se annual report 2011

Salamander Energy PLC Annual Report 2011

Energising Asia

SALAMANDER ENERGY

PURE ASIAN ENERGY

Contents

Overview

1 Highlightsoftheyear2 SalamanderEnergyataglance

Business review

4 GreaterBualuang6 GreaterKerendan8 NorthKutei10 ChairmansandChiefExecutivesreview12 Keyperformanceindicators13 Operationalreview19 Statementofprovedandprobablereserves20 Financialreview24 Riskmanagement27 Corporatesocialresponsibility34 Boardofdirectorsandadvisers36 Seniormanagement

Corporate governance

37 Directorsreport43 Corporategovernancestatement50 Remunerationreport60 Directorsresponsibilitiesstatement

Financial statements

61 IndependentAuditorsReport63 Statementofaccountingpoliciesandgeneralinformation72 Consolidatedstatementofcomprehensiveincome73 Consolidatedbalancesheet74 Consolidatedstatementofchangesinequity75 Consolidatedcashflowstatement76 Notestotheconsolidatedfinancialstatements97 ParentCompanybalancesheet98 ParentCompanystatementofchangesinequity99 ParentCompanycashflowstatement100 NotestotheParentCompanyfinancialstatements104 GlossaryIBC CorporatedirectoryIBC Ouroffices

About us

Who we are, what we do

Salamander Energy is an Asia-focused independentoil and gas exploration andproduction company

Strategy

TheCompanyaimstocreatesustainableshareholdervaluebyexpandinganddevelopingitsportfolioofupstreamoilandgasassets.Inordertoachievethis,theCompanyintendstopursuethefollowingstrategies.

Pursue organic-led future growth with scope for add-on acquisitions

TheGroupoperatesanchorassetsineachcorearea,whichareinprovenbasinswithgrowthcharacteristics,andwheretechnicalrisksareviewedaslowduetomanagementsknowledgeofthegeologyandpetroleumsystem.Productionandreservegrowthistargetedfromcurrentdevelopments,discoveriesandlowriskstep-outexplorationprospectsineachofthecoreareas.TheCompanyalsointendstotargetpotentiallytransformationalexplorationprospectssuchasthoseinBlockG4/50inThailandandthoseprospectsintheNorthKuteithatcontainlargevolumesofprospectiveresourcesandwheretheGroupbelievesithasastrongunderstandingofthelocalgeology.

Create value through hubpositions in core areas

TheCompanyhasdevelopedhubpositionsineachofitscoreareas.Ineachcorearea,theGrouphasamajorityequitystakeandoperatorship.Throughbuildinganacreagebankaroundeachanchorasset,theCompanycantargetexplorationandappraisalclosetoexistingassets.

Throughexploringandappraisingprospectsanddiscoveriesaroundcoreproductionanddevelopmentassetsinthesecoreareas,theCompanywillseektobenefitfromexploitingtechnical,operationalandfinancialsynergies.

Maintain regional focus

TheCompanyhasapureregionalfocusonSouth-EastAsia,whichprovidesanumberofstrategicbenefitstotheCompany,includinganabilitytoanticipateandrespondtochangesinthelocaloperating,assettradingandeconomicenvironment,extensiveandfocusedtechnicalknowledge,anunderstandingofmanyofthehydrocarbonbasinsintheSouth-EastAsianregion,andtheabilitytobenefitfromtheCompanysnetworkofcontactsandrelationshipsacrosstheregion.

TheCompanybelievesitslocalknowledgeandrelationshipsprovideasustainablecompetitiveedge,increasingitschancesofprofitablyexploitingitscurrentportfolioandofcapturingnewopportunities.

1 Overview SalamanderEnergyPLC AnnualReport2011

Highlights of the year

Operations Financial

925 $19475.3 $408

MMboe of prospective resource in top 15 prospects

MM of post-tax operating cash flow

MMboe of 2P reserves MM of revenue

2PReservesincreasedby13.6%to75.3MMboe(2010:66.3MMboe)

Averagedailyproductionof18,600boepd(2010:20,300boepd)

BualuangEastTerraceoildiscovery,8MMboaddedto2Preserves

MaturedprospectinventoryinNorthKutei,independentCPRpointsto676MMboeofgrossmeanprospectiveresourcesinfourhigh-gradedprospects

Portfolio management

Re-alignedportfoliotofocusonthreecoreareas

Disposedofmature,lowmargin,non-coreinterestsinOffshoreNorthwestJava(ONWJ)andSoutheastSumatra(SES)PSCs

DeepenedinterestinKerendandevelopment,GreaterKerendanarea,Indonesia

ExpandedacreagepositioninGreaterBualuangarea,GulfofThailand,throughG4/50farm-in

Revenueincreasedby26.2%to$408.0million(2010:$323.4million)

Recordpre-taxoperatingcashflow,beforeworkingcapitalchanges,increasedby68%to$293.6million(2010:$174.4million)

Recordpost-taxoperatingcashflowincreasedby82%to$193.9million(2010:$106.5million)

Profitbeforetaxof$112.6million(2010:lossof$113.7million)

Lossaftertaxof$45.5million(2010:$169.5million)

Year-endcashandfundsbalanceof$85.8million(2010:$99.2million)

Netdebtof$210.1million(2010:$190.2million)

Outlook

2012averagedailyproductionrateforecasttobe12,00013,000boepdfollowingdisposalofnon-coreproducingassets

BualuangBravoPlatformonscheduleforinstallation3Q2012

Ensco-53rigmobilisedfordevelopmentandexplorationdrillinginGreaterBualuangarea

TutungAlpha-3spudded,gasappraisaldrillingahead

Signed12monthcontractforAtwoodMakojack-upriginGreaterBualuangareafrom3Q2012

ExplorationdrillinginNorthKuteitocommence4Q2012


Salamander Energy at a glance ThailandProduction (Net WI) Liquids Gas Total (bopd) (mcfd) (boepd)

Sinphuhorm 39 7,921 1,359 Bualuang 7,785 7,785

Total 7,821 7,921 9,144

1P reserves 2011 2010

Liquids(MMbbls) 26.1 14.8Gas(Bcf) 32.4 35.2

Total(MMboe) 31.5 20.6




Revenue 2011 2010

Liquids($MM) 265.9 182.8Gas($MM) 25.5 21.1

Total($MM) 291.4 203.9

Indonesia

Production (Net WI) Liquids Gas Total (bopd) (mcfd) (boepd)

SES 1,408 703 2,111 ONWJ 1,240 1,291 2,531Kambuna 1,181 3,628 4,809

Total 3,829 5,622 9,451







Revenue 2011 2010

Liquids($MM) 73.5 78.6Gas($MM) 42.7 43.8

Total($MM) 116.2 122.4

2P Reserves MMboem

+9.02011: 75.32010:66.32009:64.82008:67.7

Production boepd

-1,7002011: 18,6002010:20,3002009:13,6002008:9,600

Revenue millionm

+84.62011: $408.02010:$323.42009:$157.12008:$100.8

Post-tax operating cash flow million

+87.42011: $193.92010:$106.52009:$53.62008:$25.5

1

1 Greater Bualuang

Oil production, development and exploration

Lowrisk,highvalueexplorationinover6,000sqkmsteppingawayfromtheBualuangoilfield.TheBualuangoilfieldandEastTerracehave34.2MMboeof2Preserves.Productionisforecasttogrowsignificantlyin2013followinga16welldevelopmentdrillingprogrammestartingin2H2012.

AtwoodMakorigcontracted for12monthsfrom3Q2012

Over20prospectsonB8/38

5,000sqkmof3Dseismic onG4/50,over20leads identifiedonold2D

4explorationwellsin2012

Lowrisk,highvaluebarrels

2 Greater Kerendan

Gas development and exploration

AcreagepositionbasedonKerendangasfielddevelopmentwithupsidetothebookedreservepositionfromtheKerendanfield,satelliteexplorationandnewacreageopportunities.

Booked19MMboeof2P reservesonKerendanfield

Further23.4MMboeof certifiedresourceawaiting commercialisation, developmentdrillingin2H 2012tostartthisprocess

c.1Tcfoflowriskstep outexplorationtobetested in2H2012

Potentialtosendgasinto highervalueEastKalimantan gasmarkets

3 North Kutei

Oil and gas appraisal and exploration

AngklungdiscoveryopenedanewplayintheNorthKuteibasinwithmulti-Tcfofgasandhundredsofmillionsofbarrelsofoilpotential.

676MMboeofgrossmeanunriskedprospectiveresourcepotentialindependentlycertifiedin4mostdrillreadyprospects

Oilandgaspotential

CloseproximitytoBontangLNGplantprovidesreadymarketatexcellentprice

Drillingexpectedtocommence4Q2012

Key

Areasoffocus Otherassets Offices

Bangkok

Singapore

Jakarta

2 3


FurtherinformationBusinessreview.Pages14/15Corporateresponsibility.Page31

4 Business review SalamanderEnergyPLC AnnualReport2011

alamanderoperatestwolicencesintheGreaterBualuangarea,B8/38andG4/50.TheGrouphasa100%*equityinterestin

theselicences,whichcoverover6,000sqkm.TheB8/38licencecontainstheBualuangoilfieldandanumberofstep-outexplorationprospects.G4/50surroundstheB8/38licenceandtheGroupbelievesittobehighlyprospectiveexplorationacreagewithover20potentialleadsmappedfromtheold2Ddata.

TheGrouphasdeliveredconsistentreservesgrowthontheBualuangfieldwithultimatelyrecoverableprovenandprobablereservesgrowingfrominitialestimatesof15MMboto43.5MMboasat31December2011.Thisincludes8MMbofromtheEastTerracediscoverymadeduring2011.TheGroupcanalsoseeadditionalresourcesinreservoirsaboveandbelowthemainproducingreservoir.

2012willseefurtherinvestmentintheBualuangfieldwiththeinstallationoftheBravoWellheadPlatformthatwillprovideafurther16drillingslots.TheGrouphassignedatwelvemonthcontractfortheAtwoodMakorigwiththerigexpectedonlocationin3Q2012.TheAtwoodMakowilldrillsixteendevelopmentwells,commencingin3Q2012,thatwillseeproductiongrowtoapproximately15,000boepdin2013.

TheGroupplanstofurtherexploititsunderstandingoftheregionalhydrocarbonplaybydrillingstep-outexplorationprospects,bothinB8/38andG4/50.TheGrouphasdrilledoneexplorationwelltodatethatresultedintheBualuangEastTerraceoildiscovery.ThiswillbefollowedupbytheFarEastandNWTerraceClusterprospectsintheB8/38licenceduring2Q2012.InG4/50,theGroupcompletedanextensive3Dseismicsurveyin1Q2012anditwillbeprocessingandinterpretingthisdatain1H2012beforestartingtodrillexplorationwellswiththeAtwoodMakorigstartingin2H2012andrunningthrough2013.HavingarigonlongtermcontractwillalsoprovidetheGroupwiththeabilitytorapidlyappraiseanyexplorationsuccess.

TheGroupbenefitsfromanumberofoperationalandfinancialsynergiesbyoperatingacrosssuchalargeswatheofacreage,oneexamplebeingtheabilitytooffsetexplorationcostsagainstincometaxgeneratedfromtheBualuangfield.

Insummary,SalamanderhasaproventrackrecordofcreatingvalueintheGreaterBualuangarea.Withanexpandedacreagepositioninthisarea,Salamanderhastheopportunitytoapplyitstechnicalknowledgeandcreatematerialvaluethroughthediscoveryandexploitationofnewoilfields.

* Moecoretainsa50%backinright

Greater Bualuang S

Production(boepd)

2012: 8,500(F)2011:7,8002010:8,1002009:8,900

Reserves(MMboe)

2011: 34.22010:26.52009:22.52008:15

Salamander has a proven track record of creating value in the Greater Bualuang area. With an expanded acreage position in this area, Salamander has the opportunity to apply its technical knowledge and create material value through the discovery and exploitation of new oil fields.

1

23

465

Greater Bualuang, Thailand Oilproduction,developmentandexploration

B8/38Block(100%),operator 1 NorthWestProspect 2 NorthWestFault TerraceCluster 3 Bualuang,oilfield 4 NorthEastFault TerraceCluster 5 EastTerrace 6 FarEastProspect G4/50Block(100%*),operator

* Moecoretainsa50%back-inright


1OceanSovereignrigdrillingBualuangEastTerraceexplorationwell,FPSOinbackground.

2BualangBravoWellheadPlatformunderconstruction.

3WesternPatriotcompleting3DseismicsurveyinG4/50licence.

4MapofG4/50attertiarylevelshowingleadareasidentifiedfrom2Ddata.

3

42

1


alamanderoperatestheBangkanaiPSCintheBaritobasin,CentralKalimantan,havingacquireda69%operatedinterestinthisPSC

in4Q2010anddeepeneditsinterestto80%in4Q2011.ThelicencecontainstheKerendangasfielddevelopmentandanumberofadditionalstep-outexplorationtargets.

TheKerendangasfieldcontains280Bcfofcertifiedresource.During2011theGroupsignedagassalesagreement(GSA)forthesupplyof120BcfofgasleadingtotheGroupbooking19MMboeof2Preserves.ThegasisbeingsoldtoPLNforlocalpowergeneration.A320MWpowerplantisbeingconstructed3kmfromtheKerendanfieldwiththecapacitytohandlethreetimesthevolumeoftheinitialGSA.Giventhisreadymarketforthegas,theGrouphopestocommencetheprocessofcommercialisingtheremaining160Bcfofcertifiedcontingentoncompletionofits2012developmentdrilling.

Furthermore,thereisoveroneTcfofexplorationupsideontheBangkanaiPSC.ThemostimmediateprospectsfordrillingareWestKerendanandSungaiLahei,whicharescheduledtobedrilledin2H2012.IntheeventtheGroupdiscoversupwardsof1TcfofgasintheGreaterKerendanareathenitwillbeeconomicaltobuildapipelinetoEastKalimantanwheretherearemultiplecommercialisationoptionsatahigherpricethanthosethatcanberealisedfromlocalpower.

TheGrouphasalsobeenawardedtwoJointStudyAreasadjacenttotheBangkanaiPSC.ThesepresentitwithpotentialacreageadditionsinanareawheretheGroupisdevelopingitsunderstandingoftheregionalpetroleumgeologyandwherethereisaclearmarketforincrementalgasvolumestobecommercialised.

SalamanderspositionintheGreaterKerendanareaexhibitsanumberofthecharacteristicstheGrouplooksforwhenenteringanewregion:hardresourcewithupsidedevelopmentpotentialtoanchorposition;explorationandappraisalupside;andtheopportunitytoexpandintosurroundingacreage.

Greater Kerendan S

FurtherinformationOperationalreview.Page15Corporateresponsibility.Page32

The Kerendan gas field contains

280 Bcf of certified resource.

During 2011 the Group signed a

GSA for the supply of 120 Bcf of

gas leading to the Group booking

19 MMboe of 2P reserves.

Greater Kerendan, Indonseia Gasdevelopmentandexploration

NEBangkanaijointstudy(100%) WestBangkanaijointstudy(100%) BangkanaiPSC(80%),operator Kerendangasfield


1

1StagingareaatLuweHulu.

2CrosssectionoftheKerendangasfield.

3SalamanderemployeesinspectingtheaccessroadtotheWestKerendanlocation.

4AnisochronshowingtheOligoceneplatformrimfacies.A KerendanfieldB WestKerendanlocation

Platform rim Platform marginPlatform interior

Kerendan 2 Kerendan 1 Kerendan 3

Lagoonal wackestonesand packstones(not porous)

Acidic basinal waters expelled from compacting shales

Middle carbonate build-up

Lower carbonate with shale

Reefal boundstones and adjacent packstones

Porous grainstones: Moldic and micro-porosity low permeability

Platform rim wackestones to packstone low porosity

Porous due to late vuggy dissolution, high permeability

3

42

1

A

B

FurtherinformationOperationalreview.Pages16/178 Business review

SalamanderEnergyPLC AnnualReport2011

heGrouphasadominantacreagepositionintheNorthKuteiBasinthroughoperatedinterestsintheBontangPSC(100%)andthe

SoutheastSangattaPSC(75%).TheKuteiisoneofthemostprolificbasinsinIndonesia,yetitsnorthernsectionhasbeenlightlyexploredandSalamanderisthefirstoperatoractivelytoexploreinthispartofthebasinforover25years.

In2010,SalamandermadetheAngklung-1discoverythatflowedgasfromPliocenesandstones.TheAngklungdiscoverywasaplay-openingwellasitprovedthepresenceofreservoirqualitysandstonesintheNorthKutei.Furthermore,itvalidatedtheGroupshypothesisthatthebrightamplitudeanomaliesvisibleonthe3DseismiccorrespondwithgasinPliocenesandstones.

Multiplefollow-upprospectshavebeenidentifiedfromthe3DseismicontheBontangPSCandSESangattaPSCs.AnindependentreportbyISISPetroleumConsultantsconcludedthattheGroupsfourmostdrillreadyprospectshavegrossmeanunriskedresourcepotentialof676MMboe.TheGroupplanstodrilluptoeightexplorationwellsacrossitsacreagetoproveupresourcesstartingin4Q2012.

Thereareanumberofoptionsforcommercialisationofgasintheeventoffurtherexplorationsuccess.TheBontangLNGplant,whichislessthan100kmfromtheGroupsprospects,providesanattractivecommercialisationoptionwithtwoofeighttrainsidleandrecentexportpricesof$17perMcf.Inadditiontherearemultiplelocalindustrialandpowergenerationmarketswhichwouldbeexpectedtorealiseinexcessof$7perMcf.Asthedominantacreageholder,SalamanderisuniquelypositionedtoexploitthisemergingnewplayintheNorthoftheKuteibasin.Arigisexpectedonlocationin2H2012,whentheGroupwillembarkonamulti-wellprogramme.

North Kutei TAn independent report by ISIS concluded that the Groups four most drill ready prospects have mean unrisked resource potential of 676 MMboe.

2

3

6

17

4 5

North Kutei, Indonesia Gasappraisalandexploration

SESangattaPSC(75%),operator 1 NorthKendang 2 RehabNose 3 SouthKendang

BontangPSC(100%),operator 4 Angklungdiscovery 5 Kecapi 6 Bedug 7 Tutungdiscovery



1MigrationmodellingacrosstheBontangPSC.

2ProspectmapacrossBontangandSESangattaPSC.

3Angklung-1wellflaringgasduringtesting.

4CanyonandchannelmappingintheBontangPSC.

1

3

Tutungdiscovery

Angklungdiscovery

NorthKendang

Kecapi

Calung

AngklungNorth

Kolingtang

Bedug SouthKendang

Kecrik

Goong

RehabNose

Rehab

MuiraBesar

Rampak

SESangatta3D

Mahesi

Kledi

Doli-Doli

BedugSouth

3

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1


Chairmans and Chief Executives review

The Board believes that Salamanderhas never been better positioned to create and capture value for shareholders and we look forward to the year ahead with a keen sense of anticipation.

uring2011theGroupcommencedahigh-gradingofitsportfoliowiththeaimoffocusingonareaswhereithaslarge,

operatedinterestswithmaterialupsideexposureandhighquality,anchorassets.TheseareasincludetheGreaterBualuangarea,intheGulfofThailand;theNorthKuteiareaandtheGreaterKerendanarea,bothinIndonesia.InalloftheseareastheGroupspositionisbasedaroundacoreassetwithupsidepotentialaswellaslowriskstep-outexplorationandappraisalopportunitiesandthechancetoaddnewacreageinareaswherewehaveadetailedknowledgeofthehydrocarbonsystems.

Thisre-alignmentisanaturalprogressioninportfoliodevelopmentastheGroupmatures,andfollowsourearlierdrillingprogrammesacrossadiverserangeofassetsinSoutheastAsia.HavingidentifiedthethreecoreareasaroundwhichtofocustheGroupsfuturegrowth,thesecondhalfoftheyearsawtheGroupdivestsmall,non-operatedinterestsintheONWJandSESPSCs.Thesewerehighlytaxed,highcostbarrelswhichgeneratedrelativelylimitedfreecashflowandwereinlongtermdecline.TheGroupusedthesefundstoexpandinitscoreareaswiththefarm-intotheG4/50blockintheGreaterBualuangarea,ThailandandincreasingitsinterestintheGreaterKerendanarea,throughtheacquisitionofadditionalequityintheBangkanaiPSC.BothoftheseareasofferhigherpotentialreturnsandmoretangiblegrowthopportunitiesthantheONWJandSESPSCs.

WiththeGroupsrenewedfocus,assetsoutsideofthesehigh-gradedareasarenowconsiderednon-coreandtheGroupmaydetermineinthefuturewhereappropriatetoharvestcashflow,divestorwithdrawfromthesepositions.

Markets

Despitedifficultglobaleconomicconditions,theGroupsprincipalmarketsofIndonesiaandThailandcontinuetogrow,withtheIMFforecastingGDPgrowthin2012of6.3%inIndonesiaand4.8%inThailand.Thedemandfornewgas-firedpowerprojectsinIndonesiaremainsstrong.ThisisanimportantmarketfortheGroupasitexploresforgasintheGreaterKerendanandNorthKuteiareas.DemandforgasremainsexceptionallystrongintheNorthKuteiarea,wherethepresenceoftheBontangLNGplanthasledtothegrowthofanumberoflocalmarketsforgas,includingpetrochemicals,fertiliser,powerandLNG.Withtheoilpriceremainingconsistentlyabovethe$100perbarrellevelsinceearly2011,theGroupsmarketscanbedescribedasbuoyant.

D

Charles JamiesonChairman

James MenziesChiefExecutiveOfficer

FurtherinformationFinancialreview.Page20Operationalreview.Page13Corporateresponsibility.Page27


Highlights

Ontheoperationalside,productionaveraged18,600boepdfortheyear,despitethesaleoftheONWJandSESPSCsinthesecondhalfof2011.Productioncomprised84%liquidsand16%gaswhileaveragerealisationsduringtheyearwere$104.45perbarrel(2010:$73.16perbarrel)and$5.47perMcf(2010:$5.12/Mcf).

Evenallowingfordisposals,theGroupgrewits2P(provedandprobable)reservesby9.0MMboe(13.6%)duringtheyear,reportinga2Pfigureof75.3MMboeatyearend,representingareservereplacementratioof235%.Alongsidethis,theGroupsprovedreservebasegrewby37%to48MMboe(64%ofthe2Pfigure),reflectingthecontinuedsuccessfuldevelopmentoftheGroupsflagshipBualuangoilfield.

Sincethedrillingoftheplay-openingAngklung-1wellattheendof2010,ourtechnicalteamshavebeenworkinghardthroughout2011todefinetheprospectivityinouracreageintheNorthKuteiarea,offshoreIndonesia.Thewellhasopenedanexcitingnewoil&gasplaylocatedoffshoreEastKalimantan,closetotheBontangLNGplant,anareawithastrongmarketforgas.WearethereforepleasedtohavehadanindependentthirdpartyCompetentPersonsReport(CPR)reportcommissionedandrecentlycompleted,analysingthepotentialofouracreage.ThisCPRreporthighlightsthepotentialforover676MMboeofgrossmeanprospectiveoilandgasresourcesinthetopfourhigh-gradedprospectsinouracreage.Wearecontinuingourtechnicalworkonouroperatedblocksandlookforwardtotestingtheprospectivityofthisnewplayarea.

Onthefinancialfront,theincreaseinaveragerealisationsdroverevenuetorecordlevelsof$408.0million(2010:$323.4million)andwearepleasedtoreportarecordpost-taxoperatingcashflowof$193.9million(2010:$106.5million)andrecordprofitbeforetaxof$112.6million(2010:lossof$113.7million).TheGroupreportedayear-endcashandcashequivalentsposition,includingrestrictedbankdeposits,of$85.8million(2010:$99.2million).

Corporate responsibility

TheGrouprecognises,andtakesseriously,theneedforittobearesponsiblecorporatecitizen.TheChiefExecutiveoverseestheimplementationoftheGroupspoliciesinthisareafromAnti-BriberyandCorruption(ABC)throughtoHealthandSafety,community

engagementandemploymentpractices.Afocusareain2011wastheimplementationofanewcodeofconductreflectingthenewABClegislationandtheroll-outofacomprehensivetrainingprogrammetoeducateallemployeesontheirresponsibilitiesinthisarea.TheGrouphasalsoembarkedonareviewofitsinternalpoliciesandreportingstructurewithregardstocorporateresponsibilitymattersinordertoenhanceitsperformanceinthisareaandthiswillbeconcludedin2012.MoredetailscanbefoundintheCorporateResponsibilitysectionofthisreport.

Westrengthenedtheseniormanagementteamduring2011,creatingthenewpositionsofGroupTechnicalDirectorandExplorationManager,Indonesia,reinforcingourpositionashavingoneoftheleadingandmostcapableoperatingteamsintheregion.WewerealsodelightedtowelcomeDrJonathanCopusasChiefFinancialOfficer;theBoardhasbeenimpressedbythecontributionhehasalreadymadeinhisshorttimewithus.SincetheperiodendwehavefurtherstrengthenedtheBoardwiththeappointmentofDrCarolBellasaNon-executiveDirector.Wewouldalsoliketothankallourstafffortheircontinueddedication,professionalattitudeandenthusiasm.

Outlook

Followingthestrategicrationalisationin2011andthematerialgrowthintheGroupsreservebase,the2012drillingprogrammewillseeSalamanderdirectingitsresourcestooperatinginitscorefocusareaswhereithasdiscoveries,islookingtoprogressfielddevelopmentsandconductlowriskstepoutexploration.Wethereforealreadyhaveadetailedunderstandingofthehydrocarbonsystemsinourcorebasinsandthisisreflectedintherelativelylowrisknatureoftheprogramme.Asaresult,weareincreasinglyconfidentthatwecancapturematerialvaluethroughthedrill-bit.Meanwhile,thecorebusinesscontinuestogrowwithproductionexpectedtorisetoover20,000boepdin2014.

Withamorefocusedapproach,theGroupwillseektoaccelerateitsplansacrossitscoreareas.TheBoardbelievesthatSalamanderhasneverbeenbetterpositionedtocreateandcapturevalueforshareholdersandwelookforwardtotheyearaheadwithakeensenseofanticipation.

Charles Jamieson James Menzies Chairman ChiefExecutive

23March2012 23March2012


Key performance indicators

KPI

Working interest production

Finding, development and acquisition cost per barrel (3yearaverage)

Operating costs

Operating cash flow

Reserves replacement (3yearaverage)

Lost time injury frequency (permillionmanhours)

2011: 18,600 boepd 2010:20,300boepd2011: $20.22 per boe 2010:$24.29perboe2011: $15.46 per boe 2010:$15.11perboe2011: $52.51 per boe 2010:$29.63perboe

2011: 140% 2010:279%

2011: 0.85 2010:0.4

Comment

Loweryear-on-yearproductionfollowingthesaleofinterestsintheONWJandSESPSCsduring2H2011

Representsanallincostofthereservesbase.2011sawtheadditionoflowcostreservesfromtheKerendanfieldandreflectsreservesupgradesandexplorationsuccessontheBualuangfield/EastTerrace

Opexperbblwasbroadlyinlinewith2010

Operatingcashflowperbblgrewstronglyasaresultofincreasinggasrealisations,higheroilpricesandanincreaseintheproportionofoilintheproductionmix

TheGroupmateriallyincreasedreservesduring2011

ThreeLTIswerereportedin2011.TheLTIFRisinlinewiththeOGPaverage

Outlook

Productionin2012isexpectedtoaverage12,00013,000boepd.Productionisforecasttorisetoover20,000boepdin2014

TheGroupislookingtoaddreservesclosetoinfrastructurethroughdevelopment/explorationactivityinanumberofcoreareasOpexperbblisexpectedtostaybroadlyflatin2012beforefallingin2013asproductionfromBualuangrises

ThedisposalofthelowmarginONWJ/SESproductionshouldalsoimprovecashflowonaunitbasis

SuccessfuldevelopmentdrillingontheKerendanfieldcouldleadtocommercialisingfurthergasresourceandfurtherreservebookings

TheGrouptargetszeroLTIseveryyearandhasanactiveHSEplantohelptrytoachievethis


Operational review heGrouphadabusyyearoperationallyin2011completingover3.5millionmanhoursworkedonoperatedprojects,participating

inthedrillingof14wellsandshooting3,000kmof2Dseismicdataand2,700sqkmof3Dseismicdata.28.3MMboeof2PreserveswereaddedthroughthecommercialisationofgasfromtheKerendanfield,thediscoveryofoilintheBualuangEastTerraceprospectandupwardrevisionofreservesintheBualuangmainfield.Inaddition,thedisposalofthelowmarginONWJandSESPSCsreleasedcapitalforinvestmentintheGroupsthreecoreareas,namelyGreaterBualuang,GreaterKerendanandtheNorthKutei.

Productionfortheyearaveraged18,600boepdandin2012itisexpectedtoaveragebetween12,000and13,000boepd.ThereductionisprincipallyaresultofthesaleoftheONWJandSESPSCs.GrowthisexpectedinthecomingyearsthroughincreasedvolumesfromtheBualuangfieldandcommencementofproductionfromtheKerendanandSouthSembakungdevelopmentswhichareexpectedtodriveaveragedailyproductiontoover20,000boepdin2014.

Operationally,aswellasfocusingondeliveringandmaintainingproduction,theGroupdevelopeditsplansfortheactivitiesinitscoreareasin2012.IntheGreaterBualuangareainThailand,theconstructionoftheBualuangBravoplatformbeganinmid-2011anditisscheduledforinstallationin3Q2012.TheBravoplatformwillprovide16productionwellslotsandwillallowthefullfielddevelopmentoftheBualuangmainreservoirandtheEastTerracediscoverytoproceedandsoincreaseproductionfrom2013onwards.

IntheNorthKuteiinIndonesia,theGroupacquired,processedandinterpreteda3DseismicsurveyoverpartoftheSESangattalicenceandhasmappedanumberoflargeoilandgasprospects.ItalsocompletedadetailedtechnicalreviewoftheacreageincorporatingdatafromtheAngklung-1wellthathasfurtherimprovedtheunderstandingofthehydrocarbonsysteminthispartofthebasin.Thishasformedthebasisofplanningforanextensivedrillingcampaignstartingin2012thathastransformationalpotentialforSalamanderwiththeinitialfourprospectstargetingagross676MMboeofmeanprospectiveresource.

TThe prospect density seen inB8/38 and anticipated in G4/50 will provide numerous drillable targets with high value potential and low well costs.

Mike BuckChiefOperatingOfficer


Finally,intheKerendanfield,theGroupfinisheditsre-evaluationofthepreviousoperatorsworkprogramme,completedrequisiteupgradestotherigandobtainedtheoutstandingenvironmentalpermits.ThiswillenabletheGrouptoexecuteanexplorationanddevelopmentdrillingcampaignin2012thatwillfulfiltherequirementsofthesignedKerendangassalesagreementandtargetadditionalmaterialreservesinsatelliteprospectswhichhavelowriskcharacteristics.HSE

Thenumberofman-hoursworkedonoperatedprojectsincreasedby40percentcomparedto2010.TheBoardplacesahighemphasisonmaintaininghighstandardsofHSEperformancethroughoutitsoperationsandwiththecurrentandforecastincreaseinoperatedman-hours,theBoardinstructedtheHSEadvisertoconductareviewoflosttimeinjuriesandHSEculturewithintheCompany.ThereviewconcludedthattheGroupsHSEmanagementsystem,andtheHSEcultureevidentattheoperatingsites,iswelldevelopedcomparedtootheroperatorsintheregion.SincethecompletionofthereportHSEperformancehasbeenexcellentwithnorecordableincidentssinceSeptember2011.Reserves and resources

TheGroupentered2011with66.3MMboeof2Preserves.DuringtheyeartheGroupaddedreservesduetoanupgradeattheBualuangfield,thepartialinclusionoftheBualuangEastTerracediscovery,andthefirstreservebookingsagainsttheKerendanfield.SetagainstthiswasthedisposaloftheGroupsinterestintheONWJandSESPSCsplustheproductionof6.6MMboenettoSalamander.Asaresultofthesemovementsasat31December2011theGroups2Preserveswere75.3MMboe,a13.6%increaseonthepreviousyearandayearonyearreservesreplacementratioof235%.

Thailand

Greater Bualuang TheGroupsactivitiesduring2011intheGreaterBualuangareaincluded:anexplorationsuccesswiththeBualuangEastTerraceoildiscovery;anappraisalofthedeeperT2reservoirconfirmingitscommercialpotential;furtherdevelopmentdrillingontheBualuangfield;startofconstructionoftheBualuangBravoplatform;andtheentrythroughfarm-intotheG4/50acreagesurroundingtheGroupsexistingB8/38block.AtyearendtheGroupalsobookedadditional8MMboof2PreservesontheBualuangfield,bothasaresultofincreasedrecoveryfactoronthemainfieldandtheincorporationofreservesfoundintheEastTerrace.

B8/38 (100%, Operator)ProductionfromtheBualuangfieldaveraged7,800bopdduringtheyearunderreview.FollowingadelayinthearrivaloftheOceanSovereignjack-uprig,duetotherigownerhavingtoresolveadministrativeissuesandthensomedamagetotherigduringjackingupoperations,Phase5ofBualuangdevelopmentdrillingwassuccessfullycompletedinSeptember.Thisprogrammecompriseddrillingofthreenewhorizontalwells,theside-trackingoftwoexistingproductionwellsandthework-overofonewaterdisposalwell.Thedelayduetotheproblemswiththerigresultedintotalproductionfromthefieldbeinglowerthanhadbeenanticipatedatthestartof2011buttheperformanceofthewellsoncedrilledwasinlinewiththepre-drillexpectations.

Tofacilitatefutureproductiongrowth,theGrouphassanctionedtheBravowellheadplatform.ThissixteenslotplatformwillbebridgelinkedtotheBualuangAlphaplatform,andisscheduledforinstallationduring3Q2012.TheplatformisbeingbuiltbyThaiNipponSteelandiscurrentlyprogressingonschedule.Thereisasmalldevelopmentdrillingprogrammeplannedfor1H2012usingtheEnsco-53rig,butthemajorityofdevelopmentdrillingin2012willtakeplaceinthesecondhalf,oncetheBravoplatformhasbeeninstalled.ThiswillseetendevelopmentwellsdrilledonthemainBualuangfieldwhichwillfacilitateproductiongrowthin2013.TheGrouphassigneda12monthextendablecontractforthenewbuildAtwoodMakojack-uprigwillmobilisein3Q2012.AveragedailyproductionfromBualuangin2012isexpectedtobeapproximately8,500bopd.

Operational review continued


Reserves and resources continued

Thailand continued

Inthemiddleof2011,theGroupmadetheBualuangEastTerraceoildiscoverythathasresultedintheadditionof8MMbototheGroups2Preserves.TheEastTerracewillbebroughtonstreamwithsixwellsdrilledfromtheBravoPlatformin1H2013.

TheEnsco-53Jack-Uprigiscurrentlymobilisingtolocation.DuetoitsdelayedarrivaltheGrouphaselectedtoswitchtheorderofthedrillingprogrammeandcommencewiththedrillingofthetwoplanneddevelopmentwells.Thiswillenableittoincreaseproductionandtakeadvantageofcurrenthighoilprices.ExplorationdrillingwillfollowthecompletionofthetwodevelopmentwellswiththeBualuangNWTerraceandBualuangFarEastexplorationwellsexpectedtobecompletedbyearlyJune.

G4/50 (100%1, Operator)During2H2011theGroupacquireda100%interestintheG4/50blockintheGulfofThailand.G4/50isaverylargeblock(5,800sqkm)surroundingtheGroupsB8/38licenceandwasthegoldenblockofthelastexplorationlicensingroundinThailand,receivingmorebidsthananyotherblock.TheproximitytotheB8/38licencemeanstheGrouphasadetailedunderstandingofthegeologyoftheblockandthehydrocarbonsystemthatitcontains.Theblockconsistsoffivesub-basins,twoofwhicharecoveredby2,500sqkmofexisting3Dseismic.InFebruary2012,theGroupconcludedtheacquisitionofa3,000sqkm3Dseismicsurveyovertwooftheothersub-basins.TheGroupsinterpretationoftheexisting2Dand3Ddatasetsshowsalargenumberofleadswhich,whencombinedwiththenew3D,areexpectedtogeneratemultipleprospectsmaturefordrilling.Thesewillbetargetedforexplorationdrillingfrom2H2012onwardsusingtheAtwoodMakojack-uprig.

Therearefinancialandoperationalsynergiesfromoperatingacrossalargerswatheofacreage.Fromafinancialperspective,theGroupisabletooffset50%ofitsexplorationcostsagainstincometaxincurredonproductionfromtheBualuangfield.TheprospectdensityseeninB8/38andanticipatedinG4/50willprovidenumerousdrillabletargetswithhighvaluepotentialandlowwellcosts.

Other assets

TheSinphuhormgasfield(9.5%)inThailandremainsareliableproductionassetandaveragedailyproductionin2011was83MMscfdwithaverage

realisationsof8.96perMcf.ProductionwasimpactedslightlyattheyearendasdisruptioncausedbytheextensivefloodinginThailandpromptedafallinelectricitydemand.During2012,productionisexpectedtoaverage92MMscfdasdemandreturnstonormallevels.

TheGroupdrilledtheDaoRuang-2appraisalwell(50%,operator)in1H2011ontheeasternflankofthelargeDaoRuangstructure.Despiteencounteringgasshows,ontestthewellfailedtoflowatasustainedcommercialrate.TheDaoRuang-3appraisalwellwasalsodrilledtargetingthenorthernflankofthestructure.Thisalsoencounteredgasshows,butthewelldataindicatedthatthewellwouldhavelimitedpotentialasaproducerandsoitwasnottested.Afterextensivepostwellevaluationswerecompletedthetwowellswerepluggedandabandonedassub-commercialgasdiscoveries.

PosttheperiodendtheGroupcompletedthesuccessfulappraisaloftheDongMundiscoveryinBlockL27/43(27%)withtheDongMun-3sidetrack(DM-3ST).Thewellflowtestedatarateof15MMscfdandhasbeensuspendedasafutureproducer.TheOperatorisnowpreparingtofileforcommerciality.

1 Moecoretainsa50%backinright

Indonesia

Greater Kerendan TheGroupaddedtoitsoperatedpositionintheBangkanaiPSC,oneofitsthreecoreareasofactivity,during2011byacquiringafurther11%oftheequitytotakeitsworkinginterestto80%.TheBangkanaiPSCisanchoredaroundtheKerendangasfielddevelopment.TheGroupsignedaGasSalesandPurchaseAgreementduring1H2011forthesupplyofupto20MMscfdofgasatapriceof$4.79perMMbtu.Thiscommercialised120BcfofgaswhichwillbesenttoanewbuildPLNoperatedpowerplant3kmfromthefield.AsaresultofsigningtheGSAtheGrouphasbooked19.0MMboeof2PreservesagainsttheKerendanfieldatyearend2011.Thereisafurther160BcfofcontingentresourcecertifiedontheKerendanfieldwhichtheGroupwillseektocommercialiseoncompletionoffurtherdevelopmentdrillingin2012.ThePLNoperatedpowerplantisbeingbuilttoreceiveoverthreetimesthevolumescurrentlycontractedsotherewillbeareadymarkettocommercialisefurtherresources.ThePLNpowerplantwillbeconnectedbytransmissionlinescurrentlyunderconstructiontothemainKalimantanelectricitygrid.



Indonesiacontinued

TheDrillCo-1rigbeganmobilisationinMarch2012andisexpectedtobefullyriggeduponlocationandspuddinginJune.ItwillcompleteadevelopmentdrillingprogrammeontheKerendanfieldconsistingofthreewells.Meanwhile,thegasprocessingfacilitieshavereceivedIndonesiangovernmentapprovalandwillbeconstructedandreadytodeliverfirstgasbytheendof2013.

InadditiontothemainKerendanfield,theBangkanaiPSCcontainsanumberofexplorationleadsandprospects,oneofwhich,theWestKerendanprospect,isscheduledtobedrilledduring4Q2012.WestKerendanispartofthesamereefalbuild-upthatreservoirstheKerendanfieldandisestimatedtocontain335BcfofmeanpotentialresourceintheOligoceneBeraicarbonatehorizon,theproductivezoneoftheKerendanfield.BeneaththeBeraiobjectiveinWestKerendanthereisadeeperEoceneclastictargetinalargefourwaydipclosedstructurecalledSungaiLahei.TheWestKerendanexplorationwellwillbedeepenedtoinvestigatethepotentialofSungaiLahei,whichisestimatedtohavemeanresourcepotentialof580Bcf.TheSungaiLaheistructurewaspenetratedbyUnocalsKerendan-2wellinthe1980sandalthoughnottestedthewelllogsrevealthatthereisgaspayinearlyOligocenesandsclosetoTD.WestKerendan-1willdrillthesamestructureup-dipfromKerendan-2andisdesignedtopenetrateseveralhundredmetresofEocenesection.

WhilstthereisscopetosendincreasedvolumesofgastothenearbyPLNpowerplant,iftheexplorationpotentialintheBangkanaiPSCisrealiseditwillbefeasibletobuildapipeline220kmtoBalikpapantotieintotheEastKalimantanpipelineinfrastructurewheretherearemultiplecommercialisationoptionsatahigherpricethanthosethatcanberealisedfromlocalpowergeneration.

TheGrouphasalsoenteredintoJointStudyAgreementsfortheNorthEastBangkanaiandWestBangkanaiareasthatprovideitwithanopportunitytoexpanditsacreagepositioninthebasin.

North Kutei

During2011theGrouphasbeencompletingitstechnicalreviewofitsNorthKuteiacreageinlightoftheplay-openingAngklung-1explorationsuccessattheendof2010andincorporatingthenewlyacquired3DseismicovertheSESangattalicence.TheNorthKuteiisoneoftheGroupsthreecoreareas,withpotentialmeanrecoverableresourcesofc.3Tcfofgasand400millionbarrelsofoil.

WiththeAngklung-1wellhavingtestedhighgasflowratesfromverygoodqualityPliocenechannelsandsprovidingpositivecalibrationforthe3Dseismic,theGroupisconfidentthatthenumerousamplitudeanomaliesapparentontheseismicdataintheBontangandSESangattaPSCsequatetogas-bearingPliocenesandstones.Theseareslopechannelfeatureswithstackedreservoirpotential,providingmultipleobjectivesforeachexplorationwell.

ThereisalsoevidenceoffurtherupsideintheformofanoilandgasplayinthedeeperMiocenesandstones.TheAngklung-1wellintersected125metresofoilsaturatedMiocenesandsbutthesesandswerepoorlydevelopedastheylieoutsidethemainchannelcomplexesandsohaverelativelypoorqualityreservoirintheAngklungwell.However,thenewseismichasallowedamuchbetterimagingoftheMiocenesectionandthetrapsmapped,alongwiththeevidenceforactiveoilseepsacrossthebasin(includingaseepthatappearstobecomingfromtheboundingfaultofthegiantKendangstructureontheSESangattalicence)highlightthepotentialoftheMioceneplayinthisunder-exploredpartofthebasin.

Tobeginunlockingvalue,theGroupwouldliketocommittoacontractforariganddrilluptoeightwellsacrossthebasininordertoproveupresources.ThefirsttargetsarelikelytobeKecapi,Bedug,KendangNorthandKendangSouth.TheGrouphasidentifiedapproximately20prospectsandleadsthatwouldprovidefollowonpotential.ThisrepresentsanattractiveexplorationopportunitywithatangibleroutetocommercialisationandtheGrouphasbeenindiscussionswithselectedpotentialpartnersconcerningafarm-outofitspositioninitstwooperatedPSCs.Aspartofthatprocess,theGrouphashadanindependentassessmentoftheresourcepotentialintheNorthKuteicompletedbyISISPetroleumConsultants.ISISprovidesthefollowingresourceestimatesfortheinitialprospects:



Intheeventoffurtherdrillingsuccess,therearemultiplecommercialisationoptionsforgasinthearea.TheBontangLNGplantislessthan100kmfromtheGroupsNorthKuteiprospectsandprovidesaveryattractivecommercialisationpossibilitywithrecentexportcargoesrealising$17/Mcf.Theplantcurrentlyhastwoofitseighttrainsidleandis1Bcfperdayshortoffeedstock.InadditiontotheLNGpotential,eitherforexportorforusedomesticallyinIndonesia,localindustrialandpowergenerationpotentialexistsinEastKalimantanandcouldbeexpectedtorealiseinexcessof$7/Mcf.

AlsoontheBontangPSC,theGroupiscurrentlydrillingtheTutungAlpha-3appraisalwellonitsTutunggascondensatediscovery.TheMBCenturyRig28isexpectedtocompletethedrillingduringthesecondquarterof2012.MarketresearchrevealsalatentdemandforgasinthisareaofEastKalimantanandsoeventhepotentiallymodestreservesatTutungcouldbedevelopedunderattractivecommercialarrangements.

Other assets

TheKambunagasandcondensatefield(50%,operator)inIndonesiaaveraged9,600boepdduring2011.Thiscomprised34MMscfdofgasand2,400bcpd.Thefieldhasnowstartedtoenterthenaturaldeclinephase.Compressionfacilitieswereinstalledin1Q2012thatwillallowtheproductiontocontinueandsoextendthelifeofthefield.ItisexpectedthatproductionfromtheKambunafieldwillaverageapproximately4,200boepdduring2012.

TheGroupsolditsfivepercentnon-operatedinterestsintheONWJandSESPSCsin2H2011for$57.7million.Theselicencesrepresentedlowmargin,hightax,highcostbarrels,infieldsthatareinlongtermdecline.Therefore,thedecisionwastakentodivestoftheseassetsandreinvestthecapitalintotheGroupscoreareaswherethereshouldbeahigherreturnoninvestment.ProductionfromthesePSCs,averagedovertheyear,madeanetcontributionof4,600boepdtotheGroups2011production.

TheSouthSembakungfielddevelopment(21%)continuedtomakeprogresswiththreedevelopmentwellscompletedduring2011.Workhasalsobeenlargelycompletedontheprocessingfacilitiesandproductionisonscheduletocommencein2013.

IntheBengara-1PSC(41%)intheTarakanBasinofNortheastKalimantan,Indonesia,theSouthSebuku-2appraisalwellwasdrilledin4Q2011andencounteredover15metresofnetgas-bearingsandstonesintheTabulformation.Drillstemtests(DSTs)wereconductedacrossthreeofthegas-bearingzonesandflowedatanaggregaterateof10.9MMscfd.TheoperatorispreparingaPlanofDevelopmentforsubmissiontotheIndonesianregulatorwithaviewtoitbeingapprovedbeforetheendof2012.


North Kutei continued Mean Unrisked P90 Unrisked P50 Unrisked P10 Unrisked Prospective Prospective Prospective Prospective Prospect Licence HC Type Resource Resource Resource Resource

Kecapi BontangPSC Gas(Bcf) 245 119 233 389 Oil(MMbo) 3 0.1 3 6

Bedug BontangPSC Gas(Bcf) 293 124 268 491 Oil(MMbo) 15 2 12 30

SouthKendang SESangattaPSC Gas(Bcf) 1190 579 1063 1953 Oil(MMbo) 108 37 102 188

NorthKendang SESangattaPSC Gas(Bcf) 766 353 708 1239 Oil(MMbo) 134 65 125 208

Total (MMboe) 676

Total Net Salamander (MMboe) 534

Conversionfactor6Bscf/MMboeSalamanderhas100%workinginterestinBontangPSCand75%inSESangattaPSCAllprospectiveresourcefiguresaregrossunlessotherwisestated



Vietnam

InBlock101-100/04(30%,operator),offshoreNorthernVietnam,theGroupdrilledtheCatBa-1Xexplorationwell.Thewellencountered38metresofnethydrocarbonpayinTertiaryclastics,thesecondaryobjectiveofthewell.Theprimaryobjectivesectionwasdry.Thein-placeresourcevolumesencounteredbythewellwerejudgedtobebelowthelevelsneededforcommercialdevelopmentandsothewellwaspluggedandabandonedasasub-commercialoilandgasdiscovery.

Subsequentlyin2012theGroupfiledforwithdrawalfromallofitslicencesinVietnamandstartedtheprocessofclosingdownitsoperationsincountry.

Summary

TheGroupmadeconsiderableprogressingrowingitsreservebasein2011.Notonlydidreservesincreaseonanabsolutebasis,butthevalueperbarrelofthesereservesalsogrew.ThisreflectsSalamandersstrategyofrealigningtheportfoliototransfercapitaltowhereitwillgeneratethemostpotentialvalueforshareholders,specificallythroughfocusonthethreecoreareasofGreaterBualuang,GreaterKerendanandtheNorthKutei.Withthedivestmentofnon-coreproducingassetsproductionshrankyearonyear;however,growthisforecastpointforwardwithachangingproductionmix,alsoleadingtogreatercashgeneration.

TheBualuangEastTerracediscoverywasmaterial,andpartofthediscoveredresourcehasbeenaddedtotheGroups2Preserves.The2012explorationandappraisalprogrammeisfocussedonthreelowriskareaswheretheGroupissteppingoutfromexistingfieldsordiscoveries.Hencethe2012drillingprogrammehasalowerriskprofilecomparedtorecentyearsandwilltargetc.290MMboeofmeanunriskedresourcepotential.

Mike Buck ChiefOperatingOfficer

23March2012



Statement of proved and probable reserves (working interest basis)

TheGroupsprovenandprobable(2P)commercialworkinginterestreservesat31December2011wereasfollows: Thailand Indonesia Total Oil Gas Oil Gas Oil Gas MMbo Bcf MMbo Bcf MMbo Bcf MMboe1

At1Jan2011 27.6 105.0 9.0 69.0 36.6 174.0 66.3Additions 8.0 1.4 97.4 9.3 97.4 27.1Disposals (6.9) (33.5) (6.9) (33.5) (12.5)Revisions 1.8 (0.9) (0.2) (1.5) 1.7 (2.4) 1.1Production (2.8) (2.9) (1.4) (10.7) (4.2) (13.6) (6.7)

At31Dec2011 34.6 101.2 1.9 120.7 36.5 221.9 75.3

1 Allgasreservesareconvertedat6.0Bcf/MMboexceptKambuna,whichisconvertedat4.8Bcf/MMbo,andKerendan,whichisconvertedat5.5Bcf/MMbo.

2PcommercialreservesarebasedonreportsproducedbytheGroupsindependentengineer,RPSEnergy,andsupplementedbytheGroupwherenecessarywithadditionalandmorerecentinformation.

TheGroupprovidesforamortisationonitsoilandgaspropertiesonanetentitlementsbasis,whichreflectstheshareoffutureproductionestimatedtobeattributabletotheGroupunderthetermsofthePSCsrelatedtoeachfield.Totalprovedandprobableentitlementreserveswere66.0MMboeat31December2011(31December2010:54.0MMboe).

The2011reservesreplacementratiowas235%(2010:121%).


Financial review

Units 2011 2010 2009 2008

Realisedprices: Oilandliquids $/bbl 104.45 73.16 51.37 60.52 Gas $/mscf 5.47 5.12 4.03 4.99Revenue $millions 408.0 323.4 157.1 100.8Operatingcostsperboe $/boe 15.46 15.11 13.99 10.64Profit/(loss)beforetaxation $millions 112.6 (113.7) (3.0) (75.5)Lossaftertaxation $millions (45.5) (169.5) (13.5) (66.5)Capitalexpenditures: Acquisitions $millions 7.5 116.7 7.1 510.5 Explorationandappraisal $millions 84.6 73.5 34.3 112.7 Developmentandproduction $millions 99.0 24.2 79.0 91.4Netdisposalproceeds $millions 45.7 Netdebt1 $millions 210.1 190.2 119.3 45.8Gearing2 % 42 39 23 21Pre-taxoperatingcashflow3 $millions 293.6 174.4 40.4 26.8

1 Seenote21totheconsolidatedfinancialstatementsforfurtherdetails2 Gearingisdefinedasdebtdividedbydebtplusbooknetequity3 Beforemovementsinworkingcapital

orSalamander,2011wasayearcharacterisedbyportfolioreorganisationaroundtheGroupsthreecoregeographic

areasoffocus.Inparallelwiththisactivity,astrongcommoditymarketenvironmentdroveamaterialexpansionincashgeneration,whichinturnprovidesasolidplatformfromwhichtheGroupcanreinvestacrossitsproduction,developmentandexplorationoperations.

AlthoughdisposaloftheONWJandSESPSCinterestsledyearonyeartoadeclineinproduction,volumesdisposedofwerelowmargin,hightax,highcost,andproducedfromfieldsinlongtermdecline.Incontrast,withintheretainedbusiness,Salamanderenhancedvaluethroughproductionoptimisation,explorationsuccess,thebookingofnewreserves,andanagreementtonarrowfurtherthediscounttoDubaiatwhichBualuangcrudeissold.

In1H2011,Salamanderrefinanceditsdebtfacilities;acombinedSeniorandJunior$325million,seven-year,reservebasedlending(RBL)facilitywasputinplacewithagroupofeightbanks.Statement of Comprehensive Income

Revenue, realisations and production

Revenuegrewin2011to$408.0million(2010:$323.4million),71%ofwhichwasgeneratedin

FSalamander has entered into a busy2012 programme of activity across its three core areas of focus and capital will be allocated to enhance the Groups core production and development value as well as to test a range of high-impact exploration and appraisal opportunities with moderate to low geological risk.

Dr Jonathan CopusChiefFinancialOfficer


Statement of Comprehensive Income continued

Revenue, realisations and production continued

Thailand,29%inIndonesia(2010:63%and37%respectively).83%ofSalamandersrevenuewasderivedfromoil;thebalanceingas(2010:80%oil,20%gas).Therewerenosignificanthedginggains/losses.

Oilandgasrealisationsaveraged$104.45/bbland$5.47/Mcfrespectivelyacross2011(2010:$73.16/bbland$5.12/Mcf).Higheroilrealisationsin2011reflectrobustcommoditymarkets,butalsothecontinuednarrowingofthediscounttoDubaiatwhichSalamandersellsitsBualuangcrude(Dubailess$1.97/bblin2011;Dubailess$3.98/bblin2010).Indetail,theDubai-Brentspreadwidenedin2011(4.5%averagediscountin2011,versus1.8%in2010);however,bothcrudescurrentlytradeatapproximatepar.Againstthatbackdrop,at1January2012,SalamandersBualuangsalesdiscountclosedfurther,theGrouphavingagreedwithPTTa$1.10/bblDubaidiscountuntil31December2013.

Forgas,highercrudeoilpricesenhancedthedemand-ledupwardtrendofThaiandIndonesiandomesticgasprices,buttheyear-on-yearrateofgrowthinSalamandersaveragegasrealisationslowedversus2010(7%2011versus27%2010).Atthefieldlevel,2011Kambunarealisationsaveraged$5.04/Mcf(2010:$4.51/Mcf);Sinphuhormrealisations(indexedtohighsulphurfueloil)averaged$8.96/Mcf(2010:$7.07/Mcf).

Underpinningrevenue,Groupproductionaveraged18,600boepdacross2011.Volumesfell8%versus2010(20,300boepd)principallyduetoSalamandersdecisioninthefourthquartertosellitslowmarginOffshoreNorthWestJavaandSouthEastSumatraproductionoperations.Adjustingforthesedisposals,underlyingoutputwasbroadlyflatyearonyear,productionfromtheBualuangfieldbeingtemperedbydelaystoPhase5developmentdrillingduetothelatearrivaloftheOceanSovereignjack-uprig.

Cost of sales

Costofsalesequalled$205.5millionin2011;thiswasmateriallybelowthe$320.8milliontotalreportedfor2010.Breakingthisdown,directoperatingcoststotalled$104.9million;broadlyflaton2010($102.5million).AgainstlowerGroupproduction,unitopexroseto$15.46/boe(2010:$15.11/boe).Beyonddirectoperatingcosts,year-on-yearcomparisonsareobscuredbyanumberofnon-cashadjustmentsin2010.

In2011,followingreserveupgradesonBualuang,amortisationdeclinedto$109.0million($16.07/boe).The2010resultsalsoincludedanimpairmentchargeof$48.6million,forwhichthereisnoequivalentinthecurrentyear.

Alsowithincostofsales,between2010and2011,Salamanderreportedafavourable$47.5millionswinginoilinventories(2011:$34.8millionnegativeversus2010:$12.7millionpositive).UnderlyingtheGroups2011positionwasacargoofproducedoil,heldwithintheBualuangFPSOatyearend,butnotsolduntilJanuary2012.

Nettingrevenuewithcostofsales,grossprofitin2011totalled$202.5million(2010:$2.6million.

Exploration expenses

Salamanderstotalexplorationexpensesfellin2011to$57.8million(2010:$95.9million).Withinthisfigure,costswrittenoffinclude:historicKambunaexplorationactivity(Indonesia);DaoRuang-2and-3(NorthEastThailand);CatBa(Vietnam);andpre-licenceexplorationexpenses.

Profit on disposal of assets

Duringtheyear,theGroupdisposedofitsOffshoreNorthWestJavaandSouthEastSumatraassetsinIndonesia,bookingaprofitondisposalof$6.8million.

Administrative expenses

Administrativeexpensesrosein2011to$14.6million(2010:$12.7million),thislargelyreflectingtheGroupgearingupforincreasedfuturedrillingactivity.

Finance revenue and expense

InMay2011,Salamandercompletedtherefinanceofitsdebtfacilities;a$325millioncombinedseniorandjuniorsevenyear,ReserveBasedLending(RBL)facilitybeingputinplacewithagroupofeightbanks.Followingthisactivity,financecostsrosein2011to$22.2million(2010:$15.5million),primarilyduetothewriteoffofunamortisedfeesof$5.5millioninrespectofthepreviousRBLfacilities.

ItistheGroupspolicytoundertakelimitedoilpricehedgingtoprotectthecashflowsfundingitsfuturecapitalexpenditureprogrammes.Inrespectof2011,theGroupenteredintoanoilpricehedgingprogrammeof4,000bpdforputoptionswithastrikepriceof$60/bbl,andinrespectto2012,theGroupenteredintoanoilpricehedgingprogrammeof1,800bpdatanaverageswappriceof$103/bbland1,800bpdputoptionsatastrikepriceof$70/bbl.Other


2011smostnotableexplorationsuccesswastheEastTerracediscovery(B8/38,WesternGulfofThailand),whereaninitial8.0millionbarrelsofthefieldsestimated12millionbarrelsofcommerciallyrecoverableoilresourceswereindependentlycertifiedas2Preservesatend2011.

In2012,Salamanderisscheduledtodrilluptonineexplorationandappraisalwells;activityintheGulfofThailandandEastKalimantanwilltestfollow-upprospectivitythatSalamanderconsiderstohavebeensignificantlyde-riskedbysuccessesontheBualuangEastTerraceandAngklung.

Cash and net debt

Atend-2011,Salamanderstotalgrossdebtequalled$295.8million(end-2010:$289.5million).Ofthisfigure,bankborrowingstotalled$195.8million(principallya$325million,sevenyear,reservesbasedlendingfacility,refinancedinMay2011)(2010:$189.5million)withtheremainderbeinga$100millionconvertiblebond(issuedMarch2010).

Againstthiswerecashandfundsof$85.8million,$25.4millionofwhichlayinrestrictedbankdeposits(end-2010:$99.2million,ofwhich$9.4millionwasrestricted).Withinthe2011restrictedfigurewasa$21.4millionbankguaranteerelatingtothepre-fundingofthe3DseismicsurveyontheG4/50licence(WesternGulfofThailand).ThisactivitywascompletedinlateFebruary2012,withthereleaseoffundsbacktoSalamanderduring1H2012.

Takentogether,Salamandersend-2011totalnetdebtequalled$210.1million(2010:$190.2million),theGroupsgearingrisingto42%(end2010:39%).Cash flow statement

Operating cash flow

Turningtocashflow,in2011,beforetaxationandmovementsinworkingcapital,Salamandergeneratedcashfromoperationsof$293.6million,a68.3%riseover2010(2010:$174.4million).Underlyingthissharpyear-on-yearriseisSalamandersSeptember2010acquisitionofanadditional40%oftheBualuangoilfield,Salamandersinterestrisingto100%.

Salamanders2011full-yearcashtaxationpaymentstotalled$102.1million(2010:$18.7million).ThiswasdrivenbyBualuangsfirstfullyearofSpecialRemuneratoryBenefitpayments,whichyearonyeararecalculatedagainstSalamandersexpandedBualuangworkinginterest.In2011SRBpaymentstotalled$65.2million(2010:$36.3million).

Statement of Comprehensive Income continued

Finance revenue and expense continued

financiallossestotalled$2.1million(2010:$7.4milliongain);thisispredominantlyattributabletothemark-to-marketaccountingoftheGroupshedging(seenote25).

In2011,Salamanderreportedapre-taxprofitof$112.6million(2010:lossof$113.7million).

Taxation

ArisingpredominantlyfromincreasedBualuangrevenues,totalcurrenttaxationchargesroseto$121.4million(2010:$71.6million).Inaddition,deferredtaxationchargesamountedto$36.7million(2010:netcreditof$15.7million).AreconciliationoftheGroupstaxchargetoprofitbeforetaxissetoutinnote10totheFinancialStatements.Lookingforward,asSalamanderexpandsitslevelsofexplorationandappraisalactivityoverboththeB8/38andG4/50licences,theGroupwilllooktooptimiseanyfiscalsynergiesagainstBualuangproduction.

Salamandersnetlossfor2011totalled$45.5million;equivalentto29pencelosspershare(2010:$169.5million;110pencelosspershare).

Balance Sheet

Capital expenditure

Although2011wasalowerprofileyearforexplorationnewsflow,absolutelevelsofactivitywerenotthatdissimilar,theGroupdrillingfiveexplorationandappraisalwellsin2011versussixin2010.

Capitalexpendituresin2011totalled$191.1millioncomparedto$214.4million.2011includedtheacquisitionofafurther11%oftheGreaterKerendanasset,Bangkanai,atacostof$7.5million,whereas2010includedtheacquisitionoftheremaining40%oftheGulfofThailandasset,Bualuang,atacostof$107.5million,andtheinitial69%acquisitionofBangkanaiasacostof$9.2million.Inaddition,capitalexpenditureinThailandamountedto$93.3million(2010:$3.1million)andIndonesiaof$87.0million(2010:$95.6million).

Financial review continued


Cash flow statement continued

Operating cash flow continued

Postmovementsinworkingcapitalandtaxation,netcashgeneratedfromoperatingactivitiesequalled$193.9million,an82.1%riseover2010(2010:$106.5million).Expressedonaunitbasis,netcashfromoperatingactivitiesexpandedto$34.69/entitlementboein2011(2010:$17.99/boe).Atconstantcommodityprices,thistrendofimprovementshouldcontinuepostthedisposaloflowmarginproductioninOffshoreNorthwestJavaandSouthEastSumatra.

Investing cash flow

Netcashusedininvestingactivitiesroseto$203.3million(2010:$159.0million).Headline2011developmentoutflowstotalled$108.2million(2010:$117.4million),theinvestmentbroadlydistributedbetween:Thailand$51.8million(2010:$97.1million)andIndonesia$52.4million(2010:$20.0million).

TheGroupsolditsIndonesiaONWJandSESassetsduring2011,withaneffectivedateof30June2011,for$55.0million,plus/minusworkingcapitalmovements.Netproceedsfromthedisposalsin2011totalled$45.7million,afteradjustingforcashmovementsbetweentheeffectivedateandclosingdateofthetransaction.ThisprincipallyrelatedtothesaleofSalamanders5%non-operatedinterestsintheOffshoreNorthwestJavaandSoutheastSumatraPSCs.

2011explorationoutflowstotalled$123.3million(2010:$48.2million).Thisamountincludes$30.4millionofAngklungwellcosts(successfullydrilledin4Q2010,withsomecostspaidin2011).BeyondAngklung,Salamanders2011explorationexpenditurewasdistributed:Thailand$38.8million(2010:$6.3million),Indonesia$30.4million(2010:$45.2million),Vietnam$15.6million(2010:creditof$3.3millionfromfarm-outproceeds)andLaoPDR$3.8million(2010:nil).In2010asubstantialportionoftheGroupsexplorationcostswerecarriedbythirdparties.

Financing cash flow

Netcashusedinfinancingactivitiesroseto$19.5million(2010:inflowof$95.1million);however,theyear-on-yearevolutionreflectsveryspecificfinancingactivities:higherinterestcostsof$13.9millionin2011(2010:$9.4million)relatedtotherefinancingoftheGroupsReserveBasedlending

facilityandSalamanderreceivingcashinflowsof$97.3millionduring2010inrespectofissuanceofaconvertiblebond.

Across2011,Salamandersoperationsledtoa$28.9millionoutflowofcash,whichcomparestoa$42.7millioncashinflowin2010.

Financial outlook

Salamanderhasenteredintoabusy2012programmeofactivityacrossitsthreecoreareasoffocusandcapitalwillbeallocatedtoenhancetheGroupscoreproductionanddevelopmentvalueaswellastotestarangeofhigh-impactexplorationandappraisalopportunitieswithmoderatetolowgeologicalrisk.

Reflectingthe2H2011disposaloftheproducingONWJandSESassetsinIndonesia,managementreiterates2012productionguidanceintherange12,000to13,000boepd.Thisraterepresentsadropinyear-on-yearproductionfollowingdisposals;however,theforecastcashflowimpactislimitedduetothelowmarginnatureofthebarrelssold.Byimprovingtheunitcashmargingeneratedbyitsbasebusiness,Salamanderhasalsoincreaseditsleveragetothecurrentrobustcrudeandgaspriceenvironment,asituationthatisenhancedbythecontinuednarrowingofthediscounttoDubaiatwhichBualuangcrudeissold,andtherelativestrengtheningofDubaiversusBrent.

Havingstarted2012withcashbalancesof$85.8million,capitalexpenditureforthecurrentyearisbudgetedtototalc.$225million;thisisevenlysplitbetweenproduction&developmentandexploration&appraisalactivities.InThailand,wherethemajorityofGroupcapexistobeinvested,theGroupwilltargettaxsynergiesacrossitsenlargedGreaterBualuangposition,withbothSRBandincometaxforecasttofallin2012.Elsewhere,Salamanderremainsinfarm-outdiscussionswithregardtoitsNorthKuteiposition,andoptionsaroundnon-coreassetsalsoremainunderreview.Asalways,theGroupcontinuestoassessthephasingofitsworkprogrammesandallfundingoptionsacrossitsgrowingportfolio.

Dr Jonathan Copus ChiefFinancialOfficer

23March2012


Risk management heidentificationandmitigationofrisksareofcriticalimportancetotheGroupasitcontinuestoexpandandoperatethe

majorityofitsactivities.

EffectiveriskmanagementisessentialiftheGroupistodeliveritsstrategicandoperationalobjectiveswhilstmaintainingitsexcellentHSErecord.TheGroupsExecutiveDirectorsmonitortheGroupskeyrisksandreceiveregularreportsonfinancial,operationalandHSEperformance.TheGroupsExecutiveDirectorsthenreporttotheAuditCommitteeonasixmonthlybasis,andprovidemorefrequentupdatesonanyparticularrisksasrequired.

TheAuditCommitteeprovidesoversightwhilstultimateauthorityremainswiththeBoardofDirectors.TheGroupoperatesinternationallyandisaffectedbyawiderangeofrisks.Someoftheserisks,suchaspoliticalstabilityinthecountriesinwhichweoperate,theabilitytoattractandretainthebestemployeesandchangesinlocallawsarefacedbyallcompanies.

AsummaryofthekeyrisksfacedbytheGroup,ascurrentlyidentified,togetherwiththemeasurestakentomitigateagainsttheserisks,isprovidedoverleaf.

TEffective risk management isessential if the Group is to deliver its strategic and operational objectives whilst maintaining its excellent HSE record.


Strategic risks

Description

Aninappropriateorpoorlyexecutedstrategymayleadtoafailuretocreateshareholdervalueormeetshareholdersexpectationsforvalueaccretion

Operational risks

Description

AnissuethathasanimpactonGroupoperationsinthatitaffectsoperationaldelivery,corporatereputationand/orrevenue

Specific areas of risk

Unbalancedportfoliomix

Poorallocationofcapital

Lackofeitherorganicoracquisitionopportunities

Deterioratingmacro-economicconditions


Drillingoperations

Oil/liquidsspill

Localcommunityissue

Rigavailability

Assetperformance

Sustainedexplorationfailure

Insurablerisk

Mitigants

SEAsiaisforecastbytheIMFtoremainahighgrowthregionin2012.TheBoardmonitorsregionaleconomic,politicalandenergymarkettrendsandforecastsandtakesaccountofthesewhenreviewing/planningtheGroupsforwardstrategy

TheGroupprioritisescapitalallocationtowardsitsthreefocusareas,whichareinprovenbasinswithgrowthcharacteristics,andwheretheDirectorsbelievetechnicalrisksarelowduetothemanagementsknowledgeofthegeologyandpetroleumsystem

AllM&AactivityissubjecttoBoardapprovalandmeasuredagainstconsistentinvestmentandstrategiccriteria.Assetsareonlyacquiredwhichareexpectedtomateriallyaddvalueand/orimprovethequalityoftheassetbase

Mitigants

TheGrouphasdefinitiveoperatingprocedurestobefollowedatalltimes.Regulartrainingandmonitoringareconductedtoensuretheseproceduresarebothfollowedandunderstood

Fullcommunityengagementoccursthroughallphasesofaprojectlifecycle

TheGrouphasadiversifiedportfolioofproduction,developmentandexplorationthatreducesexposuretofailureofanyoneasset/project/well

Toensurethatallexplorationandappraisalwellsareconsistentlyanalysed,rankedandriskedarobusttechnicalpeerreviewprocessisinplacebeforeprojectsarerecommendedforBoardapproval

TheBoardhasappointedanindependentTechnicalAdvisoryCommitteetoreviewonaquarterlybasistheGroupstechnicalworkinitsthreecoreareasandreportitsfindingsbacktotheBoard

TheGroupisinsuredagainstphysicalrisktoassetsinlinewithindustrypractice.Inadditioncertainoperationalinterruptioninsurancesareputinplace


HSE risks

Description

Financial risks

Description

TheGroupisunabletomeetitsfinancialcommitmentsthrougheitherassetunderperformanceand/orfinancialconstraints

External risks

Description

Market,industryorpoliticalrisksthatmayimpactonGroupoperationsand/orcashflows


Injuredpersonnel

Accidentintheworkplace

Leaks/spillagecausingenvironmentalincident


Liquidityrisk

Oilprice

Capitalandoperatingcosts

FXexposure

Creditandcounterpartyrisk

Interestraterisk

Debtlevelsandcapitalstructure


Fiscalregime

Investorsentiment

Corporategovernance

Legal,regulatoryandlitigation

Mitigants

AcomprehensiveHSEmanagementsystemisinplaceacrosstheGroupandmonitoredatBoardlevelthroughperformancereporting.ProceduresarecompliantwiththeEquatorPrinciplesandareregularlymonitoredbytheIFC/WorldBankHSEspecialists.AllpoliciesandproceduresareavailabletoallemployeesthroughtheGroupIntranetsiteandregularlyreinforcedbyseniormanagement

Fullcommunityengagementoccursthroughallphasesofaprojectlifecycle

Spillrecoveryandcrisismanagementprotocolsinplaceanddrillscarriedouttotestproceduresandreinforcethem

Fullmonitoringofthelocalecosystem(e.g.reefs,waterqualityetc)toensurethereisnoimpactasaresultofGroupoperations

Mitigants

BudgetsaresetannuallyandtheGroupsfinancialperformanceisreportedtoandmonitoredbyseniormanagementandtheBoardonamonthlybasiswithvariancefrombudgethighlighted.Allkeyfinancialandoperatingmetricsaremeasuredandmonitoredinthismanner

TheGroupbelievesitprudenttomaintainaconservativeapproachtoleverageandactivelymanagesitsbalancesheettoensureanefficientcapitalstructure

ThediversenatureoftheGroupsassetbase,includingfixedpricegasandoilproductionunderaPSCregime,partiallyhedgeoilpricevolatility.TheGroupalsohedgesagainstoilpricefallsonoccasiontominimisedownsiderisktocashflowandthecurrentprogrammeisdetailedinthefinancialreview

Mitigants

TheGroupseekstofosterandmaintainstronglinkswithallexternalstakeholders.Regularinteractionoccurswithhostcountrygovernments,regulators,industrypartners,shareholdersandlocalcommunityrepresentatives

TheGroupsetsouttheprinciplesbywhichitoperatesintheGroupCodeofConductthatcanbefoundonthewebsite(www.salamander-energy.com).InsummarytheGroupiscommittedtocomplyingwithvariouslawsandregulationsitissubjecttoaroundtheworldaswellastheCombinedCode

TheGrouphasrolledoutaprogrammetobriefandtrainemployeesontheirresponsibilitytocomplywiththeUKBriberyAct

Appropriatelytrainedandexperiencedstaffareemployedwhocanappropriatelyidentify,assessandrespondtoexternalrisks

Risk management continued


Corporate responsibility

Our approach

Weaimtobeaworldclassoilandgasbusiness,andwerecognisethatourapproachtoCorporateResponsibility(CR)isanimportantaspectofthisoverallgoal.OurmainareasofCRimpactandopportunitycompriseenvironmentalmatters,healthandsafetyissues,ouremployees,ourlocalcommunitiesandourapproachtobusinessconduct.Theachievementofouroverallbusinessaimisclearlylinkedtoourabilitytomanagealloftheseareaseffectively.

Weappreciate,andtakeseriously,ourresponsibilitiestoconductouroperationssafelyandinfullco-operationwiththecommunitiesinwhichweoperate.

Weensurethatthehealthandsafetyofouremployeesisprotected;thatourimpactontheenvironmentisminimised;andthatwecanbesensitivetotheneedsof,andprovidelongtermsustainablebenefitsfor,thecommunitiesinwhichweoperate.Weconductallofourbusinessinafairmannerandcomplyfullywiththerelevantlegal,regulatoryandinternationalaccordrequirementswhichapplytoourbusinesses.TheseincludetheUKBriberyAct,theInternationalLabourOrganisationDeclarationonFundamentalPrinciplesandRightsatWork,theUNUniversalDeclarationonHumanRights,theOECDGuidelinesforMultinationalEnterprises,theInternationalFinanceCorporationEnvironmentalandSocialPerformanceStandardsandtheEquatorPrinciples.TheGroupbenchmarksitsHSEperformanceagainsttheOilandGasProducers(OGP)average.

TheGroupCRSteeringCommitteecontinuallyreviewsitsapproachtothisimportantareaandseekstoenhanceourproceduresaccordingly.

Performance highlights

CO2andgreenhousegas(GHG)emissionseffectivelymaintainedat2010ratedespiteincreaseinactivity

Flaringandventingreducedby69%throughimprovedprocess;wellbelowtheOGPaverage

TonnesofoiltoenvironmentperunitofproductionwellbelowtheOGPaverage

OilinproducedwaterperunitofproductionwellbelowtheOGPaverage

CompletedanindependentreviewofHSEcultureinoperationsandfoundwearebetterthanaveragewhencomparedwithotheroperatorsintheregion

CompletedGroup-wideroll-outandtrainingprogrammearoundUKBriberyAct

Management systems

Salamanderadoptsarigorous,top-downapproachtoCorporateResponsibility.During2011theGroupstrengthenedtheleadershipteamthroughtheappointmentofaGroupTechnicalDirector.Withthis,andtheappointmentofanewChiefFinancialOfficer,theorganisationalstructureoftheGroupwasupdated.TheGroupCFOisresponsibleforthelegalandfinancialfunctionswithinwhichresponsibilityfortheriskregisterlies.TheGroupCOOisresponsibleforHSE,CP&LandHRfunctionsaswellastheassetsandtheGroupTechnicalDirectorisresponsibleforthetechnicalservicesprovidedtotherestoftheGroup.AlloftheserolesreportdirectlytotheGroupChiefExecutive.

TheSeniorManagementTeammeetsquarterlytodiscussmanagementlevelissuesandHealth,SafetyandEnvironmentarealwayskeyagendaitems.TheGroupHSEAdvisorreportsdirectlytotheGroupCOOandeachofouroperatedassetshasadedicatedHSEandCSRteamtomonitoractivityandensureGroupguidelinesarebeingfollowed.AseparateCSRsteeringcommittee,chairedbytheGroupChiefExecutive,meetsbi-annuallytodiscusstheGroupsinvestmentincommunitybasedprojects.Thecommitteemonitorsprojectperformanceagainstagreedobjectives.CSRCommitteesarealsoconvenedinthecountrieswhereweoperateandreporttotheGroupSteeringCommittee.


Management systems continued

TheGroupcompletesastakeholdermappingexerciseonenteringanewlicence.Theresultsofthisareusedbyourlocalcommunitydevelopmentofficerstodeterminewithwhomtoengage.Theengagementprogrammewilltypicallyincludelocalrecruitment,communicationoftheGroupsplannedactivity,meetinglocalofficialsandconductingtownhallstylemeetings.Thisprocesshelpstoidentifycommunitydevelopmentprojectsthatmeettheneedsofstakeholders.

TheUKBriberyActbecamelawinJuly2011.ThescopeoftheActembracesalloftheGroupsactivities.TheGrouphasundertakenacomprehensiveinternaltrainingprogrammewiththeGroupCFOandGeneralCounselconductingpresentationsinallofficestoeducateemployeesastothenewlawsandtheirimplications.Furthertothiseveryemployeehascompletedanonlinetrainingprogrammedesignedtoimproveunderstandingofthepracticalimplicationsofthislaw.Particularattentionwaspaidtotheissueoffacilitationpayments,whicharespecificallyprohibitedunderthislegislation.

TheCompanymaintainswhistle-blowingprocedureswhichpermitemployeestoreportanyconcernstheymayhaveinconfidencetoourseniormanagementteam.Health and safety

Policy highlights

SalamanderEnergywilloperateinaccordancewiththefollowingprinciples.

Wewillpromoteaculturewithinthecompanyinwhichallemployeesshareacommitmenttoahealthyandsafeworkplace

Wewillcomplywithapplicablelawsandregulationsandapplyrecognisedinternationalstandardswherelawsandregulationsarenotinplace

Ensurethatemployeesandcontractorsareproperlytrainedandawareoftheimportanceofhealthandsafetymatters

Performance

TheGrouphasarigoroussetofHSEstandards,proceduresandguidelinesthataremadeavailabletoallemployeesviatheGroupsIntranet.Itismadecleartoallemployeesandcontractorsthattheyareexpectedtoadheretothesestandardswhenengaginginanybusinessrelatedactivityonbehalfofthecompany.TheExecutiveDirectorsreinforcethismessagewithHSEreviewtripsbeingconductedatleastannuallyandtheirfindingsarereportedbacktotheBoardofDirectors.

Thenumberofman-hoursoperatedincreasedby40%during2011whencomparedto2010.2011wastheCompanysbusiestyearonitsoperatedprojects.Itwasdisappointingthatthreelosttimeinjurieswererecorded.ThisrepresentsaLTIFRof0.85fortheyearwhichisinlinewiththeOGPaveragefordrillingoperations,butbehindtheGroupsgoalofzeroLTIs.Althoughallthreeincidentswererelativelyminor,theGroupcompletedfullreviewsintoeachLTIandhasensuredthatappropriateactionhasbeentakentomitigateagainstreoccurrence.

AnindependentinvestigationwascarriedoutinconjunctionwiththeIndonesianauthoritiesduringtheperiod,intoanincidentontheKambunacondensatepipelinemanifoldstation,whereagasleakoccurredduringboosteroperations.Thecauseswereidentifiedandallrecommendationshavebeenfullyimplemented.

AsaresultofthehigherthananticipatedLTIFRandTRIFRinthefirsteightmonthsof2011,theBoardinstructedtheHSEAdvisortoconductareviewofthecircumstancesbehindeachincidentandtodeterminewhethertheincreasedincidencewasaconsequenceofflawsintheHSEmanagementsystemandiftherewasasuitableandacceptableHSEculturedevelopingwithintheCompany.ThefindingsofthereviewwerethatthereisnofundamentalflawwiththeGroupsHSEmanagementsystem,theHSEcultureevidentattheoperatingsitesisbetterthanaveragewhencomparedwithotheroperatorsintheregionandthecultureisstilldeveloping.

FollowingthereviewlinemanagershavebeenremindedoftheirresponsibilitytoproactivelypromotetheHSEcultureandithasbeenmadeakeyperformanceindicatorfortheoperatingofficestoincreasethenumberofformalHSEvisitsandpresentationsthattakeplace.AdditionallytheCompanysmanagementencouragesknowledgesharingaroundtheGrouptosupportimprovedperformance.

Corporate responsibility continued


Performance

Group health and safety KPIsGroup-wide 2011 2010 Comment

LostTimeInjury(LTI) 3 1 Therewerenofatalitiesrecorded

LostTimeInjuryFrequency(LTIF) 0.85 0.40 LTIFrateremainsclosetotheOGPdrillingaverage

TotalRecordableInjury(TRI) 12 5 Increasedasman-hoursworkedincreased

TotalRecordableInjuryRate 3.41 1.99 InvestigationcompletedintospikeinTRIRduringthefirstthree(TRIR) quartersof2011sincewhenzeroTRIshavebeenrecorded

Hoursworked(millions) 3.5 2.5 40%increaseinman-hours

Group environmental KPIsGroup-wide 2011 2010 Comment

CO2emissions(tonnes) 83,076 54,996 Increasedasadirectresultofincreasedlevelofoperatingactivity

CO2emissions(tonnesper 77 74 Marginalincreaseonaperunitbasisdespite400%increaseinthousandtonnesproduction) fuelusageduringbusyexplorationcampaigns,balancedbythe effectoftwonewvapourrecoveryunitsinstalledatKambuna field.WellbelowOGPaverageof133

GHGemissions(tonnesper 80 78 WellbelowOGPaverageof158thousandtonnesproduction)

Flaringandventing(MMscf) 47.0 151.3 69%reductioninflaringdrivenbyintroductionoftwonew vapourrecoveryunitsatKambunafield

Flaringandventing(tonnesper 0.99 4.62 WellbelowOGPaverageof15.5thousandtonnesofproduction)

Oilandchemicalspills 15 5 8verysmall(afewlitres)spillsresultingfromcorrosionintheold pipelineusedtoexportKambunacondensate.Thecondensate evaporatesquicklywhichassistsclean-upoperationsand minimisesanyenvironmentalimpact

Oilandchemicalspills 1.11 0.30 Increaseasresultofpipelinecorrosioncausesidentifiedandtotalspilt(tonnes) actionbeingtakentorectify

Oilandchemicalspillsreleasedto 1,293 327 Increaseasresultofpipelinecorrosioncausesidentifiedandtheenvironment(tonnes) actionbeingtakentorectify

Tonnesofoiltotheenvironmentper 1.02 0.26 RemainswellbelowOGPaverageof4.5milliontonnesofproduction

Producedwaterdischarged(tonnes) 19,900 2,951 DrivenbypressuredeclineinKambunafieldasit reachesmaturity

Oilinproducedwater 0.80 0.15 DrivenbypressuredeclineinKambunafieldasitdischarged(tonnes) reachesmaturity

Oilinproducedwater 0.74 0.20 WellbelowOGPaverageof9.1(tonnespermilliontonnesproduction)


Health and safety continued

Performance continued

InthesixmonthssincethecompletionofthereviewtherehavebeennolosttimeinjuriesorrecordableincidentsonanyGroupoperationdespitecontinuedhighlevelsofoperatingactivity,suggestingthattheincreasedemphasisonHSEhashadadirectandpositiveimpactontheworkingculture.

Targets for 2012

Zerofatalities

ZeroLTIs

TRIR20%belowOGPaverage

Environment

Policy highlights


Wearecommittedtoprotectingandconservingtheenvironmentinwhichwework

WewilladheretotheInternationalFinanceCorporationsPerformanceStandardsonSocialandEnvironmentalSustainability

Westrivetomeetthechallengespresentedtotheoilandgasindustrybyclimatechangematters

Westrivetoseeviablewaystominimisetheenvironmentalimpactofouroperations,reducewastegeneration,conserveresourcesandrespectbiodiversity

Wewillcomplywithapplicablelawsandregulationsandapplyrecognisedinternationalstandardswherelawsandregulationsarenotinplace

Performance

Thelevelofoperatedactivityincreasedsignificantlyin2011andtheGroupsuccessfullymaintaineditsemissionsataconstantrateonaunitbasisdespitea400%increaseinfuelusage.TheprimedriverforthisperformancewastheinstallationofnewvapourrecoveryunitsattheKambunafield,NorthSumatra,whichresultedina69%reductioninflaring.TheGroupisconstantlyseekingwaystoimproveitsemissionsperformance.Aspartofitsforward

developmentoftheBualuangoilfield(seeOperatingReview)theGroupwilluseproducedgasasfuelonthenewproductionprocessingfacilities.Allproducedwaterisalreadyre-injectedintothereservoirsothereisnosurfacedisposalofproducedwater.Cuttingsgeneratedduringdrillingoperationsarerecoveredandsentashoreforincineration.WiththesemeasuresinplaceandtheuseofproducedgasplannedourtargetisforBualuangtobeaminimalemissionsinstallationin2014.

TheGroupsperformanceonflaringandventing,oilspilttotheenvironmentandoilinproducedwateriswellwithintheGroupsgoalofbeingundertheOGPaverages.

TheGroupiscommittedtominimisingtheenvironmentalimpactofitsoperations.Weobtainalltherelevantenvironmentalpermitspriortocommencementofouroperationsandproceduresareinplacetomonitoron-goingoperations.ExamplesincludemonitoringseawaterqualityintheGulfofThailandandsoilqualityandminerallevelsinonshorelocationsinIndonesia.Targetsfor2012:

KeepCO2andGHGemissionsbelowOGPaverage

Continuetoseekwaysofpollutionprevention,emissionreductionandimprovingtheenvironmentalperformanceofouroperations

ContinuetoworktowardsmakingouroperationsatBualuangminimalemissionsin2014

Business conduct

Policy highlights


Weaimtotreatallourstakeholdersfairlyandwithintegrity

Wewillnottolerateanyformofbriberyandcorruptionwithinourbusinessactivitiesorwithinbusinessactivitiesofthosewhoperformservicesonourbehalf

Wewillcomplywithapplicablelawsandregulations(inparticulartheUKBriberyAct)andapplyrecognisedinternationalstandardswherelawsandregulationsarenotinplace



ThecompanyismindfulofencouragementthatUKlistedcompaniesarereceivingtodemonstrategreaterdiversityamongstitsemployeesataseniorlevelandintendstoadopttherelatedreportingrequirementsindicatedbytherevisedUKCorporateGovernanceCodewithinournextannualreport.

Performance

Atyear-end2011theGroupdirectlyemployed212employees.Oftheseemployees33%werefemaleand90%oftheworkforcewascomprisedofstafffromthehostcountriesofouroperations.

Local communities

Policy highlights

SalamanderEnergyiscommittedtooperationinaccordancewiththefollowingprinciples:

WewillupholdtheprinciplesoutlinedintheUNUniversalDeclarationonHumanRights

Wewillbehaveresponsiblyandwithsensitivitytowardsthelocalcommunitiesintheareasinwhichweoperate

Wewillprovidesustainablebenefitsandavoidthecreationofadependencyculture

Performance

BuildingstrongrelationshipswithlocalcommunitiesisoftheutmostimportancetotheGroupinordertopreserveitslicencetooperate.TheGroupadoptsapro-activeapproachtoitscommunityrelations,seekingtoengagewithlocalstakeholdersearlyintheoperationalplanningstageandrecognisinganyconcerns/issues.TheGroupemploysanumberofspecialistgovernmentliaisonandcommunityliaisonofficers,usuallypeoplewhoarefromtheareaofouroperationsandhaveadetailedunderstandingofthelocal,nationalandregionalenvironmentalandsocialsensitivities.

During2011,inrecognitionoftheimportanceoftheGreaterBualuangareatotheGroupsfuturegrowth,aconcertedeffortwasmadetofurtherdeveloprelationshipswithlocalcommunitieswhohavepreviouslyobjectedtoanumberofoperatorsoffshoreactivitieselsewhereintheGulfofThailand.AnewheadofCSRforThailandwasrecruitedwhoisaspecialistinthisareahavingpreviouslyworkedforamajoroilandgascompanyonCSRprogrammesrelatedtoitsoperationsintheGulfofThailand.Throughnumerousengagementswiththelocalcommunity,principallythroughtownhallmeetings

Business conduct continued

Performance

During2011theGroupupdateditsCodeofBusinessConducttoreflecttheimplementationintolawoftheUKBriberyAct.AspartofitsresponsetotheActtheGroupalsoimplementedanexplicitAnti-BriberyandCorruptionPolicy.Bothdocumentsareavailabletoreadatwww.salamander-energy.com.AspartoftheGroupsroll-outofthenewCodeofConductandAnti-BriberyandCorruptionPolicytheGroupsChiefFinancialOfficerandGroupGeneralCounselvisitedalloftheoperatingofficestodeliverpresentationsoutliningtheGrouppolicyandtheimplicationsforouremployees.AspartoftheGroupsplanstoheightenawarenessofthesepoliciesandthebehaviourexpected,allemployeeswererequiredtocompleteanonlinetrainingprogramme.

Employees

Policy highlights

SalamanderEnergyiscommittedtoupholdingtheprinciplesoutlinedintheInternationalLabourOrganisationDeclarationonFundamentalPrinciplesandRightsatWork.Theseincludethefourfundamentalprinciplesandrightsatworkwhichareoutlinedbelow.

Freedomofassociationandtheeffectiverecognitionoftherighttocollectivebargaining

Eliminationofallformsofforcedorcompulsorylabour

Effectiveabolitionofchildlabour

Eliminationofdiscriminationinrespecttoemploymentandoccupation

TheGroupisanequalopportunityemployerandiscommittedtoachievingandmaintainingaworkforcethatrepresentsthepopulationasawholeandiscompliantwithapplicablelocallawsandcontractualobligations.TheCompanyseekstoemployindividualswhoarequalifiedonthebasisofmeritandabilitytofillitsworkpositionsregardlessofgender,ethnicorigin,colour,disability,maritalstatus,race,religion,nationality,age,responsibilityfordependantsorsexualorientation.Eachemployee,consultantandcontractorisexpectedtoabidebytheCompanysEqualOpportunitiesPolicyatallstagesofemployment.

Allemployeesandconsultantsarerecruitedandpromotedfairlyonthebasisoftheirabilityforthejob.


Local communities continued

Performance continued

withthekeylocalstakeholders,theGroupwasabletoincreaseawarenessandunderstandingofitsactivitiesandtheinitiativesundertakentomitigateagainstanydamagetothelocalenvironment.ThisprocessresultedinarequestfortheGrouptorunfirstaid,CPRanddivingworkshopsaslocalfishermenrecognisedthatthesafetyoftheirownoffshoreactivitieswasabigriskforthem.Theinitialworkshopwasasuccesswithover70attendeesandtheGroupplanstorunsimilarworkshopsagaininthefuture.Plansarebeingdevelopedinconjunctionwiththelocalcommunitiesandauthoritiesforfurtherprojectsinthearea,onesuchbeingthecreationofartificialreefsthatassistcoralgrowth,providenewfish spawninggroundsandattractdivers,thusprotectingnaturalreefs.AsaresultofitsdevelopingrelationshipwithlocalstakeholderstheGroupwasabletocompleteitsrecent3DseismicsurveyintheG4/50licencewithoutdisruption.

ThefloodsinThailandduringthefourthquarterof2011causedwidespreaddevastationandaspartofthecommunitySalamandercontributedtothereliefeffort.NotonlydidtheGroupprovidea$16,000financialdonationtothereliefeffortbutalargenumberofemployeesgaveuptheirtimetohelp.

InIndonesia,theGroupcontinuedtobuildonitsstrongcommunityrelations.Therearewell-establishedcommunityoperationsinplaceintheKambunaandNorthKuteiareas.ThesehavenowbeenrunningforseveralyearsandtheGroupspresencehasresultedinincreasedemploymentopportunitiesforlocalpeopleandimprovedinfrastructurethroughinvestmentintoprojectstosupportandfosterlocaldevelopment.TheGroupalsosupportslocalculturalfestivals,whichhashelpedintegrateitintothelocalcommunityandgeneratessupportforitsoperationalactivities.ThestrengthofourreputationwashighlightedinthewakeofthepipelinefirenearthevillageofPangkalanBatu.DespitefourhomesbeingburneddowntheGroupsresponsetotheincident,includingtheconstructionoffournewhomes,waswellreceivedbythelocalcommunityandreceivedpositivecommentinthelocalmedia.

2011wastheGroupsfirstyearasanoperatorintheGreaterKerendanarea.HerethechallengewastoestablishtheGroupwithinthelocalcommunity.Aspartofoursocialmappingwecompleteddiscussionswithawiderangeofstakeholdersanditquicklybecameapparentthatthelocalcommunitywouldlikelocalaccessroadsrepairedsotheycanusethemfortransportduringthedryseasonwhentheriver(theprimaryformoflocaltransport)isimpassable.TheGroupcompletedroadrepairsneartwovillages,LuweHuluandMuaraPari.ThemainsourceofincomeintheareaisfromrubberfarmingandfollowingdiscussionswithvillagersinKerendanvillageSalamanderopenedarubbernurseryinthevillagethathasbecomeafocalpointforvillagelife.TheseprogrammeshavehelpedbuildtheGroupsreputationwiththevillagersandensuredthatoperationshave,todate,proceededwiththefullsupportofthecommunity.

Summary

Withoperatedman-hoursexpectedtocontinuetoincreasethereisnoroomforcomplacencyintheGroupsapproachtoCRandHSE.Followingthefirsthalfof2011,whentheGroupsHSEperformancewasbelowexpectations,itispleasingtoseethatourinternaldrivetoreinforceourprocessesandprocedureshasledtoamarkedimprovementinperformanceinthesecondhalfoftheyear.Thiswillcontinuetobeanareaoffocusforusin2012.Wecontinuetostrivetoreduceemissionsandareontargetforourprincipalproducingasset,theBualuangoilfield,tobeaminimalemissionsfacilityby2014.

OurlocalteamsaredoinganexcellentjobinbuildingrelationshipswithlocalstakeholdersandthishelpstheGroupdeliverprojectsthatcanbenefitthelocalcommunityandensurethatweretainsupportandunderstandingforouroperations.

Finally,westrivetobeagoodemployerandcorporatecitizenandadheretotheInternationalFinanceCorporationEnvironmentalandSocialPerformanceStandardsandothergloballyrecognisedstandardsofcorporateconduct.



1WatersamplingintheBabalanRiver,NorthSumatra.

2AirqualitysamplingatKambuna.

3Rubbernursery,Kerendanvillage,CentralKalimantan.

4First-aidtrainingforfisherman,Chumphonprovince,Thailand.

3

42

1

Dr Carol BellNon-executiveDirector

Michael PaviaNon-executiveDirector

James MenziesChiefExecutiveOfficer


Board of Directors and advisers

Charles Jamieson

Chairman(N)

CharlesJamiesonisSalamandersChairmanandafounderofSalamander.HeholdsanMBAfromINSEADandisacharteredaccountant.PriortojoiningSalamander,hespentover25yearswithPremierOilplcwhereheheldanumberofposts,includingFinanceDirectorandChiefExecutiveOfficer.HeiscurrentlyalsoChairmanofVostokEnergyplc.

James Menzies

Chief Executive Officer JamesMenziesisafounderofSalamanderanditsChiefExecutiveOfficer.HeholdsaBSc(Hons)inGeologyandanMScinGeophysicsandPlanetaryPhysics.AfteraperiodasageophysicistatSchlumbergerandERC,hespentelevenyearsatLASMOplcholdingavarietyofpostsincludingSeniorGeophysicistinVietnam,ChiefGeophysicistinIndonesia,HeadofCorporateDevelopmentandHeadofStrategyandCorporateAffairs.HespentfouryearsasaSeniorPartneratLambertEnergyAdvisorypriortothefoundingofSalamander.HeiscurrentlyaNon-executiveDirectorofTransunionPetroleumLimited.Mike Buck

Chief Operating Officer MikeBuckisSalamandersChiefOperatingOfficer.HeholdsaBSc(Hons)inGeologywithGeophysicsandanMScinPetroleumGeology(dist.).Hespent20yearswithLASMOplcasaGeophysicistinIndonesiaandtheUKContinentalShelf,ChiefGeophysicistinColombia,ExplorationManagerinVietnamandExplorationandGeneralManagerinLibya.HethenspentfouryearswithENIasManagingDirectorinTehranandManagingDirectorinPakistan.Overallhehas30yearsofinternationalexplorationandproductionexperience.

John CrowleNon-executiveDirector

Struan RobertsonSeniorIndependentNon-executiveDirector

James ColemanNon-executiveDirector

Dr Jonathan CopusChiefFinancialOfficer

Charles JamiesonChairman

Mike BuckChiefOperatingOfficer

Robert CatheryNon-executiveDirector


Dr Jonathan Copus

Chief Financial Officer JonathanCopusisSalamandersChiefFinancialOfficerandwasappointedtotheBoardinOctober2011.HebeganhisoilandgascareerworkingasanexplorationgeologistforShellInternationalinitsDeepwaterE&PteambasedinHollandandHouston.Hethenleftindustry,workingformorethan10yearsasahighlyrankedoilandgasequityresearchanalyst,mostrecentlywithDeutscheBank,wherehewasaDirectoroftheOilandGasEquityResearchteam.JonathanhasaPhDfromtheUniversityofCambridgeandaFirstClassBScinGeologyfromtheUniversityofDurham.Struan Robertson

Senior Independent Non-executive Director(#N) (R) (A)

StruanRobertsonisSalamandersSeniorIndependentNon-executiveDirector.HewaseducatedattheUniversityofNatalandtheUniversityofCapeTown,followedbyWhartonBusinessSchool.Hespentover23yearsatBPplcwhereheheldanumberofposts,includingCEOofOilTradingInternational,ExecutiveChairmanofBPAsiaPacific,basedinSingapore,andDownstreamSeniorVicePresidentforTechnologyandMarketing,basedinLondon.Between2000and2004hewasGroupChiefExecutiveofWatesGroupLtd.HeiscurrentlyNon-executiveChairmanofEredeneCapitalPLCandholdsnon-executivedirectorshipswithHendersonTRPacificInvestmentTrustplcandGroup5Ltd,listedinJohannesburg.

Dr Carol Bell

Non-executive Director CarolBellisanInd

se annual report 2011

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