Registered No. 3456891

Report and Accounts

Dana Petroleum plc 31 December 2010

Dana Petroleum plc

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Directors, Advisers and other information

Directors Seong Hoon Kim Eugene Synn Chang Koo Kang Marcus T Richards Jin Seok Yi David A Crawford Group Headquarters 17 Carden Place Aberdeen AB10 1UR Secretary and Registered Office David A Crawford Pellipar House 9 Cloak Lane London EC4R 2RU Auditors Ernst & Young LLP Blenheim House Fountainhall Road Aberdeen AB15 4DT Bankers Bank of Scotland 2nd Floor New Uberior House 11 Earl Grey Street Edinburgh EH3 9BN Solicitors McGrigors LLP 52-54 Rose Street Aberdeen AB10 1UD Allen & Overy LLP One Bishop’s Square London E1 6AO

Dana Petroleum plc

Directors’ report

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The Directors present their report and audited financial statements for the year ended 31 December 2010.

RESULTS AND DIVIDENDS

The Group made a loss during the year after tax of £14,012,000 (2009: Profit £22,574,000). Dividends of £nil were received during the year (2009: £nil). The Directors do no recommend the payment of a dividend (2009: £nil) and the loss has been dealt with in reserves.

PRINCIPAL ACTIVITIES

The principal activities of the Group and its subsidiaries are oil and gas exploration and production. The Group has a number of participation interests in exploration and production licences in the UK, Netherlands, Norway, Egypt and Africa.

REVIEW OF THE BUSINESS AND FUTURE DEVELOPMENTS

The Group was acquired by the Korea National Oil Corporation (KNOC) on 24 September 2010. KNOC is wholly owned by the Korean Government. The major business areas of KNOC include overseas exploration and production, domestic continental shelf exploration, offshore rig operation, construction and operation of stock piling bases, research and development and oil information services. Subsequent to the takeover, Dana Petroleum plc was delisted from the UK stock exchange.

The Company and its subsidiaries are now wholly owned by KNOC (note 49).

When the Group was acquired by KNOC, the change of control provisions of all share options schemes, meant that all share based incentive plans held by key management and certain employees vested and the schemes were wound up.

Also as a result of acquisition of the Group by KNOC, the Convertible Bonds held by Dana Petroleum (Jersey) Limited were redeemed in full. Further details of conversion of the Bonds can be found in note 19.

During the year, the financing for the Group’s ongoing corporate requirements was provided by the Royal Bank of Canada (RBC), through a USD 900 million facility comprising a four year term loan of USD 300 million and a five year USD 600 million revolving credit facility. RBC was joined by a further six banks, four of which formed part of the previous facility, to form a wider general syndication. This facility replaced the previous facility with the Bank of Scotland which was repaid and cancelled. As a result of the change of control, the option to recall the credit facility was taken by some of the lenders that formed part of the syndicate with RBC and the available credit at 31 December 2010 was reduced to USD 680 million. Post year end two new banks have joined an amended Bank facility syndicate (effective 18 March 2011) increasing the total facility to USD 870 million (note 18).

On 13 August 2010, the Group completed the acquisition of Petro Canada Netherlands B.V., from Petro Canada (International Holdings) B.V., a wholly owned subsidiary of Suncor Energy Inc, a Toronto Stock Exchange listed oil and gas exploration and production group of companies. Aggregate consideration was £260,778,000. The transaction added to the Group a further 15 new offshore fields and 3 new onshore fields, approximately 31 mmboe of 2P reserves and 51 mmboe of 3P reserves at the date of completion, along with an experienced Dutch management team with significant North Sea operating experience, based in The Hague.

In May 2010, Faroe Petroleum plc (associate undertaking) undertook a significant equity fund raising and the Company took up its rights in full, at £1.00 per share, at a cost of £19.2 million. In November 2010 Faroe Petroleum issued further shares through a placing which the Company did not participate in.

In July 2010, the Group signed an agreement with BG International Limited to acquire a 50% interest in the El Manzala Offshore Area Concession, covering some 630 sq km and situated in the prolific offshore Nile Delta area of Egypt. Dana will fund the cost of the next exploration well up to an agreed cap of USD 24 million in order to earn the 50% interest.

In West Africa, the Group is now strategically positioned offshore Guinea in a vast offshore PSC spanning over 24,000 sq km, equivalent to over 110 blocks in the UK North Sea, following recent approval of Dana’s entry to this highly prospective area through Presidential Decree. A large 3,500 sq km 3D seismic survey contract commenced in August 2010 to obtain detailed imaging of the multiple prospects which were identified from the existing 2D seismic data.

In September 2010, the Group (through its subsidiary Dana Petroleum (E&P) Limited) entered into an agreement with Petro-Canada UK Limited, a wholly owned subsidiary of Suncor Energy Inc., to acquire Petro-Canada UK's interests in certain UK assets. The deal completed post year end.

Dana Petroleum plc

Directors’ report

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PRODUCTION

The overall production for the Group in 2010 increased to 39,776 boepd in 2010 from 38,653 boepd in 2009. The most significant contributions in terms of production are associated with participation in the fields of GKA, Cavendish, Hudson, Ettrick, Jotun, East Zeit, the Dutch assets purchased through the acquisition of Petro Canada Netherlands B.V. on 13 August 2010 and production from the Babbage field, which came on stream in August. The Group will continue to grow production and expects to produce approximately 60,000 boepd in 2011.

EXPLORATION

A substantial and balanced portfolio of drilling for new reserves continues to be central to Dana’s business model. This programme has been achieved by applying extensively for licenses in government bid rounds as well as undertaking commercial transactions and asset trades to leverage into additional drilling opportunities.

Dana embarked on an active drilling programme in 2010 with a total of 22 exploration and appraisal wells scheduled for the year which resulted in the following most significant discoveries:

Gas discovery at Papyrus in the West El Burullus concession, offshore Nile Delta, Egypt

The Platypus well in the UK Southern North Sea

Successful appraisal of the Blackbird oil field in the UK Central North Sea

Two oil discoveries, Lorcan and Fin-1x, in the North Zeit Bay PSC

Comoran well, Block 7, Mauritania, hydrocarbons were found and further drilling will be undertaken to explore the area

Nefertiti, South October, Gulf of Suez, Egypt

Of the remaining wells drilled in the year, hydrocarbons were discovered in sub-commercial quantities in Monkwell and K3-4 and there were unsuccessful exploration wells at Anne-Marie in the Faroes, Bamboo and RAD-1x in Egypt and Storkollen in Norway.

Drilling at the Tolmount prospect commenced in June 2010. However, the initial well and the subsequent side track both experienced stability issues in the Upper Jurassic section. As a result operator Eon-Ruhrgas (50%), made a recommendation to abandon well operations and consider an appropriate revised plan for re-drilling the Tolmount target in the future. Dana are in agreement with the recommendations made by Eon-Ruhrgas.

Good progress is being made offshore Morocco. Following the discovery of the Anchois gas field, with Dana's first well in 2009, the joint-venture group, led by Repsol, has acquired 1,336 sq km of 3D seismic and has also acquired 3D controlled source electromagnetic surveys (“CSEM”) during the first half of 2010. These new data sets cover the majority of identified prospects and leads within the Tanger-Larache concession and will be used to rank the most attractive prospects for drilling in mid 2011. The 2011 exploration programme currently comprises 2 exploration wells before committing to the next phase of the exploration licence.

The Group also continued to build its exploration portfolio through licence round applications and commercial transactions throughout the year and will continue to do so in future years.

DEVELOPMENT

The Babbage gas field in the UK Southern North Sea (Dana 40%) achieved production from its first well on 10 August 2010.

During 2010, the Company has been progressing a number of developments in the UK and Egypt.

Dana, as operator, has submitted an Environmental Statement and a draft Field Development Plan (“FDP”) to the UK Government for the Arran development in the UK Central North Sea (previously referred to as the Barbara/ Phyllis development). The Arran field is to be developed as a three well subsea tie back to a new Bridge Linked Platform (BLP) to be installed adjacent to the BG operated Lomond platform. Arran is a gas condensate field with mid case recoverable reserves of approximately 230 bcf of gas plus associated condensate. FEED studies are ongoing on each of the key areas, including BLP design, subsea infrastructure and the host platform. The development is targeting Project Sanction in 2011.

The Group continues to drive forward the Western Isles oil project in the UK Northern North Sea. Substantial progress was made during the year as the Environmental statement was submitted to the UK Government and the FDP is being prepared for submission 2011.

Dana Petroleum plc

Directors’ report

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On the back of successful discoveries in 2010, Dana is progressing the joint development of the Lorcan and Fin oil fields in North Zeit Bay, Egypt. A drilling rig was contracted for further drilling in the area from Q4 2010, and first oil production commenced early 2011 as part of an early stage development of the project subject to appropriate government consents.

In addition, the acquisition of Petro Canada Netherlands B.V. provides near term production potential through the Medway development project. The Medway project covers the development of the Van Nes gas discovery and the Van Ghent oil and gas discovery. The integrated oil and gas project will utilise the existing De Ruyter facilities. Project sanction was given at the end of 2010, with first production expected in late 2011. In addition, a number of discoveries and exploration prospects have been identified in the area that could potentially be developed as satellite fields. The Medway infrastructure is being designed to accommodate the tie-in of future fields.

PRINCIPAL RISKS AND UNCERTAINTIES

The management of the business and the execution of the Group’s strategy are subject to a numbers of risks set out in the table below and in the notes to the financial statements. The Company and its subsidiaries have adopted the standards in accordance with KNOC’s group requirements, for the evaluation and management of industrial and environmental risks. This includes reviewing annually the Company’s system of risk assessment for the specific risks faced by the Company. These risks are considered typical for an upstream company of Dana’s size, as illustrated in the table below. Further discussion of the financial risks and uncertainties is contained in note 21 of the financial statements. With Dana’s growing involvement and operated developments, the profile of a number of these risks have naturally assumed an increased focus within the organisation.

MEDIUM PROBABILITY HIGH PROBABILITY

Taxation – legislation changes Significant cost over-runs on major development projects Inability to finance work programme HS&E incidents Loss of key employees Inability to deliver key projects Failure of third party services

Material fall in oil and gas price HIGH IMPACT

Commercial misalignment with coventurers Poor reservoir performance Default of co-venturer Lack of operational resources Country risk associated with Guinea new entry Unfulfilled PSC work obligations

Exploration well failure MEDIUM IMPACT

KEY PERFORMANCE INDICATORS Key performance indicators are established each year in a business plan which covers a number of strategic, operational, Health, Safety and Environmental performance and finance objectives for the operations of the Group. The business plan is approved at KNOC group level, and the key performance indicators of the KNOC group are disclosed in the KNOC annual report which is publically available. The key performance indicators for the Dana Petroleum plc Group are considered to be production and reserve increases, successful health, safety and environmental performance and positive financial performance of the Group. The evaluation of the key performance indicators for the Dana Petroleum plc Group for the year ended 31 December 2010 have been considered in other sections within the Director’s Report.

Dana Petroleum plc

Directors’ report

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HEALTH, SAFETY AND ENVIRONMENTAL PERFORMANCE

HS&E is considered a critical business function. Responsibility for HS&E is delegated to Country Managers and Asset Managers, who are supported by local and Group HS&E Personnel.

Our HS&E policy

As an integral part of business, management of HS&E aspects contributes directly to the commercial success of the Group through implementation of the Group’s HS&E Management System, setting of continual improvement goals and objectives and ensuring HS&E competence and adequate resources. The Group strives to achieve the following ideals:

No harm to people No undesirable releases or emissions No damage to property HS&E matters managed as any other critical business activity Promoting a positive safety culture All activities undertaken with legal compliance

Continual improvement in HS&E is driven by commitment to compliance and commitment to achieve the Group’s ideals and annual goals and objectives. Goals are identified at Group, Company and country office level to ensure all aspects of the business are captured and where required, regional challenges can be highlighted and actioned appropriately.

Reviews of Group, Company and country office goals are undertaken on an annual basis.

FINANCIAL PERFORMANCE The Company’s key financial indicators during the year were as follows:

2010 2009 Change £’000 £’000 %

Turnover 598,272 397,267 50.6 Profit on ordinary activities before interest and tax 78,327 72,194 8.5 (Loss)/Profit for the financial year (14,012) 22,574 (162.1)Shareholders’ funds 819,315 657,108 24.7

The increase in turnover is mainly due to the increase in realised oil prices from £39.68/boe to £51.83/boe and an increase in production to 39,776 boepd from 38,653 boepd in 2009. Turnover also increased by £62,710,000 as a result of the acquisition of Petro Canada Netherlands B.V. in August 2010. The increase in operating profit is mainly due to: - The contribution from the acquisition of Petro Canada Netherlands B.V. - The increase in turnover as noted above. The increase in operating profit above is partially offset by: - An increase in depreciation moving from £107,204,000 in 2009 to £130,884,000 in 2010. - A movement in foreign exchange from a gain of £7,994,000 to a gain of £482,000. - Net Exploration and evaluation expenditure in the income statement moved from an expense of £48,338,000 in 2009 to

£84,881,000 in 2010. This mainly relates to expensed Exploration and Evaluation activity for Anne Marie, Christian and Bligh (UK), Jetta and Storkollen (Norway) and Ras Abu Darag (Egypt) that are now considered unlikely to deliver future commercial reserves.

- An increase in administration expenses from £10,225,000 to £58,325,000 during the year. This was mainly due to the defence costs (£19,898,000) and increased staff costs (£25,163,000) incurred as a result of the takeover by KNOC.

Dana Petroleum plc

Directors’ report

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The loss for the financial year was £14,012,000 compared to a profit for the financial year in the prior year of £22,574,000. The movement is mainly due to: - Interest payable and similar charges increasing to £52,429,000 in 2010 from £17,571,000 in 2009 due to the interest

expense recognised on the redemption of the convertible bonds and also significant bank arrangement fees for the bank facility as discussed in note 18.

- The tax rate rose from 56% in 2009 to 145% in 2010 mainly due to a higher weighted average rate of Corporation tax which was caused by a different mix of profits and losses between countries. Also there were non deductible one off items in the period, most notably defence fees which are not deductible for UK/CT/SCT purposes and various financing fees which are not deductible for UK SCT purposes.

Shareholders’ funds increased in the year by 24.7%. Although the Group recognised a loss for the financial year, shareholders funds increased mainly due to: - Shares issued in the year in respect of share options and the convertible bond redemption (see note 22) increased

shareholders funds by £145,170,000. - Foreign exchange gain on consolidation for the year was £20,877,000. - Increase in the value of the available for sale asset of £3,118,000. CHARITABLE CONTRIBUTIONS As part of the group’s commitment to the communities in which it operates, contributions totalling £126,000 (2009: £63,000) were made during the year to local charities and projects focused on communities and areas close to areas of operations. GOING CONCERN

The directors are satisfied that the Group has adequate resources to continue to operate for the foreseeable future. The Company’s forecasts and projections, taking account of reasonably possible changes in the underlying assumptions, confirm that the Company can undertake its planned work programmes for the period of 5 years from the current reporting date. A number of these planned activities have yet to be formally committed, providing further flexibility to the Group in managing its future cashflows. As discussed below the Group received a capital injection from KNOC during January 2011, this was used to repay some of the Group’s external borrowings and gives the Group further security over their available resources used for funding operations.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future and continue to adopt the going concern basis of accounting in preparing the annual financial statements.

EVENTS SINCE THE BALANCE SHEET DATE

On 31 March 2011, the Company completed the acquisition of the Triton Area and Scott assets from Petro-Canada UK Limited (“Petro-Canada UK”), a wholly owned subsidiary of Suncor Energy Inc. (“Suncor”) for a net cash consideration of £105 million. The cash consideration will be adjusted for various working capital balances. The package consists of two main production hubs in the UK Continental Shelf ("UKCS"). These are the Petro-Canada UK operated fields around the Central North Sea Triton Area (West, Guillemot Northwest, Clapham, Pict and Saxon) and the Nexen-operated Scott fields (Scott and Bittern fields). The acquisition of these assets is estimated to add an additional 16,000 boepd of net oil production to the group.

A number of key changes to the rates of tax affecting oil companies were announced in the March 2011 Budget. Details of these key changes and the impacts on the Group have been disclosed in note 9.

In March 2011, the Group secured an amended bank facility for USD 870 million. This replaces the existing facility held by the Group at the year end. Details of the new and existing facility have been disclosed in note 18.

Subsequent to the year end the Group has entered into oil price hedging arrangements. This strategy was taken due to the rise in the oil price and to reduce the Group’s exposure to fluctuations in the oil price. In 2011 production of 5,000,000 bbls has been hedged for 2011 and 4,900,000 bbls have been hedged for 2012. The hedging contracts entered in to have no effect on the 2010 financial position.

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Directors’ report

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In January 2011, the Group received a capital injection from KNOC. This agreement saw KNOC and the Company entering into a subscription agreement where KNOC agreed to subscribe for the sterling equivalent of USD 500 million shares in the capital of the Company. This funding was then used to repay part of the loans from external lenders.

DIRECTORS The current Directors at the date of signing this report are shown on page 1. The following changes have been made to Directors and officials during the year ended 31 December 2010 and since the year end: Eugene Synn was appointed as a director on 11 October 2010 Seong Hoon Kim was appointed as a director on 11 October 2010 Chang Koo Kang was appointed as a director on 11 October 2010 Tom Cross resigned as a director on 8 November 2010 Colin R Goodall resigned as a director on 28 October 2010 D Ian Rawlinson resigned as a director on 28 October 2010 Phillip J Dayer resigned as a director on 28 October 2010 Brian Johnston resigned as a director on 28 October 2010 Since the year end the following changes have been made to directors and officials Marcus T Richards was appointed as a director on 2 March 2011 Jin Seok Yi was appointed as a director on 2 March 2011 Stuart Paton resigned as a director on 21 March 2011 David MacFarlane resigned as a director on 21 March 2011 John Arnton resigned as Company Secretary on 21 March 2011 David A Crawford was appointed as a director and Company Secretary on 21 March 2011 CREDITOR PAYMENT POLICY The Company and Group policy is to agree payment terms with individual suppliers and to abide by these terms. The Company does not have any trade creditors. DISCLOSURE OF INFORMATION TO THE AUDITORS

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Company’s auditor, each director has taken all the steps that he is obliged to take as director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information

AUDITORS Ernst & Young LLP will be re-appointed as the Company’s auditor in accordance with the elective resolution passed by the Company under Section 485 of the Companies Act 2006.

By order of the Board: David A Crawford Director 22 June 2011

Dana Petroleum plc

Statement of Directors’ responsibilities

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The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). In preparing the group financial statements, the directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether IFRSs as adopted by the European Union and IFRSs issued by IASB and applicable UK Accounting

Standards have been followed, subject to any material departures disclosed and explained in the group and parent company financial statements respectively;

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Dana Petroleum plc

Independent Auditors’ report to the Members’ of Dana Petroleum plc

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We have audited the group financial statements of Dana Petroleum plc for the year ended 31 December 2010 which comprise the Group Income Statement, the Group Balance Sheet, the Group Statement of Comprehensive Income, the Group Cash Flow Statement, the Group Statement of Changes in Equity and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement on page 8, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the group financial statements:

give a true and fair view of the state of the group’s affairs as at 31 December 2010 and of its loss for the year then ended;

have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Director’s Report and Accounts for the financial year for which the group financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.

Other matter We have reported separately on the parent company financial statements of Dana Petroleum plc for the year ended 31 December 2010. Moira Ann Lawrence (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Aberdeen 22 June 2011

Dana Petroleum plc

Group Income Statement for the year ended 31 December 2010

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2010 2009

Note £’000 £’000

Revenue 3 598,272 397,267Cost of Sales (377,221) (274,504)Gross Profit 221,051 122,763Exploration & Evaluation: Gain 5 - 757Exploration & Evaluation: Expense 5 (84,881) (49,095)Administrative Expenses (58,325) (10,225)Foreign Exchange 482 7,994Profit on Ordinary Activities before Interest and Taxation 5 78,327 72,194Interest Income 3 475 1,806Finance Costs 7 (52,429) (17,571)Profit on Ordinary Activities before Taxation 26,373 56,429Taxation 9 (38,191) (31,343)(Loss)/Profit for the Financial Year before Share of Post Tax Losses of the Associate (11,818) 25,086Share of Post Tax Losses of the Associate 12 (2,194) (2,512)(Loss)/Profit for the Financial Year Attributable to the Equity Holders of the Company (14,012) 22,574 The results above are entirely derived from continuing operations.

Dana Petroleum plc

Group Statement of Comprehensive Income for the year ended 31 December 2010

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2010 2009 Note £’000 £’000

(Loss)/Profit for the Financial Year (14,012) 22,574 Currency Translation Adjustments 20,877 (25,699)Fair Value Movements on Available-for-Sale Financial Assets 12 4,331 1,733 Taxation thereon 9 (1,213) (487)Associate: Net Asset Movement Recognised Directly in Equity 12 (832) 477 Other Comprehensive Income/(Loss) for the Year, Net of Tax 23,163 (23,976)Total Comprehensive Income/(Loss) for the Year, Net of Tax Attributable to Equity Holders of the Parent 9,151 (1,402)

Dana Petroleum plc

Group Balance Sheet as at 31 December 2010

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2010 2009 Note £’000 £’000

Non-Current Assets Intangible Assets 10 743,657 493,269 Property, Plant and Equipment 11 838,802 607,478 Deferred PRT/NPI 9 12,978 7,595 Investments 12 72,149 50,395 1,667,586 1,158,737 Current Assets Inventories 13 13,276 15,640 Trade and Other Receivables 14 141,912 116,078 Cash and Cash Equivalents 15 109,959 67,550 265,147 199,268 Total Assets 1,932,733 1,358,005 Current Liabilities Trade and Other Payables 16 170,451 105,903 Current Tax 17 52,318 11,022 222,769 116,925 Non-current Liabilities Trade and Other Payables 16 3,431 4,054 Borrowings and Financial Liabilities 18 337,128 211,304 Provision for Deferred Taxation 9 364,710 265,206 Provision for Liabilities and Charges 20 185,380 103,408 890,649 583,972 Net Assets 819,315 657,108 Equity Attributable to Equity Holders Called-up Share Capital 22 15,805 13,801 Share Premium 279,685 136,519 Other Reserves 132,067 128,949 Cumulative Translation Reserve 79,587 58,710 Retained Earnings 312,171 319,129 Total Equity 819,315 657,108

The financial statements were approved by the Board of Directors on 22 June 2011 and signed on its behalf by: David A Crawford Director Registered No. 3456891

Dana Petroleum plc

Group Statement of Changes in Equity for the year ended 31 December 2010

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Share Capital

Share Premium

Other Reserves

Cumulative Translation

Reserve Retained Earnings

Total Equity

£’000 £’000 £’000 £’000 £’000 £’000

Equity at 1 January 2009 13,034 81,066 127,703 84,409 289,990 596,202 Profit for the Financial Year - - - - 22,574 22,574 Other Comprehensive (Loss)/Income - - 1,246 (25,699) 477 (23,976)Total Comprehensive (Loss)/Income - - 1,246 (25,699) 23,051 (1,402)Employee Share Scheme Credits - - - - 3,572 3,572 Taxation thereon - - - - 2,516 2,516 New Shares Issued 767 55,453 - - - 56,220 Equity at 31 December 2009 13,801 136,519 128,949 58,710 319,129 657,108 Loss for the Financial Year - - - - (14,012) (14,012)Other Comprehensive Income/(Loss) - - 3,118 20,877 (832) 23,163 Total Comprehensive Income/(Loss) - - 3,118 20,877 (14,844) 9,151 Employee Share Scheme Credits - - - - 381 381 Taxation thereon - - - - 7,505 7,505 New Shares Issued 2,004 143,166 - - - 145,170 Equity at 31 December 2010 (note 24) 15,805 279,685 132,067 79,587 312,171 819,315

At 31 December 2010 equity attributable to equity holders of the parent company is £819,315,000 (2009: £657,108,000).

Dana Petroleum plc

Group Cash Flow Statement for the year ended 31 December 2010

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2010 2009

Note £’000 £’000 Operating Activities Cash Generated from Operations 25 339,586 164,727 Terminated Rig Contract Payment - (4,888)Taxation Paid (32,951) (21,518)Interest Received 463 1,806 Interest Paid (16,358) (7,932)

Net Cash from Operating Activities 290,740 132,195

Investing Activities Expenditure on Intangible and Property, Plant and Equipment Assets (219,417) (236,195)Payments to Acquire Subsidiaries 26 (260,778) (24,662)Net settlement of working capital balances on acquired subsidiary 11,548 (19,268)Payments to acquire Shares in Associate Undertaking 12 (19,221) - Receipts on Sale of Assets Held-for-Sale - 20,505 Net Cash Invested in Investing Activities (487,868) (259,620) Financing Activities Issue of Ordinary Share Capital (net of costs) 3,670 55,306 Cash settled options (7,307) - Drawdown of Borrowings 260,710 137,647 Repayment of Borrowings (14,840) (156,332)Interest Paid on Convertible Bonds (4,104) (4,104)Net Cash from Financing Activities 238,129 32,517 Currency Translation Differences 27 1,408 3,510 Net Increase/(Decrease) in Cash and Cash Equivalents 42,409 (91,398)Cash and Cash Equivalents at the Beginning of the Year 67,550 158,948 Cash and Cash Equivalents at the End of the Year 15 109,959 67,550

Dana Petroleum plc

Notes to the Group Financial Statements

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1 Authorisation of financial statements and statement of compliance with IFRS

The Group’s financial statements of Dana Petroleum plc for the year ended 31 December 2010 were authorised for issue by the Board of Directors on 22 June 2011 and the balance sheet was signed on the Board’s behalf by David A Crawford. Dana Petroleum plc is a public limited company incorporated in England and Wales and domiciled in Scotland.

The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU as they apply to the financial statements of the Group for the year ended 31 December 2010. The Group’s financial statements are also consistent with IFRS as issued by the International Accounting Standards Board. The principal accounting policies adopted by the Group are set out in note 2.

2 Accounting policies for the Group financial statements

The following accounting policies are applied consistently in dealing with items which are considered material in relation to the Group’s financial statements.

Basis of accounting

The financial information has been prepared using accounting policies consistent with IFRS and IFRIC Interpretations adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, except for certain fair value adjustments required by those accounting policies.

Accounting estimates

The Group’s accounting policies make use of estimates and judgements in the following areas; Goodwill, Impairment, Depreciation, Decommissioning, Investment in Associates, Derivative Financial Instruments and Share-based Payments. These are described in more detail in the relevant accounting policy and related notes to the Financial Statements.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and each of its subsidiary undertakings having eliminated all inter-company transactions and balances.

Acquisitions

Business combinations are dealt with on the basis of the purchase method of accounting. The cost of an acquisition is measured as the fair value of the assets acquired (or assets given up in the case of swap transactions), equity instruments issued and liabilities incurred or assumed at the date of completion of the acquisition, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

The results of subsidiaries acquired or disposed of are included/excluded in the consolidated income statement from the date on which control legally passes.

Joint Ventures

The Group is engaged in oil and gas exploration, development and production through unincorporated joint ventures and production sharing contracts (together “Joint Ventures”). The Group accounts for its share of the results and net assets of these Joint Ventures as jointly controlled assets. In addition, where Dana acts as operator to the Joint Venture, the gross liabilities and receivables (including amounts due to or from non-operating partners) of the Joint Venture are included in the Group balance sheet. The Group’s current Joint Venture interests are detailed in note 50.

Dana Petroleum plc

Notes to the Group Financial Statements

16

Revenue

Revenue reflects actual sales value, net of VAT and overriding royalties, in respect of liftings sold. Due to the fact that the Group follows the entitlement basis, adjustments in respect of overlift (liftings greater than production entitlement) and underlift (production entitlement greater than liftings) are recorded in/against cost of sales at market value. Where appropriate, entitlement revenue also includes an allowance for the gross up for tax paid on the Company’s behalf by host governments.

Interest income is recognised on an accruals basis and is disclosed separately on the face of the income statement.

Foreign currencies

The functional currency for material subsidiaries is either Pounds Sterling, Euro, Norwegian Kroner or US Dollar.

Transactions in foreign currencies during the year are recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates ruling at the balance sheet date.

Exchange differences resulting from the translation of assets and liabilities of foreign currency denominated subsidiaries into pounds sterling at year-end rates of exchange, together with those differences resulting from the restatement of profits and losses from average to year-end rates, are taken directly to the cumulative translation reserve. All other exchange differences are taken to the income statement.

Transactions denominated in local currencies are re-measured into the functional currency at the rate ruling on the date that they arose.

Oil and gas expenditure

The Group accounts for oil and gas expenditure as follows:

Intangible assets – Exploration and Evaluation assets

Capitalisation

Certain costs (other than payments to acquire the legal right to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. All costs incurred after the rights to explore an area have been obtained, such as geological and geophysical costs and other direct costs of exploration (drilling, trenching, sampling and technical feasibility and commercial viability activities) and appraisal are accumulated and capitalised as intangible exploration and evaluation (E&E) assets.

E&E costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then, following development sanction, the carrying value of the relevant E&E asset will be reclassified as a development and production asset, but only after the carrying value of the relevant E&E asset has been assessed for impairment, and where appropriate, its carrying value adjusted. If after completion of appraisal activities in an area, it is not possible to determine technical feasibility and commercial viability or if the legal right to explore expires or if the Company decides not to continue exploration and evaluation activity, then the costs of such unsuccessful exploration and evaluation is written off to the income statement in the period the relevant events occur.

Impairment

If and when facts and circumstances indicate that the carrying value of an E&E asset may exceed its recoverable amount an impairment review is performed.

For E&E assets when there are such indications, an impairment test is carried out by grouping the E&E assets with the development & production assets belonging to the same geographic segment to form the Cash Generating Unit (“CGU”) for impairment testing. The equivalent combined carrying value of the CGU is compared against the CGU’s recoverable amount and any resulting impairment loss is written off to the income statement. The recoverable amount of the CGU is determined as the higher of its fair value less costs to sell and its value in use.

Dana Petroleum plc

Notes to the Group Financial Statements

17

Property, plant and equipment – Development and Production assets

Capitalisation

Development and production (D&P) assets are accumulated into single field cost centres and represent the cost of developing the commercial reserves and bringing them into production together with the E&E expenditures incurred in finding commercial reserves previously transferred from E&E assets as outlined in the policy above.

Depreciation

Costs relating to each single field cost centre are depleted on a unit of production method based on the commercial proven and probable reserves for that cost centre. Development assets are not depreciated until production commences. The amortisation calculation takes account of the estimated future costs of development of recognised proven and probable reserves, based on current price levels. Changes in reserve quantities and cost estimates are recognised prospectively from the last reporting date.

Currently there are no significant items of property, plant and equipment deemed to have different useful lives.

Impairment

A review is performed for any indication that the value of the Group’s D&P assets may be impaired.

For D&P assets when there are such indications, an impairment test is carried out on the CGU. Each CGU is identified in accordance with IAS 36. Dana’s CGU’s are those assets which generate largely independent cash flows and are normally, but not always, single development or production areas. If necessary, additional depletion is charged through the income statement if the capitalised costs of the CGU exceed the associated estimated future discounted cash flows of the related commercial oil and gas reserves.

Asset purchases and disposals

When a commercial transaction involves the purchase of a D&P asset in exchange for an E&E asset, the transaction is accounted for at fair value with the difference between fair value and cost being taken to the income statement.

When a commercial transaction involves the exchange of E&E assets of similar size and characteristics, no fair value calculation is performed. The capitalised costs of the asset being sold are transferred to the asset being acquired. However, where the size and characteristics of the E&E assets significantly differ, the transaction is accounted for at fair value with the difference between fair value and cost being taken to the income statement.

Proceeds from the entire disposal of an E&E asset are deducted from the capitalised costs of the asset with any surplus/deficit taken to the income statement as a gain or loss on sale. Proceeds from a part disposal of an E&E asset are deducted from the capitalised cost of the asset with any surplus taken to the income statement as a gain on sale.

Proceeds from the entire disposal of a D&P asset, or any part thereof, are taken to the income statement together with the requisite proportional net book value of the asset, or part thereof, being sold.

Goodwill

Goodwill arising on consolidation, representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired, is capitalised in the balance sheet. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate the carrying value may be impaired. Goodwill is allocated to the appropriate CGU for the purpose of impairment testing.

Decommissioning

The Group recognises the full discounted cost of decommissioning when the obligation to rectify environmental damage arises, principally on development sanction. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding D&P asset of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the capital costs of the D&P asset. Any change in the present value of the estimated expenditure is reflected as an adjustment to the provision and the D&P asset. The unwinding of the discount on the decommissioning provision is included as a finance cost.

Dana Petroleum plc

Notes to the Group Financial Statements

18

Property, plant and equipment other than D&P assets

Property, plant and equipment other than D&P assets are stated in the balance sheet at cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis at the following annual rates:

Equipment 10% - 25%

Computer equipment 33%

Finance costs and debt

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for the intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use of sale.

Finance costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are amortised and charged to the income statement as finance costs over the term of the debt.

Investment in associates

The Group’s interest in its associate, being that entity over which it is deemed to have significant influence and which is neither a subsidiary nor a joint venture, is accounted for using the equity method of accounting. Under the equity method, the investment in its associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The Group’s statement of change in equity reflects the Group’s share of the fair value of the associate’s net assets value on initial recognition and any subsequent movement in the fair value of the net assets of the associate required to be recognised directly in equity.

Financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies used into line with those of the Group; to take into account movement in the fair values assigned at the date of the acquisition and to reflect impairment losses where appropriate.

Available-for-sale financial assets

The Group determines the classification of its available-for-sale financial assets at initial recognition and re-evaluates this designation at each financial year end. When available-for-sale financial assets are recognised initially, they are measured at fair value, being the transaction price plus directly attributable transaction costs.

After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Inventories

Inventories comprise materials and equipment, which are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing the materials and equipment to its present condition and location.

Trade and other receivables

Trade receivables are recognised and carried at the original invoiced amount. Other receivables, excluding underlifted amounts, are measured at nominal value. Underlifted amounts are measured at market value in accordance with industry practice.

Trade and other payables

Trade and other payables, excluding overlifted amounts, are measured at cost. Overlifted amounts are measured at market value in accordance with industry practice.

Dana Petroleum plc

Notes to the Group Financial Statements

19

Convertible bonds

The net proceeds received from the issue of convertible bonds are split between a liability element and an equity component at the date of issue. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible bonds and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity and is not remeasured. The liability component is carried at amortised cost.

Issue costs are apportioned between the liability and equity components of the convertible bonds based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible bonds.

Share issue expenses and share premium account

Costs of share issues are written off against the premium arising on the issue of share capital.

Taxation

Current tax

Current tax is recognised as a liability to the extent unpaid or if the amount paid exceeds the amount due it is recognised as an asset. Current tax assets and liabilities are measured at the amount expected to be paid/recovered from the taxation authorities, using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred tax

Deferred income tax is recognised on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the Group financial statements.

Deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction (other than a business combination), that at the time of the transaction affects neither, accounting nor taxable profit or loss.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date.

Deferred income tax assets are recognised to the extent that it is probable that future income tax profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

PRT and NPI tax

UK PRT and Norwegian NPI tax are treated as income taxes and deferred PRT and deferred NPI tax is calculated and provided for. Current UK PRT and Norwegian NPI tax are charged as tax expenses on the chargeable field profits included in the income statement and are deductible for UK and Norwegian corporation tax respectively.

Pensions

The Group contributes to the personal pension arrangements of Executive Directors and employees up to a specified percentage of salary in lieu of a formal corporate scheme. Contributions in lieu of pensions are charged to the income statement as incurred.

Derivative financial instruments and hedging

The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates, interest rates and movements in oil and gas prices.

Dana Petroleum plc

Notes to the Group Financial Statements

20

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are remeasured at their fair value at each subsequent reporting date.

Derivatives embedded in other financial instruments or non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the income statement.

Fair value estimation of financial instruments traded in active markets (such as available-for-sale securities) is based on quoted market prices at the reporting date. The fair value of foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. Other financial instruments are valued using standard pricing models or discounted cash flow techniques.

Operating leases

Rentals under operating leases are charged to the income statement on a straight line basis over the period of the lease.

Maintenance expenditure

Expenditure on major maintenance, refits or repairs is capitalised where it enhances the life or performance of an asset above its originally assessed standard of performance; replaces an asset or part of an asset which was separately depreciated and which is then written off, or restores the economic benefits of an asset which has been fully depreciated. All other maintenance expenditure is charged to the income statement as incurred.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Share based payments

The Group has applied the requirements of IFRS 2 Share Based Payment to all grants of equity instruments after 7 November 2002 that had not vested as of 1 January 2005.

The Group issues both equity-settled and cash-settled share based payments as an incentive to certain key management and staff. Equity-settled share based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest.

Fair value is measured by use of a Monte Carlo model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations.

For cash-settled share based payments, a liability is recognised based on the current fair value determined at each reporting date and that portion of the employees’ services to which the payment relates that has been received by the reporting date.

New standards and interpretations

The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2010:

IFRS 3 (revised) ‘Business Combinations’ and consequential amendments to IAS 27 ‘Consolidated and separate financial statements, IAS 28 ‘Investments in associates’. Under IFRS 3 (revised) changes in estimates of deferred consideration are now reflected through the income statement.

The following standards and interpretations which have been adopted are relevant to the Group but have had no material impact on these financial statements:

IFRS 2 (amendments) ‘Group cash settled share based payment transactions’.

IAS 1 (amendment) ‘Presentation of financial statements’.

IAS 31 (amendment) ‘Interests in joint ventures’.

Dana Petroleum plc

Notes to the Group Financial Statements

21

IAS 36 (amendment) ‘Impairment of assets’.

IFRS 5 (amendment) ‘Non-current assets held for sale and discontinued operations’.

IFRIC 16 ‘Hedges of a net investment in a foreign operation’.

The following amendments to standards and interpretations are mandatory as of 1 January 2010 but are currently not relevant to the group and have no impact on the Group’s financial statements.

IFRIC 17 ‘Distribution of non-cash assets to owners’.

IFRIC 18 ‘Transfers of assets from customers’.

IFRIC 9 (amendment) ‘Reassessment of embedded derivatives’ and IAS 39 (amendment) ‘Financial instruments: recognition and measurement’.

The following standards and amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting period beginning on or after 1 January 2011 or later periods, but the Group has not early adopted them:

IFRS 9 ‘Financial instruments’

IAS 24 (revised) ‘Related party disclosures’

‘Classification of rights issues’ IAS 32 (amendment)

IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’

‘Prepayment of a minimum funding requirement’ IFRIC 14 (amendments)

It is not anticipated that the application of these standards and amendments will have any material impact on the Group’s financial statements.

3 Revenue Revenue disclosed in the income statement is analysed as follows:

2010 2009

£’000 £’000

Oil, gas and condensate sales 580,271 385,471 Other revenues 18,001 11,796 Revenue 598,272 397,267 Bank interest (financial assets not at fair value through profit and loss) 475 1,806 Total revenue 598,747 399,073

No revenue was derived from the exchange of goods and services (2009: £nil). Included in oil, gas and condensate sales are amounts relating to deferred income and embedded derivative income arising on the Victor gas sales contract. These amounts are £nil (2009: £391,000) and £nil (2009: £1,149,000) respectively. Other revenue includes amounts receivable in respect of third party tariff income.

Dana Petroleum plc

Notes to the Group Financial Statements

22

4 Segment information The following disclosures are in accordance with IFRS 8, Operating Segments. For management purposes, the Group is organised into business units based on their geographic location and value-chain activity. The Group has four reportable operating segments as follows: UK and Other Europe (Previously Europe) – The Group is currently involved in the exploration, development and production of hydrocarbons in this geographic location. Netherlands – The Group is currently involved in the exploration, development and production of hydrocarbon in this geographic location. This is a new segment due to the acquisition of Petro Canada Netherlands B.V. as detailed in note 26. Egypt – The Group is currently involved in the exploration, development and production of hydrocarbons in this geographic location. Other International – The Group is currently only involved in the exploration of hydrocarbons. No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on the economic evaluation of the reserve and resource potential and growth in each segment. Group financing (including finance costs and interest income), foreign exchange and income taxes are managed on a group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s-length basis in a manner similar to transactions with third parties. Segment revenues and results The following tables present revenue and profit information regarding the Group’s operating segments for the year ended 31 December 2010 and 31 December 2009 respectively.

UK andOther Europe Netherlands Egypt

Other International Total

Year ended 31 December 2010 £’000 £’000 £’000 £’000 £’000

Revenue(1) 473,961 66,405 57,906 - 598,272 Results Segment result 72,764 (2) 23,812 (22,048) 1,123 75,651 Foreign Exchange 482 Interest Income 475 Finance Costs (52,429)Taxation (38,191)Loss for the year (14,012)

Year ended 31 December 2009

Revenue(1) 349,822 - 47,445 - 397,267 Results Segment result 106,156 (2) - (25,204) (19,264) 61,688 Foreign Exchange 7,994 Interest Income 1,806 Finance Costs (17,571)Taxation (31,343)Profit for the year 22,574 (1) All revenue is derived from third party sales (2) Included within UK and Other Europe profit is the share of post tax losses of the associate £2,194,000 (2009: £2,512,000).

Dana Petroleum plc

Notes to the Group Financial Statements

23

Segment assets The following table presents segment assets of the Group’s operating segments as at 31 December 2010 and 31 December 2009:

UK and Other

Europe Netherlands EgyptOther

international

Adjustments and

eliminations Total

£’000 £’000 £’000 £’000 £’000 £’000

At 31 December 2010 869,628 (1) 502,937 335,048 102,183 122,937 (2) 1,932,733 At 31 December 2009 906,519 (1) - 323,663 52,678 75,145 (2) 1,358,005 (1) Included within UK and Other Europe assets is the investment in associate £ 55,291,000 (2009: £ 39,096,000). (2) Segment assets do not include deferred PRT/NPI £12,978,000 (2009: £7,595,000) or cash and cash equivalents £109,959,000 (2009: £67,550,000). Segment liabilities The following table presents segment liabilities of the Group’s operating segments as at 31 December 2010 and 31 December 2009:

UK and Other

Europe Netherlands EgyptOther

international

Adjustments and

eliminations Total

£’000 £’000 £’000 £’000 £’000 £’000

At 31 December 2010 160,975 99,541 21,409 77,337 754,156 (1) 1,113,418 At 31 December 2009 152,644 - 28,008 32,713 487,532 (1) 700,897 (1) Segment liabilities do not include current tax £ 52,318,000 (2009: £ 11,022,000), borrowings and financial liabilities £ 337,128,000 (2009: £ 211,304,000) and provision for deferred taxation £364,710,000 (2009: £265,206,000). Other Segment information

Depreciation Exploration and evaluation

expense Additions to non-current

assets

2010 2009 2010 2009 2010 2009

£’000 £’000 £’000 £’000 £’000 £’000

UK and Other Europe 80,618 82,435 75,847 9,618 145,053 280,718 Netherlands 23,504 - 144 - 303,549 - Egypt 26,762 24,769 8,890 23,649 60,457 54,967 Other International - - - 15,828 51,565 32,550 130,884 107,204 84,881 49,095 560,625 368,235 In addition to the depreciation reported above, an impairment loss of £ 37,216,000 (2009:£ 7,944,000) was recognised in respect of property, plant and equipment. This is attributable to the UK and Other Europe £11,670,000 (2009: £7,944,000) and Egypt £25,546,000 (2009: £nil).

Dana Petroleum plc

Notes to the Group Financial Statements

24

Revenues from major products and services The Group’s revenues from its major products and services were as follows:

2010 2009

£’000 £’000

Oil 504,677 343,417 Gas 73,806 40,965 Condensate 1,788 1,089 Tariff income 18,001 11,796 Consolidated revenue (excluding investment revenue) 598,272 397,267 Geographical information The Group’s revenue from external customers and information about its segment assets (non-current assets excluding deferred tax assets and other financial assets) by geographical location are detailed below: Revenue Non-current assets

2010 2009 2010 2009

£’000 £’000 £’000 £’000

UK 424,520 299,101 898,028 609,950 Netherlands 66,405 - 466,033 - Egypt 57,906 47,445 124,583 282,251 Norway 49,441 47,456 51,591 188,746 Other - 3,265 97,516 58,895 598,272 397,267 1,637,750 1,139,842 Information about Major Customers Included in revenues arising from the UK, Norway, Egypt and Netherlands are revenues of approximately £311,107,000 (2009: £215,125,000), £nil (2009: £46,921,000), £nil (2009: £46,772,000) and £71,291,000 (2009: £nil) respectively which arose from sales to the Group’s three (2009: four) largest customers. In the UK, the Group typically re-tenders its hydrocarbon sales contracts on an annual basis. 5 Profit on operating activities before interest and taxation Profit on operating activities before interest and taxation is stated after charging/(crediting):

2010 2009

£’000 £’000

Depreciation (note11) 130,884 107,204 Asset impairment (note11) 37,216 7,944 Inventory consumed 1,968 2,257 Net over/(under) lifted production movement 12,773 (15,607)Net foreign exchange differences (482) (7,994)Egypt tax-in-kind (8,763) (3,085)Operating lease rentals 1,412 1,161 Exploration and Evaluation: Gain - (757)Exploration and Evaluation: Expense - Costs of licences expired/relinquished 614 1,975 - Wells declared non commercial 82,063 41,278 - Pre licence expenditure 2,204 5,842 84,881 49,095

Dana Petroleum plc

Notes to the Group Financial Statements

25

6 Auditors’ remuneration

2010 2009 £’000 £’000

Audit of the Group accounts 180 142 Audit of the Company's accounts 36 35 216 177

Other fees to auditors: - Audit of the Company's subsidiaries pursuant to legislation 220 90 - Other services pursuant to legislation 30 30 - Taxation services 153 16 - Corporate finance services: transaction costs 252 138 655 274

7 Finance costs

2010 2009 £’000 £’000

Bank and other loans (financial liabilities not at fair value through profit and loss) 19,987 2,950 Convertible bonds (note 19) 23,765 8,124 Unwinding of decommissioning discount (note 20) 8,677 6,497 52,429 17,571

8 Employment costs

(a) Staff costs

2010 2009

£’000 £’000

Wages and salaries 34,336 16,265 Pension costs 1,082 709 Social security costs 9,161 2,974 44,579 19,948

Included in wages and salaries is a total net expense of share based payments of £9,781,000 (2009: £4,256,000) of which £8,631,000 (2009: £3,638,000) arises from transactions accounted for as equity-settled share based payment transactions. The carrying amount of the liability at the end of the year for cash-settled share based payment transactions is £nil (2009: £1,802,000).

Dana Petroleum plc

Notes to the Group Financial Statements

26

The weighted average number of employees (including Executive Directors) during the year was:

2010 2009

Management 17 17 Technical and administration 128 95 145 112 Russian subsidiary 4 23 149 135

Excluded from the above totals are 273 employees (2009: 256), being the weighted average number employed by Zeitco, a Joint Venture owned by the Group and Egyptian General Petroleum Corporation. (b) Directors’ remuneration

2010 2009

£’000 £’000

Aggregate remuneration in respect of qualifying services 9,711 2,287 Company contributions to money purchase pension scheme 282 257 Aggregate amounts receivable under long term incentive plans 21,692 7,250

2010 2009

Number of directors who received shares in respect of qualifying services 3 3 Number of directors who exercised share options 3 3

2010 2009 £’000 £’000

In respect of the highest paid director: Aggregate remuneration (including amounts receivable under long term incentive plans)

18,205

1,278

The highest paid director exercised share options during the year and also received shares under the group’s long term incentive scheme. During 2010 £6,294,000 (2009:£nil) was payable to seven Directors as compensation for loss of office, including Non-executive Directors. No employees other than the Directors are determined to be Key Management Personnel. The compensation of key management personnel is set out above along with the information concerning their share options and retirement benefits. There are no personnel, other than directors who have the authority and responsibility for planning, directing and controlling the activities, directly or indirectly, of the Group. The directors do not believe that any other employees meet the definition of key management personnel under IAS 24 Related party disclosures.

Dana Petroleum plc

Notes to the Group Financial Statements

27

9 Taxation

2010 2009

a) Analysis of Tax on profit on ordinary activities £’000 £’000

Current Taxation PRT/NPI 7,247 2,241 Corporation tax 71,973 (4,143)Current tax charge/(credit) 79,220 (1,902)Amounts under/(over) provided in previous years 1,375 (652)Total current tax charge/(credit) 80,595 (2,554)

Deferred Taxation Deferred corporation tax (38,773) 31,452 Deferred PRT/NPI (5,383) 490 Current deferred tax (credit)/charge (44,156) 31,942 Amounts under provided in previous years 1,752 1,955 Total deferred tax (credit)/charge (42,404) 33,897

Total tax charge in the income statement 38,191 31,343 Tax on profit from operating activities may be analysed as follows: Current tax charge/(credit) UK 63,944 11,917 Overseas 16,651 (14,471)

80,595 (2,554) Deferred tax (credit)/charge UK 868 33,837 Overseas (43,272) 60

(42,404) 33,897 Total tax charge/(credit) UK 64,812 45,754 Overseas (26,621) (14,411)

38,191 31,343 Tax relating to items charged or credited to equity 2010 2009 £’000 £’000

Current tax: Current tax (credit) on share option awards (8,757) (3) Deferred tax: Unrealised loss on available-for-sale financial assets 1,213 487 Charge/(credit) for deferred tax on share option awards 1,252 (2,513)Total deferred tax charge/(credit) 2,465 (2,026)

Total tax (credit) in the Group statement of changes in equity (6,292) (2,029)

Dana Petroleum plc

Notes to the Group Financial Statements

28

b) Reconciliation of the total tax charge The tax charge for the year is higher than the weighted average rate for the year. The difference is explained below:

2010 2009

£’000 £’000

Profit on ordinary activities before tax 26,373 56,429 Tax at weighted average rate of corporation tax at 74.56% (2009: 48.41%)

19,663

27,315

Disallowed expenses and non-taxable income 5,306 (190)Supplementary charge differences on finance income and costs 3,770 2,831 Tax losses utilised not previously recognised/brought back (409) 1,875 Unprovided deferred tax asset 5,334 1,857 PRT 6,560 765 Allowable deduction for PRT (4,011) (1,671)Foreign tax calculation differences (3,340) (3,573)Adjustment in respect of prior years 3,127 1,303 Non qualifying depreciation 857 1,931 Other 1,334 (1,100)Total tax expense reported in the income statement 38,191 31,343 The weighted average rate of corporation tax 74.56% (2009: 48.41%) is calculated using the following methodology. Tax charges are calculated by applying the statutory tax rate in each tax jurisdiction to the profit before tax for each entity. The sum of the tax charges for each entity is then divided by the Group accounting profit before tax to derive the weighted average rate of corporation tax for the year. The weighted average rate of corporation tax has changed from the previous accounting period due to differences in the weighted average mix of profits in each tax jurisdiction. c) Unrecognised tax losses The Group has unrecognised tax losses which arose in Egypt of £36,812,000 (2009: £35,953,000) in respect of exploration activities outside the ‘ring-fence’, that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised as it is not probable that the asset is recoverable. The asset is recoverable if there were future suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted. d) Temporary differences associated with Group investments At 31 December 2010, no deferred tax liability (2009: nil) has been recognised in respect of taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the near future. The temporary differences associated with investments in subsidiaries for which deferred tax has not been recognised aggregated to £nil (2009: £nil) as a result of the application of legislation which largely exempts dividends from UK tax.

Dana Petroleum plc

Notes to the Group Financial Statements

29

e) Deferred taxation Deferred tax included in the Group balance sheet is as follows:

2010 2009

£’000 £’000

Deferred tax liability Accelerated capital allowances 465,909 367,946 Revaluation of available-for-sale financial assets 1,698 487 Share based payment - (8,112)PRT/NPI 8,184 3,488 Other temporary differences (31,889) (19,679)Tax losses (79,192) (78,924) 364,710 265,206

Deferred tax asset PRT/NPI 12,978 7,595 12,978 7,595

The deferred tax included in the Group income statement is as follows:

Deferred tax in the income statement Accelerated capital allowances (39,985) 41,751 Share based payment 6,859 (1,533)Embedded derivative - (575)PRT/NPI (5,150) (571)Other temporary differences (3,877) (11,233)Tax losses (251) 6,058

Deferred tax (credit)/charge (42,404) 33,897 Subsequent to the year end, it was announced that: The rate of UK corporation tax (CT) for non UK oil and gas activities was to decrease by a further 1% to 26% with effect from 1 April 2011 (the CT rate for UK oil and gas activities remained at 30%). In accordance with the Group’s accounting policy on the recognition of deferred tax (note 2) the effect of these changes were not enacted or substantially enacted at the balance sheet date. The estimated effect of these changed on the Group is to decrease its deferred UK corporation tax liability at 31 December 2010 by £426,000. The rate of supplementary corporation tax (SCT) applicable to oil and gas companies increased by 12% to 32% from 24 March 2011. In accordance with the Group’s accounting policy on the recognition of deferred tax (note 2) the effect of these changes were not enacted or substantially enacted at the balance sheet date. The estimated effect of these changed on the Group is to increase its deferred UK corporation tax liability at 31 December 2010 by £57,460,000. Depite the increase in the rate of SCT decommissioning relief is to be restricted to the previous SCT rate of 20% with effect from 1 April 2012. In accordance with the Group’s accounting policy on the recognition of deferred tax (note 2) the effect of these changes were not enacted or substantially enacted at the balance sheet date. The estimated effect of these changed on the Group is to increase its deferred UK corporation tax liability at 31 December 2010 by £6,744,000.

Dana Petroleum plc

Notes to the Group Financial Statements

30

10 Intangible assets The movements during the year were as follows:

Goodwill Exploration and

Evaluation Total £’000 £’000 £’000

Cost and net book value: At 1 January 2009 154,980 232,912 387,892 Exchange adjustments (164) 1,421 1,257 Additions - 143,480 143,480 Disposals - (535) (535)Acquisitions 4,428 - 4,428 Unsuccessful exploration and evaluation - (43,253) (43,253)At 31 December 2009 159,244 334,025 493,269 Transfers and reclassifications - (18,754) (18,754)Exchange adjustments 11,594 2,478 14,072 Additions - 163,406 163,406 Disposals - (3,093) (3,093)Acquisitions 157,562 19,872 177,434 Unsuccessful exploration and evaluation - (82,677) (82,677)At 31 December 2010 328,400 415,257 743,657 Exploration and Evaluation Additions to exploration and evaluation assets represent the ongoing execution of the underlying work programmes and the fulfillment of individual licence requirements. During the year, following completion of geotechnical evaluation activity, certain licences were either relinquished or are in the process of being relinquished, and were declared unsuccessful. Accordingly the related licence expenditures were expensed. During 2010, the principal exploration write-offs were UK - Anne Maire and Christian and Bligh, Norway – Jetta and Storkollen, Egypt – Ras Abu Darag (2009: Morocco - Bouanane, Egypt – North Qarun, South Fieran, North Ghara and Norway – Trolla). Goodwill Goodwill arising on acquisition is described more fully in note 26 Acquisition of Subsidiaries. The Group has four reportable segments – UK and Other Europe (formally Europe), Netherlands, Egypt and Other International. No goodwill has been allocated to Other International and therefore UK and Other Europe, Netherlands and Egypt are used as cash generating units for the purpose of assessing the carrying value of goodwill arising on business combinations on an annual basis as they are currently the lowest level that goodwill is reviewed by the Board. Carrying amount of goodwill of each cash generating unit 31 December 31 December

2010 2009

£’000 £’000

UK and Other Europe 103,030 100,616 Netherlands 164,899 - Egypt 60,471 58,628 328,400 159,244

Dana Petroleum plc

Notes to the Group Financial Statements

31

Value in use: key assumptions The recoverable amount of each cash generating unit (“CGU”) is determined by value in use calculations which measure the net present value at the reporting date of the anticipated cash flow projections from each individual asset which comprise the portfolio underpinning the CGU. Life of field cash flow projections are used for development and producing assets, applying generally accepted market assumptions for commodity price and future inflation. For exploration assets a risked valuation is used which combines an assessment of the expected chance of commercial success and likely development cost. Value attributable to exploration from the Group’s extensive exploration portfolio, is derived from two sources; one, being the market value of existing discoveries which have established the presence of hydrocarbons, but where further appraisal activity is required, and the other, being the economic monetary value of the future drilling portfolio taking account of geological risking less the expected pre-tax exploration cost; in both cases, using valuation multiples in line with precedent transactions. The risk adjusted cash flows are then discounted at 12% (Note that Egypt assets are discounted at 8% as pre-tax and post-tax cash flow are the same). UK and Other Europe and Egypt Consistent with prior years, the 2010 review was performed at the end of the year. As permitted by IAS 36, the detailed calculations of recoverable amount performed in 2009 for the UK and other Europe segment and the Egypt segment were used for the impairment test as the criteria of IAS 36 were considered to be satisfied; the excess of the recoverable amount over the carrying amount (the headroom) was substantial in 2009 for these segments; there had been no significant changes in the assets and liabilities; and the likelihood that the recoverable amount would be less than the carrying amount at the time of the test would be remote. The estimates of the headroom at 31 December 2010 is based on the recoverable amounts of the D&P and E&E assets determined in 2009 and carrying amounts at 31 December 2010. The headroom at 31 December 2010 is £1,970.1m for Europe and £103.4m for Egypt. No impairment charge is required. In 2009, the commodity prices reflected a market view of future prices. An average of independent market prices was used and for oil were: 2010 – $74.69/bbl, 2011 – $83.16/bbl, 2012 - $88.48/bbl, 2013 - $87.59/bbl, 2014 - $86.43/bbl, 2015 - $87.75/bbl and inflated by 0.4% thereafter and for gas: 2010 – £3.53/mscf, 2011 – £4.42/mscf, 2012 – £4.91/mscf, 2013 - $5.26/mscf, 2014 - £5.78/mscf , 2015 - £4.91/mscf and inflated 0.4% thereafter. Life of field production profiles in 2009 were estimated for each individual asset within the Group development and production portfolio by the technical management team. Operating costs and capital costs in 2009 were estimated using information from either the operator for non-operated assets or the technical management team for operated assets. The foreign exchange rates used for the 2009 calculations were: USD/GBP –1.60 NOK/GBP – 10.00 Euro/GBP – 1.15

Dana Petroleum plc

Notes to the Group Financial Statements

32

Netherlands As detailed in note 26, on the 13 August 2010, the Group completed the acquisition of the entire share capital of Petro Canada Netherlands B.V. This acquisition resulted in the Group having a separate reportable operating segment. The detailed calculations for this segment was calculated at the end of 2010. The calculation of value in use for the CGU is most sensitive to the following assumptions: Commodity price Production volumes Exchange rates Discount rates Operating costs Capital costs Commodity prices reflect a Group market view of future prices. The Group prices used were: 2011 – $90.92/bbl, 2012 – $91.15/bbl, 2013 - $90.00/bbl, 2013 - $87.59/bbl and £75.00/bbl inflated (2011 base) by 2.5% thereafter and for gas: 2011 – £5.57/mscf and inflated 2.5% thereafter. Life of field production profiles are estimated for each individual asset within the Group development and production portfolio by the technical management team. Operating costs and capital costs are estimated using information from either the operator for non-operated assets or the technical management team for operated assets. The foreign exchange rates used for the calculations were: USD/GBP –1.60 NOK/GBP – 10.00 Euro/GBP – 1.15 The estimates of headroom of the D&P and E&E assets over the carrying value of Netherlands is £45.2m. Sensitivity to changes in assumptions There are possible changes to the key assumptions above which might be considered reasonably likely and cause the carrying value of the CGU to exceed its recoverable amount. These are discussed below and were calculated in 2009 for UK and Other Europe and Egypt and in 2010 for Netherlands. Commodity price – the Board considered the possibility of lower than planned oil and gas prices. A reduction in oil price

to $48.74 per bbl for the UK and Other Europe CGU, $59.80 per bbl for the Egypt CGU and $84.65 for the Netherlands CGU would be required before value in use, as defined above, was reduced to a value equal to its carrying amount.

Production volumes – the Board recognised that production profiles may be adjusted at each future reserves estimate review. An “across-the-board” reduction of 57% for the UK and Other Europe CGU, 30% for the Egypt CGU and 7% for the Netherlands CGU in production would be required before value in use, as defined above, was reduced to a value equal to its carrying amount.

Exchange rates – the Board considered the possibility of a significant movement in exchange rates between GBP and USD. An exchange rate of $2.68/£1 for the UK and Other Europe CGU, $2.15/£1 for the Egypt CGU and $1.77 /£1 the Netherlands CGU would be required before value in use, as defined above, was reduced to a value equal to its carrying amount.

Dana Petroleum plc

Notes to the Group Financial Statements

33

11 Property, plant and equipment The movements during the year were as follows:

Development andProduction assets Other Total

£’000 £’000 £’000

Cost: At 1 January 2009 838,480 4,530 843,010 Exchange adjustments (20,290) (82) (20,372)Additions 88,630 1,079 89,709 Acquisitions 133,547 - 133,547 At 31 December 2009 1,040,367 5,527 1,045,894 Transfers and reclassifications 18,754 - 18,754 Exchange adjustments 29,973 135 30,108 Additions 82,895 1,382 84,277 Acquisitions 272,519 791 273,310 Disposals (243) - (243)At 31 December 2010 1,444,265 7,835 1,452,100 Depletion and depreciation: At 1 January 2009 320,433 2,493 322,926 Exchange adjustments 312 30 342 Impairment of Assets (note 5) 7,944 - 7,944 Provided in year (note 5) 106,019 1,185 107,204 At 31 December 2009 434,708 3,708 438,416 Exchange adjustments 6,390 392 6,782 Impairment of Assets (note 5) 37,216 - 37,216 Provided in year (note 5) 129,641 1,243 130,884 At 31 December 2010 607,955 5,343 613,298 Net book value At 31 December 2010 836,310 2,492 838,802

At 31 December 2009 605,659 1,819 607,478

At 1 January 2009 518,047 2,037 520,084

A review of the field reserves for the development and producing assets indicated that an impairment review was required on certain assets. The depletion and depreciation charge for 2010 for development and production assets, includes an amount of £ 37,216,000 in respect of impairment provisions for the Norway Jotun, Netherlands E18/F16 and the Egypt East Beni Suef assets. In 2009, the depletion and depreciation charge for development and producing assets, included an amount of £ 7,944,000 in respect of an impairment provision for the Anglia asset. The value in use calculations used to determine the recoverable value of the assets, is detailed in note 10. The net book value of development and production assets at 31 December 2010 includes an amount of £34,379,000 (2009: £95,964,000) in respect of assets under the course of construction. Interest capitalised in relation to these assets in the year was £nil (2009: £2,727,000). The capitalisation rate used in 2009 to determine the amount was 8.50%.

Dana Petroleum plc

Notes to the Group Financial Statements

34

12 Investments Summary

2010 2009

£’000 £’000

Investment in associate 55,291 39,096 Available-for-sale financial assets 16,858 11,299 72,149 50,395

Investment in associate 2010 2009 £’000 £’000

At 1 January 39,096 41,131 Additions 19,221 - Share of estimated post-tax associate loss(1) (6,593) (2,512)Gain on deemed disposal (1) 4,399 - Net asset movement recognised directly in equity (832) 477 At 31 December 55,291 39,096

(1) The aggregation of these two amounts represents the combined share of post tax losses of the Associate which has been recognised in the Group Income Statement. The Group holds 22.63% (2009: 27.53%) of the ordinary share capital of the AIM listed company, Faroe Petroleum plc (“Faroes”), whose nature of business is oil & gas exploration & production. In May 2010, the Company took up its rights in relation to the Faroe Petroleum Rights Issue at a total cost of £19,221,000, this had no effect on the Company’s equity interest. In November 2010 Faroe Petroleum issued further shares through a placing which the Company did not participate in. The Company’s equity interest share was reduced to 22.63%. The following table provides further analysis of the Group’s investment in Faroes:

2010 2009

£’000 £’000

Share of the associate's balance sheet Non-current assets 46,485 45,375 Current assets 28,118 15,189 Non-current liabilities (10,385) (8,618)Current liabilities (8,927) (12,850)Share of net assets 55,291 39,096

Share of associate's results Revenue 3,671 1,249 Loss for the year (6,593) (2,512)

The fair value of the Group’s share of the associate based on Faroes’ share price at 31 December 2010 is £ 86,500,000 (2009: £ 38,062,000). Based on both independent research and the Group’s own assessment of the value in use of Faroes, no impairment was considered necessary.

Dana Petroleum plc

Notes to the Group Financial Statements

35

Available-for-sale financial assets

2010 2009

£’000 £’000

At 1 January 11,299 - Additions - 9,448 Foreign exchange 1,228 118 Fair value adjustments 4,331 1,733 At 31 December 16,858 11,299

As a result of the Bow Valley acquisition in 2009 (see note 26b), the Group acquired an investment in third party non-bank sponsored asset backed papers (‘ABCP’) with a face value of C$40,340,000. These notes should have been repaid prior to the Group’s acquisition of Bow Valley, however, they were not repaid due to liquidity issues experienced in the Canadian ABCP market. As a consequence, these notes were restructured and were replaced with new longer term floating rate notes. Under the restructuring the Group now owns Class A, Class B and Class C notes. On acquisition, no reliable quoted market values for ABCP investments were available due to the current market disruption and as a result, the Group determined the fair value of its ABCP investment on acquisition to be £9,448,000 using available information regarding the proposed ABCP restructuring, market conditions and other factors. These values represented an indicative value of the underlying assets in a liquidation scenario at that date. During 2010 the liquidity in the market for the notes has greatly increased. The Group has received indicative trading valuations and has increased the fair value of the notes as a result to C$26,221,000, which is a discount of 35% of the face value of the notes. 13 Inventories

2010 2009 £’000 £’000

Materials and equipment 13,276 15,640

14 Trade and other receivables

2010 2009 £’000 £’000

Trade receivables (note 21) 92,977 72,542 Other receivables and prepayments 48,935 43,536 141,912 116,078

2010 2009 £’000 £’000

Ageing analysis of trade receivables - within 30 days 74,162 56,830 - 31 to 60 days 2,575 3,872 - greater than 61 days (past due but not impaired) 16,240 11,840 92,977 72,542

No bad debts exist at the year end (2009: £nil).

Dana Petroleum plc

Notes to the Group Financial Statements

36

15 Cash and cash equivalents

2010 2009 £’000 £’000

Cash at bank and in hand 56,640 16,794 Short-term deposits 53,319 50,756 109,959 67,550

Cash at bank earns interest at floating rates based on a discount to USD/GBP LIBOR. Short-term deposits are made for varying periods of between one day and three months depending on the future cash requirements of the Group, and earn interest at the respective short-term fixed deposit rates. The fair value of cash and cash equivalents is £109,959,000 (2009: £67,550,000).

16 Trade and other payables

2010 2009

a) Current liabilities £’000 £’000

Trade payables 48,061 36,325 Accruals and other payables 122,390 69,578 170,451 105,903

Accruals and other payables includes interest payable of £nil (2009: £2,050,000) in respect of convertible bonds.

2010 2009

b) Non-current liabilities £’000 £’000

Future asset acquisition payments and deferred income 3,431 4,054

17 Current tax

2010 2009

£’000 £’000

PRT/NPI 1,650 1,193 Corporation tax 50,668 9,829 52,318 11,022

Dana Petroleum plc

Notes to the Group Financial Statements

37

18 Borrowings and financial liabilities

2010 2009 £’000 £’000

Bank loan 337,128 91,516 Convertible bond (note 19) - 119,788 337,128 211,304

a) The maturity of the borrowing liabilities disclosed above is as follows:

2010 2009 Amounts falling due £’000 £’000 - in more than two years but not more than five years(1) 337,128 211,304

(1)2009 assumed bondholders exercise their put option in 2012. b) At 31 December 2010 there were borrowings of £337,128,000 under the Group’s facility agreement (2009: £91,516,000) and Letter of Credit utilisation of £nil (2009: £nil).

At 31 December 2010, the Group held a USD 680 million facility with a syndicate of banks. This facility was secured by fixing and floating charges over the assets of the parent company and the shares and assets of its principal subsidiary undertakings. Interest is currently chargeable at UK, USD, NOK and Euro LIBOR rates +2-2.25% depending on the currency of amounts drawn.

This facility was secured during 2010 with a syndicate of banks lead by Royal Bank of Canada (RBC) for USD 900 million, comprising a four year term loan of USD 300 million and a five year USD 600 million revolving credit facility. RBC was joined by a further six banks, four of which formed part of the previous facility, to form a wider general syndication. The facility replaced the previous facility with the Bank of Scotland which has been repaid and cancelled.

As a result of the acquisition by KNOC the option to exit the facility was taken by some of the lenders that formed part of the syndicate with RBC. As a result, at 31 December 2010 the available credit was reduced to USD 680 million. In March 2011, two new banks joined an amended Bank facility syndicate (effective 18 March 2011) increasing the total facility to USD 870 million, comprising a USD 178 million term loan and a USD 692 million revolving credit facility. This replaces the existing facility with RBC as noted above.

Dana Petroleum plc

Notes to the Group Financial Statements

38

19 Convertible bonds In July 2007, the Group issued £141,500,000 of Guaranteed convertible bonds due in 2014. The bonds had a conversion premium of 50%, representing a conversion price of £16.45 per Dana share, with a coupon of 2.9% payable semi-annually. The bonds had a seven year term and included an investor put on the fifth anniversary of the issue date. At the initial conversion price of £16.45 per share, there were 8,601,824 ordinary shares of the Company underlying the bonds. As part of the take over by KNOC all of the bonds were acquired from the bond holders. In November 2010, KNOC elected to convert the bonds into equity, and all of the bonds were converted into redeemable preference shares in Dana Petroleum (Jersey) Limited. These preference shares were immediately exchanged for new ordinary shares issued by the Company. As a result the Company now holds the redeemable preference shares in Dana Petroleum (Jersey) Limited. £’000

Total liability component as at 1 January 2009 117,818 Interest charged (note 7) 8,124 Interest paid (4,104)Total liability component as at 31 December 2009 121,838 Interest charged (note 7) 23,765 Interest paid (4,104)Conversion of bonds (141,499)Total liability component as at 31 December 2010 -

The interest up to the date of conversion was calculated by applying an effective interest rate of 6.60% (2009: 6.60%) to the liability component for the period since the bonds were issued. A further interest charge of £16,305,000 was recognised as a result of the conversion. In 2009, there was no material difference between the carrying amount of the liability component of the convertible bonds and their fair value. This fair value was calculated by discounting the future cash flows at the market rate. 20 Provisions for liabilities and charges Decommissioning provision £’000

At 1 January 2010 103,408 New provision and changes in estimates 6,420 Acquisitions 66,550 Release of provision on sale of asset (323)

Unwinding of discount (note 7) 8,677 Exchange adjustments 975 Expenditure incurred (327)At 31 December 2010 185,380

The decommissioning provision of £ 185,380,000 relates primarily to the Group’s production and development facilities. These costs are expected to be incurred at various intervals over the next 31 years. The provision has been estimated using existing technology at current prices, escalated at 2.5%, and discounted at 7%. The economic life and the timing of the decommissioning liabilities are dependent on Government legislation, commodity price and the future production profiles of the respective production and development facilities. In addition, the costs of decommissioning are subject to inflationary/deflationary pressures in the cost of third party service provision.

Dana Petroleum plc

Notes to the Group Financial Statements

39

21 Financial instruments An outline of the objectives, policies and strategies pursued by the Group in relation to financial instruments is set out in the Directors Report and in note 2 of this report. Nature and extent of risk associated with financial instruments Market risk As an upstream oil & gas company, the Company is subject to many risks, at both the macro and micro level, including currency, interest and credit risk, arising in the normal course of the Group’s business. The Directors Report describes these risks in more detail, but also provides the Company’s view of the principal risks facing the Company that potentially have a medium to high impact on the Company. In particular, this highlights a number of risks which have emerged as a result of the deterioration of the global economy into recession and the liquidity and credit crises in the world banking markets. Risks such as inability to finance work programmes, or potential default of co-venturers and suppliers are all now higher profile risks facing the sector and the Company. During 2010, the Company secured a new source of bank funding (which was amended in March 2011) for the next four to five years and continues to generally partner with larger, well-established upstream companies, so believes it has substantially mitigated these risks. The Group has a geographically diverse portfolio of assets and remained unhedged at the year end with respect to commodity price, interest rates and currency fluctuations. However, due to the increase in oil prices at the beginning of 2011, oil swap agreements were entered into and hedge accounting will be applied. In 2011 production of 5,000,000 bbls has been hedged for 2011 and 4,900,000 has been hedged for 2012. Specific financial instrument risks are therefore deemed to be of low probability in nature and of low impact in quantum relative to the macro risks highlighted above. It is against this backdrop and context that the following disclosure on the nature and extent of risks from financial instruments is provided. Financial assets and liabilities: credit risk The financial assets of the Group are subject to floating charges provided to the debt provider for the new debt facility secured during the year (note 18). As such the financial assets are subject to certain terms and conditions (further explained below) which help preserve the credit worthiness of the asset to the debt providers. Cash and cash equivalents Unless agreed otherwise, all such balances must be maintained with institutions party to the debt facility. The Group may however, make money market deposits for up to six months duration and up to £40,000,000, with any institution whose senior unsecured credit and unguaranteed long term corporate debt rating is at least equivalent to Standard and Poor’s AA-. Trade and other receivables The Group’s exposure to credit risk in trade receivables is minimal. The Group does not have a trading arm, but sells produced hydrocarbons only to recognised and creditworthy parties, typically the trading arm of large, international oil & gas companies. European crudes sales are primarily sold under an annual contract at agreed premia or discounts to Brent, depending upon crude quality. Sales are typically generated on a monthly entitlement basis rather than “crude liftings” to facilitate regular cashflow. Sales of gas are either sold under long-term contracts with built-in escalation mechanisms or under annual contracts at “day ahead” pricing. European credit terms normally require settlement within 15 days of invoicing and accordingly impairment exposure is minimal, a fact supported by track record. In recent years, the ageing profile of trade and other receivables has been extended due to the operations in Egypt. Egyptian crude is sold predominantly to government organisations but also to large international trading companies. Country practice is for much extended credit terms of up to 120 days, but particularly with the government organisations there is also an established practice of “offsetting” liabilities due to the counterparty, which facilitates the management of such receivables. Management of this extended credit exposure is one of the key objectives of the Egyptian business unit management team. Also in Egypt, the Group’s operations in the East Zeit field, provides infrastructure access and logistics support services to third parties operating in the same locale. These other receivables occasionally prove problematic to collect and require active pursuit by management. Past practice would also indicate that any impairment exposure is not material in the context of the Egyptian business.

Dana Petroleum plc

Notes to the Group Financial Statements

40

As of 22 June 2011 92% of receivables outstanding at the year end have been collected. An ageing analysis of trade receivables is disclosed in note 14. The maximum credit risk exposure relating to financial assets and liabilities is represented by their carrying value as at the balance sheet date as set out in the summary table at the end of this note. Financial assets and liabilities: Liquidity risk The Group’s liquidity risk arises from the possibility that it may not be able to settle or meet its obligations as they fall due. This is a core management activity and is regularly reviewed by Directors. Operational, capital and regulatory requirements are amongst the matters considered in the management of liquidity risk, in conjunction with the Group’s short and long-term forecast information. In addition, and as part of the information undertakings under the debt facilities, the Group has to demonstrate covenant compliance at six monthly intervals including projected compliance for a further 3 year rolling period. Cash and cash equivalents As at 31 December 2010, the Group had cash and cash equivalents of £109,959,000 (2009: £67,550,000). Borrowings and financial liabilities The Group’s interests are predominantly non-operated in nature and payments to suppliers occur only after goods and or services have been received. For operated activity, material or long-term contracts will generally only be awarded after a tender process, where supplier creditworthiness will be evaluated. Also where a drilling management contractor has been engaged, specific contractual arrangements have been put in place to govern and control the disbursement of funds by the intermediary. During 2010, the Group agreed a USD 900 million facility with the Royal Bank of Canada (RBC) which secured funding and cashflow for the Group for the next five years. The facility comprised of a four year term loan of USD 300 million and a five year USD 600 million revolving credit facility. The revolving nature of the facility allows the Company to draw and repay funds at its discretion to facilitate cash management. The facility is required to be repaid by maturity. As a result of the acquisition by KNOC the option to exit the facility was taken by some of the lenders that formed part of the syndicate with RBC. As a result, at 31 December 2010 the available credit was reduced to USD 680 million. Post year end, two new banks joined an amended Bank facility syndicate (effective 18 March 2011) increasing the total facility to USD 870 million (note 18), comprising a USD 178 million term loan and a USD 692 million revolving credit facility. The Group also continued to service the coupon on the 2014 Guaranteed Convertible Bond until November 2010 when the Bond was fully converted for shares by KNOC (note 19). An analysis of the maturity profile of the Group’s borrowing financial liabilities is shown in note 18(a) and details of the underlying facilities are detailed in note 18(b) and note 19. The undiscounted cash flows associated with the maturity profile of non-current borrowings and financial liabilities is noted on the following table

2010 2009 £’000 £’000

Amounts falling due - in one year or less or on demand 8,940 6,940 - in more than one year but not more than two years 8,940 10,398 - in more than two years but not more than five years(1) 359,411 236,534 377,291 253,872 (1)2009 assumed bondholders exercise their put options in 2012.

Dana Petroleum plc

Notes to the Group Financial Statements

41

Financial assets and liabilities: Interest rate risk Details of the Group’s interest rate risk profile on financial assets and liabilities is set out below. Until conversion, the fixed rate and competitive nature of the Convertible debt coupon of 2.9% per annum, provided excellent protection against the risk of changes in market interest rates and complemented the variable interest rate applicable to the Bank debt. USD, GBP, NOK and Euro LIBOR rates underpin the Bank debt and remain low as governments continue to use interest rates to fight recessionary pressures. Accordingly in 2010, the Group continued to enjoy an extremely low cost of finance and profits provided adequate interest cover. Financial assets

Fixed rate financial assets <

1 Year

Floating rate financial assets <

1 Year Total £’000 £’000 £’000

2010 Cash and cash equivalents 53,319 56,640 109,959

2009 Cash and cash equivalents 50,756 16,794 67,550

Cash and cash equivalents (which are presented as a single class of asset on the balance sheet) comprise cash at bank and other short-term deposits and liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value. At 31 December 2010, short-term deposits and liquid investments were earning interest at a weighted average fixed deposit rate of 0.24% (2009: 1.31%). Cash at bank earns interest at floating rates based on a discount to USD/GBP/Euro LIBOR. Financial liabilities

Fixed rate financial liabilities

> 1 Year

Floating rate financial liabilities

> 1 Year Total £’000 £’000 £’000

2010 Bank Loan - 337,128 337,128

2009 Bank Loan - 91,516 91,516 Convertible Bond 119,788 - 119,788 119,788 91,516 211,304

The fixed rate liability in the prior year relates to the convertible bonds issued which bore an interest coupon of 2.9% per annum until the maturity of the bonds in 2014 or on the exercise of the investor put on the fifth anniversary of the issue date (July 2012). As detailed in note 19 the convertible bonds were converted in full during the year. The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. The Group’s earnings are sensitive to changes in interest rates on its financial liabilities. If the interest rates for the year were to have changed by +/- 1% in 2010, with all other variables held constant, it is estimated that the Group’s profit before tax for 2010 would have increased by £8,640,000/decreased by £6,875,000 (2009: increased by £2,901,000/decreased £2,345,000). There would be no impact on equity.

Dana Petroleum plc

Notes to the Group Financial Statements

42

Financial assets and liabilities: Currency risk The predominant functional currency within the Group is sterling but due to the Group’s (USD denominated) oil production and USD denominated debt facility, the Group does remain exposed to fluctuations in the USD currency, the primary area of currency risk. Such exposures can be hedged against using financial instruments but at the year end, the Group takes the view that this would be inconsistent with the Group’s unhedged position on commodity price, given the historic inverse correlation between movements in the price of oil and movements in the USD. Whilst this approach may give rise to currency exchange gains and losses, these are in effect largely offset by corresponding gains and losses in the value of crude oil sales. Egyptian activities are undertaken by USD reporting entities given that this is the main currency of the underlying operations, with only a relatively minor exposure to Egyptian pounds. This creates exposure to currency translation risks which is mitigated by the USD bank debt drawn by the UK subsidiary which acquired these entities. Once again this may give rise to currency gains and losses, but these will be offset by corresponding gains and losses in the underlying financial results of the Egyptian subsidiaries. Dana Petroleum Norway AS has a functional currency of NOK, the predominant source currency of the Company’s cost base. Revenues, being generated from crude sales are however, USD denominated. Dana Petroleum Netherlands B.V. has a functional currency of Euro, the predominant source currency of the Company’s cost base. Revenues, being generated from crude sales are however, USD denominated. Due to the size of operations of Netherlands B.V. the Group has become exposed to fluctuations in the Euro currency, and it is therefore another primary area of currency risk faced by the Group. Again, such exposures can be hedged against using financial instruments but this would be inconsistent with the Group’s unhedged position at the year end. In cash terms the Group is short GBP, Euro and NOK, and long USD. The Group is however, able to make deposits of USD, on a dual or tri-currency basis, where in return for pre-agreed exchange rates, and interest yields significantly ahead of vanilla USD deposit rates, the Group grants the counterparty the right to return the original deposit, in the nominated currency of their choice, namely USD, GBP NOK or Euro. Using this mechanism the Group has been able to achieve deposit yields much higher than those available on vanilla USD deposits. The following table demonstrates the sensitivity to a reasonably possible change in the USD and Euro exchange rates (2009: USD), with all other variables held constant, on the Group’s profit before tax and the Group’s equity.

Increase/decreasein exchange rate

Effect on profit before tax Effect on equity

£’000 £’000 £’000

2010 (+ or -) 10% 19,244 - 2009 (+ or -) 10% 1,069 - Details of the Group’s current exposure to USD in its financial assets and liabilities, is set out in the following summary table. Fair values of financial assets and financial liabilities: Summary Set out below is a comparison by category of carrying amounts and foreign currency exposure of all of the Group’s financial assets and liabilities as at 31 December. The fair values of the financial assets and liabilities generally approximate to the carrying values.

Dana Petroleum plc

Notes to the Group Financial Statements

43

Cash and receivables

Available-for-sale financial

Assets

Held at fair value through

profit or loss

Other financial assets and

liabilities at amortised cost

2010 Source

Currency £’000 £’000 £’000 £’000

Financial assets Cash and cash equivalents GBP/Other 45,292 - - - USD 61,300 - - - Euro 3,367 - - - 109,959 - - - Available-for-sale financial assets GBP/Other - 16,858 - - - 16,858 - - Trade receivables GBP/Other 3,621 - - - USD 77,647 - - - Euro 11,709 - - - 92,977 - - - Financial liabilities Trade and other payables(1) GBP/Other - - - 114,227 USD - - - 34,978 Euro - - - 24,677 - - - 173,882 Bank loan GBP/Other - - - 31,485 USD - - - 284,222 Euro - - - 21,421 - - - 337,128

2009 Financial assets Cash and cash equivalents GBP/Other 17,194 - - - USD 50,356 - - - 67,550 - - - Available-for-sale financial assets GBP/Other - 11,299 - - - 11,299 - - Trade receivables GBP/Other 7,856 - - - USD 64,686 - - - 72,542 - - - Financial liabilities Trade and other payables(1) GBP/Other - - - 75,333 USD - - - 34,624 - - - 109,957 Bank loan GBP/Other - - - 29,590 USD - - - 61,926 - - - 91,516 Convertible bonds GBP/Other - - - 119,788 - - - 119,788 (1) Current and non-current

The assets and liabilities noted above, which are measured at fair value use level 1 inputs (quoted prices (unadjusted) in active markets for identical assets and liabilities) as the source in determining their fair value as at 31 December 2010 and 2009.

Dana Petroleum plc

Notes to the Group Financial Statements

44

The following significant exchange rates were applied during the reporting periods:

Average rate Year end spot rate

2010 2009 2010 2009 £ £ £ £

USD 1.5456 1.5664 1.5657 1.6149 NOK 9.3401 9.8131 9.1003 9.3287 EUR 1.1791 1.1233 1.1671 1.1255 LE 8.6824 8.6152 9.0497 8.8500

The fair value of the available-for-sale financial assets is detailed in note 12. 22 Called-up share capital

Number of 15p Ordinary

'000' £’000

Authorised ordinary shares At 1 January 2010 and at 31 December 2010 160,000 24,000

Number of 15p Ordinary

'000' £’000

Allotted, called up and fully paid ordinary shares At 1 January 2009 86,895 13,034 Issued and fully paid for share option scheme exercises 767 115 Issued and fully paid on equity placing 4,344 652 At 31 December 2009 92,006 13,801 Issued and fully paid for share option scheme exercises 2,235 335 Issued for Convertible Bond 11,124 1,669 At 31 December 2010 105,365 15,805

During the year a total of 2,234,868 ordinary shares of 15p each were issued to various Directors and employees, pursuant to the exercise of share options and the maturity of share save scheme awards. When the Convertible Bonds (‘Bonds’) were issued in 2007 by Dana Petroleum (Jersey) Limited, a wholly owned subsidiary, the Group provided an unconditional and irrevocable guarantee, the details of which are contained in note 19. In accordance with the terms and conditions of the conversion of the bond, preference shares have been issued by the issuer and were immediately exchanged for ordinary shares in the Company as guarantor. During the year, 11,124,123 ordinary shares of 15p each were issued relating to the Convertible bonds. At 31 December 2010 the issued share capital of the Group was represented by 105,364,761 ordinary shares of 15p each (2009: 92,005,770). Capital Structure The Group’s management remains committed to delivering and enhancing shareholder value, and building upon the progress made during recent years. The Board continues to believe that this can best be achieved by investing in the existing asset portfolio and through the acquisition of new commercial opportunities as they arise. In light of the Group’s ongoing commitment to an extensive forward work programme and the continuing tight market conditions, the Directors do not recommend payment of a dividend at this time. This is, however, reviewed by the Board on a regular basis.

Dana Petroleum plc

Notes to the Group Financial Statements

45

The Group seeks to optimise the return on investment, by managing the capital structure to achieve capital efficiency via the appropriate level of access to the debt markets at attractive cost levels. Notes 18 and 19 to the financial statements provide further details of the Group’s financing activity. Capital for the Group is equity attributable to the equity holders of the Parent company, and is detailed in the Group Statement of Changes in Equity.

2010 2009

£'000 £'000

Borrowings and financial liabilities 337,128 211,304 Less Cash and cash equivalents (109,959) (67,550)Net debt 227,169 143,754 Capital 819,315 657,108

Gearing ratio 28% 22% 23 Share-based payments Prior to the takeover of the group by KNOC, Dana Group had various equity settled and cash settled share based payments in place as an incentive to certain key management and staff. As at the date of change of control, all share based payment scheme options vested and after the options were exercised, the schemes were wound up. The weighted average share price at exercise for all schemes was £18.00. The 2006 Long-Term Incentive Plan These awards were due to vest three years from the exercise date, which ranged from 2010 to 2013. On change of control, all remaining awards under this scheme vested and the options were exercised at £18.00. The following table illustrates the movements in the LTIP awards during the year:

Share Price at Grant Fair Value

2010

LTIPsGranted to 1

JanuaryLTIPs

Granted Exercised

LTIPs Held at 31

December £ £2006 award: Level 1 & 2 310,118 310,118 - 10.20 5.51 2006 award: Level 3 94,028 94,028 - 10.20 5.96 2007 award: Level 1 & 2 261,586 261,586 - 12.73 7.12 2007 award: Level 3 123106 123106 - 12.73 7.57 2008 award: Level 1 & 2 423,600 423,600 - 9.51 5.28 2008 award: Level 3 208,735 208,735 - 9.51 5.59 2010 award: Level 1 & 2 - 393,284 393,284 - 10.44 6.16 2010 award: Level 3 - 211,713 211,713 - 10.44 6.16 1,421,173 604,997 2,026,170 - The amount of shares issued as a result of the exercises was reduced due to the fact that various individuals chose to net settle and the level 1 and 2 awards did not meet the performance conditions 100%. Also, as a result of tax planning various LTIP awards were converted into restricted shares, nil cost options and Joint Ownership Plan shares, these all also vested or were sold as a result of the change of control of the Company.

Dana Petroleum plc

Notes to the Group Financial Statements

46

The fair valuation of the LTIP awards was undertaken by PwC, the Company’s Remuneration consultants, using a Monte Carlo model, and utilized the following key inputs: 2006 & 2007 Awards 2008 Awards 2010 Awards Risk free interest rate 4.7255% to 5.5184% 3.8340% 2.0466% Expected volatility 33.8827% to 34.8783% 42.5506% 49.0200% Vesting period 3 years 3 years 3 years Expected life 3 years 3 years 3 years Forfeiture rate per annuum 8.00% 0.00% level 1 & 2 5.00% 8.00% level 3 The expected life is the period from the date of grant to the vesting date. The LTIP is an “equity settled” share based payment arrangement. The Company recognised a total expense during the year of £8,069,000 (2009: £2,938,000) in respect of the LTIP. The Share Option Scheme The Dana Petroleum 1999 Share Option Scheme was closed to new awards in December 2004. As at 31 December 2009, 735,892 shares were exercisable under the scheme with an average exercise price of £4.14. All of these options were exercised in the year (a few individuals chose to net settle) and the scheme was wound up. The Share Save Scheme The Share Save Scheme was in place prior to the Share Incentive Plan noted below and was eligible to all employees, excluding the Executive Directors. Options were granted over Company shares at a discount of up to 20% to the market value on the date of grant, which subject to the satisfaction of conditions could be exercised after either three or five years. The final awards vested in March 2010 (6,926 shares were issued on exercise at an exercise price of £3.34) and the scheme has been wound up. The Share Incentive Plan The Dana Petroleum plc Share Incentive Plan consists of Partnership Shares which are ordinary shares of the Company purchased by the Executive Directors and employees and matching and free shares which are ordinary shares which are released on the third anniversary of their date of award subject to continued employment and in the case of Matching Shares also to the retention of the associated Partnership shares. Due to the change of control all shares were released (38,317) to the employees and Executive Directors. The Share Option Scheme, Share Save Scheme and Share Incentive Plans are considered to be “equity-settled” transactions, and for all awards post 7 November 2002, require to be fair valued at the date of award. Based on the results of this actuarial review, the Share Save Scheme and Share Incentive Plans were demonstrated to be immaterial and accordingly the requirements of IFRS 2 – Share Based Payment, are not applied to this arrangement. The “Phantom” Option Scheme Prior to the introduction of the LTIP, senior managers (excluding Directors), participated in this arrangement, which mirrored the terms and conditionality of the Share Option Scheme, except that on exercise they were “cash-settled” transactions. As such, these transactions also required to be fair valued, at each reporting date using the Company’s share price, with changes in value recognized in the income statement. All awards were fully vested at the beginning of the year and the 280,000 options existing at the beginning of the year were exercised, at a weighted average exercise price of £5.325, during the year and the scheme has been wound up. Deferred Share Payments A and B The deferred share awards to Mr T P Cross were due to vest on 26 September 2011 or upon termination of the employment contract of Mr T P Cross. Upon acquisition by KNOC the 297,310 shares which were awarded to Mr T P Cross vested at £18.00 per share. The carrying amount of the liability relating to the cash-settled options at 31 December 2010 is £nil (2009: £1,802,000). The net expense recognised for the share based payments above in respect of employee services during the year to 31 December 2010 is £9,781,000 (2009: £4,256,000). The portion of that expense arising from equity-settled share based payment transactions is £8,631,000 (2009: £3,638,000).

Dana Petroleum plc

Notes to the Group Financial Statements

47

24 Reconciliation of movements in equity The reconciliation of movements in equity is detailed in the Group Statement of Changes in Equity on page 13. The following is a description of the nature and purpose of each reserve: Share capital The balance classified as share capital is the nominal value on issue of the Group’s equity share capital, comprising 15p ordinary shares. Share premium The balance classified as share premium is the premium on issue of the Group’s equity share capital, comprising 15p ordinary shares less any costs of issuing the shares. Cumulative translation reserve The cumulative translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Other reserves Other reserves records the fair value changes on available-for-sale financial assets, reserves relating to the Group’s transition to a UK listing from an Irish listing in 1997, and the equity component of the convertible bond issue (see note 19). 25 Net cash flows from operating activities

2010 2009 £’000 £’000

(Loss)/Profit for the Financial Year (14,012) 22,574 Depreciation 130,884 107,204 Asset Impairments 37,216 7,944 Deferred Income - (391)Interest Income (475) (1,806)Interest Expense 38,289 14,368 Finance Fees 14,140 3,203 Taxation 38,191 31,343 Egypt tax-in-kind (8,763) (3,084)Employee share scheme charge 8,631 3,638 Exchange difference (482) (7,994)Net exploration and evaluation 84,881 48,338 Release of abandonment provision on disposal of asset (323) (2,028)Loss on disposal of asset 272 - Fair value movement in derivatives - 1,149 Share of loss in associate 2,194 2,512 Movements in working capital: Inventory movement 2,364 2,842 Receivables movement (28,871) (39,426)Payables movement 35,451 (25,659)Cash Generated from Operating Activities 339,586 164,727

Dana Petroleum plc

Notes to the Group Financial Statements

48

26 Acquisition of subsidiaries a) Petro Canada Netherlands B.V. (Petro Canada Netherlands) On 13 August 2010, the Group completed the acquisition of the entire share capital of Petro Canada Netherlands B.V., from Petro Canada (International Holdings) B.V., a wholly owned subsidiary of Suncor Energy Inc, a Toronto Stock Exchange-listed oil and gas exploration and production group of companies. The acquisition of Petro Canada Netherlands is directly in line with the Group’s successful strategy of growing reserves and production in its core operating areas through both exploration and acquisition. The acquisition has provided significant growth for Dana and a complementary asset base in the North Sea, brining a further 15 new offshore fields and 3 new onshore fields to Dana’s number of producing fields. Along with the additional assets the acquisition brings an experienced Dutch management team, with significant regional North Sea operating experience, based in the Hague, into the Group. These factors support the goodwill arising on acquisition. The transaction has been accounted for by the purchase method of accounting with an effective date of 13 August 2010, being the completion date of the acquisition. The Group has consolidated the results of Petro Canada Netherlands from the date of acquisition. The fair value allocation to the identifiable assets and liabilities is detailed below. To the extent that the purchase consideration exceeds the aggregate of the fair value of the identifiable assets and liabilities of Petro Canada Netherlands, then goodwill has been recognised and recorded on the acquisition.

Acquisition Book Value

Acquisition Fair Value

£’000 £’000

Intangible exploration and evaluation assets 19,872 19,872 Property, plant and equipment 288,173 273,310 Investments 9 9 Current assets (excluding cash and cash equivalents) 29,221 29,575 Trade and other payables (24,881) (28,771)Deferred tax provision (134,972) (124,229)Provision for liabilities and charges (61,063) (66,550)Net Assets 116,359 103,216 Goodwill arising on acquisition 157,562

Total consideration satisfied by cash(1) 260,778

Net cash outflow arising on acquisition Cash and cash equivalents acquired - Cash paid 260,778

260,778 (1) This includes acquisition costs of £2,319,000. These acquisition costs have been recognised as an expense within administrative expenses in the Group Income Statement. Petro Canada Netherlands has contributed revenue of £62,710,000 and a profit of £5,036,000 for the year to the results of the Group. If the combination had taken place on the first day of the year, the Group’s loss for the financial year attributable to the equity holders of the Company from operations would have decreased, and instead would have recognized a profit of £8,243,000 and Group revenue from operations would have increased to £698,668,000.

Dana Petroleum plc

Notes to the Group Financial Statements

49

b) Bow Valley Energy Ltd (“Bow Valley”) On 30 April 2009, the Group completed the acquisition of the entire share capital of Bow Valley, a Toronto Stock Exchange-listed oil and gas exploration and production group of companies focused predominantly on the UK North Sea with additional acreage in Alaska. In addition to a consideration of approximately C$43,300,000, the Group also repaid Bow Valley’s bank debt of approximately £119,000,000. The acquisition of Bow Valley is directly in line with the Group’s successful strategy of growing reserves and production in its core operating areas through both exploration and acquisition. The Group already has a working knowledge of the North Sea assets of Bow Valley which form a close fit with Dana’s existing North Sea portfolio. These factors support the goodwill arising on acquisition. The transaction has been accounted for by the purchase method of accounting with an effective date of 30 April 2009, being the completion date of the acquisition. The Group has consolidated the results of Bow Valley from the date of acquisition. Prior to the acquisition by the Group, Bow Valley had entered into a sale and purchase agreement to dispose of their interest in the Peik exploration asset for USD 30,000,000. The sale of the asset completed after 30 April 2009. The fair value allocation to the identifiable assets and liabilities is detailed below. To the extent that the purchase consideration exceeds the aggregate of the fair value of the identifiable assets and liabilities of Bow Valley, then goodwill has been recognised and recorded on the acquisition.

Acquisition Book Value

Acquisition Fair Value

£’000 £’000

Intangible exploration and evaluation assets 10,670 - Property, plant and equipment 181,506 133,547 Available for sale financial assets 13,202 9,448 Current assets (excluding cash and cash equivalents) 29,146 29,015 Cash and Cash equivalents 3,148 3,148 Trade and other payables (43,943) (35,258)Borrowings and financial liabilities (110,626) (118,937)Deferred tax provision (16,239) 10,154 Provision for liabilities and charges (6,409) (7,736)Net Assets 60,455 23,381 Goodwill arising on acquisition 4,429

Total consideration satisfied by cash(1) 27,810

Net cash outflow arising on acquisition Cash and cash equivalents acquired 3,148 Cash paid 24,662

27,810 (1) This includes acquisition costs of £3,638,000. Bow Valley contributed a profit £9,159,000 to the results of the Group in 2009. If the combination had taken place on the first day of the year in 2009, the Group’s profits in 2009 would have decreased to £22,010,000 and Group revenues in 2009 would have increased to £414,714,000.

Dana Petroleum plc

Notes to the Group Financial Statements

50

27 Analysis of net debt

At 1 January Cash FlowsExchange

Differences Other At 31

December

2010 £’000 £’000 £’000 £’000 £’000

Cash at bank and in hand 16,794 34,645 1,880 - 53,319 Short term deposits 50,756 6,356 (472) - 56,640 Cash and cash equivalents 67,550 41,001 1,408 - 109,959

Borrowing financial liabilities due after one year

Bank debt (91,516) (245,870) 258 - (337,128)

Convertible bonds (119,788) 4,105 - 115,683 -

Net Debt (143,754) (200,764) 1,666 115,683 (227,169)

At 1 January Cash FlowsExchange

Differences Other At 31

December

2009 £’000 £’000 £’000 £’000 £’000

Cash at bank and in hand 36,092 (8,465) (10,833) - 16,794 Short term deposits 122,856 (86,443) 14,343 - 50,756 Cash and cash equivalents 158,948 (94,908) 3,510 - 67,550

Borrowing financial liabilities due after one year

Bank debt - 18,685 8,736 (118,937) (1) (91,516)

Convertible bonds (115,767) 4,104 - (8,125) (119,788)

Net Funds/(Debt) 43,181 (72,119) 12,246 (127,062) (143,754)(1) debt assumed on acquisition of Bow Valley 28 Capital commitments Exploration and Approved Development Commitments The Group has commitments for future capital expenditure of £330,000,000 (2009: £186,200,000), of which £140,000,000 relates to intangible assets (2009: £108,200,000) and represents the Group’s share of obligations under existing Sale and Purchase contracts and Joint Venture arrangements. 29 Obligations under operating leases Minimum lease payments under operating leases are as follows:

Land and Buildings

Land and Buildings

2010 2009

£’000 £’000

Amounts payable on leases due: within one year 1,666 751 in two to five years 4,492 1,730 after five years 41 112

Rentals due under operating leases are charged against income on a straight line basis over the term of the lease.

Dana Petroleum plc

Notes to the Group Financial Statements

51

30 Related party transactions a) Key Management Personnel The Group defines key management personnel as the Directors of the Company. There are no transactions with Directors, other than their remuneration as disclosed in the Directors’ Remuneration note (see note 8 (b)). b) Other Related Parties During the year a lease was entered in to with Tilestamp Limited (Tilestamp), an associated company of Thomas Cross, the Chief Executive Officer of the Group. Thomas Cross resigned as Chief Executive Officer of the Group on 8 November 2010 and Tilestamp ceased to be a related party from this date onwards. The rental payments made during the year to Tilestamp as a related party were £43,000. There is no related party balance outstanding as at 31 December 2010. Service fees of USD nil (2009: USD 2,055,000) were received by the Group from Lukoil, the other significant shareholder in Yoganoil, the Group’s Russian subsidiary. All service fees were on an arms-length basis. At 31 December 2010 USD nil (2009: USD 43,000) was owed by Lukoil to Yoganoil in respect of such service fees. During December 2009, Lukoil also purchased assets from Yoganoil and paid USD 2,273,000 for those assets. During the year the Group did not enter into any related party transactions with the associate (2009:£nil). 31 Pensions The Group contributes to the personal pension arrangements of Executive Directors and employees up to a specified percentage of salary in lieu of a formal corporate scheme. Total pension contributions in lieu amounted to £ 1,082,000 (2009: £ 709,000) for the year ended 31 December 2010. A defined benefit scheme exists within a Group subsidiary but on the grounds of materiality this has not been disclosed. 32 Events after the reporting period On 31 March 2011, the Company completed the acquisition of the Triton Area and Scott assets from Petro-Canada UK Limited (“Petro-Canada UK”), a wholly owned subsidiary of Suncor Energy Inc. (“Suncor”) for a net cash consideration of £105 million. The cash consideration will be adjusted for various working capital balances. The package consists of two main production hubs in the UK Continental Shelf ("UKCS"). These are the Petro-Canada UK operated fields around the Central North Sea Triton Area and the Nexen-operated Scott fields. These assets comprise the operated fields, Guillemot West, Guillemot Northwest, Clapham, Pict and Saxon as well as non-operated interests in the Scott and Bittern fields. The acquisition of these assets is estimated to add an additional 16,000 bopd of net oil production to the group.

A number of key changes to the rates of tax affecting oil companies were announced in the March 2011 Budget. Details of these key changes and the impacts on the Group have been disclosed in note 9.

In March 2011, the Group secured an amended bank facility for USD 870 million. This replaces the existing facility held by the Group at the year end. Details of the new and existing facility have been disclosed in note 18.

Subsequent to the year end the Group has entered into oil price hedging arrangements. This strategy was taken due to the rise in the oil price and to reduce the Group’s exposure to fluctuations in the oil price. In 2011 production of 5,000,000 bbls has been hedged for 2011 and 4,900,000 has been hedged for 2012 The hedging contracts entered into have no effect on the 2010 financial position.

In January 2011 the Group received a capital injection from KNOC. This agreement saw KNOC and the Company entering into a subscription agreement where KNOC agreed to subscribe for the sterling equivalent of USD 500 million shares in the capital of the Company. This funding was then used to repay part of the loans from external lenders.

Dana Petroleum plc

Notes to the Group Financial Statements

52

33 Ultimate parent undertaking Effective from 24 September 2010, the directors regard Korea National Oil Corporation (KNOC), a company incorporated in Korea, as the immediate and ultimate parent company and ultimate controlling party. Copies of the consolidated financial statements of KNOC can be obtained from KNOC, 1588-14, Gwanyang-dong, Dongan-gu, Anyang-si, Gyeonggi-do, Korea, 431-711.

Dana Petroleum plc

53

Company Financial Statements 2010

Dana Petroleum plc

Independent auditor’s report to the members of Dana Petroleum plc

54

We have audited the parent company financial statements of Dana Petroleum plc for the year ended 31 December 2010 which comprise the Company Balance Sheet and the related notes 34 to 49. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement on page 8, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements In our opinion the parent company financial statements:

give a true and fair view of the state of the company’s affairs as at 31 December 2010; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report and Accounts for the financial year for which the financial statements are prepared is consistent with the parent company financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.

Other matter We have reported separately on the group financial statements of Dana Petroleum plc for the year ended 31 December 2010.

Moira Ann Lawrence (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Aberdeen 22 June 2011

Dana Petroleum plc

Company Balance Sheet as at 31 December 2010

55

2010 2009

Note

£’000 £’000

Fixed Assets

Property, Plant and equipment 36 32 38

Investment in Subsidiaries 37 247,937 111,998

Investment in Associates 38 54,037 34,816

Deferred Tax Asset 39 73 152

302,079 147,004

Current Assets

Debtors 40 59,825 123,465

Cash at Bank and in Hand 9,612 427

69,437 123,892

Creditors: Amounts Falling Due Within One Year 41 (5,086) (5,755)

Net Current Assets 64,351 118,137

Total Net Assets 366,430 265,141

Capital and Reserves

Called-up-Share Capital 43 15,805 13,801

Share Premium Account 45 279,685 136,519

Other Reserves 45 28,205 28,205

Profit and Loss Account 45 42,735 86,616

Total Shareholders funds 366,430 265,141

The financial statements were approved by the Board of Directors on 22 June 2011 and signed on its behalf by: David A Crawford Director Registered No. 3456891

Dana Petroleum plc

Notes to the Company Financial Statements

56

34 Accounting policies These financial statements have been prepared in pounds sterling under the historical cost convention, as modified by the revaluation of certain Investments and Financial Instruments in accordance with the Companies Act 2006 and applicable accounting standards. The principal accounting policies adopted by the Company are set out below together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year. The following accounting policies are applied consistently in dealing with items which are considered material in relation to the Company’s financial statements. Dividends Dividends received are included in the accounts in the period the related dividends are actually received. Property, plant & equipment (PP&E) PP&E assets are stated in the balance sheet at cost less accumulated depreciation. Depreciation is provided on PP&E assets to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates: Equipment 10% - 25% Computer equipment 33% Investments in associates and subsidiaries Fixed asset investments in subsidiaries and associates are included in the financial statements at cost less provisions for impairment. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more (or a right to pay less or to receive more) tax, with the following exceptions: provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and

gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold;

provision is made for tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates and joint ventures only to the extent that, at the balance sheet date, dividends have been accrued as receivable;

deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Issue expenses and share premium account Cost of share issues are written off against the premium arising on the issue of share capital. Foreign currencies The functional currency for the Company is pounds sterling. Transactions in foreign currencies during the year are recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates ruling at the balance sheet date. Pensions The Company contributes to the personal pension arrangements of Executive Directors and employees up to a specified percentage of salary in lieu of a formal corporate scheme. Contributions in lieu of pensions are charged to the profit and loss account as incurred.

Dana Petroleum plc

Notes to the Company Financial Statements

57

Operating leases Rentals under operating leases are charged to the profit and loss account as incurred. Share based payments The Company issues both equity-settled and cash-settled share based payments as an incentive to certain key management and staff. Equity-settled share based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the number of shares that will eventually vest. Fair value is measured by use of a Monte Carlo model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. 35 Employment costs

2010 2009 £’000 £’000

Wages and salaries 22,862 8,981 Pension costs 544 443 Social security costs 7,351 1,157 30,757 10,581

Included in wages and salaries is a total net expense of share based payments of £9,317,000 (2009: £3,940,000) of which £8,166,000 (2009: £3,322,000) arises from transactions accounted for as equity-settled share based payment transactions. The carrying amount of the liability at the end of the year for cash-settled share based payment transactions is £nil (2009: £1,802,000). The weighted average number of employees (including Executive Directors) during the year was: 2010 2009

Management 9 10 Technical and administration 29 22 38 32

36 Property, plant and equipment The movements during the year were as follows:

Total

£’000

Cost: At 1 January 2010 1,643Additions 26At 31 December 2010 1,669

Depletion and depreciation: At 1 January 2010 1,605Provided in year 32At 31 December 2010 1,637

Net book value At 31 December 2010 32At 31 December 2009 38

Dana Petroleum plc

Notes to the Company Financial Statements

58

37 Investment in subsidiaries

£’000

At 1 January 2010 111,998 Additions 194,661

Provision for impairment of subsidiary undertakings (58,722)At 31 December 2010 247,937

Of the additions above, £53,161,000 relates to further investment in Dana Petroleum Norway AS and £141,500,000 relates to the additional share capital obtained in Dana Petroleum (Jersey) Limited as part of the terms of the Convertible Bonds which were converted during the year (see note 19). A provision for impairment was recognised of £58,722,000 (2009: £nil) on the Company’s investments in Dana Petroleum Norway AS (£44,182,000), Dana Petroleum (Jersey) Limited (£9,628,000) and Dana Petroleum (Ghana) Limited (£4,912,000) due to the fact that the net asset values of these companies were below the carrying values held by the Company. At 31 December 2010, the principal subsidiary undertakings of the Company were:

Name of Company

Country of Incorporation/Operation

Main Activity

Dana Petroleum (E&P) Limited UK Oil & gas exploration and production

Dana Petroleum (North Sea) Limited* UK Oil & gas exploration and production

Dana Petroleum (BVUK) Limited* UK Oil & gas exploration and production

Dana Petroleum (Algeria) Limited* UK Non Trading Dana Petroleum (Russia) Limited UK Non Trading Dana Petroleum (Jersey) Limited Jersey Financing Dana Petroleum Limited Guernsey Technical and Management Services Dana Petroleum (Ghana) Limited Guernsey Oil & gas exploration and production Dana Petroleum Norway AS Norway Oil & gas exploration and production

Dana Petroleum (Cyprus) Limited* Cyprus Technical and Management Services Dana Petroleum East Zeit Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroleum East Beni Suef Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroleum Qarun Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroelum WAG Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroelum North Zeit Bay Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroelum Ras Abu Darag Limited* Cayman Islands/Egypt Oil & gas exploration and production

Dana Petroelum North Qarun Limited* Bahamas/Egypt Oil & gas exploration and production

Dana Petroelum South October Limited* Bahamas/Egypt Oil & gas exploration and production

Dana Petroleum (Holdings) B.V. The Netherlands Holding Company Dana Petroleum Netherlands B.V.* The Netherlands Oil & gas exploration and production

Dana Petroleum Manzala B.V.* The Netherlands Non Trading * Held by subsidiary undertaking The Cayman, Jersey and Guernsey subsidiaries are managed and controlled from the UK and have UK tax residency. All of the above companies are wholly owned. Further details of subsidiary undertakings are available at the headquarters of Dana Petroleum plc.

Dana Petroleum plc

Notes to the Company Financial Statements

59

38 Investment in associate

£’000

At 1 January 2010 34,816Additions 19,221At 31 December 2010 54,037

The Company holds 22.63% (2009: 27.53%) of the ordinary share capital of the AIM listed company, Faroe Petroleum plc (“Faroes”), whose nature of business is oil & gas exploration & production. In May 2010, the Company took up its rights in relation to the Faroe Petroleum Rights Issue at a total cost of £19,221,000, this had no effect on the Company’s equity interest. In November 2010, Faroe Petroleum issued further shares through a placing, which the Company did not participate in. This placing diluted the Company’s equity interest share to 22.63%. 39 Deferred tax asset

2010 2009 £’000 £’000

At 1 January 152 - Change in estimate (79) 152 At 31 December 73 152

Deferred tax included in the balance sheet is as follows:

2010 2009

£’000 £’000

Deferred tax asset Accelerated capital allowances 63 75 Other temporary differences 10 77 73 152

40 Debtors

2010 2009 £’000 £’000

Other debtors and prepayments 625 2,452 Due from subsidiary undertakings 59,200 121,013 59,825 123,465

41 Creditors: amounts falling due within one year

2010 2009 £’000 £’000

Amounts owed to subsidiary undertakings 1,891 158 Accruals and other payables 3,195 5,597 5,086 5,755

Dana Petroleum plc

Notes to the Company Financial Statements

60

42 Financial instruments An outline of the objectives, policies and strategies pursued by the Group and Company in relation to financial instruments is set out in the Director’s report and in note 2 of this report. 43 Called-up share capital See note 22 for details of the share capital of the Company. In accordance with the Company’s unconditional and irrevocable guarantee which was provided for the Convertible Bonds (‘Bonds’) issued in 2007 by Dana Petroleum (Jersey) Limited, a wholly owned subsidiary, the Bonds were converted into preference shares of the issuer and were then immediately exchanged for ordinary shares in the Company. Details of the Bonds are contained in note 19. 44 Share-based payments See note 23, for details of the share based payments for the Company. 45 Reserves

Share Premium Account

Profit and Loss Account Other Reserves

£’000 £’000 £’000

At 1 January 2010 136,519 86,616 28,205 Retained loss for the year - (43,934) - Employee share scheme credits - 53 - New shares issued 143,166 - - At 31 December 2010 279,685 42,735 28,205

46 Pensions The Company contributes to the personal pension arrangements of Executive Directors and employees up to a specified percentage of salary in lieu of a formal corporate scheme. Total pension contributions in lieu amounted to £ 544,000 (2009: £ 443,000) for the year ended 31 December 2010. 47 Company profit and loss account In accordance with the provisions of the Companies Act 2006, the Company has not presented a profit and loss account. A loss for the year of £ 43,934,000.00 (2009: £ 8,554,000.00) has been dealt with in the profit and loss account of the company

Dana Petroleum plc

Notes to the Company Financial Statements

61

48 Obligations under operating leases Annual commitments under operating leases are as follows:

Land and Buildings

Land and Buildings

2010 2009

£’000 £’000

Payable on leases which expire: in two to five years 255 135 after five years 72 72

Rentals due under operating leases are charged against income on a straight line basis over the term of the lease. 49 Ultimate parent undertaking Effective from 24 September 2010, the directors regard Korea National Oil Corporation (KNOC), a company incorporated in Korea, as the immediate and ultimate parent company and ultimate controlling party. Copies of the consolidated financial statements of KNOC can be obtained from KNOC, 1588-14, Gwanyang-dong, Dongan-gu, Anyang-si, Gyeonggi-do, Korea, 431-711.

Dana Petroleum plc

Notes to the Financial Statements

62

50 Group exploration and production interests as at 31 December 2010

COUNTRY LICENCE/BLOCK DESIGNATION FIELD/DISCOVERY NAME OPERATOR

DANA NET %

INTEREST Fields in Production & Under Development UK Lic. 128/Block 48/18b, 48/19b & P1011

48/19e Anglia GDF Suez 25.00

UK Lic. P.456/Block 48/2a Babbage Eon Ruhrgas 40.00 UK Lic. P.224/Blocks 29/2a ALL, 29/2d

ALL, 29/2h ALL Banff CNR 13.54

UK Lic. P.111/Block 30/3a Blane Talisman 15.24 UK Lic. P.607/Block 43/19a Cavendish RWE 50.00 UK Lic. P.354/Block 22/2a Chestnut Centrica 15.13 UK Lic. P249/Block 14/19 Claymore Talisman 7.52 UK Lic. P.219/Block 16/13a Enoch Talisman 20.80 UK Lic. P.317/Block 20/2a & P273 20/3a Ettrick Nexen 12.00 UK Lic. P.073/Block 21/12a Goosander Centrica 50.00 UK Lic. P.351/Block 21/18a Kittiwake Centrica 50.00 UK Lic. P.238/Block 21/19 ALL Mallard, Grouse, Gadwall Centrica 50.00 UK Lic. P.472/Block 210/24a, b Hudson Dana 47.50 UK Lic. P.686/Block 43/27a & P380 43/26a Johnston Eon Ruhrgas 57.78 UK Lic. P.748/Block 29/2c Kyle CNR 14.29 UK Lic. P.1021/Block 210/20d Otter Total 19.00 UK Lic. P.025/Block 49/22a & P033 49/17 Victor ConocoPhillips 10.00 Netherlands Prod. Licences F16-E, E15a, F13a F16-E Wintershall 1.18 Netherlands Prod. Licences E18/A E18-A Wintershall 5.22 Netherlands Prod. Licences F02a (Oil) F02a Dana 45.00 Netherlands Prod. Licences F02a (Gas) F02a Dana 27.00 Netherlands Prod. Licences P10a Hantze Dana 60.00 Netherlands Prod. Licences P10b Hantze Dana 60.00 Netherlands Prod. Licences P11b Hantze Dana 50.00 Netherlands Prod. Licences P11b Hantze Dana 50.00 Netherlands Prod. Licences P11b/10a De Ruyter Dana 54.00 Netherlands Prod. Licences P14a De Ruyter Dana 40.00 Netherlands Alkmaar – Taqa 12.00 Netherlands Bergen II – Taqa 12.00 Netherlands B17a Shallow – Centrica 14.00 Netherlands Prod. Licences K10a K10a Wintershall 20.00 Netherlands Prod. Licences K10b,c K10b,C Wintershall 16.00 Netherlands Prod. Licences K18b Shallow K18b Wintershall 37.00 Netherlands Prod. Licences L05b L05b Wintershall 30.00 Netherlands Prod. Licences L005c L05c Wintershall 30.00 Netherlands Prod. Licences L06b L06b Wintershall 30.00 Netherlands Prod. Licences L08b L08b Wintershall 25.00 Netherlands Prod. Licences L0b - P3/P4 Unit – Wintershall 27.00 Netherlands Prod. Licences L16a L16a Wintershall 50.00 Netherlands Prod. Licences P15ab L15ab Taqa 11.00 Netherlands Prod. Licences P15c P15c Taqa 9.00 Netherlands Prod. Licences P15-P18 P15-P18 Taqa 6.00 Netherlands Prod. Licences P18c P18c Taqa 4.00

Dana Petroleum plc

Notes to the Financial Statements

63

Netherlands Prod. Licences P18a-P18c Unit P18a-P18c Taqa 1.00 Norway PL027B Jotun ExxonMobil 45.00 Egypt East Zeit East Zeit East Zeit Petroleum

Co (Dana/EGPC) 100.00

Egypt Qarun Qarun, North Qarun, SW Qarun, Sakr, North Harun, Wadi Rayan

Qarun Petroleum Co (Apache/EGPC)

25.00

Egypt East Beni Suef and East Beni Suef Extension

East Beni Suef, El Azhar, Gharibon, Lahun, Yusif, Tarif, Sohba

East Beni Suef Petroleum Co (Apache/EGPC)

50.00

Egypt West Abu Gharadig Raml, Raml SW Agiba Petroleum Co (Eni/EGPC)

30.00

European Exploration Acreage and Discoveries UK Lic. P.090/Block 3/25a (Deep) 3/25a-2 Total 15.00 UK Lic. P. 1610 Block 13/23a Wester Ross Dana 45.00 UK Lic. P. 257 Block 14/25a ALL – Talisman 30.00 UK Lic. P.219/Block 16/13e J1 Talisman 26.00 UK Lic. P.225 Block 16/27a Rest of Block

(Contract Area 2) Part A – Dana 70.00

UK Lic. P.273 Block 20/3a ALL Blackbird Nexen 12.00 UK Lic. P. 1047 Block 20/3c ALL Marten Nexen 25.00 UK Lic. P.1580 Block 20/3f ALL – Nexen 12.00 UK Lic. P.1415/Block 21/17a ALL Wagtail, Whinchat Dana 50.00 UK Lic. P.238/Block 21/19 ALL – Venture 50.00 UK Lic. P.185 Block 21/20f ALL Morgan Noble Energy 35.00 UK Lic. P.1561 Block 21/20c ALL Bligh Extn, Gower, Maynard Dana 50.00 UK Lic. P.1584 Block 21/20e ALL Nemo Dana 50.00 UK Lic. P.1051/Block 23/11a ALL – Dana 100.00 UK Lic. P0354 22/22a – Premier Oil 30.25 UK Lic. P1726 43/17a,18a – RWE 50.00 UK Lic. 1742/47/10c, 6a, 6c 47/10-a RWE 50.00 UK Lic. 1766/13/22d – RWE 50.00 UK Lic. 1786/21/12d – RWE 50.00 UK Lic. 1854/208,1,2,3 & 217/27,28 – RWE 30.00 UK Lic. P.1720 Blocks 23/16c & d ALL Arran Dana 50.00 UK Lic. P.359 Block 23/16b Barbara

Extension Arran North Shell 40.00

UK Lic. P.224/Block 29/2a (Shallow & Deep Banff Area), 29/2d ALL, 29/2h ALL

– CNR 13.50

UK Lic. P.1330/Blocks 42/28d & 29b ALL Mongour Dana 100.00 UK Lic. P.001/Blocks 42/29a (Monkwell

area) Monkwell Dana 50.00

UK Lic. P.001/Blocks 42/29a (Rest) – Dana 100.00 UK Lic. P.1668 Blocks 43/26b & 43/27b Johnston NW Extra Eon Ruhrgas 50.00 UK Lic. P.1566 Block 47/4d & 5d ALL Poseidon Dana 100.00 UK Lic. P.028 47/5c Rest Block – Dana 81.28 UK Lic. P.1242 Block 48/1a ALL + 47/5b – Dana 40.00 UK Lic. P.1594 Block 48/1c ALL – Dana 40.00 UK Lic. P. 1595 Blocks 48/2b & 3b, ALL Babbage East Eon Ruhrgas 50.00 UK Lic. P.1596 Blocks 205/3 ALL, 205/4a

ALL – Nexen 30.00

UK Lic. P.1190/Block 204/13a ALL Tornado OMV 30.00

Dana Petroleum plc

Notes to the Financial Statements

64

UK Lic. P.1262/Block 204/14b ALL Tornado OMV 30.00 UK Lic. P.1373 Blocks 208/13a, 14a, 15a,

18a, 19a, 20a 208/19-1 DONG 30.00

UK Lic. P.1374 Blocks 209/11a, 12 ALL, 13a – DONG 30.00 UK Lic. P.1454/Blocks 208/11 ALL,208/16

ALL, 214/15 ALL – DONG 30.00

UK Lic. P.1488/Blocks 213/14a & 213/15a – OMV 35.00 UK Lic. P.1484/Blocks 214/4b,

214/5b,214/9b & 214/14a – OMV 35.00

UK Lic. P.1598 Blocks 208/12, 13b, 17 ALL, 18b & 19b

Tamdhu DONG 30.00

UK Lic. P.1599 Blocks 208/20b, 22,23, 24, 25, 27, 28, 209/16 & 17 ALL

– DONG 30.00

UK Lic. P.226/Block 210/15a ALL – Total 19.00 UK Lic. P.1571 Blocks 210/23a ALL,

210/28a ALL & 210/29b ALL – Dana 100.00

UK Lic. P.472/Block 210/24a Western Isles Dana 64.83 UK Lic. P.570/Block 210/24b – Dana 47.50 UK Lic. P.201/Block 211/22a (North-west

Area) Kerloch Dana 50.00

UK P1833 204/14d – Endeavour 20.00 UK P0090 9/10b East, West 9/10b - 1a Lundin(Enquest) 15.00 UK P1849 214/5c, 214/9d, 214/10b – OMV 35.00 Faroe Islands PL.005 – Eni 25.00 Netherlands Expl. Licence A15a A15-3 Wintershall 9.00 Netherlands Expl. Licence E18a – Wintershall 5.00 Netherlands Expl. Licence B17a B17a-6 Wintershall 8.83 Netherlands Expl. Licence B17a Deep – Dana 37.00 Netherlands Expl. Licence F06b F06b Dana 36.00 Netherlands Expl. Licence P08c P08c Dana 60.00 Netherlands Zuid-Friesland III – NAM 17.00 Netherlands Expl. Licence L06a L06a Wintershall 30.00 Norway PL.035B, PL.362, Blocks 251, 25/2 and

30/11 Fulla StatoilHydro 10.00

Norway PL.504 Block 25/7 Jetta Det norske oljeselskap

30.00

Norway PL.027B Block 25/8 – ExxonMobil 50.00 Norway PL.027D Block 25/8 Jetta, Eitri ExxonMobil 30.00 Norway PL.337 Block 16/10a Storskrymten Det norske

oljeselskap 25.00

Norway PL.440s Block 2/8 – Det norske oljeselskap

20.00

Norway PL.450 Block 7/12 – Det norske oljeselskap

25.00

Norway PL.464 Blocks 31/3 & 32/1 – Dana 55.00 Norway PL.484 Block 6608/10 – Noreco 30.00 Norway PL.483S Blocks 6508/3, 6608/12,

6609/10 & 6609/11 – Det norske

oljeselskap 30.00

Norway PL.494 Block 2/9 – Dana 40.00 Norway PL.497 Blocks 7/7, 7/8 and 7/11 – Det norske

oljeselskap 25.00

Norway PL.513 Blocks 6506/6, 6507/1 and 6507/4

– Maersk 50.00

Norway PL523 Blocks 6605/11 and 12 – EON Ruhrgas 20.00

Dana Petroleum plc

Notes to the Financial Statements

65

Norway PL526 Blocks 6608/6 and 9, 6609/4 – North Energy 20.00 Egyptian Exploration Acreage and Discoveries Egypt North Ghara PSC – BP 25.00 Egypt South Feiran PSC – Eni 22.20 Egypt West El Burullus PSC KES-CC1 Gaz de France 50.00 Egypt North Zeit Bay PSC Abydos-1x, Abydos-2x Dana 100.00 Egypt South October PSC Akhenaton-1, GG85-1, WFA-1 Dana 65.00 Egypt Ras Abu Darag PSC – Dana 100.00 Egypt East Beni Suef PSC and East Beni Suef

Extension PSC – Apache 50.00

Egypt South-East July PSC – Dana 40.00 International Exploration Acreage and Discoveries Mauritania Block 1 PSC Faucon Dana 36.00 Mauritania Block 2 PSC – Tullow 10.73 Mauritania Block 7 PSC Pelican, Aigrette Dana 36.00 Morocco Tanger-Larache – Repsol 15.00 Morocco Bouanane – Dana 50.00 Senegal St. Louis PSC – Tullow 30.00 Guinea Offshore Guinea PSC – Hyperdynamics 23.00

1 Net % Interest subject to regulatory approval and/or final legal completion of signed transaction. 2 Interest subject to assignment of PSC and ratification of restated PSC per executed Letter of Intent and Sale and Purchase Agreement between Dana and Hyperdynamics Inc.

For PSC’s in Egypt with development leases, Dana’s equity is the Company’s equity pursuant to the PSC. The operator is the operating company pursuant to the PSC which is a Joint Venture between the Contractor and EGPC.