LEK.L Regulatory News (LEK)

11 May 2015

Lekoil Limited

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

Final Results for the Year to 31 December 2014

Lekoil (AIM: LEK), the oil and gas exploration and development company with a focus on Nigeria and West Africa more generally, announces final audited results for the year to 31 December 2014. All figures are in US dollars unless otherwise indicated.

Highlights during the period:

· Acquisition of a 40 per cent. participating and economic interest in the Otakikpo Marginal Field in oil mining lease (OML) 11 in May 2014.

· 1,505 square kilometre 3D seismic acquisition programme completed in May 2014 in OPL 310 which contains the Ogo discovery; early fast tracked results are encouraging, and final results are expected later in 2015.

Highlights post the period end on Otakikpo:

· January 2015 CPR update on Otakikpo converted resources into reserves - Proved and Probable Reserves (2P) of 14.99 mmbbls with Phase II unrisked gross Contingent Resources (2C) of 41.61 mmbbls, making a total of 56.6 mmbbls (20.38 mmbbls net to Lekoil).

· Economic evaluations, in respect of the Otakikpo estimated net 2P reserves and 2C contingent resources indicated that the Phase I and II development of Otakikpo is a robust project with a NPV (10%) of $77.2 million net to Lekoil Limited under a $40 oil price scenario on Marginal Field Terms, increasing to $85.2 million if Provisional Pioneer Status is obtained

· Execution of a US$10 million 12-month bridge facility from FBN Capital to part fund initial development costs

· Production from Otakikpo is due to commence by mid-year 2015.

Financial

Samuel Adegboyega, Chairman, said, "We are sincerely grateful for the support shown by our investors, the Nigerian Government, the local communities we operate in, and our entire workforce who are allowing us to turn our vision into a reality."

Lekan Akinyanmi, Lekoil's CEO, added, "Given the current low oil price environment and capital constraints for many smaller E&P companies, we expect to see many more opportunities over the course of the next 12 months. However, our main focus during 2015 will be on enhancing shareholder value through the development and monetisation of Otakikpo together with the continued appraisal work to further de-risk the Ogo discovery."

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

Chairman's and CEO's Statement

Introduction and Strategy

We are pleased to introduce Lekoil's second annual report and review progress made over the course of 2014 which has seen the Company build upon its strong foundations and enjoy continued operational momentum following our listing on the London Stock Exchange's AIM in May 2013.

Our strategy remains clear: to continue building, through partnerships and strategic acquisitions, an indigenous Africa-focused exploration and production group, diversified across lower risk production assets and appraisal projects, and exploration assets in both known and newly discovered exploration basins. Our target portfolio composition is illustrated in figure 1 below. In 2013 our focus was on the 'value zone' of the portfolio pyramid with our farm-in to OPL 310, where the subsequent successful exploration well and side-track resulted in the Ogo discovery. The goal for 2014 was about drawing upon the extensive Africa experience of our management team to dedicate time and resources towards identifying and securing the right asset within the 'stability zone' to mitigate some of the risks associated with owning only exploration and appraisal assets.

http://www.rns-pdf.londonstockexchange.com/rns/7131M_1-2015-5-10.pdf

Our close relationships with International Oil Companies (IOCs), indigenous companies, and governments across West Africa, backed by our strong technical team, meant that the Company could compile a shortlist of attractive, appropriately sized assets within the lower risk production zone. The US$37.8 million funds raised in May 2014 allowed us to complete a farm-in to acquire a 40 per cent.participating and economic interest in the Otakikpo Marginal Field held in oil mining lease (OML) 11 from Green Energy International Limited.

Since then, we have set about forging agreements with the local communities surrounding the project area. A considerable amount has been achieved since May 2014, including a number of medical outreach programmes to the local communities, which has generated tremendous goodwill for the Company and its operations in the area. We have also successfully negotiated MOUs with the communities, which provide a clear engagement and interaction framework and should help us to build sustained local support and freedom to operate in the area. The operational progress seen at Otakikpo since the farm-in has been extremely pleasing and the operations will play a very important role in the Company's future growth as it will underpin future cash flow and demonstrate Lekoil's operational expertise.

We aim to continue the development of Lekoil's portfolio through further acquisitions of assets divested by both international and national oil companies, or by farm-ins to under-producing assets from indigenous owners. Geologically and technically, we remain attracted to the Atlantic Transform Margin offshore Africa's west coast and commercially we are attracted by the opportunities we believe will continue to emerge from Nigeria's policy to indigenise its oil and gas industry. Given the low oil price environment and capital constraints for many smaller E&P companies, we expect to see many more opportunities over the course of the next 12 months. However, our main focus during 2015 will be on enhancing shareholder value through the development and monetisation of Otakikpo together with the continued appraisal work to further de-risk the Ogo discovery.

Operations

Otakikpo Marginal Field - Near Term Producing Asset

In line with our strategy of building a diversified exploration and production group, acquiring the 40 per cent. participating and economic interest in the Otakikpo Marginal Field was the standout corporate event of 2014. We believe that this transaction made good sense strategically, economically and operationally, given our size, current stage of development and the subsequent lower oil price environment.

Otakikpo allows us to showcase the technical ability within the Company and offers exposure to very near term production and cash flow to fund activity on this and other Company assets. Three wells had been drilled in the field prior to our farm-in, and hydrocarbons were encountered at multiple intervals in two of them. In addition, Otakikpo offers additional upside potential that we believe can be proved up from further 3D seismic survey/analysis and appraisal drilling.

The Otakikpo Marginal Field is sited in a coastal swamp location in OML 11, adjacent to the shoreline in the south-eastern part of the Niger Delta. OML 11 is held by the Shell Petroleum Development Company Joint Venture (SPDCJV) which includes the Nigerian National Petroleum Corporation, the Shell Petroleum Development Company of Nigeria Limited, Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited. Otakikpo was awarded to Green Energy International by the Department of Petroleum Resources in 2011.

In May 2014, Lekoil entered into a farm-in agreement with Green Energy to acquire a 40 per cent. participating interest and economic interest in Otakikpo for a signature bonus of US$7 million and, contingent on production and ministerial consent, a production bonus of US$4 million.

After completing the transaction with Green Energy, and as the Technical and Financial partner, we began designing a comprehensive field development plan to prioritise production by re-entry of two existing wells, use of an early production facility and barge evacuation of crude. In parallel with this, we instructed AGR TRACS International Ltd (AGR TRACS) to carry out a comprehensive review of the surface and subsurface data and began working with our host communities.

Following the review of surface and subsurface data, AGR TRACS reported in September 2014 that the gross unrisked Contingent Resources (2C) for Otakikpo were estimated to be 56.74 mmbbls. This compared favourably to the 36 mmbbls of gross unrisked Contingent Resources (2C) assumed by Lekoil at the time of our acquisition of the interest in Otakikpo earlier in the year. AGR TRACS also reviewed four exploration prospects within the onshore part of Otakikpo and estimated these hold potential gross aggregate Oil in Place volumes of 162.8 mmbbls on a P50 unrisked basis.

In December 2014, we released a further progress report on Otakikpo that confirmed Lekoil and Green Energy had secured the necessary approvals for the well re-entry plan and that the partners expected to begin production in the first half of 2015, a full six months ahead of the previously announced timetable. Using internal analysis and assumptions, which included CPR data from AGR TRACS, we were able to give an indication of the indicative costs and details of expected rig mobilisation. Our expected breakeven cost per barrel of oil is below $30 per barrel and this does not include the potential positive effect of Pioneer Tax Status which has been applied for by the Company.

Post period end in January 2015, we announced an update to the September 2014 CPR on Otakikpo by AGR TRACS, which converted Resources into Reserves. The updated CPR by AGR TRACS reported that gross Proved Reserves (1P) for Otakikpo are 8.43 mmbbls (3.03 mmbbls attributable to Lekoil) and gross Proved and Probable Reserves (2P) are 14.99 mmbbls (5.40 mmbbls attributable to Lekoil). Phase II unrisked gross Contingent Resources (2C) are 41.61 mmbbls (14.98 mmbbls attributable to Lekoil), which together with Phase 1 2P Reserves makes a total of 56.6 mmbbls.

In the January 2015 announcement, we also reported that AGR TRACS had carried out economic evaluations, in respect of our estimated net 2P and 2C reserves and contingent resources, which indicated that the phase 1 and 2 development of Otakikpo is a robust project with a NPV (10%) of $77.2 million net to Lekoil Limited under a $40 oil price scenario on Marginal Field Terms, increasing to $85.2 million under Provisional Pioneer Status and $260.8 million (Marginal Field Terms) rising to $365.3 million (Provisional Pioneer Status) under a $80 oil price scenario. These evaluations are summarised in the tables below.

Marginal Field Terms

Provisional Pioneer Status

We have applied for Pioneer Tax status for Otakikpo and have submitted our application for approval. As the Nigerian Government is currently in care-taking mode given the recent election results and impending change of Government, we do not expect to receive notification of our application before June 1st, 2015. We understand the Pioneer Tax programme remains part of the Government's agenda and look forward to seeing our application finalised.

In addition, we provided details of the Field Development Plan (FDP) following approval, in December 2014, by the Nigerian Ministry of Petroleum of the planned re-entry of the 002 and 003 wells. In Phase I the 002 and 003 wells will be recompleted with the implementation of an Early Production Facility and export facilities.

Community Relations

In December 2014 we concluded Memoranda of Understanding with the leaders of the host community, Ikuru and the other host communities of Ugama Ekede, Ayama Ekede, ASUK Ama and Asuk Oyet, in Andoni Local Government Area of Rivers State surrounding Otakikpo. These agreements followed our engagement with local communities since we acquired the interest in Otakikpo and began our consultation process, at the same time as commencing medical outreach services.

Our agreements with the local communities provide for us leasing land for an operating base for the Otakikpo development for a period of 25 years with an option to renew (after negotiation of terms). In addition, the communities shall receive royalties based on LPG revenue and a capital sum per annum for sustainable community development through an incorporated community trust fund which will have a board of advisors with representation from the communities and Lekoil and its partner.

We will also provide training and employment to members of the communities during both construction and post construction phases. We will engage a community liaison officer from within the communities as well as reserving a proportion of non- and semi-skilled positions for local people.

Also covered in the agreements are measures to ensure that our operations are carried out in an ecological and environmentally friendly manner so that we shall not pollute the leased land. In the event of any pollution, we have undertaken to fully comply with Nigerian laws regarding immediate notification to the local communities, joint inspection of pollution and containment/cleaning of spilled substances as well as prompt assessment.

Financing

We have executed a financing agreement for a US$10 million 12-month bridge facility from FBN Capital. FBN Capital continues to work on arranging a larger US$50 million syndicated facility for fast-track development of Otakikpo if the Pioneer Tax status is secured. The US$50 million facility will also provide us with the flexibility to explore opportunities arising from the current oil price environment should it be put in place. For bringing Otakikpo into initial production, we remain fully funded from our own cash resources.

Otakikpo Summary

Overall, progress since May 2014 has been very rapid and Otakikpo is shaping up to be the model project for our operational, technical and community liaison teams to demonstrate their capability in bringing this lower risk asset into production.

Ogo Discovery and OPL 310 - Appraisal Asset

The 2013 Ogo discovery was described by a leading oil and gas research consultancy as one of the most significant exploration finds in Africa in recent times, and it certainly gave us a flying start to life as a publicly traded company. Given the size of the block and early stage nature, the partners in OPL 310 agreed the next phase of work would be to conduct a 3D seismic programme to acquire sufficient data to high grade and de-risk prospects surrounding the Ogo discovery. In May 2014, we and our partners completed a 1,505 square kilometre 3D acquisition programme, which represented approximately 80 per cent. of the acreage within OPL 310.

Processing and interpretation of the acquired 3D seismic data continued throughout the rest of 2014. Early fast tracked results from the seismic processing are encouraging, and final results are expected later in 2015. The Company has a good working relationship with Afren and looks forward to engaging with Afren's new management team. We are closely monitoring progress being made by Afren with its capital restructuring to address its immediate and longer term funding issues. The partners will make a strategic decision or appraise the asset further following the completion of the 3D seismic processing and interpretation.

Financial

The results for the year to 31 December 2014 showed a total loss of US$11.9 million, as compared to US$18.1 million for the same period in 2013. Cash balances at the year-end totalled US$49.2 million.

We raised an additional US$36.5 million in May 2014 to fund the completion of the acquisition and part of the development of Otakikpo.

Outlook

After the major exploration success at Ogo in 2013, we were committed throughout the early part of 2014 on securing the right asset to diversify the Group's portfolio, and one which could be quickly developed to generate cash flow. Having secured Otakikpo, largely thanks to the support of our shareholders who provided the necessary funding to complete the acquisition, our focus has been on reaching out to the nearby communities to the asset, accumulating the operational talent to develop the field and tendering for key equipment and services.

Our immediate priority looking forward is to re-enter the Otakikpo 2 well to start followed by Otakikpo 3 well and then grow initial production in order to generate the cash required to part fund the further development of the field (with the balance intended to be provided through debt financing as referred to above) and to fund ongoing activities on our portfolio. Otakikpo also offers us the chance to demonstrate to the market and our stakeholders our technical ability to take an asset from development into production.

Given that Lekoil's Nigerian subsidiaries are classed as indigenous companies in Nigeria, another of our shorter term objectives is to look to secure Ministerial Consent to the farm-ins, and Pioneer Tax Status which, if granted, will have significant fiscal benefits for the Company as we grow production.

Longer term, we plan to acquire onshore 3D seismic over Otakikpo. We also plan to appraise the shallow water opportunities in the offshore part of field which is already covered by 3D seismic.

The fall in oil prices from mid-2014 has resulted in us lowering our short to mid-term oil price assumptions in our development plans to levels at or below those prevailing today. For Otakikpo, our analysis reveals that the breakeven price for the project is below $30 per barrel in our base case. This breakeven number can be lowered further if we are successful in our application for Pioneer Tax Status for Otakikpo.

For OPL 310 and the Ogo field, the partners are still in the early stage of the E&P lifecycle where we are still confirming size, mix and other hydrocarbon qualities of the asset. Subsequently, we expect to review several strategic options with regards to long-term development of the asset. Our preliminary analysis and review of development options anticipates that the Ogo field and other prospects in OPL 310 should yield an economically robust project under our base case oil price forecasts.

For other new projects, our lowered base case oil price assumptions mean that we are even more rigorous in testing potential projects under price scenarios that are considerably lower than today's oil price levels.

The Board looks forward to a successful year ahead as Lekoil enters production and looks to generate and grow cash-flow which then can be reinvested back into the business. In parallel with this, we will continue to evaluate other opportunities to grow our asset portfolio further.

We are sincerely grateful for the support shown by our investors, the Nigerian Government, the local communities we operate in, and our entire workforce who are allowing us to turn our vision into a reality.

11 May 2015

Financial Review

Overview

In the twelve months ended 31 December 2014, the Group recorded an operating loss of $11.8 million and exited the period with cash and cash equivalents of $49.2 million. The Group is currently part-funding interpretation and appraisal of the extensive 3D seismic programme over the OPL 310 block and also acquired a 40 per cent. interest in Otakikpo Marginal Field, situated in oil mining lease (''OML'') 11. The Group is currently in discussions with a number of banks regarding the provision of debt facilities for the Otakikpo Marginal Field development.

Full year results

The Group recorded a total comprehensive loss of $11.9 million for the twelve months ended 31 December 2014 compared to loss of $18.1 million recorded for same period in 2013. No dividends were paid or declared during the period.

Administrative expenses and operating loss

Administrative expenses were $11.8 million compared to $17.6 million for the same period in 2013. The reduction in administrative expenses is due to the one-off costs associated with the admission of the Group to trading on AIM and the write-off of investment in OML 113 during the corresponding period, albeit this was partly offset by an expected growth in expenses within the business as we continue to develop our existing assets and acquire new assets.

The Group reported an operating loss of $11.8 million for the twelve months ended 31 December 2014 compared with a loss of $17.5 million for the same period in 2013.

Taxation

No tax was payable for the twelve months ended 31 December 2014 (2013: Nil).

Capital expenditure

The Group's capital expenditure during the twelve months ended 31 December 2014 amounted to $18.5 million compared to $101.5 million incurred for the same period in 2013. Capital expenditure during the year was primarily associated with OPL 310 and acquisition of the Group's 40% interest in Otakikpo Marginal Field.

Cash and cash equivalents

The Group had cash and cash equivalents of $49.2 million at 31 December 2014, compared to $66.6 million at 31 December 2013.

Summary statement of financial position

The Group's non-current assets increased from $102.8 million at 31 December 2013 to $122.4 million at 31 December 2014, reflecting expenditures on seismic acquisition on OPL 310 and acquisition of Otakikpo Marginal field. Current assets represent the Group's cash resources and other receivables, which decreased from $66.9 million as at 31 December 2013 to $54.1 million as at 31 December 2014, reflecting increased capital and other expenditures offset by the US$37.8 million equity funds raised in May 2014. Current liabilities are principally trade and other accounts payable which decreased from $22.6 million as at 31 December 2013 to $2.6 million as at 31 December 2014, mainly as a result of settling a cash call obligation on OPL 310 that was outstanding as at the end of 2013.

Dividend

The Directors do not recommend the payment of a dividend for the year ended 31 December 2014.

Accounting policies

The Group's significant accounting policies and details of the significant judgements 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 twelve months ended 31 December 2014.

Liquidity risk management and going concern

The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including changes in timing of developments, cost overruns of exploration and development activities and different oil price scenarios. At 31 December 2014, the Group had liquid resources of approximately $49.2 million, in the form of cash and short-term investments, which are available to meet ongoing capital, operating and administrative expenditure. The Group's forecasts, taking into account reasonably possible changes as described above, show that the Group expects to have sufficient financial resources for the 12 months from the date of approval of the 2014 Financial Statements.

David Robinson

Chief Financial Officer

11 May 2015

Statement of Directors' Responsibilities in Relation to the Consolidated Financial Statements for the year ended 31 December 2014

The directors accept responsibility for the preparation of the consolidated financial statements set out on pages 13 to 49 that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union.

The directors further accept responsibility for maintaining adequate accounting records and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement whether due to fraud or error.

The directors have made an assessment of the Company's ability to continue as a going concern and have no reason to believe the Company will not remain a going concern in the year ahead.

SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:

Independent Auditor's Report

To the Members of Lekoil Limited

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Lekoil Limited ("the Company"), which comprise the consolidated statements of financial position at 31 December 2014, the consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for the year then ended, summary of significant accounting policies and other explanatory information, as set out on pages 13 to 49.

Directors' Responsibility for the Financial Statements

The directors are responsible for the preparation of these consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatements.

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

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

Opinion

In our opinion, these consolidated financial statements give a true and fair view of the consolidated financial position of Lekoil Limited ("the Company) as at 31 December 2014, and of the Company's consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Signed:

Chibuzor N. Anyanechi, FCA

FRC/2013/ICAN/00000000789

For: KPMG Professional Services

Chartered Accountants

11 May 2015

Lagos, Nigeria

Consolidated Statement of Financial Position

The notes on pages 17 to 49 are an integral part of these consolidated financial statements

Consolidated Statement of Profit or Loss and Other Comprehensive Income

The notes on pages 17 to 49 are an integral part of these consolidated financial statements

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

The notes on pages 17 to 49 are an integral part of these consolidated financial statements

Notes

1. Reporting Entity

Lekoil Limited (the "Company" or "Lekoil") is a company domiciled in the Cayman Islands. The address of the Company's registered office is Intertrust Group, 190 Elgin Avenue, Georgetown, Grand Cayman, Cayman Islands. These consolidated financial statements comprise the Company and all subsidiaries over which the Company exercises control (together referred to as the "Group" and individually as "Group entities"). The Group's principal activity is exploration for and production of oil and gas.

2. Basis of Preparation

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements were authorised for issue by the Board of Directors on 9 May 2015.

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these consolidated financial statements. The revised and new accounting standards and interpretations issued but not yet effective for the accounting year beginning on 1 January 2015 are set out in note 5.

(b) Going concern basis of accounting

The Group incurred a total comprehensive loss of $11.9 million for the year ended 31 December 2014 (2013: $18.1 million). The ability of the Group to continue to operate as a going concern is dependent on:

(i) Exploration and Evaluation activities continuing on OPL 310.

(ii) Ongoing development activities on Otakikpo continuing as planned.

(iii) The availability of sufficient cash resources to fund ongoing operations.

The Directors, having evaluated these factors, believe the use of the going concern assumption to be the appropriate basis for the preparation of the 2014 financial statements, for the following reasons:

The Company and its partner on Otakikpo are working on an agreed plan to achieve first oil by mid 2015. On OPL 310 the parties are working on a 2015 provisional plan, which includes completion of interpretation of 3D seismic data and drilling of an appraisal well.

The Directors are of the view that the current cash balance, together with the cash inflow from Otakikpo production, will be sufficient to fund the development and production activities on Otakikpo and the completion of the interpretation of the 3D seismic data on OPL 310. On completion of the interpretation of the seismic data the Directors expect the partners to either make a strategic decision regarding the asset, potentially including in respect of the allocation of financial responsibilities and interests between the parties, or to conduct further appraisal of OPL 310. The Directors expect the Company will be able to meet any attendant financial obligations through a combination of internal and external sources. Furthermore the Directors have evaluated the rights and responsibilities of the Company under the current farm in agreement and are satisfied that there is no material threat to the Company's continued interest in OPL 310.

(c) Basis of measurement

These consolidated financial statements have been prepared on the historical cost basis except for share based payments which are measured at fair values.

(d) Functional and presentation currency

These consolidated financial statements are presented in US Dollars which is the Company's functional currency. All amounts have been rounded to the nearest unit, unless otherwise indicated.

(e) Use of estimates and judgments

The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(i) Judgements

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is included in the following notes:

- Note 2(b) - Going Concern. The Directors' opinion that the activities to be carried out on OPL 310 in the 2015 financial year will be the completion of the 3D seismic processing and interpretation.

- Note 8 - Property, Plant and Equipment. On the basis that Ministerial consent will be obtained, for the Group's participatory and economic interests of 40% as per the farm-in agreement with Green Energy International Limited (GEIL), the Group has accounted for expenditures incurred on OML 11 (Otakikpo) as oil and gas assets rather than loans and receivables.

- Note 9 - Exploration and Evaluation assets. On the basis that Ministerial consent will be obtained, for the Group's participatory and economic interests of 17.14% and 30% respectively as per the farm-in agreement with Afren, the Group has accounted for expenditures incurred on OPL 310 as Exploration and Evaluation assets rather than loans and receivables.

- Note 9 - Exploration and Evaluation assets. The Directors believe on the basis of independent legal advice that the Group's economic interest in OPL310 will not be significantly impacted from the ongoing discussions on participating and economic interests between Optimum and Afren.

(ii) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2015 is included in the following notes:

- Note 2(b) - Going Concern. Key assumption made by the Directors in preparing the Group's cash forecast on activities to be carried out by the partners on OPL310 in 2015 financial year.

- Note 9(c) - Carrying value of Exploration and Evaluation assets. Basis for the conclusion that the carrying value of E&E assets exceed their recoverable amount.

- Note 17 - Asset Retirement Obligation. Key assumptions underlying the obligation as at year end.

- Note 23 - Share Based Payment Arrangements. Key assumptions made in measuring fair values.

- Note 25(b) - Unrecognised deferred tax assets. Availability of future taxable profit against which carry forward losses can be used.

- Note 26 - Financial Commitments and Contingencies. Key assumptions about the likelihood and magnitude of an outflow of economic resources.

3. Significant Accounting Policies

The accounting policies set out below have been applied by the Group consistently to all periods presented in these consolidated financial statements.

(a) Basis of consolidation

(i) Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

If share-based payments awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's award and the extent to which the replacement awards relates to pre-combination service.

(ii) Non-controlling interests

Non-controlling interests (NCI) are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date on which control ceases. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

(iv) Interests in Joint Arrangements

A joint arrangement is an arrangement in which the Group has joint control i.e. either rights to the net assets of the arrangement (joint venture), or rights to the assets and obligations for the liabilities of the arrangement (joint operation).

Interests in joint arrangements relate to joint operations and are recognised by incorporating the Group's share of each of the assets, liabilities, income and expenses line items into the Group's profit or loss and financial position on a line-by-line basis.

(v) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

(b) Foreign Currency

(i) Foreign Currency Transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

(ii) Foreign operations

The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions.

Foreign currency differences are recognised in Other Comprehensive Income (OCI) and accumulated in the translation reserve except to the extent that the translation difference is allocated to NCI.

(c) Share Capital

(i) Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

(d) Financial instruments

The Group classifies non-derivative financial assets into loans and receivables and non-derivative financial liabilities into the other financial liabilities category.

(i) Non-derivative financial assets

The Group initially recognizes loans and receivables on the date that they are originated. All other financial assets and financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables and cash and cash equivalents.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Short term loans and receivables that do not attract interest rate are measured at their original invoice amount where the effect of discounting is not material.

Financial assets classified as loans and other receivables comprise cash and cash equivalents, trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(ii) Non-derivative financial liabilities

All financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

The Group has the following non-derivative financial liabilities: trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.

Short term payables that do not attract interest are measured at original invoice amount where the effect of discounting is not material.

(iii) Impairment

Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset is impaired if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cash flows of that asset and can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables.

Non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (CGUs).

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(e) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

(ii) Depreciation

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use.

Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives. Depreciation is generally recognised in profit or loss, unless the amount is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

- Motor vehicles - 5 years

- Furniture and fittings - 5 years

- Leasehold improvement - 2 years

- Computer and household equipment - 4 years

- Leasehold property - 25 years

- Oil and gas assets - unit of production method based on estimated proved developed reserves

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(f) Exploration and Evaluation (E&E) Expenditures

(i) License acquisition costs: License acquisition costs are capitalized as intangible E&E assets. These costs are reviewed on a continual basis by management to confirm that drilling activity is planned and that the asset is not impaired. If no future activity is planned, the remaining balance of the license and property acquisition costs is written off. Capitalised licence acquisition costs are measured at cost less accumulated amortisation and impairment losses. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly as they are incurred.

(ii) Exploration expenditure: All exploration and appraisal costs are initially capitalized in well, field or specific exploration cost centres as appropriate pending future exploration work programmes and pending determination. All expenditure incurred during the various exploration and appraisal phase is capitalized until the determination process has been completed or until such point as commercial reserves have been established. Payments to acquire technical services and studies, seismic acquisition, exploratory drilling and testing, abandonment costs, directly attributable administrative expenses are all capitalized as exploration and evaluation assets. Capitalised exploration expenditure is measured at cost less accumulated amortisation and impairment losses.

Treatment of E & E assets at conclusion of exploratory and appraisal activities

Exploration and evaluation assets are carried forward until the existence, or otherwise, of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below and any impairment loss is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassified as development and production assets within property, plant and equipment or intangible assets. If however, commercial reserves have not been found, the capitalised costs are charged to expense after the conclusion of the exploratory and appraisal activities. Exploration and evaluation costs are carried as assets and are not amortised prior to the conclusion of exploratory and appraisal activities.

An E&E asset is assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such circumstances include the point at which a determination is made as to whether or not commercial reserves exist. Where the E&E asset concerned falls within the scope of an established full cost pool, the E&E asset is tested for impairment together with any other E&E assets and all development and production assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. Where the E&E asset to be tested falls outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E asset concerned will be written off in full.

(g) Development Expenditure

Once the technical feasibility and commercial viability of extracting oil and gas resources are demonstrable, expenditure related to the development of oil and gas resources which are not tangible in nature are classified as intangible development expenditure. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. Amortization of development assets attributable to the participating interest is recognized in profit or loss using the unit-of-production method.

(h) Leases

(i) Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

(ii) Leased assets

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognised in the Group's statement of financial position.

(iii) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

(i) Inventories

Inventories comprise crude oil and consumable materials.

Crude oil inventories are valued at lower of cost and net realizable value. Crude oil entitlement underlifts are included in inventory at the lower of cost and net realizable value, while overlifts are valued at year-end spot prices and included in creditors. The profit or loss impact of overlift is recorded in revenue.

Consumable materials are valued at the lower of cost and net realizable value. Cost of consumable materials is determined using the weighted average method and includes expenditures incurred in acquiring the stocks, and other costs incurred in bringing them to their existing location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory values are adjusted for obsolete, slow-moving or defective items where appropriate.

(j) Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. The Group expends resources or incurs liabilities on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes on systems, licenses, intellectual property, market knowledge and trademarks.

The Group recognises an intangible asset if, and only if;

(a) economic benefits that are attributable to the asset will flow to the entity; and

(b) the costs of the asset can be measured reliably.

The Group assesses the probability of future economic benefits using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset. Intangible assets are measured initially at cost.

Amortisation is calculated to write off the cost of the intangible asset less its estimated residual value using the straight-line basis over the estimated useful lives or using the units of production basis from the date that they are available for use. The estimated useful life and methods of amortisation of intangible assets for current and comparative years are as follows:

(k) Employee benefits

(i) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment transactions

The grant-date fair value of equity-settled share-based payment awards granted to employees and others providing similar services is recognised as an employee expense and other general and administrative expense respectively, with a corresponding increase in equity, over the vesting period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

(iii) Post-employment benefits

Defined contribution plan

A defined contribution plan is a post-employment benefit plan (pension fund) under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to the employee service in the current and prior periods.

In line with the provisions of the Pension Reform Act 2004, a subsidiary domiciled in Nigeria has instituted a defined contribution pension scheme for its permanent staff. Staff contributions to the scheme are funded through payroll deductions while the subsidiary's contribution is recognised in profit or loss as employee benefit expense in the periods during which services are rendered by employees. Employees contribute 7.5% each of their gross salary to the fund on a monthly basis. The subsidiary's contribution is 7.5% each of each employee's gross salary.

With effect from 1 July 2014, the Group's contribution to the pension fund is 10% of each employee's basic salary, transport and housing allowances in line with the provisions of the Pension Reform Act 2014. Also, employees contribute 8% of each of their basic salary, transport and housing allowances to the fund on a monthly basis.

(l) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

The Group's asset retirement obligation ("ARO") primarily represents the estimated present value of the amount the Group will incur to plug, abandon and remediate its areas of operation at the end of their productive lives, in accordance with applicable legislations. The Group determines the ARO on its oil and gas properties by calculating the present value of estimated cash flows related to the liability when the related facilities are installed or acquired.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability.

Contingent liabilities are only disclosed and not recognised as liabilities in the statement of financial position. If the likelihood of an outflow of resources is remote, the possible obligation is neither a provision nor a contingent liability and no disclosure is made.

(m) Finance income and finance costs

Finance income comprises, where applicable, interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, gains on the remeasurement to fair value of any pre-existing interest in an acquiree in a business combination, gains on hedging instruments that are recognised in profit or loss and reclassifications of net gains previously recognised in other comprehensive income. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group's right to receive payment is established.

Finance costs comprise, where applicable, interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, losses on disposal of available-for-sale financial assets, dividends on preference shares classified as liabilities, fair value losses on financial assets at fair value through profit or loss and contingent consideration, impairment losses recognised on financial assets (other than trade receivables), losses on hedging instruments that are recognised in profit or loss and reclassifications of net losses previously recognised in other comprehensive income.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

(n) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares which comprise share options granted to employees. Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.

(o) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incurs expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed by the Group's Chief Executive Officer (CEO) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the Group's CEO include items attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group's head office expenses) and income tax assets and liabilities.

(p) Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income.

(i) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

(ii) Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes.

Deferred tax is not recognised for:

- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

- temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporal differences and it is probable that they will not reverse in the foreseeable future; and

- taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax is measured at the tax rates that are expected to be applied to temporary difference when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if certain criteria are met.

4. Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation expert that has responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.

The valuation expert regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation expert assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Group Audit Committee.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

Note 23- share-based payment arrangements

Note 30 - financial risk management and financial instruments

5. New standards and interpretations not yet adopted

There are new or revised Accounting Standards and Interpretations in issue that are not yet effective. These include the following Standards and Interpretations that are applicable to the business of the entity and may have an impact on future financial statements.

Effective 1 July 2014

- IAS 19 Defined Benefit Plans: Employee Contributions

Effective for the financial year commencing 1 January 2015

- Recoverable Amount Disclosures for Non-Financial Assets (Amendment to IAS 36)

Effective for the financial year commencing 1 January 2016

- IFRS 14 Regulatory Deferral Accounts

- IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

- IAS 16 and 38 Clarification of Acceptable Methods of Depreciation and Amortisation

Effective for the financial year commencing 1 January 2017

- IFRS 15 Revenue from contracts with customers

Effective for the financial year commencing 1 January 2018

- IFRS 9 Financial Instruments

The directors are of the opinion that the impact of the application of the Standards and Interpretations will be as follows:

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

The Group does not have a defined benefit pension plan.

Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)

The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.

The amendments apply retrospectively for annual periods beginning on or after 1 January 2015 with early adoption permitted. The Group will adopt the amendments for the year ending 31 December 2015.

The impact of this amendment to IAS 36 has not yet been estimated. The Group will assess the impact once the standard becomes effective.

IFRS 14 Regulatory Deferral Accounts

IFRS 14 provides guidance on the accounting for regulatory deferral account balances by first-time adopters of IFRS. To apply this standard, the entity has to be rate-regulated i.e. the establishment of prices that can be charged to its customers for goods and services is subject to oversight and/ or approval by an authorised body. This amendment is not applicable to the Group.

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The amendments require business combination accounting to be applied to acquisitions of interest in a joint operation that constitutes a business.

Business combination accounting also applies to the acquisition of additional interest in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interest in the joint operation will not be remeasured. As a consequence of these amendments, the Group will amend its accounting policy with effect from 1 July 2016 for acquisitions of interest in a joint operation.

The amendments apply prospectively.

Amendments to IAS 16 and 36 Clarification of Acceptable Methods Depreciation and Amortisation.

The amendments to IAS 16 Property, Plant and Equipment explicitly state that revenue-based methods of depreciation cannot be used for property, plant and equipment.

The amendments to IAS 38 Intangible Assets introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. The presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible assets are 'highly correlated', or when the intangible asset is expressed as a measure of revenue.

The Group uses the straight line method to depreciate items of PPE. For Oil and Gas assets, the Group's policy is to use the unit of production method.

IFRS 15 Revenue from Contracts with Customers

The standard replaces IAS 11 Contraction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue- Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.

The new standard will most likely have a significant impact on the Group, which will include a possible change in the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending 31 December 2015.

The Group will adopt the amendments for the year ending 31 December 2017.

IFRS 9 Financial Instruments

IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting.

The effective date of IFRS 9 was 1 January 2015. The effective date has been postponed to 1 January 2018. The Group will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised and impairment and macro-hedge accounting guidance is still outstanding.

The Group will assess the impact once the standard has been finalised and becomes effective.

6. Operating segments

The Group has a single class of business which is international exploration, development and production of petroleum oil and natural gas. The geographical areas are defined by the Group as operating segments in accordance with IFRS 8 - Operating Segments. As at the year end, the Group had operational activities mainly in one geographical segment, Nigeria.

Geographical information

In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets.

Non-current assets presented consist of property, plant & equipment, intangible assets, long term prepayment and E&E assets.

7. Capital management

The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Group monitors capital using a ratio of adjusted net debt to adjusted equity. For this purpose, adjusted net debt is defined as total liabilities, comprising interest-bearing loans and borrowings and obligations under finance leases, less cash and cash equivalents.

The Group's net debt to equity ratio at the end of the reporting year was as follows:

There were no changes in the Group's approach to capital management during the year.

The Group is not subject to externally imposed capital requirements.

8. Property, plant and equipment

The movement on this account was as follows:

*Oil and gas assets represent the Group's assets in the Otakikpo marginal field which is currently undergoing development activities towards first oil by mid-year 2015. Depreciation, Depletion and Amortisation (DD&A) will commence when production activities commence on the field.

In May 2014, the Group entered into a farm-in agreement with Green Energy International Limited ("GEIL") for a 40% Participating interest in the Otakikpo marginal field, located within OML 11 (Otakikpo). Under the terms of the farm-in agreement, the Company undertook to fund all costs relating to the joint operation until the completion of the initial work program. The oil and gas asset consists of 40% of development capital expenditure incurred in 2014 on Otakikpo project.

The Otakikpo marginal field was awarded to GEIL in February 2011. This followed the declaration of part of OML 11 as marginal field and subsequent farm-in agreement between Joint Venture partners to OML 11 and GEIL. The unexpired lease term is approximately 4 years from the date of this announcement. The directors believe that the lease term will be renewed for another 10 years upon expiration of the current lease term. The directors are further satisfied that based on the workplan for the 2015 financial year, the risks presented by the decline of crude oil prices do not pose a material risk to the future financing of the assets and that the carrying value of the Oil and Gas assets exceeds their recoverable amounts.

9. Exploration and Evaluation (E&E) asset

E & E assets represent the Group's expenditure incurred on exploration activities.

(a) The movement on the E&E asset account was as follows:

(b)Additions during the year mainly consist of the Group's share of expenditure on OPL 310 amounting to $8,561,749. Total expenditure incurred on OPL 310 from farm-in to 31 December 2014 and expected to be recovered in oil amounted to $109,933,317.

OPL 310 is a license granted to Optimum Petroleum Development Limited (Optimum) by the Nigerian Government on 3 February 1992 for an initial term of five years. On 19 February 2009, the Department of Petroleum Resources in Nigeria, acting on behalf of the Minister for Petroleum Resources confirmed the re-allocation of OPL 310 to Optimum with effect from 11 February 2009 for a period of ten years. The holders of OPL310 may apply for the conversion of the OPL to an Oil Mining Lease (OML) for a duration of twenty years with effect from the end of the OPL.

In January 2009 Afren Investments Oil and Gas (Nigeria) Limited "Afren" signed a farm - out agreement with Optimum to acquire a 40% participating interest in OPL 310 and received ministerial consent in May 2009. Afren, the technical partner on OPL 310 further signed a Participating Agreement and Production and Revenue Sharing Agreement (PRSA) with Optimum which entitled them to 70% economic interest in the asset.

In February 2013 Mayfair Assets and Trust Limited ("Mayfair"), a wholly owned subsidiary of Lekoil Nigeria Limited, farmed into Afren's interest in OPL 310. Under the terms of the farm-in agreement with Afren, Mayfair is entitled to 17.14% participatory interest and 30% economic Interest. The funding arrangement under the farm-in agreement with Afren provides for Mayfair and Afren to fund 42.86% and 57.14% of capital and operating expenditures respectively.

At the instance of the license holder the Company and its partners are in discussions regarding options for the further appraisal of OPL 310 and the allocation of financial responsibilities and interests between the partners. The Board of Directors have considered the probable effect of aligning the partners economic interest according to their respective participating interest after the appropriate level of cost recovery and based on independent legal advice expect the matter to be resolved without significantly impacting the Company's economic benefits in the asset.

The unexpired lease term on OPL 310 is 4 years after which the license will be converted to an OML. The Board of Directors expect the conversion to happen within the current OPL tenure and a subsequent Oil Mining/ Production License to be granted for up to twenty years.

The Group's right to the participating interest of 17.14% is subject to ministerial consent to the farm-in agreement. The Board of Directors, on the basis that the ministerial consent will be obtained, is of the opinion that the classification of the farm-in costs, its share of capital expenditure and operating expenditure as Exploration and Evaluation assets instead of loans and advances is appropriate.

Where ministerial consent is not received, any consideration paid by the Group to Afren will not be refunded, however, the Company has rights under a Risk and Financial Services Agreement with Afren, to interests in OPL 310 reserves and production and the expenditures to date will be classified as loans and advances.

Based on the resource update on OPL 310 and the Competent Person's Report ("CPR") on Otatikpo, the Directors are satisfied of the commercial viability of the resources and reserves. The directors are further satisfied that based on the workplan for the 2015 financial year that, the risks presented by the decline of crude oil prices and the present financial condition of Afren do not pose a material risk to the future financing of the assets and that the carrying value of the E&E assets exceeds their recoverable amounts.

10. Intangible assets

The movement on the Intangible assets account was as follows:

Mineral rights acquisition costs consist of the signature bonus for Otakikpo marginal field ($7,000,000).

11. Inventories

Inventories consist of consumable materials used in the Group's operation on the OPL 310 asset (2013: Nil).

12. Other receivables

Other receivables comprise:

13. Prepayments

Prepayments comprise:

(a)Prepaid development costs represents Green Energy International Limited (GEIL) share of costs (60% of joint operations' costs) in Otakikpo Marginal Field. Under the terms of the farm-in agreement, Lekoil Oil and Gas Investment Limited undertakes to fund GEIL participating interest share of all costs relating to the joint operation on Otakikpo Marginal Field, until the completion of the Initial Work Program. The Group will recover costs at a rate of LIBOR plus a margin of 10% through crude oil lifting when the field commences production. However, for expenditure above $70 million, the recovery rate increases to LIBOR plus a margin of 13%. The interest on carried cost has been included as part of the prepaid development costs.

14. 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 analysis of this account is as follows:

The movement in share premium during the year was as follows:

The increase of $36,528,029 relates mostly to the placement of new ordinary shares issued in May 2014. The Company raised capital by issuing 33,000,000 new ordinary shares at a placing price of $1.14 (67.75 pence). Total consideration for the exercise of 93,750 options by a former director, Atedo Peterside who resigned on the 28th of June 2014, was $112,984.

15. Non-controlling interest

16. Trade and other payables

17. Asset retirement obligation

The asset retirement obligation ("ARO") primarily represents the estimated present value of the amount the Group will incur to plug, abandon and remediate its areas of operation at the end of their productive lives, in accordance with applicable legislations. The Group determines the ARO on its oil and gas properties by calculating the present value of estimated cash flows related to the liability when the related facilities are installed or acquired.

The Group has not recognised any provision for ARO in these consolidated financial statements as restoration activities on Ogo field (in OPL 310) were completed and Ogo-1 and side track well were plugged and abandoned as of 31 December 2014, and the existing wells on Otakikpo marginal field were also plugged and abandoned. Well re-entry operations had not commenced as at year end.

18. Deferred income

Deferred income relates to interest on the prepaid development costs.

19. Revenue

No revenue is reported in these consolidated financial statements as the Group is yet to commence production of oil and gas.

20. General and administrative expenses

Expenses by nature

(a) 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.

(b) Personnel expenses

21. Impairment loss on investments

During the year, the Company wrote off its investment in Lekoil 113, which is currently undergoing liquidation procedure.

22. Finance income and costs

23. Share-based payment arrangements

At 31 December 2014, the Group has the following share-based payment arrangements:

Share option scheme (equity-settled)

The Group established a share option scheme that entitles employees, key management personnel and consultants providing employment-type services to purchase shares in the Company. In accordance with the scheme, holders of vested options are entitled to purchase shares at established prices of the shares at the date of grant during a period expiring on the tenth anniversary of the effective date i.e. grant date. The grant dates for awards were 3 December 2010, 1 June 2011, 1 November 2011, 3 June 2012, 19 February 2013, 5 April 2013, 17 May 2013 and 26 March 2014 based upon a shared understanding of the terms of the awards at that time.

Terms and conditions of share option scheme

At inception of the share option scheme, the terms and conditions related to the scheme are as follows:

The Group issued options with 3 different exercise prices $1,00, $3.75, and $7.50 in 2012. The share price was estimated based on recent arm's length share issues. On 17 May 2013, the issued options with exercise prices of $1.00 & $3.75 were cancelled and the affected employees were awarded shares at par value in consideration for the cancellation of the vested options. The issued options with exercise price of $7.50 were subdivided by a factor of ten in line with the Company's capital reorganisation which resulted in a share split of 10:1. The exercise price of the outstanding options was also subdivided by a factor of ten resulting in a reduction in exercise price from $7.50 to $0.75 and an increase in total number of option shares from 6,000,000 to 19,000,000.

Effective 26 March 2014, the exercise price of the outstanding stock options was changed from $0.75 to GB£0.49 using a conversion rate of US$1.53 to GB£1.00 and the existing stock option agreements have been amended to reflect the exercise price in GB£. During the year, 93,750 units (2013: Nil) of share options were exercised by the directors.

Volatility was estimated with reference to empirical data for proxy companies with listed equity.

The number and weighted average exercise prices of share options are as follows:

The options outstanding at 31 December 2014 have an exercise price of $0.75 and a weighted average contractual life of 7.05years (2013: 7.13 years).

Inputs for measurement of grant date fair values

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model for plain vanilla European call options with the following inputs:

Employee benefit expenses

24. Loss per share

(a) The calculation of basic loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.

(i) Loss attributable to ordinary shareholders (basic)

(ii) Weighted-average number of ordinary shares (basic)

(b) The calculation of diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.

(i) Loss attributable to ordinary shareholders (basic)

(ii) Weighted-average number of ordinary shares (basic)

25. Taxes

(a) Income tax

The Group with its principal assets and operations in Nigeria is subject to the Petroleum Profit Tax Act of Nigeria (PPTA). However, the Group is yet to commence production and therefore earned no revenue during the year. As a result, no Petroleum Profit Tax (PPT) was charged during the year.

(b) Unrecognised deferred tax assets

Deferred tax assets will arise from unrelieved losses as well as the tax base of assets. These have not been recognised because it is not probable that future taxable profit will be available against which the Company can use the benefits thereon.

(c) Reconciliation of effective tax rates

The tax on the Company's loss before tax differs from the theoretical amount as follows:

26. Financial Commitments and Contingencies

(a) On 17 October 2011, Lekoil Nigeria Limited signed the prepayment agreement relating to a proposed acquisition by Lekoil Nigeria Limited of an interest in another Nigerian field, OPL241 from Oilworld Limited ("Oilworld"). It was proposed that Lekoil Nigeria Limited acquire a 10% participating interest in OPL241 subject to negotiation of a commercial transaction and suitable documentation being agreed (the "OPL241 Acquisition") and certain payments being made by Lekoil Nigeria Limited to Oilworld. Lekoil Nigeria Limited paid a deposit of $1,000,000 on the understanding that this would be held by Oilworld as a deposit and applied by Oilworld towards any subsequent acquisition by Lekoil Nigeria Limited of a 1% participating interest in OPL241. Ministerial consent would be needed for the transfer of the interests although the OPL241 acquisition has not been completed and Oilworld is still holding the sum of $1,000,000 as a deposit on the above basis. The Prepayment Agreement also states that, if the OPL241 acquisition did not complete, Lekoil Nigeria Limited would have a right of first refusal over the 10% participating interest in OPL241 held by Oilworld (including the 1% interest to which the $1,000,000 deposit above refers). Oilworld commenced sole risk 3D seismic acquisition in 2013. The amount of $1,000,000 paid is included in exploration and evaluation assets.

(b)Lekoil Limited, Namibia is bound to an agreement for the acquisition of a 77.5% participating interest in the Production Sharing Agreement (PSA) and operatorship in respect of Namibia Blocks 2514A and 2514B with Hallie Investments (Namibia) for the sum of $2.75million, out of which an initial deposit of $69,660 was made. The amount of $69,660 paid is included in exploration and evaluation assets.

(c) Mayfair Assets and Trust Limited is bound to an agreement for the acquisition of a 17.14% participating interest in OPL 310 and 30% economic interest. All capital and operating expenditure on OPL 310 will be borne 42.86% by Mayfair Assets and Trust Limited, until cost recovery is complete and then capital expenditure paying interest reverts to 30%.

(d) Lekoil Oil and Gas Investment Limited is bound to the terms under a farm-in agreement with respect to Otakikpo marginal field. For a 40% economic and participating interest, the Company will fund all costs relating to the joint operation until the completion of the initial work program.

In accordance with the farm-in agreement with Green Energy International Limited (GEIL), the Company will pay GEIL, contingent on production and receipt of ministerial consent, a production bonus of US$4 million.

(e) On 5 December 2014, Lekoil Oil and Gas Investment Limited ("LOG") signed a Memorandum of Understanding (MoU) with its host community, Ikuru with respect to the Otakikpo Marginal Field area. The key items of the MoU include the following:

- LOG will allocate 3% of its revenue from the Liquefied Petroluem Gas (LPG) produced from the field to Ikuru Community in each financial year;

- LOG will allocate the sum of NGN 90million ($534,791) annually for sustainable community development activities.

(f) Subsequent to the year end, the Company provided a corporate guarantee in favour of a financial institution in Nigeria for loan notes issued by Lekoil Oil and Gas Investment Limited, a subsidiary of the Company.

27. Related party transactions

The Company had related party transactions during the year with the following related parties:

(a) Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. These are the directors of the Group.

(i) Loans to key management personnel

Unsecured loan granted to a director during the year amounted to $1,500,000 million (2013: $49,900). The loan has a three year term and bears interest at a rate of four per cent per annum. Repayment is due at the end of the term. At 31 December 2014, the balance outstanding was $1,503,667 (2013: $49,900) and is included in 'trade and other receivables' (See Note 11).

(ii) Key management personnel compensation

In addition to their salaries, the Company also provides non-cash benefits to key management personnel, in the form of share based payments. The Company did not make any pension contributions for the directors.

Key management personnel compensation comprised the following:

Short-term employee benefits comprised the following:

Included in share based payments is a portion of executive directors' salaries amounting to $1,237,500 (2013: $787,500) which was paid via issue of ordinary shares of the Company.

The Board of Directors approved payment of cash bonuses of $210,000 to the Company's executive directors for the financial year ended 31 December 2014.

In 2013, interim cash bonus of $675,000 was approved and paid in 2013 for the executive directors. During the year, additional cash bonus of $525,000 was approved and paid in 2014 as final cash bonus for 2013 for the executive directors. No accruals were made for final cash bonus for 2013 in the financial statements as at 31 December, 2013.

Details of directors' remuneration (including fair value of share based payments) earned by each director of the Company during the year are as follows:

(iii) Key management personnel and director transactions

Directors of the Company control 14.2% (2013: 15.6%) of the voting shares of the Company.

An amount of $136,323 representing salary to the CFO, David Robinson remained outstanding as at 31 December 2014. This amount is included in accounts payable and accruals.

(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.

(c) Loans to related party

The Company has provided loans totaling $123,706,154.46 (2013: $85,229,192) to Lekoil Nigeria, Mayfair Assets and Trust Limited and Lekoil Oil and Gas Investments. These loans are unsecured and do not have fixed repayment terms and attract interest at 8%, 9% and 9% for Lekoil Nigeria, Mayfair Assets and Trust Limited and Lekoil Oil and Gas Investments respectively. The loans to subsidiaries have been eliminated in these consolidated financial statements.

28. Group entities

(a) Significant subsidiaries:

(i) Although the Company holds less than 50% ownership interests in Lekoil Nigeria Limited, it has control over the entity based on terms of agreements under which the entity was established and is entitled to 90% of the benefits related to its operations and net assets.

Lekoil Nigeria Limited has 3 wholly owned subsidiaries, namely: Mayfair Assets and Trust Limited, Lekoil Oil & Gas Investments Limited and Lekoil Exploration and Production Nigeria Limited. The results of these subsidiaries have been included in the consolidated financial results of Lekoil Nigeria Limited.

(b) Non-controlling interests

The following table summarises the information relating to each of the Group's subsidiaries, before any intra-group eliminations:

31 December 2014