ANNUAL REPORT 2014 Tower Resources plc 5 Charterhouse Square London EC1M 6PX Tel +44 20 7253 6639 Email [email protected] www.towerresources.co.uk Annual Report 2014 Tower Resources plc Annual Report 2014 57 Additional Information Corporate Directory Registered Company Name Professional Advisers Tower Resources PLC Strategic Report Nominated Adviser and Broker At a Glance 1 Directors Peel Hunt LLP Building a high impact African portfolio 2 Jeremy Asher Chairman Moor House 2014 Events 4 Graeme Thomson Chief Executive Officer 120 London Wall Chairman and Chief Executive’s Joint Statement 6 Peter Blakey Non-executive Director London EC2Y 5ET Market Overview 7 Philip Swatman Senior Independent 2014 and Onwards 8 Non-executive Director Joint Broker Operational Review: Peter Taylor Non-executive Director GMP Securities Europe LLP Cameroon 10 First Floor, Stratton House Zambia 11 Company Secretary 5 Stratton Street South Africa 12 Andrew Smith London W1J 8LA Namibia 13 Kenya 15 Corporate Address Solicitors Sahawari Arab Democratic Republic (SADR) 16 Tower Resources PLC Watson Farley & Williams LLP New Ventures 17 5 Charterhouse Square 15 Appold Street Financial Review 18 London EC1M 6PX London EC2Y 2HB Business Risks 19 Registered Office Group Auditors Corporate Governance One America Square UHY Hacker Young LLP Board of Directors 20 Crosswall 4 Thomas More Square Senior Management 22 London EC2N 3SG London E1W 1YW Audit Committee Report 24 Remuneration Committee Report 26 Company Number Registrars Communications with Shareholders 27 05305345 Capita IRG Conflict of Interest 27 Bourne House Directors’ Report 28 Main Subsidiary Companies 34 Beckenham Road Statement of Directors’ Responsibilities 31 Tower Resources Cameroon Limited Beckenham Independent Auditors’ Report 32 Rift Petroleum Holdings Limited Kent BR3 4TU Rift Petroleum Limited Accounts Comet Petroleum Limited Bankers Consolidated Statement of Comet Petroleum (SADR) Limited Barclays Bank Plc Comprehensive Income 33 Tower Resources (Kenya) Limited Level 27 Consolidated Statement of Financial Position 34 Tower Resources (Namibia) Limited One Churchill Place Consolidated Statement of Changes in Equity 35 Neptune Petroleum (Namibia) Limited London E14 5HP Consolidated Statement of Cash Flows 36 Wilton Petroleum Limited Company Statement of Financial Position 37 Company Statement of Changes in Equity 38 Company Statement of Cash Flows 39 Notes to the Financial Statements 40 Additional Information Corporate Directory 57 Front cover: GW-190 rig on location at Badada-1 well site, December 2014 Namibia from NASA’s Terra www.towerresources.co.uk satellite © NASA Design: jacksonbone.co.uk jacksonbone.co.uk Design: Printed in England by synergygroup.uk.com Tower Resources plc Annual Report 2014 1 Strategic Report At a Glance TOWER RESOURCES plc is a London-based, independent oil and gas exploration company with a regional focus on sub-Saharan Africa and has been listed on the London Stock Exchange (AIM) since 2005. Tower aims to: > Build a portfolio of high-potential exploration licences with sizeable interests that give us the flexibility to farm-out and to retain material exposure to success > Increase exposure to medium-term drilling which offers the potential to materially add-value for shareholders > Maintain and build our capacity to operate > Balance risk and potential reward through diversification of our portfolio > Retain balance between exposure to proven/emerging hydrocarbon basins and frontier exploration. 2014 Q2 Q3 Q42015 Q1 Q2 Q3 Q42016 Q1 Q2 Q3 Q4 Cameroon Licence 3D Seismic Dissoni Process & Interpret 3D Drilling Award Acquisition Addax continuious drilling in RDR basin for 24 months 3rd Party Oak discovery appraisal Cameroon LNG FEED launch Perenco Moabi drilling 2 wells Zambia Block 40/41 G&G Studies Fieldwork Fieldwork Airborne Gravity/Magnetics/2D Seismic (Contingent) Awarded 3 blocks, Awarded 3rd Party 2 awards pending Block 44 South Africa G&G, Well/Seismic 2D/3D Drilling Algoa Gamtoos Process & Interpret 3D Planning Seismic (Contingent) 2D Seismic 2D Seismic SW Orange Basin G&G Studies Fieldwork Planning Acquisition Reported to be drilling Drilling 3rd Party Orange Basin (Brulpadda 1) – tbc Namibia Drilled Drilling PEL0010 (Welwitschia-1) (Contingent) New country entries Drilling in Orange Basin 3rd Party Drilling in PEL37 – tbc Increased stakes Completed 3D in PEL 34 & PEL 71 in PEL30 Kenya Drilled Drilling Block-2B Planning for follow-up drilling (Badada-1) Well results (Contingent) Integration Drilled Sala-1/-2 Drilling Block 12B (Ahero) 3rd Party Drilled >10 wells & acquiring 3D seismic SADR Kosmos drilled CB-1 in Cap Boujdour 3rd Party licence granted by Morocco (All timings are estimates based on the best available information, but are subject to change) Milestone – decision point for entering next period of licence & taking on forward work programme commitments 2 Annual Report 2014 Tower Resources plc Strategic Report Building a high impact African portfolio UNITED KINGDOM London Corporate Headquarters SAHAWARI ARAB DEMOCRATIC REPUBLIC (SADR) Guelta, Imlili and Bojador (50%) CAMEROON Dissoni Block (Operator 100%) Preferred Bidder KENYA Negotiating PSC Block-2B (15%) MADAGASCAR ZAMBIA Block 2102 Blocks 40 & 41 (In Negotiation) (Operator 80%) NAMIBIA PEL0010 (30%) SOUTH AFRICA Algoa-Gamtoos Block (50%), SW Orange Basin Block TCP (50%) Tower Resources plc Annual Report 2014 3 UNITED KINGDOM London Corporate Headquarters SAHAWARI ARAB DEMOCRATIC REPUBLIC (SADR) Guelta, Imlili and Bojador (50%) CAMEROON Dissoni Block (Operator 100%) Preferred Bidder KENYA Negotiating PSC Block-2B (15%) MADAGASCAR ZAMBIA Block 2102 Blocks 40 & 41 (In Negotiation) (Operator 80%) NAMIBIA PEL0010 (30%) SOUTH AFRICA Algoa-Gamtoos Block (50%), SW Orange Basin Block TCP (50%) 4 Annual Report 2014 Tower Resources plc Strategic Report 2014 2014 EVENTS Acquisition of Rift Farm-in to Block-2B Petroleum in Kenya All-share acquisition of Badada-1 well drilling Rift Petroleum Holdings completed in early 2015 Limited resulting in and currently analysing Tower’s entry into South results. Africa and Zambia. Total Cash Funding Welwitschia-1A Well £20.1 million (US$33.3m) Drilling completed on including an Institutional PEL0010, Walvis Basin, placing to raise offshore Namibia and £19.3 million (US$32.0m). currently analysing results. Nigeria and Cameroon coastline showing the Niger Delta Tower Resources plc Annual Report 2014 5 Blocks 40 & 41, Zambia Strengthening Geological fieldwork Senior Team undertaken in Blocks 40 & Eric Griffith joined 41, Zambesi Basin, Zambia as Asset Manager during August 2014. (20 years experience) and Andrew Smith as Financial Controller and Company Secretary (10 years experience). Agreement Reached Dissoni Block, with the Operator, Repsol, Cameroon relating to the disputed Progressing negotiations – costs associated with the the Block is located in the drilling of the Welwitschia Rio del Rey Basin, an area prospect, offshore of proven oil production. Namibia. 6 Annual Report 2014 Tower Resources plc Strategic Report Chairman and Chief Executive’s Joint Statement “ Our current work obligations are largely met, which puts us in a better position than most to weather the current storm and prepare for better times.“ The last year has been a difficult period for the oil and gas We are excited by the potential of our operated blocks in Zambia, industry, with prices falling and exploration losing favour with where our geological fieldwork has been very promising. This investors. Tower has suffered along with everyone else, but has shown us that the ingredients for a working petroleum we nevertheless find ourselves with an attractive portfolio of system appear to exist on our blocks. We are progressing into exploration blocks in which our current work obligations are a new phase of the licence, which now consists of three one- largely met, which puts us in a better position than most to year periods, and will be looking for a farminee to assist in the weather the current storm and prepare for better times. exploration of this area. 2014 began with a great deal of commercial activity. In addition We have negotiated a detailed work programme with the to the fundraising for the Welwitschia well in Namibia operated Government of Cameroon for the Dissoni Block, and now by Repsol, we acquired Rift Petroleum which brought us several expect to be ready to sign a final PSC in mid-2015. During attractive exploration blocks in South Africa (working together 2014 and the past few months we have already completed a with New Age) and also Zambia as operator, and we farmed significant amount of further preparatory work on this licence, into Block-2B in Kenya, working together with Taipan Resources and we intend to acquire 3D seismic during the next twelve and Premier Oil. In addition we were already negotiating as the months, probably with a partner. preferred bidder for the Dissoni Block, offshore Cameroon. We have other licences now in our pipeline, but we are not We drilled two wells in frontier areas in Namibia and Kenya, seeking to rush any of these discussions given the current both of which had offered material upside and had been funding climate. validated by the presence of highly experienced farminees, Repsol and Premier Oil. Strategy Our strategy for the year ahead is as follows: We were all deeply disappointed with the result of the • To maintain and to develop our high-impact exploration Welwitschia well offshore Namibia, which we completed portfolio while minimising our forward commitments and in June, not merely because of the lack of reservoir in the costs where appropriate Maastrichtian and Palaeocene targets, but also due to the • To farm-out some or all of the costs of future commitments well’s failure to test the deeper targets, notably the Albian where it is desirable or necessary to move our most exciting carbonates. Nevertheless, we reached an amicable agreement prospects along faster with the operator Repsol regarding the cost of the well, our • To seek opportunities through further asset or corporate share of which was a little below budget, and the prospectivity transactions in order to optimise the portfolio of the deeper section remains.