Q2 2012 FINANCIAL REPORT For the three and six months ended June 30, 2012

PETROMINERALES REPORTS SECOND QUARTER FINANCIAL RESULTS HIGHLIGHTED BY FUNDS FLOW FROM OPERATIONS OF $173.7 MILLION Calgary, Canada – August 2, 2012 – Petrominerales Ltd. (“Petrominerales” or the “Company”) (TSX: PMG, BVC: PMGC) is pleased to announce our 2012 second quarter financial results highlighted by funds flow from operations of US$173.7 million or US$1.78 per share on sales volumes of produced oil averaging 32,138 barrels of oil per day (“bopd”). During the quarter, we completed a series of transactions that allowed us to repurchase 10 percent of our common shares and extend the maturity of our convertible bond debt. Our balance sheet remains strong with US$160.6 million of cash and a completely undrawn, secured credit facility. This financial flexibility gives us the strength to execute our ongoing high-impact exploration program.

FINANCIAL & OPERATING HIGHLIGHTS The following table provides a summary of Petrominerales’ financial and operating results for the second quarter ended June 30, 2012 and 2011. Consolidated financial statements with Management's Discussion and Analysis ("MD&A") are now available on the Company’s website at www.petrominerales.com and will also be available on the SEDAR website at www.sedar.com. Financial Highlights ($US millions, except where noted)

Oil sales Funds flow from operations(1) Per share – basic ($) – diluted ($) Adjusted net income (1) (2) Per share – basic ($) – diluted ($) Dividends declared Expenditures on PP&E and E&E(3) As at, Cash Net working capital surplus(1) Debt(5) Total assets Common shares (000s) Fully diluted common shares (000s)(4)

Three months ended June 30, 2012 2011 % change 289.8 378.0 (23) 173.7 194.7 (11) 1.78 1.88 (5) 1.50 1.62 (7) 38.3 113.9 (66) 0.39 1.10 (65) 0.38 0.99 (62) 11.0 13.7 (20) 150.6 174.8 (14) June 30, 2012 160.6 24.9 671.1 2,244.4 89,778 97,002

Six months ended June 30, 2012 2011 % change 622.8 727.7 (14) 373.5 376.5 (1) 3.79 3.63 4 3.23 3.12 4 118.6 189.7 (37) 1.20 1.83 (34) 1.14 1.67 (32) 23.5 27.1 (13) 369.0 324.3 14

March 31, 2012 175.6 36.2 550.0 2,283.2 99,719 106,924

December 31, 2011 295.4 73.8 550.0 2,226.5 99,375 106,883

Operating Highlights Three months ended June 30, 2012 2011 % change

Q1 2012 Financial Report 20,936 29,955

Production (bopd) Deep Llanos Central Llanos Neiva Orito Heavy oil Total production Sales volumes

4,914 3,428 1,827 8 31,113 32,138

Operating netback ($/bbl)(1) WTI benchmark price Brent benchmark price Discount to Brent Sales price Transportation expenses Realized crude oil price Royalties Production expenses Operating netback (1)

93.48 108.44 9.35 99.09 7.42 91.67 10.63 16.62 64.42

Six months ended June 30, 2012 2011 % change

4,386 3,939 2,028 40,308 39,202

(30) 12 (13) (10) (23) (18)

22,261 4,657 3,587 2,026 37 32,568 32,475

30,050 4,486 4,029 1,989 40,554 39,442

(26) 4 (11) 2 (20) (18)

102.34 118.32 12.35 105.97 10.82 95.15 12.82 12.74 69.59

(9) (8) (25) (6) (31) (4) (17) 30 (7)

98.20 113.46 8.09 105.37 7.12 98.25 11.18 14.91 72.16

98.47 111.76 9.83 101.93 10.09 91.84 12.16 10.22 69.46

2 (18) 3 (29) 7 (8) 46 4

(1) Non-IFRS measure. See “Non-IFRS Measures” section. (2) Management considers adjusted net income a more representative measure of the Company’s economic performance. See the “Net Income and Adjusted Net Income” section of the MD&A. (3) PP&E consists of property, plant and equipment assets and E&E consists of exploration and evaluation assets from the consolidated statement of cash flow. (4) Consists of the sum of common shares, stock options, deferred common shares, incentive shares and potential shares issuable on conversion of in-the-money convertible debentures outstanding as at the period-end date. At June 30, 2012, March 31, 2012 and December 31, 2011, the convertible debentures were considered debt since the bond conversion prices of $33.17 and $18.00 were higher than the Company’s stock price. (5) Debt represents the principal amount of out-of-the-money convertible bonds outstanding.

HIGHLIGHTS AND SIGNIFICANT TRANSACTIONS DURING THE SECOND QUARTER (Comparisons are second quarter 2012 compared to the second quarter of 2011 unless otherwise noted)  During the quarter, we enhanced our capital structure by issuing US$400 million of convertible debentures that mature in June 2017, repurchasing US$279.9 million of existing convertible debentures that had an early settlement option in August 2013, and repurchasing and cancelling 10 percent, or 10.06 million, of our shares for US$140.1 million.  We had two new oil discoveries on the Corcel Block, Guala and Chilaco, and drilled a successful development well on the Casimena Block, Yenac-4.  Our operating netbacks averaged US$64.42 per barrel in the second quarter, a seven percent decrease over the second quarter of 2011, primarily due to lower world oil prices and higher operating costs, offset by transportation savings achieved from our OCENSA pipeline acquisition.  Capital expenditures were US$150.6 million, or 31 percent lower than the first quarter of 2012, we expect our cost run-rate for the remainder of 2012 to be less than these second quarter levels.  Funds flow from operations was US$173.7 million or US$1.78 per basic share, representing 11 and five percent decreases over 2011 primarily due to lower sales volumes and sales prices.  Adjusted net income was US$38.3 million or US$0.39 per basic share, representing 66 and 65 percent decreases over 2011 largely due to lower oil sales, lower oil prices and higher depletion.

Petrominerales Ltd.

August 2, 2012 Operational Update

2

OPERATIONAL REVIEW Production (bopd)

Q1 2012 Financial Report

Deep Llanos Central Llanos Neiva Orito Heavy oil Total production

July Second Quarter 2012 2012 17,810 20,936 4,917 4,914 3,322 3,428 1,404 1,827 8 27,453 31,113

First Quarter Fourth Quarter 2012 2011 23,596 26,237 4,416 3,226 3,746 3,993 2,226 1,897 63 34,047 35,353

Second quarter production averaged 31,113 bopd, 2,934 bopd or nine percent lower than the first quarter of 2012. Our Deep Llanos production decreased 2,660 bopd or 11 percent mainly due to natural declines and the temporary shut-in of Yatay-1 in April to start the downhole pump, offset partially by our Guala-1 discovery that was brought on production in mid-June. Our Central Llanos production increased 498 bopd or 11 percent due to the Yenac-4 development well brought on production and the full quarter production from Tucuso-1, partially offset by the Mapache block wells being shut-in due to community disruptions. Orito production decreased 18 percent primarily due to 350 bopd of shut-in production following a mud slide. Neiva production decreased eight percent mainly due to natural declines. We plan to recommence both our Orito and Neiva drilling programs in the first quarter of 2013 upon receipt of environmental permits. Production averaged 27,453 bopd during July, twelve percent or 3,660 bopd lower than the second quarter average primarily due to our Yatay-1 well being offline for six days, a reduction of 1,375 bopd, and natural declines. We expect our Yatay-1 well to be back on production August 2nd. In addition, we have approximately 1,100 bopd of production offline temporarily on the Orito block due to a recent mudslide, certain wells awaiting workovers and facility disruptions. We also have approximately 500 bopd of production shut in on the northern part of our Mapache block as a result of community disruptions. Deep Llanos Basin (Corcel, Guatiquia and South Block 31), Colombia During the quarter we drilled two wells, Guala-1 and Hungaro-1. Guala-1 was drilled to a total measured depth of 12,432 feet. Well logs indicate 47 feet of potential net oil pay, 38 feet in the Lower Sand 1 formation and nine feet in the Guadalupe formation. After completing the well in the Lower Sand 1, we installed an electric submersible pump and placed the well on production on June 17th at a stabilized oil rate of 2,046 bopd of 17 degree API oil, at a six percent water-cut. The well averaged 1,944 bopd during the remainder of the month. Our Hungaro-1 prospect was drilled to a total measured depth of 13,510 feet. After analysis of well logs and drilling data, we decided to abandon the well. The rig has since moved to our Mambo-1 prospect on the Corcel Block and began drilling operations on July 1st. This prospect has similar features of and is adjacent to our recent Guala discovery. We also commenced drilling our Guarana-1 prospect, which is adjacent to our Macapay oil discovery that has produced over 600,000 barrels of oil since June 2011.

Petrominerales Ltd.

August 2, 2012 Operational Update

3

Foothills Blocks (Block 25, 31, 59 and 15), Deep Llanos Basin, Colombia Our Bromelia-1 prospect reached total depth of 18,550 feet on May 9th. The well appears to be split into an oil bearing section and a gas bearing section. The petrophysical analysis of the oil bearing section indicates the presence of 142 feet of net potential pay in six different formations; the largest intervals were the Barco, Mirador and Carbonera formations. Logs were not run over the high-pressure, high-temperature gas zone penetrated in the Une formation; however, 14 feet of net potential pay can be inferred based on gas chromatograph readings, the presence of gas in the mud system, and the gamma logs.

Q1 2012 Financial Report

We cased the well and have initially identified up to four zones to test. The potential oil zones are being tested first due to logistics, shorter lead times and the relative ease of commercialization. Testing of the first zone in the Barco formation has been completed and although the formation demonstrated positive reservoir characteristics, the test recovered water. After we recovered the testing string to surface, we found that the downhole packer and test string were coated in heavy oil. Our initial interpretation is that the residual heavy oil encountered would not be economic to produce. Our plan is to complete the testing of three more potential oil bearing zones, the lower and upper Mirador and Carbonera formations, by early in the fourth quarter. We expect reservoir quality and the potential for producible oil to improve as we move uphole and test the remaining intervals. We plan to conduct a long-term production test of the high-pressure, high-temperature gas bearing zone, depending on the results from the potential oil bearing zones. . We have also initiated a 256 square kilometre 3D seismic acquisition program on the northeastern portion of Block 25, where we see some highly prospective structures on our 2D seismic. Based on our plan to acquire a large, regional 3D seismic program, we have decided to defer drilling the Canatua prospect until 2013. On Block 59, we have completed the acquisition of a large, 379 square kilometre 3D seismic program. We are encouraged by our initial review of the seismic and are planning a multi-well exploration program on this block starting in the first half of 2013. On Block 31, we are evaluating and interpreting the large overthrust trend on our recently acquired 3D seismic program that was previously identified on existing 2D seismic data. Initial mapping indicates that there may be multiple structures present along this trend. We have identified a provisional location near an abandoned well drilled in 1971. This well reached a total depth of 15,990 feet in the Carbonera C7 formation and encountered an oil show in a stratigraphically higher middle Carbonera sand.

Petrominerales Ltd.

August 2, 2012 Operational Update

4

Central Llanos Basin (Casimena, Castor, Casanare Este, Mapache Blocks), Colombia In the second quarter, we drilled an appraisal well on our Casimena Block, Yenac-4. Well logs indicate 55 feet of net pay, 36 feet in the Upper Mirador formation and 19 feet in the Lower Mirador formation. We placed Yenac-4 on production in late April at over 1,000 bopd of 16 degree API, and the well averaged 846 bopd for the remainder of the quarter.

Q1 2012 Financial Report

We have received our Yenac exploitation license, and we are working to accelerate our Yenac horizontal drilling program, which could commence in the fourth quarter of 2012 and will be targeting the Lower Mirador formation. Llanos Basin Heavy Oil Blocks (Rio Ariari, Chiguiro Oeste, Chiguiro Este), Colombia In the second quarter, we drilled one vertical well, Dara-1, on our Chiguiro Oeste Block. The Dara-1 prospect was testing two play concepts: first, a sand draped over a Paleozoic remnant; and second, a potential Paleozoic trap. We encountered 129 feet of reservoir in the Mirador formation, as predicted, however the reservoir was swept of oil and we only encountered water. We also drilled one stratigraphic well, ES-45, prior to community disturbances that occurred on the Rio Ariari Block. In April, certain roads on the portion of our Rio Ariari Block near Vista Hermosa, Meta, were illegally blocked. As a result, we temporarily suspended exploration operations, including testing work on our Tatama-1 horizontal well and on our stratigraphic drilling program, and mobilized all equipment to our Chiguiro Oeste Block. We are planning to move the drilling rig to the eastern portion of the Rio Ariari Block to drill four initial exploration prospects with the objective of testing new play concepts and defining new, high-potential resource on the Block. In addition, we are initiating an 80 kilometre 2D seismic program on the eastern portion of the Block, and once completed, we plan to drill an additional four stratigraphic wells in this region. Orito (Putumayo Basin) and Neiva (Upper Magdalena Basin), Colombia We did not drill any wells on our Orito or Neiva fields during the second quarter, as we are in the process of updating environmental permits on both blocks. We expect to recommence our development drilling program in the first quarter of 2013.

Petrominerales Ltd.

August 2, 2012 Operational Update

5

Block 126, Peru During the quarter we completed our logistics work for our second exploration prospect, Sheshea 1X, and we commenced drilling the well on July 19th. We anticipate drilling and testing of Sheshea 1X to be completed in the fourth quarter of 2012, and are planning to test up to five reservoir intervals in this well. The Sheshea prospect is a potentially large, 10,000 acre, closed structure with multiple reservoir opportunities located approximately 50 kilometres south of our first exploration well, La Colpa 2X. Based on our geological and geophysical analysis, we estimate that the prospect could potentially contain over 100 million barrels of undiscovered petroleum initially-in-place.

Q1 2012 Financial Report

On July 24th, we completed our previously announced acquisition of our former partner’s remaining 20 percent working interest in blocks 126, 141 and 161 in Peru for total consideration of US$5 million, satisfied by the issuance of 524,871 shares of Petrominerales. As a result, Petrominerales owns our former joint venture partner’s Peruvian operating subsidiary that previously held the 20 percent working interest in Blocks 126, 141 and 161, with working capital of US$2 million on closing. Further, the transaction enabled us to extinguish the rights to contingent consideration of up to US$8 million that was payable by Petrominerales to our former partner under previous agreements, subject to achievement of certain production thresholds. Petrominerales now holds 100% of the interest in blocks 126, 141 and 161 in Peru Blocks 114 and 131, Peru Petrominerales holds a 30 percent working interest in Blocks 114 and 131. On Block 131, the operator has identified two drillable prospects. The Environmental Impact Assessment (“EIA”) for drilling was submitted in June 2011 and the first well is planned for April 2013. On Block 114, the acquisition of 260 kilometres of 2D seismic resumed in June 2012 with final interpretation expected by July 2013. Pending interpretation of the data, drilling is expected to begin in the fourth quarter of 2013. The operator is responsible for our share of the costs under the current seismic exploration phase, as well as our share of costs for the first exploration well on each block. Block 161 and 141, Peru Block 161, situated in east central Peru, is 1.2 million acres in size and Petrominerales holds a 100 percent working interest. Terms of reference to complete the EIA’s Public Consultation Plan are in the final stages of the Peruvian Ministry of Energy and Mines approval. Upon completion and approval of the EIA, the planned 353 kilometre 2D seismic program will commence, likely in the second half of 2013. Block 141, situated in southern Peru, is 1.3 million acres in size, of which Petrominerales has a 100 percent working interest. In July 2012, we received approval to commence our Public Consultation Plan, a key step in the completion of EIA. Our commitment to complete a 300 kilometre 2D seismic program is currently scheduled to begin in early 2014, pending the completion and approval of the EIA.

Petrominerales Ltd.

August 2, 2012 Operational Update

6

OUTLOOK We further strengthened our balance sheet with our recent convertible bond issuance by extending the maturity on US$250 million of pre-existing convertible debt by four years, while buying back and cancelling 10 percent of our outstanding common shares. At June 30, 2012, our balance sheet included cash on hand of US$160.6 million and a completely undrawn, secured credit facility.

Q1 2012 Financial Report

Our immediate focus is on executing our high-impact exploration drilling programs in Colombia and Peru. In addition, we are acquiring over 1,000 square kilometres of new 3D seismic, of which 664 square kilometres has been acquired and is currently being interpreted. We expect these 3D seismic acquisitions to add significantly to our prospect inventory and to provide new drilling opportunities for our 2013 program. With remaining test results on Bromelia expected in the third quarter, up to four more wells to be drilled in the Corcel area and Sheshea-1X to be drilled in Peru, we are looking forward to updating our shareholders on our progress throughout the remainder of 2012. CONFERENCE CALL Management of Petrominerales will be holding a conference call for investors, financial analysts, media and any interested persons on Thursday, August 2, 2012 at 9:00 a.m. (Mountain Time) (11:00 a.m. Eastern Time) to discuss our 2012 second quarter financial and operating results. The investor conference call details are as follows: Live call dial-in number(s): 416-695-6622 / 800-565-0813 Live audio webcast link: http://events.digitalmedia.telus.com/petrominerales/080212/index.php Replay dial-in numbers: 905-694-9451 / 800-408-3053 Replay Pass code: 9492828

Petrominerales Ltd.

August 2, 2012 Operational Update

7

MANAGEMENT’S DISCUSSION AND ANALYSIS The following Management’s Discussion and Analysis (“MD&A”) is dated August 1, 2012 and should be read in conjunction with the unaudited condensed interim consolidated financial statements and accompanying notes of Petrominerales Ltd. (“Petrominerales” or the “Company”) as at and for the three and six months ended June 30, 2012, MD&A for the three and six months ended June 30, 2011, and the audited consolidated financial statements as at and for the year ended December 31, 2011. Additional information for the Company, including the Annual Information Form (“AIF”) can be found on SEDAR at www.sedar.com, on SIMEV at www.superfinanciera.gov.co or at www.petrominerales.com. All amounts are in United States dollars, unless otherwise stated and all tabular amounts are in millions of United States dollars, except per share amounts or as otherwise noted.

Q1 2012 Financial Report

NATURE OF BUSINESS Petrominerales Ltd. (“Petrominerales” or the “Company”) is an international oil and gas company involved in the exploration, development and production of crude oil in Colombia and Peru. Petrominerales is incorporated in Alberta, Canada and is a public company listed on the Toronto Stock Exchange and on the Colombian Stock Exchange. The Company’s head office is located at 1900, 111 – 5th Avenue S.W., Calgary, Alberta, Canada, T2P 3Y6. QUARTERLY RESULTS 2012 Financial ($millions except where noted) Oil sales (1) Funds flow from operations Per share – basic ($) – diluted ($) (1) Adjusted net income Per share – basic ($) – diluted ($) Net income (loss) Per share – basic ($) – diluted ($) PP&E and E&E additions (1)

2011

Q2

Q1

289.8 173.7 1.78 1.50 38.3 0.39 0.38 65.8 0.68 0.35 150.6

333.0 199.8 2.01 1.73 80.3 0.81 0.75 80.6 0.81 0.75 218.4

Q4

329.9 213.3 2.14 1.84 77.7 0.78 0.72 107.0 1.07 0.72 252.4

Q3

363.0 196.4 1.93 1.66 58.8 0.58 0.55 133.7 1.31 0.55 210.4

2010 Q2

Q1

378.0 194.7 1.88 1.62 113.9 1.10 0.99 215.7 2.08 0.99 174.8

349.7 181.8 1.76 1.50 75.8 0.73 0.68 36.8 0.35 0.34 149.5

Q4

250.6 153.3 1.52 1.28 34.7 0.34 0.33 (72.5) (0.72) (0.72) 162.8

Q3

231.5 128.5 1.29 1.17 59.1 0.59 0.58 27.2 0.27 0.27 119.1

Non-IFRS measure. See “Non-IFRS Measures” section within this MD&A.

In the second quarter of 2012 compared to the first quarter of 2012, funds flow from operations decreased 13 percent mainly due to eight percent lower world oil prices and higher production expenses, offset by lower current income taxes. Adjusted net income was impacted by the same factors as funds flow from operations, and was further impacted by higher depletion and deferred taxes. Capital expenditures decreased 31 percent to $150.6 million in the second quarter of 2012 compared to the first quarter of 2012, consistent with our capital plan, primarily due to our first quarter investment in water disposal well.

Petrominerales Ltd.

Second Quarter 2012 MD&A

8

2012 Q2

2011 Q1

Q3

Q2

Q1 2012 Financial Report Operations Production (bopd): Deep Llanos Central Llanos Neiva Orito Heavy oil Total production (bopd)

Sales of produced oil (bopd) Operating netback ($/bbl) WTI benchmark price Brent benchmark price Brent discount Crude oil sales price Transportation Realized crude oil price Royalties

2010

Q4

Q1

Q4

Q3

20,936 4,914 3,428 1,827 8 31,113

23,596 4,416 3,746 2,226 63 34,047

26,237 3,226 3,993 1,897 35,353

26,576 4,612 4,017 1,919 37,124

29,955 4,386 3,939 2,028 40,308

30,766 3,966 4,121 1,949 40,802

24,194 2,533 3,883 2,532 33,142

24,671 1,444 3,790 2,762 32,667

32,138

32,813

33,913

39,923

39,202

39,688

32,138

32,696

93.48 108.44 9.35 99.09 7.42 91.67 10.63 12% 16.62

102.93 118.49 6.97 111.52 6.83 104.69 11.72 11% 13.23

93.87 109.18 3.46 105.72 8.85 96.87 11.92 12% 12.63

89.54 113.38 14.54 98.84 11.08 87.76 10.73 12% 15.92

102.34 118.32 12.35 105.97 10.82 95.15 12.82 13% 12.74

94.61 104.89 6.99 97.90 9.36 88.54 11.50 13% 7.70

85.34 87.49 7.09 80.40 6.51 73.89 12.06 16% 13.06

76.15 77.02 4.80 72.22 7.68 64.54 9.09 14% 7.63

64.42

79.74

72.32

61.11

69.59

69.34

48.77

47.82

(1)

Royalties as a % of realized price

Production expenses Operating netback ($/bbl)

Compared to the first quarter of 2012, production decreased nine percent mainly due to natural declines that exceeded production additions; however, sales volumes decreased only two percent. Crude oil sales price decreased 11 percent due to eight percent lower world crude oil prices and a widening of the Vasconia blend differential price to Brent. Transportation costs increased slightly due to a non-recurring sale of oil from a further delivery point. Production expenses increased due to more workovers, higher fuel costs and professional fees. Significant factors influencing the prior quarterly results were:  Production in Q1-2012 and Q4-2011 was impacted by the temporary shut-in of 2,500 bopd of production awaiting lower costs water disposal capacity. Q3-2011 production was negatively impacted by approximately 2,200 bopd due to a seven day production shut-in of our Corcel and Guatiquia Blocks caused by road blockades. Production increased in Q1-2011 mainly due to the Yatay discovery that came on production at the beginning of 2011;  Starting in Q4-2011 we began delivering oil into the OCENSA pipeline as owners, resulting in lower transportation costs. Transportation costs per barrel increased in the first three quarters 2011 primarily due to higher trucking tariffs, wet weather and deliveries to further destinations;  We expect the royalty rate to increase in the third quarter of 2012 when our Yatay field reach’s’ high price participation. The royalty rate has been decreasing each quarter since Q1-2011 as a lower proportion of our oil sales come from the Candelilla field. Starting in Q3-2010, our royalty rate as a percentage of revenue increased due to the start of high price participation payments on our Candelilla field production;  Q4-2010 operating costs were higher primarily due to a historical cost adjustment at Orito, excluding this adjustment operating costs would have been $8.15 per barrel;  Q2-2011, Q3-2011 and Q2-2012 operating expenses increased due to a number of workovers performed and higher water trucking and handling costs; and  Capital expenses had been increasing to the end of 2011, consistent with our growing operations and drilling programs.

Petrominerales Ltd.

Second Quarter 2012 MD&A

9

FINANCIAL REVIEW (comparisons are the second quarter 2012 compared to the second quarter of 2011 unless otherwise noted)

Q1 2012 Financial Report

Average Daily Crude Oil Production and Sales Volumes (bopd) Three months ended June 30,2012

Deep Llanos Central Llanos Neiva Orito Heavy oil Total production Inventory changes & other Sales volumes

2012 20,936 4,914 3,428 1,827 8 31,113 1,025 32,138

2011 % Change 29,955 (30) 4,386 12 3,939 (13) 2,028 (10) 40,308 (23) (1,106) 39,202 (18)

Six months ended June 30,2012

2012 22,261 4,657 3,587 2,026 37 32,568 (93) 32,475

2011 % Change 30,050 (26) 4,486 4 4,029 (11) 1,989 2 40,554 (20) (1,112) (92) 39,442 (18)

Production for the second quarter decreased 23 percent and 20 percent year-to-date compared to the same periods of 2011 primarily due to natural well declines that were partially offset by production from new discoveries on our Deep Llanos and Central Llanos Blocks. Deep Llanos production, consisting of our Corcel and Guatiquia Blocks, decreased 30 percent in the second quarter and 26 percent year-to-date compared to the same periods of 2011 mainly due to natural declines and certain wells being offline for workovers that were partially offset by production additions from new discoveries throughout the last six months of 2011 and the first six months of 2012. New discoveries included Macapay in June 2011, Azalea in July 2011, Cobra-1 in August 2011, Cobra-2 in December 2011, Chilaco in April 2012 and Guala in June 2012. Deep Llanos production in 2012 was also impacted by Yatay-1 being temporarily offline in April to start its pump and six wells being offline during parts of the six month period for workovers. Central Llanos production comes from our Casimena, Castor and Mapache Blocks. Production increased 12 percent in the quarter and four percent year-to-date compared to the same periods of 2011 due to production additions from Capybara in April 2011, Disa in July 2011, Pisingo in November 2011, Tucuso in March 2012 and Yenac-4 in April 2012, that were partially offset by natural declines. Approximately 500 bopd from our Disa-1 and Mapache-1 wells have been offline since April due to community disruption. Neiva production decreased 13 percent in the quarter and 11 percent year-to-date due to natural declines since we suspended our drilling program on the Block in the third quarter of 2011 pending new environmental permits. Orito production decreased 10 percent for the quarter due to an additional 500 bopd temporary offline in second quarter due to a mudslide in the area that caused certain wells to be shut-in for repair. Year-to-date production increased two percent due to four new development wells and three well recompletions placed on production between September 2011 and January 2012.

Petrominerales Ltd.

Second Quarter 2012 MD&A

10

Average Benchmark and Realized Prices Three months ended June 30,

Q1 2012 Financial Report

2011 % Change 102.34 (9)

Brent ($/bbl) Discount – Brent to Vasconia ($/bbl) Vasconia ($/bbl) Discount – Vasconia to sales price ($/bbl) Sales price ($/bbl)

118.32 (6.16) 112.16 (6.19) 105.97

WTI ($/bbl)

Sales price discount as a % of Brent

2012 93.48

108.44 (4.81) 103.63 (4.54) 99.09 9%

10%

Six months ended June 30,

2012 98.20

(8) (22) (8) (27) (6)

113.46 (4.53) 108.93 (3.56) 105.37

10

7%

2011 % Change 98.47 111.76 (5.58) 106.18 (4.25) 101.93

2 (19) 3 (16) 3

9%

(22)

The majority of our production is priced in relation to the Colombian Vasconia Blend, which has been correlated with world benchmark Brent prices through 2011 and 2012. Our sales price decreased six percent in the second quarter and increased three percent year-to-date, consistent with the changes in the Colombian Vasconia Blend and Brent prices. On a 2012 quarter-to-quarter basis, our selling price decreased from $111.52 per barrel in the first quarter to $99.09 per barrel in the second quarter, consistent with the Vasconia price decrease from $114.64 per barrel to $103.63 per barrel. In the second quarter, our selling price was impacted by approximately $1.50 per barrel due to timing differences on the prices between the dates of oil shipment compared to the period average. Oil Sales Second quarter oil revenue decreased $88.2 million or 23 percent and year-to-date revenue decreased $104.9 or 14 percent as reconciled in the table below:

Oil sales, 2011 Sales price decrease of 6% and increase of 3%, respectively Sales volumes decrease of: 18% and 18%, respectively (7,064 and 6,967 bopd) Oil sales, 2012 $ Change in oil sales % Change in oil sales

Petrominerales Ltd.

Three months ended June 30, 378.0 (20.3)

Six months ended June 30, 727.7 20.4

(67.9) 289.8 (88.2) (23%)

(125.3) 622.8 (104.9) (14%)

Second Quarter 2012 MD&A

11

Royalties Three months ended June 30,

2012 31.1 10.63 12%

Q1 2012 Financial Report

Royalties $ per bbl Royalties as a percent of realized price

2011 % Change 45.7 (32) 12.82 (17) 13% (8)

Six months ended June 30,

2012 66.1 11.18 11%

2011 % Change 86.8 (24) 12.16 (8) 13% (15)

Royalty Framework Colombian government royalties start at a rate of eight percent until the production per field exceeds 5,000 bopd and then increase by one percent for each incremental 10,000 bopd of production per field up to a maximum of 25 percent. In addition, a high price participation payment is applied under certain Colombian exploration contracts when the cumulative production, in an exploitation area under older contracts or cumulatively produced in the entire contract area under newer contracts, exceeds five million barrels. To date, three exploitation areas have produced more than five million barrels; Candelilla in the second quarter of 2010, Corcel A in the fourth quarter of 2011, and Corcel C in June 2012. The Yatay exploitation area is expected to exceed the five million barrel cumulative production threshold early in the third quarter of 2012. The high price participation payment is payable on contracted blocks to the Agencia Nacional de Hidrocarburos (National Hydrocarbon Agency) (“ANH”) and is calculated as thirty percent of the difference between the realized oil price and a threshold oil price established by the ANH. Lastly, production from the Corcel Block is subject to an eight percent net profits interest (“NPI”). The NPI account is a cumulative balance that includes the deduction of capital investments such that when negative, no amount is payable. Comparative Analysis Royalties decreased 32 percent in the second quarter and 24 percent year-to-date due to lower oil revenue. Royalties as a percentage of sales price less transportation per barrel (“realized price”) decreased from 13 percent to 12 percent in the second quarter and from 13 percent to 11 percent year-to-date as a lower proportion of our sales were subject to high price participation payments, specifically the Candelilla production as a percent of total production decreased. High Price Participation Dispute As disclosed in the 2011 MD&A, Petrominerales has a dispute with the ANH related to the interpretation of the Corcel Block exploration contract (“Corcel Contract”). We have initiated arbitration proceedings as provided for in the Corcel Contract, with initial hearings scheduled for mid-August. Consistent with Petrominerales 2011 opinion, the Company believes that the resolution of this dispute will be in favor of the Company, and accordingly, no royalty provision has been made in these financial statements. Had we applied the ANH’s interpretation of the high price royalty application, our second quarter and year-to-date 2012 royalty rate would have been 19 and 20 percent, respectively.

Petrominerales Ltd.

Second Quarter 2012 MD&A

12

Transportation Costs Three months ended June 30,

2012 21.7 7.42

Q1 2012 Financial Report

Transportation costs $ per bbl

2011 % Change 38.5 (44) 10.82 (31)

Six months ended June 30,

2012 42.1 7.12

2011 % Change 72.1 (42) 10.09 (29)

Transportation costs include the costs to truck our crude oil to offloading stations and, starting in the fourth quarter of 2011, OCENSA pipeline tariffs. All of our Llanos Basin oil production is trucked to various offloading stations for sale except for the Orito and Neiva fields that are connected to pipelines. Effective September 1, 2011, we began delivering more oil to the closer Monterrey offloading station and into the OCENSA pipeline due to our five percent ownership acquisition. For barrels shipped in the pipeline, we are saving up to $10 per barrel through a combination of lower transportation costs and higher sales prices given direct access to export markets made available through the pipeline. Offsetting the lower trucking costs is a $1.00 per barrel increase in pipeline fees. As result, our transportation costs are lower in 2012 on a per barrel basis. In addition, the second quarter of 2012 transportation costs were higher by approximately $0.75 per barrel from non-recurring sales of oil delivered to a further offloading station. Production Expenses Three months ended June 30,

Production expenses $ per bbl

2012 48.6 16.62

2011 % Change 45.4 7 12.74 30

Six months ended June 30,

2012 88.1 14.91

2011 % Change 72.9 21 10.22 46

Production expenses increased in 2012 mainly due to higher fuel costs, increased professional services associated with more wells on production and more workovers. Increased fuel costs are driven by increase energy demand from having 100 percent down-hole water disposal and handling larger volumes of water in 2012. Depletion and Depreciation (“D&D”) Expenses Three months ended June 30,

D&D expenses $ per bbl

2012 99.9 34.16

2011 % Change 63.7 57 17.85 91

Six months ended June 30,

2012 185.8 31.44

2011 % Change 131.4 41 18.40 71

D&D expense increased 57 percent for the quarter and 41 percent year-to-date mainly due to the increase in the per barrel depletion rate. The depletion rate increased 91 percent for the quarter and 71 percent year-to-date due to higher finding and development costs related to proved plus probable reserves. General and Administrative Expenses Three months ended June 30,

General and administrative expenses $ per bbl

2012 8.8 3.01

2011 % Change 8.9 (1) 2.49 21

Six months ended June 30,

2012 16.6 2.81

2011 % Change 18.5 (10) 2.59 8

General and administrative costs (“G&A”) are one percent lower than the second quarter of 2011 and 10 percent lower year-to-date due to lower administrative personnel and related costs.

Petrominerales Ltd.

Second Quarter 2012 MD&A

13

Share-Based Compensation Expenses Three months ended June 30,

2012 3.9

Q1 2012 Financial Report

Share-based compensation expenses

2011 % Change 4.7 (17)

Six months ended June 30,

2012 8.1

2011 % Change 11.0 (26)

Share-based compensation expense is a non-cash expense that is based on the fair value of stock options, incentive shares, deferred common shares and share appreciation rights (“SAR”) granted. The fair value is calculated on grant date and amortized over the vesting period of each option, incentive share or SAR tranche, or immediately upon grant of the deferred common shares (“DCS”). The 2012 expense decreased 17 percent in the quarter and 26 percent year-to-date due to increased forfeitures and a lower fair value per share-based grant. Net Finance Income (Expense) Three months ended June 30,

Interest on convertible debentures Accretion on convertible debentures Accelerated accretion on buyback Gain on settlement of debentures Convertible debenture expenses Standby and other bank charges Other accretion and amortization Finance costs Gain on derivative financial liability Foreign exchange loss Interest income Net finance income (expense) Consisting of: Cash finance expenses Non-cash finance income

2012 (3.6) (4.2) (44.8) 13.8 (38.8) (3.3) (1.1) (43.2) 58.5 (0.9) 1.5 15.9 (6.3) 22.2

Six months ended June 30,

2011 % Change (3.6) (4.2) (7.8) 397 (1.8) 83 (1.4) (21) (11.0) 293 101.8 (43) (9.7) (91) 0.6 150 81.7 (81)

2012 (7.2) (8.6) (44.8) 13.8 (46.8) (5.1) (2.4) (54.3) 58.8 (14.7) 3.0 (7.2)

2011 % Change (7.2) (8.2) 5 (15.4) 204 (3.6) 42 (2.7) (11) (21.7) 150 62.8 (6) (13.5) 9 1.2 150 28.8 -

(14.5) 96.2

(24.0) 16.8

(23.1) 51.9

(57) (77)

4 (68)

Finance costs Finance costs increased due to the buyback of $278.9 million of the 2016 convertible debentures during the second quarter. The carrying carrying value of the debt portion of the debenture was $238.1 million, resulting in the difference of $44.8 million being recognized as accelerated accretion. The cash paid to settle the debentures was $275.6 million. The total carrying value of the debentures was $289.4 million, consisting of the debt portion of $278.9 million and the derivative liability portion of $10.5 million, resulting in the difference of $13.8 million being recognized as a gain on settlement. Gain on Derivative Financial Liability The non-cash derivative gain recorded for the change in the fair value of the conversion features of the convertible debenture in the second quarter of 2012 and year-to-date was $58.5 million and $58.8 million, respectively, since the Company’s stock price at June 30, 2012 decreased from the March 31, 2012 and December 31, 2011 prices.

Petrominerales Ltd.

Second Quarter 2012 MD&A

14

Foreign Exchange Loss Movements in the Colombian peso exchange rate impact the Company’s Colombian peso denominated payables as approximately 65 percent of the Company’s expenditures are incurred in Colombian pesos. The Colombian peso at June 30, 2012 was consistent relative to the U.S. dollar at March 31, 2012, moving to 1,785:1 from 1,792:1. This movement in exchange rates resulted in a $0.9 million foreign exchange loss during the second quarter primarily on the Colombian peso denominated current liabilities. The Colombian peso at June 30, 2012 appreciated eight percent relative to the U.S. dollar at December 31, 2011, moving to 1,785:1 from 1,943:1. This movement in exchange rates resulted in a $14.7 million foreign exchange loss during the first six months of 2012 primarily on the Colombian peso denominated current liabilities.

Q1 2012 Financial Report

Income Tax Expense Three months ended June 30,

Current income tax (recovery) Deferred income tax Income taxes Effective tax rate, calculated using adjusted income before taxes, equity tax and derivative/debenture losses (gains)

2012 (1.4) 27.3 25.9

40%

2011 % Change 30.0 6.7 307 36.7 (29)

24%

67

Six months ended June 30,

2012 15.0 47.4 62.4

34%

2011 % Change 76.3 (80) 6.9 587 83.2 (25)

28%

21

The Company’s pre-tax income is subject to the Colombian statutory income tax rate of 33 percent. Tax expense decreased 29 percent in the quarter primarily due to lower taxable income. The Company’s second quarter 2012 effective tax rate was 40 percent, calculated using income before taxes, equity tax, accelerated accretion on the debenture buyback, gain on the debenture buyback and derivative gains of $64.2 million (2011 - $300.6 million). The Company’s year-to-date effective tax rate was 34 percent, calculated using income before taxes, equity tax, accelerated accretion on the debenture buyback, gain on the debenture buyback and derivative gains of $181.0 million (2011 - $300.6 million) and is consistent with the Colombian statutory tax rate. Colombia Equity Tax Expense The Colombian government approved new legislation in December 2010 that obligates Colombian corporations and branches of foreign corporations to pay an equity tax based on net equity as of January 1, 2011, payable in eight equal installments over four years starting in 2011. The net present value of the entire liability, estimated at $27.7 million, was recorded as a liability and expensed in the statement of operations in the first quarter of 2011.

Petrominerales Ltd.

Second Quarter 2012 MD&A

15

Net Income and Adjusted Net Income Three months ended June 30,

Q1 2012 Financial Report

Net income Non-cash gain on derivative financial liability Non-cash accelerated accretion Non-cash gain on debenture settlement Adjusted net income (1) (1)

2012 65.8 (58.5) 44.8 (13.8) 38.3

2011 % Change 215.7 (69) (101.8) (43) 113.9 (66)

Six months ended June 30,

2012 146.4 (58.8) 44.8 (13.8) 118.6

2011 % Change 252.5 (42) (62.8) (6) 189.7 (37)

Non-IFRS measure. See “Non-IFRS Measures” section within MD&A.

Management considers the change in fair value of the derivative liability, the accelerated accretion on the debenture settlement and the gain on the debenture settlement to be capital costs of financing; as such, management considers adjusted net income a key performance measure of the Company (See “Non-IFRS Measures” section within MD&A). Second quarter adjusted net income decreased 66 percent to $38.3 million primarily due to lower sales volumes, lower world oil prices and higher depletion rates, partially offset by lower transportation costs and lower taxes. Year-to-date adjusted net income decreased 37 percent to $118.6 million primarily due to lower sales volumes, higher operating costs and higher depletion rates, offset by lower transportation costs and lower taxes, as reconciled in the following table.

Adjusted net income (1), 2011 period Increase (decrease) due to: Sales volumes Sales prices Royalties Production expenses Transportation Operating netback decrease General and administrative expenses Depletion and depreciation Interest and accretion expense Other (2) Equity taxes Income taxes Change in basic shares outstanding Adjusted net income (1), 2012 period (2) (3)

Three months ended June 30,

Six months ended June 30,

Per share, Basic ($) 1.10

Per share, Basic ($) 1.83

113.9 (67.9) (20.3) 14.6 (3.2) 16.8 (60.0) 0.1 (36.2) (1.2) 10.9 10.8 38.3

(0.69) (0.21) 0.15 (0.03) 0.17 (0.61) (0.37) (0.01) 0.11 0.11 0.06 0.39

189.7 (125.3) 20.4 20.7 (15.2) 30.0 (69.4) 1.9 (54.4) (1.7) 4.0 27.7 20.8 118.6

(1.27) 0.21 0.21 (0.15) 0.30 (0.70) 0.02 (0.55) (0.02) 0.04 0.28 0.21 0.09 1.20

Non-IFRS measure. See “Non-IFRS Measures” section within MD&A. Other includes interest income, share-based compensation expenses, acquisition expenses and foreign exchange losses.

Petrominerales Ltd.

Second Quarter 2012 MD&A

16

Funds Flow from Operations Funds flow from operations decreased 11 percent in the second quarter primarily due to lower operating netbacks as a result lower sales volumes and decreased commodity prices, partially offset by lower current income taxes. Funds flow from operations decreased one percent on a year-to-date basis primarily due to lower operating netbacks as a result lower commodity prices, offset by lower current income taxes, as reconciled in the following table.

Q1 2012 Financial Report

Three months ended June 30,

Funds flow from operations (1), 2011 194.7 Increase period (decrease) due to: (67.9) Sales volumes (20.3) Sales prices 14.6 Royalties (3.2) Production expenses 16.8 Transportation (60.0) Operating netback decrease 0.1 General and administrative expenses 8.8 Foreign exchange 1.1 Interest expense net of interest income (2.4) Other (2) 31.4 Current taxes Change in basic shares outstanding Funds flow from operations (1), 2012 173.7 (1) Non-IFRS measure. See “Non-IFRS Measures” section within MD&A. period (2)

Six months ended June 30,

Per share, Basic ($) 1.88

Per share, Basic ($) 3.63

376.5

(0.69) (0.21) 0.15 (0.03) 0.17 (0.61) 0.09 0.01 (0.02) 0.32 0.11 1.78

(125.3) 20.4 20.7 (15.2) 30.0 (69.4) 1.9 (1.2) 2.0 2.4 61.3

(1.27) 0.21 0.21 (0.15) 0.30 (0.70) 0.02 (0.01) 0.02 0.02 0.62 0.19 3.79

373.5

Other includes acquisition expense and Colombia equity taxes paid.

The following table reconciles the funds flow from operations to cash flow from operating activities: Three months ended June 30,

Funds flow from operations: Non-IFRS Changes in non-cash working capital including interest and taxes payable Cash flow from operating activities: IFRS

Six months ended June 30,

2012 173.7

2011 % Change 194.7 (11)

2012 373.5

2011 % Change 376.5 (1)

31.0 204.7

20.7 215.4

(16.8) 356.7

(34.2) 342.3

50 (5)

(51) 4

Funds flow per share has been calculated using the dilutive effects noted below: Three months ended June 30, 2012

Basic Effect of stock options, incentive shares and DCS’s Effect of convertible debentures Diluted

Petrominerales Ltd.

Six months ended June 30,2012

Funds Flow Weighted Avg. Funds Flow Weighted Avg. and # Shares and $ Per and # Shares and $ Per Adjustments Adjustments Share Adjustments Adjustments Share 173.7 97,789,432 1.78 373.5 98,639,996 3.79 3.6 177.3

1,439,133 18,751,875 117,980,440

(0.03) (0.25) 1.50

7.2 380.7

1,743,266 17516,572 117,899,834

Second Quarter 2012 MD&A

(0.07) (0.49) 3.23

17

Capital Expenditures Three months ended June 30, 2012:

Q1 2012 Financial Report Deep Central Llanos

Civil Drilling & completions Facilities & infrastructure Seismic HSEC Inventory and other 2012 Total (1) 2011 Total (1)

12.2 40.0 8.2 0.3 1.4 (5.6) 56.5 103.3

Llanos Heavy Oil

0.9 8.3 1.7 0.8 0.8 5.6 18.1 18.0

4.9 9.9 1.0 6.2 0.7 (0.1) 22.6 29.2

Orito

0.2 4.1 1.1 0.4 0.4 (0.6) 5.6 7.6

Neiva

0.3 0.1 (0.4) 10.0

Peru

7.8 22.3 1.0 0.8 0.5 32.4 4.1

Foothills

1.1 14.4 0.1 6.7 0.5 (7.4) 15.4 2.6

Total

27.1 99.3 12.2 15.4 4.6 (8.0) 150.6 174.8

The 2012 capital expenditures were recorded as $32.4 million (2011 - $90.8 million) of PP&E additions and $118.2 million (2011 $84.0 million) as E&E additions in the statement of cash flows.

Six months ended June 30, 2012: Deep Llanos

Civil Drilling & completions Facilities & infrastructure Seismic HSEC Inventory and other 2012 Total (1) 2011 Total (1)

23.3 95.7 28.7 1.2 2.8 (12.1) 139.6 185.2

Central Llanos Heavy Oil

5.4 32.0 8.6 2.0 2.1 8.6 58.7 49.5

8.4 24.5 3.4 7.1 1.5 (1.6) 43.3 51.2

Orito

1.1 12.2 2.5 0.9 0.8 (2.1) 15.4 7.9

Neiva

0.1 2.4 0.2 0.1 0.2 (0.2) 2.8 21.1

Peru

8.0 46.7 1.8 1.8 0.2 58.5 6.6

Foothills

2.0 30.6 0.2 25.4 0.9 (8.4) 50.7 2.8

Total

48.3 244.1 43.6 38.5 10.1 (15.6) 369.0 324.3

The 2012 capital expenditures were recorded as $108.2 million (2011 - $172.0 million) of PP&E additions and $260.8 million (2011 $152.3 million) as E&E additions in the statement of cash flows.

Deep Llanos capital expenditures relate to Corcel, Guatiquia and South Block 31:  Drilling and completions costs for six wells drilled year-to-date, five water wells drilled and two wells that were in progress at June 30th;  Facilities and infrastructure costs include water handling upgrade costs, testing facility costs for exploration wells, improvements of the Corcel central processing facility (“CPF”) and installation of flowlines to connect Guatiquia production to the Corcel CPF; and  Infrastructure costs include civil construction costs related to the wells drilled in the year and upcoming drilling locations including Guarana-1 and the Guatiquia northeast prospect. Central Llanos capital expenditures relate to:  Drilling and completions costs for four wells drilled year-to-date.  Facilities and infrastructure costs include civil construction and facility costs for the Yenac, Capybara and Tucuso oil fields. Heavy oil capital expenditures primarily relate to our Rio Ariari and Chiguiro Este Blocks:  Drilling, completion and testing costs relate to the Tatama-1 horizontal well and five stratigraphic wells.  Seismic includes acquisition costs for our Chiguiro Este Block 3D seismic program.

Petrominerales Ltd.

Second Quarter 2012 MD&A

18

Peru costs relate to drilling and testing La Colpa 2X and 100 percent of the civil works for the upcoming Sheshea well. Foothills costs relate to drilling the Bromelia well that was testing at June 30th and civil works for the upcoming Canatua well. Seismic includes acquisition costs for our Block 31 (217 square kilometre) 3D seismic program that was acquired in the first quarter, our Block 59 (367 square kilometre) 3D acquired in the second quarter, our Chiguiro Oeste Block (80 square kilometre) 3D program acquired in the second quarter and initial costs related to our Block 25 (182 square kilometre) 3D program planned for the second half of 2012.

Q1 2012 Financial Report

LIQUIDITY AND CAPITAL RESOURCES Based on the Company’s financial position at June 30, 2012 and projected future cash flows, management expects the Company to be able to fund its capital program and meet its financial obligations. The Company believes it is well positioned financially with significant available credit capacity, assets that are providing strong operating netbacks, along with an extensive inventory of exploration prospects. The Company has a history of generating positive funds flow from operations including $173.7 million in the second quarter of 2012 and $199.8 million in the first quarter of 2012. Other sources of liquidity for the Company include current assets of $279.0 million at June 30, 2012, an undrawn reserve-based credit facility and financing potential on our pipeline and infrastructure assets. Cash Requirements The following table provides a summary of consolidated liquidity and capital commitments based on existing commitments and debt obligations (including accrued interest): Commitments and Debt Obligations Current liabilities 2016 Convertible debenture (1) 2017 Convertible debenture (2) Storage and transportation contracts(3) Exploration contracts (4) Decommissioning liabilities Long-term portion of equity tax payable Leases Other contracts Total (1)

(2)

(3)

Total

< 1 Year

1-3 Years

Thereafter

254.1 288.9 465.0 541.1 145.7 73.9 10.8 12.4 22.2 1,814.1

254.1 7.1 13.0 41.9 85.0 2.9 17.3 421.3

281.8 26.0 83.8 60.7 25.3 10.8 4.4 2.2 495.0

426.0 415.4 48.6 5.1 2.7 897.8

Includes the cash interest due on the $271.1 million Convertible Debenture due in 2016 that bears an annual coupon rate of 2.625 percent payable semi-annually. The debenture holders have a one-time put option right of prepayment of the debentures for 100 percent of the par value plus accrued interest on August 25, 2013. The debenture holders must exercise their put option within a 30 day period between June 10 and July 10, 2013. As the debenture is “out-of-the-money”, it has been assumed the put option will be exercised in the table above. The debentures are convertible into common shares of Petrominerales at a conversion price of US$33.76 per share, subject to adjustment for dividends. If converted, the Company has the option to deliver a total of 8,172,802 common shares or cash equal to the market value of the 8,172,802 common shares based on the weighted average share price for the 20 trading day period following the conversion notice. Includes the cash interest due on the $400 million Convertible Debenture due in 2017 that bears an annual coupon rate of 3.25 percent payable semi-annually. The debentures are convertible into common shares of Petrominerales at a conversion price of US$18.00 per share, subject to adjustment for dividends and a one-time, maximum 20 percent, conversion price reduction depending on the November 28, 2013 to December 11, 2013 share price. If converted, the Company would deliver a total of 22,220,124 common shares. The Company owns 9.65 percent of the Oleducto Bicentenario de Colombia (“OBC”), a Colombia corporation constructing an oil pipeline in the Llanos Basin of Colombia. The pipeline will be built in multiple phases, of which the first phase is expected to cost approximately $1.3 billion ($130.6 million net) and add approximately 120,000 bopd (11,580 bopd net) of offloading capacity in the fourth quarter of 2012. The Company has paid $37.8 million for the common shares of OBC and has advanced $47.1 million for initial pipeline construction costs. OBC has secured bank financing to fund 70 percent of the pipeline costs, and in July 2012 repaid the

Petrominerales Ltd.

Second Quarter 2012 MD&A

19

advances made by its investors (Petrominerales received $38 million). In exchange, Petrominerales entered into a ship-or-pay transportation agreement for its 10,616 bopd of capacity, and the cost of the ship-or-pay contract is disclosed in the table above as a transportation contract. Future phases of the pipeline are currently under review and are expected to add further takeaway capacity. Petrominerales has an option to participate in future phases. The Company believes was can meet the transportation commitments with our production and/or purchased oil. Pursuant to exploration contracts, the Company has work commitments totaling $145.7 million to be completed during the next three years. The work commitments are normal course of business activities that include acquisition and processing of seismic data and drilling exploration wells. The Company has issued letters of credit totaling $50.9 million to guarantee the obligations under these exploration contracts.

Q1 2012 Financial Report

(4)

Sources and uses of cash Three months ended June 30,

Cash and cash equivalents, beginning of period Cash provided by operating activities, before changes in non-cash working capital Changes in operating non-cash working capital Issuance of convertible debentures Repurchase of convertible debentures Issuance of common shares Repurchase of shares Expenditures on PP&E and E&E (1) Pipeline investment (2) Dividends paid Other (3) Cash and cash equivalents, end of period (1) (2) (3)

2012 175.6

2011 % Change 645.9 (73)

Six months ended June 30,

2012 295.4

2011 % Change 723.3 (59)

173.7 31.0 391.7 (275.6) 0.6 (134.1) (150.6) (12.5) (39.2)

194.7 20.7 1.0 (12.0) (174.8) (48.1) (13.8) 26.7

(11) 50 (40) 1,018 (14) (100) (9) -

373.5 (16.8) 391.7 (275.6) 2.2 (134.1) (369.0) (9.4) (24.7) (72.6)

376.5 (34.2) 2.9 (12.0) (324.3) (76.6) (27.2) 11.9

(1) (51) (24) 1,018 14 (88) (9) -

160.6

640.3

(75)

160.6

640.3

(75)

See earlier Capital Expenditures section for explanation on cash used for expenditures on PP&E and E&E. See note 3 to table above. Includes investing non-cash working capital changes, financing costs and expenditures on other assets

Petrominerales maintains local operating lines of credit in Colombia that are primarily used to issue letters of credit to support exploration commitments. At June 30, 2012, letters of credit issued against the Colombian operating lines of credit totaled $49.9 million. The Company also has a $1.0 million letter of credit issued in Peru for Block 126. The Company is in compliance with all the covenants contained in its credit facility and convertible debenture agreements. The credit facility contains financial covenants to maintain a ratio of bank debt to trailing 12 month earnings before interest, tax, depletion, depreciation and amortization under 3.0 times and to maintain a current ratio greater than 1.0 time (current assets divided by current liabilities less unused bank debt and the liability portion of convertible debentures). The convertible debentures have financial covenants to maintain a ratio of book value of equity to total assets of at least 30 percent and to limit the amount of security and encumbrances the Company has on the book value of its total assets to 35 percent.

Petrominerales Ltd.

Second Quarter 2012 MD&A

20

COMMON SHARES The aggregate number of Petrominerales common shares, stock options, deferred common shares and incentive shares outstanding at August 1, 2012 was 97,517,456 (common shares – 90,311,862, stock options – 5,960,193, deferred common shares – 205,612, incentive shares – 1,039,789).

Q1 2012 Financial Report

RISKS AND UNCERTAINTIES There have been no significant changes during the three and six months ended June 30, 2012 to the risks and uncertainties identified in the MD&A for the year ended December 31, 2011. Sensitivities The Company's earnings and cash flow are sensitive to changes in the price of crude oil. The following factors demonstrate the expected impact on annualized before tax cash flow: Change of: Brent Crude oil

$1.00/bbl Brent reference price (assuming 30,000 bopd) 1,000 bopd of production @ $100/bbl Brent

(millions) 9.2 20.1

CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s management made judgments, assumptions and estimates in the preparation of these financial statements. Actual results may differ from those estimates, and those differences may be material. The basis of presentation and the Company’s significant accounting policies can be found in the notes to the consolidated financial statements. There have been no significant changes in the three and six months ended June 30, 2012 to the critical accounting policies and estimates identified in the MD&A for the year ended December 31, 2011. CHANGES IN ACCOUNTING POLICIES There have been no significant changes in the three and six months ended June 30, 2012 to the upcoming changes in accounting policies identified in the MD&A for the year ended December 31, 2011.

Petrominerales Ltd.

Second Quarter 2012 MD&A

21

REGULATORY POLICIES Certification of Disclosures in Interim Filings

Q1 2012 Financial Report

In accordance with Multilateral Instrument 52-109 of the Canadian Securities Administrators, the Company issues a quarterly “Certification of Interim Filings” (“Certification”). The Certification requires certifying officers to state that they are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”). The Certification requires certifying officers to state that they designed DC&P, or caused it to be designed under their supervision, to provide reasonable assurance that: (i) material information relating to Petrominerales is made known to the certifying officers by others; (ii) information required to be disclosed by Petrominerales in reports filed with, or submitted to, securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified under Canadian securities legislation. In addition, the Certification requires certifying officers to state that they have designed ICFR, or caused it to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. During the three and six months ended June 30, 2012, there has been no change in the Company’s ICFR that has materially affected, or is reasonably likely to materially affect, the Company’s ICFR. The Company has continually had in place systems relating to DC&P and ICFR and will continue to monitor such procedures as the Company’s business evolves. OUTLOOK FOR THE REMINDER OF 2012 We further strengthened our balance sheet with our recent convertible bond issuance by extending the maturity on US$250 million of pre-existing convertible debt by four years, while buying back and cancelling 10 percent of our outstanding common shares. At June 30, 2012, our balance sheet included cash on hand of US$160.6 million and a completely undrawn, secured credit facility. Our immediate focus is on executing our high-impact exploration drilling programs in Colombia and Peru. In addition, we are acquiring over 1,000 square kilometres of new 3D seismic, of which 664 square kilometres has been acquired and is currently being interpreted. We expect these 3D seismic acquisitions to add significantly to our prospect inventory and to provide new drilling opportunities for our 2013 program. With remaining test results on Bromelia expected in the third quarter, up to four more wells to be drilled in the Corcel area and Sheshea-1X to be drilled in Peru, we are looking forward to updating our shareholders on our progress throughout the remainder of 2012.

Petrominerales Ltd.

Second Quarter 2012 MD&A

22

Forward-Looking Statements. Certain information provided in this report constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast" and similar expressions are intended to identify such forwardlooking statements. Specifically, this report contains forward-looking statements relating to the timing of capital projects, financial results, results of operations and participation in and timing of costs of the OBC. The forward looking information is based on key expectations and assumptions made by Petrominerales, including assumptions concerning the success of future drilling activities, the performance of existing wells, prevailing commodity prices, availability of labour and services, receipt of required permits and regulatory approvals and performance of expected activities by industry partners. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. A discussion of those risks and uncertainties can be found in the Company’s Canadian securities filings. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; timing and rig availability, outcome of exploration contract negotiations; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates; changes in environmental and other regulations; risks associated with oil and gas operations; reliance on partners in respect of the construction of the OBC and other factors, many of which are beyond the control of the Company. There is no representation by Petrominerales that actual results achieved during the forecast period will be the same in whole or in part as those forecasts. Except as may be required by applicable securities laws, Petrominerales assumes no obligation to publicly update or revise any forwardlooking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Q1 2012 Financial Report

Non-IFRS Measures. This report contains financial terms that are not considered measures under International Financial Reporting Standards (“IFRS”), such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, working capital, net (debt) surplus and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. We evaluate our performance and that of our business segments based on funds flow from operations and adjusted net income. Funds flow from operations is a non-IFRS term that represents cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities and effects of the buyback of the convertible debentures (accelerated accretion and gain on settlement). Management considers funds flow from operations, funds flow per share, adjusted net income and adjusted net income per share important as they help evaluate performance and demonstrate the Company’s ability to generate sufficient cash to fund future growth opportunities and repay debt. Working capital includes current assets less current liabilities and is used to evaluate the Company’s short-term financial leverage. Net (debt) surplus includes current assets less current liabilities and the principal amount of out-of-the-money convertible debentures (i.e. when they are out of the money and not repayable in shares at maturity) and is used to evaluate the Company’s financial leverage. Operating netback is determined by dividing oil revenue less royalties, transportation and production expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, working capital, net (debt) surplus and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with IFRS.

Petrominerales Ltd.

Second Quarter 2012 MD&A

23

PETROMINERALES LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIA L POSITION (UNAUDITED) (Millions of United States dollars)

As at,

Note

ASSETS Current assets Cash and cash equivalents Trade and other receivables Crude oil inventory Total current assets

$

Other assets Exploration and evaluation assets Property, plant and equipment Pipeline investments Goodwill Non-current assets Total assets

5 6

$

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Trade and other payables Income taxes payable Total current liabilities

$

Long-term portion of equity tax Convertible debentures Derivative financial liabilities related to convertible debentures Other Provisions Deferred tax liabilities Total liabilities Shareholders’ equity Common shares Share-based payment reserve Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity

June 30, 2012

9 9 10

7

$

December 31, 2011

160.6 $ 113.1 5.3 279.0

295.4 161.0 6.1 462.5

23.6 562.1 1,046.4 328.3 5.0 1,965.4 2,244.4 $

24.3 415.1 1,000.8 318.8 5.0 1,764.0 2,226.5

250.9 $ 3.2 254.1

333.3 55.4 388.7

10.8 541.3 85.1 74.7 234.9 1,200.9

13.1 454.6 73.2 64.5 187.5 1,181.6

268.9 43.5 731.1 1,043.5 2,244.4 $

294.4 38.3 712.2 1,044.9 2,226.5

Commitments and contingencies (Note 12) The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Second Quarter 2012 Interim Financial Statements

24

PETROMINERALES LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHEN SIVE INCOME (UNAUDITED) (Millions of United States dollars, except per share amounts) Three months ended June 30,

Note

2011

2012

378.0 $ (45.7) 332.3

622.8 (66.1) 556.7

48.6 21.7 99.9 8.8 3.9 182.9

45.4 38.5 63.7 8.9 0.4 4.7 161.6

88.1 42.1 185.8 16.6 8.1 340.7

72.9 72.1 131.4 18.5 0.4 27.7 11.0 334.0

(43.2) 58.5 (0.9) 1.5 15.9

(11.0) 101.8 (9.7) 0.6 81.7

(54.3) 58.8 (14.7) 3.0 (7.2)

(21.7) 62.8 (13.5) 1.2 28.8

Income before taxes

91.7

252.4

208.8

335.7

Income taxes (recovery) Current Deferred Total income taxes

(1.4) 27.3 25.9

30.0 6.7 36.7

15.0 47.4 62.4

76.3 6.9 83.2

Oil sales Royalties Revenues Operating expenses Production Transportation Depletion and depreciation General and administrative Acquisition costs Colombian equity tax Share-based compensation Total operating expenses Finance income (expense) Finance costs Derivative financial liability gain Foreign exchange loss Interest income Net finance income (expense)

$

6

7

4 9

Net income and total comprehensive income Net income per share Basic Diluted

2012

Six months ended June 30,

$

8 8

289.8 (31.1) 258.7

65.8

0.67 0.39

$

$

215.7 $

2.08 0.99

146.4

2011

$

$

1.48 1.14

727.7 (86.8) 640.9

252.5

2.43 1.67

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Second Quarter 2012 Interim Financial Statements

25

PETROMINERALES LTD. CONDENSED INTERIM CONSOLIDATED STATEMENT S OF CHANGES IN EQUITY (UNAUDITED) (Millions of United States dollars) Six months ended June 30,

Three months ended June 30,

Note Common shares Balance beginning of period Shares repurchased and cancelled Exercise of stock options, deferred common shares and incentive shares Balance end of period Share based payment reserve Balance beginning of period Exercise of stock options, deferred common shares and incentive shares Share-based compensation, excluding change in fair value of Share Appreciate Rights (“SARs”) and dividend accruals on incentive shares, deferred common shares and SARs Balance end of period Retained earnings Balance beginning of period Net income and comprehensive income Dividends Shares repurchased and cancelled Balance end of period Total equity Balance beginning of period Net income and comprehensive income Dividends Shares repurchased and cancelled Exercise of stock options, deferred common shares and incentive shares Share-based compensation, excluding change in fair value of SARs and dividend accruals on incentive shares, deferred common shares and SARs Balance end of period

2012

$

7 $

$ 7

7 $

$ 7 $

7

297.9 (30.1) 1.1 268.9

2011

$

$

304.5 $ (1.2)

294.4 (30.1)

1.5 304.8

4.6 268.9

40.3 $

27.0

(0.5)

(0.6)

3.7 43.5

$

780.3 $ 65.8 (11.0) (104.0) 731.1 $

$ 1,118.5 65.8 (11.0) (134.1)

7

0.6

7

3.7 $ 1,043.5

$

$

2012

4.4 30.8

$

$

38.3

2011

$

$

$

(2.4)

$

406.8 $ 215.7 (13.7) (10.8) 598.0 $

738.3 $ 215.7 (13.7) (12.0)

7.6 43.5

301.9 (1.2) 4.1 304.8

21.3 (1.2)

$

10.7 30.8

712.2 $ 146.4 (23.5) (104.0) 731.1 $

383.4 252.5 (27.1) (10.8) 598.0

1,044.9 146.4 (23.5) (134.1)

0.9

2.2

4.4 933.6

7.6 $ 1,043.5

$

706.6 252.5 (27.1) (12.0) 2.9

$

10.7 933.6

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Second Quarter 2012 Interim Financial Statements

26

PETROMINERALES LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLO W (UNAUDITED) (Millions of United States dollars) Three months ended June 30,

Note Operating activities Net income for the period Adjustments for non-cash items: Depletion and depreciation Deferred income taxes Debenture accretion and settlement gain Share-based compensation Unrealized gain on derivative Other assets amortization and other accretion Colombian equity tax Colombian equity tax paid Convertible debenture issuance costs Changes in non-cash working capital Income tax expense Income taxes paid Interest expense Interest paid Cash flow provided by operating activities Financing activities Dividends paid Issuance of convertible debenture – net of costs Issuance of common shares – net of costs Financing costs Repurchase of shares Repurchase of convertible debentures Cash flow used in financing activities Investing activities Expenditures on property, plant and equipment Expenditures on exploration and evaluation assets Expenditures on other assets Pipeline investments Changes in non-cash working capital Cash flow used in investing activities Decrease in cash and cash equivalents Cash and cash equivalents, beginning of period

$ 6 4,9 7 9 4,10

9 11

4

7 9 7 7 9

6 5

11

2012

2011

65.8 $

215.7

Six months ended June 30,

2012

$

146.4 $

252.5

185.8 47.4 39.6 7.9 (58.8) 5.9 2.1 (4.5) 1.7 373.5 37.5 15.0 (67.1) 7.2 (9.4) 356.7

131.4 6.9 8.2 11.0 (62.8) 4.4 29.4 (4.5)

(27.2) 2.9 (0.8) (12.0) (37.1)

(172.0) (152.3) (0.3) (76.6) 13.0 (388.2) (83.0) 723.3

99.9 27.3 35.2 3.7 (58.5) 2.9 0.2 (4.5) 1.7 173.7 85.4 (1.4) (54.4) 3.6 (2.2) 204.7

63.7 6.7 4.2 4.7 (101.8) 2.2 1.7 (2.4)

(12.5) 391.7 0.6 (134.1) (275.6) (29.9)

(13.8) 1.0 (12.0) (24.8)

(24.7) 391.7 2.2 (134.1) (275.6) (40.5)

(32.3) (118.3) (3.7) (35.5) (189.8) (15.0) 175.6

(84.0) (90.8) (0.1) (48.1) 26.8 (196.2) (5.6) 645.9

(108.2) (260.8) (3.7) (9.4) (68.9) (451.0) (134.8) 295.4

194.7 (4.6) 30.0 (8.3) 3.6

215.4

-

2011

376.5 (97.3) 76.3 (13.2) 7.2 (7.2) 342.3

Cash and cash equivalents, end of period

$

160.6

$

640.3

$

160.6 $

640.3

Cash and cash equivalents consist of: Cash Cash equivalents

$ $

41.8 118.8

$ $

21.7 618.6

$ $

41.8 $ 118.8 $

21.7 618.6

The accompanying notes are an integral part of these condensed interim consolidated financial statements. Second Quarter 2012 Interim Financial Statements

27

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS As at June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and 2011 (Unaudited, all tabular amounts are expressed in millions of United States dollars, except per share amounts or as otherwise noted) NOTE 1 – BASIS OF PRESENTATION Petrominerales Ltd. (“Petrominerales” or the “Company”) is an international oil and gas company involved in the exploration, development and production of crude oil in Colombia and Peru. Petrominerales is incorporated in Alberta, Canada and is a public company listed on the Toronto Stock Exchange and on the Colombian Stock Exchange. The Company’s head office is located at 1900, 111 – 5th Avenue S.W., Calgary, Alberta, Canada, T2P 3Y6. These condensed interim consolidated financial statements for the three and six months ended June 30, 2012 have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ (“IAS 34”), using accounting policies that are consistent with International Financial Reporting Standards (IFRS). These statements do not contain all the disclosures required for full annual financial statements and should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2011. These consolidated financial statements were authorized for issue by the Company’s board of directors on August 1, 2012. NOTE 2 – CHANGES IN ACCOUNTING POLICIES The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company as described in Note 3 of the audited consolidated financial statements as at and for the yearended December 31, 2011. NOTE 3 – SEGMENTED INFORMATION The reportable and geographical segments are Colombia, Peru and Other. Other activities include all the remaining corporate activities outside Colombia and Peru. The accounting policies used for the reportable segments are the same as the parent’s accounting policies. For the purposes of monitoring segment performance and allocating resources between segments, the Company’s executive officers monitor the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. The following tables show information regarding the segments. Three months ended June 30, 2012

Revenues Depletion and depreciation Income before finance expense Net finance income (expense) Income (loss) before taxes Income tax recovery (expense) Net income E&E and PP&E expenditures

Petrominerales Ltd.

Colombia 254.4 99.9 74.4 (4.2) 70.2 (26.2) 44.0 118.3

Peru (0.3) (0.3) 0.9 0.6 32.3

Other 4.3 1.4 20.4 21.8 (0.6) 21.2 -

Three months ended June 30, 2011

Total Colombia 258.7 321.3 99.9 63.7 75.8 158.5 15.9 9.9 91.7 168.4 (25.9) (36.7) 65.8 131.7 150.6 170.4

Peru Other - 11.0 - 12.2 - 71.8 - 84.0 - 84.0 4.4 -

Second Quarter 2012 Interim Financial Statements

Total 332.3 63.7 170.7 81.7 252.4 (36.7) 215.7 174.8

28

Six months ended June 30, 2012

Revenues Depletion and depreciation Income before finance expense Net finance income (expense) Income (loss) before taxes Income tax recovery (expense) Net income E&E and PP&E expenditures

Colombia 540.9 185.8 207.2 (22.8) 184.4 (62.3) 122.1 310.5

Peru (0.4) (0.4) 0.7 0.3 58.5

Other 15.8 8.8 16.0 24.8 (0.8) 24.0 -

Total Colombia 556.7 629.9 185.8 131.4 216.0 296.1 (7.2) 14.0 208.8 310.1 (62.4) (83.2) 146.4 226.9 369.0 317.6

(1)

Total assets Total liabilities (1)

Peru 151.8 132.8

Other 243.2 195.1

Peru Other - 11.0 - 10.8 - 14.8 - 25.6 - 25.6 6.7 -

Total 640.9 131.4 306.9 28.8 335.7 (83.2) 252.5 324.3

As at December 31, 2011

As at June 30, 2012

Colombia 1,849.4 873.0

Six months ended June 30, 2011

Total Colombia 2,244.4 1,785.5 1,200.9 633.7

Peru Other Total 107.4 333.6 2,226.5 26.8 521.1 1,181.6

Included in Peru total assets is $5.0 million (2011 - $5.0 million) of goodwill.

NOTE 4 – FINANCE COSTS Three months ended June 30,

Interest expense on convertible debentures Accretion on convertible debentures Accretion on convertible debentures settlement Gain on settlement of convertible debenture Total convertible debenture expenses Standby and other bank charges Accretion on Colombian equity tax Accretion on decommissioning liability Amortization of deferred financing costs Finance costs Consisting of: Cash finance costs Non-cash finance costs

Note 9 9 9 9

10

2012 3.6 4.2 44.8 (13.8) 38.8 3.3 0.5 0.2 0.4 43.2 6.9 36.3

2011 3.6 4.2 7.8 1.8 0.7 0.4 0.3 11.0 5.4 5.6

Six months ended June 30,

2012 7.2 8.6 44.8 (13.8) 46.8 5.1 1.0 0.4 1.0 54.3

2011 7.2 8.2 15.4 3.6 1.3 0.7 0.7 21.7

12.3 42.0

10.8 10.9

NOTE 5 – EXPLORATION AND EVALUATION ASSETS Balance at December 31, 2011 Additions Decommissioning liability additions Transfer to property, plant and equipment Balance at June 30, 2012

415.1 260.8 2.0 (115.8) 562.1

Exploration and evaluation assets are exploration and evaluation projects currently in progress. For the six months ended June 30, 2012, $115.8 million was transferred to property plant and equipment (see Note 6) as a result of successful wells on the Deep Llanos and Central Llanos area. The Company does not hold any tangible exploration assets.

Petrominerales Ltd.

Second Quarter 2012 Interim Financial Statements

29

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Cost at December 31, 2011 Additions (transfers) Decommissioning liability additions Transfers from E&E Cost at June 30, 2012 Accumulated depreciation and depletion Depreciation and depletion for the period(1) Carrying value, June 30, 2012 (1)

Inventory 76.3 (15.6) 60.7 60.7

Crude oil assets 1,756.4 123.8 7.4 115.8 2,003.4 (841.0) (183.7) 978.7

Corporate and other 20.6 20.6 (11.5) (2.1) 7.0

Total 1,853.3 108.2 7.4 115.8 2,084.7 (852.5) (185.8) 1,046.4

Depreciation and depletion expense recognized in property, plant and equipment for the three month period ended June 30, 2012 was $97.7 million. An additional $2.2 million was recognized from inventory for the three month period ended June 30, 2012. Therefore, total depletion and depreciation recognized in the condensed statement of operations was $99.9 million.

NOTE 7 – SHARE CAPITAL Common Shares

Issued, outstanding and fully paid Balance at December 31, 2011 Repurchased shares Exercise of stock options Exercise of incentive shares Exercise of deferred common shares Balance at June 30, 2012

Number of Common Shares 99,375,340 (10,060,000) 389,465 65,840 7,821 89,778,466

Recorded to Transfer from Retained Share-Based Cash Earnings Payment Reserve (134.1) 2.2 (131.9)

104.0 104.0

0.6 1.7 0.1 2.4

Common Shares 294.4 (30.1) 2.8 1.7 0.1 268.9

Repurchased Shares In June of 2012, the Company repurchased 10,060,000 common shares at an average cost of $13.33 per share for a total purchase price of $134.1 million. The book value of the common shares repurchased was $3.00 per shares for a total book value of $30.1 million that was recorded to share capital. The residual amount of $104.0 million was recorded directly to retained earnings. All of the common shares acquired were cancelled. Share Based Compensation Plans The Company has established plans for stock options, incentive shares, deferred common shares (“DCS”) and share appreciation rights (“SAR”) for directors, officers, employees and consultants. The number of common shares available for issuance under the stock option plan is 7.5 percent of the outstanding shares of the Company.

Petrominerales Ltd.

Second Quarter 2012 Interim Financial Statements

30

Balance at December 31, 2011 Granted Exercised Forfeited (1) Balance at June 30, 2012 Weighted average remaining contractual life (years) Balance exercisable at June 30, 2012 (1)

Stock Options Weighted Average Exercise Price # (Cdn$) 6,270,749 18.98 1,095,312 16.99 (389,465) 5.62 (1,002,715) 28.28 5,973,881 17.52 4.0 1,847,446

14.01

Plans with an Exercise Price of Cdn$0.05 Share Settled Cash Settled Incentive Share (#) 1,060,459 135,851 (65,840) (85,756) 1,044,714 3.9 262,708

DCS (#) Total (#) 176,094 1,236,553 37,339 173,190 (7,821) (73,661) - (85,756) 205,612 1,250,326 7.9 52,778

SAR(#) 211,880 462,255 (21,325) 652,810

4.6 315,486

3.9 -

In March 2012, the Company issued 28,636 incentive shares and 120,764 share appreciation rights to non-insiders, and modified the exercise price to Cdn$17.92 on 213,961 non-insiders’ stock options, in exchange for the forfeiture and cancelations of 669,284 non-insiders’ stock options.

Share-based compensation expense for the three months ended June 30, 2012 totalled $3.9 million, including $0.1 million relating to the change in the fair value of the SAR’s derivative liability. Share-based compensation expense for the six months ended June 30, 2012 totalled $8.1 million, including $0.3 million relating to the change in the fair value of the SAR’s derivative liability and $0.2 million for dividends payable on vested incentive shares, DCSs and SARs. The fair values of stock options, deferred common shares, incentive shares and share appreciation rights granted have been estimated using the Black-Scholes option-pricing model based on the following inputs:

Market price (Cdn$) Expected volatility (Cdn$) Risk free interest rate Dividend rate Expected life (years) Forfeiture rate Fair value (US$)

Weighted-Average Based on Grant Date Incentive Options Shares DCS 16.62 17.23 14.29 41.0% 1.5% 1.5% 1.6% 3.1% 3.0% 3.6% 4.5 4.5 7.4 5% 5% 5% 4.35 15.05 10.99

As at June 30, 2012 SARS 11.50 0.56% 4.4% 3.9 5% 9.67

Expected volatility was determined based on options market transactions for the period within the expected life of the share based instrument. The fair value is adjusted for the expected rates of early forfeitures. NOTE 8 – EARNINGS PER SHARE The following table summarizes the weighted average number of common shares used in calculating basic and diluted earnings per share. Net income after tax is used to determine earnings per share. The average market price of the Company’s shares used in the calculation for the three and six months ended June 30, 2012 was Cdn$14.14 (2011 – Cdn$31.39) and Cdn$16.65 (2011 – Cdn$34.51), respectively. The anti-dilutive stock options excluded for the three and six months ended June 30, 2012 was 3,693,911 and 3,511,411, respectively (2011 – 410,770 and 89,880 respectively).

Petrominerales Ltd.

Second Quarter 2012 Interim Financial Statements

31

Three months ended June 30, 2012 Basic Effect of stock options, incentive shares and DCS’s Convertible debentures Interest, accretion and gain on settlement Gain on derivative liability Diluted

Six months ended June 30, 2012 Basic Effect of stock options, incentive shares and DCS’s Convertible debentures Interest, accretion and gain on settlement Gain on derivative liability Diluted

Net Income Weighted Avg. and Shares and Adjustments Adjustments 65.8 97,789,432 1,439,113 38.8 (58.5) 46.1

Per Share 0.67 (0.01)

18,751,875

(0.27)

117,980,440

0.39

Net Income Weighted Avg. and Shares and Adjustments Adjustments 146.4 98,639,996 1,743,266

Per Share 1.48 (0.02)

46.8 (58.8) 134.4

17,516,572

(0.32)

117,899,834

1.14

NOTE 9 – CONVERTIBLE DEBENTURES 2017 Convertible Debenture On June 1, 2012, Petrominerales issued $400 million of convertible debentures maturing on June 12, 2017 that have an annual coupon rate of 3.25 percent. The debentures are convertible into common shares of Petrominerales at a conversion price of US$18.0017 per share, subject to adjustment for dividends and a one-time, maximum 20 percent, conversion price reduction depending on the November 28, 2013 to December 11, 2013 share. At maturity, Petrominerales has the option to settle any unconverted notes by delivering cash equal to the remaining principal amount, or the aggregate of: i. Issuing between 22,220,124 and 26,220,911 common shares as is by dividing the aggregate principal amount of the debentures by the conversion price in effect at maturity; and ii. A cash amount equal to the amount (if any) by which the principal amount of the debentures exceeds the amount of common share consideration paid in. 2016 Convertible Debenture On August 25, 2010, Petrominerales issued $550 million of convertible debentures maturing on August 25, 2016 that have an annual coupon rate of 2.625 percent. The debentures are convertible into common shares of Petrominerales at a conversion price of US$33.17 per share, subject to adjustment for dividends. In April and May of 2012, the Company repurchased $28.9 million of the debenture at 0.9521 of their par value, plus the accrued interest ($27.7 million). On June 1, 2012, the Company repurchased an additional $250.0 million of the 2016 debenture at 0.9850 of their par value plus $1.9 million of commissions, plus the accrued interest ($250.0 million). If converted, the Company has the option to deliver a total of 8,172,802 common shares or cash equal to the market value of the 8,172,802 common shares based on the weighted average share price for the 20 trading day period following the conversion notice. In addition, the debenture holders have a one-time put option right of prepayment of the debentures for 100 percent of the par value plus accrued interest on August 25, 2013. The debenture holders must exercise their put option within a 30 day period between June 10 and July 10, 2013.

Petrominerales Ltd.

Second Quarter 2012 Interim Financial Statements

32

The following table summarizes the liability and derivative liability components of the convertible debentures:

Balance at December 31, 2011 Issuance of 2017 convertible debenture(1) Accelerated accretion on repurchase Repurchase of 2016 convertible debenture(2) Accretion Change in fair value of the derivative Balance June 30, 2012 (1)

(2)

Financial Statement Components Derivative Carrying Liability Liability(1) Value $ 454.6 73.2 $ 527.8 312.2 81.2 393.4 44.8 44.8 (278.9) (10.5) (289.4) 8.6 8.6 (58.8) (58.8) $ 541.3 $ 85.1 $ 626.4

Principal Amount $ 550.0 400.0 (278.9)

$ 671.1

In June 2012 the Company issued $400 million convertible debenture, as described above. The cost of the transaction was $8.3 million; $6.6 million was allocated to the liability and the $1.7 million related to the derivative liability was expensed. In the second quarter of 2012 the Company repurchased $278.9 million of the 2016 debentures at 0.9882 of the par value, or cash of $275.6 million. A gain of $13.8 million was recognized on the repurchase of debentures ($289.4 million carrying value less the repurchase price of $275.6 million).

The liability portion of the convertible debentures are measured at amortized cost and are being accreted up to the principal balance at maturity using an effective interest rate of 7.0 percent for the 2016 debenture and 8.7 percent for the 2017 debenture. The accretion and the interest paid are expensed as a finance expense in the consolidated statement of operations. The derivative financial liability is measured at fair value through profit or loss, with changes to the fair value being recorded in finance expense. The fair value of the derivative financial liability is determined using a binomial valuation model and the following assumptions were used: June 30, 2012 June 1, 2012 (1) Dec 31, 2011 Debenture maturity year 2016 2017 2016 2017 2016 Market price Cdn$11.50 Cdn$11.50 Cdn$13.80 Cdn$13.80 Cdn$16.56 Conversion price $33.17 $15.26 $33.76 $18.00 $33.76 Expected volatility 41.0% 41.0% 41.0% 41.0% 57.6% Risk free interest rate 0.72% 0.72% 0.73% 0.73% 0.89% Expected life (years) 4.2 5.0 4.2 5.0 4.7 Fair value (US$/share issuable) 0.69 3.03 1.24 3.66 4.53 Shares issuable (# millions) 8.2 26.2 15.4 22.2 16.3 (1)

The date of the 2017 convertible debentures issuance and the repurchase of $250.0 million of the 2016 convertible debentures

NOTE 10 – OTHER PROVISIONS LIABILITIES Decommissioning liabilities The total decommissioning and restoration obligations were determined by management based on the estimated costs to reclaim and abandon the wells, well sites and certain facilities based on contractual requirements. Changes to decommissioning and restoration obligations were as follows: Six Months Ended June 30, 2012 Decommissioning liabilities, beginning of period 64.0 Obligations incurred 7.0 Obligations settled (2.7) Unwinding of discount 0.5 Change in estimates and discount rate 5.1 Decommissioning liabilities, end of period 73.9 Share appreciation rights provision, end of period (Note 7) 0.8 Total other provisions 74.7 Petrominerales Ltd.

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The obligations have been calculated using an inflation rate of 3.4 percent in Colombia and 4.1 percent in Peru, and a risk-free discount rate of 1.2 percent per annum. The weighted average expected payment date of these obligations is five years in the future. The obligations are expected to be funded from the Company’s internal resources available at the time of settlement. The total undiscounted amount of estimated cash flows required to settle the obligations at June 30, 2012 is $78.6 million (December 31, 2011 – $74.4 million). NOTE 11 – NOTES TO THE STATEMENTS OF CASH FLOW Effect on Cash Flow from changes in Non-Cash Working Capital Three months ended June 30,

Change in: Trade and other receivables Trade and other payables Crude oil inventory Depletion related to crude oil inventory (note 6) Other Changes relating to: Attributable to operating activities Attributable to investing activities

Six months ended June 30,

2012

2011

2012

2011

73.2 (26.9) 5.8 (2.2) 49.9 49.9

20.6 8.4 (1.4) 1.3 28.9 (6.7) 22.2

47.9 (82.4) 0.8 (33.7) 2.3 (31.4)

(68.1) (2.7) (6.9) 1.9 (75.8) (8.5) (84.3)

85.4 (35.5)

(4.6) 26.8

37.5 (68.9)

(97.3) 13.0

1-3 Years 281.8 26.0 83.8 60.7 25.3 10.8 4.4 2.2 495.0

Thereafter 426.0 415.4 48.6 5.1 2.7 897.8

NOTE 12 – COMMITMENTS AND CONTINGENCIES The following is a summary of contractual commitments as at June 30, 2012: Type of Obligation Total < 1 Year (1) 2016 Convertible debenture 288.9 7.1 2017 Convertible debenture (2) 465.0 13.0 Transportation contracts(3) 541.1 41.9 Trade and other payables 250.9 250.9 Exploration contracts (4) 145.7 85.0 Decommissioning liabilities 73.9 Income taxes payable 3.2 3.2 Long-term portion of equity tax payable 10.8 Leases 12.4 2.9 Other contracts 22.2 17.3 Total 1,814.1 421.3 (1)

Includes the cash interest due on the $271.1 million Convertible Debenture due in 2016 that bears an annual coupon rate of 2.625 percent payable semi-annually. The debenture holders have a one-time put option right of prepayment of the debentures for 100 percent of the par value plus accrued interest on August 25, 2013. The debenture holders must exercise their put option within a 30 day period between June 10 and July 10, 2013. As the debenture is “out-of-the-money”, it has been assumed the put option will be exercised in the table above. The debentures are convertible into common shares of Petrominerales at a conversion price of US$33.76 per share, subject to adjustment for dividends. If converted, the Company has the option to deliver a total of 8,172,802 common shares or cash equal to the market value of the 8,172,802 common shares based on the weighted average share price for the 20 trading day period following the conversion notice.

(2)

Includes the cash interest due on the $400 million Convertible Debenture due in 2017 that bears an annual coupon rate of 3.25 percent payable semi-annually. The debentures are convertible into common shares of Petrominerales at a conversion price of US$18.00 per share, subject to adjustment for dividends and a one-time, maximum 20 percent, conversion price reduction depending on the November 28, 2013 to December 11, 2013 share price plus 35 percent. If converted, the Company would deliver a total of 22,220,124 common shares.

(3)

The Company owns 9.65 percent of the Oleducto Bicentenario de Colombia (“OBC”), a Colombia corporation constructing an oil pipeline in the Llanos Basin of Colombia. The pipeline will be built in multiple phases, of which the first phase is expected to cost

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approximately $1.3 billion ($130.6 million net) and add approximately 120,000 bopd (11,580 bopd net) of offloading capacity in the fourth quarter of 2012. The Company has paid $37.8 million for the common shares of OBC and has advanced $47.1 million for initial pipeline construction costs. OBC has secured bank financing to fund 70 percent of the pipeline costs, and in July 2012 repaid the advances made by its investors (Petrominerales received $38 million). In exchange, Petrominerales entered into a ship-or-pay transportation agreement for its 10,616 bopd of capacity, and the cost of the ship-or-pay contract is disclosed in the table above as a transportation contract. Future phases of the pipeline are currently under review and are expected to add further takeaway capacity. Petrominerales has an option to participate in future phases. (4)

Pursuant to exploration contracts, the Company has work commitments totaling $145.7 million to be completed during the next three years. The work commitments are normal course of business exploration activities that include property costs, acquisition and processing of seismic data and drilling exploration wells. The Company has issued letters of credit totaling $50.9 million to guarantee the obligations under these exploration contracts.

Contingencies In the normal course of operations, Petrominerales has disputes with industry participants for which the Company currently cannot determine the ultimate result. Petrominerales records costs as they are incurred or become determinable. Management believes the resolution of these matters would not have a material adverse effect on the Company’s consolidated financial position or results of operations. High Price Participation Dispute Petrominerales currently has a dispute with the Agencia Nacional de Hidrocarburos (National Hydrocarbon Agency) (“ANH”) related to the interpretation of the Corcel Block exploration contract (“Corcel Contract”) entered into between Petrominerales and the ANH on June 2, 2005. The Corcel Contract requires a high price participation payment to be paid by Petrominerales to the ANH once an exploitation area has cumulatively produced five million or more barrels of oil, determined before the deduction of royalties. The high price participation payment is paid at 30 percent of the price received above certain threshold prices, based on the oil quality produced. The ANH has indicated their view that exploitation areas under the Corcel Contract should be combined for the purposes of determining when the high price participation payment is payable. As combined production from all of the Corcel exploitation areas has exceeded five million barrels of oil, the ANH asserts that Petrominerales is required to pay the high price participation payment with respect to production from the Corcel Block from April 2009 onwards. Petrominerales disagrees with the ANH interpretation and views the Corcel Contract as providing that payment of the high price participation payment is required for each individual exploitation area, once each exploitation area has cumulatively produced five million or more barrels of oil. Based on their view, the ANH has requested additional payments aggregating to $69.1 million to December 31, 2010. Under the ANH’s interpretation, there would be an additional $78.6 million owed for 2011 and the first half of 2012; however, the ANH has not quantified these amounts or requested an additional payment for 2011 or 2012. Petrominerales initiated arbitration proceedings as provided for in the Corcel Contract, with initial hearings scheduled for mid-August. Petrominerales believes that the resolution of this dispute will be in favor of the Company, and accordingly, no additional royalty provision has been made in these financial statements. Had the Company applied the ANH’s interpretation of the high price royalty application, the second quarter of 2012 and six months ended June 30, 2012 royalty rate would have been 19 and 20 percent, respectively.

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CORPORATE INFORMATION DIRECTORS (3) John D. Wright Calgary, Alberta, Canada Chairman & Strategic Advisor (1)(2) (4)

Alastair Macdonald Pembroke, Bermuda

Enrique Umaña Valenzuela Bogotá D.C., Colombia Ernesto Sarpi Naples, Italy

(1) (4)

(3)

OFFICES Calgary, Canada 1900, 111-5th Avenue SW Calgary , Alberta, Canada, T2P 3Y6 TEL: +403 705 8850 Bogota, Colombia Calle 116 No. 7-15 Interior 2 Torre Cusezar, Piso 6 Bogotá D.C., Colombia TEL: +57 1 629 2701

(2) (3)

Geir Ytreland Droebak, Norway

Lima, Peru

(4)(5)

Jerald L. Oaks Denver, Colorado, U.S.A. (1) (2)

Kenneth R. McKinnon Calgary, Alberta, Canada (1) (2) (3) (4) (5)

Member of the Audit Committee Member of the Compensation Committee Member of the Reserves Committee Member of the Nominating Committee Vice Chairman and Lead Independent Director

OFFICERS Corey C. Ruttan President and Chief Executive Officer

Av. Víctor Andrés Belaúnde 147 Centro Empresarial Real Vía Principal 123, Edificio Real Uno, Officina 801 San Isidro, Lima, Peru TEL: +51 1 627 3300 WEBSITE: www.petrominerales.com E-MAIL: [email protected] REGISTRAR AND TRANSFER AGENT Computershare Trust Company of Canada Calgary, Alberta, Canada

Andrea Hatzinikolas Corporate Secretary and General Counsel

EXCHANGE LISTINGS The Toronto Stock Exchange SYMBOL: PMG

Erik Lyngberg Senior Vice President Exploration

The Colombian Stock Exchange SYMBOL: PMGC

Jaime Valenzuela Vice President Planning and Director of Operations

SECURITIES FILINGS www.sedar.com www.superfinanciera.gov.co

Jeff Chant Vice President Organizational Performance and Human Resources

Information requests and other investor relations inquiries can be directed to: [email protected] or by telephone at +403 705 8850 or +57 1 629 2701.

John (Jack) F. Scott Chief Operating Officer Kelly D. Sledz Chief Financial Officer Maria Mercedes Palacio Pombo Vice President Corporate Affairs Ruben Cano Vice President Services and Logistics Tannya E. Morales-Kozy Vice President Finance

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