Interim Management Statement & Q1 2019 Results

RNS Number : 4733X
SEPLAT Petroleum Development Co PLC
30 April 2019
 
 

 

Seplat Petroleum Development Company Plc

Interim management statement and consolidated interim financial results for the three months ended 31 March 2019

Lagos and London, 30 April 2019:  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 first quarter results. 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:

"Our operations have continued to perform in line with expectation, with the phasing of our 2019 work programme such that the production uplift will be felt throughout the second half of the year as we step up drilling activities to focus on capturing the numerous high margin and short-cycle cash return opportunities within our current portfolio. The next phase of growth for our gas business is now gathering pace following FID for the ANOH project, with governments first tranche of equity investment received. We have continued to deleverage the balance sheet and self-fund investments into the existing portfolio from operational cash flow, while retaining the financial flexibility and available resources that will enable Seplat to capitalise on what we expect to be an increasingly busy pipeline of inorganic growth opportunities that fit our acquisition criteria."

Q1 2019 Results Highlights

Working interest production

Gross

 

Working Interest

 

 

Liquids(1)

Gas

Oil equivalent

 

Liquids

Gas

Oil equivalent

 

Seplat %

Bopd

MMscfd

Boepd

 

Bopd

MMscfd

Boepd

OMLs 4, 38 & 41

45.0%

43,915

318

98,795

 

19,762

143

44,458

OPL 283

40.0%

3,199

-

3,199

 

1,280

-

1,280

OML 53

40.0%

2,107

-

2,107

 

843

-

843

Total

 

49,221

318

104,101

 

21,885

143

46,581

(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.

Production uptime in Q1 stood at 85%; Reconciliation losses are yet to be finalised but are expected to remain at levels consistent with prior periods; Full year 2019 production guidance maintained at 49,000 to 55,000 boepd on a working interest basis, comprising 24,000 to 27,000 bopd liquids and 146 to 164 MMscfd (25,000 to 28,000 boepd) gas production

Sequencing of the 2019 work programme means the corresponding production uplift will be realised progressively throughout H2; 2019 capex guidance maintained at US$200 million (excluding investment in the ANOH joint venture)

Financial performance summary

Revenue of US$160 million (2018: US$181 million) and gross profit of US$81 million (2018: US$93 million) represents a 51% gross profit margin (unchanged year-on-year);  Revenue reflects the lower oil production and oil price realisation of US$61.7/bbl (2018: US$65.78/bbl). Average realised gas price of US$3.24/Mscf in the period (2018: US$2.79/Mscf)

Operating profit of US$33 million (2018: US$84 million) reflects adjustments for a US$16 million overlift position and US$12 million charge in relation to the Company's oil price hedges, comprising US$5 million cost of hedges and US$7 million fair value loss (reversing the US$9 million fair value gain booked at the end of 2018)

Positive impact of the 2018 debt refinancing and subsequent deleveraging has resulted in a 38% year-on-year reduction in finance costs to US$16 million (2018: US$26 million); Net profit stood at US$33 million after adjusting for a tax credit of US$13 million

Net cash generated from operations up 73% year-on-year at US$80 million (2018: US$46 million) versus capex incurred of US$16 million (2018: US$3 million). Further receipt in the period of US$17 million from liftings at OML 55

Further deleveraged with significant headroom preserved in the capital structure

Repaid US$100 million on the four-year RCF bringing balance drawn to zero while retaining significant headroom in the capital structure to fund growth initiatives.  US$4.5 million RCF fees written off in finance costs.

Gross debt of US$350 million at 31 March 2019 solely comprised of the Company's bond issuance due 2023. Cash at bank stood at US$644 million (which includes US$100 million temporarily held on behalf of Nigerian Gas Company ("NGC") as the government's initial equity investment into ANOH Gas Processing Company ("AGPC")); Normalised cash at bank therefore stood at US$544 million with an effective resultant net cash position of US$194 million

Gas business

FID for the large scale ANOH gas and condensate project was announced in March and initial equity investment of US$100 million from government received; Project to comprise a Phase One 300 MMscfd midstream gas processing development with first gas targeted for Q1 2021

Gas revenue from the existing business up 5% year-on-year at US$42 million (2018: US$40 million)

Project Updates

Amukpe to Escravos pipeline anticipated to be operational in Q2 2019 with ramp up to initial permitted capacity of 40,000 bopd expected during Q3 2019

Important notice

The information contained within this announcement is unaudited and 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:

Seplat Petroleum Development Company Plc

 

Roger Brown, CFO

+44 203 725 6500

Andrew Dymond, Head of Investor Relations

 

Ayeesha Aliyu, Investor Relations

+234 1 277 0400

Chioma Nwachuku, GM - External Affairs and Communications

 

 

FTI Consulting

Ben Brewerton / Sara Powell

seplat@fticonsulting.com

+44 203 727 1000

Citigroup Global Markets Limited

Tom Reid / Luke Spells

 

+44 207 986 4000

Investec Bank plc

Chris Sim / Jonathan Wolf

 

+44 207 597 4000

 

 

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 statement of profit or loss and other comprehensive income

for the first quarter ended 31 March 2019

 

 

3 months ended

31 Mar 2019

3 months ended

31 Mar 2018

3 months ended

31 Mar 2019

3 months ended

31 Mar 2018

 

 

Unaudited

Unaudited

Unaudited

Unaudited

 

Note

million

million

$ '000

$ '000

Revenue from contracts with customers

7

 48,941

 55,236

 159,517

              180,588

Cost of sales

8

 (23,955)

 (26,833)

 (78,078)

              (87,728)

Gross profit

 

 24,986

 28,403

 81,439

 92,860

Other (losses)/income - net

9

 (5,031)

 3,200

 (16,395)

10,461

General and administrative expenses

10

 (6,272)

 (4,919)

 (20,445)

 (16,078)

Reversal of impairment losses on financial assets

11

 44

 669

 144

2,186

Fair value loss

12

 (3,753)

 (1,730)

 (12,230)

 (5,653)

Operating profit

 

 9,974

 25,623

 32,513

 83,776

Finance income

13

 869

 437

 2,834

 1,429

Finance costs                       

13

 (4,886)

 (8,073)

 (15,922)

 (26,395)

Profit before taxation

 

 5,957

 17,987

 19,425

 58,810

Income tax credit/(expense)

14

 4,065

 (11,700)

 13,251

 (38,253)

Profit for the period

 

 10,022

 6,287

 32,676

 20,557

Other comprehensive (loss)/income:

 

 

 

 

 

Items that may be reclassified to profit or loss:

 

 

 

 

 

Foreign currency translation difference

 

(71)

 227

-

-

Total comprehensive income for the period

 

9,951

 6,514

32,676

20,557

Earnings per share for profit attributable to the equity shareholders

 

 

 

 

 

Basic earnings per share ()/($)

15

17.63

 11.16

 0.06

 0.04

Diluted earnings per share ()/($)

15

17.56

 11.11

 0.06

 0.04

 

The above interim condensed consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

Interim condensed consolidated statement of financial position

As at 31 March 2019

 

 

As at 31 Mar

2019

As at 31 Dec

2018 

As at 31 Mar

2019

As at 31 Dec

2018 

 

 

Unaudited

Audited

Unaudited

Audited

 

Note

million

million

$ '000

$ '000

ASSETS

 

 

 

 

 

Non-current assets

 

 

 

 

 

Oil and gas properties

 

 397,288

 399,475

 1,294,309

 1,301,220

Other property, plant and equipment

 

 1,342

 1,300

 4,374

 4,237

Right-of-use assets

28

 3,079

 -  

 10,028

-

Other assets

 

 46,154

 51,299

 150,362

 167,100

Prepayments

 

  7,947

 7,950

25,893

25,893

Tax paid in advance

 

9,708

 9,708

 31,623

31,623

Deferred tax assets

 

 47,506

 42,487

 154,770

138,393

Total non-current assets                           

 

  513,024

 512,219

  1,671,359

 1,668,466

Current assets

 

 

 

 

 

Inventories

 

 30,148

 31,485

 98,219

 102,554

Trade and other receivables

17

    45,606

 41,874

    148,609

 136,393

Contract assets

19

 3,666

 4,327

 11,947

 14,096

Prepayments

 

 542

 3,549

 1,766

 11,561

Derivative financial instruments

18

 535

 2,693

 1,742

 8,772

Cash and bank balances

20

  199,459

 179,509

649,806

 584,723

Total current assets

 

    279,956

 263,437

912,089

 858,099

Total assets

 

792,980

 775,656

   2,583,448

 2,526,565

EQUITY AND LIABILITIES

 

 

 

 

 

Equity

 

 

 

 

 

Issued share capital

21a

 286

 286

 1,834

 1,834

Share premium

 

 82,080

 82,080

 497,457

 497,457

Share based payment reserve

21b

 8,103

 7,298

 30,122

 27,499

Capital contribution

 

 5,932

 5,932

 40,000

 40,000

Retained earnings

 

 202,745

 192,723

 1,063,630

 1,030,954

Foreign currency translation reserve

 

 203,082

 203,153

 3,141

 3,141

Total shareholders' equity

 

 502,228

 491,472

 1,636,184

 1,600,885

Non-current liabilities

 

 

 

 

 

Interest bearing loans and borrowings

16

 94,252

 133,799

 307,063

 435,827

Lease liabilities

28

 952

 -  

 3,100

 -  

Contingent consideration

 

 5,687

 5,676

 18,529

 18,489

Provision for decommissioning obligation

 

 43,818

 43,514

 142,754

 141,737

Defined benefit plan                 

 

 2,027

 1,819

 6,605

 5,923

Total non-current liabilities

 

 146,736

 184,808

 478,051

 601,976

Current liabilities

 

 

 

 

 

Interest bearing loans and borrowings

16

 10,647

 3,031

 34,685

 9,872

Lease liabilities

28

 277

 -  

 903

 -  

Trade and other payables

22

   123,149

 87,360

   401,232

 284,565

Current tax liabilities

 

 9,943

 8,985

 32,393

 29,267

Total current liabilities

 

   144,016

 99,376

   469,213

 323,704

Total liabilities

 

   290,752

 284,184

   947,264

 925,680

Total shareholders' equity and liabilities

 

   792,980

 775,656

   2,583,448

 2,526,565

 

The above interim condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.

The Group financial statements of Seplat Petroleum Development Company Plc and its subsidiaries for the three months ended 31 March 2019 were authorised for issue in accordance with a resolution of the Directors on 30 April 2019 and were signed on its behalf by

A. B. C. Orjiako

A. O. Avuru

R.T. Brown 

FRC/2013/IODN/00000003161

FRC/2013/IODN/00000003100

FRC/2014/ANAN/00000017939

Chairman

Chief Executive Officer

Chief Financial Officer

30 April 2019

 

30 April 2019

 

30 April 2019

 

For the first quarter ended 31 March 2018

 

 

 

 

 

 

 

 

Issued share

capital

Share premium

Share

based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

 

million

million

million

million

million

million

million

 

At 1 January 2018

 283

 82,080

 4,332

 5,932

166,149

200,870

459,646

 

Impact of change in accounting policy:

 

 

 

 

 

 

 

 

Adjustment on initial application of IFRS 9

-

-

-

-

(1,779)

-

(1,779)

 

Adjusted balance at 1 January 2018

 283

 82,080

 4,332

 5,932

164,370 

200,870

 457,867

 

Profit for the period

-

-

-

-

6,287

-

6,287

 

Other comprehensive income

-

-

-

-

-

227

227

 

Total comprehensive income for the period

-

-

-

-

6,287

227

6,514

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Share based payments

-

-

599

-

-

-

599

 

Vested shares

 13

 -  

 (13)

 -  

-

-

-

 

Total

 13

 -  

 586

 -  

-

-

599

 

At 31 March 2018 (unaudited)

 296

 82,080

 4,918

 5,932

170,657

201,097

464,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the first quarter ended 31 March 2019

 

 

Issued share

capital

Share premium

Share

 based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

 

million

million

million

million

million

million

million

 

At 1 January 2019

286

82,080

7,298

5,932

192,723

 203,153

491,472

 

Profit for the period

 

 -  

 -  

 -  

10,022

 -  

 10,022

 

Other comprehensive loss

 -  

 -  

 -  

 -  

 -  

 (71)

 (71)

 

Total comprehensive income/(loss) for the period

 -  

 -  

 -  

 -  

  10,022

 (71)

 9,951

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Share based payments

 -  

 -  

 805

 -  

 -  

 -  

 805

 

Total

 -  

 -  

 805

 -  

 -  

 -  

 805

 

At 31 March 2019 (unaudited)

 286

 82,080

 8,103

 5,932

 202,745

 203,082

502,228

 

 

 

 

 

 

 

 

 

 

 

 

 

                                       

For the first quarter ended 31 March 2019

The above interim condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

For the first quarter ended 31 March 2018

 

 

 

 

 

 

 

 

Issued share

capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

 

$ '000

$ '000

$ '000

$ '000

$ '000

$ '000

$ '000

 

At 1 January 2018

 1,826

 497,457

 17,809

 40,000

 944,108

 1,897

 1,503,097

 

Impact of change in accounting policy:

 

 

 

 

 

 

 

 

Adjustment on initial application of IFRS 9

-

-

-

-

(5,816)

-

(5,816)

 

Adjusted balance at 1 January 2018

 1,826

 497,457

 17,809

 40,000

 938,292

 1,897

 1,497,281

 

Profit for the period

-

-

-

-

 20,557

-

 20,557

 

Total comprehensive income for the period

-

-

-

-

 20,557

-

 20,557

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Share based payments

-

-

1,958

-

-

-

1,958

 

Vested shares

 41

 -  

 (41)

 -  

-

-

-

 

Total

 41

 -  

1,917

 -  

-

-

1,958

 

At 31 March 2018 (unaudited)

 1,867

 497,457

19,726

 40,000

958,849

1,897

1,519,796

 

 

 

 

 

 

 

For the first quarter ended 31 March 2019

 

 

Issued share

capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

 

$ '000

$ '000

$ '000

$ '000

$ '000

$ '000

$ '000

 

At 1 January 2019

 1,834

 497,457

  27,499

 40,000

 1,030,954

 3,141

 1,600,885

 

Profit for the period

 -  

 -  

 -  

 -  

 32,676

 -  

 32,676

 

Total comprehensive income for the period

 -  

 -  

 -  

 -  

 32,676

 -  

 32,676

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Share based payments

 -

 -

 2,623

 -

 -  

 -

 2,623

 

Total

 -  

 -  

 2,623

 -  

 -  

 -  

 2,623

 

At 31 March 2019 (unaudited)

 1,834

 497,457

 30,122

 40,000

  1,063,630

 3,141

1,636,184

 

 

 

 

 

 

 

 

 

 

 

 

                                         

The above interim condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Interim condensed consolidated statement of cash flow

For the first quarter ended 31 March 2019

 

3 months ended
31 Mar

3 months ended
31 Mar

3 months ended
31 Mar

3 months ended
31 Mar

 

2019

2018

2019

2018

 

million

million

$ '000

$ '000

                                                                       Note                                

Unaudited

Unaudited

Unaudited

Unaudited

Cash flows from operating activities

 

 

 

 

Cash generated from operations                         23                                                   

24,407

 14,067

    79,523

 45,989

Net cash inflows from operating activities

   24,407

 14,067

   79,523

 45,989

Cash flows from investing activities

 

 

 

 

Investment in oil and gas properties

 (4,887)

 (783)

 (15,920)

 (2,560)

(Investment in)/proceeds from disposal of other property plant and equipment

 (242)

 34

 (790)

 110

Receipts from other assets

 5,138

 4,510

 16,738

 14,744

Interest received

 869

 437

 2,834

 1,429

Net cash flows from investing activities

878

 4,198

2,862

 13,723

Cash flows from financing activities

 

 

 

 

Repayments of loans

 (30,695)

 (176,791)

 (100,000)

 (578,000)

Proceeds from loans

 -  

 163,653

 -  

 535,045

Principal repayments on crude oil advance

 -  

 (23,175)

 -  

 (75,769)

Interest payment on crude oil advance

 -  

 (530)

 -  

 (1,730)

Payments for other financing charges

 (351)

 (27)

 (1,146)

 (87)

Interest paid on bank financing

 (5,395)

 (4,475)

 (17,583)

 (14,629)

Advance from the Nigerian Gas Company Limited (NGC)*

 30,695

-

100,000

 -

Net cash flows used in financing activities

 (5,746)

 (41,345)

 (18,729)

 (135,170)

Net decrease in cash and cash equivalents

19,539

 (23,080)

  63,656

 (75,458)

Cash and cash equivalents at beginning of period

 178,460

 133,699

 581,305

 437,212

Effects of exchange rate changes on cash and cash equivalents

 (301)

 (142)

 (891)

 (658)

Cash and cash equivalents at end of period

  197,698

 110,477

  644,070

 361,096

 

*Advance from the Nigerian Gas Company Limited (NGC) represents the first instalment of their equity investment in ANOH Gas Processing Company Limited (AGPC). Approval from the Corporate Affairs Commission (CAC) recognising NGC's 50% equity interest in AGPC was not received until 18 April 2019. The investment was temporarily held in the Group's Bank and cash balance in Q1 2019 (see note 22d).

 

The above interim condensed consolidated statement of cashflows should be read in conjunction with the accompanying notes.

 

 

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 and gas processing activities.

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 located in Nigeria. The total purchase price for these assets was 50.4 billion ($340 million) paid at the completion of the acquisition on 31 July 2010 and a contingent payment of 4.8 billion ($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 11,850 ($80) per barrel. 53.1 billion ($358.6 million) was allocated to the producing assets including 2.8 billion ($18.6 million) as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of 5.1 billion ($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% Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the 'Umuseti/Igbuku Fields').

On 21 August 2014, the Group incorporated a new subsidiary, Seplat Petroleum Development UK. The subsidiary provides technical, liaison and administrative support services relating to oil and gas exploration activities.

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 and gas processing. On 12 December 2014, the Group also incorporated a new subsidiary, Seplat East Swamp Company Limited with the principal activity of oil and gas exploration and production.

In 2015, the Group purchased a 40% participating interest in OML 53, onshore north eastern Niger Delta (Seplat East Onshore Limited), from Chevron Nigeria Ltd for 43.5 billion ($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 other wholly owned subsidiaries namely, Newton Energy Limited, Seplat Petroleum Development Company UK Limited ('Seplat UK'), Seplat East Onshore Limited ('Seplat East'), Seplat East Swamp Company Limited ('Seplat Swamp'), Seplat Gas Company Limited ('Seplat gas') and ANOH Gas Processing Company Limited are collectively referred to as the Group.

 

Subsidiary

Date of incorporation

Country of incorporation and place of business

Principal activities

Newton Energy Limited

1 June 2013

Nigeria

Oil & gas exploration and production

Seplat Petroleum Development Company UK Limited

21 August 2014

United Kingdom

Technical, liaison and administrative support services relating to oil & gas exploration and production

Seplat East Onshore Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat East Swamp Company Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat Gas Company Limited

12 December 2014

Nigeria

Oil & gas exploration and production and gas processing

ANOH Gas Processing Company Limited

18 January 2017

Nigeria

Gas processing

 

2.    Significant changes in the current reporting period

The following significant changes occurred during the reporting period ended 31 March 2019:

§ The Group's interest bearing borrowings included a four year revolving loan facility of N61 billion ($200 million). In October 2018, the Group made principal repayments on the four-year revolving facility for a lump sum of 30.7 billion ($100 million). In the reporting period, the Group repaid the outstanding principal amount of 30.7 billion ($100 million) on the revolving loan facility.

§ The Group adopted the new leasing standard IFRS 16 Leases (see note 28).

3.    Summary of significant accounting policies

3.1     Basis of preparation

 

i)       Compliance with IFRS

 

The interim condensed consolidated financial statements of the Group for the first quarter ended 31 March 2019 have been prepared in accordance with the accounting standard IAS 34 Interim financial reporting.

This interim condensed consolidated financial statements does not include all the notes normally included in an annual financial statements of the Group. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2018 and any public announcements made by the Group during the interim reporting period.

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

ii)      Historical cost convention

 

The financial information has been prepared under the going concern assumption and historical cost convention, except for contingent consideration, and derivate financial instruments measured at fair value through profit or loss on initial recognition. The financial statements are presented in Nigerian Naira and United States Dollars, and all values are rounded to the nearest million ('million) and thousand ($'000) respectively, except when otherwise indicated.

iii)     Going concern

 

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 these financial statements.

iv)    New and amended standards adopted by the Group

 

The Group has applied the following standards and amendments for the first time in the reporting period commencing 1 January 2019.

a.    IFRS 16 Leases

IFRS 16: Leases was issued in January 2016 and became effective for reporting periods beginning on or after 1 January 2019. It replaces the provisions of IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. The Group has adopted IFRS 16 from 1 January 2019 using the simplified transitional approach, and thus has not restated comparative figures for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. There was no impact on the Group's retained earnings at the date of initial application (i.e. 1 January 2019).

 

The adoption of IFRS 16 resulted in the recognition of right-of-use assets and corresponding lease liabilities for leases that were formerly classified as operating leases under the provisions of IAS 17, with the exception of the Group's short-term leases, as the distinction between operating and finance leases has been removed.

 

The impact of the adoption of this standard and the related new accounting policy are disclosed in note 28.

 

b.    Amendments to IAS 19 Employee benefits

These amendments were issued in February 2018. The amendments issued require an entity to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement. They also require an entity to recognise in profit or loss as part of past service cost or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling. These amendments had no impact on the consolidated financial statements of the Group as at the reporting date.

 

c.    Amendments to IAS 23 Borrowing costs

These amendments were issued in December 2017. The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. These amendments had no impact on the consolidated financial statements of the Group as at the reporting date.

d.    Amendments to IFRS 11 Joint arrangements

These amendments were issued in December 2017. These amendments clarify how a company accounts for increasing its interest in a joint operation that meets the definition of a business. If a party maintains (or obtains) joint control, then the previously held interest is not remeasured. If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value. In addition to clarifying when a previously held interest in a joint operation is remeasured, the amendments also provide further guidance on what constitutes the previously held interest. This is the entire previously held interest in the joint operation. These amendments had no impact on the consolidated financial statements of the Group as at the reporting date.

e.    Amendments to IAS 12 Income taxes

These amendments were issued in December 2017. These amendments clarify that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognized consistently with the transactions that generated the distributable profits. In effect, the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. These amendments had no impact on the consolidated financial statements of the Group as at the reporting date.

f.    Amendments to IFRS 9: Prepayment Features with Negative Compensation

Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are 'solely payments of principal and interest on the principal amount outstanding' (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. These amendments had no impact on the consolidated financial statements of the Group as at the reporting date.

g.  IFRIC 23 Uncertainty over income tax treatment

This interpretation was issued in June 2017. IAS 12 Income taxes specifies requirements for current and deferred tax assets and liabilities. An entity applies the requirements in IAS 12 based on applicable tax laws. It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the tax authority may affect an entity's accounting for a current or deferred tax asset or liability.

 

This Interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. In such a circumstance, an entity shall recognise and measure its current or deferred tax asset or liability applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this Interpretation. This interpretation had no impact on the consolidated financial statements of the Group as at the reporting date.

v)     New standards and interpretations not yet adopted

 

The following standards are issued but not yet effective and may have a significant impact on the Group's consolidated financial statements.

Conceptual framework for financial reporting - Revised

These amendments were issued in March 2018. Included in the revised conceptual framework are revised definitions of an asset and a liability as well as new guidance on measurement and derecognition, presentation and disclosure. The amendments focused on areas not yet covered and areas that had shortcomings.

These amendments are mandatory for annual periods beginning on or after 1 January 2020. The Group does not intend to adopt the amendments before its effective date and does not expect it to have a material impact on its current or future reporting periods.

a.    Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

These amendments were issued in 31 October 2018. The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until now has featured elsewhere in IFRS Standards. In addition, the explanations accompanying the definition have been improved. The amendments ensure that the definition of material is consistent across all IFRS Standards.

These amendments are mandatory for annual periods beginning on or after 1 January 2020. The Group does not intend to adopt the amendments before its effective date and does not expect it to have a material impact on its current or future reporting periods.

 

3.2   Basis of consolidation

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 March 2019.

 

This basis of consolidation is the same adopted for the last audited financial statements as at 31 December 2018.

3.3   Functional and presentation currency

Items included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiaries operate ('the functional currency'), which is the US dollar except for the UK subsidiary which is the Pound Sterling. The interim condensed consolidated financial statements are presented in the Nigerian Naira and the US Dollars.

The Group has chosen to show both presentation currencies side by side and this is allowable by the regulator.

a)    Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates 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 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 or other comprehensive income depending on where fair value gain or loss is reported.

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 statement of financial position presented are translated at the closing rate at the reporting date.

·      income and expenses for statement of profit or loss and other 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 respective exchange rates that existed on 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.    Significant accounting judgements, estimates and assumptions

4.1    Judgements

 

Management judgements at the end of the first quarter are consistent with those disclosed in the recent 2018 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 cannot 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)      Deferred tax asset

Deferred 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.

iii)     Lease liability

In 2018, the Group entered into a lease agreement for its new head office building. The lease contract contains an option to purchase and right of first refusal upon an option of sales during the initial non-cancellable lease term of five (5) years.

In determining the lease liability/right-of-use assets, management considered all fact and circumstances that create an economic incentive to exercise the purchase option. Potential future cash outflow of $45 million, which represents the purchase price, has not been included in the lease liability because the Group is not reasonably certain that the purchase option will be exercised. This assessment will be reviewed if a significant event or a significant change in circumstances occurs which affects the initial assessment and that is within the control of the management.

iv)      Lease term

Management assessed that the purchase option in its head office lease's contract would not be exercised. If management had assessed that it will be reasonably certain that the purchase option will be exercised, the lease term used for depreciating the right-of-use-asset will have been be fifty (50) years rather than the non-cancellable lease term of five (5) years. For the lease contracts, the Group assessed that it could not reasonably determine if the leases would be renewed at the end of the lease term. As a result, the lease term used in determining the lease liability was the contractual lease term. The sensitivity of the Group's profit and net assets to purchase options is disclosed in note 28.2.

v)       Defined benefit plan

 

The Group has placed reliance on the actuarial valuations carried out at the previous year end reporting period as it does not expect material differences in the assumptions used for that period and the current period assumptions. All assumptions are reviewed annually.

 

4.2    Estimates and assumptions

 

The key assumptions concerning the future and the other key source 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 2018 annual financial statements.

 

The following are some of the estimates and assumptions made.

 

i)       Defined benefit plans

 

The cost of the defined benefit retirement plan and the present value of the retirement obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and changes in inflation rates.

 

Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers market yield on federal government bonds in currencies consistent with the currencies of the post-employment benefit obligation and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation. The rates of mortality assumed for employees are the rates published in 67/70 ultimate tables, published jointly by the Institute and Faculty of Actuaries in the UK.

ii)      Income taxes

The Group is subject to income taxes by the Nigerian tax authority, which does not require significant judgement in terms of provision for income taxes, but a certain level of judgement is required for recognition of deferred tax assets. Management is required to assess the ability of the Group to generate future taxable economic earnings that will be used to recover all deferred tax assets. Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. The estimates are based on the future cash flow from operations taking into consideration the oil and gas prices, volumes produced, operational and capital expenditure. 

 

iii)     Impairment of financial assets

 

The loss allowances for financial assets are based on assumptions about risk of default, expected loss rates and maximum contractual period. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

 

iv)      Revenue recognition

Definition of contracts

The Group has entered into a non-contractual promise with PanOcean where it allows Panocean to pass crude oil through its pipelines from a field just above Seplat's to the terminal for loading. Management has determined that the non-existence of an enforceable contract with Panocean means that it may not be viewed as a valid contract with a customer. As a result, income from this activity is recognised as other income when earned.

Performance obligations

The judgments applied in determining what constitutes a performance obligation will impact when control is likely to pass and therefore when revenue is recognised i.e. over time or at a point in time. The Group has determined that only one performance obligation exists in oil contracts which is the delivery of crude oil to specified ports. Revenue is therefore recognised at a point in time.

For gas contracts, the performance obligation is satisfied through the delivery of a series of distinct goods. Revenue is recognised over time in this situation as the customer simultaneously receives and consumes the benefits provided by the Group's performance. The Group has elected to apply the 'right to invoice' practical expedient in determining revenue from its gas contracts. The right to invoice is a measure of progress that allows the Group to recognise revenue based on amounts invoiced to the customer. Judgement has been applied in evaluating that the Group's right to consideration corresponds directly with the value transferred to the customer and is therefore eligible to apply this practical expedient.

 

Significant financing component

The Group has entered into an advance payment contract with Mercuria for future crude oil to be delivered. The Group has considered whether the contract contains a financing component and whether that financing component is significant to the contract, including both of the following;

(a) The difference, if any, between the amount of promised consideration and cash selling price and;

(b) The combined effect of both the following:

§ The expected length of time between when the Group transfers the crude to Mecuria and when payment for the crude is received and;

§ The prevailing interest rate in the relevant market.

The advance period is greater than 12 months. In addition, the interest expense accrued on the advance is based on a comparable market rate. Interest expense has therefore been included as part of finance cost.

Transactions with Joint Operating arrangement (JOA) partners

The treatment of underlift and overlift transactions is judgmental and requires a consideration of all the facts and circumstances including the purpose of the arrangement and transaction. The transaction between the Group and its JOA partners involves sharing in the production of crude oil, and for which the settlement of the transaction is non-monetary. The JOA partners have been assessed to be partners not customers. Therefore, shortfalls or excesses below or above the Group's share of production are recognised in other income/ (expenses) - net.

5.    Financial risk management

5.1    Financial risk factors

 

The Group's activities expose it to a variety of financial risks such as market risk (including foreign exchange 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.        

 

Risk

Exposure arising from

Measurement

Management

Market risk - foreign exchange

Future commercial transactions

Recognised financial assets and liabilities not denominated in US dollars.

Cash flow forecasting

Sensitivity analysis

Match and settle foreign denominated cash inflows with relevant cash outflows to mitigate any potential exchange risk.

Market risk - commodity  prices

Derivative financial instruments

Sensitivity analysis

Oil price hedges

Credit risk

Cash and bank balances, trade receivables, contract assets and derivative financial instruments.

Aging analysis

Credit ratings

Diversification of bank deposits

Liquidity risk

Borrowings and other liabilities

Rolling cash flow forecasts

Availability of committed credit lines and borrowing facilities

5.1.1   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 deposit 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.                                                                                   

                                                           

Effective interest rate

 

Less than

1 year

 

1 -2

years

 

2 - 3

years

 

3 - 5

years

 

 

Total

 

%

million

million

million

million

million

31 March 2019

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 10,130

 10,075

 10,048

 122,220

 152,473

 

 

 

 

 

 

 

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

  21,318

 -  

 -  

 -  

  21,318

Contingent consideration

 

  5,755

 -  

 -  

 -  

  5,755

Lease liabilities

 

 405

 405

 405

 809

 2,024

 

 

37,608

10,480

10,453

123,029

181,570

 

 

Effective interest rate

Less than
1 year

1 - 2
year

2 - 3
years

3 - 5
years

Total

 

%

million

million

million

million

million

31 December 2018

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 10,130

 10,075

 10,048

 122,220

 152,473

Variable interest rate borrowings

 

 

 

 

 

 

Stanbic IBTC Bank Plc

6.0% +LIBOR

 312

 313

 312

 3,789

 4,726

The Standard Bank of South Africa

6.0% +LIBOR

 208

 209

 208

 2,526

 3,151

Nedbank Limited, London Branch

6.0% +LIBOR

 434

 434

 434

 5,263

 6,565

Standard Chartered Bank

6.0% +LIBOR

 390

 391

 390

 4,736

 5,907

Natixis

6.0% +LIBOR

 304

 304

 304

 3,684

 4,596

FirstRand Bank Limited Acting

6.0% +LIBOR

 304

 304

 304

 3,684

 4,596

Citibank N.A. London

6.0% +LIBOR

 260

 261

 260

 3,158

 3,939

The Mauritius Commercial Bank Plc

6.0% +LIBOR

 260

 261

 260

 3,158

 3,939

Nomura International Plc

6.0% +LIBOR

 130

 130

 130

 1,579

 1,969

 

 

2,602

 2,607

2,602

31,577

39,388

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

48,152

-

-

-

48,152

Contingent consideration

 

-

5,756

-

-

 5,756

 

 

60,884

 18,438

 12,650

 153,797

 245,769

 

** Trade and other payables (excludes non-financial liabilities such as provisions, taxes, pension and other non-contractual payables).

 

 

Effective interest rate

 

Less than

1 year

 

1 -2

years

 

2 - 3

years

 

3 - 5

years

 

 

Total

 

%

$'000

$'000

$'000

$'000

$'000

31 March 2019

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 33,094

 32,915

 32,825

 399,282

 498,116

 

 

 

 

 

 

 

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

  69,450

 -  

 -  

 -  

  69,450

Contingent consideration

 

18,750

-

-

-

  18,750

Lease liabilities

 

 1,318

 1,318

 1,318

 2,636

 6,590

 

 

122,612

34,233

34,143

401,918

592,906

 

 

 

Effective interest rate

Less than
1 year

1 - 2
year

2 - 3
years

3 - 5
years

Total

 

%

$'000

$'000

$'000

$'000

$'000

31 December 2018

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 33,094

 32,915

 32,825

 399,282

 498,116

Variable interest rate borrowings 

 

 

 

 

 

 

Stanbic IBTC Bank Plc

6.0% +LIBOR

 1,020

 1,023

 1,020

 12,378

 15,441

The Standard Bank of South Africa

6.0% +LIBOR

 680

 682

 680

 8,252

 10,294

Nedbank Limited, London Branch

6.0% +LIBOR

 1,417

 1,421

 1,417

 17,192

 21,447

Standard Chartered Bank

6.0% +LIBOR

 1,275

 1,279

 1,275

 15,473

 19,302

Natixis

6.0% +LIBOR

 992

 995

 992

 12,035

 15,014

FirstRand Bank Limited Acting

6.0% +LIBOR

 992

 995

 992

 12,035

 15,014

Citibank N.A. London

6.0% +LIBOR

 850

 853

 850

 10,315

 12,868

The Mauritius Commercial Bank Plc

6.0% +LIBOR

 850

 853

 850

 10,315

 12,868

Nomura International Plc

6.0% +LIBOR

 425

 426

 425

 5,158

 6,434

 

 

8,501

8,527

8,501

103,153

128,682

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

 156,847

 -  

 -  

 -  

 156,847

Contingent consideration

 

 -  

18,750

-

-

 18,750

 

 

 198,442

60,192

41,326

 502,435

 802,395

                   

 

** Trade and other payables (excludes non-financial liabilities such as provisions, taxes, pension and other non-contractual

payables).

 

5.1.2 Credit risk

Credit risk refers to the risk of a counterparty defaulting on its contractual obligations resulting in financial loss to the Group. Credit risk arises from cash and bank balances, derivative financial assets, deposits with banks and financial institutions as well as credit exposures to customers (i.e. Mercuria, Pillar, Axxela and NGMC receivables) and other parties, i.e. NPDC receivables and other receivables.

Risk management

The Group is exposed to credit risk from its sale of crude oil to Mecuria. The off-take agreement with Mercuria runs for five years until 31 July 2020 with a 30 day payment term. The Group is exposed to further credit risk from outstanding cash calls from Nigerian Petroleum Development Company (NPDC) and National Petroleum Investment Management Services (NAPIMS).

In addition, the Group is exposed to credit risk in relation to its sale of gas to Nigerian Gas Marketing Company (NGMC) Limited, a subsidiary of NNPC, its sole gas customer during the quarter.

The credit risk on cash is limited because the majority of deposits are with banks that have an acceptable credit rating assigned by an international credit agency. The Group's maximum exposure to credit risk due to default of the counterparty is equal to the carrying value of its financial assets.

5.2  Fair value measurements

 

Set out below is a comparison by category of carrying amounts and fair value of all financial instruments:

 

Carrying amount

Fair value

 

As at 31 Mar

2019

As at 31 Dec

2018 

As at 31 Mar

2019

As at 31 Dec

2018 

 

million

million

million

million

Financial assets at amortised cost

 

 

 

 

Trade and other receivables*

  24,341

 29,466

  24,341

  29,466

Contract assets

 3,666

 4,327

 3,666

 4,327

Cash and bank balances

  199,459

  179,509

 156,716

  179,509

 

  227,466

 213,302

  227,466

213,302

Financial assets at fair value

 

 

 

 

Derivative financial instruments

 535

 2,693

 535

 2,693

 

 535

2,693

 535

2,693

Financial liabilities at amortised cost

 

 

 

 

Interest bearing loans and borrowings

 104,899

 136,830

 114,643

 143,158

Contingent consideration

 5,687

5,676

 5,687

5,676

Trade and other payables

 21,318

48,152

 21,318

48,152

 

 131,904

190,658

 141,648

196,986

 

 

Carrying amount

Fair value

 

As at 31 Mar

2019

As at 31 Dec

2018 

As at 31 Mar

2019

As at 31 Dec

2018 

 

$'000

$'000

$'000

$'000

Financial assets at amortised cost

 

 

 

 

Trade and other receivables*

  79,299

 95,982

  79,299

  95,982

Contract assets

 11,947

 14,096

 11,947

 14,096

Cash and bank balances

  649,806

 584,723

  649,806

584,723

 

741,052

 694,801

741,052

694,801

Financial assets at fair value

 

 

 

 

Derivative financial instruments

 1,742

 8,772

 1,742

 8,772

 

 1,742

8,772

 1,742

8,772

Financial liabilities at amortised cost

 

 

 

 

Interest bearing loans and borrowings

 341,748

 445,699

 373,490

 466,314

Contingent consideration

 18,529

 18,489

 18,529

 18,489

Trade and other payables

 69,450

 156,847

 69,450

 156,847

 

 429,727

 621,035

 461,469

 641,650

* Trade and other receivables exclude VAT receivables, cash advances and advance payments.

In determining the fair value of the interest bearing loans and borrowings, non-performance risks of the Group as at the end of the reporting period were assessed to be insignificant.

Trade and other payables (excludes non-financial liabilities such as provisions, taxes, pension and other non-contractual payables), trade and other receivables (excluding prepayments), contract assets and cash and bank balances are financial instruments whose carrying amounts as per the financial statements approximate their fair values. This is mainly due to their short term nature.

5.2.1 Fair Value Hierarchy

As at the reporting period, the Group had classified its financial instruments into the three levels prescribed under the accounting standards. These are all recurring fair value measurements. There were no transfers of financial instruments between fair value hierarchy levels during this first quarter.

The fair value of the Group's derivative financial instruments has been determined using a proprietary pricing model that uses marked to market valuation. The valuation represents the mid-market value and the actual close-out costs of trades involved. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models.                                                                                        

The fair value of the Group's interest bearing loans and borrowings is determined by using discounted cash flow models that use market interest rates as at the end of the period. The derivative financial instruments are in level 1, interest-bearing loans and borrowings are in level 2 and contingent consideration is in level 3. The carrying amounts of the other financial instruments are the same as their fair values.

The fair value of the Group's contingent consideration is determined using the discounted cash flow model. The cash flows were determined based on probable future oil prices. The estimated future cash flow was discounted to present value using the 5 year US daily treasury yield curve rates as at the inception date, 05 Feb 2015. The 5 year US daily treasury yield curve rates represents a good proxy for a risk-free pre-tax rate as it is the currency in which the obligation arose and it also matches the maturity of the liability.

The Valuation process

The finance & planning team of the Group performs the valuations of financial and non financial assets required for financial reporting purposes. This team reports directly to the Finance Manager (FM) who reports to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussions of valuation processes and results are held between the FM and the valuation team at least once every quarter, in line with the Group's quarterly reporting periods.

The main level 3 inputs used by the Group are derived and evaluated as follows:

§ Discount rates for financial assets and financial liabilities are determined using a government risk free rate to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset.

§ Contingent consideration - Fair value is determined by using the discounted cash flow model. Expected cash inflows are determined based on the terms of the contract and the entity's knowledge of the business and how the current economic environment is likely to impact it.

§ Changes in level 3 fair values are analysed and the reason for the change explained at the end of each reporting period during the quarterly discussion between the FM and the valuation team and eventually with the CFO and Audit Committee.

5.2.2 Sensitivity of level 3 significant unobservable inputs

The following table demonstrates the sensitivity of the Group's profit/ (loss) before tax to changes in the discount rate of the contingent consideration, with all other variables held constant.

Increase/decrease in discount rate

 

Effect on

profit 

before tax

31 Mar 2019

million

Effect on other components of equity before tax

31 Mar 2019

million

Effect on

profit

before tax

31 Mar 2019  

$'000

Effect on other components of equity before tax

31 Mar 2019

 $'000

+1%

 

42

 -  

136

 -  

-1%

 

(43)

 -  

(139)

 -  

 

Increase/decrease in discount rate

 

Effect on

profit 

before tax

31 Dec 2018

million

Effect on other components of equity before tax

31 Dec 2018

million

Effect on

profit

before tax

 31 Dec 2018  

$'000

Effect on other components of equity before tax

31 Dec 2018

 $'000

+1%

 

 181

 -  

 56

-

-1%

 

 (185)

 -  

 (57)

-

The fair value of the contingent consideration of US$18.5 million for OML 53 was estimated by calculating the present value of the deferred payment ofUS$18.75 million over the contractual maximum period of five (5) years till 31 January 2020.

The estimates are calculated using the 5 year US daily treasury yield curve rates as at the inception date, 05 Feb 2015. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. The market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York.

They represent "bond equivalent yields" for securities that pay semiannual interest, which are expressed on a simple annualized basis.  This is consistent with market practices for quoting bond yields in the market and makes the constant Maturity Treasury (CMT) yield directly comparable to quotations on other bond market yields. 

The 5 year US daily treasury yield curve rates  represents a good proxy for a risk-free pre-tax rate as it is the currency in which the obligation arose and it also matches the maturity of the liability. Given that the possible obligation will be paid as a single payment, the discount rate has not been adjusted to reflect different timing of the cash flows.

6.    Segment reporting

Business segments are based on Seplat's internal organisation and management reporting structure. Seplat's business segments are the two core businesses: Oil and Gas. The Oil segment deals with the exploration, development and production of crude oil while the Gas segment deals with the production and processing of gas. These two reportable segments make up the total operations of the Group.

For the three months ended 31 March 2019, revenue from the gas segment of the business constituted 26% of the Group's revenue. Management believes that the gas segment of the business will continue to generate higher profits in the foreseeable future. It also decided that more investments will be made toward building the gas arm of the business. This investment will be used in establishing more offices, creating a separate operational management and procuring the required infrastructure for this segment of the business. The gas business is positioned separately within the Group and reports directly to the ('chief operating decision maker'). As this business segment's revenues and results, and also its cash flows, will be largely independent of other business units within Seplat, it is regarded as a separate segment.

The result is two reporting segments, Oil and Gas. There were no intersegment sales during the reporting periods under consideration, therefore all revenue was from external customers.

Amounts relating to the gas segment are determined using the gas cost centers, with the exception of depreciation. Depreciation relating to the gas segment is determined by applying a percentage which reflects the proportion of the Net Book Value of oil and gas properties that relates to gas investment costs (i.e. cost for the gas processing facilities).

The Group accounting policies are also applied in the segment reports.

6.1.  Segment profit disclosure

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

           

'million

'million

$'000

$'000

Oil

 (996)

 452

 (3,237)

 1,482

Gas

 11,018

 5,835

 35,913

 19,075

Total profit for the period

 10,022

 6,287

 32,676

 20,557

 

 

                                                                                                                             Oil

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

               

'million

'million

$'000

$'000

Revenue

 

 

 

 

Crude oil sales

 36,132

 43,138

 117,768

 141,035

Operating profit before depreciation, amortisation

and impairment

 5,395

 24,663

 17,587

 80,637

Depreciation, amortisation and impairment

 (6,439)

 (4,875)

 (20,987)

 (15,936)

Operating (loss)/profit

 (1,044)

 19,788

 (3,400)

 64,701

Finance income

 869

 437

 2,834

 1,429

Finance costs

 (4,886)

 (8,073)

 (15,922)

 (26,395)

(Loss)/profit before taxation

 (5,061)

 12,152

 (16,488)

 39,735

Taxation

 4,065

 (11,700)

 13,251

 (38,253)

(Loss)/Profit for the period

 (996)

 452

 (3,237)

 1,482

 

                                                                                                                                    Gas

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

               

'million

'million

$'000

$'000

Revenue

 

 

 

 

Gas sales

 12,809

 12,098

 41,749

 39,553

Operating profit before depreciation, amortisation

and impairment

 11,971

 10,961

 39,023

 35,836

Depreciation, amortisation and impairment

 (953)

 (5,126)

 (3,110)

 (16,761)

Operating profit

 11,018

 5,835

 35,913

 19,075

Finance income

 -  

 -  

 -  

 -  

Finance costs

 -  

 -  

 -  

 -  

Profit before taxation

 11,018

 5,835

 35,913

 19,075

Taxation

 -  

 -  

 -  

 -  

Profit for the period

 11,018

 5,835

 35,913

 19,075

6.1.1. Disaggregation of revenue

The Group derives revenue from the transfer of commodities at a point in time or over time and from different geographical regions.

 

3 months ended

31 March 2019

3 months ended

31 March

 2019

3 months

ended

31 March

2019

3 months ended

31 March

 2018

3 months ended

31 March

 2018

3 months

 ended

31 March

 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

'million

'million

'million

Geographical markets

 

 

 

 

 

 

Nigeria

3,665

12,809

16,474

591

12,098

12,689

Switzerland

32,467

-

32,467

42,547

-

42,547

Revenue

36,132

12,809

48,941

43,138

12,098

55,236

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

36,132

-

36,132

43,138

-

43,138

Over time

-

12,809

12,809

-

12,098

12,098

Revenue

36,132

12,809

48,941

43,138

12,098

55,236

 

 

3 months ended

31 March 2019

3 months ended

31 March

 2019

3 months

ended

31 March

2019

3 months ended

31 March

 2018

3 months ended

31 March

 2018

3 months

 ended

31 March

 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Geographical markets

 

 

 

 

 

 

Nigeria

11,943

41,749

53,692

1,933

39,553

41,486

Switzerland

105,825

-

105,825

139,102

-

139,102

Revenue

117,768

41,749

159,517

141,035

39,553

180,588

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

117,768

-

117,768

141,035

-

141,035

Over time

-

41,749

41,749

-

39,553

39,553

Revenue

117,768

41,749

159,517

141,035

39,553

180,588

The Group's transactions with its major customer, Mercuria, constitutes more than 10% (32 billion, $105 million) of the total revenue from the oil segment and the Group as a whole. Also, the Group's transactions with NGMC (4.3 billion, $14 million) accounted for more than 10% of the total revenue from the gas segment and the Group as a whole.

6.1.2. Reversal of impairment losses by reportable segments

 

3 months ended

31 March 2019

3 months ended

31 March

 2019

3 months

ended

31 March

2019

3 months ended

31 March

 2018

3 months ended

31 March

 2018

3 months

 ended

31 March

 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

'million

'million

'million

Reversal of previous impairment losses

(44)

-

(44)

(669)

-

(669)

 

(44)

-

(44)

(669)

-

(669)

 

 

 

3 months ended

31 March 2019

3 months ended

31 March

 2019

3 months

ended

31 March

2019

3 months ended

31 March

 2018

3 months ended

31 March

 2018

3 months

 ended

31 March

 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Reversal of previous impairment losses

(144)

-

(144)

(2,186)

-

(2,186)

 

(144)

-

(144)

(2,186)

-

(2,186)

6.2.  Segment assets

Segment assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the reporting segment and the physical location of the asset. The Group had no non-current assets domiciled outside Nigeria.

 

Oil

Gas 

Total

Oil

Gas 

Total

Total segment assets        

'million

'million

'million

$'000

$'000

$'000

31 March 2019

550,742

242,238

792,980

1,794,274

789,174

2,583,448

31 December 2018

623,017

152,639

775,656

2,029,374

497,191

2,526,565

               

 

6.3.  Segment liabilities

Segment liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment.

           

Oil

Gas 

Total

Oil

Gas 

Total

Total segment liabilities 

'million

'million

'million

$'000

$'000

$'000

31 March 2019

155,080

135,672

290,752

505,257

442,007

947,264

31 December 2018

257,564

26,620

284,184

838,971

86,709

925,680

               

6.4.  Contingent consideration

The contingent consideration of 5.7 billion, Dec 2018: 5.7 billion ($18.5 million, Dec 2018: $18.5 million) for OML 53 relates solely to the oil segment. This was contingent on oil price rising above 27,626/bbl ($90/bbl) over a one year period and expiring on 31st January 2020. The fair value loss arising during the reporting period is 13 million, March 2018: 1.4 billion ($40,000, March 2018: $4.6 million).

7.    Revenue from contracts with customers

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

           

million

million

$'000

$'000

Crude oil sales

 36,132

43,138

 117,768

 141,035

Gas sales           

 12,809

12,098

 41,749

 39,553

 

 48,941

 55,236

 159,517

 180,588

 

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

 

8.    Cost of sales

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Crude handling fees

 4,459

 4,567

 14,534

 14,932

Royalties

 8,252

 9,758

 26,895

 31,902

Depletion, depreciation and amortisation

 7,004

 9,704

 22,831

 31,727

Nigerian Export Supervision Scheme (NESS) fee

 32

 60

 103

 195

Niger Delta Development Commission levy

 631

 519

 2,056

 1,696

Rig related expenses

 -  

 8

 -  

 25

Operations & maintenance expenses

 3,577

 2,217

 11,659

 7,251

 

 23,955

 26,833

 78,078

 87,728

Operational & maintenance expenses mainly relates to maintenance costs, warehouse operations expenses, security expenses, community expenses, clean up costs, fuel supplies and catering services.

9.    Other (losses)/income - net

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

           

million

million

$'000

$'000

(Overlift)/underlift

 (4,868)

2,628

 (15,866)

8,591

(Loss)/gains on foreign exchange

 (163)

572

 (529)

1,870

 

 

 (5,031)

3,200

 (16,395)

10,461

 

Shortfalls may exist between the crude oil lifted and sold to customers during the period and the participant's ownership share of production. The shortfall is initially measured at the market price of oil at the date of lifting and recognised as other income. At each reporting period, the shortfall is remeasured at the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss as other income.

Gains or losses on foreign exchange are principally as a result of translation of naira denominated monetary assets and liabilities.

10.  General and administrative expenses

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Depreciation of other property, plant and equipment

 200

 297

 653

 970

Depreciation of right-of-use assets (note 28)

 188

-

 613

-

Employee benefits

 2,080

 2,355

 6,777

 7,699

Professional and consulting fees

 1,996

 1,088

 6,505

 3,554

Auditor's remuneration

 -  

 38

 -  

 122

Directors emoluments (executive)

 200

 87

 653

 283

Directors emoluments (non-executive)

 238

 199

 775

 652

Rentals

 119

 121

 388

 395

Flights and other travel costs

 664

 248

 2,167

 814

Other general expenses

 587

 486

 1,914

 1,589

 

 6,272

 4,919

 20,445

 16,078

 

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. (2018: nil)

Other general expenses relate to costs such as office maintenance costs, rentals, telecommunication costs, logistics costs and others. Share based payment expenses are included in the employee benefits expense.

Rentals for the three months ended 31 March 2019 relate to expenses on short term leases for which no right-of-use assets and lease liability were recognised on application of IFRS 16. See note 28 for further details.

 

11.  Reversal of impairment losses on financial assets

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Reversal of impairment loss on NDPC receivables

-

622

-

2,035

Reversal of impairment loss on NAPIMS receivables

-

47

-

151

Reversal of impairment loss on other receivables

44

-

144

-

Total reversal of impairment loss

44

 669

144

 2,186

The reversal of previously recognised impairment losses on other receivables is due to settlement of the outstanding receivables amount.

12.  Fair value loss

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Cost of hedging

1,583

 380

5,160

 1,242

Unrealised fair value loss on derivatives

2,157

-

7,030

-

Fair value loss on contingent consideration

13

 1,350

40

 4,411

 

3,753

 1,730

12,230

 5,653

Fair value loss on derivatives represents changes arising from the valuation of the crude oil economic hedge contracts 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 OML 53. The contingency criteria are the achievement of certain production milestones.

13.  Finance income/(costs)

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Finance income

 

 

 

Interest income

869

2,834

1,429

Finance costs

 

 

 

Interest on bank loan

 (4,534)

 (7,350)

 (14,778)

 (24,033)

Interest on lease liabilities (note 28.2)

(39)

-

 (127)

-

Interest on advance payments for crude oil sales

 -  

 (530)

 -  

 (1,730)

Unwinding of discount on provision for decommissioning 

 (313)

 (193)

 (1,017)

 (632)

 

 (4,886)

(8,073)

 (15,922)

(26,395)

Finance costs - net

 (4,017)

(7,636)

 (13,088)

(24,966)

 

Finance income represents interest on fixed deposits.

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 rates used for the period to 31 March 2019 were 85% and 65.75% for crude oil activities and 30% for gas activities. As at 31 December 2018, the applicable tax rates were 85%, 65.75% for crude oil activities and 30% for gas activities.

The effective tax rate for the period was 68.2% (March 2018: 65%).

 

14a.  Unrecognised deferred tax assets

The unrecognised deferred tax assets relates to the Group's subsidiaries and will be recognised once the entities return to profitability. There are no expiration dates for the unrecognized deferred tax assets.

 

 

As at 31 March
2019

As at 31 March
2019

As at 31 Dec
2018

As at 31 Dec
2018

 

million

million

million

million

 

Gross amount

Tax effect

Gross amount

Tax effect

Other deductible temporary differences

 20,673

 15,026

 17,894

 11,206

Tax losses

 6,508

 2,457

 10,224

 6,011

 

 27,181

 17,483

 28,118

 17,167

 

 

As at 31 March
2019

As at 31 March
2019

As at 31 Dec
2018

As at 31 Dec
2018

 

$'000

$'000

$'000

$'000

 

Gross amount

Tax effect

Gross amount

Tax effect

Other deductible temporary differences

 67,349

 48,953

 58,288

 36,502

Tax losses

 21,204

 8,006

 33,303

 19,580

 

 88,553

 56,959

 91,591

 56,082

Other deductible temporary differences relate to temporary differences arising from unutilised capital allowance, provision for decommissioning obligation, deferred benefit plan, share based payment reserve, unrealized foreign exchange gain/(loss), other income and trade and other receivables.

14b.  Unrecognised deferred tax liabilities

There were no temporary differences associated with investments in the Group's subsidiaries for which a deferred tax liability would have been recognised in the periods presented.

14c.  Deferred tax assets

 

Balance at 1 January 2019

Charged/

credited to

profit or loss

Balance at

31 March 2019

Balance at

 1 January 2019

Charged/

credited to profit or loss

Balance at

31 March 2019

 

million

million

million

$'000

$'000

$'000

Tax losses

 (12)

12

 -  

-

-

-

Other cumulative timing differences:

 

 

 

 

 

 

Fixed assets

 (85,706)

 (4,816)

 (90,522)

 (280,282)

 (15,699)

 (295,981)

Unutilised capital allowance

 116,068

 5,207

 121,275

 379,592

 16,971

 396,563

Provision for decommissioning obligation

 818

 230

 1,048

 2,674

 749

 3,423

Defined benefit plan

 1,540

 178

 1,718

 5,035

 579

 5,614

Share based payment reserve

 3,294

 684

 3,978

 10,778

 2,230

 13,008

Unrealised foreign exchange loss on trade and other receivables

 1,258

 -  

 1,258

 4,123

 -  

 4,123

Other income

 5,246

 3,550

 8,796

 17,159

 11,571

 28,730

Impairment provision on trade and other receivables

 2,071

 (2,295)

 (224)

 6,770

 (7,480)

 (710)

Derivative financial instruments

 (2,282)

 2,288

 6

 (7,456)

 7,456

 -  

Exchange difference

 192

 (19)

 173

-

-

-

 

 42,487

 5,019

 47,506

138,393

 16,377

154,770

15.  Earnings per share (EPS)

Basic

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

Diluted

Diluted EPS is calculated by dividing the profit after taxation attributable to the parent entity by the weighted average number of ordinary shares outstanding during the period 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.

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Profit for the period

10,022

 6,287

32,676

 20,557

 

Shares '000

Shares '000

Shares '000

Shares '000

Weighted average number of ordinary shares in issue

 568,497

 563,445

 568,497

 563,445

Outstanding share based payments (shares)

 2,253

 2,294

 2,253

 2,294

Weighted average number of ordinary shares adjusted for the effect of dilution

 

570,750

 

 565,739

570,750

 

565,739

 

$

$

Basic earnings per share

 17.63

 11.16

 0.06

 0.04

Diluted earnings per share           

 17.56

 11.11

 0.06

 0.04

 

million

million

$'000

$'000

Profit used in determining basic/diluted earnings per share

 

10,022

 

 6,287

 

32,676

 

20,557

The shares were weighted for the proportion of the number of months they were in issue during the reporting period.

16.  Interest bearing loans and borrowings

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

 

Borrowings

 due within
1 year

Borrowings

 due above
1 year

 Total

Borrowings

 due within
1 year

Borrowings

due above
1 year

 Total

 

million

million

million

$'000

$'000

$'000

Balance as at 1 January 2019

 3,031

 133,799

 136,830

 9,872

 435,827

 445,699

Principal repayment

 -  

 (30,695)

 (30,695)

 -  

 (100,000)

 (100,000)

Interest repayment

 (5,395)

 -  

 (5,395)

 (17,583)

 -  

 (17,583)

Interest accrued

 4,534

 -  

 4,534

 14,778

 -  

 14,778

Transfers

 8,825

 (8,825)

 -  

 28,764

 (28,764)

 -  

Other financing charges

 (352)

 -  

 (352)

 (1,146)

 -  

 (1,146)

Exchange differences

 4

 (27)

 (23)

-

-

-

Carrying amount as at 31 March 2019

 10,647

 94,252

 104,899

 34,685

 307,063

 341,748

Interest bearing loans and borrowings include a revolving loan facility and senior notes. In March 2018 the Group issued 107 billion ($350 million) senior notes at a contractual interest rate of 9.25% with interest payable on 1 April and 1 October, and principal repayable at maturity. The notes are expected to mature in April 2023. The interest accrued up at the reporting date is 4.3 billion ($14.2 million) using an effective interest rate of 10.4%. Transaction costs of 2.1 billion ($7 million) have been included in the amortised cost balance at the end of the reporting period.

The Group entered into a four year revolving loan agreement with interest payable semi-annually and principal repayable on 31 December of each year. The revolving loan has an initial contractual interest rate of 6% +Libor (7.7%) and a settlement date of June 2022.

The interest rate of the facility is variable. The Group made a drawdown of 61 billion ($200 million) in March 2018. The interest accrued at the reporting period is 0.2 billion, March 2018: 0.13 billion ($0.6 million, March 2018: $0.44 million) using an effective interest rate of 9.8% (March 2018: 8.4%). The interest paid was determined using 3-month LIBOR rate + 6 % on the last business day of the reporting period. The amortised cost for the senior notes at the reporting period is N104.9 billion ($341.7 million).

In October 2018, the Group made principal repayments on the four-year revolving facility for a lump sum of 30.7 billion ($100 million). The repayment was accounted for as a prepayment of the outstanding loan facility. The gross carrying amount of the facility was recalculated as the present value of the estimated future contractual cash flows that are discounted using the effective interest rate at the last reporting period. Gain or loss on modifications are recognised immediately as part of interest accrued on the facility. Transaction costs of 1.4 billion ($4.5 million) have been included in the amortised cost balance at the end of the reporting period. In the reporting period, the Group repaid the outstanding principal amount of 30.7 billion ($100 million) on the revolving loan facility.

17. Trade and other receivables

 

 

 

 

 

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

 

2019

2018

2019

2018

 

 

million

million

$'000

$'000

 

Trade receivables

 31,697

   29,127

 103,267

 94,875

 

Underlift

 -  

1,325

 -  

4,313

 

Advances to suppliers

  4,274

 1,822

13,925

 5,933

 

Other receivables

  9,635

   9,600

  31,417

 31,272

 

Net carrying amount

45,606

 41,874

148,609

 136,393

 

 

17a.  Trade receivables

 

Included in trade receivables is an amount due from Nigerian Gas Marketing Company (NGMC) and Central Bank of Nigeria (CBN) totaling 15.3 billion, Dec 2018: 14 billion ($49.9 million, Dec 2018: $46 million) with respect to the sale of gas.

17b.  NPDC receivables

 

The outstanding cash calls due to Seplat from its JOA partner, NPDC is nil, Dec 2018: nil ($ nil, Dec 2018: nil). The outstanding

NPDC receivables at the end of the reporting period has been netted against the gas receipts payable to NPDC as Seplat has

a legally enforceable right to settle outstanding amounts on a net basis.

 

 

31 Mar 2019

31 Mar 2019

31 Mar 2019

31 Mar 2019

 

'million

'million

'000

'000

 

Gross amounts

Loss allowance

Gross amounts offset

in the balance sheet

Net amounts presented

 in the balance sheet

Financial assets

 

 

     

     

Trade receivables

14,827

(2,475)

(12,352)

-

Financial liabilities

 

 

 

 

Payable to NPDC

(28,091)

-

12,352

(15,739)

 

 

31 Mar 2019

31 Mar 2019

31 Mar 2019

31 Mar 2019

 

$'000

$'000

$'000

$'000

 

Gross amounts

Loss allowance

Gross amounts offset

in the balance sheet

Net amounts presented

 in the balance sheet

Financial assets

 

 

     

     

Trade receivables

48,439

(8,086)

(40,353)

-

Financial liabilities

 

 

 

 

Payable to NPDC

(91,629)

-

40,353

(51,276)

 

17c.  Other receivables

Other receivables are amounts outside the usual operating activities of the Group. Included in other receivables is a receivable amount on an investment that is no longer being pursued. The outstanding receivable amount as at the reporting date is 9.7 billion, Dec 2018: 9.6 billion ($31.5 million, Dec 2018: $31.3 million).

17d.  Reconciliation of trade receivables

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

'million

'million

$'000

$'000

Balance as at 1 January

 29,127

 33,236

 94,875

 108,685

Additions during the period

 59,668

 217,553

 194,486

 710,725

Receipts for the period

 (57,094)

 (221,659)

 (186,094)

 (724,127)

Exchange difference

 (4)

 123

 -

 -

Gross carrying amount

 31,697

 29,253

 103,267

 95,283

Less: impairment allowance

 -

 (126)

 -

 (408)

Balance as at 31 March

 31,697

 29,127

 103,267

 94,875

 

18.  Derivative financial instruments

The Group uses its derivatives for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. They are presented as current assets.

The derivative financial instrument of 0.5 billion, Dec 2018: 2.7 billion ($1.7 million, Dec 2018: $ 8.8 million) as at 31 March 2019 is as a result of a fair value gain on crude oil hedges. The fair value has been determined using a proprietary pricing model which generates results from inputs. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models.

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

'million

'million

$'000

$'000

Foreign currency option - crude oil hedges

 535

 2,693

 1,742

 8,772

19.  Contract assets

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

million

million

$'000

$'000

Revenue on gas sales

3,666

4,327

11,947

14,096

 

A contract asset is an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer. The Group has recognised an asset in relation to a contract with NGMC for the delivery of Gas supplies which NGMC has received but which has not been invoiced as at the end of the reporting period.

The terms of payments relating to the contract is between 30- 45 days from the invoice date. However, invoices are raised after delivery between 14-21 days when the right to the receivables crytallises. The right to the unbilled receivables is recognised as a contract asset.

At the point where the final billing certificate is obtained from NGMC authorising the quantities, this will be reclassified from the contract assets to trade receivables.

 

 

19.1.  Reconciliation of contract assets

The movement in the Group's contract assets is as detailed below:

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

'million

'million

$'000

$'000

Balance as at 1 January

4,327

4,217

14,096

            13,790

Additions during the period

7,593

39,120

24,744

127,803

Receipts for the period

(8,253)

(39,027)

(26,893)

(127,497)

Exchange difference

(1)

17

-

-

Gross carrying amount

3,666

4,327

11,947

14,096

Less: impairment allowance

-

-

 

-

Balance as at 31 March

3,666

4,327

11,947

14,096

 

20.  Cash and bank balances      

Cash and bank balances in the statement of financial position comprise of cash at bank and on hand, fixed deposits with a maturity of three months or less and restricted cash balances.

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

'million

'million

$'000

$'000

Cash on hand

 4

 2

 12

 7

Restricted cash

  1,761

 1,049

  5,736

 3,418

Cash at bank*

  197,694

 178,494

644,058

 581,416

 

 199,459

 179,545

  649,806

 584,841

Less: impairment allowance

-

(36)

-

(118)

 

199,459

179,509

649,806

584,723

Included in the restricted cash balance is an amount set aside in the Stamping Reserve account for the revolving credit facility (RCF). The amount is to be used for the settlement of all fees and costs payable for the purposes of stamping and registering the Security Documents at the stamp duties office and at the Corporate Affairs Commission (CAC). The amounts are restricted for a period five (5) years, which is the contractual period of the RCF. These amounts are subject to legal restrictions and are therefore not available for general use by the Group. These amounts have therefore been excluded from cash and bank balances for the purposes of cash flow.

*Included in Cash & bank balances is 30.7 billion ($100 million) temporarily held by the Group on behalf of Nigerian Gas Company (NGC) for its equity share in ANOH Gas Processing Company (AGPC).  Funds were transferred by NGC in Q1 2019 before NGC's equity investment in AGPC was approved by the Corporate Affairs Commission (CAC) on 18 April 2019 (see note 22d). 12 billion ($39.25 million) is also being held in an escrow account against a potential investment, pending agreement with the counter-party.

For the purpose of the statement of cashflows, cash and cash equivalents comprise the following:

 

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

'million

'million

$'000

$'000

Cash on hand

 4

 2

 12

 7

Cash at bank

197,694

 178,458

644,058

 581,298

 

197,698

178,460

644,070

581,305

21.  Share capital

21a.  Authorised and issued share capital

 

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

2019

2018

2019

2018

 

million

million

$'000

$'000

Authorised ordinary share capital

 

 

 

 

1,000,000,000 ordinary shares denominated in  Naira of 50 kobo per share

500

500

3,335

3,335

Issued and fully paid

 

 

 

 

568,497,025 (2018: 568,497,025) issued shares denominated in Naira of 50 kobo per share

286

286

1,834

1,834

The Group's issued and fully paid as at the reporting date consists of 568,497,025 ordinary shares (excluding the additional shares held in trust) of 0.50k each, all with voting rights. Fully paid ordinary shares carry one vote per share and the right to dividends. There were no restrictions on the Group's share capital.

 

21b.  Movement in share related reserves

 

Number of shares

Issued share capital

Share based payment reserve

Total

 

Shares

'million

'million

'million

Opening balance as at 1 January 2019

568,497,025

286

7,298

7,584

Share based payments

-

-

805

805

Closing balance as at 31 March 2019

568,497,025

286

8,103

8,389

 

 

Number of

 shares

Issued share capital

Share based payment reserve

Total

 

Shares

$'000

$'000

$'000

Opening balance as at 1 January 2019

568,497,025

1,834

27,499

29,333

Share based payments

-

-

2,623

2,623

Closing balance as at 31 March 2019

568,497,025

1,834

30,122

31,956

21c.  Employee share based payment scheme

As at 31 March 2019, the Group had awarded 40,410,644 shares (Dec 2018: 40,410,644 shares) to certain employees and senior executives in line with its share based incentive scheme. During the three months ended 31 March 2019 no shares were vested (Dec 2018: 5,052,464 shares).

 

22.  Trade and other payables

 

As at 31 March

As at 31 Dec

As at 31 March

As at 31 Dec

 

 

2019

2018

2019

2018

 

 

million

million

$'000

$'000

 

Trade payable

 13,927

 12,073

 45,375

 39,328

 

Nigerian Petroleum Development Company (NPDC)

 18,214

 10,022

 59,362

 32,643

 

National Petroleum Investment Management Services (NAPIMS)

 2,535

 2,785

 8,261

 9,073

 

Receipts for investment

30,695

-

100,000

-

 

Accruals and other payables

 48,833

 53,296

 159,093

 173,603

 

Pension payables

 144

 107

 469

 350

 

NDDC levy

 1,438

 345

 4,684

 1,124

 

Royalties payable

 7,363

 8,732

 23,988

 28,444

 

 

123,149

 87,360

 401,232

 284,565

 

 

22a.    Accruals and other payables 

Included in accruals and other payables are field-related accruals 19.06 billion, Dec 2018: 22.7 billion ($62.11million, Dec 2018: $74 million), and other vendor payables of 29.74 billion, Dec 2018: 31 billion ($96.98 million, Dec 2018: $101 million). Royalties payable include accruals in respect of crude oil and gas production for which payment is outstanding at the end of the period.

22b.   NPDC payables

NPDC payables relate to cash calls paid in advance in line with the Group's Joint operating agreement (JOA) on OML 4, OML 38 and OML 41.The outstanding NPDC receivables at the end of the reporting period was used to calculate the impairment losses for the year. The impairment losses was then netted against the outstanding receivables to arrive at a net receivables amount. At the end of the reporting period, this net receivables amount has been netted against payables to NPDC as the Group has a right to offset.

22c. NAPIMS payables

In 2018, NAPIMS receivables related to cash calls from its JOA with Seplat East Onshore. At the end of the reporting period, NAPIMS settled their cash calls and advanced monies for the Jisike Oil project, which is yet to commence. The amount advanced has therefore been recognised as a payable.

22d. Receipts for investment

The Group entered into a Shareholder Agreement and Share Subscription Agreement in August 2018 with the Nigerian Gas Company ("NGC") for it to subscribe for fifty per cent of the shares in ANOH Gas Processing Company Limited ("AGPC"), 100% owned by the Group.  The Approval from Corporate Affairs Commission (CAC) in Nigeria for the new shareholding structure was not received until April 18, 2019.

During Q1 2019, NGC injected its share of the first tranche of equity injection of 30.7 billion ($100 million) into funding the project before the share transfer was effected.  The funds were temporarily held by the Group in Cash at Bank in Q1 2019.

23.  Computation of cash generated from operations

 

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

Notes

million

million

$'000

$'000

Profit before tax

 

5,957

 17,987

19,425

 58,810

Adjusted for:

 

 

 

 

 

Depletion, depreciation and amortisation

 

 7,204

 10,001

 23,484

 32,697

Depreciation of right-of-use assets

 

 188

 -  

 613

 -  

Interest on bank loans

13

 4,534

 7,350

 14,778

 24,033

Interest on lease liabilities

13

 39

 -  

 127

 -  

Interest on advance payments for crude oil sales

13

 -  

 530

 -  

 1,730

Unwinding of discount on provision for decommissioning liabilities

13

 313

 193

 1,017

 632

Finance income

13

 (869)

 (437)

 (2,834)

 (1,429)

Fair value loss on contingent consideration

12

 13

 1,350

 40

 4,411

Unrealised fair value loss on derivatives

 

 2,157  

                         -  

 7,030

 -  

Unrealised foreign exchange (gain)/ loss

9

163

 (572)

529

 (1,870)

Share based payments expenses

 

 805

 599

 2,623

 1,958

Defined benefit expenses

 

 209

 (328)

 682

 (1,073)

Reversal of impairment loss on trade and other receivables

11

(44)

(669)

(144)

(2,186)

Changes in working capital (excluding the effects of exchange differences):

 

 

 

 

 

Trade and other receivables

 

(3,356)

 11,943

(10,935)

 39,044

Prepayments

 

  930

 -  

3,031

 

Contract assets

 

 661

 (3,876)

 2,149

 (12,672)

Trade and other payables

 

4,878

 (30,406)

15,891

 (99,408)

Inventories

 

 1,337

 402

 4,335

 1,312

Restricted cash

 

   (712)

 -  

(2,318)

-

Net cash from operating activities                                                                            

 

24,407

 14,067

79,523

 45,989

24.  Related party relationships and transactions

The Group is controlled by Seplat Petroleum Development Company Plc (the 'parent Company'). The shares in the parent Company are widely held.

24a.  Related party relationships

The services provided by the related parties:

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

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

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

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

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

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

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 provided catering services to Seplat at the staff canteen during the reporting period.

Shebah Petroleum Development Company Limited ('BVI'): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). The company has provided consulting services to Seplat since 2014.

Stage leasing (Ndosumili Ventures Limited): is a subsidiary of Platform Petroleum Limited. The company provides transportation services to Seplat.

The following transactions were carried out by Seplat with related parties:

24b.  Related party relationships

i)          Purchase of goods and services

 

3 months ended

31 March 2019

3 months ended

31 March 2018

3 months ended

31 March 2019

3 months ended

31 March 2018

 

million

million

$'000

$'000

Shareholders of the parent company

 

 

 

 

SPDCL (BVI)

81

104

 263

339

Total

81

104

 263

339

Entities controlled by key management personnel:

 

 

 

 

Contracts > $1million in 2019

 

 

 

 

Nerine Support Services Limited

-

375

-

 1,227

Cardinal Drilling Services Limited

800

6

 2,606

19

 

800

381

 2,606

 1,246

 

 

 

 

 

Contracts < $1million in 2019

 

 

 

 

Montego Upstream Services Limited

8

-

26

-

Abbey Court trading Company Limited

80

 79

260

 259

Charismond Nigeria Limited

2

 2

6

 8

Keco Nigeria Enterprises

        64

          7

          210

 24

Nerine Support Services Limited

      236

          768

-

Stage leasing (Ndosumili Ventures Limited)

      306

       229

          999

 748

Oriental Catering Services Limited

        14

        45

           46

 148

Helko Nigeria Limited

-

 34

-

 111

 

      710

       396

       2,315

1,298

Total

1,591

882

5,184

2,883

* Nerine on average charges a mark-up of 7.5% on agency and contract workers assigned to Seplat. The amounts shown above are gross i.e. it includes salaries and Nerine's mark-up. Total costs for agency and contracts during the first quarter ended 31 March 2019 is 17.7 million, 2018: 375 million ($57,600, 2018: $1.2 million).

All other transactions were made on normal commercial terms and conditions, and at market rates.

24c.  Balances

The following balances were receivable from or payable to related parties as at 31 March 2019:

Prepayments / receivables

As at 31 Mar

2019

As at 31 Dec

2018 

As at 31 Mar

2019

As at 31 Dec

2018 

 

million

million

$'000

$'000

Entities controlled by key management personnel

 

 

 

 

Cardinal Drilling Services Limited

-

1,495

-

4,869

Montego Upstream Services Limited

-

8

-

26

Oriental Catering Services Ltd

2

-

5

-

 

2

1,503

5

4,895

 

Payables

As at 31 Mar

2019

As at 31 Dec

2018 

As at 31 Mar

2019

As at 31 Dec

2018 

 

million

million

$'000

$'000

Entities controlled by key management personnel

 

 

 

 

Keco Nigeria Enterprises

-

 19

-

61

Nerine Support Services Limited

1

-

4

-

Cardinal Drilling Services Limited

190

-

619

-

Oriental Catering Services Ltd

-

 14

-

47

Abbey Court Trading Company Limited

-

 9

-

28

Charismond Nigeria Limited

-

 -  

-

1

Stage Leasing Limited

-

 13

-

43

 

191

 55

623

 180

 

25.  Contingent liabilities

The Group is involved in a number of legal suits as defendant. The estimated value of the contingent liabilities is 736 million, Dec 2018: 736 million ($2.4 million, Dec 2018: $2.4 million). The contingent liability for the period ended 31 March 2019 is determined based on possible occurrences though unlikely to occur. 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.

26.  Proposed dividend

No interim dividend was proposed by the Group's directors for the reporting period (2018: 15, $0.05).

27.  Events after the reporting period

There were no significant events that would have had a material effect on the Group after the reporting period.

28.  Changes in accounting policies

This note explains the impact of adoption of IFRS 16: Leases on the Group's financial statements.

Leases

The Group's leased assets include buildings and land. Lease terms are negotiated on an individual basis and contain different terms and conditions, including extension options. The lease terms are between 1 and 5 years. On renewal of a lease, the terms are renegotiated. Leased assets may not be used as security for borrowing purposes.

Until the 2018 financial year, leases of property, plant and equipment were classified as operating leases. Payments made under operating leases were recognised as rentals in the statement of profit or loss and other comprehensive income on a straight-line basis and disclosed within general and administrative expenses over the period of the lease.

From 1 January 2019, on adoption of IFRS 16, leased assets are recognised as a right-of-use assets and a corresponding liability at the date at which the leased asset is available for use by the Group is also recognised. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'). The Group had no low value leases on adoption of the new standard. Lease liabilities for leases formerly classified as operating leases were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate of 13.1% as at that date.

Lease liabilities

At commencement date of a lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is the weighted average interest rate applicable to the Group's general borrowings denominated in dollars during the period. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The lease term refers to the contractual period of a lease.           

The Group has elected to exclude non-lease components in calculating lease liabilities and instead treat the related costs as an expense in profit or loss.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of a lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Short-term leases and leases of low value

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value (i.e. low value assets). Low-value assets are assets with lease amount of less than $5,000 when new. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

28.1.  Impact of adoption

The new Leases standard, IFRS 16 replaces the provisions of IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. As discussed in Note 3.1, the Group has elected to apply the new standard using the simplified method. Accordingly, the information presented for the three months ended 31 March 2018 has not been restated but is presented, as previously reported, under IAS 17.

On adoption of IFRS 16, the lease liabilities as at 1 January 2019 for leases formerly classified as operating leases were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at that date. The Group's weighted average incremental borrowing rate as at 1 January 2019 and 31 March 2019 was 13.1%.

On adoption of the new accounting standard, the Group elected to apply the following practical expedients:

§  The Group relied on previous assessment of existing lease contracts

§  Leases with a remaining lease term of one year with no extension commitments as at 1 January 2019 were treated as short-term leases.

§  The Group excluded initial direct costs in determining the cost of right-of-use assets

§  The same discount rate was applied for a portfolio of leases with reasonably similar characteristics.

 

28.2.  Impact on financial statements

 

a)  Impact on statement of financial position

The following table summarises the impact of transition to IFRS 16 on the statement of financial position as at 1 January 2019 for each affected individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided.

 

 

Amounts without impact of IFRS 16

Impact of IFRS 16

As at 1

Jan 2019

Amounts without impact of

IFRS 16

Impact of IFRS 16

As at 1

Jan 2019

 

million

million

million

US$ '000

US$ '000

US$ '000

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Right-of-use assets

 

-

3,267

3,267

-

10,641

10,641

Prepayment

 

7,950

(275)

7,675

25,893

(893)

25,000

 

512,219

2,992

515,211

1,668,466

9,748

1,678,214

Current assets

 

 

 

 

 

 

 

 

3,549

(1,802)

1,747

11,561

(5,872)

5,689

 

263,437

(2,077)

261,360

858,099

(6,765)

851,334

 

775,656

1,190

776,846

2,526,565

3,876

2,530,441

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Lease liabilities

 

-

952

952

-

3,100

3,100

Total non-current liabilities

 

184,808

952

185,760

601,976

3,100

605,076

Current liabilities

 

 

 

 

 

 

 

Lease liabilities

 

-

238

238

-

776

776

 

99,376

238

99,614

323,704

776

324,480

Total liabilities

 

284,184

1,190

285,374

925,680

3,876

929,556

§ Right-of-use assets

All the Group's right-of-use assets are non-current assets. A reconciliation of the Group's right-of-use assets as at 1 January 2019 and 31 March 2019 is shown below:

 

million

US$ '000

Opening balance as at 1 January 2019

-

-

Effect of initial application of IFRS 16

3,267

10,641

Adjusted opening balance as at 1 January 2019

3,267

10,641

Less: depreciation for the period

(188)

(613)

Closing balance as at 31 March 2019

3,079

10,028

The right-of-use assets recognised as at 1 January 2019 and 31 March 2019 comprised of the following asset:

 

31 March 2019

1 Jan 2019

31 March 2019

1 Jan 2019

 

million

million

US$ '000

US$ '000

Office buildings

3,079

3,267

10,028

10,641

Right-of-use assets

3,079

3,267

10,028

10,641

 

§ Lease liabilities

A reconciliation of the Group's remaining operating lease payments as at 31 December 2018 and the lease liability as at 1 January 2019 and 31 March 2019 is shown below:

 

million

US$ '000

Total undiscounted operating lease commitment as at 31 December 2018

2,024

6,595

Lease liability as at 1 January 2019

1,190

3,876

Add: interest on lease liabilities

39

127

Closing balance as at 31 March 2019

1,229

4,003

The lease liability as at 1 January 2019 is the total operating lease commitment as at 31 December 2018 discounted using the incremental borrowing rate as at that date.

Short term leases relate to leases of residential buildings, car parks and office building with contractual lease term of less than or equal to 12 months at the date of initial application of IFRS 16. At the end of the reporting period, rental expense of 119 million ($0.4 million) was recognised within general and administrative expenses for these leases. The Group's future cash outflows from short term lease commitments at the end of the reporting period is 62 million ($0.2 million).
 

The Group's lease payments for drilling rigs are classified as variable lease payments. The variability arises because the lease payments are linked to the use of the underlying assets. These variable lease payments are therefore excluded from the measurement of the lease liabilities. At the end of the reporting period, there was no rental expense recognised within cost of sales for these leases. The expected future cash outflows arising from variable lease payments is estimated at 6.7 billion ($21.7 million).

The Group's lease liability as at 1 January 2019 and 31 March 2019 is split into current and non-current portions as follows:

 

1 Jan 2019

31 March 2019

1 Jan 2019

31 March 2019

million

million

US$ '000

US$ '000

Non-current

952

952

3,100

3,100

Current

238

277

776

903

Lease liability as at 1 January 2019

 1,190

1,229

3,876

4,003

b)  Impact on the statement of profit or loss (increase/(decrease)) for the three months ended 31 March 2019

 

million

US$ '000

Depreciation expense

(188)

(613)

Operating profit

(188)

(613)

Finance cost

(39)

(127)

Profit for the period

(227)

(740)

c)  Impact on the statement of cash flows (increase/(decrease)) for the three months ended 31 March 2019:

 

million

US$ '000

Depreciation of right-of-use assets

188

613

Interest on lease liabilities

39

127

Net cash flows from operating activities

227

740

d)  Sensitivity to purchase options

In 2018, the Group entered into a lease agreement for its new head office building. The lease contract contains an option to purchase and right of first refusal upon an option of sales during the initial non-cancellable lease term of five (5) years. Management has determined that it s not reasonably certain that the Group will exercise the purchase option. This,the purchase price was not included in calculating the lease liability or right-of-use asset. The following tables summarise the impact that exercising the purchase option would have had on the profit before tax and net assets of the Group:

 

Impact of purchase option 

 

 

Effect on

profit 

before tax

31 March 2019

million

Effect on

profit 

before tax

31 March 2019

$' 000

Depreciation

 

 

117

382

Interest payment

 

 

(398)

(1,170)

 

 

 

(359)

(788)

 

Impact of purchase option

 

 

Effect on

net assets

31 March 2019

million

Effect on

net assets

31 March 2019

$' 000

Right-of-use assets

 

 

11,158

36,355

Lease liability

 

 

(11,322)

(36,887)

 

 

 

(164)

(531)

e)  Impact on segment assets and liabilities

The Group's assets are allocated to segments based on the operations and the geographical location of the assets. All non-current assets of the Group are domiciled in Nigeria. The changes in segment assets and liabilities for each segment as at 31 March 2019 is shown below:

 

Amount under

IAS 17

Impact of

 IFRS 16

Amount under

IFRS 16

Amount under

IAS 17

Impact of

 IFRS 16

Amount under

IFRS 16

 

million

million

million

US$ '000

US$ '000

US$ '000

Segment assets:

 

 

 

 

 

 

Oil

514,493

3,079

517,572

1,676,160

10,028

1,686,188

Gas

242,238

-

242,238

789,174

-

789,174

 

756,731

3,079

759,810

2,465,334

10,028

2,475,362

Segment liabilities:

 

 

 

 

 

 

Oil

120,681

1,229

121,910

393,168

4,003

397,171

Gas

135,672

-

135,672

442,007

-

442,007

 

256,353

1,229

257,582

835,175

4,003

839,178

f)   Impact on earnings per share

As a result of adoption of IFRS 16, the earnings per share of the Group for the three months ended 31 March 2019 decreased as shown in the table below:

 

Amount under

IAS 17

Impact of

 IFRS 16

Amount under

IFRS 16

Amount under

IAS 17

Impact of

 IFRS 16

Amount under

IFRS 16

 

million

million

million

US$ '000

US$ '000

US$ '000

Profit for the period

10,249

(227)

10,022

33,416

(740)

32,676

Earnings per share for profit attributable to the equity shareholders

 

 

 

 

 

 

Basic earnings per share

18.03

(0.40)

17.63

0.06

-

0.06

Diluted earnings per share

17.96

(0.40)

17.56

0.06

-

0.06

g)  Impact on deferred taxes

As a result of adoption of IFRS 16, there were no impact on deferred taxes as interest expense on lease liabilities and depreciation of right-of-use assets give rise to permanent differences for tax purposes.

29.  Exchange rates used in translating the accounts to Naira

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

 

Basis

31 March 2019

 /$

31 March 2018

 /$

31 Dec 2018

 /$

 

 

Fixed assets - opening balances

Historical rate

Historical

Historical

Historical

 

Fixed assets - additions

Average rate

306.87

305.87

306.10

 

Fixed assets - closing balances

Closing rate

306.95

305.95

307.00

 

Current assets

Closing rate

306.95

305.95

307.00

 

Current liabilities

Closing rate

306.95

305.95

307.00

 

Equity

Historical rate

Historical

Historical

Historical

 

Income and Expenses

Overall Average rate

306.87

305.87

306.10

 

                   

 

 

General information

 

Board of directors

 

 

Ambrosie Bryant Chukwueloka Orjiako

Chairman

Nigerian

Ojunekwu Augustine Avuru

Managing Director and Chief Executive Officer

Nigerian

Roger Thompson Brown

Chief Financial Officer (Executive Director)

British

Effiong Okon

Operations Director (Executive director)

Nigerian

*Michel Hochard

Non-Executive Director

French

Macaulay Agbada Ofurhie

Non-Executive Director

Nigerian

Michael Richard Alexander

Senior Independent Non-Executive Director

British

Ifueko M. Omoigui Okauru

Independent Non-executive Director

Nigerian

Basil Omiyi

Independent Non-executive Director

Nigerian

Charles Okeahalam

Independent Non-executive Director

Nigerian

Lord Mark Malloch-Brown

Independent Non-executive Director

British

Damian Dinshiya Dodo

Independent Non-executive Director

Nigerian

*Madame Nathalie Delapalme acts as alternate Director to Michel Hochard

 

Company secretary

Mirian Kachikwu

 

Registered office and business

address of directors

25a Lugard Avenue

Ikoyi

Lagos

Nigeria

 

Registered number

RC No. 824838

 

FRC number

FRC/2015/NBA/00000010739

 

Auditor

Ernst & Young

(10th & 13th Floors), UBA House

57 Marina Lagos, Nigeria.

 

Registrar

DataMax Registrars Limited

7 Anthony Village Road

Anthony

P.M.B 10014

Shomolu

Lagos, Nigeria

 

Solicitors

Olaniwun Ajayi LP

Adepetun Caxton-Martins Agbor & Segun ("ACAS-Law")

Templars Law

White & Case LLP

Whitehall Solicitors

Bracewell (UK) LLP

Herbert Smith Freehills LLP

Chief J.A. Ororho & Co.

Ogaga Ovrawah & Co.

Consolex LP

Banwo & Ighodalo

J.E. Okodaso & Company

V.E. Akpoguma & Co.

Thompson Okpoko & Partners

G.C. Arubayi & Co.

Streamsowers & Kohn

 

Bankers

 

 

 

 

 

 

First Bank of Nigeria Limited

Stanbic IBTC Bank Plc

United Bank for Africa Plc

Zenith Bank Plc

Citibank Nigeria Limited

Standard Chartered Bank

HSBC Bank

 

 

 


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