21 June 2017
Lekoil Limited
("LEKOIL", the "Group" or the "Company")
Final Results for the Year to 31 December 2016
LEKOIL (AIM: LEK), the Africa focused oil and gas exploration and production company with interests in Nigeria and Namibia, announces final audited results for the year to 31 December 2016. All figures are in US dollars unless otherwise indicated.
Highlights
- Continuous commercial production and cash flow generation at Otakikpo;
- $15m Shell offtake facility secured on Otakikpo production provides liquidity to complete Phase 1 development and ramp up production to 10,000 bopd by year end;
- Completion of interpretation of 3D seismic data acquired over the whole of OPL 310 which contains the Ogo discovery (774 mmboe P50 Gross Risked Prospective Resources);
- Planning for appraisal drilling of Ogo underway, with a prospective spud date in 1Q 2018, subject to agreement with potential financing partners;
- MoU signed with GE Oil & Gas for the development of a work programme for the Ogo field;
- Receipt of Ministerial Consent for transfer of initial 17.14% participating interest on OPL310 Farm-in;
- Establishment of LEKGAS to monetise associated gas assets; and
- The Otakikpo project has now recorded over one million hours with no lost time injuries.
Samuel Adegboyega, Chairman, said, "Our two priorities are to focus our resources on growing our low cost production from Otakikpo and to appraise and monetise the resources in the shallow water Ogo discovery. 2017 is an important year for LEKOIL as we grow Otakikpo production towards the Phase 1 steady state. A secondary focus will be on the evaluation and exploration of surrounding prospects in both OPL 310 and the Otakikpo licence area."
Lekan Akinyanmi, Lekoil's CEO, added, "The successful transition of LEKOIL to a producing business generating operating cash flow will, in the medium term, allow us to fund Phase 2 of Otakikpo's development which will lead to incremental production. Cash generated from Otakikpo will also enable us to appraise the potentially material upside in the licence area, including some new prospects to the north of Otakikpo which were identified from the interpretation of 2D and 3D seismic data during 2016."
"We are currently exploring with Optimum the options for the appraisal of the world class Ogo discovery, following interpretation of the 3D seismic data acquired in 2015 over the entire block. We were delighted to announce recently that the Honourable Minister of State, Petroleum Resources of Nigeria, granted consent to complete the transfer of the original 17.14% participating interest that LEKOIL acquired in OPL 310 in February 2013. Our remaining 22.86% participating interest in OPL 310, as announced on 1 December 2015, remains conditional upon receiving Ministerial Consent."
"Last, but by no means least, we are proud to report that the Otakikpo project has now recorded over one million hours with no lost time injuries. This is an exceptional achievement and we will continue to prioritise the safety of our staff and contractors."
For further information, please visit www.lekoil.com or contact:
LEKOIL Limited
Alfred Castaneda, Investor Relations
Hamilton Esi, Corporate Communications
+44 20 7920 3150
+44 20 7920 3150
Strand Hanson Limited (Financial & Nominated Adviser)
James Harris / James Spinney / Ritchie Balmer
+44 20 7409 3494
Mirabaud Securities LLP (Joint Broker)
Peter Krens / Edward Haig-Thomas
+44 20 7878 3362 / +44 20 7878 3447
BMO Capital Markets (Joint Broker)
Jeremy Low / Neil Haycock / Thomas Rider
+44 20 7236 1010
Tavistock (Financial PR)
Simon Hudson / Barney Hayward
+44 20 7920 3150
Chairman's and CEO's Statement
Introduction
We continue to execute our strategy of building a diversified African exploration and production group whilst maintaining the local community values and behaviours that we firmly believe set us apart from other oil and gas companies.
Otakikpo
We are delighted that our Otakikpo project has now achieved the Company's first commercial production, and we have received the proceeds of sale of the first lifting of oil. Transforming Otakikpo from an abandoned swamp site to a producing field including construction and commissioning of all the infrastructure necessary to evacuate the oil represented a significant challenge for LEKOIL as Financial and Technical Partner in the joint-venture with Green Energy International Limited, the Operator of Otakikpo Asset. A number of factors resulted in the start of commercial production at Otakikpo being delayed, which we successfully worked through.
The first of these was a problem encountered on the Otakikpo-002 well, where cementing issues resulted in the temporary suspension of the E1 zone. We consequently prioritised production from the second and third planned production zones, in the C5 and C6 reservoirs, and determined to pursue development options for the E1 zone in the future. Another factor was the necessary replacement of the original pipeline contractor after they proved unable to perform to our mutually agreed specification.
On 20 February 2017, we announced the start of commercial production, at 5,000 bopd - the rate agreed with the regulator. During optimisation, we encountered - as expected - a number of teething problems, including damage to the line connecting the offloading barge with the pipeline manifold offshore. As a result of this combined with limited storage capacity at the time, we throttled production back for a period to 3,000 bopd. These teething problems have now been successfully addressed and we are ramping up production once more. We are currently producing 5,500 bopd, are permitted to produce up to 8,000 bopd, and are applying to the regulator, via the Operator, to increase production to the 10,000 bopd steady state that we are targeting to deliver by the end of 2017.
This successful transition of LEKOIL to a producing business generating operating cash flow will, in the medium term, allow us to fund Phase 2 of Otakikpo's development which will lead to incremental production. Cash generated from Otakikpo will also enable us to appraise the potentially material upside in the licence area, including some new prospects to the north of Otakikpo which were identified from the interpretation of 2D and 3D seismic data during 2016.
Last, but by no means the least, we are proud to report that the Otakikpo project has now recorded over one million hours with no lost time injuries. This is an exceptional achievement and we will continue to prioritise the safety of our staff and contractors.
OPL 310
We are currently exploring with Optimum the options for the appraisal of the world class Ogo discovery, following interpretation of the 3D seismic data acquired in 2015 over the entire block. LEKOIL, via its subsidiary Mayfair Assets and Trust Limited, farmed in to OPL 310 in May 2013, taking a 17.14% participating interest from Afren PLC in return for a contribution of $50 million towards an exploration well. This transaction was approved by the Operator Optimum, completed in May 2013 and was subject to Ministerial Consent. Post Afren's farm out, the participating interests in OPL 310 were: Optimum - 60%, Afren - 22.86%, LEKOIL - 17.14%. LEKOIL applied to the Ministry of Petroleum Resources for Ministerial Consent in 2013. In June 2017, we were delighted to announce that the Honourable Minister of State, Petroleum Resources of Nigeria, granted consent to complete the transfer of the original 17.14% participating interest that LEKOIL acquired in OPL 310 February 2013.
In December 2015, LEKOIL's subsidiary Lekoil 310 Limited acquired a further 22.86% interest in OPL 310 via the acquisition of the entire issued share capital of AIOGL, a subsidiary of Afren PLC, which was in Administration. Post this acquisition, and subject to Ministerial Consent, the participating interests in OPL 310 are: Optimum - 60% and LEKOIL - 40%. An application for the transfer of the interest was duly made by Afren Nigeria Holdings Limited ("Afren Nigeria") in January 2016. As the transaction was not undertaken on the basis of an Assigned Interest, approval by Optimum was not required under the JOA between Optimum and Afren. In March 2016, LEKOIL was notified by the Ministry of Petroleum Resources through the Department for Petroleum Resources (DPR) that the necessary due diligence exercise would be conducted that month. Due to scheduling conflicts this due diligence exercise was not conducted. LEKOIL asked for a new date but has not yet received one. Our remaining 22.86% participating interest in OPL 310, as announced on 1 December 2015, remains conditional upon receiving Ministerial Consent.
Since October 2015, LEKOIL has been negotiating the terms of a commercial agreement with Optimum to cover cost recovery for LEKOIL and reimbursement of Optimum's past costs.
In April 2017, we announced the signing of a Memorandum of Understanding ("MOU") with GE Oil & Gas, a subsidiary of General Electric Company (NYSE: GE) for the development of the Ogo field in OPL310. As part of the activities towards the development of the field, LEKOIL will leverage GE Oil & Gas equipment and technical expertise.
Subject to the fulfilment of a number of conditions including a positive well result, GE Oil & Gas and LEKOIL, through its funding partners, intend to fund the full field development capital cost of the project which we currently estimate to be US$400m for full field oil development and US$600m for a subsequent upstream gas field development. GE Oil & Gas is expected to receive a percentage of LEKOIL's future cash flows from the Ogo Field, as well as the ability to supply its products and provide technical expertise throughout the life of the project. LEKOIL's 40% participating interest in OPL310 will remain intact and unaffected by the terms of the MoU.
At the time of writing, LEKOIL is in discussions with other potential partners for the financing of the OPL310 appraisal programme, which includes two appraisal wells, which we expect to commence in early 2018.
LEKGAS
We established LEKGAS, a wholly-owned subsidiary of LEKOIL, to be the gas midstream vehicle of LEKOIL, building strategic, commercial and technical partnerships to unlock gas and gas-to-power opportunities initially in Nigeria, currently our primary country of operation. To head up LEKGAS, we appointed Shola Adekeye as Managing Director. Shola has over 20 years' experience in the oil and gas industry, serving in various commercial and technical leadership roles in Nigeria, Venezuela, the USA and the UAE. Prior to joining us, Shola was Director of Corporate Strategy at Mubadala Petroleum where he oversaw the Strategy, Economics, Long-term Planning and Market Research functions. At LEKOIL, Shola is also responsible for the stewardship and implementation of our Corporate Strategy.
LEKGAS has a dual focus of monetising LEKOIL's equity gas globally as well as participating in the gas infrastructure space in Nigeria. As such, LEKGAS is structured to be any or all of developer, operator and investor in midstream gas assets to connect both equity and non-equity gas from the upstream (field location) to the downstream (wholesale customers). LEKGAS' participation in the midstream gas value chain will include gas gathering, treatment, transportation, processing and storage.
Financing
Corporately, there have been a number of achievements on the financing front. In June, we refinanced an existing US Dollar Notes facility ($) with FBN Capital and negotiated a new Naira facility (N) also with FBN Capital as we switched some capital expenditure at Otakikpo into local currency as the Naira depreciated. In September, we more than doubled the Naira tranche of the facility to Naira 4.5 billion (approximately US$14.8 million).
Given the then significant deterioration in the Nigerian currency markets in late 2016, and resultant negative impact on the local debt market, we determined that a relatively small equity raise would be the most appropriate way to finance the final expenditure needed to bring Otakikpo into commercial production. Consequently, we launched an accelerated book build which completed in mid-October and successfully raised approximately US$12.4 million at a price of 21p, a discount to the then share price of just 3.4 per cent.
At the end of March 2017, we announced that we had agreed a $15 million debt facility with Shell Western Supply and Trading Limited ("Shell Western"), a member of the Royal Dutch Shell group of companies (LSE: RDSA, RDSB). Shell Western are the offtakers of the Otakikpo crude production. The facility has a maturity of three years and is repayable quarterly following a six-month moratorium with a market margin over LIBOR. This funding is non-dilutive for our shareholders and marks the beginning of an important relationship with a globally recognised O&G major which will complement LEKOIL in its long-term growth aspirations.
Board
In February 2017, we were pleased to appoint Bruce Burrows to the Board as our new CFO. Bruce brings a wealth of experience in the oil and gas sector, much of it in Nigeria. For the past six years, he has been the CFO of Seven Energy, a private integrated gas company in south east Nigeria, with upstream oil and gas interests in the region.
Priorities
Our two priorities in the current oil price environment are to focus our resources on growing our low cost production from Otakikpo and to appraise and monetise the resources in the shallow water Ogo discovery. 2017 is an important year for LEKOIL as we grow Otakikpo production towards the Phase 1 steady state. A secondary focus will be on the evaluation and exploration of surrounding prospects in both OPL 310 and the Otakikpo licence area.
Operational Review
Otakikpo Marginal Field - Producing Asset
Situated in a swamp in OML 11, Otakikpo commenced production in February 2017.
Background
The original farm-in fee paid to Green Energy was $7 million (an implied $0.5/bbl acquisition price) with a production bonus of $4 million to be paid after production commencement and the receipt of Ministerial Consent. LEKOIL will preferentially recover costs from an entitlement to 88 per cent. of production revenue. The License terms also include a commitment to develop a small scale gas utilisation project.
Three wells originally drilled in the field by the previous operator (Shell) in the 1980's encountered hydrocarbons in multiple intervals. 2D and 3D seismic analysis by LEKOIL revealed reserve estimates considerably in excess of those available at the time of acquisition in May 2014.
Following the revision to anticipated production levels during 2015, the Otakikpo -002 and -003 wells were reclassified as "Reserves -Approved for Development". The Field Development Plan ("FDP") comprises two phases which will target incremental production, the commissioning of a new Central Processing Facility and seven additional wells.
As a result of the work put into the tendering process, LEKOIL has driven down the cost of production, resulting in a break-even point of less than $30 per bbl (life of field basis). By continuing to explore new ways of reducing production costs we increase the long term viability of the field - even in any protracted low oil price environment.
In addition, four exploration prospects within the onshore part of the Otakikpo acreage have had Stock Tank Oil Initially In Place (STOIIP) ranges calculated. These are estimated to contain potential gross aggregate volumes of 162.8 mmbbl, with further potential in the southern (shallow water) portion of the field. We continue to analyse and evaluate these areas.
Otakikpo
Phase 1 & Phase 2 Cases |
Reserves / Unrisked Contingent Resources @ $60/bbl (MMbbls) |
| 100% |
Lekoil Ltd. Net |
| LOW (P90) |
1P+1C |
47.00 |
16.92 |
| MID (P50) |
2P+2C |
56.60 |
20.38 |
| HIGH (P10) |
3P+3C |
66.20 |
23.83 |
Ogo Discovery and OPL 310 - Appraisal and Exploration Asset
LEKOIL commissioned a regional basin study and identified the Dahomey Basin block OPL 310 as a key target. The OPL 310 licence is located in the Upper Cretaceous fairway that runs along the West African Transform Margin. The block extends from the shallow water continental shelf close by the City of Lagos, Nigeria into deeper water. The main prospects within the licence area are in water depths ranging from 100 to 800 metres and are within close proximity to the West Africa Gas Pipeline.
| Status |
Appraisal & Exploration |
| Participating interest |
40 per cent* |
| Economic interest |
70 per cent |
| LEKOIL status |
Technical and Financial Partner |
| Partner |
Optimum Petroleum Development Limited |
| P50 Gross Risked Prospective Resources |
774.0 mmboe |
* Subject to Ministerial Consent
Background
In 2013, we invested $50 million in drilling an appraisal well and sidetrack targeting Eko, Agege and the Syn-rift prospects. The result was a significant discovery in the Ogo prospect. Based on data from the vertical and side track wells, revised estimates for the P50 gross recoverable resources attributable to LEKOIL from the Ogo field were identified as being 232 mmboe (P50) from gross recoverable resources of 774 mmboe. This far exceeded the expected pre-drill estimates of 202 mmboe. Additionally, Syn-rift leads identified within OPL 310 are expected to contain light oil or condensate-rich gas, and further shallow water leads are being explored.
In December 2015 LEKOIL agreed to acquire Afren's 22.86% participating interest (40% economic interest) in OPL 310, increasing LEKOIL's consolidated participating interest from 17.14% to 40%, subject to Ministerial Consent, and will become the technical and financial partner. Optimum Petroleum Development Company, the operator and local partner in OPL 310, retains a 60% participating interest.
Seismic processing and interpretation is now complete, to be followed by an appraisal well.
OPL 325 - Exploration Asset
OPL 325 was also identified as a target in LEKOIL's regional basin study covering the Dahomey Basin. The OPL 325 licence area is located in the offshore Dahomey Basin within the wrench zone that straddles the western Niger Delta and is a promising exploration licence located 50km to the south of OPL 310.
| Status |
Exploration |
| Participating interest |
62 per cent |
| Economic interest |
62 per cent |
| LEKOIL status |
Operator |
| Partner |
National Petroleum Development Company Ltd |
| Gross STOIIP unrisked prospective resources |
5-6 billion boe |
Background
In October 2015, LEKOIL entered into an agreement with Ashbert Limited to acquire, via LEKOIL Exploration and Production Nigeria Limited (LEPNL), 88.57 per cent of the issued share capital of Ashbert Oil and Gas Limited, which was awarded OPL 325 licence for an initial consideration of US$16.1 million, with other payments due at developmental milestones totalling US$24.12 million.
We have had access to 3D seismic data over 740km2 and are encouraged by the results and our interpretation of the analysis. Preliminary review of the prospects, based on an independent study by Lumina, prepared for LEKOIL, suggests oil in place volumes of up to 5.7 billion boe with an estimated 2 billion boe recoverable based on analogues.
Namibia 2514A & B - Exploration Asset
With a history of oil seeps, LEKOIL is now working to prove and quantify the reserves held within the block.
| Status |
Exploration |
| Participating interest |
77.5 per cent |
| Economic interest |
77.5 per cent |
| LEKOIL status |
Operator |
| Partner |
Local content vehicle |
Background
To date, we have completed the acquisition of the blocks and made the requisite government payments. The Technical Advisory Committee has met with the Namibian government, and our technicians are currently reviewing historic seismic and well data. In September 2016, we received a one-year extension to the licence with no additional obligations. We intend to seek a further licence extension and potentially commence seismic acquisition within 24 months.
Financial
The results for the year to 31 December 2016 show a total loss of US$15.76 million, as compared to US$18.72 million (restated) for the same period in 2015. Cash balances at the year-end totalled US$4.38 million (2015: US$26.02 million) while loans and borrowings as at year end totalled US$27.39 million (2015: US$8.25 million).
We raised an additional US$12.4 million by way of equity in October 2016 to fund the final stages of capital expenditure on the development of Otakikpo.
Security
The security situation around our Operations facilities at Otakikpo remains benign.
Corporate & Social Responsibility
LEKOIL is dedicated to maintaining high, ethical standards in our business activities and we are committed to the overall welfare and development of the communities around us. Initially, our activities have centred around the local communities surrounding our producing asset, Otakikpo. LEKOIL's corporate and social responsibility ("CSR") plan focuses on three strategic areas: i) education, ii) economic empowerment (women and children development) and; environmental sustainability.
We do not operate in isolation. We are a part of the communities in which we operate. Nowhere is that better exemplified than in Ikuru Town. We recognised the need for community support for our work yet we also understand that creating a supportive environment works both ways. To that end LEKOIL has been helping improve the quality of life for the residents of the coastal town of Ikuru, close to Otakikpo.
We have organised musical events, working with local churches to bring the community together. We have signed a land lease agreement with the people of Ikuru backed by a memorandum of understanding that places on us a responsibility to develop sustainably. We have also operated a health outreach programme, providing medical services to those with greatest need.
When we launched our health outreach programme in Ikuru, we did so with the intention of making life better. From the youngest to the oldest we provided vaccinations, health checks, eye tests and glasses, and surgery for those in most urgent need. From the reaction of the town's residents, it was gratefully received.
Not only has LEKOIL provided active help to the communities surrounding our first development, it has also become a proud sponsor of [three] pan-African initiatives aimed at empowering children, women in business and the spread of an entrepreneurial culture.
LEKOIL supports educational competition with Spellbound Africa, an international spelling competition that challenges children studying in Africa. Spellbound Africa is the first English word-spelling contest among children aged between 10 and 15 in the English-Speaking African countries. It gathers the most hard working and word-versatile children in the continent and engages them.
We are also promoting diversity and equality with Women in Management, Business and Public Service (WIMBIZ), a Nigeria based non-profit organisation with an overriding vision "to be the catalyst that elevates the status and influence of women and their contribution to nation building". WIMBIZ programmes are geared towards elevating the status of women and their contributions to nation building, increasing the success rate of female entrepreneurs and the proportion of women in senior positions in corporate organisations.
Finally, LEKOIL is a supporter of ENACTUS, an international not-for-profit organisation with a community of students, academic and business leaders. ENACTUS is committed to using the power of entrepreneurial action to transform lives and shape a better more sustainable world by providing a platform for teams of outstanding university students to create community development projects that put people's own ingenuity and talents at the centre of improving their livelihoods.
Environment
Nigeria's Environmental Impact Assessment Act (EIAA) requires every company whose activity or project is likely to have a significant effect on the environment to carry out an impact assessment programme prior to the commencement of the project.
LEKOIL is committed to demonstrating leadership in stewardship of the environment, and to complying with the requirements and regulations in Nigeria, as well as in every other territory in which we operate. We believe we have demonstrated this commitment in our operations in the communities surrounding our Otakikpo development.
These outcomes do not happen by accident. They occur because of the technical expertise of our people and partners. They happen because of a strong leadership team. And they happen because we hold true to our values - especially our ability to think differently.
Outlook
We believe we have made very good progress in 2016 and into 2017. Otakikpo is now a producing asset which we are in the process of ramping up to its Phase 1 steady-state production rate of 10,000 bopd. Phase 2 should see that rate doubled. In addition we are in the process of planning the appraisal drilling campaign for our world class Ogo discovery in OPL 310 and studying the options to finance this drilling. 2017 should see further progress for LEKOIL as we seek to increase production, prove up additional reserves and monetise exploration interests.
| Samuel Adegboyega |
Lekan Akinyanmi |
| Chairman |
Chief Executive Officer |
Financial Review
Overview
Following commencement of commercial oil production in February 2017, going forward the Group Financial Statements will benefit from, and reflect, the significant operational progress achieved in 2016. For 2016 that significant progress achieved, by way of the field development at Otakikpo, resulted in the significant levels of incurred capital expenditure reported in the period, funded by way of: utilising existing cash resources; proceeds from new and expanded debt facilities; and an equity issuance concluded during the period.
In US Dollars 2016 2015
| Loss for the year |
(15,764,871) |
(18,718,507) |
| Accumulated deficit |
(66,973,567) |
(52,074,677) |
| Loss per share |
(0.03) |
(0.05) |
| Net assets |
198,099,719 |
200,760,807 |
| Net assets per share |
0.37 |
0.52 |
| Cash and cash equivalents |
4,384,738 |
26,016,194 |
The running costs of the Group were broadly in line with 2015, consistent with the rapid establishment, over the period 2010 to 2014, of a Group capable of managing a portfolio of assets in two jurisdictions and executing a field development programme in a comparatively remote location within the Niger Delta. Given the stage of operational and organisational evolution being broadly consistent period on period, the results are broadly in line with 2015, as expanded on below.
Full year results
The Group recorded a total comprehensive loss of $15.8 million for the year ended 31 December 2016 (2015: $18.7 million). No dividends were paid or declared during the year (2015: Nil).
Operating loss
Operating costs and administrative expenses were US$21.1 million compared to US$22.8 million for the same period in 2015. The decrease was largely due to naira currency devaluation in 2016 which impacted the functional values of the report costs in spite of increase in activity levels.
Income tax
No income tax was payable for the year ended 31 December 2016 (2015: Nil).
Capital expenditure
The Group's capital expenditure during the year ended 31 December 2016 amounted to US$26.3 million compared to US$12.5 million incurred for the same period in 2015. Capital expenditure during the period was primarily associated with development expenditure on the Otakikpo marginal field as well as exploration and exploitation expenditure on OPL 310.
Cash and cash equivalents
The Group had cash and cash equivalents of US$4.4 million as at 31 December 2016 (2015: US$26.0 million). Included in the cash and cash equivalents balance is restricted cash amounting to US$1.1 million relating to cash funding of the debt service reserve accounts for two quarters of interest for FBN Capital.
Loans and borrowings
In June 2016, Lekoil Oil and Gas Investments Limited ("LOGL") (a wholly owned subsidiary of Lekoil Limited), refinanced an existing debt facility and completed a new debt facility in a two-tranche facility arrangement for $10 million and 2 billion Naira (approximately $10 million), both with FBN Capital Limited.
The Notes Issuance Agreement ("NIA") bridge facility issued in May 2015, of which $5 million was due in May 2016, was extended to August 2016 and subsequently refinanced into the new $10 million facility for the Otakikpo field development secured over the assets of LOGL with the extinguishment of the $5 million loan balance. The ultimate parent Company (Lekoil Limited) issued an unconditional guarantee in favour of FBN Capital for the payment of all principal and interest due on the loan, in the event of default by LOGL. The US $10 million facility has a maturity of three years and is repayable quarterly after a six-month moratorium with a margin of 11.25% over LIBOR.
The new 2 billion Naira ($10 million) new facility has a maturity of three years, is repayable quarterly with ten quarterly instalments after a six-month moratorium. The notes have an interest rate referencing the higher of the 30-day average of 90 day NIBOR + 6% or 20%.
In August 2016, the Group drew down 1 billion Naira from the 5 billion Naira facility approved by Sterling Bank (as initially announced on 30 June 2016) and increased the 2 billion Naira facility with FBN Capital to 4.5 billion Naira (approximately $14.8 million). The additional 2.5 billion Naira under the FBN Capital Limited facility has been fully drawn and was used to complete infrastructure at Otakikpo prior to the commencement of commercial production.
In October 2016, LEKOIL raised gross proceeds of approximately US$12.4 million (approximately £10.15 million) through the placing of 48.33 million new Ordinary Shares at a placing price of 21 pence per Ordinary Share with certain existing institutional and other investors via an accelerated bookbuild.
The net proceeds of the Placing were principally used to fund capital expenditure to bring Otakikpo into commercial production, while the balance of the net proceeds is being used for general corporate and working capital purposes.
In March 2017, subsequent to the initial drawdown of 1 billion Naira from the 5 billion Naira Sterling Bank facility, LOGL drew down additional 350 million Naira via a tripartite agreement with Sterling Bank and Cardinal Stone Partners, wherein Cardinal Stone Partners advanced the same sum backed by a guarantee under the 5 billion Naira facility.
In March 2017, the Group announced the receipt of $15 million advance payment facility from Shell Western Supply and Trading Limited ("Shell Western"), a member of the Royal Dutch Shell group of companies (LSE: RDSA, RDSB). The facility has a maturity of three years and is repayable quarterly following a six-month moratorium with a market margin over LIBOR.
As at the date of this report, Lekoil has total debt facilities secured on the Otakikpo field of US$44 million compromising; a two tranche facility with FBN Capital Limited (US$10 million plus 4.5 billion Naira), which is fully drawn and a 5 billion Naira facility with Sterling Bank plc, of which 1 billion Naira (approximately US$3.3 million) has been drawn down; and a US$15 million facility with Shell Western.
Summary statement of financial position
Whilst the Group's non-current assets increased only modestly, from US$192.0 million at 31 December 2015 to US$193.6 million at 31 December 2016, there was: a material (214%) increase in Property Plant and Equipment ("PP&E"), reflecting the additional development expenditure on Otakikpo marginal field: and a material (44%) reduction in other non-current assets, given (based on forecast) the recognition of a significant portion of prepaid development costs due to farm-in agreement that will be recovered in the short term following commencement of commercial production from the Otakikpo marginal field in early 2017.
As noted earlier, 2016 was a year of significant development activity on the Otakikpo marginal field, with the result being the successful commencement of commercial production in early 2017.
In 2016 the Group successfully delivered capital expenditure programmes totaling $64.3 million. Majority of the project costs are reflected: partially within the $24.9 million expenditure on PP&E; and partially within the $38.0 million increase in Prepaid development costs. Under the terms of the farm-in agreement with Green Energy International Limited ("GEIL"), Lekoil funds GEIL's participating interest share of all costs in the Otakikpo marginal field joint operations until completion of the initial work programme. Accordingly, the GEIL 60% share of the capital development programme is accounted for by Lekoil as prepaid development costs, with Lekoil's 40% share being accounted for as PP&E as noted above.
Current assets (primarily the Group's cash resources, other assets and other receivables) increased from US$29.7 million as at 31 December 2015 to US$73.8 million as at 31 December 2016. This increase was a primarily a function of the $38.0 million in prepaid development costs noted above, offset by the $21.6 million reduction in cash and cash equivalents. Non-current liabilities consist of: the portion of loans from FBN Capital and Sterling Bank due after twelve months, amounting to US$17.0 million (31 December 2015: Nil); deferred income which increased from US$0.7 million as at 31 December 2015 to US$3.0 million as at 31 December 2016; and provision for asset retirement obligation which decreased from US$0.2 million to $0.1 million.
Current liabilities consist of: the portion of loans from FBN Capital and Sterling Bank due within twelve months, amounting to US$10.4 million (31 December 2015: US$8.2 million); trade and other payables which increased, as a result of the significant capital development programme executed in the period, from US$9.5 million as at 31 December 2015 to US$31.3 million as at 31 December 2016; and deferred income which increased from US$2.4 million as at 31 December 2015 to US$7.4 million as at 31 December 2016.
Dividend
The Directors do not recommend the payment of dividend for the year ended 31 December 2016 (2015: Nil).
Accounting policies
The Group's significant accounting policies and details of the significant judgments and critical accounting estimates are disclosed within the notes to the financial statements. The Group has not made any material changes to its accounting policies in the year ended 31 December 2016.
Liquidity risk management and going concern
The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including changes in timing of production and cost overruns of development and exploration activity. At 31 December 2016, the Group had liquid resources of approximately US$4.4 million in the form of cash and cash equivalents, which are available to meet ongoing capital, operating, financing and administrative expenditure. The Group's forecasts, taking into account reasonably possible changes as described above, show that the Group expects to have sufficient financial resources for the 12 months from the date of approval of these consolidated financial statements.
These consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue in operation for the foreseeable future and be able to realise its assets and discharge its liabilities and commitments in the normal course of business. As discussed in note 2 (b) to these consolidated financial statements, the ability of the Group to continue as a going concern is dependent on the operational success of the Otakikpo field development, the timing and amount of anticipated cash flows over the next twelve months from production from this field and continued availability of existing debt finance.
Bruce Burrows
Chief Financial Officer
19 June 2017
Statement of Directors' Responsibilities in Relation to the Consolidated Financial Statements for the year ended 31 December 2016
The Directors of LEKOIL Limited ("the Company" and its subsidiaries (together referred to as "the Group") are responsible for the preparation of consolidated financial statements that give a true and fair view of the financial position of the Group as at 31 December 2016, and the results of their operations, cash flows and changes in equity for the year ended, in compliance with International Financial Reporting Standards ("IFRS").
In preparing the consolidated financial statements, the Directors are responsible for:
- properly selecting and applying accounting policies;
- presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company's financial position and financial performance; and
- making an assessment of the Group and Company's ability to continue as a going concern.
The Directors are responsible for:
- designing, implementing and maintaining an effective and sound system of internal controls throughout the Group and Company; maintaining adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company, and which enable them to ensure that the financial statements of the Group and Company comply with IFRS; maintaining statutory accounting records in compliance with the legislation of Nigeria and IFRS;
- taking such steps as are reasonably available to them to safeguard the assets of the Group and Company; and
- preventing and detecting fraud and other irregularities.
Going concern:
The Directors have made an assessment of the Group's ability to continue as a going concern and as disclosed in Note 2(b), and they believe the Group will remain a going concern in the year ahead.
The consolidated financial statements for the year ended 31 December 2016 were approved by the Directors on 19 June 2017.
Signed on behalf of the Board of Directors by:
| Olaekan Akinyanmi |
Bruce Burrows |
| Chief Executive Officer |
Chief Financial Officer |
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Lekoil Limited
Opinion
We have audited the consolidated financial statements of Lekoil Limited ("the Company") and its subsidiaries (together referred to as "the Group") which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of LEKOIL Limited as at 31 December 2016, and the consolidated financial performance and statement of cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EUIFRS).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the requirements of the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and other independence requirements applicable to performing audits of financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2(b) in the consolidated financial statements, which indicates that the Group incurred a loss of $15.76 million during the year ended 31 December 2016 and as of that date, the Group's accumulated deficits amounts to $66.97 million. These events or conditions, along with other matters as set forth in Note 2(b), indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section above, we have determined the matters described below to be the key audit matters to be communicated in our report on the consolidated financial statements.
| Key Audit Matter |
How the matter was addressed in the audit |
| Share based payment arrangements |
The Group has three share based payments arrangements - Share option scheme, Non-Executive Director share plan and Long term incentive plan scheme.
The Directors engaged the service of an expert in order to calculate the fair value of these share options. The fair value is determined based on various assumptions such as share price, weighted average life of share option, expected volatility used for this estimate.
This is a complex account balance which is subject to a significant amount of estimates and assumptions
|
We focused our testing of the fair value of the share based payments on the key assumptions made by the management.
Our audit procedures included:
Evaluating the model used by Management's experts to determine the fair value of the share based payment arrangements and also to ascertain compliance with the requirements of IFRS 2 Share based Payments.
Validating the inputs used to calculate the fair value and recalculating this value.
Evaluating the reasonableness of the estimates and assumptions used by management and management's expert.
We found the assumptions used by the management in the calculation of the fair value of the share based payment to be appropriate and the Group's share based payments for the year have been adequately valued and disclosed in the financial statements. |
| Carrying value of Exploration and Evaluation assets |
Exploration and Evaluation assets represent a significant portion of the Group's total assets. These assets have been recognised in the consolidated statement of financial position in relation to the Group's interest in OPL 310.
As required by the applicable accounting standards, management conducts an annual impairment assessment to determine the existence of an impairment trigger and assesses the recoverability of the carrying value of the E&E assets. This is performed using discounted cash flow models. As disclosed in note 9, management has made a number of key judgments in determining the inputs into these models which include:
Crude oil price;
Future costs and operating margins;
The discount rates applied to the projected cash flows.
Other factors considered by management include the outcome of on-going negotiations with the operator of OPL 310 as well as feedback from regulators in respect of ministerial consent for the Group's various interests.
Accordingly, the impairment test of these assets is considered to be a key audit matter.
The Directors have engaged an expert to assist with a detailed analysis of the net present value of cash flows that may arise on OPL 310 over the life of the asset. |
We focused our testing of the impairment assessment of Exploration and Evaluation assets on the key assumptions made by management.
Our audit procedures included:
Evaluating the appropriateness and the reasonableness of the model and inputs used by management and also to ascertain whether it complies with the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources and IAS 36 Impairment of Assets.
Challenging the assumptions used by management regarding future development and fiscal matters.
Analysing the future projected cash flows used in the models to determine whether they are reasonable and consistent with the current oil price climate and expected future performance of the field.
Comparing the projected cash flows, including the assumptions relating to production, price and operating margins, against market peers to test the reasonableness of management's projections.
We found the assumptions used by management in the determination of the net present value of cash flows on OPL 310 to be appropriate and no impairment loss is recognised as the carrying amount of the OPL 310 does not exceed its recoverable value. |
| Key Audit Matter |
How the matter was addressed in the audit |
| Basis of consolidation of Lekoil Nigeria Limited |
| The Group (Lekoil Limited) has an equity interest of 40% in Lekoil Nigeria Limited, a company incorporated in Nigeria on 5th November 2010. On 13th May 2013, a shareholders' agreement was signed between Lekoil Nigeria Limited and its shareholders. This agreement confers on the Group an economic interest of 90% in periods of dividend distribution and settlements during the process of winding-up or liquidation. Clarification was required on the basis of the Group control over the investee (Lekoil Nigeria Limited) and whether the Group applied the appropriate basis of consolidating the records of the investee into the books of the Group (i.e. the use of equity interest of 40% or the use of economic interest of 90%). The Group had been using the equity interest of 40% as the basis of consolidation. This position was reassessed during the year and was changed to using the economic interest of 90% as the basis for consolidation. This change in consolidation basis may not be properly accounted for and the restatement of the prior year figures may not be in line with the applicable standards. |
We reviewed the reassessment of the Directors in respect of whether the Group (Lekoil Limited) has control over Lekoil Nigeria and also in respect of what the appropriate basis is for consolidating the records of Lekoil Nigeria Limited into the books of the Group. Our review was based on the provisions of IFRS 10 and other applicable IFRS standards. We also consulted with accounting experts within Deloitte's technical department during the process.
The Group's disclosures in respect of the basis of consolidation in the current year are included in Note 3(r) of the financial statements and we considered the basis of consolidation and restatement of prior years' figures as provided by the Directors to be appropriate. |
Other Information
The Directors are responsible for the other information. The other information comprises the Chairman's and CEO's Statements, Audit Committee's Report, Financial Review, Directors' Report and Remuneration Report, which we obtained prior to the date of this auditor's report. The other information does not include the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, if we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Auditor's Responsibilities for the audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit 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 Group's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
- Conclude on the appropriateness of the directors' use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Olufemi Abegunde FCA-FRC/2013/ICAN/000000004507
for: Akintola Williams Deloitte
Chartered Accountants
Lagos, Nigeria
21 June 2017
Consolidated statement of financial position
As at 31 December
| In US Dollars |
Notes |
2016 |
2015
Restated* |
| Assets |
|
|
|
| Property, plant and equipment |
8 |
39,625,376 |
12,602,414 |
| Exploration and evaluation assets |
9 |
112,651,963 |
111,976,751 |
| Intangible assets |
10 |
8,237,415 |
8,002,389 |
| Other receivables |
12 |
795,851 |
1,620,589 |
| Other assets |
13 |
32,325,773 |
57,825,294 |
| Pre-paid development costs |
14 |
- |
28,807,397 |
| Total non-current assets |
|
193,636,378 |
192,027,437 |
| |
|
|
|
| Inventories |
11 |
671,666 |
- |
| Other receivables |
12 |
1,682,839 |
939,224 |
| Other assets |
13 |
186,454 |
2,744,725 |
| Pre-paid development costs |
14 |
66,824,720 |
- |
| Cash and bank balances |
15 |
4,384,738 |
26,016,194 |
| Total current assets |
|
73,750,417 |
29,700,143 |
| Total assets |
|
267,386,795 |
221,727,580 |
| |
|
|
|
| Equity |
|
|
|
| Share capital |
16(a) |
26,828 |
24,412 |
| Share premium |
16(b) |
264,004,066 |
252,207,651 |
| Accumulated deficit |
|
(66,973,567) |
(52,074,677) |
| Share based payment reserve |
|
6,478,650 |
5,173,698 |
| Equity attributable to owners of the Company |
|
203,535,977 |
205,331,084 |
| |
|
|
|
| Non-controlling interests |
17 |
(5,436,258) |
(4,570,277) |
| |
|
|
|
| Total equity |
|
198,099,719 |
200,760,807 |
| |
|
|
|
| Liabilities |
|
|
|
| Provision for Asset Retirement Obligation |
19 |
91,199 |
176,621 |
| Deferred income |
21 |
3,032,803 |
697,897 |
| Loans |
22 |
17,024,335 |
- |
| Non-current liabilities |
|
20,148,337 |
874,518 |
| Trade and other payables |
18 |
31,346,335 |
9,476,968 |
| Deferred income |
20 |
7,426,486 |
2,368,541 |
| Loans |
21 |
10,365,701 |
8,246,746 |
| Current liabilities |
|
49,138,739 |
20,092,255 |
| Total liabilities |
|
69,287,076 |
20,966,773 |
| Total equity and liabilities |
|
267,386,795 |
221,727,580 |
*Certain amounts shown here do not correspond to the 2015 financial statements and reflect adjustments made, refer to Notes 3(q) and 3(r).
These financial statements were approved by the Board of Directors on 19 June 2017 and signed on its behalf by:
| Olalekan Akinyanmi - Chief Executive Officer. |
Bruce Burrows - Chief Financial Officer |
The notes are an integral part of these consolidated financial statements.
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December
| In US Dollars |
Notes |
2016 |
2015
Restated* |
| Revenue |
22 |
- |
- |
| Cost of sales |
|
- |
- |
| Gross profit |
|
- |
- |
| Operating expenses |
23 |
(629,464) |
- |
| General and administrative expenses |
24 |
(21,075,259) |
(21,735,522) |
| Impairment of property, plant and equipment |
|
- |
(1,102,500) |
| Loss from operating activities |
|
(21,704,723) |
(22,838,022) |
| |
|
|
|
| Finance income |
25 |
6,868,445 |
4,119,515 |
| Finance costs |
25 |
(928,593) |
- |
| Net finance income/ (costs) |
|
5,939,852 |
4,119,515 |
| |
|
|
|
| Loss before income tax |
|
(15,764,871) |
(18,718,507) |
| |
|
|
|
| Income tax expense |
26 |
- |
- |
| Loss for the year |
|
(15,764,871) |
(18,718,507) |
| |
|
|
|
| Total comprehensive loss for the year |
|
(15,764,871) |
(18,718,507) |
| |
|
|
|
| Total comprehensive loss attributable to: |
|
|
|
| Owners of the Company |
|
(14,898,890) |
(17,397,970) |
| Non-controlling interests |
|
(865,981) |
(1,320,537) |
| |
|
(15,764,871) |
(18,718,507) |
| |
|
|
|
| Loss per share: |
|
|
|
| Basic loss per share ($) |
27(a) |
(0.03) |
(0.05) |
| |
|
|
|
| Diluted loss per share ($) |
27(b) |
(0.03) |
(0.05) |
*Certain amounts shown here do not correspond to the 2015 financial statements and reflect adjustments made, refer to Notes 3(q) and 3(r).
The notes are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
For the year ended 31 December
| |
|
|
Restated* |
| |
Notes |
Share capital |
Share premium |
Accumulated deficit |
Share-based payments reserve |
Total |
Non-controlling interests |
Total equity |
| |
|
|
|
|
|
|
|
|
| In US Dollars |
|
|
|
|
|
|
|
|
| Balance at 1 January 2015 |
|
18,152 |
207,947,439 |
(34,676,707) |
3,726,918 |
177,015,802 |
(3,249,740) |
173,766,062 |
| Total comprehensive loss for the year |
|
|
|
|
|
|
|
|
| Loss for the year |
|
- |
- |
(17,397,970) |
- |
(17,397,970) |
(1,320,537) |
(18,718,507) |
| Total comprehensive loss for the year |
|
- |
- |
(17,397,970) |
- |
(17,397,970) |
(1,320,537) |
(18,718,507) |
| Transactions with owners of the Company |
|
|
|
|
|
|
|
|
| Issue of ordinary shares |
|
6,260 |
44,260,212 |
- |
- |
44,266,472 |
- |
44,266,472 |
| Share-based payment- personnel expenses |
25 |
- |
- |
- |
1,446,780 |
1,446,780 |
- |
1,446,780 |
| Total contributions |
|
6,260 |
44,260,212 |
- |
1,446,780 |
45,713,252 |
- |
45,713,252 |
| Total transactions with owners of the Company |
|
6,260 |
44,260,212 |
- |
1,446,780 |
45,713,252 |
- |
45,713,252 |
| Balance at 31 December 2015 |
|
24,412 |
252,207,651 |
(52,074,677) |
5,173,698 |
205,331,084 |
(4,570,277) |
200,760,807 |
| Balance at 1 January 2016 |
|
24,412 |
252,207,651 |
(52,074,677) |
5,173,698 |
205,331,084 |
(4,570,277) |
200,760,807 |
| Total comprehensive loss for the year |
|
|
|
|
|
|
|
|
| Loss for the year |
|
- |
- |
(14,898,890) |
- |
(14,898,890) |
(865,981) |
(15,764,871) |
| Total comprehensive loss for the year |
|
- |
- |
(14,898,890) |
- |
(14,898,890) |
(865,981) |
(15,764,871) |
| Transactions with owners of the Company |
|
|
|
|
|
|
|
|
| Issue of ordinary shares |
|
2,416 |
11,796,415 |
- |
- |
11,798,831 |
- |
11,798,831 |
| Share-based payment- personnel expenses |
25 |
- |
- |
- |
1,304,952 |
1,304,952 |
- |
1,304,952 |
| Total transactions with owners of the Company |
|
2,416 |
11,796,415 |
- |
1,304,952 |
13,103,783 |
- |
13,103,783 |
| Balance at 31 December 2016 |
|
26,828 |
264,004,066 |
(66,973,567) |
6,478,650 |
203,535,977 |
(5,436,258) |
198,099,719 |
*Certain amounts shown here do not correspond to the 2015 financial statements and reflect adjustments made, refer to Notes 3(q) and 3(r).
The notes are an integral part of these consolidated financial statements.
Consolidated statement of cash flows
For the year ended 31 December
| In US Dollars |
Notes |
2016 |
2015
Restated* |
| |
|
|
|
| Cash Flows from Operating Activities |
|
|
|
| Loss for the period |
|
(15,764,871) |
(18,718,507) |
| Adjustments for: |
|
|
|
| - Equity-settled share-based payment |
|
1,304,952 |
1,446,780 |
| - Finance income |
|
(73,055) |
(72,505) |
| - Impairment of property, plant and equipment |
|
- |
1,102,500 |
| - Depreciation and amortisation |
8,10 |
1,195,753 |
860,023 |
| |
|
(13,337,221) |
(15,381,709) |
| Changes in: |
|
|
|
| Inventory |
|
(671,666) |
166,337 |
| Trade and other payables |
|
29,262,435 |
6,923,043 |
| Other assets |
|
(749,605) |
(15,690,716) |
| Other receivables |
|
476,994 |
15,661,575 |
| Net cash provided by/(used in) operating activities |
|
14,980,937 |
(8,321,470) |
| |
|
|
|
| Cash Flows from Investing Activities |
|
|
|
| Acquisition of property, plant and equipment |
8 |
(24,923,787) |
(10,514,984) |
| Deposit for investment |
13 |
- |
(12,240,000) |
| Prepaid development costs |
14 |
(38,017,323) |
(25,101,600) |
| Expenditure on behalf of Partner |
|
(395,871) |
(399,980) |
| Interest received |
|
73,055 |
11,517 |
| Loan to Ashbert Oil and Gas Limited |
13(b) |
- |
(16,080,000) |
| Acquisition of exploration and evaluation assets |
9 |
(675,212) |
(1,943,019) |
| Acquisition of intangible assets |
10 |
(672,085) |
(46,931) |
| Net cash used in investing activities |
|
(64,611,223) |
(66,314,997) |
| |
|
|
|
| Cash Flows from Financing Activities |
|
|
|
| Proceeds from issue of share capital |
16 |
11,798,831 |
44,266,472 |
| Proceeds from issue of loan note |
21(a) |
28,028,149 |
10,000,000 |
| Repayment of loan |
21(a) |
(8,000,000) |
(2,000,000) |
| Interest and transaction costs related to loan |
21(a) |
(3,828,150) |
(839,537) |
| Net cash generated from financing activities |
|
27,998,830 |
51,426,935 |
| Net decrease in cash and bank balances |
|
(21,631,456) |
(23,209,532) |
| Cash and bank balances at 1 January |
|
26,016,194 |
49,225,726 |
| |
|
|
|
| Cash and bank balances at 31 December |
|
4,384,738 |
26,016,194 |
| |
|
|
|
*Certain amounts shown here do not correspond to the 2015 financial statements and reflect adjustments made, refer to Notes 3(q) and 3(r).
The notes are an integral part of these consolidated financial statements.
Notes to the financial statements
1. Reporting entity
Lekoil Limited (the "Company" or "Lekoil") is a company domiciled in the Cayman Islands. The address of the Company's registered office is Intertrust Group, 190 Elgin Avenue, Georgetown, Grand Cayman, Cayman Islands. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The Group's principal activity is exploration and production of oil and gas.
2. Basis of preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements were authorised for issue by the Board of Directors on 19 June 2017.
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these consolidated financial statements. The revised and new accounting standards and interpretations issued but not yet effective for accounting year beginning on 1 January 2016 are set out in note 5.
(b) Going concern basis of accounting
These consolidated financial statements have been prepared on the going concern basis of accounting, which assumes that the Group will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Group incurred a total comprehensive loss of $15.76 million for the period ended 31 December 2016 (2015: loss $18.72 million), and has had negative cash flows from operations in previous years.
The ability of the Group to continue to operate as a going concern is dependent on a number of factors considered by the Directors as disclosed below:
- The ability of the Group to maintain steady state production and lifting from its activities on the Otakikpo marginal field in order to generate sufficient cash inflows to fund the cash outflows of the Group;
- The availability of sufficient funds to meet its obligations relating to production activities on Otakikpo marginal field as well as execution of work programs on OPL 310 and 325;
- The ability of the Group to successfully raise additional funding if required for the operational activities and other cash outflows of the Group; and
- Satisfactory execution of the work program on OPL 310 and 325 or successful negotiation of contractual terms with the stakeholders to enable the Group to defer the cash outflow in respect of the work programs to later years if the cash inflow from Otakikpo field production and additional third party funding will not be sufficient to fund further exploration and development activities of OPL 310 and 325 in the short term.
The Directors, having evaluated these factors, believe the use of the going concern assumption is appropriate for the preparation of the 2016 consolidated financial statements, for the following reasons:
- The Company has raised sufficient funds through debt finance to continue commercial production which began at Otakikpo in February 2017 after the completion of the MRT testing. The Company is targeting production of 10,000 bopd. Otakikpo-002 and Otakikpo-003 have been completed with four production strings. All onshore facilities have been fully commissioned and signed off by the regulators, and the offshore pipeline leading from the storage tanks to the tanker offloading manifold has been completed. Crude evacuation from the storage tanks to Amni terminals commenced in February 2017.
- In November 2015, Lekoil acquired Afren Investment Oil & Gas (Nigeria) Limited to secure its existing investment and furthermore increase the participating interest on OPL 310 to 40% which is subject to Ministerial consent. Subsequently, Lekoil began negotiating with the Operator and a nonbinding term sheet was signed setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310. The benefits that will accrue to Lekoil together with the obligations in the draft agreement are contingent on the execution of the final definitive agreement. The Directors are optimistic of a positive outcome for the Group in the final definitive agreement. The obligations are detailed in note 31 to the financial statement.
- Furthermore, Lekoil carried out detailed analysis of the Net Present Value of cash flows that may arise on OPL 310 over the life of the asset taking into account the weakness in the oil price and future costs that may be required on the asset. The assessment was carried out by Wood Mackenzie, an external expert. The Directors are of the opinion that the valuation although subject to uncertainties remains appropriate in the circumstances and the assets are not impaired. The Directors are satisfied with the potential commercial viability of the resources of OPL 310.
- In March and April 2017, the Group successfully obtained additional funding of US$16m from third parties, which are structured as advances on future liftings. The facilities will be repaid over a thirty six (36) month period.
Having considered and taking into account the material uncertainties that may occur with respect to the above matters, the Directors believe that the Group will achieve adequate resources to continue operations into the foreseeable future and the Group will be able to realise their assets and discharge their liabilities in the normal course of business. The Directors therefore adopt and approve the going concern basis in the preparation of the consolidated financial statements.
(c) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for share based payments which are measured at fair values.
(d) Functional and presentation currency
These consolidated financial statements are presented in US Dollars which is the Company's functional currency. All amounts have been rounded to the nearest unit, unless otherwise indicated.
(e) Use of estimates and judgments
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
(i) Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is included in the following notes:
- Note 2(b) - Going concern basis of accounting
- Note 13 - On the basis that the Group will obtain Ministerial consent for the acquisition of the entire issued share capital of Afren Investments Oil and Gas (Nigeria) Limited (Afren Oil and Gas) and that LEKOIL Limited will seek clarifications as to whether or not Ministerial consent is required for the acquisition of 88.57% of the issued share capital of Ashbert Oil and Gas Limited together with the control of the oil mineral rights interest held by Afren Oil and Gas and Ashbert Oil and Gas Limited, the Group has accounted for payments made as other assets.
- Note 9 - Exploration and Evaluation assets. On the basis that Ministerial consent will be obtained and the ongoing negotiations with Optimum together with the existing arrangements between Optimum and Afren Oil and Gas, will result in a favorable outcome for the Group's participating and economic interests in OPL 310, the Group has accounted for expenditures incurred on OPL 310 as Exploration and Evaluation assets.
- Note 9(c) - The Directors are confident that the licence for OPL 310 will be converted or renewed as appropriate upon expiration.
- Note 30 - Judgment around the use of economic interest of 90/10% instead of equity interest of 60/40% as the basis of consolidating LEKOIL Nigeria Limited.
(ii) Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended 31 December 2016 is included in the following notes:
- Note 2(b) - Going Concern. Key assumptions made and judgment exercised by the Directors in preparing the Group's cash forecast.
- Note 9(d) - Carrying value of Exploration and Evaluation assets. Basis for the conclusion that the carrying value of E&E assets do not exceed their recoverable amount.
- Note 13 - Carrying value of other assets. Basis for the conclusion that the carrying value of other assets do not exceed their recoverable amount.
- Note 14 - Carrying value of Prepaid development costs. Basis for the conclusion that the carrying value of Prepaid development costs do not exceed their recoverable amount.
- Note 28(b) - Unrecognised deferred tax assets. Availability of future taxable profit against which carry forward losses can be used.
- Note 32 - Financial Commitments and Contingencies. Key assumptions about the likelihood and magnitude of an outflow of economic resources.
3. Significant accounting policies
The accounting policies set out below have been applied by the Group consistently to all periods presented in these consolidated financial statements.
(a) Basis of consolidation
(i) Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
If share-based payments awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's award and the extent to which the replacement awards relates to pre-combination service.
(ii) Non-controlling interests
Non-controlling interests (NCI) are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. The basis of recognition of Non-controlling interests in 2015 has been restated (note 3(r)).
Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii) Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date on which control ceases. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group is deemed not to control an entity where regulatory approval is a substantive requirement for the passing of control.
(iv) Interests in joint arrangements
A joint arrangement is an arrangement in which the Group has joint control i.e. either rights to the net assets of the arrangement (joint venture), or rights to the assets and obligations for the liabilities of the arrangement (joint operation).
Interests in joint arrangements relate to joint operations and are recognised by incorporating the Group's share of each of the assets, liabilities, income and expenses line items into the Group's profit or loss and financial position on a line-by-line basis.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions.
Foreign currency differences are recognised in Other Comprehensive Income (OCI) and accumulated in the translation reserve except to the extent that the translation difference is allocated to NCI.
(c) Share capital
(i) Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
(d) Financial instruments
The Group classifies non-derivative financial assets into loans and receivables and non-derivative financial liabilities into the other financial liabilities category.
(i) Non-derivative financial assets
The Group initially recognizes loans and receivables on the date that they are originated. All other financial assets and financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised assets that is created or retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
The Group has the following non-derivative financial assets: loans and receivables.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Short term loans and receivables that do not attract interest rate are measured at their original invoice amount where the effect of discounting is not material.
Financial assets classified as loans and other receivables comprise cash and cash equivalents, trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.
(ii) Non-derivative financial liabilities
All financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.
The Group has the following non-derivative financial liabilities: trade and other payables and loans & borrowings.
Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.
Short term payables that do not attract interest are measured at original invoice amount where the effect of discounting is not material.
(iii) Impairment
Non-derivative financial assets
A financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset is impaired if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cash flows of that asset and can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables.
Non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (CGUs).
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(e) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.
(ii) Depreciation
Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use.
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives. Depreciation is generally recognised in profit or loss, unless the amount is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.
The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:
| * Motor vehicles |
- 5 years |
| * Furniture and fittings |
- 5 years |
| * Leasehold improvement |
- 2 years |
| * Computer and household equipment |
- 4 years |
| * Leasehold property |
- 25 years |
| * Property, plant and machinery |
- 4 years |
| * Oil and gas assets |
- Unit of production method based on estimated proved developed reserves |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(iii) Derecognition
An item of property plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
(f) Exploration and Evaluation (E&E) expenditures
(i) Licence acquisition costs: licence acquisition costs are capitalized as intangible E&E assets. These costs are reviewed on a continual basis by management to confirm that drilling activity is planned and that the asset is not impaired. If no future activity is planned, the remaining balance of the licence and property acquisition costs is written off. Capitalised licence acquisition costs are measured at cost less accumulated amortisation and impairment losses. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly as they are incurred.
(ii) Exploration expenditure: All exploration and appraisal costs are initially capitalized in well, field or specific exploration cost centres as appropriate pending future exploration work programmes and pending determination. All expenditure incurred during the various exploration and appraisal phase is capitalized until the determination process has been completed or until such point as commercial reserves have been established. Payments to acquire technical services and studies, seismic acquisition, exploratory drilling and testing, abandonment costs, directly attributable administrative expenses are all capitalized as exploration and evaluation assets. Capitalised exploration expenditure is measured at cost less accumulated amortisation and impairment losses.
Treatment of E & E assets at conclusion of exploratory and appraisal activities
Exploration and evaluation assets are carried forward until the existence, or otherwise, of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below and any impairment loss is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassified as development and production assets within property, plant and equipment or intangible assets. If however, commercial reserves have not been found, the capitalised costs are charged to expense after the conclusion of the exploratory and appraisal activities. Exploration and evaluation costs are carried as assets and are not amortised prior to the conclusion of exploratory and appraisal activities.
An E&E asset is assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such circumstances include the point at which a determination is made as to whether or not commercial reserves exist. Where the E&E asset concerned falls within the scope of an established full cost pool, the E&E asset is tested for impairment together with any other E&E assets and all development and production assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. Where the E&E asset to be tested falls outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E asset concerned will be written off in full.
(g) Development expenditure
Once the technical feasibility and commercial viability of extracting oil and gas resources are demonstrable, expenditure related to the development of oil and gas resources which are not tangible in nature are classified as intangible development expenditure. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. Amortization of development assets attributable to the participating interest is recognized in profit or loss using the unit-of-production method.
(h) Leases
(i) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.
At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.
(ii) Leased assets
Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases are classified as operating leases and are not recognised in the Group's statement of financial position.
(iii) Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(i) Inventories
Inventories comprise crude oil stock at period end and consumable materials.
Inventories are valued at the lower of cost and net realisable value. Cost of consumable materials is determined using the weighted average method and includes expenditures incurred in acquiring the stocks, and other costs incurred in bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory values are adjusted for obsolete, slow-moving or defective items where appropriate.
(j) Intangible assets
An intangible asset is an identifiable non-monetary asset without physical substance. The Group expends resources or incurs liabilities on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes on systems, licences, signature bonus, intellectual property, market knowledge and trademarks.
The Group recognises an intangible asset if, and only if;
(a) economic benefits that are attributable to the asset will flow to the entity; and
(b) the costs of the asset can be measured reliably.
The Group assesses the probability of future economic benefits using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset. Intangible assets are measured initially at cost.
Amortisation is calculated to write off the cost of the intangible asset less its estimated residual value using the straight-line basis over the estimated useful lives or using the units of production basis from the date that they are available for use. The estimated useful life and methods of amortisation of intangible assets for current and comparative years are as follows:
| Type of asset |
Basis |
| Mineral rights acquisition costs (signature bonus) |
Unit of production method based on estimated proved developed reserves. |
| Accounting software |
Amortised over a useful life of three years. |
| Geological and geophysical software |
Amortised over a useful life of five years. |
(k) Employee benefits
(i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
(ii) Share-based payment transactions
The grant-date fair value of equity-settled share-based payment awards granted to employees and others providing similar services is recognised as an employee expense and other general and administrative expense respectively, with a corresponding increase in equity, over the vesting period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(iii) Post-employment benefits
Defined contribution plan
A defined contribution plan is a post-employment benefit plan (pension fund) under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to the employee service in the current and prior periods.
In line with the provisions of the Pension Reform Act 2014 (Amended), a subsidiary domiciled in Nigeria has instituted a defined contribution pension scheme for its permanent staff. Staff contributions to the scheme are funded through payroll deductions while the subsidiary's contribution is recognised in profit or loss as employee benefit expense in the periods during which services are rendered by employees. Employees contribute 8% each of their gross salary to the fund on a monthly basis. The subsidiary's contribution is 10% of each employee's gross salary.
(iv) Short-term and other long-term employee benefits
A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange of the related services. Liabilities recognized in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Group in respect of services provided by employees up to the reporting date.
(l) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. 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 and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
The Group's asset retirement obligation ("ARO") primarily represents the estimated present value of the amount the Group will incur to plug, abandon and remediate its areas of operation at the end of their productive lives, in accordance with applicable legislations. The Group determines the ARO on its oil and gas properties by calculating the present value of estimated cash flows related to the liability when the related facilities are installed or acquired.
Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability.
Contingent liabilities are only disclosed and not recognised as liabilities in the statement of financial position. If the likelihood of an outflow of resources is remote, the possible obligation is neither a provision nor a contingent liability and no disclosure is made.
(m) Finance income and finance costs
"Finance income comprises, where applicable, interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, gains on the remeasurement to fair value of any pre-existing interest in an acquiree in a business combination, gains on hedging instruments that are recognised in profit or loss and reclassifications of net gains previously recognised in other comprehensive income. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group's right to receive payment is established.
Finance costs comprise, where applicable, interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, losses on disposal of available-for-sale financial assets, dividends on preference shares classified as liabilities, fair value losses on financial assets at fair value through profit or loss and contingent consideration, impairment losses recognised on financial assets (other than trade receivables), losses on hedging instruments that are recognised in profit or loss and reclassifications of net losses previously recognised in other comprehensive income.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.
(n) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares which comprise share options granted to employees. Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.
(o) Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incurs expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed by the Group's Chief Executive Officer (CEO) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the Group's CEO include items attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group's head office expenses) and income tax assets and liabilities.
(p) Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
(ii) Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes.
Deferred tax is not recognised for:
- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
- temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporal differences and it is probable that they will not reverse in the foreseeable future; and
- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to be applied to temporary difference when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
(q) Re-classification of prior year Otakikpo development costs
In prior year, significant portion of Prepaid development cost due to a farm-in agreement related to Green Energy International Limited's share of costs in the Otakikpo marginal field was classified as current assets within the Statement of Financial Position, based on estimated recoverability by the Directors. Such classification did not reflect the expected timing of recovery. There were no recoveries in 2016, hence these costs have been reclassified as non-current assets. As a result, total non-current assets have increased by $27 million and current assets have decreased by $27 million in the consolidated statement of financial position for the comparative year. This item had no impact on reported losses.
Further, this cost was treated as an operating activity within the Statement of Cash Flows for the comparative period. Costs incurred by Lekoil Limited on behalf of Green Energy International Limited on the Otakikpo marginal field represents an investing activity. The Directors have now concluded and have reclassified the cash incurred on behalf of Green Energy International Limited on the Otakikpo marginal field to investing activities. Consequently, the cash used in operating activities has decreased by $24 million and cash used in investing activities has a corresponding increase in the comparative year.
(r) Restatement of Non-Controlling Interest and Accumulated Deficit
Loss attributable to the non-controlling interest now reflects the 90%/ 10% economic interest of Lekoil Limited in Lekoil Nigeria Limited based on the Shareholders Agreement. The agreement awards 90% of dividends, other distribution as well as any return of capital (whether following winding-up, reduction of capital or any other form of return of capital) from Lekoil Nigeria Limited and its associated entities, to the LEKOIL Limited.
Prior years' financial statements were consolidated on the Equity basis of 40%/60% basis. As a result, total accumulated deficit increased by $22m while the non-controlling interest has a corresponding decrease in the prior year (2015 YE) consolidated financial statement. As at 1 January 2015 (2014 YE), there was an increase in accumulated deficit by $16 million while the non-controlling interest has a corresponding decrease.
Similarly, loss attributable to owners of the Company increased by $6.3m while loss attributable to non-controlling has a corresponding decrease in the prior year (2015 YE). The restated basic and diluted loss increased by $0.02 when compared to prior year (2015 YE) consolidated financial statements.
4. Measurement of fair values
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation expert that has responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the Chief Financial Officer.
The valuation expert regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation expert assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Group Audit Committee.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
Note 24- share-based payment arrangements
Note 32 - financial risk management and financial instruments
5. Application of new and revised IFRS
New and revised IFRS in issue but not yet effective
There are new or revised accounting Standards and Interpretations in issue that are not yet effective. These include the following Standards and Interpretations that are applicable to the business of the entity and may have an impact on future financial statements.
Effective for the financial year commencing 1 January 2017
- Disclosure Initiative (Amendments to IAS 1)
- Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an investor and its Associate or Joint Venture
- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
Effective for the financial year commencing 1 January 2018
- IFRS 15 Revenue from contracts with customers.
- IFRS 9 Financial Instruments.
Effective for the financial year commencing 1 January 2019
- IFRS 16 Leases.
The Directors are of the opinion that the impact of the application of the new standards and interpretations will be as follows:
IFRS 15 Revenue from Contracts with Customers
The standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue- Barter of Transactions Involving Advertising Services.
The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.
The Directors of the Company anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the consolidated financial statements.
IFRS 9 Financial Instruments
On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.
The Group is yet to carry-out an assessment to determine the impact that the initial application of IFRS 9 could have on its business; however, the Group (or Company) will adopt the standard for the year ending 31 December 2018.
The Group will assess the impact once the standard has been finalised and becomes effective.
IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as operating leases or finance leases as required by IAS 17 and introduces a single lessee accounting model. Applying that model, a lessee is required to recognise:
(a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and
(b) depreciation of lease assets separately from interest on lease liabilities in profit or loss.
For the lessor, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
Amendments to IFRS that are mandatorily effective for the current year
In the current year, the Group considered amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2016.
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
The amendments to IAS 19 clarifies how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee.
The amendments require the Group to account for employee contributions as follows:
- Discretionary employee contributions are accounted for as reduction of the service cost upon payments to the plans.
- Employee contributions specified in the defined benefit plans are accounted for as reduction of the service cost, only if such contributions are linked to services. Specifically, when the amount of such contribution depends on the number of years of service, the reduction to service cost is made by attributing the contributions to periods of service in the same manner as the benefit attribution. On the other hand, when such contributions are determined based on a fixed percentage of salary (i.e. independent of the number of years of service), the Group recognises the reduction in the service cost in the period in which the related services are rendered.
The Group operates defined contribution plans and does not operate defined benefit plans. Therefore, the use of these amendments was not applicable to the Group and as such had no impact on the disclosures or on the amounts recognised in the consolidated financial statements.
6. Operating segments
The Group has a single class of business which is exploration, development and production of petroleum oil and natural gas. The geographical areas are defined by the Group as operating segments in accordance with IFRS 8- Operating Segments. As at the year end, the Group had operational activities mainly in one geographical segment, Nigeria.
Geographical information
In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets.
Non-current assets
In US Dollars |
2016 |
2015 |
| Nigeria |
193,130,991 |
189,937,610 |
| Namibia |
465,108 |
407,445 |
| USA |
40,279 |
117,727 |
| Cayman |
- |
1,564,655 |
| |
193,636,378 |
192,027,437 |
Non-current assets presented consists of property, plant & equipment, intangible assets, long term prepayment, other receivables and E&E assets.
| Profit and loss |
| In US Dollars |
| |
2016 |
| |
Nigeria |
Namibia |
USA |
Cayman Islands |
Others |
Total |
| Revenue |
- |
- |
- |
- |
- |
- |
| Loss from operating activities |
(11,168,273) |
(143,634) |
(486) |
(9,792,589) |
(599,741) |
(21,704,723) |
| Net finance income/ (costs) |
5,708,239 |
138,946 |
326 |
84,160 |
8,181 |
5,939,852 |
| Total comprehensive loss for the year |
(5,460,034) |
(4,688) |
(160) |
(9,708,429) |
(591,560) |
(15,764,871) |
| |
|
|
|
|
|
|
| |
2015 |
| |
Nigeria |
Namibia |
USA |
Cayman Islands |
Others |
Total |
| Revenue |
- |
- |
- |
- |
- |
- |
| Loss from operating activities |
(12,335,751) |
(305,515) |
- |
(10,151,051) |
(45,705) |
(22,838,022) |
| Net finance income/ (costs) |
2,569,454 |
- |
1,607 |
1,548,453 |
- |
4,119,515 |
| Total comprehensive loss for the year |
(9,766,297) |
(305,515) |
1,607 |
(8,602,598) |
(45,705) |
(18,718,507) |
No revenue has been reported for each segment as the Group is yet to commence production activities. See note 22.
7. Capital management
The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
The Group monitors capital using a ratio of adjusted net debt to adjusted equity. For this purpose, adjusted net debt is defined as total liabilities less cash and cash equivalents.
The Group's net debt to equity ratio at the end of the reporting year was as follows:
| In US Dollars |
2016 |
2015 |
| Total liabilities |
69,287,076 |
20,966,773 |
| Less: cash and cash equivalents |
(4,384,738) |
(26,016,194) |
| Net debt |
64,902,338 |
(5,049,421) |
| Total equity |
198,099,719 |
200,760,807 |
| Net debt to equity ratio |
0.33 |
(0.03) |
There were no changes in the Group's approach to capital management during the year. The Group is not subject to externally imposed capital requirements.
8. Property, plant and equipment
The movement on this account was as follows:
| In US Dollars |
Oil and Gas Assets |
Motor Vehicles |
Furniture & Fittings |
Computers, Communication & Household Equipment |
Plant, Machinery, Storage Tank & Others |
Leasehold Improvement |
Total |
| |
|
|
|
|
|
|
|
| Cost: |
|
|
|
|
|
|
|
| Balance at 1 January 2015 |
311,510 |
174,214 |
215,967 |
222,433 |
- |
759,303 |
1,683,427 |
| Additions |
10,752,704 |
121,310 |
136,657 |
366,801 |
- |
400,416 |
11,777,888 |
| Balance at 31 December 2015 |
11,064,214 |
295,524 |
352,624 |
589,234 |
- |
1,159,719 |
13,461,315 |
| |
|
|
|
|
|
|
|
| Balance at 1 January 2016 |
11,064,214 |
295,524 |
352,624 |
589,234 |
- |
1,159,719 |
13,461,315 |
| Additions |
27,376,048* |
- |
57,029 |
159,421 |
125,963 |
63,195 |
27,781,656** |
| Balance at 31 December 2016 |
38,440,262 |
295,524 |
409,653 |
748,655 |
125,963 |
1,222,914 |
41,242,971 |
| |
|
|
|
|
|
|
|
| Accumulated depreciation and impairment losses: |
|
|
|
|
|
| Balance at 1 January 2015 |
- |
66,385 |
36,375 |
51,327 |
|
155,436 |
309,523 |
| Charge for the year |
- |
42,928 |
61,965 |
98,673 |
|
345,812 |
549,378 |
| Balance at 31 December 2015 |
- |
109,313 |
98,340 |
150,000 |
|
501,248 |
858,901 |
| |
|
|
|
|
|
|
|
| Balance at 1 January 2016 |
- |
109,313 |
98,340 |
150,000 |
|
501,248 |
858,901 |
| Charge for the year |
136,036 |
51,993 |
72,231 |
181,502 |
10,394 |
306,539 |
758,694 |
| Balance at 31 December 2016 |
136,036 |
161,306 |
170,571 |
331,502 |
10,394 |
807,787 |
1,617,595 |
| |
|
|
|
|
|
|
|
| Carrying amounts: |
|
|
|
|
|
|
|
| At 31 December 2016 |
38,304,226 |
134,218 |
239,082 |
417,153 |
115,569 |
415,127 |
39,625,376 |
| At 31 December 2015 |
11,064,214 |
186,211 |
254,284 |
439,234 |
- |
658,471 |
12,602,414 |
* The addition of $27.38 million during the year is mainly in respect of the production drilling and facilities, infrastructure pipelines, site remediation and rehabilitation and land reclamation activities on the Otakikpo marginal field.
** Included in additions to property, plant and equipment of $27.78 million are borrowing costs amounting to $2.96 million representing capitalised interest and transaction costs with respect to the loan facilities from FBN Capital and Sterling Bank; and change in capitalised asset retirement obligation of $0.09 million. These amounts have been adjusted for in the statement of cashflows.
9. Exploration and Evaluation (E&E) assets
E & E assets represent the Group's oil mineral rights acquisition and exploration costs.
(a) The movement on the E&E assets account was as follows:
| In US Dollars |
2016 |
2015 |
| Balance at 1 January |
111,976,751 |
111,136,232 |
| Additions during the year (see (b) below) |
675,212 |
1,943,019 |
| Impairment loss |
- |
(1,102,500) |
| Balance at 31 December |
112,651,963 |
111,976,751 |
(b) The additions during the year mainly consists of the Group's share of expenditure on OPL 310 amounting to $0.68 million (2015: $1.94 million). Total expenditure incurred on OPL 310 from inception of farm-in agreement to 31 December 2016 and expected to be recovered in oil amounts to $112.15 million.
(c) The unexpired lease term on OPL 310 is two years as at year end. The Directors are confident that the license will be converted to OML or renewed as appropriate upon expiration. The Group in June 2017, received the consent of the Honourable Minister of Petroleum for the complete transfer of the original 17.14% participating interest acquired on OPL 310 in February 2013 by Mayfair Assets and Trust Limited, a subsidiary of the Group.
The Directors continue to monitor the progress of its application for minister's consent for the 22.86% participating interest in OPL 310 through the acquisition of the shares of Afren Oil and Gas Investments Limited. The Directors are positive that all the legal and contractual issues will be resolved.
(d) Exploratory, geological and geophysical activities continued on OPL 310 during 2016 financial year. On the basis of the expertˈs evaluation of the resource capability of OPL 310 done in June 2016, which is believed to be significantly higher than the results of the Competent Persons Report of 2013, the Directors are of the opinion that the investment in OPL 310 is not impaired despite the decline in oil price.
10. Intangible assets
The movement on the intangible assets account was as follows:
| In US Dollars |
Mineral Rights Acquisition Costs * |
Geological and Geophysical Software |
Accounting Software |
Total |
| Costs |
|
|
|
|
| Balance at 1 January 2015 |
7,000,000 |
1,406,308 |
57,125 |
8,463,433 |
| Additions during the year |
- |
- |
46,931 |
46,931 |
| Balance at 31 December 2015 |
7,000,000 |
1,406,308 |
104,056 |
8,510,364 |
| Balance at 1 January 2016 |
7,000,000 |
1,406,308 |
104,056 |
8,510,364 |
| Additions during the year |
- |
672,085 |
- |
672,085 |
| Balance at 31 December 2016 |
7,000,000 |
2,078,393 |
104,056 |
9,182,449 |
| Accumulated amortisation |
|
|
|
|
| Balance at 1 January 2015 |
- |
188,547 |
8,783 |
197,330 |
| Charge for the year |
- |
281,261 |
29,384 |
310,645 |
| Balance at 31 December 2015 |
- |
469,808 |
38,167 |
507,975 |
| Balance at 1 January 2016 |
- |
469,808 |
38,167 |
507,975 |
| Charge for the year |
25,746 |
409,002 |
2,311 |
437,059 |
| Balance at 31 December 2016 |
25,746 |
878,810 |
40,478 |
945,034 |
| Carrying amounts |
|
|
|
|
| At 31 December 2016 |
6,974,254 |
1,199,583 |
63,578 |
8,237,415 |
| At 31 December 2015 |
7,000,000 |
936,500 |
65,889 |
8,002,389 |
*Mineral rights acquisition costs represents the signature bonus for the Otakikpo marginal field amounting to $7.0 million.
11. Inventories
Inventories consist of the Group's share of crude stock as at 31 December 2016 (31 December 2015: Nil)
12. Other receivables
Other receivables comprise:
| In US Dollars |
2016 |
2015 |
| Director's loan (See Note 28) |
1,626,312 |
1,564,655 |
| Due from Afren Investment Oil & Gas (Nigeria) Limited (See Note 12(a)) |
795,851 |
399,980 |
| Other receivables |
35,564 |
539,244 |
| Employee loans and advances |
20,963 |
55,934 |
| |
2,478,690 |
2,559,813 |
| Non-current |
795,851 |
1,620,589 |
| Current |
1,682,839 |
939,224 |
| |
2,478,690 |
2,559,813 |
(a) The amount due from Afren Investment Oil & Gas (Nigeria) Limited (Afren) represents Afren's share of Optimum's overheads paid by the Group on Afren's behalf.
13. Other assets
Other assets comprises:
| In US Dollars |
2016 |
2015 |
| Due from Ashbert Oil and Gas Limited (See Note 13 (a)) |
19,119,201 |
16,777,897 |
Deposit for investments in
Afren Investments Oil & Gas (Nigeria) Limited (See Note 13 (b)) |
12,000,000 |
12,000,000 |
| Prepaid rent |
399,242 |
834,205 |
| Deposit for investments in Ashbert Oil and Gas Limited (Note 13 (a)) |
240,000 |
240,000 |
| Prepaid insurance |
209,442 |
248,797 |
| Advance for captive generating plant |
- |
1,502,448 |
| Others |
544,342 |
159,275 |
| |
32,512,227 |
60,570,019 |
| |
|
|
| Current |
186,454 |
2,744,725 |
| Non-current |
32,325,773 |
57,825,294 |
| |
32,512,227 |
60,570,019 |
(a) On 1 September 2015, LEKOIL Exploration and Production Nigeria Limited, a wholly owned subsidiary of LEKOIL Nigeria Limited, executed a share purchase agreement with Ashbert Limited for the acquisition of 88.57% of the issued Capital in Ashbert Oil and Gas Limited (Ashbert). As at the date of LEKOIL's acquisition of 88.57% shareholding in Ashbert, Ashbert had received only an award letter, notifying the Company of the award of OPL 325 Asset to Ashbert. The payment of the signature bonus on OPL 325 is to be made in three tranches of $16,080,000, $12,060,000 and $12,060,000. The first tranche of $16,080,000 was paid on 27 October 2015. The second tranche of $12,060,000 is due on conversion of OPL 325 to an Oil Mining Lease and the last tranche of $12,060,000 is due on achieving first oil. The initial payment of $240,000 being part of the consideration for the acquisition of interests in Ashbert has been reported as deposit for investment pending the conclusion of the acquisition and the receipt of the consent of the Minister of Petroleum.
The Company entered into a loan agreement with Ashbert for the signature bonus payment and will lend an aggregate sum of $40,200,000, in three tranches of $16,080,000, $12,060,000 and $12,060,00. The total commitment plus interest, fees, commissions and accessories due in respect thereof shall be repaid in the equivalent of barrels of crude oil from the Borrower's share of crude oil produced from the Field, subject to any existing agreements between the Borrower and the Lender regarding the allocation of crude oil entitlements; converted at the crude oil barrel price prevailing on the open market. The loan bears interest at a rate referencing 90-day LIBOR plus 12.5% per annum. The principal and accrued interest as at 31 December 2016 on the first tranche of $16,080,000 is $19.1 million (2015:$16.7 million).
(b) On 30, November 2015, Lekoil 310 Limited, a wholly owned subsidiary of Lekoil Limited also executed a sale and purchase agreement with the Administrators of Afren Nigeria Holdings Limited and Afren Plc relating to the entire issued share capital of Afren Investment Oil & Gas (Nigeria) Limited and certain intra-company debts following Afren Plcˈs insolvency.
In accordance with the agreement, Lekoil 310 Limited shall acquire the entire share of Afren Investment Oil & Gas (Nigeria) Limited and will be assigned the intra-company debts of Afren Nigeria Holdings Limited and Afren Plc, with Afren Investment Oil & Gas (Nigeria) Limited for considerations of $1, $6.4 million and $6.6 million respectively.
Consequently on 18 November 2015, Lekoil 310 Limited made the Initial Payments of $5.9 million and $6.1 million for Afren Investment Oil & Gas (Nigeria) Limited intra-company debts with Afren Plc and Afren Nigeria Holdings Limited respectively.
The SPA gives LEKOIL an irrevocable right to the intercompany debt of Afren Plc. and Afren Nigeria Holdings. As at the date of execution of the Agreement, the total debt amounted to $150 million in the books of Afren Investment Oil and Gas (Nigeria) Limited. The Group has evaluated the fair value of this receivable on initial recognition to be nil, considering the recoverability surrounding this balance from Afren Investment Oil and Gas (Nigeria) Limited. Accordingly, this receivable has been recognised as Nil as at 31 December 2015.
The shares sale and purchase is subject to ministerial consent. The payment has been reported as deposit for share's pending the receipt of the consent of the Minister of Petroleum.
14. Pre-paid development costs
| In US Dollars |
2016 |
2015 |
| Prepaid development costs due to farm-in agreement (Note 14 (a)) |
66,824,720 |
28,807,397 |
| Current |
66,824,720 |
- |
| Non-current |
- |
28,807,397 |
| |
66,824,720 |
28,807,397 |
(a) Prepaid development costs represents Green Energy International Limited share of costs (60% of joint operations' costs) in the Otakikpo marginal field. Under the terms of the farm-in agreement, LEKOIL Oil and Gas Investment Limited undertakes to fund GEIL participating interest share of all costs relating to the joint operation on the Otakikpo marginal field, until the completion of the Initial Work Program. The Group will recover costs at a rate of LIBOR plus a margin of 10% through crude oil lifting when the field commences production. However, for expenditure above $70 million, the recovery rate increases to LIBOR plus a margin of 13%. The interest on carried cost has been included as part of the Prepaid development costs. The Prepaid development costs is non-recourse.
15. Cash and bank balances
| In US Dollars |
2016 |
2015 |
| Cash at hand |
|
|
| Bank balances |
3,283,327 |
26,016,194 |
| Restricted cash (see Note 15 (a)) |
1,101,411 |
- |
| Cash and bank balances |
4,384,738 |
26,016,194 |
(a) Restricted cash represents cash funding of the debt service reserve accounts for two quarters of FBN Capital Notes repayment as stated in Note 21.
16. Capital and reserves
(a) Share capital
| In US Dollars |
2016 |
2015 |
| Authorised |
50,000 |
50,000 |
| Issued, called up and fully paid |
26,828 |
24,412 |
| Total issued and called up share capital |
26,828 |
24,412 |
| |
|
| In US Dollars |
2016 |
2015 |
| In issue at 1 January |
24,412 |
18,152 |
| Issued for cash |
2,416 |
6,260 |
| In issue at 31 December - fully paid |
26,828 |
24,412 |
| Authorised - par value $0.00005 (2014: $0.00005) |
1,000,000,000 |
1,000,000,000 |
(b) Share premium
Share premium represents the excess of amount received over the nominal value of the total issued share capital as at the reporting date. The analysis of this account is as follows:
| Number of shares @ $0.0005 each |
Consideration ($) |
Nominal value ($) |
Premium ($) |
| 43,318,430 |
6,022,165 |
2,166 |
6,019,999 |
| 30,000,000 |
1,500 |
1,500 |
- |
| 2,990,660 |
1,121,500 |
150 |
1,121,350 |
| 3,500,000 |
203,000 |
175 |
202,825 |
| 512,500 |
98,250 |
26 |
98,224 |
| 19,470,570 |
1,396,661 |
974 |
1,395,687 |
| 82,732,073 |
46,100,445 |
4,137 |
46,096,308 |
| 147,382,000 |
116,492,386 |
7,369 |
116,485,017 |
| 33,000,000 |
36,416,700 |
1,650 |
36,415,050 |
| 93,750 |
112,984 |
5 |
112,979 |
| 125,200,000 |
44,266,472 |
6,260 |
44,260,212 |
| 48,330,000 |
11,798,831 |
2,416 |
11,796,415 |
| 536,529,983 |
264,030,894 |
26,828 |
264,004,066 |
The movement in share premium during the year was as follows:
| In US Dollars |
2016 |
2015 |
| Balance at 1 January |
252,207,651 |
207,947,439 |
| Additional issue of shares during the year |
11,796,415 |
44,260,212 |
| Balance at 31 December |
264,004,066 |
252,207,651 |
The increase of $11.8 million relates to the placement of new ordinary shares issued in October 2016. The Company raised capital by issuing 48,330,200 new ordinary shares at a placing price of $0.37 (21 pence) per share raising gross proceeds of $12.4 million and net proceeds of $11.8 million.
17. Non-controlling interests
| In US Dollars |
2016 |
2015 |
| Lekoil Nigeria Limited |
5,296,726 |
4,431,694 |
| Lekoil Exploration and Production (Pty) Limited (Namibia) |
139,532 |
138,583 |
| |
5,436,258 |
4,570,277 |
18. Trade and other payables
| In US Dollars |
2016 |
2015 |
| |
|
|
| Accounts payable |
18,314,337 |
5,029,596 |
| Accrued expenses |
10,512,541 |
3,080,574 |
| Other statutory deductions |
2,372,721 |
1,201,150 |
| Other payables |
141,518 |
30,575 |
| Payroll liabilities |
5,435 |
135,073 |
| |
31,346,552 |
9,476,968 |
19. Provisions for asset retirement obligation
(a) The movement in Provision for asset retirement obligation account was as follows:
| In US Dollars |
2016 |
2015 |
| Balance at 1 January |
176,621 |
- |
| Additions during the year |
- |
176,621 |
| Unwinding of discount |
19,994 |
- |
| Effect of changes to decommissioning estimates |
(105,416) |
- |
| Balance at 31 December |
91,199 |
176,621 |
The Group has recognised provision for asset retirement obligation ("ARO") which represents the estimated present value of the amount the Group will incur to plug, abandon and remediate Otakikpo operation at the end of the productive lives, in accordance with applicable legislations. These costs are expected to be incurred in the year 2040 dependent on government legislation and future production profiles of the project. The provision has been estimated at a US inflation rate of 2% and discounted to present value at 17%. The provision recognised represents 40% of the net present value of the estimated total future cost as the Company's partner, GEIL is expected to bear 60% of the cost.
A corresponding amount equivalent to the provision is recognised as part of the cost of the related property, plant and equipment. The amount recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements, reflecting management's best estimates.
The unwinding of the discount on the decommissioning is included as a finance cost.
Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to property, plant and equipment.
During 2016, the Group's internal specialist re-evaluated the decommissioning costs for the oil and gas assets following additional development costs incurred on Otakikpo, which led to the adjustment of the amounts previously provided for asset retirement obligation. Management believe the estimates continue to form a reasonable basis for the expected future costs of decommissioning, which are expected to be incurred in 2040.
20. Deferred income
Deferred income comprises:
| In US Dollars |
2016 |
2015 |
| Interest on prepaid development costs (Note 14 (a)) |
7,426,486 |
2,368,541 |
Interest on loan due from Ashbert Oil
and Gas Limited (Note 13 (a)) |
3,032,803 |
697,897 |
| |
10,459,289 |
3,066,438 |
| Current |
7,426,486 |
2,368,541 |
| Non-current |
3,032,803 |
697,897 |
| |
10,459,289 |
3,066,438 |
21. Loans and borrowings
In June 2016, Lekoil Oil and Gas Investments Limited (a wholly owned subsidiary of Lekoil Nigeria Limited), refinanced its existing $10 million Notes Issuance Agreement ("NIA") with FBN Capital Limited ("FBN") and secured a new 2 billion Naira facility from FBN for Otakikpo Field development. The 2 billion Naira loan was increased to 4.5 billion Naira (approximately $3.3 million) facility in August 2016. The Group also drew down 1 billion Naira (approximately $3.3 million) out of the 5 billion Naira facility with Sterling Bank plc in August 2016.
The $10 million facility has a maturity of three years and is repayable quarterly after a six-month moratorium with a margin of 11.25% over LIBOR. The existing NIA bridge facility, of which $5 million was due May 2016, was extended and subsequently refinanced into the new USD facility.
The revised 4.5 billion Naira facility has a maturity of three years, is repayable quarterly with ten quarterly instalments after a six-month moratorium. The notes have an interest rate referencing the higher of the 30-day average of 90 day NIBOR + 6% or 20%.
The Sterling bank facility has a maturity of three years and is repayable quarterly following a six-month moratorium with a margin of 10% over NIBOR.
The principal plus accrued interest as at 31 December 2016 is $27,390,036 (31 December 2015 is $8,246,746).
(a) The movement in Short term loan account was as follows:
| In US Dollars |
2016 |
2015 |
| Balance at 1 January |
8,246,746 |
- |
| Draw-down during the year |
28,028,149 |
10,000,000 |
| Pay-off during the period |
(8,000,000) |
(2,000,000) |
| Effective interest during the year |
2,943,291 |
1,086,283 |
| Interest and fees paid during the year |
(3,828,150) |
(839,537) |
| Balance at 31 December |
27,390,036 |
8,246,746 |
| |
|
|
| Non-current |
17,024,335 |
- |
| Current |
10,365,701 |
8,246,746 |
| |
27,390,036 |
8,246,746 |
22. Revenue
No revenue is reported in these consolidated financial statements as the Group is yet to commence production of oil and gas (2015: nil).
23. Operating expenses
| In US Dollars |
2016 |
2015 |
| Production and operating costs |
355,863 |
- |
| Community and security expenses (see Note 24 (c)) |
111,819 |
- |
| Depreciation and amortisation (see Notes 8 and 10) |
161,782 |
- |
| |
629,464 |
- |
Operating expenses relate to production expenditure on MRT testing which commenced on 8 December 2016.
24. General and administrative expenses
| In US Dollars |
2016 |
2015 |
| Expenses by nature |
|
|
| Personnel expenses (Note 23 (a)) |
8,584,453 |
9,045,510 |
| Legal, consultancy and technical fees |
2,654,651 |
1,841,823 |
| Corporate services, legal, hotel expenses, insurance and travel costs |
3,083,302 |
3,849,898 |
| Rent expenses (Note 23(b)) |
1,703,351 |
941,935 |
| Depreciation and amortisation (Notes 8 and 10) |
1,033,970 |
860,023 |
| Donations, sponsorships and overhead costs |
746,353 |
508,256 |
| Directors' fees |
538,514 |
490,000 |
| Community and security expenses |
2,032,228 |
936,581 |
| Other expenses |
204,247 |
3,261,496 |
| |
20,581,069 |
21,735,522 |
(a) Personnel expenses
| In US Dollars |
2016 |
2015 |
| Wages and salaries |
7,074,462 |
7,458,236 |
| Defined contribution pension expense |
205,039 |
140,494 |
| Equity settled share-based payment |
1,304,952 |
1,446,780 |
| |
8,584,453 |
9,045,510 |
(b) Operating leases
The Group leases office and residential facilities under cancellable operating leases. Leases payments are made upfront covering the lease period with no additional obligations.
(c) The Group incurred $2.1 million on community and security costs (2015: $0.9 million). A large part of the expenditure was incurred on the Community Trust Fund.
25. Finance income and costs
| In US Dollars |
2016 |
2015 |
Finance income
Interest income |
73,055 |
72,505 |
| Net foreign exchange gains (see Note 24(a)) |
6,795,390 |
4,047,010 |
| |
6,868,445 |
4,119,515 |
Finance costs
Finance expenses |
928,593 |
- |
(a) Foreign exchange gains
Foreign exchange gains present realised currency exchange difference gains resulting from the conversion of US dollar amounts to Nigerian Naira amounts; to meet obligations settled in Nigerian Naira. The significant devaluation of Nigerian Naira to the US dollars in 2016 and the huge exchange rates disparity between the official exchange rate and the parallel market exchange rate accounted for the significant foreign exchange gain.
26. Share-based payment arrangements
At 31 December 2016, the Group had the following share-based payment arrangements:
Share option scheme (equity-settled)
The Group established a share option scheme that entitles employees, key management personnel and consultants providing employment-type services to purchase shares in the Group. In accordance with the scheme, holders of vested options are entitled to purchase shares at established prices of the shares at the date of grant during a period expiring on the tenth anniversary of the effective date i.e. grant date. The grant dates for awards were 3 December 2010, 1 June 2011, 1 November 2011, 4 June 2012, 19 February 2013, 7 April 2013, 17 May 2013 and 26 March 2014 based upon a shared understanding of the terms of the awards at that time.
At inception of the share option scheme, the terms and conditions related to the scheme are as follows:
| |
|
Number of option shares per vesting period and exercise price |
| Vesting periods |
Cumulative vested percentage |
$1 |
$3.75 |
$7.50 |
| Less than 12 months from the effective date |
25% |
550,000 |
475,000 |
475,000 |
| 12 months from the effective date |
50% |
550,000 |
475,000 |
475,000 |
| 24 months from the effective date |
75% |
550,000 |
475,000 |
475,000 |
| 36 months from the effective date |
100% |
550,000 |
475,000 |
475,000 |
| |
|
2,200,000 |
1,900,000 |
1,900,000 |
The Group issued options with 3 different exercise prices $1.00, $3.75, and $7.50 in 2012. The share price was estimated based on recent arm's length share issues. On 17 May 2013, the issued options with exercise prices of $1.00 & $3.75 were cancelled and the affected employees were awarded shares at par value in consideration for the cancellation of the vested options. The issued options with exercise price of $7.50 were subdivided by a factor of ten in line with the Group's capital reorganisation which resulted in a share split of 10:1. The exercise price of the outstanding options was also subdivided by a factor of ten resulting in a reduction in exercise price from $7.50 to $0.75 and an increase in total number of option shares from 6,000,000 to 19,000,000.
Effective 26 March 2014, the exercise price of the outstanding stock options was changed from $0.75 to GB£0.49 using a conversion rate of US$1.53 to GB£1.00 and the existing stock option agreements was amended to reflect the exercise price in GB£. In 2014, 93,750 units of share options were exercised by the Directors.
The number and weighted average exercise prices of share options are as follows:
| |
2016 |
2015 |
| Weighted average exercise price |
Number of options |
Weighted average exercise price |
Number of options |
| Outstanding at 1 January |
0.58 |
17,462,986 |
0.58 |
17,462,986 |
| Granted during the year |
- |
- |
- |
- |
| Forfeited during the year |
- |
- |
- |
- |
| Exercised during the year |
- |
- |
- |
- |
| Outstanding at 31 December |
0.58 |
17,462,986 |
0.58 |
17,462,986 |
| Exercisable at 31 December |
0.75 |
17,352,986 |
0.75 |
16,742,778 |
The options outstanding at 31 December 2016 have an exercise price of GB£0.49 and a weighted average contractual life of 5.05 years (2015: 6.05 years).
Inputs for measurement of grant date fair values
The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model for plain vanilla European call options with the following inputs:
| |
2016 |
2015 |
2014 |
| Fair value of share options and assumptions |
|
|
|
| Weighted average fair value at grant date |
$0.54 |
$0.54 |
$0.54 |
| Share price at grant date |
$0.91 |
$0.91 |
$0.91 |
| Exercise price |
$0.75 |
$0.75 |
$0.75 |
| Option life (Expected weighted average life in Years) |
7.0 |
7.0 |
5.0 |
| Expected volatility |
60% |
60% |
60% |
| Risk-free Interest rate |
1.70% |
1.70% |
1.70% |
| Expected dividends |
na |
na |
na |
Long-term incentive plan scheme (equity-settled)
Awards were made under the Group's Long Term Incentive Plan (LTIP) which was approved on 19 November 2014 and amended on 21 December 2015. The Board approved the grant of 7,895,000 stock options to employees of the Group on 26 June 2015 and 3,143,000 stock options to the CEO, Lekan Akinyanmi on 23 December 2015. In October 2016, 9,800,000 stock options were awarded to employees.
The options vest three years from the grant date subject to meeting the performance criteria. If they vest, they will remain exercisable for seven years after the vesting date. The granted share options are subject to market-based vesting conditions. The options will vest subject to the Company's annual compound Total Shareholder Return ("TSR") over the three year performance period starting on the grant date, with;
- no options vest if annual compound TSR is less than 10%;
- 30% of options vest if annual compound TSR is 10%;
- 100% options vest if annual compound TSR is 20% or more; and
- between 30% and 100%, the percentage of options that will vest is determined on a straight-line basis for annual compound TSR between 10% and 20%.
The number and weighted average exercise prices of share options are as follows:
| |
Weighted average exercise price |
Number of options |
Weighted average exercise price |
Number of options |
| |
2016 |
2015 |
| Outstanding at 1 January |
0.62 |
10,978,000 |
- |
- |
| Granted during the year |
0.27 |
9,800,000 |
0.62 |
11,038,000 |
| Forfeited during the year |
0.27 |
(32,000) |
0.62 |
(60,000) |
| Outstanding at 31 December |
0.46 |
20,746,000 |
0.62 |
10,978,000 |
The options outstanding at 31 December 2016 had an exercise price in the range of $0.27 to $0.62 and a weighted average contractual life of 4.22 years.
Inputs for measurement of grant date fair values
The fair value of each stock option granted was estimated on the date of grant using the Monte-Carlo simulation with the following inputs:
Fair value of share options and assumptions
| |
2016 |
2015 |
| Weighted average fair value at grant date |
$0.62 |
$0.67 |
| Share price at grant date - Stock options issued as announced on 8 December 2016 |
$0.27 |
|
| Exercise price - Stock options issued as announced on 8 December 2016 |
$0.27 |
|
| Option life (Expected life in Years) |
6 year |
|
| Expected volatility - Stock options issued as announced on 8 December 2016 |
61% |
|
| Risk-free Interest rate |
0.34% |
|
| Share price at grant date - Stock options issued on 26 June 2015 |
|
$0.46 |
| Share price at grant date - Stock options issued on 23 December 2015 |
|
$0.31 |
| Exercise price - Stock options issued on 26 June 2015 |
|
$0.62 |
| Exercise price - Stock options issued on 23 December 2015 |
|
$0.59 |
| Option life (Expected life in Years) |
|
3.5 |
| Expected volatility - Stock options issued on 26 June 2015 |
|
60% |
| Expected volatility - Stock options issued on 23 December 2015 |
|
65% |
| Risk-free Interest rate |
|
1.5% |
| Expected dividends |
na |
na |
Volatility was estimated with reference to empirical data for proxy companies with listed equity.
Non-Executive Director Share Plan (equity-settled)
On 21 December 2015 the Board adopted the Group's Non-Executive Director Share Plan designed to provide incentives to Non-Executive Directors. The Committee made an award of 500,000 stock options to the Non-Executive Directors under this plan on 23 December 2015. In December 2016, the Company announced that 500,000 stock options were awarded to Non-Executive Directors.
The NED stock options are not subject to any performance criteria and vest three years from the grant date, subject to successful completion of the three year service period starting on the grant date. The options can be exercised over a seven year period beginning on the expiry of the service period.
The number and weighted average exercise prices of share options are as follows:
| |
Weighted average exercise price |
Number of options |
Weighted average exercise price |
Number of options |
| |
2016 |
2015 |
| Outstanding at 1 January |
0.59 |
500,000 |
- |
- |
| Granted during the year |
0.27 |
500,000 |
0.59 |
500,000 |
| Outstanding at 31 December |
0.43 |
1,000,000 |
0.59 |
500,000 |
The options outstanding at 31 December 2016 had an exercise price of $0.43 to and a weighted average contractual life of 7.5 years.
Inputs for measurement of grant date fair values
The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following inputs:
Fair value of share options and assumptions
| |
2016 |
2015 |
| Weighted average fair value at grant date |
$0.59 |
$0.13 |
| Share price at grant date |
$0.27 |
$0.31 |
| Exercise price |
$0.27 |
$0.59 |
| Option life (Expected life in Years) |
6.0 |
6.0 |
| Expected volatility - Stock options issued on 23 December 2015 |
61% |
65% |
| Risk-free Interest rate |
0.3% |
1.5% |
| Expected dividends |
na |
na |
Volatility was estimated with reference to empirical data for proxy companies with listed equity.
Employee benefit expenses
| In US Dollars |
2016 |
2015 |
| Non-Executive Director Share Plan (equity-settled) |
22,353 |
489 |
| Long-term incentive plan scheme (equity-settled) |
837,223 |
200,328 |
| Share option scheme (equity-settled) |
445,376 |
1,245,963 |
| Total expense recognised as employee costs |
1,304,952 |
1,446,780 |
27. Loss per share
(a) The calculation of basic loss per share has been based on the following loss attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding.
(i) Loss attributable to ordinary shareholders (basic)
| In US Dollars |
2016 |
2015 |
| Loss for the year attributable to owners of the Group |
(14,898,890) |
(17,397,970) |
| (ii) Weighted-average number of ordinary shares (basic) |
|
|
| In US Dollars |
2016 |
2015 |
| Issued ordinary shares at I January |
488,199,893 |
362,999,983 |
| Effect of shares issued in October 2016 |
10,299,836 |
- |
| Effect of shares issued in November 2015 |
- |
20,580,822 |
| Effect of share options |
- |
- |
| Weighted-average number of ordinary shares at 31 December |
498,499,729 |
383,580,805 |
(b) The calculation of diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Basic and diluted loss per share are equal as all options are anti-dilutive.
(i) Loss attributable to ordinary shareholders (basic)
| In US Dollars |
2016 |
2015 |
| Loss for the year attributable to owners of the Company |
(14,898,890) |
(17,397,970) |
| (ii) Weighted-average number of ordinary shares (diluted) |
|
|
| In US Dollars |
2016 |
2015 |
| Weighted-average number of ordinary shares (basic) |
498,499,729 |
383,580,805 |
| Effect of share options |
- |
- |
Weighted-average number of ordinary shares (diluted) at
31 December |
498,499,729 |
383,580,805 |
28. Taxes
(a) Income tax
The Group with its principal assets and operations in Nigeria is subject to the Petroleum Profit Tax Act of Nigeria (PPTA). However, the Group is yet to commence production and therefore earned no revenue during the year. As a result, no Petroleum Profit Tax (PPT) was charged during the year.
(b) Unrecognised deferred tax assets
Deferred tax assets will arise from unrelieved losses as well as the tax base of assets. These have not been recognised due to uncertainty over the availability of future taxable profit to offset the losses.
| In US Dollars |
2016 |
2015 |
| Unrelieved losses |
57,088,829 |
21,766,873 |
| |
57,088,829 |
21,766,873 |
| (c) Reconciliation of how the tax on the Company's loss before tax differs from the theoretical |
| In US Dollars |
2016 |
2015 |
| Loss before tax |
(15,764,871) |
(18,718,507) |
| Tax at Cayman corporate tax rate of 0% |
- |
- |
| Effects of tax rate applicable in foreign jurisdictions |
|
|
| - Nigeria |
(22,857,823) |
(12,438,619) |
| - Namibia |
(1,661) |
(106,930) |
| - US |
7,474 |
- |
| - Singapore |
- |
- |
| - Benin |
- |
(103) |
- UK
- |
(114,622) |
(20,644) |
| Unrecognised deferred tax asset |
22,966,632 |
12,566,296 |
| Total tax charge |
- |
- |
29. Related party transactions
The Group had transactions during the year with the following related parties:
(a) Transactions with key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. These are the Directors of the Group.
(i) Loans to key management personnel
An unsecured loan of $1,500,000 was granted to a Director on 9 December 2014. The loan has a three year term and bears interest at a rate of four per cent per annum. Repayment is due at the end of the term. At 31 December 2016, the balance outstanding was $1,626,312 (2015: $1,564,655) and is included in 'trade and other receivables'.
(ii) Key management personnel transactions
The value of transactions and the outstanding balance at year end due to key management personnel and entities over which they have significant influence was $3.05 million and $1.87 million respectively. In 2015, Lekoil Oil & Gas Investments Limited entered into a contract with SOWSCO Wells Services Nigeria Limited, a company controlled by a director, for the provision of well completion services.
Key management personnel compensation
In addition to their salaries, the Group also provides non-cash benefits to key management personnel, in the form of share based payments.
| Key management personnel compensation comprised the following: |
| In US Dollars |
2016 |
2015 |
| Short-term benefits |
1,964,960 |
3,064,410 |
| Share-based payments |
147,096 |
13,686 |
| |
2,112,036 |
3,078,096 |
| Short-term employee benefits comprised the following: |
| In US Dollars |
2016 |
2015 |
| Salaries |
930,750 |
1,974,410 |
| Fees |
540,000 |
490,000 |
| Bonus |
494,190 |
600,000 |
| |
1,964,940 |
3,064,410 |
Details of Directors' remuneration (including fair value of share based payments) earned by each Director of the Company during the year are as follows:
2016
In US Dollars |
Fees |
Salaries |
Bonus |
Share-based payments |
Total |
| Lekan Akinyanmi |
- |
930,750 |
494,190 |
123,232 |
1,548,172 |
| Samuel Adegboyega |
140,000 |
- |
- |
4,471 |
144,471 |
| Aisha Muhammed-Oyebode |
100,000 |
- |
- |
4,848 |
104,848 |
| Greg Eckersley |
100,000 |
- |
- |
4,471 |
104,471 |
| John van der Welle |
100,000 |
- |
- |
5,603 |
105,603 |
| Hezekiah Adesola Oyinlola** |
100,000 |
- |
- |
4,471 |
104,471 |
| |
540,000 |
930,750 |
494,190 |
147,096 |
2,112,036 |
| |
|
|
|
|
|
2015
In US Dollars |
Fees |
Salaries |
Bonus |
Share-based payments |
Total |
| Lekan Akinyanmi |
- |
881,250 |
600,000 |
1,868 |
1,483,118 |
| David Robinson *** |
- |
1,093,160* |
- |
- |
1,093,160 |
| Samuel Adegboyega |
140,000 |
- |
- |
98 |
140,098 |
| Aisha Muhammed-Oyebode |
100,000 |
- |
- |
5,196 |
105,196 |
| Greg Eckersley |
100,000 |
- |
- |
98 |
100,098 |
| John van der Welle |
100,000 |
- |
- |
6,328 |
106,328 |
| Hezekiah Adesola Oyinlola** |
50,000 |
- |
- |
98 |
50,098 |
| |
490,000 |
1,974,410 |
600,000 |
13,686 |
3,078,096 |
* Salaries include severance benefits amounting to $740,664
** Appointed 26 June 2015
*** Resigned 26 June 2015
(iii) Key management personnel and Director transactions
Directors of the Company control 8.73% (2015: 9.57%) of the voting shares of the Company.
(b) Lekoil Limited, Cayman Islands has a Management & Technical Services Agreement with Lekoil Management Corporation (LMC) under the terms of which LMC was appointed to provide management, corporate support and technical services. The remuneration to LMC includes reimbursement for charges and operating costs incurred by LMC.
30. Group entities
(a) Significant subsidiaries:
| |
Country of incorporation |
Ownership interest |
| |
|
2016 |
2015 |
| Lekoil Nigeria Limited (see (a)(i)) |
Nigeria |
40% |
40% |
| Lekoil Exploration and Production (Pty) Limited |
Namibia |
80% |
80% |
| Lekoil Management Corporation |
USA |
100% |
100% |
| Lekoil Singapore PTE Limited |
Singapore |
100% |
100% |
| Lekoil Limited SARL |
Benin |
100% |
100% |
| Lekoil 310 Limited |
Cayman Islands |
100% |
100% |
| Lekoil Management Services |
Cayman Islands |
100% |
100% |
(i) Although the Company holds less than 50% ownership interests in Lekoil Nigeria Limited, it has control over the entity and it is entitled to 90% of the benefits related to its operations and net assets based on terms of agreements under which the entity was established. Consequently, the Company consolidates Lekoil Nigeria Limited.
Lekoil Nigeria Limited has five wholly owned subsidiaries, namely: Mayfair Assets and Trust Limited, Lekoil Oil & Gas Investments Limited, Lekoil Exploration and Production Nigeria Limited, Lekoil Energy Nigeria Limited and Princeton Assets and Trust Limited. The results of these subsidiaries have been included in the consolidated financial results of Lekoil Nigeria Limited.
(b) Non-controlling interests (NCI)
The following table summarises the information relating to each of the Group's subsidiaries, before any intra-group eliminations:
31 December 2016
| In US Dollars |
Lekoil Nigeria
Limited Group |
Lekoil Exploration
and Production
(Pty) Limited |
Intra-group eliminations |
Total |
| NCI Percentage |
10% |
20% |
|
|
| Non-current assets |
161,516,270 |
465,108 |
|
|
| Current assets |
72,596,067 |
17,107 |
|
|
| Non-current liabilities |
(270,575,740) |
- |
|
|
| Current liabilities |
(30,241,368) |
(1,179,874) |
|
|
| Net assets |
(66,704,771) |
(697,659) |
|
|
| Carrying amount of NCI |
(6,670,477) |
(139,532) |
1,373,750 |
(5,436,258) |
| Revenue |
- |
- |
|
|
| Loss |
(14,358,618) |
(143,634) |
|
|
| Net finance income/(cost) |
(14,491,205) |
138,889 |
|
|
| Total comprehensive income |
(28,849,823) |
(4,745) |
|
|
Loss allocated to NCI
OCI allocated to NCI |
(2,884,982) |
(949) |
2,019,950 |
(865,981) |
| Cash flows from operating activities |
16,617,510 |
(91,618) |
|
|
| Cash flows from investment activities |
(59,536,169) |
- |
|
|
| Cash flows from financing activities |
43,609,729 |
60,000 |
|
|
| Net decrease in cash and cash equivalents |
691,070 |
(31,618) |
|
|
31 December 2015
| In US Dollars |
Lekoil Nigeria
Limited Group |
Lekoil Exploration
and Production
(Pty) Limited |
Intra-group eliminations |
Total |
| NCI Percentage |
10% |
20% |
|
|
| Non-current assets |
133,654,464 |
407,445 |
|
|
| Current assets |
35,102,783 |
46,065 |
|
|
| Non-current liabilities |
- |
- |
|
|
| Current liabilities |
(208,556,166) |
(1,146,423) |
|
|
| Net assets |
(39,798,919) |
(692,913) |
|
|
| Carrying amount of NCI |
(3,979,892) |
(138,583) |
(451,802) |
(4,570,277) |
| Revenue |
- |
- |
|
|
| Loss |
(13,672,779) |
(305,515) |
|
|
| Net finance income/(cost) |
(10,738,051) |
- |
|
|
| Total comprehensive income |
(24,410,830) |
(305,515) |
|
|
| Loss allocated to NCI |
(2,441,083) |
(61,103) |
1,181,649 |
(1,320,537) |
| OCI allocated to NCI |
- |
- |
- |
- |
| Cash flows from operating activities |
(42,858,455) |
(622,107) |
|
|
| Cash flows from investment activities |
(13,067,404) |
- |
|
|
| Cash flows from financing activities |
55,439,642 |
522,160 |
|
|
| Net increase in cash and cash equivalents |
(486,217) |
(99,947) |
|
|
31. Events after the reporting date
In accordance with the farm-in agreement with Green Energy International Limited (GEIL), the Company will pay GEIL, contingent on production, a production bonus of US$4 million.
In March 2017, subsequent to the initial drawdown of 1 billion Naira from the 5 billion Naira Sterling Bank facility, LOGL drew down additional 350 million Naira via a tripartite agreement with Sterling Bank and Cardinal Stone Partners, wherein Cardinal Stone Partners advanced the same sum backed by a guarantee under the 5 billion Naira facility.
In March 2017, the Group announced the receipt of a $15 million advance payment facility from Shell Western Supply and Trading Limited ("Shell Western"), a member of the Royal Dutch Shell group of companies (LSE: RDSA, RDSB). The facility has a maturity of three years and is repayable quarterly following a six-month moratorium with a market margin over LIBOR.
In April 2017, the Group announced it has signed a Memorandum of Understanding ("MOU") with GE Oil & Gas ("GE"), a subsidiary of General Electric Company (NYSE: GE) for the development of a work programme for the Ogo field in OPL310.
In May 2017, the Group announced it has lifted the first crude cargo of 120,000 barrels produced from Otakikpo Marginal field, from FSO Ailsa Craig by Shell Western Supply and Trading Limited, a subsidiary of Royal Dutch Shell.
In June 2017, the Group announced that it has received payment for its first cargo lifted from the Otakikpo Marginal Field in OML 11, announced on 10 May 2017.
Also in June 2017, the Group announced that the Honourable Minister of Petroleum Resources of Nigeria has granted consent to complete the transfer of the original 17.14% participating interest that LEKOIL acquired in OPL 310 in February 2013 to Mayfair Assets and Trust Limited, a subsidiary of LEKOIL.
There have been no other events between the reporting date and the date of authorising these financial statements other than those disclosed under the Financial Review that have not been adjusted for or disclosed in these financial statements.
32. Financial commitments and contingencies
(a) Lekoil Limited, Namibia is bound to an agreement for the acquisition of a 77.5% participating interest in the Production Sharing Agreement (PSA) and operatorship in respect of Namibia Blocks 2514A and 2514B with Hallie Investments (Namibia) for the sum of $2.75 million, out of which an initial deposit of $69,660 was made. The amount of $69,660 paid is included in exploration and evaluation assets.
The initial licence expired in July 2016 and was renewed for one year till July 2017.
(b) Lekoil Oil and Gas Investment Limited is bound to the terms under a farm-in agreement with Green Energy International Limited (GEIL) in respect to Otakikpo marginal field. In accordance with this agreement, the Company will pay GEIL, contingent on production, a production bonus of US$4 million
(c) On 5 December 2014, the joint venture signed a Memorandum of Understanding (MoU) with its host community, Ikuru with respect to the Otakikpo Marginal Field area. The key items of the MoU include the following:
- The joint venture will allocate 3% of its revenue from the Liquefied Petroleum Gas (LPG) produced from the field to Ikuru Community in each financial year;
- The joint venture will allocate the sum of $0.53 million (NGN 90 million) annually for sustainable community development activities.
(d) In May 2015, the Company provided a corporate guarantee in favour of FBN Capital for loan notes issued by Lekoil Oil and Gas Investment Limited, a sub-subsidiary of the Company.
(e) Litigation and claims
There are no litigations or claims involving the Group as at 31 December 2016 (2015: Nil).
33. Financial risk management and financial instruments
Overview
The Group has exposure to the following risks from its use of financial instruments:
- credit risk
- liquidity risk
- market risk
This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.
The Group's risk management policies are established to identify and analyse risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from joint venture partners, employees and related parties.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
| |
|
Carrying amount |
| In US Dollars |
Notes |
2016 |
2015 |
| Cash and cash equivalents |
15 |
4,384,738 |
26,016,194 |
| Other receivables |
12 |
2,478,690 |
2,559,813 |
| |
|
|
|
The Group's exposure to credit risk is minimised as the Group is still in the exploratory and development phase. Trade and other receivables represent loans to companies, employee receivables and loan to Director which management has assessed as unimpaired.
Cash and cash equivalents
The cash and cash equivalents of $4.4 million (2015: $26.0 million) are held with reputable financial institutions.
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The following are the contractual maturities of financial liabilities, and excluding the impact of netting agreement:
| In US Dollars |
Notes |
Carrying amount |
Contractual cash flows |
6 months or less |
Non-derivative financial liabilities
31 December 2016 |
|
|
|
|
| Loans |
21 |
27,390,036 |
35,310,657 |
7,592,257 |
| Trade and other payables* |
18 |
31,346,552 |
31,346,552 |
31,346,552 |
| |
|
58,736,588 |
66,657,209 |
38,938,809 |
| 31 December 2015 |
|
|
|
|
| Short-term loan |
21 |
8,246,746 |
8,408,769 |
8,408,769 |
| Trade and other payables* |
18 |
8,140,745 |
8,140,745 |
8,140,745 |
| |
|
16,387,491 |
16,549,514 |
16,549,514 |
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
* The carrying amount of trade and other payables is stated net of statutory deductions.
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group manages market risks by keeping costs low through various cost optimisation programmes. Moreover, market developments are monitored and discussed regularly, and mitigating actions are taken where necessary.
Currency risk
The Group is exposed to currency risk on bank balances, employee receivables and trade and other payables denominated in Nigerian Naira.
The summary quantitative data about the Group's exposure to currency risks are as follows:
| |
Carrying amounts |
| In US Dollars |
2016 |
2015 |
| Trade and other receivables |
227,562 |
68 |
| Cash and cash equivalents |
1,197,173 |
225,366 |
| Trade and other payables |
(1,632,103) |
(1,166,513) |
| Net exposure |
(207,368) |
(941,079) |
Sensitivity analysis
A 20 per cent strengthening of the US Dollar against the following currencies at 31 December would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
| |
|
Foreign exchange rate risk |
| In US Dollars |
|
20% (-20%) |
| 31 December 2016 |
Carrying |
Profit |
Other movements |
Profit |
Other movements |
| |
amount |
or loss |
in Equity |
or loss |
in Equity |
| Financial assets: |
|
|
|
|
|
| Naira |
|
|
|
|
|
| Cash and cash equivalents |
1,197,173 |
239,435 |
- |
(239,435) |
- |
| Trade and other receivables |
227,562 |
45,512 |
- |
(45,512) |
- |
| Impact on financial assets |
|
284,947 |
- |
(284,947) |
|
| Financial liabilities: |
|
|
|
|
|
| Naira |
|
|
|
|
|
| Accounts payable |
(1,632,103) |
(326,421) |
- |
326,421 |
- |
| Impact on financial liabilities |
|
(326,421) |
- |
326,421 |
- |
| Total increase (decrease) |
|
(41,474) |
- |
41,474 |
|
| |
|
Foreign exchange rate risk |
| |
|
20% (-20%) |
| 31 December 2015 |
Carrying |
Profit |
Other movements |
Profit |
Other movements |
| In US Dollars |
amount |
or loss |
in Equity |
or loss |
in Equity |
| Financial assets: |
|
|
|
|
|
| Naira |
|
|
|
|
|
| Cash and cash equivalents |
225,366 |
45,073 |
- |
(45,073) |
- |
| Trade and other receivables |
68 |
14 |
- |
(14) |
- |
| Impact on financial assets |
|
45,087 |
- |
(45,087) |
|
| Financial liabilities: |
|
|
|
|
|
| Naira |
|
|
|
|
|
| Accounts payable |
(1,166,513) |
(233,303) |
- |
233,303 |
- |
| Impact on financial liabilities |
- |
(233,303) |
- |
233,303 |
- |
| Total increase (decrease) |
- |
(188,216) |
- |
188,216 |
|
The amounts shown represent the impact of foreign currency risk on the groups consolidated profit or loss. The foreign exchange rate movements have been calculated on a symmetric basis. This method assumes that an increase or decrease in foreign exchange movement would result in the same amount and further assumes the currency is used as a stable denominator.
(d) Fair values
Fair values vs carrying amounts
The following table shows the carrying amounts and fair values of financial assets and financial liabilities. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| In US Dollars |
|
Carrying amount |
| 31 December 2016 |
Note |
Loans and receivables |
Other financial liabilities |
Total |
| Loans and receivables |
|
|
|
|
| Other receivables |
12 |
2,478,690 |
- |
2,478,690 |
| Cash and cash equivalents |
15 |
4,384,738 |
- |
4,384,738 |
| |
|
6,863,428 |
- |
6,863,428 |
| Financial liabilities measured at amortised costs |
|
|
|
|
| Loan |
21 |
|
27,390,036 |
27,390,036 |
| Trade and other payables |
18 |
- |
31,346,552 |
31,346,552 |
| |
|
- |
58,736,588 |
58,736,588 |
| In US Dollars |
|
Carrying amount |
| 31 December 2015 |
Note |
Loans and receivables |
Other financial liabilities |
Total |
| Loans and receivables |
|
|
|
|
| Other receivables |
12 |
2,559,813 |
- |
2,559,813 |
| Cash and cash equivalents |
15 |
26,016,194 |
- |
26,016,194 |
| |
|
28,576,007 |
- |
28,576,007 |
| Financial liabilities measured at amortised costs |
|
|
|
|
| Short-term loan |
21 |
- |
8,246,746 |
8,246,746 |
| Trade and other payables |
18 |
- |
9,476,968 |
9,476,968 |
| |
|
- |
17,723,714 |
17,723,714 |
-ends-
