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LEKOIL LIMITED

News Detail

DGAP-UK-Regulatory News vom 04.06.2018

Final Results

LEKOIL LIMITED (LEK)

04-Jun-2018 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


4 June 2018

 

LEKOIL - 2017 Audited Annual Results

("LEKOIL", the "Group" or the "Company")

 

LEKOIL (AIM: LEK), the Africa focused oil and gas exploration and production company with interests in Nigeria and Namibia, announces its final audited results for the year to 31 December 2017.

 

Highlights

Operational

Otakikpo

  • Continuous commercial production and cash flow generation at Otakikpo;
  • Otakikpo production increased to 7,600 barrels of oil per day (bopd) in December, ending the year continuously over 7,000 bopd and having produced approximately 1.56 million barrels (bbls) of oil;
  • 1,448,911 gross barrels exported (1,188,732 barrels net to LEKOIL), with crude selling at a premium to Brent.
  • 12 month average production from May 2017 to May 2018 was 5,547 bopd;
  • The Otakikpo project has now recorded over 1.27 million hours with no lost time injuries;
  • 3D seismic acquisition programme to cover the entire Otakikpo area commenced in February 2018 with results expected to be available in Q3 2018 and which will be followed by an updated CPR; and
  • Planning for Phase 2 field development underway, targeting 20,000 bopd to be reached in 2020, subject to securing additional funding from industry sources.

 

OPL 310

  • Planning for a two well appraisal drilling programme of Ogo underway, with long lead time items ordered (such as well heads and oil country tubular goods ("OCTG");
  • MoU signed with GE Oil & Gas for the full field development of Ogo; and
  • Receipt of Ministerial Consent for the transfer of initial 17.14% participating interest on OPL310 farm-in, application made in March 2018 to the Federal High Court in Nigeria for a declaration that is expected to expedite the consent process for the second, 22.86%, tranche.

 

OPL 325

  • Independent Technical Evaluation Report, completed in January 2018, confirms the block prospectivity;
  • Geophysical evaluation of approx. 800 sq km of 3D seismic data identified eleven prospects and leads on the block. It is estimated to contain potential gross aggregate Oil-in-Place volumes of over 5,700 mmbbls, as an un-risked, Best Estimate case; and
  • Farm out process to be initiated following a prospect/lead risking study, which is expected to commence this year.

 

Namibia

  • Relinquished block 2514A during H2 2017; and
  • Updating de-risking for 2514B and data sharing opportunities with others which will aid in improving understanding of the regional basin.

 

Financial

  • Revenues of US$30.8 million (2016: nil)
  • Cost of sales of US$15.9 million (2016: nil)
  • Profit for the year US$6.5 million (2016: loss of US$15.8 million)
  • Profit per share of US$0.01 (2016: loss per share of US$0.03)
  • Period end cash of $6.9 million; cash at end April 2018 of $5.9 million; (2016 year-end cash of US $3.3 million)

 

Outlook

  • Increasing Otakikpo production volumes towards 20,000 bopd targeted to be reached in 2020;
  • Secure finance to appraise and test Ogo discovery in OPL 310; and
  • Initiate farm out process for OPL 325.

 

Samuel Adegboyega, Chairman, said, "To our great satisfaction, 2017 saw LEKOIL's first commercial production, and first crude oil sales.  These are perhaps the most important milestones in the history of the Company, and represent the fruits of efforts that have been ongoing since LEKOIL's inception in 2010."

 

Lekan Akinyanmi, Lekoil's CEO, added, "Our priority for 2018 is to continue to grow production volumes and profitability at Otakikpo.  In tandem, we will aim to progress the appraisal and development of our Ogo discovery in OPL 310.  Once we receive the second Ministerial Consent, we plan to finalise funding plans for an appraisal drilling programme.  The programme will comprise  two wells which will include flow testing.  Our aim is to secure enough information to enable the partners to take a Final Investment Decision in 2019 and then to proceed with development in partnership with GE Oil & Gas."

 

For further information, please visit www.lekoil.com or contact:

 

LEKOIL Limited

Alfred Castaneda, Investor Relations

Lisa Mitchell, Chief Financial Officer

 

 

+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 Limited (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

Numis Securities (Joint Broker)

John Prior / Ben Stoop

 

 

+44 20 7260 1000

Tavistock (Financial PR)

Simon Hudson / Barney Hayward / Charles Vivian

 

+44 20 7920 3150

       

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

 

LEKOIL's annual report and accounts for the year ended 31 December 2017, together with the Notice of Meeting will be posted to shareholders later today and will be available to download on the Company's website at http://www.lekoil.com/

 

 

Chairman's and CEO's Statement

 

Introduction

To our great satisfaction, 2017 saw LEKOIL's first commercial production, first sale of oil, and first crude oil sales.  These are perhaps the most important milestones in the history of the Company, and represent the fruits of efforts that have been ongoing since LEKOIL's inception in 2010.

 

Otakikpo

Otakikpo ended the year producing over 7,000 bopd continuously, following a steady rise in daily production through the second half of the year.  In Q1 2018, perforation activity was undertaken in one of two production strings at well-003 as previously announced, and production performance on the lower member sand of zone E1 showed small increases in water cut.  Current production is now stable at 6,000 bopd in line with production and reservoir management best practices. The Otakikpo Joint Venture Partners (with LEKOIL as Financial and Technical Partner to Green Energy International Limited as Operator) have agreed to continue production at current levels pending additional information from well and reservoir management and development activities (3D seismic and well drilling) in Phase Two.

 

The Joint Venture remains focused on Phase Two of the Otakikpo Field Development Plan which aims to increase steady state production up to approximately 20,000 bopd in 2020. Phase 2 of the development includes acquiring 3D seismic coverage of the entire Otakikpo field and the incremental development of the rest of the field with new wells planned. As an initial step in delivering Phase 2, the Otakikpo Joint Venture signed a contract with Sinopec Changjiang Engineering Services Limited (Sinopec) to acquire 197 sq km of 3D seismic data at Otakikpo, which commenced on 1 February 2018, following the securing of permits. This survey is on schedule to be completed in Q3 2018, followed by seismic processing and a subsequent release of an updated Competent Person's Report (CPR).  The completion of this seismic survey and planned development wells in the Phase Two programme will help to gather more information to optimize development and production. Drilling will commence after interpreting the seismic survey, as we continue to focus on increasing steady state production up to the 20,000 bopd target.

 

Ten liftings have been completed since production commenced and we have received cash proceeds within 30 days of each lift in line with the Crude Sales Agreement with Shell Trading. We have realised an average premium for the Otakikpo blend of US$1 or more above Brent pricing since inception. At current oil prices, the cash netback is above US$30 per barrel.

 

OPL310

We retain our confidence in the world class Ogo discovery contained within the OPL 310 licence area. Having received Ministerial Consent in June 2017 for our initial 17.14% interest resulting from our farm-in in 2013, we have been awaiting consent for the 22.86% interest we acquired in December 2015. Despite progressing exploration and appraisal activities on OPL 310, no such consent has been forthcoming nor a satisfactory explanation why we have not received it. As a result, we took the decision to apply to the Federal High Court for a declaration that is expected to expedite the consent process, and preserve the unexpired tenure in the licence. Assuming granting of the consent, LEKOIL will hold a 40% participating interest and a 70% economic interest in the OPL310 block.

 

The final consent will allow LEKOIL and Optimum Petroleum Development Company, our local partner in OPL310, to proceed with an appraisal drilling programme, subject to finalising funding. Details on the appraisal drilling work programme will be announced in due course, but it is anticipated it will include flow testing.

 

From well data collected from the Ogo 1 and Ogo 1-ST wells, our third-party consultants estimate P50 gross recoverable resources to be at least 774 mmboe across Ogo. Ongoing work on an updated OPL310 CPR continues, which we expect to be ready after the conclusion of the appraisal programme.

 

The next phase of the development of the Ogo discovery in OPL310 will be undertaken in partnership with GE Oil & Gas, a subsidiary of General Electric Company (NYSE:GE). Following the successful completion of the appraisal phase and a subsequent FEED study, GE Oil & Gas, through a consortium, and LEKOIL through its potential funding partners, intend to invest funds towards the full field development capital of the project. LEKOIL estimates this cost (on a gross basis) to be approximately US$400 million for full field oil development and US$600 million for subsequent upstream gas field development. 

 

In return GE Oil & Gas is expected to receive a percentage of LEKOIL's future cash flows from Ogo, as well as the opportunity to supply its products and provide technical expertise throughout the life of the project. LEKOIL's 40% participating interest in OPL310 will remain intact, allowing us to leverage GE's equipment and technical expertise throughout the life of the project, without diluting LEKOIL's equity interest in OPL310.

 

OPL325

The completion of an independent Technical Evaluation Report for OPL325 was announced on 31 January 2018. OPL325 is located offshore in the Dahomey Basin, straddling the western Niger Delta, 50km south of OPL310. LEKOIL holds 62% equity interest in OPL325, through Ashbert Oil and Gas Limited.

 

Geophysical evaluation of approximately 800 sq km of 3D seismic data by Lumina Geophysical identified a total of eleven prospects and leads on the block, estimated to contain potential gross aggregate Oil-in-Place volumes of over 5,700 mmbbls, as an un-risked, Best Estimate case.

 

We are delighted that the report helps confirm our belief in the prospectively of the block and that we have enhanced our optionality on the next phases of exploration.

 

We intend to farm-down a portion of our working interest in OPL325 following a detailed prospect/lead risking study, which is expected to commence this year.

 

Namibia

As per the terms of our licence, we have relinquished block 2514A in H2 2017 and are currently in the process of de-risking 2514B, sharing data with others that should help us improve our understanding of this regional basin. 

 

The Nigerian Business Environment

Nigeria continues to be a promising environment for LEKOIL. We anticipate that the net effect of planned regulatory change will be positive for indigenous companies and are engaged in active advocacy in that regard. We also do not expect that any update will make Nigeria significantly uncompetitive. Stable and competitive fiscal terms, particularly in the oil and gas industry as compared to other regions and lower risk continue to encourage overall investment. Government engagements to address militancy in the Niger Delta and the North East have been largely successful. As an indigenous company, these factors allow LEKOIL to maintain its "edge" in better understanding the Nigerian landscape. 

 

After the Naira weakened to a record low in mid-2016, the currency situation with the Naira stabilised further in the second half of 2017 in conjunction with stronger oil prices.  This has led to some easing of inflationary pressures, improving economic growth and in turn steadily increasing investor confidence. These factors should continue to be supportive of the Naira heading into 2018, barring a return to capital controls that were in place from 2015-2016.

 

Board

We were very pleased to welcome as our new CFO Lisa Mitchell, most recently CFO and Executive Director of Fastjet plc (AIM: FJET), the African focused low cost airline, prior to which she was CFO at Ophir Energy plc (LSE: OPHR).

 

At Ophir Energy, Lisa was responsible for contributing to the overall business strategy of Ophir; leading the finance function - including all financial, taxation, treasury and funding issues; IR, and providing financial support for all M&A activity.

 

Bruce Burrows resigned as CFO in order to pursue another opportunity that better fit his family circumstances and we wish him well.

 

In addition, LEKOIL was also pleased to announce the appointment of Tom Schmitt, a US citizen, as a Non-Executive Director. Tom Schmitt, aged 60, is president of Hunt Refining Company in Alabama. Prior to this, he was senior vice president with Hunt Oil Company for Hunt's development in Kurdistan, Iraq.  Tom also has extensive experience in investment management as a former portfolio manager of the Global Research Growth Fund at Alliance Bernstein.

 

Operational Review

 

Otakikpo Marginal Field - Producing Asset

Situated in a swamp area in OML 11, Otakikpo commenced production in February 2017.

 

Background

The original farm-in fee paid to Green Energy was US$7 million (an implied $0.5/bbl acquisition price) with a production bonus of US$4 million (which was paid in December 2017 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 1980s 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.

 

The Company has budgeted US $4.5 million to date for the completion of a permanent early production facility as part of Phase One.  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 US$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.

 

We received our first crude payment in June 2017, officially marking our transition from an exploration company to a true exploration and production company.  Production reached approximately 7,600 bopd in December 2017, steadily progressing from initial production levels of 5,000 bopd when the field started commercial production earlier in the year.  Otakikpo crude sold at a premium to Brent and as the backdrop for oil prices became increasingly constructive. Approximately 1.6 million barrels of oil have been produced in 2017 and the project has recorded over 1.27 million hours with no lost time injuries. With these commercial production milestones achieved, attention shifted to Phase Two of development for Otakikpo, which started in February 2018 with the commencement of 3D seismic acquisition both on and offshore. Phase Two targets production of 20,000 bopd to be achieved in 2020, subject to securing additional funding from industry sources.

 

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 originally 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

* 22.86% subject to Ministerial Consent

 

Background

In 2013, we invested our pro-rata share of the total US$160 million spent - including the funding of the first US$50 million from our IPO on London's AIM market - 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 P50 gross recoverable resource estimates of 202 mmboe attributable to Lekoil. 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. LEKOIL received the first of two Ministerial Consents for OPL310 in June 2017, for the original farm-in to OPL310 (17.14% participating interest).  Although we believed that progress had been made on the second Ministerial Consent for the 22.86% participating interest acquired from Afren, we were disappointed not to have received the consent, or a timetable for its granting, in the first quarter of 2018. We therefore took the decision at the end of March 2018 to apply to the Federal High Court of Nigeria for a declaration that is expected to expedite the consent process, and preserve the unexpired tenure in the licence which is otherwise due to expire in February 2019. Post the acquisition of Afren's interest, our economic interest in the block increases from 30% to 70%.

 

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 and Local Content Vehicle

Gross STOIIP unrisked prospective resources

5-6 billion boe

*via LEKOIL's majority stake in Ashbert Oil & Gas Limited, which holds 70% working interest of OPL325

 

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 the OPL 325 licence for an initial consideration of US$16.1 million, with other payments due at developmental milestones totalling US$24.1 million.

 

We have had access to 3D seismic data over 740km2 and are encouraged by the results and our interpretation of the analysis.  In January 2018, a thorough, final independent technical study by Lumina, prepared for LEKOIL, affirmed their preliminary review of oil in place volumes of 5.7 billion boe as an un-risked, Best Estimate case.  We intend to farm-down a portion of our working interest in OPL325 following a subsequent detailed prospect and lead risking study, which we intend to commence this year.

 

Namibia 2514 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

National Petroleum Corporate of Namibia, Local Content Vehicle

 

Background

Under the original terms of our licence we had a mandatory relinquishment of 50% of our acreage and we duly relinquished block 2514A in H2 2017. We received a license extension on block 2514B, with minimal capital obligations, effective September 2017 and valid through July 2019.  We are currently in the process of de-risking block 2514B, sharing data with others that should help us improve our understanding of this regional basin.  We are following a similar footprint to the work we performed on the Dahomey Basin that led to OPL310 and OPL325 opportunities.

 

Corporate & Social Responsibility

LEKOIL maintains high, ethical standards in its business activities. We have respect for all our people regardless of age, designation and gender. We work in an environment that fosters effective communication and we deal courteously with all our stakeholders.  And we respect the customs and rules of the countries in which we operate.

 

We act responsibly, promoting accountability as individuals and as a company.  We operate with ethics and fairness and comply with all required rules and regulations.

 

We are committed to the welfare and development of the communities around our operations.  In our dealings with the local communities surrounding our producing asset, Otakikpo, LEKOIL 's corporate and social responsibility ("CSR") plan continues to focus on three strategic aims:

 

i)           education,

ii)         economic empowerment (including women and children development) and,

iii)       environmental sustainability.

 

We are a part of the communities in which we operate. In the coastal town of Ikuru, close to Otakikpo, we recognised the need for community support for our work yet we also understood that creating a supportive environment works both ways. To that end, LEKOIL has been helping improve the quality of life for the residents.

 

We have organised events, working with local non-profit organizations 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.  From the youngest to the oldest, we provided vaccinations, health checks, eye tests and glasses, and surgery for those in most urgent need. We understand it was gratefully received.

 

Not only is LEKOIL providing active help to the communities surrounding our first development, it is also a sponsor of three pan-African initiatives aimed at empowering children, helping women in business and spreading 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 in 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

Our ambition to grow our business for our shareholders remains undiminished. We seek to do so in two ways: first, by adding value to, and/or monetising existing assets and second, by value accretive acquisitions.

 

Our priority for 2018 is to continue to grow production volumes at Otakikpo. In order to achieve our target of 20,000 bopd in 2020, we must finalise and then implement Phase 2 of our field development plan. The first step will be to complete the 3D data acquisition and interpretation that began in February 2018 prior to drilling additional production wells and expanding the processing and evacuation facilities to cope with the higher volumes.  Upside for our Otakikpo interests could also be delivered from exploration and appraisal drilling on structures identified to the south of the current producing field.

 

In tandem with the further development of Otakikpo, we will aim in 2018 to progress the appraisal and development of our Ogo discovery in OPL 310. Assuming we receive the second Ministerial Consent for the acquisition of Afren's 22.86% working interest, we plan to finalise funding plans for an appraisal drilling programme. The programme will comprise of two wells, which will include flow testing. This is scheduled to begin in late second half of this year. Our aim is to secure enough information to enable the partners to take a Final Investment Decision in 2019 and then to proceed with development in partnership with GE Oil & Gas.

 

We will continue to study acquisition opportunities in our areas of geographic interest where we believe we can add material value. Such opportunities may take the form of farm-ins to 'near to' production assets, outright corporate vehicle acquisitions or potential new business streams in the energy or mid-stream space.

 

2018 will therefore provide a number of key catalysts for value appreciation for shareholders as we continue to lay the foundations for what we believe will become a leading African focused exploration and production business.

 

Samuel Adegboyega

Olalekan Akinyanmi

Chairman

Chief Executive Officer

 

1 June 2018

 

 

Financial Review

 

Overview

LEKOIL had a successful year bringing commercial oil production online in February 2017, securing debt financing US$30 million and Naira 9.5 billion for the development of Otakikpo thereby delivering on the key objective for 2017. The results reflect its first year with production and with gearing, excluding trade payables, at 16% providing the financial requirement to invest in the business. The Group recorded a total comprehensive profit of US$6.5 million for the year ended 31 December 2017 (2016: US$15.8 million). Cash and cash balances at the end of the year were US$6.9 million (2016: US$3.3 million), with year end net debt of $63.8 million (2016: $62.5 million).

 

In US '000s Dollars

2017

2016

Cash and cash balances

6,922

3,283

Net debt

63,766

62,523

Working Interest Revenue

30,848

-

Profit/ (loss) for the year

6,496

(15,772)

Profit/ (loss) per share

0.01

(0.03)

Cash flow (used in)/ generated from operations

(11,712)

(8,822)

 

Production and Revenues

Revenues derived from 11 months of commercial production from Otakikpo were US$30.8 million.  Total production from the Otakikpo marginal field for the year was 1,560,125 gross barrels. The Group's entitlement crude was 1,223,248 barrels. Of  these barrels, the Group lifted 1,188,732 barrels (31 December 2016: nil) and the balance of 34,516 barrels representing the Group's share of overriding royalty crude was lifted on its behalf by its joint venture partner based on an agreed lifting arrangement. The entitlement crude is comprised of equity crude of 583,720 barrels (sales value US$30.8 million) and cost recovery crude of 639,528 barrels (US$ 33.7 million). The cost recovery crude is not included in revenue and is utilized to reduce prepaid development costs borne by the Group on behalf of partner GEIL. The Group's realised oil price was US$52.65 for the year. The Group does not currently have oil price hedging in place apart from amounts required under the current debt facilities however as part of the Company's risk management strategy this approach will be reviewed during 2018.

 

Cost of sales, depreciation, impairments and administrative expenditure

Underlying cost of sales were US$15.9 million or US$25.5/bbl (2016: Nil). Depletion and amortisation costs on oil and gas assets were US$6.2 million (2016: US$0.2 million) or US$9.9/ bbl.

 

General and administrative expenses were US$17.4 million compared to US$21.1 million for the same period in 2016. Operating expenses were US$11.3 million as at 31 December 2017 compared to US$0.6 million as at 31 December 2016. The decrease in general & administrative expenses in 2017 was due to the re-allocation of certain overheard costs to operating expenses following the commencement of production. The production bonus (a one off obligation arising from the terms of the licence farm-in agreement with GEIL) was US$4.0 million and was paid in December 2017 (2016: nil). Exploration and evaluation expenses in respect of the block 2514A write off and goodwill impairment expense on Ashbert Oil and Gas Limited Acquisition were US$0.7 million (2016: nil).

 

Capital investment

The Group's capital expenditure for the year was US$8.4 million (2016: US$26.3 million) and focused on additional Otakikpo storage tanks and exploration and appraisal activities of the Group's interests in OPL 310 and OPL 325.

 

Taxes

As a Nigerian producing business, the Group became subject to the Petroleum Profit Tax Act of Nigeria (PPTA) and the Company Income Tax Act of Nigeria (CITA). Tax benefit for year was US$21.3 million made up of Petroleum Profit Tax of US$0.2 million, Company Income Tax expense of US$1.6 million (2016: nil), Tertiary Education Tax expense of US$0.1 million, and a Deferred Tax credit of US$23.2 million was recognized in relation to Lekoil Oil and Gas Limited (the holder of the Otakikpo producing asset).

 

Profit/ (loss) for the year and loss per share

The Group recorded a total comprehensive profit of US$6.5 million for the year to 31 December 2017 (2016: loss of US$15.8 million) and a basic and diluted profit per share of US$1 cent (2016: loss of US$3 cents).

 

Cash and bank balances

The Group had cash and bank balances of US$6.9 million as at 31 December 2017 (2016: US$3.3 million).  Restricted cash of US$3.3 million (2016: US$1.1 million), which represents cash funding of the debt service reserve accounts for two quarters of interest for FBN Capital Notes and one quarter of interest and principal payment of the Shell Western facility, has been reported as part of other assets.

 

Loans and borrowings

The Group had the following debt facilities in place at year end:

 

In US$'000

Interest rate p.a.

2017

2016

 

 

 

 

US$10 million FBNC Dollar Facility

11.25% + LIBOR

5,828

9,455

4.5 billion naira FBNM Naira Facility

6% + NIBOR

7,212

14,351

US$15 million Shell Facility

10% + LIBOR

13,275

-

5 billion naira Sterling Bank Facility

26%

2,191

3,584

US$5 million FBNM working Facility

11.25% + LIBOR

1,003

-

 

 

 

 

Total

 

29,509

27,390

Less borrowings, current

 

(17,317)

(10,366)

Borrowings, non-current

 

12,192

17,024

Please refer to note 29 in the financial statements for a further breakdown.

 

Assets and liabilities

The Group's non-current assets were US$210.4 million as at 31 December 2017 (US$191.8 million at 31 December 2016), reflecting depreciation, depletion and amortization of oil and gas assets during the year, including the initial recognition of deferred tax assets of US$23.2 million (2016: nil). Current assets, which represent the Group's cash resources, other assets and other receivables, decreased from US$72.1 million as at 31 December 2016 to US$66.1 million as at 31 December 2017. The decrease is as a result of a reduction in prepaid development costs which relate to the Otakikpo field cost recovery arrangement under the GEIL farm out agreement. Inventories which consist of the Group's share of crude stock increased from US$0.7 million as at 31 December 2016 to US$1.1 million as at 31 December 2017.

 

Current liabilities consist of the loan facilities set out above due within twelve months, amounting to US$17.3 million (31 December 2016: US$10.4 million), trade and other payables amounting to US$32.5 million (31 December 2016: US$30.9 million), income tax payable amounting to US$1.9 million (31 December 2016: nil) and deferred income representing interest on prepaid development costs amounting to US$6.7 million (31 December 2016: US$7.4 million).

 

Dividend

The Directors do not recommend the payment of a dividend for the year ended 31 December 2017 (2016: 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 2017.

 

Liquidity risk management and going concern

The Group closely monitors and manages its liquidity risk and ability to service debt as it falls due. Cash forecasts are regularly produced and sensitivities run for different scenarios including (but not limited to) changes in production rates and commodity pricing, and cost overruns for approved projects.

 

At 31 December 2017, the Group had liquid resources of approximately US$6.9 million in the form of cash and bank balances available to meet capital, operating and administrative expenditure. 

 

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 on the Otakikpo marginal field;
  • The operational success of the Otakikpo Phase 2 field development and planned growth in production to 20,000 bopd;
  • Commodity pricing given there is no oil price hedging currently in place other than that required by lenders for debt service;
  • Availability of financing  for development of OPL310, which is not currently factored into the cash forecasts; and
  • Ability to defer activities to future periods in the event required.

 

The Directors have determined that over the course of the next 12 months and taking into consideration the factors mentioned above, there is a reasonable expectation there will be a sufficient source of funds for the Group. In making their assessment, the Directors have considered the Group's current cash position and the generation of funds from forecast production over the period, against the need to service the Group's debt portfolio, and tested the scenarios at different commodity prices. The Group further anticipates that additional funding, if appropriate, could be met by the divestment of assets along with access to the debt and capital markets. Based on their assessment, and taking into consideration the material uncertainties that exist, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the 12 month period in 2019.

 

These annual consolidated financial statements therefore have been prepared on the going concern basis of accounting, which assumes the Group 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. 

 

Lisa Mitchell

Chief Financial Officer

1 June 2018

 

 

Statement of Directors' Responsibilities in relation to the consolidated financial statements

 

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 2017, 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's financial position and financial performance; and
  • making an assessment of the Group'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; maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group, and which enable them to ensure that the financial statements of the Group 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
  • 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 2017 were approved by the Directors on 1 June 2018.

 

Signed on behalf of the Board of Directors by:

 

Olalekan Akinyanmi

Lisa Mitchell

Chief Executive Officer

Chief Financial Officer

 

1 June 2018

 

 

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 2017, 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 2017, 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 has a negative operating cash flows of US$11.7 million for the year ended 31 December 2017 and as of that date, the Group's accumulated deficits amounts to US$61.9 million (2016: US$67 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

Revenue recognition

Lekoil Oil and Gas Investment Limited, a subsidiary of Lekoil Limited, entered into a joint operating agreement with Green Energy International Limited (GEIL) on the Otakikpo marginal field in OML 11 with a 40% interest while GEIL retained 60%.

 

Following an agreement to finance GEIL's 60% of the Initial Field Development Costs (IFDC), the company was awarded 48% of GEIL's 60% equity crude (less Government and overriding royalty) to recover such costs plus an average interest of 10% -13% until payout is achieved

 

Lekoil therefore currently sells its crude entitlement being a combination of equity share of 40% and 48% crude oil recovery from GEIL Free On Board (FOB) to Shell Western Supply and Trading Limited.

 

There is a risk that revenue may be misstated due to improper recognition of revenue amount.

To test the appropriateness of the revenue recognition, we performed the following procedures:

 

 

  • Reviewed the design, the implementation and the operating effectiveness of the controls surrounding revenue recognition.

 

  • Performed detailed substantive procedures on revenue recognition taking into consideration the appropriateness of the allocation of sales proceeds between revenue and prepaid development costs.

 

Revenue is recognized on the basis of the Company's equity participation of 40% of the production, while the remaining 48% is taken as recovery to unwind the IFDC cost incurred on behalf of GEIL.

 

 

We found the Group's revenue recognition for the current year appropriate and this has been adequately disclosed in the consolidated financial statements.

Share based payment arrangements

The Group has three share based payments arrangements - The Share option scheme, Non-Executive Director share plan and Long term incentive plan scheme.

 

The Directors engaged the services 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, etc.

 

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 the 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, OPL 325 and Block 2514B.

 

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 17, management has made a number of key sensitive judgments in determining the inputs into these models.

 

Accordingly, the impairment test of these assets is considered to be a key audit matter.

 

 

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 the exploration and evaluation assets to be appropriate and as such impairment charge is not considered necessary.

 

Other Information

The Directors are responsible for the other information. The other information comprises the Chairman's and CEO's Statements, Financial Review, Directors' Report and Remuneration Committee's 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 Review 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: Deloitte & Touche Nigeria

Chartered Accountants 

Lagos, Nigeria

1 June 2018

 

 

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December

 

 

Notes

2017

US$'000

Restated*

2016

US$'000

Revenue

8

30,848

-

Cost of sales

9

(15,913)

-

Gross profit

 

14,935

-

Operating expenses

10

(11,329)

(629)

Production bonus

11

(4,000)

-

Exploration & evaluation expenses

12

(718)

-

General and administrative expenses

13

(17,405)

(21,082)

Operating loss

 

(18,117)

(21,711)

 

 

 

 

Finance income

14

11,349

6,868

Finance costs

14

(8,073)

(929)

Net finance income

 

3,276

5,939

 

 

 

 

Loss before income tax

 

(14,841)

(15,772)

 

 

 

 

Income tax benefit

15 (d)

21,337

-

Profit/ (loss) for the year

 

6,496

(15,772)

 

 

 

 

Total comprehensive profit/ (loss)

 

6,496

(15,772)

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

5,150

(14,906)

Non-controlling interests

 

1,346

(866)

 

 

6,496

(15,772)

 

 

 

 

Total comprehensive profit/ (loss) for the year

 

6,496

(15,772)

 

 

 

 

Profit/ (loss) per share:

 

 

 

Basic profit/ (loss) per share ($)

16 (a)

0.01

(0.03)

 

 

 

 

Diluted profit/ (loss) per share ($)

16 (b)

0.01

(0.03)

*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).

 

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

 

Consolidated statement of financial position

As at 31 December

 

 

Notes

2017

US$'000

Restated*

2016

US$'000

Non-current assets

 

 

 

Property, plant and equipment

17

34,593

39,625

Exploration and evaluation assets

18

130,773

128,732

Intangible assets

19

6,269

8,237

Deferred tax assets

15

23,249

-

Other receivables

22

2,487

2,422

Other assets

23

13,000

12,756

 

 

210,371

191,772

Current assets

 

 

 

Inventories

20

1,090

672

Trade receivables

21

6,044

-

Other receivables

22

3,680

57

Other assets

23

5,901

1,288

Pre-paid development costs

24

42,463

66,825

Cash and bank balances

25

6,922

3,283

 

 

66,100

72,125

Total assets

 

276,471

263,897

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

26

32,475

30,899

Current tax payables

15

1,912

-

Deferred income

28

6,685

7,426

Loans and borrowings

29

17,317

10,366

 

 

58,389

48,691

Non-current liabilities

 

 

 

Provision for Asset Retirement Obligation

27

107

91

Loans and borrowings

29

12,192

17,024

 

 

12,299

17,115

Total liabilities

 

70,688

65,806

Net assets

 

205,783

198,091

Capital and reserves

 

 

 

Share capital

30(a)

27

27

Share premium

30(b)

264,004

264,004

Accumulated deficit

 

(61,855)

(67,005)

Other reserves

 

22

22

Share based payment reserve

 

7,675

6,479

Equity attributable to owners of the Company

 

209,873

203,527

Non-controlling interests

31

(4,090)

(5,436)

Total equity

 

205,783

198,091

*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).

 

These consolidated financial statements were approved by the Board of Directors on 01 June 2018 and signed on its behalf by:

Olalekan Akinyanmi - Chief Executive Officer

Lisa Mitchell - Chief Financial Officer

 

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

 

Consolidated statement of changes in equity

For the year ended 31 December

In US$'000

 

 

 

 

 

Restated*

 

Notes

 

Share capital

Share premium

Accumulated deficit

Other reserves

Share-based payments reserve

Total

Non-controlling interests

Total equity

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2016

 

 

24

252,208

(52,099)

22

5,174

205,329

(4,570)

200,759

Total comprehensive loss for the year

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

-

-

(14,906)

-

-

(14,906)

(866)

(15,772)

Transactions with owners of the Company

 

 

 

 

 

 

 

 

 

 

Issue of ordinary shares

 

 

3

11,796

-

-

-

11,799

-

11,799

Share-based payment- personnel expenses

32

 

-

-

-

-

1,305

1,305

-

1,305

As at 31 December 2016

 

 

27

264,004

(67,005)

22

6,479

203,527

(5,436)

198,091

Total comprehensive profit for the year

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

-

-

5,150

-

-

5,150

1,346

6,496

Transactions with owners of the Company

 

 

 

 

 

 

 

 

 

 

Share-based payment- personnel expenses

32

 

-

-

-

-

1,196

1,196

-

1,196

Balance at 31 December 2017

 

 

27

264,004

(61,855)

22

7,675

209,873

(4,090)

205,783

                       

*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).

 

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

 

 

Consolidated statement of cash flows

For the year ended 31 December

 

Notes

2017

US$'000

Restated*

2016

US$'000

Operating activities

 

 

 

Total comprehensive profit/ (loss) for the year

 

6,496

(15,765)

Adjustments to reconcile total comprehensive loss to net cash generated from/ (used in) by operating activities:

 

 

 

- Equity-settled share-based payment

 

1,196

1,305

- Finance income

 

-

(73)

- Property, plant and equipment restatement

 

4,423

-

- Prepaid development costs restatement

 

5,477

-

- Prepaid development costs carried interest

 

(6,921)

(5,058)

- Intangible cost adjustment

 

291

-

- Derecognition of block 2514A

 

268

-

- Finance cost

 

6,850

-

- Revaluation adjustments

 

(2,649)

-

- Deferred tax

 

(23,249)

-

- Depreciation and amortization

17&19

8,366

1,196

Cash flow generated from/(used in) operations before working capital adjustments

 

548

(18,395)

Changes in:

 

 

 

Inventory

 

(418)

(672)

Trade and other payables

 

835

29,263

Other assets

 

(4,857)

(1,851)

Trade and other receivables

 

(9,732)

477

Cash (used in)/generated from operations

 

(13,624)

8,822

Income taxes

 

1,912

-

Net cash (used in)/generated from operating activities

 

(11,712)

8,822

Investing activities

 

 

 

Acquisition of property, plant and equipment

17

(6,080)

(24,924)

Prepaid development costs

24

(7,894)

(32,960)

Recoveries from prepaid development costs

24

33,700

-

Expenditure on behalf of Partner

 

-

(396)

Interest received

 

-

73

Acquisition of exploration and evaluation assets

18

(2,309)

(675)

Acquisition of intangible assets

19

-

(672)

Net cash generated from/(used in) investing activities

 

17,417

(59,554)

Financing activities

 

 

 

Proceeds from issue of share capital

30

-

11,799

Proceeds from issue of loan note

29

18,137

28,028

Repayment of loan

29

(13,568)

(8,000)

Interest and transaction costs related to loan

29

(6,635)

(3,828)

Net cash (used in)/generated from financing activities**

 

(2,066)

27,999

Increase/(decrease) in cash and bank balances

 

3,639

(22,733)

Cash and bank balances at 1 January

25

3,283

26,016

Cash and bank balances at 31 December

25

6,922

3,283

*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).

**Changes in liabilities arising from financing activities have been disclosed in note 29(e).

The notes below 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 with registration number WK- 248859. 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 (EU). The consolidated financial statements were authorised for issue by the Board of Directors on 1 June 2018.

 

A number of new standards, amendments to standards and interpretations effective for annual periods beginning after 1 January 2017, have not been applied in preparing these consolidated financial statements.

 

(b)  Going concern basis of accounting

These consolidated financial statements have been prepared on the going concern basis of accounting.

 

The Group closely monitors and manages its liquidity risk and ability to service debt as it falls due. Cash forecasts are regularly produced and sensitivities run for different scenarios over both a detailed 13 week forecast period and a rolling 12 month period.

 

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 liftings on the Otakikpo marginal field;
  • The operational success of the Otakikpo Phase 2 field development and planned growth in production to 20,000 bopd;
  • Commodity pricing given there is no oil price hedging currently in place, other than that required by the lenders for debt service;
  • Availability of financing for development of OPL310, which is not currently factored into the preparation of the cashflow; and
  • Ability to defer activities to future periods in the event required.

 

The Directors have determined that over the course of the next 12 months and taking into consideration the factors mentioned above, there is a reasonable expectation that there will be sufficient sources of funds for the Group. In making their assessment, the Directors have considered the Group's current cash position and the generation of funds from forecast production over the period, against the need to service the Group's debt portfolio, and tested the scenarios at different commodity prices. The Company further anticipates that additional funding, if appropriate, could be met by the divestment of assets along with access to the debt and capital markets.

Based on their assessment, and taking into consideration the material uncertainties that exist, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the 12 month period in 2019.

 

Accordingly the Directors continue to adopt the going concern basis of preparation of the financial statements for the year ended 31 December 2017.

 

(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 thousands of dollars (1,000), 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 prospectively.

 

(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 18(a) - Exploration and evaluation accounting judgment. The Group policy is to capitalise all expenditure incurred during the exploration and appraisal phase until the determination process has been completed or until such point as commercial reserves have been established. Exploration and evaluation assets are expected to be recouped in future through successful development and exploitation of the area of interest.

- Note 18(c) - The Group has a reasonable expectation that OPL 310 license will be either extended for an additional 12 months or converted to OML as appropriate before the expiration date, based on the usual practice within the oil and gas industry in Nigeria and interaction with the appropriate government agencies.

- Note 18(e) - The Group has concluded its consultation on whether Ministerial Consent is required before it can exercise control over Ashbert Oil and Gas Limited. The Group has a reasonable expectation that it does not require Ministerial Consent to exercise control over Ashbert and the interest in mineral rights in OPL 325 held by Ashbert. Consequently, 2016 balances have been restated to reflect Ashbert's transactions.

- Note 23 - On the basis that the Group requires Ministerial Consent to take control of the oil mineral rights interest held by Afren Oil and Gas, the Group has not consolidated Afren Oil and Gas and has accounted for payments made in respect of the Afren Oil and Gas acquisition as other assets.

 

(ii) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the year ended 31 December 2017 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 15(c) - Unrecognised deferred tax assets. Availability of future taxable profit against which carry forward losses can be used.

Notes 17, 18 and19 - Impairment test of property plant and equipment, exploration and evaluation assets and intangible assets: Key assumptions underlying recoverable amounts.

Note 18(c) - The Directors are have a reasonable expectation that the license for OPL 310 will be converted or renewed as appropriate upon expiration.

Note 18(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 27- Provisions. Key assumptions underlying the obligation as at year end.

Notes 23 and 24 - Carrying value of other assets and prepaid development costs. Basis for the conclusion that the carrying value of other assets and prepaid development costs do not exceed their recoverable amount.

Note 32 - Share based payment arrangements. Key assumptions made in measuring fair values.

Note 36 - Financial commitments and contingencies. Key assumptions about the likelihood and magnitude of an outflow of economic resources. Oil and gas reserves. Key assumptions underlying the estimation of oil and gas reserves.

 

3 Significant accounting policies

The Group has consistently applied the following accounting policies 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 the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the 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.

 

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 Group controls an entity if:

 

i)  it has power over the investee i.e. it has existing rights that give it the ability to direct the relevant activities (the activities that significantly affect the investee's returns)

ii)  it has exposure, or rights, to variable returns from its involvement with the investee

iii) it has the ability to use its power over the investee to affect the amount of the investor's returns.

 

The Group is deemed not to control an entity where regulatory approval is a substantive requirement for the passing of control. 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.

 

(iv)  Interests in equity-accounted investees

The Group's interests in equity-accounted investees comprise interests in associates and a joint venture.

 

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint arrangement is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for the liabilities.

 

Interests in associates and the joint venture are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income (OCI) of equity-accounted investees, until the date on which significant influence or joint control ceases.

 

(v) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

(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 the reporting 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. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

 

However, foreign currency differences arising from the translation of the following items are recognised in OCI:

 

- available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognised in OCI are reclassified to profit or loss);

- a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and

- qualifying cash flow hedges to the extent that the hedges are effective.

 

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, 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 OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to NCI.

 

When a foreign operation is disposed of its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

 

(c) Revenue

(i) Sale of crude

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consi</