Africa Oil

Update on Kenya Finance Bill

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Sept. 25, 2014) - Africa Oil Corp. ("Africa Oil", "AOC" or the "Company") (TSX:AOI)(OMX:AOI) confirms that the Kenya Finance Bill 2014 has been passed by the Kenyan Parliament and assented to by President Kenyatta. Publication of the bill is expected imminently. The majority of the legislation included in the Bill applicable to the oil and gas industry will be effective on January 1, 2015. The Bill covers a wide range of issues important for the economic development of Kenya. In terms of its impact upon the oil and gas sector the picture is mixed.

On a positive note the legislation abolishes the previous withholding tax regime and allows 'Farm Out' transactions to be completed in a tax effective manner. Such transactions are heavily relied upon by the oil and gas industry in order to attract companies with the appropriate technical and financial capabilities to projects over the course of their life cycle, thereby mitigating technical and financial risk. Africa Oil has completed numerous farmout transactions to date and will continue to consider farm outs as we continue our extensive exploration and appraisal program in East Africa.

The Finance Bill 2014 has also reintroduced a 'Capital Gains Tax' for the first time since 1985 when such taxation was suspended. While the rate of capital gains tax has been established at 5% for most capital transactions, it appears that the mining and oil and gas sectors will be taxed at 30% or 37.5% depending on the company's country of residency for tax purposes. Africa Oil is working with advisors to understand the impact of this legislation and remedies available to the Company to minimize the potential impact of this tax policy. In addition, the Company is reviewing its approach to structure any potential future strategic transactions to ensure they minimize or eliminate any such taxation.

Africa Oil, alongside the industry representative body (the Kenyan Oil & Gas Association - KOGA), are working closely with all levels of the Kenyan government to discuss the potential negative impact such a tax policy will have on the development of the still early stage oil exploration industry. This will include potential barriers to entry for new investors, erosion of present investor confidence and potential delays it will cause to exploration and development activity. We will accordingly work with the Government to consider potential legislative changes that would bring the rate of CGT to a level that will meet both the Government's requirements to achieve revenue from such transactions while still promoting the future development of the industry. Africa Oil and KOGA have a good track record of constructive and productive dialogue with the Kenyan Government on a range of legislative and regulatory issues and we would hope to continue this in terms of the Finance Bill 2014. The Government and its advisors have repeatedly stated that contract stability and the sanctity of existing Production Sharing Agreements are a cornerstone of its economic policy regarding the oil sector.