Last checked at 30 Apr 2018 07:00
30 April 2018
Seplat Petroleum Development Company Plc
2017 Annual Report and Notice of AGM
Seplat Petroleum Development Company Plc ("Seplat" or the "Company") confirms it has today published its Annual Report and Accounts for the year ended 31 December 2017 together with the notice of the Company's fifth Annual General Meeting ("AGM") and forms of proxy. The Company will hold its AGM at 11:00am (local time) on Wednesday 6 June 2018 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 2017, 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 Guidance and Transparency Rule ("DTR") 6.3.5R(3), copies are available on the Company's website, www.seplatpetroleum.com.
The Company's audited financial statements and extracts of the management report, were included in the Company's Final Results announcement on 28 February 2018. That information, together with the Appendices to this announcement, which contains the following additional information that has been extracted from the 2017 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 2017 Annual Report. Page and note references in the text below refer to page numbers and notes in the 2017 Annual Report and terms defined in that document have the same meanings in these extracts.
Enquiries:
Seplat Petroleum Development Company plc |
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Roger Brown, CFO | +44 (0) 203 725 6500 |
Andrew Dymond, Head of Investor Relations
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Ayeesha Aliyu, Investor Relations | +234 12 770 400 |
Chioma Nwachuku, GM - External Affairs and Communications |
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FTI Consulting |
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Ben Brewerton / Sara Powell | +44 (0) 203 727 1000 |
| seplat@fticonsulting.com |
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Citigroup Global Markets Limited |
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Tom Reid / Luke Spells | +44 (0) 207 986 4000 |
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Investec Bank plc |
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Chris Sim / Jonathan Wolf | +44 (0) 207 597 4000 |
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).
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 website, http://seplatpetroleum.com/
Appendices
Appendix A: Statement of Directors' responsibilities
The following Statement of Directors' responsibilities is extracted from the 2017 Annual Report and Accounts (page 123).
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 Group at the end of the year and of its profit or loss. The responsibilities include ensuring that the Group:
1. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Group and comply with the requirements of the Companies and AlliedMatters Act, CAP C20, Laws of the Federation of Nigeria 2004;
2. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and
3. prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates, which 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 Group and of its financial performance and cash flows 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 Group 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 Austin AvuruChairman Chief Executive OfficerFRC/2014/IODN/00000003161 FRC/2014/IODN/0000000310028 February 2018 28 February 2018
Appendix B: Principal risks and uncertainties
The following principal risks and uncertainties table is extracted from the 2017 Annual Report and Accounts (pages 58 to 61).
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 mitigation 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 |
| High | Steady. Whilst this risk still remains, there have been significant improvements in the contributory areas of land acquisition and preparation. |
Third party infrastructure downtime | An over-reliance on third party operated transportation infrastructure can expose the Company to extended period of production being shut-in. | Work is ongoing to secure a second export line to complement Forcados. Export via barging is also retained for limited volumes in extreme cases. Have two contingency tanks in Amukpe for partial storage during shut-in over shorter periods. More tanks are planned for Oben. | · Net working interest production · Days downtime · EBIT |
| Very high | Steady. Forcados came back on stream in H2 2017. Second major export line is however required (and is being pursued) to complement Forcados. |
HSSE | 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 and Board levels. Our HSSE systems and process have been subject to independent review and identified improvement initiatives are deployed. Continual focus on HSSE training and initiatives 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 |
| 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&Aprogramme 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 sub-surface expertise. | · Reserve replacement |
| High | No change. Reduced E&A activities but will monitor the outcomes of further studies. |
External risks | ||||||
Niger Delta stability and security | The Company operates in a region where security incidents such as kidnappings, vandalism and criminal attacks on O&G installations can occur. | Continuous security monitoring and intelligence work. Quick mechanism for security advisory to staff and movement restriction for high alert situations. | · LTIF · TRIR · Security incidents |
| Very high | Steady. Targeted attacks on oil and gas facilities in the region have reduced. The threat remains but the Company continues its monitoring and vigilance efforts. |
Failure to managestakeholder 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, JV partners, 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, transparency and proactiveness in dealings with regulators and JV partners. | · Net working interest production · LTIF · TRIR · Host community incidences |
| 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 options plan set. Crisis management team in place for high alert political periods. Business continuity plans actioned in light of current geo-political situation. | · Occurrences of civil unrest and terrorism |
| 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 | Hedging continues to be our price risk management tool. Price sensitisation on project economics and cost discipline for capital projects sanctioning. Aggressive focus on cost reduction. | · Realised oil price · Operating cash flow |
| Very high | Steady. Oil price rallied to above US$60 later in 2017. We will continue to take hedge positions to protect downside price scenarios. |
Changes to tax status and legislation | If the tax regime/legislation under which the Company operates its assets were to change, profitability may be impacted. | Perform evaluation of business plan and performance metrics exclusive of tax benefits. Project economics were determined on maximum tax basis to mitigate the impact of the now expired pioneer tax status. Impact assessment of potential tax legislature monitored at the Board level. | · Effective tax rate · Tax status |
| Very high | Steady. PIB is going through legislative process 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 cash calls by JV partners impacts activities and liquidity. | Working on alternative funding arrangement with JV partners. Board review and approval of financial strategy and debt refinancing arrangements with strong banking relationships. | · JV receivables · Capex · New M&A activities |
| Very high | Steady. Discussion with JV partners on timely cash call funding continues. |
Ineffective cost control | Cost reduction remains central to the Company's current operating strategy. High operating cost and ineffective capital cost control negatively impact 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 · Capex · Well costs |
| High | Steady. Cost containment efforts are yielding good results but cost discipline remains a key part of our business model. |
Liquidity | Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. | Manage liquidity risk by ensuring that sufficient funds are available to meet commitments as they fall due. Uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are sufficient cash resources to meet operational needs. Cash flow projections take into consideration the Company's debt financing plans and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest bearing current accounts, time deposits and money market deposits. | · Operating cash flow · Capex |
| Very high | Steady. Extended crude production shut-in due to third party export line outage in the year. Work progressing on a second export line. |
Foreign exchange | The Company is exposed to exchange rate risk to the extent that balances and transactions are denominated in a currency other than the US Dollar. | The Company has options to manage its foreign exchange exposure including financial hedge instruments such as forward exchange contracts. | · Operating cash flow · Capex |
| Medium | Steady. Historically, the Company holds majority of its cash and cash equivalent in US Dollar. Gas contracts are indexed in US Dollar. |
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 |
| Very high | Increased. As Niger Delta risk remains a threat, the need for a diversified asset portfolio is pertinent. |
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 areas of the business which may be more susceptible to corruption such as the contracting and procurement process. Processes exist to guide dealings with public officials. | · Whistleblowing reports · Number of disciplinary cases |
| High | Steady. 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 |
| 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 |
| 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 IT 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 the requirements of ISO 27001. IT business continuity plan is in place for quick deployment. | · Information security identification and containment reports |
| Medium | No change. While cyber security continues to hold international attention, there has not been a material IT breach on our operations. |
Appendix C: Related Party Transactions
The following Related party relationships and transactions are extracted from the 2017 Annual Report and Accounts (pages 178 to 180)
31. Related party relationships and transactions
The Group is controlled by Seplat Petroleum Development Company Plc (the 'Parent Company'). The Parent Company is owned 8.39% either directly or by entities controlled by A.B.C. Orjiako (SPDCL(BVI)) and members of his family and 13.23% 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.
31a. 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.
Charismond Nigeria Limited: The sister to the CEO works as a General Manager. The company provides administrative services including stationery and other general supplies to the field locations.
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.
Stage Leasing (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.
ResourcePro Inter Solutions Limited: The Chief Executive Officer of Seplat's in-law is its UK representative. The company supplies furniture to Seplat.
Shebah Petroleum Development Company Limited ('BVI'): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). The company provided consulting services to Seplat.
The following transactions were carried out by Seplat with related parties:
31b. Related party transactions
Year-end balances arising from related party transactions:
i) Purchases of goods and services
| 2017₦ million | 2016₦ million | 2017US$ '000 | 2016US$ '000 |
Shareholders of the Parent Company |
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SPDCL (BVI) | 413 | 358 | 1,350 | 1,364 |
Total | 413 | 358 | 1,350 | 1,364 |
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Entities controlled by key management personnel |
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Contracts > US$1 million in 2017 |
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Nerine Support Services Limited1 | 2,161 | 3,948 | 7,066 | 14,991 |
Cardinal Drilling Services Limited | 1,001 | 1,543 | 3,272 | 6,931 |
Helko Nigeria Limited | 444 | 560 | 1,453 | 1,976 |
| 3,606 | 6,051 | 11,791 | 23,898 |
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Contracts < US$1 million in 2017 |
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Montego Upstream Services Limited | 131 | 2,937 | 427 | 13,513 |
Abbeycourt Trading Company Limited | 199 | 164 | 650 | 598 |
Oriental Catering Services Limited | 159 | 148 | 520 | 579 |
Keco Nigeria Enterprises | 110 | 77 | 361 | 259 |
ResourcePro Inter Solutions Limited | 9 | 17 | 31 | 81 |
Nabila Resources & Investment Ltd | - | 17 | - | 58 |
Berwick Nigeria Limited | - | 6 | - | 28 |
Neimeth International Pharmaceutical Plc | 1 | 3 | 2 | 10 |
Charismond Nigeria Limited | 17 | - | 55 | - |
Stage Leasing (formerly Ndosumuli Venture Limited) | 171 | 422 | 560 | 1,729 |
| 797 | 3,791 | 2,606 | 16,855 |
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| 4,403 | 9,842 | 14,397 | 40,753 |
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. they include salaries and Nerine's mark-up. Total costs for agency and contracts during 2017 are ₦1.4 billion, 2016: ₦2.4 billion (US$4.6 million, 2016: US$7.9 million).
31c. Balances:
Year-end balances arising from related party transactions
i) Prepayments/receivables
| 2017₦ million | 2016₦ million | 2017US$ '000 | 2016US$ '000 |
Entities controlled by key management personnel |
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Cardinal Drilling Services Limited - current portion | 1,681 | 1,894 | 5,498 | 6,211 |
Cardinal Drilling Services Limited - non-current portion | - | - | - | - |
| 1,681 | 1,894 | 5,498 | 6,211 |
ii) Payables
| 2017₦ million | 2016₦ million | 2017US$ '000 | 2016US$ '000 |
Entities controlled by key management personnel |
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Montego Upstream Services Limited | 115 | 3,520 | 375 | 11,540 |
Nerine Support Services Limited | 2 | 3,480 | 8 | 11,411 |
Keco Nigeria Enterprises | 8 | - | 25 | - |
Cardinal Drilling Services Limited | 292 | 308 | 954 | 1,009 |
| 417 | 7,308 | 1,362 | 23,960 |