artumas group inc business review aligning our strengths

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1 artumas group inc business review aligning our strengths In 2007 we strengthened our Executive team, expanded our acreage position and geological knowledge of our holdings in the Rovuma Delta Basin in East Africa, and secured the financial means to capitalize on our exploration activities.

2 Artumas: strategic signature Artumas Group Inc. is an independent oil and gas exploration and production company with a significant asset position and competitive advantages in the emerging resource basins of East Africa. Artumas holds operated and non-operated asset positions in the Rovuma Delta Basin, spanning southern Tanzania and northern Mozambique. TANZANIA Contents President s Message 4 Chief Financial Officer s Report 8 Business Development 12 Operations Engineering 16 Operations Exploration 20 Corporate Governance 26 Corporate Social Responsibility 31 CALGARY OSLO DAR ES SALAAM MAPUTO

3 MNAZI BAY Cabo Delgado Rio Rovuma Palma Embayment Mocimboa East Western Basin Margin INDIAN OCEAN MOZAMBIQUE Ibo rovuma delta basin prospective leads Cretaceous Jurassic Late Tertiary Early Tertiary

4 Expertise and Knowledge In 2007, Artumas furthered its growth strategy in adding the expertise of three key individuals to our executive team. Early in the year, Cameron Barton joined as our Chief Financial Officer, followed by Chief Operating Officer Doug Purcell. The appointment of Duncan Nightingale as Senior Vice President Exploration completed the executive transformation that began late in 2006 with the arrival of Anthony Reinsch as Executive Vice President. This team the strongest in Artumas corporate history supports President and CEO Steve Mason with the expertise and knowledge necessary to guide our company through 2008 and beyond. Stephen W. Mason, B. Comm. President and Chief Executive Officer Mr. Mason has over 30 years experience in senior management of energy companies in both the private and public arenas, with additional expertise in corporate planning, acquisition and divestiture of petroleum assets, oil and gas marketing, and investment banking. Mr. Mason launched three successful energy companies, culminating with his founding of Artumas Group Inc. in Anthony E. Reinsch, B.A. (Hons), M.Sc. Economics Executive Vice President During the past 26 years, Mr. Reinsch has been involved in analysis of the domestic and international energy industry, including the petroleum and natural gas sectors as well as electric power sector deregulation and restructuring. He has held senior positions within the utility, finance, government, research, and corporate sectors, while most recently acting as a strategic advisor on strategy and planning to the international E&P community.

5 Cameron Barton, B.A., CMA Chief Financial Officer Doug Purcell, P.Eng., M.B.A Chief Operating Officer Duncan Nightingale, B.Sc. (Hons). Senior Vice President Exploration Richard J.C. Grant, LL.B. General Counsel and Corporate Secretary Mr. Barton has over 28 years of senior level finance and accounting experience in the energy industry with a career focus on the power sector. He has held senior executive and director positions in financial and business development capacities for numerous U.K., New Zealand and Canadian based multi-national corporations and provided consulting advice on power policy decisions for provincial and national governments. Mr. Purcell has 26 years of operations, business development, and M&A experience within the energy industry, and has held senior executive management and business development positions for multi-national corporations. Complementing Mr. Purcell s strong operations background and in-depth understanding of the energy business, is his extensive experience in corporate strategy and planning and business processes and controls. Duncan Nightingale has 27 years international experience with a proven record of successful exploration program execution. Mr. Nightingale s experience includes all aspects of managing exploration programs, development production operations, new business ventures, portfolio management and strategic planning. Regions worked include the Middle East, Far East, Latin America, C.I.S. North Sea, Eastern Europe, Australasia as well as North and West Africa. Mr. Grant has 28 years of corporate, legal, land and management experience in the domestic and international energy industries, practicing energy, corporate, commercial and international law. He has worked with several major multinational energy companies, and continues to advise numerous large firms in addition to oil and gas and technology companies. Mr. Grant is a partner with Gowling Lafleur Henderson LLP.

6 President s Message Stephen W. Mason President and Chief Executive Officer 2007 was a year of progress for Artumas. With the acquisition of the Mozambique onshore concession, we increased our exploration acreage in the Rovuma Basin to over 25,000 sq. km. Along with the expanded acreage, our operations in Tanzania have gained a greater level of complexity, progressing well beyond the exploration stage as we advance into final negotiations with potential off-take customers. We are no longer the same exploration and production company that entered Mnazi Bay in 2004, and over the past year we have been tasked to consolidate our position in the Rovuma Basin and to grow into our responsibilities as a major energy provider for the East African region. I am pleased to say that we are on the right track.

7 A Year Of Progress We carried positive momentum into the year with the provision of first electricity to the Mtwara region late in 2006, and followed through into 2007 with the discovery of the Msimbati field in Tanzania. By mid-year, we had acquired an exploration license for the Rovuma Onshore Block in Mozambique, and entered into an exchange of interests agreement with Anadarko Petroleum Corporation regarding the Rovuma Offshore Area 1 Block. These developments signaled our emergence into the global energy scene, and reinforced our commitment to our original paradigm: to explore and develop known petroleum systems, creating a strong rate of return for our shareholders and social and economic opportunities for the East African region. STRENGTHENED EXECUTIVE TEAM As part of our growth strategy we have added key individuals to oversee our expanding activities in the region. These include Chief Financial Officer Cameron Barton, Chief Operating Officer Doug Purcell and Senior Vice President of Exploration Duncan Nightingale, each of whom adds a proven record of managerial success earned over a minimum 25 years in the global energy industry. We also welcomed the arrival of Mr. John Bentley as Non Executive Chairman of the Artumas Board of Directors. In addition to Mr. Bentley s wealth of experience specific to the African oil and gas industry, his appointment serves to separate the roles of Chairman and Chief Executive Officer at the Board level. Expanding our Rovuma Basin acreage holdings into Mozambique and securing the services of these key individuals has allowed Artumas to successfully navigate the two major challenges facing our industry today: access to experienced senior management, and access to exploration acreage. We strongly believe that this team has the knowledge and talent necessary to guide Artumas through the coming years. 25,000 SQ. KM. OF EXPLORATION POTENTIAL In 2004, after years of negotiations and dedicated efforts to foster meaningful relationships with Tanzanian officials, Artumas secured the rights to the Mnazi Bay Concession. Nearly four years later, we can look back on that defining event in our history not as a culmination, but rather as a fortuitous beginning. In 2007, we formalized the acquisition of the Rovuma Onshore Block concession in Mozambique, extending our position in the Rovuma Basin to over 15,000 sq. km. Our exchange of interests agreement with Anadarko provided Artumas a participating interest in the adjacent Offshore Area 1 Block, bringing our total exploration acreage interests to over 25,000 sq. km. The exploration, development and commercialization success we have achieved in our Mnazi Bay Concession activities has provided positive reinforcement for our business strategy, and strong indication for similar success across the larger Rovuma Basin acreage. Our achievements have served to strengthen our relationships with Tanzanian and Mozambican policy-makers within the highest levels of government and have contributed to our competitive advantage in the region. We have secured a sizable expanse of frontier and high quality exploration acreage, against a field of larger, more established companies vying for shrinking global asset positions. We remain committed to making the most of our present position, leveraging our competitive advantage and asset position to gain strong returns for our company and for our shareholders Business Review 5

8 CREATING OFF-TAKE MARKETS A project generating great interest in the energy industry is our proposed marine compressed natural gas (CNG) export project linking the proven Tanzanian Mnazi Bay gas resources to established energy off-take markets in Mombasa, Kenya. Marine CNG transport allows natural gas to be moved economically over distances too far to justify pipeline construction. Ongoing discussions with TransCNG International, a joint venture between TransCanada PipeLines Limited and Overseas Shipholding Group are facilitating this groundbreaking project. The recent endorsement from His Excellency, Jakaya Kikwete, President of the United Republic of Tanzania for this development has furthered our efforts to bring Tanzanian natural gas to Mombasa in While marine CNG export is the highest per unit monetization option for Mnazi Bay gas resources, the construction of a 300 MW gas-to-power plant at Mtwara and associated interconnection to the Tanzanian integrated power grid collectively referred to as the VLPP will have the greatest impact on the economies of Tanzania and East Africa. For the first time since the country s inception, the people of Tanzania can look forward to the provision of stable, reliable, affordable electricity. Businesses are viewing Tanzania as a viable destination for economic operations. The emergence of Mtwara as the only locale in southern Tanzania now receiving 24/7, reliable power soon to be joined by the larger Mtwara-Lindi Administrative Districts is creating strong interest from industrial and commercial developers, attracted by the resources and deep water harbour facilities. This growth will, in turn, provide Artumas with additional off-take customers for our gas. It is a situation mutually beneficial to all involved, and we look forward to continuing our important role in its development. PREPARATIONS FOR DEFINING EVENTS The period through 2009 promises to be a watershed for this company. Exploration activities in Mozambique will have been undertaken, with the goal to secure crude oil reserves to complement our growing gas resource base. Final decisions will be reached on our off-take projects, and a clear picture of our financial future will be formed. Success in these areas will attract the attention of the global energy community, and we must be prepared for the increased activity that will result. In the coming year, Artumas will look to solidify its reputation as a proven oil and gas explorer in the emerging resource basins of East Africa. We will seek to capitalize on our expanding resource base and growing international profile with strategic partnerships, commercialization ventures and exploration activities that yield the maximum rewards for Artumas, for our shareholders, and for the people of East Africa will be a time for preparation a time to build our momentum and our operational capacity to handle major developments. This will be a year dedicated to strengthening our internal controls, supporting management capabilities and gathering the data required for success. We will concentrate on finetuning our strategies to ensure sustainability and responsible growth. By the end of 2008, our company will be well prepared for success. 6 Artumas Group Inc.

9 MOMENTUM GOING FORWARD I believe that the accomplishments of 2007 will prove to be core to our future success. We will maintain our essential growth strategy as we accelerate our momentum through 2008 and into 2009, and we will keep our shareholders apprised of developments through regular updates and progress reports. We began 2007 as a small exploration and development company celebrating its first production activities in Tanzania. We find ourselves a year later with over 25,000 sq. km. of prospective exploration acreage spanning two countries, managed by the strongest executive team in our corporate history. In September 2007, I had the opportunity to summit Mt. Kilimanjaro with a number of Artumas staff, family, and friends of the company. The purpose of this expedition was to raise funds to build a secondary school in our franchise area in Tanzania. The journey to the summit was extremely challenging and required determination and commitment to both personal and team goals. The success of our team in reaching the summit of Kilimanjaro, and exceeding our fundraising goals, is symbolic of the hard work and dedication we have collectively shown as a company. I am very proud to be working with the high quality and committed individuals who make up the Artumas team. I offer my sincere gratitude for everyone s efforts in 2007, and look to them for their continuing excellence and contributions on the road ahead. Finally, I would like to thank the shareholders of Artumas Group Inc. for their patience in allowing us the time to build the foundations of what will become an unqualified story of success. Throughout history, it has been shown that lasting success is achieved through the diligent process of establishing the vision, developing the plan, and building the foundation. All of the components have been secured for delivering execution excellence. I look forward to sharing our excitement with employees and shareholders as we move through 2008 and beyond. Stephen W. Mason President and Chief Executive Officer April Business Review 7

10 Chief Financial Officer s Report Cameron Barton Chief Financial Officer 2007 Accomplishments 2007 was a year dedicated to establishing a solid financial foundation for the future of Artumas Group. Significant improvement was made to our internal control environment and over US $200 million in capital was secured. Throughout the year we remained dedicated to the development and maintenance of control processes, practices and systems. As we continue to expand on our experience and successfully manage our unique position in the international market, the professional staff and governance policies added in 2007 will provide a platform for success in the period of rapid expansion ahead Objectives In 2008, we will continue to monitor and improve the internal control sufficiency of the company. It will be a time to ensure Artumas has the ability to successfully manage business risks, up to and beyond the defining events scheduled later in the year. We will provide frequent and timely communications to our investors, including quarterly operations updates by our executive team. Ultimately, 2008 will be dedicated to building confidence in the market through the development of strategic partnerships on our commercialization initiatives, allowing us to better focus efforts on the core business: oil and gas exploration and production.

11 MANAGEMENT focus Artumas began as an exploration and production company, and although our growth strategy required a certain level of diversification into commercialization initiatives, such as gas-to-electricity power projects, our business focus and expertise remains firmly anchored in oil and gas exploration and development. As we move closer to commercialization projects and ambitious drilling programs, the steps we have taken in 2007 to strengthen our corporate governance and enhance our human capital have clear impact. Artumas has grown to 151 employees and consultants at 2007 year end, compared to 67 at year end This level of expansion has necessitated a strong executive team, enhanced business processes, better defined corporate policies, robust hiring practices, and the enhancement of our financial system. The addition of an SAP procurement and financial system enables real-time internal reporting capabilities and enhanced cost management. Artumas relatively brief history has generated a wealth of knowledge and information about the Rovuma Basin. Employees throughout the company are dedicated to activities that will capitalize on our existing resource base and the efficient use of capital in executing future drilling programs. The technical, commercial and administrative information gained in 2007 will be leveraged in 2008 to ensure funds are spent responsibly and efficiently. In summary, our company is actively preparing for success. funding Having received the strong endorsement of its shareholders and bondholders in our November 2007 private placement of US $98 million and US $70 million in convertible bonds, Artumas begins 2008 with a strong cash position to fund our current capital program. These programs will be further supported by committed grant funds from the Netherlands Government Agency, ORET (US $30 million), bank financing of power projects, and anticipated funding from Tanzania Petroleum Development Corporation, for their share of development costs. With the prospect for strategic partner funding of future capital programs, the Company has never been more confident of achieving its financial objectives. CORPORATE POLICY AND COMPLIANCE STANDARDS Artumas strives to provide our investors, partners, local governments and other stakeholders with concise and transparent reporting of financial and operating results. As a corporation listed on the Oslo Stock Exchange, Artumas Group Inc. adheres to the comprehensive regulatory requirements of the Oslo Børs and is subject to the Norwegian Code of Practice. While the company is incorporated under the Alberta (Canada) Business Corporations Act, the corporation is not a reporting issuer in Canada and is therefore not required to comply with Canadian National Instrument Disclosure of Corporate Governance Practices and National Policy Corporate Governance Guidelines. Artumas adheres to its own internal guideline that should there be any conflict between the laws of the jurisdictions in which we operate and report, Artumas will adopt the higher standard of reporting. The Governance and Nomination Committee of the Artumas Board of Directors complies with these guidelines and meets twice a year to consider further enhancements. The Corporate Governance section of this report outlines Artumas compliance with the Norwegian Code of Practice. Canadian Generally Accepted Accounting Principals (GAAP) are being modified to adhere to International Financial Reporting Standards (IFRS) by Where practical, the company has chosen to adopt international standards earlier to assist our European investors who are more familiar with these standards. By implementing internal governance practices to complement these new standards, we will bridge the requirements of our respective Canadian and Norwegian jurisdictions Business Review 9

12 independent directors The Artumas Board of Directors is responsible for the stewardship of the Company, for the governance and assets of the Company s affairs, and for ensuring that Artumas maintains sound internal control and systems for risk management that are commensurate with relation to the extent and nature of our activities. In 2008, Artumas will add to our independent and highly qualified board members, with the proposal of a new, non executive candidate at the 2008 Annual General Meeting. This will bring Artumas in full compliance with the Norwegian Code of Practice to have the majority of directors on our board independent of executive management, and will enhance the objectivity and guidance of the governance of our company. In 2007, the Company secured the services of Mr. John Bentley as Non Executive Chairman of the Board. Mr. Bentley has considerable business experience in mergers and acquisitions, and in public company management related to African oil and gas exploration and development opportunities. Supported by the strengths of our other independent directors, Ms. Anne Øian, and Mr. Brandon Swim, we look forward to receiving the benefits of Mr. Bentley s guidance, leadership, and insights into the requirements of our business, and to his strong contribution to, and leadership of, our experienced Board of Directors. independent Directors Biographies John W.S. Bentley, B. Tech. Non Executive Chairman of the Board Brandon Swim, B.Sc. Director Anne Øian Director Mr. Bentley has over 35 years of experience within international natural resource corporations, acting in both executive and directorial capacities with a specific focus in the African upstream oil and gas industry. He had recently served as Executive Chairman of FirstAfrica Oil plc until its acquisition in early Mr. Bentley has been a director of the Company since August Mr. Swim is Managing Director of Chasm Lake Management Services, LLC., providing executive management services over the finance, accounting and administrative functions of Perseverance Ltd. while also assuming portfolio management, investment strategy, research and corporate finance responsibilities. Mr. Swim has been a director of the Company since December Ms. Øian is General Manager of DnB NOR Privatbank in Oslo, Norway, responsible for a number of large international clients since She has previously held senior management positions within several divisions of DnB NOR focusing on private banking and shipping, and has held board positions in Statoil, GIEK, BI and Partner Human Recourses. Ms. Øian has been a director of the Company since June INVESTOR RELATIONS investor.relations@artumas.com Significant improvements were made during 2007 in our Investor Relations activities. It is our intention to further strengthen our relationship with shareholders by more efficient use of web medium, allowing us to better communicate our global operating and financial results with greater clarity, and in a more timely fashion. We have expanded our presence at industry conferences, added investor information sessions, and provided site tours to our operations in East Africa. We remain dedicated to our shareholders and to improving our investor relations strategies in Artumas Group Inc.

13 SHAREHOLDER INFORMATION Artumas Group Inc. was listed on the Oslo Stock Exchange in July 2005 at an issue price of 33 NOK, or US $5.00. Artumas stock price as of December 31, 2007 was NOK or US $6.16 with 36.6 million issued and outstanding shares, corresponding to a market capitalization of 1,218 mm NOK or US $225 mm. A number of brokerage firms provide research coverage of Artumas Group Inc. including ABG Sundal Collier, DnB NOR Markets and First Securities. As at December 31, 2007 Artumas had 756 registered shareholders. Including nominee accounts, United Kingdom shareholders held 31.48% of the issued and outstanding shares, with Norwegian shareholders holding 27.07%. SHAREHOLDER percentage ** by residence United Kingdom % Norway % Luxembourg % United States % Hong Kong 7.22 % Germany 4.75 % Canada 1.99 % Switzerland 1.58 % Finland 1.39 % Other 2.14 % Artumas 20 Largest Shareholders ** No. of Shares % of Shares Citibank, N.A. General UK Res. 2,066,426 * 5.65 % DnB NOR Luxembourg 1,884, % Goldman Sachs Int - Equity 1,707,318 * 4.66 % Dredsner Bank AG, London Branch 1,593,618 * 4.35 % JP Morgan Chase Bank 1,508,884 * 4.12 % EMP Africa Fund II PCC 1,465, % Clearstream Banking S.A. 1,365,309 * 3.73 % Citibank N.A. Cogent-Hunter Hall 1,247,318 * 3.41 % Bank of New York, Brussels Bank 970,700 * 2.65 % J.P. Morgan Bank Luxembourg S.A. 919,490 * 2.51 % The Northern Trust Co. 839,044 * 2.29 % JP Morgan Chase Bank 807, % Citibank N.A. Cogent-Hunter Hall 765,000 * 2.09 % Verdipapirfondet Nordea Vekst 728, % Barclays Bank PLC 692, % Citibank N.A. Cogent-Hunter Hall 634,000 * 1.73 % The Northwestern Mutual Life 631, % Olympia Holding AS 626, % Aweco Invest AS 626, % Deutsche Bank AG 561, % * designates nominee accounts ** as of December 31, 2007 On the WEB Visit our investor relations website at for up-to-date information. Also view Artumas TV for a virtual tour at Business Review 11

14 Business Development Anthony E. Reinsch Executive Vice President 2007 Accomplishments Business development initiatives in 2007 focused on the commercialization of gas resources discovered on the Mnazi Bay Concession. These activities accelerated in response to two material developments. First, the commissioning of the Mtwara Energy Project in March 2007 provided assurance to prospective industrial customers that clean, reliable, and stable electricity supply was now a reality in Mtwara, and that natural gas feedstock was available for direct applications. Second, the discovery of the Msimbati Gas field in 1Q 2007 supplemented previously discovered resource volumes and allowed Artumas to begin negotiations towards large-scale off-take projects Objectives In January 2008, Artumas received endorsement from the Government of Tanzania to proceed with two important off-take initiatives: (i) the proposed 300 MW generation development at Mtwara and associated high-voltage transmission interconnection, collectively termed the VLPP; and (ii) the marine export of compressed natural gas (CNG) from Mtwara harbour to Mombasa, Kenya. The goal for 2008 is to move these projects toward financial close, targeting full commissioning in 2010 to These large-scale off-take initiatives will be complemented by accelerating interest in local-regional industrial load growth opportunities in proximity to Mtwara harbour.

15 Local-Regional Off-take Markets The Mtwara Energy Project (MEP) an integrated gas-to-power development linking gas supply from Mnazi Bay Concession to a new-build power generation plant in Mtwara was commissioned on March 6, Load growth in Mtwara town increased nearly 24% over the remainder of 2007, as connected customers utilized the provision of clean, reliable electricity. With the MEP base agreements targeted for final execution in 2008, Artumas will look to initiate the capital build-out necessary to deliver the last component of the MEP: the interconnection of the load centres of Mtwara, Lindi and Masasi. This will complete the commitment to regional electrification made by Artumas in exchange for rights to the Mnazi Bay Concession. Evidence of reliable power supply in Mtwara has prompted a groundswell of interest from potential industrial developers, representing a variety of business sectors including cement manufacturing, cashew nut processing, refrigeration, seafood processing, expansion of district waterworks, agricultural processing, biofuel production, as well as hotels and tourism. It is expected that a number of these proposed developments will transition to gas sales agreements and power purchase agreements over the course of Artumas is also examining, with Electicidade de Mocambique (EDM), the potential for an electricity interconnection between the MEP generation facilities in Mtwara and the northern-most transmission interconnection in Mozambique. This electrical inter-tie would complement the cross-border exploration activity being undertaken by Artumas in the Rovuma Basin. The MEP franchise area, comprised of the Mtwara-Lindi Administrative Districts, remains the source of near-term demand growth and cash flow for Artumas. The Company is strongly committed to economic and industrial growth prospects in the region. National-International Off-take Initiatives In 2006 and early 2007, Tanzania experienced a serious shortage of energy due to drought conditions that compromised much of the country s hydroelectric generation. These shortfalls underscore the risk of continued over-reliance on hydro-powered electricity. High cost, emergency thermal generation has been implemented or planned to alleviate the lack of reliable generation; however, this does not represent a long-term solution to the country s significant and increasing electricity imbalance. With discovered natural gas resource in the Mnazi Bay Concession well in excess of the long-term requirements of the MEP, Artumas has engaged with the Government of Tanzania in the examination of a large-scale power development that would augment and stabilize both the national and East African electricity systems. In March 2008, we completed the second phase of the Pre-Feasibility analysis for the VLPP project a 300 MW generation plant at Mtwara harbour and associated high-voltage transmission line linking the generation facility to the Tanzania integrated power grid southeast of Dar es Salaam. This Pre-Feasibility study commissioned to Parsons Brinkerhoff Power for the generation assets and SNC Lavalin for the transmission interconnection has confirmed the technical, commercial, and environmental merits of the VLPP project. In addition to the VLPP project, we are actively pursuing the marine export of natural gas to regional markets along the East Africa coast, and potentially beyond. The first such activity is an application of marine export of compressed natural gas (CNG), a technology with a long history of land-based application and a number of transportation practitioners pursuing the first marine application. The proposed Mtwara-Mombasa marine CNG export project envisions the delivery of CNG from the Mnazi Bay Concession to gas off-take applications in Mombasa, Kenya. The project involves commissioning of compression and loading facilities at Mtwara harbour where CNG is loaded into an array of pressurized containers mounted on specially-designed container vessels. The CNG is shipped to Mombasa harbour, offloaded, and depressurized for movement by pipeline to off-take users in the immediate harbour area, displacing high-cost, imported petroleum products. In November 2006, Artumas completed a Pre-Feasibility study in conjunction with transportation services provider TransCNG International (a joint venture of TransCanada PipeLines Limited and Overseas Shipholding Group) that confirmed the economic and technical feasibility of the CNG project Business Review 13

16 concession holders SHELL PETRODEL SHELL hydrocarbon basins of east africa Artumas holds exploration and production interests in over 25,000 sq. km. of frontier and high quality exploration acreage in the Rovuma Basin, a tertiary deltaic basin with a deep sedimentary depocenter containing organic material-rich sediments. The basinal area of East Africa extends from the Mandera and Lamu Basins in Kenya through the Zambezi Basin in southern Mozambique. The prospectivity of this East Africa region has attracted the interest of large E&P players including Shell, Petrobras, Petronas, Eni and StatoilHydro. NOR Dar es Salaam MAUREL PETRODEL RAKGAS Mtwara ROVUMA ONSHORE BLOCK Palma SHELL SHELL PETROBRAS DOMINION PETROBRAS PETROBRAS OPHIR OPHIR STATOIL HYDRO OPHIR MNAZI BAY ROVUMA OFFSHORE AREA 1 ENI Pemba STATOIL HYDRO AFRICA PETRONAS Artumas Operated Anadarko Operated

17 MANDERA BASIN SOMALIA KENYA LAMU BASIN CRIOLE BASIN Mombasa TANZANIA Tundaua Seep Dar es Salaam Wingayongo Seep INDIAN OCEAN RUFIJI BASIN SONGO SONGO Mtwara MNAZI BAY Nyuruk Seep Msimbati Seep ROVUMA BASIN MOZAMBIQUE Pemba Pemba Seep Mecufi Seep MALAWI MAJUNGA BASIN MADAGASCAR ZAMBEZI BASIN PANDE MORONDAVA BASIN TEMANE

18 OPERATIONS ENGINEERING Doug Purcell Chief Operating Officer 2007 Accomplishments Artumas executed on its operations excellence in Tanzania with the commissioning of our gas-to-power generating facilities in Mtwara, providing first time access to reliable and affordable electricity in the region. Our new discovery well in Tanzania, Msimbati -1X, yielded both natural gas and crude oil liquids and improved our understanding of this deltaic hydrocarbon system. With strong sensitivity to environmental impact, a 2D seismic acquisition program was completed in Tanzania and the groundwork laid for the 2008 seismic acquisition program in both Tanzania and Mozambique Objectives 2008 will be a time of methodical science and engineering procurement in preparation for our drilling program. 2D and 3D seismic acquisition on both the Tanzania and Mozambique sides of the Rovuma Basin will be undertaken. We will process and analyze seismic data to target the best probability drilling locations and ensure the effective development of our current assets. In 2008, we will work to accelerate the expansion of electrical power distribution from the Mtwara Energy Project to regions beyond, as we continue to focus on our core operations in the exploration, appraisal and development of oil and gas resource.

19 In-depth 2D and 3D seismic data acquisition programs are underway in Artumas Mozambique and Tanzania acreage. Seismic prospects have been identified in the Tertiary, Cretaceous and Triassic, with highly prospective oil prone leads in the Tertiary. Mozambique Rovuma Onshore Block Leads and Seismic Programme Tertiary Cretaceous Triassic Seismic lines

20 drilling success in tanzania Exploration and appraisal drilling operations in Tanzania in 2007 resulted in the discovery of the Msimbati Field, which overlies one flank of the Mnazi Bay field. Production testing of the Msimbati discovery well MS-1X, and the Mnazi Bay appraisal wells MB-2 and MB-3, yielded high flow rates of natural gas and small quantities of 24 to 27 degree API crude oil. The results of the drilling and well testing program have been used to update the Mnazi Bay Concession Resource Report, and to support projections regarding long term deliverability of the four wells drilled to date. The presence of a high permeability reservoir and large drainage area suggests that the four completed wells are each capable of sustaining high production rates. Preparing For Production Growth in Tanzania In 2007, 94 km. of 2D seismic was gathered on the Mnazi Bay Concession area to develop a better understanding of the resource potential of the Mnazi Bay and Msimbati gas fields and the surrounding leads and prospects. The seismic data has enabled Artumas to map the Mnazi Bay and Msimbati gas fields to identify appraisal and development well locations for field development planning purposes. The 3D seismic survey upcoming will improve this subsurface imaging, enabling the appraisal and development wells to better target multiple sequences of stacked gas reservoir sands, thereby adding the largest resource additions at the lowest cost. Production from these wells is expected to meet the gas demand of Artumas large scale power generation and compressed natural gas export projects. Detailed well engineering and procurement planning has begun in preparation for drilling operations planned to start in late 2008 or early Timing of development drilling is dependent upon rig availability and on maturation of commercialization opportunities. The first wells to be drilled will be vertical wells, targeting the thickest gas-bearing sections of the Mnazi Bay reservoir easily identifiable on 2D seismic. Directional wells drilled from pads will develop gas bearing reservoir sands in those areas of the Mnazi Bay and Msimbati fields lying under the sea, minimizing environmental impact. Artumas has identified a number of high potential exploration prospects on its contract area in Tanzania that will preferably be drilled with the same rig to be mobilized for appraisal and development drilling. Some of the exploration prospects are buried beneath the Mnazi Bay field, while others are located nearby. Results of geochemical analysis and subsurface imaging will help identify which drilling locations are most prospective for commercial volumes of oil and gas, and the depth of such prospects will influence the choice of drilling rig mobilized for exploration and development drilling. Artumas is partnered with the Tanzanian Petroleum Development Corporation (TPDC) in the Mnazi Bay concession area and has an 80% interest in production. 18 Artumas Group Inc.

21 Seismic Acquisition and Exploration Drilling in Mozambique In northern Mozambique, Artumas and its partners, Anadarko Petroleum Corporation (Anadarko) and Empresa Nacional de Hidrocarbonetos (ENH), are mobilizing equipment and personnel to acquire 750 km. of new 2D seismic on an area of the Rovuma Onshore Block prospective for both crude oil and gas. Seismic lines are being hand cleared to minimize environmental impact and to create employment for the people living in the area. Road, bridge and camp surveys will evaluate needed infrastructure improvements, benefiting local communities. Seismic acquisition is scheduled to commence in June 2008, with completion targeted for November Upon final mapping, this seismic data will provide Artumas with definitive indications of the most prospective areas for exploration potential of the Rovuma Onshore Block. Collection and careful analysis of this data will enhance our probability of finding commercial quantities of hydrocarbons. Drilling on Artumas Rovuma Onshore Block is expected to commence, subject to rig availability, in mid In the Rovuma Offshore Area 1 Block, Artumas and its partners, Anadarko, Mitsui Co. Ltd. and ENH, are gathering 3,300 sq. km. of 3D seismic over the deepwater area of the block. Anadarko is operating the seismic acquisition, as well as subsequent exploration activities. The first of four deepwater commitment wells is expected to spud in In the shallow water area of the Offshore Area 1 Block, a 2D seismic acquisition program is being planned for early 2009 in support of an additional three well exploration drilling program, targeted to begin in Artumas has a 49.3% interest in production from the Rovuma Onshore Block and an 8.5% interest in production from the Rovuma Offshore Area 1 Block. Completing the Mtwara Energy Project The first phase of the Mtwara Energy Project (MEP) linking the gas resource at Mnazi Bay Concession to gas production, pipeline and receiving facilities in Mtwara and 12 MW of installed gas-fired generation capacity was commissioned in March Since that time, existing power consumers in the town of Mtwara have received reliable, stable electricity on a 24/7 basis. Later in 2007, state utility TANESCO established a small inter-tie linking the Mtwara power facility to consumers in Lindi. The focus of operations in the Mnazi Bay Concession in late 2007 was on staffing the gas processing and receiving facilities with experienced operators. These personnel are now training Tanzanians to move into positions of higher responsibility, ensuring that safe maintenance and operating practices become well established. As Tanzanian personnel replace expatriates, operating costs will decrease, while increased production will deliver a dramatic reduction in unit operating costs. Upon execution of the MEP agreements, Artumas will immediately begin procurement of the transmission and distribution equipment required to expand electrical power distribution in the Mtwara-Lindi Administrative Districts, which represent the franchise area for the MEP. Completion of detailed engineering and purchase of long lead items are being accelerated, in order to minimize the time required to connect the large potential customer base in the franchise area. The Mtwara power plant has been designed for modular expansion, allowing for relatively quick capacity expansion. Artumas has contracted the management and engineering services of Manitoba Hydro International to operate the generation, transmission and distribution of electricity within the MEP, with Artumas focusing on its core competence the exploration, appraisal and development of oil and gas resource. At year-end 2007, Artumas held 80% of the power generation, transmission and distribution business it is developing in Tanzania, with the remaining 20% held by FMO, the development financial institution of the Netherlands Government Business Review 19

22 OPERATIONS Exploration Duncan Nightingale Senior Vice President Exploration 2007 Accomplishments 2007 was a year marked by two defining developments. First, Artumas expanded its exploration interests south of the Rovuma River, into a contiguous concession in Mozambique. The addition of these assets now provides us participating interests in over 25,000 sq. km of exploration acreage. Second, geochemical analysis conducted on oil and rock samples from the Tanzanian side of the Rovuma Basin indicates the presence of a full petroleum system within the Basin, extending south into Mozambique. Combined, these developments provide Artumas opportunities to capitalize on our large acreage position in a frontier high quality basin with strong indications for exploration success Objectives During the upcoming year, we will take the necessary steps to prepare for, and to execute an extensive drilling program in Tanzania and Mozambique. We have identified prospective gas and oil-prone regions on the Onshore Block and the Offshore Area 1 Block of Mozambique, and also in our proven gas-bearing Mnazi Bay Concession in Tanzania. This year will require the careful analysis of the data to allow us to identify high potential exploration prospects and enhance our probability of finding additional commercial quantities of hydrocarbons.

23 The new discovery well in Tanzania, MS-1X, yielded both natural gas and crude oil liquids from the Msimbati field. Geochemical analysis of the oil and recent basin modeling analysis in offshore concessions have increased the possibility of finding commercial quantities of light oil along the eastern margin of Africa. Tanzania 3D structural model outlining the geometry of the Mnazi Bay and Msimbati gas fields MS-1X MB-3 MB-2 MB-1

24 Oil-Prone Exploration Potential Basin Artumas is in an enviable position within the global energy industry. We hold exploration and production interests in over 25,000 sq. km. of frontier and high quality exploration acreage in the Rovuma Basin: a deltaic basin with emerging world class hydrocarbon potential. Our concessions border each side of the Rovuma River, which flows over a deep sedimentary depocenter containing organic material-rich sediments capable of generating hydrocarbons. Though shared by the two countries of Tanzania and Mozambique, the Rovuma Basin has no political boundaries and its potential is the focus of our exploration interests. Artumas Mozambique Rovuma Onshore Block concession was awarded in March 2006 effective 1 September 2007 and has proven to be a significant development for our company. In combination with our Tanzanian concession in Mnazi Bay, contiguous to our Mozambique concession, Artumas is positioned with a significant portion of the Rovuma Basin will be a year of seismic data acquisition and planning for the 2009 drilling campaign and a year of preparation to unlock the hydrocarbon potential of this acreage. Already, preliminary results are encouraging. Geochemical analysis has been conducted on oil samples recovered from drill stem tests in the Mnazi Bay Field, and on rock samples obtained from our drilling operations in the area. This analysis has provided further evidence indicating that Artumas acreage within the Rovuma Basin has a highly increased chance of yielding liquid hydrocarbons and may, in fact, contain significant quantities of oil. The presence of suitable petroleum generating source rocks is a necessary condition for the presence of an effective petroleum system. Many of the world s oil and gas producing deltaic basins, such as the Gulf of Mexico and Niger Delta, to name a few, yield oil and gas generated from source rocks of Late Cretaceous age to Tertiary age. Key geochemical indicators in oils recovered from the Mnazi Bay Field confirm the presence of a Tertiary age source rock. Geochemical analysis also revealed certain markers that are present in oils generated from deltaic source rocks deposited during the Late Cretaceous through to the Tertiary period. Third party analysis also revealed the presence of organic marker compounds which are generally associated with organic source rock material associated with hydrocarbon systems that are oil-prone. Analysis of rock samples recovered during drilling in the Mnazi Bay Field have been shown to contain organic material having a high generative capacity for oil. Additional analysis provided data that indicates the oilprone source rock material has been buried deep enough, and for a sufficient period of time, to be mature for oil generation. Preparing for Exploration Success Mozambique Historical geological studies conducted by other hydrocarbon explorers in East Africa have suggested that the region contains a gas-prone hydrocarbon system. Independent geochemical analysis conducted on behalf of Artumas in the Rovuma Basin now confirms the presence of an oil-prone hydrocarbon system in the northern part of our Rovuma Onshore Block, and possibly extending into the Rovuma Offshore Area 1 Block. These results have allowed us to target this northern area for the acquisition of 750 sq. km. of 2D seismic data. We will acquire this seismic data in the most prospective oil-prone area of the Rovuma Basin, allowing Artumas to map the best chance of success for the 2009 drilling campaign. Based on Artumas current seismic mapping, over 60 prospects have been identified in the shallow and deeper waters of the Rovuma Offshore Area 1 Block. Geochemical analysis and existing seismic mapping indicates that the oil prone Rovuma Basin Tertiary source rock identified in Mnazi Bay is likely to extend into the offshore, thereby raising the potential for an oil discovery. The discovery of oil in any of the potential drilling locations mapped from the seismic data will greatly increase the chances of exploration success in adjacent hydrocarbonprone structures. If such a discovery occurs, the industry attention that is already mounting in the East African region will intensify. 22 Artumas Group Inc.

25 Rovuma Basin Prospectivity The Rovuma Basin is one of the last under-explored Tertiary deltas with a proven petroleum system. The delta is characterized by a structural geometry similar to world-class prolific hydrocarbon bearing provinces including the Niger Delta, Krishna Godavari, Campos, and the Gulf of Mexico. Oil recovered from production drill stem tests in Mnazi Bay and recent basin modeling analysis in the offshore section of the Rovuma Delta are encouraging indicators of light oil prospectivity in the Basin. Play Analyses and Potential Resource Evaluation In late 2007 and early 2008, Rose & Associates evaluated the resource potential in the Mozambique sections of the Rovuma Basin. Basins of this type typically are given a Chance of Success (COS) of less than 10%. Rose & Associates has assigned probabilistic COSs to the Rovuma basin acreages ranging from 17% on the Onshore and Shallow Water areas to 24% on the Deep Water areas. Additionally, Field Size Distributions are suggested to include field sizes > 1.0 billion barrels for the offshore area Business Review 23

26 Acreage Participating Interests* Mnazi Bay Concession sq. km. Artumas: 80% FMO: 20% Rovuma Onshore Block 15,000 sq. km. Artumas: 49.3% Rovuma Offshore Area 1 Block 10,500 sq. km. Artumas: 8.5% Resource Estimates* Mnazi Bay Concession October 2007 Independent Resource Report Original Gas in Place (GIIP) P 90 P mean P billion cubic feet 1190 billion cubic feet 2290 billion cubic feet Concession potential (Artumas estimate) 3.0 trillion cubic feet Seismic Acquisition Program* Mnazi Bay Concession 2D: 75 km. 3D: 103 sq. km. 2D tie-line to Mozambique: 20 km. Rovuma Onshore Block 2D: 750 km. Rovuma Offshore Area 1 Block 2D: 1000 km. 3D: 3300 sq. km. * as of December 31, Artumas Group Inc.

27 Preparing for Exploration Success Tanzania In early 2007, Artumas made a new discovery in the Mnazi Bay Concession, known as the Msimbati-1X well. Production results from the Msimbati-1X exploration well showed high natural gas flow rates, with the production of small, non-commercial quantities of 24º 27 API crude oil. This is of key interest as it indicates the presence of an active petroleum system in the region comprised of oil with gas. The success of the Msimbati drilling program combined with advancing regional off-take agreements has accelerated our exploration programs in Tanzania. Artumas will acquire an additional 103 sq. km. of 3D and 80 km. of 2D seismic data in the Mnazi Bay Concession in This new data will allow the Mnazi Bay field to be mapped in detail. Results from mapping the 3D seismic data will assist in the determination of the Mnazi Bay field resources and subsequent placement of future development wells. Integration of the new 2D seismic data to the existing mapping will allow previously identified high-potential exploration prospects to be matured for drilling. Final data processing and mapping of the new seismic data will be completed during the third quarter of this year. Further development drilling within the Mnazi Bay Field is planned for early It is expected that three to four development wells and an exploration well will be drilled, dependent upon rig availability, within the Mnazi Bay concession. Play analyses and Potential Resource Evaluation During 2007, Artumas engaged the assistance of Rose & Associates to independently evaluate the resource potential of Artumas acreage holdings in Mozambique. Rose & Associates is recognized globally as one of the leading companies in probabilistic risk analysis, prospect and play analysis for the E&P industry and has completed evaluations for many of the major oil and gas companies. The 2007 Rose & Associates Play Analyses of the onshore and offshore tertiary plays of the Rovuma Basin in Mozambique were conducted prior to the knowledge gained from the most recent geochemical analysis and most recent geological and geophysical mapping. In addition, the study combined the offshore shallow and deep water hydrocarbon regimes. Due to the differing capital development costs and differences in the geological characteristics of the two areas, it was deemed appropriate in the follow-up study to separate the areas to obtain a more accurate estimate of the potential value for each area. In early 2008, Artumas re-engaged the services of Rose & Associates to conduct a further evaluation integrating new seismic mapping and the results from the geochemical studies, so as to provide a more current evaluation of the exploration potential and value of Artumas acreage within Mozambique. While also targeting natural gas resources, initial results from the first phase of the study have increased the exploration potential of the acreage, with respect to the chance of success for discovering oil and the potential volumes to be discovered. Final results from this study are expected in May Results from the play analyses to date support the significant exploration potential of the onshore and offshore regions of the Rovuma Basin Business Review 25