Annual Report and Notice of General Meeting

Afren plc (+44 20 7864 3700)

Pelham Bell Pottinger (+44 20 7861 3232)

Andrew Dymond

Investor Relations

James Henderson

Mark Antelme

Key risk

Description and impact

How do we manage it?

OPERATIONAL RISK

Field delivery risk

·; Field delivery risk applies to all phases of the E&P cycle from seismic acquisition through to production operations. At each phase the mitigating measures will be different, however failure to control risks will manifest itself as project delays, cost overruns, high production costs, early field decommissioning and ultimately lower than expected reserves.

·; All operations are subject to risk reviews to identify as early as possible potential risks to delivery.

·; Our engineers analyse results from appraisal and development wells and determine the appropriate course of action in terms of drilling programme and facility design.

·; All projects are closely monitored to ensure the project delivers against plan and to enable actions to be taken to maintain progress.

·; Project finances are monitored against budget to minimise overruns.

·; Production operations are closely monitored to ensure that unplanned downtime is minimised and that operating costs are tightly controlled.

·; Actual production is regularly checked against the annual production forecast.

Exploration failure

·; Exploration activities can be capital intensive and may involve a high degree of risk. Sustained exploration failure will impact the growth and upside potential of the Company.

·; A dedicated team has been established under the leadership of the new Exploration Director, to exploit the exploration portfolio.

·; Exploration assets are subject to a rigorous peer review process.

·; Exploration risk is evaluated for each prospect by looking in detail at how to de-risk the key elements of the subsurface data, source rock, reservoir, trapping and seal mechanisms, etc. Prospects are subsequently ranked and budgets approved.

·; Exploration costs are funded by planned operational cash flows in 2012.

Environmental /

safety incidents

·; As Afren's activities expand there is a continuing focus on preventing major pollution and/or significant loss of life due to systems or equipment failure. We have implemented EHSS management systems based on best industry practice at both the corporate and country level.

·; Afren has a comprehensive EHSS management system with an annual independent audit programme to ensure effective implementation.

·; Dedicated EHSS teams in each area of operation.

·; Contingency plans in place.

Unfulfilled work/PSC obligations

·; Loss of production interest or exploration licence due to incomplete fulfilment of PSC obligations.

·; The operations, finance and legal functions jointly monitor compliance with licence obligations.

·; Maintenance of good open working relationships with local governments in the countries of operation.

EXTERNAL RISK

Geo-political risk

·; The countries in which Afren operates face political, socio-economic and legal uncertainties.

·; 2011 has seen some ethnic tension and public protests in Nigeria. These events have not impacted Afren operations.

·; In Côte d'Ivoire there was civil disruption throughout 2010 and 2011 following the disputed election. The situation ultimately ended with the change in government in mid 2011. The country is gradually returning to a state of peace and stability.

·; In the Kurdistan region of Iraq there are geopolitical and legal uncertainties, particularly associated with the licensing framework and ability to export.

·; Ongoing monitoring and close liaison on the ground to monitor the situation from an Afren safety and security perspective.

·; Contingency plans in place.

Security incidents

·; Afren continues to operate in regions where kidnapping, piracy and criminal attacks are commonplace.

·; As we move into exploration activities in East Africa and development in the Kurdistan region of Iraq, management of security risks will continue to be a major strand in our risk management programme.

·; Dedicated security teams in each area of operation.

·; Robust security management programme.

·; Security risk assessments for each asset and operation.

Host community action

·; Our operations both on and offshore have the potential for interruption by our host communities if relationships are not well established.

·; Afren has a tried and tested system for managing community affairs which is applied to all operations.

·; Dedicated community affairs teams are in place where required.

·; Contingency plans in place.

Oil price volatility

·; Oil prices can fluctuate significantly.

·; The policy of the Group is to protect its minimum cash flow requirements in the context of a sustained downturn in oil prices.

·; The Group strategy to manage oil price risk is to hedge between 20-30% of the production curve by using financial instruments which allow the Group to protect the downside risk.

STRATEGIC RISK

Bribery and corruption

·; 2010 saw the introduction of the UK Anti-bribery and Corruption Act. As an oil and gas operator working in Africa, Afren is potentially exposed to accusations of poor practise in this important area of business.

·; Afren has implemented a Code of Business Conduct across all its operations.

·; An independent whistle-blowing hotline has been established to enable concerns about poor practise to be voiced without the fear of reprisal.

·; Additional policy and processes have been established to meet the stringent requirements of the UK anti-bribery and corruption legislation.

·; Audit and Risk Committee in place to review governance and internal controls.

·; Risk Management function working with key functions in the business.

Management of growth

·; As the business continues to grow, so does the requirement for competent personnel with the right skills in the right place at the right time. Failure to manage either organic growth or to integrate acquisitions will result in delays and other impacts on key objectives.

·; All acquisitions are subject to thorough due diligence in order to deliver an attractive integration plan.

·; Remuneration policies are designed to incentivise, motivate and retain key employees as well as to attract new personnel as and when required.

Loss of key employees

·; Loss of knowledge and skills to the Group in particular in countries of operation.

·; Intensified competition for human talent in Africa and the Middle East.

·; Inability to attract required quality of personnel to fill vacancies.

·; Afren has continued through 2011 to minimise the staff turnover rate and to recruit highly talented individuals when required.

·; Succession planning is considered on a Group-wide basis, taking into account the development of the executive and senior management.

·; Remuneration policies are designed to incentivise, motivate and retain key employees including Directors.

·; Salaries and reward of senior executives, including Directors, set at competitive levels using third-party benchmarks.

FINANCIAL RISK

Taxation and other legislation changes

·; There is a risk that future changes impact our profitability.

·; Our financial and legal teams monitor current legislation and proposed changes and incorporate these into our working practices.

·; Maintenance of good open working relationships with local authorities in the countries of operation.

Treasury management

·; The availability of financing to maintain the ongoing operations of the business is key.

·; The Group has utilised a number of sources of capital to supplement cash generated from operations, through the bond issues in January 2011 and in February 2012 and an equity placing in July 2011. The Group will continue to optimise its capital structure during 2012 to provide further financial flexibility to fund the Group's operational requirements.

·; The Group continues to manage its expenditure and monitor cash flows to ensure that future cash requirements are appropriately controlled.