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Seplat Petroleum Development Company plc - Annual Report and Notice of AGM
1 May 2015
Seplat Petroleum Development Company plc confirms it has posted its Annual Report and Accounts for the year ended 31 December 2014 to shareholders together with the notice of the 2015 Annual General Meeting (AGM) and forms of proxy. The Company will hold its AGM at 11 a.m. (local time) on Tuesday 2 June 2015 at The Civic Centre, Ozumba Mbadiwe Road, Victoria Island, Lagos, Nigeria.
In accordance with Listing Rule 14.3.6 copies of the Company's Annual Report and Accounts for the year ended 31 December 2014, the Notice of AGM and proxy forms have also been submitted to the FCA for publication through the document viewing facility of the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.
In accordance with Disclosure and Transparency Rule 6.3.5R(3), copies of the Annual Report and Accounts for the year ended 31 December 2014, including the notice of AGM, are available on the Company's website, www.seplatpetroleum.com.
The Appendices to this announcement contains the following additional information which has been extracted from the 2014 Annual Report for the purposes of compliance with DTR 6.3.5 only:
· the Directors' Responsibilities Statement
· a description of principal risks and uncertainties that the Company faces; and
· related party transactions
This announcement should be read in conjunction with and is not a substitute for reading the full 2014 Annual Report. Page and note references in the text below refer to page numbers and notes in the 2014 Annual Report and terms defined in that document have the same meanings in these extracts.
Enquiries:
Seplat Petroleum Development Company Plc
Roger Brown, CFO
Andrew Dymond, Head of Investor Relations +44 (0) 203 725 6500
Chioma Nwachuku, GM - External Affairs and Communications +234 12 770 400
FTI Consulting
Ben Brewerton / Sara Powell / George Parker - +44 (0) 203 727 1000
seplat@fticonsulting.com
Appendices
Appendix A: Statement of Directors' responsibilities
The following Statement of Directors' responsibilities is extracted from the 2014 Annual Report and Accounts (page 104).
The Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004, requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of financial affairs of the Company at the end of the year and of its profit or loss. The responsibilities include ensuring that the Company:
a) keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company and comply with the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004;
b) establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and
c) prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements 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 judgements and estimates, in conformity with International Financial Reporting Standards (IFRS), the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and Financial Reporting Council of Nigeria Act, No 6, 2011.
Each of the Directors, whose names and functions appear on page 197 of this Annual Report, confirm that, to the best of their knowledge:
1. The financial statements give a true and fair view of the assets, liabilities, financial position and profit of the Company;
2. The Strategic Report and the Directors' Report contained in this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces; and
3. This Annual Report, taken as a whole, is fair, balanced and understandable, and provides the necessary information for shareholders to assess the Company's performance, business model and strategy.
Nothing has come to the attention of the Directors to indicate that the Company will not remain a going concern for at least 12 months from the date of this statement.
Signed on behalf of the Directors by
Ambrosie Bryant Chukwueloka Orjiako
Chairman
FRC/2013/IODN/00000003161
Date: 30 March 2015
Ojunekwu Augustine Avuru
Chief Executive Officer
FRC/2013/IODN/00000003100
Date: 30 March 2015
Appendix B: Principal risks and uncertainties
The following Principal risks and uncertainties table is extracted from the 2014 Annual Report and Accounts (pages 44 to 47).
Monitoring and mitigating risks to the business
The implementation of our strategy can be hindered by various risks and uncertainties.
The risks that the Board considers most significant are described here.
Key risk | Description | Mitigation | KPI/Performance metric | Strategic pillars |
Operational risks | ||||
Field operations andwell deliverability
| Failure to manage operational activities in line with budgeted expectations can lead to production misses, project delays and cost over-runs, high production costs and earlier than expected field decommissioning. | Drilling Smart wells to improve recovery. Manage contracting process and improved JV partner and regulatory authority engagement to mitigate protracted rig start-up. Improved rig performance monitoring and spares management. Better integration of oil and gas development plans to allocate capital spend.
| Net working interest production; operating costs per boe. | 1, 2, 3 |
Third partyinfrastructuredowntime
| An over-reliance on third party operated transportation infrastructure can expose the Company to extended period of production being shut-in.
| Develop alternative routes for crude evacuation to reduce dependency on major export route. Explore alternative arrangements for direct supply for in-country consumption versus exportation. | Net working interest production; EBIT; Days downtime. | 1,3 |
HSSE risks
| As activity levels continue to increase there is a strong focus on preventing major environmental, health and safety incidents.
| Monitoring and reporting of HSSE Scorecard at management leadership level at Board level.
Focus on HSSE training and deployment of new initiatives for HSSE prevention. Emergency Response plan set for any eventuality. | HSSE scorecards. Focus on LTIR; TRIR. | 1, 2, 5 |
Sustained E&A programme failure
| Exploration and appraisal activities carry significant levels of subsurface risk. Sustained E&A drilling failure will impact the Company's ability to organically replace reserves and production.
| Strict compliance with reservoir management guidelines. Building internal capacity with skilled sub-surface expertise. | Reserve replacement ratio. | 1, 2, 3 |
External risks | ||||
Security incidents | The Company operates in a region where security incidents such as kidnappings and criminal attacks can occur. | Continuous security monitoring and intelligence. Quick mechanism for security advisory to staff and movement restriction for high alert situations. | LTIR; TRIR; Net working interest production. | 1, 2, 5 |
Failure to manage stakeholder relationships | The Company prioritises the effective management of relationships with all stakeholders including government, host communities, regulatory bodies and shareholders. | Identified `Seplat way' in host communities engagement with periodic feedback forums.
Tailored CSR programmes and community partnerships to foster working relationship.
Organisational focus and clear strategy to deliver shareholder value pursued by the Board and management. | Net working interest production; LTIR; TRIR. | 1, 3, 5 |
Geo-political risk | Nigeria has at times in its history faced political uncertainties and threats such as terrorism aimed at de-stabilising and undermining the orderly and effective rule of central government. | Scenarios and response options plan set. Crisis management team over the high alert political periods. Business continuity plans actioned in light of current geo-political situation. | Occurrences of civil unrest and terrorism. | 1, 3, 5 |
Financial risks | ||||
Oil price volatility | Oil prices have exhibited a history of volatility and can move sharply up or down. | Price sensitisation on business plan and project economics used for capital projects sanctioning with increased focus on cost reduction. Hedging strategies under consideration for future price volatility management.
| Realised oil price; EBIT; Operating cash flow. | 1 |
Changes to tax status and legislation | If the tax regime and legislation under which the Company operates its assets were to change profitability may be impacted, either positively in the event of tax incentives or negatively in the event of tax increases or removal of incentives. | Evaluation of business plan and performance metrics exclusive of any tax benefits. Project economics determined exclusive of tax impact to mitigate impact of any potential tax status change. Impact assessment of potential tax legislature monitored at Board level. | Net working interest production; Operating cash flow. | 1, 3 |
Availability of capital | The oil and gas industry is highly capital intensive. Significant amounts of capital may be required to continue the development of existing and new fields and fund the cost of acquiring and farming-in to new blocks. | Board review and approval of financial strategy and debt refinancing arrangements with strong banking relationships. | Capital expenditures; Net working interest production; Reserves replacement ratio; New acquisitions and farm-ins. | 1, 3, 4 |
Ineffective cost control | Increasing operating cost and ineffective capital cost control reducing operating cash flows and profitability. | Comprehensive budgeting process approved by the Joint Venture partner and the Board. Clear cost management targets. Grading of portfolio opportunities and project ranking for capital allocation. Lower well cost campaign. Focus on effective contracting strategies for cost reduction. | Operating cost per boe; EBIT; Capital expenditure; Well costs. | 1, 3, 5 |
Strategic risks | ||||
Portfolio concentration risk | High dependency on a concentrated portfolio of producing blocks, limited number of wells or single transportation system can leave the Company more susceptible to interruptions or field under-performance. | Focus on acquisition strategy from the Board level to diversify current portfolio. Integrated long-term planning on crude oil and gas business. | Portfolio expansion through the successful execution of new acquisition and farm-in opportunities. | 1, 3 |
Bribery and corruption risk | Bribery and corruption presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. | Extensive training on anti-bribery and corruption. Embedding corporate governance principles with key focus on all stages of the contracting and procurement process with supplier due diligence. | Whistleblowing reports; Number of disciplinary cases. | 1, 2, 3, 4, 5 |
Loss of key employees | The oil and gas industry is very specialised in certain areas and there is a requirement for highly skilled and experienced personnel in core areas to ensure effective delivery of projects and financial and commercial management. There is also increasing competition within the industry to secure talent. | Annual benchmark reviews to ensure competitiveness in reward and recruitment. Succession planning in place as part of business continuity. Focus on training as a key differentiating factor in the operating environment. | Staff turnover. | 1, 3, 4 |
Fraudulent activity risk | Fraudulent activity presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. | Extensive whistleblowing campaign. Continuous monitoring of internal controls systems by all lines of defence with strong internal audit activity. | Number of reported cases. | 1, 2, 3, 4, 5 |
Information security risk | Potential cyber attacks, database corruption and information security breaches could result in loss of sensitive proprietary information, communication disruption across operations and business continuity disruption. | Ongoing monitoring and regular upgrading of the Company's information technology and security systems. A clearly defined employee user policy and control of access rights. | Cyber attack identification and containment reports. | 5 |
Appendix C: Related Party Transactions
The following Related party relationships and transactions are extracted from the 2014 Annual Report and Accounts (pages 135 to 138).
Related party relationships and transactions
The following companies are common control entities as the companies are controlled by close family members:
- Abbeycourt Petroleum Company Limited
- Abbeycourt Trading Company Limited
- Abtrust Integrated Services
- Berwick Nigeria Limited
- Cardinal Drilling Nigeria Limited
- Charismond Nigeria Limited
- D. D. Dodo & Co
- Helko Nigeria Limited
- Keco Nigeria Enterprises
- Montego Upstream Services Limited
- Nabila Resources & Investment Limited
- Ndosumili Ventures Limited
- Neimeth International Pharmaceutical Plc
- Nerine Support Services Limited
- Oriental Catering Services Limited
- Platform Petroleum Limited
- ResourcePro Inter Solutions Limited
- Shebah Exploration and Production Company Limited (SEPCOL)
Services provided by the related parties:
Abbeycourt Petroleum Company Limited: The Chairman of Seplat is a director and shareholder. The company provides consultancy services to Seplat in relation to business development opportunities and new acquisitions.
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 a company under common control. The company provides drilling rigs and drilling services to Seplat.
Charismond Nigeria Limited:The Chief Executive Officer's sister works at Charismond as a general manager. The company provides bespoke gift hampers to Seplat.
D. D. Dodo & Co: The owner is an Independent Non-Executive Director of Seplat and also a partner of the law firm that provided legal services of $0.59 million to the Company (2013: nil).
Helko Nigeria Limited: The Chairman of Seplat is a shareholder and director. The company owns the lease to Seplat's main office at 25A Lugard Avenue, Lagos, Nigeria.
Keco Nigeria Enterprises: The Chief Executive Officer's sister is a 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 a 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 a company under common control. 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.
Platform Petroleum Limited:The Chief Executive Officer of Seplat is a director and shareholder of this company. The Chief Executive Officer, his secretary and driver were originally employees of Platform Petroleum Limited in 2010 when Seplat was formed. Their salaries are currently paid by Platform Petroleum Limited, with Seplat then wholly reimbursing Platform Petroleum Limited.
ResourcePro Inter Solutions Limited: The Chief Executive Officer of Seplat's in-law is its UK representative. The company supplies furniture to Seplat.
Shebah Exploration and Production Company Limited (SEPCOL): The Chairman of Seplat is a director and shareholder of SEPCOL. SEPCOL and Seplat entered into an agreement in 2010 as a commitment deposit to guarantee the Company an exclusive option to lease or purchase a floating production, storage and offloading unit, the `Trinity Spirit', and as a result Seplat prepaid $15 million. In 2012, the agreement was nullified and $3 million was paid in 2012 while the balance of $12 million was paid in 2013. In addition, SEPCOL seconds certain personnel to Seplat.
The following transactions were carried out by related parties on behalf of Seplat:
a) Transactions:
i) Purchases of goods and services
The Group | The Company | |||
2014 $'000 | 2013 $'000 | 2014 $'000 | 2013 $'000 | |
Shareholders: | ||||
MPI | 299 | 217 | 299 | 217 |
Shebah | 1,936 | 1,174 | 1,936 | 1,174 |
Platform Petroleum Limited | 201 | 1,222 | 201 | 1,221 |
2,436 | 2,613 | 2,436 | 2,613 | |
Entities under common control: | ||||
Abbeycourt Trading Company Limited | 4,329 | 2,408 | 4,329 | 2,408 |
Abbeycourt Petroleum Company Limited | - | - | - | - |
Abtrust Integrated Services | 50 | - | 50 | - |
Charismond Nigeria Limited | 176 | 161 | 176 | 161 |
Cardinal Drilling Services Limited | 36,612 | 32,225 | 36,612 | 32,225 |
Keco Nigeria Enterprises | 3,596 | 1,931 | 3,596 | 1,931 |
Ndosumili Ventures Limited | 2,759 | 897 | 2,759 | 897 |
Oriental Catering Services Limited | 598 | 629 | 598 | 629 |
ResourcePro Inter Solutions Limited | 2,913 | 867 | 2,913 | 867 |
Berwick Nigeria Limited | 950 | 870 | 950 | 870 |
Montego Upstream Services Limited | 17,328 | 8,878 | 17,328 | 8,878 |
Neimeth International Pharmaceutical Plc | 28 | - | 28 | - |
Nerine Support Services Limited | 31,277 | 12,180 | 31,277 | 12,180 |
SEPCOL | - | - | - | - |
Nabila Resources & Investment Ltd | 455 | 377 | 455 | 377 |
Helko Nigeria Limited | 2,379 | 255 | 2,379 | 255 |
D.D Dodo & Co | 590 | - | 590 | - |
104,040 | 61,678 | 104,040 | 61,678 | |
ii) Interest expense
2014 $'000 | 2013 $'000 | |
Shareholders: | ||
MPI | 960 | 4,206 |
b) Balances:
Year-end balances arising from related party transactions:
i) Prepayments/receivables
2014 $'000 | 2013 $'000 | |
Under common control: | ||
Cardinal Drilling Services Limited - current portion | 10,934 | 10,159 |
Cardinal Drilling Services Limited - non-current portion | 5,333 | 9,333 |
Abbeycourt Petroleum Company Limited | - | 76 |
16,267 | 19,568 |
ii) Payables
2014 $'000 | 2013 $'000 | |
Shareholders: | ||
Loan from MPI | - | 47,040 |
Other payables to MPI | 1,223 | 1,000 |
1,223 | 48,040 |
c) Key management compensation:
Key management includes executive and members of the executive committee. The compensation paid or payable to key management for employee services is shown below:
31 December 2014 $'000 | 31 December 2013 $'000 | |
Salaries and other short-term employee benefits | 5,372 | 3,347 |
5,372 | 3,347 |