Final Results

Monday 1 March 2010

Falkland Oil and Gas Limited

("FOGL" or "the Company")

 Announcement of the Final Results for the twelve months ended 31 December 2009

Poised to drill the Company's first exploration well

FOGL, the oil and gas exploration company focused on its extensive licence areas to the South and East of the Falkland Islands, announces Final Results for the year ended 31 December 2009.

Highlights

·; Toroa prospect selected as first drilling target with mean, gross, unrisked prospective resources (recoverable hydrocarbons) of 1.7 billion barrels

·; Placings raised a total of £57.6 million ($94.7 million) gross before expenses

·; Environmental Impact Study submitted in January 2010 with full regulatory approval for drilling expected imminently

·; Ocean Guardian rig secured to drill the first ever exploration well in the East Falklands Basin

·; BHP Billiton is seeking a suitable drilling rig in order to commence a deepwater drilling campaign

·; Cash balance of $93.5 million as at 31 December 2009 (2008: $18.8 million)

Richard Liddell, Chairman of FOGL, said:

"2010 will be a momentous year for FOGL. It will see the culmination of the work undertaken since the Company was founded in 2004, with the commencement of exploration drilling in our licences."

Enquiries:

Chairman's and Chief Executive's Statement

Commencement of exploratory drilling

2010 will see the culmination of the work undertaken since FOGL was founded in 2004, with the drilling of its first exploration well; the first ever well to be drilled in the East Falklands Basin.

During 2009, extensive site surveys were completed over four selected prospects, featuring different play types and large potential reserves. The results from these surveys were integrated into an Environmental Impact Statement (EIS) which has been reviewed by the Falkland Islands Government (FIG). An addendum to the EIS was submitted in January 2010 and we now await FIG's final approval and consent to drill.

In November 2009, we announced that the joint venture was in advanced discussions with Desire Petroleum to contract the Ocean Guardian rig to drill the Toroa prospect. The Ocean Guardian has been contracted by Desire to drill a multi-well programme and the rig arrived in Falkland Islands waters in mid-February 2010. This rig has now been contracted for the third slot in the drilling programme, and we expect to start this well in the first half of 2010.

Since late 2009 we have been working with BHP Billiton to prepare for the drilling of the Toroa well. Due to the water depth, the prospect is best drilled by an anchored rig, such as the Ocean Guardian. However, the other prospects which have been site surveyed, Loligo, Nimrod, and Endeavour, all lie in water depths greater than 1,000 metres and are best suited to being drilled by a dynamically positioned drillship or semi-submersible rig. Toroa lies in water depths of between 550 and 750 metres and is situated approximately 140 kilometres (90 miles) south of Stanley, within the Company's southern (2002) licences. 

Funding and Financials

In May 2009, £7.6 million (gross before expenses) was raised through a Placing of 10,488,099 shares at 73p per share and in November 2009 a further £50 million (gross before expenses) was raised through the placing of 43,478,261 shares at 115p per share. Both existing and new institutional investors showed strong support for FOGL's prospects through these placings.

FOGL started the year with $18.8 million in cash, of which $12.9 million was invested in the exploration programme and $2.8 million used to cover administration costs. At the end of the year the cash balance was $93.5 million. The loss before tax for the year was $5.5 million (2008: $1.3 million) made up of an operating loss of $2.8 million (2008: $2.9 million), net finance costs of $1.6 million (2008: $1 million), and foreign exchange losses of $1.1 million (2008: gain of $2.6 million). The sterling proceeds of the placings were converted into US dollars shortly after their receipt, to the extent necessary to meet future US dollar expenditures. No dividend is proposed.

The Company believes it is fully funded for its share of the costs of both phases of the initial drilling programme. Phase One will commence in the first half of 2010 with the drilling of Toroa by the Ocean Guardian, and Phase Two, which is the deepwater campaign, is currently expected to start in late 2010. FOGL has retained a significant 49% interest in its licences, whilst under the terms of the farm-in agreement BHP Billiton is funding more than two thirds of the total cost of the committed two well programme.

Outlook

2010 will be a momentous year for FOGL with the start of exploratory drilling. By any standard Toroa is a large, attractive prospect, but we believe the potential of our deeper water prospects is even greater and it is with much anticipation that we await the commencement of the deepwater drilling campaign. BHP Billiton is actively seeking a modern, dynamically positioned, semi-submersible rig or a large drillship to carry out this drilling programme.

Falkland Oil and Gas Limited

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2009

The loss for the year arose from continuing operations.

Falkland Oil and Gas Limited

Consolidated Statement of Financial Position

at 31 December 2009

Falkland Oil and Gas Limited

Consolidated Statement of Cash Flows

for the year ended 31 December 2009

Falkland Oil and Gas Limited

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2009 will be available at the end of March 2010. The auditors have reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis.