Annual Report & Accounts 2011

Annual Report & Accounts 2011 www.oandoplc.com Oando PLC is the largest integrated energy solutions group in sub-Saharan Africa with a primary and ...
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Annual Report & Accounts 2011

www.oandoplc.com

Oando PLC is the largest integrated energy solutions group in sub-Saharan Africa with a primary and secondary listing on the Nigerian Stock Exchange and JSE Limited respectively.

Vision

To be the premier company driven by excellence Mission

To be the leading Integrated energy solutions provider

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Oando PLC 2011 ANNUAL REPORT

Oando

Integrated Energy Solutions

With shared values of Teamwork, Respect, Integrity, Passion and Professionalism (TRIPP), the Oando Group comprises of five business divisions who are leaders in their market. The following pages will explore these further.

Operational Overview Downstream Operations

Midstream Operations

Upstream Operations

The leading retailer of petroleum products. Selling and distributing petroleum in Nigeria and West Africa via over 500 retail outlets. See page 05

A pioneer in fields of private sector pipeline network construction and the distribution of natural gas to industrial and commercial consumers. See page 07

Nigeria’s foremost indigenous oilfield services company providing products and services to major upstream companies operating in Nigeria. See page 08

Marketing Division

Supply and Trading Division

Africa’s largest independent and privately-owned oil trading company involved in the export and import of refined petroleum products and crude oil. See page 06

+11% Gross Profit

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Oando PLC 2011 ANNUAL REPORT

Gas and Power Division

+103% Gross Profit

Energy Services Division

Exploration and Production Division

A leading Nigerian exploration and production company with 13 oil and gas assets, OEP is the first indigenous company with a participating interest in a deep offshore oil producing asset. See page 09

+21% Gross Profit

Marketing Division Oando

Oando Marketing PLC is Nigeria’s leading oil marketing retailer with over 500 retail service stations in Nigeria, Togo and Ghana and over 600 industrial customers cutting across the different geographical zones in Nigeria.

500+ 500+ Outlets - The leading oil marketing retailer with over 500 outlets in Nigeria and operations in Ghana, Togo, Liberia and Republic of Benin.

The company markets a wide range of petroleum products including Premium Motor Spirit (PMS), Automotive Gas Oil (AGO also known as diesel), Dual Purpose Kerosene (DPK), Aviation Turbine Kerosene (ATK), Low Pour Fuel Oil (LPFO), Lubricating Oils, Greases, Insecticides, Bitumen, and Liquefied Petroleum Gas (LPG), also known as “Cooking Gas”. Oando Marketing also has tailor made value adding solutions meeting the needs of our numerous customers including:

Oando Value Added Peddling: A unique service which guarantees effective supply of Diesel (AGO) and Lubricants to companies with multiple operational sites across the country.

Oando Vendor Managed Inventory: A special customer service initiative which ensures regular supply of fuel and lubricants to the premises of the customer. Oando Pay-As-U-Gas: An innovative solution which involves on-the-spot dispensing of LPG using a pump meter into customers cylinder.

$1m

Invested $1 million to optimise lubricant production to 100 million litres per annum.

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Oando PLC 2011 ANNUAL REPORT

Supply & Trading Division Oando

Oando Supply & Trading is involved in largescale export and import of petroleum products and is a leading supplier of petroleum products to Nigeria, with imports accounting for 18% of cars on Nigerian roads.

$1bn Access to trading lines in excess of $1bn

7% 7% of the Nation’s fuel requirement supplied by Oando

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Oando PLC 2011 ANNUAL REPORT

In line with the leadership culture of the Oando Group, Oando Supply and Trading is the foremost indigenous physical trader of petroleum products in Nigeria. The company trades large volume cargoes to the Major Oil Marketers in the country as well as to Independent Marketers. The company is involved in the large-scale export and import of petroleum products and is a leading supplier of petroleum products to Nigeria. Oando Supply & Trading procures and trades a broad range of refined petroleum products and crude oil throughout Africa, Europe, Asia and the Americas. The products include Jet A1, Liquified Petroleum Gas, Gasoline, Dual Purpose Kerosene, Diesel, Low/High Pour Fuel Oil, Naphtha, Base Oil and Bitumen.

Oando’s Trading Business Oando Supply & Trading and Oando Trading Limited (Bermuda) represent the products trading arm of the Oando Group. Our business activities cover the trading of crude and refined petroleum products to refiners, marketing and trading companies respectively.

Oando Supply & Trading is responsible for the supply of refined petroleum products into Nigeria, whilst Oando Trading Limited trades refined petroleum products and crude oil in International Markets. Products traded include gasoline, gas oil, kerosene, aviation fuel, naphtha, fuel oils, bitumen, base oils and liquefied petroleum gas.

159.5m Access to 159.5 million litres of physical storage in major markets

Gas & Power Division Oando

Oando Gas & Power Division is the developer of Nigeria’s foremost natural gas distribution network and captive power solutions. The company pioneered the distribution of natural gas to commercial and industrial end-users via pipelines in Nigeria, which today serves more than one hundred industries, operating in the country’s economic nerve centres.

128

KM

128 km Pipeline Network in the South East

Oando Gas & Power Limited is developer of Nigeria’s foremost natural gas distribution network and captive power solutions. We pioneered the private sector piping and distribution of natural gas to industrial and commercial consumers, successfully reviving private sector participation in the gas distribution business in Nigeria. With 100km of pipes already laid in Lagos State and another 128 km in progress in Akwa Ibom and Cross River States, we are taking bold steps towards building subSaharan Africa’s largest gas pipeline network. Over the years, we made significant investments in the development of gas and power infrastructure that assure reliable supply of natural gas including high pressure transmission pipelines and gas processing facilities and our aspiration is to replicate the

success recorded in our Greater Lagos Natural Gas Distribution in other parts of Nigeria and West Africa whilst we strive to expand our horizon in Independent Power Generation to captive opportunities in locations where we have gas infrastructure and Exploration & Production assets. At Oando Gas and Power, the nature of our business predisposes us naturally as supporters of industrial and commercial concerns by offering them cheap and affordable energy solutions which translates into significant cost advantages to the organizations that we serve. We will continue to consistently demonstrate competitive leadership in the Nigerian energy market.

100 100 km Pipeline Network in Lagos

KM

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Oando PLC 2011 ANNUAL REPORT

Oando

Energy Services Division

Oando Energy Services (OES) is an indigenous Energy services company that utilises industry best practices and innovative technology in delivering safe and environmentally sound well site operations and high-quality support to E&P companies operating in the Niger Delta.

Oando Energy Services Limited is an indigenous provider of oilfield services to operators of the oil and gas industry in Nigeria. We are committed to providing high quality services to our clients and ensure that our operations are carried out with strict adherence to world standard safety procedures. Oando Energy Services Limited (OESL) has invested over US300 million in acquiring five Swamp Drilling Rigs namely OES Teamwork, OES Respect, OES Integrity, OES

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Oando PLC 2011 ANNUAL REPORT

Professionalism and OES Passion. With these acquisitions, OESL is the largest swamp drilling contractor in Nigeria. We remain committed to utilising Nigerian personnel within our system. It is our policy to train and develop all our people by enrolling them in approved training programmes as this will ensure that we maintain a pool of talented and motivated employees to deliver quality service to our customers.

$300m OESL has invested over US $300 million in acquiring five Swamp Drilling Rigs

Our training programmes cover all aspects of operations such as safety, pollution prevention and job proficiency. In addition to these programmes, various initiatives are in place to promote and retain our people. We are committed to continually assessing the impact of our activities, operations and services and managing them in a responsible manner. This is carried out to ensure we minimise environmental risks and prevent pollution as a result of our operations.

Exploration & Production Division Oando

Oando holds interests in 13 licenses for the exploration, development and production of oil and gas assets located onshore, swamp, and offshore. Our primary task is to harness optimally the potentials of our existing portfolio.

13 Oil and Gas Assets

Oando has prolific 2P reserves and 2C resources from a portfolio of Producing, Near term and Exploration assets within Niger Delta, Nigeria/Sao-Tome JDZ and DRSTP EEZ. It has a 15% and 45% Working interest in OML 125 and OML 56 respectively which are currently producing assets. The company is also a Nigerian Content Partner with AGIP Oil on OPL 282. All assets are in different stages of development and will significantly increase Nigeria’s oil and gas reserves.

continued unabated throughout the global financial crisis due to the successful management and production of oil and gas reserves. Positioned as an owner and operator of an oil and gas asset portfolio the company will continue to pursue further investments in selected African Oil and Gas producing basins that meet its strategic and financial criteria and position it for growth criteria.

Our mission is to deliver sustainable value to stakeholders by continually growing reserves through the exploration, development and acquisition of Oil and Gas resources. Our growth has 09

Oando PLC 2011 ANNUAL REPORT

Oando Plc remains well positioned for immense growth in 2012 as we await key economic reforms to kick in. With our focus and strategy remaining as clear as ever, we are in prime position to surpass our past performance to the ultimate satisfaction of all our stakeholders.

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Oando PLC 2011 ANNUAL REPORT

Directors and Professional Advisers Notice of Annual General Meeting Financial Highlights Chairman’s Report Group Chief Executive’s Report Board of Directors Oando at a Glance Report of the Directors Report of the Audit Committee Financial Statements

12 14 17 19 23 46 48 50 - 67 68 71

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Oando PLC 2011 ANNUAL REPORT

Directors and Professional Advisers

Oando’s general policies are determined by a Board of Directors drawn from different facets of the society. The Board members are highly successful individuals in their various fields of endeavour. The board meets regularly during the year to discuss reviews and reports on the business and plans of the Oando Group.

DIrECTOrS

HrM Oba Michael A. Gbadebo, CFr (The Alake of Egbaland) Chairman, Non-Executive Director

Maj General M. Magoro (rtd.) PSC, OFr (Galadiman Zuru) Chairman, Non-Executive Director Resigned 30, June 2011 Mr. Jubril Adewale Tinubu Group Chief Executive

Mr. Omamofe Boyo Deputy Group Chief Executive Mr. Mobolaji Osunsanya Group Executive Director

Mr. Olufemi Adeyemo Group Executive Director, Finance Mr. Oghogho Akpata Non- Executive Director

Ms. Nana Appiah-Korang Non-Executive Director Chief Sena Anthony Non-Executive Director

Ammuna Lawan Ali, OON Non-Executive Director Appointed 20th October 2011

Engr. Yusuf N’jie Independent Non-Executive Director Appointed 20th October 2011 Ms. Amal Inyingiala Pepple, CFr Non-Executive Director Resigned 22, July 2011 12

Oando PLC 2011 ANNUAL REPORT

PrOFESSIONAL ADVISErS Ayotola O. Jagun (Ms.) Chief Compliance Officer & Company Secretary Mr. Olufemi Adeyemo Chief Financial Officer Mrs. Ngozi Okonkwo Chief Legal Officer rEGISTErED OFFICE 2, Ajose-Adeogun Street Victoria Island Lagos, Nigeria AUDITOrS PricewaterhouseCoopers 252E, Muri Okunola Street Victoria Island Lagos, Nigeria

THE rEGISTrArS & TrANSFEr OFFICES

First registrars Nigeria Limited Plot 2, Abebe Village Road Iganmu, Lagos, Nigeria Computershare Investor Services (Proprietary) Limited 70, Marshall Street Johannesburg 2001 PO Box 61051 Marshalltown 2107 South Africa JSE LIMITED SPONSOr Macquarie First South Capital (Pty) Limited The Place, 1 Sandton Drive South Wing, Sandown, 2146 P.O. Box 783745, Sandton 2196 Johannesburg, South Africa

BANKS • Access Bank Plc • Access Bank UK • BNP Paribas • Citibank Nigeria Limited • Citibank UK • Consolidated Discount House Limited • Diamond Bank Plc • Ecobank Nigeria Plc • Fidelity Bank Plc • First Bank of Nigeria Plc • First City Monument Bank Plc • Guaranty Trust Bank (UK) Limited • Guaranty Trust Bank Plc • Keystone Bank Limited • Stanbic IBTC Bank Plc • Standard Bank Plc • Standard Chartered Bank London • Standard Chartered Bank Nigeria Limited • Sterling Bank Plc • United Bank for Africa Plc • United Bank for Africa, New York • Unity Bank Plc • Zenith Bank (UK) Limited • Zenith Bank Plc

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Oando PLC 2011 ANNUAL REPORT

Notice of Annual General Meeting

NOTICE IS HErEBY GIVEN that the Thirty–Fifth Annual General Meeting of Oando PLC (the “Company”) will be held at Shell Nigeria Hall, The Muson Centre, 8/9 Marina, Onikan, Lagos State on Friday, the 20th day of July 2012 at 10:00 a.m. for the purposes of:

1. Transacting the following ordinary business:

Ayotola Jagun (Ms.) Chief Compliance Officer & Company Secretary

1.1 To present the annual financial statements of the Company and of the group for the year ended December 31, 2011 and Reports of Directors and Auditors thereon; 1.2 To receive the Report of the Audit Committee; 1.3 To elect members of the Audit Committee; 1.4 To re-appoint the Auditors; 1.5 To authorise the Directors of the Company to fix the remuneration of the Auditors; 1.6 To elect the following Directors appointed to the Board of Directors of the Company with effect from October 20, 2011 as Directors. In accordance with Article 88 of the Articles of Association of the Company (“the articles”), their terms expire but being eligible offer themselves for election. • Ammuna Lawan Ali, CFR • Engr. Yusuf N'jie 1.7 To re-elect the following Directors who in accordance with Articles 91 and 93 of the Company's Articles of Association, retire by rotation, but are eligible and offer themselves for re-election: • • • •

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Oando PLC 2011 ANNUAL REPORT

Mr. Oghogho Akpata Mr. Omamofe Boyo Mr. Mobolaji Osunsanya Ms. Nana Appiah-Korang

2

(i)

Transacting the following special business:

To consider, and if approved, to pass with or without modification, the following ordinary resolution to fix the remuneration of the Non-Executive directors: “It is hereby resolved that the fees payable to the Non-Executive directors of the Company remains N2,500,000.00 per annum for the Chairman and N2,000,000.00 each per annum for all other Non-Executive directors with effect from January 1, 2012 which fees are payable quarterly in arrears”.

(ii) To consider, and if approved, to pass with or without modification the following ordinary resolution: That on the recommendation of the Directors and in accordance with Article 46 of the Articles of Association of the Company the Authorized Share Capital of the Company be and is hereby increased from N3,000,000,000.00 (Three Billion Naira) to N5,000,000,000.00 (Five Billion Naira) by the creation and addition thereto of 4,000,000,000 (Four Billion) new ordinary shares of 50 kobo each ranking in all respects pari passu with the existing shares of the Company and that clause 6 of the Company's Memorandum of Association and article 3 of the Company's Articles of Association be and are hereby amended to reflect the new Authorised Share Capital of N5,000,000,000.00 (Five billion Naira) divided into10,000,000,000 (Ten billion) ordinary shares of 50 kobo each.

Voting and Proxies

On a show of hands, every member present in person or by proxy shall have one vote, and on a poll, every member shall have one vote for each share of which he is the holder. A member of the Company entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitled to appoint a proxy to attend, speak and vote instead of that member. A proxy need not be a member of the Company. Registered holders of certificated shares and holders of dematerialised shares in their own name who are unable to attend the Meeting and who wish to be represented at the Meeting, must complete and return the attached form of proxy in accordance with the instructions contained in the form of proxy so as to be received by the share registrars, First Registrars Nigeria Limited at Plot 2, Abebe Village Road, Iganmu, Lagos, or Computershare Investor Services (Proprietary) Limited, 70, Marshall Street, Johannesburg, 2001, South Africa, PO Box 61051, Marshalltown, 2107, not less than 48 hours before the time of the Meeting. Holders of the Company's shares in South Africa (whether certificated or dematerialised) through a nominee should timeously make the necessary arrangements with that nominee or, if applicable, Central Securities Depository Participant (“CSDP”) or broker to enable them attend and vote at the Meeting or to enable their votes in respect of their shares to be cast at the Meeting by that nominee or a proxy.

Closure of registers of Members

The Registers of Members and Transfer Books of the Company (Nigerian and South African) will be closed between the 28th June and 29th June 2012 (both days inclusive) in accordance with the provisions of Section 89 of the Companies and Allied Matters Act Cap. C20 Laws of the Federation 2004 (the “Companies Act”).

Nomination for the Audit Committee

In accordance with Section 359 (5) of the Companies Act, any member may nominate a shareholder as a member of the Audit Committee, by giving notice in writing of such nomination to the Company Secretary at least 21 days before the Meeting.

Dated this 27th day of June 2012 By the Order of the Board

Ayotola Jagun (Ms.)

Chief Compliance Officer & Company Secretary Registered Office: 2, Ajose- Adeogun Street Victoria Island, Lagos

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Oando PLC 2011 ANNUAL REPORT

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Oando PLC 2011 ANNUAL REPORT

Financial Highlights

Total revenues by business sector (%)

N586.6bn Total revenue

Downstream 90% (N525.6bn) Midstream 3% (N19.6bn) Upstream 7% (N41.3bn)

Turnover (N’000) 2010

378,925,430

2011

586,619,034

586,619,034 Profit after tax (N’000) 2010

14,374,966

2011

3,446,643

3,446,643

Basic earnings per 50k share (Naira) 2010

8.29

2011

1.62

1.62

Net assets per 50k share (Naira) 2010

51.40

2011

40.64

40.64

Profit on ordinary activities before exceptional items and taxes (N’000) 2010

24,318,845

2011

24,553,251

24,553,251

Attributable to group (N’000) 2010

14,379,066

2011

3,666,730

3,666,730

Dividend per 50k share – proposed (Naira) 2010

3.0

2011

0

0

Dividend cover (N’000) 2010

2.76

2011

0

0

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Oando PLC 2011 ANNUAL REPORT

We have every reason to look back at the year with pride on the achievements of our company in a year where companies all around the world have battled to grow their earnings. Our strategy to lay more emphasis on the high margin upstream produced dividends with the sector contributing significantly to profitability.

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Oando PLC 2011 ANNUAL REPORT

Chairman’s report

Highly Esteemed Shareholders, It is with great pleasure that I welcome you to the 35th Annual General Meeting of your Company.

Oba Aremu Adedotun Chairman

The year 2011 proved to be a difficult year for most developed economies as they battled with their never-ending feud with the sovereign debt crisis and double-dip recession. Ironically, developing nations such as Nigeria championed the cause for global recovery, recording impressive economic growth figures. Expansions in oil and gas, agriculture, wholesale and retail sectors contributed to an impressive growth of 7.2%, making Nigeria amongst the fastest-growing economies globally. We have every reason to look back at the year with pride on the achievements of our company in a year where companies all around the world have battled to grow their earnings. Our strategy to lay more emphasis on the high margin upstream produced dividends with the sector contributing significantly to profitability.

7.2%

7.2% growth - making Nigeria amongst the fastest-growing economies globally.

Global Economy

The long-awaited global economic recovery put on several changing faces during the year. 2011 had been heralded as the year to set the stage for a modest global rebound by dealing with issues bordering on broken financial infrastructure, high unemployment, and huge debt overhang. However, contagious political instability in oil-rich regions as well as natural disasters added to the pending downside issues experienced globally. While most developed economies continued their never-ending battle with recession, the case of the Eurozone presented a more daunting challenge, as it triggered a debt crisis, first with its poster child, Greece, as well as Ireland and Portugal. However, much effort has been put in place to strengthen the overall framework of the region such that a post-crisis Europe would be stronger to drive global growth. Notwithstanding these identified downsides, all was not lost in 2011 as emerging market economies recorded impressive growth figures thereby cushioning the sloth in developed economies. This shift in balance of power was further evidenced by calls for China to bail Europe out of its debt crisis. There, however, remains the fear that a bust in any of the fast-growing economies arising from overheated financial, property and commodity markets, among others, could crystallize another round of contagion that the global economy will have to grapple with. Crude oil prices stayed well above $100 per barrel for most of the year.

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Oando PLC 2011 ANNUAL REPORT

Chairman’s report Continued

$100 Crude oil prices stayed well above $100 per barrel for most of the year.

Nigeria

Nigeria stands as one of the emerging market economies that have shown resilience and maintained impressive economic growth despite the global crisis; however, “resilience” is one of those words that should be used with caution, given the apparent linkages within the global economy. As evidenced in the 2008 financial crisis, there are downside risks to growth and revenues, specifically in terms of weaker demand for exports. Implementation of austerity measures in developed markets implies reduced crude oil demand and price, posing threats to Nigeria’s oil revenues, with major implications for the budget and deficits, and consequently government spending and investments. 2011 ushered in a successful democratic election process in Nigeria, which we believe will lay a strong foundation for the Federal Government to continue to implement beneficial legislation and policies that will continue to promote the development of the Oil & Gas sector and our economy at large.

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Oando PLC 2011 ANNUAL REPORT

In the economy, GDP (Gross Domestic Product) growth was largely driven by the agricultural sector, oil and gas sector, wholesale and retail sectors. The uprising in the MENA (Middle East and North Africa) region pushed crude oil price into triple digit

in the early part of the year. Going by the outlook on weather conditions in major agricultural producing nations, prospects of an ease in food price increase remain slim in the near term. The year ended with the Nation’s attention firmly focused on the Federal Government’s plan to remove petroleum subsidy in 2012. This provoked mostly negative reactions from the general populace on what is clearly a very sensitive topic to Nigerians. The people remain skeptical of the government’s plan to eliminate its largest opportunity cost to the detriment of the average Nigerian man, in the supposed guise of improved infrastructure and promises of a better tomorrow. However, the government’s intent on reforming our Oil and Gas industry via subsidy removal and passage of the Petroleum Industry Bill (PIB) is good news to us as it will bring about much needed positive change to our operations.

The company remains well positioned for immense growth in 2012 as we await these key economic reforms to kick in. With our focus and strategy remaining as clear as ever, we are in prime position to surpass our past performance to the ultimate satisfaction of our esteemed shareholders.

The Board

In 2011, the erstwhile Chairman, General Magoro (Rtd) resigned as a director having recently attained the age of 70 years as well as having been elected a senator of the Federal Republic of Nigeria. We truly valued his leadership, commitment and valuable contribution to the success of Oando and wish him the very best in all his future endeavours. We have no doubt that he will contribute positively in the legislature. Also in 2011, Ms. Amal Pepple, CFR resigned as a Director following her appointment as Minister for Land, Housing & Urban Development of the Federal Republic of Nigeria. I wish to express our profound gratitude and appreciation for the insightful contributions of Ms. Pepple during her tenure. We wish her the best in her quest to serve our dear nation. To ensure that the composition of the Board of Directors complies with international best practices, Engr. K.J N’jie and Ammuna Lawan Ali, OON were appointed to the Board on 20 October, 2011 in accordance with Article 88 of the articles of association of the company. I am pleased to inform you that the new directors are vastly experienced and firmly believe they will make immense contributions towards the growth and success of Oando.

Oando e-Dividend, e-report and e-Bonus Campaign

To ensure timely communication and reduce challenges associated with your investment, we have available an e-communication initiative where mandates and reports can be received electronically. I urge you all to leverage on the e-communication channels so that together we can reduce unclaimed dividends.

The 2012 Outlook

2012 for the global economy will be one of the most difficult years to predict due to the unexpected economic and social events that burdened the preceding year. While global growth is expected to be slower, emerging and frontier markets such as Nigeria are expected to record impressive output growth figures. This negative outlook is further

emphasized by the IMF’s revision of global growth estimate from 4.5% to 4.0%. It would be fair to say that global growth is largely hinged on the evolution of the current Eurozone crisis and the US economy. Economic growth in Nigeria is forecasted at 7.2% for 2012, with rising domestic demand, intra-Africa trade, and infrastructure development expected to be the major growth drivers. The Central Bank of Nigeria has forecasted an exchange rate of NGN157.89/US$ and inflation rate of 13%. The Federal Government’s decision to partially remove petrol subsidies should release much needed funds for infrastructure development and should benefit the economy as a whole if properly implemented. The policy also favours major marketers such as us as it reduces the number of receivables days experienced when waiting for the Federal Government to pay subsidy. Following downstream deregulation, attention will be firmly focused on the passage of the Petroleum Industry Bill (PIB) this year, and there are clear indications that the bill will be passed before the end of the first half of the year. The company remains well positioned for immense growth in 2012 as we await these key economic reforms to kick in. With our focus and strategy remaining as clear as ever, we are in prime position to surpass our past performance to the ultimate satisfaction of our esteemed shareholders. Thank you

HrM Oba Michael A. Gbadebo, CFr Chairman

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Oando PLC 2011 ANNUAL REPORT

In 2011, the Group witnessed growth, with an impressive 55% increase in revenues, reaching N586.6 billion. With a Profit before tax of 24.5 billion, profit after tax was however lower at N3.4 billion, following necessary write-downs of 9.6 billion which provide a clean slate for future growth.

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Oando PLC 2011 ANNUAL REPORT

Group Chief Executive’s report

+55% In 2011, the Group witnessed growth, with an impressive 55% increase in revenues, reaching N586.6 billion.

Mr. Jubril Adewale Tinubu Group Chief Executive

2011 HIGHLIGHTS

A clean slate provided for future progress

It is with great pleasure that I give you the first review of Oando’s performance for 2011. It proved to be a year of continuous progress for the Group, only hindered by necessary write-downs that pave the way for future growth. The Group’s focus remains on building and developing the higher margin Mid to Upstream divisions whilst maintaining our leadership position in the Downstream sector. Across the globe, 2011 was a year marked with uncertainty. The Arab spring dominated events for much of the year toppling long dictatorships and causing greater instability on oil prices. The effect of America’s recession on the rest of the world was more pronounced as consumption and trading slowed down causing the IMF to forecast a growth rate of 3.3% for the world economy. The European Union came close to financial disintegration due to maturing debt crises of some key member states including Greece, Italy and fears of default for Spain and Portugal. All these gave rise to a liquidity squeeze increasing the cost of borrowing and affecting the import of petroleum products.

In 2011, the Group witnessed growth, with an impressive 55% increase in revenues, reaching N586.6 billion. With a profit before exceptional items and taxes of N24.5 billion, profit after tax was however lower at N3.4 billion, following necessary write-downs of N9.6 billion which provide a clean slate for future growth. The highlights for the year include:

• Commenced reverse Takeover of Canadian listed Exile Resources Inc., to create Oando Energy Resources Inc. • Sustained production levels from Oando’s producing assets. • Two of Oando’s swamp rigs maintained drilling operations in the Niger Delta, with the third being mobilised to commence operations for Shell Nigeria. • Oando Gas and Power (OGP) commissioned its second franchise, the 128km East Horizon Gas Pipeline in the Southeast. • OGP also commenced the operation of Central Horizon Gas Company (a special purpose vehicle set up to rehabilitate and expand the existing gas distribution pipeline in Trans-Amadi, Rivers State). • Maintained our leadership position in the importation and distribution of petroleum products across Nigeria. 23

Oando PLC 2011 ANNUAL REPORT

500+

500+ Outlets - The leading oil marketing retailer with over 500 outlets in Nigeria and operations in Ghana, Togo, Liberia and Republic of Benin.

O-Gas - Continued investment in LPG expansion and dominance through introduction of 3kg cylinder, deployment of the Oando Pay As U Gas initiative to additional outlets; massive cylinder expansion through various schemes including cylinder swaps, exchanges and convenient refills.

Group Chief Executive’s report

Downstream

The Group’s operations in the downstream sector comprise its Marketing & Supply and Trading businesses. In addition, the Group has a refining & Terminaling business division which currently harbours a number of projects. Total revenue by business segment 1 1. Marketing 2. Supply and Trading

2

N525.6bn Total revenue

N199.5bn N326.1bn

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Oando PLC 2011 ANNUAL REPORT

Downstream Operations

Oando Marketing PLC Oando Marketing PLC (OMP) is the largest petroleum products marketing company in Nigeria with over 500 retail outlets and industrial customers across all major sectors; we also have operations in Ghana, Togo, and Liberia. OMP’s businesses span across sales, marketing and distribution of the major petroleum products including Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), Dual Purpose Kerosene (DPK), Aviation Turbine Kerosene (ATK), Low Pour Fuel Oil (LPFO), Lubricating Oils, Greases, Bitumen and Liquefied Petroleum Gas (LPG, commonly known as cooking gas).

Financial Highlights 2011

N199.5bn OMP Turnover of

N8.1bn OMP EBITDA

N3.8bn OMP PAT

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Oando PLC 2011 ANNUAL REPORT

review of 2011

Despite negative externalities which adversely affected our operating environment, OMP recorded positive results in 2011. Our company grew both revenue and gross margins by 14% and 17% above 2010 levels to N199.8bn and N23.5bn respectively. Profit after tax reduced marginally by 3% over 2010 position to N3.8bn. This performance was built on the foundation of being the foremost products distribution company driven by relentless commitment to excellence through hard work, innovation, integrity and efficiency. Locally, we lost over 30 business days compared to 2010, largely due to political activities, industrial actions by different unions as well as security and safety related incidents. This heavily impacted our business as the economy grounded to a halt. The inconsistent implementation of policies by

government and its parastatals continued to hamper the smooth running of our business. The last 2 quarters of the year were dominated by government’s uncertainty with regards to the Petroleum Support Fund (PSF), which impacted negatively on PMS supply across the nation as key participants in the supply chain employed a risk averse strategy. The above issues led to underutilization of our operating lease facilities, thus increasing operating costs within the period. We also witnessed an increase in cost as a result of additional levies imposed by new agencies in several states where we operate. Working with other members of Major Oil Marketers Association of Nigeria (MOMAN), we have continued to engage with the relevant agencies and our legal teams to assess viability and to reduce these costs.

Group Chief Executive’s report

Product review

PMS: In 2011 OMP maintained its leadership position as PMS sales volumes stood at 1.66bn Litres (1% above prior year). This was the largest volume recorded in the industry by any Oil Major despite market uncertainties. Our focus was sales optimization via company owned stations and key third party affiliations. AGO volumes sold during the period was 324m litres (12% higher than prior year). This performance placed OMP top in the industry despite intense price competitiveness, down time at our Onne Terminal facility for repair works on a damaged Pipeline and liquidity strategy employed to reduce the size of our commercial credit book. Higher sales through specialised channels such as Value Added Peddling (VAP), Vendor Managed Inventory (VMI) and Marine highlight our strategy of increasing revenue through tailored services which add significant value to our customers. HHK sales grew by 35% over 2010 figures due to improved government supply. This presented an opportunity for OMP to aggressively acquire the product from all depots.

Other Products (Lubricants, Specialties)

Lubricants sales volume grew by 13% when compared with 2010 volumes. For the retail business, focus was on optimizing our profitable channel of company owned stations. Retail bulk lubricants sales grew by 12% over 2010 figures. We also grew the commercial lubricants business through an ability to maximize the use of credit, signing up new customers and volume growth on existing customers. The OMP lubricant market share however remains steady at 17% even with stiff competition arising from the importation of cheap products by independent marketers. There are ongoing initiatives to grow Oando volumes and market share.

A lubricant promotion was carried out in Q3, 2011 as part of a long term strategy to improve brand awareness and steady volumes for the period. New initiatives include the distributorship scheme, an incentive scheme for sales staff and a renewed target to increase our industrial customer base.

LPG: 2011 sales at 12,400MT is a reduction of 8% from 2010; this is as a result of severe supply constraints. The Warri refinery was out of operation for about half of the year due to repair work. This, along with management change at the refinery, affected product supply. However, OMP remains the market leader in this product segment at over 50% market share among the Major Oil Marketers Association of Nigeria (MOMAN).

ATK volume sales in 2011 rose by 19% over 2010. We signed up new customers including Air Rwanda, Lufthansa and Airstream, grew sales to local airlines by 26% (due to a combination of bulk sales and constant product availability to local customers) and increased sales to some international airlines such as KLM and South African Airways. New initiatives to grow figures in 2012 include business expansion and specific customer targets which will provide guaranteed volumes with secure credit lines, there will also be focus on equipment upgrade and stock availability to ensure that all orders are met.

+17% Grew gross margins by 17% above 2010 levels

The OMP lubricant market share remains steady at 17% even with stiff competition arising from the importation of cheap products by independent marketers. There are ongoing initiatives to grow Oando volumes and market share.

27

Oando PLC 2011 ANNUAL REPORT

Downstream Operations

Oando Marketing PLC Continued

Significant 2012 initiatives include:

3kg

Continued investment in LPG expansion and dominance through introduction of 3kg cylinder

28

Oando PLC 2011 ANNUAL REPORT

2012 Outlook:

Government policy will remain as vital to our business in 2012. As has clearly been demonstrated with the partial deregulation of the sector through a 49% increase in the price of PMS, these policies will be crucial to our performance and profitability. As the modalities of the new price regime become clear, we will adapt operations to suit set directives. The president has also promised a swift passage of the PIB which will see further changes to our operating environment. Oando Marketing PLC remains bullish for the future. An exploding population, expanding economy and a gradual decline of government interference will deploy market forces to shape the industry. As the major marketer with the largest presence all over Nigeria, Oando Marketing PLC remains firmly committed to take advantage of the conditions listed to deliver consistent superior returns. Emphasis remains on creating the foundations for sustainable growth by investing in innovative solutions, internal processes, asset upgrade and brand management.

• Massive investment in company owned service stations for 2012 including the renovation of 20 existing stations and the purchase of new ones. Focus is on increasing grade “A” company owned service stations (COSS) within the OMP asset base. • Grow our Vendor Managed Inventory (VMI) business with long term contracts and new customers to ensure product delivery at the points where they are used. • Grow our lubricants business to market dominance among MOMAN through different initiatives including package redesign, new product launches, promotions, trainings, awareness, partnerships and commercials. • Continued investment in LPG expansion and dominance through introduction of 3kg cylinder, deployment of the Oando-Pay- AsU-Gas initiative to additional outlets; massive cylinder expansion through various schemes including cylinder swaps, exchanges and convenient refills. • Continued development of Non-Fuel Revenue as a strategic growth area through fuel support ventures such as convenience stores, lube bays, car washes and branding partnerships. • Significant attention will go to customer service excellence through a comprehensive rewards scheme for all customer-facing retail staff. • Deepen gains made from operations unit re-organization through further process redesign, automation and partner selection. Main focus areas will include fleet and logistics. • Optimize internal operations and processes to take advantage of the changing business environment to be brought by complete deregulation. This will include a seamless price change and adaptation structure, a robust database and electronic management of field operations. • People development by ensuring that every member of the team is trained at least twice in the year. Our focus will be on Core and Function Specific competencies and on Developmental Competencies for future roles in the Organization • Having recorded 3rd party contract staff fatalities in 2011, our focus for health and safety in 2012 is to invest more in educating every member of the team on the hazards of their operating & physical environments.

Group Chief Executive’s report

Oando Marketing PLC remains bullish for the future. An exploding population, expanding economy and a gradual decline of government interference will deploy market forces to shape the industry. As the major marketer with the largest presence all over Nigeria, Oando Marketing PLC remains firmly committed to take advantage of the conditions listed to deliver consistent superior returns.

29

Oando PLC 2011 ANNUAL REPORT

Downstream Operations

Oando Supply and Trading (OST) Oando Supply & Trading Division is a leading supplier of refined petroleum products into Nigeria. With a track record of 100% delivery on all its supply contracts, consolidating its existing markets, Oando Supply and Trading has positioned itself as the supplier of choice for product supplies in the West African sub region. Oando Supply and Trading procures and trades a broad range of refined petroleum products. The products include Jet A1, Gasoline, Dual Purpose Kerosene, Automotive Gas Oil (“AGO”), Low/High Pour Fuel Oil, Base Oil and Bitumen.

Financial Highlights 2011

N326.1bn OST Turnover of

N3.6bn OST EBITDA

N2.8bn OST PAT

30

Oando PLC 2011 ANNUAL REPORT

review of 2011

Prices of crude oil increased steadily from $93.69/bbl at the beginning of January, peaked at about $126.53/bbl in April but closed at $106.51/bbl by end December 2011; this had a corresponding increase on the local prices of deregulated products. On the economic scene, the year opened with an exchange rate of N148.5= $1, this rose steadily and peaked at N157.26 by November 2011, but closed at N156.7 at end December 2011. Volatility was very high in November, with rates vacillating by as much as N6 within a two week period. A balance of derivatives and other internal strategies were adopted to alleviate the impact of the foreign exchange movements on the company’s profitability.

In line with the company’s strategy of strengthening our market share of non Gasoline product lines, there was successful expansion of other product lines and margins, with AGO and Base oil contributing a significant portion of the profits. In spite of all the foregoing, the supply & trading business made a profit of N2.8 billion in the year ended 31st December 2011.

+200%

Group Chief Executive’s report

Base Oils volumes grew by over 200% over 2010 figures due to increased customer base and geographical expansion

Product review

PMS: There was significant volume growth in this product line in 2011. Volumes grew by more than 25% over 2010 volumes. The volume growth did not however, translate to profitability growth as the product suffered a major setback early in the year due to operational constraints. These constraints led to a loss in the first quarter. There was recovery however in the 2nd quarter which put gasoline back on track as the major contributor to profitability. The full benefit of the recovery in Q2 was impacted negatively by delayed release of Q4 allocations by PPPRA.

AGO: There was increased profitability from this product line; profitability was in excess of 100% over 2010 volumes. This was achieved with increased operational efficiency and contract management.

Base Oils: Volumes grew by over 200% over 2010 figures due to increased customer base and geographical expansion. The increased volume translated to increased profitability from this product line.

2012 Outlook

The primary market supplied by Oando Supply and Trading has grown increasingly competitive for all product lines. There would also remain the risk of any impact of government regulations on business operations. Our positioning and future growth will be built on four main strategies: • Further diversification of margin contribution from predominantly gasoline to other product lines. • Locking and creating captive sources of sustainable supply of competitively priced refined products. • Increase operational efficiency • Securing additional storage facilities for all products because product availability and accessibility are critical to increasing customer base.

Oando Supply and Trading’s strategy will leverage on its geographical spread, capabilities and strong government relations developed over the years. Through upstream alliances, we will penetrate and build our Gasoil coastal business in order to extend our product scope and refocus on higher margin markets. We will concentrate on alliances, which offer us opportunities to leverage on synergies with which to harness service and support capabilities. By consolidating on existing markets and tapping into the growing market for other product lines, we foresee a future of increased activity for Oando Supply and Trading.

Significant 2012 initiatives include

• Automation of all existing manual processes using either existing underutilized software or new software. This would improve efficiency and turnaround time for business operations. • Review current operational structure and competencies of staff across board, with a view to ensuring world class fit. • Secure additional storage facilities for products because product availability and accessibility will be a key winning strategy. • Continuous monitoring of operational processes to realize identified value and extract unanticipated ones.

Oando Terminals & Logistics (OTL)

Oando’s Terminals & Logistics (OTL) division (formerly known as the Oando Refinery and Terminals (OR&T) division; renamed to reflect a strategic shift of the refinery plans to the long term) is set to commence its first major investment as Oando leads the way in solving the nation’s petroleum product importation infrastructure deficiencies and operational inefficiencies. OTL, your downstream asset development organisation, will quickly become a major cash engine for the group as it progresses towards the realisation of the Apapa Submarine Pipeline (ASP) project - a jetty in the Lagos harbour that connects to the Major Marketers’ storage by a half kilometre subsea pipeline and a new 3km onshore line delivering almost 3 million tonnes a year. In Liquefied Petroleum Gas (LPG), while we still carry a fully approved LPG storage project in our portfolio, we will also consider alternative asset solutions in the relevant operating entities to secure market dominance. To focus on specific value delivery, we have pulled back from our efforts with the Lagos State Government to develop the second Phase of the Lekki Free Trade Zone and the opportunities for a refined product storage facility targeted at relieving Lagos roads and existing ports of the burden of processing the majority of the nation’s fuel imports. These however remain long term options in which we possess advantaged capabilities to execute. In summary, the division has refocused on the terminal and logistics segments of the value chain where we have greater certainty to succeed in the near and midterm. Thus, we can go on to secure new opportunities as they arise out of new insight, international options and the government’s recently restated privatisation drive. 31

Oando PLC 2011 ANNUAL REPORT

120

In 2011, OGP increased the utilization of its natural gas distribution network in Greater Lagos and currently has a customer base of about 120 off-takers.

Group Chief Executive’s report

Midstream

Oando Gas and Power business is in the distribution of natural gas and power initiatives aimed at electricity generation and distribution in Nigerian and West African countries. Total revenue by business segment 2

1. Gaslink 2. Akute Power 3. CHGC

3

1

N19.6bn Total revenue

N17.46bn N1.98bn N0.18bn

33

Oando PLC 2011 ANNUAL REPORT

Midstream Operations

Oando Gas & Power (OGP) Oando Gas & Power Limited (OGP) is responsible for the development, operations and management of Oando PLC’s aspiration in the gas and power space. Currently, there are four operational assets in the entity, namely; Gaslink Nigeria Limited (GNL), Akute Power Limited (APL), Central Horizon Gas Company (CHGC) and East Horizon Gas Company (EHGC). A number of subsidiaries have been registered as special purpose vehicles (SPVs) in order to pursue initiatives within the gas and power industry. These will be matured in time to become operational assets.

Financial Highlights 2011

N19.6bn OGP Turnover of

N5.9bn OGP EBITDA

N3.4bn OGP PAT

34

Oando PLC 2011 ANNUAL REPORT

Our focus is to aggressively develop and leverage Nigeria’s domestic natural gas infrastructure to become the leading gas and power provider to the last-mile customer.

review of 2011

In 2011, OGP increased the utilization of its natural gas distribution network in Greater Lagos and currently has a customer base of about 120 off-takers. We also completed the feasibility study for the Greater Lagos Phase IV Project to assess the expansion of our pipeline network to other areas in Lagos. Our Independent Power Plant, Akute Power Limited, continued to supply the energy requirements of the Lagos Water Corporation through efficient operations. OGP also commenced the operation of Central Horizon Gas Company (a special purpose vehicle set up to rehabilitate and expand the existing gas distribution pipeline in Trans-Amadi,

Rivers State) and currently supplies 8 customers. Furthermore, we commissioned gas supply via our East Horizon Gas Company pipeline to our foundation customer, United Cement Company of Nigeria Limited. In 2011, OGP commenced the process for conducting a feasibility study on the development of a Gas Transmission Pipeline in South-West Nigeria that traverses Ogun, Oyo, Osun, Ekiti and Kwara States. We executed a Memorandum of Understanding (MOU) with the Nigerian National Petroleum Corporation (NNPC) for the joint feasibility study of the proposed development. We also succeeded in receiving a grant from the United States Trade Development Agency (USTDA) as partial funding for the feasibility study.

Group Chief Executive’s report

The Oando-led consortium (Oando, AGIP, and NNPC) secured an award for the development of a Gas Processing Facility for the Central Franchise Area. When completed, the Gas Processing Facility will help in meeting the Nigerian Gas Master Plan (NGMP) aspirations for gas availability in the domestic market. This development should have an initial capacity to process up to 600 million standard cubic feet of natural gas per day. OGP retained its Quality Management System Certification and was adjudged by the Standards Organisation of Nigeria (SON) as being compliant with the ISO 9001:2008 Standard. We are resolute in our commitment to safe practices and continue to provide the required safety guidelines for people and the environment where we operate.

Natural Gas Distribution

Gaslink Nigeria Limited (GNL) is the flagship company and main operating arm of Oando Gas & Power Limited. An outstanding achievement recorded during the year under review was the completion of the Liverpool River Crossing Project, executed using the Horizontal Directional Drilling (HDD) technology. This project was designed to provide a better assurance of gas supply to customers along the Apapa axis by completing the loop in the network, in line with global best practices. In 2011, we achieved full deployment of our Distribution Integrity Management Programs (DIMP) and instituted emergency readiness procedures in all our operational bases and project locations. In the course of the year, we experienced five (5) days of sectional gas outage along a segment of our distribution network due to unscheduled maintenance programme and supply restrictions by the Nigerian Gas Company (NGC). As part of ongoing efforts to optimize our existing assets, we continued to develop non-gas revenues through the lease of our gas pipeline right of way for Fibre Optic Development. We are currently negotiating contractual terms with a potential partner following a successful competitive tender process.

It should be noted that some of our existing industrial customers were unable to utilize natural gas due to other reasons bordering on their respective business operational challenges. We have recently embarked on the expansion of our Greater Lagos pipeline network (Phase IV Expansion Project) which would enable more customers have access to natural gas from our distribution network.

East Horizon Gas Company (EHGC) was established as a Special Purpose Vehicle (SPV) to construct 18” x 128km natural gas pipeline from NGC’s flange at Ukanafun on the existing Obigbo North-ALSCON Mainline Intermediate Scrapper Trap, for the supply of natural gas to our foundation customer, United Cement Company of Nigeria Limited (UNICEM) at its Mfamosing plant in CrossRiver State. This pipeline system is expected to open up supply to other customers in Calabar and the south-east corridor in general. EHGC has secured gas supply through the Gas Aggregation Company of Nigeria (GACN) for 22 million standard cubic feet per day (mmscf/day) of natural gas being the initial volume required for the first phase of UNICEM’s off-take. We achieved mechanical completion of the project and gas to flange in October 2011, while the official commissioning ceremony was held in November 2011.

Power Generation

Akute Power Limited (APL), our flagship Independent Power Plant has been in operation since January 2010. The 12.15MW gas fired power plant has continued to deliver electric power to Lagos Water Corporation’s main Water Works at Akute. The project is the first in the series of captive power projects being executed by OGP and is in line with our strategy of becoming a major player in the Nigerian Electricity Industry. The outlook for the company is positive with the guaranteed cash flow expected from the plant operations.

In the year under review, we optimized business operations through efficient financing programmes.

Outlook for 2012

Oando Gas & Power will continue to grow its business portfolio and establish itself as a force to reckon with in the gas & power space in Nigeria. OGP’s revenue target in 2012 is premised on the following:

• Efficient and safe operation of existing assets/businesses thereby delivering on growth targets • East Horizon Gas Company (Calabar region in Cross River State) • Central Horizon Gas Company (Port Harcourt region in Rivers State) • Gaslink Nigeria Limited (Greater Lagos area in Lagos State) • Akute Power Limited

• Progress on maturation of projects: • Completion of Compressed Natural Gas Plant in Lagos (Gas Network Services Limited). • Commencement of an independent power plant for Lagos State’s secretariat campus at Alausa. • Studies and Engineering Designs in respect of Gaslink Phase IV, CPF, EIIJ. • Submission of bids in respect of ongoing privatization programme of the PHCN for assets of interest. In conclusion, 2012 offers enormous challenges and opportunities for OGP to implement its vision of being the leading and most innovative energy company in our chosen markets. We expect 2012 to also mark the inflexion point in our history as a division, as we lay the foundation for significant growth and expansion in the coming years.

35

Oando PLC 2011 ANNUAL REPORT

+110% The drilling fluids business reaped the benefits of its marketing efforts in 2011 with revenue growing by 110%.

Group Chief Executive’s report

Upstream

Oando holds interests in 13 licenses for the exploration, development and production of oil and gas assets located onshore, swamp, and offshore, our primary task is to harness optimally the potentials of our existing portfolio. Total revenue by business segment

1

2

N41.3bn Total revenue

1. Energy Services N14.4bn 2. Exploration and Production N26.9bn

37

Oando PLC 2011 ANNUAL REPORT

Downstream Operations

OANDO ENErGY SErVICES (OES) Despite some concerns that an election year will give rise to increased levels of instability in the Niger Delta, 2011 proved to be a relatively peaceful year. As a result, Oando Energy Services Limited (“OESL”) businesses experienced little disruption to our operations, enabling us deliver services to our clients all year round. While oil prices dropped from a high of US$116/bbl in May 2011, oil prices averaged US$111/bbl, representing a 39% increase over 2010. This thereby encouraged an increase in the level of drilling activities despite the disappointment of the non-passage of the Petroleum Industry Bill.

Financial Highlights 2011

N14.4bn OES Turnover of

N6.2bn OES EBITDA

N399m OES PAT

38

Oando PLC 2011 ANNUAL REPORT

Swamp Drilling rigs

The year commenced with OES Integrity continuing its obligation under a 6-month farm-out agreement to the Shell Petroleum Development Company of Nigeria Limited / Nigerian National Petroleum Corporation (“SPDC/NNPC”) Joint Venture which commenced in August 2010. During the period, the rig drilled 3 wells and carried out workover operations on a handful of wells in accordance with our clients drilling program. Following the successful 6-month drilling campaign, OES Integrity returned to Nigerian Agip Oil Company Limited (“NAOC”) in May to complete the primary term of its 2 year main contract. On returning to NAOC, the rig completed a further 4 wells prior to the end of the primary term of the contract in December. Operational efficiency of OES Integrity for the year was 98%, resulting from proper planning, strict adherence to scheduled

maintenance programs and experienced rig and shore based staff. In demonstration of NAOC’s satisfaction in the performance of the rig, the company exercised its right to extend the contract for an additional year under the same terms and conditions thus renewing the contract until December 2012. Following the end of the interim contract with the NAOC/NNPC Joint Venture for the utilization of OES Teamwork and ahead of the commencement of the two year main contract; the rig underwent a 4-month extensive refurbishment work. During this crucial shutdown period, major equipment repairs and maintenance were undertaken such as the replacement of bearings for the main Electro-Motive Drive (EMD) engines, overhaul of deadline anchor, mud pump, swivel and installation of tandem booster on the BOP. In addition, annual inspection of drill pipe, preventive maintenance of mud pumps,

98.5%

Group Chief Executive’s report

Operational efficiency of rigs as at year end was 98.5%

5-yearly overhaul of the travelling block, crown block, swivel, dead anchor and 10-yearly overhaul of Draw-works were carried out in order to take full advantage of the shutdown. Despite the extended out-of-service time, the rig carried out work-over activities on 4 wells and drilled its first well (Timpa-A) before the close of the year. Excluding the shutdown, operational efficiency of the rig as at year end was 98.5%. The refurbishment of OES Passion went into full swing at the start of the year. With the main contractors (CPD Oilwell) onboard, the first step was to further define the work scope for the refurbishment based on a detailed inspection of equipment. A series of disappointing events such as the increase in work scope, increased lead times for parts ordered from original equipment manufacturers (OEM’s) due to an increase in drilling activity as well as a change in the project main contractor resulted in delays to the agreed project completion date. By working closely with the client OESL was able to complete 95% of the refurbishment which was inspected by an independent inspection company Aberdeen Drilling Consultants in December 2011. Following the completion of final checks, the rig has mobilized to the client’s first well location where onsite acceptance is being carried out by an inspection company selected by the SPDC/NNPC JV ahead of contract commencement. In line with our plan to have four rigs working by the end of 2012, OES continued to pursue opportunities for its fourth rig, OES Respect. The rig which was moved from Nigerdock to Kris Oil Jetty in Apapa back in February 2011 has generated interest from many marginal fields, independents and international operators alike. Earmarked for a 2-year contract with one of the majors, OESL commenced its reactivation plan in September by engaging a host of local companies to undertake the necessary activities ahead of exporting the rig to the Beacon Maritime Shipyard in Orange, Texas for refurbishment. With a team made up of individuals who worked on the original rig design and construction, Beacon Maritime brings a wealth of knowledge to the extensive refurbishment project which will see the addition of a third

mud pump, replacement of the main caterpillar (CAT) engine, increasing the capacity of the electrical system and refurbishment of the cranes. The agreed work scope which is in line with OESL’s proposed client’s requirements is estimated to take 6-months. Following the acceptance of the rig by OESL’s technical inspection team in Orange, the rig is scheduled to return to Nigeria at the end of Q3 2012.

Drill Bits

Despite a lower number of active drill bits contracts in 2011 compared to 2010, there was a significant increase in sales in 2011. The 63% revenue increase witnessed over 2010 is attributed to OESL’s focus on service delivery as well as an increase in customer engagement through rigorous marketing efforts such as lunch & learn meetings and customer feedback forums. In 2011, Mobil Producing Nigeria Limited was responsible for 80% of OESL’s drill bit sales, primarily due to the outstanding performance of OESL’s Halliburton bits which achieved many records such as drilling the longest footage by a single drill bit at remarkable speeds. Though contracts with SPDC and Shell Nigeria Exploration and Production Company Limited (“SNEPCo”) ended during the year, drill bits were delivered to both clients via interim contracts which were put in place pending the main contract award. The end of GSF Monitor’s contract with Total E&P Nigeria Limited (“Total”) in September and the structural issues faced by Seawolf Oritsetmeyin resulted in lower than expected activity by Total in the year, thus despite a lucrative contract which was signed in 2010, sales were not as expected. The award of contracts at the end of the year by Nigerian Agip Exploration Limited (“NAE”), Esso Exploration & Production Nigeria Limited (“ESSO”), Energia Limited and Pillar Oil Limited to OESL to supply bits for their 1 to 2 well drilling programmes is expected to have a positive impact on sales performance in Q1 2012. 39

Oando PLC 2011 ANNUAL REPORT

Upstream Operations

OANDO ENErGY SErVICES (OES) Continued

Drilling Fluids

The drilling fluids business reaped the benefits of its marketing efforts in 2011 with the provision of services to Chevron onboard the long awaited jack-up rig, the KS Endeavour. Despite the end of OESL’s ongoing contract with ExxonMobil, services continued through the year to long standing clients such as NAOC, Chevron deepwater and SNEPCo. Numerous challenges were experienced during the year which threatened the profitability of this business including the increase in price of mud products which was passed on by partners as well as product availability issues, in particular barite. Nevertheless, compared to 2010, revenue grew by 110%. The strategic decision to include production chemical solutions to our basket of services was well received by major oil companies and contributed positively to the revenue growth of the business. The trusted alliance with world leader Champion Technologies provided the much needed confidence while the successful application of proffered solutions during field trials was a true testament to extensive R&D support available to OESL via the alliance. Orders were received from both Total and SNEPCo during the year for a range of products including corrosion inhibitor (CK-368) and calcium naphthanate (CN 1007). The successful commencement of solids control services on OES Integrity in 2010 established OESL as a major player in this field. This paved the way for a second contract to be executed with NAOC and a request for services by a second operator.

Outlook for 2012

Following the total loss of NRG 101, a land rig operating for Waltersmith Petroman Oil, and taking from some of the lessons highlighted in the BP Macondo investigation report, there is clearly a need to place more emphasis on strict adherence to policies and procedures. This will drive the ISO 9001:2008 certification which OESL intends to attain before the end of the year.

40

Oando PLC 2011 ANNUAL REPORT

With the OES Passion commencing its 2-year contract with SPDC in February 2012, OES will have three rigs under contract. Our focus will therefore be on ensuring that our 3 operating assets are properly maintained and

adequately staffed in order to minimize disruptions to daily rig operations, thereby reducing Non-Productive Time (NPT) and maximizing revenue. Revenue will also be maximized by strict adherence to any planned out of service time such as the shutdown of OES Teamwork which is expected to take 60 days and is scheduled for Q4 2012. Timely and cost effective project execution will be achieved through a close monitoring of all ongoing projects including the refurbishment of OES Respect in Orange. In order to remain on course to achieve our rig deployment plan, it is critical that the refurbishment is concluded and the rig returns to Nigeria by the end of Q3 ahead of a likely Q4 contract commencement. Positioned to take advantage of land rig opportunities, we will continue to actively participate in this area and look forward to the conclusion of some of the ongoing tendering activities which will possibly lead to OESL’s executing its first land rig contract in the course of the year. The extension of contracts and the award of new contracts by companies such as Energia Limited, Pillar Oil Limited, ESSO and NAE are expected to contribute significantly to revenue. We remain determined to eliminate many of the challenges faced in the fluids business, specifically product availability issues. This has resulted in OESL exploring new alliances with suppliers of chemicals at the end of 2011 and we anticipate that the benefits of these relationships will be realized in 2012. Focus will be placed on developing the existing production chemicals business and increasing market share from 1.2% to 2.4% through a gradual penetration into Chevron and increasing product sales to Total and SNEPCo. The drill bits business is no doubt in the growth phase of its lifecycle. The superior performance of the bits backed by bespoke applications engineering will continue to increase demand with existing customers. The gradual increase in OESL’s marginal field and independent operators’ customer base clearly shows that our product awareness marketing drive is yielding fruit. This is expected to continue through 2012.

The company remains well positioned for immense growth in 2012 as we await these key economic reforms to kick in. With our focus and strategy remaining as clear as ever, we are in prime position to surpass our past performance to the ultimate satisfaction of our esteemed shareholders.

41

Oando PLC 2011 ANNUAL REPORT

Upstream Operations

Oando Exploration & Production (OEPL) 2011 was another tumultuous year for the global economy. Oil prices were over $100/bbl for most of the year, driven by the instability caused by the popular uprising in the Middle East / North Africa region. The demand outlook for oil however remains positive and is expected to be driven by fast growing emerging economies. This has supported a significant rise in capital spending in the exploration & production business, as well as an evolution in the technology, as seen in the proliferation of hydraulic fracturing of shale gas. ASSET PrOFILES

OML 125 and OML134

Oando OML 125 and OML 134 Ltd acquired a 15% working interest in OMLs 125 and 134 in 2008. These blocks are operated by Nigeria Agip Exploration (“NAE”) and are located in Nigeria’s deep offshore segment with acreage size of 1,220 Km2 (OML 125) and 1,187 Km2 (OML 134) respectively. Production from the Abo field within OML 125 averaged 28,000 bpd in 2011, exceeding our expectations, as the anticipated decline was prevented by a successful well stimulation programme in the third quarter of 2011. There are plans in 2012 to improve the reserve base of this asset by completing and working-over some of the current wells on the asset.

Nigeria’s oil industry remains stifled with the Petroleum Industry Bill still not signed into law. The major upstream players continue to focus deeper offshore and there remains an abundance of potential opportunities for OEPL before, and especially after the PIB is resolved.

Financial Highlights 2011

N26.9bn OEPL Turnover of

N18.03bn OEPL EBITDA

N934m

OEPL Loss after Tax

42

Oando PLC 2011 ANNUAL REPORT

In 2011 we achieved a gradual but sustained increase in average daily production from 4,500bpd in 2010 to just under 5,000bpd in 2011 despite recurrent production disruptions due to theft and vandalism on OML 56. The production gains were mainly due to well stimulation efforts. A successful refinancing of bank facilities significantly improved our working capital position. Given these achievements as an indigenous player, our ambition going forward is to continue to optimize our asset portfolio in as value-accretive a manner as feasible. We anticipate a number of new production opportunities will come on stream in 2012 and positively impact our daily production. We also intend to continue to optimize our capital structure and free up resources to capitalize on opportunities the ongoing reforms in the industry should present upon their eventual conclusion.

In OML 134, tendering and contracting for seismic processing is currently underway. Seismic processing and interpretation of the asset data will commence as soon as a competent seismic processing contractor has been identified.

Obodeti/Obodugwa Field Area (OML 56)

Oando Production and Development Company before (OPDC) acquired a 45% participatory interest in the Obodeti/Obodugwa field area from the government during the marginal field allocation round in 2003. This acquisition was made pursuant to a marginal field farm out agreement between NNPC, Elf Petroleum, Energia and Unipetrol Production and Development Company Limited. Further to the unitization agreement between the Group, Energia and Pillar Oil in April 2004, the combined working interest of the Group and Energia in the oil production from the Obodugwa 3 well, which is located in an adjacent concession operated by Pillar Oil, is 30%. Four wells had been drilled in the Obodeti/Obodugwa field area by Elf (now Total).

5,000bpd

Group Chief Executive’s report

We achieved a gradual but sustained increase in average daily production to just under 5,000bpd in 2011 on OML 56.

Following production tests in October 2009, the Obodeti/Obodugwa field commenced oil production operations in December 2009. Evacuation of the crude was initially done through a trucking system. However, an 8km pipeline has been completed and was commissioned in August 2010 with a Lease Automated Custody Transfer (“LACT”) unit installed at the facility. Production from this field averaged 1,400bpd over 2011 and averaged 1,700bpd in the last quarter of 2011 as ongoing optimization efforts resulted in sustained gradual increases in production over the year. Work is in progress to achieve 3,500bpd by the end of 2012 upon completion of our drilling program for this year in addition to further optimization efforts.

Akepo Field (OML 90)

Oando Akepo Ltd entered into a farm-in agreement with Exile, following which the Group acquired a 30% participatory interest in a Marginal Fields Farm-out Agreement with respect to the Akepo field - Under the Joint Operating Agreement (JOA) between the field’s original concession owners, Sogenal and Exile. Sogenal is currently the operator of the field whilst Oando and Exile entered into a Financing, Technical and Management Services agreement ("FTMSA") in 2008 which provided for Oando to assume the responsibilities of Exile as Technical Partner to recover its costs expended in that respect from Exile under allocations of proceeds received from the Field. The Akepo field is located in shallow water in the Niger Delta, on an area of 25.7 Km2 within OML 90. Akepo is currently in the final stages of development. Detailed engineering design was undertaken in 2011 and construction work on the production and evacuation facilities is ongoing. Production is anticipated to commence in Q4, 2012.

OPL 236

OEPL was awarded this block in May 2007 and the Production Sharing Contract was signed with NNPC in February, 2008. This conferred OEPL with a 95% working interest and operatorship of the block. RFO Ventures is the local content vehicle (LCV) with a 5% participatory interest. The block is located onshore Akwa-Ibom State with a total acreage of 1,650 Km2. A Global Memorandum of Understanding (GMOU) was signed with the Ukana community in August 2008. OPL 236 is currently in the exploration stage with estimated 2C reserves of 33.6bcf (RPS report). In 2010, 2D seismic data for OPL 236 was purchased and digitized. Regional interpretation of the seismic data began at the end of Q3, which resulted in a delineated footprint for targeted acquisition of 3D seismic data on the block. Work is ongoing on a development program aimed at harnessing the gas reserves in line with the proposed industry gas master plan and delivering the much needed clean energy for the growing energy needs of the utilities and power industry within the region.

OPL 278

In January 2006, OEPL acquired a 60% working interest pursuant to a Production Sharing Contract (PSC) among the Group, CAMAC, Allied Energy and First Axis and the NNPC, in respect of OPL 278. OPL 278 is operated by OEPL under a JOA made between OEPL, CAMAC, Allied Energy and First Axis. OPL 278 is located offshore of Rivers State in a transition zone (swamp to shallow marine) on an area of 91.9Km2. Three prospects have been identified in OPL 278, which are Ke, Prospect A and Prospect B. The blocks exploration phase has been extended to 2015 by The Federal Government of Nigeria.

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Oando PLC 2011 ANNUAL REPORT

Upstream Operations

Oando Exploration & Production (OEPL) Continued

OPL 282

On 8 August 2006, OEPL acquired a 4% working interest in the PSC between NAOC, Alliance Oil Producing Nigeria (AOPN) Limited and NNPC, in respect of OPL 282 (the “OPL 282 PSC”). NAOC holds a 90% working interest in the OPL 282 PSC, while AOPN, which represents the local content vehicle in OPL 282, holds the remaining 10% working interest. The Group holds 40% of the shares in AOPN, while ARC Oil and Gas Nigeria Limited holds the remaining 60%. OPL 282 is operated by NAOC under a JOA made between NAOC and AOPN. OPL 282 is located in a transition zone (onshore to shallow marine) in Bayelsa State, on an area of 695 Km2. This block is currently in the exploration phase. An exploratory drilling campaign in the block was kicked off with the Tinpa-1 Dir well, which spudded in the fourth quarter of 2011.

The Equator Assets

Oando PLC owns 81.5% of Equator Exploration Limited (‘Equator’), most of which was acquired in 2009 by the conversion of loans made to Equator into shares and by the purchase of shares on the open market. In 2011, Oando PLC continued to increase its interest in Equator by buying minority shares as opportunities arose. In 2012, Oando PLC will seek to acquire the remainder of Equator.

Nigeria – OPL 323 and OPL 321

Equator holds a 30% participating interest in each of deep water blocks, OPL 321 and OPL 323, awarded in the Nigerian 2005 licensing round. During 2011, the Federal Government of Nigeria continued to appeal a high court judgment in favour of the operator, the Korean National Oil Corporation (‘KNOC’). The judgment, granted in August 2009, had ruled that the government had acted unlawfully in January 2009 when it voided the allocations of OPL 321 and OPL 323 to KNOC (but not to Equator), nearly three years after the PSC’s had been executed.

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Oando PLC 2011 ANNUAL REPORT

Despite requesting and receiving an interim refund of its share of the signature bonuses of US$ 161.7 million in September 2009 pending the outcome of the litigation, Equator vigorously maintains its interests in the two blocks. In 2011, Oando/Equator campaigned for a settlement among the government and

industry stakeholders. These efforts continue with the aim of achieving a resumption of exploration activities on these highly prospective blocks by end 2012. A high quality 3D seismic survey has already been used to evaluate a number of large prospects and to select the well locations. Netherland, Sewell and Associates have independently assessed the Best Estimate of the Gross Unrisked Recoverable Oil Resources to be 1.6 billion barrels for the two blocks combined. Drilling could start on the four commitment exploration wells within two years of the resumption of operational activity.

Blocks 5 & 12, EEZ of São Tomé & Príncipe

In February 2010, in accordance with agreements signed in 2001 and 2003, the government of São Tomé & Príncipe awarded Equator Blocks 5 and 12, its first two choices from all of the blocks within the country’s large Exclusive Economic Zone (‘EEZ’). Negotiations of satisfactory Production Sharing Contracts (‘PSCs’) with the government were completed during 2011. The agreements are expected to be signed in H1 2012, triggering payment of signatures bonuses and commitment to a four year work programme of 2D and 3D seismic acquisition. During 2011, existing 2D seismic surveys were used to complete the evaluation of the blocks and identify a number of prospects. In order to manage the exposure to the risks of high cost exploration in a frontier province in ultra deep water, the Company is considering farm outs. A number of world class oil companies have visited the data room in order to assess the opportunity.

Group Chief Executive’s report

We have a positive outlook on 2012, especially with the expected additional production streams anticipated in the year. Furthermore, we are cautiously optimistic towards a resolution to the current impasse with the much anticipated passage of the Petroleum Industry Bill (PIB) by the National Assembly.

Bilabri & Owanare (OML 122)

In April 2005, Equator signed a Finance and Service Agreement with Peak Petroleum Industries Nigeria Limited (‘Peak’), the lease holder of OML 122, an offshore indigenous block. In return for providing funds and supplying technical services, Equator became entitled to a share of any oil and gas production from the Bilabri and Owanare discoveries and from any discovery made by a selected exploration well. Four attacks by militants, three involving the taking of hostages, forced the suspension of offshore operations a number of months before production was due to commence from Bilabri. The termination of contracts with suppliers resulted in major financial penalties to Equator. To relieve these, Equator entered into the Bilabri Settlement Agreement (‘BSA’) with Peak in 2007 whereby Peak assumed responsibility for existing debts and for funding the future development in exchange for Equator accepting significant reductions in its shares of oil and gas production. Peak breached this agreement and Equator was awarded US$123 million plus interest in an arbitration tribunal in May 2008. In 2011, Peak continued to be unable to meet its obligations under the BSA. Consequently, Oando/Equator pursued winding up proceedings against Peak in the courts of Nigeria. A court has issued a final order for the winding up of Peak and has appointed a final liquidator. Our lawyers advise that an appeal by Peak has little merit. In the meantime, Oando/Equator also offered Peak a settlement in which Oando/Equator would resume the funding and operations of the Bilabri Oil Field Development in return for an increased participating interest in the oil production and for an assignment of a direct interest in Oil Mining Lease 122 with the government. An independent evaluation by Netherland, Sewell and Associates assesses the Gross Proved plus Probable Reserves for the Bilabri Field to be 13.2 million barrels. The estimate for Gross Proved plus Probable Contingent Gas Resources is 501 billion standard cubic feet for Bilabri and a new discovery, Owanare, combined.

JDZ Block 2

Equator has a 9% interest in this block, awarded in the 2004 licensing round for the Joint Development Zone between Nigeria and São Tomé & Príncipe. The ‘Bomu 1’ exploration well, drilled in the second half of 2009, was completed under budget and discovered dry gas in a number of formations. The Joint Development Authority (‘JDA’) has awarded three extensions, amounting to a total of two years, to the participants for them to complete the evaluation of the results from ‘Bomu 1’, including a reassessment of the prospectivity of the remainder of the block. In early 2011, Sinopec, the operator, reported the results of the evaluation. It was confirmed that the ‘Bomu’ gas discovery was too small to be economic in deep water in current conditions and that the rest of the block had insufficient prospectivity to justify entering the Phase 2 Exploration Period with its obligatory well. Sinopec has notified the other participants that it will not continue.

Outlook for 2012

Despite the challenges faced in 2011, we have a positive outlook on 2012, especially with the expected additional production streams anticipated in the year. Furthermore, we are cautiously optimistic towards a resolution to the current impasse with the much anticipated passage of the PIB by the National Assembly. The PIB as well as the Nigerian Content Act, which was passed in 2010, are expected to increase our footprint as an indigenous integrated oil and gas company in the industry. We expect that it will present more opportunities for us to acquire acreage from the International Oil Companies (IOC’s) and farm-in to under-performing assets that have near-term production profiles. Furthermore, we shall continue to position ourselves as the preferred partner of choice to companies seeking to gain entry into the oil industry in Nigeria and the Gulf of Guinea.

Our mid-term focus is to increase current daily production to 10,000bpd/daily, dynamically optimize our capital structure to development and acquisition opportunities going forward, maintaining our health and safety record, and growing our reserves accordingly to deliver increased value to our stakeholders - both local and international.

Conclusion

Following our write-downs in 2011, we anticipate a robust performance in 2012, having dealt with all costs that could negatively impact future performance. We look forward to providing superior value for our shareholders in 2012 as new projects come aboard and key government policies take effect to the benefit of indigenous players in the industry.

Mr. J.A. Tinubu Group Chief Executive

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Oando PLC 2011 ANNUAL REPORT

Board of Directors 1

2

3

4

5

6

1 HrM M.A Gbadebo, CFr

HRM Michael Adedotun Gbadebo, CFR, is the Alake (King) of Egbaland in Nigeria and Chairman of the Board. He was appointed as a Non-Executive Director of the Company on 10 April 2006. Prior to his coronation as the Alake of Egbaland in 2005, HRM had a successful career in the Nigerian Army culminating in his appointment as the Principal Staff Officer to the Chief of Staff, Supreme Headquarters from January 1984 - September 1985.

He was also awarded military honours such as the Forces Service Star and the Defence Service Medal. HRM Gbadebo obtained a Bachelor of Arts degree from the University of Ibadan, Nigeria in 1969. He graduated from the Staff College of the Nigerian Armed Forces in 1979 and has served on the boards of several companies including: Ocean and Oil Services Limited. HRM Gbadebo currently serves on the boards of Global Haulage Resources Limited and Dolphin Travels Limited.

2 Mr. Jubril Adewale Tinubu

7

8

9

1. 3. 5. 7. 9.

10

HrM M.A Gbadebo, CFr Mr. Omamofe Boyo Ms. Nana Afoah Appiah-Korang Mr. Olufemi Adeyemo Engr. Yusuf K.J N'jie

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Oando PLC 2011 ANNUAL REPORT

2. Mr. Jubril Adewale Tinubu 4. Mr. Bolaji Osunsanya 6. Mr. Oghogho Akpata 8. Chief Sena Anthony 10. Ammuna Lawan Ali, OON

Wale Tinubu is the Group Chief Executive of Oando PLC, Africa’s leading indigenous energy solutions provider listed on the Nigerian and Johannesburg Stock Exchanges. He serves on the board of various bluechip companies as Chairman and Director. In 2007, he was named a Global Young Leader by the World Economic Forum, Geneva, in recognition of his achievements as one of the leading executives under 41.

In 2010, Wale won the Africa’s ‘Business Leader of the Year’ award by the African Business Magazine and the Commonwealth Business Council on the basis of his contributions to the development of the African Oil and Gas industry. In 2011, he was awarded the ‘African Business Leader of the Year’ by Africa Investor. He obtained a Bachelor of Laws (LLB) from the University of Liverpool, England in 1988 and Masters of Law (LLM) from the London School of Economics, United Kingdom, in 1989 where he specialised in International Finance and Shipping.

3 Mr. Omamofe Boyo

Mr. Omamofe Boyo is the Deputy Group Chief Executive of the company, having been appointed to this position in 2006. Prior to his appointment, Mr. Boyo was Executive Director, Marketing of the Company from 2000 to 2002 and the Deputy Managing Director/Chief Operating Officer from 2002 to 2006. Mr. Boyo serves on the boards of several companies in the group including Gaslink, Oando Exploration and Production Limited, Oando Marketing PLC and Oando Supply and Trading Limited.

Mr. Boyo is currently a director of OOH, OOIM, OOIN, OOHN, Indumines Ltd, Midwestern Oil & Gas Ltd, Quantum Voice Systems Ltd, I2I Nigeria Ltd and Lagos Preparatory School Ltd. Prior to his appointment as Executive Director of the Company in1999, Mr. Boyo was an Executive Director of Ocean and Oil Services Limited from 1994 to 1999. Mr. Boyo started his career with Chief Rotimi Williams’ Chambers, a Nigerian Law firm where he specialized in shipping and oil services and worked on several joint venture transactions between the Nigerian National Petroleum Corporation and major international oil companies. Mr. Boyo obtained a Bachelor of Laws degree from Kings College, University of London in 1989.

4 Mr. Bolaji Osunsanya

Mr. Mobolaji Olatunbosun Osunsanya was appointed as an Executive Director of the Company on 27 June 2007. Mr. Osunsanya has been the Chief Executive Officer of Oando Gas and Power Limited since January 2004. Prior to his appointment as the Chief Executive Officer of Gaslink Nigeria, he was the Chief Marketing Officer Commercial of Oando Marketing PLC. Prior to joining the company in August 2001. Mr. Osunsanya was an executive director at Access Bank Plc from November 1998 to March 2001 and an Assistant General Manager at Guaranty Trust Bank Plc from 1992 to 1998. From 1988 to 1992, Mr Osunsanya worked as a consultant with Arthur Andersen, Nigeria (now KPMG professional services) gaining experience in the banking, oil and gas and manufacturing industries. Mr. Osunsanya obtained a Bachelors Degree in Economics from the University of Ife, Nigeria in 1985 and a Masters degree in Economics from the University of Lagos, Nigeria, in 1987.

5 Ms. Nana Afoah Appiah-Korang

Ms. Nana Afoah Appiah-Korang was appointed as a Non-Executive Director of the Company on 11 November, 2010. She is a Director of Emerging Capital Partners (ECP). With seven funds and over $1.8 billion under management, ECP is a leading private equity manager focused exclusively on Africa. Headquartered in Washington DC, ECP has six offices across Africa and a ten year track record of successful investment in companies operating in over 40 countries on the continent. She is involved in deal sourcing, investment appraisal, execution and value creation. She has also played a key role in implementing exit strategies for ECP's investments in both Africa Fund I and Africa Fund II. She currently serves on the board of Continental Reinsurance Plc, the leading local reinsurer in Nigeria where she sits on the establishment and statutory audit subcommittees. Prior to joining ECP, Ms. Appiah-Korang served as an Investment Officer for ECP Global, having joined in 2002. Before her employment with ECP Global, Ms. Appiah-Korang worked for the Real Estate Principal Investment Group of Goldman, Sachs & Co. in New York where she executed real estate private equity transactions in the US and played an active role in the marketing of the Whitehall XII funds to potential investors in the US, Europe and Asia. Ms. Appiah-Korang graduated from Mount Holyoke College with a Bachelor's degree in Mathematics and a minor in Economics.

6 Mr. Oghogho Akpata

Mr. Oghogho Akpata was appointed as an Independent Non-Executive Director of the Company in November, 2010. Mr Oghogho is also the Managing Partner and Head of the Energy and Projects Group at Templars Barristers & Solicitors. Oghogho possesses 20 years of experience in the transactional dispute resolution aspects of the Nigerian oil and gas sector and advises a broad range of clients including international oil companies, oil service contractors and a number of multinationals operating in Nigeria. Oghogho has been listed among the leading energy and natural resources lawyers in Nigeria by Chambers Global guide to the legal profession from 2005 to date. Mr. Akpata obtained a Bachelor degree in Law from the University of Benin in 1990 and was called to the Nigerian Bar in 1991. Mr. Akpata is also a director of FMC Technologies Limited, BlueWater Offshore Production Systems Limited, Choice Farms Limited and was in 2006, the Director of International Bar Association Section on Energy, Environment, Natural Resources and Infrastructure Law Conference.

7 Mr. Olufemi Adeyemo

Mr. Olufemi Adeyemo was appointed as Group Executive Director on 30 July 2009 and as the Chief Financial Officer of the Company in October 2005. Mr. Adeyemo is also an Independent Director of Easy Fuel Limited. Prior to joining the Company, Mr. Adeyemo was a Management Consultant at McKinsey & Co. from 1998 to 2005 and has extensive experience in strategic consulting, especially in the areas of mergers and acquisitions, operations reviews, strategy development and implementation as well as organization redesign and financial management. Before joining McKinsey& Co., Mr. Adeyemo was the Financial Controller and Head of Operations from 1994 to 1997 at First Securities Discount House Limited, a leading investment house in Nigeria. Mr. Adeyemo worked as an auditor with PWC from 1988 to 1992. He has been a member of the Institute of Chartered Accountants of Nigeria for 14 years. He obtained a Master of Science degree in Finance from the London Business School, UK, in 1988, a Master of Science degree in Mechanical Engineering from the University of Lagos, Nigeria, in 1988 and a Bachelor of Science in Mechanical Engineering from the University of Ibadan, Nigeria in 1987.

8 Chief Sena Anthony

Chief Sena Anthony was appointed as an Independent Non- Executive Director of the Company in January 2010. Prior to her appointment, Chief Anthony worked with the Federal Ministry of Justice before joining the Nigerian National Petroleum Corporation (the “NNPC”) in 1978. She was appointed Group General Manager, Corporate Secretariat and Legal Division, as well as the Secretary to the NNPC in July 1999 and was promoted to the level of Group Executive Director on 6 May 2007.

Chief Anthony was the first female to be appointed to such a position in the NNPC. She retired in January 2009 as the Coordinator (Group Executive Director Level) Corporate Secretariat and Legal Division as well as the Secretary to the Corporation and Board of the NNPC after working for the NNPC for 31 continuous years. Chief Anthony was also a director of Napoil Limited, a crude oil and petroleum products trading company owned by the NNPC, a director of Brass LNG Company and General Manager Legal and secretary to the board of Nigerian LNG Limited. Chief Anthony obtained a Bachelors degree in Law from the University of Lagos in 1973 and was called to the Nigerian Bar in 1974.

9 Engr. Yusuf K.J N'jie

Engr. Yusuf N'jie has worked extensively in the Oil industry for over thirty (30) years with companies like Otis Engineering Corporation, SEDCO (a drilling/pipeline company) and Texaco Overseas (Nigeria) Petroleum Company Unlimited where he also served as a member of the board of directors and from where he retired after over twenty three (23) years of service. He spent nine years at the Optimum Petroleum Development Company as the Managing Director/Chief Executive Officer.

Engr. N'jie is currently the Chairman of Niya Holdings Nigeria Limited and a member of the boards of various organisations. He is a Mechanical Engineering and graduate of the Southern Methodist University, (SMU) Dallas, a fellow at the Nigerian Society of Engineers, and a member of the society of Petroleum Engineers.

10 Ammuna Lawan Ali, OON

Ammuna Lawan Ali, a retired Federal Permanent Secretary commenced her Civil Service career in 1977 as a Planning Officer in the Borno State Ministry of Lands and Survey, Maiduguri, where she rose to the position of Permanent Secretary. In that capacity, she served in the Ministries of Education, Women Affairs, Commerce, Industries and Tourism.

In 1995, Ammuna Lawan Ali transferred her services to the Federal Civil Service as a director and served in the Ministry of Women Affairs and Social Development and that of Finance. In January 2001, Ammuna Lawan Ali was appointed a Permanent Secretary and served in various Ministries, including those of Commerce, Petroleum Resources, Transportation, Works, Environment, Housing and Urban Development, and briefly in the office of Civil Service and the Ministry of Information and Communications. She retired from service in December 2009.

Ammuna Lawan Ali is a recipient of National Honor (OON), a member of the National Institute of Policy and Strategic Studies (NIPSS) Kuru, and holds a BA (Hons) Degree and Masters Degree in Public Administration.

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Oando PLC 2011 ANNUAL REPORT

Oando at a Glance

Where we operate Oando operates in the following countries and is listed on the Johannesburg Stock Exchange in South Africa.

Bermuda

Nigeria

Benin republic UK

Ghana Togo

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Oando PLC 2011 ANNUAL REPORT

Our Group Structure (showing major subsidiaries)

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Oando PLC 2011 ANNUAL REPORT

report of the Directors

In accordance with the provisions of the Companies and Allied Matters Act, Cap C20, LFN 2004, the Directors of Oando PLC hereby presents to the members of the Company the audited consolidated financial statements for the year ending 31 December 2011. The preparation of annual financial statements is the responsibility of the Board, and it should give a true and fair view of the state of affairs of the Company. The Directors declare that nothing has come to their attention to indicate that the Company will not remain a going concern for at least twelve months from the date of this report.

Legal Form

The Company commenced operations in 1956 as a petroleum-marketing company in Nigeria under the name ESSO West Africa Inc., a subsidiary of Exxon Corporation (“Exxon”), and was incorporated under Nigerian Law as Esso Standard Nigeria Limited (“Esso”) in 1969. In 1976, the Federal Government acquired Exxon’s interest in Esso; Esso was nationalised and rebranded as Unipetrol Nigeria Limited (“Unipetrol”). A process of privatisation began in 1991 when the Federal Government divested 60% of its shareholding in Unipetrol to the public. Unipetrol’s shares were listed on the Nigerian Stock Exchange (the “NSE”) in February 1992, quoted as Unipetrol Nigeria PLC. Under the second phase of the privatisation process, the Federal Government sold its remaining shareholding in Unipetrol. Ocean and Oil Investments (Nigeria) Limited (“OOIN”), the Company’s major shareholder in 2000, acquired 30% in Unipetrol from the Federal Government. The residual 10% stake held by the Federal Government was sold to the public in 2001. In August 2002, Unipetrol acquired a 60% stake in Agip Nigeria Plc (“Agip”) from Agip Petroli International. The remaining 40% of the shares in Agip was acquired by Unipetrol by way of a share swap under a scheme of merger. The combined entity that resulted from the merger of Unipetrol and Agip was rebranded as Oando PLC in December 2003.

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Oando PLC 2011 ANNUAL REPORT

In 1999, Unipetrol had acquired a 40% stake in Gaslink Nigeria Limited (“Gaslink”); this stake was subsequently increased to 51% in 2001.The Company’s Gas and Power division emerged as a result of the consolidation of Gaslink’s gas distribution franchise and the Company’s customer base in 2004. On 25 November 2005, the Company was listed on the main board of the JSE Limited and thereby became the first African company to achieve a cross border inward listing.

DIrECTOrS The Board

The composition of the Board of Directors was strengthened with the appointment of two independent Non-Executive Directors, Engr. Yusuf N’jie, and Ammuna Ali, CFR effective, October 20, 2011 pursuant to Article 88 of the Articles of Association of the Company. In accordance with the said Article 88, their terms expire but being eligible offers themselves for election at the general meeting.

In June 2007, the Company entered into a scheme of arrangement (the “Scheme”) with certain minority shareholders of Gaslink and with OOIN. Under the Scheme, the minority shareholders of Gaslink transferred their equity holdings in Gaslink to the Company in consideration for ordinary shares in the Company. In addition, OOIN transferred its interests in Oando Supply and Trading Limited, Oando Trading (Bermuda) Limited, Oando Production and Development Company Limited, Oando Energy Services Limited and Oando Exploration and Production Company Limited to the Company in consideration for ordinary shares in the Company.

In accordance with Section 259 (1) and (2) of the Companies & Allied Matters Act (CAMA), 2004 and Articles 92 & 93 of the Company’s articles of association, the following Directors, who are longest in office are retiring by rotation and will present themselves for re-election at this meeting:

Oando’s business is organised into six business divisions. These divisions are: i. Exploration and Production ii. Energy Services iii. Gas and Power iv. Marketing v. Supply and Trading: vi. Refining and Terminals

1.

Description of Operations

Business review

The Company is required by the Companies and Allied Matters Act (2004) to set out in this report a fair review of the business of the Group during the financial year ended December 31, 2011 and of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group (“Business Review”).The information that fulfils these requirements can be found within the Chairman’s and Chief Executive’s Statement, review of operations.

• • • •

Mr. Oghogho Akpata Mr. Omamofe Boyo Mr. Mobolaji Osunsanya Ms. Nana Appiah-Korang

The names of Directors who held office during the year and at the date of this report are as follows:

Non-Executive Directors

3. 4. 5. 6. 7. 8.

Major-General Mohammed Magoro (Rtd.), PSC, OFR, USAWC, Galadiman Zuru* HRM Michael Adedotun Gbadebo, The Alake of Egbaland Mr. Ogogho Akpata ‡ Ms. Nana Appiah- Korang Chief Sena Anthony ‡ Ammuna Lawan Ali, OON ‡ Engr. Yusuf Njie ‡ Ms. Amal Pepple, CFR*

‡ *

Independent Non Executive Resigned

9. 10. 11. 12.

Jubril Adewale Tinubu Omamofe Boyo Mobolaji Osunsanya Olufemi Adeyemo

2.

Executive Directors

Corporate Governance & Statement of Compliance

The Company is dedicated to the protection and promotion of shareholders’ interests. The Company recognises the importance of the adoption of superior management principles, its valuable contribution to long term business prosperity and accountability to its shareholders. The Company complies with the requirements of the Nigerian corporate governance standards through its compliance with the principles under the Securities and Exchange Commission’s Code of Corporate Governance for Public Companies in Nigeria (the “Code”). The Code prescribes guidelines for best practices to be followed by public quoted companies and for all other companies with multiple stakeholders registered in Nigeria. Although it is not an enforceable statute, public companies and other companies with multiple stakeholders are encouraged to comply with its principles with a view to aligning their operations with international best practices. The Company meets the requirements of the Nigerian corporate governance standards by complying with the principles under the Code. For example, according to the Code, the composition of the Board of Directors should ensure diversity of experience without compromising compatibility, integrity, availability and independence, and it should consist of a mix of not more than 15 Executive and Non-Executive Directors headed by a Chairman. In addition, the positions of the Chairman and the Chief Executive Officer should be held by different persons, in order to avoid undue concentration of power. The Company complies with all these principles. The Company has adopted a Code of Business Conduct & Ethics which defines the Company’s mission within a corporate governance framework. The Code was approved by the Board in December 2007 and is applicable to all employees (including contract staff and third party personnel seconded to the Company), managers as well as directors and business partners of the Company. It also requires all Directors and employees to be trained and annually certified on the salient provisions of the Company’s Code of Business Conduct & Ethics. The training is conducted using a web based training facility and is part of the induction and on-boarding process for new staff members.

Governance Office Initiatives

recertification Exercise: In the year 2011, the Governance Office conducted the annual Recertification Exercise on the Code of Business Conduct & Ethics and other company policies for all staff. A total of 977 staff across Africa were trained, certified and re-certified using a web-based training facility. Oando maintains its fervent commitment to best business practice culture in line with the highest international standards. Training for Business Partners on the Code of Business Conduct & Ethics: The Governance Office conducted training sessions on the Code of Business Conduct & Ethics for Business Partners of the Marketing, Supply & Trading, Exploration & Production, Gas & Power and Energy Services divisions as well as the Human Resources Service Providers to ensure that they imbibe the Company’s core values and the importance of implementing the core values and company policies in carrying out their business with Oando.

Web-based Compliance Itinerary Video Trainings: The Governance Office developed a 5 day web-based compliance video to train all staff of the group on compliance and ethical issues that range from sexual harassment to corrupt practices. In our bid to provide and ensure continuous education of all staff on ethical and compliance matters, the videos streamed from the intranet with a new video playing each day for a whole week. In addition to utilizing the web-based compliance training tools, a total of 535 employees were trained using inperson/classroom compliance training in the year under review.

New Directors’ Induction Programme and Directors Training: In line with international best practices, the Company conducted a 2day Induction Programme on 24th & 25th February 2011 for the newly appointed directors of Oando Group. The new directors were educated on the group wide activities of the Company and its subsidiaries, as well as their responsibility under the Code of Business Conduct & Ethics, company policies and relevant laws/regulations in Nigeria and South Africa (CAMA, NSE/JSE Rules). The Office also co-facilitated a 1 day intensive training with MIS Training Institute (A division of Euromoney Training Limited) on Enterprise risk Management on February 21st 2011 for all directors group wide.

In the year under review, members of the Audit Committee on 9th-11th August attended the Annual Audit Committee Conference jointly organised by the Nigerian Accounting Standards Board (NASB) and Audit Committee Institute, Nigeria (ACI). The Conference was themed “Shareholder Value Assurance: A shared Governance Responsibility”. Service Stations and Facilities Spot checks As part of our efforts to ensure global compliance and uniformity in our standard of service delivery, the Governance Office conducted spot checks at random Oando service stations in Ghana, Togo and Lagos, Nigeria. Spot checks were also conducted at the Oando Apapa Terminal 1 & 2 and Above Ground Installation (AGI) plant in Ikeja.

Compliance Week: In our bid to create ground breaking awareness on the essence and importance of compliance and ethics to every aspect of Oando’s operations and stakeholder involvement, the Governance Office coordinated the first Compliance Week on 5th to 9th December, 2011 with the theme “Compliance….a way of life!” World Anti-corruption day: In line with its commitments to the principles of the United Nations Global Compact, the Company commemorated the 10th International Anti-Corruption Day on December 9, 2011 by conducting the inaugural Compliance Forum. The Forum was attended by all stakeholders of the Company with presentations delivered by both local and international speakers. Ethics Watch Publications: The Governance Office continues to publish a monthly bulletin called the “Ethics Watch” to sensitize staff on the importance of ethical conduct and corporate governance.

In furtherance of corporate objectives, the Governance Office conducted a half year survey in the year to obtain feedback from staff on its policies, processes and service. The survey questions were designed to focus on methods for improving the Company’s policies and the internal compliance processes. It is noteworthy that 71% of the respondents gave the Governance Office’s overall quality of service a good rating.

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Oando PLC 2011 ANNUAL REPORT

report of the Directors Continued

Board of Directors’ Governance Structure

The Board of Directors of the Company is responsible for setting the strategic direction of the Company and for overseeing and monitoring its business affairs. The Board ensures that the Company is fully aware of its responsibility to all relevant stakeholders in the conduct of its operations. The Board is responsible for the development and implementation of sustainable policies, which reflect the company’s recognition of its responsibility to all stakeholders who are affected by the Company in the performance of its operations which include, customers, employees, shareholders, communities and the environment. The Oando Board of Directors recognises the importance of best corporate governance principles, its valuable contribution to long term business prosperity and accountability to its shareholders.

The Board’s Authority

The Board of Directors scope of authority are set forth in the Company’s Delegation of Authority in conformity with relevant legislation and best practice recommendations. There is a formal schedule of matters reserved for the decision of the Board, which is reviewed regularly. This includes (inter alia): • strategy and objectives; • business plans and budgets; • changes in capital and corporate structure; • accounting policies and financial reporting; • internal controls; • major contracts; • capital projects; • acquisitions and disposals; • communications with shareholders; and • board membership.

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Oando PLC 2011 ANNUAL REPORT

Board’s Composition and Independence

The Board of Directors has a broad range of expertise that covers the oil sector, the Company’s main business and the geographical areas. Each individual Director has experience, knowledge, qualifications, expertise and integrity necessary to effectively discharge the duties of the Board of Directors. The Company believes that experienced Directors with diverse industry background are essential for the provision of a succesful strategic direction for the Company. The composition, competencies and mix of skills are adequate for its oversight duties and the development of the corporate vision and strategy. The Board of Directors through its Governance & Nominations Committee establishes which members are independent and it also recommends the appropriate size of the board. The size of the Board is predetermined by Article 78 of the Company’s Articles of Association.

re- election of Directors

The Board in discharging its duties adopts the best practice principles, some of which are highlighted thus: • The Company believes that the Chairman of the Board should be a Non-Executive Director. • To maintain balance of interest and ensure transparency and impartiality, a number of the Directors are independent. The independent Directors are those who have no material relationship with the Company beyond their Directorship. • Directors abstain from action that may lead to conflict of interest and are to ensure they shall comply with the Company’s Policy on Related Party Transactions.

Board Appointment Process

In its bid to ensure the highest standards of good corporate governance, the Company has formulated the Board Appointment Process as a guide in the appointment of any of its directors (executive or non-executive). This is in line with the corporate laws, rules, regulations, Codes of Corporate Governance, International best practices as well as the Company’s Memorandum and Articles of Association.

A maximum of one third of the Directors, who are the longest in office since their last appointment are required to retire by rotation and are eligible for re-election.

The Governance & Nomination Committee has the overall responsibility for the process subject to the approval of the Board.

Directors act in good faith, with due care and in the best interests of the Company and all its shareholders – and not in the interests of any particular shareholder – on the basis of relevant information. Each Director is expected to attend all Board of Directors meetings and applicable committee meetings.

The fundamental principles of the process include the evaluation of the balance of skills, knowledge and experience on the Board before making any appointments so as to ensure that the identified skills gaps are filled. Consideration is also given to the leadership needs of the Company, succession planning, other commitments of the candidate and his/her ability to meet the duties and obligations expected of him/her.

The Company does not prohibit its Directors from serving on other Boards as Directors. Directors are however, expected to ensure that other commitments do not interfere with the discharge of their duties. Directors shall not divulge or use confidential or insider information about the Company.

Appointments must give regard to merit and other objective criteria. The appointment procedure thus includes searching for the right candidates (based on the principles, legal and ethical checks), selection, voting, recommendation, approval by the Board and ratification by the shareholders.

Board’s Duties & responsibility

Training and access to Advisers The Company has a set induction programme for new directors on the Company’s business and other information that will assist them in discharging their duties effectively. The Company believes in and provides continuous training and professional education to its Directors. The Board of Directors and Board Committees have the ability to retain external counsel to advice on matters, as they deem necessary.

Working Procedures

The Board of Directors meets according to a fixed schedule, set at the beginning of each year, which enables it to properly discharge its duties. As a rule, the Board of Directors meets at least five (5) times a year. NonExecutive Directors are required to meet separately from executive members at least once a year.

remuneration

The remuneration of Non-Executive Directors is competitive and is comprised of an annual fee and a meeting attendance allowance. The remuneration package shall, however, not jeopardize a Director’s independence. Executive Directors are not paid fees beyond their executive remuneration package. The Board of Directors shall through its remuneration committee, periodically review the remuneration paid to Directors. The Company publicly discloses the remuneration of each Director on an individual basis. The Company will not provide personal loans or credits to its Directors. Further, the Company shall not provide stock options to its NonExecutive Directors unless approved by shareholders in general meeting. The Company Secretary is responsible to the Board, and is also available to individual Directors for advice and services.

All Directors are expected to be provided with a concise but comprehensive set of information by the Company Secretary in a timely manner, concurrently with the notice of the Board meeting, no less than fourteen (14) days before each meeting. This set of documents is to include: • an agenda; • minutes of the prior Board meeting; • key performance indicators, including relevant financial information prepared by management, and clear recommendations for action. The Board of Directors through the Company Secretary keeps detailed minutes of its meetings that adequately reflect Board discussions, signed by the Chairman and disclosing voting results on an individual basis where decisions are not unanimous. The Company keeps recordings of important Board decisions, such as the approval of extraordinary transactions.

53

Oando PLC 2011 ANNUAL REPORT

report of the Directors Continued

Director

Audit

Governance & Nominations

Risk, Environment, Health, Safety & Security

Strategic Planning & Finance

M. Magoro, OFR #

-

-

HRM M.A. Gbadebo, CFR







-

-

-

J. A. Tinubu

-

-

-

-

O. Boyo

-

-

-

-

M. Osunsanya

-

-

-

-

O. Adeyemo

-

-

-

-

O. Akpata









Ammuna Lawan Ali, OON *

-

-

-

-

Chief Sena Anthony









Ms. Nana Afoah Appiah-Korang

-

-





Engr. K. J. N’jie *

-

-

-

-

Ms. A. Pepple, CFR #

-







Risk Environment, Health & Safety

Audit

Resigned - M. Magoro OFR resigned 30/06/2011, Ms. A Pepple CFR 22/07/2011 * Appointed - Ammuna Lawan Ali appointed on 20/10/2011, Engr. N’ije appointed on 20/10/2011

#

Attendance at meetings during the year ended 31st December 2011 Names

Board

J.A. Tinubu

5

O.Boyo

6

M. Osunsanya

6

O. Adeyemo

6

Executive Directors

Non-Executive Directors

⁄6

Strategic Planning & Finance

⁄6 ⁄6 ⁄6

M. Magoro OFR

3

H.R.M M.A. Gbadebo

6

Ammuna lawan Ali

2

O. Akpata

Governance & Nominations

⁄6 ⁄6

⁄2

1

⁄2

2

⁄2

2

⁄2

4

1

⁄4

⁄6 ⁄6

⁄2

5

⁄2

5

6

2

⁄6

1

Chief Sena Anthony

6

Nana Appiah-Korang

6

Engr. Yusuf N’jie

2

Ms. A Pepple CFR

3

⁄6

⁄5

1

⁄5

1

⁄5

2

⁄5

1

5

⁄4 ⁄4

⁄2

⁄6 ⁄6

⁄2

1

Shareholder Members of the Audit Committee

2

⁄2

⁄4

2

K.B Sarumi

4

P. Eyanuku

4

J. Onwughara

4

Date of Board/Committee meetings held in 2011

Board Meetings: 30/03/2011, 12/05/2011, 29/06/2011, 22/07/2011, 20/10/2011,16/12/2011 Audit Committee: 28/03/2011, 11/05/2011, 21/07/2011, 19/10/2011, 25/10/2011

Strategic Planning & Finance Committee: 28/03/2011, 11/05/2011, 21/07/2011,19/10/2011 Governance & Nominations Committee: 03/02/2011, 29/03/2011, 05/09/2011, 16/09/2011 risk, EHSSQ Committee: 29/03/2011, 18/10/2011 54

Oando PLC 2011 ANNUAL REPORT

⁄4 ⁄4 ⁄4

Board Committees

Under the Articles, the Directors may appoint Committees consisting of members of the Board and such other persons as they think fit and may delegate any of their powers to such Committees. The Committees are required to use their delegated powers to conform to the regulations laid down by the Board. Committee members are expected to attend each Committee meeting, unless exceptional circumstances prevent them from doing so. All the Committees have terms of reference which guides them in the execution of their duties. Each Committee reports to the Board of Directors. Each Committee provides draft recommendations to the Board on matters that fall within the Board’s ambit. The following Committees are currently operating at the Board level: • Audit Committee (a Statutory Committee with shareholder members); • Strategic Planning and Finance Committee; • Governance and Nominations Committee; and • Risk, Environmental Health Safety, Security and Quality Committee.

Strategic Planning and Finance Committee

The Strategic Planning and Finance Committee assists the Board of Directors in performing its guidance and oversight functions effectively and efficiently, by specifically defining the Company’s strategic objectives, determining its financial and operational priorities, making recommendations regarding the Company’s dividend policy and evaluating the long term productivity of the Company’s operations. In 2011, the Strategic Planning and Finance Committee met five times. The Strategic Planning and Finance Committee of the Company is chaired by Chief Sena Anthony. The members of the Strategic Planning and Finance Committee are currently as follows: • • • •

Chief Sena Anthony Ammuna Lawan Ali, OON Engr. Yusuf N’jie Ms. Nana Appiah-Korang

The Company’s Board Committee structure is as follows:

Board of Directors

Audit Committee

Strategic Planning & Finance Committee

Governance and Nominations Committee

Risk, Environmental Health, Safety, Security and Quality Committee

55

Oando PLC 2011 ANNUAL REPORT

report of the Directors Continued

Governance and Nominations Committee

The Governance and Nominations Committee is responsible for the development of compliance with and periodic review of the Company’s corporate governance policies and practices, the review and monitoring of policies concerning shareholder rights, conflict resolution, ethics, disclosure and transparency, evaluation of the Company’s internal documents (organisation and process), the review and setting of the By laws of all of the Board Committees, identifying qualified directors and senior executives and ensuring that the Company’s policies support the successful recruitment, development and retention of directors and managers and ensuring that the Company’s remuneration policies and practices support the successful recruitment, development and retention of directors and managers. The Governance and Nominations Committee is chaired by Mr. Oghogho Akpata and held three meetings in 2011. The members of the Governance & Nominations Committee are currently as follows: • Mr. Oghogho Akpata • Chief Sena Anthony • Ammuna Lawan Ali

Environment, Health, Safety, Security and Quality Committee

The Environment, Health, Safety, Security and Quality Committee is responsible for reviewing the policies and processes established by management which are designed to implement the risk, environmental, health and safety quality policy of the Company and ensuring the Company’s compliance with international standards of risk, environmental, health and safety quality. The committee is chaired by Ms. Appiah-Korang and met twice in 2011. The members of the Environment, Health, Safety, Security and Quality Committee are currently as follows: • Ms. Nana Appiah-Korang • Mr. Oghogho Akpata • Engr. Yusuf N’jie

56

Oando PLC 2011 ANNUAL REPORT

Statutory Committee

Audit Committee The Audit Committee was established in compliance with Section 359(3) of the CAMA, which requires every listed company to have an audit committee. In accordance with Sections 359(3) and (4) of the CAMA, the Audit Committee is made up of six members, three Non-Executive Directors and three shareholders of the Company, who are elected at the Annual General Meeting. The members of the Audit Committee are not required to be independent. The Audit Committee members meet at least three times a year, and the meetings are attended by the appropriate executives of the Company, including the Group Chief Financial Officer, the Head, Internal Control and Audit and Head, Risk & Control. The Audit Committee’s duties include keeping under review the scope and results of the external audit, as well as the independence and objectivity of the auditors. The Committee also keeps under review internal financial controls, compliance with laws and regulations and the safeguarding of assets and the adequacy of the plan of the internal audit and reviews its audit reports. The Committee held four meetings in 2011. The members of the Audit Committee are currently as follows: • Mr. Oghogho Akpata Non-Executive Director (Chairman) • Chief Sena Anthony Non-Executive Director

• Ammuna Lawan Ali, OON Non-Executive Director • Mr. K.B. Sarunmi Shareholder

• Mr. J. Onwughara Shareholder • Mr. P. Eyanuku Shareholder

Please refer to page 47 for a brief Curriculum Vitae of the Non-Executive Director members of the Audit Committee.

Mr. Kabir Babatunde Sarumi- Shareholder Member Kabir Babatunde Sarumi holds a Bachelor of Sciences degree in Accounting from the University of Lagos, Nigeria and a Diploma in Business and Industrial Law from the same Institution. He is a member of the Nigerian Institute of Internal Auditors and has authored several business guide books and manuals. He joined Nigerian Airways Limited in 1977 as a Revenue/Expenditure Accounting officer and retired meritoriously in 2002 as the Deputy Chief Accountant of the Company. Mr. Sarumi is currently the Managing Director and Chief Executive Officer of Kabeer Sarumi Nigerian Company Limited. Mr. Job Onwughara- Shareholder Member Mr. Onwughara holds a Master of Science degree in Banking and Finance from the University of Ibadan, Nigeria. He is a fellow of the Chartered Institute of Bankers, London/Nigeria, an Associate of the Institute of Credit Management, London and Member of the British Institute of Management. He has served at various Managerial levels at Savannah Bank and Crown Flour Mill Limited. Mr. Peter Eyanuku- Shareholder Member Mr. Peter Eyanuku studied Mechanical Engineering and has served in various organizations in different capacities and has also served with the National Directorate of Employment, Lagos as well as the Lagos State Health Management Board. He was a Member of the Audit Committee of the United Bank for Africa PLC and is presently also a Member of the Audit Committee of Airline Services & Logistics PLC. The committee held four meetings in the financial year ended December 31, 2011. The Companies and Allied Matters Act, 2004 requires that every public company have an audit committee and stipulates that a number of shareholders equal to the director members of this committee must be members of the audit committee. The day-to-day operational management of the Group’s activities is delegated to the Group Chief Executive, who has direct responsibility for all operations and activities. He is supported in this by the Deputy Group Chief Executive and the Group Leadership

Council which comprises, in addition to them, the Chief Executive Officers of the operating subsidiaries, plus the Chief Financial Officer, Chief Human Resources Officer, the Chief Compliance Officer & Company Secretary, the Chief Legal Officer, Chief Engineering and Technology Officer, Chief Environment, Health, Safety, Security, Quality, State and Community Affairs Officer, Chief Information Officer and the Chief Corporate Services Officer.

Directors’ declarations None of the directors have:

• ever been convicted of an offence resulting from dishonesty, fraud or embezzlement; • ever been declared bankrupt or sequestrated in any jurisdiction; • at any time been a party to a scheme of arrangement or made any other form of compromise with their creditors; • ever been found guilty in disciplinary proceedings by an employer or regulatory body, due to dishonest activities; • ever been involved in any receiverships, compulsory liquidations or creditors voluntary liquidations; • ever been barred from entry into a profession or occupation; or • ever been convicted in any jurisdiction of any criminal offence or an offence under any Nigerian or South African legislation.

Directors’ shareholdings

The holdings of ordinary shares by the directors of Oando as at 31 December 2011 being the end of Oando’s immediately preceding financial year, are set out in the table below: Name

HRM Oba A. Gbadebo,CFR Mr. Adewale Tinubu Mr. Omamofe Boyo

Shareholding (Number of Shares) Direct

Indirect

Percent Ownership (% Shareholding)

Nil

3,670,995

0.1614

37,500

Nil

0.0016

Nil

2,354,713

0.1035

Mr. Mobolaji Osunsanya

67,497

1,190,398

0.0553

Mr. Olufemi Adeyemo

75,000

1,423,898

0.0659

Chief Sena Anthony

99,711

Nil

0.0044

Mr. Oghogho Akpata

Nil

Nil

Nil

Ammuna Lawan Ali

Nil

Nil

Nil

Engr. Yusuf K.J N’jie

Nil

Nil

Nil

Ms Nana Afoah Appiah-Korang

Nil

37,500,000

1.6270

57

Oando PLC 2011 ANNUAL REPORT

report of the Directors Continued

Interests of Oando’s Directors in terms of the equity incentive scheme

The Executive Directors stand to benefit from the Oando Employee Equity Incentive Scheme. See paragraph titled Staff equity participation scheme on page 66 for details of the scheme.

Directors’ interests in transactions None of the directors had a direct material interest in any transactions that were effected by Oando during: • the current or immediately preceding financial year; or • any preceding financial year and remain in any respect outstanding or unperformed. However, some of the directors hold directorships in other companies or are partners in firms with which Oando had material transactions during the current financial year, as summarised below: Ocean and Oil Holdings (Nigeria) Limited (“OOH”). OOH is a diversified principal investment holding company with an indirect controlling stake in Oando held through Ocean and Oil Investments Limited. Oando’s directors who are also directors of OOH are Mr. Jubril Adewale Tinubu and Mr. Omamofe Boyo.

Internal control and risk

The Directors have overall responsibility for ensuring that the Group maintains a sound system of internal controls to provide them with reasonable assurance that all information used within the business and for external publication is adequate, including financial, operational, compliance, control and risk management and for ensuring that assets are safeguarded and therefore that shareholders’ investment is protected. There are limitations in any system of internal control and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss. In line with good practice, the Company has an Internal Audit unit that carries out routine and random checks on the company’s operations, including fixed assets and stocks. The unit is also responsible for investigating frauds and misuse or misappropriation of the Company’s assets.

58

Oando PLC 2011 ANNUAL REPORT

The Company also has an Internal Control Unit, which lays down and tests the controls and processes to ensure that the assets of the company are safeguarded. The Unit is currently headed by a manager with vast control and processes experience. The key procedures that the Board has established and which are designed to provide effective internal control for the Group are: • The Board sets out the Group delegation of authority procedures which are adopted by all the subsidiary companies. • The issue of a Group accounting and procedures manual which sets out the Group’s accounting practices, revenue recognition rules, accounting under Nigerian Accounting Standard Board (NASB) and International Financial Reporting Standard (IFRS) and bid approval processes. • The application of a rigorous annual budgeting process following a detailed entity and Group strategy review. All budgets are subject to approval at Board level. • The Group Leadership Council is responsible for reviewing the operational results, communicating and applying these results, the Group-wide Policies and procedures and strategy on operational matters to the Board and down to the operating units. • The formal monthly operational review by the Executive Directors together with the divisional management teams to assess the financial and operating performance and discuss the on-going development of each business unit and the comparison of detailed monthly management reports against budgets, forecasts and prior years. In addition the Group Chief Executive and Chief Financial Officer prepare a quarterly report for the Board on key developments, performance and issues in the business. • The identification and mitigation of major business risks is the responsibility of company management. Each operating company maintains internal controls and procedures appropriate to its structure and business environment, whilst complying with Group policies, standards and guidelines. • Insurance cover is maintained to insure all the major risk areas of the Group based on the scale of the risk and the availability of cover in the external market. • The use of external professional advisers to carry out due diligence reviews of potential acquisitions.

Enterprise risk Management

The global financial crisis continued in the year 2011 with problems spreading to European Debt markets, affecting countries in the Euro zone and by extension investment decisions in African countries such as Nigeria. This has contributed to reviews of corporate governance requirements in various countries including Nigeria. In light of these developments, and in compliance with international best practices, we have improved on our risk management strategy. We strongly believe that the effective management of material risk is central to the success of the group. We have integrated the execution of our risk management strategy within an Enterprise Risk Management Framework. The fundamental objective of this framework is for the group to take a holistic approach to proactively identify, communicate and manage risk by increasing the role of management and the board in the process, as well as to review risk from a corporate perspective that allows us to test the long term viability of our corporate objectives. The risk management process also guides us in communicating and reporting our key risk and opportunities to all stakeholders. As part of the implementation of the framework, we separated the Internal Controls functions from our internal audit function during the year and, we created a combined Risk Management and Internal Control unit within the Oando group. The added value that this split brings to the leadership team is the assurance of a single point of accountability and ownership for internal controls at the group level and a consistency in approach that will generate time and cost savings. The risk management function was created as part of our strategy to enhance corporate governance standards and also in line with international best practices. The unit provides central coordination and oversight of all risk management activities within Oando Group. It reports to the Chief Financial Officer, who in turn reports risk related issues to the Risk Committee of the Board. During the year, the Risk Management and Controls unit updated key processes and policies across the group and highlighted all process risks and controls inherent in each of the key processes; we have created a risk matrix that embeds all these process risks and controls. We have gone a step further to review each of these controls with a view to

ensuring that they effectively address the process or business risks. We have rolled out risk registers to our subsidiaries and have held workshops during the year with subsidiaries to identify assess and mitigate controllable risks within the various businesses. We believe that the development of a robust risk culture is an important element of the group’s risk management process. We are continuously embedding this risk culture in our staff members through newsletters, workshops and training on risk management. We conducted training and workshops for directors and staff members on Risk management and Internal controls during the year. We created a Group Risk Management Committee (GRMC) composed of carefully selected Management staff drawn from the different business and group units with a range of skills and knowledge covering risk management, Health and Safety, finance, audit, corporate governance and law. The GRMC serves as a management function with direct responsibility for providing independent risk oversight, coordination, facilitation, monitoring and challenge of the effectiveness and integrity of the Group’s risk management processes. It reports the Group’s risk exposure to the board through the Strategic Planning & Finance Committee and the Risk, Environment, Health and safety Committee of the Board. The effectiveness of Oando’s expansion programs involves large projects being successfully executed at the same time across the different entities. The group has strengthened its project risk management capabilities with the introduction of the Oando Opportunity Realisation Process. This is a process designed to ensure that any material perceived business opportunity is matured to its possible realization in a stepwise manner, such that the trigger to proceed to the next stage is dependent on demonstration of business value at the preceding step. This process assures that all parameters are considered and all project risks are identified and properly controlled. We have created Environmental Health, Safety, Security and Quality (EHSSQ) standards that assure management that operational risks in the downstream, midstream and upstream businesses are fully identified and mitigated.

In order to sustain our growth strategy, we would continuously improve on our processes to ensure we work effectively and efficiently, improve on our risk management methodology and ensure we work within the boundaries that we set for the company.

relations with Shareholders

Communications The Board considers effective communication with its investors, whether institutional, retail or employee shareholders, to be of uttermost importance. The Company reports formally to shareholders throughout the year, with the quarterly results announcement and the preliminary announcement of the full-year results. Shareholders are issued with the fullyear Report and Accounts. These reports are posted on the website. The Company also makes other announcements from time to time, which can be found on the website. Management meet with institutional investors on a regular basis, providing an opportunity to discuss, in the context of publicly available information, the progress of the business. Institutional investors and analysts are also invited to attend briefings by the Company following the announcements of the full and quarterly results. Copies of the presentations given at these briefings are posted on the website.

Constructive use of the Annual General Meeting

The notice of meeting is sent to shareholders at least 21 working days before the AGM. The Directors encourage the participation of shareholders at the AGM, and are available, both formally during the meeting and informally afterwards, for questions. The Chairmen of the Audit and Governance and Nomination Committees are all available to answer questions at the AGM.

Compliance statement

The Company has met the requirements of the SEC Code of Corporate Governance for the financial year ended 31 December 2011. Late submission of Audited Accounts to the Nigerian Stock Exchange for the year ended 31 December 2011 were filed in default of 21days after due date, although the Nigerian Stock Exchange had earlier extended the time for submission of the accounts to 30 April 2012. The sum of N500,000.00 was paid as penalty. The Board will ensure maximum compliance in the coming year.

Oando PLC hosted quarterly conference calls in 2011, giving investors an opportunity to interact with senior management and ask any questions they have with regards to the running of the business. The investor relations team also attended numerous conferences and organized roadshows within and outside Nigeria in an attempt to reach out to existing and potential investors globally. Oando PLC values the importance and role our investors have played in the Company’s progress and therefore makes a conscious effort to keep them updated on the company’s activities and also get constructive feedback. We plan to continue in this light in 2012.

59

Oando PLC 2011 ANNUAL REPORT

report of the Directors Continued

Shareholder Analysis Tables

register date: 30 December 2011 (based on the Nigerian register) Issued Share Capital: 2,274,118,138 shares SHAREHOLDER SPREAD

No of Holders

% of Holders

No of Shares

% Holding

168,436 73,118 10,376 9,172 1,068 923 111 105 19 23 4 263,355

63.96 27.76 3.94 3.48 0.41 0.35 0.04 0.04 0.01 0.01 0.00 100

62,026,381 149,867,546 73,186,851 190,197,969 75,619,577 186,875,913 78,941,581 220,986,752 140,994,616 488,425,846 606,995,106 2,274,118,138

2.73 6.59 3.22 8.36 3.33 8.22 3.47 9.72 6.20 21.48 26.69 100

SHAREHOLDER SPREAD

No of Holders

% of Holders

No of Shares

% Holding

Banks/Insurance Brokers Endowment Funds Individuals Investment Companies Medical Aid Schemes Mutual Funds Nominees/Trust Companies Other Corporations Pension Funds Private Companies Public Companies Total

219 507 284 257,093 140 8 124 1,519 559 215 2,672 15 263,355

0.08 0.19 0.11 97.62 0.05 0.00 0.05 0.58 0.21 0.08 1.01 0.01 100

34,990,452 48,049,847 4,940,275 632,858,680 8,403,296 30,076 101,043,145 375,812,663 52,703,998 441,698,342 512,150,598 61,436,766 2,274,118,138

1.54 2.11 0.22 27.83 0.37 0.00 4.44 16.53 2.32 19.42 22.52 2.70 100

1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 50,000 50,001 - 100,000 100,001 - 500,000 500,001 - 1,000,000 1,000,001 - 5,000,000 5,000,001 - 10,000,000 10,000,001 - 50,000,000 50,000,001 or more Total

Major Shareholders

According to the register of members, the following shareholders of the Company hold more than 5% of the issued ordinary share capital of the Company. Name Ocean & Oil Investments Limited STANBIC NOMINEES NIG. LTD - TRADING A/C

60

Oando PLC 2011 ANNUAL REPORT

Units

Percentage %

284,037,647 149,626,626

12.49 6.58

report of the Directors 2011 Corporate Social Responsibility Report

Over the years, Oando PLC has made a significant impact in the oil and gas industry, especially in the downstream sector, and has grown from one entity to seven. Through this transition our interest has matured from core business operations to include issues relating to Corporate Social Responsibility.

61

Oando PLC 2011 ANNUAL REPORT

report of the Directors

2011 Corporate Social Responsibility Report

Oando is at the forefront of pioneering a sustainable and replicable model for youth empowerment and community development through education. At Oando, we believe that primary education is the paramount pillar to foster the next generation of our nation’s workforce. To this end, in 2007, we initiated the Adopt-A-School Programme, our signature Education Programme, with the overall aim of increasing access to quality basic education in Nigeria. We work closely with representatives of States and the Federal Government to: • Enhance educational infrastructure and improve the learning environment in public primary schools • Provide teacher’s training, educational resources and teaching aids for effective learning in public primary schools • Create a pool of Oando Scholars through scholarship support for the academically gifted Currently, we have adopted 28 Government owned primary schools in Akwa Ibom, Bauchi, Cross River, Delta, Katsina, Lagos, Kaduna, Ogun, and River States. In 2011, we completed the renovation of 16 of our schools. In 2012, we plan to launch a technology driven teachers/students empowered programme for 17,292 students and 399 teachers of our adopted primary schools nationwide.

Scholarships

Oando, as part of its set agenda of promoting education for youths in Nigeria, awarded scholarships to 118 students. The grants are designed to relieve the financial burden of the less privileged children in the society who have either dropped out of school or would otherwise have limited opportunities to formal basic education. The beneficiaries were: • 80 indigent children from communities where Gaslink Nigeria Limited operates in Lagos sponsored under the Back-toSchool Scholarship Programme. • 38 members of the Xplicit Dance Group, an entertainment enterprise made up of mostly orphans and indigent children, who were awarded tuition fees and provided with computer equipment. 25 of the beneficiaries are currently in University, 10 in secondary school and 3 in primary school. 62

Oando PLC 2011 ANNUAL REPORT

Sustainable Community Development Programme

Social Development: Oando is actively involved in the provision of social amenities and improving the quality of life in our host communities through projects and sustainable social investments. We touch all our stakeholders’ economic, social and cultural aspirations through projects that are innovative and impactful. A major project in the year under review was the construction of a 3km Access Road linking Ikot Efanga, Akpabuyo community to the highway leading to the Akwa Ibom State Capital.

Economic Empowerment

Oando’s policy is to empower individuals within the communities to be financially stable and gainfully employed. Our staffing policy is to empower host communities by recruiting skilled, semi-skilled and unskilled labour to fill suitable positions. The Group also encourages our joint venture partners and contractors to fill suitable positions from host communities as a form of empowerment. In 2011, 10,188 skilled and semi-skilled workers were meaningfully engaged within our host communities.

Oando Foundation

Oando is committed to sustaining its contributions to societal development over and above the implementation of community projects directly related to the Company’s core business operations. In 2011, The Group established the Oando Foundation as an independent non profit organisation to spearhead projects across Nigeria with the purpose of achieving access to universal basic education and economic empowerment. The Group is committed to funding the Foundation through annual donations of 1.5% of its pre-tax profits in the first year and 1% in subsequent years. The Group will also support the Foundation with in-kind donations to cover administrative and operational costs. The Foundation is currently being registered in the UK and US with an internationally recognized Board of trustees and will seek partnerships and funds globally to further its cause.

Donations

The Group donated to laudable causes and charitable concerns including orphanages, retirement homes and special needs schools across Nigeria, as listed below: S/N

DESCrIPTION

2

Back-to-School Scholarship for 90 Children

3

Donation of 2,016 copies of exercise book to Federation of Women Lawyers, to support select primary schools in Makoko

220,500

4

Donation of 3,600 Litres of AGO to Heritage Homes

576,000

5

Donation of 3,600 Litres of AGO to Little Saints Orphanage

576,000

6

Donation to offset the medical bills of Festus Akanbi

200,000

7

Donation to offset medical bills for Heart surgery for Kemi Adio

200,000

8

Donation towards Children’s Day Celebration

752,758.50

9

Bimonthly donations of 22,000 litres of AGO and PMS to the Lagos State Security Trust Fund

76,289,709

10

Sponsorship of 38 members of the Xplicit Dance Group

3,015,800.01

11

Sponsorship of Mohammed Muazu at the Golf Academy of America

3,883,702.50

12

Donation to aid research on Phytoremediation of Polluted soil

13

Donation of Oando insecticide to the National Malaria Control Programme to commemorate the 4th World Malaria Day

14

Construction of 3km Access Road linking Ikot Efanga, Akpabuyo community to the highway

15

Reconstruction of Collapsed Classroom block at LGEA Primary School, Rido, Chukwu LGA. Kaduna

4,166,160.72

16

Completion of the renovation of Model Primary School, Ekara, Onne, Rivers State.

6,083,550.90

17

Construction of Government Primary School, Ikot Okoro, Oruk Anam, Akwa Ibom state

19,196,128.71

18

Construction of Government Primary School, Ikot Essien, Ukanafun, Akwa Ibom state

20,772,936.28

19

Renovation of Government Primary School, Ikpe Annang, Etim Ekpo, Cross River state

15,280,159.13

20

Renovation of Government Primary School, Ekorinim, Calabar Municipality, Cross River state

15,342,948.23

21

Renovation of St. Patrick’s Primary School, Adiabo, Odukpani, Cross River state

10,610,503.14

22

Renovation of Government Nomadic Primary School, Nassarawa, Cross River state

22,846,894

23

Renovation of Government Primary School, Mfamosing II, Akwa Ibom state

14,000,000

24

Renovation of Mohammadu Buhari Primary School, Daura, Katsina state

11,861,808.53

25

Renovation of Gidado Primary School, Katsina, Katsina state

11,271,563.10

26

Renovation of Central Primary School, Udubo, Gamawa, Bauchi state

8,339,119.75

27

Archbishop Taylor Memorial Primary School, Victoria Island, Lagos state

8,003,962.58

28

Renovation of Temidire Primary School, Gbagada, Lagos state

26,908,919.04

29

Renovation of Idi Odo Primary School, Gbagada, Lagos state

10,759,199.28

30

Renovation of Ogo Oluwa Primary School, Gbagada, Lagos state

10,503,130.29

31

Donation of school signages in Katsina, Kaduna, Bauchi, Cross River, Akwa Ibom, Delta, Ogun and Lagos State

1

AMOUNT (N)

Fund raising for St. Savior’s School, Lagos

TOTAL

20,000,000 3,725,280

100,000 2,000,000 30,000,000

7,327,500

364,814,234

63

Oando PLC 2011 ANNUAL REPORT

report of the Directors

2011 Corporate Social Responsibility Report Continued

Developments & Initiatives of the Human Capital Management Department Oando has a long tradition of attracting, developing and investing in talent within the organization. We aim to ensure we have a competitive workforce to support our business now and in the future. Our Human Capital Management (HCM) team continuously focuses on maintaining and strengthening the performance of the organization, as well as attracting high potential professionals.

In 2011, the HCM Department focused mainly on broadening, consolidating and institutionalising existing initiatives and processes with particular emphasis on talent management and people development.

recruitment, Selection & Attrition Management

Oando takes a proactive approach to finding the right talent for the future. A total of eighty eight (88) full time employees were employed into the organisation in 2011. Of this number, thirteen (13) joined in the Management Staff Cadre and seventy five (75) in the NonManagement Staff Cadre. The Oando Graduate Trainee (GT) Programme, initiated in 2008, continues to attract the very best of young minds from across various disciplines. In 2011, we were again able to attract twelve (12) young professionals (trainees) with little or no work experience to the GT program after an extensive and thorough selection process to select the best candidates. Successful trainees from previous batches have been fully integrated into the company as full term permanent employees. As we continue our drive to attract and retain the best talent with special focus on our growth businesses, Oando was a prominent participant at the Lagos Business School (LBS) career fair. The career fair at LBS attracts interns for the internship program and not for experienced hire opportunities.

64

Oando PLC 2011 ANNUAL REPORT

Given the continued success with the GT Programme and the LBS recruitment drive, we have made significant progress in growing talent and creating a pipeline of technically and morally competent individuals, while keeping attrition rate steady at 8%.

Talent Management and People Development

Another key area of concern is the provision of high quality training and support for our workforce. Our view is that employee development is a continuous process, thus we target a range of courses to help enhance our workforce. The HCM team rolled out two courses – Strategic Talent Management and Business Acumen. Strategic Talent Management embeds HCM skills into current line roles to ensure that talent and knowledge sharing is practiced and shared, thereby developing and retaining key talent in the organization. The Business Acumen course ensures that we all understand the essentials of business – market dynamics, strategic thinking and business modelling amongst other competencies. OMP commenced the Training School project on 13th June, 2011 with the first training session on 5th December, 2011. The start-up objective of the training school was to have a state of the art training facility where we would conduct various in-house training for staff and business partners in line with our 70:20:10 Talent Management model, which aims to conduct job specific trainings that would address specific competency gaps in the downstream sector. The Training School is located near the Trade Fair Complex in Lagos. The facility can adequately accommodate 90 delegates and is effectively manned with a Training School Administrator and Receptionist.

Great Place to Work

Our commitment to foster an exciting and great place to work requires the input of everyone. As part of the effort to appropriately benchmark and align our organization globally, we participated in a global survey of leading organizations, conducted by the Great Place to Work Institute. The Great Place to Work Institute is a global research and management

consultancy firm that helps organizations create and sustain great workplaces. The results reflected employees’ perception of Oando, relative to the top 100 companies globally across the 5 common themes – Credibility, Respect, Fairness, Pride, and Camaraderie which are in line with our core values – TRIPP. The results also indicated a strong sense of pride and belief in management credibility across the organization, while key focus areas for improvement were respect and fairness. A town hall meeting was held for all employees on the 9th of December 2011, of which the final result will be used to formulate the 2012 Oando people initiatives for the organization.

Oando Competency Framework

2011 was a year of systematic investment in talent as seen by continued development and implementation of ground-breaking programs, including the revamp of the competency framework. The HCM team began the review and revamp of the Oando competency framework with a shift in focus from specific/unique job roles to a job family approach across the organization. The review of the framework will be implemented in phases and involves standardizing our Job Titles and aligning with Career Path models. Creating a competency framework is an effective method to assess, maintain, and monitor the knowledge, skills, and attributes of people in the organization. The framework will allow Oando measure current competency levels to ensure that our staff have the expertise needed to add value to the business. It will also help our managers make informed decisions about talent recruitment, retention, and succession strategies. And, by identifying the specific behaviours and skills needed for each role, it will enable us budget and plan for the training and development needs of Oando staff. The process of creating a competency framework is long and complex. The increased level of understanding and linkage between individual roles and organizational performance makes the effort well worth it.

Our commitment to foster an exciting and great place to work requires the input of everyone. As part of the effort to appropriately benchmark and align our organization globally, we participated in a global survey of leading organizations, conducted by the Great Place to Work Institute.

65

Oando PLC 2011 ANNUAL REPORT

report of the Directors

2011 Corporate Social Responsibility Report Continued

remuneration, Benefits and Employee Welfare

During the course of the year, several remuneration and salary surveys were carried out to confirm our competitiveness within our market and in line with our corporate reward strategy. The Company also continued to maintain her reputation as an employer of choice as salary reviews were implemented with employees receiving a pay rise based on performance as well as to help cushion the effects of inflation in the economy. Finally, based on both individual and business performances, eligible employees received incentives in the form of both cash and shares under the Oando Management Performance Plan (OMPP), Oando Profit Sharing Plan (OPSP) and the GCE’s Discretionary Bonus. Stock Options were also granted under the Oando Staff Equity Participation Scheme. In order to provide Oando employees with the best Medical Care, a review of selected HMO's was carried out between May and June 2011.

Oando Employee Equity Incentive Scheme (OEEIS) The year ended 31st December 2011 was year 1 of cycle 3 of the Oando Staff Equity Participation Scheme. This year marked the beginning of the 3rd cycle of the Scheme. A total of 72,764,533 units were offered to 500 eligible employees under the Stock Option Plan at a strike price of N41.13. None of the options vested in 2011. An additional 11,406,568 units of the Company’s shares were listed on the floor of the Nigerian Stock Exchange and awarded to eligible employees, under the Management Share Award Scheme during the year 2011.

Environment, Health, Safety, Security and Quality Committee

This report provides an overview of activities within Oando PLC and its subsidiaries with respect to Environment, Health, Safety, Security, Quality and Community Affairs (EHSSQ/SCA) achievements as a company, in line with our EHSSQ Business plan. EHSSQ/SCA activities within the Company in 2011 were largely driven by 2 (two) core objectives for the year: • Enhanced EHSSQ awareness, with emphasis on employees’ health – fitness and wellness (work life balance). • World Class Quality Standards (Deliver ISO-9001 Certification across the Oando Group) All the entities, with the exception of Oando Energy Services, underwent ISO 9001:2008 surveillance audits by Standards Organisation of Nigeria, an ISO certification body. All the entities retained their certificates, and a gap analysis was conducted for Oando Energy Services. With these ISO certifications, Oando has demonstrated its ability to remain customer focused as well as its commitment to meeting the quality needs of its customers. With the Quality Management Systems in place in the various entities, accidents, errors and reworks were greatly reduced, while operational efficiency and effectiveness – with a customer-focus orientation – were enhanced. In 2011, Oando achieved zero fatality in all its facilities and the EHSSQ department made significant progress in boosting awareness campaigns and trainings for staff. In particular, health awareness was increased as evident in activities carried out during our EHSSQ Week and World Aids Day programs. EHS-MS audits/MFIs were conducted in line with our EHSQ business plan for the year. With 2 Rigs in operation, the company experienced an increase in the number of Hazard Identification Reports (HIRs) received from staff and a decrease in incidents resulting in fewer Lost Time Injuries (LTI).

66

Oando PLC 2011 ANNUAL REPORT

Nevertheless, we still experienced a series of road accidents from third party contractors, in spite of increased awareness campaigns carried out. Re-orientation of truck drivers and aggressive truck inspections were tools employed to reduce the number of unnecessary fatalities experienced on Nigerian roads.

Oando PLC’s quest for world class operation continues to impact on excellent execution and attracts the attention of industry watchers. In January 2011, it received an award for Overall Safety Achievement from the Central Emergency Medical Clearing House (CEMCH), in conjunction with the National Emergency Management Agency (NEMA) and Institute of Disaster, Safety and Security Management in Nigeria. The award was in recognition of the Company’s achievement and contribution to safety management in Nigeria. The Head, EHSSQ, Oando Marketing led a team that received the award on behalf of the Company.

Our 2011 key achievements include the following:

• Organized and managed a successful EHSSQ/SCA Week, which extended to Togo and Ghana facilities. • Organized and managed a successful World Aids Day Commemoration, which extended to a wider audience & increased number of locations. • Facilitated the deployment of specialized EHS-MS Monitoring Tools across entities (e.g. Project Contractor Management tracker at OMP, Action Dashboard Tracker at OGP). • Commenced Annual Medical Screening for all Staff and conducted free Health Screening for OMP Drivers/Transporters. • Conducted EHS–MS Audits, Management Facility Inspection and follow up audits. • Established the Oando Security Control Room to manage security information and send security alerts to staff. • Provided security support for Rig operations. • Provided security support for UNICEM gas project in Akwa Ibom and Cross River States. • Carried out Environmental Evaluation reports (EERs) for most of our service stations. • Secured MOU with OML90 host community – Ogulagha kingdom. • Facilitated Public hearing for Akepo OML 90 Pipeline ROW at Asaba. • Retained the ISO 9001:2008 certificates for Oando entities.

OANDO Plc EHS 2011 Performace review

Acquisition of Own Shares

Security incidents

Market Value of Fixed Assets

The figures below illustrate the Oando PLC EHS Performance for 2011

46

5

2010

2011

Gas leak 0

2010

3

2011

Fire incidents

29

2010

27

Injury

2011

43

2010

58

Information regarding the Group’s asset value and notes thereon are contained in Note 4 of the financial statements on page 82 of this Report. In the opinion of the Directors, the market value of the Company’s properties is not lower than the value shown in the financial statements.

Auditors

PricewaterhouseCoopers, have indicated their willingness to continue in office as the Company’s auditors in accordance with Section 357(2) of the Companies and Allied Matters Act, 2004 By Order of the Board

Ayotola Jagun (Ms.) Chief Compliance Officer & Company Secretary

2011

Fatality 0

2010

0

Audit

The Company did not acquire its own shares in year 2011

2011

14

2010

13

Near miss

2011

84

127

2010 2011

67

Oando PLC 2011 ANNUAL REPORT

report of the audit committee

In compliance with section 359 (6) of the Companies and Allied Matters Act 2004, we the members of Oando PLC Audit Committee have, on the documents and information made available to us: a. Reviewed the scope and planning of the audit requirements b. Reviewed the external Auditors’ Management Controls Report for the year ended December 31, 2011 as well as the Management response thereto, and can ascertain that accounting and reporting policies of the Company for the year ended December 31, 2011 are in accordance with legal requirements and agreed ethical practices.

Dated this 8th day of May 2012

Oghogho Akpata Chairman, Audit Committee Chief Sena Anthony Ammuna Lawan Ali Mr. K.B. Sarumi Mr. J. Onwughara Mr. P. Eyanuku

68

Oando PLC 2011 ANNUAL REPORT

-

Director Director Shareholder Shareholder Shareholder

Financial statement 31 December 2011

Statement of Directors Responsibilities 72 Report of the Independent Auditors 73 Balance Sheet 74 Profit and Loss Account 75 Statement of Cash Flows 76 Statement of Significant Accounting Policies 77 - 81 Notes to the Financial Statements 82 - 103 Statement of Value Added 104 Five-year Financial Summary 105 -106 Statement of Unclaimed / Returned Dividend Warrants 107

Statement of Directors' responsibilities 31 December 2011

i.

responsibilities in respect of the financial statements

The Companies and Allied Matters Act requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of financial affairs of the Company at the end of the year and of its profit or loss. The responsibilities include ensuring that the Company: (a) keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company and comply with the requirements of the Companies and Allied Matters Act; (b) establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and (c) prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates, and are consistently applied. The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with the Nigerian Accounting Standards and the requirements of the Companies and Allied Matters Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of its profit. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal controls over financial reporting. Nothing has come to the attention of the directors to indicate that the Company will not remain a going concern for at least twelve months from the date of this Statement.

72

Oando PLC 2011 ANNUAL REPORT

ii. responsibilities in respect of Corporate Governance "The Company is committed to the principles and implementation of good corporate governance. The Company recognises the valuable contribution that it makes to long-term business prosperity and to ensuring accountability to its shareholders. The Company is managed in a way that maximises long term shareholder value and takes into account the interests of all of its stakeholders.

iv. The Audit Committee

"The Audit Committee (the ""Committee"") is made up of six members - three directors (all of whom are non-executive) and three shareholders. The Committee members meet at least thrice a year." The Committee's duties include keeping under review the scope and results of the external audit, as well as the independence and objectivity of the auditors. The Committee also keeps under review the risk and controls over financial reporting, compliance with laws and regulations and the safeguarding of assets. In addition, the Committee reviews the adequacy the Internal Audit plan and implementation status of internal audit recommendations.

The Company believes that full disclosure and transparency in its operations are in the interests of good governance. As indicated in the statement of responsibilities of directors and notes to the accounts the business adopts standard accounting practices and ensures sound internal controls to facilitate the reliability of the financial statements."

v. Systems of Internal Control

"The Board is responsible for setting the Company's strategic direction, for leading and controlling the Company and for monitoring activities of the executive management. The Board presents a balanced and understandable assessment of the Company's progress and prospects.

vi. Code of Business Ethics

iii. The Board of Directors

The Board consists of the Chairman, six non-executive directors and four executive directors. The non-executive directors have experience and knowledge of the industry, markets, financial and/or other business information to make a valuable contribution to the Company's progress. The Managing Director is a separate individual from the Chairman and he implements the management strategies and policies adopted by the Board. They meet at least four times a year."

Oando PLC has well-established internal control system for identifying, managing and monitoring risks. The Risk and Controls Management and Internal Audit functions have reporting responsibilities to the Audit Committee. Both functions have appropriately trained personnels and undergo trainings on current business and best practices issues.

Management has communicated the principles in the Company’s Code of Business Conduct and Ethics to its employees in the discharge of their duties. This Code sets the professionalism and integrity required for business operations which covers compliance with laws, conflicts of interest, environmental issues, reliability of financial reporting, bribery and strict adherence to the principles so as to eliminate the potential for illegal practices.

Director 17 May 2012

Director 17 May 2012

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF OANDO PLC Report on the financial statements We have audited the accompanying separate and consolidated financial statements of Oando plc (the company) and its subsidiaries (together “the group”) which comprise the balance sheets as of 31 December 2011 and the profit and loss accounts and statements of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors’ responsibility for the financial statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with Nigerian Statements of Accounting Standards and with the requirements of the Companies and Allied Matters Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an independent opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the state of the financial affairs of the company and the group at 31 December 2011 and of their profits and cash flows for the year then ended in accordance with Nigerian Statements of Accounting Standards and requirements of the Companies and Allied Matters Act. Report on other legal requirements The Companies and Allied Matters Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: i)

we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) in our opinion proper books of account have been kept by the company, so far as appears from our examination of those books; iii) the company’s balance sheet and profit and loss account are in agreement with the books of account.

Chartered Accountants Lagos, Nigeria

PricewaterhouseCoopers Chartered Accountants, 252E Muri Okunola Street, Victoria Island, Lagos, Nigeria

Balance Sheet

As of 31 December 2011

Non-current assets Property, plant and equipment Intangible assets Long-term Investments Deferred tax asset Long term receivables Current assets Inventories Debtors and prepayments Short-term investments Deferred tax asset Bank and cash balances Current liabilities Creditors and accruals Dividend payable Deferred tax liability Current income tax liabilities Convertible debt Borrowings

NOTE

Net Assets Capital and reserves attributable to equity holders Share capital Share premium account Revaluation reserve Retained earnings Minority interest Total Equity

31-Dec-11 Group Company

31-Dec-10 Group Company

4 5 6 13 7

175,455,217 23,667,715 1,000 5,553,035 34,426,127 239,103,094

14,086,046 149,333 41,517,455 319,676 2,198,296 58,270,806

156,285,722 23,806,605 1,000 3,695,549 25,492,756 209,281,632

10,581,664 298,667 41,340,432 166,895 1,854,462 54,242,120

8 9 9a 13

32,458,405 106,219,743 193,031 1,856,959 21,033,529 161,761,667

58,781,295 193,031 73,518 2,517,681 61,565,525

22,386,418 80,167,578 12,187,072 114,741,068

4,361 457,692,118 815,762 458,512,240

10

74,017,829 651,358 3,970,742 6,904,218 2,500,000 119,993,236 208,037,383

3,929,517 651,358 63,094 931,754 6,164,285 11,740,008

60,467,691 651,358 208,829 5,521,737 71,020,640 137,870,255

395,267,049 651,358 13,755 1,064,907 6,067,078 403,064,147

(46,275,716)

49,825,517

(23,129,187)

55,448,094

85,591,771 1,088,241 9,610,331 4,109,253 100,399,597

51,225,000 97,516 1,216,030 52,538,546

76,348,834 1,188,784 12,417,400 3,147,893 93,102,911

51,000,000 192,425 476,893 51,669,318

92,427,781

55,557,777

93,049,534

58,020,896

1,137,058 49,521,186 18,054,794 22,548,472 91,261,510 1,166,271 92,427,781

1,137,058 49,521,186 1,013,047 3,886,486 55,557,777 55,557,777

905,084 49,042,111 18,054,794 23,945,029 91,947,018 1,102,516 93,049,534

905,084 49,042,111 1,013,047 7,060,654 58,020,896 58,020,896

13 26 34 11

Net current (liabilities)/assets Non-current liabilities Borrowings Other non-current liabilities Deferred tax liability Provision for other liabilities & charges

N’000

11 12 13 14

15 16 17 18 19

The financial statements on pages 74 to 106 were approved by the Board of Directors on 8 May 2012 and signed on its behalf by:

DIrECTOrS: _________________________________________

_________________________________________

The accounting policies and notes on Pages 77 to 103 form an integral part of these financial statements.s.

74

Oando PLC 2011 ANNUAL REPORT

Profit and Loss Account

For the period ended 31 December 2011

NOTE Turnover Cost of sales Gross profit Selling and marketing costs Administrative expenses Interest received Other operating income Operating profit Interest and similar charges Profit before exceptional items and taxation Exceptional items Profit before taxation Taxation Profit after taxation Attributable to: Equity holders of the company Minority interests

Earnings per share for profit attributable to equity holders of the Company during the year: Basic earnings per share (kobo) Diluted earnings per share (kobo)

20

31-Dec-11 Group Company 586,619,034 (518,178,147) 68,440,887 (7,901,252) (42,150,326) 2,533,121 12,456,510 33,378,940 (8,825,689) 24,553,251 (9,624,853) 14,928,398 (11,481,755) 3,446,643

8,122,502 8,122,502 (4,305,088) 2,877,014 1,240,803 7,935,231 (1,058,746) 6,876,485 (4,374,853) 2,501,632 (19,020) 2,482,612

16

3,666,730 (220,087) 3,446,643

27 27

162 161

21 22 23 24 24(a) 25 26

N’000

31-Dec-10 Group Company 378,925,430 (324,797,391) 54,128,039 (7,220,296) (22,484,703) 1,468,674 4,174,589 30,066,303 (5,747,458) 24,318,845

4,352,005 4,352,005 (1,882,531) 3,692,764 322,420 6,484,658 (806,108) 5,678,550

24,318,845 (9,943,879) 14,374,966

5,678,550 (275,826) 5,402,724

2,482,612 2,482,612

14,379,066 (4,100) 14,374,966

5,402,724 5,402,724

109 109

829 -

311 -

-

The accounting policies and notes on Pages 77 to 103 form an integral part of these financial statements.

75

Oando PLC 2011 ANNUAL REPORT

Statement of Cash Flows

For the period ended 31 December 2011

Cash flows from operating activities Net cash flow from operating activities before changes in working capital Net decrease/(increase) in working capital Income tax paid Net cash from/(used in) operating activities Cash flows from investing activities Purchase of property plant and equipment Investment in subsidiaries Short-term investments Payments relating to pipeline construction Pipeline construction costs recovery Proceeds from sale of property plant and equipment Interest received Cash used in by investing activities Cash flows from financing activities Proceeds from long term loans Repayment of long term loans Proceed from import finance facilities Share issue expenses Repayment of finance lease Proceeds from other short term loans Repayment of other short term loans Increase/(decrease) in bank overdrafts Dividend paid Issue of shares Interest paid Net cash from/(used in) financing activities Net change in cash and cash equivalents Cash and cash equivalent at the beginning of the year Cash and cash equivalents at end of the year Cash at year end is analysed as follows: Cash at bank and in hand Fixed deposits

NOTE 29 27

9a 7 7

24

31-Dec-11 Group Company

Oando PLC 2011 ANNUAL REPORT

31-Dec-10 Group Company

33,255,642 (24,445,170) (12,882,172) (2,071,700)

2,450,771 8,336,553 (424,041) 10,363,283

37,728,245 (19,303,810) (7,806,099) 10,830,484

3,039,993 (9,856,725) (156,082) (6,972,814)

(27,161,298) (193,031) (9,910,080) 1,866,525 105,655 2,533,121 (32,759,108)

(5,047,853) (177,023) (193,031) 46,576 2,877,014 (2,494,317)

(18,745,614) (8,615,464) 3,753,789 318,655 1,468,674 (21,819,960)

(1,104,311) (1,868,752) 267,868 3,692,764 987,569

36,691,445 (19,434,052) 10,533,274 (52,938) 62,071,494 (33,718,041) 1,740,220 (5,430,508) (8,723,631) 43,677,263

4,500,000 (4,275,000) 17,291,000 (17,334,426) 140,633 (5,430,508) (1,058,746) (6,167,047)

74,748,659 (15,715,642) 9,142,843 (1,660,865) (111,429) 16,486,606 (93,947,807) (4,878,560) (2,114,019) 21,118,641 (5,652,290) (2,583,863)

60,000,000 (3,000,000) (1,660,865) 3,200,868 (83,042,271) (355,159) (2,114,017) 21,118,641 (806,108) (6,658,911)

8,846,457 12,187,072 21,033,529

1,701,919 815,762 2,517,681

(13,573,339) 25,760,411 12,187,072

(12,644,156) 13,459,918 815,762

18,158,733 2,874,796 21,033,529

1,110,800 1,406,881 2,517,681

9,209,746 2,977,326 12,187,072

355,517 460,245 815,762

The accounting policies and notes on Pages 77 to 103 form an integral part of these financial statements.

76

N’000

Statement of Significant Accounting Policies 31 December 2011

1.

General information

Oando Plc (formerly Unipetrol Nigeria Plc) was registered by a special resolution as a result of the acquisition of the shareholding of Esso Africa Incorporated (principal shareholder of Esso Standard Nigeria Limited) by the Federal Government of Nigeria. It was partially privatised in 1991 and fully privatised in the year 2000 following the disposal of the 40% shareholding of Federal Government of Nigeria to Ocean and Oil Investments Limited and the Nigerian public. In December 2002, the Company merged with Agip Nigeria Plc following its acquisition of 60% of Agip Petroli’s stake in Agip Nigeria Plc. The Company formally changed its name from Unipetrol Nigeria Plc to Oando Plc in December 2003. Oando Plc (the ""Company”) is listed on the Nigerian Stock Exchange. The Company has a subsidiary called Oando Marketing Limited with retail and distribution outlets in Nigeria, Ghana and Togo and other smaller markets along the West African coast. In 2010, Oando Marketing Limited, a subsidiary of Oando Plc, changed its name to Oando Marketing Plc in preparation for a divestment that is planned for 2011. As of 31 December 2011, Oando Plc retained 100% interest in Oando Marketing Plc, Oando Trading (Bermuda) and Oando Supply and Trading (Nigeria). These entities mainly supply petroleum products to marketing companies and large industrial customers. The Group provides energy services to Exploration and Production (E&P) companies through its fully owned subsidiary, Oando Energy Services. The Group also operates in the E&P sector through Oando Exploration and Production Limited (100%), Oando Production and Development Company Limited (95%), Oando OML 125 & 134 Limited, Equator Exploration Limited (81.5%) and Oando Akepo Limited (100%). Other subsidiaries within the Group and their respective lines of business including Gas and Power, are shown in note 36.

2. 2.1

Statement of significant accounting policies Basis of preparation

The financial statements are prepared in compliance with the Statements of Accounting Standards (SAS). The financial statements are presented in the functional currency, Nigeria Naira (N), rounded to the nearest thousand, and prepared under the historical cost convention as modified by the revaluation of certain property, plant and equipment. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors’ best knowledge of current events and actions, actual results ultimately may differ from those estimates.

2.2 (a)

liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, after reassessment by the Group, the difference is recognised immediately in the profit and loss account any excess remaining after that reassessment.

Consolidation

Subsidiaries Subsidiaries include all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of the acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable assets acquired and

(b)

All balances and unrealised surpluses and deficits on transactions between Group companies are eliminated. Where necessary, accounting policies for subsidiaries are changed to ensure consistency with the policies adopted by the Company. Separate disclosure (in equity) is made of Minority Interests.

Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are 77

Oando PLC 2011 ANNUAL REPORT

Statement of Significant Accounting Policies 31 December 2011

(b) income statement items are translated at the closing rate; (c) the exchange differences resulting from translating the opening net investment in the foreign entity at an exchange rate different from that at which it was previously reported is taken to a retained earnings.

also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the associates are consistent with the policies adopted by the Group. All subsidiaries and associates have uniform accounting period. 2.3

2.4 (a)

(b)

Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

Foreign currency translation

Transactions and balances Transactions in foreign currencies during the year are converted into the functional currency, Nigeria Naira, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. The functional currency of the upstream companies is the US Dollars with effect from January 1, 2011. The US Dollars is the currency mainly influencing sales and significant portion of upstream costs. Group companies In accordance with the Statement of Accounting Standard (SAS 7), the financial statements of foreign entities, prior to consolidation, are translated into Naira using the Closing Rate Method as follows:

(a) assets and liabilities, both monetary and non-monetary are translated at the closing rate;

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Oando PLC 2011 ANNUAL REPORT

2.5

residual values over their estimated useful lives, as follows: Building Bulk Plants, Terminal and Equipment

Property, Plant and Equipment

All categories of property, plant and equipment are initially recorded at cost. Buildings and freehold land are subsequently shown at market value, based on triennial valuations by external independent valuers, less subsequent depreciation for buildings. All other property, plant and equipment are stated at historical cost less depreciation. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation of land and buildings are credited to revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against revaluation reserves; all other decreases are charged to the income statement. An asset’s carrying amount is written down immediately to its recoverable amount if it is greater than its estimated recoverable amount. Gains or losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. When revalued assets are sold, the related revaluation reserves are transferred to income statement. Depreciation Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts to their

%

2-5 5 - 121/2

Motor Vehicles

20 - 25

Other Assets and Equipment

5 - 331/3

The rigs are depreciated according to the estimated useful lives of their components. 2.6

Upstream activities

Exploratory drilling costs are included in property, plant and equipment pending determination of proved reserves. Following such determination, the capitalised costs are then amortised against the results of the successful finds on a ""unit-ofproduction"" basis. Capitalised costs are written off when it is determined that the well is dry. Costs incurred in the production of crude oil from the Company's properties are charged to the income statement of the period in which they are incurred. Tangible fixed assets related to oil and gas producing activities are depleted on a unit-of-production basis over the proved developed reserves of the field concerned except in the case of assets whose useful lives are shorter than the lifetime of the field, in which case the straight-line method is applied. Producible wells are not depleted until they form part of a producing field. Rights and concessions are depleted on the unit-of-production basis over the total proved reserves of the relevant area. Estimated site restoration and abandonment costs are based on current requirements, technology and price levels and are stated at fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the related tangible fixed assets. The fair value calculation of the liability is based on the economic life of the production assets and discounted using the Company's average cost of borrowing. The obligation is reflected under provisions in the balance sheet.

Statement of Significant Accounting Policies 31 December 2011

2.7 (a)

Intangible assets

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

2.8

2.9

In accordance with SAS 26, goodwill is tested for impairment annually, as well as when there are indications of impairment.

Computer software Acquired computer software licenses are capitalised on the basis of the costs to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Expenditure on internally-developed software is capitalised if it meets the criteria for capitalising development costs. Direct costs include the software development, employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding five years).

2.11

Trade receivables

2.12

Cash and cash equivalents

2.13

Borrowings

2.14

Taxation

Long-term receivable in respect of pipeline cost recovery is accounted for at cost, less provision for impairment. Provision for impairment of the longterm receivable is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable.

Goodwill is allocated to cashgenerating units for the purpose of impairment testing. Each of those cashgenerating units represents the Group’s investment in each country of operation by each primary reporting segment."

(b)

Long term receivable pipeline cost recovery

2.10

Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Inventories

Inventories are stated at lower of cost and net realisable value. Cost includes expenditure incurred in acquiring and transporting the inventory to its present location. Cost is determined using the weighted average method for finished goods and work-in-progress, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Crude oil and gas inventories are stated at cost. Cost of production comprises field operating expenses and directly related expenditure.

Trade receivables are stated after provisions have been made for debts considered doubtful of recovery. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is recognised in the income statement.

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Borrowing costs are recognised as an expense in the period in which they are incurred, except when they are directly attributable to the acquisition, construction or production of a qualifying asset.

Current income taxes are provided for in the financial statements in accordance with relevant taxation Acts in the country of operation. Deferred income taxes are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if a deferred income tax arises from initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, such a deferred income tax is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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Oando PLC 2011 ANNUAL REPORT

Statement of Significant Accounting Policies 31 December 2011

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is not provided on temporary differences arising on investments in subsidiaries and associates, as the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Where this ceases to be the case, deferred income tax will be provided for. 2.15

Employee benefits

The Group operates a defined contribution pension plan in line with the provisions of the Pension Reform Act, under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Group and employees. The Group’s contributions to the defined contribution schemes are charged to the profit and loss account in the year to which they relate. In addition, the Group operates a defined benefit service gratuity plan. Under the plan, an employee will receive gratuity on retirement, usually dependent on one or more factors such as years of service and compensation. The past service liability, actuarial gain or loss are determined by an Actuary using the Accrued benefit cost method. Actuarial gains or losses are recognised in the profit and loss account in the year to which they relate. The Group meets past service obligations from funds set aside and invested.

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Oando PLC 2011 ANNUAL REPORT

2.16

Provisions

In accordance with SAS 23, provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by consideration of the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

2.17

Share capital

2.18

revenue recognition

Revenue comprises the fair value of the sale of goods and services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. Discounts are usually negotiated with commercial customers and are sometimes given on a transaction basis or fixed per customer, subject to subsequent reviews.

(a)

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money. Decommissioning liabilities Provision is recognised for the decommissioning liabilities for underground tanks. Based on management's estimation of the future cash flows required for the decommissioning of those assets, a provision is recognised and the corresponding amount added to the cost of the asset under property plant and equipment. The present values are determined using the Company’s average cost of borrowing. Subsequent depreciation charges of the asset are accounted for in accordance with the Group’s depreciation policy and the accretion of discount (i.e. the increase during the period in the discounted amount of provision arising from the passage of time) included in finance costs.

Ordinary shares are classified as equity. Incidental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(b)

(c)

(d)

revenue is recognised as follows:

Sale of petroleum products and gas Revenue from sale of petroleum products and gas is recognised when a Group entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. Revenue from the sale of crude oil is the realised value of crude oil lifted by customers. Revenue is recognised when crude products are lifted by buyers free on board. At the point of lifting, risks and rewards are transferred to the buyer. Sale of services Revenue from sale of services, such as freight and through-put charges, is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Dividend income Dividend income is recognised when the right to receive payment is established.

Interest income Interest income is recognised on a time proportion basis using the contracted interest rate.

Statement of Significant Accounting Policies 31 December 2011

2.19

Leases

Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Finance leases Leases in which ownership, risks and rewards are transferred to the lessee, who is obligated to pay such costs as insurance, maintenance and similar charges on the asset are classified as finance leases. Assets under finance lease are capitalised and depreciated over their estimated useful lives in line with the Group's policy for assets of the same class. Finance charges are allocated over the lease term.

2.20

Dividend distribution

2.21

Long-term investments

Dividend distribution to the Company's shareholders is recognised as a liability in the consolidated financial statements in the period in which the dividends are approved by the shareholders.

Investment in quoted and unquoted securities are stated net of provision for permanent diminution in carrying amounts. A permanent diminution is deemed to have occurred when the market values of the quoted securities and management's assessments of unquoted investments are significantly below the carrying amounts over a period of six months . The amount of provision is recognised in the income statement.

2.22

Short term investments

Short term investments are valued at the lower of cost and market values. The carrying amount is determine on an item by item basis. The amount by which costs exceed market value (unrealised loss) is charged to the income statement to the statement for the period. Realised gains and losses on disposak of short term invetment are taken to the income statement for the period of disposal

(v)

(vi)

. Upon partial sale of a particular investment, the carrying amount of part sold is calculated on the basis of the average carrying amount of the total portfolio. 3

3.1

(i)

(ii) (iii)

(iv)

Segment information

Primary reporting format business segments

(vii)

Gas and power The Group through the activities of its subsidiaries, Gaslink and East Horizon Gas Company, is involved in the distribution of natural gas. The Group also provides power to industrial customers through Akute Power Limited and Oando Gas and Power.

Energy services his segment involves the provision of services such as drilling and completion fluids and solid control waste management; oil-well cementing and other services to upstream companies. Corporate & Other These include Company activities that cannot be directly allocated to any of the above segments.

The Group is broadly organised on a worldwide basis into seven main segments as follows:

Exploration and production of oil and gas (E&P) This segment involves the exploration for and production of oil and gas through the acquisition of rights in oil blocks on the Nigerian continental shelf and deep offshore. Marketing of petroleum products This segment involves marketing and sale of petroleum products.

Supply and trading This involves bulk purchase of petroleum products and sales to industrial and commercial customers and petroleum products' importation on behalf of Government.

refining and terminals The Group has three principal projects: construction of 210,000 MT import terminal in Lekki; construction of LPG storage facility at Apapa Terminal; and construction of a marina jetty and subsea pipeline at the Lagos Port.

81

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

3.1 Primary reporting format - business segments (continued)

N’000

The segment assets and liabilities and capital expenditure for the year then ended are as follows:

Total gross segment sales Inter-segment sales Sales Depreciation Amortisation Operating profit/(loss) after exceptional items Finance cost Profit before tax Income tax expense Profit for the year

Exploration & Production 26,880,886 26,880,886

Marketing

199,846,726 (364,785) 199,481,941

Supply & Trading 632,698,954 (306,637,190) 326,061,764

Refining & & Terminals -

Gas & power 20,228,431 (611,799) 19,616,633

Energy Services 14,383,398 14,383,398

5,770,288 12,253,562

1,897,366 6,232,031

23,014 7,697 3,543,702

-

48,382 5,868,545

2,046,581 4,139,428

1,508,395 149,333 (8,283,182)

11,294,026 157,030 23,754,086

(5,100,749)

(553,838)

(286,687)

-

(870,573)

(4,362,599)

2,348,757

(8,825,689) 14,928,397 (11,481,755) 3,446,642

Refining & & Terminals -

Gas & power 16,733,982 16,733,982

Energy Services 14,193,375 14,193,375

Corporate & Other -

Group 405,796,448 (26,871,018) 378,925,430

0 0 (2,614) 0

341,749 0 4,814,680 (606,471)

1,956,882 0 4,927,666 (3,169,124)

326,858 149,333 (1,309,236) (675,311)

6,690,009 162,600 30,066,303 (5,747,458)

The segment results for the year ended 31 December, 2010 are as follows:

Total gross segment sales Inter-segment sales Sales Depreciation Amortisation Operating (loss)/profit Finance cost Profit before income tax Income tax expense Profit for the year

Exploration & Production 19,494,444 19,494,444

Marketing

171,016,862 171,016,862

Supply & Trading 184,357,785 (26,871,018) 157,486,767

2,517,998 0 9,761,255 (85,661)

1,509,113 0 6,686,981 (1,022,751)

37,409 13,267 5,187,571 (188,141)

Corporate Group & Other 194,413 894,232,808 - (307,613,774) 194,413 586,619,034

24,318,845 (9,943,879) 14,374,966

Inter-segment revenue represents sales between the Supply & Trading and Marketing segments. Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Profit on inter-segment sales have been eliminated on consolidation.

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Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

3.1 Primary reporting format - business segments (continued)

N’000

The segment assets and liabilities and capital expenditure for the year then ended are as follows:

Assets Liabilities Capital Expenditure*

Exploration & Production 120,850,598 26,878,013 11,958,164

Marketing

72,127,924 68,612,397 2,324,700

Supply & Trading 72,093,288 80,477,200 19,931

Refining & & Terminals 6,518,622 2,343,466 -

Gas & power 44,588,220 37,369,934 983,718

The segment assets and liabilities as of 31 December, 2010 and capital expenditure for the year then ended are as follows:

Assets Liabilities Capital Expenditure

Exploration & Production 104,344,385 18,771,162 12,148,155

Marketing

63,734,427 44,403,226 880,258

Supply & Trading 43,220,692 49,074,434 50,944

Refining & & Terminals 3,056,572 214,370

Gas & power 37,901,543 32,461,400 680,340

Energy Services 56,499,221 16,270,837 4,529,806

Corporate & Other 72,297,880 66,674,516 7,344,978

Energy Services 45,690,098 7,068,255 3,599,926

Corporate & Other 18,679,638 61,046,721 1,171,621

Group 444,975,753 298,626,365 27,161,297

Group 316,627,354 212,825,198 18,745,614

Segment assets consist primarily of property, plant and equipment, intangible assets, investments, inventories, receivables and operating cash. They exclude deferred taxation. Segment liabilities comprise operating liabilities. They exclude corporate and deferred taxation. *Capital expenditure comprises additions to property, plant and equipment

3.2 Secondary reporting format - geographical segments

The home country of the Company which, is also the main operating company, is Nigeria. The Group's sales are mainly in Nigeria and other countries within and outside the West African coast, namely, Ghana, Togo, and Liberia. 'Other countries' include Bermuda and the British Virgin Island. Segment information on a geographical basis for the period ended 31 December, 2011 are as follows: Sales Within Nigeria Other West African countries Other countries Total assets Within Nigeria Other West African countries Other countries Capital expenditure Within Nigeria Other West African countries Other countries

Exploration & Production

Marketing

Supply & Trading

Refining & & Terminals

Gas & power

Energy Services

Corporate & Other

Group

26,880,886 26,880,886

189,161,689 10,320,252 199,481,941

91,941,561 234,120,204 326,061,765

-

19,616,633 19,616,633

14,383,398 14,383,398

194,411 194,411

342,178,578 10,320,252 234,120,204 586,619,034

113,891,772 6,958,826 120,850,598

62,922,841 9,205,084 72,127,924

46,732,118 53,463 25,307,707 72,093,288

6,518,622 6,518,622

44,588,220 44,588,220

56,499,221 56,499,221

72,297,880 72,297,880

403,450,674 9,258,547 32,266,533 444,975,754

11,936,462 21,702 11,958,164

2,255,173 69,527 2,324,700

19,931 19,931

-

983,718 983,718

4,529,806 4,529,806

7,344,978 7,344,978

27,070,068 69,527 21,702 27,161,297

83

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

Property plant and equipment

Segment information on a geographical basis for the year ended and as at 31 December, 2010 are as follows: Sales Within Nigeria Other West African countries Other countries Total assets Within Nigeria Other West African countries Other countries Capital expenditure Within Nigeria Other West African countries Other countries

N’000

Exploration & Production

Marketing

Supply & Trading

Refining & Terminals

Gas & Power

Energy Services

Corporate & Other

Group

19,494,444 19,494,444

161,943,112 9,073,750 171,016,862

71,413,414 23,263 86,050,090 157,486,767

-

16,733,982 16,733,982

14,193,375 14,193,375

-

283,778,327 9,097,013 86,050,090 378,925,430

100,215,343 4,129,042 104,344,385

57,194,061 6,540,366 63,734,427

29,604,219 51,543 13,564,930 43,220,692

3,056,572 3,056,572

37,901,543 37,901,543

45,690,098 45,690,098

18,679,638 18,679,638

292,341,474 6,591,909 17,693,972 316,627,355

12,023,718 124,437 12,148,155

815,842 64,416 880,258

50,944 50,944

214,370 214,370

680,340 680,340

3,599,925 3,599,925

1,171,622 1,171,622

18,556,761 64,416 124,437 18,745,614

Sales are disclosed based on the country in which the customer is located. Total assets are allocated based on where the assets are located. Capital expenditure is allocated based on where the assets are located.

4.

Property plant and equipment

4.1 Group

Upstream assets*

Land and buildings

Plant and machinery

Motor vehicles

Fixtures, fittings, and equipment

Construction in progress

Total

83,595,185 5,849,780 89,444,965 11,889,743 (1,468,662) 3,744,711 103,610,757

23,048,299 23,048,299 (24,087) 217,924 (4,557) (27,584) 23,209,995

36,560,375 36,560,375 737,419 2,807,962 3,410 (118,169) (7,121) 39,983,876

2,024,274 2,024,274 403,752 (213,807) 4,279 2,218,498

3,546,128 3,546,128 (1,488) 1,311,434 (23,310) 30,838 4,863,602

21,211,744 21,211,744 (711,844) 10,530,481 (1,228,361) (372) 29,801,649

169,986,004 5,849,780 175,835,785 27,161,296 3,410 (359,843) (2,697,022) 3,744,751 203,688,377

Depreciation At 1 January 2011 Prior year adjustment (Note 18) Restated Transfer/reclassification Charge for the year Disposals Exchange difference At 31 December 2011

10,678,567 2,077,446 12,756,013 3,726,563 540,193 17,022,769

203,928 203,928 576,552 (4,431) (2,736) 773,313

2,989,633 2,989,633 3,400,227 (115,934) (7,247) 6,266,679

1,280,500 1,280,500 388,758 (160,871) 214 1,508,600

2,319,988 2,319,988 364,816 (21,644) (1,362) 2,661,799

-

17,472,617 2,077,446 19,550,063 8,456,916 (302,880) 529,061 28,233,160

Net book value At 31 December 2011 At 31 December 2010

86,587,988 76,688,952

22,436,682 22,844,371

33,717,197 33,570,742

709,898 743,774

2,201,805 1,226,139

29,801,649 21,211,744

175,455,217 156,285,722

Cost/Valuation At 1 January 2011 Prior year adjustment (Note 13) Restated Transfer/reclassification Additions Decommissioning assets additions Disposals Impairment (Note 37.2) Exchange difference At 31 December 2011

Depreciation, depletion and amortisation of upstream assets for the year is included in cost of sales * Detail of Upstream Assets is shown in Note 37.1.

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Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

4.2 Company

N’000

Upstream Assets*

Land and buildings

Plant and machinery

Motor vehicles

Fixtures, fittings, and equipment

Construction in progress

-

1,687,552 (21,604) 1,665,948

117,481 117,481

665,787 142,704 (70,390) 738,101

866,926 190,440 (5,880) 1,051,486

8,298,486 (358,119) 4,714,709 (854,152) 11,800,924

11,636,232 (358,119) 5,047,853 (76,270) (875,756) 15,373,940

Depreciation At 1 January 2011 On transfer/reclassification Charge for the year Disposals At 31 December 2011

-

20,077 20,077

26,952 13,161 40,113

396,365 146,514 (39,818) 503,061

631,251 99,271 (5,879) 724,643

-

1,054,568 279,024 (45,697) 1,287,894

Net book value At 31 December 2011 At 31 December 2010

-

1,645,871 1,687,552

77,368 90,529

235,040 269,422

326,843 235,675

11,800,924 8,298,486

14,086,046 10,581,664

Cost/Valuation At 1 January 2011 Transfer/reclassification Additions Disposals Impairment* At 31 December 2011

Total

Depreciation for the property, plant and equipment have been included in administrative expenses during the year. *Management performed assessment of future economic benefit of one of the rigs, OES Professionalism, and decided to impair the rig on the basis that the cost of refurbishment is higher than the realisable economic benefit.

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Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

5. Intangible assets Goodwill (note 5.1) Software costs (note 5.2)

5.1 Goodwill Movement in goodwill is analysed as follows: At 1 January Additions At 31 December

31-Dec-11 Group Company 23,484,623 183,092 23,667,715

149,333 149,333

31-Dec-11 Group Company 23,484,623 23,484,623

-

N’000

31-Dec-10 Group Company 23,484,623 321,982 23,806,605

298,667 298,667

31-Dec-10 Group Company 23,483,905 718 23,484,623

-

In accordance with the Group's accounting policy, goodwill is not amortised but individually tested annually for impairment. Impairment testing of goodwill Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to the business segments. Impairment tests were conducted as at the balance sheet date based on value in use calculations. The calculations used cash flows projections based on financial forecasts covering a five year-period. The discount rate used is the pre-tax interest rate that reflects the current market assessment of the risks specific to the business segment. Based on the impairment test, the carrying amount of goodwill is not higher that the recoverable value. Accordingly, no impairment loss has been recognised.

5.2 Software costs

In accordance with the Group's accounting policy, deferred software costs are amortised over 5years. Current year charge of N157.0 million (2010: N162.6million) is included in other administrative expenses.

6. Long term investments Quoted shares At 1 January Additions Provision for dimunition in value Balance, at end of year Unquoted shares At 1 January Additions Balance, at end of year Total investments

86

Oando PLC 2011 ANNUAL REPORT

31-Dec-11 Group Company

31-Dec-10 Group Company

10,000 9,000) 1,000

10,000 (9,000) 1,000

10,000 (9,000) 1,000

10,000 (9,000) 1,000

-

41,339,432 177,023 41,516,455

-

39,470,680 1,868,752 41,339,432

1,000

41,517,455

1,000

41,340,432

Notes to the Financial Statements 31 December 2011

6.1 Analysis of the company's unquoted investment

31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

Akute Power Limited Apapa SPM Limited East Horizon Gas Co. Ltd. Gaslink Nigeria Limited Oando Energy Services Limited Oando Exploration and Production Limited Oando Gas and Power Limited Oando Lekki Refinery Limited Oando Marketing Limited Oando Petroleum and Development Company Limited Oando Port Harcourt refinery Limited Oando Properties Limited Oando Searex VI Limited Oando Searex XII Limited Oando Supply and Trading Limited Oando Trading Limited Bermuda OML 112 & 117 Limited OML 125 & 134 BVI Limited OML 125 & 134 Limited UNITAB Nigeria Limited OandoAkepo Limited Oando Terminal and Logistics Equator Exploration Limited Oando Liberia OES Passion Limited OES Professionalism Limited Central Horizon Gas Company Limited Ajah Distribution Limited Alausa Power Limited Gasgrid Nigeria Ltd Oando Resources Ltd Oando Petroleum Development Limited Investment in oando Logistics Investment in 0901887 BC Ltd

-

2,500 19,125 10,000 6,950,847 550,497 3,896,152 1,000 2,500 15,573,051 3,315,774 2,500 250 763,344 2,894,333 6,538 2,500 2,500 7,479,839 6,538 1,752 10,000 5,100 2,500 2,500 2,500 2,500 2,500 -

-

2,500 19,125 10,000 6,933,125 550,497 3,896,152 1,000 2,500 15,573,051 3,315,774 2,500 250 763,344 2,894,333 6,538 2,500 2,500 7,347,953 6,538 1,752 10,000 -

Lekki Gardens Power Ltd Oando Wings Limited Oando Netherland Holdings 1 Cooperahif U.A Oando Exploration Equator Holdings Ltd OandoServco Nig Ltd

-

2,500 3,000 1,816 2,500 41,518,956 (2,500) 41,516,456

-

41,341,932 (2,500) 41,339,432

-

2,500

-

2,500

Provision for diminution in value

Provision for diminution in value is analysed as follows: Oando Port Harcourt Refinery Limited

7.

Long term receivable

Long term prepayment Pipeline Cost Recovery Account

31-Dec-11 Group Company 3,455,355 30,970,772 34,426,127

2,198,296 2,198,296

N’000

31-Dec-10 Group Company 2,565,539 22,927,217 25,492,756

1,854,462 1,854,462

87

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

7. Long term receivable (continued) Pipeline Cost Recovery Account (PCRA) represents accumulated costs incurred in respect of the design, funding and construction of the pipeline infrastructure on behalf of the Nigerian Gas Company by Gaslink and East Horizon Gas Company, which are recoverable from gas sales over the duration of the Natural Gas Sale and Purchase Agreement. The PCRA includes land and building construction costs, plant and equipment costs, work-in-progress, pipeline construction costs, project vehicle costs, interest on borrowings, bank charges and fees, pipeline insurance cost, project management and other charges relevant to the pipeline construction such as legal and professional fees. This is stated at cost less amounts recovered from gas purchases.

N’000

Movement in the PCRA is analysed as follows: 31-Dec-11 Group Company At 1 January Additions during the year Capital recovered during the year At 31 December

31-Dec-10 Group Company

22,927,217 9,910,080 (1,866,525) 30,970,772

-

18,065,542 8,615,464 (3,753,789) 22,927,217

-

28,169,966 2,496,153 1,385,766 64,602 766,537 32,883,024 (424,619)

-

18,371,623 1,089,582 599,251 1,931,583 876,396 22,868,435 (482,017)

9,842 9,842 (5,481)

32,458,405

-

22,386,418

4,361

Trade debtors Bridging claims receivable Petroleum Support Fund Deposit for import Other debtors Amounts due from related companies Prepayments As previously stated

43,322,121 10,094,924 20,489,887 1,922,347 19,299,571 16,327,849 111,456,699

3,930,791 54,106,669 762,996 58,800,456

43,791,730 7,044,442 7,269,504 9,084,041 11,150,737 4,309,785 82,650,239

5,460,502 451,644,388 606,388 457,711,278

Revaluation reserve written off against prepayments

111,456,699 (5,236,956) 106,219,743

58,800,456 (19,160) 58,781,295

(72,540) 82,577,699 (2,410,121) 80,167,578

457,711,278 (19,160) 457,692,118

8. Inventories

Finished products Raw materials Materials inventory Products-in-transit Spares and other consumables Consumable materials and engineering stocks Provision for slow moving and obsolete stocks

9. Debtors and prepayments

Provision for doubtful trade and other receivables

Included in Other debtors is a deposit of N2.4billion towards the acquisition of an aircraft for air surveillance over the company's newly constructed pipeline. In accordance with the purchase agreement with the seller, Churchill Finance C300-0462 Limited, a related party, legal and beneficial ownership of the aircraft shall pass to East Horizon Gas Company upon full and final payment of the purchase price of US$22million (N3.4billion).

88

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

9a. Short-term investment

N’000

31-Dec-11 Group Company

At the beginning of the year Adidition At the end of the year

31-Dec-10 Group Company

193,031 193,031

193,031 193,031

-

-

28,371,214 28,386,778 15,349,082 1,910,755 74,017,829

2,502,493 1,427,024 3,929,517

25,786,570 20,636,033 8,121,989 5,923,099 60,467,691

1,911,755 939,636 392,415,658 395,267,049

The Company invested in marketable securities during the year.

10. Creditors and accruals

Trade creditors Other creditors Accruals Amounts due to other related companies Deferred income (Note 10a)

10a. Deferred income

Included in deferred income is N1.9billion (2010: N4.3billion) that relate to billing for make-up (unutilised) gas invoiced to customers in line with the terms of the agreement.

11. Borrowings

Current Bank overdrafts Import finance facilities Finance lease obligation Other short term loans Current portion of long term loans Non-current Syndicated/other project loans

11a. Current borrowings are analysed as follows:

25,361,628 39,670,265 36,692,377 18,268,966 119,993,236

164,285 6,000,000 6,164,285

23,621,408 29,136,991 52,938 8,328,324 9,880,979 71,020,640

23,652 43,426 6,000,000 6,067,078

85,591,771

51,225,000

76,348,834

51,000,000

Loan type/Purpose

Tenor/Interest rate

Security

Drawdown/ Balance

Import finance facility to finance the purchase of petroleum products for resale

3 - 90 days Libor + 1.75 - 4%

Sales proceeds of products financed under the facility

39,670,265

Commercial papers to finance product allocation from PPMC and importation of petroleum products

3 - 90 days Libor + 1.75 - 4%

Stock Hypotecation, cash and cheque collection from product sales

36,692,376

Overdraft

3 - 365 days 12,5- 15.5%

Corporate guarantee/ Security trust deed

25,361,628

Current portion of non-current loans

101,724,269 18,268,967 119,993,236

89

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

11c. Non current borrowings are analysed as follows

N’000

Loan type Term Loan

Purpose Finance CNG project

Tenor/Interest rate 14.5%/5 Years

Security Corporate guarantee of Oando PLC and CNG Plant

Drawdown/ Balance 607,327

Term Loan

Pipelines for customers' connection to gas facilities

15.25%/ renewable annually

Lien on deposit

1,400,000

Term Loan

To finance OML 90 Activites

6.53%

Derivative barrels of oil

4,849,990

Medium Term Loan

Financing Apapa SPM Project

8.5%/5 Years

Fixed and floating charge on assets of Oando PLC

2,343,000

Term Loan

Project Finance

15%/3 Years

Corporate guarantee of Oando Plc and domiciliation of proceeds of sale of gas

2,625,000

Medium Term Loan

Upgrade of Passion rig

8%/3 Years

Negative pledge of Oando Energy Services

3,203,998

Project Finance

Akute IPP

7%/4 Years

Corporate guarantee of Oando Plc

2,947,927

Medium Term Loan

Upgrade of Respect rig

8%/3 Years

Domiciliation of rig contract proceeds, surbodinated corporate guarantee of Oando PLC

3,514,500

Syndicated gas project facility

UNICEM gas pipeline construction

NIBOR +3.5%/7 Years

Corporate guarantee of Oando Plc

16,240,596

Long term Loan

To finance OML 125&134 Activities

5years/LIBOR+6%

Domiciliation of revenue account

8,903,400

Medium Term Loan

Restructuring of Short -Long term Debt

Mortgage on assets of Oando Plc and some subsidiaries

57,225,000

Sub total Current portion of long term loans

12. Other non-current liabilities Customers' security deposits

103,860,738 (18,268,967) 85,591,771

31-Dec-11 Group Company 1,088,241

-

N’000

31-Dec-10 Group Company 1,188,784

-

Customer security deposits represent amounts deposited by dealers in respect of product supply, use of Oando Marketing PLC's equipment and retailing outlets. The deposits do not attract any interest and are refundable to the dealers less any amounts owed at the expiration of the dealership agreement.

90

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

13. Defered taxation

31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

Deferred taxation - non-current asset At 1 January Provision during the year (Note 26) Reclassification Net under/(over) provision for taxes Exchange difference At 31 December

3,695,549 1,725,426 132,060 5,553,035

166,895 152,781 319,676

2,161,298 1,106,538 404,080 23,633 3,695,549

244,050 118,612 (195,767) 166,895

Deferred taxation - current asset At 1 January Provision/(writeback) during the year (Note 26) Reclassification Net under/(over) provision for taxes Exchange difference As previously stated Reversal to fixed assets (Note 4.1) At 31 December

1,385,816 186,577 284,566 1,856,959 1,856,959

73,518 73,518 73,518

6,922,654 (1,095,834) (4,098) (11,805) 38,863 5,849,780 (5,849,780) -

-

Deferred taxation - current liability At 1 January Provision during the year (Note 26) Reclassification At 31 December

208,829 3,575,336 186,577 3,970,742

13,755 49,339 63,094

923,737 (834,499) 119,591 208,829

217,691 (203,936) 13,755

12,417,400 (3,231,467) 424,397 9,610,330

192,425 (94,909) 97,516

311,885 (36,254) (195,767) 112,561 192,425

9,610,330

97,516

11,928,511 775,192 (197,218) 1,049,926 (1,188,850) 57,093 12,424,654 (7,254) 12,417,400

Deferred taxation - non-current liability At 1 January Provision/(write back) during the year (Note 26) Reclassification Revaluation surplus (Note 17) Net under/(over) provision for taxes Exchange difference As previously stated Reversal of deferred tax on revaluation surplus At 31 December

192,425

Deferred tax liability is as a result of accelerated capital allowances on existing property, plant and equipment. Deferred tax asset is as a result of unrelieved tax losses, unrealised exchange losses and accelerated capital allowances.

14. Provision for other liabilities & charges

Tank decommissioning/abandonment provision (Note 14.1) Provision for gratuity (Note 14.2)

1,486,695 2,622,558 4,109,253

1,216,030 1,216,030

1,841,431 1,306,462 3,147,893

476,893 476,893

91

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

14.1 Tank decommissioning/abandonment provision Balance, beginning of year Additions/Valuation change Accretion discount Exchange difference Balance, end of year

31-Dec-11 Group Company 1,841,431 (516,554) 102,058 59,760 1,486,695

-

N’000

31-Dec-10 Group Company 1,594,613 95,168 144,869 6,782 1,841,431

-

In accordance with the Group accounting policy a provision is recognised in respect of underground tanks decommissioning obligation and upstream, at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. A corresponding amount is included under plant and machinery, and depreciated in accordance with the policy.

14.2 Provision for gratuity

Balance, beginning of year Provision for the year (Note 30b) Payment during the year Balance, end of year

1,306,461 1,600,365 (284,268) 2,622,558

476,893 787,181 (48,044) 1,216,030

837,624 610,311 (141,474) 1,306,461

127,591 377,148 (27,846) 476,893

The Group operates a gratuity scheme (the Scheme) for qualified staff. With effect from 1 January 2012, the Group discontinued the Scheme for management staff and increased employers contribution in respect of their existing contribution plan under the 2004 Pension Act. Alexander Forbes Consulting Actuaries Nigeria Limited (Alexander Forbes) was engaged to perform to determine the liability from the curtailed scheme, which was estimated at N2.1 billion. The Group intends to pay the money to a fund manager who will manage the funds on behalf of management staff. In addition, Alexander Forbes performed an actuarial valuation of the past service liability for the employees using the Accrued benefit cost method, and determined the liability as N0.5billion. Payments for gratuity described above were met from funds set aside and invested,

15. Share capital

Authorised: 6,000,000,000 Ordinary shares of 50k each

3,000,000

3,000,000

3,000,000

3,000,000

Issued and fully paid: At beginning of the year 1,810,169,256 Ordinary shares of 50k each

905,084

905,084

452,542

452,542

226,272 5,702

226,272 5,702

150,847 301,695 -

150,847 301,695 -

1,137,058

1,137,058

905,084

905,084

49,042,111 479,075 49,521,186

49,042,111 479,075 49,521,186

29,735,182 20,967,794 (1,660,865) 49,042,111

29,735,182 20,967,794 (1,660,865) 49,042,111

Additions: 2010:301,694,876 Ordinary shares of 50k each - Rights 2010: 603,389,752 Ordinary shares of 50k each - bonus 2011: 452,542,314 Ordinary shares of 50k each - bonus 2011: 11,406,568 Ordinary shares of 50k each At end of year 2,274,118,138 Ordinary shares of 50k each

16. Share premium account

At beginning of the year Issue of shares Share issue cost At end of the year

92

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

17. revaluation reserve At beginning of the year (note 4) Revaluation surplus during the year: - Land & building - Plant & Machinery Revaluation surplus written off Under/over provision for deferred taxes Deferred tax As previuously stated Prior year adjustment Deferred tax on prior year adjustment At end of the year

31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

18,054,794

1,013,047

7,215,257

217,242

-

-

8,003,534 2,495,726 (217,242) (1,049,926) 1,672,731 18,120,080 (72,540) 7,254 18,054,794

1,125,609 (217,242) (112,561) 1,013,047 1,013,047

18,054,794 18,054,794

1,013,047 1,013,047

Revaluation reserve is not available for redistribution to shareholders until realised through disposal of related assets.

18. retained earnings

At beginning of the year Exchange difference Bonus issues Dividend: 2009 final 2010 final Transactions with Minority Interest Profit for the year As previously stated Prior year adjustment (Note 4.1) At end of the year

23,945,029 580,836 (226,272)

7,060,654 (226,272)

14,401,178 259,179 (301,695)

4,674,878 (301,695)

(5,430,508) 12,657 3,666,730 22,548,472 22,548,472

(5,430,508) 2,482,612 3,886,487 3,886,486

(2,715,253) 14,379,066 26,022,475 (2,077,446) 23,945,029

(2,715,253) 5,402,724 7,060,654 7,060,654

Prior year adjustments This relates to deferred tax adjustment on OML 125 & 134 Limited.

19. Minority interest

Movement in minority interests during the year is as follows: At start of the year Exchange difference Minority Interest in increase in investment Loss for the year At end of the year

1,102,516 441,099 (157,257) (220,087) 1,166,271

1,007,583 99,033 (4,100) 1,102,516

93

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

20. Turnover Analysis by geographical region: Within Nigeria Other West African Countries Others Analysis by product/type Crude oil Fuels Base oil, lubricants and other products Gas Barite, drill bits and oil well cement Rig services Intragroup dividend

21. Administrative expenses

Staff costs Repairs and maintenance Insurance Rent and other hiring costs Depreciation included in administrative expenses Other administrative expenses Exchange loss

31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

342,178,578 10,320,252 234,120,204 586,619,034

8,122,502 8,122,502

283,778,327 9,097,013 86,050,090 378,925,430

4,352,005 4,352,005

26,880,886 507,341,247 14,295,248 19,616,633 4,101,621 14,383,398 586,619,034

8,122,502 8,122,502

19,494,444 318,085,606 12,818,943 16,733,982 2,107,612 9,684,843 378,925,430

4,352,005 4,352,005

9,384,180 1,311,326 704,256 655,763 8,456,916 16,961,090 4,676,795 42,150,326

1,332,607 49,045 37,456 10,455 279,024 1,559,699 1,036,803 4,305,089

6,485,461 737,192 258,930 694,692 2,120,932 11,054,009 1,133,487 22,484,703

268,885 4,073 69,583 82,474 326,957 896,547 234,012 1,882,531

22. Interest received

This represents interest income accruing from placement of surplus cash in commercial banks for Group; and placement of surplus cash in commercial banks and intercompany interest for Company.

23. Other operating income

Profit on sale of property plant and equipment Foreign exchange gain Other income

24. Interest payable and similar charges

Interest on long term loan Interest on short term loans and overdrafts Total interest on bank loans and overdrafts Accretion charge Total interest payable and similar charges

94

Oando PLC 2011 ANNUAL REPORT

48,692 8,106,323 4,301,495 12,456,510

16,004 1,026,282 198,517 1,240,803

41,258 1,387,538 2,745,793 4,174,589

35,590 281,785 5,045 322,420

2,048,621 6,675,010 8,723,631 102,058 8,825,689

1,058,746 1,058,746 1,058,746

957,568 4,694,722 5,652,290 95,168 5,747,458

806,108 806,108 806,108

Notes to the Financial Statements 31 December 2011

24(a). Exceptional items Exceptional items consists of the following charges: Termination fee for Technical Services Agreement & Management Services Agreement Rig asset write-off Project costs write-off

31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

5,250,000 851,152 3,523,701 9,624,853

851,152 3,523,701 4,374,853

-

-

3,726,563 4,730,353 164,956 782,898 4,676,795 8,080,366 48,692

279,024 23,112 354,566 1,036,803 1,026,282 16,004

2,525,529 4,164,480 130,100 880,694 1,133,487 1,387,538 41,258

326,957 21,600 407,626 234,012 281,785 35,590

13,309,864 939,264 14,249,128 (1,725,426) (1,385,816) 3,575,336 (3,231,467) 11,481,755

290,888 290,888 (152,781) (73,518) 49,340 (94,909) 19,020

9,229,384 784,505 10,013,889 (1,106,538) 1,095,834 (834,499) 775,192 9,943,878

594,964 39,664 634,628 (118,612) (203,936) (36,254) 275,825

5,521,737 (12,882,172) 14,249,128 6,888,693 15,525 6,904,218

1,064,907 (424,041) 290,888 931,754 931,754

3,313,947 (7,806,099) 10,013,889 5,521,737 5,521,737

586,360 (156,082) 634,629 1,064,907 1,064,907

25. Profit before taxation

Profit before taxation is stated after charging or crediting: - Depreciation, depletion and amortisation of upstream assets (Note 37.1) - Depreciation - others - Auditors' remuneration - Directors' remuneration - Foreign exchange loss - Foreign exchange gain - Profit on sale of property plant and equipment

26. Taxation

(a) Per profit & loss account Charges for the year Income tax Education tax Deferred tax asset -non-current (Note 13) Deferred tax on asset - current (Note 13) Deferred tax liability - current (Note 13) Deferred tax liability - non-current (Note 13)

(b) Per balance sheet Balance, 1 January Payments during the year Charge for the year As previously stated Exchange difference Balance, 31 December

95

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

27. Earnings per share

Basic & Diluted Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the Company by the weighted average number of shares in issue during the year. Diluted earnings per share is calculated by dividing the profit attributable to the equity holders of the Company plus after-tax amount of interest associated with convertible debt by the weighted average number of shares in issue during the year and additional ordinary shares that would have been outstanding if the dilutive potential ordinary shares had been issued. 31-Dec-11 Group Company

N’000

31-Dec-10 Group Company

Profit attributable to equity holders of the Company

3,666,730

2,482,612

14,379,066

5,402,724

Weighted average number of shares in issue (thousands) Basic earnings per share (kobo) Diluted earnings per share (kobo)

2,268,415 162 161

2,268,415 109 109

1,734,746 829 -

1,734,746 311 -

28. Net cash flow from operating activities before changes in working capital

Profit on ordinary activities after taxation Adjustments for non-cash items and interests: - Taxation for the year - Depreciation, depletion and amortisation - Profit on sale of property plant and equipment - Foreign exchange differences - Revaluation surplus written off - Amortisation of software costs - Impairment loss on property, plant and equipment - Increase in provision for doubtful debts - Decrease/(increase) in provision for slow moving and obsolete stocks - Interest expense - Staff equity scheme - Accretion expense - Interest received

29. Net decrease/(increase) in working capital

-

Decrease/(Increase) in inventories Decrease/(Increase) in debtors and prepayments (Decrease)/ Increase in creditors and accruals (Decrease)/ Increase in convertible debt (Increase)/Decrease in long term prepayments Increase/(Decrease) in other long term liabilities Increase/(Decrease) in gratuity provisions

96

Oando PLC 2011 ANNUAL REPORT

3,446,643

2,482,612

14,374,966

5,402,724

11,481,754 8,456,915 (48,692) (2,481,814) 157,030 2,697,022 2,826,834 (57,398) 8,723,631 484,779 102,058 (2,533,121) 33,255,642

19,020 279,024 (16,004) 149,333 875,756 (5,481) 1,058,746 484,779 (2,877,014) 2,450,771

9,943,879 6,690,009 (41,258) 212,148 (217,242) 162,600 1,712,210 777,773 46,524 5,652,290 95,168 (1,468,674) 37,940,393

275,826 326,957 (35,590) (217,242) 149,333 19,160 5,481 806,108 (3,692,764) 3,039,993

(10,014,588) (28,806,460) 13,550,137 2,500,000 (889,816) (100,542) 1,316,097 (22,445,170)

9,842 399,268,940 (391,337,532) (343,834) 739,137 8,336,553

(12,739,632) 31,634 15,725,275 (114,831,122) (20,930,574) 106,440,543 (1,847,691) (1,847,082) 19,975 468,837 349,302 (19,303,810) (9,856,725)

Notes to the Financial Statements 31 December 2011

30. Directors and employees (a) Directors' remuneration: The remuneration paid to the directors of the Company was as follows: Fees paid to non executive directors: Chairman Others Executive directors' salaries Other emoluments

31-Dec-11 Group Company

2,250 18,427 20,677 595,850 616,527 312,102 928,629

The directors received emoluments (excluding pension contributions) in the following ranges: N1,000,000 - N10,000,000 Above N10,000,000

Number 6 24

N’000

31-Dec-10 Group Company

2,250 9,604 11,854 282,578 294,432 103,375 397,807

2,500 24,793 27,293 443,327 470,620 410,074 880,694

2,500 18,000 20,500 187,131 207,631 199,995 407,626

Number 2 14

Number 6 24

Number 2 14

N’000

Included in the above analysis is the highest paid director at N112 million (2010: N68.5million).

(b) Staff costs i. Employee costs during the year amounted to: Wages and salaries Welfare and training Other staff costs*

31-Dec-11 Group Company

31-Dec-10 Group Company

6,895,885 627,056 1,861,239

221,188 5,960 1,105,459

5,289,674 488,961 706,826

268,885

9,384,180

1,332,607

6,485,461

268,885

Number 4 156 442 3 605

Number 3 51 90 144

Number 4 148 417 569

Number 3 44 83 130

Number 142 260 51 46 106 605

Number 28 53 9 14 40 144

Number 264 141 57 27 80 569

Number 57 24 15 8 26 130

* Other staff costs include provision for gratuity disclosed in Note 14.2

ii. The average number of full-time persons employed by the Company during the year was as follows: Executive Management staff Senior staff Junior staff

iii. Higher-paid employees of the Company, other than directors, whose duties were wholly or mainly discharged in Nigeria, received remuneration (excluding pension contributions) in the following ranges: N2,500,001 N4,000,001 N6,000,001 N8,000,001 Above N10,000,000

N4,000,000 N6,000,000 N8,000,000 N10,000,000

97

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

31. Capital commitment

Outstanding capital expenditure contracted but not provided for in the accounts Capital expenditure approved by the Board but not yet committed

31-Dec-11 Group Company

N'000 1,513,699 9,466,851 10,980,550

N'000 277,978 664,711 942,689

N’000

31-Dec-10 Group Company

N'000 740,838 12,038,630 12,779,468

N'000 24,663 24,663

32. Contingent liabilities

(32.1) Pending litigation There are a number of legal suits outstanding against the Company for stated amounts of N8.5billion (2010:N14.4billion). On the advice of Counsel, the Board of Directors are of the opinion that no material losses are expected to arise. Therefore, no provision has been made in these financial statements. (32.2) Bonds and guarantees The Company guaranteed loans amounting to N37.9 billion (2010: N18.33 billion) from commercial banks on behalf of its subsidiaries. (32.3) Other claims In September 2007, the Group (through Equator Exploration Limited) transferred, under the Bilabri Settlement Agreement (‘BSA’), the full responsibility for completing the OML 122 ‘Bilabri’ development to Peak Petroleum Industries (Nigeria) Limited (‘Peak’), who specifically assumed responsibility for the project’s future funding and its historic unpaid liabilities. A contingent liability estimated at N3.7billion might arise where Peak failed to meet unpaid debts. No provision has been made in these financial statements.

33. related party transactions Transactions with affiliates within the Group Transactions relating to the Company's own financial statements are as follows: Oando Exploration & Production Limited Oando Energy Services Limited Oando Supply & Trading Limited Oando Lekki Refinery Limited Apapa SPM Limited Oando Properties Limited Oando Gas and Power Limited Gaslink Nigeria Limited Oando Marketing PLC Oando Trading Bermuda Limited Other Companies

N’000

31-Dec-11 N'000

31-Dec-10 N'000

49,308,872 34,570,799 (4,757,781) 2,402,167 2,258,944 58,688 (3,000,000) 1,288,158 (21,913,879) (9,450,794) 3,341,497 54,106,669

46,323,481 33,695,083 (2,383,318) 2,401,817 552,347 44,678 (2,000,000) 183,847 (11,438,411) (8,344,492) 193,698 59,228,730

The Company provided funds to Oando Exploration and Production Limited, Oando Energy Services Limited, Apapa SPM Limited, Oando Properties Limited, Apapa SPM Limited, and other companies during the year under review. Interest costs on such funds were directly charged to the entities without mark-up when the funding was financed by borrowings from external parties to the Group. Interest costs were charged on intercompany borrowings. Interest income and expense arising from intercompany borrowings have been eliminated on consolidation. Payable to Oando Trading Bermuda relates to part funding for the consideration paid on the acquisition of Equator Exploration Limited in 2009. In addition, payable to Oando Marketing PLC relate to sundry expenses made on behalf of the Company.

98

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

Transactions with affiliates within the Group During the year, transactions were conducted between Oando Plc and other affiliate companies. Such transactions include: (a) Ocean and Oil Investment received N737.5 million in respect of dividend declared at the end of 2010 (2009: N583.4 million). (b) Avante Property and Assets Management Limited, a subsidiary of Ocean and Oil Holdings received N37.01 million (2010: N83 million) for professional services. (c) Avaizon Consulting, a subsidiary of Ocean and Oil Holdings, received N10.7 million (2010: N10.4 million) for consultancy services to Oando PLC. (d) Offshore Personnel Services Limited, a subsidiary of Ocean and Oil Holdings, received N1.0 billion (2010: N644million) for the provision of personnel services to Oando Energy Services Limited. (e) Argentil Capital received N265.1 million (2010: N291.4million) for consultancy services to Oando PLC. Core investor Ocean and Oil Investments (Nigeria) Limited is the highest single shareholder in the Company owning 12.49% at the balance sheet date (2010:13.58%).

34. Technical and management service agreement

The Company is a party to subsisting agreements in respect of technical know-how, marketing, management expertise, strategic planning and consultancy services assistance. These agreements are between the Company and Ocean and Oil Holdings Limited. The terms of the agreements include payment of Technical and Management Service fees of 4% and 3% respectively of the Company's net profit before taxation, where net profit before tax is under N2 billion (or 5% and 4% where net profit before tax is over N2 billion). Ocean and Oil Holdings Limited and Oando Plc agreed to terminate the Technical Service Agreements and Management Services Agreement during the year under review. The negotiated termination fee of N5billion inclusive of value added tax (VAT) at the rate of 5% less payment of N1.5billion has been recognised in the balance sheet. The Company agreed to settle the liability through convertible notes instruments and cash. The Company had issued twenty five convertible notes worth N2.5billion at the balance sheet date.

35.

Post balance sheet events

The House of Representatives conducted an investigation of subsidy payments to downstream companies between 2006 and 2011. None of the downstream companies within the Group was indicted in the report of the House Committee.

99

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

36. Subsidiary information Entity name

Country of incorporation

Nature of business

Investment Issued share Currency capital

Percentage interest held

Ajah Distribution Company Limited Akute Power Limited Alausa Power Limited Apapa SPM Limited Central Horizon Gas Company Limited East Horizon Gas Company Limited Equator Exploration Limited Gasgrid Nigeria Limited Gaslink Nigeria Limited Lekki Gardens Power Limited OES Integrity

Nigeria Power Nigeria Nigeria Nigeria Nigeria Nigeria British Virgin Islands Nigeria Nigeria Nigeria British Virgin Islands

Naira Naira Naira Naira Naira Naira USD Naira Naira Naira USD

2,500,000 2,500,000 2,500,000 19,125.00 9,100,000 10,000,000 67,707,210 2,500,000 1,717,697,000 2,500,000 50,000

100% 100% 100% 100% 51% 100% 81.5% 100% 97.24% 100% 100%

OES Passion

Bermuda

USD

12,000

100%

OES Professionalism Limited

Nigeria

Generation Power Generation Power Generation Offshore submarine pipeline construction Gas Distribution Gas Distribution Exploration and Production Gas Distribution Gas Distribution Power Generation Provision of drilling and other services to upstream companies Provision of drilling and other services to upstream companies Provision of drilling services

Naira

10,000,000

100%

OES Respect Limited

British Virgin Islands

USD

100

100%

OES Teamwork Limited

British Virgin Islands

Oando Akepo Limited Oando Benin Oando Energy Resources Limited Oando Energy Services Limited

Nigeria Benin Canada Nigeria

Oando Exploration and Production Limited Oando Gas and Power Limited Oando Lekki Refinery Company Limited Oando Logistics and Services Limited Oando Marketing PLC Oando Netherlands Holdings 1 Cooperatief U.A Oando Petroleum Development Company Limited Oando Portharcourt Refinery Company Limited Oando Production and Development Company Limited Oando Properties Limited Oando Resources Limited Oando Servco UK Limited Oando Supply and Trading Limited Oando Terminals and Logistics Oando Trading Limited Oando Wings Development Limited

Nigeria Nigeria Nigeria United Kingdom Nigeria Netherlands Nigeria Nigeria Nigeria Nigeria Nigeria United Kingdom Nigeria Nigeria Bermuda Nigeria

Operational subsidiaries Direct Shareholding

Indirect Shareholding

Aqua Exploration Limited Clean Cooking Fuel Investments Limited Equator Exploration Limited (Congo) Equator Exploration Nigeria JDZ Block 2 Limited Equator Exploration Nigeria 321 Limited Equator Exploration Nigeria 323 Limited Equator Exploration Nigeria OML 122 Limited Equator Exploration OML (122) Limited Gaslink Benin Limited Gaslink Ghana Limited Gaslink Togo S.A Oando Ghana Limited

Bahamas Nigeria Congo Nigeria Nigeria Nigeria Nigeria British Virgin Islands Benin Ghana Togo Ghana

Oando Liberia

Nigeria

Oando Servco Nigeria Limited Oando Sierra Leone Limited

Nigeria Sierra Leone

Oando Togo S.A

Togo

Oando OML 125 & 134 Limited

Nigeria

Oando OML 125 & 134 (BVI) Limited

British Virgin Islands

Gas Network Services Limited Oando Netherlands Holdings 2 B.V Oando Netherlands Holdings 3 B.V Oando Servco Netherlands B.V

Nigeria Netherlands Netherlands Netherlands

100

Oando PLC 2011 ANNUAL REPORT

Provision of driiling and other services to upstream companies Provision of driiling and other services to upstream companies Exploration and Production Marketing and sale of petroleum products Provision of drilling and other services uptsream companies Exploration and Production Gas and Power generation and distribution Petroleum Refining Provision of Logistics and other services Marketing and sale of petroleum products Financial holding company Exploration and Production Petroleum Refining Exploration and Production Property Management Services Exploration and Production Provision of Management Services Supply of crude oil and refined petroleum products Storage and haulage of petroleum products Supply of crude oil and refined petroleum products Real Estate Development

Exploration and Production (100% sub of EEL) Gas Distribution (Subsidiary of Oando Mkt PLC) Exploration and Production (100% sub of EEL) Exploration and Production (100% sub of EEL) Exploration and Production (100% sub of EEL) Exploration and Production (100% sub of EEL) Exploration and Production (100% sub of EEL) Exploration and Production (100% sub of EEL) Gas Distribution (100% owned by Gaslink Nig Ltd) Gas distribution (100% owned by Gaslink Nig Ltd) Gas Distribution (100% owned by Gaslink Nig Ltd) Marketing and sale of petroleum products (Subsidiary of Oando Marketing PLC) Marketing and sale of petroleum products (Subsidiary of Oando Marketing PLC) Provision of Management Services Marketing and sale of petroleum products (Subsidiary of Oando Marketing PLC) Marketing and sale of petroleum products (Subsidiary of Oando Marketing PLC) Exploration and Production (100% owned by Oando OML 125 & 134 BVI Limited) Exploration and Production (100% owned by Oando Exploration and Production Limited) Gas Distribution (Subsidiary of Gaslink Nigeria Limited) Financial holding company Financial holding company Financial holding company

All figures in thousands

USD

100

100%

Naira CFA CDN$ Naira

2,500,001 14,832,000

100% 100% 100% 100%

Naira Naira Naira GBP Naira Euro Naira Naira Naira Naira Naira GBP Naira Naira USD Naira

5,000,000 1,000,000 2,500,000 1 437,500,000 18,000 2,500,000 2,500,000 10,000,000 250,000 2,500,000 5,000,000 2,500,000 12,000 3,000,000

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

USD Naira CFA Naira Naira Naira Naira USD CFA Cedis CFA Cedis

100,000 7,500,000 50,000 10,000,000 10,000,000 10,000,000 10,000,000 500,000,000 10,000,000 1,000,000 10,000,000 126,575,000

81.5% 100% 81.5% 81.5% 100% 81.5% 81.5% 81.5% 100% 100% 100% 82.9%

USD

50,000

100%

Naira Leones

2,500,000 10,079,000

100% 80%

CFA

186,288,000

75%

Naira USD

2,500,001 100,987,074

100% 100%

Naira Euro Euro

5,000,000 18,000 18,000 Euro

100% 100% 100% 100%

5,000,000

Notes to the Financial Statements 31 December 2011

37.

Upstream activities

37.1 Details of upstream assets Cost As at 1 January Prior year adjustment (Note 13) Restated Transfers/reclassification Additions Impairment Exchange differences As at 31 December Depreciation / Amortisation As at 1 January Prior year adjustment (Note 18) Restated Transfers/reclassification Charge for the period Exchange differences As at 31 December Net Book Value As at 31 December 2011

As at 31 December 2010

37.2

N’000

Mineral rights acquisition

Land and building

Expl. costs and producing wells

Production Well

Capital construction

Moveable assets

Abandonment assets

Total

23,816,678 5,849,780 29,666,458 16,809,013 4,933,397 (1,468,662) 1,673,261 51,613,467

23,750 23,750 1,203 1,203 26,156

47,751,859 47,751,859 (24,236,866) 3,046,783 1,133,597 27,695,373

8,517,576 2,298,713 410,610 11,226,899

8,153,661 8,153,661 1,306,393 1,497,360 456,048 11,413,462

444,244 444,244 (111,573) 13,365 16,037 362,073

3,404,993 3,404,993 (2,285,746) 100,124 53,956 1,273,327

83,595,185 5,849,780 89,444,965 11,889,742 (1,468,662) 3,744,712 103,610,757

3,296,150 2,077,446 5,373,596 (266,873) 158,904 (377,720) 4,887,907

56 56 2 (58) 3 3

4,147,270 4,147,270 (3,198,978) 2,942 45,715 996,949

3,083,848 1,471,716 697,824 5,253,388

2,877,965 2,877,965 376,329 1,828,093 156,881 5,239,268

87,168 87,168 (21,479) 72,707 3,167 141,563

269,958 269,958 27,151 192,259 14,323 503,691

10,678,567 2,077,446 12,756,013 3,726,563 540,193 17,022,769

46,725,560

26,153

26,698,424

5,973,511

6,174,194

220,510

769,636

86,587,988

24,292,862

23,694

43,604,589

-

5,275,696

357,076

3,135,035

76,788,952

Impairment

In early 2011, the operator of JDZ Block 2, Sinopec, confirmed that the ‘Bomu’ gas discovery, which is small for deep water, was uneconomic in current conditions and that the rest of the block had insufficient prospecting viability to justify entering the Phase 2 Exploration Period with its obligatory well. A further one year extension was granted by the JDA to end in March 2012 but, nothing occurred to change conclusions of the post Bomu 1 evaluation. During 2011, management decided to exit the exploration of JDZ Block 2, due to volumes of gas discovered which, are not in commercial quantities. The value of N1.5billion has been fully written off to income statement. Disclosure required under Section 134 of the Statement of Accounting Standards is not required in these consolidated financial statements because the turnover from the exploration and production activities does not excced 10% of the Group turnover. Supplementary data, including the standardised measure of oil and gas activities are presented in line with section 138 of the Statement of Accounting Standard No. 14 in the relevant subsidiaries' financial statements.

101

Oando PLC 2011 ANNUAL REPORT

Notes to the Financial Statements 31 December 2011

37.3 Details of concessions Subsidiary

License

Operator

Interest

Location

Licence

Expiration Date

Status

Oando OML 125 & 134 Ltd Oando OML 125 & 134 Ltd Oando Petroleum Development Company Ltd Oando Exploration And Production Ltd

OML 125 OML 134 OML 56 OPL 236

NAE NAE Energia/ Pillar Oil OEPL

15% working interest in OML 125 & 134 15% working interest in OML 125 & 134 45% participatory interest 95% working interest

Offshore Offshore Onshore Onshore

PSC PSC JV PSC

04/07/2023 04/07/2023 31/01/2023 31/03/2013

Producing Appraisal Producing Development / Appraisal

Oando Exploration And Production Ltd Oando Akepo Limited OPL 282 Limited Equator Exploration JDZ Block 2 Limited

OPL 278 OML 90 OPL 282 JDZ Block 2

OEPL Sogenal NAOC Sinopec

60% working interest 30% participatory interest 4% working interest 9% non operator participating interest

Onshore Offshore Onshore Offshore

PSC JV PSC PSC

31/01/2011 13/03/2015 31/08/2011 13/03/2034

Equator Exploration (OML 122) Limited

OML 122

Peak

Finance & service agreement with operator

Offshore

PSC

13/09/2021

Equator Exploration Nigeria 323 Limited Equator Exploration Nigeria 321 Limited Aqua Exploration Limited

OPL 323 OPL 321 Allocation letter for Block 5 Allocation letter for Block 12 JDZ Block 2 OML 122 OPL 323 OPL 321 Allocation letter for Block 5 Allocation letter for Block 12

KNOC KNOC -

30% non operator partcipating interest 30% non operator partcipating interest Allocation letter with rights to enter into a PSC Allocation letter with rights to enter into a PSC 9% non operator participating interest Finance & service agreement with operator 30% non operator partcipating interest 30% non operator partcipating interest Allocation letter with rights to enter into a PSC Allocation letter with rights to enter into a PSC

Offshore Offshore Offshore

PSC PSC PSC

10/03/2006 10/03/2006 -

Exploration Development Exploration Appraisal/ Exploration Development /Appraisal Exploration Exploration Exploration

Offshore

PSC

-

Exploration

Offshore Offshore Offshore Offshore Offshore

PSC Participation PSC PSC PSC

14 /2/ 2012 No Date 9/3/2016 9/3/2016 2020

Exploration Development Exploration Exploration Not signed

Offshore

PSC

2020

Not signed

Aqua Exploration Limited Equator Exploration JDZ Block 2 Limited Equator Exploration (OML 122) Limited Equator Exploration Nigeria 323 Limited Equator Exploration Nigeria 321 Limited Aqua Exploration Limited Aqua Exploration Limited

Sinopec Peak KNOC KNOC -

38. reclassification of prior year balances

Certain prior year balances have been restated/reclassified because of prior year adjustments or bevause of conformity with current year presentation format.

Condensed financial data of consolidated entities Oando Exploration & Production Limited

Oando Akepo Limited

Oando Production & Development Company Limited

Oando OML 125 & 134 BVI Limited

Oando OML 125 & 134 Limited

Oando Marketing PLC

Oando Supply & Trading Limited

-

(1,002,503) 296,489 (706,013)

4,238,737 2,109,203 (1,438,437) 670,766

(487,946) (487,946)

22,642,149 10,215,478 (7,112,422) 3,103,056

189,526,474 (1,615,359) (1,806,842) 3,682,279

154,217,662 906,612 (407,808) 498,804

32,427,582 126,624,748 161,079,013 (2,026,683)

6,470,329 28,469 1,915,674 4,583,124

9,363,174 7,379,201 15,649,735 1,092,640

3,295,264 3,007,246 4,628,977 1,673,534

2,987 17,707,723 1,333,183 16,377,526

54,167,921 52,460,723 81,284,943 25,343,701

36,992,295 71,752,035 67,376,542 41,367,787

60,149 61,000,391 59,215,930 1,844,610

3,062,770

(84,973)

771,472

2,458,900

-

7,939,021

2,070,925

(19,681,380)

(757,882)

(21,556)

(2,543,717)

(2,039,035)

-

(6,482,144)

(1,460,761)

(4,391)

(2,219,914)

609,492

1,726,010

-

-

(6,990,262)

(1,132,949)

16,554,599

446,576

22,805

9,684

390,656

-

4,648,356

1,414,329

6,085,944

Condensed profit and loss account Turnover (Loss)/profit before taxation (1,615,359) Taxation 167,390 (Loss)/profit after taxation (1,447,970) Condensed financial position Non-current assets Current assets Current liabilities Net (liabilities)/assets Condensed cash flows Net cash generated from/ (used in) operating activities Net cash generated (used in)/ from investing activities Net cash generated (used in)/ from financing activities Cash and cash equivalents at end of the year

102

Oando PLC 2011 ANNUAL REPORT

N’000

Equator Exploration Limited

Notes to the Financial Statements 31 December 2011

Condensed financial data of consolidated entities Oando Trading Bermuda

East Horizon Company Limited

Akute Power Limited

Oando Gas & Power Limited

Oando Energy Services Limited

OES Integrity Limited

(41,826) 12,548 (29,278)

1,975,100 273,930 187,778 461,708

(40,594) (24,515) (65,110)

14,383,398 (223,169) 621,713 398,544

-

-

-

26,233,759 3,389,980 18,338,615 11,285,124

3,538,471 614,748 1,589,186 2,564,032

3,001,905 3,123,217 (121,312)

39,325,383 30,938,780 61,510,865 8,753,298

3,866,995 (3,866,995)

1,841 1,841

10,506 10,506

3,521,203

997,745

(999,981)

17,900,682

-

-

-

(3,032,407)

(99,533)

-

(17,944,480)

-

-

-

(575,136)

(1,018,924)

1,000,000

3,316,907

-

-

-

69,960

93,776

905

3,429,388

-

-

-

Oando Liberia Limited

Oando Terminals & Logistics

Oando Port Harcourt Refinery Company Limited

UNITAB Nigeria Limited

Apapa SPM Limited

Oando Properties Limited

Oando Lekki Refinery Limited

Gaslink Nigeria Limited

(690) (690)

(280) (280)

(430) (430)

-

(7,826) (7,826)

(350) (350)

(374,559) (374,559)

18,070,071 4,766,757 (1,723,892) 3,042,864

409 67,972 122,376 (53,994)

223,910 2,500 224,190 2,220

2,500 430 2,070

53,440 (53,440)

3,086,125 3,887,723 4,946,897 2,026,951

58,053 250 58,938 (636)

1,904,400 2,498 2,404,667 (497,769)

4,966,212 18,156,194 13,457,600 6,912,292

2,452,150

15,541

-

-

2,519,029

-

-

2,287,098

-

(15,541)

-

-

(2,519,029)

-

-

(780,925)

-

-

-

-

-

-

-

(2,319,483)

52,900

-

-

-

-

-

-

1,878,289

Condensed profit and loss account Turnover 478,481,293 Profit/(loss) before taxation 2,351,093 Taxation Profit/(loss) after taxation 2,351,093 Condensed financial position Non-current assets 700 Current assets 56,779,268 Current liabilities 44,615,357 Net assets/(liabilities) 12,164,611 Condensed cash flows Net cash generated from/ 4,737,234 (used in) operating activities Net cash generated (used in)/ from investing activities Net cash generated (used in)/ (3,883,757) from financing activities Cash and cash equivalents 1,439,071 at end of the year

Condensed profit and loss account Turnover Profit/(loss) before taxation Taxation Profit/(loss) after taxation Condensed financial position Non-current assets Current assets Current liabilities Net (liabilities)/assets Condensed cash flows Net cash generated from/ (used in) operating activities Net cash generated (used in)/ from investing activities Net cash generated (used in)/ from financing activities Cash and cash equivalents at end of the year

N’000

OES OES Passion Professionalism Limited Limited

103

Oando PLC 2011 ANNUAL REPORT

Statement of value added For thr year ended

Group N’000 Turnover Other income Interest received

31 - Dec - 11 %

Company N’000

%

Group N’000

31 - Dec - 10 %

Company N’000

N’000 %

586,619,034 2,533,121 12,456,510 601,608,665

8,122,502 2,877,014 1,240,803 12,240,319

378,925,430 1,468,674 4,174,589 384,568,693

4,352,005 3,692,764 322,420 8,367,189

Bought-in materials and services - Local purchases (320,845,439) - Foreign purchases (239,388,132) Value added 41,375,094

100

(2,970,409) 9,269,910

100

(247,396,066) (91,215,601) 45,957,026

100

1,428,563 9,795,752

100

9,384,180

23

-

-

6,485,461

14

268,885

3

14,249,128

34

290,888

3

10,013,889

22

634,628

6

8,825,689 (220,087)

21 -

5,430,508 1,058,746 -

59 11 -

2,715,253 5,747,458 (4,100)

6 13 -

2,715,253 806,108 -

28 8 -

(2,767,374) 8,456,915 3,446,643 41,375,094

(7) 21 8 102

(271,868) 279,024 2,482,612 9,269,910

(3) 3 27 100

(70,010) 6,690,009 14,379,066 45,957,026

15 31 100

(358,803) 326,957 5,402,724 9,795,752

(4) 4 55 101

Distributed as follows: Employees: - To pay salaries, wages and other staff costs Government: - To pay tax

Providers of capital: - To pay dividend - To pay interest on borrowings Minority interests Maintenance and expansion of assets: - Deferred tax - Depreciation - Retained in the business Value distributed

104

Oando PLC 2011 ANNUAL REPORT

Five-Year Financial Summary (2007 - 2011)

N’000

2011

2010

2009

2008

175,455,217 23,667,715 1,000 5,553,035 34,426,127 (46,275,716) (86,680,012) (9,610,331) (4,109,253) 92,427,781

156,285,722 23,806,605 1,000 3,695,549 25,492,756 (23,129,187) (77,537,618) (12,417,400) (3,147,893) 93,049,534

131,713,072 23,969,748 1,000 2,161,298 18,783,390 (87,040,082) (22,415,936) (11,928,511) (2,432,237) 52,811,742

89,903,189 22,350,513 2,000 1,044,162 14,544,777 (31,450,625) (42,795,571) (7,482,795) (1,236,917) 44,878,733

40,318,614 22,464,771 10,000 11,138,446 (6,601,994) (18,457,205) (889,405) (566,950) 47,416,277

1,137,058 49,521,186 18,054,794 22,548,472 1,166,271 92,427,781

905,084 49,042,111 18,054,794 23,945,029 1,102,516 93,049,534

452,542 29,735,182 7,215,257 14,401,178 1,007,583 52,811,742

452,442 29,716,870 7,215,257 7,343,127 151,037 44,878,733

377,035 29,877,741 10,652,936 6,321,140 187,425 47,416,277

Profit and loss account Turnover

586,619,034

378,925,430

336,859,678

339,420,435

185,892,083

Operating profit before exceptional items Exceptional item Taxation Profit after taxation

24,553,251 (9,624,853) (11,481,754) 3,446,643

24,318,845 (9,943,879) 14,374,966

13,512,155

10,742,611

6,813,728

(3,415,176) 10,096,979

(2,399,286) 8,343,325

(1,333,313) 5,480,415

Dividend*

5,430,508

2,715,253

2,713,139

7,242,056

2,289,203

Per share data Weighted average number of shares Basic earnings per share (kobo) Diluted earnings per share (kobo) Dividends per share (kobo) Net assets per share (kobo) Dividend cover (times)

2,268,415 162 161 300 4,064 0.68 times

1,734,746 829 300 5,140 2.65 times

904,885 1,132 300 5,836 3.71 times

904,885 922 600 4,960 1.54 times

632,891 751 362 7,492 2.08 times

Group

Balance Sheet Property plant and equipment Intangible assets Long-term investments Deferred tax asset Long-term receivables Net current liabilities Borrowings and other non-current liabilities Deferred tax liability Provision for other liabilities and charges

Share capital Share premium Revaluation reserve Retained earnings Minority interest

2007

* Dividends are disclosed in the years in which they are declared at the Annual General Meeting.

105

Oando PLC 2011 ANNUAL REPORT

Five-Year Financial Summary (2007 - 2011)

N’000

2011

2010

2009

2008

14,086,046 149,333 41,517,455 319,676 2,198,296 49,825,517 (51,225,000) (97,516) (1,216,030) 55,557,777

10,581,664 298,667 41,340,432 166,895 1,854,462 55,448,094 (51,000,000) (192,425) (476,893) 58,020,895

8,910,979 448,000 39,471,680 244,050 7,380 (13,562,769) (311,885) (127,591) 35,079,844

1,539,035 597,334 32,131,055 44,369 25,199,816 (25,382,404) (910,683) 33,218,522

26,039,055 9,699,814 16,844,848 318,391 1,827,053 (9,024,571) (849,344) (141,671) 44,713,575

1,137,058 49,521,186 1,013,047 3,886,486 55,557,777

905,084 49,042,111 1,013,047 7,060,654 58,020,896

452,542 29,735,182 217,242 4,674,878 35,079,844

452,442 29,716,870 217,243 2,831,967 33,218,522

377,035 29,877,741 10,652,936 3,805,863 44,713,575

8,122,502

4,352,005

4,207,854

6,837,741

131,007,169

6,876,485 (4,374,853) (19,020) 2,482,612

5,678,550

4,821,312

6,511,666

3,717,196

(275,826) 5,402,724

(159,952) 4,661,360

(168,099) 6,343,567

(1,045,714) 2,671,482

Dividend*

5,430,508

2,715,253

2,713,139

7,242,056

2,289,203

Per share data Weighted average number of shares Basic earnings per share (kobo) Diluted earnings per share (kobo) Dividends per share (kobo) Net assets per share (kobo) Dividend cover (times)

2,268,415 162 161 300 4,064 0.68 times

1,734,746 829 300 5,140 2.65 times

904,885 1,132 300 5,836 3.71 times

904,885 922 600 4,960 1.54 times

632,891 751 362 7,492 2.08 times

Company

Balance Sheet Property plant and equipment Intangible assets Long-term Investments Deferred tax assets Long-term receivables Net current assets/(liabilities) Borrowings and other non-current liabilities Deferred tax liability Retirement benefit obligations

Share capital Share premium Revaluation reserve Retained earnings Profit and loss account Turnover Profit on ordinary activities before taxation Exceptional items Taxation Profit after taxation

* Dividends are disclosed in the years in which they are declared at the Annual General Meeting.

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Oando PLC 2011 ANNUAL REPORT

2007

Statement of Unclaimed / returned Dividend Warrants

Oando Plc unclaimed dividend as at 31st December 2011

Payment Number

Unclaimed Dividend as at 31/12/2011 439,376,143.59 339,949,670.90 38,641,389.60 352,610,373.90 926,194,216.50

17 18 19 20 21

Share Capital History Year Date 1969 1978 1987 1991 1993 1995 1998 2001 2002

Authorised (N) Increase 0 3,000,000 43,000,000 10,000,000 40,000,000 0 0 50,000,000 150,000,000

Cumulative 4,000,000 7,000,000 50,000,000 60,000,000 100,000,000 100,000,000 100,000,000 150,000,000 300,000,000

Issued & Fully Paid-up (N) Increase 0 2,100,000 33,900,000 0 10,000,000 12,500,000 15,625,000 0 70,129,233

Cumulative 4,000,000 6,100,000 40,000,000 40,000,000 50,000,000 62,500,000 78,125,000 78,125,000 148,254,233

2003 2004 2005 2005 2007

0 0 0 100,000,000 100,000,000

300,000,000 300,000,000 300,000,000 400,000,000 500,000,000

14,825,423 40,769,914 82,300,879 0 90,884,814

163,079,656 203,849,570 286,150,449 286,150,449 377,035,262

2008 2009 2009 2009 2010

0 0 500,000,000 0 0 2,000,000,000 0 0 0

500,000,000 500,000,000 1,000,000,000 0 0 3,000,000,000 0 0 0

75,407,052 100,000 0 0 0 301,694,876 150,847,438 226,271,157 5,703,284

452,442,314 452,542,314 452,542,314 452,542,314 905,084,628 1,508,474,380 1,810,169,256 2,262,711,570 2,274,118,138

2011 2011

Payable Date 5/30/08 9/30/08 8/3/09 8/31/10 8/31/11

Consideration Cash/Bonus Cash Cash Cash Bonus Cash Bonus Bonus Bonus, Loan stock conversion and Agip share exchange Bonus Bonus Cash Share exchange under Scheme of Arrangement Bonus Staff Share Scheme Right Issue Bonus Issue (1:2) Bonus Issue (1:4) Staff Equity Scheme

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Oando PLC 2011 ANNUAL REPORT

Proxy Form The 35th Annual General Meeting of Oando PLC (the “Company”) will be held at Shell Nigeria Hall, The Muson Centre, 8/9 Marina, Onikan, Lagos State, Nigeria on Friday, the 20th day of July 2012 at 10:00 a.m. (the Meeting). I/WE* ______________________________________________________ of ________________________________________________________________ being a member/members of Oando Plc and holders of ___________________ shares, hereby appoint** ______________________ or failing him/her, the Chairman of the Meeting as my/our proxy to act and vote for me/us on my/our behalf at the Meeting of the Company to be held on Friday 20 July, 2012, which will be held for the purposes of considering and, if deemed fit, passing with or without modification, the resolutions to be proposed at the Meeting and at each adjournment of same and to vote for or against the resolutions in accordance with the following instructions: NOTE A member who is unable to attend the Annual General Meeting is entitled by law to vote by proxy. The proxy form has been prepared to enable you exercise your right in case you cannot personally attend the Meeting. The proxy form should not be completed if you will be attending the Meeting. If you are unable to attend the Meeting, read the following instructions carefully: Proposed resolutions To receive the Report of the Audit Committee; To elect members of the Audit Committee; To re-appoint the Auditors; To authorise the directors of the Company to fix the remuneration of the Auditors To elect Engr. Yusuf Njie as director To elect Ammuna Lawan Ali, CFR as director To re-elect Mr. Oghogho Akpata as director To re-elect Mr. Omamofe Boyo as director To re-elect Mr. Mobolaji Osunsanya as director To re-elect Ms. Nana Afoah Appiah-Korang as director Resolved that the fees payable to the Non Executive directors of the Company remains N2,500,000.00 per annum for the Chairman and N2,000,000.00 each per annum for all other Non Executive directors with effect from January1, 2012 which fees are payable quarterly in arrears”. Resolved that on the recommendation of the Directors and in accordance with Article 46 of the Articles of Association of the Company, the Authorised Share Capital of the Company be and is hereby increased from N3,000,000,000.00 (Three Billion Naira) to N5,000,000,000.00 (Five Billion Naira) by the creation and addition thereto of 4,000,000,000 (Four Billion) new ordinary share of 50 kobo each ranking in all respects pari passu with the existing shares of the company and that clause 6 of the Company's Memorandum of Association and article 3 of the Company's Articles of Association be and are hereby amended to reflect the new Authorised share capital of N5,000,000,000.00 (Five Billion Naira) divided into 10,000,000,000 (Ten Billion) ordinary shares of 50 kobo each

For

Against

a. Write your name in BLOCK CAPITALS on the proxy form where marked* b. Write the name of your proxy where marked**, and ensure that the proxy form is dated and signed by you. The Common Seal must be affixed on the proxy form if executed by a corporation. Registered holders of certificated Oando PLC shares and holders of dematerialised Oando PLC shares in their own name who are unable to attend the Meeting and who wish to be represented at the Meeting, must complete and return the attached form of proxy in accordance with the instructions contained in the form of proxy so as to be received by the share registrars, First Registrars Nigeria Limited at Plot 2, Abebe Village Road, Iganmu, Lagos, or Computershare Investor Services (Proprietary) Limited, 70, Marshall Street, Johannesburg, 2001, South Africa, PO Box 61051, Marshalltown, 2107, not less than 48 hours before the date of the Meeting. Holders of Oando PLC shares in South Africa (whether certificated or dematerialised) through a nominee should timeously make the necessary arrangements with that nominee or, if applicable, Central Securities Depository Participant (“CSDP”) or broker to enable them to attend and vote at the Meeting or to enable their votes in respect of their Oando PLC shares to be cast at the Meeting by that nominee or a proxy.

Signature: __________________________________

Dated this _____ day of _______________ 2012.

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Oando PLC 2011 ANNUAL REPORT

Please affix postage stamp

First registrars Nigeria Limited Plot 2, Abebe Village road, Iganmu, Lagos or

Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001, South Africa PO Box 61051, Marshalltown, 2107

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Oando PLC 2011 ANNUAL REPORT

ADMISSION CArD 35th ANNUAL GENERAL MEETING TO BE HELD AT SHELL NIGERIA HALL, THE MUSON CENTRE, 8/9 MARINA, ONIKAN, LAGOS STATE On Friday July 20, 2012 at 10.00 a.m. NAME OF SHAREHOLDER _________________________________________________ SIGATURE OF PERSON ATTENDING _________________________________________________

NOTE: The Shareholder or his/her proxy must produce this admission card in order to be admitted at the meeting.

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Oando PLC 2011 ANNUAL REPORT

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Oando PLC 2011 ANNUAL REPORT

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Oando PLC 2011 ANNUAL REPORT

Notes

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Oando PLC 2011 ANNUAL REPORT

Notes

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Oando PLC 2011 ANNUAL REPORT

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Oando PLC 2011 ANNUAL REPORT

Contact Details

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Oando PLC 2011 ANNUAL REPORT

Oando PLC

(5th, 7th-10th Floor) 2, Ajose Adeogun Street Victoria Island Lagos, Nigeria

Tel: +234-1-2702400 E-mail: [email protected] Website: www.oandoplc.com

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