Last checked at 26 Apr 2017 07:00
26 April 2017
SEPLAT Petroleum Development Company PLC
SEPLAT PetDevCom plc - 2016 Annual Report and Notice of AGM
SEPLAT Petroleum Development Company PLC confirms it has today posted its Annual Report and Accounts for the year ended 31 December 2016 to shareholders together with the notice of the 2016 Annual General Meeting (AGM) and forms of proxy. The Company will hold its AGM at 11 a.m. (local time) on Wednesday 1 June 2017 at the Civic Centre, Ozumba Mbadiwe Road, Victoria Island, Lagos, Nigeria.
In accordance with Listing Rule 14.3.6 copies of the Company's Annual Report and Accounts for the year ended 31 December 2016, the Notice of AGM and proxy forms have also been submitted to the FCA for publication through the document viewing facility of the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.
In accordance with Disclosure and Transparency Rule 6.3.5R(3), copies are available on the Company's website, www.seplatpetroleum.com.
A condensed set of the Company's financial statements and extracts of the management report, were included in the Company's Final Results announcement on 30 March 2017. That information, together with the Appendices to this announcement, which contains the following additional information that has been extracted from the 2016 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5 only:
· the Directors' Responsibilities Statement;
· a description of principal risks and uncertainties that the Company faces; and
· related party transactions.
This announcement should be read in conjunction with and is not a substitute for reading the full 2016 Annual Report. Page and note references in the text below refer to page numbers and notes in the 2016 Annual Report and terms defined in that document have the same meanings in these extracts.
Enquiries:
Seplat Petroleum Development Company Plc
Roger Brown, CFO
Andrew Dymond, Head of Investor Relations +44 (0) 203 725 6500
Chioma Nwachuku, GM - External Affairs and Communications +234 12 770 400
FTI Consulting
Ben Brewerton / Sara Powell / +44 (0) 203 727 1000
seplat@fticonsulting.com
Notes to editors
Seplat Petroleum Development Company Plc is a leading indigenous Nigerian oil and gas exploration and production company with a strategic focus on Nigeria, listed on the Main Market of the London Stock Exchange ("LSE") (LSE:SEPL) and Nigerian Stock Exchange ("NSE") (NSE:SEPLAT).
In July 2010, Seplat acquired a 45 percent participating interest in, and was appointed operator of, a portfolio of three onshore producing oil and gas leases in the Niger Delta (OMLs 4, 38 and 41), which includes the producing Oben, Ovhor, Sapele, Okporhuru, Amukpe and Orogho fields. Since acquisition, Seplat has more than tripled production from these OMLs.
In June 2013, Newton Energy Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Pillar Oil Limited to acquire a 40 percent participating interest in the Umuseti/Igbuku marginal field area within OPL 283. In February 2015, Seplat completed the acquisition of a 40 percent working interest in OML 53 and a 22.5 percent working interest in OML 55, Onshore Nigeria.
Seplat is pursuing a Nigeria focused growth strategy and is well-positioned to participate in future divestment programmes by the international oil companies, farm-in opportunities and future licensing rounds.
For further information please refer to the Company's website, http://seplatpetroleum.com/
Appendices
Appendix A: Statement of Directors' responsibilities
The following Statement of Directors' responsibilities is extracted from the 2016 Annual Report and Accounts (page 111).
The Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004, requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of financial affairs of the Company at the end of the year and of its profit or loss. The responsibilities include ensuring that the Company:
a. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company and comply with the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004;
b. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and
c. prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates, and are consistently applied.
The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards ('IFRS'), the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and Financial Reporting Council of Nigeria Act, No 6, 2011.
The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of its financial performance for the year. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the Directors to indicate that the Company will not remain a going concern for at least 12 months from the date of this statement.
Signed on behalf of the Directors by
A.B.C. Orjiako
Chairman
FRC/2013/IODN/00000003161
30 March 2017
Austin Avuru
Chief Executive OfficerFRC/2013/IODN/00000003100
30 March 2017
Appendix B: Principal risks and uncertainties
The following Principal risks and uncertainties table is extracted from the 2016 Annual Report and Accounts (pages 50 to 53).
Monitoring and mitigating risks to the business
The implementation of our strategy can be hindered by various risks and uncertainties. The risks that the Board considers most significant are described here.
Key risk | Description | Mitigation | KPI/Performance metric | Strategic pillars | Assessment | Trend |
Operational risks | ||||||
Field operations and project deliverability | Failure to manage operational activities in line with planned expectations can lead to production misses, project delays and cost overruns, high production costs and earlier than expected field decommissioning. | Focus on risk management at planning phase and mitigations plans activated. Compulsory 'peer-to- peer' review for high-value projects and better project management techniques. Protracted land acquisition, preparation and rig startup have been contributory factors which have received focused attention and significant process improvements and improved communications with JV partner and approving regulators to mitigate delays. Use of smart/intelligent wells to improve recovery and improved rig performance monitoring and reporting to manage NPTs. | • Net working interest production • Operating costs per boe | 1/ 2/ 3 | High | Steady. Whilst this risk still remains, there have been significant improvements in the contributory areas of land acquisition and preparation. |
Third partyinfrastructuredowntime
| An over-reliance on third party operated transportation infrastructure can expose the Company to extended periods of production shut-in and reduced earnings. | Exports via the alternative Warri refinery route commenced in 2016, albeit at constrained rates. Upgrades and jetty repairs will allow for a stabilised 30,000 bopd gross export capacity via this route. The Company is supporting NAPIMS on completion of the Amukpe to Escravos pipeline. Two contingency storage tanks at Amukpe provide a buffer during shorter periods of shut-in. | • Net working interest production • Days downtime • EBIT | 1/3 | Very High | Increased. With the extended outage of Forcados export terminal. |
HSSE risks
| Oil and gas activities carry significant levels of HSSE risks if not properly managed. As activity levels continue to increase there is a strong focus on preventing major environmental, health or safety incidents. | Deployment of an HSSE Management System in line with best practices. Monitoring and reporting of HSSE performance scorecards at management level and Board level. Our HSSE systems and process have been subject to independent review and identified improvement initiatives are being deployed. Continual focus on HSSE training and initiatives focused on incidence prevention. Emergency Response plan set for any eventuality and comprehensive Incident Review panels to identify and channel lessons learnt to improvement activities. | • HSSE scorecards • LTIF • TRIR | 5/1/3 | High | Steady. Though the risk is inherent, we will continue to deploy our HSSE risk management in line with best practices and with strong emphasis on prevention. |
Sustained E&A programme failure
| Exploration and appraisal activities carry significant levels of subsurface risk. Sustained E&A drilling failure will impact the Company's ability to organically replace reserves and production. | Strict compliance with reservoir management guidelines. Building internal capacity with skilled subsurface expertise. | Reserve replacement | 1/2/3 | High | No change. Reduced E&A activities but we will monitor the outcomes of further studies. |
External risks | ||||||
Security incidents | The Company operates in a region where security incidents such as kidnappings and criminal attacks can occur. | Continuous security monitoring and intelligence. Quick mechanism for security advisory to staff and movement restriction for high alert situations. | • LTIF • TRIR • Security incidents. | 5/1/3 | Very high | Increased. With uptick in militancy activities in the Niger Delta. We will continue our monitoring and vigilance. |
Failure to manage stakeholder relationships | Failure to manage stakeholders can result in business disruptions and interference. The Company prioritises the effective management of relationships with all stakeholders including host communities, government, regulatory bodies and shareholders. | Successful operation of the GMOU agreement with host communities, periodic engagement and feedback forums. Tailored CSR programmes, capacity building and infrastructure developments with the host communities. Organisational focus and clear strategy to deliver shareholder value pursued by the Board and management. Corporate governance and transparency in dealings with regulators and JV partners. | • Net working interest production • LTIF • TRIR • Host community incidences | 5/1 | High | No change. We continue to enjoy good working relations with all stakeholders. |
Geo-political risk | Nigeria has at times in its history faced political uncertainties and threats such as terrorism aimed at de-stabilising and undermining the orderly and effective rule of central government. | Scenarios and response option plans set. Crisis management team over the high alert political periods. Business continuity plans actioned in light of current geo-political situation. | Occurrences of civil unrest and terrorism | 5/1/3 | High | No change. We will continue to monitor situations closely. |
Financial risks | ||||||
Oil price volatility | Oil prices have exhibited a history of volatility and can fluctuate sharply in line with external factors. | Hedging continues to be an option, with the Company benefitting from the strike price hedged in Q4 2016. Price sensitisation on project economics and cost discipline for capital projects sanctioning. Aggressive focus on cost reduction. | • Realised oil price • Operating cash flow | 1 | Very High | Increased. With the very low oil prices early in 2016. We will continue to take hedge positions and apply cost reduction strategies. |
Changes to tax status and legislation | If the tax regime/legislation and incentives under which the Company operates its assets were to change, profitability will be impacted. | Perform evaluation of business plan and performance metrics exclusive of any tax benefits. Project economics determined on maximum tax basis to mitigate impact of any potential change in tax status. Impact assessment of potential tax legislature monitored at the Board level. | • Effective tax rate • Tax status | 1/3 | Very High | Steady. New government in Nigeria has resumed the review of the PIB and we will continue to monitor the situation. |
Availability of capital | The oil and gas industry is highly capital intensive. Significant amounts of capital are required to continue development activities and fund M&A. Non funding of cashcalls by JV partners impacts activities and liquidity. | Working on alternative funding arrangement with JV partner. Board review and approval of financial strategy and debt refinancing arrangements with strong banking relationships. | • JV receivables • Capital expenditures • New M&A activities | 1/3/4 | Very High | Steady. Discussions on alternative funding continue to progress. |
Ineffective cost control | Increasing operating cost and ineffective capital cost control negatively impacting operating cash flows and profitability. | Comprehensive budgeting process approved by the joint venture partner and the Board. Clear cost management targets. Grading of portfolio opportunities and project ranking for capital allocation. Focus on reducing drilling costs at well design phase. Cost monitoring and periodic reporting. Focus on effective contracting strategies for cost reduction. | • Operating cost per boe • EBIT • Capital expenditure • Well costs | 5/1/3 | Very High | Increasing, with the associated pressures from low oil pricing requiring greater cost discipline. |
Strategic risks | ||||||
Portfolio concentration risk | High dependency on a concentrated portfolio of producing blocks and limited number of wells can leave the Company more susceptible to declining long-term growth and reserves depletion. | Focus on portfolio expansion strategy from the Board level to diversify current portfolio. Integrated long-term planning on crude oil and gas business. | Successful execution of new acquisition and farm-in opportunities | 1/3 | High | Steady, as the Company is currently in a portfolio expansion phase. |
Merger & Acquisition ('M&A') risk | Growth through M&A activities is part of Seplat's strategy to pursue a focused acquisition and farm-in. M&A deals and transactions come with significant risk including structural, commercial and integration risks. There is also the risk of non-achievement of acquisition targets due to highly competitive landscape. | New business development unit always looking for the right opportunities for Seplat. Decision review board ('DRB') process in place to ensure deals are properly vetted and adequate due diligence done on new opportunities. The DRB ensures the commercial, structural, KYC and integration risks are fully considered and addressed with mitigation plan approved and in place prior to deal closing. | • Successful execution of new acquisition and farm-in opportunities |
| High | Steady. DRB process in place to vet opportunities and deals. |
Bribery and corruption risk | Bribery and corruption presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. | Extensive training on anti-bribery and corruption. Embedding corporate governance principles with key focus on all areas of the business which may be more susceptible to corruption such as the contracting and procurement process. Processes exist to guide dealing with public officials. | • Whistleblowing reports • Number of disciplinary cases | 5 | High | No change, as geographical location continues to be susceptible to corruption. |
Loss of key employees | The oil and gas industry is very specialised in certain areas and there is competition within the industry to secure talent and highly-skilled and experienced personnel in core areas. | Annual benchmark reviews to ensure competitiveness in reward and recruitment. Succession planning in place as part of business continuity. Focus on training as a key differentiating factor in the operating environment. | Staff turnover | 1/4 | Low | Steady, with attendant reduction in capital spend in general response to low oil prices. |
Fraudulent activity risk | Fraudulent activity presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. | Extensive whistleblowing campaign. Continuous monitoring and improvement of the system of internal controls by all lines of defence with strong internal audit activity. Automation of processes where possible to reduce manual intervention. | Number of reported cases. | 5 | High | Steady. Risk is still high and management continues to maintain a zero tolerance policy. |
Information security risk | Potential cyber-attacks and information technology security breaches could result in loss or compromise of sensitive proprietary information, communication and business continuity disruption across operations | We monitor and regularly upgrade the Company's information technology and security systems. The Company has a clearly defined employee user policy and control of access rights. Our information security framework and infrastructure have been externally reviewed in line with requirements of ISO27001. A business continuity plan is in place for quick deployment. | Information security identification and containment reports | 5/2 | Medium | No change. While cyber security continues to hold international attention, there has been no material IT breach on our operations. |
Appendix C: Related Party Transactions
The following Related party relationships and transactions are extracted from the 2016 Annual Report and Accounts (pages 169 to 170 and pages 236 to 237)
Related party relationships and transactions
The Group is controlled by Seplat Petroleum Development Company Plc (the 'parent Company'). As at 31 December 2016, the parent Company is owned 13.84% either directly or by entities controlled by A.B.C. Orjiako ('SEPCOL') and members of his family and 13.15% either directly or by entities controlled by Austin Avuru ('Professional Support Limited' and 'Platform Petroleum Limited'). The remaining shares in the parent Company are widely held.
a) Related party relationships
The services provided by the related parties:
Abbeycourt Trading Company Limited: The Chairman of Seplat is a director and shareholder. The company provides diesel supplies to Seplat in respect of Seplat's rig operations.
Berwick Nigeria Limited: The Chairman of Seplat is a shareholder and director. The company provides construction services to Seplat in relation to a field base station in Sapele.
Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): Is owned by common shareholders with the parent Company. The company provides drilling rigs and drilling services to Seplat.
Helko Nigeria Limited: The Chairman of Seplat is shareholder and director. The company owns the lease to Seplat's main office at 25A Lugard Avenue, Lagos, Nigeria.
Keco Nigeria Enterprises: The Chief Executive Officer's sister is shareholder and director. The company provides diesel supplies to Seplat in respect of its rig operations.
Montego Upstream Services Limited: The Chairman's nephew is shareholder and director. The company provides drilling and engineering services to Seplat.
Nabila Resources & Investment Ltd: The Chairman's in-law is a shareholder and director. The company provides lubricant to Seplat.
Ndosumili Ventures Limited: Is a subsidiary of Platform Petroleum Limited. The company provides transportation services to Seplat.
Neimeth International Pharmaceutical Plc: The Chairman of Seplat is also the chairman of this company. The company provides medical supplies and drugs to Seplat, which are used in connection with Seplat's corporate social responsibility and community healthcare programmes.
Nerine Support Services Limited: Is owned by common shareholders with the parent Company. Seplat leases a warehouse from Nerine and the company provides agency and contract workers to Seplat.
Oriental Catering Services Limited: The Chief Executive Officer of Seplat's spouse is shareholder and director. The company provides catering services to Seplat at the staff canteen.
Platform Petroleum Limited: The Chief Executive Officer of Seplat is a director and shareholder of this company. The company seconded support staff to Seplat.
ResourcePro Inter Solutions Limited: The Chief Executive Officer of Seplat's in-law is its UK representative. The company supplies furniture to Seplat.
Shebah Exploration and Production Company Limited ('SEPCOL'): The Chairman of Seplat is a director and shareholder of SEPCOL. SEPCOL provided consulting services to Seplat.
b.) Related party transactions in Nigerian Naira (₦)
Year-end balances arising from related party transactions
i) Purchases of goods and services
| The Group |
| The Company | ||
| 2016 ₦'m | 2015 ₦'m |
| 2016 ₦'m | 2015 ₦'m |
Shareholders of the parent company |
|
|
|
|
|
SEPCOL | 358 | 302 |
| 358 | 302 |
Platform Petroleum Limited | - | 7 |
| - | 7 |
| 358 | 309 |
| 358 | 309 |
Entities controlled by key management personnel: |
|
|
|
|
|
Contracts > ₦1billion in 2016 |
|
|
|
|
|
Nerine Support Services Limited1 | 3,948 | 4,179 |
| 3,948 | 4,179 |
Montego Upstream Services Limited | 2,937 | 1,879 |
| 2,937 | 1,879 |
Cardinal Drilling Services Limited | 1,543 | 3,429 |
| 1,543 | 3,429 |
| 8,428 | 9,487 |
| 8,428 | 9,487 |
Contracts < ₦1billion in 2016 |
|
|
|
|
|
Helko Nigeria Limited | 560 | 113 |
| 560 | 113 |
Ndosumili Ventures Limited | 422 | 268 |
| 422 | 268 |
Abbeycourt Trading Company Limited | 164 | 470 |
| 164 | 470 |
Oriental Catering Services Limited | 148 | 187 |
| 148 | 187 |
Keco Nigeria Enterprises | 77 | 377 |
| 77 | 377 |
ResourcePro Inter Solutions Limited | 17 | 366 |
| 17 | 366 |
Nabila Resources & Investment Ltd | 17 | 45 |
| 17 | 45 |
Berwick Nigeria Limited | 6 | 5 |
| 6 | 5 |
Neimeth International Pharmaceutical Plc | 3 | - |
| 3 | - |
| 1,414 | 1,831 |
| 1,414 | 1,831 |
| 9,842 | 11,318 |
| 9,842 | 11,318 |
1. Nerine on average charges a mark-up of 7.5% on agency and contract workers assigned to Seplat. The amounts shown above are gross i.e include salaries and Nerine's mark-up. Total costs for agency and contracts during 2016 are ₦2.4 billion.
c). Balances in Nigerian Naira (₦):
Year-end balances arising from related party transactions:
i) Prepayments / receivables
| The Group and Company | |
2016 ₦'m | 2015 ₦'m | |
Entities controlled by key management personnel |
|
|
Cardinal Drilling Services Limited - current portion | 1,894 | 1,716 |
Cardinal Drilling Services Limited - non-current portion | - | 1,060 |
| 1,894 | 2,776 |
ii) Payables
| The Group and Company | |
2016 ₦'m | 2015 ₦'m | |
Entities controlled by key management personnel |
|
|
Montego Upstream Services Limited | 3,520 | - |
Nerine Support Services Limited | 3,480 | - |
Cardinal Drilling Services Limited | 308 | - |
| 7,308 | - |
d) Related Party Transactions in US Dollars ($):
i) Purchases of goods and services
| The Group |
| The Company | ||
| 2016 US$ '000 | 2015 US$ '000 |
| 2016 US$ '000 | 2015 US$ '000 |
Shareholders of the parent company |
|
|
|
|
|
SEPCOL | 1,364 | 1,517 |
| 1,364 | 1,517 |
Platform Petroleum Limited | - | 35 |
| - | 35 |
| 1,364 | 1,552 |
| 1,364 | 1,552 |
Entities controlled by key management personnel: |
|
|
|
|
|
Contracts > US$1m in 2016 |
|
|
|
|
|
Nerine Support Services Limited1 | 14,991 | 21,015 |
| 14,991 | 21,015 |
Montego Upstream Services Limited | 13,513 | 9,449 |
| 13,513 | 9,449 |
Cardinal Drilling Services Limited | 6,931 | 17,244 |
| 6,931 | 17,244 |
Helko Nigeria Limited | 1,976 | 566 |
| 1,976 | 556 |
Ndosumili Ventures Limited | 1,729 | 1,350 |
| 1,729 | 1,350 |
| 39,140 | 49,624 |
| 39,140 | 49,614 |
Contracts < US$1m in 2016 |
|
|
|
|
|
Abbeycourt Trading Company Limited | 598 | 2,362 |
| 598 | 2,362 |
Oriental Catering Services Limited | 579 | 941 |
| 579 | 941 |
Keco Nigeria Enterprises | 259 | 1,896 |
| 259 | 1,896 |
ResourcePro Inter Solutions Limited | 81 | 1,841 |
| 81 | 1,841 |
Nabila Resources & Investment Ltd | 58 | 226 |
| 58 | 226 |
Berwick Nigeria Limited | 28 | 27 |
| 28 | 27 |
Neimeth International Pharmaceutical Plc | 10 | - |
| 10 | - |
| 1,613 | 7,293 |
| 1,613 | 7,293 |
| 40,753 | 56,917 |
| 40,753 | 56,907 |
1. Nerine on average charges a mark-up of 7.5% on agency and contract workers assigned to Seplat. The amounts shown above are gross i.e include salaries and Nerine's mark-up. Total costs for agency and contracts during 2016 are US$7.9 million.
e) Balances in US Dollars ($):
Year-end balances arising from related party transactions:
i) Prepayments / receivables
| The Group and Company | |
2016 US$ '000 | 2015 US$ '000 | |
Entities controlled by key management personnel |
|
|
Cardinal Drilling Services Limited - current portion | 6,211 | 12,632 |
Cardinal Drilling Services Limited - non-current portion | - | 1,333 |
| 6,211 | 13,965 |
ii) Payables
| The Group and Company | |
2016 US$ '000 | 2015 US$ '000 | |
Entities controlled by key management personnel |
|
|
Montego Upstream Services Limited | 11,540 | - |
Nerine Support Services Limited | 11,411 | - |
Cardinal Drilling Services Limited | 1,009 | - |
| 23,960 | - |