Africa Oil Second Quarter of 2012 Financial and Operating Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 27, 2012) - Africa Oil Corp. ("Africa Oil", "the Company" or "AOC") (TSX VENTURE:AOI)(OMX:AOI) is pleased to announce its financial and operating results for the three and six months ended June 30, 2012.

• In Block 10BB (Kenya), the Company and its partner Tullow Oil plc ("Tullow") completed drilling the Ngamia-1 exploration well to a total depth of 2,340 meters and reported a significant light oil discovery. The Ngamia-1 well encountered over 100 meters of net light oil pay in the Upper Lokhone Sand section and an additional 43 meters of potential oil pay in the lower Lokhone Sandstone section.
• The Company and its operating partner on the Block, Tullow, recently spud the joint ventures second exploration well, Twiga South-1. Following the Ngamia-1 discovery, the partnership acquired additional seismic to better delineate prospects along the Ngamia-1 trend. Based upon the recently acquired 2D seismic data, additional 'Ngamia-style' prospects were mapped in Blocks 10BB and 13T (Kenya), including Twiga South-1. The Twiga South-1 well, in Block 13T, is planned to a total depth of 3,114 meters and targets the same structural trend and reservoirs as the recent Ngamia-1 oil discovery 23 kilometers to the south.
• Exploration activities are accelerating with operational plans to mobilize two additional drilling rigs into the Company's areas of operation. One of the rigs will be mobilized into Kenya, commencing drilling operations in Block 10A on the Paipai-1 exploration well. The second rig will be utilized in Ethiopia, drilling Sabisa-1 which is our first exploration well on the South Omo Block.
• The Company continues to actively acquire, process and interpret 2D seismic over Blocks 10BA, 10BB, 12A, 13T and South Omo with three seismic crews currently active.
• In Puntland (Somalia), the Company, through its 44.7% ownership interest in Horn Petroleum Corporation ("Horn"), completed drilling the Shabeel-1 exploration well and commenced drilling the Shabeel North-1 exploration well in June of 2012. The Shabeel North-1 well has reached a total depth of 3,945 meters and has encountered metamorphic basement at a depth of 3,919 meters. The well penetrated 149 meters of interbedded sands and shales of the Triassic Adigrat Formation with no oil or gas shows and only minor porosity exhibited on electric logs. Accordingly, the well is being plugged. The Upper Cretaceous Jesomma sands did exhibit porosity and hydrocarbon shows but produced only fresh water on a drill stem test. These sands are similar to the Jesomma sands encountered in the previously drilled Shabeel-1 well in respect of log response and oil and gas shows. As a result, the Company has determined that additional testing of these zones in the previously drilled Shabeel-1 well is also not warranted. The Company and its partners plan to enter the next exploration period in both the Dharoor Valley and Nugaal Valley Productions Sharing Contracts.
• Africa Oil ended the quarter in a strong financial position with cash of $85.0 million and working capital of $56.1 million as compared to cash of $109.6 million and working capital of $90.2 million at December 31, 2011.

Keith Hill, President and CEO, commented, "Africa Oil is very encouraged with the results of the Ngamia-1 well. Our next well, Twiga South-1, represents the next step in expanding the play northward into the Lockichar basin and proving up the 'string of pearls' concept along the main basin bounding fault. The arrival of the additional two drilling rigs will allow us to evaluate whether the Tertiary trend extends into southern Ethiopia and to test the Cretaceous rift in north-central Kenya. We continue to be highly optimistic that the early success will extend into these other areas. While we were disappointed that we were not able to flow oil from the first two exploration wells in our Puntland (Somalia) drilling campaign, we remain highly encouraged that all of the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. We look forward to working with the Puntland government to move our exploration project to the next phase which will likely require us to focus on prospects in different areas of the basins."

Second Quarter 2012 Financial and Operating Highlights

Consolidated Statement of Net Income (Loss) and Comprehensive Income (Loss)
(United States Dollars)
			Three months ended June 30, 2012		Three months ended June 30, 2011		Six Months ended June 30, 2012		Six Months ended June 30, 2011
Operating expenses
	Salaries and benefits		$	294,409	$	321,271	$	577,097	$	757,888
	Stock-based compensation			587,198		425,708		1,216,794		1,881,934
	Bank charges			8,688		10,751		16,896		110,139
	Travel			237,386		246,309		462,159		382,961
	Management fees			74,846		62,610		139,012		126,732
	Office and general			225,496		143,262		368,316		556,321
	Depreciation			13,596		19,140		25,502		33,259
	Professional fees			3,152,222		179,409		3,243,324		397,124
	Stock exchange and filing fees			147,027		121,838		274,333		273,282
	Impairment of intangible exploration
	assets			-		6,969,413		3,114,858		6,969,413
				4,740,868		8,499,711		9,438,291		11,489,053
Gain on acquisition of Lion Energy				-		(4,143,051)		-		(4,143,051)
Finance income				(9,979,826)		(2,963,663)		(1,371,178)		(7,291,237)
Finance expense				122,556		144,675		13,887,325		144,675
Net income (loss) and comprehensive income (loss)				5,116,402		(1,537,672)		(21,954,438)		(199,440)
Net Income (loss) and comprehensive Income (loss) attributable to non-controlling interest				6,084,874		-		(7,344,002)		-
Net Income (loss) and comprehensive income (loss) attributable to common shareholders				(968,472)		(1,537,672)		(14,610,436)		(199,440)
Net income (loss) attributable to common shareholders per share
		Basic	$	(0.00)	$	(0.01)	$	(0.07)	$	(0.00)
		Diluted	$	(0.00)	$	(0.02)	$	(0.07)	$	(0.03)
Weighted average number of shares outstanding for the purpose of calculating
earnings per share
		Basic		218,664,492		195,974,310		215,859,707		175,171,098
		Diluted		225,318,773		198,859,135		215,859,707		181,509,432

Operating expenses decreased $3.8 million for the three months ended June 30, 2012 compared to the same period in the previous year due mainly to a $7.0 million impairment of intangible exploration assets relating to the relinquishment of Blocks 2/6 in Ethiopia in the second quarter of 2011, offset partially by a $3.0 million increase in professional fees associated with previously completed farmout transactions.

Operating expenses decreased $2.1 million for the six months ended June 30, 2012 compared to the same period in the previous year due to a $7.0 million impairment of intangible exploration assets relating to Blocks 2/6 in Ethiopia in the second quarter of 2011, a $0.7 million decrease in stock -based compensation costs due to stock option grants in the first quarter of 2011, and reduced salary costs resulting from moving allowances in the first quarter of 2011. These reductions were offset partially by a $3.1 million impairment of intangible exploration assets relating to Blocks 7 and 11 in Mali in the first quarter of 2012 and an increase in professional fees in the second quarter of 2012 associated with previously completed farmout transactions.

The gain relating to the acquisition of Lion Energy Corp. ("Lion") in the second quarter of 2011 was a result of the Company acquiring net working capital and intangible exploration assets in excess of the consideration issued. The consideration paid was valued at $21.7 million, net of AOC shares acquired, versus working capital acquired of $20.1 million, excluding the value of AOC shares held by Lion, and the fair market value of intangible assets acquired estimated at $5.7 million.

Financial income and expense is made up of the following items:

	Three months ended June 30, 2012	Three months ended June 30, 2011	Six months ended June 30, 2012	Six months ended June 30, 2011
Loss on marketable securities	-	(144,675)	(123,982)	(144,675)
Fair value adjustment - warrants	9,905,593	1,763,927	(13,763,343)	2,543,108
Fair value adjustment - convertible debt	-	309,448	-	2,031,704
Interest and other income	74,233	220,403	236,161	464,089
Foreign exchange gain (loss)	(122,556)	669,885	1,135,017	2,252,336
Finance income	9,979,826	2,963,663	1,371,178	7,291,237
Finance expense	(122,556)	(144,675)	(13,887,325)	(144,675)

The loss on revaluation of marketable securities is the result of a decrease in the value of 10 million shares held in Encanto Potash Corp which were acquired as part of the acquisition of Lion. These shares were sold during the three months ended March 31, 2012.

At June 30, 2012, nil warrants were outstanding in AOC. The Company incurred a $9.9 million gain on the revaluation of Horn warrants from the end of the first quarter of 2012 to the end of the second quarter of 2012 due to a significant decrease in the share price of Horn from March 31, 2012 to June 30, 2012.

The foreign exchange gains and losses are the direct result of changes in the value of the Canadian dollar in comparison to the US dollar. The Company has been holding large Canadian dollar cash balances as the result of Horn's private placement, cash acquired on the Lion acquisition and warrant exercises at the end of 2010.

Consolidated Balance Sheets
(United States Dollars)
			June 30, 2012		December 31, 2011
ASSETS
Current assets
	Cash and cash equivalents	$	85,032,966	$	109,558,445
	Marketable securities		-		2,605,745
	Accounts receivable		1,797,586		2,717,024
	Prepaid expenses		929,763		599,727
			87,760,315		115,480,941
Long-term assets
	Restricted cash		2,019,000		2,919,000
	Property and equipment		77,445		39,395
	Intangible exploration assets		242,701,532		185,671,962
			244,797,977		188,630,357
Total assets		$	332,558,292	$	304,111,298
LIABILITIES AND EQUITY
Current liabilities
	Accounts payable and accrued liabilities	$	31,658,707	$	23,768,545
	Current portion of warrants		-		1,512,811
			31,658,707		25,281,356
Long-term liabilities
	Warrants		17,711,572		2,882,441
			17,711,572		2,882,441
Total liabilities			49,370,279		28,163,797
Equity attributable to common shareholders
	Share capital		322,121,171		306,509,909
	Contributed surplus		13,681,438		8,425,304
	Deficit		(89,893,917)		(75,283,481)
			245,908,692		239,651,732
	Non-controlling interest		37,279,321		36,295,769
Total equity			283,188,013		275,947,501
Total liabilities and equity		$	332,558,292	$	304,111,298

The increase in total assets from December 31, 2011 to June 30, 2012 is primarily attributable to intangible exploration expenditures incurred during the quarter, a significant portion of which related to drilling of the Ngamia-1 well in Kenya and the Shabeel-1 and Shabeel North-1 wells in Puntland (Somalia).

Consolidated Statement of Cash Flows
(United States Dollars)
			Three months ended June 30, 2012		Three months ended June 30, 2011		Six months ended June 30, 2012		Six months ended June 30, 2011
Cash flows provided by (used in):
Operations:
	Net income (loss) and comprehensive income
	(loss) for the period		$	5,116,402	$	(1,537,672)	$	(21,954,438)	$	(199,440)
	Item not affecting cash:
		Stock-based compensation		587,198		425,708		1,216,794		1,881,934
		Share-based expense		3,298,001		-		3,298,001		-
		Depreciation		13,596		19,140		25,502		33,259
		Loss on marketable securities		-		144,675		(123,982)		144,675
		Gain on acquisition of Lion Energy		-		(4,143,051)		-		(4,143,051)
		Impairment of intangible exploration assets		-		6,969,413		3,114,858		6,969,413
		Fair value adjustment - warrants		(9,905,593)		(1,763,927)		13,763,343		(2,543,108)
		Fair value adjustment - convertible debt		-		(309,448)		-		(2,031,704)
		Unrealized foreign exchange (gain) loss		1,477,227		(718,405)		86,926		(2,313,000)
		Changes in non-cash operating working
		capital		(597,606)		184,187		(784,683)		231,956
				(10,775)		(729,380)		(1,357,679)		(1,969,066)
Investing:
		Property and equipment expenditures		-		(34,366)		(63,552)		(35,850)
		Intangible exploration expenditures		(38,248,780)		(6,037,113)		(60,144,428)		(11,010,995)
		Farmout proceeds, net		-		-		-		14,900,160
		Cash received on business acquisitions, net of cash issued		-		17,897,909		-		18,636,869
		Proceeds from sale of marketable securities		-		-		2,689,642		-
		Changes in non-cash investing working
		capital		7,591,134		15,192,575		9,264,247		7,310,701
				(30,657,646)		27,019,005		(48,254,091)		29,800,885
Financing:
		Common shares issued, net of issuance
		costs		13,430,798		2,502,829		24,233,132		2,760,587
		Repayment of liability portion of convertible
		debt		-		-		-		(411,220)
		Deposit of cash for bank guarantee		(375,000)		-		(375,000)		(1,451,250)
		Release of bank guarantee		-		1,800,000		1,275,000		1,800,000
		Changes in non-cash financing working
		capital		-		-		-		168,569
				13,055,798		4,302,829		25,133,132		2,866,686
Effect of exchange rate changes on cash and
cash equivelents denominated in foreign currency				(1,477,227)		690,373		(46,841)		2,269,848
Increase (decrease) in cash and cash equivalents				(19,089,850)		31,282,827		(24,525,479)		32,968,353
Cash and cash equivalents, beginning of period				104,122,816		77,811,360		109,558,445	$	76,125,834
Cash and cash equivalents, end of period				85,032,966	$ 109,094,187			85,032,966	$ 109,094,187

The decrease in cash in 2012 is mainly the result of intangible exploration expenditures and operating expenses offset partially by funds raised on the exercise of warrants and the non-brokered private placement completed by Horn.

Consolidated Statement of Equity
(United States Dollars)
				June 30, 2012		June 30, 2011
Share capital:
		Balance, beginning of period	$	306,509,909	$	163,231,076
		Acquisition of Centric Energy		-		60,165,193
		Acquisition of Lion Energy, net of AOC shares aquired		-		21,561,185
		Issued on conversion of convertible debenture		-		52,214,817
		Amended farmout agreement with Lion Energy		-		5,274,675
		Exercise of warrants		14,339,826		3,023,756
		Farmout ageement finder's fees		-		94,960
		Exercise of options		1,271,436		508,471
		Balance, end of period		322,121,171		306,074,133
	Contributed surplus:
		Balance, beginning of period	$	8,425,304	$	4,391,940
		Expiration of warrants		-		3,676
		Exercise of Horn warrants		1,147,884		-
		Acquisition of Lion Energy		-		110,606
		Stock based compensation		1,216,794		1,881,934
		Issuance of shares in lieu of finder's fee		-		(94,960)
		Exercise of options		(406,545)		(157,751)
		Shares to be issued in lieu of professional fees		3,298,001		-
		Balance, end of period		13,681,438		6,135,445
Deficit:
		Balance, beginning of period	$	(75,283,481)	$	(56,570,350)
		Net loss and comprehensive loss attributable to common
		shareholders		(14,610,436)		(199,440)
		Balance, end of period		(89,893,917)		(56,769,790)
		Total equity attributable to common shareholders	$	245,908,692		255,439,788
Non-controlling interest:
		Balance, beginning of period	$	36,295,769	$	-
		Non-controlling interest on issuance of Horn shares		8,327,554		-
		Net loss and comprehensive loss attributable to non-controlling
		interest		(7,344,002)		-
		Balance, end of period		37,279,321		-
		Total equity	$	283,188,013	$	255,439,788

The Company's consolidated financial statements, notes to the financial statements, management's discussion and analysis for the three month and six months ended June 30, 2012 and the 2011 Annual Information Form have been filed on SEDAR (www.sedar.com) and are available on the Company's website (www.africaoilcorp.com).

Outlook

The Ngamia-1 light oil discovery in the Lokichar sub-basin of the tertiary rift on Block 10BB (Kenya) has led to a significant increase in the pace of exploration. The Company and its joint venture partner Tullow aim to increase the pace of exploration in East Africa by sourcing an additional two drilling rigs before the end of 2012. One rig is intended to be mobilized to Block 10A (Kenya) to commence drilling the Paipai prospect and an additional rig is intended to be mobilized to the South Omo Block (Ethiopia) to commence drilling the Sabisa-1 prospect. The Weatherford rig will continue with drilling operations in the Lokichar sub-basin of the tertiary rift where the Twiga South-1 prospect has recently been spud, bringing the total number of rigs operating on the Company's Kenyan and Ethiopian acreage to three prior to the end of 2012. In addition, the Company plans to continue aggressively acquiring 2D seismic data focused on Blocks 10BA, 10BB, 13T, South Omo and 12A.

Based on the encouragement provided by the Shabeel wells, the Company and its partners plan to enter the next exploration period in both the Dharoor Valley and Nugaal Valley PSAs which carry a commitment to drill one well in each block within an additional three year term. The current operational plan would be to contract a seismic crew to acquire additional data in the Dharoor Valley block and to hold discussions with the Puntland Government regarding drill ready prospects in the Nugaal Valley block. The focus of the Dharoor Valley block seismic program will be to delineate new structural prospects for the upcoming drilling campaign.

Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya, Ethiopia and Mali as well as Puntland (Somalia) through its 45% equity interest in Horn Petroleum Corporation. Africa Oil's East African holdings are in within a world-class exploration play fairway with a total gross land package in this prolific region in excess of 300,000 square kilometers. The East African Rift Basin system is one of the last of the great rift basins to be explored. New discoveries have been announced on all sides of Africa Oil's virtually unexplored land position including the major Albert Graben oil discovery in neighboring Uganda. Africa Oil's recent Ngamia-1 discovery extends the Albert Graben play into Kenya where Africa Oil along with partner Tullow hold a dominant acreage position. Newly acquired seismic and gravity data show robust leads and prospects throughout Africa Oil's project areas. The Company is listed on the TSX Venture Exchange and on First North at NASDAQ OMX-Stockholm under the symbol "AOI".

FORWARD-LOOKING STATEMENTS

Certain statements made and information contained herein constitute "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements and information (together, "forward looking statements") relate to future events or the Company's future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to estimates of reserves and or resources, future production levels, future capital expenditures and their allocation to exploration and development activities, future drilling and other exploration and development activities, ultimate recovery of reserves or resources and dates by which certain areas will be explored, developed or reach expected operating capacity, that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable reserves and resource estimates may also be deemed to constitute forward-looking statements and reflect conclusions that are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "seek", "anticipate", "plan", "continue", "estimate", "expect, "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions) are not statements of historical fact and may be "forward-looking statements". Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. The Company does not intend, and does not assume any obligation, to update these forward- looking statements, except as required by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, changes in oil prices, results of exploration and development activities, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government or other regulatory approvals, actual performance of facilities, availability of financing on reasonable terms, availability of third party service providers, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements.

ON BEHALF OF THE BOARD

Keith C. Hill, President and CEO

Africa Oil's Certified Advisor on NASDAQ OMX First North is Pareto Öhman AB.