopmentcostsare dealtwithprospectively. used inthecalculationare onanentitlementsbasis.Changesintheestimatesofcommercial reserves or capitalised costsplustheestimatedfuture fielddevelopmentcosts.Theproduction and reserve estimates on afield-by-fieldbasis.Costsusedintheunitofproduction calculationcomprisethenetbookvalueof estimated quantitiesofcommercial reserves atthe endoftheperiodplusproduction intheperiod, production, onaunitofproduction basis,whichis theratioofoilandgasproduction intheperiodto Oil andgasproperties expenditures carriedwithin eachfieldare amortisedfrom thecommencementof Oil andgasproperties depreciation. Property, plantandequipmentisstatedinthebalancesheetatcostlessaccumulatedamortisation Property, plantandequipment the attributablecostsare transferred toProperty, PlantandEquipment inasinglefieldcostcentre. capitalised costsare chargedtobecommercially totheIncomeStatement. Ifthefieldisdetermined viable, If prospects are deemedtobeimpaired (‘unsuccessful’)oncompletionofanevaluation,theassociated expensed intheperiodtheyare incurred. capitalised insofarastheyrelate tospecificexplorationanddevelopmentactivities.Pre-licence costsare cost centres bywell,fieldorexplorationarea, as appropriate. Directly attributableadministrationcostsare licence acquisition,explorationandevaluationcostsare initiallycapitalisedasintangiblefixedassetsin The Group adoptsthe‘successfulefforts’ methodofaccountingforexplorationandevaluationcosts.All Exploration andevaluationassets temporary difference isreversed. and liabilitiesacquired. Anydeferred taxischarged orcredited intheincomestatementasunderlying combinations. Deferred taxisrecognised atacquisitionaspartoftheassessmentfairvalueassets Deferred taxisprovided ontemporarydifferences arisingonacquisitionsthatare categorisedasbusiness underlying temporarydifferences canbededucted.Deferred taxismeasured onanon-discountedbasis. the extentthatitisconsidered more likelythannotthatthere willbesuitabletaxableprofits from whichthe Taxation continued

51 Financial statements Salamander Energy PLC Annual Report 2009 52 Financial statements Salamander Energy PLC Annual Report 2009 cash collected. statement, any subsequent recoveries are alsotakendirectly totheincomestatementupon receipt of invoices. Anytradereceivable thatisdeemeduncollectible isimmediatelywrittenoff totheincome Trade receivables are basedonthenumberofdaysoutstandingindividual assessedforimpairment lossesareimpacted. Allimpairment takentotheIncomeStatement. the initialrecognition ofthefinancialasset,estimated future cashflowsofthe investmenthavebeen are impaired where there isobjectiveevidencethat,asaresult ofoneormore eventsthatoccurred after Financial assetsareateach balancesheetdate.Financialassets assessed forindicatorsofimpairment Impairment offinancialassets interest onthefinancialasset. earned recognised inprofit orloss.Thenetgainloss recognised inprofit orlossincorporatesanydividend Financial assetsatfairvaluethrough profit orlossare statedatfairvalue,with any resultant gainorloss profitof shortterm takingaswellallderivativesthatare notdesignatedaseffective hedginginstruments. identified portfoliooffinancialinstrumentsthatthe Group managestogetherandhasa recentactualpattern thefinancialassetisapart ofan the financialassetprincipallyforpurposeofsellingin nearterm, Financial assetsare classified asfinancialassetsatfairvaluethrough profit orlosswhere the Groupacquires Financial assetsatfairvaluethrough profit andloss(‘FVTPL’) for alldebtinstruments. financial asset,or, where appropriate, ashorterperiod.Incomeis recognised onaneffective interest basis effective interest rate,transactioncostsandother premiums ordiscounts)through theexpectedlifeof discounts estimatedfuture cashreceipts (including allfeespaidorreceivedanintegralpartofthe thatform allocating interest incomeovertherelevant period. Theeffective interest rateisthethatexactly The effective interest methodisaofcalculating theamortisedcostofafinancialassetand Effective interest method be immaterial. applying theeffective interestreceivables rate,exceptforshort-term whentherecognition ofinterest would amortised costusingtheeffective interestInterest method, lessanyimpairment. incomeisrecognised by quoted inanactivemarketare classifiedasloansand receivables. Loansand receivables are measured at Trade receivables, loans,andotherreceivablespaymentsthatare thathavefixedordeterminable not Loans andreceivables andaremarket concerned, initiallymeasured atfairvalue. requireis underacontractwhoseterms deliveryoftheinvestmentwithintimeframeestablishedby Investments are recognised andderecognised onatradedatewhere thepurchase orsaleofaninvestment Financial assets a partytothecontractualprovisions oftheinstrument. Financial assetsandfinancialliabilitiesare recognised inthegroup’s balancesheetwhenthegroup becomes Financial Instruments lower ofcostornetrealisable value. Inventories ofoilandgasare statedattheirnetrealisable values.Inventoriesofmaterialsare statedatthe Inventories Costs ofshare issuesare writtenoff againstthepremium arisingontheissueofshare capital. Share issueexpensesandshare premium account at costlessanyprovision forimpairment. Investments insubsidiariesandjointventure entitiesheldbytheCompanyasnon-current assetsare stated Investments Statement ofaccountingpoliciesandgeneralinformation continued statements disclosesthecarrying valueofsuchassets. provided inIFRS6–ExplorationforEvaluationofMineral Resources. Note12tothe consolidatedfinancial Management isrequired with toassessintangiblefixedassetsforimpairment reference totheindicators in thecircumstances. independent reserves specialists’estimateswhere managementconsidersthatadjustments are appropriate expertise.TheestimatesadoptedbytheGroupthe samedatasetsusingitsowninternal maydiffer from the undertakes its own assessment of commercial reserves and related future capital expenditure by reference to applicabletotheGroup’spertaining tothecontractualandfiscalterms assets.InadditiontheGroup geological, geophysicalandengineeringdatatogetherwithreports, presentation andfinancialinformation evaluating theestimatesofSalamanders’inhousereserves specialistsandwhere necessaryreferencing independent reserves specialists whoperiodicallyreport ontheGroup’s level ofcommercial reserves by charge fortheperiodand assessingwhetheranyimpairment isrequired. TheGroup employs expenditures toaccessthose reserves, whicharetheamortisationanddepreciation utilisedindetermining Management isrequired toassessthelevelofGroup’s commercial reserves togetherwiththefuture statements. judgements andestimatesthatmayhaveasignificanteffect ontheamounts recognised inthefinancial In theprocess ofapplyingtheGroup’s accountingpoliciesdescribedabove,managementhasmade Critical judgementsandaccountingestimates cancelled ortheyexpire. The Group derecognises financialliabilitieswhen, andonlywhen,theGroup’s obligationsare discharged, Derecognition offinancialliabilities the expectedlifeoffinancialliability, or, where appropriate, ashorterperiod. period. Theeffective interest rateisthethatexactly discountsestimatedfuture cashpaymentsthrough calculating theamortisedcostofafinancialliabilityandallocatinginterest expenseoverthe relevant with interest expenserecognised onaneffective yieldbasis.Theeffective interest methodisaof Other financialliabilitiesare subsequentlymeasured atamortisedcostusingtheeffective interest method, Other financialliabilities,includingborrowings, are initiallymeasured atfairvalue,netoftransactioncosts. Other financialliabilities loss. Thenetgainorlossrecognised inprofit orloss incorporatesanyinterest paidonthefinancialliability. Financial liabilitiesatFVTPLare statedatfairvalue,withanyresultant gainorlossrecognised inprofit or designated asatFVTPL. Financial liabilitiesare classifiedasatFVTPLwhere thefinancialliabilityiseitherheldfortradingorit Financial liabilitiesatFVTPL Financial liabilitiesare classifiedaseitherfinancialliabilities‘atFVTPL’ or‘other financialliabilities’. Financial liabilities to anotherentity. expire; orittransfersthefinancialassetandsubstantiallyallrisks rewards ofownershiptheasset The Group derecognises afinancialassetonlywhenthecontractualrightstocashflows from theasset Derecognition offinancialassets of changesinvalue. investments thatare readily convertibletoaknownamountofcashandare subjecttoaninsignificantrisk highlyliquid Cash andcashequivalentscompriseonhanddemanddeposits,othershort-term Cash andcashequivalents

53 Financial statements Salamander Energy PLC Annual Report 2009 54 Financial statements Salamander Energy PLC Annual Report 2009 is inherently uncertain. estimate ofamountsrecoverable from oilandgas assets withintheunderlyingsubsidiaries,which byreferenceCompany balancesheetforimpairment totherecoverable amount.Thisrequires an Management isrequired toassessthecarryingvalue ofinvestmentsinsubsidiariestheParent entered into. Management isrequired thefairvalueatbalancesheetofderivativecontracts todetermine charge totheincomestatementare provided innote27totheconsolidatedfinancialstatements. values ofshare basedpaymentarrangements.Detailsoftheseassumptionsandtheresultant Management isrequired tomakeassumptionsinrespect oftheinputsusedtocalculatefair the costswillbeincurred byotherpartiesunlesstheGroup agrees toextendthesecontracts. expected tocontinueproducing forsubstantialperiodsafterthecontractsexpire andtherefore for theGroup todecommissionitsoilandgasproperties; and(ii)thefieldsinquestionare for decommissioningbecause:(i)thecontractscoveringGroup’s operationsdonotprovide thatfor certainassetstheGroupManagement hasdetermined doesnotneedtomakeprovisions such asoilpriceandothereconomicfactors. classified asdueafteroneyear, asthecalculations are basedonuncertainfuture assumptions the amountofborrowings thatare classifiedasaduewithinoneyearandtheamountthatis Management, inregard totheBNPPledreserves basedlendingfacility, isrequired toestimate value tothebookofassetbeingcarriedinbalancesheet. usuallybyestimatingapre-taximpairment valueinuseforeachassetheldandcomparingthat Management isrequired toreview andpotentiallytestproperty plantandequipmentfor underlying assetsacquired. business combinationincludingthecostofacquisitionandallocateafairvalueto Management isrequired thefairvalueofassetsandliabilitiesacquired todetermine undera Critical judgementsandaccountingestimatescontinued Statement ofaccountingpoliciesandgeneralinformation continued Total costofsales Administration expenses Total explorationexpenses Operating profit/(loss) Finance costs Other financial(losses)/gains Loss fortheyear(andtotalcomprehensive loss) Total taxation Deferred tax: Loss before tax Cost ofsales Current tax Taxation: Interest revenue Gross profit/(loss) Exploration expenses: Revenue Continuing operations For theyear-ended 31December2009 Consolidated incomestatement Basic anddiluted Loss perordinary share Other costofsales Impairment Profit ondisposalofassets Pre-licence explorationexpenses Exploration costswrittenoff Note Note 11 10 17 10 3 2 9 8 7 6

(123,749 (123,749) 157,148 (11,370) (13,531) (10,572) (23,895) (12,258) 13,323 13,179 33,399 (5,510) (5,860) (8,850) (4,411) (2,959) (0.09) $’000s 531 2009 $’s – – ) (125,552) 100,753 (14,651) (70,552) (55,000) (46,239) (39,065) (10,859) (66,495) (81,897) (75,472) (24,799) 23,628 (7,981) (2,953) 5,814 8,977 3,564 (0.53) $’000s 807 2008 $’s

55 Financial statements Salamander Energy PLC Annual Report 2009 56 Financial statements Salamander Energy PLC Annual Report 2009 Total otherreserves Merger reserve Share basedpaymentreserve At 1January2008 For theyear-ended 31December2009 Consolidated statementofchangesinequity Ordinary shares issuedin Shares issued Ordinary shares issuedforcash Share issuecosts Share basedpayments Loss fortheyear At 31December2008 Share basedpayments Loss fortheyear At 31December2009 Other reserves comprise: Other reserves business combination Share capital 17,271 29,844 29,844 6,172 6,401 $’000s – – – – – Share premium 202,345 185,618 378,685 378,685 (9,278) $’000s – – – – – Other reserves 178,064 244,519 247,953 67,996 (3,574) 2,033 3,434 $’000s – – – Profit andLoss 247,953 241,731 (66,495) (70,945) (13,531) (84,476) (4,450) 6,222 $’000s $’000s 2009 – – – – – 244,519 241,731 283,162 184,236 192,019 582,103 572,006 (12,852) (66,495) (13,531) 2,788 2,033 3,434 $’000s $’000s 2008 Total Equity Net assets Total liabilities Approved byandauthorisedforissue,signedonbehalf of,theBoard ofDirectors Total non-current assets Total current liabilities Total equity Total non-current liabilities Liabilities Assets 31 December2009 Consolidated balancesheet Company Number 5934263 17 March 2010 Chief FinancialOfficer Nick Cooper Share capital Inventories Assets heldforsale Current assets Trade andotherpayables Current liabilities Borrowings Non-current liabilities Intangible explorationandevaluationassets Non-current assets Deferred taxliability Trade andotherreceivables Other Restricted bankdeposits Other receivables: Property, plant andequipment Retained loss Other reserves Share premium Current taxpayable Borrowings duewithinoneyear Financial liabilities–hedges Provisions Total assets Total current assets Financial assets–hedges Deferred taxassets Cash andcashequivalents Note 18 17 14 13 12 26 21 23 17 22 21 20 19

572,006 389,971 838,920 109,815 572,006 280,156 575,945 243,579 247,953 378,685 136,450 136,306 961,977 123,057 (84,476) 24,326 11,398 29,844 11,579 38,287 10,314 49,635 47,753 50,978 2,271 7,400 5,727 $’000s 2009 – 582,103 357,709 779,423 582,103 309,618 552,138 214,814 103,012 244,519 378,685 147,889 157,016 939,812 160,389 (70,945) 48,091 12,084 29,844 41,829 43,775 4,713 7,894 6,262 5,708 $’000s 387 2008 – – –

57 Financial statements Salamander Energy PLC Annual Report 2009 58 Financial statements Salamander Energy PLC Annual Report 2009 Cash andcashequivalentsat the endofyear Effect offoreign exchangeratechange Cash andcashequivalentsatthebeginningofyear Net decrease incashand cashequivalents Net proceeds from theissueofshares Net cashfrom financing activities Costs ofissuingnewshares Cash flowsinborrowingsrespect oflong term Other financialpayments Interest paid Cash flowfrom financingactivities Net cashusedininvestingactivities Interest received (Payment)/Repayment ofotherreceivables Loan advances Disposal ofassets Purchase ofproperty, plantandequipment Expenditures onintangibleassets Acquisition ofsubsidiary Cash flowfrom investingactivities Net cashinflowsfrom operatingactivities Payment oftax Cash generatedfrom operations Increase/(decrease) intradeandotherpayables Decrease intradeandotherreceivables Increase ininventories Operating cashflowpriortoworkingcapital – – – – – Profit ondisposalofassets Adjustments for: Loss before tax Cash flowfrom operatingactivities For theyear-ended 31December2009 Consolidated cashflowstatement – Share basedpayment Other financialgainslosses/(gains) Finance costs Interest revenue Amortisation anddepreciation Exploration writeoffs (119,082) 103,012 (55,585) (88,194) (32,105) (18,555) (16,432) 47,753 16,853 53,558 72,113 83,678 12,258 62,406 (1,063 (5,851) (2,972) (2,959) 9,939 7,839 2,233 4,411 5,860 (531) $’000s 326 531 686 2009 – – – – – – ) (300,501) (113,315) (133,110) 103,012 116,881 259,589 192,019 (15,402) (12,851) (32,350) (32,676) (15,916) (75,472) 89,670 25,510 41,426 40,404 83,104 39,065 (3,401) (5,848) (3,564) (5,814) 1,533 3,545 5,905 1,500 1,326 2,953 (176) (128) (807) $’000s 939 2008 Additions to The followingisananalysisoftheGroup’s revenue andassetsbyreportable segment: Segment revenues andresults year havebeenrestatedtotherequirements toconform ofIFRS8. regardingInformation theGroup’s operatingsegmentsisreported below. Amountsreported fortheprior Other activitiesincludeitscorporatecentre intheUK. of IFRS8,areThailand, andOther. Indonesia,thePhilippines,LaoPDR,Vietnam The Group’s reportable andgeographicalsegmentswhichhavenotchangedasaresult oftheadoption point fortheidentificationofsuchsegments. Group’s financial systemofinternal reportingtokeymanagementpersonnelservingonlyasthestarting to identifytwosetsofsegments(businessandgeographical),usingarisksrewards approach, withthe Incontrast,thepredecessortheir performance. Standard (IAS14SegmentReporting)required theGroup are regularly reviewed bytheChiefOperatingOfficertoallocateresources tothesegmentsandassess operating segmentstobeidentifiedonthebasisofinternal reportsaboutcomponentsGroup that The Group hasadoptedIFRS8OperatingSegmentswitheffect from 1January2009.IFRS8requires Adoption ofIFRS8,OperatingSegments 1 For theyear-ended 31December2009 Notes totheconsolidatedfinancialstatements Finance cost Interest revenue Operating profit/(loss) Revenue (external) Other financiallosses Depreciation and Total assets Tax Profit/(loss) before tax Non-current assets Profit/(loss) for the year non-current assets amortisation Segmental analysis 109,476 375,295 331,263 43,895 36,076 44,615 Thailand £’000s

466,371 443,209 69,229 26,104 58,385 Indonesia (7,919) $’000s

Philippines 1,193 6,820 6,239 $’000s (22)

– – 2009 (2,095) Lao PDR 8,816 8,262 $’000s 136

8

– 29,331 28,961 Vietnam 6,821 $’000s (17)

– – (23,614) (10,713) (12,258) (10,572) 75,344 20,986 (4,411) 1,795 $’000s Other 218 531 120,838 157,148 961,977 838,920 (12,258) (10,572) (13,531) 62,406 13,179 (4,411) (2,959) $’000s 531 Total

59 Financial statements Salamander Energy PLC Annual Report 2009 60 Financial statements Salamander Energy PLC Annual Report 2009 (2008: $106,567,000). Total revenue inaccordance withIAS18includesinterest revenue and amounted to$157,679,000 Total revenue (excluding interest revenue) Realised settlementlosses Hedging fees Oil andgasderivatives: Revenue, excludinginterest revenue (seenote7),comprises: 2 which arose from salestotheGroup’s largest customer. Included inrevenues arisingfrom Thailandare revenues ofapproximately $92,511,000(2008:$15,547,000) aboutmajorcustomers Information (except fortradeandotherreceivables) (seenote19)andtaxassets. segment. Allassetsare allocatedtoreportable segments withtheexceptionofsegmentsfinancialassets Group’s ChiefOperatingOfficermonitorsthetangible,intangibleandfinancialassets attributabletoeach andallocatingresourcesFor thepurposesofmonitoringsegmentperformance betweensegments,the The accountingpoliciesusedforthereportable segmentsare thesameasGroup’s accountingpolicies. Impairment Sales ofgas Additions to Sales ofoil Depreciation and Total assets Non-current assets Loss for the year Tax Loss before tax Other financialgains Finance cost Interest revenue Operating loss Revenue (external) Segment revenues andresults continued Notes totheconsolidatedfinancialstatementscontinued non-current assets amortisation Revenue 336,813 357,913 329,306 (40,496) 55,000 10,489 40,452 Thailand £’000s

331,846 464,345 400,195 17,236 60,301 Indonesia (887) $’000s

– (22,748) Philippines 18,869 6,042 5,046 $’000s

– – – 2008 10,802 10,366 8,584 Lao PDR $’000s (72)

– – – 19,535 22,879 22,039 Vietnam $’000s (10)

– – – 157,148 134,795 33,066 (7,312) (3,401) (17,684) 77,830 12,470 $’000s (2,953) 8,977 3,564 5,814 2009 (940) $’000s Other 379 – – 714,707 939,812 779,423 100,753 100,753 (66,495) (75,472) (81,897) 55,000 28,104 38,535 62,218 (2,953) 8,977 3,564 5,814 $’000s $’000s Total 2008 – – capitalised orexpensedconsistentwiththeproject expenditures asfollows: A proportion oftotalemployee costswere directly attributabletocapitaland otherprojects andwere charged tooperationswasasfollows: The monthlyaveragenumberofemployees(includingExecutiveDirectors andconsultants)employed 4 payment ofincometaxtotheextentwaspayable(seenote10). Group inaccordance withtheapplicableThailand tax regulations Royaltywasdeductibleasanadvance Royalty of$7,768,000(2008:$3,113,000)waspayableinrespect ofcertainThailandassetsheldbythe 5 Total employeecosts Total costofsales Total employeecosts Social security Movement ininventoriesofoil Overlift/(underlift) Impairment Recognised inincome statementfortheyear Minimum lease payments underoperatingleases Administrative Pension Amortisation ofoilandgasproperties Office leases Share basedpayment Operating costs Royalty Payable FPSO lease Non-current assets Wages andsalaries The aggregate remuneration wasasfollows: Total employeenumbers Administration Professional Operating costs Cost ofsalescomprises: 3 Employee numbersandcosts Operating leasearrangements Cost ofsales 123,749 (22,127) 20,000 20,000 13,102 61,957 10,950 15,086 69,448 4,582 5,133 2,152 3,434 7,600 9,889 7,267 Number $’000s $’000s $’000s $’000s 869 611 2009 2009 2009 2009 2009 92 27 65 – 125,552 20,920 20,920 27,725 55,000 17,530 12,059 37,179 (1,303) 2,697 5,122 6,061 1,312 2,033 2,800 4,254 3,810 Number $’000s $’000s $’000s $’000s 784 573 2008 2008 2008 2008 2008 61 17 44

61 Financial statements Salamander Energy PLC Annual Report 2009 62 Financial statements Salamander Energy PLC Annual Report 2009 The followingisananalysisofgross feespaidtotheCompany’s Auditors,DeloitteLLP: Auditors’ remuneration Net foreign exchangegains/(losses) consolidated basis. to bedisclosedbecausetheconsolidated financialstatementsare required todisclosesuchfeesona Fees payabletoDeloitteLLPand theirassociatesfornon-auditservicestotheCompanyare notrequired Operating leasearrangements(seenote5) Movement ininventoriesofOil Total Total non-auditservices Other services Tax services Corporate financeservices(reporting accountantservices) Other servicesprovided pursuant tolegislation Non-audit services Total auditfees The auditoftheCompany’s subsidiariespursuanttolegislation of theCompany’s annualaccounts Fees payabletotheCompany’s Auditorsfortheaudit Audit services Auditors’ remuneration (seebelow) Amortisation anddepreciation ofproperty, plantandequipment Employee costsexpensed Within oneyear Within under non-cancellableoperatingleases,whichfalldueasfollows: At thebalancesheetdate,Group hadoutstandingcommitmentsforfuture minimumleasepayments 5 Notes totheconsolidatedfinancialstatementscontinued In secondyear In thethird tofifthyear Total outstandingoperatingleasecommitments Operating profit/(loss) isstatedaftercharging: 6 Office lease FPSO lease Non-audit services Audit services Operating leasearrangementscontinued Operating profit/(loss) 10,950 10,950 18,090 39,990

$’000s FPSO 2009 1,553 2,679 Offices $’000s 852 273 (22,127) 10,950 61,957 12,733 10,950 10,950 29,040 50,940 1,483 2,152 $’000s $’000s $’000s 997 899 486 163 323 318 997 486 FPSO 2009 2009 98 – – 2008 83,104 (1,533) 4,704 4,316 3,898 2,553 1,378 4,654 1,312 4,316 3,810 2,697 8,861 Offices $’000s $’000s $’000s 311 388 132 256 723 388 2008 2008 20 87 9 Other BankInterest Expense Total financecosts Total otherfinancial(losses)/gains Currency exchangegain Profit/(loss) oninvestments Total financecostsonlongtermborrowings Less interest capitalised Unwinding ofdiscount Loss relating tointerest ratehedges 8 Total interest revenue Interest expense Other BankInterest Revenue Amortisation ofcapitalisedarrangementfees Long termborrowings: Loan interest revenue Amortisation ofdeferred fees Loans: 7 (Loss)/profit relating tooilpricehedges Other financialgainsandlosses Finance costs Interest revenue (12,258) (11,513) (2,970) (1,108) 4,411 4,411 5,851 $’000s $’000s $’000s 318 806 531 262 724 269 269 2009 2009 2009 45 – – (5,457) 2,953 3,564 2,951 1,533 5,846 2,307 5,814 2,612 2,448 3,202 2,456 (276) $’000s $’000s $’000s 114 746 2008 2008 2008 2 –

63 Financial statements Salamander Energy PLC Annual Report 2009 64 Financial statements Salamander Energy PLC Annual Report 2009 Effect ofdilutivepotential ordinary shares: Loss forthepurposeofdilutedlosspershare Effect ofdilutivepotentialordinary shares The calculationofthebasicanddilutedlosspershare onthefollowingdata: 11 and Indonesia. Items notdeductiblefortaxprimarilyrelates todepreciation inrespect oftheGroup’s assetsinThailand The applicablerateoftaxisassumedas28%beingtheUKcorporationrate. Tax effect of: Tax attheapplicablerateoftax Applicable rateoftax Loss before tax The taxcredit fortheyearcanbereconciled tothelossbefore taxpertheincomestatementasfollows: Reconciliation ofTax toLoss on theGroup’s ThailandandIndonesiaactivities. $23,895,000 (2008:$14,651,000)andanetdeferred taxcredit of$13,323,000(2008:$23,628,000)arising The taxcharge fortheyearof$10,572,000(2008:credit of$8,977,000)comprisedcorporateincometax 10 Notes totheconsolidatedfinancialstatementscontinued 1 Basic anddiluted Loss perordinary share losspershareof basicearnings Weighted averagenumber ofordinary shares forthepurpose to beingthenetlossattributableequityholdersofparent Loss forthepurposeofbasiclosspershare beingthenetlossattributable of diluted earnings losspershareof dilutedearnings Weighted averagenumber ofordinary shares forthepurpose Total taxcharge/(credit) Royalty taxcredit UK lossesnotrecognised Items whichare notdeductiblefortax Potentially dilutiveordinary shares fortheyearended31December2009were 4,490,963(2008:2,489,785) As there is a loss for the year ended 31 December 2009, there is no difference between the basic and diluted perearnings share. Different foreign taxrates Loss perordinary share Taxation 1 152,781 152,781 Shares’000s (13,531) (13,351) 10,572 (1,188) (3,839) (2,959) 4,687 4,063 (0.09) 28% (829) $’000s $’000s 2009 2009 2009 2009 $’s – – 126,268 126,268 Shares’000s (66,495) (66,495) (21,509) (75,472) 19,059 28.5% (8,977) (1,774) (5,059) (0.53) $’000s $’000s 306 2008 2008 2008 2008 $’s – –

its minimumfinancialcapitalcommitments asfollows: and todrillexplorationappraisal wells.At31December2009,theGroup’s anticipatesitwilldischarge will expendcompletingitsobligatedworkprogrammes ofcarryingoutgeophysicalandgeologicalstudies, The Group’s outstandingfinancial capitalcommitments represent theminimum agreed amountstheGroup Capital commitments: amounting to$21,341,000(2008:$26,993,000). At 31December2009,there were outstandingbankguaranteesissuedbybanksonbehalfoftheGroup, Bank guarantees: 15 bank guaranteesissuedbytheonbehalfofGroup. Restricted bankdepositsof$11,398,000(2008:$12,084,000) represent depositsheldassecurityagainst 14 led sevenyearsreserve-based lendingfacility. properties are assetsamountingto$567,580,000 (2008: $543,832,000)pledgedagainsttheGroup’s BNPP an averagerateof5.4%(2008:4.7%).Includedinthenetbookamountat31December2009oilandgas Additions tooilandgasproperties includecapitalisedinterest of$2,970,000(2008:$5,457,000)charged at 31 December2009 Charge fortheperiod Additions fortheperiod 31 December2008 Charge fortheperiod 13 intangible assets At 31December Costs writtenoff Transfers toproperty, plantandequipment Transfers from Additions Future capitalcommitments Additions fortheperiod 1 January2008 At 1January Exploration andevaluation 12 The abovecommitments are toOrigin. shownnetof thefarmout Commitments andguarantees Other receivables –restricted bankdeposits Property, plantandequipment Intangible explorationandevaluationassets 742,762 656,969 507,830 141,725 85,793 7,414 $’000s Cost Oil andgasproperties – – Amortisation (167,680) (105,723) (61,957) (82,725) (22,998) $’000s – – – 575,082 551,246 507,830 118,727 (61,957) (82,725) 85,793 7,414 $’000s Total 2,283 1,863 1,756 $’000s 420 107 Cost – – – Other fixedassets 38,000 Depreciation $’000s 2010 (1,420) (449) (971) (379) (592) $’000s – – – 243,579 214,814 34,625 30,000 (5,860) $’000s $’000s 1,164 2009 2011 (449) (379) $’000s 863 420 892 107 Total – – Total netbook 575,945 552,138 507,937 119,891 214,814 206,770 (62,406) (83,104) (39,065) 86,213 54,523 (7,414) 7,414 2,000 $’000s $’000s $’000s value 2012 2008

65 Financial statements Salamander Energy PLC Annual Report 2009 66 Financial statements Salamander Energy PLC Annual Report 2009 Salamander Energy (Lao)CompanyLimited Salamander Energy (Bengara)limited Salamander Energy (Simenggaris)Limited Salamander Energy Limited (Vietnam) Salamander Energy (Indonesia)Limited Salamander Energy (Philippines)Limited Salamander Energy (Sumatra)BV Salamander Energy (Java)BV Salamander Energy (Java&Sumatra)BV Salamander Energy (Bontang)CompanyPteLtd Salamander Energy (SEAsia)Limited Salamander Energy (GlagahKambunaHoldings)Limited Salamander Energy (BualuangHoldings)Limited Salamander Energy (NorthSumatra)Limited Salamander Energy (S.E.Sangatta)Limited Salamander Energy (Kutai)Limited Salamander Energy (GlagahKambuna)Limited Salamander Energy (Bualuang)Limited Salamander Bualuang&KambunaHoldingsLimited Salamander Energy (Seruway)Limited Salamander Energy (Asahan)Limited HoldingsLimited Salamander International Salamander Energy Oil&GasCrystalInc Salamander Energy Oil&GasUSAInc Salamander Energy Oil&GasInc Salamander Energy (Canada)Limited Salamander Energy Singapore PteLtd Salamander Energy (Holdco) Limited PHT PartnersLP Salamander Energy (E&P) Limited APICO (Khorat)Limited APICO (Khorat)HoldingsLLC Salamander Energy Group Limited Company Subsidiaries: gas exploration,developmentandproduction, attheBalanceSheetdatewere asfollows: The principalSubsidiariesandJointlyControlled EntitiesoftheGroup, theactivityofwhichrelates tooiland 16 Notes totheconsolidatedfinancialstatementscontinued APICO LLC Company Jointly controlled entities: 1 Salamander Energy Group Limitedistheonlydirect subsidiaryoftheCompany. Group companies 1 United Kingdom,ThailandandVietnam United KingdomandThailand United StatesofAmerica United StatesofAmerica United StatesofAmerica British Virgin Islands British Virgin Islands British Virgin Islands The Netherlands United Kingdom United Kingdom United Kingdom United Kingdom The Philippines Country of Country of Singapore Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia operation operation Thailand Thailand Thailand Lao PDR Vietnam Canada Canada

United StatesofAmerica United StatesofAmerica United StatesofAmerica United StatesofAmerica United StatesofAmerica British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands The Netherlands The Netherlands The Netherlands United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom incorporation incorporation Country of Country of Singapore Singapore Thailand Lao PDR Canada Canada Percentage Percentage 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 27.18% 27.18% 27.18% holding holding Net deferred taxliabilitieswere: 17 Current liabilities Non-current liabilities 18 subsidiaries andjointventures. There are nosignificantunrecognised temporarydifferences associatedwithundistributedprofits of relevant jurisdictions.Theselossescanbecarriedforward indefinitely. (2008: $2,085,000)relating totaxlossesasthere was insufficientevidenceoffuture taxableprofits inthe At 31December2009,theGroup hadnotrecognised apotentialdeferred taxassetof$7,972,000 Current assets Deferred taxassetsandliabilitiesincludedinthebalancesheetwere asfollows: Total inventories Net deferred taxliabilities Non-current assets At 31December Materials Deferred taxliabilities Acquisition ofsubsidiaries Total expenses Credited toincomestatement Oil Deferred taxassets At 1January Total revenue Jointly Controlled EntitiesoftheGroup: The followingamountsare includedinthefinancialstatements relating toproportionately consolidated 16 Deferred taxassetsandliabilities Inventories Group companiescontinued Accelerated taxamortisation (134,179) (136,450) 134,179 147,502 (13,323) 24,326 57,506 11,347 16,732 16,965 6,489 1,861 6,511 7,594 2,271 $’000s $’000s $’000s $’000s 2009 2009 2009 2009 – (147,502) (147,889) 147,502 169,868 (23,628) 60,956 14,084 24,905 7,956 1,463 5,842 7,894 5,197 2,697 1,262 $’000s $’000s $’000s $’000s 387 2008 2008 2008 2008

67 Financial statements Salamander Energy PLC Annual Report 2009 68 Financial statements Salamander Energy PLC Annual Report 2009 20 carrying amountoftradeandotherreceivables approximates totheirfairvalue. has beenraisedasitisbelievedthatalltradedebtorbalancesare recoverable. TheDirectors considerthe The Group doesnothaveanyreceivables thatare pasttheirduedate.Noprovision fordoubtfuldebts receivables is23.1days(2008:38.5days). legal rightofoffset againstanyamountsowedbytheGroup tothecounterparty. Theaverageageofthese The Group doesnotholdanycollateralorothercredit enhancementsoverthesebalancesnordoesithavea Total tradeandotherreceivables equivalents atthebalancesheetdatewere asfollow: Financial institutions,andtheircredit ratings,whomheldgreater than5%oftheGroup’s cashand described innote21totheconsolidatedfinancialstatements. accounts andsubjecttorestrictions inaccordance with theGroup’s debtfacility, of whichare thekeyterms Of theamountshelddirectly bytheGroup, $18,278,000 (2008:$29,706,000)washeldindebtservice Other debtors Underlift Total cashandequivalents Trade debtors Amounts heldinjointventures Sumitomo MitsuiBankingCorporationEurope Limited BNP Paribas The HongKongandShanghaiBankingCorporationLtd HSBC Bankplc Amounts helddirectly bytheGroup Prepayments 19 Notes totheconsolidatedfinancialstatementscontinued Cash andcashequivalents Trade andotherreceivables S&P credit AA- AA- rating AA A+ 50,978 36,777 47,753 10,619 43,448 18,192 16,228 4,305 3,582 5,004 3,616 $’000s $’000s $’000s 2009 2009 2009 – 103,012 100,835 43,775 28,422 10,614 10,575 27,742 51,912 1,416 2,177 3,323 $’000s $’000s $’000s 2008 2008 2008 – At theBalanceSheetdate,principalrepayable onmaturityiscalculatedtoberepayable asfollows: (2008: $15,561,000availablebut undrawn). At 31December2009,theGroup haddrawnfullyagainst thefacilityamountthatwasavailable Changeofcontrol provisions. • Noearlyrepayment penalties. • Annualredeterminationsofdebtcapacity. • theoptiontoundertaketwomid-periodredeterminationsineach yearshoulditelecttodoso. assets.Theborrowing baseamountisre-determinedonanannualbasis,withtheGroup furtherhaving Interest accruesata rateofbetween2.20%and2.95%plusLIBORdependingonthematurity • TheGroup maydraw anamountuptotheloweroffacilityorborrowing baseamount as • Aninitialfacilityamountof$200million. • facility. ofthefacilityare: Thekeyterms net present valueofcash flowsofthesecured assets.There hasbeennobreachontheborrowing ofterms producing assetsandincludescertaincovenantsrelating totheratioofloanbalanceoutstanding June 2008.Theloanissecured againstcertainoftheGroup’s ThailandandIndonesiadevelopment Borrowings atthebalancesheetdateare aBNPP led sevenyearborrowing basefacilityentered intoin Total netdebt Total principalpayableonmaturity After fiveyears Less cashandequivalents Total longtermborrowings In thethird tofifthyearinclusive Less restricted bankdeposits Less amountsduewithinoneyear In thesecondyear Add amountsduewithinoneyear Less deferred fees Total unamortisedborrowings On demandorduewithinoneyear Long termborrowings Net debt 1 Principal repayable onmaturity 21 determined bythecashflowsarisingfromdetermined theborrowing baseassets. Deferred feesincludesof$650,000associatedwiththesubordinated juniorfacilitysignedinDecember2009. Borrowings 1 115,442 178,464 136,306 110,839 174,593 136,306 178,464 (47,753) (11,398) (38,287) 29,338 38,287 38,287 (3,871) $’000s $’000s $’000s 2009 2009 2009 – (103,012) 160,918 157,016 157,016 157,016 160,918 (12,084) 41,920 71,936 86,419 (3,902) 2,563 $’000s $’000s $’000s 2008 2008 2008 – – –

69 Financial statements Salamander Energy PLC Annual Report 2009 70 Financial statements Salamander Energy PLC Annual Report 2009 as follows: Management reviews the capitalstructure onacontinuingbasis.Thegearingratioattheyear-end was Gearing ratio of changesinequity. Thisisfurtherdiscussedin theDirectors Report. comprising issuedcapital,reserves andretainedasdisclosedinnote26thestatement earnings cash andequivalentsasdisclosedinnote20,equityattributabletoholdersoftheCompany, The capitalstructure oftheGroup consistsofdebt, whichincludestheborrowings disclosedinnote21, while maximisingthereturntostakeholdersthrough theoptimisationofdebtandequitybalance. The Group managesitscapitaltoensure thatentities intheGroup are abletocontinueasgoingconcerns Capital riskmanagement 24 the carryingvalueoftradeandotherpayablesapproximates totheirfairvalue. The averagecredit periodtakenfortradepurchases is43.8days(2008:37.4days).TheDirectors consider 23 Total tradeandotherpayables At 31December accounting policies. of eachclassfinancialasset, financialliabilityandequityinstrument are disclosedinthestatementof the basisofmeasurement andthebasisonwhichincome andexpensesare recognised, inrespect Details ofsignificantaccounting policiesandmethodsadopted,includingthecriteriafor recognition, Significant accountingpolicies The gearingratioisdefinedasborrowings dividedbyequityplusborrowings. Gearing ratio Accrued expenses Unwinding ofdiscount Equity plusborrowings Other creditors Additions On acquisitionofsubsidiary Borrowings Overlift Trade creditors At 1January Provisions fordecommissioningandrestoration ofoilandgasassetsare: 22 Notes totheconsolidatedfinancialstatementscontinued Financial instruments Trade andotherpayables Provisions 746,599 174,593 49,635 22,345 22,145 7,400 1,881 4,489 4,713 23% $’000s $’000s $’000s 806 656 2009 2009 2009 – 739,119 157,016 41,829 17,127 23,969 4,713 1,873 2,726 21% $’000s $’000s $’000s 114 733 2008 2008 2008 – – Increase/(decrease) tomarkmarketvalue cent increase andatwenty percentdecrease inthisvariable: future commodityprices. Thefollowingillustratesthesensitivityofnetincomeandequitytoatwentyper The keyvariablewhichaffects thefairvalueofGroup’s hedgeinstrumentsismarketexpectationsabout market. TheGroup heldnohedgeswithrespect to itsgasproduction during2009. contractswiththebalance (itsThaigasproduction)under longterm soldatpricesrelative tothespot During 2009,64%oftheGroup’s gasproduction (itsIndonesiangasproduction) wassoldatfixedprices July additionalZero CostCollarsfor1,500bopdwithaputandcallpriceof$60.00$90.00. Zero CostCollarsfor20102,500bopdwithaputandcallpriceof$60.00$78.00respectively andin the Group purchased Swapsfor3,750bopdwitha priceof$54.00.DuringMay2009theGroup purchased For 2009,theGroup’s oilproduction wasallsoldatpricesrelative tothespotmarket.DuringJanuary2009 and nospeculativetransactionshavebeenundertaken. related coverageratios.Allhedgingtransactionstodatehavebeenrelated directly toexpectedcashflows to lock-inpricesatlevelsthatprotect thecashflowofSalamanderGroup, itsbusinessplananddebt The Group’s policyistoconsideroilandgaspricehedgingwhenwhere itiseconomicallyattractive Commodity pricerisk interest raterisks. Group throughriskregister. aninternal Theseincludecommodity, foreign exchange,credit, liquidityand The Group’s Board ofDirectors monitorandmanagethefinancialrisks relating totheoperationsof the Financial riskmanagement right orobligationtoreceive orpaycashanotherfinancialasset. Financial assetsandliabilitiesexcludetaxreceivables andpayablesastheydonotconstituteacontractual Amortised Cost Mark tomarketvalueofderivatives Financial liabilities: Mark tomarketvalueofderivatives Loans andreceivables Cash andbankbalances currencies commitments inthosecurrencies. tomeetshort-term currency. TheGroup doesalsoholds,from timetotime,cashbalancesinUKPoundsSterling andother of theGroup’s cashandequivalentbalancesinUSDollars, theGroup’s functional andpresentational exchange ratefluctuationsarise. Exchangerateexposures are managedthrough maintainingthemajority The Group undertakescertaintransactionsdenominated inforeign currencies, hence,exposures to Foreign exchangerisk Twenty percentdecrease Twenty percentincrease Restricted bankdeposits Financial assets: Categories offinancialinstruments 221,558 10,314 18,430 47,753 11,398 $’000s 2009 – 201,541 103,012 (24,144) 36,513 12,084 5,708 1,131 $’000s $’000s 2008 Oil – –

71 Financial statements Salamander Energy PLC Annual Report 2009 72 Financial statements Salamander Energy PLC Annual Report 2009 and maintainsaclosedialogue withthosecounterpartiesconsidered tobehighestriskinthisregard. relation toassetsandoperationswhichare notyetcashgenerative.TheGroup closelymonitorstherisks As suchtheGroup isreliant onjointventure partners tofundtheircapitalorotherfundingobligationsin In addition,theGroup’s operations are typicallystructured viacontractualjoint venture arrangements. exposure tocredit riskattheyear-end withouttakingaccountofanycollateralobtained. The carryingvalueoffinancialassets recorded inthefinancialstatements represents the Group’s maximum credit risk. and obtainingsufficientcollateralwhere appropriate. TheGroup consistently monitorscounterparty energypossible, eitherinternational companiesorstateowned companiesbasedinThailandandIndonesia In respect oftheGroup’s tradesales,theGroup managescredit riskthrough dealingwith,whenever credit-ratingratings assignedbyinternational agencies. limited becausethemajorityofcashandequivalents are depositedwithbanksAAorAcredit In respect ofcashandequivalents,theGroup’s principalfinancialasset,thecredit riskisdeemed the Group. TheGroup isexposedtothefollowing credit andcounterpartyrisks: Credit riskrefers totheriskthatacounter-party willdefaultonitsobligationsresulting inafinanciallossto Credit risk Dong Vietnamese Thailand Baht Indonesian Rupiah Singapore Dollar UK PoundsSterling Change inProfit orLoss UK PoundsSterling at thereporting dateare asfollows: The carryingamountsoftheGroup’s foreign currency denominatedmonetaryassetsandliabilities Foreign exchangeriskcontinued Notes totheconsolidatedfinancialstatementscontinued Singapore Dollar Indonesian Rupiah Thailand Baht Vietnamese Dong Vietnamese Other equal andoppositeimpactontheprofit aftertaxandthebalancesbelowwouldbenegative. relevant currency. Fora20%weakeningoftheUSDollaragainstrelevant currency, there wouldbean number belowindicatesanincrease inprofit after taxwhere theUSDollarstrengthens by20%againstthe items andadjuststheirtranslationattheyearend fora20%changeintheforeign currency rate.Apositive the relevant foreign currency. Thesensitivityanalysisincludes onlyforeign currency denominatedmonetary The followingtabledetailstheGroup’s sensitivitytoa20%increase ordecrease intheUSDollaragainst 15,174 13,148

$’000s 874 2009 48 31 1 Assets 5,878 7,769 9,511 $’000s 483 355 2008 15 1,473 2,808 1,149 1,131 5,783 $’000s $’000s 220 611 2009 2009 52 10 52 Liabilities 2 1,335 1,732 1,095 1,095 5,128 $’000s $’000s 877 829 122 405 2008 2008 10 2 rate instruments Variable interest Non-interest bearing interest andprincipalcashflows. on theearliestdateGroup wasrequired topayatthebalancesheetdate.Thetableincludesboth liabilities. Thetableshavebeendrawnupbasedontheundiscountedcashflowsoffinancialliabilities The followingtablesdetailtheGroup’s remaining contractualmaturitiesforitsnon-derivativefinancial maturing profiles ofitsfinancialassetsandliabilities. actual andforecast cashflowstoensure thatthere are adequate reserves andbankingfacilitiestomeetthe facilities tomeetitsforecastcommitments.TheGroup short,mediumandlong-term continuallymonitorsits The Group managesitsliquidityriskbymaintainingadequatecashandequivalents,borrowing Liquidity risk Total Interest rateswap Oil collar Total rate instruments Variable interest Non-interest bearing Total The followingtabledetailstheGroup’s remaining contractualmaturitiesforitsderivativefinancialliabilities: the balancesheetdate. Additionally, note15tothefinancialstatements set-outstheGroup’s outstandingfinancialcommitmentsat interest rate interest rate Weighted Weighted effective average effective average n/a n/a 5.8 5.4 % % 24,620 24,702 25,383 25,355 Less than Less than 1 month 1 month $’000s $’000s 681 735

22,345 17,127 18,489 23,815 1,362 1,470 months months $’000s $’000s 1–3 1–3

6,674 6,674 2009 2008 44,507 44,507 3 Months Less than to 1year 3 Months to 1year 1 month $’000s $’000s $’000s – 282 190 92 –

112,813 112,813 157,552 157,552 1–5 years 1–5 years 1,058 months $’000s $’000s $’000s 185 873 1–3 2009 – –

73,600 73,600 3 months to 1year 8,974 8,143 5+years 5+years $’000s $’000s $’000s 831 – – – –

195,130 204,264 236,959 251,229 46,965 41,829 10,314 1,108 9,206 $’000s Total Total Total

73 Financial statements Salamander Energy PLC Annual Report 2009 74 Financial statements Salamander Energy PLC Annual Report 2009 Total keymanagementemployee costs Share basedpayment Short term employeebenefits Short term Derivative financialliabilities Group’s exposure onexpectedfuture sales: Derivative financialliabilitiesheldtohedgethe All oftheGroups’ fairvaluefinancialassetsandliabilitiesare deemedtobeLevel2. assetorliabilitythatare notbasedonobservablemarketdata(unobservableinputs). Level3fairvaluemeasurements are thosederived from valuationtechniquesthatincludeinputsforthe • Level2fairvaluemeasurements are thosederived from inputsotherthanquotedpricesincludedwithin • Level1fairvaluemeasurements are thosederived from quotedprices(unadjusted)inactivemarketsfor • is observable: initial recognition atfairvalue,grouped intoLevels 1to3basedonthedegree towhichthefairvalue The followingtableprovides ananalysisoffinancialinstrumentsthatare measured subsequentto Fair valueoffinancialassetsandliabilities increased by$1.3millionand$1.8respectively (nointerest rateswapsheldin2008). constant, theGroup’s profit aftertaxfortheyearended31December2009wouldhavedecreased or For interest rateswaps,ifinterest rateshadbeen1% higherorlowerandallothervariableswere held lower cashandequivalentspositionasdescribedinnote20. applicable by$1.3million(2008:$0.4million).ThisisprincipallyattributabletotheGroup maintaininga the Group’s profit aftertaxfortheyearended31December2009wouldhavedecreased orincreased as For netdebt,ifinterest rateshadbeen1%higherorlowerandallothervariableswere heldconstant, balance sheetdatewere outstandingforthewholeyear. movement andisprepared assumingtheamountofnetdebtandinterest rateswapsoutstandingatthe basedontheGroup’sThe sensitivityanalysis’belowhavebeendetermined exposure toaninterest rate equivalent deposits,whichare atratesfixedtoLIBOR. The Group isexposedtointerest ratemovementsthrough itslendings,borrowings andcash Interest raterisk Notes totheconsolidatedfinancialstatementscontinued Details oftheremuneration ofkeymanagementpersonnelare provided below: Transactions withkeymanagementpersonnel 25 There were notransfersbetweenLevel1and2duringtheyear. from prices);and Level 1thatare observablefortheassetorliability, eitherdirectly (i.e.asprices)orindirectly (i.e.derived identical assetsandliabilities: Related partytransactions Level 1 $’000s – – 10,314 10,314 Level 2 $’000s 2009 7,746 1,036 6,710 Level 3 $’000s $’000s 2009 – – 10,314 10,314 8,762 1,581 7,181 $’000s $’000s Total 2008 Movement inPSPShares duringtheyearwasasfollows: not, however, counttowards thelimitdescribedabove. above limitsunlessinstitutionalbodiesdecidethattheyneednotcount.Shares purchased inthemarketwill plan adoptedbytheCompany. Shares heldintreasury willcountasnewissueshares forthepurposesof pursuant toawards grantedunderthePSPandanyotherrightsemployeeshare may notissue(orhavethepossibilitytoissue)more thantenpercentoftheissuedcapitalCompany shares from theCompany’s treasury orshares purchased inthemarket.Inanytenyearperiod,Company Remuneration Report.Awards underthePSPmay be satisfiedbytheissueofnewshares, orthetransferof the SalamanderEnergyShare Performance Plan(‘PSP’).FurtherdetailsofthePSPare setoutinthe The Companyhasimplementedanequity-settledshare optionscheme(PSP)foremployeescalled 27 Allotted equityshare capital 17 March 2008:AllotmentofShares 8 August2008:AllotmentofShares At 31December Authorised equityshare capital Share capitalasat31December2009amountedto$29,844,000(2008:$29,844,000). At 1January Ordinary Shares at£0.10each 26 Outstanding at1January Outstanding at31December Forfeited duringtheyear Granted duringtheyear during theyearwas£0.10. recognised overthefollowing3years.Theweightedaverage exercise priceforoptions thatwere forfeited future expenserelating tounvestedawards notyetrecognised was$3,309,937,whichisexpectedtobe settled share basedpayment arisingfrom grantsmadeunderthePSP. At31December2009,thetotal The expenserecognised for unvestedemployeeshare optionsof$3,433,649relates whollytoequity- Exercisable at31December Lapsed duringtheyear Share optionschemesandshare basedpayment Share capital 2,489,785 3,860,196 1,994,754 under opinion (541,946) (82,397) Number Shares – 2009 average price Weighted 0.10 0.10 0.10 £’s – – 152,781,255 152,781,255 205,000,000 Ordinary shares 1,709,026 2,489,785 under opinion (109,876) 890,635 Number Number Number Shares 2009 2009 10p – – – – 2008

152,781,255 205,000,000 88,604,554 30,843,367 33,333,334 Ordinary shares average price Weighted Number Number 0.10 0.10 0.10 2008 2008 10p £’s – –

75 Financial statements Salamander Energy PLC Annual Report 2009 76 Financial statements Salamander Energy PLC Annual Report 2009 It isintendedthatthefundswillbeappliedtowards theacquisitionofnewopportunities. On 18March 2010,theGroup willannounceitproposed issueofanupto $100 millionconvertiblebond. Ltd withtheproposed drilling ofonewell2011. Trough offshore from Vietnam, PtyLtdandSingapore SantosVietnam Petroleum SongHongCo Vietnam During March 2010,theGroup agreed toacquire a50%operatedinterest inBlock101-100/04,theHanoi Energy plcshares. acquiring PTEksindoPetroleum Tabuhan’s 20%share inconsiderationfortheissueof792,942Salamander On 3March 2010,theGroup increased itsequitypositionintheBontangPSC from 70%to90%by whetherthestructurebe completedduring2010todetermine meritsfurtheranalysis. On 15February2010,theGroup announcedthattheSiThat-3hadbeenunsuccessful.Furtheranalysiswill in 2009. having assumedincremental equityfrom PTTEPfollowing thedrillingofSouthSebukagasdiscoverywell During February2010,theGroup increased itsequity interest intheBengaraPSCfrom 25%to41.67% 29 The Companyhasdeclared nodividendfortheyear(2008:nil). 28 date ofgranthasbeenassumed. recipients exerciseperiod.Therefore attheendofperformance anexpectedlifeofthree yearsafterthe There isa12monthwindowforexercise. However, astheexercise priceisnominalitassumedthat short listinghistory)was54%(2008:57%).Theaveragecomparatorgroup correlation was22%(2008:9%). volatility. Themeanaverageofalltheconstituents ofthecomparatorgroup (includingthosewithonlya comparator group whichhadathreetheestimateforCompany yearhistorywas usedtodetermine price, overaperiodequaltotheexpectedlifeofoptions.Themedianconstituents by calculatingthehistoricalvolatilityofcomparatorgroup’sExpected volatilitywasdetermined share Risk-free interest rate Expected dividend Expected life Expected volatility Exercise price Weighted averageshare priceatdateofgrant following assumptions: was £0.89pershare (2008:£1.84).ThiswascalculatedusingaMonte-Carlosimulationmodelbasedonthe The weightedaveragefairvalueofshare optionsgrantedduringtheyear, asestimatedatthedateofgrant, 27 Notes totheconsolidatedfinancialstatementscontinued Post balancesheetevents Dividends Share optionschemesandshare basedpaymentcontinued 3 Years 1.93% £0.10 £1.29 63% 2009 0% 3 Years 4.25% £0.10 £2.80 32% 2008 0% Approved byandauthorisedforissue,signedonbehalfof,theBoard ofDirectors Total equity Assets 31 December2009 Parent companybalancesheet Company Number5934263 17 March 2010 Chief FinancialOfficer Nick Cooper Liabilities Total non-current assets Equity Investments Non-current assets Trade andotherpayables Current liabilities Trade andotherreceivables Current assets Other receivables Loans togroup companies Retained loss Other reserves Share premium Total assets Total current assets Cash andcashequivalents Total current liabilities Total liabilities Share capital Net assets Note 4 8 3 9 5

(121,608) 667,204 646,171 512,196 133,975 380,283 378,685 667,243 667,204 29,844 21,072 20,958 $’000s 114 2009 39 39 39 – (143,065) 642,313 727,173 613,235 112,288 376,849 378,685 777,382 135,069 135,069 135,069 642,313 29,844 50,209 49,759 1,650 $’000s 450 2008

77 Financial statements Salamander Energy PLC Annual Report 2009 78 Financial statements Salamander Energy PLC Annual Report 2009 Total otherreserves Merger reserve Share basedpaymentreserve At 1January2008 For theyear-ended 31December2009 Parent companystatementofchangesinequity shares ofasubsidiarycompany New shares issuedinexchangefor Shares issued New shares issuedforcash Share issuecosts Share basedpayment Profit fortheyear At 31December2008 Share basedpayment Loss fortheyear At 31December2009 Other reserves comprise: Other reserves Share capital 17,271 29,844 29,844 6,172 6,401 $’000s – – – – – Share premium 202,345 185,618 378,685 378,685 (9,278) $’000s – – – – – Other reserves 200,326 178,064 376,849 380,283 (3,574) 2,033 3,434 $’000s – – – (143,065) Profit andloss (148,800) (121,608) 380,283 374,061 21,457 6,222 5,735 $’000s $’000s 2009 – – – – – 667,204 (148,800) 376,849 374,061 425,677 184,236 192,019 642,313 (12,852) 21,457 2,788 2,033 3,434 $’000s $’000s 2008 Total Cash andcashequivalentsattheendofyear Effect offoreign exchangeratechange Cash andcashequivalentsatthebeginningofyear Net decrease incashandequivalents Net proceeds from theissueofshares Net cashoutflowsfrom financingactivities Cost ofborrowings Costs ofissuingnewshares Borrowings from Group companies Cash flowfrom financingactivities Adjustment for: Net cashprovided byinvestingactivities Loss before tax Cash flowfrom operatingactivities For theyear-ended 31December2009 Parent companycashflowstatement Interest received other receivablesRepayment/(advance) oflong-term Repayment of/(loansto)group companies Cash flowfrom investingactivities Decrease intradeandotherpayables Decrease/(increase) intradeandotherreceivables Net cashoutflowsfrom operatingactivities Operating cashflowpriortoworkingcapital (Reversal of)/provision againstinvestment Interest revenue Finance costs Other financialgains Share basedpayment (134,960) (134,960) 109,404 103,296 (28,832) (21,687 20,958 49,759 21,457 (4,458) (3,276) (3,542) 4,458 1,650 1,177 $’000s 336 2009 (70) (31) 31 – – – – ) (348,821) (148,800) (348,520 311,091 134,960 192,019 150,000 (42,074) (12,851) 49,759 89,317 (3,037) (5,758) (1,650) (4,344) (3,737) (2,516) 2,516 1,349 3,037 (299) (308) $’000s 300 2008 )

79 Financial statements Salamander Energy PLC Annual Report 2009 80 Financial statements Salamander Energy PLC Annual Report 2009 4 in Salamander Energy Group Limited reflecting changes in economic conditions. The Company has reversed $21,687,000 of the total $150,000,000 provision made in 2008 against its investment as their fair value cannot be measured reliably, as they are investments in unquoted group companies. Fair value information regarding investments in subsidiaries and jointly controlled entities has not been disclosed financial statements. The Group’s principal Subsidiaries and Jointly Controlled Entities are as set out in note 16 to the consolidated 3 Share basedpaymentsare disclosedinnote27to theconsolidatedfinancialstatements. Share basedpayments were charged toothersubsidiariesoftheGroup. Details ofDirectors’ remuneration are provided intheRemunerationreport. Aproportion ofemployeecosts Total employeecosts Social security Pensions Share basedpayment consider thecarryingamountof tradeandotherreceivables approximates theirfair value. At thereporting datethegroup hadnopastdueorimpaired tradeandotherreceivables. TheDirectors Total tradeandotherreceivables Other debtors Prepayments Wages andsalaries Professional Total employeenumbers Administration The aggregate remuneration wasasfollows: The monthlyaveragenumberofemployees(beingtheExecutiveDirectors) employedwasasfollows: 2 business, beingthatofaholdingcompanyfortheGroup. The Companycurrently operatesonlyintheUnitedKingdomanditsactivitiescompriseoneclassof 1 For theyear-ended 31December2009 Notes totheparent companyfinancialstatement Trade andotherreceivables Investments Employee numbersandcosts Segmental analysis 3,733 1,177 2,078 Number $’000s $’000s 317 161 114 114 2009 2009 2009 3 3 – – 3,533 2,675 Number $’000s $’000s 336 222 300 450 391 2008 2008 2008 59 4 4 – Amortised cost Financial liabilities: sheet datewere asfollows: The carryingamountsoftheCompany’s UKPoundsSterlingmonetary assetsandliabilitiesatthebalance Foreign exchangerisk Financial riskmanagement Loans andreceivables Preference couponreceivable from SalamanderEnergy Group Limited UK PoundsSterling Cash andbankbalances Financial assets: Group companies Accrued expenses Other creditors Categories offinancialinstruments The Companyfollowstheaccountingpoliciesasshowninstatementofpolicies. Significant accountingpolicies consolidated financialstatements. Full detailsoftheCompany’s riskmanagementandfinancialinstrumentpoliciesare shown innote24tothe 7 BNPP Borrowing BaseFacilityAgreement. Salamander Energy PLChasentered intocertainparent guaranteeandotherundertakingsinrelation tothe of subsidiaryundertakingsthecompany. wereamounting to$21,341,000(2008:$26,993,000).Guarntees issuedagainstworkprogramme obligations At 31December2009,there were outstandingbank guaranteesissuedbybanksonbehalfoftheGroup, Bank guarantees Total tradeandotherpayables 6 The Directors considerthecarryingvalueoftradeandotherpayablesapproximates theirfairvalue. 5 Financial instruments Commitments andcontingencies Trade andotherpayables $’000s 2009 Assets – 4,036 $’000s 2008 498,682 13,516 20,958 $’000s $’000s $’000s 2009 2009 2009 39 33 39 39 Liabilities – 6 605,801 135,069 134,960 135,069 49,759 9,119 $’000s $’000s $’000s 109 2008 2008 2008 17 –

81 Financial statements Salamander Energy PLC Annual Report 2009 82 Financial statements Salamander Energy PLC Annual Report 2009 Borrowings from Salamander Energy (S.E.Asia) Limited Loans toSalamanderEnergy (GlagahKambuna)Limited Loans toSalamanderEnergy (Bualuang)Limited Loans toSalamanderEnergy Group Limited The Companyheldbalanceswithrelated partiesatthebalancesheetdateasfollows: Preference CouponReceivablefrom SalamanderEnergy Group Limited Investment inSalamanderEnergy Group Limited Interest receivable from SalamanderEnergy Group Limited Non-interest bearing principal cashflows. on theearliestdatewhichCompanycanberequired topay. Thetableincludesbothinterest and liabilities. Thetableshavebeendrawnupbasedontheundiscountedcashflowsoffinancialliabilities The followingtablesdetailtheCompany’s remaining contractualmaturityforitsnon-derivative financial Liquidity risk $0.2 million(2008:increase ordecrease of$0.5million). profit fortheyearended31December2009wouldhaveincreased ordecreased asapplicableby If interest rateshadbeen1%higherorlowerandallothervariableswere heldconstant,theCompany’s Interest raterisk cash andequivalentbalances. exchange ratemovementshasdecreased duringtheyearasCompanyreduced itsUKSterlingPound This ismainlyduetoholdingUKSterlingPoundscashandequivalentdeposits.Thesensitivity Profit orloss Pounds Sterling. The followingtabledetailstheCompany’s sensitivitytoa20%changeinUSDollarsagainstUK Financial riskmanagementcontinued Notes totheparent companyfinancialstatementscontinued Total income statementasfollows: The Companyentered into thefollowingtransactionswithrelated partiesduringtheyearaffecting the Related partytransactionswithsubsidiarycompanies Transactions withDirectors are includedintheRemunerationReport. Transaction withdirectors 8 Related partytransactions Less than 1 month $’000s 33 33 2009 months $’000s 1–3 6 6 $’000s Total 39 39

134,960 134,960 Less than 1 month $’000s UK Pounds Sterling Currency impacts 498,680 133,975 13,516 2008 4,397 $’000s $’000s $’000s months 2009 2009 2009 $’000s 109 109 1–3 8 – – –

(134,960) 135,069 135,069 602,804 112,288 9,119 4,409 $’000s $’000s $’000s $’000s 435 877 804 2008 2008 2008 Total

Authorised equityshare capital At 1January Allotted equityshare capital Ordinary shares at£0.10each 9 17 March 2008:Allotmentofshares 8 August2008:Allotmentofshares The Companyhasdeclared nodividendfortheyear(2008:nil). 10 At 31December Share capital Dividends 152,781,255 205,000,000 152,781,255 Ordinary Shares Number Number 2009 2009 10p – – 205,000,000 152,781,255 88,604,554 30,843,367 33,333,334 Ordinary Shares Number Number 2008 2008 10p

83 Financial statements Salamander Energy PLC Annual Report 2009 84 Financial statements Salamander Energy PLC Annual Report 2009 km IFRS IPO IAS HSE GFI GAAP FPSO EBITDAX E&P bopd boe boepd BNPP Bcf bbl € £ $ or US Dollar 2006 ESOP Glossary SMBC SES SEGL PSP PSC ONWJ MMscfd Mscf MMboe MMbo Mboepd Mbopd Mbo LSE 2 International FinancialReportingStandardsInternational Initial PublicOffering AccountingStandardsInternational Health, SafetyandEnvironmental GFI Oil&GasCorporation Generally AcceptedAccountingPrinciples Floating Production StorageOffload beforeEarnings interest (financecosts),tax,DD&Aandexplorationexpenses Exploration andproduction Barrels ofoilperday Barrels ofoilequivalent Barrels ofoilequivalentperday BNP Paribas,Singapore Billion ofstandard cubicfeet Barrel Euro UK PoundsSterling United StatesDollar 2006 EmployeeShare OwnershipPlan Sumitomo Mitsui BankingCorporationEurope Limited South EastSumatraPSC Salamander Energy Group Limited, a wholly owned subsidiary of the Company from 5 December 2006 SharePerformance Plan Production SharingContract Offshore NorthWest JavaPSC Million standard cubicfeetperdayofgas Thousand standard cubicfeetofgas Millions barrels ofoilequivalent Million barrels ofoil Thousand barrels ofoilequivalentperday Thousand barrels ofoilperday Thousand barrels ofoil London StockExchange sq km Douglas Barrie Secretary Director Independent Non-executive James Coleman Director Independent Non-executive Robert Cathery Director Independent Non-executive John Crowle Director Independent Non-executive Michael Pavia Non-executive Director Senior Independent Struan Robertson Chief FinancialOfficer Nick Cooper Chief OperatingOfficer Mike Buck Chief ExecutiveOfficer James Menzies Director Chairman andNon-executive Charles Jamieson Directors Corporate directory 5934263 Registration number WC2A 3ED London 16 Lincoln’s InnFields Brunswick Group LLP Public relations EC2V 7AN London 125 Wood Street Oriel SecuritiesLtd EC4A 2BB London 133 FleetStreet Peterborough Court Goldman Sachs Corporate brokers E14 5HQ London 8 CanadaSquare HSBC Bankplc Bankers E14 5JJ London 10 UpperBankStreet Clifford ChanceLLP Lawyers EC4A 3BZ London 2 NewStreet Square Deloitte LLP Auditors SW1H 0AD London 21 PalmerStreet 5th Floor Registered office Our offices Fax +85621241121 Tel + 85621241121 Lao PDR Vientiane Sikhottabong District Ban SithaneNeau 14 PhayasiRoad Vientiane Fax +84862906111 Tel +84862905999 Vietnam Ho ChiMinhCity District 1 Ward Dakao 45 Vo ThiSauStreet #10 –06CitiLightsTower Ho ChiMinhCity Fax +622130004020 Tel +622152912900 Indonesia Jakarta 12190 Jln JenderalDudirmanKav52–53 #15 –02Tower II Indonesia StockExchangeBuilding 15th Floor Jakarta Fax +6626200820 Tel +6626200800 Thailand Bangkok 10120 Khet Sathorn Kwaeng Tungmahamek 1 SouthSathornRoad #17 –02Q.HouseLumpiniBuilding Bangkok Fax +6565365390 Tel +6563093300 Singapore 048624 #34 –02UOBPlaza 80 RafflesPlace Singapore

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