Last checked at 8 Apr 2019 07:00
8 April 2019
Seplat Petroleum Development Company Plc
2018 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 2018 together with the notice of the Company's sixth Annual General Meeting ("AGM") and forms of proxy. The Company will hold its AGM at 11:00am (local time) on Thursday 16 May 2019 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 2018, 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 6 March 2019. That information, together with the Appendices to this announcement, which contains the following additional information that has been extracted from the 2018 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5 only:
· the Statement of Directors' Responsibilities;
· 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 2018 Annual Report. Page and note references in the text below refer to page numbers and notes in the 2018 Annual Report and terms defined in that document have the same meanings in these extracts.
Enquiries
Seplat Petroleum Development Company plc | |
Roger Brown, CFO | +44 (0) 203 725 6500 |
Andrew Dymond, Head of Investor Relations
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Ayeesha Aliyu, Investor Relations | +234 (01) 277 0400 |
Chioma Nwachuku, GM - External Affairs and Communications | |
FTI Consulting | |
Ben Brewerton / Sara Powell
| +44 (0) 203 727 1000 |
seplat@fticonsulting.com
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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 2018 Annual Report and Accounts (page 114).
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 Allied Matters 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, 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 twelve months from the date of this statement.
Signed on behalf of the Directors by:
A.B.C Orjiako Austin Avuru
Chairman Chief Executive Officer
FRC/2014/IODN/00000003161 FRC/2014/IODN/00000003100
6 March 2019 6 March 2019
Appendix B: Principal risks and uncertainties
The following principal risks and uncertainties table is extracted from the 2018 Annual Report and Accounts (pages 48 to 51).
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 | We continue to refine our project management approach for improved speed of delivery and efficiency | |
Third party infrastructure downtime | An over-reliance on third party operated transportation infrastructure can expose the Company to extended periods of production being shut-in. | Work is ongoing to secure a second export line to complement Forcados. Export via barging is also retained to do limited volumes in extreme cases. Have two contingency tanks in Amukpe for partial storage during shut-in over shorter periods. More tanks are planned. | - Net working interest production - Days downtime - EBIT | Very high | Remarkably improved uptime of Forcados export system and progress made towards completing Amukpe - Escravos exportline as alternative | |
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 are 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 | 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 | Very high | Reduced E&A activities. Will monitor the outcomes as E&A activities ramp up. | |
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. Active participation in industry pressure groups to find lasting solution. | - LTIF - TRIR - Security incidents |
| Very high | Significant drop in targeted oil and gas facilities attacks in the region in 2018. 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, 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 - LTIR - TRIR - Host community incidences | High | We continue to enjoy good working relations with our 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 | With elections in 2019, 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 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 | Though oil price rallied to above $80 in 2018, we will continue to take hedge positions and apply cost reduction strategies. | |
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 Board level. | - Effective tax rate - Tax status | High | PIB is going through legislative process. Versions in circulation do not have significant impact on Seplat valuation. | |
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 different funding arrangements with JV partners. Board review and approval of financial strategy and debt portfolio management with strong banking relationships | - JV receivables - Capex - New M&A activities | High | JV partners cash calls are now on time and legacy cash call receivables have been cleared. | |
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 | Cost discipline remains key focus of the business. | |
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 debts 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 | High | Improved uptime of TFP; improved JV cash call payment; oil price rally; and debt refinance have all greatly improved liquidity risk. | |
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 | High | Historically, the Company holds majority of its cash and cash equivalent in US dollar. Gas contracts are indexed in US dollar. However, the Naira may be devalued post elections. | |
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 | The Company is in 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 is always looking for the right opportunities for Seplat. Decision review board (DRB) process is 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 closin | - Successful execution of new acquisition and farm-in opportunities | Very high | DRB process in place to vet opportunities and deals. But current M&A landscape is competitive. | |
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 | 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 | Remains low risk for the Company. | |
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 | Risk is still high and the Company 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 | 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 2018 Annual Report and Accounts (pages 177 to 179)
37 Related party relationships and transactions
The Group is controlled by Seplat Petroleum Development Company Plc (the parent Company). The parent Company is owned 7.81% either directly or by entities controlled by A.B.C. Orjiako (SPDCL(BVI)) and members of his family and 12.04% 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.
37a 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.
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.
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 by Seplat with related parties:
37b Related party transactions
Year-end balances arising from related party transactions:
2018 ₦million | 2017 ₦million | 2018 US$ '000 | 2017 US$ '000 | |
Shareholders of the parent Company SPDCL (BV) |
333 |
413 |
1,088 |
1,350 |
Total | 333 | 413 | 1,088 | 1,350 |
Entities controlled by key management personnel: | ||||
Contracts > $1million in 2018 | ||||
Nerine Support Services Limited* | 2,335 | 2,161 | 7,627 | 7,066 |
Cardinal Drilling Services Limited | 621 | 1,001 | 2,029 | 3,272 |
Helko Nigeria Limited | - | 444 | - | 1,453 |
Abbey Court Trading Company Limited | 334 | 199 | 1,090 | 650 |
Stage Leasing (formerly Ndosumuli Venture Limited) | 434 | 171 | 1,419 | 560 |
3,724 | 3,976 | 12,165 | 13,001 | |
Contracts < $1million in 2017 | ||||
Montego Upstream Services Limited | 24 | 131 | 79 | 427 |
Oriental Catering Services Limited | 199 | 159 | 650 | 520 |
Keco Nigeria Enterprises | 78 | 110 | 254 | 361 |
ResourcePro Inter Solutions Limited | 3 | 9 | 9 | 31 |
Neimeth International Pharmaceutical Plc | - | 1 | - | 2 |
Charismond Nigeria Limited | 23 | 17 | 74 | 55 |
327 | 427 | 1,066 | 1,396 | |
4,051 | 4,403 | 13,231 | 14,397 |
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. it includes salaries and Nerine's mark-up. Total cost for agency and contracts during 2018 is ₦0.2 billion, 2017: ₦1.4 billion ($0.6 million, 2017: $4.6million).
37c Balances
The following balances were receivable from or payable to related parties as at the end of the year:
2018 ₦million | 2017 ₦million | 2018 US$ '000 | 2017 US$ '000 | |
Entities controlled by key management personnel | ||||
Cardinal Drilling Services Limited - current portion | 1,495 | 1,681 | 4,869 | 5,498 |
Montego Upstream Services Limited | 8 | - | 26 | - |
ResourcePro Inter Solutions Ltd | 2 | - | 6 | - |
1,505 | 1,681 | 4,901 | 5,498 | |
2018 ₦million | 2017 ₦million | 2018 US$ '000 | 2017 US$ '000 | |
Entities controlled by key management personnel | ||||
Montego Upstream Services Limited | - | 115 | - | 375 |
Nerine Support Services Limited | - | 2 | - | 8 |
Keco Nigeria Enterprises | 19 | 8 | 61 | 25 |
Oriental Catering Services Ltd | 14 | - | 47 | |
Cardinal Drilling Services Limited | - | 292 | - | 954 |
Abbey Court Trading Company Limited | 9 | - | 28 | |
Charismond Nigeria Limited | - | - | 1 | |
Stage Leasing Limited | 13 | - | 43 | |
55 | 417 | 180 | 1,362 |
The outstanding balances payable to/receivable from related parties are unsecured and are payable/receivable in cash.