Seplat Energy Regulatory News (SEPL)

Seplat Petroleum Development Company Plc

Full Year Results

For the year ended 31 December 2017(Expressed in Naira and US Dollars)

Announcement

Lagos and London, 28 February 2018: 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 2017 financial results and provides an operational update.

Commenting on the results Austin Avuru, Seplat's Chief Executive Officer, said 

"I am pleased to report that Seplat made a return to full-year profitability in 2017, registered strong cash flow performance and significantly strengthened the balance sheet. In a year of contrast we were plagued throughout most of the first half by force majeure at the Forcados terminal. However, following the lifting of force majeure on 6 June we rapidly restored full production operations and our subsequent operational and financial performance is a clear indicator of our strong fundamentals and what we can achieve when we have unhindered access to market. We will retain the flexibility and financial discipline that has seen us emerge from a difficult chapter in our history a fitter and stronger business. With line of sight on the availability of multiple export routes, we aim to significantly de-risk distribution of oil production to market. Notably, our gas business made another record contribution in 2017 and continues to demonstrate the robustness of its revenues providing a key source of growth and diversification, as well as delivering a much-needed reliable supply of gas to the Nigerian power sector. Seplat is now better positioned to return to sustainable growth."

Full year 2017 results highlights

2017 working interest production within guidance

Return to full year profitability and strong cash flow generation

Strengthened balance sheet

Record contribution from the gas business

Financial overview

Conference call

At 9:00 am GMT (London), 10:00 am WAT (Lagos) on 28 February 2018, Austin Avuru (CEO), Jay Smulders (Technical Director) and Roger Brown (CFO) will host a conference call to discuss the Company's results. Access details are:

Telephone Number: +44 (0) 1452 569393 / +44 (0) 8000 731 340

Conference ID (to be quoted): 2186768

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=e90d90b27ba493d7d634abe34f4b06d89

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). Seplat is pursuing a Nigeria focused growth strategy and is well-positioned to participate in future divestment programmes by the international oil companies, other acquisition and farm-in opportunities and future licensing rounds. For further information please refer to the Company website, http://seplatpetroleum.com/

Full year 2017 results overview

Working interest reserves

Working interest 2P reserves as assessed independently by Ryder Scott at 31 December 2017 stood at 477.3 MMboe, comprising 226.3 MMbbls of oil and condensate and 1,455.7 Bscf of natural gas. This represents an increase in overall 2P reserves of 3% year-on-year. The main driver of the upward revision year on year is increased oil reserves attributed to the Sapele Shallow field at OML 4 and an increase in gas reserves at OML 53 more than offsetting volumes produced in the year.

(1) Under the revised commercial terms in relation to OML 55 Seplat will no longer be a shareholder in BelemaOil but will instead have a financial interest until a

discharge sum of US$330 million has been paid to Seplat through the monetisation of oil reserves at OML 55.

(2) Working interest reserves stated at 31/12/16 as assessed independently by DeGolyer and McNaughton

At 31 December working interest 2C resources stood at 61 MMboe, comprising 48 MMbbls of oil and condensate and 75 Bscf of natural gas. Consequently the Company's working interest 2P+2C reserves and resources stood at 538 MMboe at 31 December 2017, comprising 274 MMbbls oil and condensate and 1,530 Bscf of natural gas.

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.

2017 full year average working interest production stood at 36,923 boepd and represents an overall increase of 43% year-on-year. Within this liquids production was up 77% year-on-year whilst gas production was up 20% year-on-year. The 2017 figures reflect the resumption of full production operations following the lifting of force majeure at the Forcados terminal on 6 June. Overall reconciliation losses arising from use of third party infrastructure were around 3.5% for the year. Post force majeure being lifted net working interest production from June to year end averaged 47,522 boepd (comprising 26,527 bopd liquids and 126 MMscfd gas).

Alternative oil export routes

The Company's policy of creating multiple export routes for all of its assets has resulted in it actively pursuing alternative crude oil evacuation options for production at OMLs 4, 38 and 41 and potential strategies to further grow and diversify production in order to reduce any over-reliance on one particular third party operated export system. In line with this objective, in 2017 the Company successfully completed repairs and upgrades on two jetties at the Warri refinery that will enable sustained exports of 30,000 bopd (gross) if required in the future. Prior to the repair and upgrade work on the two jetties gross exports via the Warri refinery were around the 15,000 bopd level. Exports via the Warri refinery jetty to date have typically incurred barging costs of around US$11/bbl but partially offsetting this, exports via this route are not subject to the reconciliation losses or terminal crude handling and transport charges when exporting via the TFS. At 31 December 2017 a gross volume of 1.9 million barrels had been evacuated via this route in the year.

Prior to establishing the alternative oil export route via the Warri refinery, gas production was limited by storage constraints for associated condensate volumes that would ordinarily be spiked into crude oil production and exported via the Forcados terminal. Crucially, availability of the alternative export route enabled Seplat to step-up deliveries to the domestic market and greatly improve security of supply. 100% of Seplat's gas production is supplied to the domestic market.

Full year 2017 results overview continued

Longer term, the Amukpe to Escravos 160,000 bopd capacity pipeline is set to provide a third export option for liquids production at OMLs 4, 38 and 41. Seplat signed a Funding Agreement in December 2017 with the pipeline owners, NAPIMS (a 100% subsidiary of NNPC), Pan Ocean Corporation Limited (Pan Ocean) and the pipeline contractor FENOG to ensure timely completion of the pipeline. Post year end, FENOG has engaged with the operator of the Escravos terminal, Chevron, to initiate completion works. Negotiations between the pipeline operator, Pan Ocean, and Chevron in relation Crude Handling Agreements are also advancing. The Heads of Terms for the Crude Transport Agreement between NPDC/Seplat JV and NAPIMS/Pan Ocean JV is also nearly completed and Seplat anticipates the pipeline to be fully commissioned and operational in Q3 2018

With line of sight on the availability of three independent export routes it is Seplat's ultimate intention to utilise all three to ensure there is adequate redundancy in evacuation routes, reducing downtime which has adversely affected the business over a number of years, significantly de-risking the distribution of production to market.

Gas business

Alongside its oil business, the Company has also prioritised the commercialisation and development of the substantial gas reserves and resources identified at its blocks and is today a leading supplier of gas to the domestic market in Nigeria. The lifting of force majeure on 6 June 2017 and resumption of full exports via the TFS removed the condensate handling constraints and translated into an immediate uplift in gross gas production. As a result gross production in the second half averaged 283 MMscfd, up 26% from a previously constrained level of 225 MMscfd in the first half of the year. Furthermore, having successfully completed and commissioned the Phase II expansion of the Oben gas processing plant early in 2017, taking overall operated gas processing capacity to the 525 MMscfd level, the Company is actively engaged with counterparties to increase contracted gas sales with the intention of taking gross production towards the 400 MMscfd level. The Company commenced supplies of commissioning gas to the Azura power plant in advance of commencement of full operations due in H1 2018, when it will take 116 MMscfd on a take or pay basis.

Of the 525 MMscfd total processing capacity, 465 MMscfd is located at Oben with the remaining 60 MMscfd located at Sapele. The 375 MMscfd expansion at Oben (Phases I and II) was completed by Seplat as a 100% investment project. The gas processing capacity expansion is also designed to allow the Company to accept third party gas and receive a processing tariff. Another 2 x 10 MMscfd compressors were installed and commissioned in Q4 2017 to capture additional associated gas ("AG") at the Oben flow station (following on from the successful installation of 3 x 10 MMscfd compressors in 2015). The project is geared towards elimination of routine flares and monetisation of AG. Seplat's focus on gas monetisation also includes the Sapele non-associated gas ("NAG") for which commercial discussions are ongoing and development option selected.

The ANOH gas development at OML 53 (and adjacent OML 21 with which the upstream project is unitised) is expected to underpin the next phase of growth for the gas business and Seplat's involvement positions it at the heart of one of the largest green field gas and condensate developments onshore the Niger Delta to date. Seplat is well positioned to leverage the experience gained at the Oben gas hub to incorporate operational and cost efficiencies. The Company has made good progress in formalising an incorporated joint venture relationship with government signing a Heads of Terms and inaugurating a joint steering committee to encompass the midstream element of the project, in light of which Seplat's FID will be aligned with NNPC approvals. The project is expected to achieve FID in H1 2018.

Rig based activity and other capital projects

Rig based activity at OMLs 4, 38 and 41 in 2017 was limited with just one rig deployed for a workover well in the Orogho field. The workover and re-completion of the Orogho-7 production well commenced in July and was completed as planned in August. Upgrades to the liquid treatment infrastructure at OMLs 4,38 and 41 were also made that will enable Seplat to inject export grade dry crude via alternative routes and at the same time eliminate crude handling charges that have historically been incurred on water in the wet crude injected into the TFS. While the Company continues to exercise discretion over spend and, having pulled back on expenditure during the extended period of force majeure, it is now selectively considering production drilling opportunities in the existing portfolio with a view to reinstating a work programme designed to capture the highest cash return production opportunities whilst diligently preserving a liquidity buffer.

At the non-operated OPL 283 Seplat participated in one appraisal well during the year. Seplat successfully delivered the Anagba-1 appraisal well on behalf Operator Pillar Oil Ltd in November 2017. The well confirmed the extension of the productive reservoirs of the Ashaka field, located on adjacent OML 60 (operated by the Nigerian Agip Oil Company Limited), into OPL 283. The successful well will support Pillar in ongoing unitisation discussions with the Nigerian AGIP Oil Company Limited, thereby enabling the OPL 283 partners to share in the Ashaka wells' oil production.

Full year 2017 results overview continued

Finance

The higher oil production following the lifting of force majeure at the Forcados terminal from June 6 onwards, together with higher oil price realisations, positively impacted oil revenue which stood at US$328 million, up 121% year-on-year. Alongside this, gas revenue reached a new record of US$124 million, up 18% year-on-year. Consequently, total revenue for 2017 was up 78% from 2016 at US$452 million. Profit before tax for the year stood at US$44 million and reflects the return to profitability in the third and fourth quarters where net quarterly profit before tax of US$24 million and US$46 million respectively offset the US$26 million loss before tax recorded at mid-year. A net tax credit of US$221 million, owing primarily to deferred tax credits of US$224 million, increased the overall profit after tax for the year to US$265 million. The Group recognises deferred tax assets on unused tax losses and capital allowances where it is probable that future taxable profits will be available for utilisation.

Cash flow from operations was US$447 million and capital investments US$33 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$20.5 million) stood at US$437 million and US$141 million respectively. At end of 2017 the net NPDC receivables balance stood at US$113 million, down from US$229 million at end 2016.

Considering the unforeseen extended force majeure conditions at the Forcados terminal from 21 February 2016 until 6 June 2017, and the inevitable impact on revenues, the Company continued to adopt a prudent approach. Having re-profiled the seven-year Term Loan in Q3 2016 the Company announced in July that it had successfully concluded an oversubscribed one year extension of the RCF. The RCF, originally due to expire at the end of 2017, now expires on 31 December 2018 and was successfully amended to amortise the remaining outstanding principal balance of US$150 million at the time in equal instalments over five quarters commencing Q4 2017. Overall, Seplat's aggregate indebtedness under its Term Loan and RCF had reduced by US$422 million at end 2017 from its peak in Q1 2015 of US$1 billion, which is a significant deleveraging of the balance sheet particularly in exceptionally difficult trading conditions.

Dividend

During a period in which Seplat's key focus has been on preservation of liquidity and selective capital allocation to ensure the Company maintains a necessary level of financial flexibility the Board believes that the Company and its shareholders are better served at this point in time by selectively deploying available capital (on a discretionary basis) into the portfolio of production opportunities and preserving a liquidity buffer.

Board changes

The Company announced in March that Stuart Connal retired from his role as COO and executive director effective 31 March 2017. The board, management and all staff would like to thank Mr Connal for his significant contribution to Seplat in the last few years. On the 23 February 2018, the Company announced the appointment of Effiong Okon to its board as Operations Executive Director.

Operations review

Seplat's current portfolio comprises direct interests in five oil and gas blocks and a revenue interest in one further block, all of which are located in the onshore to swamp areas of the prolific Niger Delta. This portfolio provides the Company with a robust platform of oil and natural gas reserves and production capacity together with material upside opportunities through future development projects, 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

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 465 MMscfd capacity non-associated gas processing plant and an associated gas compressor station with five 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 next due for renewal on 30 June 2019.

OML 38 covers an area of 2,094km2 and is located 48km north of Warri, Delta State. There are currently four producing fields on the block, namely Amukpe, Okpohuru, Orogho and Ovhor (which straddles OML 38 and OML 41). There are two further discoveries in OML 38: the Mosogar 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 and is next due for renewal on 30 June 2019.

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 and is next due for renewal on 30 June 2019. Since the year end, the Company has commenced the license renewal process for OMLs 4, 38 and 41 with the Department of Petroleum Resources. The application is for a renewal period of 20 years.

2017 activity

On OML 4, the Company completed and commissioned Phase II of the Oben gas processing plant expansion programme which included the installation and integration of three new 75 MMscfd processing modules (225 MMscfd aggregate capacity), taking total gross processing capacity of the Oben plant to a minimum of 465 MMscfd following commissioning in Q1 2017. The second key project was completed in Q4 2017, aimed at eliminating and monetising associated gas that was previously flared, was the installation of an additional 2 x 10 MMscfd compressors at the Oben flow station.

On OML 38, further to the earlier commissioning of the liquid treatment facility ("LTF") at the Amukpe field, the Company undertook 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 has scope to eliminate in the future the cost component of crude handling charges that have historically been incurred for exporting wet crude to the Forcados terminal and also free up additional haulage on the export pipeline for dry crude. With the completion of the project, Seplat will also be able to deliver increased export quality crude shipments via the alternative routes.

Operations review continued

On OML 41 the ongoing focus is the development of the Sapele Shallow field. Following the pause in drilling activities in 2016 and 2017 owing to force majeure conditions at the Forcados terminal Seplat is defining a full development and drilling strategy for Sapele Shallow, which overlies the productive reservoirs in the main Sapele field and is estimated to hold a significant accumulation of oil (around 500 MMbbls STOIIP). 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 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.

2017 activity

Seplat delivered the the Anagba-1 appraisal well on behalf of Operator Pillar Oil Ltd in November 2017. The well was drilled to a final Well TD of 10,777 ftMD depth and successfully encountered oil within a structure that straddles the block boundary with adjacent OML 60 (where the reservoirs are in production). The well confirmed the extension of the productive reservoirs of the Ashaka field, located on adjacent OML 60 (operated by the Nigerian Agip Oil Company Limited), into OPL 283. The successful well will support Pillar in ongoing unitisation discussions with the Nigerian AGIP Oil Company Limited, thereby enabling the OPL 283 partners to share in the Ashaka wells' oil production.

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 ANOH project which is set to be one of the largest greenfield gas condensate development projects in Nigeria to date. The expectation is that future gas production from the ANOH 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

Operations review continued

Ohaji South that could be pursued as a separate standalone project in the near term. Prior to initiating development of the ANOH 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 is designated operator of OML 53.

2017 activity

OML 53, as part of the Assa North - Ohaji South ("ANOH") development is at the core of Seplat's plans to significantly increase gas production and operated processing capacity in the near to medium term. In 2017 the Company made progress towards establishing an incorporated joint venture relationship with government to encompass the midstream element of the project, with an anticipated FID in H1 2018. The upstream development, including the drilling of production wells, will be delivered by the upstream unit operator SPDC.

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.

2017 activity

In accordance with the revised commercial arrangement that was agreed in July 2016, which provides for a discharge sum of US$330 million to be paid to Seplat over a six year period through allocation of crude oil volumes produced at OML 55, Seplat received total payments of US$36 million in the year from the monetisation of 637 kbbls. The 40.00% operated interest in OML 55 continues to be jointly controlled by Seplat and BelemaOil over the period of this arrangement through an Asset Management Team comprising representatives of both parties. The Asset Management Team makes all the key decisions regarding the technical and commercial activities of the underlying asset, and unanimous consent of all parties is required for decision making.

Financial review

The Group continued to benefit from discretion over capital expenditures and in 2017 moderated investments to take account of the interruptions to oil exports at the Forcados terminal in the first half of the year and ensure an adequate liquidity buffer was preserved. The investments made during the year were primarily directed towards the gas business. Following the lifting of force majeure at the Forcados terminal on 6 June full production operations were rapidly restored which enabled the Group to record a sharp improvement in business performance over the second half of the year that translated into a return to profitability and significant balance sheet improvement. In 2018 we will retain discretion over spend, appropriately phase and scale our investment programme taking into account the prevailing operating environment, availability of export terminals, oil price, debt service obligations and the influence of these factors on free cash generation within the underlying business. We will continue to maintain our strict discipline of only allocating capital to the opportunities that offer the greatest returns to deliver shareholder value.

Revenue

While revenues continued to be impacted during the first half of the year due to the shut-in of the Forcados terminal after the terminal operator, Shell Nigeria, declared force majeure between 21 February 2016 and 6 June 2017 following disruption to the Forcados terminal subsea crude export pipeline, the higher oil production following the lifting of force majeure, together with higher oil price realisations, positively impacted oil revenue which stood at US$328 million (after stock movements) for the full year, up 121% year-on-year. Alongside this gas revenue reached a new record of US$124 million, up 18% year-on-year and accounting for 27% of total revenue. Consequently, total revenue for 2017 was up 78% from 2016 at US$452 million.

Working interest liquids production in 2017 stood at 17,853 bopd, up from 10,091 bopd in 2016, whilst the total volume of crude lifted in the year was 6.851 MMbbls compared to 3.422 MMbbls in 2016. Global oil prices remained volatile in 2017, with Brent starting the year around the US$55/bbl level and trading down to a low of around US$45/bbl mid-year. In contrast, over the second half of the year Brent traded steadily up to exit 2017 around US$67/bbl. The Group's realised average oil price of US$50.38/bbl in 2017 was up 25% year-on-year (2016: US$40.4/bbl) and reflects the second half improvement in production and price.

The Group had in place dated Brent put options covering a volume of 3.69 MMbbls to year end at a blended strike price of US$48.38/bbl. The net cost of these instruments in the year was US$19.4 million. The Company has also put in place dated Brent puts covering a further volume of 3.60 MMbbls at a strike price of US$40/bbl during H1 2018 and 3.00 MMbbls at a strike price of US$50/bbl during H2 2018. The board and management 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.

To assist in minimising the impact of disruption to key export infrastructure, the Group made necessary repairs and upgrades on two jetties at the Warri refinery that will enable exports to be increased to a gross level of 30,000 bopd if required in the future. In addition to the Warri and Forcados export routes Seplat is also working with the operator Pan Ocean and NAPIMS (a 100% subsidiary of NNPC) on completion of the 160,000 bopd capacity Amukpe to Escravos pipeline system that will offer a third export route via the Escravos terminal. Seplat plans to tie-in to the new pipeline at the Amukpe location on OML 4. All three export routes are expected to be available in Q3 2018 and the intention is to utilise the multiple export routes to ensure there is adequate redundancy in evacuation routes thereby reducing downtime which has adversely affected the business over a number of years

The higher gas revenue year-on-year was driven by a 20% increase in production to 114.4 MMscfd while the average realised gas price remained relatively stable at US$2.97/Mscf (2016: US$3.03/Mscf). The increase in volume is as a result of the benefit being derived from the Phases I and II expansion of the Oben gas processing facility and production being fully de-constrained following the lifting of force majeure.

Gross profit

Gross profit for the year was US$212 million, an increase of 194% on the prior year (2016: US$72 million). This principally reflects the resumption of full production operations after force majeure was lifted and higher oil price realisations. Direct operating costs which include crude handling fees, barging costs, rig-related costs and Operations & Maintenance costs amounted to US$80 million in 2017 as against US$83 million in 2016. Production costs were fairly flat when compared to prior year even with a significant increase of 77% in production volumes and 20% increase in gas volumes in 2017 when compared to 2016. This resulted from an improved performance in the overall running & maintenance of the production facility in the current year. In addition, the availability of the Forcados terminal from 6 June reduced the reliance on the more expensive and volume constrained barging operation, which was the only export route available during the force majeure period. Non- production costs primarily consisting of royalties and DD&A were US$160 million compared to US$99 million in the prior year. The DD&A charge for oil and gas assets increased during 2017 to US$82 million (2016: US$54 million) reflecting higher depletion of reserves because of the increased production during the year.

Financial review continued

Operating profit

Operating profit for the year was US$112 million compared with a prior year operating loss of US$158 million. Contributing towards the return to operating profitability was a 28% reduction year-on-year in general and administrative expenses which stood at US$82 million (2016: US$114 million). The operating loss reported in 2016 was also driven by a charge of US$101 million relating to unrealised foreign exchange losses principally on amounts owed by our joint venture partner NPDC.

Tax

The pioneer tax incentive granted by Nigerian Investment Promotion Commission for three-year period elapsed at the end of 2015. The Company has prepared its 2017 financial statements including the effect of post pioneer tax status which correspondingly forms the basis of the net tax credits of US$221 million, owing primarily to deferred tax credits of US$224 million, compared to taxation credit of US$6.7 million for the same period in 2016.

The taxation credit is mainly as a result of unutilised capital allowances from accumulated capital expenditure during the pioneer status period. The Group recognises deferred tax assets on unused tax losses and unutilised capital allowances carried forward where it is probable that future taxable profits will be available for utilisation. This requires management to make judgements and assumptions regarding the amount of deferred tax that can be recognised, as well as the likelihood of future taxable profits. The Group reassesses its unrecognised deferred tax asset each year taking into account changes in oil and gas prices, the Group's proven and probable reserve profile and forecast capital and operating expenditures. The deferred tax credit is expected to gradually reverse in subsequent years as the Company makes profit and utilises the capital allowances.

In line with Sections of the Companies Income Tax Act which provides the incentives available to companies that deliver gas utilisation projects, Seplat is entitled to a tax holiday of three years extendable to five years on the new Oben Gas Plant. The Federal Inland Revenue Service was notified in 2017 that there will be a claim on these incentives for the three year period in the first instance.

Net profit

Profit for the period before tax adjustments was US$44 million, compared to a full year loss before tax of US$173 million in 2016. This return to profitability was driven by performance in the third and fourth quarters where net quarterly profit before tax of US$24 million and US$46 million respectively offset the US$26 million loss before tax recorded at mid-year. Net tax credits of US$221 million, owing primarily to the deferred tax credits of US$224 million, increased the overall profit after tax for the year to US$265 million. The resultant EPS for 2017 was US$0.47 compared to an LPS in 2016 of US$0.29.

Dividends

During a period in which Seplat's key focus has been on preservation of liquidity and selective capital allocation to ensure the Company maintains a necessary level of financial flexibility the Board believes that the Company and its shareholders are better served at this point in time by selectively deploying available capital (on a discretionary basis) into the portfolio of production opportunities and preserving a liquidity buffer.

Cash flows and liquidity

Cash flows from operating activities

Net cash flows from operating activities in 2017 stood at US$447 million (2016: US$172 million). The outstanding net NPDC receivable at year end, after offsetting NPDC's share of gas revenues and adjusting for reversal of prior impairment, stood at US$113 million (2016: US$229 million). In 2017, NPDC's net expenditure was US$93 million and Seplat received a total of US$219 million towards the settlement of outstanding cash calls. As a result of this and the settlement of current cash calls the US$10 million impairment provision recognised in 2016 was reversed. Seplat has continued discussions with NPDC to ensure further reduction of outstanding receivables in 2018. Included in the opening receivables balance of US$229 million is US$48 million representing interest on outstanding receivables calculated in line with the provisions of the joint operating agreement.

Cash flows from investing activities

Capital expenditures in 2017 stood at US$33 million and include costs for drilling the Anagba well on OPL 283- US$4 million; Oil facility projects totalling US$2 million including crude oil quality upgrades on our liquid treatment facilities; gas costs including the completion and commissioning of the Oben Phase II processing capacity expansion project - US$4 million, the acquisition of Oben booster compressors - US$6 million; ANOH upstream costs - US$4 million; other ANOH costs of US$10 million associated with plans towards FID and US$2 million for others including fixed assets for plants and other office equipment.

Financial review continued

Having reached agreement in 2016 with partner BelemaOil on a revised commercial arrangement at OML 55, which provides for a discharge sum of US$330 million to be paid to Seplat over a six-year period through allocation of crude oil volumes, the Group received total proceeds of US$36 million in 2017 under this arrangement from the monetisation of 637 kbbls.

Consequently, after adjusting for interest receipts of US$4 million, net cash inflow from investing activities for the full year was US$7 million compared to a net cash outflow in 2016 of US$52 million.

Cash flows from financing activities

Net debt at year-end was US$141million, compared to US$516 million at December 2016. Net cash outflows from financing activities were US$173 million (2016: cash outflow US$283 million). Despite the significant interruptions to oil production prior to lifting of force majeure on 6 June the Group met all of its financing obligations during the year.

The Group continued to adopt a prudent approach to managing the balance sheet in 2017. Having re-profiled the seven-year Term Loan in Q3 2016 the Group announced in July that it had successfully concluded an oversubscribed one year extension of the RCF. The RCF, originally due to expire at the end of 2017, now expires on 31 December 2018 and was successfully amended to amortise the remaining outstanding principal balance of US$150 million at the time in equal instalments over five quarters commencing Q4 2017. Overall, Seplat's aggregate indebtedness under its Term Loan and RCF had reduced by US$422 million at end 2017 from its peak in Q1 2015 of US$1 billion, which is a significant deleveraging of the balance sheet particularly in exceptionally difficult trading conditions.

Net debt at 31 December 2017

* Outstanding balance under the Term Loan and RCF not adjusting for amortised transaction costs of US$8 million

Outlook

Our financial strategy continues to be driven by ensuring we preserve the financial capability and also flexibility that is required to realise the value of our portfolio. Having emerged from an extremely challenging period that saw unprecedented levels of interruption to Seplat's crude oil production, we took proactive steps to stabilise the business and following the resumption of full production operations were able to rapidly return to profitability and strong cash flow generation. Looking ahead our near-term priority is to sustain the earnings and cash flow momentum we have carried into 2018, further strengthen our balance sheet and seek ways to optimise our capital structure prior to selectively reinstating a work programme designed to target the highest cash return production and development opportunities within our current portfolio. In order to mitigate against any longer term over-reliance on a single export infrastructure system, we are working with the owners of the Amukpe to Escravos pipeline to achieve full commissioning and completion of that alternate route in Q3 2018. With line of sight on three independent crude oil export routes becoming available and offering adequate redundant capacity, there is scope to reduce the levels of downtime which have adversely affected the business over a number of years, and significantly de-risk the distribution of oil production to market.  Alongside this we will continue to closely monitor the oil price, implementing our hedging strategy on a rolling basis to provide a level of cash flow assurance, the performance of our productive asset base and the implications these factors have on financial performance over the near, medium and long term allowing us to scale and phase our future investments appropriately while continuing to honour our debt service obligations. We will also continue to prioritise expansion of our domestic natural gas business which provides a constant revenue stream that is de-linked from the oil price, and underpinned by the strong fundamentals of high demand and increasing pricing. Achievement of these goals 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 to further diversify our business as and when they may arise.

General information

Board of directors:

*Madame Nathalie Delapalme acts as alternate Director to Michel Hochard

Report of the directors

For the year ended 31 December 2017

The Directors are pleased to present to the shareholders of the Group their report with the audited financial statements for the year ended 31 December 2017.

Principal activity

The Group 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% 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 US$340 million (N 104 billion) paid at the completion of the acquisition on 31 July 2010 and a contingent payment of US$33 million (N 10 billion) 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 US$80 (N 24,464) per barrel. US$358.6 million (N 110 billion) was allocated to the producing assets including US$18.6 million (N 5.7 billion) as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of US$33 million (N 10 billion) was paid on 22 October 2012.

In 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% Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the 'Umuseti/Igbuku Fields').

On 12 December 2014, Seplat Gas Company Limited ('Seplat Gas') was incorporated as a private limited liability company to engage in oil and gas exploration and production.

In 2015, the Group purchased a 40% participating interest in OML 53, onshore north eastern Niger Delta, from Chevron Nigeria Ltd for US$259.4 million (N 79 billion).

In 2017, the Group incorporated a new subsidiary, ANOH Gas Processing Company Limited. The principal activities of the Company is the processing of gas from OML 53.

The Company together with its six wholly owned subsidiaries namely, Newton Energy, which was incorporated on 1 June 2013, 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, Seplat Gas Company Limited ('Seplat GAS'), which was incorporated on 12 December 2014 and ANOH Gas Processing Company Limited which was incorporated on 18 January 2017 are collectively referred to as the Group.

Report of the directors continued

For the year ended 31 December 2017

Operating results:

Proposed dividend

No dividend was proposed during the year (2016: nil). During a period in which Seplat is focusing on preservation of liquidity and selective capital allocation and in order to ensure the Group maintains a necessary level of financial flexibility, the Board believes that the Group and its shareholders are better served at this point in time by selectively deploying available capital (on a discretionary basis) into the portfolio of production opportunities and preserving a liquidity buffer.

Unclaimed dividend

The total amount outstanding as at 31st December, 2017 is US$236,052.89 and N86,957,768.04. A list of shareholders and corresponding unclaimed dividends is available on the Company's website: www.seplatpetroleum.com.

Changes in property, plant and equipment

Movements in Property, plant and equipment and significant additions thereto are shown in Note 14 to the financial statements. In the opinion of the directors, the market value of the group's property, plant and equipment is not less than the value shown in the financial statement.

Rotation of Directors

In accordance with the provisions of Section 259 of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria ('LFN') 2004, one third of the Directors of the Group 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 (who are referred to as the Non-Executive Directors), all other Directors are appointed for a fixed term. Upon expiration of the terms, they become eligible for re-appointment. The Directors who are eligible for re-appointment this year are Mr. Michael Alexander and Lord Mark Malloch-Brown.

Board changes

The Group announced in March that Stuart Connal retired from his role as COO and executive director effective 31 March 2017. The board, management and all staff would like to thank Mr Connal for his significant contribution to Seplat in the last few years. Stuart's vast expertise remains available to the Group through his continued involvement on a consultancy basis in support of the large scale ANOH gas and condensate project.

The board appointed an Executive Director since the last Annual General Meeting. Effiong Okon was appointed Operations Director effective 23 February 2018. The appointment will be presented to shareholders for approval at the 2018 Annual General Meeting. Effiong brings a wealth of relevant Nigerian and international operational experience from 26 years in the industry with Shell. He is an asset to the board and we look forward to his contribution to the growth of the Company.

The appointment and removal or reappointment of Directors is governed by the Company's Articles of Association and Companies and Allied Matters Act (CAMA) LFN 2004.

Report of the directors continued

For the year ended 31 December 2017

Corporate governance

The Board of Directors of the Group is committed to sound corporate governance, and ensures that the Group complies with Nigerian and UK corporate governance regulations as well as international best practice.

The Board is aware of the Code of Corporate Governance issued by the Securities and Exchange Commission in the administration of the Group and is ensuring that the Group complies with the code. The Board is responsible for keeping proper accounting records with reasonable accuracy. It is also responsible for safeguarding the assets of the Group through the prevention and detection of fraud and other irregularities.

In order to carry out its responsibilities, the Board has established five Board Committees and has delegated aspects of its responsibilities to them. The Committees of the Board and members are as follows:

In addition to these Board Committees, the Group formed a statutory Audit Committee at its 30 June 2014 Annual General Meeting ('AGM') in compliance with Sections 359(3) and (4) of the Companies and Allied Matters Act ('CAMA'). In compliance with CAMA, three shareholder representatives and three Non-Executive Directors are elected at every AGM to sit on the Committee.

All six Committees have terms of reference which were reviewed in line with international best practice. These terms of reference guide the members in the execution of their duties. The terms of reference are available for review by the public. All the Committees present a report to the Board with recommendations on the matters within their purview.

Report of the directors continued

For the year ended 31 December 2017

Record of attendance of board and committee meetings

The Board met six times during the year and at least once every quarter in line with Section 12.1 of the SEC Code. Board meetings were well attended with attendance of all Directors exceeding two-thirds as required by Section 12.2 of the SEC Code. 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

*One meeting attended by alternate Director Madame Nathalie Delapalme

Meeting dates: 25 January, 23 March, 20 April, 1st June, 20 July, and 19 October

Finance Committee

Meeting dates: 24 January, 22 March, 19 April, 19 July, and 18 October

Nomination and Establishment Committee

Meeting dates: 22 March, 19 July, and 18 October

Remuneration Committee

Meeting dates: 24 January, 22 March, 19 July, and 18 October

Report of the directors continued

For the year ended 31 December 2017

Risk Management and HSSE Committee

Meeting dates: 17 January, 10 April, 13 July and 12 October.

Corporate Social Responsibility Committee

Meeting dates: 19 April, 19 July and 18 October.

Statutory Audit Committee

Meeting dates: 22 March, 19 April, 19 July and 18 October.

Report of the directors continued

For the year ended 31 December 2017

Directors' interest in shares

In accordance with Section 275 of the Companies and Allied Matters Act, CAP C20 LFN 2004, 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) are as follows:

Notes:

(1) 16,151,325 ordinary shares are held directly by A.B.C. Orjiako and Shebah Petroleum Development Company Limited; 18,500,000 ordinary shares are held by Vitol Energy Limited for the benefit of 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 A.B.C. Orjiako's siblings.

(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 Austin Avuru. 44,160,000 ordinary shares, are held by Platform Petroleum Limited, which is an entity in which Austin Avuru has a 23% equity interest and 1,249,730 ordinary shares are held by Austin Avuru.

(3) At 1 February, 2018, the issued share capital increased by 25,000,000 shares in furtherance of the Company's Long Term Incentive Plan. Seplat's share capital now consists of 588,444,561 ordinary shares of ₦0.50k each, all with voting rights.

Director's interest in contracts

The Chairman and the Chief Executive Officer have disclosable indirect interest in contracts with which the Group was involved as at 31 December 2017 for the purpose of section 277 of the Companies and Allied Matters Act, CAP C20, LFN, 2004. These have been disclosed in Note 31.

Substantial interest in shares

According to the register of members at 31 December 2017, the following shareholders held more than 5.0% of the issued share capital of the Group:

* CIS PLC- MAIN is made up of the total shareholdings held in the UK by the registrars.

Report of the directors continued

For the year ended 31 December 2017

Free float

The Group's free float at 31 December 2017 was 51.49%

Acquisition of own shares

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

Shareholding analysis

The shareholding pattern as at 31 December 2017 is as stated below: 

Share Capital History

At 1 February, 2018, the issued share capital increased by 25,000,000 shares in furtherance of the Company's Long Term Incentive Plan. Seplat's share capital now consists of 588,444,561 ordinary shares of ₦0.50k each, all with voting rights.

Report of the directors continued

For the year ended 31 December 2017

Donations

The following donations were made by the Group during the year (2016: ₦37,333,000, US$163,482).

Report of the directors continued

For the year ended 31 December 2017

Employment and employees

1) Employees' involvement and training: The Group continues to observe industrial relations practices such as Joint Consultative Committees and briefing employees on the developments in the Group 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 Group will provide appropriate Health, Safety, Security and Environment (HSSE) training to all staff, and Personal Protective Equipment ('PPE') to the appropriate staff.

2) Health, safety and welfare of employees: The Group continues to enforce strict health and safety rules and practices at the work environment which are reviewed and tested regularly. The Group 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 Group's premises. The Group operates a 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.

3) Employment of disabled or physically challenged persons: The Group has a policy of fair consideration of job applications by disabled persons having regard to their abilities and aptitude. The Group's policy prohibits discrimination of disabled persons in the recruitment, training and career development of its employees. As at the end of the reporting period, the Group has no disabled persons in employment.

Auditor

The Auditor, Ernst & Young, has indicated its willingness to continue in office in accordance with Section 357(2) of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria, 2004. A resolution will be proposed for the authorisation to the Board of Directors to fix auditor's remuneration.

By Order of the Board

Dr. Mirian Kene Kachikwu

FRC/2015/NBA/00000010739

Company Secretary,

Seplat Petroleum Development Company Plc

25a Lugard Avenue

Ikoyi

Lagos

Nigeria

Date: 28 February 2018

Statement of directors' responsibilities

For the year ended 31 December 2017

The Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004, requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of financial affairs of the Group at the end of the year and of its profit or loss. The responsibilities include ensuring that the Group:

1. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Group and comply with the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004;

2. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and

3. prepares its financial statements using suitable accounting policies supported by reasonable and prudent 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 Group and of its financial performance and cashflows for the year. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the Directors to indicate that the Group will not remain a going concern for at least twelve months from the date of this statement.

Signed on behalf of the Directors by:

Audit Committee's Report

For the year ended 31 December 2017

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, CAP C20, LFN 2004, members of the Audit Committee of Seplat Petroleum Development Company Plc hereby report on the financial statements of the Group for the year ended 31 December 2017 as follows:

· The scope and plan of the audit for the year ended 31 December 2017 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 28 day of February 2018

Chief Anthony Idigbe, S.A.N.

Chairman, Audit Committee

FRC/2015/NBA/00000010414

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017

Opinion

We have audited the consolidated and separate financial statements of Seplat Petroleum Development Company Plc ("the Company") and its subsidiaries (together "the Group") which comprise:

In our opinion:

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and other independence requirements applicable to performing audits of Seplat Petroleum Development Company Plc. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audit of Seplat Petroleum Development Company Plc. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

Independent auditor's report to the members of Seplat Petroleum Development Company PlcFor the year ended 31 December 2017 - Continued

We have fulfilled the responsibilities described in the auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017 continued

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017 continued

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017 continued

Independent auditor's report to the members of Seplat Petroleum Development Company PlcFor the year ended 31 December 2017 - Continued

Other Information

The directors are responsible for the other information. The other information comprises of the Report of the Directors, Audit Committee's Report, Statement of Directors' Responsibilities and Other National Disclosures, which we obtained prior to the date of this report, and the Annual Report, which is expected to be made available to us after that date. Other information does not include the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, the requirements 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 cfinancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting processes.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017 continued

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Independent auditor's report to the members of Seplat Petroleum Development Company Plc for the year ended 31 December 2017 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:

_____________________________

Bernard Carrena, FCA

FRC/2013/ICAN/00000000670

Partner

For: Ernst & Young

Lagos, Nigeria

28 February 2018

Consolidated financial statements

Statement of profit or loss and other comprehensive income

For the year ended 31 December 2017

Notes 1 to 34 on pages 39 to 103 are an integral part of the financial statements.

Consolidated financial statements

Statement of financial position

As at 31 December 2017

Notes 1 to 34 on pages 39 to 103 are an integral part of the financial statements.

Consolidated financial statements

Statement of financial position Continued

As at 31 December 2017

The Group's financial statements of Seplat Development Company Plc and its subsidiaries for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the Directors on 28 February 2018 and were signed on its behalf by

Consolidated financial statements

Statement of changes in equity

For the year ended 31 December 2017

Notes 1 to 34 on pages 39 to 103 are an integral part of the financial statements.

Statement of changes in equity

For the year ended 31 December 2017