notice of annual general meeting of ......notice of annual general meeting of shareholders notice is...

COASTAL ENERGY COMPANY NOTICE OF ANNUAL GENERAL MEETING

OF SHAREHOLDERS AND MANAGEMENT INFORMATION CIRCULAR

(all financial information as at December 31, 2012 unless otherwise indicated) (all dollar figures are in United States dollars unless otherwise indicated)

Meeting to be held on Tuesday, June 18, 2013

At 10:00 a.m. (London time) At the offices of

Coastal Energy Company 10 Cavalry Square

London, England SW3 4RB

2013 Management Information Circular

Table of Contents

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS ............................................................. 1 GENERAL PROXY INFORMATION ............................................................................................................... 2

Solicitation of Proxies ................................................................................................................................. 2 Appointment of Proxyholder ....................................................................................................................... 2 Interest of Certain Persons in Matters to be Acted Upon ........................................................................... 4

VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES .......................................... 4 Voting Securities and Rights ...................................................................................................................... 4 Record Date ............................................................................................................................................... 4 Principal Holders of Voting Securities ........................................................................................................ 4

CORPORATE GOVERNANCE ....................................................................................................................... 5 Board of Directors and Committees ........................................................................................................... 7 Assessments by Board............................................................................................................................... 8 Board Attendance ...................................................................................................................................... 9

COMPENSATION DISCUSSION AND ANALYSIS ......................................................................................... 9 Compensation Objectives .......................................................................................................................... 9 Use of Compensation Consultant and Benchmark ....................................................................................10 Elements used to Achieve Compensation Objectives ...............................................................................13 Compensation for Named Executive Officers (“NEOs”) in 2012 ................................................................17

Summary Compensation Table ............................................................................................................17 Incentive Plan Awards ..........................................................................................................................17 Retirement Savings Plan ......................................................................................................................18 Employment Contracts and Termination and Change in Control Benefits ............................................19 Compensation upon Termination of Employment .................................................................................20

Management Contracts .............................................................................................................................21 Securities Authorized for Issuance under Equity Compensation Plans .....................................................21 Indebtedness of Directors and Officers .....................................................................................................21 Directors and Officers Liability Insurance ..................................................................................................21 Information on Stock Ownership ...............................................................................................................22 Compensation of Independent Directors ...................................................................................................22

Independent Director Compensation Table ..........................................................................................23 Independent Director’s Incentive Plan Awards .....................................................................................24

Interests of Informed Persons in Material Transactions ............................................................................25 PARTICULARS OF MATTERS TO BE ACTED UPON ..................................................................................26

1. Financial Statements ............................................................................................................................26 2. Election of Directors .............................................................................................................................26 3. Appointment of Auditors .......................................................................................................................30 Additional Information................................................................................................................................31 Approval of This Circular ...........................................................................................................................31

APPENDIX TO THE MANAGEMENT INFORMATION CIRCULAR ...............................................................32 APPENDIX A – 2012 Annual Report, including Management’s Discussion and Analysis as of

December 31, 2012 and Audited Financial Statements as of December 31, 2012 APPENDIX B – Audit Committee Mandate or “Terms of Reference”

1 2013 Management Information Circular

COASTAL ENERGY COMPANY

Walkers House, 87 Mary Street, PO Box 908GT George Town, Grand Cayman

Cayman Islands British West Indies

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

Notice is hereby given that the Annual General Meeting (the "Meeting") of the shareholders of COASTAL ENERGY COMPANY (the "Company") will be held at 10:00 a.m. (London time) on JUNE 18, 2013 at the offices of the Company, 10 Cavalry Square, London, SW3 4RB, England for the following purposes:

1. to receive and consider the audited financial statements of the Company for the year ended December 31, 2012 together with the report of the Auditors thereon;

2. to elect Directors for the ensuing year;

3. to appoint the accounting firm of Deloitte, LLP as auditors for the ensuing year and to authorize the Directors to fix the auditors’ remuneration;

In addition, shareholders will be asked to consider any amendment or variation of a matter identified in this Notice and to transact such other business as may properly come before the Meeting or any adjournment thereof.

Accompanying this Notice of Meeting are the Company’s management information circular and its appendices (the "Circular"), and a form of proxy (the "Proxy").

Only shareholders of record at the close of business on May 14, 2013 (the “Record Date”) will be entitled to receive notice of and vote at the meeting.

Shareholders entitled to vote at the Meeting may do so either in person or by proxy. Those shareholders who are unable to attend the Meeting are requested to read, complete, sign, date and return the enclosed Proxy in accordance with the instructions set out in the Proxy and in the Circular. Please advise the Company of any change in your mailing address.

ON BEHALF OF THE BOARD OF DIRECTORS

Lloyd Barnaby Smith Chairman of the Board George Town, Grand Cayman, BWI May 7, 2013



Walkers House, 87 Mary Street, PO Box 908GT George Town, Grand Cayman

Cayman Islands British West Indies

Phone: +01 (713) 877-7125

Fax: +01 (713) 877-7128

MANAGEMENT INFORMATION CIRCULAR as at and dated May 7, 2013

Solicitation of Proxies

This Management Information Circular (the "Circular") is furnished to the shareholders of Coastal Energy Company (the “Company”) in connection with the solicitation of proxies by the management of the Company for use at the Annual General Meeting of the Company’s shareholders to be held at 10:00 a.m. (London time) on June 18, 2013 (London time) at the offices of the Company, 10 Cavalry Square, London, SW3 4RB, England, and at any adjournment thereof (the “Meeting”).

No person is authorized to give any information or to make any representation not contained in this Circular and, if given or made, such information or representation should not be relied upon as having been authorized. This Circular does not constitute an offer to sell, or a solicitation of an offer to acquire, any securities or the solicitation of a proxy (“Proxy”), by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or proxy solicitation.

The members of the Board of Directors (the “Directors”) intend to vote the common shares of the Company (the “Common Shares” or “Shares”) which they personally hold, directly or indirectly, in favour of the resolutions and, in their capacity as Directors of the Company, unanimously recommend the shareholders also vote in favour of such resolutions. As a group, the Directors personally hold, in aggregate 3,585,189 Shares representing approximately 3.16% of the Company’s 113,604,819 currently outstanding Shares. In addition, four “Independent Directors” (see section entitled Directors and Committees) on its Board of Directors (hereinafter the “Board”) serve on a board of four “Attorneys” that administer an independent voting trust covering 18,432,945 Shares, which represents 16.23.% of the Company’s currently outstanding Shares, and these Directors will also vote on behalf of these Shares.

GENERAL PROXY INFORMATION

Solicitation of Proxies

The solicitation will be by mail and may be supplemented by telephone and other personal contact to be made without special compensation by Directors and officers of the Company. Except as required by statute, regulation or policy thereunder, the Company does not reimburse shareholders, nominees or agents (including brokers holding Shares on behalf of clients) for the cost incurred in obtaining from their principals authorization to execute forms of Proxy.

The cost of this solicitation will be borne by the Company.

The contents and the sending of this Circular have been approved by the Board.

Appointment of Proxyholder

The individuals named in the accompanying form of proxy are L. Barnaby Smith, the Company’s Chairman of the Board (an “Independent Director” – See Directors and Committees); Randy L. Bartley, the Company’s Chief Executive Officer; William C. Phelps, the Company’s Chief Financial Officer (both are “Executive Directors” – See Directors and Committees); and John B. Zaozirny, an Independent Director.


A SHAREHOLDER HAS THE RIGHT TO APPOINT SOME OTHER PERSON (WHO NEED NOT BE A SHAREHOLDER) TO REPRESENT THE SHAREHOLDER AT THE MEETING BY STRIKING OUT THE NAMES OF THOSE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY AND BY INSERTING SUCH OTHER PERSON’S NAME IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY OR BY COMPLETING ANOTHER FORM OF PROXY. A PROXY WILL NOT BE VALID UNLESS THE COMPLETED FORM OF PROXY IS RECEIVED BY THE COMPANY’S REGISTRARS AND TRANSFER AGENTS, WHICH ARE, FOR SHAREHOLDERS WHOSE COMMON STOCK IS REGISTERED ON THE TSX EXCHANGE: COMPUTERSHARE

2ND FLOOR, 510 BURRARD STREET VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3B9

OR FOR SHAREHOLDERS WHOSE COMMON STOCK IS REGISTERED ON THE AIM EXCHANGE: CAPITA REGISTRARS THE REGISTRY, 34 BECKENHAM ROAD BECKENHAM, KENT, BR3 4TU, ENGLAND, NOT LATER THAN 48 HOURS, EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS, PRECEDING THE TIME OF THE MEETING, OR ANY ADJOURNMENT THEREOF, OR DELIVERED TO THE CHAIRMAN OF THE MEETING PRIOR TO THE COMMENCEMENT OF THE MEETING. PROXIES DELIVERED AFTER THAT TIME WILL NOT BE ACCEPTED.

Revocation of Proxies

A shareholder who has given a Proxy may revoke it by delivering an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing or, where the shareholder is a corporation, by a duly authorized officer or attorney of the corporation, to the Company’s registrars and transfer agents, at the addresses listed above, at any time up to and including the last business day preceding the day of the Meeting, or any adjournment thereof, or in any other manner provided by law. A revocation of a Proxy does not affect any matter on which a vote has been taken prior to the revocation.

Advice to Beneficial Shareholders

Only registered shareholders or duly appointed proxyholders are permitted to vote at the Meeting and any adjournment thereof. Shareholders who do not hold Shares of the Company in their own name (referred to herein as "Beneficial Shareholders") are advised that only proxies from shareholders of record can be recognized and voted at the Meeting. Beneficial Shareholders who complete and return an instrument of proxy must indicate thereon the person (usually a brokerage house) who holds their Shares as a registered shareholder. Every intermediary (broker) has its own mailing procedure, and provides its own return instructions, which should be carefully followed. The instrument of proxy supplied to Beneficial Shareholders is identical to that provided to registered shareholders. However, its purpose is limited to instructing the registered shareholder how to vote on behalf of the Beneficial Shareholder. If Shares are listed in an account statement provided to a shareholder by a broker, then in almost all cases those Shares will not be registered in such shareholder's name on the records of the Company. Such Shares will more likely be registered under the name of the shareholder's broker or an agent of that broker. Shares held by brokers or their nominees can only be voted (for or against resolutions or withheld from voting, as the case may be) upon the instructions of the Beneficial Shareholder. Without specific instructions, brokers/nominees are prohibited from voting Shares for their clients. The Directors and officers of the Company do not know for whose benefit Shares registered in the names of persons other than their registered holders are held.

Voting of Proxies

SECURITIES REPRESENTED BY PROPERLY EXECUTED PROXIES IN THE ACCOMPANYING FORM WILL BE VOTED OR WITHHELD FROM VOTING IN ACCORDANCE WITH THE INSTRUCTIONS OF THE SHAREHOLDER ON ANY BALLOT THAT MAY BE CALLED FOR AND, IF THE SHAREHOLDER SPECIFIES A CHOICE WITH RESPECT TO ANY MATTER TO BE ACTED UPON AT THE MEETING, THE COMMON SHARES REPRESENTED BY SUCH PROXY WILL BE VOTED ACCORDINGLY. IF NO CHOICE IS


SPECIFIED OR IF BOTH CHOICES ARE SPECIFIED, THE PERSON DESIGNATED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE IN FAVOUR OF ALL MATTERS PROPOSED BY MANAGEMENT AT THE MEETING.

The enclosed form of Proxy - when properly completed and delivered and not revoked - confers discretionary authority upon the person appointed proxy thereunder to vote with respect to amendments or variations of matters identified in the Notice of Meeting and with respect to other matters which may properly come before the Meeting. In the event that amendments or variations to matters identified in the Notice of Meeting are properly brought before the Meeting or any further or other business is properly brought before the Meeting, it is the intention of the person designated in the enclosed form of Proxy to vote in accordance with their best judgment on such matters of business. At the date of this Circular, management of the Company knows of no such amendment, variation or other matter which may be presented to the Meeting.

Interest of Certain Persons in Matters to be Acted Upon

Except as disclosed herein, no Person has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in matters to be acted upon at the Meeting. For the purpose of this paragraph, "Person" shall include each person: (a) who has been a Director, senior officer or insider of the Company at any time since the commencement of the Company's last fiscal year; (b) who is a proposed nominee for election as a Director of the Company; or (c) who is an associate or affiliate of a person included in subparagraphs (a) or (b).

VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES

Voting Securities and Rights

The Company has one class of securities, being Common Shares. Each share carries the right to one vote. The Company’s authorized and issued and outstanding share capital as of the date of this Circular are as follows:

Authorized Capital: 250,000,000 Common Shares

Issued and Outstanding as at the Record Date: 113,604,819 Common Shares

In accordance with the Articles of the Company, on a show of hands, every individual who is present and entitled to vote as a shareholder or as a representative of one or more corporate shareholders, or who is holding a Proxy on behalf of a shareholder who is not present at the Meeting, will have one vote and on a poll every shareholder present in person or represented by Proxy, and every person who is a representative of one or more corporate shareholders, will have one vote for each share registered in his name on the list of shareholders, which is available for inspection during normal business hours at Computershare, 2nd Floor, 510 Burrard Street, Vancouver, British Columbia, Canada V6C 3B9 and will be available at the Meeting.

Record Date

Only shareholders of record on May 14, 2013 (the "Record Date") who either personally attend the Meeting or who have completed and delivered a form of Proxy in the manner and subject to the provisions described above will be entitled to vote or to have their Shares voted at the Meeting.

Principal Holders of Voting Securities

To the knowledge of the Directors and officers of the Company, the following table lists the persons who beneficially own, directly or indirectly, or exercise control or direction over securities carrying in excess of 10% of the voting rights attached to the Shares as of the Record Date:


NAME NUMBER OF SHARES

HELD DIRECTLY OR INDIRECTLY PERCENTAGE OF ISSUED

SHARES(1)

Oscar S. Wyatt, Jr. (2) 29,793,427 26.23%

Ingalls & Snyder, LLC 10,549,000 9.29% (1) Based on 113,604,819 Shares issued and outstanding as at the record date of this Circular. (2) Shares held by Mr. Wyatt in excess of 10% of the total Shares outstanding are subject to a Voting Trust Agreement in

which four (4) of the independent Directors serve on the board of four “Attorneys” which holds the proxy for these Shares. As of the date of this Circular, this 16.23% amounts to 18,432,945 Shares.

CORPORATE GOVERNANCE

Formation of Company. The Company was incorporated on May 26, 2004, and has completed seven financial years for which financial statements are available.

The Company became a reporting issuer in each of the Canadian provinces of British Columbia and Alberta on September 16, 2005, and in the province of Ontario on September 11, 2006. Its Shares are listed on the London AIM Exchange and were formerly listed on the TSX Venture Exchange (the “TSX-V”), from which exchange the Company’s Shares were delisted upon the Company’s graduation to the Toronto Stock Exchange (the “TSX”) on July 5, 2011.

Governance Principles. Effective 30 June 2005, National Instrument 58-101 - Disclosure of Corporate Governance Practices (“NI 58-101”) was adopted in each of the provinces and territories of Canada. NI 58-101 requires issuers to disclose the corporate governance practices that they have adopted.

Corporate governance relates to the activities of the Board, the members of which are elected by, and are accountable to the Shareholders, and takes into account the role of the individual members of management who are appointed by the Board and who are charged with the day to day management of the Company. The Board is committed to sound corporate governance practices which are both in the interest of its Shareholders and contribute to effective and efficient decision making. NI 58-101 establishes corporate governance guidelines applicable to all public companies.

The Company has reviewed its own corporate governance practices in light of these guidelines. In most cases, the Company’s practices comply with the guidelines, however, the Board considers that some of the guidelines may not be suitable for the Company at its current stage of development, and therefore these guidelines have not been adopted in total.

The Company’s corporate governance practices are set out below. The Board’s governance principles, including, but not limited to, the “Terms of Reference” for its four regular committees (Audit, Compensation, Nomination & Corporate Governance, and Reserves) are reviewed regularly and modified as warranted. These Terms of Reference are available in print to any shareholder upon request and are on the Company’s website at www.CoastalEnergy.com.

During 2010, a fifth committee, the “Stock Repurchase and Hedging Committee” was formed, which meets for the purpose of considering management recommendations on those matters identified in its name. As the Committee meets on an “ad hoc” basis, the Company does not believe that it requires formal “terms of reference”, but it does operate pursuant to an instructional protocol.

Director Independence. For a Director to be considered independent, the Board must determine that the Director does not have any direct or indirect material relationship with the Company (as such term is defined in section 1.4 of National Instrument 52-110 Audit Committees of the Canadian Securities Administrators (“NI 52-110”)). Five (5) of seven (7) Directors were “Independent Directors” in 2012, being C. Robert. Black, Andrew L. Cochran, Olivier de Montal, Lloyd Barnaby Smith (currently the Chairman) and John B. Zaozirny. Mr. Bartley, the Company’s President and Chief Executive Officer, and Mr. Phelps, the Company’s Chief Financial Officer, are the only Directors who were not independent in 2012. Mr. Cochran was employed by the Company in February 2013 as an Executive Director and is no longer considered independent. Mr. Forrest E. Wylie was

http://www.coastalenergy.com/


appointed by the Board in April 2013 as an Independent Director to ensure a sufficient number of independent Directors to fill the Board’s standing committees.

The Company does not believe that there is a need to name a “senior non-executive” board member, so long as the position of Chairman of the Board is filled by an independent director, as is currently the case. All members of the Company’s five Committees are Independent Directors, as required by the Board’s Governance Principles. The Independent Directors do not hold regularly scheduled meetings at which non-independent directors and management are not in attendance. The Board believes the fact that the board’s five Committees are comprised only of Independent Directors ensures open and candid discussion among its independent directors.

Certain of the Company’s directors are also directors or officers of reporting issuers or the equivalent in other jurisdictions. Particulars are included under their respective names under Election of Directors below

Code of Ethics. All Directors, officers and employees of the Company must act ethically at all times and in accordance with the Company’s Code of Ethics. This Code of Ethics, which includes instruction on ethical and legal compliance (including adherence to foreign official bribery laws), may be found on SEDAR under the Company’s profile at www.sedar.com and on the Company’s website at www.CoastalEnergy.com. It is also available in print to any shareholder upon request. Under the Board’s Governance Principles, the Board will not permit any waiver of any ethics policy for any Director or executive officer. If any Director concludes that an actual or potential conflict of interest may have arisen, s/he must promptly inform the CEO and the Chairman of the Board of the nature of the conflict. If a significant conflict exists and cannot be resolved, the Director should resign. All Directors are required to recuse themselves from any discussion or decision affecting their personal business or professional interests.

Communicating Concerns to Directors. The Board has established written “Whistleblowing Policy Statement and Reporting Procedure” to enable anyone who has a concern about the Company’s conduct or policies, or any employee who has a concern about the Company’s accounting methods, reporting controls or auditing matters, to communicate that concern directly to the Board, to the Chairman, to any of the Independent Directors or to the Audit Committee. All employees receive periodic instruction on the purpose of, and their individual responsibilities under, the Company’s Code of Ethics, and its Whistleblower Policy. Such communication will be held confidential or anonymous (except in circumstances where corrective action necessarily requires limited disclosure), and may be e-mailed, submitted in writing or reported by phone to the designated whistleblowing officer (“DWO”), who will immediately contact the Corporate Governance and Nominating Committee of the Board. All such communications are promptly reviewed by the DWO, and any concerns relating to accounting methods and disclosure controls, auditing or officer conduct are sent immediately to the Chairman and to the chair of the Audit Committee. The Company’s Whistleblowing Policy prohibits any employee from retaliating or taking adverse action against anyone for raising or helping to resolve an issue raised through this process. Copies of the Company’s whistle blowing policy are available to any shareholder upon request and on the Company’s website at www.CoastalEnergy.com.

Insider Trading. While the Company encourages all of its Directors, officers and employees to become shareholders of the Company, it likewise requires that any trades by those persons comply with the restrictions on “insider trading”, as set forth in the securities laws of Canada and the U.K., and the policies and rules of the London Stock Exchange and the Toronto Stock Exchange. To this end, the Company has adopted a formal and written “Insider Trading Policy”, a copy of which has been provided to all personnel, which generally provides (here, in summary form) that:

It is illegal (and therefore a violation of the policy) for any Directors, officers or employees to sell or otherwise deal in the Company’s securities with knowledge of “unpublished price-sensitive information”, any “material information” or a “material change” (generally, information or facts that, if publicly-known, would reasonably be expected to have a significant impact on the market value of the Company’s Shares).

The Company makes periodic announcements to its personnel concerning “blackout periods” - both of a “regular” nature (such as release of quarterly financials) and of a “special” nature (such as just prior to testing of an exploration well), during which insider trading is prohibited because of the presumption that the trade would be based on “insider information.”

In addition, Directors and senior officers of the Company must receive “pre-clearance” from the Company Secretary of all intended share transactions, and such transactions are thereafter publicly-divulged via the Canadian SEDI system.

http://www.sedar.com/




Annually, all employees attend training on the specifics of the Company’s Insider Trading Policy, and attendance records on this training are kept. Copies of the Company’s Insider Trading Policy are available to shareholders upon request and on the Company’s website at www.CoastalEnergy.com.

Orientation and Continuing Education. Each new Director meets with senior management and receives a briefing on the nature of the Company’s business, its corporate strategy and current issues affecting the Company. New Directors also are advised of their responsibilities under applicable stock exchange rules and regulations. The Company provides all Directors with an annual refresher briefing on these responsibilities. The introduction and education process is reviewed on an annual basis and will be revised accordingly.

Board of Directors and Committees

Under the Company’s Memorandum & Articles of Association, as amended and restated, the Company may fix a maximum or minimum number of Directors. The Board currently consists of eight (8) Directors. The Board will continue to evaluate the Directors’ skills required by the Company. In the coming months, if the Board determines that there is a need for a specific skill set on the Board, the Corporate Governance and Nominating Committee will be tasked with identifying an individual with the requisite skill set to join the Board.

Lloyd Barnaby Smith is the Board’s Chairman, whose responsibilities include those matters discussed in the Board’s Governance Principles and in the Chairman’s formal job description (or “terms of reference.”) Copies of his job description are available to shareholders on the Company’s website at www.CoastalEnergy.com or upon written request.

The Board is responsible for approving strategic plans, annual operating budgets and plans recommended by management. Board consideration and approval is also required for all material contracts and business transactions and all debt and equity financing proposals (unless previously approved as part of the budget). The Board is also responsible for the review of senior executive recruitment and executive compensation, subject to the recommendations of the Corporate Governance and Nominating Committee and the Compensation Committee, respectively.

The Board has adopted written Terms of Reference for all of its four (4) standing committees: the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, and the Reserves Committee, copies of which are available to shareholders, upon request. The Board has determined that members of its four committees shall not also be employees or managers of the Company (employee/managers who are also Directors being referred to as “Executive Directors” and non-Executive Directors who satisfy the definition of the AIM being referred to as “Independent Directors”.)

Audit Committee. The Audit Committee was constituted at a full meeting of the Board held on 31 January 2007, in accordance with the Articles of Association of the Company. The members of the Audit Committee in 2012 were Messrs. Black, Cochran, and Zaozirny (currently the chair). In 2013 Mr. Cochran became an Executive Director and resigned from this Committee; Mr. Wylie was appointed to this Committee following his appointment to the Board. All of the members are Independent Directors. The Committee met 4 times in 2012 and 2 times to date in 2013.

The Board has determined that Audit Committee members are financially literate as defined under Multilateral Instrument 52-101 – Audit Committees.

The Audit Committee’s Terms of Reference, which were adopted by the Board, are attached hereto as Exhibit “B”, and were also included under the heading “Audit Committee Information” in the Company’s Annual Information Form (“AIF”) dated March 28, 2012, which contains information for the year ended December 31, 2012. The AIF may be obtained from SEDAR under the Company’s profile at www.sedar.com or from the Company’s website at www.CoastalEnergy.com.

In keeping with the overall responsibility for the stewardship of the Company, the Board, through the Audit Committee, examines the Company’s internal controls and management information systems and interfaces with the Company’s independent financial auditors, Deloitte, LLP. Management may not engage the Company’s financial auditor to perform additional services unrelated to the audit function, unless such engagement has been approved, in advance, by the chairman of the Audit Committee.






Compensation Committee. The members of the Compensation Committee in 2012 were Messrs. Black (currently the chair), Cochran and de Montal. In 2013 Mr. Cochran became an Executive Director and resigned from this Committee; Mr. Wylie was appointed to this Committee following his appointment to the Board. All of the members are Independent Directors and none are sitting CEO’s of other companies. While at Texaco, Mr. Black was responsible for the compensation for all employees of the two divisions he managed. In addition, the members have all served on the boards of other publicly held companies and are long standing members of this committee. The Committee met 4 times in 2012 and 2 times to date in 2013. The Compensation Committee has four primary responsibilities: (1) to review and report to the Board on the job description and annual goals of the Company’s chief executive officer (“CEO”) and other senior management (2) to review the performance of senior management, as compared to the key annual objectives, and to report its findings to the Board; (3) to determine, review and recommend to the Board (for its approval) the compensation for the CEO and other senior executives; and (4) to ensure that senior compensation policies and packages attract, retain and motivate quality employees while not exceeding market rates. This committee also oversees the Company’s long-term incentive plans. No Director is permitted to participate in discussions or decisions concerning his own remuneration. Additional information on the committee’s process and procedures for consideration of executive compensation are addressed in the section entitled Compensation Discussion and Analysis. Corporate Governance and Nominating Committee. The members of the Corporate Governance and Nominating Committee are Messrs. de Montal, Smith and Zaozirny (currently the chair). All of the members are Independent Directors. The Committee met 2 times in 2012 and 2 times to date in 2013.

This committee is responsible for identifying individuals qualified to become members of the Board and recommending to the Board the Director nominees in advance of each annual general meeting of Shareholders. In identifying candidates, the Corporate Governance and Nominating Committee follows the procedure outlined in the Corporate Governance and Nominating Committee’s terms of reference, which may be found on the Company’s website at www.CoastalEnergy.com. The Committee is also responsible for developing and recommending corporate governance guidelines to be followed by the Company. This includes annually reviewing the terms of reference for the Board, the Chairman and all standing committees of the Board, the Code of Ethics, the Whistleblowing Policy, and the Insider Trading Policy.

Reserves Committee. The members of the Reserves Committee in 2012 were Messrs. Black (currently the chair), Cochran (2012 chair) and Smith. In 2013 Mr. Cochran became an Executive Director and resigned from this committee; Mr. Wylie was appointed to this committee following his appointment to the Board. All of the members are Independent Directors. The Committee met 2 times in 2012 and 3 times to date in 2013.

The purpose of the Reserves Committee is to assist the Board with supervising the Company’s reserves evaluation process and public disclosure of hydrocarbon reserves and related information. In this regard, the Committee meets at least twice in a 12-month with the Company’s independent reserves engineers, currently RPS Energy, Ltd, (referred to as the “Reserves Auditor.”) The first meeting precedes the Reserves Auditor’s completion of its annual assessment and evaluation of the Company’s oil and gas reserves, the “Annual Reserves Report;” and the second meeting occurs after the Reserve Auditor’s completion of the Annual Reserves Report, but prior to the Reserve Committee’s presentation of the Annual Reserves Report to the Board.

Assessments by Board

The Corporate Governance and Nominating Committee has developed a formal program for annually setting management’s goals and later analyzing its performance of these goals. Additionally, that Committee has developed a separate program for reviewing the Board’s effectiveness.

All Directors anonymously complete an annual evaluation of the performance and effectiveness of the Board and its standing committees in light of their respective terms of reference. Only committee members may respond on their respective committees. The results are accumulated and analyzed by the Corporate Governance and Nominating Committee, who consider whether any changes to the Board’s processes, composition or committee structure are appropriate. The Committee then provides a summary of the results and any recommendations to the full Board. Finally, executive management is advised of any suggestion made by Directors for enhancement of processes to support the work of the Board.



The chairman of the Corporate Governance and Nominating Committee also communicates privately will each Director to obtain their analysis of the other Directors’ performance and he compiles this information so that the committee can evaluate all Directors’ individual performance.

Board Attendance

The Company believes that its Directors should be fully engaged and active participants on its Board. To this end, it expects regular attendance by its Directors at meetings of the full Board and of the four standing committees on which they serve. Attendance records for 2012 are as follows.

Director’s Name Full

Board Audit

Committee Compensation

Committee

Corp. Govern. & Nominating

Committee Reserves

Committee

C. Robert Black 11/11 4/4 4/4 N/A 2/2

Andrew L. Cochran (a) 10/11 4/4 2/4 N/A 1/2

Olivier de Montal 10/11 N/A 4/4 2/2 N/A

Lloyd B. Smith 11/11 N/A N/A 2/2 2/2

Forrest E. Wylie (b) N/A N/A N/A N/A N/A

John B. Zaozirny 11/11 4/4 N/A 2/2 N/A

Randy L. Bartley (CEO) 11/11 N/A N/A N/A N/A

William C. Phelps (CFO)) 11/11 N/A N/A N/A N/A Notes: (a) Mr. Cochran was employed by the Company effective 1 February 2013; and therefore, is no longer considered an Independent Director (b) Mr. Wylie was appointed to the Board in April 2013.

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Objectives

In general, the objectives of the compensation program for the Company’s executive officers is to motivate and challenge them to develop and execute the Company’s strategy, to align their interest with those of the shareholders and to retain them through the use of long-term incentive plans.

Performance. The base salary and bonuses, if any, paid to the Company’s managers are designed to reward annual achievements and be commensurate with the scope or responsibilities, demonstrated leadership abilities and management experience and effectiveness. The Company’s other elements of compensation focus on motivating and challenging the executive to achieve superior, longer-term, sustained results.

Alignment. The Company seeks to align the interest of its executives with those of its investors by evaluating executive performance on the basis of key financial measurements, which it believes closely correlate to long-term shareholder value, including revenue, organic revenue, cost containment, operating profit, earnings per share, operating margins, return on total equity (or total capital), cash flow from operating activities and total shareholder return. One of the key elements of the Company’s executive compensation plan aligns the interest of the Company’s executives with those of its shareholders through the granting of incentive compensation rights (see sections on Incentive Stock Options (“ISOs”), Restricted Stock Units (“RSUs”), and Stock Appreciation Rights (“SARs”), based on annual performance evaluations.

Although the Company does not have a formal written policy, directors and officers are discouraged from purchasing financial instruments that are designed to hedge or offset a decrease in market value of the Company’s Common Shares held, directly or indirectly, by the director or officer.

Retention. The Company operates in a highly competitive and open industry where its executives are likely to be presented with other professional opportunities. The Company attempts to retain its executives by (1) staying current on the compensation levels within the industry and (2) using continued service as a determinate of total pay opportunity. A key element of the Company’s executive compensation plan is the extended vesting


terms on its long-term incentive plans, a factor which promotes continuity of management by requiring an executive’s longer-term service in order for him or her to receive any, or maximum, payout on his or her awards.

Use of Compensation Consultant and Benchmark

For 2012, the Company retained Longnecker & Associates (2011: Deloitte, LLP) as its independent compensation consultant (“ICC”), to conduct an independent compensation review and assist the Compensation Committee in making its determination and recommendations to the Board regarding executive compensation and to assist executive management in determining and adjusting Independent Director compensation. In 2012, the Company paid Longnecker & Associates approximately $25,000 (2011: $73,000 to Deloitte, LLP) for its services as the ICC.

In its retainer, the ICC was instructed to provide the Committee with: (1) information regarding market trends on executive and board compensation for comparably-sized oil and gas companies (with emphasis on international exploration & production companies); (2) market comparators and benchmark data; (3) its analysis of specific issues related to compensation and compensation programs; (4) its review of the Company’s compensation plans to ensure market competitiveness and compliance with industry standards.

In 2012, our directors and executive officers’ compensation was compared to that of an international peer group, which was comprised of sixteen (16) comparably-sized international E&P companies, and that was used as a reference for comparing compensation levels. The members of the compensation comparator companies (“CCC”) were as follows:

Afren Plc (LSE: AFR) Heritage Oil Plc (TSX: HOC, LSE: HOIL) Cairn Energy (LSE: CNE) Ithaca Energy (TSX-V & AIM: IAE) Carrizo Oil & Gas, Inc.(Nasdaq: CRZO) Premier Oil Plc (LSE: PMO) Comstock Resources Inc. (NYSE: CRK) Rosetta Resources (Nasdaq: ROSE) Energy XXI (Bermuda) Limited (Nasdaq: EXXI) Salamander Energy (LSE: SMDR.L) EnQuest Plc (LSE: ENQ) Swift Energy Company (NYSE: SFY) Exco Resources, Inc. (NYSE: XCO) Vanguard Natural Resources, LLC (NYSE: VNR) Gran Tierra Energy Inc.(NYSE & TSX: GTE) W&T Offshore Inc. (NYSE: WTI)

Relationship of Pay to Performance Based on the analysis of the compensation comparator companies provided by the ICC, the Compensation Committee determined that the long-term incentives of the Directors and executive management should be aligned with the expectation of shareholders, and therefore, is based on the Company’s total stock return (“TSR”) over a 12 month period as compared with a group of 19 companies operating in the same segment and having similar characteristics, including market capitalization (the “Comparator Group”).

The TSR ranking is based on a 12-month performance analysis which accounts for stock price change, stock splits and dividends. Vesting and payment of Directors’ and executive management’s performance related long-term incentives previously granted range from 100% to 25% depending upon the Company’s ranking in the TSR analysis. In addition, the value of current year grants as a percentage of Director retainers and executive management base salary is also dependent upon the Company’s TSR ranking.

The Committee also tracks 24 months and 36 months TSR performance for the Comparator Group. This assists the Committee in ensuring the long-term incentives match the long-term TSR performance and also provides confirmation that the 12 months performance is indicative of the long-term TSR. The following table summarizes the TSR for the Comparator Group for the 12 months, 24 months and 36 months ended 30 November 2012. Based on the 12 month performance results the Company was determined to be in the upper quartile and thus Directors and executive management were granted the maximum current year grants and earned 100% of all performance related long-term incentives which vest during the following 12 month period.


Name Symbol12 Month

Performance24 Month

Performance36 Month

PerformanceProvidence Resources PVR.L 134% 108% 23%Roc Oil Company, Ltd ROC.AX 70% 24% -28%Afren, plc AFR.L 55% 7% 57%Pan Orient Energy POE.V 48% -55% -40%Coastal Energy CEN.TO 37% 255% 265%Calvalley Petroleum CVI-A.TO 36% -54% -25%Serica Energy SQZ.TO 31% -53% -60%TransGlobe Energy Corp. TGL.TO 22% -40% 171%Valiant Petroleum VPP.L 1% -20% -28%Bowleven PLC Oil & Gas BLVN.L -2% -78% -20%Faroe Petrleoum FPM.L -11% -24% -4%Sterling Energy SEY.L -13% -30% -79%Salamander Energy SMDR.L -15% -24% -34%Hardy Oil & Gas HDY.L -40% -51% -59%TransAtlantic Petroleum TNP.TO -42% -78% -73%JKX Oil & Gas JKX.L -50% -75% -71%Antrim Energy AEN.TO -52% -32% -47%Ivanhoe Energy IVAN -57% -80% -84%Gulfsands Petreloum GPX.L -63% -78% -66%

Performance Graph

The following graph illustrates the Company’s cumulative shareholder return from January 1, 2008 to the year ending December 31, 2012, as measured by the closing price of the Common Shares at the end of each month, assuming an initial investment of $100, compared to the S&P/TSX Composite Index (.TT-T) and the S&P/TSX Capped Energy Index (.TTEN-T), and assuming the reinvestment of dividends where applicable.

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

1-Jan-08 1-Jan-09 1-Jan-10 1-Jan-11 1-Jan-12 1-Jan-13

Cum

ulat

ive

Tota

l Sha

reho

lder

Ret

urn

($)

Coastal Energy Company

TSX Capped Energy Index

TSX Composite Index

Based on recommendations from the ICC, the Compensation Committee determined that the annual bonuses for the executive management should be based on the achievement of certain corporate objectives in combination


with personal goals, collectively referred to as key performance indicators (“KPIs”). Depending upon the relative achievement of these KPIs and the particular executive, the executive can earn an annual bonus up to 150% of their base salary. The Compensation Committee established minimum, target and stretch goals for each objective, which is assigned a relative weight within the set of KPIs. The 2012 KPIs include the following objectives and their relative weight:

KPI Minimum Target Stretch 40% - Financial Performance 20% - Cash Flow ($ millions) $363.7 $404.1 $444.5 12% - Operating Expenses ($/bbl) $26.8 $24.3 $21.9 8% - Capital Expenditures ($ million) $395.4 $359.5 $235.7 40% - Operational Performance 16% - Production Volume (avg. annual offshore) 18,090 bopd 20,100 bopd 22,110 bopd 8% - Reserves (2P relative to prior year) Unchanged +15% +20% 8% - Drilling Targets See Note See Note See Note 8% - Health, Safety and Environmental - Incidents No Major 2 Minor No Reportable 20% - Personal Goals See Note See Note See Note Note: Pursuant to the exemption in section 2.1(4) of NI 51-102F6, the Company has not disclosed specific goals for these KPIs. These KPIs are not static and are subject to significant modification during the course of the year as the Company makes adjustments to its related activities.

The Board of Directors can exercise discretion to award compensation absent attainment of the relevant performance goals or to reduce or to increase the size of any award or payout. In 2012, the Compensation Committee recommended and the Board approved increasing the bonus awarded to all NEOs based on the enhanced shareholder value during 2012 and the overall compensation of the NEOs relative to the compensation pertaining to their respective positions within the CCC.

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Elements used to Achieve Compensation Objectives

The following table summarizes the various elements of the Company’s executive compensation plan, how they are determined, and how each of them fit into the overall compensation objectives.

Compensation Element

How it is Paid

Performance Period Determination of Element

Alignment / Fit with Compensation Objectives

Base Salary Cash Annual Salaries are benchmarked to be the 75th percentile of the CCC for exceptional performance and in the 50th percentile for acceptable performance and are linked to the performance, scope of responsibilities and experience of each executive.

- Attract and retain highly qualified leaders, benchmarking against the CCC ensures base pay is competitive.

Annual Performance

Incentive (Bonus)

Cash Annual Target awards are based on the executive’s level in the Company and are benchmarked to the 75th percentile of the CCC for exceptional performance and the 50th percentile for acceptable performance; actual payouts are based on achievement of corporate and individual objectives.

- Attract and retain highly qualified leaders through an opportunity to earn market competitive level of cash incentives based on annual performance - Motivate high corporate and individual performance

Long-Term Incentives

Incentive Stock Options

Annual / Up to 3 years

ISOs are granted based on the executive’s level in the Company, with the value targeted at the 75th percentile of the CCC for exceptional performance and the 50th percentile for acceptable performance. ISOs currently vest 33% on each of the 1st, 2nd and 3rd anniversary of the grant date.

- Align executive and shareholder interests over the longer term, actual value realized depends upon share price performance. - Attract and retain highly qualified leaders by providing a competitive incentive opportunity

Restricted Stock

Plan (a)


RSU are granted based on the executive’s level in the Company, with the value targeted at the 75th percentile of the CCC for exceptional performance and the 50th percentile for acceptable performance. RSUs vest 33% on each of the 1st, 2nd and 3rd anniversary of the grant date. 20% - 25% of the RSUs granted to executives are based on achievement of corporate objectives.


Stock Appreciation

Rights – Cash Payout


SARs are granted based on the executive’s level in the Company, with the value targeted at the 75th percentile of the CCC for exceptional performance and the 50th percentile for acceptable performance. SARs currently vest and are paid 33% on each of the 1st, 2nd and 3rd anniversary of the grant date. 20% -25% of the SARs granted to executives are based on achievement of corporate objectives.


Pensions Retirement Savings Plan

N/A The Company provides a retirement savings plan in which the executives may elect to participate. The Company’s matching contributions are designed to be market competitive.

- Attract and retain highly qualified leaders. Provide an appropriate risk management balance to an otherwise highly-performance based pay package.

Base Salary. Base salaries depend on the scope of the employees’ responsibilities, their performance of those responsibilities, and the period over which they have performed. Decisions regarding salary increases also take into account each employee’s current salary and the amounts paid to the employee’s peers within and outside the Company. Base salaries are reviewed annually, but are not automatically increased if management or the Compensation Committee (the latter, in the case of Named Executive Officers) believes that other elements of compensation are more appropriate in light of the Company’s stated objectives. This strategy is consistent with the Company’s primary intent of offering compensation that is contingent on the achievement of performance objectives.

Bonus. Annually, the Compensation Committee, with input from the CEO, uses its discretion in determining the amount and allocation of bonuses the Company will pay, based on its evaluation of the overall performance of the Company and the performance of the employees against individual goals, which were established at the beginning of the relevant year. This strategy rewards high-performing employees, thereby providing individual economic incentives, which hopefully drive results and sustain each employee’s performance over the longer-term.


Incentive Stock Options (“ISOs”). The Company has a “Stock Option Plan”, which is designed to align the interests of its Directors and employees with those of its shareholders’ and to retain the Directors and employees through the term of the awards. The amount of equity incentive compensation granted to executive officers in 2012 was based on the ICC recommendations to the Compensation Committee. The amount of equity incentive compensation granted to the remainder of the Company was determined by the Compensation Committee based on the Company President’s recommendation and the strategic, operational and financial performance of the Company overall, and it reflected each of the recipient’s expected contributions to the Company’s future success. Existing ownership levels are not a factor in award determinations, as the Company does not want to discourage Directors and employees from holding significant amounts of the Company’s Shares.

Under International Financial Reporting Standards for 2012, the Company expenses ISO grants using the “fair value” method of accounting. Under the fair value method, employee compensation expense attributed to ISO awards is measured at the fair value of the award at the grant date using the Black-Scholes option pricing model, and is recognized over the vesting period of the award. If and when the ISOs are ultimately exercised, the applicable amounts of contributed surplus are credited to share capital.

Pursuant to the Company’s amended and restated incentive stock option plan (“ISO Plan”), approved by the shareholders on July 21, 2011, the total number of Shares which can be reserved for issuance under the ISO Plan combined with the number of Shares reserved for issuance under the RSU Plan cannot exceed 10% of the aggregate number of issued and outstanding Shares of the Company on a non-dilutive basis. This is known as a “rolling” plan. This “rolling” plan allows for greater flexibility in the reserved number of Shares available under a stock option plan. ISOs are granted at the discretion of the Board. Pursuant to the ISO Plan, the exercise price of ISOs cannot be less than the market value of such Shares at the time of the grant. For the purpose of the ISO Plan, the market value means the volume weighted average trading price of a Share on the Toronto Stock Exchange (“TSX”) for the five business days immediately prior to the grant date.

In addition to the above, the ISO Plan includes these additional terms:

1. Eligible participants under the ISO Plan are directors, officers, employees or consultants of the Company or any subsidiary which is majority owned by the Company;

2. The maximum number of ISOs that may be granted to insiders of the Company within any one year period, combined with the number of RSUs that may be granted, shall not exceed 10% of the outstanding Shares at the time of the grant;

3. The maximum number of ISOs that may be granted to any one participant within any one year period, combined with the number of RSUs that may be granted, shall not exceed 5% of the outstanding Shares at the time of the grant;

4. ISOs granted typically vest 1/3 per year over three (3) years and expire five (5) years from the grant date, assuming continued employment by the recipient;

5. Upon ceasing to be an eligible participant due to cause, all ISOs shall be forfeited immediately upon termination. Upon ceasing to be an eligible participant without cause, all unvested ISOs shall be forfeited immediately, regardless of reason. All vested ISOs shall remain exercisable for a period commencing on the date the participant ceases to be eligible and ending upon the earlier of 180 days thereafter (30 days for participants involved in investor relations and a year for the legal personal representative of the former participant in the case of death) and the expiry date of the ISOs (in the case of death, the Board my extend the expiry date to be 1 year from the date of death);

6. ISOs may not be assigned or transferred; 7. Subject to the requirements of the applicable exchange policy and receipt of applicable exchange approval,

the Company may from time to time amend or revise the terms of the ISO Plan without further shareholder approval. Amendments shall take effect only with respect to future ISO grants. The Company may amend any ISO granted with the consent of the affected participant. For greater certainty, disinterested shareholder approval is required for any reduction in the exercise price of an ISO if the participant is an insider at the time of the proposed amendment;

8. In the event of a change in control of the Company, the vesting of ISOs shall be accelerated in full. In the event of a potential change in control, the Board shall have the power to (a) accelerate the date at which ISOs become exercisable, (b) make such changes to the terms of the ISOs as it considers fair and appropriate in the circumstances; and

9. Where a participant has an employment contract with the Company which includes different provisions related to the ISO Plan, the provisions in the employment contract supersede the provisions in the ISO Plan.


The current ISO Plan was approved by the shareholders in 2011; a copy of this plan can be found in the 2011 Management Information Circular on SEDAR under the Company’s profile at www.sedar.com or upon written request to the Company. There have been no amendments to this plan since it was approved by the shareholders.

Restricted Stock Units (“RSUs”). Like the Company’s Stock Option Plan, the Restricted Stock Unit Plan works to align the economic interests of Directors and employees with those of shareholders. The determinants of grants of RSUs are based on the same considerations set forth above in the description of the Stock Option Plan. The amount of RSU compensation granted to Independent Directors in 2012 was based on ICC recommendations to the Company’s President. The amount of RSU compensation granted to executive officers in 2012 was based on the ICC recommendations to the Compensation Committee. The amount of RSU compensation granted to the remainder of the Company was determined by the Compensation Committee based on the Company’s President’s recommendation and the strategic, operational and financial performance of the Company overall, and it reflected each of the recipient’s expected contributions to the Company’s future success. Existing ownership levels are not a factor in award determinations, as the Company does not want to discourage Directors and employees from holding significant amounts of the Company’s Shares. 2012 RSUs granted to the Independent Directors and named executive officers have a component (20% and 50% of grants, respectively) which is performance related and therefore tied to the Company’s TSR rankings.

Under International Financial Reporting Standards for 2012, the Company expenses RSU grants using the “fair value” method of accounting. Under the fair value method, employee compensation expense attributed to RSU awards is measured at the fair value of the excess of the market price of the award at the grant date over the price of the RSU granted using the Black-Scholes option pricing model and is recognized over the vesting period of the award. The expense is further adjusted at each balance sheet date for the effect of changes in the underlying price of the Company’s Shares.

Pursuant to the Company’s amended and restated restricted stock unit plan (“RSU Plan”), approved by the shareholders on July 21, 2011, the total number of Shares which can be reserved for issuance under the RSU Plan combined with the number of Shares reserved for issuance under the ISO Plan cannot exceed 10% of the aggregate number of issued and outstanding Shares of the Company on a non-dilutive basis. This is known as a “rolling” plan. This “rolling” plan allows for greater flexibility in the reserved number of Common Shares available under a stock option plan. RSUs are granted at the discretion of the Board.

In addition to the above, the RSU Plan includes these additional terms:

1. Eligible participants under the RSU Plan are directors, officers, employees or consultants of the Company or any subsidiary which is majority owned by the Company;

2. The maximum number of RSUs that may be granted to insiders of the Company within any one year period, combined with the number of ISOs that may be granted, shall not exceed 10% of the outstanding Shares at the time of the grant;

3. The maximum number of RSUs that may be granted to any one participant within any one year period, combined with the number of ISOs that may be granted, shall not exceed 5% of the outstanding Shares at the time of the grant;

4. RSUs granted typically vest and are redeemed 1/3 per year over three (3) years from the grant date, assuming continued employment by the recipient;

5. Upon ceasing to be an eligible participant due any cause other than death or retirement, all RSUs outstanding shall be forfeited immediately upon termination. Upon ceasing to be an eligible participant due to retirement, all unvested RSUs shall be issued in accordance with the release date for the RSU as if the participant continued in the employment of the Company until the release date. If a participant ceases to be eligible due to death, the personal representative shall have 180 days to elect for each grant to receive an RSU settlement under two options;

6. RSUs may not be assigned or transferred; 7. Subject to the requirements of the applicable exchange policy and receipt of applicable exchange approval,

the Company may from time to time amend or revise the terms of the RSU Plan without further shareholder approval. If the change materially adversely affects the rights of participants with respect to granted RSUs, the Company shall obtain the written consent of the affected participant, 4

8. unless the changes is required to comply with applicable rules and regulations of governmental or regulatory authorities;

9. In the event of a change in control of the Company, and performance criteria applicable to such RSUs shall be waived as of the effective date of the change in control and the participants will receive on the release



date, as if the change of control had not occurred, either (a) a cash payment equal to the Special Value for each covered RSU or (b) one CIC Share for each covered RSU. The choice is to be determined by the Compensation Committee; and

10. Where a participant has an employment contract with the Company which includes different provisions related to the RSU Plan, the provisions in the employment contract supersede the provisions in the RSU Plan.

The current RSU plan was approved by the shareholders in 2011; a copy of this plan can be found in the 2011 Management Information Circular on SEDAR under the Company’s profile at www.sedar.com or upon written request to the Company. There have been no amendments to this plan since it was approved by the shareholders.

Stock Appreciation Rights (“SARs”). The major advantage of the Stock Appreciation Rights Plan is that, while it seeks to align the economic interests of Directors and employees with those of shareholders, SARs grants and subsequent vesting do not dilute the relative shareholdings of the Company’s investors. This allows for more employee participation while determining SARs grants on the same considerations set forth above in the description of the Stock Option Plan.

The amount of SARs compensation granted to Independent Directors in 2012 was based on ICC recommendations to the Company’s President. The amount of SARs compensation granted to named executive officers in 2012 was based on the ICC recommendations to the Compensation Committee. The amount of SARs compensation granted to the remainder of the Company was determined by the Compensation Committee based on the Company’s President’s recommendation and the strategic, operational and financial performance of the Company overall, and it reflected each of the recipient’s expected contributions to the Company’s future success.

Under International Financial Reporting Standards for 2012, the Company expenses SARs grants using the “fair value” method. Under the fair value method, employee compensation expense attributed to SARs awards is measured at the fair value of the excess of the market price of the award at the grant date over the price of the SARs granted using the Black-Scholes option pricing model and is recognized over the vesting period of the award. The expense is further adjusted at each balance sheet date for the effect of changes in the underlying price of the Company’s Shares.

Since its establishment, the Company has awarded SARs under its plan for the equivalent of approximately 4,034,000 Shares, of which approximately 486,000 Shares are contingent upon the achievement of certain performance goals established by the Company. These awards vest 1/3 on each of the subsequent anniversaries of the date the award was granted, assuming continued employment by the recipient.

Pension Plans. The Company has neither a “defined benefit”, nor a “defined contribution” type of retirement plan in place. Rather, the Company established a voluntary, non-discriminatory, retirement-savings plan under the Unites States Internal Revenue Code Section 401(k) (“401(k) Plan”) for its US based employees. Under the Company’s 401(k) Plan, employees may elect to participate by having a certain percentage of their pre-taxed earnings contributed into their tax deferred retirement account. The Company then matches the individual employee’s contribution up to 5% of the individual employee’s earnings, with certain exceptions for highly compensated employees. Each employee is immediately vested in their own contributions as well as the Company matching contributions. Each employee determines the investments for their own account.

In Thailand, the Company is statutorily obligated to pay retiring employees ten (10) months of their current salary, once they have been an employed by the Company for a minimum of five (5) years. The Company has set its retirement age to be sixty-five (65) years of age, which is the normal retirement age in Thailand. The Company has established an accrual to meet this obligation.

Perquisites. In addition to cash and equity compensation, the Company provides employees certain personal benefits, consistent with similar benefits and coverage for employees within the jurisdiction under which they are employed. These benefits include the Company’s co-pay of the premiums for medical benefit programs, long and short term disability coverage, life insurance, an annual medical examination, long-term care insurance, travel insurance and employee overseas travel-assistance program. These benefits are non-discriminatory and available to all employees within that jurisdiction. Where the Company has paid discriminatory benefits to Named Executive Officers, the nature of the discriminatory benefit is disclosed in the notes to the summary compensation table.



Summary. The Board of Directors and its Compensation Committee have determined that the compensation policies do not expose the Company to any material or excessive risk. The Compensation Committee takes advice from outside legal counsel and the ICC in reaching this conclusion.

The Company’s compensation policies have allowed the Company to attract and retain a team of motivated professionals and support staff working together towards the common goal of enhancing shareholder value. The Board of Directors and its Compensation Committee will continue to review compensation policies to ensure that they are competitive within the oil and natural gas industry and consistent with the performance of the Company.

Compensation for Named Executive Officers (“NEOs”) in 2012

The Company had six officers at 2012 year’s end, of which three are considered Named Executive Officers (“NEO’s”) by virtue of their title: Randy L. Bartley, the Chief Executive Officer (“CEO”); William C. Phelps, the Chief Financial Officer (“CFO”); and John M. Griffith, the Vice President, Operations and Resident Manager, Thailand (“RM”). In 2012, Mr. Andrew L. Cochran was considered an Independent Director and his 2012 compensation is reported under the section entitled Compensation of Independent Directors. In 2013, the Company employed Mr. Cochran as an Executive Director; and therefore, his future compensation will be reported in this section.

Summary Compensation Table

The following table provides information on the compensation of the Company’s NEOs during the years ended December 31, 2012, 2011, and 2010.

Name and principal position Year

Salary($)

Share-based

Awards ($) (a)

Optionbased

Awards ($) (b)

Annual incentive

plans

Long-term incentive

plans

Pension Value

($)

All other Compensation

($) (c)

Total Compensation

($)

Randy L. Bartley 2012 500,000 3,997,500 - 1,652,500 - 12,500 20,606 6,183,106 President and 2011 455,000 865,000 2,180,000 1,440,000 865,000 12,250 17,873 5,835,123 Chief Executive Officer 2010 425,000 N/A 697,950 779,100 697,950 12,250 18,999 2,631,249

William C. Phelps 2012 325,000 2,252,250 - 887,750 - 12,500 20,452 3,497,952 Chief Financial Officer 2011 310,000 350,000 900,000 550,000 350,000 12,250 17,595 2,489,845

2010 287,029 N/A 501,673 275,000 492,492 12,250 17,216 1,585,660

John M. Griffith 2012 325,000 1,617,688.00 - 546,062 - Nil 1,521,656 4,010,406 Vice President, Operations 2011 299,000 262,750 725,000 500,000 262,750 Nil 940,749 2,990,249 Thailand Resident Manager 2010 261,667 N/A 186,550 274,495 186,550 Nil 1,436,853 2,346,115

Non-equity incentive plan

Notes (a) Share based awards were computed based on the market value of the Company’s Shares at the grant date. (b) Option based awards were determined using the Black-Scholes model. The Company uses the Black-Scholes option pricing model due to

its general acceptance as an appropriate valuation model and its use by similar sized oil and gas companies. The Company granted no option based awards during 2012.

(c) All NEOs received non-discriminatory perquisites with aggregate value less than $50,000. In addition in 2012, Mr. Griffith received a housing allowance of $174,080 (2011: $120,114 and 2010: $156,030), a living allowance of $90,041 (2011: $90,085 and 2010: $90,000), an auto allowance of $77,742 (2011: $86,971 and 2010: $78,368), and a tax gross-up of $1,159,330 (2011: $626,945 and 2010: $1,102,081).

Incentive Plan Awards

The following table sets forth all equity-based incentive plan awards outstanding as of December 31, 2012. Option based awards were granted at fair market value prior to the award date. For additional information on the option awards, see the 2008 Stock Option Plan filed with SEDAR under the Company’s profile at www.sedar.com. “In-the-Money” Options are those where the market value of the underlying securities exceeds the option exercise price and are computed irrespective of whether or not the award is vested and can be exercised by the recipient.



Name

Number of shares or units of shares that

have not vested (#) Vesting Date

Market or payout value of share based awards that

have not vested ($)

Number of securities underlying

unexercised options (#)

Option exercise

price

Option expiration

date

Value of unexercised in-the-money

options ($)

Number of SARs which

have not vested

(#)Vested Date

Market or payout value of SARs that

have not vested ($)

Randy L. Bartley 22,300 14-Dec-13 447,378 706,000 C$1.35 01-Jan-14 13,205,667 50,687 14-Dec-13 1,016,87222,300 14-Dec-14 447,378 1,100,937 C$5.13 30-Nov-14 16,410,163 22,300 14-Dec-13 447,37867,061 14-Dec-13 1,345,364 549,567 C$5.75 27-Dec-15 7,849,175 22,300 14-Dec-14 447,37867,061 14-Dec-14 1,345,364 635,303 C$14.04 13-Dec-16 3,780,17567,061 14-Dec-15 1,345,364

Totals 245,783 4,930,848 2,991,807 41,245,180 95,287 1,911,628

William C. Phelps 9,023.00 14-Dec-13 181,017 9,249 C$1.35 01-Jan-14 173,002 17,252 14-Dec-13 346,1059,023.00 14-Dec-14 181,017 367,531 C$5.13 30-Nov-14 5,478,282 9,023 14-Dec-13 181,018

37,783.00 14-Dec-13 757,995 187,047 C$5.75 27-Dec-15 2,671,493 9,023 14-Dec-14 181,01837,783.00 14-Dec-14 757,995 262,281 C$14.04 13-Dec-16 1,560,62237,783.00 14-Dec-15 757,995

Totals 131,395 2,636,019 826,108 9,883,399 35,298 708,141

John M. Griffith 6,774 14-Dec-13 135,899 97,927 C$5.75 27-Dec-15 1,398,640 13,548 14-Dec-13 271,7966,774 14-Dec-14 135,899 140,952 C$14.04 13-Dec-16 838,691 6,774 14-Dec-13 135,899

27,138 14-Dec-13 544,437 6,774 14-Dec-14 135,89927,138 14-Dec-14 544,43727,138 14-Dec-15 544,437

Totals 94,962 1,905,109 238,879 2,237,331 27,096 543,594

Long-term Incentive Plan (SARs) (c)Option Based Awards (ISOs) (b)Share Based Awards (RSUs) (a)

Notes (a) The 2011 and 2012 RSUs granted to NEOs are 80% firm and 20% contingent upon Company performance goals. The market price is

based on the value of the Company’s common stock at 31 December 2012 (b) Options granted after January 1, 2009 vest 33% each year for three years on the anniversary of the grant date. (c) The 2010 SARs granted to the NEOs are 75% firm and 25% contingent upon Company performance goals. The 2011 SARs granted to

NEOs are 100% firm. No SARs were granted to NEOs in 2012. The market price is based on the value of the Company’s common stock at 31 December 2012.

Incentive Plan Awards – Value Vested or Earned During the Year 2012

The following table sets forth the value of all share-based and option-based awards that would have been realized had the NEO exercised the award on its vesting date in 2012 and the value vested and paid in 2012 on the long-term incentive (SARs) plan. The non-equity incentive plan awards for the year ended December 31, 2012 are set forth on the summary compensation table mentioned above. The annual non-equity incentive plans (bonuses) are fixed in value.

Retirement Savings Plan

The following table sets forth the participation of the NEOs in the Company’s voluntary contribution retirement plan for the year ended December 31, 2012.

Name

Share Based Awards

(RSUs) ($)

Option Based Awards

(ISOs) ($)

Long-Term Incentive

Plan (SARs) ($)

Randy L. Bartley 439,736 12,717,103 3,456,255

William C. Phelps 177,934 4,864,567 1,191,469

John M. Griffith 133,564 3,795,518 879,258

Value Vested During the Year


Employment Contracts and Termination and Change in Control Benefits

The Company has employment contracts with all three NEOs. The following summarizes these employment agreements:

Mr. Bartley entered into a two-year employment agreement dated January 1, 2009 in respect of his employment by the Company as its Chief Executive Officer. Unless 60 day prior notice is given, this agreement automatically extends for another 24 months. This agreement was extended on November 5, 2012 through November 4, 2014. This agreement contains a standard non-competition and confidentiality provision.

Mr. Phelps entered into a two-year employment agreement dated February 1, 2009 in respect of his employment by the Company as its Chief Financial Officer. Unless 60 day prior notice is given, this agreement automatically extends for another 24 months. This agreement was extended on November 5, 2012 through November 4, 2014. This agreement contains standard non-competition and confidentiality provision.

Mr. Griffith entered into a one-year employment agreement dated June 1, 2009 in respect of his employment by the Company as its Vice President, Operations and Resident Manager, Thailand. Unless 60 day prior notice is given, this agreement automatically extends for another 12 months. This agreement was extended on November 5, 2012 through November 4, 2013. This agreement contains standard non-competition and confidentiality provision.

Compensation upon Change of Control

All three employment contracts discussed above provide that the NEO “shall be entitled to resign from his employment by the Company within 90 days of a “Change of Control” event, in which case his resignation shall be considered a termination without cause, and he shall be entitled to receive the compensation upon termination” set forth elsewhere in the contract (see section entitled “Compensation upon Termination of Employment” on the next page).

The contracts further state “Change of Control shall mean:

(i) Any transaction or series of transactions, whether by way of consolidation, amalgamation or merger of the Company, with or into any other corporation, or any transfer, conveyance, sale, lease, exchange or otherwise, of all or substantially all of the assets of the Company to any person;

(ii) The passing of a resolution by the Board or the shareholders of the Company to liquidate the assets in one or more transactions;

(iii) Any acquisition or series of acquisitions, by transfer of Shares, directly or indirectly, and by any means whatsoever by any person or by a group of persons, acting jointly or in concert, of that number of voting Shares of the Company which is equal to or greater than 20% of the total issued and outstanding voting Shares immediately after such acquisition; or

Name

Accumulated value at start of

year ($)

Accumulated value at end of

year ($)

Employer: 12,500 Employee: 22,500Randy L. Bartley 146,352 Dividends: 19 Dividends: 34 206,161

Forfietures: 0 Forfietures: 0Change in Value: 8,963 Change in Value: 15,793

Employer: 12,500 Employee: 17,000William C. Phelps 114,059 Dividends: 78 Dividends: 126 157,269

Forfietures: 0 Forfietures: 0Change in Value: 5,141 Change in Value: 8,365

John M. Griffith N/A N/A N/A N/A

Compensatory ($)

Non-compensatory ($)


(iv) The Board of the Company, in circumstances where a Change of Control is in their view, acting reasonably, a certainty, by resolution deems that a Change of Control of the Company has occurred or is about to occur.”

Compensation upon Termination of Employment

In the event an NEO ceases to be an employee due to resignation, retirement, termination without cause or change of control, they will receive specific compensation as summarized below:

Resignation Retirement Termination without Cause Change of Control

Severance None None 24 months for the CEO and CFO (12 months for the RM) at the NEO’s current base monthly salary plus $10,000 for financial, legal or outsourcing services.

24 months for the CEO and CFO (12 months for the RM) at the NEO’s current base monthly salary plus $10,000 for financial, legal or outsourcing services.

Annual Incentive Plan Award (Bonus)

Forfeited If awarded, received; if not awarded, prorated portion possible.

If awarded, received; if not awarded, prorated portion possible.

If awarded, received; if not awarded, prorated portion possible.

Incentive Stock Options (ISOs)

- 180 days to exercise vested awards on or before the expiry date, whichever comes first.

- Unvested awards are forfeited


- Unvested awards are forfeited

- All awards become fully vested.


- All awards become fully vested.


Stock Appreciation Rights (SARs)

All unvested awards are forfeited.

All unvested awards are forfeited.

All awards become fully vested and payable.

All awards become fully vested and payable.

Restricted Stock Plan

Forfeited For grants issued prior to retirement, RSU to be issued on vesting date as if employee had continued employment until Release Date.

Forfeited unless otherwise provided in employment contract

Awards become fully vested. Shares or value thereof to be paid within 10 business days following change of control

Benefits

- Terminate upon resignation,

- Some benefits are ”portable” at the option of the employee

- Terminate upon resignation,

- Some benefits are ”portable” at the option of the employee

Remain in effect for the earlier of i) 6 full months; or ii) eligibility to participate in a comparable group plan maintained by a subsequent employer

Remain in effect for the earlier of i) 6 full months; or ii) eligibility to participate in a comparable group plan maintained by a subsequent employer

Retirement Plan No additional value No additional value Equal to the value of the contributions over the severance period

Equal to the value of the contributions over the severance period

Other Perquisites

Forfeited Forfeited Forfeited Forfeited

The following table summarizes the estimated incremental value of termination payments for each NEO assuming each of the following termination events had occurred as of December 31, 2012. There are no incremental costs associated with voluntary resignations.


Management Contracts

The Company is not party to any management contracts, except with respect to oversight of a limited number of overseas contracts for fabrication and/or operation of offshore production equipment or facilities, in circumstances where the Company believes it is better served by retention of service contractors or consultants, rather than deployment of employees, to oversee the work of the foreign contractor. No management functions of the Company are to any substantial degree performed by a person or company other than the Directors or senior officers of the Company.

Securities Authorized for Issuance under Equity Compensation Plans

EQUITY COMPENSATION PLAN INFORMATION

Plan Category

Number of securities to be issued upon

exercise of outstanding options, warrants and rights(a)

(a)

Percentage of Common

Shares outstanding

(b)

Weighted-average exercise

price of outstanding

options, warrants and rights(a)

(c)

Number of securities remaining available for future issuance under equity compensation

plans [excluding securities reflected in column (a)]

(d)

Equity compensation plans approved by Shareholders:

2008 Share Option Plan 5,060,688 4.45% $7.10 See Note (b) 2010 Restricted Stock Plan 647,056 0.57% $0.00 See Note (b)

Equity compensation plans not approved by Shareholders Nil

N/A Nil Totals 5,707,744 5.02% N/A 5,652,738

Notes: (a) The number of securities in the above chart is as of the date of this Circular, while the weighted average exercise price is

as of March 31, 2013. (b) The combined number of ISOs and RSUs which can be granted is limited to 10% of the total Common Shares outstanding

(113,604,819 X 10% = 11,360,482)

Indebtedness of Directors and Officers

During the fiscal year ended December 31, 2012, no Director, executive officer, senior officer, promoter or nominee for Director of the Company or any of their Associates has been indebted to the Company or any of its subsidiaries, nor have any of these individuals been indebted to another entity which indebtedness is the subject of a guarantee, supporting agreement, letter of credit or other similar arrangement or understanding provided by the Company.

Directors and Officers Liability Insurance

The Company carries on its own behalf, and on behalf of its subsidiaries, a Directors’ and Officers’ liability insurance policy. This policy has an annual aggregate coverage limit of £30,000,000. The overall policy has a zero deductible for Directors and officers (applicable when the Company is not legally permitted to or cannot indemnify the Directors and officers) and a $50,000 corporate deductible for all claims involving a Canadian securities claim. The total premium paid in 2012 for this policy was $62,381.

NamePayable on

Retirement ($)

Payable on Termination

without Cause ($)

Payable on Change

of Control ($)

Randy L. Bartley N/A 1,000,000 1,000,000

William C. Phelps N/A 650,000 650,000

John M. Griffith N/A 325,000 325,000


Information on Stock Ownership

The following table sets forth the shareholdings of the Company’s Directors and named executive officers as of the date of this Circular.

Name Director of OfficerStock Held (a)

Voting Trust (b)

TotalVoting

C. Robert Black Independent Director 32,384 4,608,236 4,640,620

Andrew L. Cochran Independent Director Nil Nil Nil

Olivier de Montal Independent Director 372,384 4,608,236 4,980,620

Lloyd Barnaby Smith Independent Director 88,420 4,608,237 4,696,657

Forrest E. Wylie Independent Director Nil Nil Nil

John B. Zaozirny Independent Director 260,600 4,608,236 4,868,836

Randy L. Bartley Director, CEO & President 1,204,141 Nil 1,204,141

William C. Phelps Director & CFO 1,627,260 Nil 1,627,260

John M. Griffith VP, Operations & RM Nil Nil Nil

Totals 3,585,189 18,432,945 22,018,134

Notes (a) Mr. Oscar S. Wyatt Jr. acquired a greater-than-10% interest in the Company in September 2006. Mr. Wyatt reached an agreement with the

Toronto Stock Exchange whereby he could vote his Shares of the Company up to 10% of the current Shares outstanding. Any Shares owned by Mr. Wyatt in excess of this 10% would be placed in a Voting Trust and the “Attorneys” of this Voting Trust would independently vote these excess Shares. Currently four (4) of the Company’s Independent Directors serve as the “Attorneys” of this Voting Trust. As of the date of this Circular, Mr. Wyatt owns 29,793,427 Shares of the Company, or approximately 26.23% of the Shares outstanding. Therefore the Voting Trust will independently vote 18,432,945 Shares of the Company, or approximately 16.23% of the total Shares outstanding. .

(b) All Directors and executive officers as a group may vote 19.38% of the total outstanding Shares of 113,604,819, when their ownership is combined with the Voting Trust.

(c) This column represents the Shares held either directly or indirectly. No Director or executive officer owns more than 1.43% of the total outstanding Shares, nor do all Directors and executive officers as a group own more than 3.16% of the total outstanding Shares of 113,604,819.

Compensation of Independent Directors

At the request of Company’s management, the ICC performed an analysis of Independent Directors’ compensation using the same Compensation Comparator Companies (“CCC”), the ICC used to benchmark executive officers’ compensation. Based on this analysis, the Chairman and the CEO determined the 2012 compensation for all Independent Directors excluding the Chairman. The Chairman’s 2012 compensation was determined by the Board of Directors, excluding the Chairman. In addition to the cash fees below, the Independent Directors participate in the Company’s RSUs and SARs Plans (see the section entitled Relationship of Pay to Performance.) Independent Directors and the Chairman earned $200,000 and $260,000, respectively in long term incentive pay. The 2013 long term incentive pay will be determined based on the 2013 ICC analysis. In 2012, the compensation package for the Independent Directors included a) cash fees for Board and committee membership and attendance; b) RSUs awards (of which 20% is subject to the Company’s TSR performance; and c) SARs awards.

During 2012, the Company had two Executive Directors, Mr. Bartley, the Company’s President and CEO and Mr. Phelps, the Company’s CFO. All of their compensation is provided for in their respective capacities as officers and is reported under the section entitled Compensation for Named Executive Officers. In 2012, Mr. Cochran was considered an Independent Director; and therefore, his 2012 compensation is reported in this section. In 2013, Mr. Cochran was employed by the Company as an Executive Director; and therefore his future compensation will be reported under the section entitled Compensation for Named Executive Officers.


Independent Directors’ Fees

Independent Directors receive an annual retainer for participating on the Board. Directors serving as Committee chairs receive an additional cash retainer. They also receive a fee for every meeting attended whether by telephone or in person. All retainers and meeting fees are determined in United States dollars; however, Independent Directors living outside the United States may receive their fees converted into their resident currencies. Executive Directors receive no additional compensation for serving as a Director. All Directors are reimbursed for travel and out-of-pocket expenses related to the Board and committee meetings. The table below sets out the 2012 and 2013 fee schedule, in US Dollars, for Independent Directors.

2013 2012Annual Cash Retainer:

Board Chairman 95,000 80,000 Audit Committee Chairman 15,000 15,000 Compensation Committee Chairman 10,000 8,000 Corp. Governance Committee Chairman 9,000 6,000 Reserves Committee Chairman 9,000 6,000 Board Member 65,000 50,000 Committee Member Nil Nil

Cash Fees per Meeting:In-Person Attendance 1,500 1,500 Telephone Attendance 500 500

Independent Director Compensation Table

The following table sets forth all annual and long term compensation for services provided by the independent Directors of the Company for the years ended December 31, 2012, 2011 and 2010.

Non-Executive Director Year

Fees Earned

($)

Share based awards

(RSUs)($)

Option based awards

($)

Non-Equity Incentive plan

Compensation ($)

Pension Value

(4)

All other Compensation

($)

Total Compensation

($)

C. Robert Black 2012 70,000 100,000 Nil 100,000 Nil Nil 270,0002011 67,839 92,501 Nil 92,501 Nil Nil 252,8412010 57,000 N/A Nil 75,000 Nil Nil 132,000

Andrew L. Cochran 2012 65,500 100,000 Nil 100,000 Nil Nil 265,5002011 25,903 92,501 Nil 92,501 Nil Nil 210,9052010 Nil Nil Nil Nil Nil Nil Nil

Bernard de Combret (a) 2012 Nil Nil Nil Nil Nil Nil 2011 37,167 N/A Nil Nil Nil Nil 37,1672010 231,000 N/A Nil 112,500 Nil Nil 343,500

Olivier de Montal 2012 58,500 100,000 Nil 100,000 Nil Nil 258,5002011 54,000 92,501 Nil 92,501 Nil Nil 239,0022010 46,000 N/A Nil 75,000 Nil Nil 121,000

L. Barnaby Smith 2012 89,500 130,000 Nil 130,000 Nil Nil 349,5002011 84,505 120,003 Nil 120,003 Nil Nil 324,5112010 49,500 N/A Nil 75,000 Nil Nil 124,500

Forrest E. Wylie (a) 2012 Nil N/A Nil Nil Nil Nil 02011 16,000 N/A Nil Nil Nil Nil 16,0002010 50,000 N/A Nil 75,000 Nil Nil 125,000

John B. Zaozirny 2012 81,500 100,000 Nil 100,000 Nil Nil 281,5002011 72,661 92,501 Nil 92,501 Nil Nil 257,6632010 52,500 N/A Nil 75,000 Nil Nil 127,500

Notes: (a) Mr. de Combret and Mr. Wylie resigned from the Board in 2011.


Independent Director’s Incentive Plan Awards

The following table sets forth all equity-based incentive plan awards outstanding as of December 31, 2012. Option-based awards were granted at fair market value prior to the award date. For additional information on the option awards, see the 2008 Stock Option Plan filed with SEDAR under the Company’s profile at www.sedar.com. “In-the-Money” Options are those where the market value of the underlying securities exceeds the option exercise price and are computed irrespective of whether or not the award is vested and can be exercised by the recipient.

Notes (a) The Company quit granting options to Independent Directors in 2009. All previous options have either been exercised or expired

unexercised. (b) The 2009 SARs grants to the Independent Directors are 80% firm and 20% contingent upon Company performance goals. The 2010 SARs

grants to the Independent Directors are 75% firm and 25% contingent upon Company performance goals. The 2012 SARs grants to Independent Directors are 100% firm. The Market price is based on the value of the Company’s Shares at 31 December 2012.

(c) The 2012 RSUs grants to Independent Directors are 80% firm and 20% contingent upon Company performance goals. The market price is based on the value of the Company’s Shares at 31 December 2012.

(d) Messrs. de Combret and Wylie resigned from the Board during 2011.


Name

Number of RSUs

which have not

vested (#)Vesting

Date

Market or payout value

of RSUs which have not vested

($)

Number of securities underlying

unexercised options (#)

Option exercise

price

Option expiration

date

Value of unexercised in-the-money

options ($)

Number of SARs which

have not vested

(#)Vested Date

Market or payout value of

SARs which have not vested

($)

C. Robert Black 2,385 14-Dec-13 47,847 Nil Nil 5,447 28-Dec-13 109,2772,385 14-Dec-14 47,847 2,385 14-Dec-13 47,8471,677 14-Dec-13 33,644 2,385 14-Dec-14 47,8471,678 14-Dec-14 33,664 1,677 14-Dec-13 33,6441,678 14-Dec-15 33,664 1,678 14-Dec-14 33,664

1,678 14-Dec-15 33,664Totals 9,803 196,666 0 0 15,250 305,943

Andrew L. Cochran 2,385 14-Dec-13 47,847 Nil Nil 2,385 14-Dec-13 47,8472,385 14-Dec-14 47,847 2,385 14-Dec-14 47,8471,677 14-Dec-13 33,644 1,677 14-Dec-13 33,6441,678 14-Dec-14 33,664 1,678 14-Dec-14 33,6641,678 14-Dec-15 33,664 1,678 14-Dec-15 33,664

Totals 9,803 196,666 0 0 9,803 196,666

Bernard de Combret (d) Nil Nil Nil Nil Nil NilTotals 0 0 0 0

Olivier de Montal 2,385 14-Dec-13 47,847 Nil Nil 5,447 28-Dec-13 109,2772,385 14-Dec-14 47,847 2,385 14-Dec-13 47,8471,677 14-Dec-13 33,644 2,385 14-Dec-14 47,8471,678 14-Dec-14 33,664 1,677 14-Dec-13 33,6441,678 14-Dec-15 33,664 1,678 14-Dec-14 33,664

1,678 14-Dec-15 33,664Totals 9,803 196,666 0 0 15,250 305,943

L. Barnaby Smith 3,094 14-Dec-13 62,071 Nil Nil 5,447 28-Dec-13 109,2773,094 14-Dec-14 62,071 3,094 14-Dec-13 62,0712,181 14-Dec-13 43,755 3,094 14-Dec-14 62,0712,181 14-Dec-14 43,755 2,181 14-Dec-13 43,1532,181 14-Dec-15 43,755 2,181 14-Dec-14 43,153

2,181 14-Dec-15 43,153Totals 12,731 255,407 0 0 18,178 362,878

Forrest E. Wylie (d) Nil Nil Nil Nil Nil NilTotals 0 0 0 0

John B. Zaozirny 2,385 14-Dec-13 47,847 Nil Nil 5,447 28-Dec-13 109,2772,385 14-Dec-14 47,847 2,385 14-Dec-13 47,8471,677 14-Dec-13 33,644 2,385 14-Dec-14 47,8471,678 14-Dec-14 33,664 1,677 14-Dec-13 33,6441,678 14-Dec-15 33,664 1,678 14-Dec-14 33,664

1,678 14-Dec-15 33,664Totals 9,803 196,666 0 0 15,250 305,943

Option Based Awards (a) Long-term Incentive (SARs) Plan (b)Share Based Awards (c)



Independent Directors’ Incentive Plan Awards – Value Vested or Earned During the Year 2012

The following table sets forth the value of all share-based and option-based awards that would have been realized had the Director exercised the award on its vesting date in 2012. The non-equity incentive plan awards for the year ended December 31, 2012 are set forth on the summary compensation table.

Notes (a) Messrs. de Combret and Wylie resigned from the Board during 2011.

Interests of Informed Persons in Material Transactions

Except as disclosed in this Circular, since the commencement of the last completed fiscal year, no Independent Director, Executive Director, nominee for Director, Officer, or any associate or affiliate of an of these groups, had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or would materially affect the Company.


Name

Share Based Awards

(RSUs) ($)

Option Based Awards

(ISOs) ($)

Long-Term Incentive

Plan (SARs) ($)

C. Robert Black 47,012 Nil 291,147

Andrew L. Cochran 47,012 Nil 47,012

Bernard de Combret (a) N/A N/A N/A

Olivier de Montal 47,012 Nil 291,147

L. Barnaby Smith 60,994 Nil 305,128

Forrest E. Wylie (a) N/A N/A N/A

John B. Zaozirny 47,012 Nil 291,147

Value Vested During the Year


PARTICULARS OF MATTERS TO BE ACTED UPON

1. Financial Statements

The Company’s audited consolidated financial statements and the associated management’s discussion and analysis for the financial year ended December 31, 2012, will be mailed to Shareholders together with this Circular. These documents have been filed with SEDAR and may be found under the Company’s profile at www.sedar.com and on the Company’s website www.CoastalEnergy.com. Additional copies will be available at the Meeting. If any Shareholder wishes additional copies of these materials prior to the Meeting, contact the Company directly.

Voting Requirements

The proposed election of directors and appointment of auditors require approval by ordinary resolution. An ordinary resolution is one approved by a simple majority of the votes actually cast. All Shareholders are entitled to vote.

If necessary or requested, a poll will be taken to determine if the requisite level of approval is obtained.

2. Election of Directors

The Directors of the Company are elected at each annual general meeting of the Company’s shareholders, subject to the right of the Board of the Company at any time, and from time to time, to appoint an additional person as Director, either as a result of a casual vacancy or as an additional Director, subject to the maximum number (if any) imposed by the Company by ordinary resolution of its shareholders. At this year’s Annual General Meeting, seven (7) Directors are to be elected to hold office until the 2014 Annual General Meeting and until their successors have been duly elected or appointed or until they are removed by ordinary resolution. The seven (7) nominees for election at the Meeting are listed below and have brief biographies on the following pages. The Board of the Company has determined that the following five (5) Directors satisfy the TSX and AIM Exchanges’ definition of Independent Director: C Robert Black, Andrew L. Cochran, Oliver de Montal, Lloyd Barnaby Smith and John B. Zaozirny. Randy L. Bartley and William C. Phelps are not independent as they are Named Executive Officers of the Company. The Company does not know of any reason why a nominee would be unable to serve as a Director. If any nominee is unable to serve, the Shares represented by all valid proxies will be voted for the election of such other person as the Board may nominate.

Randy L. Bartley Houston, Texas, USA Director Since: February 2008 Executive: President & CEO

Before joining the Company, Mr. Bartley most previously worked for Erskine Energy, LLC, a private equity-sponsored company, where he served as founding partner and COO for four years. He has 33 years of diversified experience in the oil and gas industry, working for companies, including El Paso Corporation, Coastal Corporation and Texaco, Inc. The last 10 of those years were in senior management positions as president, COO, and Senior Vice President. This experience includes the exploration and development of numerous major oil and gas assets - both onshore and offshore and both in the U.S. and internationally. Mr. Bartley graduated from Rose Hulman Institute of Technology in 1975 with a degree in mechanical engineering. He is professionally affiliated with the Society of Petroleum Engineers and the National Ocean Industries Association. Age: 59

Member of: Attendance Attendance Total

Membership on Boards of other reporting issuers, or equivalent

Board 11 of 11 11 of 11 100% Nil

Company Securities Held: Total Options RSUs Shares Held Voting Trust (a) Voting Shares

2,991,807 245,783 1,204,141 Nil 1,204,141




C. Robert Black Horseshoe Bay, TX, USA Director since: September 2006 Independent

Mr. Black spent 41 years with Texaco, Inc. until his retirement in May 1999. At Texaco he held various roles, including President of the Worldwide Exploration and Production division and Senior Vice President in the office of the Chairman of Texaco. Mr. Black was also a member of Texaco’s Executive Council, which has the responsibility for setting corporate strategies and priorities, and also served as Texaco’s Corporate Compliance Officer. Mr. Black holds a Bachelor of Science (Petrochemical Engineering) degree from Texas Tech University, and has served as Chairman of the Board of Regents of his alma mater. Age: 77

Member of: Attendance Attendance

Total Membership on Boards of other reporting issuers, or equivalent

Board Audit Compensation Reserves

11 of 11 4 of 4 5 of 5 2 of 2

21 of 21 100%

Nil


Nil 9,803 32,384 4,608,236 4,640,620

Andrew L. Cochran The Hague, Holland Director since: July 2011 Executive: VP

Mr. Cochran served as the CEO of Dominion Petroleum Limited (LSE) from November 2009 through its sale in February 2012. He has over 20 years of international experience in the oil and gas industry, including founding and executive positions with Salamander Energy plc (LSE: SMDR.L) and Endeavour International Corporation (NYSE: END) and working for Anadarko Petroleum, Veritas DGC Indonesia and Western Geophysical. Mr. Cochran holds a BA in Economics and Politics from Tulane University. Age: 44



Board Audit Compensation Reserves

10 of 11 4 of 4 2 of 4 1 of 2

17 of 21 81%

Eaglewood Energy, Inc. (TSX-V) Mediterranean Oil & Gas, plc (AIM)


Nil 9,803 Nil Nil Nil


Olivier de Montal Geneva, Switzerland Director since: September 2006 Independent

Mr. de Montal is the administrator of, Loze & Associés and Compagnie des Produits de Gascogne and an advisor to the LVMH Group. He serves on the Board of Finet Investments Geneva, PLC and has also served on the boards of numerous public companies, including companies in the oil and gas industry. Mr. de Montal holds a degree from Ecole Superieure de Commerce de Paris, and is a Chevalier de l'Ordre national de la Légion d'honneur (France). Age: 74



Board Compensation Corp Govern, & Nominating

10 of 11 4 of 4 2 of 2

16 of 17 94%

Nil


Nil 9,803 372,384 4,608,236 4,980,620

William C. Phelps Houston, Texas, USA Director since: March 2011 Executive: CFO

Before joining the Company, Mr. Phelps was the Chief Financial Officer of NuCoastal Corporation and NuCoastal (Thailand) Limited. Prior to joining NuCoastal, Mr. Phelps was a member of the Energy Investment Banking Group of Citigroup, where he advised on numerous M&A and financing transactions. Age: 41

Member of Attendance Attendance


Board 11 of 11 11 of 11 100% Nil

Company Securities Held: Total Options RSUs Shares Held Voting Trust Voting Shares

826,108 131,395 1,627,260 Nil 1,627,260


Lloyd Barnaby Smith, CMG Richmond, England Director since: September 2006 Independent

Mr. Smith began his career at the Foreign and Commonwealth Office (the “FCO”) in 1968 and held a number of senior positions within the FCO including Head of South Asia Department and British Ambassador to Nepal. Mr. Smith is very familiar with Thailand having spent a total of 10 years in the country during three separate postings and is the former United Kingdom Ambassador to Thailand, a position he held from February 2000 to July 2003. Mr. Smith holds a Bachelors of Arts degree from the University of Oxford, and is a fluent Thai speaker. Age: 67



Board Reserves Corp Govern, & Nominating

11 of 11 2 of 2 2 of 2

15 of 15 100%

Nil


Nil 12,731 88,420 4,608,237 4,696,657

Forrest E. Wylie Houston, Texas, USA Director since: September 2006 – March 2011 April 2013 Independent

Mr. Wylie currently serves as Chairman of Buckeye Partners, L.P. (NYSE) and served as Buckeye’s CEO from 2007 to 2011. Mr. Wylie served as Vice Chairman of Pacific Energy Partners L.P. (NYSE) from 2005 to 2006. Mr. Wylie was President and Chief Financial Officer of NuCoastal from 2002 to 2005. Prior to joining NuCoastal, Mr. Wylie served as Senior Vice President, Natural Gas Trading, for both the Coastal Corporation and its successor, El Paso Merchant Energy, L.P. Mr. Wylie also held senior positions at Engage Energy, LLC, Transocean, Inc. and American Exploration Company. Mr. Wylie holds a Bachelor of Business Administration from the University of Houston and a Master of Business Administration degree from the University of Texas at Austin. Age: 50



N/A – Initial Nomination

N/A – Initial Nomination

N/A Power Holdings, LLC (NYSE) Buckeye Partners, LP (NYSE) USA Compression GP, LLC (NYSE)


Nil Nil Nil Nil Nil


John B. Zaozirny Calgary, Alberta, Canada Director since: June 2005 Independent

Mr. Zaozirny is Vice-Chairman of Canaccord Genuity Corp. Previously, Mr. Zaozirny was counsel to the law firm of McCarthy Tetrault LLP through 2008 and Alberta’s Minister of Energy and Natural Resources from 1982 to 1986. Mr. Zaozirny holds numerous positions as a director and advisor to several corporations some of which include Canadian Oils Sands Inc., and Pengrowth Corporation. Age: 65



Board Audit Corp. Govern. & Nominating

11 of 11 4 of 4 2 of 2

17 of 17 100%

Bankers Petroleum Ltd. (TSX) Canadian Oil Sands Inc. (TSX) Computer Modeling Group Ltd. (TSX) Pengrowth Corporation (TSX) Petroamerica Oil Corp. (TSX)


Nil 9,803 260,600 4,608,236 4,868,836

Notes: (a) This column represents the proportionate Shares each “attorney” may vote of the Shares owned by Oscar S. Wyatt, Jr., which under an

agreement with the Toronto Stock Exchange are held in a Voting Trust. This Voting Trust is more fully explained in the section entitled Information on Stock Ownership in the Compensation Discussion and Analysis. These Shares represent 16.23% of the total Shares outstanding.

The Board recommends a vote FOR the following ORDINARY resolutions:

“RESOLVED, that the nominees named below be elected as Directors of the Company:

Randy L. Bartley C. Robert Black Andrew L. Cochran Oliver de Montal William C. Phelps Lloyd Barnaby Smith Forrest E. Wylie John B. Zaozirny,

RESOLVED FURTHER, that such newly-elected Directors shall serve for a term ending on the date of the 2014 annual general meeting of the Company’s shareholders, unless earlier removed in accordance with the terms of the Company’s Memorandum and Articles of Association.”

3. Appointment of Auditors

At the Meeting, the Company's shareholders will be asked to approve a resolution reappointing the accounting firm of Deloitte, LLP as the Company's auditors, to hold office until the next annual general meeting of the shareholders and remuneration to be fixed by the Board. .

Deloitte, LLP has served as the Company's external auditor since November 30, 2004. The following table lists the audit fees paid to Deloitte, LLP, by category, for the fiscal years ending December 31, 2012 and 2011:


Year ended December 31, 2012 2011 Audit Fees $554,000 $585,000 Audit-Related Fees - 217,000 Tax Fees 3,000 - All Other Fees 16,000 73,000 Total $573,000 $875,000

Audit fees were paid for professional services rendered by the auditors for the audit of the Company's annual financial statements or services provided in connection with statutory and regulatory filings or engagements and the review of the Company's interim financial statements.

Audit-related fees were paid for assurance and related services that are reasonably related to the performance of the audit or review of the annual and interim financial statements and are not reported under the audit fees item above.

Tax Fees were for professional services related to tax compliance, tax planning and tax advice.

All other fees were paid for professional consultative services relating to management and director compensation (See prior section entitled Use of Compensation Consultant and Benchmark).

The Board recommends a vote FOR the following ORDINARY resolutions:

“RESOLVED, that the selection by the Board’s Audit Committee of the firm of Deloitte, LLP, as independent auditor of the Company for the year 2013, is hereby approved, ratified and confirmed.

RESOLVED FURTHER, that the Board’s Audit Committee be and they are hereby authorized without further shareholder approval, to determine the amount of the Auditors’ remuneration.”

Additional Information

Further information related to the Company may be found on SEDAR under the Company’s profile at www.sedar.com.

Financial information is provided in the Company’s comparative financial statements and management’s discussion and analysis for the year ended December 31, 2012.

To request copies of the financial statements and management’s discussion and analysis, Shareholders may contact William Phelps, the Company’s Chief Financial Officer, at 3355 W. Alabama, Suite 500, Houston, Texas 77098-1717, USA, telephone +01 713 877-6727.

Approval of This Circular

The Directors have approved the content of this Circular and its delivery to the shareholders.]

ON BEHALF OF THE BOARD

Lloyd Barnaby Smith Lloyd Barnaby Smith Chairman of the Board George Town, Grand Cayman, BWI May 07, 2012



APPENDIX TO THE MANAGEMENT INFORMATION CIRCULAR OF COASTAL ENERGY COMPANY

DATED MAY 7, 2013

APPENDIX A 2012 Annual Report, including: Management’s Discussion and Analysis as of December 31, 2012 Audited Financial Statements as of December 31, 2012

APPENDIX B Audit Committee Mandate or “Terms of Reference”

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N e w D i r e c t i o N s N e w O p p o r t u n i t i e s

a n n u a l r e p o r t

2 01 2

The discipline to deliverDear Fellow shareholders:In 2012 coastal energy continued to build on the success of prior years. We made two discoveries—one offshore at Bua Ban south and one onshore at Dong Mun, contracted a second offshore drilling rig, expanded our prospect inventory and signed a contract to work outside thailand for the first time. these new directions and opportunities were among the highlights of our best year ever for production, revenue, eBItDaX and crude oil reserve growth.

t a b l e o f c o N t e N t s

1 President’s Report to the Shareholders

4 Financial and Operating Highlights

12 Management’s Discussion and Analysis

23 Management’s Report

26 Independent Auditor’s Report

27 Consolidated Statements of Operations and Comprehensive Income

28 Consolidated Statements of Financial Position

29 Consolidated Statements of Cash Flows

30 Consolidated Statement of Changes in Equity

31 Notes to the Consolidated Financial Statements

61 Corporate Information

1

Production for the year-end averaged 21,912 barrels of oil equivalent per day (BOEPD), a 90% increase over 2011. Revenue increased 115% in 2012 to $747 million, while EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses) increased by 145%. Year-over-year certified 2P reserves grew by 40%. Once again, all of our exploration activities were funded with current cash flow.

Updated investment thesisWhile we no longer drill exclusively in Thailand, it remains our primary focus. Thailand provides a stable operating environ-ment and offshore properties with prospects for significant oil reserves. We have 1.4 million acres leased in the Gulf of Thailand and more than 30 prospects comprising 450 million barrels of oil (mmbl). Two other components of our core investment thesis are unchanged.

• Our offshore production and prospects are in shallow water, making for cost-effective development. In 2012 our overall cost-effec-tiveness improved further by acquiring— instead of leasing—the production facilities for our offshore operations.

• With approximately 30% of outstanding shares owned by management and the founding shareholder, we are motivated to succeed.

Doubling our drilling capabilitiesTo date, Coastal has relied on a single con-tracted drilling rig to support both exploration and development activities. In October we leased the Manta jackup drilling rig on a one-year contract. In December the Manta arrived at the Bua Ban North B field, where it has begun an eight-well development drilling campaign.

The addition of a second drilling rig is an important milestone for Coastal, as it enables us to conduct our development and explo-ration programs simultaneously. Given our active drilling program in 2013, we believe deploying two rigs is an appropriate step for unlocking the value of our prospect inventory.

Malaysian opportunity with PetroNasThe other reason a second rig is important is our expansion into Malaysia. In July we signed an eight-year Small Field Risk Service Contract with PETRONAS, the Malaysian-government-owned oil and gas company, to develop and produce petroleum from three offshore fields known as the KBM Cluster. The KBM Cluster fields have similar charac-teristics to our fields offshore Thailand.

Coastal will be the operator of the fields, and PETRONAS will remain the owner. We will provide the upfront development capital, undertaking the development drilling and production of the fields. We will recover 100% of our capital and operating expenditures and will be paid a service fee, which will be adjusted by key performance indicators based on the timely implementation of the field development plan and budget. Overall, we ex-pect the project will generate a rate of return approaching that of our Thailand assets, with very limited risk. Drilling of the first of 17 wells will begin in April, and first oil is expected in the second half of 2013.

2012 exploration and Production Our historical ratio of approximately 60% development drilling and 40% exploration drilling produced outstanding results for the year.

OffshoreOffshore development drilling continued in 2012, where we added 6.3 million barrels of oil (mmbl) of 1P reserves and 40.4 mmbl of 2P reserves. Offshore production for the full year was 19.738 barrels of oil per day (BOPD). In the Bua Ban South field, the most signifi-cant news was our first hydraulic fracturing program. Given its success, we expect it to unlock the millions of barrels of oil in lower porosity and permeability sands in the Songkhla basin.

OnshoreBased on information from new 3D seismic data for the area, we successfully completed the Dong Mun 3 sidetrack well. APICO, the

joint venture operating the property, subse-quently agreed to study commercializing the discovery. Coastal is APICO’s largest stake-holder, and we further increased our stake to 39% during the year. Production at Dong Mun 3 is expected to begin in 2015.

Production continued from the Sinphuhorm gas field, ending the year at approximately 2,000 BOEPD. This gas is under a 15-year sales agreement with the Nam Phong power plant.

what’s ahead in 2013 An entire year with the services of two drilling rigs ratchets up what we can accomplish in 2013. This includes the opportunity to de-risk 660 mmbl unrisked oil-in-place by year-end.

Our $315 million capital expenditure budget for the year is 13% lower than in 2012. The de-crease reflects completing the purchase and conversion of mobile operating production units (MOPUs) in 2012 and nearly completing a large 3D seismic data survey begun last year. Operating expenses are expected to average approximately $19.00 per bbl offshore Thailand, well below 2012 levels, reflecting the cost efficiencies achieved by purchasing our production facilities.

We are expecting higher-than-average capital expenditures onshore due to the beginning of pipeline construction and the development drilling at the Dong Mun field. By segment, the budget calls for $200 million in capital costs offshore Thailand, $40 million onshore Thailand and $75 million Malaysia.

The new directions and new opportunities introduced in 2012 point toward continued success in 2013. Your investment in Coastal helps make that success possible. I hope that the results we’ve delivered in our short history and the cost discipline we’ve exercised merit your continued confidence.

On behalf of the Board of Directors,

randy l. bartleyPresident and Chief Executive OfficerMarch 26, 2013

our five-year finding and development costs are an industry-leading $3.27 per barrel of oil equivalent (boe).

3

37,864

2009 2010 2011 2012

114,271

201,689

494,872

T O T A L A N N U A LE B I T D A XEBITDAX US$000s

0.55

2009 2010 2011 2012

0.87

1.63

3.27

O P E R A T I N G C A S H F L O WP E R S H A R ECash Flow Per Share US$000s

THAILAND

LAOS

CAMBODIA

MALAYSIA

BURMA

GULF OF

THAILAND

Block G5/50

Block G5/43 South

Songkhla •

Surat Thani •

Kuala Terengganu •

Bangkok •

SinphuhormField

13.7% W.I.

L 15/43

L 27/43

Dong MunField

39% W.I.

L 15/43 & L 27/4339% W.I.

APICO Operated

KBM Cluster70% W.I.

(Operator)

100% W.I.(Operator)

Coastal Energy’s Oil & Gas Interests

4

f i N a N c i a l a N D o P e r a t i o N a l h i g h l i g h t s

Years Ended December 31, 2011 and 2012

5

f I n a n C I a l a n d o p e r a t I o n a l h I g h l I g h t S

3 Months ended December 31, Years ended December 31,

2012 2011%

Change 2012 2011%

ChangeFINANCIAL

Crude oil revenue $192,241 $128,929 49% $746,853 $347,783 115%

EBITDAX (1) $121,552 $75,085 62% $494,872 $201,689 145%Per share – Basic $1.07 $0.66 62% $4.36 $1.80 142%Per share – Diluted $1.04 $0.64 63% $4.24 $1.74 144%

Net Income $94,018 $18,892 398% $224,403 $47,359 374%Per share – Basic $0.83 $0.17 388% $1.98 $0.42 371%Per share – Diluted $0.80 $0.16 400% $1.92 $0.41 368%

Capital expenditures, excluding onshore $103,640 $44,614 132% $368,065 $153,535 140%

Total Assets $894,193 $518,731 72%

Working capital deficit ($70,350) ($45,995) 53%

Weighted average common shares outstandingBasic 113,160,080 112,998,419 -% 113,534,501 112,226,944 1%Diluted 117,175,857 117,849,003 -1% 116,701,941 115,994,340 1%

OPERATIONS

Operating netback ($/bbl) (1) (2)

Crude oil revenue $105.74 $101.05 5% $105.83 $101.39 4%Royalties 11.12 9.37 19% 11.23 8.49 32%Production expenses 21.95 25.69 -15% 21.26 28.94 -27%Operating netback $72.67 $65.99 10% $73.34 $63.96 15%

Average daily crude oil production (bbls) (2) 18,954 13,386 42% 19,738 9,760 102%

Notes:(1) Non-IFRS measure; see “Non-IFRS Measures” section within MD&A.(2) Includes offshore crude oil only as onshore is accounted for using the equity method of accounting.

6

Fourth Quarter 2012 Highlights• Total Company production increased to 21,373 boe/d in

the fourth quarter of 2012 from 14,508 boe/d in the same period last year. Year over year offshore production was bolstered by the inclusion of a full quarter of production at the Bua Ban North A platform. Sequential quarterly offshore production was impacted downwardly in the fourth quarter due to a production facilities swap out at Bua Ban North as well as downtime at the Bua Ban North B platform while the second rig was mobilized to that location in December. Average onshore production for the fourth quarter of 2012 was 2,419 boe/d compared to 1,122 boe/d in 2011 as demand recovered following the severe flooding that occurred in Thailand during the second half of 2011. Total Company production for the full year 2012 increased to 21,912 boe/d from 11,540 boe/d in 2011 mainly due to the inclusion of a full year of production at Bua Ban North.

• EBITDAX for the full year of 2012 was $494.9 million, 145% higher than the $201.7 million recorded in 2011. Revenue and EBITDAX were driven higher by increased production and commodity prices. Crude oil inventory was 503,594 barrels at year end, the revenue from which will be recognized in 2013.

• The Company released the results of its third-party reserve evaluation report prepared by RPS Energy, Ltd. dated March 20, 2013 (effective date December 31, 2012). The Company reported significant gains in its 1P, 2P and 3P reserve bases, with volumetric increases of 9%, 40% and 78%, respectively. The Company’s 1P, 2P and 3P NAVs also increased significantly, rising by 21%, 43% and 62%, respectively.

• The second offshore drilling rig, the Atwood Manta, arrived on location at Bua Ban North in December 2012 and began a development drilling program at that location.

• The Company completed the acquisition of a 3D seismic survey over Blocks G5/43 and G5/50. The full interpreted data set is expected to be delivered in 2013, and the Company anticipates that new exploration prospects will be generated from this data set.

The following chart represents the Company’s Average BOE/D on an annual basis:

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

2008 2009 2010 2011 2012

Prod

uctio

n (B

OE

/ D

)

■ Onshore ■ Songkhla ■ Bua Ban Main ■ Bua Ban North

A N N U A L P R O D U C T I O N(boe/d)

2,174

4,010

1,127

14,601

1,828

5,534

2,017

6,345

1,308

1,780

5,336

1,466

2,958

1,785

470

Note: Bua Ban North came onstream in August 2011.

The following chart represents the Company’s growing cash operating netbacks ($/bbl) for its offshore production since first oil. Operating netback is based on sales volume and is a non-IFRS measure. See “Non-IFRS Measure” section within the MD&A.

$20.00

0

$40.00

$60.00

$80.00

$100.00

$120.00

Pre-

Tax

O�s

hore

Net

back

s ($

/ b

bl)

■ Cash Operating Netback ■ Production Expense ■ Royalties

O P E R A T I N G N E T B A C K S($/bbl))

$15.97$29.42

$45.09

$63.96$73.34

$11.16

$20.96

$19.41

$28.94$21.26

$1.50

$3.68

$5.97

$8.49$11.23

2008 2009 2010 2011 2012

7

EBITDAX Computation 2012 2011

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1Net income (loss) attributable

to shareholders $94,018 $40,100 $42,150 $48,135 $18,892 $19,013 $11,816 $(2,362)

Add Back:Unrealized (gain) loss on

derivative (2,507) 362 (15,892) 4,007 3,663 (15,019) (7,744) 18,257Realized loss on derivative (a) 1,749 3,640 5,958 5,152 5,175 3,837 8,615 2,400Interest income (34) (2) (1) (2) (2) (2) (1) (1)Equity-based compensation 1,453 1,414 1,414 1,414 677 587 607 618Unrealized foreign exchange

(gain) loss (837) 18 (157) 91 268 (337) 308 149Finance expenses 1,574 1,940 195 1,006 1,549 913 1,201 1,162Debt financing fees 1,032 501 351 281 273 258 31 234Gain on sale of assets - (252) - - - (873) - -Depletion, depreciation and

accretion 16,727 14,778 18,590 20,044 22,844 13,308 11,698 13,286Taxation 8,377 44,913 77,384 48,311 20,201 22,628 12,005 3,183Exploration - 7,191 286 - 1,545 345 931 5,553

EBITDAX $121,552 $114,603 $130,278 $128,439 $75,085 $44,658 $39,467 $42,479

Note (a) The realized loss on the derivative contracts has been added back to net income / loss since these contracts were

executed as part of the debt facility with BNP Paribas and therefore considered a financing cost. This lead to a revision of the Q1 2011 EBITDAX number. EBITDAX is a non-IFRS measure.

The following chart represents the Company’s EBITDAX on an annual basis in USD$000s:

37,864 114,271

201,689

494,872

0

100,000

200,000

300,000

400,000

500,000

600,000

E B

I T D

A X

- (U

SD 0

00s)

E B I T D A X(US$ 000s)

2009 2010 2011 2012

8

a S S e t o v e r v I e w

Gulf of Thailand Properties

THAILAND

LAOS

CAMBODIA

MALAYSIA

BURMA

GULF OF

THAILAND

Block G5/50

Block G5/43 South

Songkhla •

Surat Thani •


Bangkok •

SinphuhormField

13.7% W.I.

L 15/43

L 27/43

Dong MunField

39% W.I.

L 15/43 & L 27/4339% W.I.

APICO Operated

KBM Cluster70% W.I.

(Operator)

100% W.I.(Operator)

Block G5/43 – Songkhla BasinThe Company holds a 100% working interest in Blocks G5/43 and G5/50 in the Gulf of Thailand. The current combined area of the blocks is approximately 2,777 square kilometres and average water depths are approximately 70 feet. Block G5/50 is an exploration concession north of the Songkhla basin and contains approximately 283 square kilometers of acreage within the boundaries of Block G5/43. As of December 31, 2012, the Company’s offshore assets have proven and probably (“2P”) reserves of approximately 120.4 million barrels of oil.

Bua Ban North FieldThe Bua Ban North field was discovered in 2011. It was originally drilled as two separate prospects which later proved to be connected to one another. The initial exploration wells at both locations discovered significant amounts of oil in the Miocene interval. These discoveries have proven the commercial viability of the Miocene trend in the Songkhla basin.

The Company has been developing the field over the past two years with both vertical and horizontal development wells. Several more horizontal development wells are planned to increase production and ultimate recovery. The Company is planning further appraisal and development drilling at Bua Ban North in 2013. Production from Bua Ban North began in August 2011 and averaged 14,601 bbl/d during 2012. As of December 31, 2012, Bua Ban North had proven and probable (“2P”) reserves of approximately 95.2 million barrels of oil.

Bua Ban Main & South FieldsProduction from the Bua Ban Main field commenced in July 2010. The Bua Ban South field was discovered in 2012 and production has commenced in the first quarter of 2013. Bua Ban South began producing late Q1 2013 from the Miocene interval and from two wells drilled into the Oligocene and Eocene intervals which have been stimulated with hydraulic fracturing technology. The Company plans to continue developing the large Oligocene and Eocene resources at Bua Ban Main and South with hydraulic fracturing technology. Production from Bua Ban Main averaged approximately 1,127 bbl/d in 2012. As of December 31, 2012, Bua Ban Main & South had proven and probable (“2P”) oil reserves of 10.3 million barrels of oil.

Songkhla FieldThe Songkhla A field was the first field developed by the Company beginning in 2008. Production from Songkhla A averaged 4,010 bbl/d during 2012. As of December 31, 2012, Songkhla A had proven and probable (“2P”) reserves of approximately 14.1 million barrels of oil.

In the third quarter of 2011 and in compliance with the terms of the concession, the Company drilled an exploration well at Songkhla H. This well was successful but could not be completed due to being outside the current production licenses. The Company intends to file for another production license to encompass this field. As of December 31, 2012, Songkhla H had proven and probable (“2P”) reserves of approximately 0.9 million barrels of oil.

bua ban Northbua ban Main

bua ban southsongkhla hsongkhla a

9

G5/50The G5/50 concession is an exploration concession covering two basins north of the Songkhla basin. The Company has 3D seismic coverage of the basins and plans to drill its first exploration well on the concession in 2013.

Thailand Onshore

THAILAND

LAOS

CAMBODIA

MALAYSIA

BURMA

GULF OF

THAILAND

Block G5/50

Block G5/43 South

Songkhla •

Surat Thani •


Bangkok •

SinphuhormField

13.7% W.I.

L 15/43

L 27/43

Dong MunField

39% W.I.

L 15/43 & L 27/4339% W.I.

APICO Operated

KBM Cluster70% W.I.

(Operator)

100% W.I.(Operator)

The Company’s Thailand onshore interests are held through its equity investment in Apico. Apico has ownership interest in two production licenses and two petroleum concessions located in the Khorat Plateau in northeastern Thailand.

SinphuhormCoastal holds a net working interest of 13.7% in Blocks EU-1 and E-5N onshore Thailand through its 39.0% equity investment in Apico, LLC, which holds a 35% non-operated working interest in the blocks. Blocks EU-1 and E-5N contain the Sinphuhorm gas field. Production at Sinphuhorm commenced on November 30, 2006, to supply the Nam Phong power plant with natural gas under a 15 year Gas Sales Agreement with PTT Public Company Limited. As of December 31, 2012, Sinphuhorm had 2P reserves of 23.8 million barrels of oil equivalent net to Coastal, and production averaged 2,174 boepd net to Coastal during 2012.

Coastal also holds a net 39.0% working interest in Block L27/43 (operated by Apico), which is located southeast of Sinphuhorm. A sidetrack of the Dong Mun 3 well drilled in Q1 2012 encountered a 113 meter gas column with commercial degrees of porosity and permeability. The well flowed 15 mmcfd of gas when tested. Further wells will be required to determine the areal extent of the Dong Mun prospect. The Company and its partners have received commercial approval of the field and are currently evaluating development plans. The Dong Mun prospect contained 10.0 mmboe (net to Coastal) of contingent resources as of December 31, 2012.

Company has a net 39.0% working interest in Block L15/43 (operated by Apico), which surrounds the Sinphuhorm gas field.

Malaysia Offshore

THAILAND

LAOS

CAMBODIA

MALAYSIA

BURMA

GULF OF

THAILAND

Block G5/50

Block G5/43 South

Songkhla •

Surat Thani •


Bangkok •

SinphuhormField

13.7% W.I.

L 15/43

L 27/43

Dong MunField

39% W.I.

L 15/43 & L 27/4339% W.I.

APICO Operated

KBM Cluster70% W.I.

(Operator)

100% W.I.(Operator)

In June 2012 the Company entered into a contract with Petronas to develop the Kapal, Benang & Meranti cluster of fields offshore Malaysia. The Company will be reimbursed for all capital and operating expenditures associated with the KBM cluster. Additionally, it will earn a service fee which is adjusted according to its performance versus the agreed upon budget. The Company farmed out 30% of the contract to a local Malaysian oilfield service company in 2012. First oil from the project is expected in mid-2013.

Kapal

banangMeranti

10

o p e r a t I o n a l r e v I e w

Oil and Gas ReservesThe Company’s oil and gas assets are all in Thailand and are divided into two groups – Gulf of Thailand properties, which are held directly by the Company, and Thailand Onshore properties, which are held indirectly though the Company’s equity investment in Apico. Therefore, in accordance with Canadian securities regulations, the following reserves information has been reported separately for the two groups.

Gulf of Thailand PropertiesThe Company’s Gulf of Thailand reserves were evaluated by RPS Energy, Ltd. (“RPS”). Selected data from their report follows. Their report, dated March 26, 2013, is available on SEDAR at www.sedar.com. Natural gas is converted to equivalent barrels (“BOE”) at the energy equivalent conversion rate of six thousand cubic feet (6mcf) to one barrel (“1bbl”) of crude oil, reflecting the approximate relative energy content. The following reserve figures, before royalties for 2012 and 2011 reflect Coastal Energy’s 100% interest in its Gulf of Thailand concessions (Block G5/43 and G5/50.)

Gulf of ThailandOil and Gas Reserves (Gross)

December 31, 2012 December 31, 2011

oil (Mbbls)

gas (MMcf)

boe (Mbbls) Oil (Mbbls)

Gas (MMcf)

BOE (Mbbls)

Proved Reserves Developed producing 30,805 30,805 25,115 - 25,115Developed non-producing 2,736 2,736 17,638 - 17,638Undeveloped 35,261 35,261 19,736 - 19,736

total Proved 68,802 68,802 62,489 - 62,489

total Probable 51,592 51,592 17,453 - 17,453

total Proved Plus Probable 120,394 120,394 79,942 - 79,942

The forecasted prices used by RPS Group Ltd. in their evaluation for December 31, 2012, and December 31, 2011, were taken from RPS’s own internal estimates of future commodity prices. Forecasted prices as at December 31, 2012, and December 31, 2011, are as follows:

YearDecember 31, 2012

($/bbl)December 31, 2011

($/bbl)2012 n/a 105.802013 108.00 101.302014 102.00 96.802015 98.00 96.612016 95.00 98.632017 97.00 100.692018 99.00 102.792019 101.00 104.932020 103.00 107.112021 105.00 n/athereafter 2.0% 2.1%

The following table summarizes the present value of future net revenues discounted at 10% before income taxes at December 31, 2012 and 2011.

US $ millions based on forecasted prices at December 31, 2012 2011Proved Reserves:

Developed producing $1,521.9 $1,182.3Developed non-producing 135.2 852.1

Undeveloped 1,742.1 874.5

total Proved – gulf of thailand $3,399.2 $2,908.9

total Probable – gulf of thailand $1,238.7 $506.5

total Proved Plus Probable – gulf of thailand $4,637.9 $3,415.4

Thailand OnshoreRPS also evaluated the onshore reserves held via Apico effective December 31, 2012, and December 31, 2011. Selected data from RPS’s report follows.

11

Natural gas is converted to equivalent barrels (“BOE”) at the energy equivalent conversion rate of six thousand cubic feet (6mcf) to one barrel (“1bbl”) of crude oil, reflecting the approximate relative energy content. The

following reserve figures, before royalties for 2012 and 2011 reflect Coastal Energy’s 36.1% interest in APICO as if the Company directly owned the onshore properties.

Thailand OnshoreOil and Gas Reserves (Gross)


oil (Mbbls)

gas (MMcf)

boe (Mbbls)

Oil (Mbbls)

Gas (MMcf)

BOE (Mbbls)

total Proved 144 42,873 7,290 222.4 46,680 8,025

total Probable 382 97,365 16,609 461.0 92,488 15,900

total Proved Plus Probable 526 140,238 23,899 683.4 139,168 23,925

The forecasted prices used by RPS Group Ltd. in their evaluations for December 31, 2012, and December 31, 2011, were taken from RPS’s own internal estimates of future commodity prices. Forecasted prices as at December 31, 2012, and December 31, 2011, are as follows:

Year

as at December 31, 2012 As at December 31, 2011condensate

($/bbl)condensate

($/bbl)Condensate

($/bbl)Condensate

($/Mcf)2012 n/a n/a 102.68 6.692013 97.40 8.40 98.44 6.752014 92.30 8.00 94.19 6.932015 88.60 7.70 94.03 7.052016 85.50 7.30 95.92 7.172017 87.90 7.50 97.86 7.152018 89.70 7.60 99.84 7.282019 91.40 7.80 101.85 7.402020 93.30 7.50 103.91 7.532021 95.10 7.70 n/a n/athereafter 2.0% 2.0% 2.0% 2.0%

The following table summarizes the present value of future net revenues discounted at 10% before income taxes at December 31, 2012 and 2011.

US $ millions based on forecasted prices at December 31, 2012 2011

total Proved –thailand onshore $174.5 $184.2

total Probable –thailand onshore $179.1 $158.6

total Proved Plus Probable –thailand onshore $353.6 $342.8

Oil and Gas Properties

Summary of Oil & Gas Properties Thailand Onshore Gulf of Thailand Totalsbalance, December 31, 2010 $47,261 $276,645 $323,906Additions during the period, net of disposals:

Exploration & development 1,446 176,655 178,101Equity earnings in Apico, net of distributions 47 - 47Depletion - (59,447) (59,447)Exploration expense - (8,374) (8,374)Amortization of excess basis in Apico (1,056) - (1,056)

balance, December 31, 2011 $47,698 $385,479 $433,177Additions during the period, net of disposals:

Increase in ownership of Apico LLC 9,250 - 9,250Exploration & development - 348,990 348,990Equity earnings in Apico, net of distributions 3,967 - 3,967Depletion - (71,539) (71,539)Exploration expense - (7,477) (7,477)Amortization of excess basis in Apico (649) - (649)

balance, December 31, 2012 $60,266 $655,453 $715,719

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M a n a g e M e n t ’ S d I S C u S S I o n a n d a n a l y S I S

The following is Management’s Discussion and Analysis (“MD&A”) of the results and financial condition of Coastal Energy Company (“Coastal” or the “Company”). This MD&A, dated March 26, 2013, should be read in conjunction with the accompanying unaudited consolidated financial statements as at and for the three and twelve months ended December 31, 2012, and related notes thereto. Additional information related to the Company is available on SEDAR at www.sedar.com.

OverviewThe Company was incorporated under the Companies Law of the Cayman Islands on May 26, 2004. The Company is engaged in the exploration and development of oil and natural gas properties in Southeast Asia. The functional and reporting currency of the Company and its subsidiaries is the US dollar. The Company’s trading symbols are “CEN” on the TSX and “CEO” on the AIM exchange.

The Company’s oil and gas properties and assets consist of the following ownership interests in petroleum concessions awarded by the Kingdom of Thailand as of December 31, 2012:

Petroleum Concession

Coastal’s Working Interest

Gulf of ThailandBlock G5/43 100.0%Block G5/50 (within the boundaries

of Block G5/43) 100.0%Onshore Thailand (via Coastal’s 36.1%

ownership of Apico LLC (“Apico”))Blocks EU-1 and E-5N containing

the Sinphuhorm gas field 13.6%Block L15/43 (surrounding the

Sinphuhorm gas field) 39.0%Block L27/43 containing the Dong Mun

gas field 39.0%

The Company’s ownership interests in a risk service contract awarded by Petronas, the national oil company of Malaysia, as of December 31, 2012, is as follows:

Malaysia Risk Service Contract

Coastal’s Working Interest

Kapal, Benang, Meranti RSC 70%

Non-IFRS and Non-GAAP Measures This report contains financial terms that are not considered measures under International Financial Reporting Standard principles (“IFRS”), such as funds flow from operations, funds flow per share, EBITDA, EBITDAX, net debt, operating netback and working capital. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. Specifically, funds flow from operations and funds flow per share reflect cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as they help evaluate performance and demonstrate the Company’s ability to generate sufficient cash to fund future growth opportunities and repay debt. EBITDA is defined as earnings before interest, taxes, depreciation, amortization and earnings from significantly influenced investee adjusted for non-cash items such as unrealized gains and losses on risk management contracts, unrealized foreign exchange gains or losses and Share-Based Compensation. EBITDAX is an industry measure equivalent to EBITDA but for the fact that it neutralizes the impact of some companies expensing rather than capitalizing exploration costs. Net debt includes short-term and revolving credit facilities less cash and cash equivalents and restricted cash, and is used to evaluate the Company’s financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Working capital represents current assets less current liabilities.

Funds flow from operations, funds flow per share, EBITDA, EBITDAX, net debt, operating netbacks and working capital are not defined by IFRS, and consequently are referred to as non-IFRS measures. Accordingly, these amounts may not be compatible to those reported by other companies where similar terminology is used, nor should they be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with IFRS.

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Forward Looking StatementsCertain information included in this discussion may constitute forward-looking statements. Forward looking statements are based on current expectations, estimates and projections that involve various risks and uncertainties. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied.

Financial ReviewThe following tables are analyses of the line items in the Company’s Consolidated Statements of Operations and Comprehensive Loss and are comparisons of the current quarter activities vs. the same quarter in the prior year, unless otherwise noted.

Average Daily Production (boe/d)

3 Months ended December 31,

Years ended December 31,

2012 2011 Change 2012 2011 ChangeSongkhla 3,821 5,247 -27% 4,010 5,336 -25%Bua Ban Main 1,042 1,234 -16% 1,127 1,466 -23%Bua Ban North 14,091 6,905 104% 14,601 2,958 394%Total Offshore Production 18,954 13,386 42% 19,738 9,760 102%Sinphuhorm (via Apico) 2,419 1,122 116% 2,174 1,780 22%Total Company 21,373 14,508 47% 21,912 11,540 90%

Offshore production for the full year 2012 increased significantly due to the inclusion of a full year of production from the Bua Ban North field. Fourth quarter offshore production increased significantly from the prior year period due to the inclusion of a full quarter of production at the Bua Ban North A platform, which was brought online beginning late in the fourth quarter 2011 and throughout the first quarter of 2012. Fourth quarter production at Bua Ban North was impacted downwardly versus the third quarter due to a production facilities swap out and downtime associated with initial operations of the second drilling rig to the Bua Ban North B platform. The Company expects to see continued gains in production following the 2013 development drilling program at Bua Ban North as well as the addition of production at Bua Ban South and Songkhla H.

The Company is planning to drill additional development wells at Bua Ban North in 2013, including several horizontal development wells as well as injection wells to maintain aquifer support. During 2013, the Company also plans to complete the wells previously drilled at Bua Ban South and drill additional development and appraisal wells there. The Company also plans to bring the Songkhla H discovery online in Q3 2013.

Onshore production rose significantly year over year for both the fourth quarter and the full year as natural gas demand in Thailand recovered from the severe flooding which impacted it in the third and fourth quarters of 2011.

The following table reconciles the Company’s offshore inventory, production and liftings.

Crude Oil Inventory (bbls)



2012 2011 Change 2012 2011 ChangeInventory Beginning of Period 577,863 380,754 52% 336,334 203,983 65%

+ Production 1,743,797 1,231,488 42% 7,224,115 3,562,408 103%- Sales / Liftings (1,818,066) (1,275,908) 42% (7,056,855) (3,430,057) 106%

Inventory, End of Period 503,594 336,334 50% 503,594 336,334 50%

The Company’s crude oil production is stored in floating storage and offloading vessels (“FSOs”) moored at the production platforms. The inventory represents crude oil produced and loaded onto the FSOs, but which has not yet been off-loaded for sale at the end of the period. The Company ended the year with 503,594 bbl in inventory, the revenue and associated expenses of which will be recognized in 2013.

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Oil Sales, Average Benchmark and Realized Prices ($/bbl)



2012 2011 Change 2012 2011 ChangeOil Sales $192,241 $128,929 49% $746,853 $347,783 115%Dubai (Benchmark - $/bbl) $107.53 $106.50 1% $109.05 $106.31 3%Sales Price per bbl Sold ($/bbl) $105.74 $101.05 5% $105.83 $101.39 4%Sales Price as a Percentage of Dubai 98% 95% 97% 95%

Revenue increased dramatically for the three and twelve month periods ending December 31, 2012, over the same periods in the previous year. The increase was driven by significantly higher production and lifting volumes as well as a 5% increase in realized commodity pricing. The Company had 503,594 bbls of crude oil inventory at quarter end, the revenue from which will be recognized in 2013.

The sales price for the Company’s offshore oil is based on the Dubai benchmark price. The Company is receiving a higher percentage of its benchmark crude price as commodity prices have increased as the Company sells oil at a fixed discount to the benchmark price. In the fourth quarter of 2011, the Company signed a 2-year agreement to sell its crude oil at a fixed $1.75 per bbl discount to Dubai pricing. This price includes transportation costs.

Royalties



2012 2011 Change 2012 2011 ChangeRoyalties $20,218 $11,955 69% $79,280 $29,113 172%$ per bbl $11.12 $9.37 19% $11.23 $8.49 32%Royalties as a percent of revenue 11% 9.3% 11% 8.4%

Royalties on the Gulf of Thailand assets are paid to the Kingdom of Thailand as a percentage of revenue calculated on a sliding scale and based on monthly sales

volumes. Fourth quarter royalty rates increased both on a percentage basis and on a per barrel basis due to both higher lifting volumes and commodity prices.

Malaysia risk service contract



2012 2011 Change 2012 2011 ChangeReimbursement of expenses $4,099 $- - $4,099 $- -Expenses (4,099) - - (4,099) - -Net expense associated with Malaysia risk

service contract $- $- - $- $- -

During 2012, the Company entered into a Small Field Risk Service Contract (“RSC”) with Petronas to develop three oil fields offshore Malaysia. The Company began

incurring expenses associated with the initiation of Malaysian operations and pre-drilling expenditures in the fourth quarter of 2012.

Other income



2012 2011 Change 2012 2011 ChangeUnrealized gain (loss) on derivative

contracts $2,507 $(3,663) - $14,030 843 -Realized loss on derivative contracts (1,749) (5,175) - (16,499) (20,027) -Interest income 34 2 - 39 6 -Foreign exchange loss (47) (336) (2,340) (2,388) -Other income ($745) ($9,172) - ($4,770) ($21,566) -

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The Company has risk management contracts outstanding to hedge its exposure to interest rate and commodity price movements. These contracts were entered into as a condition of the Company’s revolving credit facility. The Company adjusts the fair value of this risk management contract (mark to market) every quarter with the changes in fair value recognized in net earnings, as required under IFRS. Volatility in commodity pricing has translated into large swings in the Company’s mark to market gains and losses. The Company realized losses of $1.7 million in the fourth quarter, which was a decrease from prior quarters, as the last of the Company’s fixed price swap agreements entered into in 2010 expired in the fourth quarter. As of December 31, 2012, the Company’s hedge portfolio consists solely of zero cost collars covering approximately 1.55 mmbbl in aggregate through April 2014 with an average floor of $70.00 / bbl and an average ceiling of $125.19 / bbl. The reference instrument is ICE Brent crude oil.

The net derivative liability at December 31, 2012, may never be realized, depending upon commodity price movements between December 31, 2011 and expiry of the final contract (April 2014).

The Company has earned negligible income on its cash balances due to the low global interest rate environment for risk-free assets and by using cash on hand as part of its capital intensive drilling program.

The foreign exchange loss is a result of the Company carrying out transactions and maintaining certain financial assets and liabilities in currencies other than the US Dollar. The primary foreign currency in which the Company transacts is Thai Baht. The Company also occasionally has transactions denominated in the Canadian Dollar, Singapore Dollar, British Pound and Euro. Included within the forex loss for the three and twelve months ended December 31, 2012, are unrealised losses on cash retranslation of $2.5 million and $1.8 million, respectively (2011: $1.3 million and $1.8 million, respectively).

Production



2012 2011 Change 2012 2011 Change

Production expenses $40,418 $31,445 29% $152,238 $101,034 51%Effect of change in inventory (511) 1,328 -138% (2,239) (1,771) 26%

$39,907 $32,773 22% $149,999 $99,263 51%$ per bbl $21.95 $25.69 $21.26 $28.94

The year over year increase in fourth quarter production expenses was primarily driven by inclusion of a full quarter of operating expenses for a second production platform at Bua Ban North and, to a lesser extent, general oilfield price inflation. Fourth quarter operating costs declined significantly on a per barrel basis due to the production gains from Bua Ban North as well as the purchase of previously leased production facilites. Coastal expects per barrel costs to continue declining in coming quarters due to further production gains from Bua Ban

North over a relatively fixed lease operating cost base.

Workover expense was relatively unchanged year over year (2012: $12.1 million; 2011: $10.9 million) as was repair & maintenance expense (2012: $2.7 million; 2011: $2.9 million). The Company saw a significant decline in operating costs on a per barrel basis, due primarily to the purchase of previously leased production facilities throughout the year as well as higher production levels being spread over a relatively fixed operating cost base. Coastal expects this trend to continue in coming quarters.

General and Administrative Expenses



2012 2011 Change 2012 2011 ChangeSalaries and benefits $12,682 $9,246 37% $29,677 $24,125 23%Professional fees 883 1,117 -21% 4,481 2,275 97%Office and general 863 808 7% 2,863 2,606 10%Travel and entertainment 564 667 -15% 2,093 1,726 21%Regulatory and transfer fees 195 93 110% 582 721 -19%Total general and administrative

expenses $15,187 $11,931 27% $39,696 $31,453 26%

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G&A expense increased over the same period last year primarily due to higher overhead costs and higher stock based compensation expenses. Salaries & Benefits and Office & General expense has increased due to increased headcount. A significant driver of the Salaries & Benefit increase is related to the amount required to be accrued for Stock Appreciation Rights (“SARs”) which increased to $12.2 million from $5.0 million year on year. SARs expense is tied to the Company’s share price, which has seen a dramatic increase from C$15.20 at December 31,

2011, to C$19.96 at December 31, 2012. The Company had 76 full-time employees and 32 full-time contractors as of December 31, 2012 (2011: 49 and 19, respectively).

Regulatory & Transfer fees are higher for the three months ended Q4 2012 relative to Q4 2011 as a result of increase in the cost of compliance activities. The decrease in Regulatory & Transfer fees year on year is largely due to the level of expenditures incurred in 2011 following the graduation of the Company to the main board of the Toronto Stock Exchange.

Exploration



2012 2011 Change 2012 2011 ChangeUnsuccessful exploration costs $- $1,545 - $7,477 $8,374 -11%

As a result of the Company’s transition to IFRS reporting, it is now expensing dry hole costs on exploration prospects which prove to be unsuccessful.

The 2012 charge relates to the writing off of dry hole costs at the Company’s Songkhla J prospect.

The full year 2011 charge relates to a write down of costs associated with the fracture jobs on Benjarong, the results of which did not lead to commercially acceptable performance, and relinquishment of some acreage at G5/50.

Finance costs



2012 2011 Change 2012 2011 ChangeFinance costs $1,574 $1,549 2% $4,715 $4,825 -2%

After allowing for mark-to-market adjustments on the cashless warrants liability, interest expense increased year over year as the Company had higher debt balances. Total gross debt (excluding interest) at December 31, 2012, was

$100.0 million versus $80.0 million at December 31, 2011. The Company’s average interest rate was 5.73% for the year ended December 31, 2012 (2011: 5.14%).

Depletion and Depreciation



2012 2011 Change 2012 2011 ChangeOil and gas depreciation & depletion $18,713 $20,968 -11% $71,539 $59,447 20%Effect of change in inventory (2,138) 1,773 -221% (2,068) 1,338 -255%Corporate depreciation 152 103 48% 668 351 90%Depletion, depreciation, amortization and impairment expense $16,727 $22,844 -27% $70,139 $61,136 15%$ per bbl $9.20 $17.90 $9.94 $17.82

Overall depreciation expense increased due to higher production rates both on a quarterly and full year basis. Depletion rates declined significantly on a per barrel

basis both on a quarterly and full year basis due to the substantial increase in the Company’s reserves as a result of the inclusion of Bua Ban North.

Gains on disposal of property, plant and equipment



2012 2011 Change 2012 2011 ChangeGains on disposal of property, plant and

equipment $- $- - $252 $873 -

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The gain in 2012 largely relates to disposal of surplus equipment acquired as part of the purchase of the Richmond rig.

In 2011 the Company disposed of the Ocean 66 drilling platform, which was undergoing refurbishment. After review, it was determined that the costs to complete the

project far outweighed comparable costs to purchase an already refurbished unit. The sale of the unit resulted in a one-time gain of $0.2 million after being entirely written off earlier in 2011. The remainder of the 2011 gain is attributable to the termination of certain finance lease obligations on production equipment in Q3 2011.

Taxes



2012 2011 Change 2012 2011 ChangeCurrent tax expense $26,297 $- - $150,329 $135 -Deferred income charge (credit) (17,920) 20,201 - 28,656 57,882 -Taxes $8,377 $20,201 - $178,985 $58,017 -

The Company’s future income tax liability primarily relates to Thai taxes. Under IFRS, these taxes are

calculated in Thai Baht (the payment currency) and then converted to US dollars.

Share of net income from Apico LLC



2012 2011 Change 2012 2011 ChangeCoastal’s 39.0% (2011: 36.1%) of Apico’s

net income $5,251 $2,732 92% $19,759 $15,583 27%Amortization of Coastal’s excess basis (182) (169) 8% (649) (1,056) -39%Earnings from Significantly Influenced

Investee, net of taxes $5,069 $2,563 98% $19,110 $14,527 32%100% Field Production volumes

(mmcf/d) 103.4 53.4 94% 92.3 84.8 9%13.7% (2011: 12.6%) net to Coastal

(mmcf/d) 14.1 6.7 110% 12.7 10.7 19%

Under the equity method of accounting for investments, the Company records its share of the net income of Apico based on Apico’s quarterly reported net income. Apico’s revenue increased in the fourth quarter and for the full year due to recovery of natural gas demand in Thailand following the floods in Thailand in Q3/Q4 2011.

Apico uses US GAAP and the full cost method for reporting purposes. As part of the transition to IFRS, the Company had to make adjustments to convert Apico’s results to be IFRS compliant.

On September 25, 2006, the Company acquired an additional interest in Apico for an amount greater than its proportionate share of net assets of Apico (“excess basis”). The excess basis was allocated to Apico’s oil & gas properties and is being amortized using the units of production method beginning in Q1 2007.

In the first quarter of 2012, the Company acquired an additional 2.9% of Apico, bringing its total holdings to 39%. The effective date of the transaction is January 1, 2012.

Net income



2012 2011 Change 2012 2011 ChangeNet income and comprehensive income

attributable to Coastal Energy $94,018 $18,892 398% $224,403 $47,359 374%Basic earnings per share $0.83 $0.17 388% $1.98 $0.42 371%Diluted earnings per share $0.80 $0.16 400% $1.92 $0.41 368%

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S u M M a r y o f Q u a r t e r l y r e S u l t S

2012 2011Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Revenues and Other IncomeOil sales $192,241 $170,894 $194,639 $189,079 $128,929 $81,670 $64,628 $72,556 Royalties (20,218) (18,305) (20,514) (20,243) (11,955) (6,295) (5,018) (5,845)Reimbursement of expenses

under Malaysia risk service contract 4,099 - - - - - - -

Gain (loss) on derivative 758 (4,002) 9,934 (9,159) (8,838) 11,182 (871) (20,657)Interest income 34 2 1 2 2 2 1 1 Other income (47) (1,122) (157) (1,014) (336) (467) (1,157) (428)

176,867 147,467 183,903 158,665 107,802 86,092 57,583 45,627 Expenses

Production 39,907 32,718 41,164 36,210 32,773 27,148 17,124 22,218 Malaysia risk service

contract 4,099 - - - - - - - Depreciation, Depletion,

Amortization and Impairment 16,727 14,778 18,590 20,044 22,844 13,308 11,698 13,286

Net profits interest 133 39 869 - - - - - General and Administrative 15,187 9,125 7,057 8,327 11,931 7,802 6,457 5,263 Exploration - 7,191 286 - 1,545 345 931 5,553 Debt financing fees 1,032 501 351 281 273 258 31 234 Finance expenses 1,574 1,940 195 1,006 1,549 913 1,201 1,162 Gains on disposal of

property, plant and equipment - (252) - - - (873) - -

78,659 66,040 68,512 65,868 70,915 48,901 37,442 47,716 Taxes 8,377 44,913 77,384 48,311 20,201 22,628 12,005 3,183 Share of net income (loss)

from Apico LLC 5,069 4,537 5,497 4,007 2,563 4,436 4,272 3,256 Net income (loss) before non-

controlling interests 94,900 41,051 43,504 48,493 19,249 18,999 12,408 (2,016)Non Controlling interest (882) (951) (1,354) (358) (357) 14 (592) (346)Net income (loss) attributable

to Coastal Energy Company 94,018 40,100 42,150 48,135 18,892 19,013 11,816 (2,362)

EBITDAX(a) $121,552 $114,603 $130,278 $128,439 $75,085 $44,658 $39,467 $42,479Basic earnings (loss) $0.83 $0.35 $0.37 $0.42 $0.17 $0.17 $0.11 ($0.02)Diluted earnings (loss) $0.80 $0.34 $0.36 $0.40 $0.16 $0.16 $0.10 ($0.02)

Note (a) EBITDAX is a non-IFRS and non-Canadian GAAP measure and is defined as earnings before interest, financing fees,

taxes, depreciation, amortization, exploration costs and other one-time items adjusted for non-cash items such as unrealized gains and losses on risk management contracts, unrealized foreign exchange gains or losses and Share-Based Compensation (see reconciliation above).

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Significant factors influencing Quarterly Results include:• The volatility of global crude oil prices has a direct

effect on the Company’s revenue as well as unrealized gains or losses on risk management contracts. The Company realized a higher sales price year over year, but a lower sales price sequentially.

• The Company has incurred higher lease operating expenses in 2012 due to a full year of Bua Ban North operating expenses. The Company has taken steps to reduce these operating costs by purchasing production facilities and equipment that was previously leased from third parties.

• The Company has incurred higher general and administrative expenses as the substantial increase in the Company’s stock price has increased its Share-Based Compensation expense as well as the accrual value of stock-linked cash compensation.

• The Company transacts business in multiple currencies; therefore, the volatility of global currency exchange rates has a direct effect on the Company’s foreign exchange (gains) losses.

Cash Flow AnalysisThe Company’s cash and cash equivalents at December 31, 2012, were $63.9 million, an increase of $40.9 million from $23.0 million at December 31, 2011. The Company’s primary source of funds came from operations and $50.0 million of borrowings. Cash and cash equivalents were primarily used to fund property, plant and equipment expenditures of $309.6 million, $9.3 million to cover the acquisition of an increased stake in Apico LLC, $30.0 million in debt reduction payments, $18.8 million to repurchase the Company’s own stock and $31.1 million to cover cash settlement of stock options. The residual was used to fund working capital.

Capital ExpendituresCapital expenditures (on an accruals basis) amounted to $368.1 million in 2012, compared to $153.5 million in 2011, respectively. The 2012 expenditures were related to exploration, appraisal and development drilling as well as a 3D seismic survey that was performed over the Company’s entire offshore acreage position in 2012. The following table sets forth a summary of the Company’s capital expenditures incurred:

capital expenditures


2012 2011Seismic, geological and

geophysical studies $41,488 $5,145Drilling and completions 124,279 113,337Facilities 163,096 6,081Lease and well equipment 38,047 27,839Administrative assets $1,155 1,133Total Capital Expenditures $368,065 $153,535

Equity Capital

Share CapitalAuthorized 250,000,000 common shares with par value of $0.04 each;

As of the date of this report, the Company had 113,604,820 common shares outstanding.

During 2012 the Company instituted a Normal Course Issuer Bid (“NCIB”) to repurchase its common shares through the Toronto Stock Exchange. The NCIB covers 5% (5,715,972) of the shares outstanding immediately prior to the program being undertaken. As of the date of this report, the Company has repurchased 1,295,450 shares at an average price of C$14.48 per share. The number repurchased equates to 1% of the number of shares outstanding on January 1, 2012.

WarrantsAs of December 31, 2012, the Company had 200,000 warrants outstanding, exercisable at CAD $1.136 per share. During the twelve months ended December 31, 2012, no warrants were exercised.

Subsequent to December 31, 2012, no warrants were exercised, resulting in the issuance of no common shares of the Company.

Stock OptionsDuring the year ended December 31, 2012, the Company did not grant any stock options. Over the same period, 3,234,978 options were exercised (2,141,359 of those exercised were settled by the Company for cash in the aggregate amount of $31.7 million), whereas 14,250 options were forfeited. As of December 31, 2012, the Company had 5,296,219 stock options outstanding with a weighted average exercise price of $7.16. Subsequent to December 31, 2012, 231,594 options were exercised and no options were forfeited. As of the date of this report, the following ISOs were outstanding:

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Grant DateNumber

OutstandingRemaining

Contractual LifeExercise

PriceExpiry

DateNumber

ExercisableSep. 16, 2008 100,000 0.50 years $2.31 (Cdn$2.28) Sep. 16, 2013 100,000Jan. 02, 2009 739,583 0.75 years $1.37 (Cdn$1.36) Jan. 01, 2014 739,583Dec. 01, 2009 1,628,885 1.75 years $5.22 (Cdn$5.16) Nov. 30, 2014 1,628,885Dec. 28, 2010 1,163,444 2.75 years $5.85 (Cdn$5.78) Dec. 27, 2015 670,748Dec. 14, 2011 1,432,713 3.75 years $14.27 (Cdn$14.11) Dec. 13, 2016 407,662

5,064,625 3,546,878

Restricted stock unitsDuring the year ended December 31, 2012, 509,963 restricted stock units were granted and 41,735 were settled. As of December 31, 2012, the Company had 673,856 restricted stock units outstanding. Subsequent to

December 31, 2012, a further 26,800 restricted stock units were settled.

The following table summarizes the outstanding RSUs as of the date of this report:

GrantDate

NumberOutstanding

RemainingContractual Life

Grant Date Fair Value

ExpiryDate

Dec. 14, 2011 137,093 2 years $12.93 Dec. 14, 2014Dec. 14, 2012 509,963 3 years $19.87 Dec. 14, 2015

647,056

Off-Statement of Financial Position ArrangementsThe Company has no off-statement of financial position arrangements.

Related Party TransactionsIn 2012, a related party of the primary shareholder, O.S. Wyatt, Jr., reached payout under the terms of a net profits agreement following the recovery of all capital and operating expenditures relating to the G5/43 concession. Under the terms of this arrangement, the Company paid $0.65 million and accrued a further $0.10 million at December 31, 2012. These amounts are based upon 2.5% of net profits from the Gulf of Thailand Block G5/43 operations. The net profits agreement was executed in 2005 and has been previously disclosed by the Company.

In accordance with the rules of the Toronto Stock Exchange, information concerning directors’ remuneration will be detailed in regulatory news filings and in the proxy document for the Company’s Annual General Meeting. The details contained therein are also in compliance with London-AIM listing requirements.

Commitments and Contingencies All the Company’s commitments and contingencies are described in Note 20 to the Consolidated Financial Statements for the year ended December 31, 2012.

Subsequent EventsThe Company has no material subsequent events.

Critical Accounting Policies, Estimates and New Accounting PronouncementsA detailed summary of the Company’s critical accounting policies and estimates is included in Note 3 to the audited financial statements for the twelve months ended December 31, 2012.

Risks and UncertaintiesCoastal has published its assessment of its business risks in the Risk Factor section of its Annual Information Form (“AIF”) dated March 26, 2013 (available on SEDAR at www.sedar.com). It is recommended that this document be reviewed for a thorough discussion of risks faced by the Company.

The Company is subject to a number of risk factors due to the nature of the petroleum and gas business in which it is engaged, not the least of which are adverse movements in commodity prices, which are impossible to forecast. The Company is also subject to the oil and gas services sector which, from time to time, may have limited available capacity and therefore may demand premium rates. The Company seeks to counter these risks as far as possible by selecting exploration areas on the basis of their recognized geological potential to host economic returns.

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IndustryThe Company is engaged in the acquisition of petroleum and natural gas properties, an inherently risky business, and there is no assurance that an additional economic petroleum and natural gas deposit will ever be discovered and subsequently put into production. Most exploration projects do not result in the discovery of commercially viable petroleum and natural gas deposits. The geological focus of the Company is on areas in which the geological setting is well understood by management.

Petroleum and Gas PricesIn recent years, the petroleum and natural gas exploration industry has seen significant growth, primarily as a result of increased global demand, led by India and China. During this period, prices for petroleum have steadily increased, resulting in multi-year price highs. Prior to this recent surge, large companies found it more feasible to grow their reserves and resources by purchasing companies or existing oilfields. However, with improving prices and increasing demand, a discernible need for the development of exploration projects has arisen. Junior companies have become key participants in identifying properties of merit to explore and develop.

The price of petroleum and natural gas is affected by numerous factors beyond the control of the Company, including global consumption and demand for petroleum and natural gas, international economic and political trends, fluctuations in the U.S. dollar and other currencies, interest rates and inflation. Continued volatility in commodity prices may adversely affect the Company’s operating cash flow.

Operating Hazards and RisksExploration for natural resources involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risk normally incidental to exploration, development and production of natural resources, any of which could result in work stoppages, damages to persons or property and possible environmental damage. Although the Company may obtain liability insurance in an amount which is expected to be adequate, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable, or the Company might not elect to insure itself against such liabilities due to the high premium costs or other reasons, in which event the Company could incur significant costs that could have a material adverse effect upon its financial condition.

Reserve EstimatesDespite the fact that the Company has reviewed the estimates related to potential reserve evaluation and probabilities attached thereto and it is of the opinion that the methods used to appraise its estimates are adequate, these figures remain estimates, even though they have been calculated or validated by independent appraisers. The reserves disclosed by the Company should not be interpreted as assurances of property life or of the profitability of current or future operations, given that there are numerous uncertainties inherent in the estimation of economically recoverable oil and natural gas reserves.

Disruptions in ProductionOther factors affecting the production and sale of oil and natural gas that could result in decrease of profitability include: (i) expiration or termination of leases, permits or licenses, or sales price re-determinations or suspension of deliveries; (ii) future litigation; (iii) the timing and amount of insurance recoveries; (iv) work stoppages or other labor difficulties; (v) worker vacation schedules and related maintenance activities; and (vi) changes in the market and general economic conditions. Weather conditions, equipment replacement or repair, fires, amounts of rock and other natural materials and other geological conditions can have a significant impact on operating results.

Cash Flows and Additional Funding RequirementsThe Company presently has revenue from its Gulf of Thailand production and earnings from its interest in Apico, which is accounted for under the equity method on the consolidated statement of operations. In order to further develop the Gulf of Thailand assets, substantial capital will be required. The sources of capital presently available to the Company for development are cash flow from production or the issuance of debt or equity. The Company has sufficient financial resources to undertake its firm obligations for the next 12 months.

The Company is exposed to fluctuations in short-term interest rates on amounts drawn under its revolving credit facilities. The Company has not hedged these rates, given the need to remain flexible in borrowing and repaying the outstanding balances.

22

EnvironmentalThe Company’s exploration activities are subject to extensive laws and regulations governing environmental protection. Although the Company closely follows and believes it is operating in compliance with all applicable environmental regulations, there can be no assurance that all future requirements will be achievable on reasonable terms. Failure to comply may result in enforcement actions causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures.

Laws and RegulationsThe Company’s exploration activities are subject to local laws and regulations governing prospecting, drilling, development, exports, taxes, labor standards, occupational health and safety, and other matters. Such laws and regulations are subject to change or can become more stringent, and therefore compliance can become more costly.

The political unrest in Thailand has manifested itself in recent protests and violence in Bangkok. This unrest and its related violence have not affected our Thailand production operations, but there can be no guarantee that operations will not be affected in the future. As a safety precaution for our Bangkok based employees, we have on occasion shut down our Bangkok office and allowed those employees to work from home. We have also reviewed contingency plans for our third country nationals to ensure their safe exit from Thailand should the need arise.

There are also many risks associated with operations in international markets, including changes in foreign governmental policies relating to crude oil and natural gas taxation; other political, economic or diplomatic developments; changing political conditions; and international monetary fluctuations. These risks include: political and economic instability or war; the possibility that a foreign government may seize our property with or without compensation; confiscatory taxation; legal proceedings and claims arising from our foreign investments or operations; a foreign government attempting to renegotiate or revoke existing contractual arrangements, or failing to extend or renew such arrangements; fluctuating currency values and currency

controls; and constrained natural gas markets dependent on demand in a single or limited geographical area. The Company applies the expertise of its management, its advisors, its employees and contractors to ensure compliance with current local laws.

Title to Oil and Gas PropertiesWhile the Company has undertaken customary due diligence in the verification of title to its oil and gas properties, this should not be construed as a guarantee of title. The properties may be subject to prior unregistered Petroleum Agreements or transfers and title may be affected by undetected defects.

Dependence on ManagementThe Company strongly depends on the business and technical expertise of its senior management team, and there is little possibility that this dependence will decrease in the near term. The loss of one or more of these individuals could have a material adverse effect on the Company.

Apico Financial ReportingThe Company accounts for its 39.0% investment in Apico (2011: 36.1%) under the equity method whereby it records its share of Apico’s earnings as earnings from a significantly influenced investee. Apico is required to provide the partners its financial statements under the Joint Venture Agreement on a timely basis. While the Company has a seat on the Board of Directors of Apico, it does not control the Board or the management of Apico. Therefore, the Company relies heavily on Apico management to provide timely and accurate financial information to the partners.

Risk Management and Financial InstrumentsCoastal provides a risk management and financial instruments discussion on its exposure to and management of credit risk, liquidity risk and market risk in Note 24 to the audited financial statements as at and for the period ended December 31, 2012 and 2011.

23

Management’s Report on Internal Control over Financial Reporting

Disclosure Controls and Procedures:The Company’s management under the supervision of, and with the participation of, the CEO and CFO of Coastal Energy Company have designed and evaluated the effectiveness and operation of its disclosure controls and procedures, as defined under National Instrument 52 – 109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”). Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with Canadian securities regulatory authorities is recorded, processed, summarized and reported in a timely fashion. The disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in such reports is then accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations in all control systems, an evaluation of the disclosure controls can only provide reasonable assurance over the effectiveness of the controls. The disclosure controls are not expected to prevent and detect all misstatements due to error or fraud. Based on the evaluation of disclosure controls and procedures, the CEO and CFO have concluded that, subject to the inherent limitations noted above, the Company’s disclosure controls and procedures are effective as of December 31, 2012.

Internal Controls over Financial ReportingThe Company’s management, with the participation of its CEO and CFO, are responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”). Under the supervision of the CFO, the Company’s ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. As at the end of the period covered by this Management’s Discussion and Analysis, management evaluated the effectiveness of the Company’s ICFR as required by Canadian securities laws.

Based on that evaluation, the CEO and CFO have concluded that, as of the end of the three month period covered by this Management’s Discussion and Analysis, the ICFR were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

OutlookIn 2013, the Company plans to continue development and appraisal drilling on its existing assets in the Gulf of Thailand. The Company has development drilling activities planned at Bua Ban North and South and Songkhla A & Songkhla H. The Company also plans to drill several exploration wells, including a commitment well on Block G5/50 during 2013.

The full interpretation of the 3D seismic survey acquired during the second half of 2012 will be delivered to the Company during 2013, and the Company expects it to generate additional exploration prospects on its assets.

The Company plans to reach its target of first oil from the Kapal field in Malaysia in mid-2013.

25

M a n a g e M e n t ’ S r e p o r t

Management is responsible for the integrity and objectivity of the information contained in this report and for the consistency between the consolidated financial statements and other financial and operating data contained elsewhere in this report. The accompanying consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards using estimates and careful judgment, particularly in those circumstances where transactions affecting a current period are dependent upon future events. The accompanying consolidated financial statements have been prepared using policies and procedures established by management and fairly reflect the Company’s financial position, financial performance and cash flows, within the International Financial Reporting Standards framework. Management has established and maintains a system of internal controls that is designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and the financial information is reliable and accurate.

The Company’s external auditors, Deloitte, LLP, have audited the consolidated financial statements. Their audit provides an independent view as to management’s discharge of its responsibilities insofar as they relate to the fairness of reported financial results and the financial performance of the Company.

The Audit Committee of the Board of Directors have reviewed in detail the consolidated financial statements with management and have met with the external auditors. The Audit Committee has reported its findings to the Board of Directors, who have approved the consolidated financial statements.

/s/ Randy Bartley /s/ William Phelps President & Chief Executive Officer Chief Financial Officer

Houston, Texas USA March 23, 2013

26

I n d e p e n d e n t a u d I t o r ’ S r e p o r t

To the Shareholders of Coastal Energy Company:We have audited the accompanying consolidated financial statements of Coastal Energy Company, which comprise the consolidated statements of financial position as at December 31, 2012 and December 31, 2011, and the consolidated statements of operations and comprehensive income, the consolidated statement of changes in equity and consolidated statements of cash flow for the years ended December 31, 2012 and December 31, 2011, and the notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Coastal Energy Company as at December 31, 2012 and December 31, 2011, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Chartered Accountants March 26, 2013 Calgary, Alberta

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C o n S o l I d a t e d S t a t e M e n t S o f o p e r a t I o n S a n d C o M p r e h e n S I v e I n C o M e u S $ 0 0 0 s

Years Ended December 31, 2012 2011 revenues and other income

Oil sales 746,853 347,783 Royalties (79,280) (29,113)Oil sales, net of royalties 667,573 318,670 Reimbursement of expenses under Malaysia risk service contract (Note 3) 4,099 - Other income (Note 16) (4,770) (21,566)

666,902 297,104

expensesProduction 149,999 99,263 Malaysia risk service contract (Note 3) 4,099 - Depreciation and depletion (Note 8) 70,139 61,136 Net profits interest (Note 18) 1,041 - General and administrative 39,696 31,453 Exploration (Note 7) 7,477 8,374 Debt financing fees 2,165 796 Finance (Note 15) 4,715 4,825 Gains on disposal of property, plant and equipment (252) (873)

279,079 204,974

Net income before income taxes and share of earnings from apico llc 387,823 92,130

Share of earnings from Apico LLC (Note 9) 19,110 14,527

Net income before income taxes 406,933 106,657

income taxes (Note 21)Current 150,329 135 Deferred 28,656 57,882

178,985 58,017

Net income and comprehensive income 227,948 48,640

Net income and comprehensive income attributable to:Shareholders of Coastal Energy 224,403 47,359 Non-controlling interests 3,545 1,281

227,948 48,640

Net income per share:Basic (Note 19) 1.98 0.42 Diluted (Note 19) 1.92 0.41

The accompanying notes are an integral part of these consolidated financial statements.

28

C o n S o l I d a t e d S t a t e M e n t S o f f I n a n C I a l p o S I t I o n u S $ 0 0 0 s

As at

December 31, 2012

December 31, 2011

$ $ assets

current assetsCash 63,897 22,995 Restricted cash (Note 4) 6,452 28,447 Accounts receivable (Note 5) 56,848 16,939 Derivative asset (Note 12) 132 59 Inventories (Note 6) 20,856 14,161 Prepaids and other current assets 628 1,094

Total current assets 148,813 83,695

Non-current assetsExploration and evaluation assets (Note 7) 123,574 31,881 Property, plant and equipment (Note 8) 555,269 355,052 Investment in and advances to Apico LLC (Note 9) 60,266 47,698 Deposits and other assets 6,271 405

Total non-current assets 745,380 435,036 total assets 894,193 518,731

liabilitiescurrent liabilities

Accounts payable and accrued liabilities (Note 10) 131,005 59,392 Income taxes payable (Note 21) 86,752 79 Current portion of long-term debt (Note 12) 34 55,662 Current portion of derivative liabilities (Note 12) 1,372 14,557

Total current liabilities 219,163 129,690 Non-current liabilities

Long-term debt (Note 12) 95,066 22,156 Derivative liabilities (Note 12) 502 1,274 Derivative liability - Warrants (Note 11) 3,784 2,853 Deferred tax liabilities 98,423 69,767 Decommissioning liabilities (Note 13) 46,726 42,124

Total Non-Current Liabilities 244,501 138,174 shareholders’ equity (Note 19)

Common shares 213,260 211,554 Contributed surplus 18,940 16,401 Retained earnings 193,877 17,630

Total Shareholders’ Equity 426,077 245,585 Non-controlling interests 4,452 5,282

total equity 430,529 250,867 total liabilities and equity 894,193 518,731

Commitments and contingencies (Note 20) The accompanying notes are an integral part of these consolidated financial statements.

Approved by the Board

/s/ Randy Bartley /s/ Lloyd Barnaby SmithRandy L. Bartley, Director Lloyd Barnaby Smith, Chairman

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C o n S o l I d a t e d S t a t e M e n t S o f C a S h f l o w S u S $ 0 0 0 s

Years Ended December 31, 2012 2011 operating activities

Net income 227,948 48,640 Adjustments:

Share of earnings from Apico LLC (19,110) (14,527)Unrealized gain on derivative financial instruments (14,030) (843)Depletion and depreciation 70,139 61,136 Finance expense 4,715 4,825 Amortisation of debt financing fees 1,322 786 Share-based compensation 14,190 15,185 Deferred income taxes 28,656 57,882 Unrealized foreign exchange (gain) loss (885) 388 Exploration expense 7,477 8,374 Gains on disposal of property, plant and equipment (252) (873)

Income taxes paid (63,656) (86)Interest received 39 6 Interest paid (2,994) (4,022)Dividends received from Apico LLC 15,792 15,536 Change in non-cash working capital:

Accounts receivable (39,909) (6,640)Inventory (6,695) (1,378)Prepaids and other curent assets 466 (488)Accounts payable and accrued liabilities 71,574 4,899

Current income taxes payable 86,673 48 Cash flow provided by operating activities 381,460 188,848 financing activities

Issuance of common shares, net of issuance costs 3,314 7,907 Repurchase of common shares (18,753) - Cash settlement of stock options (31,136) - Cash settlement of restricted stock units (663) - Borrowings under long-term debt 50,000 6,275 Repayment of long-term debt (30,000) - Debt financing fees (4,074) (594)Payments to non-controlling interest (4,375) (2,558)Other - (506)

Cash flow (used) provided by financing activities (35,687) 10,524 investing activities

Decrease (increase) in restricted cash 21,995 (12,078)Purchase of property, plant and equipment (309,599) (165,099)Acquisition of increased ownership interest in Apico LLC (9,250) - Advances to Apico LLC - (1,446)Proceeds from disposal of property, plant and equipment 352 250 Deposits and other assets - Payments (6,000) (116)Deposits and other assets - Refunds 134 -

Cash flow used in investing activities (302,368) (178,489)Effect of exchange rate changes on cash (2,503) (1,772)Increase in cash 40,902 19,111 Cash - Beginning of year 22,995 3,884 cash - end of year 63,897 22,995


30

C o n S o l I d a t e d S t a t e M e n t o f C h a n g e S I n e Q u I t y u S $ 0 0 0 s

NoteCommon

SharesContributed

Surplus Warrants

Retained earnings /

(accumulated deficit)

Attributable to

shareholders of Coastal

Energy Company

Non-Controlling

Interests Total

$ $ $ $ $ $ $balance as at

January 1, 2011 22 201,303 15,971 - (29,729) 187,545 6,559 194,104

Net income and comprehensive income - - - 47,359 47,359 1,281 48,640

Exercise of stock options 10,201 (2,294) - - 7,907 - 7,907 Exercise of warrants 50 - (50) - - - - Share-based compensation - 2,774 - - 2,774 - 2,774 Transfer to contributed

surplus - (50) 50 - - - - Distributions declared to

non-controlling interest - - - - - (2,558) (2,558)Balance as at

December 31, 2011 22 211,554 16,401 - 17,630 245,585 5,282 250,867

Net income and comprehensive income - - - 224,403 224,403 3,545 227,948

Exercise of stock options 4,190 (876) - - 3,314 - 3,314 Shares repurchased and

cancelled (2,484) - - (16,269) (18,753) - (18,753)Stock options purchased and

cancelled - (2,204) - (31,659) (33,863) - (33,863)Restricted stock units

purchased and cancelled - (435) - (228) (663) - (663)Share-based compensation - 6,054 - - 6,054 - 6,054 Distributions declared to

non-controlling interests - - - - - (4,375) (4,375)balance as at

December 31, 2012 22 213,260 18,940 - 193,877 426,077 4,452 430,529


31

n o t e S t o t h e C o n S o l I d a t e d f I n a n C I a l S t a t e M e n t S (All tabular amounts are expressed in US $000s unless otherwise stated except share and per share amounts.)

Note 1. Reporting entityCoastal Energy Company (“Coastal” or the “Company” or “we”) is an international oil and gas exploration and development company with operations in offshore Thailand and Malaysia, and an interest in a joint venture which operates in northeastern Thailand. The Company’s shares are widely held and publicly traded on the Toronto Stock Exchange (TSX) and the London Alternative Investment Market (AIM).

The Company’s head office is at Walkers House, 87 Mary Street, George Town, Grand Cayman, KY1-9001, Cayman Islands. The Company’s domicile is the Cayman Islands.

Note 2. Basis of presentation

Statement of complianceThese consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board effective as of December 31, 2012.

These consolidated financial statements were authorized for issue by the Company’s Board of Directors on March 26, 2013.

Basis of measurementThe Company prepared these consolidated financial statements on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business as they become due. Accordingly, these consolidated financial statements have been prepared on the historical cost basis, except for cash, restricted cash, derivative financial instruments and share-based payment transactions that have been measured at fair value.

The consolidated statements of operations and comprehensive income have been grouped on a function basis.

Functional and presentational currencyThese consolidated financial statements are presented in United States dollars, which is both the functional and presentation currency of the Company and its subsidiaries, and all amounts are represented in hundreds of thousands United States dollars except when otherwise indicated.

Accounting judgments and estimation uncertaintyThe preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and underlying assumptions are reviewed on a regular basis and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In preparing these consolidated financial statements, the Company makes judgments regarding the application of its accounting policies. Significant judgments relate to the capitalization and depletion of oil and gas exploration and development costs and the identification of cash-generating units.

The financial statement areas that require significant estimates and assumptions are included in the following notes:

Oil and Gas Accounting – Reserve DeterminationThe process of estimating reserves is complex. It requires significant estimates based on available geological, geophysical, engineering and economic data. To estimate the economically recoverable crude oil and natural gas reserves and related future net cash flows, the Company incorporates many factors and assumptions, including the expected reservoir characteristics, future commodity prices and costs and assumed effects of regulation by governmental agencies. Reserves are used to calculate the depletion of the capitalized oil and gas development costs and for impairment purposes as described in Note 3.

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Asset ImpairmentsFor impairment testing of property, plant and equipment and exploration and evaluation assets, the assessment of facts and circumstances is a subjective process that often involves a number of estimates and is subject to interpretation. One of the more significant policies adopted by Coastal has been deciding the level at which assets are to be aggregated for assessing impairment. These groupings are referred to as cash-generating units (“CGU”). Based on numerous factors, including the independence of cash inflows and production infrastructure, management considers the Company to have two CGUs, namely onshore and offshore Thailand.

The testing of assets or CGU’s for impairment, as well as the assessment of potential impairment reversals, requires estimates of an asset’s or CGU’s recoverable amount. The estimate of a recoverable amount requires a number of assumptions and estimates, including quantities of reserves, expected production volumes, future commodity prices, discount rates as well as future development and operating costs. These assumptions and estimates are subject to change as new information becomes available and changes in any of the assumptions, such as a downward revision in reserves, a decrease in commodity prices or an increase in costs, could result in an impairment of an asset’s or CGU’s carrying value.

At December 31, 2012, the recoverable amounts of the Company’s CGU’s were estimated as their fair value less cost to sell based on the net present value of the pre-tax cash flows from oil and gas reserves of each CGU that are based on reserves estimated by the Company’s independent reserve evaluator.

Key input estimates used in the determination of cash flows from oil and gas reserves include the following:

(i) Reserves Assumptions that are valid at the time of reserve estimation may change significantly when new information becomes available. Changes in forward price estimates, production costs or recovery rates may change the economic status of reserves and may ultimately result in reserves being restated.

(ii) Oil and natural gas prices Forward price estimates of the oil and natural gas prices are used in the cash flow model. Commodity prices have fluctuated widely in recent years due to global and regional factors, including supply and demand fundamentals, inventory levels, exchange rates, weather, economic and geopolitical factors.

(iii) Discount rate The discount rate used to calculate the fair value of cash flows is based on estimates of an approximate industry peer group weighted average cost of capital. Changes in the general economic environment could result in significant changes to this estimate. Impairment tests were carried out at December 31, 2012, and were based on fair value less costs to sell calculations, using a pre-tax discount rate of 10 per cent and the following forward commodity price estimates:

YearBrent Crude Oil

(US$/bbl)2013 108.002014 102.002015 98.002016 95.002017 97.00Remainder Escalated at 2% thereafter

For the year ended December 31, 2012, the Company did not record any impairment (2011: $nil).

33

Decommissioning LiabilitiesIn estimating future decommissioning liabilities, assumptions are made about activities that occur many years into the future, including the cost and timing of such activities. Additionally, interpretation of contracts and regulations is required by management as to what constitutes removal and remediation. The ultimate financial impact is not clearly known as asset removal and remediation techniques and costs are constantly changing, as are legal, regulatory, environmental, political, safety and other such considerations. In arriving at amounts recorded, numerous assumptions and estimates are made on ultimate settlement amounts, inflation factors, discount rates, timing and expected changes in legal, regulatory, environmental, political and safety environments.

Commitments, Contingencies and GuaranteesBy their nature, contingencies will only be resolved when one or more future events transpire. The assessment of contingencies inherently involves estimating the outcome of future events.

Income TaxesThe Company has subsidiaries in Thailand, Malaysia, Mauritius, the United States and the United Kingdom, which are subject to income taxes in these jurisdictions. The Company is also subject to Special Remuneratory Benefit (“SRB”) in Thailand. The determination of income tax and SRB tax is inherently complex, and the Company is required to interpret continually changing regulations and make certain estimates and assumptions about future events. While income tax filings are subject to audits and reassessments, the Company believes it has adequately provided for all income tax obligations. However, changes in facts and circumstances as a result of income tax audits, reassessments, jurisprudence and any new legislation may result in an increase or decrease in the provision for income taxes.

Fair Value Measurements A number of the Company’s accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

The fair value of accounts receivables, accounts payable and accrued liabilities approximate their carrying value due to their short term to maturity.

Warrants, if converted by the holder, are settled in common shares at the option of the holder, the number of which may vary. This obligation results in a derivative liability in accordance with IFRS standards. As a result of measuring the liability at fair value under IFRS, fluctuations in the estimated fair value will affect the derivative liability gains and losses that are recognized. The fair value of the liability is determined using the Black-Scholes valuation model, which is based on the year end share price and the exercise price of the warrants, and assumptions for the risk-free interest rate (based on government bonds), expected dividends and the volatility of the share price (based on the implied volatilities of options traded in the open market, the volatility of the U.S. and Canadian Dollar and expected correlation). The actual settlement of the derivative liability could differ materially from the fair value recorded and could impact future results.

The fair value of derivative financial instruments is based upon quotations provided by several financial institutions.

The fair value of share-based compensation is estimated using the Black-Scholes valuation model. The inputs are based on factors including the share price on measurement date and the exercise price of the instrument, and based on assumptions for the risk-free interest rate (based on government bonds), the forfeiture rate and expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends and the volatility of the share price (based on historic movements in the Company’s share price).

34

Note 3. Significant accounting policies

Significant accounting policiesThe accounting policies set out below were used to prepare these consolidated financial statements.

ConsolidationThese consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All subsidiary companies are wholly owned with the exception of Viking Storage Solutions (Mauritius) Limited (“VSS”) and Coastal Energy KBM Sdn. Bhd. (“KBM”), upon which non-controlling interests arise. All intercompany balances, revenues and expenses are eliminated upon consolidation.

Coastal also has a 39% (2011: 36.1%) interest in Apico LLC, an associate accounted for under the equity method. Apico LLC is involved in the exploration and production of gas in Northeastern Thailand.

The table below summarizes the Company’s ownership in other entities:

Name Ownership interest Type Country of IncorporationCoastal Energy Company Nevada 100% Subsidiary United StatesCoastal Energy (UK) Company Limited 100% Subsidiary United KingdomNuCoastal (Thailand) Limited 100% Subsidiary ThailandCoastal Energy Company (Khorat) Ltd 100% Subsidiary Cayman IslandsMOPU Holdings Limited 100% Subsidiary Cayman IslandsCEC International Limited 100% Subsidiary Cayman IslandsMOPU Holdings (Singapore) Pte. Limited 100% Subsidiary SingaporeCEC Services (Thailand) Limited 100% Subsidiary ThailandOcean 66 Limited 100% Subsidiary MauritiusCoastal Energy KBM Sdn. Bhd. 70% Subsidiary MalaysiaViking Storage Solutions (Mauritius) Limited 50% Subsidiary MauritiusApico LLC 39% Partnership United States

The comments below detail facts pertinent to the determination of the appropriate consolidation treatment of the aforementioned entities:

Interests in wholly owned subsidiariesFor all of the wholly owned entities, the Company can select 100% of the respective board of directors and holds 100% of the voting rights. Therefore, there are no significant restrictions on the Company’s ability to control assets or settle liabilities of those wholly owned subsidiaries beyond those detailed in Note 4.

Interest in Coastal Energy KBM Sdn. Bhd (subsidiary)The Company holds 70% of the shares in KBM, maintains 70% of the voting rights and is able to elect two-thirds of the board of directors with the residual relating to the non-controlling interest. The incorporation of this entity occurred in 2012 in order to administer the Company’s risk service contract in offshore Malaysia.

The non-controlling interest credit related to KBM was $0.08 million in 2012, with the December 31, 2012 accumulated non-controlling interest being $0.08 million receivable.

The following table summarizes KBM’s assets and liabilities:

As atDecember

31, 2012Current assets $4,461Non-current assets 7,000Current liabilities 7,121Non-current liabilities -

35

The following table summarizes KBM’s revenue and net income:

Years ended December 31, 2012Revenue $4,131 Net loss (253)

Interest in Viking Storage Solutions (Mauritius) Limited (subsidiary)The Company holds 50% of the shares in VSS, maintains 50% of the voting rights and is able to elect 50% of the board of directors, with the residual relating to the non-controlling interest. The incorporation of this entity occurred in 2009 in order to obtain external financing that would enable the construction of a single storage vessel to be used in the Company’s offshore Thailand operations. This storage vessel is currently being leased under a bareboat charter to CEC International Limited, the entity which holds the Company’s offshore Thailand operations. Given the nature of the bareboat charter, the Company can actively control how the storage vessel is controlled.

The non-controlling interest charge related to VSS was $3.62 million in 2012 (2011: $1.28 million), with the December 31, 2012 accumulated non-controlling interest being $4.52 million credit ($5.28 million credit).

The following table summarizes VSS’s assets and liabilities:

As atDecember

31, 2012December

31, 2011Current assets $9,994 $7,626Non-current assets 21,091 24,104Current liabilities 1,619 1,368

The following table summarizes VSS’ revenue and net income:

Years ended December 31, 2012 2011Revenue $11,704 $10,409 Net income 8,262 2,923

Interest in Apico LLC partnershipThe Company owns a 39% interest (2011: 36.1%) in Apico LLC partnership, holds 39% of the voting rights and can nominate one of the three board of director seats. However, given ‘substantial decisions’ requires 75% of the partners to agree and there are several combinations in which this can be achieved, all of which include the Company, the Company cannot exercise control or joint control. As such, treatment as an associate is appropriate.

For the avoidance of doubt, ‘substantial decisions’ would amongst other things include those concerning dividend payments, granting of additional shares, approval of budgets and dissolution of the partnership.

Further information on Apico LLC can be found in Note 9.

Revenue RecognitionRevenues from the sale of crude oil and natural gas liquids are recognized when:

• The Company has transferred the significant risks and rewards of ownership to the buyer (title transfer);

• The Company retains no continuing managerial involvement to the degree usually associated with ownership or effective control over the goods sold;

• The amount of revenue can be measured reliably;

• It is probable that the economic benefits associated with the transaction will flow to the Company; and

• The costs incurred or to be incurrent in respect of the transaction can be measured reliably.

Revenue is presented net of royalties.

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Revenue and expense recognition under the risk service contractThe nature of risk service contract (“RSC”) with Petronas in Malaysia is discussed in Note 20. Under the RSC there are essentially three revenue streams: reimbursement of capital expenditures (‘construction revenue’), reimbursement of operating costs and a remuneration fee based on each barrel produced. Revenue earned through to December 31, 2012 all relates to construction revenue since production has yet to commence.

Construction revenue relates to the exploration and field development activities under the RSC. Construction revenue represents the sales value of work done in the year, including fees invoiced and estimates in respect of total amounts to be invoiced after the year end. Revenue is recognized based on the percentage of completion method, where the percentage of completion method is based upon the proportion of costs incurred relative to the total estimated cost. Full provision would be made for all known or anticipated losses at the time such losses are forecast.

Revenue under the RSC is presented gross of expenditures on the face of the income statement in accordance with IAS 1 Presentation of financial statements.

Finance Expense Finance expense comprises interest expense on borrowings, accretion on decommission liabilities, interest on finance leases and changes in the fair value of warrants.

Borrowing costs directly related to the acquisition, construction or production of a qualifying asset under construction for greater than one year are capitalized and added to the project cost during construction until such time that the assets are substantially ready for their intended use. Where funds are borrowed specifically to finance a project, the amount capitalized represents the actual borrowing costs incurred less interest income earned. Any income generated from short-term investments reduces the related total capitalized borrowing costs. The Company did not capitalize any borrowing costs in 2012 or in 2011.

Foreign Currency TranslationThe United States dollar is the functional currency of the Company and its subsidiaries. Monetary assets and liabilities denominated in a currency other than the functional currency are translated at the exchange rate in effect at the reporting period date. Non-monetary assets, liabilities, revenues and expenses are translated at transaction date exchange rates. Exchange gains or losses are included in the determination of net income as foreign exchange gains or losses.

Exploration and evaluation (E&E) ExpendituresExploration and evaluation assets include all costs directly associated with the exploration and evaluation of crude oil and gas reserves. Such costs may include costs of license acquisition, technical services and studies, decommissioning liabilities and exploration drilling and testing.

E&E assets are initially capitalized on an area-by-area basis. When an E&E area is determined to be technically feasible and commercially viable, the accumulated costs are transferred to property, plant and equipment subject to an impairment test. When an area is determined not to be technically feasible and commercially viable or the Company decides not to continue with its activity, the unrecoverable costs are charged to net income as exploration and evaluation expense.

Property, plant and equipment (PP&E) PP&E costs are classified as assets under construction, oil & gas properties and corporate & other assets.

Oil & gas properties include all costs directly associated with the development of crude oil and gas reserves. These expenditures include proved property acquisitions, development drilling and completions, gathering and infrastructure, decommissioning liabilities and transfers from exploration and evaluation assets where technical feasibility and commercial viability has been determined.

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Oil & gas properties are capitalized on an area-by-area (“component”) basis, with ‘area’ referring to each prospect. Costs accumulated within each area’s components are depleted using the unit-of-production method based on proved plus probable reserves using estimated future prices and costs. Costs subject to depletion include estimated future costs to be incurred in developing proved and probable reserves. Costs of major development projects are excluded from the costs subject to depletion until they are available for use. For divestitures of properties, a gain or loss is recognized in net income.

Corporate & other assets consist mainly of computers, software and office furniture and equipment. Depreciation of corporate assets is calculated on a straight line basis over the useful life of the related assets. The useful life of such items is 3-17 years.

Maintenance and RepairsExpenditures related to renewals or betterments that improve the productive capacity or extend the life of an asset are capitalized. Maintenance and repairs are expensed as incurred.

ImpairmentWhen an E&E area is determined to be technically feasible and commercially viable, the accumulated costs are transferred to property, plant and equipment. E&E costs are tested for impairment at the time of transfer, and any unrecoverable costs are charged to net income as exploration and evaluation expense.

E&E and PP&E costs are accumulated on an area-by-area basis then grouped into CGU’s on the basis of geographical area having regard to the operational infrastructure (such as facilities and sales points) of the area, and are the lowest level at which there are identifiable cash inflows that are largely independent of the cash flows of other groups of assets. The Company currently has two CGU’s: Onshore and Offshore Thailand.

For impairment test purposes, corporate assets are allocated to each of the CGU’s on the basis of proportionate future net revenue consistent with the recoverable amount.

At the end of each reporting period, the Company assesses the CGU’s for circumstances that indicate that the assets may be impaired. If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. A CGU’s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU’s group exceeds its recoverable amount, the asset or CGU is considered impaired and is written-down.

For impairment losses identified based on a CGU, or group of CGU’s, the loss is allocated on a pro rata basis to the assets within the CGU(s). The impairment loss is recognized as an expense in the statement of operations.

Where the circumstances that gave rise to an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, so that the revised carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in the statement of operations.

Investment in and advances to Apico LLCThe results, assets and liabilities of Apico LLC (“Apico”) are incorporated in these consolidated financial statements using the equity method of accounting. Under this method, the investment is carried in the consolidated statement of financial position at cost, plus post-acquisition changes in the group’s share of net assets of Apico LLC, less distributions received and less any impairment in value of the investment. The Company’s income statement reflects Coastal’s share of the results after tax of Apico. The financial statements of Apico are prepared for the same reporting period as for the Company. Where necessary, adjustments are made to those financial statements to bring the accounting policies used into line with those of the group.

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Decommissioning LiabilitiesThe Company recognizes the estimated fair value of decommissioning liabilities associated with PP&E and E&E assets as a liability in the year in which they are incurred, normally when the asset is purchased or developed. The fair value is capitalized and amortized over the same period as the underlying asset. The Company estimates the liability based on the estimated costs to abandon and reclaim the wells and well sites that are required to be abandoned under the terms of oil and gas contracts. Wells and well sites that the Company has acquired, constructed, drilled, completed workovers on, or performed enhancements to are included in the estimate. This estimate is evaluated on a periodic basis, and any adjustment to the estimate is applied prospectively. The change in net present value of the future decommissioning liabilities due to the passage of time is expensed as unwinding of the discount. Actual decommissioning liabilities settled during the year reduce the decommissioning liability.

Earnings Per ShareThe Company computes basic earnings per share using net income divided by the weighted-average number of common shares outstanding. The Company computes diluted earnings per share using unadjusted net income, divided by the weighted-average number of diluted common shares outstanding. The Company uses the treasury stock method in computing the weighted-average number of diluted common shares outstanding. This method assumes that the proceeds on exercise of in-the-money stock options, deferred common shares and incentive shares are used to repurchase the Company’s common shares at the average market price during the relevant year. The number of diluted common shares outstanding also reflects the potential dilution that would occur if the stock options and restricted stock units were converted into common shares at the beginning of the year, or when they were issued.

Share-Based CompensationThe Company uses the fair value method of accounting for all equity-based awards to non-employees and employees, including those that are direct awards of stock. Under the fair value method, share-based compensation expense attributed to direct awards of stock is measured at the fair value of the award at the grant date using the Black-Scholes option-pricing model and is recognized over the vesting period of the award. If and when the stock options are ultimately exercised by the recipient of the awards, or the restricted stock units vest, the applicable amounts of contributed surplus are credited to share capital.

The Company awards cash-settled stock appreciation rights (“SARs”) to its employees. The compensation cost for the granted SARs is accounted for using the fair value method. Under this method, the Company accrues a liability based on the fair value derived from the Black-Scholes option-pricing model of the SARs vested. The accrued liability is adjusted at each statement of financial position date for the effect of SAR grants, vesting of SARs, SARs exercised, as well as the effect of changes in the underlying price of the Company’s common shares. The offsetting entry is expensed or capitalized depending on the role performed by the employee.

Deferred TaxesThe Company accounts for deferred taxes using the balance sheet liability method. Under this method, the Company records a deferred tax asset or liability to reflect any temporary difference between the accounting and tax bases of assets, liabilities, unused tax losses and unused tax credits, using substantively enacted income tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the year in which the change occurs. Deferred tax assets are only recognized to the extent it is probable that sufficient future taxable income will be available to allow the deferred tax asset to be realized.

The Company records foreign exchange gains and losses representing the impacts of movements in foreign exchange rates on the tax bases of non-monetary assets and liabilities which are denominated in foreign currencies. Foreign exchange gains and losses relating to deferred income taxes are included under income tax in the consolidated statements of operations and comprehensive income.

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CashCash comprises of cash on hand and deposits held with banks. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management, whereby management has the ability and intent to net bank overdrafts against cash, are included as a component of cash for the purpose of the consolidated statements of cash flows.

Restricted cashSome cash balances are restricted under the terms of the Company’s debt facility with BNP Paribas. The restricted cash represents proceeds from borrowing base assets. Cash may be disbursed from the restricted accounts for approved purposes as designated by the credit agreement.

Inventories and supplies

Crude Oil InventoryCrude oil inventory consists of crude oil in storage at the statement of financial position date and is valued at the lower of cost, using the weighted average cost method, or net realizable value. Costs include direct and indirect expenses incurred in bringing the crude oil to its existing condition and location.

Marine Fuel InventoryMarine fuel inventory consists of marine fuel in storage at the statement of financial position date and is valued at the lower of cost, using the weighted average cost method, or net realizable value. Costs include direct and indirect expenses incurred in bringing the marine fuel to its existing location.

Financial instruments and hedging activitiesAll financial assets and liabilities are recognized on the consolidated statements of financial position initially at fair value when we become a party to the contractual provisions of the instrument. Subsequent measurement of the financial instruments is based on their classification. We classify each financial instrument into one of the following categories: loans or receivables, fair value through profit or loss and other financial liabilities. The classification depends on the characteristics and the purpose for which the financial instruments were acquired. Except in limited circumstances, the classification of financial instruments is not subsequently changed.

Financial instruments classified as fair value through profit or loss (FVTPL) on the Company’s consolidated statements of financial position includes cash, restricted cash and derivatives. Realized and unrealized gains and losses from financial assets and liabilities carried at FTVPL are recognized in net income in the years such gains and losses arise. Transaction costs related to these financial assets and liabilities are included in net income when incurred.

Financial instruments carried at amortized cost include the Company’s accounts receivable, accounts payable and accrued liabilities, current-portion and non-current portion of long-term debt, amounts due to shareholder and obligations under finance leases. Transaction costs relating to long-term debt are included within fair value and amortized using the using the effective interest rate method. Gains and losses on financial assets and liabilities carried at cost or amortized cost is recognized in net income when these assets or liabilities settle.

DerivativesCoastal uses puts and call option contracts to manage commodity price risk as required as part of the debt facility with BNP Paribas. The facility also requires interest rate swap contracts to be utilized. The Company records these instruments at fair value at each statement of financial position date and changes in fair value are included in other income during the year of change.

Hedge accountingThe Company has not adopted hedge accounting.

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Provisions and ContingenciesProvisions are recognized when we have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the future cash flow estimates are adjusted to reflect the risks specific to the liability.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. Where discounting is used, the accretion of the provision due to the passage of time is recognized within finance expense.

Contingent liabilities are possible obligations which will be confirmed by future events that are not necessarily within our control, or are present obligations where the obligation cannot be measured reliably or it is not probable that settlement will be required. Contingent liabilities are disclosed only if the possibility of settlement is greater than remote probability. Contingent liabilities are not recorded in the consolidated financial statements.

LeasesThe Company classifies leases entered into as either finance or operating leases. Leases that transfer substantially all of the risks and benefits of ownership are capitalized as finance leases within PP&E and other liabilities. All other leases are recorded as operating leases and expensed as incurred within operating expenses.

WarrantsWarrants have an exercise price denominated in Canadian dollars while the Company’s functional currency is U.S. dollars. As the number of common shares to be issued upon exercise of the warrants is variable, the warrants must be classified as a financial liability at fair value through profit or loss. Accordingly, they are measured at fair value each balance sheet date using the Black-Scholes option pricing model with changes in fair value (including the foreign exchange impact) recognized as a gain or loss.

Share capitalCommon shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

Changes in accounting policiesThe Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company:

In November 2009, the IASB issued IFRS 9, “Financial Instruments,” which is the result of the first phase of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition and Measurement.” In October 2010, the standard was revised. The new and revised standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The standard is required to be adopted for periods beginning January 1, 2015. The adoption of this standard should not have a material impact on the Company’s consolidated financial statements.

In May 2011, the IASB issued IFRS 10, “Consolidated Financial Statements,” which provides additional guidance to determine whether an investee should be consolidated. The guidance applies to all investees, including special purpose entities. The standard is required to be adopted for periods beginning January 1, 2013. We are evaluating the impact that this standard may have on our consolidated financial statements.

In May 2011, the IASB issued IFRS 11, “Joint Arrangements,” which presents a new model for determining whether an entity should account for joint arrangements using proportionate consolidation or the equity method. An entity will have to follow the substance rather than legal form of a joint arrangement and will no longer have a choice of accounting method. The standard is required to be adopted for periods beginning January 1, 2013. We are evaluating the impact that this standard may have on our consolidated financial statements.

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In May 2011, the IASB issued IFRS 12, “Disclosure of Interests in Other Entities,” which aggregates and amends disclosure requirements included within other standards. The standard requires a company to provide disclosures about subsidiaries, joint arrangements, associates and unconsolidated structured entities. We are evaluating the impact that this standard may have on our consolidated financial statements.

In May 2011, the IASB issued IFRS 13, “Fair Value Measurement,” to provide comprehensive guidance for instances where IFRS requires fair value to be used. The standard provides guidance on determining fair value and requires disclosures about those measurements. The standard is required to be adopted for periods beginning January 1, 2013. We are evaluating the impact that this standard may have on our consolidated financial statements.

In May 2011, the IASB issued amendments to IAS 27, “Separate Financial Statements,” to establish the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements and replaces the current IAS 27, “Consolidated and Separate Financial Statements,” as the consolidation guidance is included in IFRS 10, “Consolidated Financial Statements.” The standard is required to be adopted for periods beginning on or after January 1, 2013. The adoption of this standard will not have a material impact on the Company’s consolidated financial statements.

In May 2011, the IASB issued amendments to IAS 28, “Investments in Associates and Joint Ventures,” to establish the accounting for investments in associates and defines how the equity method is applied when accounting for associates and joint ventures. The standard is required to be adopted for periods beginning on or after January 1, 2013. We are evaluating the impact that this standard may have on our consolidated financial statements.

In June 2011, the IASB issued amendments to IAS 1, “Presentation of Items of Other Comprehensive Income,” to split items of other comprehensive income (OCI) between those that are reclassed to income and those that are not. The standard is required to be adopted for periods beginning on or after July 1, 2012. We are evaluating the impact that this standard may have on our statements of operations and financial position.

On June 16, 2011, the IASB issued amendments to IAS 19, “Employee Benefits.” The amendments will improve the recognition and disclosure requirements for defined benefit plans. The new requirements are effective for annual periods beginning on or after January 1, 2013, with earlier application permitted. This amendment will not impact our consolidated financial statements.

In December 2011, the IASB issued final amendments to IFRS 7, “Financial Instruments: Disclosures,” relating to the requirements for the offsetting of a financial asset and financial liabilities when offsetting is permitted under IFRS. The disclosure amendments are required to be adopted retrospectively for periods beginning January 1, 2013. We are evaluating the impact that this standard may have on our consolidated financial statements.

In December 2011, the IASB issued amendments to IAS 32, “Financial Instruments: Presentation,” to address inconsistencies when applying the offsetting criteria outlined in this standard. These amendments clarify certain of the criteria required to be met in order to permit the offsetting of financial assets and financial liabilities. The standard is required to be adopted retrospectively for periods beginning January 1, 2014. We are evaluating the impact that this standard may have on our consolidated financial statements.

Note 4. Restricted cashThe Company has cash balances which are restricted by the Company’s banking institutions. The following table summarizes the restricted cash balances:

As at December 31, December 31,

2012 2011Collateral in support of corporate letter of credit (Note 20) $1,458 $1,400Restricted in support of long-term debt 4,994 27,047

$6,452 $28,447

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The terms of the debt facility with BNP Paribas, Commonwealth Bank of Australia, Standard Bank and Standard Chartered bank (“the lenders”) requires that the Company maintain balances in restricted accounts equal to 50% of its projected debt service over the next six months.

Note 5. Accounts receivable


2012 2011Oil sales $34,854 $-Receivable under risk service contract 4,099 - Refundable taxes (VAT) 16,888 16,115Other 1,007 824

$56,848 $16,939

Note 6. Inventories


2012 2011Marine fuel $5,245 $2,857 Crude oil inventory 15,611 11,304

$20,856 $14,161

The crude oil inventory balance includes $15.61 million of inventory (December 31, 2011: $11.30 million) which is pledged as security under the debt arrangement with BNP Paribas.

The amount of inventory expensed, including the depletion component, in 2012 was $205.49 million (2011: $145.70 million).

Note 7. Exploration and evaluation assets

Exploration and Evaluation

cost and Net book Value as at December 31, 2010 $31,068Additions 145,363 Transfers to property, plant and equipment (136,176)Exploration expense (8,374)

as at December 31, 2011 31,881 Additions 99,170 Exploration expense (7,477)

as at December 31, 2012 $123,574

Exploration and evaluation assets (“E&E assets”) mainly comprise property, geological survey and capitalized exploration drilling costs in respect of non-commercially assessed fields within our G5/43 concession. Management considers the E&E assets to be of an intangible nature.

During the year ended December 31, 2012, $7.04 million of costs associated with decommissioning liabilities are included within additions (year ended December 31, 2011: $nil million).

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During the year ended December 31, 2012, the Company expensed $7.48 million largely in relation to non-commercial results at Songkhla J (2011: $6.83 million was expensed in relation to non-commercial results at Benjarong and relinquishment of some acreage of the G5/50 block).

Note 8. Property, plant and equipment

Assets Under Construction

Oil & Gas Properties

Corporate and Other Total

cost

as at December 31, 2010 $10,706 $276,488 $1,584 $288,778 Additions - 32,001 1,134 33,135 Disposals (10,706) (1,427) - (12,133)Transfers from exploration and evaluation assets - 136,176 - 136,176

as at December 31, 2011 - 443,238 2,718 445,956 Additions 50,576 220,992 1,156 272,724 Assets brought into use (28,828) 28,828 - Disposals (300) - - (300)

as at December 31, 2012 $21,448 $693,058 $3,874 $718,380

accumulated depletion, depreciation and impairment

as at December 31, 2010 10,706 30,911 913 42,530 Depletion and depreciation - 59,447 351 59,798 Disposals (10,706) (718) - (11,424)

as at December 31, 2011 - 89,640 1,264 90,904 Depletion and depreciation - 71,539 668 72,207

as at December 31, 2012 $- $161,179 $1,932 $163,111

carrying amount

as at December 31, 2010 $- $245,577 $671 $246,248 as at December 31, 2011 $- $353,598 $1,454 $355,052 as at December 31, 2012 $21,448 $531,879 $1,942 $555,269

Included within Oil & Gas Properties carrying amount at December 31, 2010, are assets held under finance leases, which have a carrying amount of $0.95 million. The depreciation charged on these assets amounted to $nil (2011: $0.24 million). The Company terminated these finance leases during Q3 2011 (Note 14).

During the year ended December 31, 2012, $3.36 million of costs associated with decommissioning liabilities are included within additions offset by a credit for a change in estimates of $6.56 million for a net credit of $ $3.20 million (year ended December 31, 2011: $24.96 million charge).

Depletion and depreciation expense recognized in property, plant and equipment for the year ended December 31, 2012 was $72.21 million (2011: $59.80 million), whereas the charge for depletion and depreciation expense recognized in the consolidated statements of operations was $70.14 million (2011: $16.14 million). The difference relates to an inventory adjustment for crude oil produced but not yet sold.

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Note 9. Investment in and advances to Apico LLCThe Company has a 39% (2011: 36.1%) interest in Apico LLC (“Apico”), a limited liability company incorporated in the State of Delaware, USA. Apico’s primary purpose is the acquisition, exploration and development of onshore petroleum interests in the Kingdom of Thailand. Apico has the following working interests in petroleum concessions located in the Khorat Plateau area in northeastern Thailand:

Petroleum Concessionapico’s interest Net to coastal

2012 & 2011 2012 2011Block EU-1 and E-5N in the Sinphuhorm gas field 35% 13.648% 12.635%Block L15/43 - surrounding the Sinphuhorm gas field 100% 38.994% 36.100%Block L27/43 – southeast of the Sinphuhorm gas field 100% 38.994% 36.100%

The Company’s investment in Apico exceeds its proportionate share of net assets of Apico (“excess basis”). This difference has been allocated to Apico’s oil and gas properties and is being amortized using the units of production method. At December 31, 2012, the remaining unamortized excess basis was $19.43 million (December 31, 2011: $12.89 million).

The following table summarizes the Company’s investments in and advances to Apico:

As atDecember

31, 2012December

31, 2011Balance, beginning of year $47,698 $47,261Acquisition of additional ownership interest 9,250 -Advances during the year - 1,446Share of earnings, net of taxes 19,759 15,583Amortization of excess basis in Apico (649) (1,056)Earnings distributions (15,792) (15,536)Balance, end of year $60,266 $47,698

The following table summarizes Apico LLC’s assets and liabilities:

As atDecember

31, 2012December

31, 2011Current assets 34,693 $19,419Non-current assets 118,166 109,733Current liabilities 45,387 30,694Non-current liabilities 2,306 2,731

The following table summarizes Apico LLC’s revenue and net income:

Years ended December 31, 2012 2011Revenue $98,256 $86,625 Expenses 15,692 17,166 Income taxes 32,801 26,326 Net income 49,763 43,133

The Company’s share of Apico’s commitments relating to geological studies, seismic surveys and exploratory drilling for the next 1 year is $1.37 million. There is also a bank guarantee of $0.26 million to cover customs duties.

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Note 10. Accounts payable and accrued liabilities


2012 2011Trade payables $72,770 $34,252 Accrued payables 56,601 23,084 Other 1,634 2,056

$131,005 $59,392

Included in accrued payables is an accrual of $4.24 million for the fair value of vested stock appreciation rights (SARs) (December 31, 2011: $6.17 million). The Company incurred a liability of $9.52 million for the year ended December 31, 2012 (2011: $15.34 million). Of this, $1.19 million for the year ended December 31, 2012, (2011: $1.51 million) was capitalized to property, plant and equipment.

The fair value of these instruments was determined using the Black-Scholes model based on observable market prices. The full fair value of granted SARs units at December 31, 2012, is $10.45 million (December 31, 2011: $13.17 million).

In 2012 the Company awarded stock appreciation rights for the equivalent of approximately 168,691 (2011: 327,660) common shares, none of which (2010: nil) are contingent upon the achievement of certain market-based performance goals established by the Company. These awards vest and are cash-settled 33.3% on each of the subsequent anniversaries of the grant date.

Note 11. Derivative liability - WarrantsThe warrants outstanding at the beginning of the year are exercisable at Cdn $1.136 per share equivalent and expire January 23, 2014. During 2012, no warrants were exercised (2011: 340,000 warrants exercised in exchange for 286,082 common shares). The changes in warrants were as follows:


Numberof warrants

weighted averageexercise price

Numberof warrants

Weighted averageexercise price

Balance, beginning of period 200,000 $1.11 540,000 $1.13Warrants issued - - - -Warrants exercised - - (340,000) 1.13Warrants expired - - -Balance, end of period 200,000 $1.13 200,000 $1.11

The recorded values of the aforementioned warrants were calculated using the Black-Scholes pricing model over the remaining term of the warrants. The key inputs are as follows:


2012 2011Risk free interest rate as per US Treasury Bonds 0.16% 0.25%Share price (Canadian dollars) $19.96 $14.07Remaining term of the warrants 1.08 years 2.08 yearsVolatility 40% 40%

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Note 12. Long term debt


2012 2011Revolving debt facility $200,000 $80,000 Unused portion of debt facility (100,000) - Total debt drawn down 100,000 80,000 Unamortised debt issue costs (4,934) (2,191)Carrying value of long-term debt 95,066 77,809 Current portion of long-term debt - (55,653)Non-Current portion of long-term debt $95,066 $22,156

Current portion of long-term debt shown on the consolidated statements of financial position comprises:

As atDecember 31, December 31,

2012 2011Principal $- $55,653 Interest 34 9

$34 $55,662

Debt facilityThe facility is a borrowing base facility secured by certain of the Company’s petroleum assets as designated during each semiannual redetermination period. The facility is secured by pledges of the Company’s interest in the borrowing base assets and associated facilities, pledges of the bank accounts into which revenue from the borrowing base assets is received, a floating charge over certain of the Company’s other assets and a general security assignment consistent with standard project finance arrangements. The terms of the agreement require cash to be placed in restricted accounts, as described in Note 4.

In Q2 2012 the Company amended the terms of the revolving debt facility with BNP Paribas and Commonwealth Bank of Australia. This saw the facility increase from $80.0 million to $100.0 million, an extension of the amortization period of the borrowing base, and a significant lessening of the terms required to utilize cash balances held with the lender. In Q3 2012 the facility was further upsized from $100.0 million to $200.0 million. Additionally, Standard Bank and Standard Chartered Bank joined the syndicate. The facility amount begins amortizing on 30 June 2014 at the rate of $40 million every six months through to the earlier of June 30, 2016, or the reserve tail date (defined as the date at which less than 25% of the Company’s current 1P reserve base remains).

The effective interest rate for the year ended December 31, 2012, was 6.62% (2011: 5.14%) per annum.

As a requirement of the facility, the Company is required to enter into derivative contracts on a percentage of its projected crude oil production over a rolling 18 to 24 month period. The following is a summary of the crude oil derivative contracts outstanding at December 31, 2012:

Notional Volumes Term

Average Strike Price

Fair value ofasset (liability)

long PutsBrent 1,360,801 Jan. 2013 – Apr. 2014 $70.00/bbl $766

short callsBrent 1,360,801 Jan. 2013 – Apr. 2014 $125.19/bbl (2,372)

collarBrent 190,167 Jan. 2013 – Apr. 2014 - (267)

Fair value of derivative assets (liabilities) ($1,873)

The collar has a floor of $70 and a cap of $127.

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The following is a summary of the crude oil derivative contracts outstanding at December 31, 2011:

Notional Volumes Term

Average Strike Price

Fair value ofasset (liability)

long PutsBrent 1,413,500 Jan. 2012 – Apr. 2013 $74.24/bbl $2,778

short callsBrent 1,246,500 Jan. 2012 – Apr. 2013 $103.12/bbl (18,609)

Fair value of derivative assets (liabilities) $(15,831)

The split between the current and non-current portions of these contracts:

December 31,2012

December 31,2011

Current portion ($1,372) ($14,557)Non-current portion (502) (1,274)Total fair value of net derivative liabilities ($1,874) ($15,831)

In 2012 the Company entered into a contract to swap 50% of its expected LIBOR interest rate exposure from floating to fixed over a 30 month period commencing July 30, 2012, at 0.98% per annum. This was followed by a further contract where the Company entered into a contract to swap 50% of its expected LIBOR interest rate exposure from floating to fixed over a 30 month period commencing July 30, 2012, at 0.98% per annum.

The carrying value of these financial derivative assets is $0.13 million as of December 31, 2012, (December 31, 2011: $0.06 million derivative asset).

Realized and unrealized gains and losses on the crude oil derivative contracts and the interest rate swaps are summarized in the following table:

Years ended December 31, 2012 2011Realized loss on crude oil derivative contracts (16,407) $(19,995)Realized loss on interest rate swap (92) (32)Unrealized gains on crude oil derivative contracts 13,957 919Unrealized gain (loss) on interest rate swap 73 (76)

($2,469) $(19,184)

Changes in fair values associated with derivative contracts are included within other income in the consolidated statements of operations and comprehensive income.

All derivative contracts are considered as held-for-trading using the criteria specified under IFRS.

Note 13. Decommissioning liabilities Changes in the carrying amount of decommissioning liabilities are as follows:

Years ended December 31, 2012 2011Decommissioning liabilities, Beginning of Period $42,124 $17,655

Obligations incurred with development activities 10,392 17,475 Changes in estimates (6,562) 7,488 Obligations settled - (964)Unwinding of discount 772 470

Decommissioning liabilities, End of Period $46,726 $42,124

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Decommissioning liabilities represents the present value of estimated remediation and reclamation costs associated with our PP&E. Coastal has discounted the estimated asset retirement obligation using a risk-free rate of 2.4% (December 31, 2011: 1.8%). While the provision for abandonment is based on management’s best estimates of future costs and the economic lives of the assets involved, there is uncertainty regarding both the amount and timing of incurring these costs. Management anticipates the remedial work will occur approximately 12-35 years from the statement of financial position date. The Company expects to fund decommissioning liabilities from future cash flows from our operations. The total undiscounted amount of estimated cash flows required to settle the obligations at December 31, 2012, is $54.46 million (2011: $42.5 million).

Note 14. Leases Obligations under finance leases

During 2011, the Company terminated all of its finance leases. As a result, the Company recorded a gain of $0.62 million as a result of derecognizing the assets and the related finance lease obligations.

The interest arising on those finance leases is disclosed in Note 16.

Operating leasesThe Company incurred $48.42 million of expenses under operating leases for the year ended December 31, 2012, (2011: $35.75 million). The commitments associated with these leases are detailed in Note 20.

Note 15. Finance expense

Years ended December 31, 2012 2011Long-term debt interest expense $3,012 $3,308 Unwinding discount related to decommissioning liabilities (Note 13) 772 470 Finance lease interest - 385 Unrealized loss on derivative liability - warrant (Note 11) 931 662

$4,715 $4,825

Note 16. Other income

Years ended December 31, 2012 2011Change in fair value of derivative contracts (Note 12) ($2,469) ($19,184)Interest 39 6 Foreign exchange losses (2,340) (2,388)

($4,770) ($21,566)

Note 17. Employee benefits

Years ended December 31, 2012 2011Equity-settled share-based payment (Note 19) $6,054 $2,774 Cash-settled share-based payment (Note 10) 9,516 13,670 Termination benefits - 450 Other employee benefits 36,264 23,601 Total employee benefits expense 51,834 40,495 Capitalized employee benefits (8,050) (8,456)Expensed employee benefits $43,784 $32,039

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Note 18. Related parties

Major subsidiaries and Apico LLCThe consolidated financial statements include the financial statements of Coastal and its affiliated subsidiaries as at December 31, 2012, and December 31, 2011. Transactions involving the Company, its subsidiaries and equity investment are eliminated upon consolidation. In the opinion of management there are no related party transactions with entities outside the consolidated group in the year ended December 31, 2012 and 2011, except for those disclosed below.

Compensation of key management personnelKey management personnel include the Chairman, Chief Executive Officer, Chief Financial Officer and the General Manager in Thailand. Compensation paid to and share-based compensation attributable to key management personnel consists of the following:

Years Ended December 31, 2012 2011Short-term benefits $4,295 $3,678 Post-retirment benefits 25 33 Equity-settled share-based payment 4,113 1,740 Cash-settled share-based payment 4,796 8,084

$13,229 $13,535

The compensation of directors and key executives is determined by the compensation committee having regard to the performance of individuals and market trends.

Net profits interestIn 2012, a related party of the primary shareholder, O.S. Wyatt, Jr., reached payout under the terms of a net profits agreement following the recovery of all capital and operating expenditures relating to the G5/43 concession. Under the terms of this arrangement, the Company paid $0.65 million and accrued a further $0.10 million at December 31, 2012. These amounts are based upon 2.5% of net profits from the Gulf of Thailand Block G5/43 operations. The net profits agreement was executed in 2005 and has been previously disclosed by the Company.

Note 19. Equity

Common SharesAuthorized share capital consists of 250,000,000 common shares with a par value of $0.04 each. Each share carries equal voting rights, is non-preferential and participates evenly in the event of a dividend payment or in the winding up of the Company. At December 31, 2012, 113,228,067 common shares were issued and fully paid (December 31, 2011: 113,605,881 shares).

During the year ended December 31, 2012, the Company repurchased 1,295,450 common shares through the facilities of the TSX and other Canadian market places under a normal course issuer bid (“NCIB”) at an average cost of $14.07 per share (Cdn$ 14.48 per share) for a total repurchase cost of $18.22 million. The book value of the common shares repurchased was $1.87 per share for a total book value of $2.42 million that was recorded to share capital. The residual amount of $15.80 million was recorded directly to retained earnings. All of the common shares under the NCIB were cancelled. The NCIB will terminate on the earliest of the purchase of 5,715,972 common shares, Coastal providing a notice of termination, and May 24, 2013. Any common shares purchased pursuant to the NCIB will be cancelled by the Company.

Also in 2012, the Company repurchased 33,395 common shares from directors. The book value of the common shares repurchased was $1.86 per share for a total book value of $0.06 million that was recorded to share capital. The residual amount of $0.47 million was recorded directly to retained earnings. All of the common shares repurchased were cancelled.

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Stock optionsThe Company has a stock option plan (the “Plan”) in compliance with the TSX’s policy for granting stock options. Under the Plan, the number of shares reserved for issuance may not exceed 15,000,000 shares. At December 31, 2012, there remained available for future issuance 5,352,732 stock options, restricted stock units (discussed below) or a combination thereof. The exercise price of each option shall not be less than the market price of the Company’s stock at the date of grant. The vesting term of options under the Plan is determined by the Company’s Board of Directors, but options granted typically vest over a period of three years. Prior to the January 2009 grant, the options vested one-quarter on the date of the grant and one-quarter on each subsequent anniversary of the date of the grant. Beginning with the January 2009 grant, the options vest one-third on each subsequent anniversary of the date of grant. The maximum exercise period of options granted under the Plan is five years following the grant date. The changes in stock options were as follows:


Numberof options

weighted averageexercise price

Numberof options

Weighted averageexercise price

Balance, beginning of year 8,545,717 $5.79 10,794,987 $3.47Options granted - - 1,591,947 $13.58Options exercised (3,234,978) $3.78 (3,602,288) $2.15Options forfeited (14,520) $8.20 (238,929) $4.74

Balance, end of year 5,296,219 $7.16 8,545,717 $5.79

For share options exercised in the years ended December 31, 2012, the weighted average share price at the date of exercise was $18.78 (2011: $8.78).

Of the 3,234,978 ISOs that were exercised during 2012 (2011: 3,602,288), 2,141,359 were cash settled (2011: nil). The cash settlement amounted to $33.86 million (2011: $nil), with $2.20 million (2011: $nil) of accumulated stock option expense being reclassified from contributed surplus to retained earnings. The residual difference of $31.66 million charge was recorded in retained earnings.

The following table summarizes the outstanding and exercisable options at December 31, 2012:

Grant Date

Number Outstanding

Remaining Contractual Life

Exercise Price

Expiry Date

Number Exercisable

Sep. 16, 2008 100,000 0.75 years $2.31 (Cdn$2.28) Sep. 16, 2013 100,000Jan. 02, 2009 760,917 1.00 years $1.37 (Cdn$1.36) Jan. 01, 2014 739,583Dec. 01, 2009 1,675,661 2.00 years $5.22 (Cdn$5.16) Nov. 30, 2014 1,675,661Dec. 28, 2010 1,326,928 3.00 years $5.85 (Cdn$5.78) Dec. 27, 2015 829,278Dec. 14, 2011 1,432,713 4.00 years $14.27 (Cdn$14.11) Dec. 13, 2016 407,662

5,296,219 3,752,184

The above options are dilutive in 2012 and 2011 and, therefore, have been taken into account in the per share calculations for that year.

The fair value of each option granted is estimated at the time of the grant using the Black-Scholes option pricing model. The weighted average assumptions for grants and the weighted average fair value of option awards granted in 2011 were as follows:

2011Risk-free interest rate 0.93%Expected life 3 yearsAnnualized volatility 40%Dividend rate 0%Weighted average grant date fair value per option $3.43

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Annualized volatility was determined based upon historic movements in the Company’s share price.

For the year ended December 31, 2012, the Company recorded stock option expenses of $4.21 million (2011: $2.72 million), of which $0.25 million (2011: $0.24million) was capitalized.

Restricted stockThe Company has a restricted stock pan (the “RS Plan”) in compliance with the TSX’s policy for granting restricted stock units (“RSUs”). Under the RS Plan, the number of shares reserved for issuance may, along with other stock plans, not exceed 10% of the total issued and outstanding shares of the Company. At December 31, 2012, there remained available for future issuance 5,352,732 RSUs, stock options or a combination thereof. The vesting term of RSUs under the RS Plan is determined by the Company’s Board of Directors. For the RSUs granted on December 14, 2011, one-third vest on each subsequent anniversary of the date of the grant. The changes in the number of RSUs in 2012 and 2011 were as follows:

2012 2011Balance, beginning of period 205,628 -

RSUs granted 509,963 205,628RSUs settled (41,735) -RSUs forfeited - -

Balance, end of period 673,856 205,628

The following table summarizes the outstanding RSUs at December 31, 2012:

Grant Date

Number Outstanding

Remaining Contractual Life

Grant Date Fair Value

Expiry Date

Dec. 14, 2011 163,893 2 years $12.93 Dec. 14, 2014Dec. 14, 2012 509,963 3 years $19.87 Dec. 14, 2015

673,856

The above RSUs are dilutive both in 2012 and 2011 and, therefore, have been taken into account in the per share calculations detailed below.

The fair value of each RSU granted is estimated at the time of the grant using the Black-Scholes pricing model. The grant date fair value for the RSU’s granted in 2012 is $19.87 per unit (2011: $12.93). The assumptions used in valuing the RSUs are as follows:

2012 2011Risk-free interest rate 0.34% 0.93%Expected life 3 years 3 yearsAnnualized volatility 40% 40%Dividend rate 0% 0%

For the year ended December 31, 2012, the Company recorded RSU expenses of $1.85 million (2011: $0.07 million), of which $0.02 million (2011: $0.01 million) was capitalized.

2012 was the first year RSUs were settled. All RSUs were settled in cash. The cash settlement amounted to $0.66 million, with $0.43 million of accumulated IFRS 2 expense being moved from contributed surplus to retained earnings. The residual difference was recorded in retained earnings.

Contributed surplusThis reserve is being used on an ongoing basis to record stock option expense.

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Net income per shareThe following table summarizes the weighted average number of common shares used in calculating basic and diluted earnings per share. No adjustments to income were required.

Years ended December 31, 2012 2011Weighted average common shares outstanding, basic 113,534,501 112,226,944Effect of stock options and warrants 3,167,440 3,767,396Weighted average common shares outstanding, diluted 116,701,941 115,994,340

The average market price used in the ‘effect of stock options and warrants’ line in the above table was Cdn$16.99 for the year ended December 31, 2012 (2011: Cdn$9.00). Upon translation to US dollars this equates to $17.08 for the year ended December 31, 2012 (2011: $8.85).

Note 20. Commitments and contingencies

Commitments and contingencies

Year

Drilling & Production

Thailand

Drilling & Production

Malaysia G5/50 Other Total2013 $100,400 $137,013 $5,300 $325 $243,0382014 - 125,580 - 132 125,712Thereafter - 52,873 - - 52,873

Note: The column titled ‘Drilling & Production Malaysia’ includes obligations of the 30% non-controlling interest in Coastal Energy KBM Sdn. Bhd.

ThailandThe Company has provided a letter of credit to the Thailand Customs Department for $1.46 million (December 31, 2011: $1.40 million). This letter of credit is cash collateralized, has not been drawn on and remains outstanding as of September 30, 2012.

The Company has entered into various commitments primarily related to the ongoing development of its Thailand G5/43 and G5/50 property concessions, and the Kapal, Banang and Meranti Cluster (“KBM”) service contract in Malaysia (see below). Coastal has secured equipment and work commitments in the Gulf of Thailand and Malaysia. In order to keep both the concessions and service contract, the Company has various development obligations. The Company also has operating lease agreements for office space in Thailand, Malaysia and the United States. The following table summarizes the Company’s outstanding contractual obligations:

The Company’s share of Apico’s commitments is disclosed in Note 7.

Malaysia - Kapal, Banang, Meranti ClusterVia its subsidiary, Coastal Energy KBM Sdn. Bhd (“Coastal Malaysia”), the Company has entered into a Small Field Risk Service Contract (“RSC”) with Petronas for the development and production of petroleum from the KBM cluster of small fields (the “KBM Cluster”) offshore Peninsular Malaysia.

Coastal will be the operator of the KBM Cluster fields and will take a 70% interest in Coastal Malaysia. A third party, Petra Energy, will hold the residual 30%.

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Coastal will provide the upfront development capital, undertaking the development drilling and production of the KBM Cluster. Petronas will remain the owner of the project. Subject to its performance, Coastal will recover its capital and operating expenditures and will be paid a remuneration fee, which will be adjusted by key performance indicators (“KPIs”) based on the timely implementation of the agreed field development plan and budget.

The Company from time to time is involved in various claims, legal proceedings, complaints and disputes with governmental authorities and other stakeholders arising in the ordinary course of business. The Company does not believe that adverse decisions in any pending or threatened proceedings related to any matter, or any amount which it may be required to pay by reason thereof, will have a material effect on the financial condition or future results of operations of the Company.

Note 21. Income taxes

Income TaxesThe Company is required to pay both income taxes and a Special Remuneratory Benefit (“SRB”) in Thailand. Thai income tax is calculated at 50% of taxable income.

SRB is calculated separately for each of the Company’s concessions and is not payable on the concession until all capital expenditures have been recovered from the net cash flows from each concession. The SRB is determined using a sliding scale of rates which range from 0% to 75%, where the rate is principally determined by production volumes and crude oil pricing, subject to certain adjustments such as changes in Thailand’s consumer price index, wholesale price index and cumulative meters drilled on the concession. The calculated SRB rate is applied to petroleum profits for the particular year, as defined in Thai tax legislation, and includes a deduction for all capital spent on the concession.

Income taxes are comprised of the following amounts relating to current tax expense and deferred tax expense:

Years ended December 31, 2012 2011Current income tax expense

Current year 143,275 - Adjustment in respect of prior years 7,054 135 Current income tax expense 150,329 135

Deferred tax expenseOrigination and reversal of temporary differences in the current year 40,464 60,779 Adjustment in respect of prior years (11,808) (2,897)

Deferred tax expense 28,656 57,882 Income tax expense 178,985 58,017

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The provision for income taxes differs from the amount that would have been expected by applying statutory corporate income tax rates to income before taxes. The principal reasons for this difference are as follows:

Years ended December 31, 2012 2011Net income before income taxes $406,933 $106,657 Thailand petroleum income tax statutory rate 50% 50%

Expected income tax expense computed at standard rates 203,467 53,329 Add (deduct) the tax effect of:

Tax differential in other countries (26,413) 2,669 Non-taxable/deductible expenses (23,892) (2,483)Share-based compensation 647 1,384 Special Remuneratory Benefit (“SRB”) tax 36,071 - Unrecognized tax benefits 9,616 (519)Tax basis revaluation (16,028) 4,739 Change in estimates and other (4,754) (1,102)

Income tax expense 178,714 58,017 Consisting of:

Current income tax expense 150,329 135 Deferred tax expense 28,656 57,882

Income tax expense 178,985 58,017

Deferred TaxesThe components of the Company’s deferred tax assets and liabilities arising from temporary differences and loss carryforwards as well as the associated amount of deferred tax recovery or expense recognized in the Company’s consolidated statements of operations and comprehensive income are as follows:

December 31, 2012 December 31, 2011 December 31, 2010

Deferred income tax

(expense) recovery

Deferred tax

(liabilities)assets

Deferred Income Tax

(Expense) Recovery

Deferred Tax(Liabilities)

Assets

DeferredTax

(Liabilities)Assets

PP&E and E&E (10,734) (139,672) (52,104) (128,938) (76,834)Crude oil inventory 12,257 12,257 - - -Deferred derivative losses 15,431 23,347 (459) 7,916 8,375Decommissioning liabilities 2,301 23,363 12,234 21,062 8,828Loss carryforwards (27,818) 100 (19,828) 27,918 47,746Stock-based compensation (1,687) 588 2,275 2,275 -SRB tax (18,406) (18,406) - - -Net deferred tax liability (28,656) (98,423) (57,882) (69,767) (11,885)

As at December 31, 2012, the Company has not recognized $10.10 million (2011: $1.40 million) of deferred tax assets in respect of loss carryforwards in the United States. The equivalent numbers for Mauritius and the United Kingdom are $nil million and $0.05 million (2011: $0.02 million and $0.04 million), respectively. The loss carryforwards in the United States will fully expire by 2032.

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Note 22. Segment reportingIFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the executive officers of the Company to allocate resources to the segments and to assess their performance.

The Company’s reportable and geographical segments are Onshore Thailand, Offshore Thailand, Offshore Malaysia and Other. Other activities include the Company’s corporate offices outside of Thailand and Malaysia. The accounting policies used for the reportable segments are the same as the Company’s accounting policies.

For the purposes of monitoring segment performance and allocating resources between segments, the Company’s executive officers monitor the assets attributable to each segment. All assets are allocated to reportable segments. The following tables show information regarding the Company’s reportable segments.

Segmented income for the year ended December 31, 2012:

Malaysia Offshore

Thailand Onshore

Thailand Offshore


Net oil sales $- $- $667,573 $- $667,573 Reimbursement of expenses under Malaysia risk

service contract 4,099 - - - $4,099 Other Income 31 - (18,637) 13,836 (4,770)

4,130 - 648,936 13,836 666,902

Less: ExpensesProduction - - 149,999 - 149,999 Malaysia risk service contract 4,099 - - - 4,099 Depreciation and depletion - - 66,444 3,695 70,139 Net profits interest - - 1,041 - 1,041 General and administrative 238 - 16,159 23,299 39,696 Exploration - - 7,477 - 7,477 Debt financing fees - - 839 1,326 2,165 Finance expenses - - 772 3,943 4,715

Add: Gains on disposal of property, plant and equipment - - 252 252 Add: Net income from Apico LLC - 19,110 - - 19,110 Net income before taxes ($207) $19,110 $406,205 ($18,175) $406,933

Notes: (1) The offshore Malaysia business did not commence until the third quarter of 2012. (2) All oil sales are made to one customer.

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Segmented income for the year ended December 31, 2011:

Thailand Onshore

Thailand Offshore


Net oil sales $- $318,670 $- $318,670 Other Income - (22,317) 751 (21,566)

- 296,353 751 297,104

Less: ExpensesProduction - 99,263 - 99,263 Depreciation and depletion - 60,956 180 61,136 General and administrative - 7,464 23,989 31,453 Exploration - 8,374 - 8,374 Debt financing fees - 11 785 796 Finance costs - 3,708 1,117 4,825

Add: Net income from Apico LLC 14,527 - - 14,527 Gain on disposal of property, plant and equipment - 623 250 873

Net Income (Loss) before taxes $14,527 $117,200 ($25,070) $106,657

Segmented capital expenditure for the year ended December 31, 2012:

Malaysia Offshore

Thailand Onshore

Thailand Offshore


Capital Expenditures $1,000 $- $365,910 $1,155 $368,065

Segmented capital expenditure for the year ended December 31, 2011:

Thailand Onshore

Thailand Offshore


Capital Expenditures $- $153,392 $143 $153,535

Segmented assets as at December 31, 2012:

Malaysia Offshore

Thailand Onshore

Thailand Offshore


Investment in and advances to Apico LLC $- $60,266 $- $- $60,266 PP&E and E&E carrying amount 1,000 - 531,746 146,097 678,843 Total Assets $11,315 $60,266 $650,001 $172,611 $894,193

Segmented assets as at December 31, 2011:

Thailand Onshore

Thailand Offshore


Investment in and advances to Apico LLC $47,698 $- $- $47,698 PP&E and E&E carrying amount $- 386,492 441 386,933 Total Assets $47,698 $455,748 $15,285 $518,731

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Note 23. Capital managementThe Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include common share capital, long-term debt and adjusted working capital (a measurement defined as current assets less current liabilities, with current liabilities being as per the number on the face of the consolidated statements of financial position). In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, incur debt, sell assets or adjust its capital spending to manage current and projected debt levels. The Company may also repurchase common shares when the Company believes the market price does not reflect the underlying values of the common shares.

The Company’s capital structure is comprised as follows:

As at December 31, 2012 December 31, 2011Total equity $430,529 $250,867Derivative liability – Warrants 3,784 2,853Long-term debt drawn 100,000 80,000Working capital deficit (asset) excluding long-term debt drawn (1) 70,350 (9,667)

$604,663 $324,053

Note 1: This amount excludes the current portion of the bank debt and the derivative liability for warrants (which by the definition above would normally be included in this computation) as they are already included above.

As of December 31, 2012, the Company has drawn $100.00 million of its $200.0 million borrowing facility. Management believes it can access the equity and credit markets in the future should circumstances deem raising additional equity or debt is necessary.

The Company is in compliance with the terms of its debt agreement.

Note 24. Financial instruments and financial risk management

Financial risk management objectivesManagement co-ordinates access to financial markets and monitors and manages financial risk. These financial risks include fair value risk, market risks (comprising currency, interest rate, commodity price and credit risk) and liquidity risk.

Management seeks to adopt practicable yet effective approaches in a manner consistent with the current nature and scale of operations. This is manifested in procedures such as seeking to match currency inflows with currency outflows in the same currency, and by avoiding the use of derivative instruments where possible. The Company does not undertake derivative transactions for speculative trading purposes.

Fair valuesThe Company’s financial instruments include cash, restricted cash, derivative assets and liabilities, accounts receivable, and accounts payable and accrued liabilities. Cash, derivative assets, derivative liabilities and the derivative liability for warrants are carried at fair value. The Company considers that almost all other items (excluding long-term debt) have a carrying value that approximates their fair value due to their short-term nature. Long-term debt is carried at amortised cost.

The fair value of the Company’s long-term debt as at December 31, 2012, was $96.11 million (December 2011: $76.70 million) when using the market LIBOR rate.

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The Company classifies the fair value of cash, restricted cash, derivative commodity contracts and the derivative liability for warrants according to the following hierarchy based on the amount of observable inputs used to value the instrument.

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the market place.

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Company’s cash, restricted cash and derivative commodity contracts have been assessed on the fair value hierarchy described above. Cash and restricted cash are classified as Level 1.

The Company’s derivative commodity contracts are classified as fair value through profit and loss, and their fair values are marked to market every quarter based on inputs from quoted market prices in the futures market on the statement of financial position date. As discussed in Note 12, these derivative instruments are solely required for debt facilities. These contracts as well as the derivative liabilities associated with warrants are classified as Level 2.

The Company considers its risks in relation to financial instruments in the following categories, of which management considers that no category has significantly worsened in 2012 relative to 2011.

Credit riskCredit risk is the risk that a counterparty to a financial instrument will not discharge its obligations, resulting in a financial loss to the Company. The Company has procedures in place to minimize the credit risk it will assume. Coastal personnel evaluate credit risk on an ongoing basis, including an evaluation of counterparty credit rating and counterparty concentrations measured by amount and percentage.

The primary sources of credit risk for the Company arise from the following financial assets: (1) cash and restricted cash; (2) accounts receivable; (3) derivative assets. The Company has not had any credit losses in the past beyond that described below.

At December 31, 2012, the Company had $0.20 million of financial assets that were overdue (2011: $nil). This relates to the sale of surplus equipment. Management continues to work with the counterparty to resolve settlement of this balance. No allowance has been made for doubtful accounts receivable (2011: $nil).

The Company’s accounts receivable and other consists primarily of oil sales followed by Value Added Tax (“VAT”) refunds from the governments of Great Britain and Thailand. The Company’s maximum exposure to credit risk at the statement of financial position date is as follows:

As atDecember 31,

2012December 31,

2011Cash $63,897 $22,995Restricted cash 6,452 28,447Refundable taxes (Thailand) 16,888 16,115Trade receivable 34,854 -Receivable under risk service contract 4,099 -Other accounts receivable 1,007 824Derivative asset 132 59

$127,329 $68,440

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Revenues in both years relate to a single customer that had a credit rating of BBB+ with Standard and Poors as at December 31, 2012. The Company’s trade receivables in at the end of each year were less than 30 days aged and were subsequently fully collected.

Typically, the Company’s maximum credit exposure to customers is revenue from one month’s commodity sales. The Company’s standard credit terms have been (receipt of) payment within 30 days. The Company’s policy to mitigate credit risk associated with commodity sales is to establish relationships with creditworthy customers. The Company has not written off any amounts receivable in either 2012 or 2011.

The Company has pledged security (Note 12) in relation to its long-term debt.

Liquidity riskLiquidity risk is the risk that the Company will not be able to meet its obligations with respect to its financial liabilities. The Company’s financial liabilities are comprised of accounts payable and accrued liabilities, derivative liabilities, long-term debt, obligations under operating leases and future contractual commitments. The Company frequently assesses its liquidity position and obligations under its financial liabilities by preparing financial forecasts. Coastal mitigates liquidity risks by maintaining a sufficient cash balance as well as maintaining a sufficient current and projected liquidity cushion to meet expected future payments.

The Company’s financial liabilities arose primarily from the development of its Thailand properties. Payment terms on the Company’s accounts payable and accrued liabilities are typically 30 to 60 days from receipt of invoice and generally do not bear interest. At December 31, 2012, the Company had recorded all of the obligations associated with its financial liabilities. In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following table summarizes the remaining contractual maturities of the Company’s financial liabilities:

December 31, 2012December 31,

2011

within 1 Year

1-2Years 2-5 Years

thereafter total Total

Accounts payable and accrued liabilities $217,757 $- $- $- $217,757 $59,471Long-term debt principal and interest 34 - 40,000 60,000 100,034 80,009Derivative liabilities 1,372 502 - - 1,874 15,831Derivative liability - warrants - 3,784 - - 3,784 2,853

$219,163 $4,286 $40,000 $60,000 $323,449 $158,164

Market riskMarket risk is the risk that the fair value (for assets or liabilities considered to be fair value through profit and loss and available-for-sale) or future cash flows (for assets or liabilities considered to be held-to-maturity, other financial liabilities, and loans or receivables) of a financial instrument will fluctuate because of changes in market prices. The Company evaluates market risk on an ongoing basis. Coastal assesses the impact of variability in identified market risk on its various assets and liabilities and has established policies and procedures to mitigate market risk on its foreign exchange, interest rates and derivative contract.

(a) Currency riskCoastal operates internationally and therefore is exposed to the effects of changes in currency exchange rates. Although the functional currency of the Company is United States Dollars, it also transacts business in Thai Baht, Malaysian Ringgit, Singapore Dollars, Australian Dollars, British Pounds, Canadian Dollars and Euros. The Company is subject to inflation in the countries in which it operates and fluctuations in the rate of currency exchange between the United States and these other countries. The Company does not currently use financial instruments or derivatives to hedge these currency risks.

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Exchange rate fluctuations may affect the costs that the Company incurs in its operations. The Company’s costs are incurred principally in Thai Baht, Malaysian Ringgit, Singapore Dollars, Australian Dollars, British Pounds and Canadian Dollars. The appreciation of non-US Dollar currencies against the US Dollar can increase the costs of operations and capital expenditures in US Dollar terms.

Based on the Company’s net foreign currency exposures at December 31, 2012, a 10% depreciation or appreciation of the foreign currencies against the US Dollar would result in a $1.23 million (December 31, 2011: $0.90 million) increase or decrease in the Company’s after-tax earnings with the same impact on comprehensive income. These exposures are attributable to year-end payables and receivables denominated in currencies other than the US Dollar.

(b) Interest rate riskThe Company is exposed to interest rate risk on its outstanding borrowings and short-term investments. Presently the Company’s credit facility has an interest rate of LIBOR plus 350 bps. The Company monitors its exposure to interest rates and is comfortable with its exposures, given the relatively short-term of the interest rates on long-term debt. The terms of the Company’s long-term debt obligation are described in Note 12. The Company accounts for its borrowings under the long-term debt on an amortized cost basis. The Company had borrowings totaling $100.0 million at December 31, 2012 (December 31, 2011: $80.0 million). A 100 basis point change in interest rates at the statement of financial position date would result in a $1.0 million change in the Company’s annual net income (2011: $0.8 million). The Company has entered into an interest rate swap to specifically manage interest rate risk. Further details can be found in Note 12.

The Company paid an average of 6.62% on its borrowings for the year ended December 31, 2012 (2011: 5.14%).

The Company earned an average of 0.02% on its short-term investments for the year ended December 31, 2012 (2011: 0.05%).

(c) Commodity price riskProfitability of the Company depends on market prices for petroleum and natural gas. Petroleum and natural gas prices are affected by numerous factors such as global consumption and demand for petroleum and natural gas, international economic and political trends, fluctuation in the US Dollar and other currencies, interest rates and inflation.

A 10% decline in the reference price projection would not reduce the availability under the borrowing base at December 31, 2012.

As a requirement of the debt facilities, the Company entered into a derivative hedging agreement described in Note 12. A 10% increase in prices of Brent as of December 31, 2012, would cause an increase in the derivative liability of $2.30 million (2011: increase in liability of $7.31 million) from what is recorded on the statement of financial position. A 10% decrease in prices as of December 31, 2012, would cause a decrease in the liability of $2.40 million (2011: decrease of $5.09 million).

(d) Other price riskThe Company is exposed to equity price risk in relation to stock appreciation rights granted to employees. For more detail, see Note 10.

Note 25. Subsequent eventsThe Company has not had any subsequent events.

3

NON-INDEPENDENT DIRECTOR

Randy L. Bartley, President and CEO

William C. Phelps, Chief Financial Officer

Andrew L. Cochran, Executive Director

INDEPENDENT DIRECTORS

C. Robert Black (1) (2) (4)

Former Senior Vice President, Office of the Chairman Texaco, Inc.

Olivier de Montal (2) (3) Administrator, Loze &Associés

Lloyd Barnaby Smith (3) (4) Former British Ambassador to Thailand

John B. Zaozirny (1) (3) Vice Chairman, Canaccord Genuity Corp.

Committees of the Board: (1) Audit, (2) Compensation, (3) Corporate Governance and Nominating, and (4) Reserves

SENIOR MANAGEMENT

Randy L. Bartley, President, CEO, Director

William C. Phelps, Chief Financial Officer, Director

Andrew L. Cochran, Executive Director

John M. Griffith, Vice President, Operations Thailand General Manager

TRADING SYMBOLS

CEN on TSX

CEO on AIM

WEBSITE

www.CoastalEnergy.com

INVESTOR RELATIONS

Matthew E. Laterza T: +01 (713) 877-6793 F: +01 (713) 877-7144 Email: [email protected]

ABBREVIATIONS

bbl Barrelboe barrel of oil equivalent of natural gas and crude oil

on the basis of 1 boe for 6 mcf of natural gasbbl/d barrels of oil per daymbbls thousand barrelsmcf thousand cubic feetmmcf million cubic feetmcf/d thousand cubic feet per daymmcf/d million cubic feet per daybcf billion cubic feet TSX Toronto Stock Exchange (Canada)AIM London AIM Stock Exchange (UK)

THIRD PARTY ADVISORS

Petroleum and Geological Engineers: RPS Group, Ltd.

Auditors: Deloitte LLP (Canada)

Legal Counselors: Stikeman Elliott LLP (Canada & UK) Walkers SPV Limited (Cayman Islands) Chandler & Thong-Ek (Thailand)

Stock Registrars: Computershare (TSX) Capita Registrars (LSE-AIM)

Nominated Advisor (NOMAD): Strand Hanson Limited


Walkers House 87 Mary Street George Town, Grand Cayman, KY1-9001 Cayman Islands, BWI

Level 39 Unit 3901-3904 Exchange Tower Building 338 Sukhumvit Road, Klongtoey Bangkok 10110 Thailand

41st Floor, Vista Tower, The Intermark 348 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia

3355 West Alabama, Suite 500 Houston, Texas 77098-1717 USA T: +01 713 877 7125 F: +01 713 877 7128

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Cayman IslandsWalker House87 Mary StreetPO Box 908GTGeorge Town Grand CaymansKY1-9001

Malaysia COASTAL ENERGY KBM Sdn BhdLevel 23Etiqa Tower 2Jalan Pinang50450 Kuala LumpurMalaysia

uSa3355 West Alabama, Suite 500Houston TX 77098+1 (713) 877-7125

united KingdomCoastal Energy (UK) Company Limited10 Cavalry Square, London, SW3 4RB

thailand24th Floor, Unit 24012405 Two Pacific Place Bldg.142 Sukhumvit RoadKlongtoey, Bangkok 10110+66 (0) 2610 0555

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Coastal Energy Company Page 1 of 5

Audit Committee Terms of Reference Amended and Approved 13 November 2012

AUDIT COMMITTEE (the "Committee")

Terms of Reference

1. Constitution

The Audit Committee (the “Committee”) of Coastal Energy Company (the “Company”) was constituted at a full meeting of the Board of Directors (the "Board") held on 31 January 2007 in accordance with the Articles of Association of the Company. These Terms of Reference were first adopted by the Board on 31 January 2007.

2. Purpose

2.1 The purposes of the Committee are:

2.1.1 to give the Board critical and independent advice on the integrity of the Company's financial statements and to provide a forum at which any shareholder of the Company or other interested person, such as the Company's auditors, can discuss financial matters concerning the Company;

2.1.2 to review the Company’s internal financial controls and risk management system;

2.1.3 to ensure that a thorough and detailed review is carried out by independent non-executive directors of audit matters before approval by the Board; and

2.1.4 to investigate audit matters with full access to information and the resources to do so.

2.2 Should disagreements arise between the Board and the Company's auditors, the Committee is not the final arbiter and will act merely as a forum to facilitate discussion between these two bodies.

3. Authority

3.1 The Committee is authorized by the Board to investigate and undertake any activity within these Terms of Reference. It is authorized to seek any information it requires from any employee or director of the Company or of any of its subsidiary companies, and all such employees or directors will be directed to co-operate with any request made by the Committee.

3.2 If the Committee considers it necessary to do so, it is authorized by the Board to obtain external legal or other independent professional advice to assist it in the performance of its duties, to secure the services of outsiders with relevant experience and expertise and to invite those persons to attend meetings of the Committee. The cost of obtaining any advice or service will be paid by the Company within the limits authorized by the Board. The chairman of the Board will be informed before any external advice or service is sought and consulted about the Committee's proposals relating thereto.

4. Composition

4.1 The members of the Committee shall be appointed, on the recommendation of the Corporate Governance and Nominating Committee, at a meeting of the Board (typically at the 1st meeting of the Board after election of directors at the annual meeting of the Company’s shareholders). A member of the Committee shall cease to be a member of the Committee upon ceasing to be a member of the Board. The Committee shall consist exclusively of independent non-executive directors of the Company (for this purpose an independent non-executive director is one who neither has involvement in the day to day running of the Company nor holds an executive

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appointment with another company on which one of the other directors is also an executive director of the Company).

4.2 The Committee shall be comprised of not less than three (3) members appointed by the Board from time to time and at least one (1) member shall have specialist financial knowledge. The remaining members should be committed, trained, skilled and with sufficient understanding of the issues to be dealt with.

4.3 The chairman of the Committee will be appointed by the Board.

4.4 The chairman and/or chief executive officer of the Company shall, when appropriate, be invited to attend meetings in order to make proposals as necessary.

4.5 The Committee may invite other individuals such as the finance director and head of internal audit (if any such, or similar, appointments exist) to attend all or part of any meeting as and when appropriate.

4.6 The Company secretary shall be the secretary of the Committee, provided such person is not a member of the Company's finance staff.

5. Meetings and Voting

5.1 The Committee shall meet at least four (4) times each year at locations agreed by the members of the Committee and in conjunction with the Company's external auditors to approve the interim and annual accounts.

5.2 The Company's external auditors, the chief executive or the finance director may at any time request a meeting of the Committee if they consider it necessary to do so. If the external auditors request a meeting, the meeting should be held without the executive Board members present.

5.3 The quorum necessary for the transaction of business shall be two (2). A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

5.4 Except as provided at paragraph 5.6, any director of the Company has the right to attend and speak but not vote at any meeting of the Committee.

5.5 Each member of the Committee has one vote on all matters to be determined by the Committee. In the event of a deadlock the chairman of the Committee has the casting vote.

5.6 No executive director of the Company may be present at a meeting of the committee in which such executive director has a direct personal interest in the matter or matters being discussed.

6. Duties

6.1 The Committee shall monitor the integrity of the financial statements of the Company, including reviewing its annual and interim reports, the associated management’s discussion & analysis (“MD&A”), preliminary results and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgments which they contain and:

6.1.1 For interim financial statements and associated MD&A, and any results or other formal announcement related to the interim reports, the Committee has been empowered to act on behalf of the full Board of Directors and the Committee Chairman shall sign as approving the interim financial statements on behalf of the Chairman of the Board of Directors.

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6.1.2 For Annual financial statements, the Committee shall make recommendations on all related documents to the Board of Directors when appropriate for the Board’s approval.

6.1.3 The Committee shall also review summary financial statements, significant financial returns to regulators and any financial information contained in certain other documents, such as announcements of a price sensitive nature.

6.2 The Committee shall be available on an ad hoc basis to consider and resolve any financial problems relating to the Company raised by individual shareholders.

6.3 The Committee shall review and challenge where necessary:

6.3.1 the consistency of, and any changes to, accounting policies both on a year on year basis and across the Company and its subsidiary companies;

6.3.2 the methods used to account for significant or unusual transactions where different approaches are possible;

6.3.3 whether the Company has followed appropriate accounting standards and made appropriate estimates and judgments, taking into account the views of the external auditor;

6.3.4 the clarity of disclosure in the Company’s financial reports and the context in which statements are made; and

6.3.5 all material information presented with the financial statements, such as the business review and any corporate governance statement (insofar as it relates to the audit and risk management).

6.4 The Committee shall:

6.4.1 keep under review the effectiveness of the Company’s internal controls and risk management systems; and

6.4.2 annually consider whether there is a need for an internal audit function and make a recommendation to the board, and the reasons for the absence of such a function should be explained in the relevant section of the annual report.

6.4.3 review and approve the statements to be included in the annual report concerning internal controls and risk management.

6.5 The Committee shall review the Company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.


6.6.1 consider and make recommendations to the Board, to be put to shareholders for approval at the annual general meeting, in relation to the appointment, re-appointment and removal of the Company’s external auditor. The Committee shall oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;

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6.6.2 oversee the relationship with the external auditor including but not limited to:

(a) approval of their remuneration, whether fees for audit or non-audit services, and that the level of fees is appropriate to enable an adequate audit to be conducted;

(b) approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;

(c) assessing annually their independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services;

(d) satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the Company, other than in the ordinary course of business;

(e) agreeing with the Board a policy on the employment of former employees of the Company's auditor, then monitoring the implementation of this policy;

(f) monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements; and

(g) assessing annually their qualifications, expertise and resources and the effectiveness of the audit process;

6.6.3 meet regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage;

6.6.4 review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement;

6.6.5 review the findings of the audit with the external auditor. This shall include but not be limited to, the following:

(a) a discussion of any major issues which arose during the audit;

(b) any accounting and audit judgments; and

(c) levels of errors identified during the audit;

6.6.6 review any representation letter(s) requested by the external auditor before they are signed by management;

6.6.7 review the management letter and management’s response to the auditor’s findings and recommendations; and

6.6.8 develop and implement a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter,

6.6.9 meet with the external auditors without management, at least annually, to discuss matters related to its remit and any issues arising from the audit.


6.7.1 give due consideration to applicable laws and regulations, the provisions of the Combined Code, the QCA Corporate Governance Guidelines for AIM companies, the requirements of the London Stock Exchange's rules for AIM companies and the requirements of the Toronto Stock Exchange for TSX companies; and

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6.7.2 oversee any investigation of activities which are within these Terms of Reference and act as a court of the last resort.

7. Reporting and Notice

7.1 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of the matters to be discussed at the meeting shall endeavor to be forwarded to each member and any other person required to attend no later than seven (7) days before the date of the meeting. Any supporting papers shall be sent to each attendee as appropriate, at the same time.

7.2 The chairman of the Committee shall attend the annual general meeting prepared to respond to any shareholder questions on the Committee's activities.

7.3 The secretary shall minute the proceedings and resolutions of all Committee meetings, including the name of those present and in attendance.

7.4 Minutes of the Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board, unless a conflict of interest exists.

8. Other

8.1 The Committee shall, at least once a year, review its own performance, constitution and these Terms of Reference to ensure that it is operating at maximum effectiveness and shall recommend any changes it considers necessary to the Board for approval.

8.2 The recommendations of the Committee minutes must be approved by the Board before they can be implemented.

8.3 These Terms of Reference may be amended or modified by the Board.

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