FOGL.L Regulatory News (FOGL)

Tuesday 21 December 2010

Falkland Oil and Gas Limited

("FOGL" or "the Company")

Board share options and incentive plan

Falkland Oil and Gas PLC (FOGL), the AIM listed oil & gas exploration company with interests in the Falkland Islands, announces the following changes to its incentive programmes for executive directors and announces option awards made under those schemes:

Long Term Incentive Programmes for Executive Directors

The Remuneration Committee engaged the services of Towers Watson to prepare the design of the incentive scheme and to advise the Remuneration Committee on the selection of the final programme. The Remuneration Committee therefore made its recommendation based on independent specialist advice intended to provide better alignment between the incentivisation of the Executive Directors and the interests of shareholders.

The current long term incentives are a mix of FOGL Share Option Scheme options with a market value exercise price, and annual FOGL Long Term Incentive Plan awards with performance conditions, but a 'par value' exercise price (restricted shares).

Going forward, it is our intention that long term incentive awards be granted as a mix of restricted shares and market value options as follows:

FOGL Long Term Incentive Plan ("LTIP")

Limits: The annual award of restricted shares has been reduced to up to a maximum of 50% of annual salary, and options with a full market value exercise price up to 100% of annual salary have been added to the annual plan.

Restricted Share Vesting: Restricted shares will vest on the achievement of strategic objectives and operating milestones and continued employment with FOGL over a three year performance period.

Option Vesting: Options will vest according to absolute share price growth calculated over three years. Growth under 33% will not be rewarded. The total award will be calculated by reference to a target number of days on which this target 33% share price growth is exceeded during the three year period, with a maximum award possible where the average growth reaches 73%. Continued employment with FOGL is required for vesting.

Exercise Period: Awards vested under either or both plans may be exercised up to ten years from the date of grant.

Awards: Under the amended scheme the following awards were granted on 20 December:-

Tim Bushell - 96,154 restricted shares

Tim Bushell - 192,308 options at a price of 104p

Colin More - 86,538 restricted shares

Colin More - 173,077 options at a price of 104p

FOGL Share Option Scheme

The current options were granted in three tranches. The first tranche will lapse on 31 December 2010. This tranche has been replaced with a new one-off option grant so that the total market value (taken at the relevant dates of grant) of all the Shares under option under this scheme will not exceed four times salary.

Vesting: These new options will vest, and can be exercised, in a manner identical to the annual plan options referred to in the "Option Vesting" and "Exercise Period" sections above.

Awards: Under the amended scheme the following awards were granted on 20 December:-

Tim Bushell - 544,231 options at a price of 104p

Colin More - 484,135 options at a price of 104p

General

Amendments have been made to the rules of both Schemes to permit options or awards of restricted shares to be made at any time when the Company is not in a close period or when similar restrictions apply to prevent such grants or awards.

All share options now have a ten year term.

Both incentive schemes are discretionary schemes subject to change in design and operation under the recommendation of the Remuneration Committee.

The new arrangements will change the structure of reward for executives to be more focussed on delivering value for the business by reference to strategic milestone deliverables (restricted shares) and absolute value for shareholders (share options). Whilst all share incentives are connected to the share price, the significant value proposition for executives will be based in market value share options, which require an increase in share price for any value to be delivered to the executives. In addition, a significant oil discovery aside, as the share price is subject to much market volatility the performance condition attached to these share options requires a continuous level of out performance against the benchmark to be achieved throughout the whole of the performance period for full vesting of the share options.

- Ends -

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