LEKOIL LIMITED
LEKOIL LIMITED (LEK) 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
OPL 310
OPL 325
Namibia
Financial
Outlook
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:
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 productionand 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.
Tenliftings 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$400million for full field oil development and US$600million 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 opportunityto 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 phaseswhich 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.
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.
* 22.86% subject to Ministerial Consent
Background In 2013, we invested our pro-rata share of the total US$160 millionspent - 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.
*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.
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 organizationsto 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 ?rst 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 ?rst 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-pro?t organisation with an overriding vision "to be the catalyst that elevates the status and in?uence 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-pro?t 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 signi?cant e?ect 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 incomplying 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 di?erently.
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.
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).
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$17.4million 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 theOtakikpo 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:
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$32.5million (31December 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.
Theabilityof theGrouptocontinuetooperateasagoingconcernisdependentona numberof factorsconsideredbytheDirectorsasdisclosedbelow:
The Directors have determined that over the course of the next 12 months and taking into consideration the factors mentioned above, thereis 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.TheGroupfurther 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 Groupwill 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 Groupwill 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
StatementofDirectors'Responsibilitiesinrelationtotheconsolidatedfinancialstatements
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:
The Directors are responsible for:
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:
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.
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:
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.
OlufemiAbegunde FCA-FRC/2013/ICAN/000000004507 for: Deloitte & ToucheNigeria Chartered Accountants Lagos, Nigeria 1 June 2018
Consolidated statement of pro?t or loss and other comprehensive income For the year ended 31 December
*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).
The notes beloware an integral part of these consolidated ?nancial statements.
Consolidated statement of ?nancial position As at 31 December
*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).
These consolidated ?nancial statements were approved by the Board of Directors on 01 June2018 and signed on its behalf by:
The notes on beloware an integral part of these consolidated ?nancial statements. Consolidated statement of changes in equity For the year ended 31 December In US$'000
*Certain amounts shown here do not correspond to the 2016 financial statements and reflect restatements made, refer to Note 3(r).
The notes beloware an integral part of these consolidated ?nancial statements.
Consolidated statement of cash ?ows For the year ended 31 December
*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 beloware an integral part of these consolidated ?nancial statements.
Notes to the ?nancial statements
1Reportingentity LekoilLimited(the"Company"or"Lekoil")isacompanydomiciledintheCaymanIslandswithregistrationnumberWK-248859.Theaddressof theCompany's registeredofficeisIntertrustGroup,190ElginAvenue,Georgetown,GrandCayman,CaymanIslands.Theseconsolidatedfinancialstatementscomprisethe Companyanditssubsidiaries(togetherreferredtoasthe "Group"andindividuallyas"Groupentities").TheGroup'sprincipalactivityisexplorationandproductionof oilandgas.
2Basisofpreparation (a) Statementofcompliance TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion(EU).Theconsolidated financialstatementswereauthorisedforissuebytheBoardof Directorson1 June2018.
A numberof newstandards,amendmentstostandardsandinterpretationseffectiveforannual periodsbeginningafter1January 2017,havenotbeenappliedin preparingtheseconsolidatedfinancialstatements.
(b) Goingconcernbasisofaccounting Theseconsolidatedfinancialstatementshavebeenpreparedonthegoingconcernbasisof 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.
Theabilityof theGrouptocontinuetooperateasagoingconcernisdependentona numberof factorsconsideredbytheDirectorsasdisclosedbelow:
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) Basisofmeasurement Theseconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforsharebasedpaymentswhicharemeasuredatfairvalues.
(d) Functionalandpresentationcurrency TheseconsolidatedfinancialstatementsarepresentedinUSDollarswhichistheCompany'sfunctionalcurrency.Allamountshavebeenroundedtothenearestthousandsof dollars(1,000),unlessotherwiseindicated.
(e) Useofestimatesandjudgments Thepreparationof theseconsolidatedfinancialstatementsinconformitywithIFRSrequiresmanagementtomakejudgments,estimatesandassumptionsthat affecttheapplicationof accountingpoliciesandthereportedamountsof assets,liabilities,incomeandexpenses.Actual resultsmaydifferfromtheseestimates.
Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognizedprospectively.
(i)Judgments Informationaboutjudgmentsmadeinapplyingaccountingpoliciesthathavethemostsignificanteffectsontheamountsrecognizedintheconsolidated financialstatementsisincludedinthefollowingnotes:
- Note2(b)-Goingconcernbasisof accounting. - Note18(a)-Explorationandevaluationaccountingjudgment.TheGrouppolicyistocapitaliseallexpenditureincurredduringtheexplorationand appraisalphaseuntil thedeterminationprocesshasbeencompletedoruntil suchpointascommercialreserveshavebeenestablished.Explorationand evaluationassetsareexpectedto be recoupedinfuturethroughsuccessfuldevelopmentandexploitationof theareaof interest. - Note18(c)-TheGrouphasa 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. - Note18(e)-TheGrouphasconcludeditsconsultationonwhetherMinisterialConsentisrequiredbeforeitcanexercisecontroloverAshbertOilandGas Limited.TheGrouphasa reasonable expectationthatit doesnotrequireMinisterialConsenttoexercisecontroloverAshbertandtheinterestin mineral rightsinOPL325 heldbyAshbert. Consequently, 2016 balances have been restated to reflect Ashbert's transactions. - Note23-OnthebasisthattheGrouprequiresMinisterialConsenttotakecontrolof theoilmineral rightsinterestheldbyAfrenOilandGas,theGrouphasnotconsolidatedAfrenOilandGasandhasaccountedforpaymentsmadeinrespectof the AfrenOilandGasacquisitionasotherassets.
(ii)Assumptionsandestimationuncertainties Informationaboutassumptionsandestimationuncertaintiesthathaveasignificantriskof resultinginamaterialadjustmenttothecarryingamountsof assetsandliabilitiesintheyearended31December2017isincludedinthefollowingnotes:
Note2(b)- Goingconcern.KeyassumptionsmadeandjudgmentexercisedbytheDirectorsinpreparingtheGroup'scashforecast. Note15(c)- Unrecogniseddeferredtaxassets.Availabilityof futuretaxableprofitagainstwhichcarry forwardlossescanbeused. Notes17, 18and19-Impairmenttestof propertyplantandequipment,explorationandevaluationassetsandintangibleassets:Keyassumptions underlyingrecoverableamounts. Note18(c)-TheDirectorsarehave a reasonable expectationthatthelicenseforOPL310willbeconvertedorrenewedasappropriateuponexpiration. Note18(d)- Carryingvalueof explorationandevaluationassets.Basisfortheconclusionthatthecarryingvalueof E&Eassetsdo notexceedtheir recoverableamount. Note27-Provisions.Keyassumptionsunderlyingtheobligationasatyearend. Notes23and24- Carryingvalueof otherassetsandprepaiddevelopmentcosts.Basisfortheconclusionthatthecarryingvalueof otherassetsand prepaiddevelopmentcostsdo notexceedtheirrecoverableamount. Note32-Sharebasedpaymentarrangements.Keyassumptionsmadein measuringfairvalues. Note36-Financialcommitmentsandcontingencies.Keyassumptionsaboutthelikelihoodandmagnitudeof anoutflowof economicresources.Oilandgasreserves.Keyassumptionsunderlyingtheestimationof oilandgasreserves.
3Significantaccountingpolicies TheGrouphasconsistentlyappliedthefollowingaccountingpoliciestoallperiodspresentedintheseconsolidatedfinancialstatements.
(a)Basisofconsolidation (i)Businesscombinations TheGroupaccountsforbusinesscombinationsusingtheacquisitionmethodwhencontrolistransferredto theGroup.Theconsiderationtransferredinthe acquisitionisgenerallymeasuredatfairvalue,asaretheidentifiablenetassetsacquired.Anygoodwillthatarisesistestedannuallyforimpairment.Any gainonabargainpurchaseisrecognisedinprofitorlossimmediately.Transactioncostsareexpensedasincurred,exceptifrelatedtotheissueofdebtor equitysecurities.
Theconsiderationtransferreddoesnotincludeamountsrelatedtothesettlementofpre-existingrelationships.Suchamountsaregenerallyrecognisedin profitorloss.
Anycontingentconsiderationismeasuredatfairvalueatthedateofacquisition.Ifanobligationtopaycontingentconsiderationthatmeetsthedefinitionof afinancial instrument is classifiedasequity,thenitis not remeasured and settlement is accountedfor within equity.Otherwise,othercontingent considerationisremeasuredatfairvalueateachreportingdateandsubsequentchangesinthevalueofthecontingentconsiderationarerecognisedinprofit orloss.
Ifshare-basedpaymentsawards(replacementawards)arerequiredtobeexchangedforawardsheldbytheacquiree'semployees(acquiree'sawards),then all ora portionoftheamountoftheacquirer'sreplacementawardsisincludedinmeasuringthe considerationtransferredinthe businesscombination.This determinationisbasedonthemarket-basedmeasureofthereplacementawardscomparedwiththemarket-basedmeasureoftheacquiree'sawardandthe extentto whichthereplacementawardsrelatesto pre-combinationservice.
(ii)Non-controllinginterests Non-controllinginterests(NCI)aremeasuredattheirproportionateshareof theacquiree'sidentifiablenetassetsattheacquisitiondate.
ChangesintheGroup'sinterestinasubsidiarythatdo notresultinalossof controlareaccountedforasequitytransactions.
(iii)Subsidiaries SubsidiariesareentitiescontrolledbytheGroup.TheGroupcontrolsanentity if:
i) it haspowerovertheinvesteei.e.it hasexistingrightsthatgiveittheabilityto directtherelevantactivities(theactivitiesthatsignificantlyaffectthe investee'sreturns) ii) it hasexposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee iii)it hastheabilityto useitspowerovertheinvesteetoaffecttheamountof theinvestor'sreturns.
TheGroupisdeemednottocontrolanentity whereregulatoryapprovalisasubstantiverequirementforthepassingof control.Thefinancialstatementsof subsidiariesareincludedintheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntil thedateonwhichcontrolceases.
(iv) Interestsinequity-accountedinvestees TheGroup'sinterestsinequity-accountedinvesteescompriseinterestsinassociatesanda jointventure.
AssociatesarethoseentitiesinwhichtheGrouphassignificantinfluence,butnotcontrolorjointcontrol,overthefinancialandoperatingpolicies.A joint arrangementisanarrangementinwhichtheGrouphasjointcontrol,wherebytheGrouphasrightstothenetassetsofthearrangement,ratherthanrightsto itsassetsandobligationsfortheliabilities.
Interestsinassociatesandthejointventureareaccountedforusingtheequitymethod.They areinitially recognisedatcost,whichincludestransactioncosts. Subsequenttoinitial recognition,theconsolidatedfinancialstatementsincludetheGroup'sshareof theprofitorlossandothercomprehensiveincome(OCI) of equity-accountedinvestees,until thedateonwhichsignificantinfluenceorjointcontrolceases.
(v)Transactionseliminatedonconsolidation Intra-groupbalancesandtransactions,andanyunrealisedincomeandexpensesarisingfromintra-grouptransactions,areeliminated.Unrealisedgains arisingfromtransactionswithequity-accountedinvesteesareeliminatedagainsttheinvestmenttotheextentof theGroup'sinterestintheinvestee. Unrealisedlossesareeliminatedinthesamewayasunrealisedgains,butonly totheextentthatthereisnoevidenceof impairment.
(b)Foreigncurrency (i)Foreigncurrencytransactions Transactionsinforeigncurrenciesaretranslatedintotherespectivefunctionalcurrenciesof Groupentitiesatexchangeratesatthedatesof thetransactions.
Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthereportingdatearetranslatedtothefunctionalcurrencyattheexchangerateatthe reportingdate.Non-monetaryassetsandliabilitiesthataremeasuredatfairvalueinaforeigncurrencyaretranslatedintothefunctionalcurrencyatthe exchangeratewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredbasedonhistoricalcostinaforeigncurrencyaretranslatedat the exchangerateatthedateof thetransaction.Foreigncurrencydifferencesaregenerallyrecognisedinprofitorloss.
However,foreigncurrencydifferencesarisingfromthetranslationof thefollowingitemsarerecognisedinOCI:
-available-for-saleequityinvestments(exceptonimpairment,inwhichcaseforeigncurrencydifferencesthathavebeenrecognisedinOCIare reclassifiedto profitorloss); -afinancialliability designatedasa hedgeof thenetinvestmentinaforeignoperationtotheextentthatthehedgeiseffective;and -qualifyingcashflowhedgestotheextentthatthehedgesareeffective.
(ii)Foreignoperations Theassetsandliabilitiesofforeignoperations,includinggoodwillandfairvalueadjustmentsarisingonacquisition,aretranslatedintoUSDollarsatthe exchangeratesatthereportingdate.TheincomeandexpensesofforeignoperationsaretranslatedintoUSDollarsattheexchangeratesatthedatesof the transactions.
ForeigncurrencydifferencesarerecognisedinOCIandaccumulatedinthetranslationreserve,excepttotheextentthatthetranslationdifferenceisallocated toNCI.
Whenaforeignoperationisdisposedofitsentiretyorpartiallysuchthat control,significantinfluenceor jointcontrol islost,thecumulativeamountinthe translationreserverelatedtothatforeignoperationisreclassifiedtoprofitorlossaspartofthegainorlossondisposal.If theGroupdisposesof partof its interestinasubsidiarybutretainscontrol,thentherelevantproportionofthecumulativeamountisreattributedtoNCI.WhentheGroupdisposesofonly partof anassociateorjointventurewhileretainingsignificantinfluenceorjointcontrol,therelevantproportionofthecumulativeamountisreclassifiedto profitorloss.
(c)Revenue (i)Saleofcrude Revenueisrecognisedwhenthesignificantrisksandrewardsof ownershiphavebeentransferredtothecustomer,recoveryof theconsiderationisprobable, theassociatedcostsandpossiblereturnof goodscanbeestimatedreliablyandthereisnocontinuingmanagementinvolvementwiththecrudeandthe amountof revenuecanbemeasuredreliably.Revenueismeasurednetof returns,tradediscountsandvolumerebates.
(ii)Costs of sales Productionexpenditure,crudetreatmentandprocessingexpenditure,crudeevacuationandliftingexpenditure,depreciation,depletionandamortisationof oilandgasassetsandcrudehandlingexpenditurearereportedascostsof sales.
(iii)Interestincome Interestincome,includingincomearisingfromfinanceleasesandotherfinancialinstruments,isrecognisedusingtheeffectiveinterestmethod.
(iv)Overliftandunderlift Overlift/underliftariseswhentheGrouplifts morethan/orlessthanitsvolumeof workinginterestcrude.TheGroupadoptstheentitlementsmethodin whichrevenueisrecognisedasitsshareof workinginterestcrudewhilea payable(overlift)orreceivable(underlift)isreportedforthedifferencebetween volumesitsoldanditsworkinginterest.
Theinitial measurementof theoverliftliabilityandunderliftassetisatthemarketpriceof thecrudeatthedateof lifting.
(d)Sharecapital (i)Ordinaryshares Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofordinarysharesarerecognisedasadeductionfromequity,net of any taxeffects.
(e) Financialinstruments TheGroupclassifiesnon-derivativefinancialassetsintoloansandreceivablesandnon-derivativefinancialliabilitiesintotheotherfinancialliabilitiescategory.
(i)Non-derivativefinancialassets TheGroupinitially recognizesloansandreceivablesonthedatethattheyareoriginated.All otherfinancialassetsandfinancialliabilitiesarerecognised initiallyonthetradedateat whichtheGroupbecomesa party tothecontractualprovisionsof theinstrument.
TheGroupderecognisesafinancialassetwhenthecontractualrightstocashflowsfromtheassetexpire,orittransferstherightstoreceivethecontractual cashflowsinatransactioninwhichsubstantiallyall therisksandrewardsof ownershipof thefinancialassetaretransferredorit neithertransfersnorretains substantiallyalloftherisksandrewardsofownershipanddoesnotretaincontroloverthetransferredasset.Any interestinsuchderecognisedassetsthatis createdorretainedbytheGroupisrecognisedasaseparateassetorliability.
Financialassetsandliabilitiesareoffsetandthenetamountpresentedinthestatementof financialpositionwhen,andonly when,theGrouphasalegalright tooffsettheamountsandintendseithertosettlethemona netbasisorto realisetheassetandsettletheliabilitysimultaneously.
TheGrouphasthefollowingnon-derivativefinancialassets:loansandreceivables.
Loansandreceivables Loansandreceivablesarefinancialassetswithfixedor determinablepaymentsthat arenot quotedinanactivemarket.Suchassetsare recognisedinitiallyat fairvalueplusanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognition,loansandreceivablesaremeasuredatamortisedcostusingthe effectiveinterestmethod,lessany impairmentlosses.Shorttermloansandreceivablesthatdonotattractinterestrateare measuredattheiroriginal invoice amountwheretheeffectof discountingisnotmaterial.
Financialassetsclassifiedasloansandotherreceivablescomprisecashandbank balances,tradeandotherreceivables.
Cashandbank balances Cashandbank balancescomprisecashbalancesandcalldepositswithmaturitiesofthreemonthsorlessfromtheacquisitiondatethataresubjecttoan insignificantriskof changesintheirfairvalue,andareusedbytheGroupinthemanagementof itsshort-termcommitments.
(ii)Non-derivativefinancialliabilities Allfinancialliabilitiesarerecognisedinitiallyonthetradedateat whichtheGroupbecomesa party tothecontractualprovisionsof theinstrument. TheGroupderecognisesafinancialliability whenitscontractualobligationsaredischarged,cancelledorexpired.
TheGrouphasthefollowingnon-derivativefinancialliabilities:tradeandotherpayablesandloans&borrowings.
Suchfinancialliabilitiesarerecognisedinitiallyatfairvaluelessanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognition,thesefinancial liabilitiesaremeasuredatamortisedcostusingtheeffectiveinterestratemethod.
Shorttermpayablesthatdo notattractinterestaremeasuredatoriginalinvoiceamountwheretheeffectof discountingisnotmaterial.
(iii) Impairment Non-derivativefinancialassets Financialassetsnotclassifiedatfairvaluethroughprofitorloss(FVTPL),includinganinterestinanequity-accountedinvestee,areassessedateach reportingdatetodeterminewhetherthereisobjectiveevidenceofimpairment.Afinancialassetisimpairedifthereisanobjectiveevidenceofimpairment asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset,andthatlosseventhadanimpactontheestimatedfuturecashflows of thatassetandcanbeestimatedreliably.
Animpairmentlossinrespectofafinancialassetmeasuredatamortisedcostiscalculatedasthedifferencebetweenitscarryingamountandthepresent valueoftheestimatedfuturecashflowsdiscountedattheasset'soriginaleffectiveinterestrate.Lossesarerecognisedinprofitorlossandreflectedinan allowanceaccountagainstloansandreceivables.
Non-financialassets Ateachreportingdate,theGroupreviewsthecarryingamountsofitsnon-financialassetstodeterminewhetherthereisany indicationof impairment.If any suchindicationexists,thentheasset'srecoverableamountisestimated.Forimpairmenttesting,assetsaregroupedtogetherintothesmallestgroupof assets thatgeneratescashinflowsfromcontinuingusethatarelargelyindependentof thecashinflowsof otherassetsorcashgeneratingunits(CGUs).
Therecoverableamountof anassetorCGUisthegreaterof itsvalueinuseanditsfairvaluelesscoststo sell.Valueinuseisbasedontheestimatedfuture cashflows,discountedto theirpresentvalueusinga pre-taxdiscountratethat reflectscurrent marketassessmentsofthetimevalueof money andtherisks specifictotheassetorCGU.
AnimpairmentlossisrecognisedifthecarryingamountofanassetorCGUexceedsitsrecoverableamount.Impairmentlossesarerecognisedinprofitor loss.Animpairmentlossisreversedonlytotheextentthattheasset'scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeen determined,netof depreciationoramortisation,if noimpairmentlosshadbeenrecognised.
(iv) Hedges As part of the requirements under its debt facilities, the Group is required to hedge a certain amount of production covering its forecasted debt service payments. The hedge volume is a function of the estimated quarterly debt service payment and the designated strike prices.
(f)Property,plantandequipment (i)Recognitionandmeasurement Itemsof property, plant and equipment are measured at cost, whichincludescapitalised borrowing costs, less accumulated depreciation and any accumulatedimpairmentlosses.Costincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheasset.Whenpartsof anitemofproperty,plant andequipmenthavedifferentusefullives,theyareaccountedforasseparateitems(majorcomponents)ofproperty,plantandequipment.Anygainorloss ondisposalofanitemofproperty,plantandequipment(calculatedasthedifferencebetweenthenetproceedsfromdisposalandthecarryingamountof the item)isrecognisedinprofitorloss.
(ii)Subsequentexpenditure Subsequentexpenditureiscapitalisedonly if itisprobablethatthefutureeconomicbenefitsassociatedwiththeexpenditurewillflowtotheGroup.
(iii)Depreciation Itemsof property,plantandequipmentaredepreciatedfromthedatethey areavailableforuseor,inrespectof self-constructedassets,fromthedatethatthe assetiscompletedandready foruse.
Depreciationiscalculatedto writeoff thecostofitemsofproperty,plantandequipmentlesstheirestimatedresidualvaluesusingthestraight-linebasisover theirestimatedusefullives.Depreciationisgenerallyrecognisedinprofitorloss,unlesstheamountisincludedinthecarryingamountofanotherasset. LeasedassetsaredepreciatedovertheshorteroftheleasetermandtheirusefullivesunlessitisreasonablycertainthattheGroupwillobtainownershipby theendof theleaseterm.
Theestimateduseful livesof property,plantandequipmentforthecurrentandcomparativeyearsareasfollows:
Depreciationmethods,useful livesandresidualvaluesarereviewedateachreportingdateandadjustedif appropriate.
(g)ExplorationandEvaluation(E&E)expenditures (i)licenceacquisitioncosts:licenceacquisitioncostsarecapitalizedasintangibleE&Eassets.Thesecostsarereviewedonacontinualbasisby managementto confirmthatactivityisplannedandthattheassetisnotimpaired.If nofutureactivityisplanned,theremainingbalanceof thelicenceandproperty acquisitioncostsiswrittenoff.Capitalisedlicenceacquisitioncostsaremeasuredatcostlessaccumulatedamortisationandimpairmentlosses.Costs incurredpriorto havingobtainedthelegal rightstoexploreanareaareexpenseddirectlyastheyareincurred.
(ii)Explorationexpenditure:Allexplorationandappraisalcostsareinitiallycapitalizedinwell,fieldorspecificexplorationcostcentresasappropriatepending futureexplorationworkprogrammesandpendingdetermination.Allexpenditureincurredduringthevariousexplorationandappraisalphaseiscapitalized untilthedeterminationprocesshasbeencompletedoruntil suchpointascommercialreserveshavebeenestablished.Paymentstoacquiretechnicalservices andstudies,seismicacquisition,exploratorydrillingandtesting,abandonmentcosts,directly attributableadministrativeexpensesare all capitalizedas explorationandevaluationassets.Capitalisedexplorationexpenditureismeasuredatcostlessaccumulatedamortisationandimpairmentlosses.
TreatmentofE&E assetsatconclusionofexploratoryand appraisalactivities Explorationandevaluationassetsarecarriedforwarduntil theexistence,orotherwise,ofcommercialreserveshasbeendetermined.Ifcommercialreserves havebeendiscovered,therelatedE&Eassetsareassessedforimpairmentonacostpool basisassetoutbelowandanyimpairmentlossis recognisedinthe incomestatement.Thecarryingvalue,afterany impairmentloss,of therelevantE&Eassetsisthenreclassifiedasdevelopmentandproductionassetswithin property,plantandequipmentorintangibleassets.Ifhowever,commercialreserveshavenotbeenfound,thecapitalisedcostsarechargedtoexpenseafter theconclusionoftheexploratoryandappraisalactivities.Explorationandevaluationcostsarecarriedasassetsandarenotamortisedpriortotheconclusion of exploratoryandappraisalactivities.
AnE&Eassetisassessedforimpairmentwhenfactsandcircumstancessuggestthatthecarryingamountmay exceeditsrecoverableamount.Such circumstancesincludethepointatwhichadeterminationismadeastowhetherornotcommercialreservesexist.WheretheE&Eassetconcernedfalls withinthescopeofanestablishedfullcostpool,theE&EassetistestedforimpairmenttogetherwithanyotherE&Eassetsandall developmentand productionassetsassociatedwiththatcostpool,asa singlecashgeneratingunit.Theaggregatecarryingvalueiscomparedagainsttheexpectedrecoverable amountofthepool,generallyby referencetothepresentvalueofthefuturenetcashflowsexpectedto bederivedfromproductionofcommercialreserves. WheretheE&Eassettobetestedfallsoutsidethescopeofanyestablishedcostpool,therewillgenerallybenocommercialreservesandtheE&Easset concernedwillbe writtenoffinfull.
(h)Developmentexpenditure Oncethetechnicalfeasibilityandcommercialviabilityofextractingoilandgasresourcesaredemonstrable,expenditurerelatedtothedevelopmentof oilandgas resourceswhicharenottangibleinnatureareclassifiedasintangibledevelopmentexpenditure.Capitaliseddevelopmentexpenditureismeasuredatcostless accumulatedamortisationandimpairmentlosses.Amortizationofdevelopmentassetsattributabletotheparticipatinginterestisrecognizedinprofitorlossusing theunit-of-productionmethod.
(i)Leases (i)Determiningwhetheranarrangementcontainsalease Atinceptionof anarrangement,theGroupdetermineswhetherthearrangementisorcontainsalease.
Atinceptionoronreassessmentofanarrangementthatcontainsalease,theGroupseparatespaymentsandotherconsiderationrequiredby thearrangement intothosefortheleaseandthoseforotherelementsonthebasisof theirrelativefairvalues.If theGroupconcludesforafinanceleasethatitisimpracticable toseparatethepaymentsreliably,thenanassetanda liabilityare recognisedat anamountequalto thefairvalueoftheunderlyingasset;subsequently,the liabilityisreducedaspaymentsaremadeandanimputedfinancecostontheliabilityisrecognisedusingtheGroup'sincrementalborrowingrate.
(ii)Leasedassets Assetsheldby theGroupunderleasesthattransfertotheGroupsubstantiallyalloftherisksandrewardsofownershipareclassifiedasfinanceleases.The leasedassetsaremeasuredinitiallyatanamountequaltothelowerof theirfairvalueandthepresentvalueof the minimumlease payments.Subsequentto initial recognition,theassetsareaccountedforinaccordancewiththeaccountingpolicyapplicabletothatasset.
AssetsheldunderotherleasesareclassifiedasoperatingleasesandarenotrecognisedintheGroup'sstatementof financialposition.
(iii)Leasepayments Paymentsmadeunderoperatingleasesarerecognisedinprofitorlossonastraight-linebasisoverthetermofthelease.Leaseincentivesreceivedare recognisedasanintegral partof thetotal leaseexpense,overthetermof thelease.
Minimumleasepaymentsmadeunderfinanceleasesareapportionedbetweenthefinanceexpenseandthereductionoftheoutstandingliability.Thefinance expenseisallocatedtoeachperiodduringtheleasetermsoasto produceaconstantperiodicrateof interestontheremainingbalanceof theliability.
(j)Inventories Inventoriescompriseof crudeoilstockat periodendandconsumablematerials.
Inventoriesarevaluedatthelowerofcostandnetrealisablevalue.Costofconsumablematerialsisdeterminedusingtheweightedaveragemethodandincludes expendituresincurredinacquiringthestocks,andothercostsincurredinbringingthemtotheirexistinglocationandcondition.
Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lesstheestimatedcostsofcompletionandsellingexpenses.Inventoryvalues areadjustedforobsolete,slow-movingordefectiveitemswhereappropriate.
(k)Intangibleassets Anintangibleassetis anidentifiablenon-monetaryasset withoutphysicalsubstance.TheGroupexpendsresourcesorincursliabilitiesontheacquisition, development,maintenanceorenhancementofintangibleresourcessuchasscientificortechnicalknowledge,designandimplementationofnewprocesseson systems,licences,signaturebonus,intellectualproperty,marketknowledgeandtrademarks.
TheGrouprecognisesanintangibleassetif,andonly if;
(a)economicbenefitsthatareattributabletotheassetwillflowtotheentity;and (b)thecostsof theassetcanbemeasuredreliably.
TheGroupassessestheprobabilityoffutureeconomicbenefitsusingreasonableandsupportableassumptionsthatrepresentmanagement'sbestestimateofthe setof economicconditionsthatwillexistovertheuseful lifeof theasset.Intangibleassetsaremeasuredinitiallyatcost.
Amortisationiscalculatedto writeoff thecostof theintangibleassetlessitsestimatedresidualvalueusingthestraight-linebasisovertheestimateduseful livesor usingtheunitsofproductionbasisfromthedatethattheyareavailableforuse.Theestimatedusefullifeandmethodsofamortisationofintangibleassetsfor currentandcomparativeyearsareasfollows:
(l)Employeebenefits (i)Short-termemployeebenefits Short-termemployeebenefitareexpensedastherelatedserviceisprovided.AliabilityisrecognisedfortheamountexpectedtobepaidiftheGrouphasa presentlegal orconstructiveobligationto pay thisamountasa resultof pastserviceprovidedbytheemployeeandtheobligationcanbeestimatedreliably.
(ii)Share-basedpaymenttransactions Thegrant-datefairvalueof equity-settledshare-basedpaymentawardsgrantedtoemployeesandothersprovidingsimilarservicesis recognisedasan employeeexpenseandothergeneralandadministrativeexpenserespectively,withacorrespondingincreaseinequity,overthevestingperiodthat the employeesbecomeunconditionallyentitledto theawards.Theamountrecognisedasanexpenseisadjustedtoreflectthenumberofawardsforwhichthe relatedserviceandnon-marketperformanceconditionsareexpectedtobemet,suchthattheamountultimatelyrecognisedisbasedonthenumberof awardsthatmeettherelatedserviceandnon-marketperformance conditionsatthevestingdate. Forshare-based paymentawardswithnon-vesting conditions,thegrant-datefairvalueoftheshare-basedpaymentismeasuredtoreflectsuchconditionsandthereisnotrue-upfordifferencesbetween expectedandactual outcomes.
(iii)Post-employmentbenefits Definedcontributionplan Adefinedcontributionplanisapost-employmentbenefitplan (pensionfund)underwhichtheGrouppaysfixedcontributionsintoaseparateentity.The Grouphasnolegalorconstructiveobligationstopayfurthercontributionsifthefunddoesnotholdsufficientassetstopayallemployeesthebenefits relatingtotheemployeeserviceinthecurrentandpriorperiods.
InlinewiththeprovisionsofthePensionReformAct2014(Amended),asubsidiarydomiciledinNigeriahasinstitutedadefinedcontributionpension schemeforits permanentstaff.Staffcontributionstotheschemeare fundedthroughpayrolldeductionswhilethesubsidiary'scontributionisrecognisedin profitorlossasemployeebenefitexpenseintheperiodsduringwhichservicesarerenderedbyemployees.Employeescontribute8%eachoftheirgross salary tothefundonamonthlybasis.Thesubsidiary'scontributionis10%of eachemployee'sgrosssalary.
(m)Provisions Aprovisionisrecognisedif,asaresultofapastevent,theGrouphasapresentlegalorconstructiveobligationthatcanbeestimatedreliably,anditisprobable thatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-tax ratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheliability.Theunwindingofthediscountisrecognisedas financecost.
TheGroup'sassetretirementobligation("ARO")primarilyrepresentstheestimatedpresentvalueoftheamounttheGroupwillincurtoplug,abandonand remediateitsareasof operationattheendof theirproductivelives,inaccordancewithapplicablelegislations.TheGroupdeterminestheAROonitsoilandgas propertiesbycalculatingthepresentvalueof estimatedcashflowsrelatedtotheliability whentherelatedfacilitiesareinstalledoracquired.
Contingentliabilities Acontingentliabilityisapossibleobligationthatarisesfrompasteventsandwhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrenceof one ormoreuncertainfutureeventsnotwhollywithinthecontroloftheGroup,orapresentobligationthatarisesfrompasteventsbutisnotrecognisedbecauseitis notprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation;ortheamountoftheobligationcannotbe measuredwithsufficientreliability.
Contingentliabilitiesareonlydisclosedandnotrecognisedasliabilitiesinthestatementoffinancialposition.Ifthelikelihoodofanoutflowofresourcesis remote,thepossibleobligationisneithera provisionnoracontingentliabilityandno disclosureismade.
(n)Financeincomeand financecosts Financeincomecomprises,where applicable,interestincomeon fundsinvested(includingavailable-for-salefinancialassets),dividendincome,gainson the disposalofavailable-for-salefinancialassets,fairvaluegainsonfinancialassetsatfairvaluethroughprofitorloss,gainsontheremeasurementtofairvalueof anypre-existinginterestinanacquireeinabusinesscombination,gainsonhedginginstrumentsthatarerecognisedinprofitorlossandreclassificationsofnet gainspreviouslyrecognisedinothercomprehensiveincome.Interestincomeis recognisedasit accruesinprofitorloss,usingtheeffectiveinterestmethod. DividendincomeisrecognisedinprofitorlossonthedatethattheGroup'srightto receivepaymentisestablished.
Financecostscomprise,whereapplicable,interestexpenseonborrowings,unwindingof thediscountonprovisionsanddeferredconsideration,lossesondisposal ofavailable-for-salefinancialassets,dividendsonpreferencesharesclassifiedasliabilities,fairvaluelossesonfinancialassetsatfairvaluethroughprofitorloss andcontingentconsideration,impairmentlossesrecognisedonfinancialassets(otherthantradereceivables),lossesonhedginginstrumentsthat arerecognisedin profitorlossandreclassificationsof netlossespreviouslyrecognisedinothercomprehensiveincome.
Borrowingcoststhatarenotdirectlyattributabletotheacquisition,constructionorproductionofaqualifyingassetarerecognisedinprofitorlossusingthe effectiveinterestmethod.
Foreigncurrencygainsandlossesarereportedona netbasisaseitherfinanceincomeorfinancecostdependingonwhetherforeigncurrencymovementsareina netgainornetlossposition.
(o)Earningspershare TheGrouppresentsbasicanddilutedearningspershare(EPS)dataforitsordinaryshares.BasicEPSiscalculatedbydividingtheprofitorlossattributableto ordinaryshareholdersoftheCompanybytheweightedaveragenumberofordinarysharesoutstandingduringtheyear.Dilutedearningspershareisdetermined by adjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofordinarysharesoutstandingfortheeffectsofall dilutive potentialordinaryshareswhichcompriseshareoptionsgrantedtoemployees.Potentialordinarysharesaretreatedasdilutivewhen,andonlywhen,their conversiontoordinaryshareswoulddecreaseearningspershareorincreaselosspersharefromcontinuingoperations.
(p)Segmentreporting Anoperatingsegmentisacomponentof theGroupthatengagesinbusinessactivitiesfromwhichitmayearnrevenuesandincursexpenses,includingrevenues andexpensesthatrelatetotransactionswithany of theGroup'sothercomponents. TheGroup definesgeographicalareasasoperatingsegmentsinaccordance withIFRS8- OperatingSegments.
(q)Incometax Incometaxexpensecomprisescurrentanddeferredtax.Itisrecognisedinprofitorlossexcepttotheextentthatitrelatestoabusinesscombination,oritems recogniseddirectlyinequityorothercomprehensiveincome.
(i)Currenttax Currenttaxcomprisestheexpectedtaxpayableorreceivableonthetaxableincomeorlossfortheyearandanyadjustmenttotaxpayableorreceivableinrespect of previousyears.Theamountof currenttaxpayableorreceivableisthebestestimateof thetaxamountexpectedto be paidorreceivedthatreflectsuncertainty relatedtoincometaxes,if any.Itismeasuredusingtaxratesenactedorsubstantivelyenactedatthereportingdate.Currenttaxalsoincludesany taxarisingfrom dividends.
(ii)Deferredtax Deferredtaxisrecognisedinrespectoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandthe amountusedfortaxationpurposes.
Deferredtaxisnotrecognisedfor:
-temporarydifferencesontheinitialrecognitionofassetsorliabilitiesinatransactionthatisnotabusinesscombinationandthataffectsneitheraccounting nortaxableprofitorloss; -temporarydifferencesrelatedtoinvestmentsinsubsidiaries,associatesandjointarrangementstotheextentthattheGroupisabletocontrolthetimingof the reversalof thetemporaldifferencesanditisprobablethattheywillnotreverseintheforeseeablefuture;and -taxabletemporarydifferencesarisingontheinitial recognitionof goodwill.
Deferredtaxassetsarerecognisedforunusedtaxlosses,unusedtaxcreditsanddeductibletemporarydifferencestotheextentthatitisprobablethatfuture taxableprofitwillbeavailableagainstwhichtheycanbeused.Futuretaxableprofitsaredetermined basedonthereversalofrelevanttaxabletemporary differences.Iftheamountoftaxabletemporarydifferenceisinsufficienttorecogniseadeferredtaxassetinfull,thenfuturetaxableprofits,adjustedforreversals of existingtemporarydifferences,areconsidered,basedonthebusinessplansforindividualsubsidiariesintheGroup.Deferredtaxassetsarereviewedat each reportingdateandarereducedtotheextentthatitis nolongerprobablethattherelatedtaxbenefitwill be realised;suchreductionsare reversedwhenthe probabilityof futuretaxableprofitsimproves.
Unrecogniseddeferredtaxassetsarereassessedateachreportingdateandrecognisedtotheextentthatit hasbecomeprobablethatfutureprofitswillbeavailable againstwhichtheycanbeused.
Deferredtaxismeasuredatthetaxratesthatareexpectedtobeappliedtotemporarydifferencewhentheyreverse,usingtaxratesenactedorsubstantively enactedatthereportingdate.
The measurementof deferredtaxreflectsthetaxconsequencesthatwouldfollowfromthe mannerinwhichtheGroupexpects,atthereportingdate,torecoveror settlethecarryingamountofitsassetsandliabilities.Forthispurpose,thecarryingamountofinvestmentpropertymeasuredatfairvalueispresumedtobe recoveredthroughsale,andtheGrouphasnotrebuttedthispresumption.
Deferredtaxassetsandliabilitiesareoffsetonly if certaincriteriaaremet.
(r)Restatement of 2016 balances (i) Following the Group'sdecision to consolidate AshbertOilandGas Limited in 2017 consolidated financial statements, 2016 balances have been restated to reflect Ashbert Oil and Gas Limited transactions. In addition, other areas of restatement include the reclassification of a Director's loan of US$1.63 million from current asset to non-current and, reclassification of restricted cash of US$1.1 million from cash and bank to other assets.
Prior year adjustments have been processed in respect of the following:
Exploration and evaluation assets Prior year adjustment related to correction for signature bonus of Ashbert Oil and Gas Limited.
Other receivables Prior year adjustment related to correction for reclassification of Directors loan from current assets to non-current assets.
Other assets Prior year adjustment related to correction for balances receivable from Ashbert Oil and Gas Limited which was eliminated on consolidation of Ashbert Oil and Gas Limited and the reclassification of restricted cash to other assets.
Cash and bank balances Prior year adjustment related to correction for bank balances for the reclassification of restricted cash balances to other assets.
Trade and other payables Prior year adjustment related to correction for trade payable balances in Ashbert Oil and Gas Limited which were consolidated into the Group's account.
Accumulated deficit Prior year adjustment related to correction for accumulated deficit in Ashbert Oil and Gas Limited which was consolidated into the Group's account.
Other reserves Prior year adjustment related to correction for other reserve balances in Ashbert Oil and Gas Limited which were consolidated into the Group's account.
(ii) Restatement impact on comparatives
The adjustment to the general and administrative expenses resulted fromthe increase of the audit fees.
4Measurementoffairvalues A numberof theGroup'saccountingpoliciesanddisclosuresrequirethemeasurementof fairvalues,forbothfinancialandnon-financialassetsandliabilities.
TheGrouphasanestablishedcontrolframeworkwithrespecttothemeasurementof fairvalues.Thisincludesavaluationexpertthathasresponsibilityforoverseeing allsignificantfairvalue measurements,includingLevel 3fairvalues,andreportsdirectlytotheGeneral Manager of Commercial.
Whenmeasuringthefairvalueof anassetoraliability,thegroupusesobservablemarketdataasfaraspossible.Fairvaluesarecategorisedintodifferentlevelsina fairvaluehierarchybasedontheinputsusedinthevaluationtechniquesasfollows:
Iftheinputsusedto measurethefairvalueofanassetoraliabilitymightbecategorisedindifferentlevelsof thefairvaluehierarchy,thenthefairvaluemeasurement iscategorisedinitsentiretyinthesamelevel of thefairvaluehierarchyasthelowestlevel inputthatissignificanttotheentiremeasurement.
TheGrouprecognisestransfersbetweenlevelsof thefairvaluehierarchyattheendof thereportingperiodduringwhichthechangehasoccurred. Furtherinformationabouttheassumptionsmadein measuringfairvaluesisincludedinthefollowingnotes:
Note32-share-basedpaymentarrangements Note37-financialriskmanagementandfinancialinstruments
5 Adoption of new and revised International Financial Reporting Standards
5.1 Accounting standards and interpretations issued that became effective during the year 2018 In the current year, the Group considered a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatory and effective for an accounting period that begins on or after 1 January 2018.
IFRS 9 - Financial Instruments IFRS 9 replaces IAS 39, Financial Instruments - Recognition and Measurement. The IASB developed IFRS 9 in three phases, dealing separately with the classification and measurement of financial assets, impairment and hedging. It includes requirements on the classification and measurement of financial assets and liabilities, it also includes an expected credit losses model that replaces the current incurred loss impairment model.
The standard will ensure that more assets will have to be measured at fair value with changes in fair value recognized in profit and loss as they arise, possible provision for future credit losses in the very first reporting period a loan goes on the books - even if it is highly likely that the asset will be fully collectible and a greater disclosure requirement amongst others.
The transitional provisions described above are likely to change once the IASB completes all phases of IFRS 9. Effective for annual periods beginning on or after 1 January 2018.
The application of IFRS 9 is expected to have no material impact on the Group's financial statement based on preliminary assessment taking into consideration the operations of the Group.
IFRS 15 - Revenue from contracts with customers The FASB and IASB issued their long awaited converged standard on revenue recognition on 29 May 2014. It is a single, comprehensive revenue recognition model for all contracts with customers to achieve greater consistency in the recognition and presentation of revenue. Revenue is recognised based on the satisfaction of performance obligations, which occurs when control of good or service transfers to a customer. Effective for annual periods beginning on or after 1 January 2018.
Amendment to IFRS 15 - Revenue from contracts with customers. The IASB has amended IFRS 15 to clarify the guidance, but there were no major changes to the standard itself.
The amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of these areas of guidance. The IASB has also included additional practical expedients related to transition to the new revenue standard.
Effective for annual periods beginning on or after 1 January 2018 IFRS 15 - Revenue from contracts with customers will have no impact on the Group's financial statement as revenue is already recognised in line with this provisions.
5.2 Accounting standards and interpretations issued but not yet effective The following revisions to accounting standards and pronouncements that are applicable to the Group were issued but are not yet effective. Where IFRSs and IFRIC interpretations listed below permits early adoption, the Group has elected not to apply them in the preparation of these Consolidated financial statements. The Group plans to adopt the standard when it becomes effective.
The full impact of these IFRSs and IFRIC interpretations is currently being assessed by the Group, but none of these pronouncements are expected to result in any material adjustments to the consolidated financial statements"
6 Operating segments TheGrouphasasingleclassof businesswhichisexploration,developmentandproductionof petroleumoilandnaturalgas.Thegeographicalareasaredefinedbythe GroupasoperatingsegmentsinaccordancewithIFRS8-OperatingSegments. Asattheyearend,theGrouphadoperationalactivitiesmainlyinonegeographical segment,Nigeria.
Geographicalinformation Inpresentinginformationonthebasisof geographicalsegments,segmentassetsarebasedonthegeographicallocationof theassets.
Non-currentassets
Non-currentassetspresentedconsistsof property,plant&equipment,intangibleassets,longtermprepayment,otherreceivablesandE&Eassets.
*Cayman Island and USA segments have been merged into one segment.
7CapitalManagement TheGroup'spolicyistomaintainastrongcapital basesoastomaintaininvestor,creditorandmarketconfidenceandtosustainfuturedevelopmentof the business
TheGroupmonitorscapitalusingaratioofadjustednetdebttoadjustedequity.Forthispurpose,adjustednetdebtisdefinedastotalliabilitieslesscashandbank balances.
TheGroup'snetdebttoequity ratioattheendof thereportingyearwasasfollows:
TherewerenochangesintheGroup'sapproachtocapitalmanagementduringtheyear.TheGroupisnotsubjecttoexternallyimposedcapitalrequirements.
8 Revenue
(a) Crude proceeds of US$30.8 million represents the Group's share of crude oil sales from Otakikpo operation during the year, which is recognised as revenue ("Equity Crude"), (31 December 2016: nil). The Group's entitlement crude was 1,223,248 barrels out of which the Group lifted 1,188,732 barrels (31 December 2016: nil). The balance of 34,515 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 and cost recovery crude of 639,528 barrels, which were applied as recoveries for prepaid development costs.
*Represents 88% crude entitlement
9 Costs of sales
10 Operating expenses
11 Production bonus Under the farm-in agreement with Green Energy International Limited (GEIL), Lekoil Oil and Gas Investments Limited is liable to pay a US$4 million production bonus upon commencement of commercial production above 2,000 bopd. US$4 million has been recognised as production bonus during the period (2016: nil) in line with the farm-in agreement.This production bonus was paid during2017 (2016: nil).
12Exploration and evaluation expenses Exploration and evaluation expenses of US$0.7 million (2016: nil) comprise of E& E expenditure on block 2514A written off following relinquishment of the block, and the goodwill impairment loss on acquisition Ashbert Oil and Gas Limited.
13 General and administrative expenses
(a) Personnel expenses
(b) Operating leases The Group leases office and residential facilities under cancellable operating leases. Lease payments are made upfront covering the lease period with no additional obligations.
(c) Key management personnel compensation In addition to their salaries, the Group also provides non-cash benefits to key management personnel, in form of share base payments. (i) Key management personnel compensation comprised the following:
(ii) Key management personnel compensation comprised the following:
Details of Directors' remuneration (including the fair value of share based payments) earned by each Director of the Company during the period have been disclosed in the remuneration report.
14Finance income and costs
(a)Jointventure partner carry interest income Jointventure partner carry interest income represents interest on prepaid development costs.Following the commencement of production and sale of crude, the Group commenced recoveries from the prepaid development costs. Consequently, the group reclassifies the interest portion of the prepaid development costs to finance income proportionately over the period over which the cost recovery occurs by reference to cost recoveries in each period as a percentage of the total capital and operating costs incurred to date in the development of the field.
(b)Other interest income Other interest income represents interest earned on short term deposits and call accounts transactions with the Group's bankers.
(c) Foreign exchange gains Foreign exchange gains presents realised currency exchange difference gains resulting from the conversion of US$amounts to Nigerian Naira amounts, to meet obligations settled in Nigerian Naira. The significant devaluation of Nigerian Naira to the US$ during the year and the exchange rate disparity between the official exchange rate and the parallel market exchange rate accounted for the significant foreign exchange gain.
(d)Finance expenses Finance costs consist largely of interest costs on third party loans during the year. The interest costs are no longer capitalised following the completion of development works for which the loans were procured.
15Taxes (a)Petroleum profit tax The Group with its principal assets and operations in Nigeria is subject to the Petroleum Profit Tax Act of Nigeria (PPTA). The Group's Petroleum Profit Tax charge for the period is summarised below:
(b)Company income tax Interest on recovered carried cost and technical fees earned on Otakikpo operations of the group is subject to Company Income Tax Act of Nigeria (CITA). The Group's Company Income Tax charge for the year is summarised below:
(c)Deferred tax assets The Group has an estimated deferred tax asset of US$72.7million (31 December 2016: US$57.0 million), out of which the Group has recognized deferred tax assets of US$23.2 millionin the current year; derived from the activities of its subsidiary Lekoil Oil and Gas Investments Limited. The Directors have assessed the future profitability of its operation in Otakikpo marginal field and have a reasonable expectation that the Group will make sufficient taxable profit from Lekoil Oil and Gas Investments Limited in the near future to utilise the deferred tax assets.The balance of US$49.45 million of unrecogniseddeferred tax assets relates to unutilised capital allowances and tax losses from its other subsidiaries in which the Directors are not certain when there will be available taxable profit from the subsidiaries to utilize the deferred tax assets.
(d)Total income tax benefit/ (expense) recognised in the year.
(e) Current tax liabilities
16Profit/ (loss)per share (a) The calculation of basic earnings/(loss) per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.
(b)The calculation of diluted earnings/(loss) per share has been based on the following earnings/(loss) attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Basic and diluted loss per share are equal as all options are anti- dilutive.
17 Property, Plant and Equipment In US$'000 (a) The movement on this account was as follows:
* Restatement of leasehold improvement represents adjustment in variation contract for office space. ** The additions of US$6.1 million during the year is in respect of capital expenditure on production facilities in the Otakikpo marginal field. ***Restatement of oil and gas asset represents prior period adjustments for transactions charged to the joint venture, that have been determined to be a sole costs to each respective partner.
18 Exploration and Evaluation (E &E) assets E & E assets represents the Group's oil mineral rights acquisition and exploration costs.
(a) The movement on the E & E assets account was as follows:
(b)The additions during the year consists of US$1.3 million Ministerial Consent fee payment for the Group's 17.14% participating interest in OPL 310 and other exploration and evaluation expenditure in OPL 310 of US$0.7 million, OPL 325 of US$0.1 million and Namibia of US$0.2 million. Total expenditure incurred on OPL 310 from inception of farm-in agreement to 31 December 2017 amounts to US$114.2million.
(c) The OPL 310 lease term expires in February 2019. The Company has commenced the renewal process of OPL310 license. Based on the usual practice within the oil and gas industry in Nigeria and interaction with the appropriate government agencies, the Directors are confident that the license will be either extended for an additional 12 months or converted to OML as appropriate before the expiration date. In June 2017 the Group received the consent of the Honorable Minister of Petroleum for the complete transfer of the original 17.14% participating interest acquired in OPL 310 in February 2013 by Mayfair Assets and Trust Limited, a subsidiary of the Group.
(d)OPL 310 was tested for impairment by the Directorsand it was concluded no impairment charge was necessary. This was based upon management's assessment of the assets value in use, its expectation on renewals and the planned expenditure for 2018 to enable appraisal drilling. The Group estimates value in use by using a discounted cashflow with pre-tax discount rates of between 8% - 20%.
(e)The Directors believe that the Group has control over Ashbert Oil and Gas Limited in line with IFRS 10. Consequently, Ashbert Oil and Gas Limited has been consolidated and the exploration and evaluation assets restated to reflect the signature bonus payment of US$16.1million made in September 2015.
(f) Lekoil Exploration and Production (Pty) Limited relinquished block 2514A and renewed block 2514B until July 2019. The exploration and evaluation assets on block 2514A were written off.
* Restatement of 2016 E&E assets to reflect the signature bonus payment for OPL 325 following the consolidation of Ashbert Oil and Gas Limited.
19 Intangible Assets In US$'000 The movement on the intangible assets account was as follows:
* Adjustment to software maintenance cost wrongly capitalised in prior year. ** Mineral rights acquisition costs represents the signature bonus for the Otakikpo marginal field amounting to US$7.0 million.
20 Inventories Inventories consist of the Group's share of crude stock of US$1.1million as at 31 December 2017 (31 December 2016: US$0.7 million).
21 Trade receivables
(a) Trade receivables consist of theOtakikpo crude proceeds balance due from the crude offtaker from the last lifting for the year.
22 Other receivables
(a) The cash call due receivable from joint venture partner (GEIL), represents GEIL's share of cash calls paid by the Group on their behalf.
(b)The Director's loan represents the balance due on an unsecured loan of US$1,500,000 granted to a Director on 9 December 2014. The loan had a three year term and boreinterest at a rate of four per cent per annum. In September 2017, the loan was extended for another 3 years to 9December 2020 under the same terms and conditions (note 33 (a) (i)).
(c) The amount due from AfrenInvestment Oil & Gas (Nigeria) Limited (Afren) represents Afren's share of Optimum's overheads paid by theGroup on Afren's behalf.
23 Other assets
* Restatement of other assets to reflect the accounting and consolidation of Ashbert Oil and Gas Limited
(a) On 30, November 2015, Lekoil 310 Limited, a wholly owned subsidiary of Lekoil Limited executed a sale and purchase agreement with the Administrators of Afren Nigeria Holdings Limited and AfrenPlc relating to the entire issued share capital of Afren Investment Oil & Gas (Nigeria) Limited and certain intra-company debts.
In accordance with the agreement, Lekoil 310 Limited shall acquire the entire share capital 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 US$1, US$6.4 million and US$6.6 million respectively.
Consequently on 18 November 2015, Lekoil 310 Limited made the Initial Payments of US$5.9 million and US$6.1 million for Afren Investment Oil & Gas (Nigeria) Limited intra-company debts with Afren Plc and Afren Nigeria Holdings Limited respectively. The Group further paid the balance US$1 million in December 2017. The cumulative payment of US$13 million has been reported as deposit for shares pending the receipt of the consent of the Minister of Petroleum.
(b)Non-government royalty representstheGroup'sshareofroyalty crude payable totheHead Farmor (being Nigerian National Petroleum Corporation, The Shell Petroleum Development Company of Nigeria, Total E&P Nigeria Limited and Nigerian AGIP Oil Company Limited) whichwasliftedby Green EnergyInternational Limited. GEILis expectedtopaythejointventureroyaltyobligationtotheHeadFarmorandprovideevidenceofthepayment.TheGrouphasrecognisedan assetandacorrespondingliabilityforitsshareoftheroyaltyobligation.
(c) Restricted cash represents cash funding of the debt service reserve accounts for two quarters of interest for the FBN Capital Notes and one quarter of interest and principal payment of the Shell Western facility.
24 Prepaid development costs
(a) Prepaid developmentcosts representsGreenEnergyInternationalLimited's shareofcosts(60%ofjointoperations'costs) inthe Otakikpomarginalfield. Under thetermsofthefarm-inagreement,Lekoil Oiland GasInvestment Limited undertakestofundGEIL'sparticipatinginterestshareofallcostsrelatingtothejointoperationontheOtakikpomarginalfield,untilthecompletion oftheInitialWork Programme.TheGroupwillrecovercostsatarateofLIBORplusamarginof10%throughcrudeoilliftingasthefieldcommences production.However,forexpenditure aboveUS$70million,therecoveryrateincreases toLIBORplusamarginof13%.Theintereston carriedcostshasbeenincludedaspartoftheprepaiddevelopmentcosts.
Withproductionbeginning inFebruary 2017, theGroup commencedrecoveryofprepaiddevelopmentcostsinApril2017andhasrecoveredatotalsumofUS$33.7millionasatyearend.
(b) Restatementto prepaid development costs represent the reversal of unrealised accrued joint venture costs in prior years that were allocated to GEIL. The Otakikpojoint venture partners have determined that these costs should be treated as sole transactions of the partners.
25 Cash and bank balances
26 Trade and other payables
27 Provisions for asset retirement obligation
The Group has recognised a 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 itsproductive life, in accordance with applicable legislation. These costs are expected to beincurred in approximately 2040 dependent on government legislation and the 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 obligated 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 the year, there was no revision in the Group's decommissioning costs estimate. Management believe the estimates continue to form a reasonable basis for the expected future costs of decommissioning, which are expected to be incurred in approximately 2040.
28 Deferred income
(a) In 2017 and following the commencement of production and recovery of prepaid development costs, the Group reclassifies the interest portion of the prepaid development costs to finance income (see note 24(a)) proportionately over the period over which the cost recovery occurs by reference to cost recoveries in each period as a percentage of the total capital and operating costs incurred to date in the development of the field.
29 Loans and borrowings (a) FBN Capital Limited Notes Issuance Agreements - two-tranche facility The Company entered into notes issuance agreements dated 16 June, 2016 with FBN Capital Limited ("FBNC") providing for a loan of US$10 million with a 3-year tenor ("FBNC dollar facility") and a loan of 2 billion Naira (approximately US$10 million at the time of issuance) with a three-year tenor ("FBNC naira facility", together the "FBNC facilities").The FBNC facilities are fully drawn and are secured by the LOGL assets as well as a Lekoil Limited guarantee.
(i) FBNC dollar facility The full US$10 million was drawn on the facility in June 2016 to fund the repayment of an existing bridge facility issued by FBNC in May 2015 and to fund the Otakikpo field development. As of May 2016, the bridge facility remaining balance was US$5 million with repayment due in May 2016. In May 2016, the maturity date of the bridge facility was extended from May 2016 to August 2016. The US$5 million balance was subsequently repaid in June 2016 with proceeds from the FBNC dollar facility.
Interest is charged on the FBNC dollar facility at 3-month LIBOR plus 11.25% per annum and interest payments are due at the end of each quarterly period. The loan is repayable in 10 (ten) quarterly instalments starting from March 2017 in accordance with a repayment schedule.
The loan has a final maturity date of June 30, 2019 and is secured by the Company's interest in the Otakikpo fields and facilities as well as a parent company guarantee.
(ii) FBNC naira facility The full 2 billion naira was drawn on the facility in June 2016 to fund the Otakikpo field development. Interest is charged on the FBNC naira facility at the greater of 3-month NIBOR plus 6% or 20% per annum, and interest payments are due at the end of each quarterly period. The loan is repayable in 10 (ten) quarterly instalments starting from March 2017 in accordance with a repayment schedule.
The loan has a final maturity date of 30 June 2019 and is secured by the Company's interest in the Otakikpo field and facilities as well as a parent company guarantee.
In September 2016, the Company upsized the FBNC naira facility by 2.5 billion naira. The fully drawn amount was used to fund Otakikpo expenditures.
In September 2017, FBNC moved the loan to its affiliate, FBN Merchant Bank (FBNM) for administrative purposes.
(b) US$5 million FBN Merchant Bank Working Capital Facility The Company put in place a one-year US$5 million revolving credit facility in December 2017. The primary purpose of the revolver was to manage the working capital funding requirements of the Company. The facility has a 60-day repayment cycle for any drawn down amount and interest rate is charged at 90-day LIBOR plus 11.25% per annum. As at 31 December, 2017 the Company had drawn US$1 million, which was fully repaid with interest in 28 February 2018.
(c) 5-billion naira Sterling Bank Corporate Loan Facility On 23 June 2016, the Company signed an agreement with Sterling Bank Plc ("Sterling") to secure a three-year Corporate Loan Facility for 5 billion naira ("Sterling facility). The purpose of the facility was to fund the Otakikpo field development.
In September 2016, the Company drew down 1 billion naira on the facility. Interest charged on the Sterling facility was initially at the greater of 3-month NIBOR plus 10% per annum and interest payments are due at the end of each quarterly period from June 2017. The interest rate was subsequently amended to 26% per annum in February 2017. The loan is repayable in 10 (ten) quarterly instalments starting from June 2017 in accordance with a repayment schedule.
The loan has a final maturity date of 30 September 2019 and is secured by the Company's interest in the Otakikpo field and facilities as well as a parent company guarantee.
As at 31 December 2017, the Company has 4 billion naira available under the Sterling facility.
In March 2017, the Company entered into an agreement with Cardinal Stone Partners Limited ("CSP") for a 350 million naira loan facility with a 90-day tenor ("CSP facility"). The CSP facility was secured by a guarantee under the Sterling facility. The purpose of the CSP facility was to manage working capital. The facility has been fully repaid.
(d) US$15 Million Shell Western Supply and Trading Limited Advance Payment Facility On 30 March 2017, the Company signed an agreement with Shell Western Supply and Trading Limited ("Shell"), a member of the Royal Dutch Shell group of companies (LSE: RDSA, RDSB) to secure a three-year advance payment facility for US$15 million (the "Shell facility").
The full US$15 million was drawn on the facility in March 2017 to fund the residual pre-production development costs in the Otakikpo field.
Interest is charged on the Shell facility at 3-month LIBOR plus 10% per annum and interest payments are due at the end of each quarterly period. The loan is repayable in 10 (ten) quarterly instalments starting from December 2017 in accordance with a repayment schedule.
The loan has a final maturity date of 31 March 2020 and is secured by the Company's interest in the Otakikpo field and facilities as well as a parent company guarantee.
As part of the requirements under the Shellfacility, the Company is required to enter into a series of monthly oil price related put options. At balance date, the oil price was well above the exercise price resulting in the hedges having no value.
The following is the outstanding balance of interest bearing loans and borrowings as at the yearend:
The movement in the loan account was as follows:
(e) Changes in liabilities arising from financing activities:
30 Capital and reserves (a) Share capital
(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 increase of $11.8 million in 2016 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.
31 Non-controlling interest
This shows the net asset of the minority interest analysed to the relevant company.
32 Share-based payment arrangements At 31 December 2017, the Group had the following share-based payment arrangements:
Long-term incentive plan scheme (equity-settled) The long-term incentive plan scheme ("LTIP") was approved on 19 November 2014 and amended on 21 December 2015. The Board approved the grant of 2,500,000 stock options to the CEO, Lekan Akinyanmi on 28 June 2017. The Board further approved the grant of 7,109,750 stock options to employees of the Group and 1,500,000 stock options to the CFO, Lisa Mitchell on 23 August 2017 and 1 October 2017 respectively.
The options vest three years from the grant date subject to meeting certain 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:
The number and weighted average exercise prices of share options are as follows:
The options outstanding at 31 December 2017 had exercise prices in the range of US$0.27 to US$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 Black-Scholes option-pricing model with the following inputs:
Volatility was estimated with reference to empirical data for proxy companies with listed equity.
Share option scheme (equity-settled) The Group established a share option scheme available to Directors, key management personnel, employees and consultants providing employment-type services, which provides the opportunity to purchase shares in the Group. In accordance with the scheme, holders of vested options are entitled to purchase shares at prices of the shares established 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.This share option scheme has been replaced by the LTIP scheme described above. As such, no new options were granted in 2017 under this scheme.
The number and weighted average exercise prices of share options are as follows:
The options outstanding at 31 December 2017 have a weighted average contractual life of 4.05 years (2016: 5.05 years).
Inputs for measurement of grant date fair values The fair value of each stock option granted was estimated on the date of grt using the Black-Scholes Option Pricing Model for plain vanilla European call options with the following inputs:
Non-Executive Director Share Plan (equity-settled) The Board established the Non-Executive Director share plan on 21 December 2015.
These stock options are not subject to any performance criteria and vest three years from the grant date, subject to successful completion of a 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.
During the year the Board approved the award of 500,000 stock options in June 2017.
The number and weighted average exercise prices of share options are as follows:
Theoptionsoutstandingat31December2017hada weighted averageexercisepriceof$0.35toandaweightedaveragecontractuallifeof7.5years.
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:
Employee benefit expenses
33 Related Party Transactions The Group had transactions during the period 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 theGroup, directly or indirectly. These are the Directors of the Group.
(i) Loans to key management personnel An unsecured loan of US$1,500,000 was granted to a Director on 9 December 2014. The loan had a threeyear term and bears interest at a rate of four per cent per annum. Repayment was due at the end of the term. In September 2017, the loan was extended for another 3 years up to 9 December 2020 under the same terms and conditions. At 31 December 2017, the balance outstanding was US$1,691,364 (2016: US$1,626,312) and is included in 'Other receivables'. Interest income from the loan during the year amounted to US$65,000 (2016: US$ 62,000)
(ii) Key management personnel transactions The value of the outstanding balance at year end due to key management personnel and entities over which they have significant influence was US$1.72 million (2016: US$1.87 million). 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.
(iii) Key management personnel compensation Details of key management personnel compensation during the year have been disclosed in the remuneration reporton page 25.
(iv) Key management personnel and director transactions Directors of the Company control 8.27% (2016: 8.73%) 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.
34 Group entities
(a) Significant subsidiaries:
(i) Althoughthe Company holds less than a 50% ownership interests in Lekoil Nigeria Limited, it has control over the entity through common Directors and it is entitled to 90% of the economic benefits related to its operations and net assets based on the terms of agreements under which the entity was established. Consequently, the Company consolidates Lekoil Nigeria Limited.
Lekoil Nigeria Limited has seven wholly owned subsidiaries, namely: Mayfair Assets and Trust Limited, Lekoil Oil & Gas Investments Limited, Lekoil Exploration and Production Nigeria Limited Lekoil Energy Nigeria Limited, Princeton Assets and Trust Limited, Lekgas Nigeria Limited, and Lekpower 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:
35Events after the Reporting Date In January 2018, the Group announced the completion of a Technical Evaluation Report for OPL 325. Lumina Geophysical, an oil and gas industry specialist, carried out a geophysical evaluation of approximately 800sqkm of 3D seismic data. Following the seismic review, the Group has identified and reported 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 (un-risked, Best Estimate case).
In February 2018, the Group announced it has commenced the shooting of 3D seismic survey at the Otakikpomarginal field, onshore and offshore. Sinopec Chanjiang Engineering Services was contracted to carry out the survey. The survey is expected to be completed around June 2018.
In March 2018, the Group announced that it has taken the decision to apply to the Federal High Court for a declaration that is expected to expedite the consent process for the additional 22.8 percent participating interest in OPL 310, and preserve the unexpired tenure in the licence.
There have been no events between the reporting date and the date of authorising these financial statements that have not been adjusted for or disclosed in these financial statements.
36 Financial Commitments and Contingencies (a) Lekoil Exploration and Production (Pty) Limited has relinquished Namibian block 2514A and has renewed block 2514B untilJuly 2019. The Group is bound to a work programme for the block 2514B licence which includes; acquisition of 2D seismic data over an area covering at least 1000 sq. km, acquisition of new CSEM (Control Source Electromagnetic/Hydroscan) data over an area covering at least 200 km or acquisition of new 3D over an area of at least 200 sq.km, data integration and interpretation, lead identification and portfolio inventorisation, lead de-risking and portfolio analysis and ranking, and a minimum exploration expenditure of US$2 million.
(b) On 5 December 2014, the Green Energy International Limited/Lekoil Oil and Gas Investments Limitedjoint venture signed a Memorandum of Understanding (MoU) with its host community, Ikuru with respect to theOtakikpomarginal 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 the Ikuru Community in each financial year; ? The joint venture will allocate the sum of US$0.53 million (NGN 90 million) annually for sustainable community development activities.
(c) In May 2015, the Company provided a corporate guarantee in favour of FBN Capital for the full sum of the loan notes issued by Lekoil Oil and Gas InvestmentLimited, a sub-subsidiary of the Company.
(d) In March 2017, the Company provided a corporate guarantee in favour of Shell Western Supply and Trading Limited for the full sum of the Advance Payment Facilitywith Lekoil Oil and Gas InvestmentLimited, a sub-subsidiary of the Company.
(e) Litigation and claims There are no litigations or claims involving the Group as at 31 December 2017 (2016: Nil).
37 Financial risk management and financial instruments
Overview The Group has exposure to the following risks from its use of financial instruments:
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 constructivecontrol 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:
In US Dollars
In respect of the Group's trade sales, the Group manages credit risk through dealing with, whenever possible, international energy companies or those with a track record of creditworthiness. The Group closely monitors the risks and maintains a close dialogue with those counterparties considered to be highest risk in this regard. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group's policy to securitise its trade and other receivables.
Other receivables represent employee receivables and a loan to a Director which management has assessed as unimpaired.
The Group made significant recoveries on prepaid development costs during the year from crude and with production expectedto be undisrupted, management has assessed the prepaid development as unimpaired.
Cash and bank balances The cash and bank balances of US$6.9 million (2016: US$3.3 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.
Liquidity risk is impacted by the recoverability of the prepaid development costs balance in note 24.
The following are the contractual maturities of financial liabilities, and excluding the impact of netting agreement:
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 monitoring market developments and discussing issues regularly, and mitigating actions 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 of quantitative data about the Group's exposure to currency risks are as follows:
Sensitivity analysis A 20 percent strengthening of the US Dollar against the following currencies at 31 December would have increased (decreased) equity and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
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 inforeign 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 valueif the carrying amount is a reasonable approximation of fair value.
* The carrying amount of trade and other payables is stated net of statutory deductions.
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| ISIN: | KYG5462G1073 |
| Category Code: | ACS |
| TIDM: | LEK |
| LEI Code: | 213800T6JMZ84UEF5C40 |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 5614 |
| EQS News ID: | 691841 |
| End of Announcement | EQS News Service |
