Seplat Energy Regulatory News (SEPL)

Seplat Petroleum Development Company Plc

Interim management statement and consolidated interim financial results for the nine months ended 30 September 2017

Lagos and London, 23 October 2017: Seplat Petroleum Development Company Plc ("Seplat" or the "Company"), a leading Nigerian independent oil and gas company listed on both the Nigerian Stock Exchange and London Stock Exchange, today announces its results for the nine months ended 30 September 2017. Information contained within this release is un-audited and is subject to further review.

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

"I am pleased to report a sharp improvement in Seplat's operational and financial performance which has resulted in a welcome return to profitability during the third quarter. The improved cash flow is translating into a stronger balance sheet and, based on current levels of production and sales, we maintain full year production guidance of 35,000 to 38,000 boepd. Looking ahead, we plan to build on this performance in the coming quarters focusing on regular and predictable revenues as we start to unlock further value from our portfolio of production and development opportunities."

Highlights

Return to profitability in Q3 drives improved financial performance

- Q3 operating profit US$40.9 million (Q3 2016: US$11.7 million operating loss) and net profit US$22.3 million (Q3 2016: US$36.6 million net loss) on quarterly revenue of US$146.7 million (Q3 2016: US$59.7 million)

- 9M operating profit boosted to US$53.2 million (9M 2016: US$53.7 million operating loss) while 9M net loss has narrowed to US$5.3 million (9M 2016: US$97.8 million net loss) on 9M revenue of US$278.6 million (9M 2016: 212.7 million)

- 9M cash generated from operations US$167.1 million (9M 2016: US$108.9 million) versus capex incurred of US$22.5 million (9M 2016: US$29.5 million). 9M average oil price realisation US$46.49/bbl (9M 2016: US$42.82/bbl); average gas price US$3.01/Mscf (9M 2016: US$3.03/Mscf)

Continued to strengthen the balance sheet; reducing net debt and preserving a liquidity buffer

- Net debt at 30 September US$402 million; gross debt US$621 million and cash at bank US$219 million

- NPDC headline receivable at 30 September US$205 million adjusting for FX and interest; net receivable US$195 million after adjusting for impairment due to time value of money

- Extended hedging programme with dated Brent puts covering 3.6 MMbbls at an average strike price of US$40.0/bbl in H1 2018. Q4 2017 hedges comprise dated Brent puts covering 0.85 MMbbls at an average strike price of US$50.0/bbl

Gas business expanding, making a strong ongoing contribution

- 9M gas revenues of US$85.9 million up 11% year-on-year (2016: US$77.4 million); peak daily output reached 352 MMscfd (gross) in Q3. New gas sales agreements being agreed to increase offtake and diversify counterparties

- Significant progress made in formalising an incorporated joint venture relationship between Seplat and government to deliver the 300 MMscfd ANOH gas processing plant. In light of this, Seplat FID will now be aligned with NNPC approvals with both parties expected to take FID within the next three to six months

Working interest production for the third quarter and first nine months of 2017(1)

- Q3 working interest production within guided range; full year working interest production guidance of 17,000 to 19,000 bopd and 105 to 115 MMscfd (or 35,000 to 38,000 boepd) is maintained

- Uptime on the Trans Forcados System during Q3 was 84%; average reconciliation losses in Q3 significantly reduced to below 3% from previous average of around 10%

- Amukpe to Escravos pipeline commercial contracts in advanced stage with scope of work and costs of connection to the terminal agreed. The pipeline will be under joint management between the pipeline owners Pan Ocean/NAPIMS and the Seplat/NPDC JV. Timetable slightly delayed to ensure that tie-in works are fully funded prior to commencement which is now anticipated before the end of 2017. The pipeline is expected to be commissioned in H1 2018

(1) Liquid production volumes as measured at the LACT unit for OMLs 4, 38 and 41 and OPL 283 flow station. Volumes stated are subject to reconciliation and will differ from sales volumes within the period.

Important notice

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

Certain statements included in these results contain forward-looking information concerning Seplat's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which Seplat operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within Seplat's control or can be predicted by Seplat. Although Seplat believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. Actual results and market conditions could differ materially from those set out in the forward-looking statements. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Seplat or any other entity, and must not be relied upon in any way in connection with any investment decision. Seplat undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

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, farm-in opportunities and future licensing rounds. For further information please refer to the company website, http://seplatpetroleum.com/

Interim Condensed Consolidated Financial Statements (Unaudited) for the third quarter ended 30 September 2017 expressed in Naira ('NGN')

Interim condensed consolidated statement of profit or loss and other comprehensive income

for the third quarter ended 30 September 2017

Interim condensed consolidated statement of financial position

As at 30 September 2017

Interim condensed consolidated statement of financial position continued

As at 30 September 2017

The financial statements on pages 5 to 28 were approved and authorised for issue by the board of directors on 23 October 2017 and were signed on its behalf by

Interim condensed consolidated statement of changes in equity continued

for the third quarter ended 30 September 2017

Interim condensed consolidated statement of cash flow

for the third quarter ended 30 September 2017

Notes to the interim condensed consolidated financial statements

1. 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 Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004. The Company commenced operations on 1 August 2010. The Company is principally engaged in oil and gas exploration and production.

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

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 are located in Nigeria. The total purchase price for these assets was US$340 million paid at the completion of the acquisition on 31 July 2010 and a contingent payment of US$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 US$80 per barrel. US$358.6 million was allocated to the producing assets including US$18.6 million as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of US$33 million 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 percent Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the ''Umuseti/Igbuku Fields'').

On 27 March 2013, Seplat Energy Limited ("Seplat Energy") was incorporated. The principal activities of the Company is the exploration, development and transportation of petroleum products and Seplat Gas Company Limited ("Seplat Gas") was incorporated on 9 December 2013 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.

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 subsidiary, Newton Energy, and six 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, Seplat Gas Company Limited ('Seplat GAS'), which was incorporated on 12 December 2014, Seplat Energy Limited ('Seplat Energy'), which was incorporated on 27 March 2013 and ANOH Gas Processing Company Limited which was incorporated on 18 January 2017 are collectively referred to as the Group.

Notes to the interim condensed consolidated financial statements continued

2. Significant changes in the current reporting period

During the reporting period ended 30 September 2017, the Group renegotiated its lending arrangements resulting in a twelve month extension of its revolving credit facility till 31 December 2018. Force majeure was also lifted in the period and as a result the Group significantly increased its production volumes. The Group continued its efforts towards securing alternative evacuation routes to ensure sustained growth in production volumes.

Resumption of exports via the Forcados terminal, has strengthened the Group's financial performance and position during the period ended 30 September 2017.

3. Summary of significant accounting policies

3.1 Introduction to summary of significant accounting policies

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards which are set out below.

3.2 Basis of preparation

i) Compliance with IFRS

The interim condensed consolidated financial statements of the Group for the third quarter reporting period ended 30 September 2017 have been prepared in accordance with accounting standard IAS 34 Interim financial reporting.

ii) Historical cost convention

The financial information has been prepared under the going concern assumption and historical cost convention, except for contingent consideration, other asset and financial instruments on initial recognition measured at fair value. The historical financial information is presented in Nigerian Naira and all values are rounded to the nearest million (₦'m) except when otherwise indicated. The accounting policies are applicable to both the Company and Group.

iii) Going concern

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 these financial statements.

iv) New and amended standards adopted by the Group

There were a number of new standards and amendments to standards that are effective for annual periods beginning after 1 January 2017; the Group has adopted these new or amended standards in preparing the interim condensed consolidated financial statements. The nature and impact of the new standards and amendments to the standards are described below.

Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

a) Disclosure initiative - Amendments to IAS 7

The Group is now required to explain changes in their liabilities arising from financing activities. This includes changes arising from cash flows (e.g. drawdowns and repayments of borrowings) and non-cash changes such as acquisitions, disposals, accretion of interest and unrealised exchange differences.

Changes in financial assets are included in this disclosure if the cash flows were, or are, included in cash flows from financing activities. This is the case, for example, for assets that hedge liabilities arising from financing liabilities.

The Group may include changes in other items as part of this disclosure, for example by providing a 'net debt' reconciliation. However, in this case the changes in the other items are disclosed separately from the changes in liabilities arising from financing activities.

Notes to the interim condensed consolidated financial statements continued

The Group discloses this information in tabular format as a reconciliation from opening and closing balances, but may adopt a different format as the standard does not mandate a specific format.

The Group discloses this information in Note 17.

v) New standards, amendments and interpretations not yet adopted

The Group has the following updates to information provided in the last annual financial statements about the standards issued but not yet effective that may have a significant impact on the Group's consolidated financial statements.

a. Amendments to IFRS 2 Share-based payments

In June 2016, the IASB made amendments to IFRS 2 Share-based payments which clarified the effect of vesting conditions on the measurement of cash-settled share-based payment transactions, the classification of share-based payment transactions with net settlement features and the accounting for a modification of the terms and conditions that changes the classification of the transaction from cash-settled to equity-settled.

The amendments are effective for reporting periods beginning on or after 1 January 2018. The Group will adopt the amendments from 1 January 2018.

b. IFRS 9 Financial Instruments

IFRS 9 Financial instruments addresses the classification, measurement and de-recognition of financial assets and financial liabilities, the standard introduces new rules for hedge accounting and a new impairment model for financial assets. The Group has decided not to adopt IFRS 9 until it becomes mandatory on 1 January 2018.

The Group has completed a detailed assessment of the impact of the new standard on the classification and measurement of its financial assets. From the results, the Group does not expect the new guidance to have a significant impact on the classification and measurement of its financial assets for the following reason:

· All of the Group's financial assets are currently classified as loans and receivables and are measured at amortised cost and will satisfy the conditions for classification at amortised cost under IFRS 9.

There will be no impact on the Group's accounting for financial liabilities, as the new requirements only affect accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have such liabilities. The de-recognition rules have been transferred from IAS 39 Financial Instruments: Recognition and Measurement and have not been changed. The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group's risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group does not expect a significant impact on the accounting for its hedging relationships as a result of the adoption of IFRS 9, as they have not formally elected to apply hedge accounting.

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at fair value through OCI (FVOCI), contract assets under IFRS 15: Revenue from Contracts with Customers and lease receivables. Based on assessments undertaken on the Group's portfolio of NPDC receivables, it estimates that had the new principles been adopted as at 1 January 2017, there would have been an increase to its loss allowance for NPDC receivables of approximately N1.2 billion (US$4 million) at that date and retained earnings would decrease by the same amount.

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group's disclosures about its financial instruments particularly in the year of the adoption of the new standard.

c. IFRS 15 Revenue from contracts with customers

The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers revenue arising from the sale of goods and the rendering of services and IAS 11 which covers construction contracts.

The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. It introduces a five step model approach to recognising income.

Notes to the interim condensed consolidated financial statements continued

The standard permits either a full retrospective or a modified retrospective approach for the adoption. The new standard is effective for first interim periods within annual reporting periods beginning on or after 1 January 2018. The Group will adopt the new standard from 1 January 2018.

Management has identified the following areas to be affected:

· Accounting for under lifts and over lifts: IFRS 15 is applicable only if the counterparty to the contract is a customer. The standard defines a customer as a party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities. IFRS 15 makes a distinction between customers and partners or collaborators who share in the risks and benefits that result from the activity or process. If the over-lifter does not meet the definition of a customer or the transaction is a non-monetary exchange, then over lifts and under lifts will not be recognised as revenue from contracts with customers. If the Group were to adopt the new principles as at 1 January 2017, it estimates that revenue would have reduced by N5 billion (US$16 million) and other operating income would have increased by the same amount.

· Accounting for consideration payable to the customer: The standard requires that an entity accounts for consideration payable to a customer as a reduction of the transaction price and, therefore, net of revenue unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to the entity. The Group incurs barging costs in the course of the satisfaction of its performance obligations i.e. delivery of crude oil and gas. These costs do not transfer any distinct good or service to Seplat and as such represent consideration payable to customer and will be accounted for as a direct deduction from revenue. If the Group had adopted the new principles as at 1 January 2017, revenue would have reduced by an additional N5.5 billion (US$18 million) as a result of barging costs.

· Presentation of contract assets and contract liabilities on the balance sheet - IFRS 15 requires separate presentation of contract assets and contract liabilities on the balance sheet. This will result in some reclassifications as of 1 January 2018 in relation to advances for future oil sales which are currently included in deferred revenue.

d. IFRS 16 Leases

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change.

The standard will affect primarily the accounting for the Group's operating leases. As at the reporting date, the Group had non-cancellable operating lease commitments of N107 million ($0.35 million). The Group has determined that these lease commitments will result in the recognition of an asset and a liability for future payments. However, the extent of the impact is yet to be quantified.

Some of the commitments may be covered by the exception for short-term leases, while none of the leases will be covered by the exception for low value leases. Some commitments may relate to arrangements that will not qualify as leases under IFRS 16, principally because they have previously been identified as service contracts.

The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. At this stage, the Group does not intend to adopt the standard before its effective date.

3.3 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 September 2017.

This basis is the same adopted for the last audited financial statements as at 31 December 2016.

3.4 Functional and presentation currency

The Group's financial statements are presented in United States Dollars, which is also the Company's functional currency and the Nigerian Naira as required by the Financial Reporting Council of Nigeria. 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.

Notes to the interim condensed consolidated financial statements continued

i) 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 such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

ii) Group companies

The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet

· income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and

· all resulting exchange differences are recognised in other comprehensive income.

On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

4. Segment reporting

Segment reporting has not been prepared as the Group operates one segment, being the exploration, development and production of oil and gas related products located in Nigeria. Operations in the different OMLs are integrated due to geographic proximity, the use of shared infrastructure and common operational management.

5. Significant accounting judgements, estimates and assumptions

5.1 Judgements

Management's judgements at the end of the third quarter are consistent with those disclosed in the recent 2016 Annual financial statements. The following are some of the judgements which have the most significant effect on the amounts recognised in this consolidated financial statements.

i) OMLs 4, 38 and 41

OMLs 4, 38, 41 are grouped together as a cash generating unit for the purpose of impairment testing. These three

OMLs are grouped together because they each do not independently generate cash flows. They currently operate as a single block sharing resources for the purpose of generating cash flows. Crude oil and gas sold to third parties from these OMLs are invoiced together.

ii) Advances on investment (note 19)

The Group considers that the advances on investment of ₦20 million (2016: ₦20 million) in relation to the acquisition of additional assets is fully recoverable in accordance with the terms of the deposit.

Notes to the interim condensed consolidated financial statements continued

5.2 Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are disclosed in the most recent 2016 annual financial statements.

The following are some of the estimates and assumptions made.

i) 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 reorganisation 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.

Management has made certain assumptions about the recoverability of financial assets exposed to credit risk from NPDC. These are based on management's past experiences with NPDC, current discussions with NPDC and financial capacity of NPDC. However, wherever these assumptions do not hold, it might have a significant impact on the Group's profit or loss in future.

ii) Defined benefit plans

The cost of the defined benefit retirement plan and the present value of the retirement obligation are determined at the end of the financial year 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. Service and interest costs are recognised at each reporting period based on an estimate of the periodic benefit expense for the financial year.

The defined benefit obligation recognised in this period has been based on the same assumptions as in the previous financial year. The subsequent financial year end balance was estimated as at 31 December 2016 and has been recognised in this third quarter on a pro rata basis. Therefore, no actuarial gains or losses have been recognised given that last year's assumptions have been adopted.

iii) Contingent consideration

The fair value of the contingent consideration arrangement of N4.1 billion (US$13.4 million) was estimated calculating the present value of the future expected cash flows. Refer to note 24 for further details.

6. Financial risk management

6.1 Financial risk factors

The Group's activities expose it to a variety of financial risks such as market risk (including foreign exchange risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Group's risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out by the treasury department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.

Notes to the interim condensed consolidated financial statements continued

6.1.1 Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due.

The Group uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are sufficient cash resources to meet operational needs. Cash flow projections take into consideration the Group's debt financing plans and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest bearing current accounts, time deposits and money market deposits.

The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities with agreed maturity periods. The table has been drawn based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Group can be required to pay.

Notes to the interim condensed consolidated financial statements continued

Notes to the interim condensed consolidated financial statements continued

6.2 Fair value measurements

Financial instruments measured at fair value were based on the same assumptions as determined in the 31 December 2016 financial statements. The judgements and estimates made by the Group in determining the fair values of the financial instruments have remained the same since the last annual financial report. There were no transfers of financial instruments between fair value hierarchy levels during this third quarter.

Notes to the interim condensed consolidated financial statements continued

7. Revenue

The major off-taker for crude oil is Mercuria. The major off-taker for gas is the Nigerian Gas Company.

In the prior period to 30 September 2016, realised fair value losses on crude oil hedges of N2.3 billion were included in revenue. This is now classified under fair value loss (note 12)

8. Cost of sales

9. General and administrative expenses

Directors' emoluments have been split between executive and non-executive directors. There were no non-audit services rendered by the Group's auditors during the period. Other general expenses relate to costs such as office maintenance costs, telecommunication costs, logistics costs and others. Share based payment expenses are included in the employee benefits expense.

Notes to the interim condensed consolidated financial statements continued

10. Loss on foreign exchange - net

This is principally as a result of translation of naira denominated monetary assets and liabilities.

11. Gain on deconsolidation of subsidiary

Gain on deconsolidation arose in 2016 as a result of the deconsolidation of BelemaOil. The sum of assets and liabilities derecognised amounted to N76.08 billion. On derecognition, Seplat recognised a right to receive a discharge sum of N100 billion fair valued at N76.28 billion (note 18).

12. Fair value loss

Realised fair value losses on crude oil hedges represent the payments for crude oil price options, while unrealised fair value losses represent losses on crude oil price hedges charged to profit or loss. Fair value loss on contingent consideration arises in relation to remeasurement of contingent consideration on the Group's acquisition of participating interest in its OML 53. The contingency criteria are the achievement of certain production milestones. Fair value gain on other assets arises from the fair value remeasurement of the Group's rights to receive the discharge sum of N94 billion (US$308 million).

13. Finance income/ (costs)

Notes to the interim condensed consolidated financial statements continued

14. Taxation

Income tax expense is recognised based on management's estimate of the weighted average effective annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the period to 30 September 2017 is 65.75% for crude oil activities and 30% for gas activities. As at 31st December 2016, the tax rates were 65.75% and 30% for crude oil and gas activities respectively.

Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of N73 billion (2016: N58 billion) in respect of temporary differences amounting to N111 billion (2016: N89 billion). Out of this, deferred tax asset of N10 billion (2016: N14 billion) relates to tax losses of N15 billion (2016: N22 billion). There are no expiration dates for the tax losses.

15. Loss/earnings per share (LPS/EPS)

BasicBasic LPS/EPS is calculated on the Group's (loss)/profit after taxation attributable to the parent entity and on the basis of the weighted average of issued and fully paid ordinary shares at the end of the period.

DilutedDiluted LPS/EPS is calculated by dividing the (loss)/profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (arising from outstanding share awards in the share based payment scheme) into ordinary shares.

16. Dividend

Notes to the interim condensed consolidated financial statements continued

17. Interest bearing loans & borrowings

Below is the net debt reconciliation on interest bearing loans and borrowings.

18. Other asset

Other asset represents the Group's rights to receive the discharge sum of N94 billion (2016: N100 billion) from the crude oil reserves of OML 55.The asset is measured at fair value through profit or loss (FVTPL) and receipts from crude oil lifted reduce the value of the asset. At each reporting date, the fair value of the discharge sum is determined using the income approach in line with IFRS 13: Fair Value Measurement. As at 30 September 2017, the fair value of the discharge sum is N70 billion (2016: N76 billion)

19. Trade and other receivables

19a. Trade receivables:

Included in trade receivables is an amount due from Nigerian Gas Company (NGC) of N26 billion (2016: N20 billion) with respect to the sale of gas.

Notes to the interim condensed consolidated financial statements continued

19b. NPDC receivables: 

NPDC receivables represent the outstanding cash calls due to Seplat from its JV partner, Nigerian Petroleum Development Company. The receivables have been discounted to reflect the impact of time value of money, and an impairment loss has been recognized in the financial statements. As at 30 September 2017, the undiscounted value of this receivable is N63 billion (2016: N72 billion).

19c. Advances on investment:

This comprises an advance of N13.8 billion (2016: N13.8 billion) on a potential investment in OML 25 and N6 billion (2016: N6 billion) currently held in an escrow account. Proceedings commenced against Newton Energy Limited, a wholly owned subsidiary of Seplat Plc by Crestar Natural Resources relating to the N6 billion (2016: N6 billion) currently held in an escrow account. The escrow monies relate to the potential acquisition of OML 25 by Crestar which Newton Energy has an option to invest into. These monies were placed in escrow in July 2015 pursuant to an agreement reached with Crestar and the vendor on final terms of the transaction.

20. Share capital

20a. Authorised and issued share capital

20b. Employee share based payment scheme

As at 30 September 2017, the Group had awarded shares of 25,726,262 (31 December 2016: 25,448,071 shares) to certain employees and senior executives in line with its share based incentive scheme. During the third quarter ended 30 September 2017 no shares were vested (31 December 2016: 2,868,460 shares had vested, resulting in an increase in number of issued and fully paid ordinary shares of 50k each from 561 million to 563 million).

21. Trade and other payables

Included in accruals and other payables are field-related accruals N10.6 billion (2016: N10.7 billion) and other vendor payables of N22.6 billion (2016: N14.9 billion). Deferred revenue includes advance payments for crude oil sales of N23 billion (2016: N10 billion) and royalties include accruals in respect of gas sales for which payment is outstanding at the end of the period.

Notes to the interim condensed consolidated financial statements continued

22. Computation of cash generated from operations

23. Related party relationships and transactions

The Group is controlled by Seplat Petroleum Development Company Plc (the 'parent Company'). As at 30 September 2017, the parent Company is owned 8.39% either directly or by entities controlled by A.B.C. Orjiako ('SPDCL BVI') and members of his family and 13.15% either directly or by entities controlled by Austin Avuru ('Professional Support Limited' and 'Platform Petroleum Limited'). The remaining shares in the parent company are widely held.

23a. Related party relationships

The services provided by the related parties:

Abbeycourt Trading Company Limited: The Chairman of Seplat is a director and shareholder. The company provides diesel supplies to Seplat in respect of Seplat's rig operations.

Abtrust Integrated Services: The Chief Executive Officer of Seplat's wife is a shareholder and director. The company provides bespoke gift hampers to Seplat.

Berwick Nigeria Limited: The Chairman of Seplat is a shareholder and director. The company provides construction services to Seplat in relation to a field base station in Sapele.

Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): Is owned by common shareholders with the parent Company. The company provides drilling rigs and drilling services to Seplat.

Charismond Nigeria Limited: The sister to the CEO works as a General Manager. The Company provides administrative services including stationary and other general supplies to the field locations.

Helko Nigeria Limited: The Chairman of Seplat is shareholder and director. The company owns the lease to Seplat's main office at 25A Lugard Avenue, Lagos, Nigeria.

Notes to the interim condensed consolidated financial statements continued

Keco Nigeria Enterprises: The Chief Executive Officer's sister is shareholder and director. The company provides diesel supplies to Seplat in respect of its rig operations.

Montego Upstream Services Limited: The Chairman's nephew is shareholder and director. The company provides drilling and engineering services to Seplat.

Nabila Resources & Investment Ltd: The Chairman's in-law is a shareholder and director. The company provides lubricant to Seplat.

Ndosumili Ventures Limited: Is a subsidiary of Platform Petroleum Limited. The company provides transportation services to Seplat.

Neimeth International Pharmaceutical Plc: The Chairman of Seplat is also the chairman of this company. The company provides medical supplies and drugs to Seplat, which are used in connection with Seplat's corporate social responsibility and community healthcare programmes.

Nerine Support Services Limited: Is owned by common shareholders with the parent Company. Seplat leases a warehouse from Nerine and the company provides agency and contract workers to Seplat.

Oriental Catering Services Limited: The Chief Executive Officer of Seplat's spouse is shareholder and director. The company provides catering services to Seplat at the staff canteen.

ResourcePro Inter Solutions Limited: The Chief Executive Officer of Seplat's in-law is its UK representative. The company supplies furniture to Seplat.

Shebah Petroleum Development Company Limited (BVI): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). SPDCL (BVI) provided consulting services to Seplat.

The following transactions were carried by Seplat with related parties:

23b. Related party relationships

Notes to the interim condensed consolidated financial statements continued

* Nerine charges an average mark-up of 7.5% on agency and contract workers assigned to Seplat. The amounts shown above are gross i.e. it includes salaries and Nerine's mark-up. Total costs for agency and contracts during the third quarter ended 30 September 2017 is N1.1 billion.

23c. BalancesThe following balances were receivable from or payable to related parties as at 30 September 2017:

Notes to the interim condensed consolidated financial statements continued

24. Commitments and contingencies

24a. Operating lease commitments - Group as lesseeThe Group leases drilling rigs, buildings, land, boats and storage facilities. The lease terms are between 1 and 5 years. The operating lease commitments of the Group as at 30 September 2017 are:

24b. Contingent consideration

As part of the purchase agreement of OML 53, a portion of the consideration is contingent on the performance of the producing asset. There will be additional cash payments to the previous owners should the oil price rise above US$90/bbl in the three year period following the acquisition date.

The fair value of the contingent consideration determined at 31 December 2016 reflects the current and projected crude oil prices, amongst other factors and a fair value adjustment has been recognised in profit or loss.

A reconciliation of the fair value of the contingent consideration liability is provided below:

24c. Contingent liabilities

The Group is involved in a number of legal suits as defendant. The estimated value of the contingent liabilities for the period ended 30 September 2017 is N53 billion (2016: N4.7 billion). No provision has been made for this potential liability in these financial statements. Management and the Group's solicitors are of the opinion that the Group will suffer no loss from these claims.

25. Events after the reporting period

There was no significant event after the reporting date which could have a material effect on the state of affairs of the Group as at 30 September 2017 and on the profit or loss for the third quarter ended on that date, which have not been adequately provided for or disclosed in these financial statements.

Notes to the interim condensed consolidated financial statements continued

26. Compliance with FRC Rule 1

In compliance with the regulatory requirement in Nigeria that the CFO, who signs the Annual Report and Accounts, must be a member of a professional accountancy body recognised by an Act of the National Assembly in Nigeria, the CFO of Seplat, Roger Brown, has been granted a waiver by the Financial Reporting Council of Nigeria to sign the accounts of the Group.

27. Reclassification

Certain comparative figures have been reclassified in line with the current year's presentation.

28. Exchange rates used in translating the accounts to Naira

The table below shows the exchange rates used in translating the accounts into Naira.

Interim Condensed Consolidated Financial Statements (Unaudited) for the third quarter ended 30 September 2017 Expressed in US Dollars ('USD')

Interim condensed consolidated statement of profit or loss and other comprehensive income

for the third quarter ended 30 September 2017