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operating and investing. The Group’s management and engineering teams have worked in the core MENA region for a
broad range of oil and gas organisations, including state-owned companies, large multinational integrated oil and gas
companies, independent exploration and production companies, and oil and gas ministries. The Group is the operator of
assets which account for 85.0% of its 31 May 2014 2P working interest reserves and 50% of its 31 May 2014 2P net
entitlement reserves. Through its equity interests and operatorship of assets, the Group has a high degree of control over
the amount and timing of capital expenditure and the pace and nature of exploration, appraisal and development activity.
The Group’s degree of technical expertise and its relatively high proportion of ownership as compared to most of its JV
partners have contributed to the Group achieving 22 successful exploration wells drilled out of a total of 48 wells as at 31
March 2014 and an exploration drilling success rate of 44% and finding costs of $7.78 per barrel over the period from 1
January 2009 to 31 December 2013.
The Group has sought to combine its extensive technical and operational expertise with its local knowledge and a
management approach that is tailored to the relevant asset and its local context. The Group’s technical expertise and
local knowledge have contributed to the turnaround of several previously under-performing assets. For example, after the
Group acquired the Area A licence in Egypt, it was able to significantly reduce operating costs and drilling costs and
materially increase the expected life of the asset. It was able to double production after the Shukheir North West field
discovery in the third quarter of 2008 and decrease the decline rate of the old mature fields to a lower level compared to
the period before its ownership. In parallel, the Group succeeded in arresting the decline in production from the Yusr
field, which is the largest mature field in the area. The success of the Group in managing Area A secured a leading role
for the Group to manage such mature fields. Following a similar trajectory, production in the BEA field in Egypt has
more than doubled over the period since the Group acquired the operatorship of the BEA licence from Gharib in August
2009. As the Group continues to develop the BEA asset, the operating expenses per barrel continue to decline. The
Directors believe the Group’s proven track record of being a strong operator of oil and gas assets has been instrumental
in the Group accessing new investment opportunities, such as the award of the Group’s assets in Iraq, including its most
recent award of Block 9.
Operations with strong and steady cash flow generation
As a result of rising working interest production volumes, particularly in Egypt, the Group’s operating cash flow before
taking into account changes in working capital increased by $11.9 million, or 33.1%, from $35.9 million in the three
months ended 31 March 2013 to $47.8 million in the three months ended 31 March 2014. Similarly, the Group’s
operating cash flow before taking into account changes in working capital increased from $95.2 million in 2011 to
$131.4 million in 2012 and $189.9 million in 2013, primarily as a result of higher working interest production volumes.
Flexibility and control over capital expenditures and costs
Under the terms of its licenses, the Group maintains significant flexibility in respect of the timing and scope of capital
expenditures and operating costs. As at 1 June 2014, the Group currently expects to incur exploration and development
capital expenditures through the end of 2016 of at least $377.6 million, of which substantially all is capital expected to be
committed under the terms of its licences (mainly Iraq projects). Of these exploration and development capital
expenditures, the Group is contractually obligated to spend only $62.7 million of the total $377.6 million, which
represents $52.7 million in connection with Block 9 in Iraq, $7.5 million in relation to Mansuriya in Iraq and $2.5
million in connection with Block 82 in Yemen. The remaining $315.3 million in exploration and development capital
expenditures are subject to relinquishment if the Group decides not to continue exploration, appraisal and development
work in respect of its assets.
In addition, the Group currently plans an additional $207.5 million in discretionary capital expenditures through the end
of 2016, primarily focused on developing further production in Egypt and, in the longer term, in Iraq.
Effective operator in challenging geographies
The Group’s management team has an in-depth understanding of the oil and gas industry in the countries in which it
operates, particularly within the MENA region, and has extensive experience in operating its oil and gas assets
effectively including during periods of political instability. For example, in Iraq, despite periodic instability, terrorism
and sectarian violence, the Group has benefited from the award of three significant service contracts since 2010, on the
basis of its strong relationship with the Iraqi Oil Ministry. In Egypt, even in the face of political turmoil and civil unrest,
the Group has avoided significant interruptions to its field development programme. Although EGPC has typically
remitted payments due to the Group several months in arrears since 2011, the Group has continued to receive cash
payments from EGPC, and the Group’s receivables from EGPC have declined significantly from their peak of $188.8
million as at 30 June 2012 to $124.4 million as at 30 June 2014. The Group received an additional cargo payment of
$26.4 million on 9 July 2014. The Directors believe the Group’s ability to continue operations in circumstances of
political or civil unrest is due in large part to its understanding of the situation on the ground at the time and an accurate
assessment of risk by locally-based employees, as well as the Group’s good relations with local stakeholders.
