Seplat Energy Regulatory News (SEPL)

Seplat Petroleum Development Company Plc

Lagos, Nigeria

Full Year Results

For the year ended 31 December 2015(Expressed in US Dollars and Naira)

Announcement

Lagos and London, 24 March 2016: Seplat Petroleum Development Company Plc ("Seplat" or the "Company"), a leading Nigerian indigenous oil and gas company, listed on both the Nigerian Stock Exchange and London Stock Exchange, today announces its full year 2015 financial results and provides and operational update.

Commenting on the results Austin Avuru, Seplat's Chief Executive Officer, said "In 2015 we delivered on what was in our control, posting best-in-class reserves and production growth and taking our gas business across a transformational threshold with further expansion still to come. We acted quickly and decisively in response to the weak oil price environment, adjusting our work programme and cost structures, and against a bleak industry backdrop remained firmly profitable with a strong balance sheet underpinning us. Having started the year strongly, our 2016 full year production expectation has been impacted by the current shut-in of the Forcados terminal. However, we are much better positioned to withstand such interruptions than in prior years. Our gas business takes on additional importance by providing a continuous revenue stream that is de-linked to the oil price and our enlarged portfolio offers us scope for greater diversification. Finally, I would like to re-emphasise our strong focus remains on protecting the business and managing for value through driving further cost reductions, optimising operations, deleveraging and strengthening the balance sheet in preparation for opportunities that will inevitably follow this current downturn."

Full year results highlights

· Working interest 2P reserves at end 2015 independently estimated to be 209 MMbbls and 1,572 Bscf, equivalent to 480 MMboe (+71% year-on-year; organic reserve replacement ratio of production in the year 2x and 14x taking into account inorganic volumes). Working interest 2C resources stand at 57 MMbbls and 238 Bscf, equivalent to 98 MMboe

- OMLs 4, 38 and 41 reserves up +6% and reserves booked at OML 53 and OML 55 for the first time

· Full year average working interest production of 43,372 boepd ahead of guidance and up +41% year-on-year

- Liquids production up +20% at 29,003 bopd and gas production up +119% at 86 MMscfd

- Working interest production from start of year to Forcados terminal shut-in mid-February 2016 was over 52,000 boepd

· Completed Phase I expansion of Oben gas processing facility mid-year - positive financial impact as gas revenues increased +200% year-on-year to US$77 million with full-year benefit to be felt in 2016; additional processing modules ordered for Phase II expansion to take gross processing capacity to minimum of 525 MMscfd from the current 300 MMscfd

· Net profit for 2015 was US$67 million reflecting lower oil price; cash flow from operations before working capital was US$190 million and capital investments US$152 million

· NPDC receivables balance further reduced to US$435 million at end 2015 (from US$504 million at HY 2015) with additional receipts post period end bringing current net balance to around US$350 million

· Cash at bank and net debt at year end stood at US$326 million and US$573 million respectively; successfully completed US$1 billion debt re-financing in January 2015

· Full year 2016 working interest production guidance set at 23,000 to 28,000 bopd oil & condensate and 18,000 to 20,000 boepd gas (overall 41,000 to 48,000 boepd) taking into account current Forcados terminal shut-in and based on full year uptime of 67%; 2016 capital expenditures expected to be around US$130 million

· Recommended final dividend of US$0.04 per share, bringing the total payment for the year to US$0.08 per share

Financial overview

Announcement continued

Conference call

At 9:00 am GMT (London), 10:00 am WAT (Lagos), Austin Avuru (CEO), Stuart Connal (COO) and Roger Brown (CFO) will host a conference call to discuss the Company's results. Access details are:

Telephone Number: +44 (0)800 694 0257

Conference ID (to be quoted): Seplat Petroleum

The webcast can be accessed via the Company's website www.seplatpetroleum.com or at the following address:

https://webconnect.webex.com/webconnect/onstage/g.php?MTID=e3658ebe6ebb6348eed301ed6391dc65a

The Company will also host a conference call for US investors at 09:00am EST (US), 02:00pm GMT and 03:00pm WAT. Access details are:

Telephone Number: +1 631 510 7498

Conference ID (to be quoted): Seplat Petroleum

Enquiries

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 operated working interest in OML 53 and a 22.5 percent operated 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 website, http://seplatpetroleum.com/

Full year 2015 results overview

Performance summary

Despite the various headwinds the industry has faced over the past year we have again grown reserves and production at our core producing blocks and significantly expanded our inventory of growth opportunities with the addition of two new blocks. Of particular note, 2015 was a transformational year for our gas business as we commissioned the new Oben gas processing facility allowing us to more than double gas supply to the domestic market which means we now supply enough gas to underpin over a third of current power generation in Nigeria. The low oil price has inevitably impacted financial performance, and is reflected in revenues, but we remain profitable and have not booked any material impairment charges, which again, underscores the quality of our portfolio and resilience to the current low oil prices. With a consensus view that low oil prices are set to persist for at least the near term, we remain focused on what is in our control and steps we can take to maximise profitability. Production strength, with past investment strategies translating into the up-tick in output, provides some cushion to lower oil pricing and our gas business takes on additional importance by providing a revenue stream that is de-linked to the oil price together with revenue continuity in the event of disruptions to third party oil export infrastructure. Furthermore, our strong focus remains on protecting the business and managing for value through driving further cost reductions, optimising operations, deleveraging and strengthening the balance sheet in preparation for opportunities that will inevitably follow this current downturn.

Reserves

Working interest 2P reserves as assessed independently by DeGolyer and MacNaughton at 31 December 2015 stood at 480 MMboe, comprising 209 MMbbls of oil and condensate and 1,572 Bscf of natural gas. This represents an increase in overall 2P reserves of +71% year-on-year and since 2010 a compound annual growth rate of 24% for oil and 31% for gas. The key drivers of the upwards revision is the conversion from 2C to 2P as a result of 2015 development activities at OMLs 4, 38 and 41 and the recognition for the first time of 2P reserves associated with OML 53 and OML 55.

Full year average daily production

1) Liquid production volumes as measured at the LACT unit for OMLs 4, 38 and 41. Volumes stated are subject to reconciliation and will differ from sales volumes

within the period. Based on preliminary compilations.

(2) Volumes associated with Seplat's 56.25% in Belemaoil producing Limited, equivalent to an effective 22.5% working interest in OML 55

2015 full year average working interest production of 43,372 boepd exceeded guidance (set at 32,000 to 36,000 boepd) and represents an overall increase of +41% year-on-year. Within this liquids production was up +20% year-on-year and gas production up +119% year-on-year. The 2015 figures reflect a production uptime level of 79% owing to third party export infrastructure (Trans Forcados System) being shut-in for significant periods of time, particularly in the first half of the year (H1 uptime 65%). Over the second half of the year a marked improvement occurred with uptime of 94% restoring good production momentum to the business. Excluding unplanned downtime, average working interest production in 2015 was approximately 47,537 boepd (comprised of approximately 33,169 bopd of liquids and 86 MMscfd of gas). Overall reconciliation losses arising from use of third party infrastructure were around 12%.

In 2016 the Company expects full year average working interest production of 41,000 to 48,000 boepd (comprising 25,000 to 27,000 bopd and 100 to 125 MMscfd) based on the current work programme. In setting this guidance we have taken into account the current shut-in of the Forcados terminal and a resultant full year uptime assumption of 67%. Prior to the shut-in of the Forcados terminal net working interest production to mid-February averaged over 52,000 boepd. Whilst oil production that would ordinarily be exported via the Forcados Terminal is affected by this shut-in, we have continued to produce and sell gas into the domestic market and utilise the Company operated pipeline to the Warri refinery to access additional storage capacity and also supply the refinery with specification crude. We continue to assess additional measures that could help to further mitigate the impact of such interruptions to third party infrastructure in the future.

Full year 2015 results overview continued

Gas business

We completed the installation and commissioning mid-year of two new 75 MMscfd gas processing modules at the Oben plant taking our overall gross processing capacity to the 300 MMscfd mark. As part of this expansion phase we also pre-invested in the required ancillaries and accommodation space for a further three 75 MMscfd processing modules (225 MMscfd aggregate additional capacity) that have been ordered with delivery and installation expected by year-end which will further increase our overall gross processing capacity to a minimum of 525 MMscfd. This will further cement Seplat's position as the pre-eminent producer of natural gas in Nigeria, and the fact that 100% of volumes are dedicated to supplying key demand centres within the domestic market makes Seplat strategically important to Nigeria's current and future security of gas supply. Another important gas project (aimed at eliminating and monetising associated gas that was previously flared) was completed in 2015 with the installation and commissioning of three 10 MMscfd associated gas compressors and compression station at Oben. A further expansion plan is being developed that will comprise the installation of an additional two compressor units to capture remaining excess associated gas volumes at the Oben station. As a derivative of the increase in gas production, condensate volumes have significantly increased. Produced condensate is ordinarily spiked into the crude oil stream and exported via the Trans Forcados System ('TFS'). Following completion of the two 50,000 barrel storage tanks at the Amukpe field in 2015 we now have the means to store associated condensate volumes and achieve continuity of gas production and sales should the TFS be shut-in.

Rig based activity

In common with the rest of the industry the continued and severe decline in oil prices to the lowest levels we have seen in over ten years meant we had to adjust our work programme to reflect this reality. Having been the most active driller in Nigeria in 2014 when we drilled 23 wells, we reduced our rig-based activity to eight development wells in 2015 (four oil and four gas wells) and one work-over of an oil well, all of which were at OMLs 4, 38 and 41.

New ventures

In February 2015 it was announced that Seplat had acquired a 40.00% working interest in OML 53 from Chevron Nigeria Limited ("CNL"). Simultaneously the Company also announced that it had concluded negotiations to purchase 56.25% of the share capital of Belemaoil Producing Limited ("Belemaoil"), a Nigerian special purpose vehicle that had completed the acquisition of a 40.00% interest in the producing OML 55, also from CNL. Seplat's effective working interest in OML 55 as a result of the acquisition is 22.50%. Pursuant to the Joint Operating Model, Seplat was designated operator of both blocks. However, the full completion and transfer of the blocks was hindered by a litigation brought against CNL and Seplat by one of the counter bidders that also sought to acquire the blocks from CNL and contested the outcome of the sales process. The litigation ultimately reached the Supreme Court, the apex court in Nigeria, in January 2016 when the Supreme Court delivered its judgment and ruled in favour of CNL and Seplat. This ruling allowed CNL to conclude the full transfer and operatorship of the block with immediate effect meaning the Company is free to implement a forward work programme to realise the two block's full potential. OML 53 fits neatly within our strategy of securing, commercialising and monetising natural gas in the Niger Delta to supply the rapidly growing domestic market. OML 55 provides us with a number of attractive opportunities to boost oil and gas output, and is consistent with our strategy of prioritising assets that offer near-term production growth, cash-flow and reserve replacement potential in the onshore and shallow water offshore areas of Nigeria

Finance

Although production was up year-on-year, the significantly lower oil price realisation and downtime of the third party operated TFS adversely impacted revenue and more than offset the higher gas volumes and prices. Consequently, revenue for 2015 was down 26% from 2014 at US$570 million. Net profit for the year stood at US$67 million following one-off costs of US$77 million, including a deferred tax charge of $21m. Normalised for these charges, net profit would have totaled US$144 million. Cash flow from operations before movements in working capital was US$190 million and capital investments US$152 million. Cash at bank and net debt at year end (excluding amounts remaining on deposit for investment and in escrow of US$45 million and US$29 million) stood at US$326 million and US$573 million respectively. At end 2015 the net NPDC receivables balance stood at US$435 million, down from US$463 million at end 2014. Further receipts post period end have reduced the net balance to a current level of around US$350 million. In January the Company successfully refinanced its existing debt facilities with a new US$700 million seven year secured term facility and US$300 million three year secured revolving credit facility. The seven year facility also includes an option to upsize the facility by up to an additional US$700 million for qualifying acquisition opportunities. 2016 capital investments are expected to be around US$130 million.

Recommended full year dividend

The board of Seplat is recommending a final dividend of US$0.04 per share, bringing the total payment for the year to US$0.08 per share. Subject to approval of shareholders, the dividend will be paid on or shortly after the AGM which will be held on 1 June 2016 in Lagos, Nigeria.

Operations review

Seplat's current portfolio of six oil and gas blocks is located in the onshore to swamp areas of the prolific Niger Delta and provides the Company with a robust platform of oil and natural gas reserves, and production together with material upside opportunities through 2C to 2P conversion and exploration and appraisal drilling. We also continue to view the shallow water offshore areas of the Niger Delta as an appealing opportunity set and one we hold ambitions to access in the future.

OMLs 4, 38 and 41

Seplat has a 45% working interest in OMLs 4, 38 and 41 which are located in Edo (OML 4) and Delta (OMLs 38 and 41) States onshore Nigeria. Seplat is operator of the three blocks on behalf of the NPDC/Seplat Joint Venture and, to date, is the only company that has secured NPDC approval for operatorship over blocks acquired as part of recent divestment programmes by the major IOCs. As operator, Seplat is empowered with running the day-to-day operations activities and is able to set production and operational improvement goals and lead exploration activities, subject to the approval of its partner. Production is predominantly from seven fields, namely Amukpe, Oben, Okporhuru, Ovhor, Orogho, Sapele and Sapele Shallow, and the partners aim to bring additional fields onstream in the future.

Since acquiring the blocks in July 2010, the Company has consistently grown oil production, primarily through the drilling of new wells and employing advanced and proven technologies to increase production in mature fields. The Company also became the first operator in the Niger Delta to install a LACT unit, enabling significantly improved measurement of produced oil prior to injection into the Trans Forcados Pipeline system. This has greatly reduced the reconciliation losses applied to the Company's oil production to a level of approximately 10% to 12%, compared to an average of approximately 18% to 20% prior to installation of the LACT unit.

Alongside the oil business, the Company has also prioritised the commercialisation and development of the substantial gas reserves and resources identified at OMLs 4, 38 and 41 and is today a leading supplier of gas to the domestic market in Nigeria. Going forward, Seplat plans to further increase its gas production and processing capacity to help meet Nigeria's growing demand, particularly in the gas to power sector. A major step forward in this respect is the ongoing modular build-up of processing capacity at the Oben facility to create a strategic gas hub ideally located to aggregate and supply gas to Nigeria's main demand centres.

OML 4

Background

OML 4 covers an area of 267km2 and is located 78km north east of Warri, Delta State. The Oben field is located in OML 4 and is the

main producing field on the block. Facilities on the block include a 60,000 bopd capacity flow station, a 240 MMscfd capacity non-associated gas processing plant and an associated gas compressor station with three 10 MMscfd associated gas ('AG') compressors. Oil exports from the Oben flow station are routed via the Oben - Amukpe pipeline to the Amukpe facilities and onwards to either the Forcados terminal or Warri Refinery. Production operations and facilities are supported by the Oben Field Logistics Base. The Oben field in particular is central to the Company's future gas expansion plans and is strategically located as an important gas hub with access to Nigeria's main gas demand centres. The licence was renewed in 1989 for a further 30 years and is due to expire on 30 June 2019.

Operations review continued

2015 activity

In 2015, the Company executed Phase I of the Oben gas expansion program which included the installation and integration of two new 75 MMscfd processing modules in addition to the pre-existing 90 MMscfd plant, bringing gross combined processing capacity at the Oben facility to 240 MMscfd. The scope of expansion Phase II is the installation of an additional three 75 MMscfd processing modules (225 MMscfd aggregate capacity), to take total gross processing capacity of the Oben plant to a minimum of 465 MMscfd by 2017. The second key project undertaken in 2015, aimed at eliminating and monetising associated gas that was previously flared, was completed with the installation and commissioning of three 10 MMscfd associated gas compressors and compression station at Oben. A further expansion plan is being developed that will comprise the installation of an additional two compressor units to capture remaining excess associated gas volumes at the Oben station. During the year, the partners drilled and completed three gas development wells and one work-over of an oil well on the block.

OML 38

Background

OML 38 covers an area of 2,094km2 and is located 48km north of Warri, Delta State. There are currently three producing fields on

the block, namely Amukpe, Okpohuru and Ovhor (which straddles OML 38 and OML 41). There are three further discoveries in OML 38: the Mosogar, Orogho and Jesse discoveries, which have not yet been brought into production. Facilities on the block include a 45,000 bpd capacity flow station, a Liquid Treatment Facility ('LTF') and two 50,000 bbls crude storage tanks, all located at Amukpe. The licence was renewed in 1989 for a further 30 years, expiring on 30 June 2019.

2015 activity

In 2015, the company constructed and commissioned two new 50,000 bbls crude storage tanks at Amukpe to provide storage for condensate volumes associated with gas production in order to allow the Company to allow continuity of gas production during periods when the third party operated Trans Forcados System may be shut-in. Further to the commissioning of the LTF at Amukpe, the Company commenced a crude quality upgrade project aimed at achieving an export grade specification of 0.5 BS&W MAX, based on the crude handling agreement signed with SPDC. By doing this, Seplat would be eliminating the component of crude handling charges that incurs a charge for exporting wet crude to the Forcados terminal and also free up additional haulage on the export pipeline. On completion of the project, Seplat will also be able to guarantee export quality crude shipments to the Warri refinery. During the year, the partners drilled one gas development well and one oil development well on the block.

Operations review continued

OML 41

Background

OML 41 covers an area of 291km2 and is located 50km from Warri, Delta State. There are currently three producing fields on the

block, namely Sapele, Sapele Shallow and Ovhor (which straddles OML 41 and OML 38), and two discoveries with contingent resources, the Ubaleme and Okoporo discoveries. Facilities on the block include a flow station with 60,000 bpd capacity, a 60 MMscfd capacity non associated gas processing plant and a 26 MMscfd NGC owned gas compressor station. Produced oil is exported via the Sapele - Amukpe delivery line to the Amukpe facilities and onwards to either the Forcados terminal or Warri refinery. The condensate stream is combined with the oil for export and produced gas is exported via the NGC owned Oben-Sapele pipeline system which feeds into the Sapele power plant. The licence was renewed in 1989 for a further 30 years expiring on 30 June 2019.

2015 activity

The main focus at OML 41 in 2015 was the initial development of the Sapele-Shallow field. During the year, the partners drilled and completed three oil development wells on the block. The Sapele Shallow field, which overlies the productive reservoirs in the main Sapele field, is considered to hold a significant accumulation of oil (around 500 MMbbls STOIIP) and was brought onstream in 2015 following the completion of three new development wells. Prior to this Sapele-Shallow had remained largely undeveloped due to the heavier nature of the oil (21° API) relative to that in neighbouring blocks. The Company believes that the full development of Sapele-Shallow currently being pursued represents a material upside opportunity.

OPL 283

Background

Seplat has a 40% non-operated working interest in the Umuseti/Igbuku Marginal Field Area that is carved out of OML 56. The block is located in the northern onshore depo-belt of the Niger Delta and is operated by Pillar Oil Limited. The block contains one producing field, Umuseti, which came onstream in May 2012 and is currently producing from three development wells. There are 15 identified oil bearing reservoirs in Umuseti with production currently coming from four of these reservoirs. Further development drilling will be required to drain the remaining reservoirs. The Igbuku field contains predominantly gas and condensate and is currently undergoing appraisal prior to development. The block also contains four satellite exploration leads, namely Igbuku North, Igbuku Deep, Umuseti East and Umuseti North-East, which the joint venture partners intend to further evaluate. Facilities on the block include a 5,000 bopd Early Production Facility ('EPF') and two 20,000 bbls crude storage tanks. Umuseti production is evacuated to a Group Gathering Facility ('GGF') where it is metered and thereafter exported either via Agip's Kwale facilities to the Brass terminal or via NPDC's pipeline to Forcados.

Operations review continued

2015 activity

There were no drilling activities during 2015, the operational focus being on production efficiency and minimising operating costs. In the first quarter of 2015, two 20,000 bbls crude storage tanks and a 5 Mbbls fire-water tank were fully commissioned. Following the installation of an additional separator and a de-bottlenecking exercise, production from Umuseti peaked at around 4,650 bopd gross. Export via NPDC's line commenced in June allowing some flexibility should the Agip export route be unavailable. A detailed subsurface study was completed during the year which will be used to define the optimal development strategy to access additional oil reservoirs in the Umuseti Field. Technical work also continued on Igbuku, planning wells and the monetisation of its gas reserves.

Negotiations with contractors for the acquisition of 106 km2 of 3D seismic data over the southern section of the Igbuku field were

concluded during 2015 with the contract planned to be awarded in 2016. The seismic will allow full definition of the Igbuku structure required for future development future drilling activities.

OML 53

Background

OML 53 covers an area of approximately 1,585km2 and is located onshore in the north eastern Niger Delta. The Jisike oil field,

located in the north western area of the block, is currently the only producing field on OML 53. Existing infrastructure at Jisike comprises flow-lines, phase one separation facilities and a flow station with a design capacity of 12,000 bopd and 8 MMscfd. Oil production is sent for further processing at the nearby Izombe facilities on OML 124 from where it is exported via pipeline to the Brass oil terminal. The block also contains the large undeveloped Ohaji South gas and condensate field, the development of which will be coordinated with the SPDC operated Assa North field on adjacent OML 21, together referred to as the ANOS project. The expectation is that future gas production from the ANOS project will supply the domestic market, for which significant work on commercialisation terms and development concepts has been undertaken. There is also shallow oil development potential at Ohaji South that could be pursued as a separate standalone project in the near term. Prior to initiating development of the ANOS project, Seplat expects to focus efforts on increasing oil production at the Jisike field and development of the shallow oil reservoirs in Ohaji South. Pursuant to the Joint Operating Model, Seplat was designated operator of OML 53.

2015 activity

On 5 February 2015, the Company announced that it had acquired a 40.0% working interest in OML 53 from Chevron Nigeria Limited ('CNL'). However, the full completion and transfer of the block and operatorship was hindered by a litigation brought against CNL and Seplat by one of the counter bidders that also sought to acquire the assets from CNL and contested the outcome of the sales process. The litigation ultimately reached the Supreme Court, the apex court in Nigeria, in January 2016 when the Supreme Court delivered its judgment and ruled in favour of CNL and Seplat. This ruling allowed CNL to conclude the full transfer and operatorship of the block to Seplat with immediate effect meaning the Company is now free to implement a forward work programme to realise the block's full potential.

Operations review continued

OML 55

Background

OML 55 covers an area of approximately 840km2 and is located in the swamp to shallow water offshore areas in the south eastern

Niger Delta. The block contains five producing fields (Robertkiri, Inda, [Belema] North, Idama and [Jokka]). The majority of production on the block is from the Robertkiri, Idama and Inda fields. The Robertkiri field is located in swamp at a water depth of five metres and has a production platform and utility platform installed. Production capacity at the Robertkiri facilities is 20,000 bpd and 10 MMscfd. Production facilities at the Idama field comprise a jack-up mobile offshore production unit ('MOPU') and riser platform that have a capacity of 30,000 bpd of total fluids and 34 MMscfd. The Jokka field is produced through a manifold tied-back to the Idama facilities. Production facilities at the Inda field comprise a MOPU with a capacity of 30,000 bpd of total liquids and 34 MMscfd. Overall, the infrastructure on OML 55 comprises four flow stations, a network of flow-lines, and two eight-inch pipelines that connect to third party operated infrastructure. The Belema field is unitised with OML 25 and is produced via a flow station on that block. All produced liquids from OML 55 are delivered via third-party infrastructure to the Bonny terminal for processing and shipping. In addition to the oil potential on the block there is also an opportunity to develop the significant gas resources that have also been identified. Pursuant to the Joint Operating Model, Seplat was designated operator of OML 55.

2015 activity

On 5 February 2015 the Company announced that it had concluded negotiations to purchase 56.25% of the share capital of Belemaoil Producing Limited ('Belemaoil'), a Nigerian special purpose vehicle that had completed the acquisition of a 40.0% interest in the producing OML 55, from CNL. Seplat's effective working interest in OML 55 as a result of the acquisition is 22.5%. However, the full completion and transfer of the block and operatorship was hindered by a litigation brought against CNL and Seplat by one of the counter bidders that also sought to acquire the assets from CNL and contested the outcome of the sales process. The litigation ultimately reached the Supreme Court, the apex court in Nigeria, in January 2016 when the Supreme Court delivered its judgment and ruled in favour of CNL and Seplat. This ruling allowed CNL to conclude the full transfer and operatorship of the block with immediate effect meaning the Company is now free to implement a forward work programme to realise the block's full potential.

Financial review

The Group continued to invest in new wells and surface facilities during the year to increase oil, and in particular, gas production and processing capacity. In 2016 we will appropriately scale our investment programme taking account the prevailing oil price environment and its influence on free cash generation within the underlying business, and will maintain our strict discipline of only allocating capital to the opportunities that offer the greatest returns to deliver shareholder value.

Revenue

Despite reporting a 41% overall increase in production year-on-year (with liquids production up 20% and gas production up 119%) the full effect has not been reflected in revenues primarily due to the continued decline in oil prices throughout the year. Revenues were further impacted by third party operated infrastructure being shut-in for significant periods of time, giving a production uptime level of 79% for the full year. The majority of shut-ins were experienced in the first half when production uptime was 65%, after which we saw a marked improvement in the second half when uptime was restored to a more normalised level of 94%. The increase in gas production and sales in the year did provide a partial offset to the impact of oil price decline, with gas pricing in Nigeria being de-linked to oil price. Consequently, revenue in 2015 was US$570 million, a decrease of 26% from 2014 (2014: US$775 million).

Oil revenues (after stock movements) of US$494 million continued to account for the majority of revenues in 2015 (2014: US$748 million). The global oil price decline has negatively impacted the Group's realised oil price with an achieved average price of US$51.2/bbl (2014: US$97.2/bbl) before royalties. The average premium to Brent achieved in 2015 was US$1.02/bbl (2014: US$2.4/bbl). Working interest liquids production in 2015 increased to 29,003 bopd from 24,252 bopd in 2014. The total volume of crude lifted in the year was 8.129 MMbbls compared to 7.999 MMbbls in 2014. Also in 2015, revenues from OML 53 and OML 55 were recognised from February onwards.

In April, the Group put in place deferred premium puts covering a volume of 4.4 MMbbls to year end at a strike price of US$52.0/bbl. The net amount paid out during the year was US$15.6 million. We will continue to closely monitor prevailing oil market dynamics and will consider further measures to provide appropriate levels of cash flow assurance in times of oil price weakness and volatility. In line with this tactic, we have rolled the hedging programme into 2016 and put in place dated Brent puts covering a volume of 3.3 MMbbls over H1 2016 at a strike price of US$45.0/bbl and have post year end covered an additional 2.2 MMbbls over H2 2016 at a strike price of US$40/bbl. 

The shut-in of third party operated infrastructure that we rely on to evacuate produced liquids, together with the associated time required to re-establish full production levels, resulted in deferred liquids production of approximately 2.2 MMbbls assuming all other factors constant. To assist in minimising the impact of future pipeline shut downs, the Group continued efforts to optimise the use of its alternative export route to the Warri Refinery which was commissioned in 2014. A total of 388,000 barrels was sent through this route in 2015.

Gas revenues increased significantly year-on-year to US$76.9 million (2014: US$27.4 million). This trend was driven by a 34% increase in the average realised gas price to US$2.55/Mscf (2014: 1.90/Mscf) and the 119% increase in volumes. Working interest production for the year was 86 MMscfd (31.3 Bscf) compared to 39 MMscfd (14.4 Bscf) in 2014. The increase in volume is a direct result of the successful installation and commissioning of the new 150 MMscfd Oben gas processing facility mid-year that doubled overall gross processing capacity to 300 MMscfd and allowed for a sharp increase in gas sales throughout the second half of the year.

Gross profit

Gross profit for the year was US$249 million, a decrease of 46% on the prior year (2014: US$459 million). This principally reflects the decline in revenue, primarily attributed to the oil price, the additional field costs related to OML 53 and 55 together with the increase in the rate of DD&A. Direct operating costs, being crude handling fees, rig related costs and other field expenses, decreased to US$3.30/boe in 2015 (2014: US$3.52/boe), principally reflecting the decrease in work-over costs and higher production, offset by increased levels of field expenditures and crude handling charges (including a balancing one-off crude handling charge of US$25 million recognised in 2015 for the period 2010 to 2014). Management is aware of the need to operate as efficiently as possible in the current low oil price environment whilst maximising the production and cash flows from existing assets. The DD&A charge for oil and gas assets has increased during 2015 to US$68 million (2014: US$41 million) reflecting field investments made in the year, acquisition costs associated with OML53 and OML55, forecast levels of production and estimates of future capital commitments. These increases were partly offset by the reduction in the level of royalties in 2015, which despite the higher production year-on-year stood at US$102.5 million compared to US$149.7 million in 2014. The reduction in well work-over activities also translated into a decrease in rig related expenses to US$8.64 million in 2015 compared to US$29.9 million in 2014.

Financial review continued

Operating profit

Operating profit for the year was US$157 million, a decrease of 46% on the prior year (2014: US$290 million).

Partially offsetting the impact of lower gross revenues was a 21% decrease in G&A expenses to US$121 million. Included within the reported G&A figure are finance costs of US$24.2 million, depreciation of US$5.5 million and other costs in relation to business development activities and advisory fees totalling US$7.4 million. Additionally, the Group has also taken steps to reduce recurring G&A expenses and in the full year has realised a decrease of US$5 million through reductions in contract labour, travel costs, facilities costs and IT costs.

Tax

The Group continued to benefit from pioneer tax status in 2015 which resulted in the effective tax rate remaining consistent with 2014 (2014: nil%). The Group has completed the first three years of the tax incentive and has applied for the final two years under the provisions of the Industrial Development (Income tax Relief) Act. The Group considers that it has met or exceeded the requirements of the scheme, as evidenced by the investments it has made to develop its blocks and in particular accelerate the expansion of its gas business to supply the domestic market. In 2015, a deferred tax charge of $21m has been recognised in the accounts representing the tax of a timing difference which will reverse in the future.

Profit Attributable to Parent

Profit for the period was US$67 million, a decrease of 73% on the prior year (2014: US$252 million). The resultant EPS for 2015 was US$0.12 (2014: US$0.5). In 2015, adjustments have been made in respect of a balancing crude handling charge reconciling actual capacity usage with reserves capacity for the past five years of US$25 million, payments made in association the Group's successful US$1 billion refinancing of its debt facilities of US$24 million and other costs of US$7 million which mainly include business development costs.

Dividends

The Board has decided to recommend a final dividend of US$0.04 per share (2014: US$0.09 per share) bringing total dividends for the year to US$0.08 per share (2014: US$0.15 per share)

Cash flows and liquidity

Cash flows from operating activities

Operating cash flow before movements in working capital was US$190 million (2014: US$379 million). The outstanding net NPDC receivable at year end, after offsetting NPDC's share of gas revenue and further adjusting for crude handling charges that have also been withheld, stood at US$435 million (2014: US$463 million). In July the Group entered into a signed agreement with NPDC on terms for the payment of receivables due to Seplat and also for the future structure of joint venture funding to mitigate the risk of the receivable. Pursuant to the agreement outstanding sums owed to Seplat in relation to expenditures up to 31 December 2014 will be settled by offsetting gas revenues attributable to NPDC's 55% share of contracted gas sales. Furthermore, NPDC and Seplat have agreed to jointly source loan facilities, up to an envisaged limit of US$300 million, to fund joint venture cash calls with effect from January 2015. Under the agreed structure, once such facilities are in place, NPDC and Seplat will each contribute crude oil production commensurate with their respective obligations.

Reconciliation of net NPDC receivables balance

Financial review continued

Cash flows from investing activities

Net cash flows from investing activities were US$79 million (2014: US$780 million). In February, the Group closed the acquisition of a direct 40.0% interest in OML 53 and effective 22.5% interest in OML 55 (through the purchase of 56.25% of the share capital of Belemaoil Producing Limited ("Belemaoil")) from Chevron Nigeria Limited. Payments made by the Group at completion amounted to US$190.4 million for OML 53 (for which a deposit of US$69.0 million had previously been paid in 2013) and US$132.2 million for OML 55. Both transactions also carry an element of deferred consideration (US$18.8 million for OML 53 and US$11.6 million for OML55) that is contingent on oil price averaging US$90/bbl or above for 12 consecutive months within the next five years. In respect of OML 55, the Group also advanced certain loans amounting to US$80.0 million to the other shareholders of Belemaoil to meet their share of investments and costs associated with Belemaoil. Under the agreed terms the Group will recover the loaned amounts, together with an uplift premium of up to US$20.6 million and annual interest of Libor plus 10.00%, from 80.00% of the other shareholders oil lifting entitlements.

Capital expenditure (capex) attributed to oil and gas assets in the year amounted to US$152million (2014: US$321 million). These expenditures include drilling costs in relation to seven development and appraisal wells, facility costs in relation to the new Oben gas processing facility, flow lines and additional crude oil and condensate storage tanks installed at the Amukpe field. Other non-drilling and facility related capex of US$4.9 million (2014: US$10 million) includes expenditures for crude oil pumps, generators, motor vehicles, office and IT equipment and other leasehold improvements.

In July, the Group reached agreement for release of the sums from escrow that had previously been allocated as a refundable deposit against a potential investment by a consortium. The net funds returned to the Group, and reinstated as unrestricted cash at bank, were US$368 million. A sum of US$45 million remains in escrow as a deposit with the potential vendors whilst negotiations with the consortium continue, and US$29 million was placed into a new escrow account in London pending outcome of the ongoing negotiations. The Company also agreed to pay a portion of previously incurred consortium costs, amounting to US$11 million, US$3.5 million of which has been paid and US$7.5 million of which is payable on a deferred basis and is presently also held in the escrow account (total amount in escrow US$36.5 million).

Cash flows from financing activities

Net debt at the year-end was US$573 million, compared to US$303 million at December 2014. Net cash inflows from financing activities were US$82 million (2014: US$671 million). These principally reflect the refinancing of the business during the year through the debt markets. In January 2015, the Group successfully refinanced its pre-existing debt facilities with a new US$700 million seven year secured term facility and US$300 million three year secured revolving credit facility. The seven year facility also includes an option for the Group to upsize the facility by up to an additional US$700 million for qualifying acquisition opportunities.

Net debt at 31 December 2015

Financial review continued

Outlook

Our financial strategy continues to be driven by preservation of the financial capability and also flexibility that is required to realise the value of our enlarged asset base. We will continue to closely monitor the oil price, performance of our strongly productive asset base and the implications these factors have on cash generation over the near, medium and long term allowing us to scale and phase our future investments appropriately. Our enlarged asset base provides greater optionality and will allow us to more rigorously benchmark and high grade the extensive inventory of drilling and development opportunities we have, making sure that each dollar invested goes to the highest cash return projects. We will continue to prioritise expansion of our domestic natural gas business which provides a revenue stream that is de-linked from the oil price, and underpinned by the strong fundamentals of high demand and increasing pricing. Continuing to reduce the outstanding NPDC receivables balance remains an absolute priority, and we have measures in place that will achieve this and allow us to further strengthen and improve our balance sheet. The combination of all these factors will ensure we have a sound financial platform from which we can build and grow further, both through organic means and also capitalising on inorganic opportunities as and when they may arise.

Financial Statements

For the year ended 31 December 2015(Expressed in US Dollars and Naira)

General information

Board of directors:

Report of the directors

For the year ended 31 December 2015

The Directors are pleased to present to the shareholders of the Company their report with the audited financial statements for the year ended 31 December 2015.

Principal activity

The Company is principally engaged in oil and gas exploration and production. The company's registered office address is 25a Lugard Avenue, Ikoyi, Lagos, Nigeria.

Corporate structure and business

SEPLAT Petroleum Development Company Plc (''SEPLAT'' or the ''Company''), the parent of the Group, was incorporated on 17 June 2009 as a private limited liability company and re-registered as a public company on 3 October 2014, under the Company and Allied Matters Act 2004. The Company commenced operations on 1 August 2010. The Company is principally engaged in oil and gas exploration and production.

The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and AGIP, a 45 percent participating interest in the following producing assets: OML 4, OML 38 and OML 41 located in Nigeria. The total purchase price for these assets was $340 million paid at the completion of the acquisition on 31 July 2010 and a contingent payment of $33 million payable 30 days after the second anniversary, 31 July 2012, if the average price per barrel of Brent Crude oil over the period from acquisition up to 31 July 2012 exceeds $80 per barrel.

$358.6 million was allocated to the producing assets including $18.6 million as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of $33 million was paid on 22 October 2012.

Seplat Petroleum Development Company Plc was successfully listed on the Nigerian Stock Exchange and main market of the London Stock Exchange on 14 April 2014.

On 1 June 2013, Newton Energy Limited (''Newton Energy''), an entity previously beneficially owned by the same shareholders as SEPLAT, became a subsidiary of the Company. On 1 June 2013, Newton Energy acquired from Pillar Oil Limited (''Pillar Oil'') a 40 percent participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the ''Umuseti/Igbuku Fields''). The total purchase price for these assets was $50 million paid at the completion of the acquisition in June 2013 and a contingent payment of $10 million payable upon reaching certain production milestones.

$57.7 million was allocated to the producing assets including $7.7 million as the fair value of the contingent consideration as calculated on acquisition date.

These milestones were not reached as such the contingent consideration has now been reversed and the contingent payment of $10m will not be paid

The Company's registered address is: 25a Lugard Avenue, Ikoyi, Lagos, Nigeria.

The Company together with its subsidiary, Newton Energy, and four wholly owned subsidiaries, namely, SEPLAT Petroleum Development Company UK Limited (''SEPLAT UK''), which was incorporated on 21 August 2013, SEPLAT East Onshore Limited (''SEPLAT East''), which was incorporated on 12 December 2013, SEPLAT East Swamp Company Limited (''SEPLAT Swamp''), which was incorporated on 12 December 2013, and SEPLAT Gas Company Limited (''SEPLAT GAS''), which was incorporated on 12 December 2013, is referred to as the Group. 

Report of the directors continued

Results:

Dividend:

During the year, the directors recommended to members an interim dividend of $0.04 per 50kobo share amounting to $22 million (2014: $33million)

The Directors are recommending to members the payment of a final dividend of $0.04 per 50kobo share amounting to $22.4 million - N4.4billion (2014: $49.8illion @ $0.09 per share, N9.8billion).

Changes in property, plant and equipment

Movements in the Property, plant and equipment and significant additions thereto are shown in note 11 to the financial statements.

Board of directors

The names of the Directors are shown on page 7. In accordance with the provisions of Section 259 of the Companies & Allied Matters Act, CAP C20, Laws of the Federation of Nigeria (LFN) 2004, one third of the directors of the Company shall retire from office. The directors to retire every year shall be those who have been longest in office since their last election. Apart from the Executive Directors and Founding Directors, all other Directors are appointed for a fixed term. At expiration of the terms, they may be eligible for re-appointment.

Report of the directors continued

The Board has the following Committees:

Report of the directors continued

Record of attendance of board and committee meetings

In accordance with Section 258 Subsection 2 of the Companies and Allied Matters Act, CAP C20, LFN, 2004 the record of attendance of Directors at Board Meetings and that of its Committees in the year under review is published herewith:

Board of Directors

Finance Committee

Nomination and Establishment Committee

Report of the directors continued

Board of Directors:

Remuneration Committee

Risk Management, HSE and Communities Committee

Report of the directors continued

Corporate Social Responsibility Committee

Audit Committee

Directors' interest in shares

The interests of the Directors (and of persons connected with them) in the share capital of the Company (all of which are beneficial unless otherwise stated) as at 31 December 2015, are as follows:

Notes:

 (1) 72,136,912 Ordinary Shares are held by Shebah Petroleum Development Company Limited, which is an entity controlled by A.B.C. Orjiako and members of his family and 12,600,000 Ordinary Shares are held directly by Dr. Orjiako's siblings and 1 Ordinary Share held by A.B.C. Orjiako.

(2) 27,217,010 Ordinary Shares are held by Professional Support Limited and 1,920,000 Ordinary Shares are held by Abtrust Integrated Services Limited, each of which is an entity controlled by Mr Augustine Avuru. 44,160,000 Ordinary Shares, are held by Platform Petroleum Limited, which is an entity in which Mr. Augustine Avuru has a 23 per cent equity interest and 1 ordinary share held by Mr Augustine O. Avuru.

Report of the directors continued

Director's interest in contracts

The Chairman and the Managing Director have disclosable indirect interest in contracts with which the Company was involved as at 31 December 2015 for the purpose of section 277 of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria in 2015. These have been disclosed in Note 28.

Substantial interest in shares

The issued and fully paid share capital of the Company as at 31 December 2015 is beneficially owned as follows:

(1) 72,136,912 Ordinary Shares are held by Shebah Petroleum Development Company Limited, which is an entity controlled by Dr. A.B.C. Orjiako and members of his family and 12,600,000 Ordinary Shares are held directly by Dr. Orjiako's siblings and 1 Ordinary Share held by Dr. A.B.C. Orjiako.

(2) 27,217,010 Ordinary Shares are held by Professional Support Limited and 1,920,000 Ordinary Shares are held by Abtrust Integrated Services Limited, each of which is an entity controlled by Mr Augustine Avuru. 44,160,000 Ordinary Shares, are held by Platform Petroleum Limited, which is an entity in which Mr Augustine Avuru has a 23 per cent equity interest and 1 ordinary share held by Mr Augustine O. Avuru.

Acquisition of own shares:

The company did not acquire any of its shares during the year.

Report of the directors continued

Corporate governance

The Board of Directors of the company is aware of the Code of Corporate Governance issued by the Securities and Exchange Commission in the administration of the company and is ensuring that the company complies with it.

The Board is responsible for keeping proper accounting records with reasonable accuracy. It is also responsible for safe guarding the assets of the company through prevention and detection of fraud and other irregularities.

The Board has a Remuneration Committee made up of four of its members, other committees are:

Finance Committee

Nomination and Establishment Committee

Risk Management, HSE and Communities Committee

Corporate Social Responsibility Committee

Audit Committee

The report of the committee and details of its membership are set out on page 6-7.

Donation

The following donations were made by the company during the year (2014: $158,825).

Employment and employees

a) Employees involvement and training:

The company continues to observe industrial relations practices such as joint Consultative Committee and briefing employees on the developments in the company during the year under review.

Various incentive schemes for staff were maintained during the year while regular training courses were carried out for the employees.

Educational assistance is provided to members of staff. Different cadres of staff were also assisted with payment of subscriptions to various professional bodies during the year.

The Company will provide appropriate HSE training to all staff, and Personal Protective Equipment (PPE) to the appropriate staff.

Report of the directors continued

b) Health, safety and welfare of employees:

The company continues to enforce strict health and safety rules and practices at the work environment which are reviewed and tested regularly. The company provides free medical care for its employees and their families through designated hospitals and clinics. Fire prevention and fire-fighting equipment are installed in strategic locations within the Company's premises. The company operates Group life Insurance cover for the benefit of its employees. It also complies with the requirements of the Pension Reform Act, 2004 regarding its employees.

c) Employment of disabled or physically challenged persons:

The company has a policy of fair consideration of job applications by disabled persons having regard to their abilities and aptitude. The company's policy prohibits discrimination of disabled persons in the recruitment, training and career development of its employees.

Auditor

The Auditor, Ernst and Young have indicated their willingness to continue in office in accordance with Section 357(2) of the Companies and Allied Matters Act, 1990. A resolution will be proposed authorizing the Directors to fix their remuneration.

By Order of the Board

Mirian Kachikwu

FRC/2015/NBA/00000010739

Company Secretary,

Seplat Petroleum Development Company Plc

25a Lugard Avenue

Ikoyi

Lagos

Nigeria

Date: 24 March 2016

Audit Committee's Report

For the year ended 31 December 2015

To the members of Seplat Petroleum Development Company Plc

In accordance with the provisions of Section 359 (6) of the Companies and Allied Matters Act 2004, members of the Audit Committee of Seplat Petroleum Development Company Plc hereby report on the financial statements of the company for the year ended 31 December as follows:

· The scope and plan of the audit for the year ended 31 December 2015 were adequate:

· We have reviewed the financial statements and are satisfied with the explanations and comments obtained:

· We have reviewed the external auditors' management letter for the year and are satisfied with the management's responses and that management has taken appropriate steps to address the issues raised by the Auditors:

· We are of the opinion that the accounting and reporting policies of the Company are in accordance with legal requirements and ethical practices.

The external Auditors confirmed having received full co-operation from the Company's management in the course of the statutory audit and that the scope of their work was not restricted in any way.

Dated this 24th day of March 2016

Chief Anthony Idigbe, SAN

Chairman, Audit Committee

FRC/2015/NBA/00000010414

Statement of directors' responsibilities

For the year ended 31 December 2015

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 judgments 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 judgments 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 twelve months from the date of this statement.

Signed On Behalf Of the Directors By

Ambrosie Bryant Chukwueloka Orjiako Ojunekwu Augustine Avuru

Chairman Chief Executive Officer 

FRC/2014/IODN/00000003161. FRC/2014/IODN/00000003100

24 March 2016

Independent auditor's report to the members of Seplat Petroleum Development Company Plc

We have audited the accompanying consolidated and separate financial statements of Seplat Petroleum Development Company Plc, ("the Company") and its subsidiaries (together "the Group") which comprise the statement of financial position as at 31 December 2015, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors' responsibility for the financial statements

The company's directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS), the provisions of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and in compliance with the Financial Reporting Council of Nigeria Act, No. 6, 2011 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the 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 financial statements 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 the directors, as well as evaluating the overall presentation of the 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, the financial statements give a true and fair view of the financial position of Seplat Petroleum Development Company Plc as at 31 December 2015, and of its financial performance and its cash flows for the year then ended in accordance with the International Financial Reporting Standards, provisions of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and in compliance with the Financial Reporting Council Act, No. 6, 2011.

Independent auditor's report to the members of Seplat Petroleum Development Company Plc continued

Report on other legal and regulatory requirements

In accordance with the requirement of Schedule 6 of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004, we confirm that:

i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

ii) in our opinion, proper books of account have been kept by the company, so far as appears from our examination of those books;

iii) the statement of financial position and profit or loss and other comprehensive income are in agreement with the books of account.

iv) in our opinion, the financial statements have been prepared in accordance with the provisions of the Companies and Allied Matters Act, CAP C20 Laws of the Federation of Nigeria 2004 so as to give a true and fair view of the state of affairs and financial performance.

Yemi Odutola FCA

FRC/2012/ICAN/00000000141

For Ernst & Young

Lagos, Nigeria

24 March 2016

Statement of profit or loss and other comprehensive income

For the year ended 31 December 2015

Statement of financial position

For the year ended 31 December 2015

Statement of financial position continued

Notes 1-34 are an integral part of the financial statements

The financial statements of Seplat Development Company Plc for the year ended 31 December 2015 were authorized for issue in accordance with a resolution of the directors on 24 March 2016 and were signed on its behalf by:

Statement of changes in equity

For the year ended 31 December 2015

Statement of cash flows

For the year ended 31 December 2015

Notes to the consolidated financial statements

1. Corporate information and business

SEPLAT Petroleum Development Company Plc (''SEPLAT'' or the ''Company''), the parent of the Group, was incorporated on 17 June 2009 as a private limited liability company and re-registered as a public company on 3 October 2014, under the Company and Allied Matters Act 2004. The Company commenced operations on 1 August 2010. The Company is principally engaged in oil and gas exploration and production.

The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and AGIP, a 45 per cent participating interest in the following producing assets:

OML 4, OML 38 and OML 41 located in Nigeria. The total purchase price for these assets was $340 million paid at the completion of the acquisition on 31 July 2010 and a contingent payment of $33 million payable 30 days after the second anniversary, 31 July 2012, if the average price per barrel of Brent Crude oil over the period from acquisition up to 31 July 2012 exceeds $80 per barrel. $358.6 million was allocated to the producing assets including $18.6 million as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of $33 million was paid on 22 October 2012.

In 2014, Newton Energy Limited (''Newton Energy''), an entity previously beneficially owned by the same shareholders as SEPLAT, became a subsidiary of the Company. On 1 June 2014, Newton Energy acquired from Pillar Oil Limited (''Pillar Oil'') a 40 per cent Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the ''Umuseti/Igbuku Fields''). The total purchase price for these assets was $50 million paid at the completion of the acquisition in June 2014 and a contingent payment of $10 million ($5 million when average daily production of 10,500 bopd of liquid hydrocarbon sustained over a period of one (1) month is achieved and another $5 million when cumulative production of 10 million barrels of liquid hydrocarbons from all fields within OML 56 is achieved) by mid-2015. The fair value of $7.731 million was capitalized to the cost of the asset and a corresponding liability recorded based on the probability. These milestones were not achieved as at mid-2015 and as such the liability was de-recognized during the year.

During the year, the Group purchased a 40% working interest in OML 53, onshore north eastern Niger Delta, from Chevron Nigeria Ltd. for $259.4 million. It has also concluded negotiations to buy 56.25% of Belemaoil Producing Ltd., a Nigerian special purpose vehicle that has bought a 40% interest in the producing OML 55, located in the swamp to coastal zone of south eastern Niger Delta. NNPC holds the remaining 60.00% interest in OML 55, and Seplat's effective working interest in OML 55 as a result of the acquisition is 22.50%.

SEPLAT is paying $132.2 million for its 22.50% interest in OML 55, after adjustments. It has also advanced certain loans of $80.0 million to the other shareholders of Belemaoil to meet their share of investments and costs associated with Belemaoil. In addition, SEPLAT said talks are underway to determine repayment terms for the initial deposit against the acquisition of $52.5 million that Belemaoil funded with bank debt, which may be added to the total amount loaned to Belemaoil by SEPLAT.

Current gross production at OML 55 is 8,000 barrels of oil per day. Seplat has been designated operator of OML 55. The Group will also act as technical services provider to Belemaoil.

SEPLAT estimates net recoverable hydrocarbon volumes attributable to its 40% working interest in OML 53 is 51 million barrels of oil and condensate and 611 billion square cubic feet of gas. Seplat has been designated operator of OML 53.

The Company's registered address is: 25a Lugard Avenue, Ikoyi, Lagos, Nigeria.

The Company together with its subsidiary, Newton Energy, and four wholly owned subsidiaries, namely, SEPLAT Petroleum Development Company UK Limited (''SEPLAT UK''), which was incorporated on 21 August 2014, SEPLAT East Onshore Limited (''SEPLAT East''), which was incorporated on 12 December 2014, SEPLAT East Swamp Company Limited (''SEPLAT Swamp''), which was incorporated on 12 December 2014, and SEPLAT Gas Company Limited (''SEPLAT GAS''), which was incorporated on 12 December 2014, is referred to as the Group.

Notes to the consolidated financial statements

Continued

2. Basis of preparation and significant accounting policies

2.1 Basis of preparation

The consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial information has been prepared under the going concern assumption and historical cost convention, except for contingent consideration, borrowings on initial recognition and financial instruments - derivatives not designated as hedges that have been measured at fair value. The historical financial information is presented in US dollars and Nigerian Naira and all values are rounded to the nearest thousand ($000) and nearest million (N'm), except when otherwise indicated.

2.2 Basis of consolidation

The consolidated financial information comprise the financial statements of the Group and its subsidiaries as at

31 December 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

· Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

· Exposure, or rights, to variable returns from its involvement with the investee; and

· The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers

all relevant facts and circumstances in assessing whether it has power over an investee, including:

- The contractual arrangement(s) with the other vote holders of the investee

- Rights arising from other contractual arrangements

- The Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company using consistent accounting policies.

All intra-group balances, transactions and unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

· Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

· Derecognizes the carrying amount of any non-controlling interests;

· Derecognizes the cumulative translation differences recorded in equity;

· Recognizes the fair value of the consideration received;

· Recognizes the fair value of any investment retained;

· Recognizes any surplus or deficit in profit or loss; and

Notes to the consolidated financial statements

Continued

· Reclassifies the parent's share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

2.3 Summary of significant accounting policies

The following are the significant accounting policies applied by the company in preparing its financial statements.

2.3.1 Foreign currency translation

Functional and presentation currency

The Group's consolidated financial statements are presented in United States Dollars, which is also the Company's functional currency and Nigerian Naira. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income within the line item gain/(loss) on foreign exchange, net.

Group companies

On consolidation, the assets and liabilities of foreign operations are translated into the presentation currency at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in profit or loss.

2.3.2 Oil and gas accounting

i) Pre-license costs

Pre-license costs are expensed in the period in which they are incurred.

ii) Exploration license costs

Exploration license costs are capitalized within intangible assets. License costs paid in connection with a right to explore in an existing exploration area are capitalized and amortized on a straight-line basis over the life of the permit.

License costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and sufficient progress is being made on establishing development plans and timing.

If no future activity is planned or the license has been relinquished or has expired, the carrying value of the license is written off through profit or loss.

iii) Acquisition of producing assets

Upon acquisition of producing assets which does not constitute a business combination, the Group identifies and recognizes the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The purchase price paid for the group of assets is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase.

Exploration and evaluation expenditures

Geological and geophysical exploration costs are charged against income as incurred.

Exploration and evaluation expenditures incurred by the entity are accumulated separately for each area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure, but do not include general overheads or administrative expenditure that is not directly related to a particular area of interest. Each area of interest is limited to a size related to a known or probable hydrocarbon resource capable of supporting an oil operation.

Notes to the consolidated financial statements

Continued

Costs directly associated with an exploration well, exploratory stratigraphic test well and delineation wells are temporarily suspended (capitalized) until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs, delay rentals and payments made to contractors. If hydrocarbons ('proved reserves') are not found, the exploration expenditure is written off as a dry hole and charged against income. If hydrocarbons are found, the costs continue to be capitalized. Suspended exploration and evaluation expenditure in relation to each area of interest is carried forward as an asset provided that one of the following conditions is met:

· the costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale;

· and exploration and/or evaluation activities in the area of interest have not, at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically

· recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and/or evaluation expenditures which fail to meet at least one of the conditions outlined above is written off. In the event that an area is subsequently abandoned or exploration activities do not lead to the discovery of proved or probable reserves, or if the directors consider the expenditure to be of no value, any accumulated costs carried forward relating to the specified areas of interest are written off in the year in which the decision is made. While an area of interest is in the development phase, amortization of development costs is not charged pending the commencement of production. Exploration and evaluation costs are transferred from the exploration and/or evaluation phase to the development phase upon commitment to a commercial development.

iv) Development expenditures

Development expenditures incurred by the entity is accumulated separately for each area of interest in which economically recoverable reserves have been identified to the satisfaction of the directors. Such expenditure comprises net direct costs and, in the same manner as for exploration and evaluation expenditure, an appropriate portion of related overhead expenditure directly related to the development property.

All expenditure incurred prior to the commencement of commercial levels of production from each development property is carried forward to the extent to which recoupment is expected out of revenue to be derived from the sale of production from the relevant development property.

v) Joint operations

SEPLAT is the operator of the assets relating to OML 4, OML 38 and OML 41. The Nigerian Petroleum Development Company Limited (''NPDC''), a subsidiary of the Nigerian National Petroleum Corporation (''NNPC''), is the other venturer. SEPLAT holds a 45 per cent interest, while NPDC holds 55 per cent interest in the jointly controlled assets.

The Group also holds a 40 per cent. Interest in the joint operations relating to OPL 283/OML 56 (the Umuseti/Igbuku Fields). Pillar Oil is the other venturer and the operator.

During the year, the group acquired 40% working interest in OML 53, onshore north eastern Niger Delta.

The accounting method specified for a joint operation apportions to each venturer its share of revenues, expenses, assets and liabilities. The Group recognizes its share in its own accounting records as follows:

a. Its share of the mineral properties is shown within property, plant and equipment.

b. Any liabilities that it has incurred including those incurred to finance its share of the asset.

c. Its share of any liabilities incurred jointly with other venturers, including the decommissioning liability

of production and field facilities.

d. Any income from its sale or use of its share of the output, together with its share of any expenses

incurred by the joint operation.

e. Any expenses that it has incurred in respect of its interest in the venture.

In addition to joint costs, the Group also incurs exclusive costs, which are fully borne by the Group.

Notes to the consolidated financial statements

Continued

2.3.3 Revenue recognition

Revenue arises from the sale of crude oil and gas. Revenue comprises the realized value of crude oil lifted by customers. Revenue is recognized when crude products are lifted by a third party (buyer) Free on Board (FOB) at the Group's designated loading facility or lifting terminals. At the point of lifting, all risks and rewards are transferred to the buyer. Gas revenue is recognized when gas passes through the custody transfer point.

Over lift and underlift

The excess of the product sold during the period over the participant's ownership share of production is termed as an overlift and is accrued for as a liability and not as revenue. Conversely, an underlift is recognized as an asset and the corresponding revenue is also reported.

Over lifts and under lifts are initially measured at the market price of oil at the date of lifting, consistent with the measurement of the sale and purchase.

2.3.4 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

2.3.5 Property, Plant and Equipment

Oil and Gas properties and other, plant and equipment are stated at cost; less accumulated depreciation and accumulated impairment losses.

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the entity, the expenditure is capitalized. Inspection costs associated with major maintenance programs are capitalized and amortized over the period to the next inspection. Overhaul costs for major maintenance programs are capitalized as incurred as long as these costs increase the efficiency of the unit or extend the useful life of the asset. All other maintenance costs are expensed as incurred.

Depreciation

Production and field facilities are depreciated/amortized on a unit-of-production basis over the estimated proved developed reserves. Other property, plant and equipment is depreciated on a straight-line basis over their estimated useful lives. Depreciation commences when an asset is available for use. The depreciation rate for each class is as follows:

The expected useful lives and residual values of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively.

Notes to the consolidated financial statements

Continued

2.3.6 Impairment of non-financial assets

The entity assesses assets or group of assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. If any such indication of impairment exists or when annual impairment testing for an asset group is required, the entity makes an estimate of its recoverable amount. Such indicators include changes in the Group's business plans, changes in commodity prices, evidence of physical damage and, for oil and gas properties, significant downward revisions of estimated recoverable volumes or increases in estimated future development expenditure.

The recoverable amount is the higher of an asset's fair value less costs of disposal (FVLCD) and value in use (VIU). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets, in which case, the asset is tested as part of a larger cash generating unit to it belongs. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount.

In calculating VIU, the estimated future cash flows are 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/CGU. In determining FVLCD, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to the recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss after such a reversal and the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

2.3.7 Cash and cash equivalents

Cash and cash equivalents in the statement of cash flows comprise cash at banks and at hand and short-term deposits with an original maturity of three months or less.

2.3.8 Inventories

Inventories represent the value of tubulars, casing and wellheads. These are stated at the lower of cost and net realizable value. Cost is determined using the invoice value and all other directly attributable costs to bringing the inventory to the point of use determined on First in first out basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated cost necessary to make the sale.

2.3.9 Financial instruments

i) Financial assets

Financial assets initial recognition and measurement

Financial assets in the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial assets at fair value through the statement of profit or loss, loans and receivables, held to maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through the statement of profit or loss which do not include transaction costs.

The Group's financial assets include cash and short-term deposits, trade and other receivables and loan and other receivables.

Notes to the consolidated financial statements

Continued

Subsequent measurement

The subsequent measurement of financial assets depends on their classification, as follows:

Trade receivables, loans and other receivables

Trade receivables, loans and other receivables, which are non-derivative financial assets that have fixed or determinable payments that are not quoted in an active market, are classified as loans and receivables. They are included in the current assets, except for maturities greater than 12 months after the reporting date. The Group's loan and receivables comprise trade and other receivables in the consolidated historical financial information.

Loans and receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method net of any impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of the receivable.

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments are considered as indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of profit or loss. When a trade is uncollectable, it is written off against the allowance account for trade receivables.

Impairment of financial assets

The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

ii) Financial liabilities

Financial liabilities in the scope of IAS 39 are classified as financial liabilities at fair value through the statement of profit or loss, loans and borrowings as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, bank overdrafts and loans and borrowings.

Subsequent measurement

The measurement of financial liabilities depends on their classification as described below.

Trade payables, loans and borrowings

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using effective interest method.

Notes to the consolidated financial statements

Continued

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost while any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of profit or loss over the period of borrowings using the effective interest method.

Fees paid on establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

Derecognition of financial liabilities

A financial liability is derecognized when the associated obligation is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss & other comprehensive income.

Derivative financial instruments

The Group uses derivative financial instruments, such as forward exchange contracts, to hedge its foreign exchange risks as well as put options to hedge against its oil price risk. However, such contracts are not accounted for as designated hedges. Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss and other comprehensive income, and presented within operating profit.

Commodity contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group's expected purchase, sale or usage requirements fall within the exemption from IAS 32 and IAS 39, which is known as the 'normal purchase or sale exemption'. For these contracts and the host part of the contracts containing embedded derivatives, they are accounted for as executory contracts. The Group recognizes such contracts in its statement of financial position only when one of the parties meets its obligation under the contract to deliver either cash or a non-financial asset. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 18 Financial Instruments.

2.3.10 Fair value of financial instruments

The group measures all financial instruments at initial recognition at fair value and financial instruments carried at fair value through profit and loss such as derivatives at fair value at each balance sheet date. From time to time, the fair values of non-financial assets and liabilities are required to be determined, e.g., when the entity acquires a business, or where an entity measures the recoverable amount of an asset or cash-generating unit (CGU) at FVLCD.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

Notes to the consolidated financial statements

Continued

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. From time to time external valuers are used to assess FVLCD of the groups' non-financial assets. Involvement of external valuers is decided upon by the valuation committee after discussion with and approval by the Company's Audit Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. Valuers are normally rotated every three years. The valuation committee decides, after discussions with the Group's external valuers, which valuation techniques and inputs to use for each case.

Changes in estimates and assumptions about these inputs could affect the reported fair value. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

2.3.11 Business combination and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognized in the statement of profit or loss.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

56.25% of Belemaoil Producing Ltd., a Nigerian special purpose vehicle that bought a 40% interest in the producing OML 55, located in the swamp to coastal zone of south eastern Niger Delta.

Notes to the consolidated financial statements

Continued

2.3.12 Share capital, earnings and dividends per share

Issued share capital has been translated at the exchange rate prevailing at the date of the transaction and is not retranslated subsequent to initial recognition.

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year. Dividends on ordinary shares are recognized as a liability in the period in which they are approved.

2.3.13 Post-Employment benefits

Defined contribution scheme

The Group contributes to a defined contribution scheme for its employees in compliance with the provisions of the Pension Reform Act 2004. The scheme is fully funded and is managed by licensed Pension Fund Administrators. Membership of the scheme is automatic upon commencement of duties at the Group. The Group's contributions to the defined contribution schemes are charged to the profit and loss account in the year to which they relate.

Defined benefits

The Group also operates a defined benefit pension plan, which requires contributions to be made to a separately administered fund. The Group also provides certain additional post-employment benefits to employees. These benefits are unfunded.

The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.

Remeasurements, comprising of actuarial gains and losses are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur.

Remeasurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognized in profit or loss on the earlier of:

· The date of the plan amendment or curtailment, and

· The date that the Group recognizes related restructuring costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under 'cost of sales', 'administration expenses' and 'selling and distribution expenses' in the consolidated statement of profit or loss (by function):

· Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements

2.3.14 Provisions

Provisions are recognized when (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of economic resources will be required to settle the obligation as a whole; and (iii) the amount can be reliably estimated. Provisions are not recognized for future operating losses.

In measuring the provision:

· risks and uncertainties are taken into account;

· the provisions are discounted where the effects of the time value of money is considered to be material;

· when discounting is used, the increase of the provision over time is recognized as an interest expense;

· future events such as changes in law and technology, are taken into account where there is subjective audit evidence that they will occur; and; gains from expected disposal of assets are not taken into account, even if the expected disposal is closely linked to the event giving rise to the provision; and;

· gains from expected disposal of assets are not taken into account, even if the expected disposal is closely linked to the event giving rise to the provision.

Notes to the consolidated financial statements

Continued

Decommissioning

Liabilities for decommissioning costs are recognized as a result of the constructive obligation of past practice in the oil and gas industry, when it is possible that an outflow of economic resources will be required to settle the liability and a reliable estimate can be made. The estimated costs, based on current requirements, technology and price levels, prevailing at the reporting date, are computed based on the latest assumptions as to the scope and method of abandonment.

Provisions are measured at the fair value of the expenditures expected to be required to settle the obligation using a pre-tax rate, updated at each reporting date that reflects current market assessments of the time value of money and the risks specific to the obligation. The corresponding amount is capitalized as part of the oil and gas properties and is amortized on a unit-of-production basis as part of the depreciation, depletion and amortization charge. Any adjustment arising from the estimated cost of the restoration and abandonment cost is capitalized, while the charge arising from the accretion of the discount applied to the expected expenditure is treated as a component of finance charges.

If the change in estimate results in an increase in the decommissioning provision and, therefore, an addition to the carrying value of the asset, the Group considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment in accordance with IAS 36. If, for mature fields, the revised oil and gas assets net of decommissioning provisions exceed the recoverable value, that portion of the increase is charged directly to expense.

2.3.15 Contingencies

A contingent asset or contingent liability is a possible asset or obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events. The assessment of the existence of the contingencies will involve management judgment regarding the outcome of future events.

2.3.16 Income taxation

Current income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of profit or loss and other comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Taxation on crude oil activities is provided in accordance with the Petroleum Profits Tax Act (PPTA) CAP. P13 Vol. 13 LFN 2004 and on gas operations in accordance with the Companies Income Tax Act (CITA) CAP. C21 Vol. 3 LFN 2004. Education tax is assessed at 2 per cent of the assessable profits.

Deferred tax

Deferred tax is recognized, using the liability method, on temporary differences arising between the carrying amounts of assets and liabilities in the consolidated historical financial information and the corresponding tax bases used in the computation of taxable profit.

A deferred income tax charge is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Notes to the consolidated financial statements

Continued

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.3.17 New Tax Regime

Effective 1 January 2014, the Company was granted the pioneer tax status incentive by the Nigerian Investment Promotion Commission for an initial three-year period and a further two-year period on approval. For the period the incentive applies, the Company is exempt from petroleum profits tax on crude oil profits (which would be otherwise taxed at 65.75 per cent., to increase to 85 per cent. in 2015), corporate income tax on natural gas profits (currently taxed at 30 per cent.) and education tax of 2 per cent. Newton Energy was also granted pioneer tax status on the same basis. The company has completed its first three-years of the pioneer tax period and applied for the approval of the remaining two years. As at 31 December 2015, the Nigerian Investment promotion Commission is yet to approve the extension. In preparing the financial statements, the Group has assumed that the extension will not be approved and recognized deferred tax liabilities as at the balance sheet date.

Tax incentives do not apply to SEPLAT East Onshore Limited (OML 53) and SEPLAT East Swamp Company Limited (OML 55), hence all taxes have been included in full for these entities in the financial statements.

2.3.18 Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Operating lease payments and capitalized prepaid operating leases are recognized as an operating expense in the statement of profit or loss and other comprehensive income on a straight-line basis over the lease term.

2.3.19 Share based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). Employees working in the business development group are granted share appreciation rights, which are settled in cash (cash-settled transactions).

Equity-settled transactions

The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model.

That cost is recognized in employee benefits expense together with a corresponding increase in equity (other capital reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the statement of profit or loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date. Fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group's best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognized is the grant date fair value of the unmodified award, provided the original terms of the award are met. An additional expense, measured as at the date of modification, is recognized for any modification that

Notes to the consolidated financial statements

Continued

increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

Cash-settled transactions

A liability is recognized for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized in employee benefits expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is determined using a binomial model,

2.3.20 Retirement benefits

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. The Group operates a defined contribution plan and it is accounted for based on IAS 19 Employee benefits

Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Under defined contribution plans the entity's legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee.

2.4 Significant accounting Judgments, estimates and assumptions

The preparation of the Group's consolidated historical financial information requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Judgments

In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated historical financial information:

iii) OML 4, 38 and 41

OML 4, 38, 41 is grouped together as a cash generating unit. This 3 OMLs are grouped together because they cannot independently generate cash flow. Crude oil and gas sold to third parties from these 3 OMLs are invoiced together.

iv) Acquisition of a 40 per cent participating interest in producing assets (note 11a)

The acquisition of a 40 per cent participating interest in OPL 283 (the Umuseti/Igbuku Fields), in 2014, has been accounted for as an acquisition of assets, with the exception of adopting IFRS 3, Business combination, when accounting for the contingent consideration. This is on the basis that the assets don't constitute a business.

v) NPDC receivable (note 18)

NPDC continues to demonstrate its commitment to repay outstanding debts. After significant payments during 2015, the amounts owed by NPDC as at 31 December 2015 was $435million (2014: $463 million), of which $190 million (2014: $248 million) is overdue. The Group considers that the current receivable balance remains fully recoverable as cash payments continue to be received and as at 11 March 2016, solely the amounts relating to 2014 and 2015 are overdue.

vi) Deposit for investment(note 18)

The Group considers that the deposit for investment of $45 million in relation to the acquisition of additional assets is fully recoverable in accordance with the terms of the deposit

Notes to the consolidated financial statements

Continued

vii) Share based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about them. The group measures the fair value of equity-settled transactions with employees at the grant date, the Group uses a Monte-Carlo model for the global offer, non-executive and long term incentive scheme. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 22c

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

viii) Contingent consideration (note 27)

In 2014, the Group recognized the contingent consideration in relation to its acquisition of a participating interest in assets within OPL 283 (the Umuseti/Igbuku Fields). The contingency criteria are the achievement of certain production milestones. At inception, the present value was capitalized to the cost of the asset and a corresponding liability was recorded. The liability was carried at fair value through profit or loss. These milestones were not achieved as at mid-2015 and as such the liability was de-recognized during the year.

During the year, a part of the consideration paid for OML 53 & 55 is a discount of $39.4 million contingent on oil price rising above $90/bbl. over the next three years. The fair value of this discount is $20.5m, this has been capitalized to the cost of the asset and the corresponding liability recorded based on the probability.

ix) Defined benefit plans (pension benefits)

The cost of the defined benefit retirement plan and the present value of the retirement obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and changes in inflation rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers market yield on federal government bond in currencies consistent with the currencies of the post-employment benefit obligation and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation. The rate of mortality assumed for employees are the rates published 67/70 ultimate tables, published jointly by the institute and faculty of actuaries in the UK. Further details about pension obligations are provided in Note 29c.

Oil and gas reserves 

Proved oil and gas reserves are used in the units of production calculation for depletion as well as the determination of the timing of well closure and impairment analysis. There are numerous uncertainties inherent in estimating oil and gas reserves. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may ultimately result in the reserves being restated.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Such estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Notes to the consolidated financial statements

Continued

The Group's 2P reserves increased by 41% from 281 MMboe as at 31 December 2014 to 480 MMboe as at 31 December 2015 due to additional 184 MMboe reserves on newly acquired OMLs 53 and 55 and 15 MMboe net revisions on OMLs 4, 38 & 41 and OML 56. The 15 MMboe net revisions on OMLs 4, 38 & 41 is due to Okporhuru and Orogho field developments, Sapele development drilling and performance and issue of Okwefe field development plan and production tests. Also, further developments in Ovhor and Oben oil and gas contribute to the upward reserves movements. The majority of these movements relate to contingent to reserves conversions and in a few cases like Okporhuru development, new reservoir sands were penetrated and in other cases, reservoir performance were turning out better than initially predicted. It is on this that the reserves evaluator should the improvement in the reserves position year-on-year as documented in the CPR and Reserves assessment reports.