TIDMSEPL
RNS Number : 0847W
SEPLAT Petroleum Development Co PLC
30 July 2018
Seplat Petroleum Development Company Plc
Half-yearly Results
For the six months ended 30 June 2018
(Expressed in Naira and US Dollars)
Seplat Petroleum Development Company Plc
Consolidated financial results for the period ended 30 June
2018
Lagos and London, 30 July 2018: Seplat Petroleum Development
Company Plc ("Seplat" or the "Company"), a leading Nigerian
indigenous oil and gas company listed on both the Nigerian Stock
Exchange and London Stock Exchange, today announces its
consolidated half-yearly financial results for the period ended 30
June 2018 and provides an operational update. Information contained
within this release is un-audited and is subject to further review.
Details of the Webcast and conference call are set out on page 7 of
this release.
Commenting on the results Austin Avuru, Seplat's Chief Executive
Officer, said:
"The results today continue to demonstrate our ability to
generate cashflow and profitability from our assets and we are on
track to deliver our 2018 production guidance in both oil and gas,
with gas now contributing a significant portion to the bottom line.
Post refinancing in Q1 this year, we have continued to strengthen
the balance sheet with a quarter on quarter reduction in net debt
to low levels at the end of H1 2018. The second half of this year
will see us accelerate field development activities across the
existing portfolio as we start to drill the first wells on our OML
53 asset. Due to slower than expected progress we have revised the
timeline for delivery of the Amukpe to Escravos pipeline and FID at
the ANOH gas condensate project to later in the year. The
fundamentals of the underlying business remain very strong as we
continue to focus on delivering on our promises."
Half-yearly results highlights
Strong underlying profitability
-- Gross profit margin of 51% for H1 2018 (up from 41% in H1
2017) driven by higher production, firmer oil prices and lower unit
production opex which stood at US$4.50/boe (down from US$5.85/boe
in H1 2017)
-- H1 2018 profit before tax stood at US$121 million (H1 2017
loss before tax US$26 million); Profit after tax (but before
deferred tax) of US$105 million; net profit for the period of US$49
million.
Robust balance sheet and cash flow generation to support
growth
-- Cash at bank at 30 June 2018 US$510 million; gross debt
US$550 million and net debt US$40 million with US$100 million un-
drawn headroom on the four year revolving credit facility
-- Net cash flow from operations in H1 2018 stood at US$245
million against capex of US$21 million; FY 2018 capex guidance of
US$100 million reiterated as field development activities step up
in H2 2018
Working interest production within guidance range
-- Overall working interest production in H1 across all blocks
stood at 25,286 bopd and 155 MMscfd, or 51,099 boepd
-- Production uptime stood at 76% in the first half and reconciliation losses around 8%
-- FY 2018 guidance reiterated at 24,000 to 29,000 bopd and 148
to 158 MMscfd (or 48,000 to 55,000 boepd)
Increasing revenue contribution from the gas business
-- Gas revenues of US$85 million in H1 2018 (25% of total
revenues in the period and up 57% year-on-year)
-- Continued to supply commissioning gas to the Azura IPP. Upon
commissioning, expected in Q3, deliveries will move to the
contracted level of 116 MMscfd gross on take-or-pay terms
-- Actively engaged with counterparties to finalise new GSA's -
plan to take gross production towards 400 MMscfd
-- Proceeding towards FID at the ANOH gas and condensate
development at OML 53. Expect FID in Q4 2018
License renewal for OMLs 4, 38 and 41
-- Confirmation of approval was received from the Department of
Petroleum Resources (DPR) for renewal of licenses on OML's 4, 38
and 41 for a period of 20 years. The license renewal is still
subject to final consent of the Honourable Minister of Petroleum
Resources
Update on alternate export routes
-- Two jetties at the Warri refinery provide a back-up option
that can allow for sustained exports of 30,000 bopd gross if
required in the future
-- Completion of the 160,000 bopd Amukpe to Escravos pipeline is
progressing slower than anticipated. Consequently, Seplat has
adjusted its own expectation of completion to Q4 2018
Financial overview
US$ million billion
-------------------------------------- ---------------- -------- ----------------
H1 2018 H1 2017 % change H1 2018 H1 2017
====================================== ======= ======= ======== ======= =======
Revenue 343 132 160% 105 40
-------------------------------------- ------- ------- -------- ------- -------
Gross Profit 174 54 222% 53 16
-------------------------------------- ------- ------- -------- ------- -------
Operating Profit 158 7 n/a 48 2
-------------------------------------- ------- ------- -------- ------- -------
Profit/(loss) for the Period
(before deferred tax)(1) 105 (28) (475)% 32 (8)
-------------------------------------- ------- ------- -------- ------- -------
Operating cash flow 245 106 131% 75 32
====================================== ======= ======= ======== ======= =======
Working interest production (boepd) 51,099 26,383 94%
-------------------------------------- ------- ------- -------- ------- -------
Average realised oil price (US$/bbl) 69.1 45.0 54 % 21,131 13,764
-------------------------------------- ------- ------- -------- ------- -------
Average realised gas price (US$/Mscf) 3.04 2.97 2% 930 908
-------------------------------------- ------- ------- -------- ------- -------
(1) Profit after tax has been adjusted for US$56 million of non
cash deferred tax
OPERATIONS REVIEW
Production for the first six months ended 30 June 2018
Gross Working Interest
------------------- ---------------------------------- ----------------------------------
Liquids(1) Gas Oil equivalent Liquids(1) Gas Oil equivalent
----------- ------ ---------- ------ -------------- ---------- ------ --------------
Seplat bopd MMscfd boepd bopd MMscfd boepd
%
----------- ------ ---------- ------ -------------- ---------- ------ --------------
OMLs 4, 38
& 41 45.0% 52,082 344 109,445 23,437 155 49,250
----------- ------ ---------- ------ -------------- ---------- ------ --------------
OPL 283 40.0% 2,163 - 2,163 865 - 865
----------- ------ ---------- ------ -------------- ---------- ------ --------------
OML 53 40.0% 2,461 - 2,461 984 - 984
----------- ------ ---------- ------ -------------- ---------- ------ --------------
Total 56,706 344 114,069 25,286 155 51,099
----------- ------ ---------- ------ -------------- ---------- ------ --------------
(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.
Average working interest production during H1 2018 was 51,099
boepd (compared to 26,383 boepd in H1 2017) and comprised 25,286
bopd liquids and 155 MMscfd gas. Production uptime in the period
was 76% while reconciliation losses were around 8%.
In H1 2018, Seplat lifted and a monetised an equivalent of 221
kbbls of oil from OML55, which resulted in a receipt of US$14.7
million. The carrying value of the investment in the balance sheet
was consequently reduced to US$202 million.
Looking ahead, the Company maintains working interest production
guidance (before reconciliation losses) for FY 2018 of 24,000 to
29,000 bopd and 148 to 158 MMscfd, which equates to 48,000 to
55,000 boepd. This guidance range is predicated on there being no
further prolonged force majeure event.
Alternative oil export routes
The Company's policy of creating multiple export routes for all
of its assets has resulted in it actively pursuing alternative
crude oil evacuation options for production at OMLs 4, 38 and 41
and potential strategies to further grow and diversify production
in order to reduce any over-reliance on one particular third party
operated export system. In line with this objective, the Company
had previously installed a pipeline linking OMLs 4, 38 and 41 to
the Warri refinery where, in 2017, it successfully completed
repairs and upgrades on two jetties that will enable sustained
exports of 30,000 bopd (gross) if required in the future.
Longer term, the Amukpe to Escravos 160,000 bopd capacity
pipeline is set to provide a third export option for liquids
production at OMLs 4, 38 and 41. The pipeline owners, NAPIMS (a
100% subsidiary of NNPC), Pan Ocean Corporation Limited (Pan Ocean)
and the pipeline contractor FENOG are responsible for completion of
the pipeline. The pipeline operator, Pan Ocean, is advancing
negotiations with the operator of the Escravos terminal, Chevron,
in relation to necessary Crude Handling Agreements. Completion work
has been slower than anticipated and, based on information provided
by the pipeline operator and contractor, Seplat has consequently
adjusted its own expectation of pipeline completion to Q4 2018.
It is Seplat's ultimate intention to utilise all three
independent export options to ensure there is adequate redundancy
in evacuation routes, reducing downtime which has adversely
affected the business over a number of years, significantly
de-risking the distribution of production to market.
Continued strong performance of the gas business
Seplat's gas business continues to make an increasing revenue
contribution and in H1 2018 generated US$85.3 million revenue at an
average gas price of US$3.04/Mscf, within which Q2 2018 was another
record quarter which saw gas revenues hit a new high of US$45.8
million. Having commenced the deliveries of commissioning gas to
the 459MW Azura-Edo IPP in December 2017, when the first turbine
was synchronised to the national grid, the Company anticipates the
commissioning phase to be completed in Q3 2018 after which
deliveries will move to the contracted level of 116 MMscfd gross
under take-or-pay and credit enhanced terms.
The ANOH gas development at OML 53 (and adjacent OML 21 with
which the upstream project is unitised) is expected to underpin the
next phase of growth for the gas business and Seplat's involvement
positions it at the heart of one of the largest greenfield gas and
condensate developments onshore in the Niger Delta to date. The
Company is working with its partners to finalise a framework within
which to progress the upstream and midstream elements of the
project to FID. The FID originally planned for H1 2018 is delayed
as a result of the need to ensure the internodal aspects of the
project between the upstream and the midstream are sufficiently
de-risked. Based on the latest estimates, we have revised the FID
target date to Q4 2018.
License renewal for OMLs 4, 38 and 41
Confirmation of approval was received from the Department of
Petroleum Resources (DPR) for renewal of licenses on OML4, 38, 41
for a period of 20 years. The license renewal is subject to the
payment of a renewal fee, a continued commitment to gas
monetization and final consent of the Honourable Minister of
Petroleum Resources.
Work programme
In H2 2018 the Company is set to redeploy rigs into the field
and undertake certain facilities upgrade and optimisation projects.
At OMLs 4, 38 and 41 the Company plans to drill one new gas
production well that will also incorporate an exploration and
appraisal tail to test potential in deeper zones. In addition to
this one workover of an existing gas production well will be
undertaken. The Company will also install NAG booster compression,
a second condensate train at the Oben gas processing plant and make
upgrades to the Sapele gas plant.
At OML 53 the Company plans to re-enter, complete, and bring
onstream two oil production wells at the Ohaji South oil field and
work over one oil production well at the Jisike oil field. The
Company continues to high grade the large inventory of production
drilling opportunities within the existing portfolio with a view to
scaling up the forward work programme to efficiently capture the
highest cash return production opportunities.
FINANCE REVIEW
Revenue
Gross revenue for H1 2018 was US$342.7 million, an increase of
160% compared to the same period in 2017 (H1 2017: US$131.8
million). Crude revenue was US$257.3 million for the first six
months, a 131% increase from the same period in 2017 (H1 2017:
US$111.2 million). Gas revenue for the period was US$85.3 million,
a 57% increase from the same period in 2017 (H1 2017: US$54.4
million).
During the first six months the Group realised an average oil
price of US$69.1/bbl (H1 2017: US$45.0/bbl) and an average gas
price of US$3.04/Mscf (H1 2017: US$2.97/Mscf). Working interest
sales volume for the period stood at 8.4 MMboe up from 4.8 MMboe
during the same period in 2017. Total gas volumes sold were 28.0
Bscf (H1 2017: 18.3 Bscf), while total liquid (crude and
condensate) volumes lifted during the first six months were 3.7
MMbbls (H1 2017: 1.7 MMbbls).
Gross profit
Gross profit for the first six months was US$174.3 million, an
increase of 222% compared to the same period in 2017 (H1 2017:
US$53.6 million). The movement is primarily driven by the higher
level of oil production owing to increased uptime in the period,
higher oil price realisations, increased gas sales and lower unit
production opex which stood at US$4.50/boe (H1 2017:
US$5.85/boe).
Operating profit
Operating profit for the first six months was US$158.4 million
(H1 2017: US$7.2 million) and includes US$27.7 million recognised
in relation to a crude oil underlift position while G&A costs
were stable year-on-year at US$38.5 million (having seen a 27%
reduction in H1 2017 to US$36.3 million through cost reduction
initiatives).
Profit for the period
Profit before tax for the period was US$121.3 million (H1 2017:
US$26.5 million loss before tax) after adjusting for net finance
charges of US$37.1 million (H1 2017: US$33.7 million). The Group
recognised non-cash corporate taxes and non-cash deferred tax of
US$72.8 million in the period to record a net profit of US$48.5
million (H1 2017: US$27.6 million net loss).
Cash flows and liquidity
Cash flows from operating activities for the first six months
was US$245.4 million, up 131% compared to the same period in 2017
(H1 2017: US$106.2 million). Capital investments in the first six
months stood at US$21.2 million (H1 2017: US$11.2 million) and
reflects limited development activity. The Group maintains guidance
of US$100 million capital investments for the full year as it
scales up development activities in the second half. The vast
majority of the Group's capital expenditures are discretionary and
it has the flexibility to align spend with cash flow on a rolling
basis.
Having reached agreement in 2016 with partner BelemaOil on a
revised commercial arrangement at OML 55, which provides for a
discharge sum of US$330 million to be paid to Seplat over a
six-year period through allocation of crude oil volumes, the Group
received total proceeds of US$14.7 million in the period under this
arrangement from the monetisation of 221 kbbls. Consequently, after
adjusting for interest receipts of US$4.4 million, net cash outflow
from investing activities for the first six months was US$2.1
million compared to a net cash inflow in H1 2017 of US$11.9
million.
In March the Group successfully refinanced its existing US$300
million revolving credit facility ("RCF") with a new four year
US$300 million RCF at LIBOR + 6% (US$200 million drawn at 30 June
2018) and issued a debut US$350 million bond priced at 9.25%,
diversifying the long term capital base. Proceeds from the
re-financing were used to repay and cancel pre-existing
indebtedness and also to cash settle crude oil prepayments
undertaken during the extended period of force majeure in 2016 and
2017. The Group also reinstated a dividend of US$0.05/share and in
doing so returned US$29.4 million to shareholders.
The Group has continued to receive the proceeds of gas sales
from its partner NPDC in lieu of cash calls for ongoing operations.
Tolling fees arising from NPDC's share of processed gas from the
Oben Gas Expansion Project, which was financed on a sole risk basis
by Seplat, are yet to be settled by NPDC and Seplat is currently in
discussions with NPDC to finalise terms.
Overall Seplat's aggregate indebtedness at 30 June 2018 stood at
US$550 million and cash at bank US$509.9 million to give a net debt
position of US$40.1 million with US$100 million undrawn headroom on
the RCF facility. The Group is well capitalised and fully funded to
execute its organic growth plans and also well positioned to pursue
inorganic growth opportunities in line with its price disciplined
approach.
Hedging
The Company had in place dated Brent puts covering a volume of
3.6 MMbbls over H1 2018 at a strike price of US$40.0/bbl resulting
in a realised hedging loss of US$2.5 million in the period. Over H2
2018 the Company has in place dated Brent puts covering a volume of
3.0 MMbbls at a strike price of US$50.0/bbl. The board and
management continue to closely monitor prevailing oil market
dynamics, and will consider further measures to provide appropriate
levels of cash flow assurance in times of oil price weakness and
volatility.
Principal risks and uncertainties
The Board of Directors is responsible for setting the overall
risk management strategy of the Company and the determination of
what level of risk is acceptable for Seplat to bear. The principal
risks and uncertainties facing Seplat at the year-end are detailed
in the risk management section of the 2017 Annual Report and
Accounts. The board has identified the principal risks for the
remainder of 2018 to be:
-- Third party infrastructure downtime and the corresponding
impact on oil and gas production levels
-- Niger Delta stability and geo-political risk
-- Oil price volatility
-- Successful delivery of the planned work programme
Responsibility Statement
The Directors confirm that to the best of their knowledge:
a) The condensed set of financial statements have been prepared
in accordance with lAS 34 'Interim Financial Report';
b) The interim management report includes a fair review of the
information required by UK DTR 4.2.7R indication of important
events during the first three months and description of principal
risks and uncertainties for the remaining nine months of the year
and
c) The interim management report includes a fair review of the
information required by UK DTR 4.2.8R disclosure of related
parties' transactions and changes therein.
The Directors of Seplat Plc are as listed in the Group's 2017
Annual Report and Accounts. A list of current Directors is included
on the company website: www.seplatpetroleum.com.
By order of the Board,
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 July 2018 30 July 2018 30 July 2018
Important notice
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the market Abuse Regulation. Upon the publication of this
announcement via Regulatory Information Service, this inside
information is now considered to be in the public domain.
Certain statements included in these results contain
forward-looking information concerning Seplat's strategy,
operations, financial performance or condition, outlook, growth
opportunities or circumstances in the countries, sectors or markets
in which Seplat operates. By their nature, forward-looking
statements involve uncertainty because they depend on future
circumstances, and relate to events, not all of which are within
Seplat's control or can be predicted by Seplat. Although Seplat
believes that the expectations and opinions reflected in such
forward-looking statements are reasonable, no assurance can be
given that such expectations and opinions will prove to have been
correct. Actual results and market conditions could differ
materially from those set out in the forward-looking statements. No
part of these results constitutes, or shall be taken to constitute,
an invitation or inducement to invest in Seplat or any other
entity, and must not be relied upon in any way in connection with
any investment decision. Seplat undertakes no obligation to update
any forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent
legally required.
Webcast and conference call
At 09:00 am BST (London) / 09:00 am WAT (Lagos), Austin Avuru
(CEO), Effiong Okon (Operations Director and Roger Brown (CFO) will
host a webcast and conference call to discuss the Company's
results.
The webcast can be accessed via the Company's website
http://seplatpetroleum.com/ or at the following address:
https://webconnect.webex.com/webconnect/onstage/g.php?MTID=e66192890bc2d50e24c8f3b8337487902
To listen to the audio commentary only, participants can use the
following telephone number:
Telephone Number (UK toll free and international access): +44
(0) 1452 569 393
Conference title: Seplat Petroleum Development Company - Interim
Results
Conference ID: 8998566
If you are listening to the audio commentary and viewing the
webcast, you may notice a slight delay to the rate the slides
change on the webcast. If this is affecting you, please download
the pdf slide pack from the Company's website
http://seplatpetroleum.com/
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/
Ernst & Young Tel: +234 (01) 844 996
10(th) Floor, UBA House 2/3
57, Marina Fax: +234 (01) 463 0481
Lagos, Nigeria Email: services@ng.ey.com
www.ey.com
Report on review of interim condensed consolidated financial
statements to the shareholders of Seplat Petroleum Development
Company Plc
Introduction
We have reviewed the accompanying interim condensed consolidated
financial statements of Seplat Petroleum Development Company Plc
and its subsidiaries (the "Group"), which comprise the interim
condensed consolidated statement of financial position as at 30
June 2018, statement of profit or loss and other comprehensive
income, statement of changes in equity and statement of cash flows
for the half year then ended, and explanatory notes. The Company's
directors are responsible for the preparation and fair presentation
of these interim condensed consolidated financial statements in
accordance with IAS 34 Interim Financial Reporting and in the
manner required by the Companies and Allied Matters Act, CAP C20,
Laws of the Federation of Nigeria 2004 and the Financial Reporting
Council of Nigeria Act, No. 6, 2011. Our responsibility is to
express a conclusion on these interim condensed consolidated
financial statements based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity. A
review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying interim condensed
consolidated financial statements are not prepared, in all material
respects, in accordance with IAS 34.
Bernard Carrena, FCA
FRC/2013/ICAN/00000000670
For Ernst & Young
Lagos, Nigeria
30 July 2018
Interim condensed consolidated statement of profit or loss and
other comprehensive income
for the half year ended 30 June 2018
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
Unaudited Unaudited Unaudited Unaudited
--------------- --------------- -------------- --------------
Note 'million 'million 'million 'million
============================================== ==== =============== =============== ============== ==============
Revenue from contracts with customers 7 104,794 40,317 49,558 25,843
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Cost of sales 8 (51,487) (23,914) (24,654) (15,290)
============================================== ==== =============== =============== ============== ==============
Gross profit 53,307 16,403 24,904 10,553
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Other income 9 8,483 - 5,855 -
---------------------------------------------- ---- --------------- --------------- -------------- --------------
General and administrative expenses 10 (11,769) (11,108) (6,850) (5,979)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Reversal of/(impairment) losses on financial
assets - net 11 529 - (140) -
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Gain/(loss) on foreign exchange - net 12 8 (264) (564) (793)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Fair value loss - net 13 (2,127) (2,817) (397) (1,155)
============================================== ==== =============== =============== ============== ==============
Operating profit 48,431 2,214 22,808 2,626
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Finance income 14 1,330 270 893 206
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Finance costs 14 (12,668) (10,574) (4,595) (5,317)
============================================== ==== =============== =============== ============== ==============
Profit/(loss) before taxation 37,093 (8,090) 19,106 (2,485)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Taxation 15 (22,249) (342) (10,549) (92)
============================================== ==== =============== =============== ============== ==============
Profit/(loss) for the period 14,844 (8,432) 8,557 (2,577)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Other comprehensive (loss)/income:
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Items that may be reclassified to profit or
loss:
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Foreign currency translation difference 153 1,049 (74) (1,403)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Total comprehensive income/(loss) for the
period 14,997 (7,383) 8,483 (3,980)
============================================== ==== =============== =============== ============== ==============
Earnings/(loss) per share ( ) 16 25.59 (14.97) 14.75 (4.57)
---------------------------------------------- ---- --------------- --------------- -------------- --------------
Diluted earnings/(loss) per share( ) 16 25.42 (14.83) 14.65 (4.53)
============================================== ==== =============== =============== ============== ==============
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 30 June 2018
As at 30 June 2018 As at 31 Dec 2017
------------------ -----------------
Unaudited Audited
------------------ -----------------
Note 'million 'million
=========================================== ==== ================== =================
Assets
------------------------------------------- ---- ------------------ -----------------
Non-current assets
------------------------------------------- ---- ------------------ -----------------
Oil and gas properties 381,376 393,377
------------------------------------------- ---- ------------------ -----------------
Other property, plant and equipment 690 1,553
------------------------------------------- ---- ------------------ -----------------
Other asset 61,880 66,368
------------------------------------------- ---- ------------------ -----------------
Deferred tax 15 51,305 68,417
------------------------------------------- ---- ------------------ -----------------
Tax paid in advance 9,670 9,670
------------------------------------------- ---- ------------------ -----------------
Prepayments 85 287
------------------------------------------- ---- ------------------ -----------------
Total non-current assets 505,006 539,672
=========================================== ==== ================== =================
Current assets
------------------------------------------- ---- ------------------ -----------------
Inventories 30,699 30,683
------------------------------------------- ---- ------------------ -----------------
Trade and other receivables 18 59,655 94,904
------------------------------------------- ---- ------------------ -----------------
Contract assets 19 4,238 -
------------------------------------------- ---- ------------------ -----------------
Prepayments 469 595
------------------------------------------- ---- ------------------ -----------------
Cash & cash equivalents 20 155,981 133,699
=========================================== ==== ================== =================
Total current assets 251,042 259,881
=========================================== ==== ================== =================
Total assets 756,048 799,553
=========================================== ==== ================== =================
Equity and liabilities
------------------------------------------- ---- ------------------ -----------------
Equity
------------------------------------------- ---- ------------------ -----------------
Issued share capital 21a 296 283
------------------------------------------- ---- ------------------ -----------------
Share premium 82,080 82,080
------------------------------------------- ---- ------------------ -----------------
Treasury shares (10) -
------------------------------------------- ---- ------------------ -----------------
Share based payment reserve 21b 5,938 4,332
------------------------------------------- ---- ------------------ -----------------
Capital contribution 5,932 5,932
------------------------------------------- ---- ------------------ -----------------
Retained earnings 170,216 166,149
------------------------------------------- ---- ------------------ -----------------
Foreign currency translation reserve 201,023 200,870
=========================================== ==== ================== =================
Total shareholders' equity 465,475 459,646
=========================================== ==== ================== =================
Non-current liabilities
------------------------------------------- ---- ------------------ -----------------
Interest bearing loans & borrowings 17 153,368 93,170
------------------------------------------- ---- ------------------ -----------------
Contingent consideration 6.4 5,619 4,251
------------------------------------------- ---- ------------------ -----------------
Provision for decommissioning obligation 32,937 32,510
------------------------------------------- ---- ------------------ -----------------
Defined benefit plan 2,383 1,994
=========================================== ==== ================== =================
Total non-current liabilities 194,307 131,925
=========================================== ==== ================== =================
Current liabilities
------------------------------------------- ---- ------------------ -----------------
Interest bearing loans and borrowings 17 13,265 81,159
------------------------------------------- ---- ------------------ -----------------
Trade and other payables 22 76,615 125,559
------------------------------------------- ---- ------------------ -----------------
Current tax liabilities 6,386 1,264
------------------------------------------- ---- ------------------ -----------------
Total current liabilities 96,266 207,982
=========================================== ==== ================== =================
Total liabilities 290,573 339,907
=========================================== ==== ================== =================
Total shareholders' equity and liabilities 756,048 799,553
=========================================== ==== ================== =================
The above interim condensed consolidated statement of financial
position should be read in conjunction with the accompanying
notes.
Interim condensed consolidated statement of
financial position continued
As at 30 June 2018
The Group financial statements of Seplat Petroleum Development
Company Plc and its subsidiaries for the half year ended 30 June
2018 were authorised for issue in accordance with a resolution of
the Directors on 30 July 2018 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 July 2018 30 July 2018 30 July 2018
Interim condensed consolidated statement
of changes in equity continued
for the half year ended 30 June 2018
For the half year ended 30 June 2017
============================================ =========== ============= ========= ============ =========
Foreign
Issued Share based currency
share Share Treasury payment Capital Retained translation Total
capital premium shares reserve contribution earnings reserve equity
============== ======== ======== ======== =========== ============= ========= ============ =========
million million million million million million million million
============== ======== ======== ======== =========== ============= ========= ============ =========
At 1 January
2017 283 82,080 - 2,597 5,932 85,052 200,429 376,373
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Loss for the
period - - - - - (8,432) - (8,432)
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Other
comprehensive
income - - - - - - 1,049 1,049
============== ======== ======== ======== =========== ============= ========= ============ =========
Total
comprehensive
(loss)/
income for
the period - - - - - (8,432) 1,049 (7,383)
============== ======== ======== ======== =========== ============= ========= ============ =========
Transactions
with
owners in
their capacity
as owners: - - - - - -
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Share based
payments - - - 818 - - - 818
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Total - - - 818 - - - 818
============== ======== ======== ======== =========== ============= ========= ============ =========
At 30 June
2017
(unaudited) 283 82,080 - 3,415 5,932 76,620 201,478 369,808
============== ======== ======== ======== =========== ============= ========= ============ =========
For the half year ended 30 June 2018
=================================================================================== ============
Foreign
Issued Share based currency
share Share Treasury payment Capital Retained translation Total
capital premium shares reserve contribution earnings reserve equity
============== ======== ======== ======== =========== ============= ========= ============ =========
million 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 (Note 3.3) - - - - - (1,779) - (1,779)
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Adjustment on
initial
application of
IFRS
15 (Note 3.3) - - - - - - - -
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Adjusted
balance
at 1 January
2018 283 82,080 - 4,332 5,932 164,370 200,870 457,867
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Profit for the
period - - - - - 14,844 - 14,844
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Other
comprehensive
income - - - - - - 153 153
============== ======== ======== ======== =========== ============= ========= ============ =========
Total
comprehensive
income for
the period - - - - - 14,844 153 14,997
============== ======== ======== ======== =========== ============= ========= ============ =========
Transactions
with
owners in
their capacity
as owners:
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Dividends paid - - - - - (8,998) - (8,998)
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Share based
payments - - - 1,609 - - - 1,609
-------------- -------- -------- -------- ----------- ------------- --------- ------------ ---------
Issue of
shares 13 - (13) - - - - -
============== ======== ======== ======== =========== ============= ========= ============ =========
Vested shares - - 3 (3) - - - -
============== ======== ======== ======== =========== ============= ========= ============ =========
Total 13 - (10) 1,606 - (8,998) - (7,389)
============== ======== ======== ======== =========== ============= ========= ============
At 30 June
2018
(unaudited) 296 82,080 (10) 5,938 5,932 170,216 201,023 465,475
============== ======== ======== ======== =========== ============= ========= ============ =========
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 half year ended 30 June 2017
Half year ended Half year ended
30 June 2018 30 June 2017
---- --------------- ---------------
'million 'million
---- --------------- ---------------
Note Unaudited Unaudited
====================================================== ==== =============== ===============
Cash flows from operating activities
------------------------------------------------------ ---- --------------- ---------------
Cash generated from operations 23 75,022 32,492
------------------------------------------------------ ---- --------------- ---------------
Net cash inflows from operating activities 75,022 32,492
====================================================== ==== =============== ===============
Cash flows from investing activities
------------------------------------------------------ ---- --------------- ---------------
Investment in oil and gas properties (6,472) (3,424)
------------------------------------------------------ ---- --------------- ---------------
Investment in other property, plant and equipment - (118)
------------------------------------------------------ ---- --------------- ---------------
Proceeds from disposal of other property,
plant and equipment 1 -
------------------------------------------------------ ---- --------------- ---------------
Receipts from other assets 4,488 6,914
------------------------------------------------------ ---- --------------- ---------------
Interest received 1,330 270
====================================================== ==== =============== ===============
Net cash inflows/(outflows) from investing activities (653) 3,642
====================================================== ==== =============== ===============
Cash flows from financing activities
------------------------------------------------------ ---- --------------- ---------------
Repayments of bank financing (176,758) (12,693)
------------------------------------------------------ ---- --------------- ---------------
Receipts from bank financing 59,803 -
------------------------------------------------------ ---- --------------- ---------------
Dividend paid (8,998) -
------------------------------------------------------ ---- --------------- ---------------
Proceeds from senior notes issued 103,867 -
------------------------------------------------------ ---- --------------- ---------------
Repayments on crude oil advance (23,707) -
------------------------------------------------------ ---- --------------- ---------------
Payments for other financing charges (465) -
------------------------------------------------------ ---- --------------- ---------------
Interest paid on bank financing (5,874) (10,560)
====================================================== ==== =============== ===============
Net cash outflows from financing activities (52,132) (23,253)
====================================================== ==== =============== ===============
Net increase in cash and cash equivalents 22,237 12,881
------------------------------------------------------ ---- --------------- ---------------
Cash and cash equivalents at beginning of period 133,699 48,684
------------------------------------------------------ ---- --------------- ---------------
Effects of exchange rate changes on cash
and cash equivalents 45 66
====================================================== ==== =============== ===============
Cash and cash equivalents at end of period 155,981 61,631
====================================================== ==== =============== ===============
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.
The Company's registered address is: 25a Lugard Avenue, Ikoyi,
Lagos, Nigeria.
The Company acquired, pursuant to an agreement for assignment
dated 31 January 2010 between the Company, SPDC,
TOTAL and AGIP, a 45% participating interest in the following
producing assets:
OML 4, OML 38 and OML 41 are located in Nigeria. The total
purchase price for these assets was 104 billion paid at the
completion of the acquisition on 31 July 2010 and a contingent
payment of 10 billion payable 30 days after the second anniversary,
31 July 2012, if the average price per barrel of Brent Crude oil
over the period from acquisition up to 31 July 2012 exceeds 24,476
per barrel. 110 billion was allocated to the producing assets
including 5.7 billion as the fair value of the contingent
consideration as calculated on acquisition date. The contingent
consideration of 10 billion was paid on 22 October 2012.
In 2013, Newton Energy Limited ("Newton Energy"), an entity
previously beneficially owned by the same shareholders
as Seplat, became a subsidiary of the Company. On 1 June 2013,
Newton Energy acquired from Pillar Oil Limited ("Pillar
Oil") a 40 percent Participant interest in producing assets: the
Umuseti/Igbuku marginal field area located within OPL
283 (the "Umuseti/Igbuku Fields").
On 12 December 2014, Seplat Gas Company Limited ("Seplat Gas")
was incorporated as a private limited liability company to engage
in oil and gas exploration and production.
In 2015, the Group purchased a 40% participating interest in OML
53, onshore north eastern Niger Delta, from Chevron Nigeria Ltd for
79 billion.
In 2017, the Group incorporated a new subsidiary, ANOH Gas
Processing Company Limited. The principal activities of the Company
is the processing of gas from OML 53.
The Company together with its six wholly owned subsidiaries
namely, Newton Energy, which was incorporated on 1June 2013, Seplat
Petroleum Development Company UK Limited ("Seplat UK"), which was
incorporated on 21 August 2014, Seplat East Onshore Limited
("Seplat East"), which was incorporated on 12 December 2014, Seplat
East Swamp Company Limited ("Seplat Swamp"), which was incorporated
on 12 December 2014, Seplat Gas Company Limited ("Seplat GAS"),
which was incorporated on 12 December 2014 and ANOH Gas Processing
Company Limited which was incorporated on 18 January 2017 are
collectively referred to as the Group.
Subsidiary Country of incorporation Shareholding
and place of business % Principal activities
================================= ======================== ============ ====================================
Newton Energy Limited Nigeria 100% Oil & gas exploration and production
--------------------------------- ------------------------ ------------ ------------------------------------
Seplat Petroleum Development UK United Kingdom 100% Oil & gas exploration and production
--------------------------------- ------------------------ ------------ ------------------------------------
Seplat East Onshore Limited Nigeria 100% Oil & gas exploration and production
--------------------------------- ------------------------ ------------ ------------------------------------
Seplat East Swamp Company Limited Nigeria 100% Oil & gas exploration and production
--------------------------------- ------------------------ ------------ ------------------------------------
Seplat Gas Company Nigeria 100% Oil & gas exploration and production
--------------------------------- ------------------------ ------------ ------------------------------------
ANOH Gas Processing Nigeria 100% Gas processing
Company Limited
================================= ======================== ============ ====================================
Notes to the interim condensed consolidated
financial statements continued
2. Significant changes in the current reporting period
The following significant changes occurred during the reporting
period ended 30 June 2018:
-- The offering of 107 billion in aggregate principal amount of
9.25% senior notes due April 2023 in March 2018. The notes have
been issued by the Group and guaranteed by some of its
subsidiaries. The proceeds of the notes are being used to refinance
existing indebtedness and for general corporate purposes.
-- The refinancing of an existing 91.8 billion revolving credit
facility due in December 2018 with a new four year 91.8 billion
revolving facility due June 2022 in March 2018. The facility has an
initial interest rate of the 6% +Libor with interest payable
semi-annually and principal repayable annually. 61.2 billion was
drawn down in March 2018. The proceeds from the notes are being
used to repay existing indebtedness.
-- The issue of 25,000,000 additional shares in furtherance of
the Group's Long Term Incentive Plan in February 2018. The
additional issued shares are held by Stanbic IBTC Trustees Limited
as Custodian. The Group's share capital as at the reporting date
consists of 588,444,561 ordinary shares of N0.50k each, all with
voting rights.
3. Summary of significant accounting policies
3.1 Introduction to summary of significant accounting
policies
The accounting policies adopted are consistent with those of the
previous financial year end corresponding interim reporting period,
except for the adoption of new and amended standards which are set
out below.
3.2 Basis of preparation
i) Compliance with IFRS
The interim condensed consolidated financial statements of the
Group for the half year reporting period ended 30 June 2018 have
been prepared in accordance with accounting standard IAS 34 Interim
financial reporting.
ii) Historical cost convention
The financial information has been prepared under the going
concern assumption and historical cost convention, except for
contingent consideration and financial instruments measured at fair
value 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
(US$'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 interim condensed consolidated
financial statements.
iv) New and amended standards adopted by the Group
A number of new or amended standards became applicable for the
current reporting period and the Group had to change its accounting
policies and make retrospective adjustments as a result of adopting
the following standards.
-- IFRS 9 Financial instruments,
-- IFRS 15 Revenue from contracts with customers, and
-- Amendments to IFRS 15 Revenue from contracts with customers.
The impact of the adoption of these standards and the new
accounting policies are disclosed in note 3.3 below. The
other standards did not have any impact on the Group's
accounting policies and did not require retrospective
adjustments.
Notes to the interim condensed consolidated
financial statements continued
v) New standards, amendments 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.
a. IFRS 16 Leases
Title IFRS 16 Leases
of standard
------------ -----------------------------------------------------------------------
Nature IFRS 16 was issued in January 2016. It will result in almost
of change all leases being recognised on the balance sheet, as the distinction
between operating and finance leases is removed. Under the new
standard, an asset (the right to use the leased item) and a financial
liability to pay rentals are recognised. The only exceptions
are short-term and low-value leases. The accounting for lessors
will not significantly change.
------------ -----------------------------------------------------------------------
Impact Operating leases: The standard will affect primarily the accounting
for the Group's operating leases which include leases of buildings,
boats, storage facilities, rigs, land and motor vehicles. As
at the reporting date, the Group had no non-cancellable operating
lease commitments.
Short term leases & low value leases: The Group's one-year contracts
with no planned extension commitments mostly applicable to leased
staff flats will be covered by the exception for short-term leases,
while none of the Group's leases will be covered by the exception
for low value leases.
Service contracts: Some commitments such as contracts for the
provision of drilling, cleaning and community services were identified
as service contracts as they did not contain an identifiable
asset which the Group had a right to control. It therefore did
not qualify as leases under IFRS 16.
------------ -----------------------------------------------------------------------
Date The standard for leases is mandatory for financial years commencing
of adoption on or after 1 January 2019. The Group does not intend to adopt
the standard before its effective date.
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 are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
c. IFRIC 23- Uncertainty over income tax treatment
These amendments were 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 taxation 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.
These amendments are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
d. Conceptual framework for financial reporting
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
amendment before its effective date.
Notes to the interim condensed consolidated
financial statements continued
e. 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 are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
3.3 Changes in accounting policies
This note explains the impact of the adoption of IFRS 9:
Financial Instruments and IFRS 15: Revenue from Contracts with
Customers (including the amendments to IFRS 15) on the Group's
financial statements and discloses the related accounting policies
that have been applied from 1 January 2018.
3.3.1 Impact on the financial statements
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's consolidated financial statements for the year ended 31
December 2017.
As explained in note 3.3.2 below, IFRS 9: Financial instruments
was adopted without restating comparative information. The
adjustments arising from the new impairment rules are therefore not
reflected in the statement of financial position as at 31 December
2017, but are recognised in the opening statement of financial
position on 1 January 2018.
The Group has adopted IFRS 15: Revenue from Contracts with
Customers using the simplified method, with the effect of applying
this standard recognised at the date of initial application (1
January 2018). Accordingly, the information presented for 2017
financial year has not been restated but is presented, as
previously reported, under IAS 18 and related interpretations.
The following tables summarise the impact, net of tax, of
transition to IFRS 9 and IFRS 15 for each individual line item for
the reporting period ended 1 January 2018 and 30 June 2018. 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. There was no impact on the
statement of cash flows as a result of adopting the new
standards.
Amounts without impact of IFRS 9 and IFRS Impact of Impact of As at
15 IFRS 9 IFRS 15 1 January 2018
============================ ==== =========================================== ========= ========= ===============
Note 'million 'million 'million 'million
============================ ==== =========================================== ========= ========= ===============
Current assets
---------------------------- ---- ------------------------------------------- --------- --------- ---------------
Trade and other receivables 18 99,121 (1,779) (4,217) 93,125
---------------------------- ---- ------------------------------------------- --------- --------- ---------------
Contract assets 19 - - 4,217 4,217
---------------------------- ---- ------------------------------------------- --------- --------- ---------------
Total assets 799,553 (1,779) - 797,774
============================ ==== =========================================== ========= ========= ===============
Equity
---------------------------- ---- ------------------------------------------- --------- --------- ---------------
Retained earnings 166,149 (1,779) - 164,370
---------------------------- ---- ------------------------------------------- --------- --------- ---------------
Total shareholders' equity 459,646 (1,779) - 457,867
============================ ==== =========================================== ========= ========= ===============
Impact of Impact of As at
Amounts without impact of IFRS 9 and IFRS 15 IFRS 9 IFRS 15 30 June 2018
============================ ==== ============================================ ========= ========= =============
Note 'million 'million 'million 'million
============================ ==== ============================================ ========= ========= =============
ASSETS
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Current assets
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Trade and other receivables 18 65,143 (1,250) (4,238) 59,655
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Contract assets 19 - - 4,238 4,238
============================ ==== ============================================ ========= ========= -------------
Total current assets 252,292 (1,250) - 251,042
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Total assets 757,298 (1,250) - 756,048
============================ ==== ============================================ ========= ========= =============
EQUITY AND LIABILITIES
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Equity
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Retained earnings 171,466 (1,250) - 170,216
---------------------------- ---- -------------------------------------------- --------- --------- -------------
Total shareholders' equity 466,725 (1,250) - 465,475
============================ ==== ============================================ ========= ========= =============
Notes to the interim condensed consolidated
financial statements continued
Amount without impact of Half year ended
IFRS 9 and IFRS 15 Impact of IFRS 9 Impact of IFRS 15 30 June 2018
========================= ================= ================== ================
Notes 'million 'million 'million 'million
========================== ====== ========================= ================= ================== ================
Revenue from contracts
with customers 7 113,313 - (8,519) 104,794
Cost of sales 8 (51,523) - 36 (51,487)
========================== ====== ========================= ================= ================== ================
Gross profit 61,790 - (8,483) 53,307
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Other income 9 - - 8,483 8,483
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Reversal of impairment
losses on financial
assets-net 11 - 529 - 529
========================== ====== ========================= ================= ================== ================
Profit before taxation 36,564 529 - 37,093
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Taxation (22,249) - - (22,249)
========================== ====== ========================= ================= ================== ================
Profit for the period 14,315 529 - 14,844
========================== ====== ========================= ================= ================== ================
Other comprehensive
income
========================== ====== ========================= ================= ================== ================
Items that may be
reclassified to profit or
loss:
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Foreign currency
translation difference 153 - - 153
========================== ====== ========================= ================= ================== ================
Total comprehensive
income for the period 14,468 529 14,997
========================== ====== ========================= ================= ================== ================
Earnings per share for
profit attributable
to the equity
shareholders
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Basic earnings per share
( ) 24.68 0.91 - 25.59
-------------------------- ------ ------------------------- ----------------- ------------------ ----------------
Diluted earnings per
share ( ) 24.51 0.91 - 25.42
========================== ====== ========================= ================= ================== ================
Amount
without
impact 3 months
of IFRS Impact Impact ended
9 and IFRS of IFRS of IFRS 30 June
15 9 15 2018
============ ========= ========= ==========
Notes 'million 'million 'million 'million
======================================= ====== ============ ========= ========= ==========
Revenue from contracts with customers 7 55,459 - (5,901) 49,558
--------------------------------------- ------ ------------ --------- --------- ----------
Cost of sales 8 (24,700) - 46 (24,654)
======================================= ====== ============ ========= ========= ==========
Gross profit 30,759 - (5,855) 24,904
--------------------------------------- ------ ------------ --------- --------- ----------
Other income 9 - - 5,855 5,855
--------------------------------------- ------ ------------ --------- --------- ----------
Impairment losses on financial
assets-net 11 - (140) - (140)
--------------------------------------- ------ ------------ --------- --------- ----------
Profit before taxation 19,246 (140) - 19,106
--------------------------------------- ------ ------------ --------- --------- ----------
Taxation (10,549) - - (10,549)
======================================= ====== ============ ========= ========= ==========
Profit for the period 8,697 (140) - 8,557
======================================= ====== ============ ========= ========= ==========
Other comprehensive income
======================================= ====== ============ ========= ========= ==========
Items that may be reclassified
to profit or loss:
--------------------------------------- ------ ------------ --------- --------- ----------
Foreign currency translation
difference (74) - - (74)
======================================= ====== ============ ========= ========= ==========
Total comprehensive income for
the period 8,623 (140) - 8,483
======================================= ====== ============ ========= ========= ==========
Earnings per share for profit
attributable
to the equity shareholders
--------------------------------------- ------ ------------ --------- --------- ----------
Basic earnings per share ( ) 15.00 (0.25) - 14.75
--------------------------------------- ------ ------------ --------- --------- ----------
Diluted earnings per share (
) 14.89 (0.24) - 14.65
======================================= ====== ============ ========= ========= ==========
Notes to the interim condensed consolidated
financial statements continued
3.3.2 IFRS 9 Financial Instruments - Impact of adoption
The new financial instruments standard, IFRS 9 replaces the
provisions of IAS 39. The new standard presents a new model for
classification and measurement of assets and liabilities, a new
impairment model which replaces the incurred credit loss approach
with an expected credit loss approach, and new hedging
requirements.
The adoption of IFRS 9: Financial Instruments from 1 January
2018 resulted in changes in accounting policies and adjustments to
the amounts recognised in the financial statements. The new
accounting policies are set out in note below. In accordance with
the transitional provisions in IFRS 9, comparative figures have not
been restated.
3.3.2.1 Classification and measurement
a) Financial assets
On 1 January 2018 (the date of initial application of IFRS 9),
the Group's management assessed the classification of its financial
assets which is driven by the cash flow characteristics of the
instrument and the business model in which the asset is held.
The Group's financial assets includes cash and cash equivalents,
trade and other receivables and contract assets. The Group's
business model is to hold these financial assets to collect
contractual cash flows and to earn contractual interest. For cash
and cash equivalents, interest is based on prevailing market rates
of the respective bank accounts in which the cash and cash
equivalents are domiciled. Interest on trade and other receivables
is earned on defaulted payments in accordance with the joint
operating agreement (JOA). The contractual cash flows arising from
these assets represent solely payments of principal and interest
(SPPI).
Cash and cash equivalents, trade and other receivables and
contract assets that have previously been classified as loans and
receivables (L and R) are now classified at amortised cost.
Since there was no change in the measurement basis except for
nomenclature change, opening retained earnings was not impacted (no
differences between the previous carrying amount and the revised
carrying amount of these assets at 1 January 2018).
b) Financial liabilities
Following the adoption of IFRS 9, the Group no longer has a
choice to either recognise gain or loss from the refinancing of a
borrowing on day 1 or defer any gain or loss over the remaining
life of the borrowing by adjusting the effective interest rate, on
the basis that the terms and conditions of the facility remained
largely unchanged. Day one gain or loss must now be recognised at
once. No retrospective adjustments have been made in relation to
this change as at 1 January 2018.
Notes to the interim condensed consolidated
financial statements continued
On the date of initial application of, 1 January 2018, the
financial instruments of the Group were classified as follows:
Measurement category Carrying amount
==================================== =================================
Original New Original New
--------------- ------------------- ----------------- --------------
IAS 39 IFRS 9 million million
====================================== =============== =================== ================= ==============
Current financial assets
====================================== =============== =================== ================= ==============
Trade and other receivables:
------------------------------------------------------- ------------------- ----------------- --------------
Trade receivables L and R Amortised cost 33,236 33,236
-------------------------------------- --------------- ------------------- ----------------- --------------
NPDC receivables L and R Amortised cost 34,453 34,453
-------------------------------------- --------------- ------------------- ----------------- --------------
NAPIMS receivables L and R Amortised cost 3,824 3,824
-------------------------------------- --------------- ------------------- ----------------- --------------
Other receivables* L and R Amortised cost 7 7
-------------------------------------- --------------- ------------------- ----------------- --------------
Cash and cash equivalents L and R Amortised cost 133,699 133,699
-------------------------------------- --------------- ------------------- ----------------- --------------
Non-current financial liabilities
======================================================= =================== ================= ==============
Interest bearing loans and borrowings Amortised cost Amortised cost 93,170 93,170
-------------------------------------- --------------- ------------------- ----------------- --------------
Current financial liabilities
======================================================= =================== ================= ==============
Interest bearing loans and borrowings Amortised cost Amortised cost 81,159 81,159
-------------------------------------- --------------- ------------------- ----------------- --------------
Trade and other payables** Amortised cost Amortised cost 38,876 38,876
-------------------------------------- --------------- ------------------- ----------------- --------------
*Other receivables exclude NGMC VAT receivables, cash advance
and advance payments.
** Trade and other payables excludes accruals, provisions,
bonus, VAT, Withholding tax, deferred revenue and royalties.
3.3.2.2 Impairment of financial assets
The total impact on the Group's retained earnings as at 1
January 2018 and on profit for the period as at 30 June 2018
is as follows:
Notes 'million
================================================================================================== ====== ========
Closing retained earnings as at 31 December 2017- IAS 39 166,149
---------------------------------------------------------------------------------------------------------- --------
Increase in provision for Nigerian Petroleum Development Company (NPDC) receivables (a) (1,698)
-------------------------------------------------------------------------------------------------- ------ ----------
Increase in provision for National Petroleum Investment Management Services (NAPIMS) receivables (b) (81)
================================================================================================== ====== ========
(1,779)
========================================================================================================= ========
Opening retained earnings 1 January 2018 on adoption of IFRS 9 164,370
========================================================================================================== ========
Notes 'million
================================================================================================== ====== ========
Profit for the period (without impact of IFRS 9 and IFRS 15) 14,315
---------------------------------------------------------------------------------------------------------- --------
Reversal of impairment loss for Nigerian Petroleum Development Company (NPDC) receivables (a) 570
-------------------------------------------------------------------------------------------------- ------ --------
(Increase in provision for National Petroleum Investment Management Services (NAPIMS) receivables (b) (41)
-------------------------------------------------------------------------------------------------- ------ --------
Total reversal of impairment loss 529
---------------------------------------------------------------------------------------------------------- --------
Profit for the period (with impact of IFRS 9 and IFRS 15) 14,844
========================================================================================================== ========
Notes to the interim condensed consolidated
financial statements continued
The Group has six types of financial assets that are subject to
IFRS 9's new expected credit loss model. The Group was
required to revise its impairment methodology under IFRS 9 for
each of these classes of assets. The impact of the change in
impairment methodology on the Group's retained earnings is
disclosed in the table in note 3.3.2 above.
-- Nigerian Petroleum Development Company (NPDC) receivables
-- National Petroleum Investment Management Services
(NAPIMS)
-- Trade receivables
-- Contract assets
-- Other receivables and;
-- Cash and cash equivalents
a) Nigerian Petroleum Development Company (NPDC) receivables
The Group applies the IFRS 9 general model to measuring expected
credit losses (ECL) which uses a three-stage approach in
recognising the expected loss allowance for NPDC receivables. NPDC
receivables represent the outstanding cash calls due to Seplat from
its JV partner, Nigerian Petroleum Development Company
The ECL recognised for the period is a probability-weighted
estimate of credit losses discounted at the effective interest rate
of the financial asset. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash
flows due to the Group in accordance with the contract and the cash
flows that the Group expects to receive).
The ECL was calculated based on actual credit loss experience
from 2014, which is the date the Group initially became a party to
the contract. The following analysis provides further detail about
the calculation of ECLs related to these assets. The Group
considers the model and the assumptions used in calculating these
ECLs as key sources of estimation uncertainty.
Loss rate was calculated as the portion of the receivables that
have been deemed uncollectible during a particuar period, as a
percentage of the outstanding receivables over the same reporting
period. The expected loss rate at the end of the reporting period
was 7.6%.
The outstanding net NPDC receivables at the end of the reporting
period has been netted off against the gas receipts payable to
NPDC.
1 January 2018
Stage 1 Stage 2 Stage 3 Total
------------------------------------ ------------ ------------ ------------ --------
12-month ECL Lifetime ECL Lifetime ECL
------------------------------------ ------------ ------------ ------------ --------
'million 'million 'million 'million
==================================== ============ ============ ============ ========
Gross EAD* - 11,369 23,084 34,453
------------------------------------ ------------ ------------ ------------ --------
Loss allowance as at 1 January 2018 - (32) (1,666) (1,698)
==================================== ============ ============ ============ ========
Net EAD - 11,337 21,418 32,755
==================================== ============ ============ ============ ========
*Exposure of default
30 June 2018
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ------------ ------------ ------------ --------
12-month ECL Lifetime ECL Lifetime ECL
---------------------------------- ------------ ------------ ------------ --------
'million 'million 'million 'million
================================== ============ ============ ============ ========
Gross EAD* - - 14,817 14,817
---------------------------------- ------------ ------------ ------------ --------
Loss allowance as at 30 June 2018 - - (1,128) (1,128)
================================== ============ ============ ============ ========
Net EAD - - 13,689 13,689
================================== ============ ============ ============ ========
The Group considers both quantitative and qualitative indicators
in classifying its receivables into the relevant stages for
impairment calculation.
*Stage 1 includes receivables that are less than 30 days past
due (Performing).
*Stage 2 includes receivables that have been assessed to have
experienced a significant increase in credit risk using the days
past due criteria (i.e the outstanding receivables amount are more
than 30 days past due but less than 90 days past due) and other
qualitative indicators such as the increase in political risk
concerns or other micro-economic factors and the risk of legal
action, sanction or other regulatory penalties that may impair
future financial performance.
*Stage 3 receivables are receivables that have been assessed as
being in default( i.e receivables that are more than 90 days past
due) or there is a clear indication that the imposition of
financial or legal penalties and/or sanctions will make the full
recovery of indebtedness highly improbable.
Notes to the interim condensed consolidated
financial statements continued
The reconciliation of loss allowances for Nigerian Petroleum
Development Company (NPDC) receivables as at 1 January 2018 and 30
June 2018 is as follows:
'million
============================================================== ========
Loss allowance as at 1 January 2018 - calculated under IAS 39 -
-------------------------------------------------------------- --------
Amounts restated through opening retained earnings 1,698
============================================================== ========
Loss allowance as at 1 January 2018 - calculated under IFRS 9 1,698
-------------------------------------------------------------- --------
Reversal of impairment loss on NPDC receivables (570)
============================================================== ========
Loss allowance as at 30 June 2018 - Under IFRS 9 1,128
============================================================== ========
Probability of default (PD)
The credit rating of Federal Government bonds was used to
reflect the assessment of the probability of default on these
receivables. This was supplemented with external data from credit
bureau scoring information from Standard & Poor's (S&P) to
arrive at a 12-month PD of 3.9%. Lifetime PD (stage 2) was assumed
to be the 12-month PD as the maximum contractual period over which
the Group is exposed to credit risk is less than 12 months. The PD
for Stage 3 receivables was 100% as these amounts were deemed to be
in default using the days past due criteria. (See note 3.3.3 for
definition of default).
Loss given default (LGD)
The 12-month LGD was calculated as the present value of the
percentage loss on the outstanding receivables adjusted with
forward looking macroeconomic indicators. The 12-month LGD
assumptions are a reasonable proxy of lifetime LGD.
Exposure at default (EAD)
This is the amount that best represents the maximum exposure to
credit risk at the end of the reporting period without taking
account of any collateral.
Macroeconomic indicators
The real historical gross domestic product (GDP) growth rate in
Nigeria and crude oil price were identified as the key economic
variables impacting the credit risk on these receivables. Forecasts
of these economic variables ( the "base economic scenario") provide
the best estimate view of the economy in the last ten (10) years.
In addition to the base economic scenario, two additional scenarios
(optimistic and downturn) were used along with scenario
weightings.
The probability weight attached to each of the scenarios was
determined using the GDP growth rates. The historical GDP growth
rates were evaluated at 75% confidence interval. Based on this
confidence interval, 75% of historical GDP growth rate observation
falls within the acceptable bounds, 8% of the observation relates
to period of boom while 17% of the observation relate to periods of
recession/downturn.
b) National Petroleum Investment Management Services (NAPIMS)
receivables
The Group applies the IFRS 9 general model to measuring expected
credit losses (ECL) which uses a three-stage approach in
recognising the expected loss allowance for NAPIMS receivables.
NAPIMS receivables represent the outstanding cash calls due to
Seplat from its JV partner, National Petroleum Investment
Management Services
The ECL was calculated based on actual credit loss experience
from 2016, which is the date the Group initially became a party to
the contract. The following analysis provides further detail about
the calculation of ECLs related to these assets. The Group
considers the model and the assumptions used in calculating these
ECLs as key sources of estimation uncertainty. The explanation of
inputs, assumptions and estimation techniques used are consistent
with those for NPDC receivables.
Loss rate was calculated as the portion of the receivables that
have been deemed uncollectible during a particuar period, as a
percentage of the outstanding receivables over the same reporting
period. The expected loss rates at the end of the reporting period
for NAPIMS receivables in Stage 1 and Stage 3 were 1.85% and 47.8%
respectively.
Notes to the interim condensed consolidated
financial statements continued
1 January 2018
Stage 1 Stage 2 Stage 3 Total
------------------------------------ ------------ ------------ ------------ --------
12-month ECL Lifetime ECL Lifetime ECL
------------------------------------ ------------ ------------ ------------ --------
'million 'million 'million 'million
==================================== ============ ============ ============ ========
Gross EAD* 1,306 - 2,518 3,824
------------------------------------ ------------ ------------ ------------ --------
Loss allowance as at 1 January 2018 (2) - (79) (81)
==================================== ============ ============ ============ ========
Net EAD 1,304 - 2,439 3,743
==================================== ============ ============ ============ ========
30 June 2018
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ------------ ------------ ------------ --------
12-month ECL Lifetime ECL Lifetime ECL
---------------------------------- ------------ ------------ ------------ --------
'million 'million 'million 'million
================================== ============ ============ ============ ========
Gross EAD* 1,186 - 209 1,395
---------------------------------- ------------ ------------ ------------ --------
Loss allowance as at 30 June 2018 (22) - (100) (122)
================================== ============ ============ ============ ========
Net EAD 1,164 - 109 1,273
================================== ============ ============ ============ ========
The Group considers both quantitative and qualitative indicators
in classifying its receivables into the relevant stages for
impairment calculation.
*Stage 1 includes receivables that are less than 30 days past
due (Performing).
*Stage 2 includes receivables that have been assessed to have
experienced a significant increase in credit risk using the days
past due criteria (i.e the outstanding receivables amount are more
than 30 days past due but less than 90 days past due) and other
qualitative indicators such as the increase in political risk
concerns or other micro-economic factors and the risk of legal
action, sanction or other regulatory penalties that may impair
future financial performance.
*Stage 3 receivables are receivables that have been assessed as
being in default( i.e receivables that are more than 90 days past
due) or there is a clear indication that the imposition of
financial or legal penalties and/or sanctions will make the full
recovery of indebtedness highly improbable.
The reconciliation of loss allowances for National Petroleum
Investment Management Services receivables as at 1 January 2018 and
30 June 2018 is as follows:
'million
============================================================== ========
Loss allowance as at 1 January 2018 - calculated under IAS 39 -
-------------------------------------------------------------- --------
Amounts restated through opening retained earnings 81
============================================================== ========
Loss allowance as at 1 January 2018 - calculated under IFRS 9 81
-------------------------------------------------------------- --------
Increase in provision for impairment loss on NPDC receivables 41
============================================================== ========
Loss allowance as at 30 June 2018 - Under IFRS 9 122
============================================================== ========
c) Trade receivables and contract assets
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables and
contract assets have been grouped based on shared credit risk
characteristics and the days past due criterion. Contract assets
relate to unbilled receivables for the delivery of gas supplies in
which NGMC has taken delivery of but has not been invoiced as at
the end of the reporting period. These assets have substantially
the same risk characteristics as the trade receivables for the same
types of contracts. The Group has therefore concluded that the
expected loss rates for trade receivables are a reasonable
approximation of the loss rates for the contract assets.
Trade receivables and contract assets include amounts receivable
from Mercuria Energy Group, Shell Western Supply, Pillar Limited
and Nigerian Gas Marketing Company (NGMC).
For Mecuria Energy Group and Shell Western Supply, impairment
was assessed to be immaterial as there has been no history of
default (i.e. the Group receives the outstanding amount within the
standard payment period of 30 days) and there has been no dispute
arising on the invoiced amount from both parties.
Notes to the interim condensed consolidated
financial statements continued
The Group also assessed for impairment on receivable balances
from Pillar Limited and Nigerian Gas Marketing Company (NGMC) using
outstanding payments to model the expected loss rates. Based on
this assessment, the identified impairment loss as at 1 January
2018 and 30 June 2018 was immaterial as there has been no history
of default or dispute on the receivables. The impairment allowance
on these assets was nil under the incurred loss model of IAS
39.
d) Other receivables
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all financial assets that are classified within other
receivables.
Other receivables relate to staff receivables and an amount
receivable from SPDC for an investment no longer being pursued.
Impairment allowance on both receivable amounts were assessed to be
immaterial.
For staff receivables, this was on the basis that there has been
no history of default on these assets as repayments are deducted
directly from the staff's monthly salary. In addition, the
outstanding balance as at the 30 June 2018 and
31 December 2017 was deemed to be immaterial 718,865 (2017: 4.5
million). The impairment was nil under the incurred loss model of
IAS 39.
The amount of loss allowance for the receivables arising from
the settlement of the investment in OML 25 as a result of applying
the simplified approach was immaterial as the receivables are
assessed to be fully recoverable and less than 30 days past due as
at the reporting date. The impairment was nil under the incurred
loss model of IAS 39.
e) Cash and cash equivalents
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, the identified impairment loss
was immaterial.
3.3.2.3 Hedge accounting
As at the reporting periods ended 31 December 2017 and 30 June
2018, the Group had no derivative assets or liabilities. However,
the Group entered agreements to sell put options for crude oil in
Brent at a strike price of 12,236 per barrel to NedBank Limited for
600,000 barrels within a period of 6 months from 1 January 2018 to
30 June 2018.
It also entered into agreements to sell put options for crude
oil in Brent at a strike price of 15,295 per barrel to Natixis for
500,000 barrels within a period of 6 months from 1 July 2018 to 31
December 2018.
The purpose of these is to hedge its cash flows against oil
price risk. The contracts provide for a no loss position for
Seplat, in that Seplat makes a gain if the price of oil falls below
the strike price; and if the price of oil is above the strike
price, there is no loss i.e. no payment is made by Seplat except
for the mutually agreed monthly premium which is paid in arrears
and is settled net of any gain on settlement date.
These contracts however, are not designated as hedging
instruments, and as such hedge accounting is not being applied. In
the event where the Group takes the option of designating its
derivative as hedging instruments, the Group would need to make a
formal designation and documentation of the hedging relationship
and the Group's risk management objective and strategy for
undertaking the hedge.
3.3.3 IFRS 9: Financial Instruments - Accounting policies applied from 1 January 2018
The Group's accounting policies were changed to comply with IFRS
9. IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities; derecognition of financial instruments;
impairment of financial assets and hedge accounting. IFRS 9 also
significantly amends other standards dealing with financial
instruments such as IFRS 7 Financial Instruments: Disclosures.
a) Classification and measurement
-- Financial assets
It is the Group's policy to initially recognise financial assets
at fair value plus transaction costs, except in the case of
financial assets recorded at fair value through profit or loss
which are expensed in profit or loss.
Classification and subsequent measurement is dependent on the
Group's business model for managing the asset and the cashflow
characteristics of the asset. On this basis, the Group may classify
its financial instruments as amortised cost, fair value through
profit or loss and as fair value through other comprehensive
income.
Notes to the interim condensed consolidated
financial statements continued
All the Group's financial assets as at 30 June 2018 satisfy the
conditions for classification at amortised cost under IFRS 9.
The Group's financial assets include trade receivables, NPDC
receivables, NAPIMS receivables, contract assets, other receivables
and cash and cash equivalents.
-- Financial liabilities
Financial liabilities of the Group are classified and
subsequently recognised at amortised cost net of directly
attributable transaction costs, except for derivatives which are
classified and subsequently recognised at fair value through profit
or loss.
Fair value gains or losses for financial liabilities designated
at fair value through profit or loss are accounted for in profit or
loss except for the amount of change that is attributable to
changes in the Group's own credit risk
which is presented in other comprehensive income. The remaining
amount of change in the fair value of the liability is presented in
profit or loss. The Group's financial liabilities include trade and
other payables and interest bearing loans and borrowings.
b) Impairment of financial assets
Recognition of impairment provisions under IFRS 9 is based on
the expected credit loss (ECL) model. The ECL model is applicable
to financial assets classified at amortised cost and contract
assets under IFRS 15: Revenue from Contracts with Customers. The
measurement of ECL reflects an unbiased and probability-weighted
amount that is determined by evaluating a range of possible
outcomes, time value of money and reasonable and supportable
information, that is available without undue cost or effort at the
reporting date, about past events, current conditions and forecasts
of future economic conditions.
The Group applies the simplified approach or the three-stage
general approach to determine impairment of receivables depending
on their respective nature. The simplified approach is applied for
trade receivables and contract assets while the three-stage
approach is applied to NPDC receivables, NAPIMS receivables and
other receivables.
The simplified approach requires expected lifetime losses to be
recognised from initial recognition of the receivables. This
involves determining the expected loss rates which is then applied
to the gross carrying amount of the receivable to arrive at the
loss allowance for the period.
The three-stage approach assesses impairment based on changes in
credit risk since initial recognition using the past due criterion.
Financial assets classified as stage 1 have their ECL measured as a
proportion of their lifetime ECL that results from possible default
events that can occur within one year, while assets in stage 2 or 3
have their ECL measured on a lifetime basis.
Under the three-stage approach, the ECL is determined by
projecting the probability of default (PD), loss given LGD and EAD
for each ageing bucket and for each individual exposure. The PD is
based on default rates determined by external rating agencies for
the counterparties. The LGD assesses the portion of the outstanding
receivable that is deemed to be irrecoverable at the reporting
period. These three components are multiplied together and adjusted
using macro-economic indicators. This effectively calculates an ECL
which is then discounted back to the reporting date and summed. The
discount rate used in the ECL calculation is the original effective
interest rate or an approximation thereof.
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the related
financial assets and the amount of the loss is recognised in profit
or loss.
c) Derecognition
-- Financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or when it
transfers the financial asset and the transfer qualifies for
derecognition.
The Group's financial assets include trade receivables, NPDC
receivables, NAPIMS receivables, contract assets, other receivables
and cash and cash equivalents.
-- Financial liabilities
The Group derecognises a financial liability when it is
extinguished i.e. when the obligation specified in the contract is
discharged or cancelled or expires. When an existing financial
liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised immediately in the
statement of profit or loss.
Notes to the interim condensed consolidated
financial statements continued
d) Significant increase in credit risk and default
definition
The Group assesses the credit risk of its financial assets based
on the information obtained during periodic review of publicly
available information on the entities, industry trends and payment
records. Based on the analysis of the information provided, the
Group identifies the assets that require close monitoring.
Financial assets that have been identified to be more than 30
days past due on contractual payments are assessed to have
experienced significant increase in credit risk. These assets are
grouped as part of Stage 2 financial assets where the three-stage
approach is applied.
In line with the Group's credit risk management practices, a
financial asset is defined to be in default when contractual
payments have not been received at least 90 days after the
contractual payment period. Subsequent to default, the Group
carries out active recovery strategies to recover all outstanding
payments due on receivables. Where the Group determines that there
are no realistic prospects of recovery, the financial asset and any
related loss allowance is written off either partially or in
full.
3.3.4 IFRS 15 Revenue from Contracts with Customers - Impact of adoption
The Group has adopted IFRS 15 Revenue from Contracts with
Customers from 1 January 2018 which resulted in changes in
accounting policies and adjustments to the amounts recognised in
the financial statements. In accordance with the transition
provisions in IFRS 15, the Group has applied the modified
retrospective approach and has not restated comparatives for the
2017 financial year. There was no impact on the Group's retained
earnings at the date of initial application (i.e. 1 January
2018).
The analysis below shows the impact on the statement of
financial position and statement of other comprehensive income for
the period ended 30 June 2018.
3.3.4.1. Presentation of contract assets
Amount without impact of IFRS
9 Impact of Impact of As at
and IFRS 15 IFRS 9 IFRS 15 30 June 2018
---------------------------- ----- ------------------------------ ---------------- ------------ -----------------
Note 'million 'million 'million 'million
============================ ===== ============================== ================ ============ =================
ASSETS
---------------------------- ----- ------------------------------ ---------------- ------------ -----------------
Current assets
---------------------------- ----- ------------------------------ ---------------- ------------ -----------------
Trade and other receivables (a) 65,143 (1,250) (4,238) 59,655
---------------------------- ----- ------------------------------ ---------------- ------------ -----------------
Contract assets (a) - - 4,238 4,238
---------------------------- ----- ------------------------------ ---------------- ------------ -----------------
a) Trade and other receivables
The Group introduced the presentation of contract assets in the
balance sheet to reflect the guidance of IFRS 15. Contract assets
recognised in relation to unbilled revenue from Nigerian Gas
Marketing Company (NGMC) were previously presented as part of trade
and other receivables.
3.3.4.2. Reclassifications
The following reclassification adjustments were made in the
current reporting period to recognise the impact of the initial
application of IFRS 15.
As at 30 June 2018
------------------
Unaudited
--------------------------------------------------------------- ------ ------------------
Note 'million
================================================================ ===== ==================
Revenue from contracts with customers (without IFRS 15 impact) 113,313
---------------------------------------------------------------- ----- ------------------
Reclassification of underlifts to other income (a) (8,483)
---------------------------------------------------------------- ----- ------------------
Reclassification of demurrage from cost of sales (b) (36)
---------------------------------------------------------------- ----- ------------------
Total impact of reclassification on revenue (8,519)
======================================================================= ==================
Revenue from contract with customers under IFRS 15 104,794
======================================================================= ==================
Notes to the interim condensed consolidated
financial statements continued
a) Reclassification of underlifts to other income
In some instances, Joint ventures (JV) partners lift the share
of production of other partners. Under IAS 18, over lifts and
underlifts were recognised net in revenue using entitlement
accounting. They are settled at a later period through future
liftings and not in cash (non-monetary settlements). This is
referred to as the entitlement method. IFRS 15 excludes
transactions arising from arrangements where the parties are
participating in an activity together and share the risks and
benefits of that activity as the counterparty is not a customer. To
reflect the change in policy, the Group has reclassified underlifts
to other income.
b) Reclassification of demurrage from costs of sales
Seplat pays demurrage to Mercuria for delays caused by
incomplete cargoes delivered at the port. These are referred to as
price adjustments and Seplat is billed subsequently by Mercuria.
Under IFRS 15, these are considerations payable to customers and
should be recognised net of revenue. Revenue has therefore been
recognised net of demurrage costs. In the current period, there was
a refund of demurrage which has been added to revenue. In prior
reporting periods, demurrage costs were included as part of
operations and maintenance costs.
3.3.4.3. Financing component
The Group does not have any contracts where the period between
the transfer of the promised goods or services to the customer and
payment by the customer exceeds one year. As a result, the Group
does not adjust any of the transaction prices for the time value of
money.
3.3.5 IFRS 15 Revenue from Contracts with Customers - Accounting policies
The Group has adopted IFRS 15 as issued in May 2014 which has
resulted in changes in the accounting policy of the Group. IFRS 15
replaces IAS 18 which covers revenue arising from the sale of goods
and the rendering of services, IAS 11 which covers construction
contracts, and related interpretations. In accordance with the
transitional provisions in IFRS 15, comparative figures have not
been restated as the Group has applied the modified retrospective
approach in adopting this standard.
IFRS 15 introduces a five-step model for recognising revenue to
depict transfer of goods or services. The model distinguishes
between promises to a customer that are satisfied at a point in
time and those that are satisfied over time.
a) Revenue recognition
It is the Group's policy to recognise revenue from a contract
when it has been approved by both parties, rights have been clearly
identified, payment terms have been defined, the contract has
commercial substance, and collectability has been ascertained as
probable. Collectability of customer's payments is ascertained
based on the customer's historical records, guarantees provided,
the customer's industry and advance payments made if any.
Revenue is recognised when control of goods sold has been
transferred. Control of an asset refers to the ability to direct
the use of and obtain substantially all of the remaining benefits
(potential cash inflows or savings in cash outflows) associated
with the asset. For crude oil, this occurs when the crude products
are lifted by the customer (buyer) Free on Board at the Group's
loading facility. . Revenue from the sale of oil is recognised at a
point in time when performance obligation is satisfied. For gas,
revenue is recognised when the product passes through the custody
transfer point to the customer. Revenue from the sale of gas is
recognised over time using the practical expedient of the right to
invoice.
The surplus or deficit of the product sold during the period
over the Group's ownership share of production is termed as an
overlift or underlift. With regard to underlifts, if the
over-lifter does not meet the definition of a customer or the
settlement of the transaction is non-monetary, a receivable and
other income is recognised. Conversely, when an overlift occurs,
cost of sale is debited and a corresponding liability is accrued.
Overlifts and underlifts are initially measured at the market price
of oil at the date of lifting, consistent with the measurement of
the sale and purchase. Subsequently, they are remeasured at the
current market value. The change arising from this remeasurement is
included in the profit or loss as other income or cost of
sales.
Notes to the interim condensed consolidated
financial statements continued
-- Definition of a customer
A customer is a party that has contracted with the Group to
obtain crude oil or gas products in exchange for a consideration,
rather than to share in the risks and benefits that result from
sale. The Group has entered into collaborative arrangements with
its Joint venture partners to share in the production of oil.
Collaborative arrangements with its Joint venture partners to share
in the production of oil are accounted for differently from
arrangements with customers as collaborators share in the risks and
benefits of the transaction, and therefore, do not meet the
definition of customers. Revenue arising from these arrangements
are recognised separately in other income.
-- Identification of performance obligation
At inception, the Group assesses the goods or services promised
in the contract with a customer to identify as a performance
obligation, each promise to transfer to the customer either a
distinct good or series of distinct goods. The number of identified
performance obligations in a contract will depend on the number of
promises made to the customer. The delivery of barrels of crude oil
or units of gas are usually the only performance obligation
included in oil and gas contract with no additional contractual
promises. Additional performance obligations may arise from future
contracts with the Group and its customers.
The identification of performance obligations is a crucial part
in determining the amount of consideration recognised as revenue.
This is due to the fact that revenue is only recognised at the
point where the performance obligation is fulfilled, Management has
therefore developed adequate measures to ensure that all
contractual promises are appropriately considered and accounted for
accordingly.
-- Contract enforceability and termination clauses
The Group may enter into contracts that do not create
enforceable rights and obligation to parties in the contract. Such
instances may include where the counterparty has not met all
conditions necessary to kick start the contract or where a
non-contractual promise exists between both parties to the
agreement. In these instances, the agreement is not yet a valid
contract and therefore no revenue can be recognised. The agreement
between Seplat and PanOcean is not a valid contract. Therefore, it
may not be appropriate to reclassify the outstanding balance from
deferred revenue to contract liability. The outstanding balance has
been included as part of accruals and other payables.
No amount has been recognized in revenue in relation to the
transaction"
It is the Group's policy to assess that the defined criteria for
establishing contracts that entail enforceable rights and
obligations are met. The criteria provides that the contract has
been approved by both parties, rights have been clearly identified,
payment terms have been defined, the contract has commercial
substance, and collectability has been ascertained as probable.
The Group may enter into contracts that do not meet the revenue
recognition criteria. In such cases, the consideration received
will only be recognised as revenue when the contract is
terminated.
The Group may also have the unilateral rights to terminate an
unperformed contract without compensating the other party. This
could occur where the Group has not yet transferred any promised
goods or services to the customer and the Group has not yet
received, and is not yet entitled to receive, any consideration in
exchange for promised goods or services.
b) Transaction price
Transaction price is the amount that an entity allocates to the
performance obligations identified in the contract. It represents
the amount of revenue recognised as those performance obligations
are satisfied. Complexities may arise where a contract includes
variable consideration, significant financing component or
consideration payable to a customer.
Variable consideration not within the Group's control is
estimated at the point of revenue recognition and reassessed
periodically. The estimated amount is included in the transaction
price to the extent that it is highly probable that a significant
reversal of the amount of cumulative revenue recognised will not
occur when the uncertainty associated with the variable
consideration is subsequently resolved. As a practical expedient,
where the Group has a right to consideration from a customer in an
amount that corresponds directly with the value to the customer of
the Group's performance completed to date, the Group may recognise
revenue in the amount to which it has a right to invoice.
Significant financing component (SFC) assessment is carried out
(using a discount rate that reflects the amount charged in a
separate financing transaction with the customer and also
considering the Group's incremental borrowing rate) on contracts
that have a repayment period of more than 12 months. As a practical
expedient, the Group does not adjust the promised amount of
consideration for the effects of a significant financing component
if it expects, at contract inception, that the period between when
it transfers a promised good or service to a customer and when the
customer pays for that good or service will be one year or
less.
Notes to the interim condensed consolidated
financial statements continued
Instances when SFC assessment may be carried out include where
the Group receives advance payment for agreed volumes of crude oil
or receivables take or pay deficiency payment on gas sales. Take or
pay gas sales contract ideally provides that the customer must
sometimes pay for gas even when not delivered to the customer.
The customer, in future contract years, takes delivery of the
product without further payment. The portion of advance payments
that represents significant financing component will be recognised
as interest revenue.
Consideration payable to a customer is accounted for as a
reduction of the transaction price and, therefore, of revenue
unless the payment to the customer is in exchange for a distinct
good or service that the customer transfers to the Group. Examples
include barging costs incurred, demurrage and freight costs. These
do not represent a distinct service transferred and is therefore
recognised as a direct deduction from revenue.
c) Breakage
The Group enters into take or pay contracts for sale of gas
where the buyer may not ultimately exercise all of their rights to
the gas. The take or pay quantity not taken is paid for by buyer
called take or pay deficiency payment. The Group assesses if there
is a reasonable assurance that it will be entitled to a breakage
amount. Where it establishes that a reasonable assurance exists, it
recognises the expected breakage amount as revenue in proportion to
the pattern of rights exercised by the customer. However, where the
Group is not reasonably assured of a breakage amount, it would only
recognise the expected breakage amount as revenue when the
likelihood of the customer exercising its remaining rights becomes
remote.
d) Contract modification and contract combination
Contract modifications relates to a change in the price and/or
scope of an approved contract. Where there is a contract
modification, the Group assesses if the modification will create a
new contract or change the existing enforceable rights and
obligations of the parties to the original contract.
Contract modifications are treated as new contracts when the
performance obligations are separately identifiable and transaction
price reflects the standalone selling price of the crude oil or the
gas to be sold. Revenue is adjusted prospectively when the crude
oil or gas transferred is separately identifiable and the price
does not reflect the standalone selling price. Conversely, if there
are remaining performance obligations which are not separately
identifiable, revenue will be recognised on a cumulative catch-up
basis when crude oil or gas is transferred.
The Group enters into new contracts with its customers only on
the expiry of the old contract. In the new contracts, prices and
scope may be based on terms in the old contract. In gas contracts,
prices change over the course of time. Even though gas prices
change over time, the changes are based on agreed terms in the
initial contract i.e. price change due to consumer price index. The
change in price is therefore not a contract modifications. Any
other change expected to arise from the modification of a contract
is implemented in the new contracts.
The Group combines contracts entered into at near the same time
(less than 12 months) as one contract if they are entered into with
the same or related party customer, the performance obligations are
the same for the contracts and the price of one contract depends on
the other contract.
e) Portfolio expedients
As a practical expedient, the Group may apply the requirements
of IFRS 15 to a portfolio of contracts (or performance obligations)
with similar characteristics if it expects that the effect on the
financial statements would not be materially different from
applying IFRS to individual contracts within that portfolio.
f) Contract assets and liabilities
The Group recognises contract assets for unbilled revenue from
crude oil and gas sales. A contract liability is consideration
received for which performance obligation has not been met.
g) Disaggregation of revenue from contract with customers
The Group derives revenue from two types of products, oil and
gas. The Group has determined that the disaggregation of revenue
based on the criteria of type of products meets the revenue
disaggregation disclosure requirement of IFRS 15 as it depicts how
the nature, amount, timing and uncertainty of revenue and cash
flows are affected by economic factors. See further details in note
6
3.4 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 30 June 2018.
This basis of consolidation is the same adopted for the last
audited financial statements as at 31 December 2017.
Notes to the interim condensed consolidated
financial statements continued
3.5 Functional and presentation currency
Items included in the financial statements of the Company and
the 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 Great Britain Pound. 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 and
this is allowable by the regulator.
i) 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 each statement of financial
position presented are translated at the closing rate at the
reporting date.
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not - a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
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's judgements at the end of the half year are
consistent with those disclosed in the recent 2017 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.
Notes to the interim condensed consolidated
financial statements continued
ii) New tax regime
Effective 1 January 2013, the Company was granted the inter tax
status incentive by the Nigerian Investment Promotion Commission
for an initial three-year period and a further two-year period on
approval. For the period the incentive applies, the Company is
exempted from paying petroleum profits tax on crude oil profits
(which was taxed at 65.75% but increased to 85% in 2017), corporate
income tax on natural gas profits (currently taxed at 30%) and
education tax of 2%. The Company has completed its first three
years of the pioneer tax status and now required to pay the full
petroleum profits tax on crude oil profits, corporate income tax on
natural gas profits and education tax of 2%.
Newton Energy and Seplat East Onshore Limited (OML 53) were also
granted pioneer tax status on the same basis as the company. Tax
incentives do not apply to Seplat East Swamp Company Limited (OML
55), as it had no activities at the time the incentives were
granted to Seplat and Newton Energy.
Deferred tax assets have been recognised during the half year
period. Deferred tax liabilities are not recognised in the half
year period as the Group was not liable to make future income taxes
payment in respect of taxable temporary differences.
iii) Unrecognised deferred tax asset
Deferred income tax assets are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable. See further
details in note 15.
iv) Defined benefit plan
The Group has placed reliance on the actuarial valuations
carried at the 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.
v) 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.
-- 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 NGMC 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 transers
the crude to Mecuria and when payment for the crude is recieved
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.
Notes to the interim condensed consolidated
financial statements continued
-- Transactions with Joint Venture (JV) 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 JV partners
involves sharing in the production of crude oil, and for which the
settlement of the transaction is non-monetary. The JV partners have
been assessed to be partners not customer. Therefore, shortfalls or
excesses below or above the Group's share of production are
recognised in other income and cost of sales respectively.
-- Barging costs
The Group refunds to Mercuria barging costs incurred on crude
oil barrels delivered. The Group does not enjoy a separate service
as it would have had to pay another party for the delivery of crude
oil. The barging costs is therefore determined to be a
consideration payable to customer as there is no distinct goods or
service being enjoyed by Group. Since no distinct good or service
is transferred, barging costs is accounted for as a direct
deduction from revenue i.e. revenue is recognised net of
barging
vi) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision
maker.
The Board of directors has appointed a steering committee which
assesses the financial performance and position of the Group, and
makes strategic decisions. The steering committee, which has been
identified as being the chief operating decision maker, consists of
the chief financial officer, the general manager (Finance), the
general manager (Gas) and the financial reporting manager. See
further details in note 6.
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 2017 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. 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) Contingent consideration
During the reporting period, the Group continued to recognise
the contingent consideration of 5.7 billion for OML 53 at the fair
value of 5.6 billion (2017: 4.2 billion). It is contingent on oil
price rising above US$90 ( 27,535) per barrel over a one year
period and expirirng on 31(st) January 2020.
iii) 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.
Notes to the interim condensed consolidated
financial statements continued
iv) 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. Details of the key assumptions and inputs used are
disclosed note 3.3.3.
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, interest rate
risk and commodity price risk), credit risk and liquidity risk. The
Group's risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out by the treasury department under
policies approved by the Board of Directors. The Board provides
written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk,
interest rate risk, credit risk and investment of excess
liquidity.
Risk Exposure arising from Measurement Management
------------ ------------------------------ --------------------- ---------------------------
Market risk Future commercial transactions Cash flow forecasting Match and settle foreign
- foreign Recognised financial Sensitivity analysis denominated cash inflows
exchange assets and liabilities with foreign denominated
not denominated in cash outflows.
US dollars.
------------ ------------------------------ --------------------- ---------------------------
Market risk Long term borrowings Sensitivity analysis Review refinancing
- interest at opportunities
rate variable rate
------------ ------------------------------ --------------------- ---------------------------
Market risk Future sales transactions Sensitivity analysis Oil price hedges
- commodity
prices
------------ ------------------------------ --------------------- ---------------------------
Credit risk Cash and cash equivalents, Aging analysis Diversification of
trade receivables Credit ratings bank deposits.
and derivative financial
instruments.
------------ ------------------------------ --------------------- ---------------------------
Liquidity Borrowings and other Rolling cash flow Availability of committed
risk liabilities forecasts 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 interest bearing current accounts, time deposits
and money market deposits.
The following table details the Group's remaining contractual
maturity for its non-derivative financial liabilities with agreed
maturity periods. The table has been drawn based on the
undiscounted cash flows of the financial liabilities based on the
earliest date on which the Group can be required to pay.
Notes to the interim condensed consolidated
financial statements continued
Effective Less than 1 - 2 2 - 3 3 - 5 After Total
interest rate 1 year years years years 5 years
================= ========== ============= ============== ============== ======== ==========
% 'million 'million 'million 'million 'million 'million
================= ========== ============= ============== ============== ======== ==========
30 June 2018
================== ================= ========== ============= ============== ============== ======== ==========
Non - derivatives
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Fixed interest
rate borrowings
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Senior notes 9.25% 10,344 10,069 10,041 127,147 - 157,601
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Variable interest
rate borrowings
(bank loans):
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Stanbic Ibtc Bank
Plc 6.0% +LIBOR 1,495 2,258 2,103 2,869 - 8,725
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
The Standard Bank
Of South Africa L 6.0% +LIBOR 996 1,505 1,403 1,912 - 5,816
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Nedbank Limited,
London Branch 6.0% +LIBOR 2,076 3,136 2,922 3,984 - 12,118
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Standard Chartered
Bank 6.0% +LIBOR 1,868 2,823 2,630 3,585 - 10,906
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Natixis 6.0% +LIBOR 1,453 2,195 2,045 2,789 - 8,482
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
FirstRand Bank
Limited Acting 6.0% +LIBOR 1,453 2,195 2,045 2,789 - 8,482
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Citibank N.A.
London 6.0% +LIBOR 1,245 1,882 1,753 2,390 - 7,270
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
The Maritus
Commercial Bank
Plc 6.0% +LIBOR 1,245 1,882 1,753 2,390 - 7,270
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Nomura
International Plc 6.0% +LIBOR 623 941 877 1,195 - 3,636
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Other
non-derivatives
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
Trade and other
payables** - 21,536 - - - - 21,536
------------------ ----------------- ---------- ------------- -------------- -------------- -------- ----------
44,334 28,886 27,572 151,050 - 251,842
================== ================= ========== ============= ============== ============== ======== ==========
Effective Less than 1 - 2 2 - 3 3 - 5 After Total
interest 1 year year years years 5 years
rate
--------- --------- -------- -------- -------- -------- --------
% 'million 'million 'million 'million 'million 'million
========= ========= ======== ======== ======== ======== ========
31 December 2017
================================== ========= ========= ======== ======== ======== ======== ========
Non - derivatives
---------------------------------- --------- --------- -------- -------- -------- -------- --------
Variable interest rate borrowings
(bank loans):
---------------------------------- --------- --------- -------- -------- -------- -------- --------
8.5% +
Allan Gray LIBOR 1,696 1,564 1,124 538 - 4,922
---------------------------------- --------- --------- -------- -------- -------- -------- --------
8.5% +
Zenith Bank Plc LIBOR 23,243 21,439 15,404 7,371 - 67,457
---------------------------------- --------- --------- -------- -------- -------- -------- --------
8.5% +
First Bank of Nigeria Limited LIBOR 12,830 11,835 8,503 4,069 - 37,237
---------------------------------- --------- --------- -------- -------- -------- -------- --------
8.5% +
United Bank for Africa Plc LIBOR 14,527 13,400 9,628 4,607 - 42,162
---------------------------------- --------- --------- -------- -------- -------- -------- --------
8.5% +
Stanbic IBTC Bank Plc LIBOR 2,177 2,008 1,443 690 - 6,318
---------------------------------- --------- --------- -------- -------- -------- -------- --------
The Standard Bank of South 8.5% +
Africa Limited LIBOR 2,177 2,008 1,443 690 - 6,318
---------------------------------- --------- --------- -------- -------- -------- -------- --------
6.0% +
Standard Chartered Bank LIBOR 5,747 - - - - 5,747
---------------------------------- --------- --------- -------- -------- -------- -------- --------
6.0% +
Natixis LIBOR 5,747 - - - - 5,747
---------------------------------- --------- --------- -------- -------- -------- -------- --------
Citibank Nigeria Ltd and 6.0% +
Citibank NA LIBOR 4,470 - - - - 4,470
---------------------------------- --------- --------- -------- -------- -------- -------- --------
FirstRand Bank Ltd 6.0% + - - - - - -
(Rand Merchant Bank Division) LIBOR
---------------------------------- --------- --------- -------- -------- -------- -------- --------
6.0% +
Nomura Bank Plc* LIBOR 3,831 - - - - 3,831
---------------------------------- --------- --------- -------- -------- -------- -------- --------
6.0% +
NedBank Ltd, London Branch LIBOR 3,831 - - - - 3,831
---------------------------------- --------- --------- -------- -------- -------- -------- --------
The Mauritius Commercial 6.0% +
Bank Plc* LIBOR 3,831 - - - - 3,831
---------------------------------- --------- --------- -------- -------- -------- -------- --------
6.0% +
Stanbic IBTC Bank Plc LIBOR 2,874 - - - - 2,874
---------------------------------- --------- --------- -------- -------- -------- -------- --------
The Standard Bank of South 6.0% +
Africa Ltd LIBOR 4,152 - - - - 4,152
---------------------------------- --------- --------- -------- -------- -------- -------- --------
Other non-derivatives
---------------------------------- --------- --------- -------- -------- -------- -------- --------
Trade and other payables** - 38,876 - - - - 38,876
---------------------------------- --------- --------- -------- -------- -------- -------- --------
130,009 52,254 37,545 17,965 - 237,773
================================== ========= ========= ======== ======== ======== ======== ========
*Nomura and The Mauritius Commercial Bank replace JP Morgan and
Bank of America.
** Trade and other payables (excludes non-financial liabilities
such as provisions, accruals, taxes, pension and other
non-contractual payables).
Notes to the interim condensed consolidated
financial statements continued
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 cash equivalents,
favourable derivative financial instruments, deposits with banks
and financial institutions as well as credit exposures to customers
and Joint venture partners, i.e. NPDC receivables and NGMC
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 until 31 July
2021 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 period.
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 As at
30 June As at 30 June As at
2018 31 Dec 2017 2018 31 Dec 2017
million million million million
====================================== ======== ============ ======== ============
Financial assets
Trade and other receivables* 35,519 91,613 35,519 91,613
-------------------------------------- -------- ------------ -------- ------------
Contract assets 4,238 - 4,238 -
-------------------------------------- -------- ------------ -------- ------------
Cash and cash equivalents 155,981 133,699 155,981 133,699
-------------------------------------- -------- ------------ -------- ------------
195,738 225,312 195,738 225,312
====================================== ======== ============ ======== ============
Financial liabilities
Interest bearing loans and borrowings 166,633 174,329 169,270 174,329
-------------------------------------- -------- ------------ -------- ------------
Trade and other payables 21,536 38,876 21,536 38,876
====================================== ======== ============ ======== ============
188,169 213,205 190,806 213,205
====================================== ======== ============ ======== ============
*Trade and other receivables excludes NGMC VAT receivables, cash
advance and advance payments.
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 second quarter.
The fair values of the Group's interest-bearing loans and
borrowings are determined by using discounted cash flow models that
use market interest rates as at the end of the period. The
interest-bearing loans and borrowings are in level 2.
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.
Notes to the interim condensed consolidated
financial statements continued
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 of gas.
For the half year ended 30 June 2018, revenue from the gas
segment of the business constituted 25% 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 new 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
intrasegment sales during the reporting periods under
consideration. All operating and reportable segments are situated
in Nigeria.
Where applicable, the comparative figures for 2017 have been
restated to match the new structure for the half year ended 30 June
2018.
The Group accounting policies are also applied in the segment
reports.
6.1 Segment profit disclosure
Half year Half year 3 months 3 months
ended ended ended ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
------------- ------------- ------------- -------------
'million 'million 'million 'million
--------------------------------------------- ------------- ------------- ------------- -------------
Oil (1,662) (18,790) (2,109) (8,147)
--------------------------------------------- ------------- ------------- ------------- -------------
Gas 16,506 10,358 10,666 5,570
--------------------------------------------- ------------- ------------- ------------- -------------
Total profit/(loss) after tax 14,844 (8,432) 8,557 (2,577)
--------------------------------------------- ------------- ------------- ------------- -------------
Oil
--------------------------------------------- ============= ============= ============= =============
Half year Half year 3 months 3 months
ended ended ended ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------------------------------------- ------------- ------------- ------------- -------------
'million 'million 'million 'million
============================================= ============= ============= ============= =============
Revenue
--------------------------------------------- ------------- ------------- ------------- -------------
Crude oil sales 78,695 23,690 35,557 16,884
--------------------------------------------- ------------- ------------- ------------- -------------
Operating profit/(loss) before depreciation,
amortisation and impairment 44,012 (4,479) 15,456 (2,751)
--------------------------------------------- ------------- ------------- ------------- -------------
Depreciation, amortisation and impairment (16,893) (3,665) (8,120) (193)
============================================= ============= ============= ============= =============
Operating profit/(loss) 27,119 (8,144) 7,336 (2,944)
============================================= ============= ============= ============= =============
Finance income 1,330 270 893 206
--------------------------------------------- ------------- ------------- ------------- -------------
Finance expenses (12,668) (10,574) (4,595) (5,317)
============================================= ============= ============= ============= =============
Profit/(loss) before taxation 15,781 (18,448) 3,634 (8,055)
--------------------------------------------- ------------- ------------- ------------- -------------
Income tax expense (17,443) (342) (5,743) (92)
============================================= ============= ============= ============= =============
Profit/(loss) for the period (1,662) (18,790) (2,109) (8,147)
============================================= ============= ============= ============= =============
Notes to the interim condensed consolidated
financial statements continued
Gas
Half year Half year 3 months 3 months
ended ended ended ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
------------- ------------- ------------- -------------
'million 'million 'million 'million
========================================== ============= ============= ============= =============
Revenue
------------------------------------------ ------------- ------------- ------------- -------------
Gas sales 26,099 16,627 14,001 8,959
------------------------------------------ ------------- ------------- ------------- -------------
Operating profit before depreciation,
amortisation
and impairment 23,878 16,278 16,810 11,488
------------------------------------------ ------------- ------------- ------------- -------------
Depreciation, amortisation and impairment (2,566) (5,920) (1,338) (5,918)
------------------------------------------ ------------- ------------- ------------- -------------
Operating profit 21,312 10,358 15,472 5,570
------------------------------------------ ------------- ------------- ------------- -------------
Finance income - - - -
------------------------------------------ ------------- ------------- ------------- -------------
Finance expenses - - - -
========================================== ============= ============= ============= =============
Profit/(loss) before taxation 21,312 10,358 15,472 5,570
------------------------------------------ ------------- ------------- ------------- -------------
Income tax expense (4,806) - (4,806) -
------------------------------------------ ------------- ------------- ------------- -------------
Profit for the period 16,506 10,358 10,666 5,570
------------------------------------------ ------------- ------------- ------------- -------------
6.1.1 Disaggregation of revenue from contracts with
customers
The Group derives revenue from the transfer of commodities at a
point in time or over time on the basis of product type. The Group
has not disclosed disaggregated revenue and contract asset for the
comparative periods, as the effect of IFRS 15 adjustments have been
treated prospectively using the simplified transition approach. The
simplified approach does not require an adjustment of the
comparative periods.
Half year ended Half year ended Half year ended 3 months ended 3 months ended 3 months ended
30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018
--------------- --------------- --------------- -------------- -------------- --------------
Oil Gas Total Oil Gas Total
--------------- --------------- --------------- -------------- -------------- --------------
'million 'million 'million million million million
=================== =============== =============== =============== ============== ============== ==============
Revenue from
contract with
customers 78,695 26,099 104,794 35,557 14,001 49,558
------------------- --------------- --------------- --------------- -------------- -------------- --------------
Timing of revenue
recognition
------------------- --------------- --------------- --------------- -------------- -------------- --------------
At a point in time 78,695 - 78,695 35,557 - 35,557
------------------- --------------- --------------- --------------- -------------- -------------- --------------
Over time - 26,099 26,099 - 14,001 14,001
------------------- --------------- --------------- --------------- -------------- -------------- --------------
78,695 26,099 104,794 35,557 14,001 49,558
=================== =============== =============== =============== ============== ============== ==============
6.2 Segment assets
Segment assets are measured in the same way as in the financial
statements. These assets are allocated based on the operations of
the reporting segment and the physical location of the asset.
Oil Gas Total
-------- ------------------- --------
Total segment assets 'million 'million 'million
===================== ======== =================== ========
30 June 2018 645,639 110,409 756,048
--------------------- -------- ------------------- --------
31 December 2017 716,657 82,896 799,553
--------------------- -------- ------------------- --------
Notes to the interim condensed consolidated
financial statements continued
6.3 Segment liabilities
Segment liabilities are measured in the same way as in the
financial statements. These liabilities are allocated based on the
operations of the segment.
Oil Gas Total
-------- ------------------ -------------------
Total segment liabilities 'million 'million 'million
========================== ======== ================== ===================
30 June 2018 277,223 13,350 290,573
-------------------------- -------- ------------------ -------------------
31 December 2017 325,967 13,940 339,907
-------------------------- -------- ------------------ -------------------
6.4 Contingent consideration
Contingent consideration of 5.7 billion for OML 53 relates
solely to the oil segment. This is contingent on oil price rising
above N 27,535/bbl. over a one year period and expirirng on 31st
January 2020. The fair value loss arising during the reporting
period is 1.37 billion.
7. Revenue from contracts with customers
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
================ =============== =============== ============== ==============
Crude oil sales 78,695 34,007 35,557 24,793
---------------- --------------- --------------- -------------- --------------
Gas sales 26,099 16,627 14,001 8,959
================ =============== =============== ============== ==============
104,794 50,634 49,558 33,752
---------------- --------------- --------------- -------------- --------------
Overlifts - (10,317) - (7,909)
================ =============== =============== ============== ==============
Total 104,794 40,317 49,558 25,843
================ =============== =============== ============== ==============
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
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
========================================= =============== =============== ============== ==============
Crude handling 8,939 1,531 4,372 1,363
----------------------------------------- --------------- --------------- -------------- --------------
Royalties 19,059 5,736 9,301 4,223
----------------------------------------- --------------- --------------- -------------- --------------
Depletion, Depreciation and Amortisation 18,591 8,861 8,887 5,387
----------------------------------------- --------------- --------------- -------------- --------------
Niger Delta Development Commission 1,077 729 558 379
----------------------------------------- --------------- --------------- -------------- --------------
Barging costs - 1,995 - 1,340
----------------------------------------- --------------- --------------- -------------- --------------
Other Rig related Expenses 12 499 4 193
----------------------------------------- --------------- --------------- -------------- --------------
Operations & Maintenance Costs 3,809 4,563 1,532 2,405
========================================= =============== =============== ============== ==============
51,487 23,914 24,654 15,290
========================================= =============== =============== ============== ==============
9. Other income
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
========== =============== =============== ============== ==============
Underlift 8,483 - 5,855 -
========== =============== =============== ============== ==============
8,483 - 5,855 -
========== =============== =============== ============== ==============
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.
Notes to the interim condensed consolidated
financial statements continued
10. General and administrative expenses
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
===================================== =============== =============== ============== ==============
Depreciation 868 722 571 380
------------------------------------- --------------- --------------- -------------- --------------
Employee benefits 4,676 3,296 2,321 1,509
------------------------------------- --------------- --------------- -------------- --------------
Professional and consulting fees 2,419 3,449 1,331 2,088
------------------------------------- --------------- --------------- -------------- --------------
Auditor's remuneration 57 94 19 48
------------------------------------- --------------- --------------- -------------- --------------
Directors emoluments (executive) 195 423 108 245
------------------------------------- --------------- --------------- -------------- --------------
Directors emoluments (non-executive) 499 476 300 246
------------------------------------- --------------- --------------- -------------- --------------
Rentals 301 224 180 151
------------------------------------- --------------- --------------- -------------- --------------
Flights and other travel costs 759 724 511 724
------------------------------------- --------------- --------------- -------------- --------------
Other general expenses 1,995 1,700 1,509 588
===================================== =============== =============== ============== ==============
11,769 11,108 6,850 5,979
===================================== =============== =============== ============== ==============
Directors' emoluments have been split between executive and
non-executive directors. There were no non-audit services rendered
by the Group's auditors during the period.
Other general expenses relate to costs such as office
maintenance costs, telecommunication costs, logistics costs and
others. Share based payment expenses are included in the employee
benefits expense.
11. Reversal of/(impairment) losses on financial assets -
net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
====================================== =============== =============== ============== ==============
Reversal of/(impairment) loss on NPDC
and NAPIMS receivables 529 - (140) -
====================================== =============== =============== ============== ==============
On initial application of IFRS 9, an impairment loss of 1.78
billion was recognised for NPDC and NAPIMS receivables as at 1
January 2018. The loss allowance was calculated on a total exposure
of 38.3 billion. During the reporting period, the outstanding
receivable balance reduced to 1.3 billion. The reduction in the
receivables balance led to the reversal of previously recognised
loss allowance.
12. Gain/(loss) on foreign exchange - net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
===================== =============== =============== ============== ==============
Exchange gain/(loss) 8 (264) (564) (793)
===================== =============== =============== ============== ==============
This is principally as a result of translation of naira
denominated monetary assets and liabilities.
13. Fair value loss - net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
============================================ =============== =============== ============== ==============
Crude oil hedging payments (760) (3,006) (380) (1,478)
-------------------------------------------- --------------- --------------- -------------- --------------
Fair value loss on contingent consideration (1,367) (274) (17) (140)
-------------------------------------------- --------------- --------------- -------------- --------------
Fair value gain on other assets - 463 - 463
============================================ =============== =============== ============== ==============
Fair value loss (2,127) (2,817) (397) (1,155)
============================================ =============== =============== ============== ==============
Notes to the interim condensed consolidated
financial statements continued
Crude oil hedging payments represents the payments for crude oil
price options 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.
14. Finance income/ (costs)
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
=================================== =============== =============== ============== ==============
Finance income
----------------------------------- --------------- --------------- -------------- --------------
Interest income 1,330 270 893 206
----------------------------------- --------------- --------------- -------------- --------------
Finance costs
----------------------------------- --------------- --------------- -------------- --------------
Interest on bank loan 11,722 10,560 4,372 5,310
----------------------------------- --------------- --------------- -------------- --------------
Interest on advance payments for
crude oil sales 530 - - -
----------------------------------- --------------- --------------- -------------- --------------
Unwinding of discount on provision
for decommissioning 416 14 223 7
=================================== =============== =============== ============== ==============
12,668 10,574 4,595 5,317
=================================== =============== =============== ============== ==============
Finance cost - net (11,338) (10,304) (3,702) (5,111)
=================================== =============== =============== ============== ==============
15. 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 30 June 2018 were 85% and 65.75% for crude
oil activities and 30% for gas activities. As at 31 December 2017,
the applicable tax rates were 85%, 65.75% and 30% for gas
activities.
15a. Deferred tax assets
Deferred income tax assets are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable.
As at As at As at As at
30 June 2018 30 June 2018 31 Dec 2017 31 Dec 2017
------------- ------------- ------------ ------------
'million 'million 'million 'million
------------- ------------- ------------ ------------
Gross amount Tax effect Gross amount Tax effect
==================================== ============= ============= ============ ============
Tax losses - - 14,578 12,392
------------------------------------ ------------- ------------- ------------ ------------
Other cumulative timing differences 60,359 51,305 65,912 56,025
------------------------------------ ------------- ------------- ------------ ------------
60,359 51,305 80,490 68,417
==================================== ============= ============= ============ ============
15b. 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 As at As at As at
30 June 2018 30 June 2018 31 Dec 2017 31 Dec 2017
------------- ------------- ------------ ------------
'million 'million 'million 'million
------------- ------------- ------------ ------------
Gross amount Tax effect Gross amount Tax effect
======================================= ============= ============= ============ ============
Other deductible temporary differences 14,009 7,838 14,988 7,869
--------------------------------------- ------------- ------------- ------------ ------------
Tax losses 10,390 7,775 14,579 8,908
--------------------------------------- ------------- ------------- ------------ ------------
24,399 15,613 29,567 16,777
======================================= ============= ============= ============ ============
15c. 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.
Notes to the interim condensed consolidated
financial statements continued
16. Earnings/(loss) per share (EPS/LPS)
Basic
Basic EPS/LPS is calculated on the Group's profit or loss after
taxation attributable to the parent entity and on the basis of the
weighted average issued and fully paid ordinary shares at the end
of the period.
Diluted
Diluted EPS/LPS is calculated by dividing the profit or loss
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary
shares (arising from outstanding share awards in the share based
payment scheme) into ordinary shares.
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------- --------------- -------------- --------------
'million 'million 'million 'million
==================================================== =============== =============== ============== ==============
Profit/(loss) for the period 14,844 (8,432) 8,557 (2,577)
==================================================== =============== =============== ============== ==============
Share Share Share Share
'000 '000 '000 '000
==================================================== =============== =============== ============== ==============
Weighted average number of ordinary shares in issue 580,112 563,445 580,112 563,445
---------------------------------------------------- --------------- --------------- -------------- --------------
Share awards 3,838 4,943 3,838 4,943
---------------------------------------------------- --------------- --------------- -------------- --------------
Weighted average number of ordinary shares adjusted
for the effect of dilution 583,950 568,388 583,950 568,388
==================================================== =============== =============== ============== ==============
Basic earnings/(loss) per share 25.59 (14.97) 14.75 (4.57)
---------------------------------------------------- --------------- --------------- -------------- --------------
Diluted earnings/(loss) per share 25.42 (14.83) 14.65 (4.53)
==================================================== =============== =============== ============== ==============
'million 'million 'million 'million
==================================================== =============== =============== ============== ==============
Profit/(loss) used in determining basic/diluted
earnings/loss per share 14,844 (8,432) 8,557 (2,577)
==================================================== =============== =============== ============== ==============
17. Interest bearing loans & borrowings
Below is the net debt reconciliation on interest bearing loans
and borrowings.
Borrowings due Borrowings due
within 1 year above 1 year Total
'million 'million 'million
============================= ============== ============== ==========
Balance as at 1 January
2018 81,159 93,170 174,329
Principal repayment (81,162) (95,596) (176,758)
----------------------------- -------------- -------------- ----------
Interest repayment (1,400) (4,474) (5,874)
----------------------------- -------------- -------------- ----------
Interest accrued 7,015 - 7,015
----------------------------- -------------- -------------- ----------
Effect of loan restructuring - 4,708 4,708
----------------------------- -------------- -------------- ----------
Other financing charges - (465) (465)
----------------------------- -------------- -------------- ----------
Proceeds from loan financing 7,645 155,976 163,621
----------------------------- -------------- -------------- ----------
Exchange differences 8 49 57
----------------------------- -------------- -------------- ----------
Carrying amount as at 30
June 2018 13,265 153,368 166,633
============================= ============== ============== ==========
Interest bearing loans and borrowings include a revolving loan
facility and senior notes. In the reporting period, the Group
repaid its 214 billion seven year term loan and its 91.8 billion
four year revolving loan facility.
In the reporting period, the Group also issued 107 billion
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 at the reporting date is 2.9 billion using an
effective interest rate of 10.4%.
Notes to the interim condensed consolidated
financial statements continued
An agreement for another four year revolving loan facility was
entered into by the Group to refinance its old four year revolving
loan facility with interest payable semi-annually and principal
repayable on 31 December of each year. The new 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 draw down of 61.2 billion in March 2018.
The interest accrued at the reporting period was 4.1 billion using
an effective interest rate of 8.99%. The interest paid was
determined using 3-month LIBOR rate + 6% on the last business day
of the half-year period. The amortised cost for the senior notes
and the borrowings at the reporting period is 106.8 billion and
59.8 billion respectively.
The proceeds from the notes issue and new revolving loan
facility were used to repay and cancel existing indebtedness, and
for general corporate purposes.
18. Trade and other receivables
As at As at
30 June 2018 31 Dec 2017
'million 'million
============================================== ============= ============
Trade receivables (note18a) 30,843 33,236
Nigerian Petroleum Development Company (NPDC)
receivables (note 18b) - 34,453
---------------------------------------------- ------------- ------------
National Petroleum Investment Management
Services receivables 1,271 3,824
---------------------------------------------- ------------- ------------
Advances on investment - 20,093
---------------------------------------------- ------------- ------------
Underlifts 876 -
---------------------------------------------- ------------- ------------
Advances to suppliers 12,229 2,404
---------------------------------------------- ------------- ------------
Other receivables (note 18c) 14,436 894
---------------------------------------------- ------------- ------------
59,655 94,904
============================================== ============= ============
18a. Trade receivables:
Included in trade receivables is an amount due from Nigerian Gas
Marketing Company (NGMC) and Central Bank of Nigeria (CBN) totaling
15.7 billion (2017: 23 billion) with respect to the sale of gas,
for the Group. Also included in trade receivables is an amount of
12.5 billion (2017: 8.39 billion) due from Mecuria for sale of
crude.
18b. NPDC receivables:
NPDC receivables represent the outstanding cash calls due to
Seplat from its JV partner, Nigerian Petroleum Development Company
Nil (2017: 34 billion)
18c. Other receivables
Included in other receivables is a receivable amount from SPDC
on an investment that is no longer being pursued. The outstanding
receivable amount as at the reporting date is 13.9 billion (2017:
nil).
19. Contract assets
As at As at
30 June 2018 31 Dec 2017
------------- ------------
'million 'million
===================== ============= ============
Revenue on gas sales 4,238 -
===================== ============= ============
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 receivable amount has been
established and 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.
Notes to the interim condensed consolidated
financial statements continued
19.1 Reconciliation of contract assets
The movement in the Group's contract assets is as detailed
below:
As at As at
30 June 2018 31 Dec 2017
'million 'million
========================================= ============= ============
Impact on initial application of IFRS 15 4,217 -
----------------------------------------- ------------- ------------
Gas revenue accrued during the period 21 -
----------------------------------------- ------------- ------------
4,238 -
========================================= ============= ============
20. Cash and cash equivalents
As at As at
30 June 2018 31 Dec 2017
'million 'million
================ ============= ============
Cash on hand 5 3
---------------- ------------- ------------
Restricted cash - 19,166
---------------- ------------- ------------
Cash at bank 155,976 114,530
---------------- ------------- ------------
155,981 437,212
================ ============= ============
Included in cash and cash equivalents is the total amount of
30.59 billion ($108.2 million) arising from NPDC's share of gas
proceeds . These amounts will be applied against tolling fees from
the gas processing on the expanded Oben Gas Plant solely funded by
Seplat and on-going cash calls.
21. Share capital
21a. Authorised and issued share capital
As at As at
30 June 2018 31 Dec 2017
------------- ------------
'million 'million
======================================================================== ============= ============
Authorised ordinary share capital
------------------------------------------------------------------------ ------------- ------------
1,000,000,000 ordinary shares denominated in Naira of 50 kobo per share 500 500
======================================================================== ============= ============
Issued and fully paid
------------------------------------------------------------------------ ------------- ------------
588,444,561 (2017: 563,444,561) issued shares denominated in Naira
of 50 kobo per share 296 283
======================================================================== ============= ============
21b. Employee share based payment scheme
As at 30 June 2018, the Group had awarded 40,410,644 shares
(2017: 33,697,792 shares) to certain employees and senior
executives in line with its share based incentive scheme. Included
in the share based incentive schemes are two additional schemes
(2017 Deferred Bonus Scheme and 2018 LTIP Scheme) awarded during
the reporting period. During the half year ended 30 June 2018,
5,534,964 shares were vested (31 December 2017: No shares had
vested).
Notes to the interim condensed consolidated
financial statements continued
21c. Movement in share capital
Number Treasury shares
of shares Issued share capital Share based payment reserve Total
----------- -------------------- --------------- --------------------------- --------
Shares 'million 'million 'million 'million
=========================== =========== ==================== =============== =========================== ========
Opening balance as at 1
January 2018 563,444,561 283 - 4,332 4,615
--------------------------- ----------- -------------------- --------------- --------------------------- --------
Share based payments - - - 1,609 1,609
--------------------------- ----------- -------------------- --------------- --------------------------- --------
Share issue 19,465,036 13 (13) - -
=========================== =========== ==================== =============== =========================== ========
Vested shares 5,534,964 - 3 (3) -
=========================== =========== ==================== =============== =========================== ========
Closing balance as at 30
June 2018 588,444,561 296 (10) 5,938 6,224
=========================== =========== ==================== =============== =========================== ========
22. Trade and other payables
As at As at
30 June 2018 31 Dec 2017
'million 'million
============================================== ============= ============
Trade payables 16,440 19,191
---------------------------------------------- ------------- ------------
Nigerian Petroleum Development Company (NPDC) 10,203 -
---------------------------------------------- ------------- ------------
Accruals and other payables 35,267 45,570
---------------------------------------------- ------------- ------------
Pension payable 13 55
---------------------------------------------- ------------- ------------
NDDC levy 2,035 2,564
---------------------------------------------- ------------- ------------
Deferred revenue - 41,970
---------------------------------------------- ------------- ------------
Royalties payable 12,657 16,209
---------------------------------------------- ------------- ------------
76,615 125,559
============================================== ============= ============
Included in accruals and other payables are field-related
accruals of 15.2 billion (2017: 17 billion) and other vendor
payables of 20.1 billion (2017: 29 billion). Royalties include
accruals in respect of gas sales for which payment is outstanding
at the end of the year.
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 net amount of 10.2 billion has been reported after
adjusting for interests as set out in the JOA and undercash call
payments in other currencies.
Notes to the interim condensed consolidated
financial statements continued
23. Computation of cash generated from operations
Half year ended Half year ended
30 June 2018 30 June 2017
----- --------------- ---------------
Notes 'million 'million
============================================================================ ===== =============== ===============
Profit/(loss) before tax 37,093 (8,090)
============================================================================ ===== =============== ===============
Adjusted for:
---------------------------------------------------------------------------- ----- --------------- ---------------
Depletion, depreciation and amortisation 19,459 9,583
---------------------------------------------------------------------------- ----- --------------- ---------------
Interest on bank loan 14 11,722 10,560
---------------------------------------------------------------------------- ----- --------------- ---------------
Interest on advance payments fo crude oil sales 14 530 -
---------------------------------------------------------------------------- ----- --------------- ---------------
Unwinding of discount on provision for decommissioning 14 416 14
---------------------------------------------------------------------------- ----- --------------- ---------------
Interest income 14 (1,330) (270)
---------------------------------------------------------------------------- ----- --------------- ---------------
Fair value loss on contingent consideration 13 1,367 274
---------------------------------------------------------------------------- ----- --------------- ---------------
Fair value gain on other asset 13 - (463)
---------------------------------------------------------------------------- ----- --------------- ---------------
Unrealised foreign exchange loss - 264
---------------------------------------------------------------------------- ----- --------------- ---------------
Share based payments expenses 20c 1,609 818
---------------------------------------------------------------------------- ----- --------------- ---------------
Defined benefit expenses 389 341
---------------------------------------------------------------------------- ----- --------------- ---------------
Reversal of impairment loss on NPDC and NAPIMS receivables 11 (529) -
---------------------------------------------------------------------------- ----- --------------- ---------------
Loss on disposal of other property, plant and equipment - 25
---------------------------------------------------------------------------- ----- --------------- ---------------
Changes in working capital (excluding the effects of exchange differences):
---------------------------------------------------------------------------- ----- --------------- ---------------
Trade and other receivables, including prepayments 34,349 (8,133)
---------------------------------------------------------------------------- ----- --------------- ---------------
Contract assets (4,238) -
---------------------------------------------------------------------------- ----- --------------- ---------------
Trade and other payables (25,799) 26,313
---------------------------------------------------------------------------- ----- --------------- ---------------
Inventories (16) 1,256
============================================================================ ===== =============== ===============
Net cash from operating activities 75,022 32,492
============================================================================ ===== =============== ===============
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.
Notes to the interim condensed consolidated
financial statements continued
Keco Nigeria Enterprises: The Chief Executive Officer's sister
is shareholder and director. The company provides diesel supplies
to Seplat in respect of its rig operations.
Montego Upstream Services Limited: The Chairman's nephew is
shareholder and director. The company provides drilling and
engineering services to Seplat.
Stage leasing (Ndosumili Ventures Limited): is a subsidiary of
Platform Petroleum Limited. The company provides transportation
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
provides catering services to Seplat at the staff canteen.
ResourcePro Inter Solutions Limited: The Chief Executive Officer
of Seplat's in-law is its UK representative. The company supplies
furniture to Seplat.
Shebah Petroleum Development Company Limited (BVI): The Chairman
of Seplat is a director and shareholder of SPDCL (BVI). SPDCL (BVI)
provided consulting services to Seplat.
The following transactions were carried by Seplat with related
parties:
24b. Related party relationships
Half year ended Half year ended
30 June 2018 30 June 2017
--------------- ---------------
Purchases of goods and services 'million 'million
================================================= =============== ===============
Shareholders of the parent company
------------------------------------------------- --------------- ---------------
SPDCL (BVI) 138 172
================================================= =============== ===============
138 172
================================================= =============== ===============
Entities controlled by key management personnel:
------------------------------------------------- --------------- ---------------
Contracts > $1million in 2017
------------------------------------------------- --------------- ---------------
Nerine Support Services Limited 755 826
================================================= =============== ===============
755 826
================================================= =============== ===============
Contracts < $1million
------------------------------------------------- --------------- ---------------
Abbey Court trading Company Limited 128 107
------------------------------------------------- --------------- ---------------
Charismond Nigeria Limited 14 10
------------------------------------------------- --------------- ---------------
Cardinal Drilling Services Limited 180 190
------------------------------------------------- --------------- ---------------
Keco Nigeria Enterprises 14 22
------------------------------------------------- --------------- ---------------
STAGE Leasing Limited 233 170
------------------------------------------------- --------------- ---------------
Oriental Catering Services Limited 94 65
------------------------------------------------- --------------- ---------------
ResourcePro Inter Solutions Limited 3 -
------------------------------------------------- --------------- ---------------
666 564
================================================= =============== ===============
Total 1,421 1,562
================================================= =============== ===============
* Nerine charges an average mark-up of 7.5% on agency and
contract workers assigned to Seplat. The amounts shown above are
gross i.e. it includes salaries and Nerine's mark-up. Total costs
for agency and contracts during the half year ended 30 June 2018 is
703 million (2017: 795 million).
Notes to the interim condensed consolidated
financial statements continued
24c. Balances
The following balances were receivable from or payable to
related parties as at 30 June 2018:
As at As at
30 June 2018 31 Dec 2017
------------------ -----------------
Prepayments / receivables 'million 'million
================================================ ================== =================
Entities controlled by key management personnel
------------------------------------------------ ------------------ -----------------
Cardinal Drilling Services Limited 1,682 1,681
================================================ ================== =================
1,682 1,681
================================================ ================== =================
As at 30 June 2018 As at 31 Dec 2017
------------------ -----------------
Payables 'million 'million
================================================ ================== =================
Entities controlled by key management personnel
------------------------------------------------ ------------------ -----------------
Montego Upstream Services Limited - 115
------------------------------------------------ ------------------ -----------------
Nerine Support Services Limited 13 2
------------------------------------------------ ------------------ -----------------
Keco Nigeria Enterprises - 8
------------------------------------------------ ------------------ -----------------
Cardinal Drilling Services Limited - 292
------------------------------------------------ ------------------ -----------------
Helko Nigeria Limited - -
------------------------------------------------ ------------------ -----------------
13 417
================================================ ================== =================
25. Commitments and contingencies
25a. Operating lease commitments - Group as lessee
The Group leases drilling rigs, buildings, land, boats and
storage facilities. The lease terms are between 1 and 5 years. The
operating lease commitments of the Group as at 30 June 2018
are:
Operating lease commitments As at As at
30 June 2018 31 Dec 2017
------------- ------------
'million 'million
================================================== ============= ============
Not later than one year - 728
-------------------------------------------------- ------------- ------------
Later than one year and not later than five years - 565
================================================== ============= ============
- 1,293
================================================== ============= ============
25b. Contingent liabilities
The Group is involved in a number of legal suits as defendant.
The estimated value of the contingent liabilities for the period
ended 30 June 2018 is 352 million (2017: 4.7 billion). The
contingent liability for the period ended 30 June 2018 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
The directors paid an interim dividend of 8.99bn (2017: Nil) per
fully paid ordinary share. The aggregate amount of the dividend was
paid out of retained earnings as at 31 March 2018.
Notes to the interim condensed consolidated
financial statements continued
27. Events after the reporting period
There were no significant events other than proposed dividends
that would have a material effect on the Group after the reporting
period.
28. Exchange rates used in translating the accounts to Naira
The table below shows the exchange rates used in translating the
accounts into Naira.
Basis 30 June 2018 30 June 2017 31 December 2017
/$ /$ /$
================================= ===================== ============= ============ ==================
Fixed assets - opening balances Historical rate Historical Historical Historical
-------------------------------- ----------------------- ------------ ------------ ----------------
Fixed assets - additions Average rate 305.81 305.86 305.80
-------------------------------- ----------------------- ------------ ------------ ----------------
Fixed assets - closing balances Closing rate 305.90 305.85 305.81
-------------------------------- ----------------------- ------------ ------------ ----------------
Current assets Closing rate 305.90 305.85 305.81
-------------------------------- ----------------------- ------------ ------------ ----------------
Current liabilities Closing rate 305.90 305.85 305.81
-------------------------------- ----------------------- ------------ ------------ ----------------
Equity Historical rate Historical Historical Historical
-------------------------------- ----------------------- ------------ ------------ ----------------
Income and Expenses: Overall Average rate 305.81 305.86 305.81
-------------------------------- ----------------------- ------------ ------------ ----------------
Interim condensed consolidated statement of profit or loss and
other comprehensive income
for the half year ended 30 June 2018
Half year 3 months 3 months
Half year ended ended ended ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Unaudited Unaudited Unaudited Unaudited
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Note $'000 $'000 $'000 $'000
================================================== ==== =============== ============= ============= =============
Revenue from contracts with customers 7 342,676 131,814 162,088 84,515
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Cost of sales 8 (168,364) (78,187) (80,636) (50,003)
================================================== ==== =============== ============= ============= =============
Gross profit 174,312 53,627 81,452 34,512
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Other income 9 27,741 - 19,150 -
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
General and administrative expenses 10 (38,482) (36,315) (22,404) (19,556)
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Reversal of/(impairment) losses on financial
assets-net 11 1,730 - (456) -
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Gain/(loss) on foreign exchange-net 12 23 (866) (1,847) (2,596)
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Fair value loss - net 13 (6,954) (9,210) (1,301) (3,777)
================================================== ==== =============== ============= ============= =============
Operating profit 158,370 7,236 74,594 8,583
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Finance income 14 4,351 883 2,922 673
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Finance costs 14 (41,424) (34,573) (15,029) (17,392)
================================================== ==== =============== ============= ============= =============
Profit/(loss) before taxation 121,297 (26,454) 62,487 (8,136)
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Taxation 15 (72,753) (1,119) (34,500) (300)
================================================== ==== =============== ============= ============= =============
Profit/(loss) for the period 48,544 (27,573) 27,987 (8,436)
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Other comprehensive income/(loss):
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Items that may be reclassified to profit or loss:
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Foreign currency translation difference - - - -
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Total comprehensive income/(loss) for the period 48,544 (27,573) 27,987 (8,436)
================================================== ==== =============== ============= ============= =============
Earnings/(loss) per share ($) 16 0.08 (0.05) 0.05 (0.01)
-------------------------------------------------- ---- --------------- ------------- ------------- -------------
Diluted earnings/(loss) per share ($) 16 0.08 (0.05) 0.05 (0.01)
================================================== ==== =============== ============= ============= =============
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 30 June 2018
As at As at
30 June 2018 31 Dec 2017
------------------------------------------- ---- ------------- ------------
Unaudited Audited
------------------------------------------- ---- ------------- ------------
Note $'000 $'000
=========================================== ==== ============= ============
Assets
------------------------------------------- ---- ------------- ------------
Non-current assets
------------------------------------------- ---- ------------- ------------
Oil and gas properties 1,246,736 1,286,387
------------------------------------------- ---- ------------- ------------
Other property, plant and equipment 2,252 5,078
------------------------------------------- ---- ------------- ------------
Other asset 202,287 217,031
------------------------------------------- ---- ------------- ------------
Deferred tax 15 167,719 223,731
------------------------------------------- ---- ------------- ------------
Tax paid in advance 31,623 31,623
------------------------------------------- ---- ------------- ------------
Prepayments 269 939
------------------------------------------- ---- ------------- ------------
Total non-current assets 1,650,886 1,764,789
=========================================== ==== ============= ============
Current assets
------------------------------------------- ---- ------------- ------------
Inventories 100,361 100,336
------------------------------------------- ---- ------------- ------------
Trade and other receivables 18 195,021 310,345
------------------------------------------- ---- ------------- ------------
Contract assets 19 13,858 -
------------------------------------------- ---- ------------- ------------
Prepayments 1,532 1,948
------------------------------------------- ---- ------------- ------------
Cash & cash equivalents 20 509,907 437,212
=========================================== ==== ============= ============
Total current assets 820,679 849,841
=========================================== ==== ============= ============
Total assets 2,471,565 2,614,630
=========================================== ==== ============= ============
Equity and liabilities
------------------------------------------- ---- ------------- ------------
Equity
------------------------------------------- ---- ------------- ------------
Issued share capital 21a 1,867 1,826
------------------------------------------- ---- ------------- ------------
Share premium 497,457 497,457
------------------------------------------- ---- ------------- ------------
Treasury shares (32) -
------------------------------------------- ---- ------------- ------------
Share based payment reserve 21b 23,061 17,809
------------------------------------------- ---- ------------- ------------
Capital contribution 40,000 40,000
------------------------------------------- ---- ------------- ------------
Retained earnings 957,411 944,108
------------------------------------------- ---- ------------- ------------
Foreign currency translation reserve 1,897 1,897
=========================================== ==== ============= ============
Total shareholders' equity 1,521,661 1,503,097
=========================================== ==== ============= ============
Non-current liabilities
------------------------------------------- ---- ------------- ------------
Interest bearing loans & borrowings 17 501,370 304,677
------------------------------------------- ---- ------------- ------------
Contingent consideration 6.4 18,370 13,900
------------------------------------------- ---- ------------- ------------
Provision for decommissioning obligation 107,673 106,312
------------------------------------------- ---- ------------- ------------
Defined benefit plan 7,793 6,518
=========================================== ==== ============= ============
Total non-current liabilities 635,206 431,407
=========================================== ==== ============= ============
Current liabilities
------------------------------------------- ---- ------------- ------------
Interest bearing loans and borrowings 17 43,363 265,400
------------------------------------------- ---- ------------- ------------
Trade and other payables 22 250,459 410,593
------------------------------------------- ---- ------------- ------------
Current tax liabilities 20,876 4,133
------------------------------------------- ---- ------------- ------------
Total current liabilities 314,698 680,126
=========================================== ==== ============= ============
Total liabilities 949,904 1,111,533
=========================================== ==== ============= ============
Total shareholders' equity and liabilities 2,471,565 2,614,630
=========================================== ==== ============= ============
The above interim condensed consolidated statement of financial
position should be read in conjunction with the accompanying
notes.
Interim condensed consolidated statement
of financial position continued
As at 30 June 2018
The Group financial statements of Seplat Petroleum Development
Company Plc and its subsidiaries for the half year ended
30 June 2018 were authorised for issue in accordance with a
resolution of the Directors on 30 July 2018 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 July 2018 30 July 2018 30 July 2018
Interim condensed consolidated statement
of changes in equity continued
for the half year ended 30 June 2018
for the half year ended 30 June 2017
============================================================= ============= ========= ============ =========
Share Foreign
Issued based currency
share Share Treasury payment Capital Retained translation Total
capital premium shares reserve contribution earnings reserve equity
===================== ======== ======== ======== ======== ============= ========= ============ =========
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
===================== ======== ======== ======== ======== ============= ========= ============ =========
At 1 January 2017 1,826 497,457 - 12,135 40,000 678,922 3,675 1,234,015
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Loss for the period - - - - - (27,573) - (27,573)
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Other comprehensive
income - - - - - - - -
===================== ======== ======== ======== ======== ============= ========= ============ =========
Total comprehensive
loss for
the period - - - - - (27,573) - (27,573)
===================== ======== ======== ======== ======== ============= ========= ============ =========
Transactions with
owners in
their capacity as
owners:
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Share based payments - - - 2,673 - - - 2,673
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Total - - - 2,673 - - - 2,673
===================== ======== ======== ======== ======== ============= ========= ============ =========
At 30 June 2017
(unaudited) 1,826 497,457 - 14,808 40,000 651,349 3,675 1,209,115
===================== ======== ======== ======== ======== ============= ========= ============ =========
for the half year ended 30 June 2018
============================================================= =============
Share Foreign
Issued based currency
share Share Treasury payment Capital Retained translation Total
capital premium shares reserve contribution earnings reserve equity
===================== ======== ======== ======== ======== ============= ========= ============ =========
$'000 $'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 (Note 3.3) - - - - - (5,816) - (5,816)
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Adjustment on initial
application of IFRS
15 (Note 3.3) - - - - - - - -
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
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 - - - - - 48,544 - 48,544
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Total comprehensive
income
for the period - - - - - 48,544 - 48,544
===================== ======== ======== ======== ======== ============= ========= ============ =========
Transactions with
owners in their
capacity
as owners:
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Dividends paid - - - - - (29,425) - (29,425)
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Share based payments - - - 5,261 - - - 5,261
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Issue of shares 41 - (41) - - - - -
--------------------- -------- -------- -------- -------- ------------- --------- ------------ ---------
Vested shares - - 9 (9) - - - -
--------------------- -------- -------- -------- -------- ------------- --------- ------------ =========
Total 41 - (32) 5,252 - (29,425) - (24,164)
===================== ======== ======== ======== ======== ============= ========= ============
At 30 June 2018
(unaudited) 1,867 497,457 (32) 23,061 40,000 957,411 1,897 1,521,661
===================== ======== ======== ======== ======== ============= ========= ============ =========
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 half year ended 30 June 2018
Half year Half year
ended ended
30 June 2018 30 June 2017
-------------------------------------------------------------- ---- ------------- -------------
$'000 $'000
-------------------------------------------------------------- ---- ------------- -------------
Note Unaudited Unaudited
============================================================== ==== ============= =============
Cash flows from operating activities
-------------------------------------------------------------- ---- ------------- -------------
Cash generated from operations 23 245,355 106,241
-------------------------------------------------------------- ---- ------------- -------------
Net cash inflows from operating activities 245,355 106,241
============================================================== ==== ============= =============
Cash flows from investing activities
-------------------------------------------------------------- ---- ------------- -------------
Investment in oil and gas properties (21,157) (11,202)
-------------------------------------------------------------- ---- ------------- -------------
Investment in other property, plant and equipment - (386)
-------------------------------------------------------------- ---- ------------- -------------
Proceeds from disposal of other property, plant and equipment 4 -
-------------------------------------------------------------- ---- ------------- -------------
Receipts from other asset 14,744 22,604
-------------------------------------------------------------- ---- ------------- -------------
Interest received 4,351 883
============================================================== ==== ============= =============
Net cash inflows/(outflows) from investing activities (2,058) 11,899
============================================================== ==== ============= =============
Cash flows from financing activities
-------------------------------------------------------------- ---- ------------- -------------
Repayments of bank financing (578,000) (41,500)
-------------------------------------------------------------- ---- ------------- -------------
Receipts from bank financing 195,499 -
-------------------------------------------------------------- ---- ------------- -------------
Dividend paid (29,425) -
-------------------------------------------------------------- ---- ------------- -------------
Proceeds from senior notes issued 339,546 -
-------------------------------------------------------------- ---- ------------- -------------
Repayments on crude oil advance (77,499) -
-------------------------------------------------------------- ---- ------------- -------------
Payments for other financing charges (1,518) -
-------------------------------------------------------------- ---- ------------- -------------
Interest paid on bank financing (19,205) (34,526)
============================================================== ==== ============= =============
Net cash outflows from financing activities (170,602) (76,026)
============================================================== ==== ============= =============
Net increase in cash and cash equivalents 72,695 42,114
-------------------------------------------------------------- ---- ------------- -------------
Cash and cash equivalents at beginning of period 437,212 159,621
-------------------------------------------------------------- ---- ------------- -------------
Effects of exchange rate changes on cash and cash equivalents - (229)
============================================================== ==== ============= =============
Cash and cash equivalents at end of period 509,907 201,506
============================================================== ==== ============= =============
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.
The Company's registered address is: 25a Lugard Avenue, Ikoyi,
Lagos, Nigeria.
The Company acquired, pursuant to an agreement for assignment
dated 31 January 2010 between the Company, SPDC,
TOTAL and AGIP, a 45% participating interest in the following
producing assets:
OML 4, OML 38 and OML 41 are located in Nigeria. The total
purchase price for these assets was US$340 million paid at the
completion of the acquisition on 31 July 2010 and a contingent
payment of US$33 million payable 30 days after the second
anniversary, 31 July 2012, if the average price per barrel of Brent
Crude oil over the period from acquisition up to 31 July 2012
exceeds US$80 per barrel. US$358.6 million was allocated to the
producing assets including US$18.6 million as the fair value of the
contingent consideration as calculated on acquisition date. The
contingent consideration of US$33 million was paid on 22 October
2012.
In 2013, Newton Energy Limited ("Newton Energy"), an entity
previously beneficially owned by the same shareholders
as Seplat, became a subsidiary of the Company. On 1 June 2013,
Newton Energy acquired from Pillar Oil Limited ("Pillar
Oil") a 40 percent Participant interest in producing assets: the
Umuseti/Igbuku marginal field area located within OPL
283 (the "Umuseti/Igbuku Fields").
On 12 December 2014, Seplat Gas Company Limited ("Seplat Gas")
was incorporated as a private limited liability company to engage
in oil and gas exploration and production.
In 2015, the Group purchased a 40% participating interest in OML
53, onshore north eastern Niger Delta, from Chevron Nigeria Ltd for
US$259.4 million.
In 2017, the Group incorporated a new subsidiary, ANOH Gas
Processing Company Limited. The principal activities of the Company
is the processing of gas from OML 53.
The Company together with its six wholly owned subsidiaries
namely, Newton Energy, which was incorporated on 1June 2013, Seplat
Petroleum Development Company UK Limited ("Seplat UK"), which was
incorporated on 21 August 2014, Seplat East Onshore Limited
("Seplat East"), which was incorporated on 12 December 2014, Seplat
East Swamp Company Limited ("Seplat Swamp"), which was incorporated
on 12 December 2014, Seplat Gas Company Limited ("Seplat GAS"),
which was incorporated on 12 December 2014 and ANOH Gas Processing
Company Limited which was incorporated on 18 January 2017 are
collectively referred to as the Group.
Subsidiary Country of incorporation Shareholding Principal
and place of business % activities
=================================== ======================== ============ ====================================
Newton Energy Limited Nigeria 100% Oil & gas exploration and production
----------------------------------- ------------------------ ------------ ------------------------------------
Seplat Petroleum Development UK United Kingdom 100% Oil & gas exploration and production
----------------------------------- ------------------------ ------------ ------------------------------------
Seplat East Onshore Limited Nigeria 100% Oil & gas exploration and production
----------------------------------- ------------------------ ------------ ------------------------------------
Seplat East Swamp Company Limited Nigeria 100% Oil & gas exploration and production
----------------------------------- ------------------------ ------------ ------------------------------------
Seplat Gas Company Nigeria 100% Oil & gas exploration and production
----------------------------------- ------------------------ ------------ ------------------------------------
ANOH Gas Processing Company Limited Nigeria 100% Gas processing
=================================== ======================== ============ ====================================
Notes to the interim condensed consolidated
financial statements continued
2. Significant changes in the current reporting period
The following significant changes occurred during the reporting
period ended 30 June 2018:
-- The offering of US$350 million in aggregate principal amount
of 9.25% senior notes due April 2023 in March 2018. The notes have
been issued by the Group and guaranteed by some of it's
subsidiaries. The proceeds of the notes are being used to refinance
existing indebtedness and for general corporate purposes.
-- The refinancing of an existing US$300 million revolving
credit facility due in December 2018 with a new four year US$300
million revolving facility due June 2022 in March 2018. The
facility has an initial interest rate of the 6% +Libor with
interest payable semi-annually and principal repayable annually.
US$200 million was drawn down in March 2018. The proceeds from the
notes are being used to repay existing indebtedness.
-- The issue of 25,000,000 additional shares in furtherance of
the Group's Long Term Incentive Plan in February 2018. The
additional issued shares are held by Stanbic IBTC Trustees Limited
as Custodian. The Group's share capital as at the reporting date
consists of 588,444,561 ordinary shares of N0.50k each, all with
voting rights.
3. Summary of significant accounting policies
3.1 Introduction to summary of significant accounting
policies
The accounting policies adopted are consistent with those of the
previous financial year end corresponding interim reporting period,
except for the adoption of new and amended standards which are set
out below.
3.2 Basis of preparation
i) Compliance with IFRS
The interim condensed consolidated financial statements of the
Group for the half year reporting period ended 30 June 2018 have
been prepared in accordance with accounting standard IAS 34 Interim
financial reporting.
ii) Historical cost convention
The financial information has been prepared under the going
concern assumption and historical cost convention, except for
contingent consideration and financial instruments measured at fair
value on initial recognition. The financial statements are
presented in Nigerian Naira and United States Dollars, and all
values are rounded to the nearest million ( 'million) and thousand
(US$'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 interim condensed consolidated
financial statements.
iv) New and amended standards adopted by the Group
A number of new or amended standards became applicable for the
current reporting period and the Group had to change its accounting
policies and make retrospective adjustments as a result of adopting
the following standards.
-- IFRS 9 Financial instruments,
-- IFRS 15 Revenue from contracts with customers, and
-- Amendments to IFRS 15 Revenue from contracts with customers.
The impact of the adoption of these standards and the new
accounting policies are disclosed in note 3.3 below. The
other standards did not have any impact on the Group's
accounting policies and did not require retrospective
adjustments.
Notes to the interim condensed consolidated
financial statements continued
v) New standards, amendments 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.
a. IFRS 16 Leases
Title IFRS 16 Leases
of standard
------------ -----------------------------------------------------------------------
Nature IFRS 16 was issued in January 2016. It will result in almost
of change all leases being recognised on the balance sheet, as the distinction
between operating and finance leases is removed. Under the new
standard, an asset (the right to use the leased item) and a financial
liability to pay rentals are recognised. The only exceptions
are short-term and low-value leases. The accounting for lessors
will not significantly change.
------------ -----------------------------------------------------------------------
Impact Operating leases: The standard will affect primarily the accounting
for the Group's operating leases which include leases of buildings,
boats, storage facilities, rigs, land and motor vehicles. As
at the reporting date, the Group had no non-cancellable operating
lease commitments.
Short term leases & low value leases: The Group's one-year contracts
with no planned extension commitments mostly applicable to leased
staff flats will be covered by the exception for short-term leases,
while none of the Group's leases will be covered by the exception
for low value leases.
Service contracts: Some commitments such as contracts for the
provision of drilling, cleaning and community services were identified
as service contracts as they did not contain an identifiable
asset which the Group had a right to control. It therefore did
not qualify as leases under IFRS 16.
------------ -----------------------------------------------------------------------
Date The standard for leases is mandatory for financial years commencing
of adoption on or after 1 January 2019. The Group does not intend to adopt
the standard before its effective date.
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 are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
c. IFRIC 23- Uncertainty over income tax treatment
These amendments were 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 taxation 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.
These amendments are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
d. Conceptual framework for financial reporting
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
amendment before its effective date.
Notes to the interim condensed consolidated
financial statements continued
e. 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 are mandatory for annual periods beginning on
or after 1 January 2019. The Group does not intend to adopt the
amendment before its effective date.
3.3 Changes in accounting policies
This note explains the impact of the adoption of IFRS 9:
Financial Instruments and IFRS 15: Revenue from Contracts with
Customers (including the amendments to IFRS 15) on the Group's
financial statements and discloses the related accounting policies
that have been applied from 1 January 2018.
3.3.1 Impact on the financial statements
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's consolidated financial statements for the year ended 31
December 2017.
As explained in note 3.3.2 below, IFRS 9: Financial instruments
was adopted without restating comparative information. The
adjustments arising from the new impairment rules are therefore not
reflected in the statement of financial position as at 31 December
2017, but are recognised in the opening statement of financial
position on 1 January 2018.
The Group has adopted IFRS 15: Revenue from Contracts with
Customers using the simplified method, with the effect of applying
this standard recognised at the date of initial application (1
January 2018). Accordingly, the information presented for 2017
financial year has not been restated but is presented, as
previously reported, under IAS 18 and related interpretations.
The following tables summarise the impact, net of tax, of
transition to IFRS 9 and IFRS 15 for each individual line item for
the reporting period ended 1 January 2018 and 30 June 2018. 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. There was no impact on the
statement of cash flows as a result of adopting the new
standards.
Amounts without impact of As at
IFRS 9 and IFRS 15 Impact of IFRS 9 Impact of IFRS 15 1 January 2018
-------------------------- ---- ------------------------- ------------------ ------------------- ----------------
Note $'000 $'000 $'000 $'000
========================== ==== ========================= ================== =================== ================
ASSETS
-------------------------- ---- ------------------------- ------------------
Current assets
-------------------------- ---- ------------------------- ------------------
Trade and other
receivables 18 324,135 (5,816) (13,790) 304,529
-------------------------- ---- ------------------------- ------------------
Contract assets 19 - - 13,790 13,790
-------------------------- ---- ------------------------- ------------------
Total assets 2,614,630 (5,816) - 2,608,814
Equity
-------------------------- ---- ------------------------- ------------------
Retained earnings 944,108 (5,816) - 938,292
-------------------------- ---- ------------------------- ------------------
Total shareholders' equity 1,503,097 (5,816) - 1,497,281
========================== ========================= ================== =================== ================
Notes to the interim condensed consolidated
financial statements continued
Amounts without impact of As at
IFRS 9 and IFRS 15 Impact of IFRS 9 Impact of IFRS 15 30 June 2018
Note $'000 $'000 $'000 $'000
=========================== ==== ========================== ================== =================== ==============
ASSETS
--------------------------- ---- -------------------------- ------------------
Current assets
--------------------------- ---- -------------------------- ------------------
Trade and other receivables 18 212,965 (4,086) (13,858) 195,021
--------------------------- ---- -------------------------- ------------------
Contract assets 19 - - 13,858 13,858
=========================== ========================== ================== ===================
Total current assets 824,765 (4,086) - 820,679
Total assets 2,475,625 (4,086) - 2,471,566
EQUITY AND LIABILITIES
--------------------------- ---- -------------------------- ------------------
Equity
--------------------------- ---- -------------------------- ------------------
Retained earnings 961,497 (4,086) - 957,411
--------------------------- ---- -------------------------- ------------------
Total shareholders' equity 1,525,747 (4,086) - 1,521,661
=========================== ========================== ================== =================== ==============
Amount without impact Half year ended 30 June
of IFRS 9 and IFRS 15 Impact of IFRS 9 Impact of IFRS 15 2018
Notes $'000 $'000 $'000 $'000
Revenue from contracts
with customers 7 370,534 - (27,858) 342,676
Cost of sales 8 (168,481) - 117 (168,364)
Gross profit 202,053 - (27,741) 174,312
Other income 9 - - 27,741 27,741
Reversal of impairment
losses on financial
assets-net 11 - 1,730 - 1,730
Profit before taxation 119,567 1,730 - 121,297
Taxation (72,753) - - (72,753)
Profit for the period 46,814 1,730 - 48,544
Other comprehensive
income
Items that may be
reclassified to profit
or loss:
Foreign currency
translation difference - - - -
Total comprehensive
income for the period 46,814 1,730 - 48,544
Earnings per share for
profit attributable to
the equity shareholders
Basic earnings per share
($) 0.07 0.01 - 0.08
Diluted earnings per
share ($') 0.07 0.01 - 0.08
Notes to the interim condensed consolidated
financial statements continued
Amount without
impact of Impact Impact 3 months
IFRS 9 and of IFRS of IFRS ended 30
IFRS 15 9 15 June 2018
Notes $'000 $'000 $'000 $'000
Revenue from contracts with
customers 7 181,387 - (19,299) 162,088
Cost of sales 8 (80,785) - 149 (80,636)
Gross profit 100,602 - (19,150) 81,452
Other income 9 - - 19,150 19,150
Impairment losses on financial
assets - net 11 - (456) - (456)
Profit before taxation 62,943 (456) - 62,487
Taxation (34,500) - - (34,500)
Profit for the period 28,443 (456) - 27,987
Other comprehensive income
Items that may be reclassified
to profit or loss:
Foreign currency translation
difference - - - -
Total comprehensive income
for the period 28,443 (456) 27,987
Earnings per share for profit
attributable
to the equity shareholders
Basic earnings per share
($) 0.06 (0.01) - 0.05
Diluted earnings per share
($) 0.06 (0.01) - 0.05
3.3.2 IFRS 9 Financial Instruments - Impact of adoption
The new financial instruments standard, IFRS 9 replaces the
provisions of IAS 39. The new standard presents a new model for
classification and measurement of assets and liabilities, a new
impairment model which replaces the incurred credit loss approach
with an expected credit loss approach, and new hedging
requirements.
The adoption of IFRS 9: Financial Instruments from 1 January
2018 resulted in changes in accounting policies and adjustments to
the amounts recognised in the financial statements. The new
accounting policies are set out in note below. In accordance with
the transitional provisions in IFRS 9, comparative figures have not
been restated.
3.3.2.1 Classification and measurement
a) Financial assets
On 1 January 2018 (the date of initial application of IFRS 9),
the Group's management assessed the classification of its financial
assets which is driven by the cash flow characteristics of the
instrument and the business model in which the asset is held.
The Group's financial assets includes cash and cash equivalents,
trade and other receivables and contract assets. The Group's
business model is to hold these financial assets to collect
contractual cash flows and to earn contractual interest. For cash
and cash equivalents, interest is based on prevailing market rates
of the respective bank accounts in which the cash and cash
equivalents are domiciled. Interest on trade and other receivables
is earned on defaulted payments in accordance with the Joint
operating agreement (JOA). The contractual cash flows arising from
these assets represent solely payments of principal and interest
(SPPI).
Cash and cash equivalents, trade and other receivables and
contract assets that have previously been classified as loans and
receivables (L and R) are now classified at amortised cost.
Notes to the interim condensed consolidated
financial statements continued
Since there was no change in the measurement basis except for
nomenclature change, opening retained earnings was not impacted (no
differences between the previous carrying amount and the revised
carrying amount of these assets at 1 January 2018).
b) Financial liabilities
Following the adoption of IFRS 9, the Group no longer has a
choice to either recognise gain or loss from the refinancing of a
borrowing on day 1 or defer any gain or loss over the remaining
life of the borrowing by adjusting the effective interest rate, on
the basis that the terms and conditions of the facility remained
largely unchanged. Day one gain or loss must now be recognised at
once. No retrospective adjustments have been made in relation to
this change as at 1 January 2018.
On the date of initial application of, 1 January 2018, the
financial instruments of the Group were classified as follows:
Measurement category Carrying amount
Original New Original New
IAS 39 IFRS 9 US$ '000 US$ '000
Current financial assets
Trade and other receivables:
Trade receivables L and R Amortised cost 108,685 108,685
NPDC receivables L and R Amortised cost 112,664 112,664
NAPIMS receivables L and R Amortised cost 12,506 12,506
Other receivables* L and R Amortised cost 23 23
Cash and cash equivalents L and R Amortised cost 437,212 437,212
Non-current financial liabilities
Interest bearing loans and borrowings Amortised cost Amortised cost 304,677 304,677
Current financial liabilities
Interest bearing loans and borrowings Amortised cost Amortised cost 265,400 265,400
Trade and other payables** Amortised cost Amortised cost 127,128 127,128
*Other receivables exclude NGMC VAT receivables, cash advance
and advance payments.
** Trade and other payables excludes accruals, provisions,
bonus, VAT, Withholding tax, deferred revenue and royalties.
Notes to the interim condensed consolidated
financial statements continued
3.3.2.2 Impairment of financial assets
The total impact on the Group's retained earnings as at 1
January 2018 and on profit for period as at 30 June 2018
is as follows:
Notes $'000
Closing retained earnings as at 31 December 2017- IAS 39 944,108
Increase in provision for Nigerian Petroleum Development Company
(NPDC) receivables (a) (5,553)
------
Increase in provision for National Petroleum Investment Management
Services (NAPIMS) receivables (b) (263)
======
(5,816)
==============================================================================
Opening retained earnings 1 January 2018 on adoption of IFRS 9 938,292
Notes $'000
======
Profit for the period (without impact of IFRS 9 and IFRS 15) 46,814
Reversal of impairment loss for Nigerian Petroleum Development Company
(NPDC) receivables (a) 1,865
------
Increase in impairment for National Petroleum Investment Management
Services (NAPIMS) receivables (b) (135)
------
Total reversal of impairment loss 1,730
Profit for the period (with impact of IFRS 9 and IFRS 15) 48,544
The Group has six types of financial assets that are subject to
IFRS 9's new expected credit loss model. The Group was required to
revise its impairment methodology under IFRS 9 for each of these
classes of assets. The impact of the change in impairment
methodology on the Group's retained earnings is disclosed in the
table in note 3.3.2 above.
-- Nigerian Petroleum Development Company (NPDC) receivables
-- National Petroleum Investment Management Services
(NAPIMS)
-- Trade receivables
-- Contract assets
-- Other receivables and;
-- Cash and cash equivalents.
a) Nigerian Petroleum Development Company (NPDC) receivables
The Group applies the IFRS 9 general model to measuring expected
credit losses (ECL) which uses a three-stage approach in
recognising the expected loss allowance for NPDC receivables. NPDC
receivables represent the outstanding cash calls due to Seplat from
its JV partner, Nigerian Petroleum Development Company
The ECL recognised for the period is a probability-weighted
estimate of credit losses discounted at the effective interest rate
of the financial asset. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash
flows due to the Group in accordance with the contract and the cash
flows that the Group expects to receive).
The ECL was calculated based on actual credit loss experience
from 2014, which is the date the Group initially became a party
to the contract. The following analysis provides further detail
about the calculation of ECLs related to these assets. The
Group
considers the model and the assumptions used in calculating
these ECLs as key sources of estimation uncertainty.
Loss rate was calculated as the portion of the receivables that
have been deemed uncollectible during a particuar period, as a
percentage of the outstanding receivables over the same reporting
period. The expected loss rate at the end of the reporting period
was 7.6%.
Notes to the interim condensed consolidated
financial statements continued
The outstanding net NPDC receivables at the end of the reporting
period has been netted off against the gas receipts payable to
NPDC.
1 January 2018
Stage 1 Stage 2 Stage 3 Total
------------------------------------ ------------ ------------ ------------ -------
12-month ECL Lifetime ECL Lifetime ECL
------------------------------------ ------------ ------------ ------------ -------
$'000 $'000 $'000 $'000
==================================== ============ ============ ============ =======
Gross EAD* - 37,179 75,485 112,664
------------------------------------ ------------ ------------ ------------ -------
Loss allowance as at 1 January 2018 - (105) (5,448) (5,553)
==================================== ============ ============ ============ =======
Net EAD - 37,074 70,037 107,111
==================================== ============ ============ ============ =======
30 June 2018
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ------------ ------------ ------------ -------
12-month ECL Lifetime ECL Lifetime ECL
---------------------------------- ------------ ------------ ------------ -------
$'000 $'000 $'000 $'000
================================== ============ ============ ============ =======
Gross EAD* - - 48,439 48,439
---------------------------------- ------------ ------------ ------------ -------
Loss allowance as at 30 June 2018 - - (3,688) (3,688)
================================== ============ ============ ============ =======
Net EAD - - 44,751 44,751
================================== ============ ============ ============ =======
The Group considers both quantitative and qualitative indicators
in classifying its receivables into the relevant stages for
impairment calculation.
*Stage 1 includes receivables that are less than 30 days past
due (Performing).
*Stage 2 includes receivables that have been assessed to have
experienced a significant increase in credit risk using the days
past due criteria (i.e the outstanding receivables amount are more
than 30 days past due but less than 90 days past due) and other
qualitative indicators such as the increase in political risk
concerns or other micro-economic factors and the risk of legal
action, sanction or other regulatory penalties that may impair
future financial performance.
*Stage 3 receivables are receivables that have been assessed as
being in default( i.e receivables that are more than 90 days past
due) or there is a clear indication that the imposition of
financial or legal penalties and/or sanctions will make the full
recovery of indebtedness highly improbable.
The reconciliation of loss allowances for Nigerian Petroleum
Development Company (NPDC) receivables as at 1 January 2018 and 30
June 2018 is as follows:
$'000
Loss allowance as at 1 January 2018 - calculated under IAS 39 -
Amounts restated through opening retained earnings 5,553
Loss allowance as at 1 January 2018 - calculated under IFRS 9 5,553
Reversal of impairment loss on NPDC receivables (1,865)
Loss allowance as at 30 June 2018 - Under IFRS 9 3,688
Probability of default (PD)
The credit rating of Federal Government bonds was used to
reflect the assessment of the probability of default on these
receivables. This was supplemented with external data from credit
bureau scoring information from Standard & Poor's (S&P) to
arrive at a 12-month PD of 3.9%. Lifetime PD (stage 2) was assumed
to be the 12-month PD as the maximum contractual period over which
the Group is exposed to credit risk is less than 12 months. The PD
for Stage 3 receivables was 100% as these amounts were deemed to be
in default using the days past due criteria. (See note 3.3.3 for
definition of default).
Loss given default (LGD)
The 12-month LGD was calculated as the present value of the
percentage loss on the outstanding NPDC receivables adjusted with
forward looking macroeconomic indicators. The 12-month LGD
assumptions are a reasonable proxy of lifetime LGD.
Exposure at default (EAD)
This is the amount that best represents the maximum exposure to
credit risk at the end of the reporting period without taking
account of any collateral.
Notes to the interim condensed consolidated
financial statements continued
Macroeconomic indicators
The real historical gross domestic product (GDP) growth rate in
Nigeria and crude oil price were identified as the key economic
variables impacting the credit risk on these receivables. Forecasts
of these economic variables ( the "base economic scenario") provide
the best estimate view of the economy in the last ten (10) years.
In addition to the base economic scenario, two additional scenarios
(optimistic and downturn) were used along with scenario
weightings.
The probability weight attached to each of the scenarios was
determined using the GDP growth rates. The historical GDP growth
rates were evaluated at 75% confidence interval. Based on this
confidence interval, 75% of historical GDP growth rate observation
falls within the acceptable bounds, 8% of the observation relates
to period of boom while 17% of the observation relate to periods of
recession/downturn.
b) National Petroleum Investment Management Services (NAPIMS)
receivables
The Group applies the IFRS 9 general model to measuring expected
credit losses (ECL) which uses a three-stage approach in
recognising the expected loss allowance for NAPIMS receivables.
NAPIMS receivables represent the outstanding cash calls due to
Seplat from its JV partner, National Petroleum Investment
Management Services
The ECL was calculated based on actual credit loss experience
from 2016, which is the date the Group initially became a party to
the contract. The following analysis provides further detail about
the calculation of ECLs related to these assets. The Group
considers the model and the assumptions used in calculating these
ECLs as key sources of estimation uncertainty. The explanation of
inputs, assumptions and estimation techniques used are consistent
with those for NPDC receivables.
Loss rate was calculated as the portion of the receivables that
have been deemed uncollectible during a particuar period, as a
percentage of the outstanding receivables over the same reporting
period. The expected loss rates at the end of the reporting period
for NAPIMS receivables in Stage 1 and Stage 3 were 1.85% and 47.8%
respectively.
1 January 2018
Stage 1 Stage 2 Stage 3 Total
------------------------------------ ------------ ------------ ------------ ------
12-month ECL Lifetime ECL Lifetime ECL
------------------------------------ ------------ ------------ ------------ ------
$'000 $'000 $'000 $'000
==================================== ============ ============ ============ ======
Gross EAD* 4,274 - 8,232 12,506
------------------------------------ ------------ ------------ ------------ ------
Loss allowance as at 1 January 2018 (5) - (258) (263)
==================================== ============ ============ ============ ======
Net EAD 4,269 - 7,974 12,243
==================================== ============ ============ ============ ======
30 June 2018
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ------------ ------------ ------------ -----
12-month ECL Lifetime ECL Lifetime ECL
---------------------------------- ------------ ------------ ------------ -----
$'000 $'000 $'000 $'000
================================== ============ ============ ============ =====
Gross EAD* 3,876 - 682 4,558
---------------------------------- ------------ ------------ ------------ -----
Loss allowance as at 30 June 2018 (72) - (326) (398)
================================== ============ ============ ============ =====
Net EAD 3,804 - 356 4,160
================================== ============ ============ ============ =====
The Group considers both quantitative and qualitative indicators
in classifying its receivables into the relevant stages for
impairment calculation.
*Stage 1 includes receivables that are less than 30 days past
due (Performing).
*Stage 2 includes receivables that have been assessed to have
experienced a significant increase in credit risk using the days
past due criteria (i.e the outstanding receivables amount are more
than 30 days past due but less than 90 days past due) and other
qualitative indicators such as the increase in political risk
concerns or other micro-economic factors and the risk of legal
action, sanction or other regulatory penalties that may impair
future financial performance.
*Stage 3 receivables are receivables that have been assessed as
being in default( i.e receivables that are more than 90 days past
due) or there is a clear indication that the imposition of
financial or legal penalties and/or sanctions that make the full
recovery of indebtedness highly improbable.
Notes to the interim condensed consolidated
financial statements continued
The reconciliation of loss allowances for National Petroleum
Investment Management Services receivables as at 1 January 2018 and
30 June 2018 is as follows:
$'000
Loss allowance as at 1 January 2018 - calculated under IAS 39 -
Amounts restated through opening retained earnings 263
Loss allowance as at 1 January 2018 - calculated under IFRS 9 263
Increase in provision on impairment loss on NPDC receivables 135
Loss allowance as at 30 June 2018 - Under IFRS 9 398
c) Trade receivables and contract assets
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables and
contract assets have been grouped based on shared credit risk
characteristics and the days past due criterion. Contract assets
relate to unbilled receivables for the delivery of gas supplies in
which NGMC has taken delivery of but has not been invoiced as at
the end of the reporting period. These assets have substantially
the same risk characteristics as the trade receivables for the same
types of contracts. The Group has therefore concluded that the
expected loss rates for trade receivables are a reasonable
approximation of the loss rates for the contract assets.
Trade receivables and contract assets include amounts receivable
from Mercuria Energy Group, Shell Western Supply, Pillar Limited
and Nigerian Gas Marketing Company (NGMC).
For Mecuria Energy Group and Shell Western Supply, impairment
was assessed to be immaterial as there has been no history of
default (i.e. the Group receives the outstanding amount within the
standard payment period of 30 days) and there has been no dispute
arising on the invoiced amount from both parties.
The Group also assessed for impairment on receivable balances
from Pillar Limited and Nigerian Gas Marketing Company (NGMC) using
outstanding payments to model the expected loss rates. Based on
this assessment, the identified impairment loss as at 1 January
2018 and 30 June 2018 was immaterial as there has been no history
of default or dispute on the receivables. The impairment allowance
on these assets was nil under the incurred loss model of IAS
39.
d) Other receivables
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all financial assets that are classified within other
receivables.
Other receivables relate to staff receivables and an amount
receivable from SPDC for an investment no longer being pursued.
Impairment allowance on both receivable amounts were assessed to be
immaterial.
For staff receivables this was on the basis that there has been
no history of default on these assets as repayments are deducted
directly from the staff's monthly salary. In addition, the
outstanding balance as at the 30 June 2018 and 31 December 2017 was
deemed to be immaterial $2,350 (2017: $14,598). The impairment was
nil under the incurred loss model of IAS 39.
The amount of loss allowance for the receivables arising from
the settlement of the investment in OML 25 as a result of applying
the simplified approach was deemed immaterial as the receaivables
were assessed to be fully recoverable and less than 30 days past
due as at the reporting date. The impairment was nill under the
incurred loss model of IAS 39.
e) Cash and cash equivalents
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, the identified impairment loss
was immaterial.
Notes to the interim condensed consolidated
financial statements continued
3.3.2.3 Hedge accounting
As at the reporting periods ended 31 December 2017 and 30 June
2018, the Group had no derivative assets or liabilities. However,
the Group entered agreements to sell put options for crude oil in
Brent at a strike price of $40 per barrel to NedBank Limited for
600,000 barrels within a period of 6 months from 1 January 2018 to
30 June 2018.
It also entered into agreements to sell put options for crude
oil in Brent at a strike price of $50 per barrel to Natixis for
500,000 barrels within a period of 6 months from 1 July 2018 to 31
December 2018.
The purpose of these is to hedge its cash flows against oil
price risk. The contracts provide for a no loss position for
Seplat, in that Seplat makes a gain if the price of oil falls below
the strike price; and if the price of oil is above the strike
price, there is no loss i.e. no payment is made by Seplat except
for the mutually agreed monthly premium which is paid in arrears
and is settled net of any gain on settlement date.
These contracts however, are not designated as hedging
instruments, and as such hedge accounting is not being applied. In
the event where the Group takes the option of designating its
derivative as hedging instruments, the Group would need to make a
formal designation and documentation of the hedging relationship
and the Group's risk management objective and strategy for
undertaking the hedge.
3.3.3 IFRS 9: Financial Instruments - Accounting policies applied from 1 January 2018
The Group's accounting policies were changed to comply with IFRS
9. IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities; derecognition of financial instruments;
impairment of financial assets and hedge accounting. IFRS 9 also
significantly amends other standards dealing with financial
instruments such as IFRS 7 Financial Instruments: Disclosures.
a) Classification and measurement
-- Financial assets
It is the Group's policy to initially recognise financial assets
at fair value plus transaction costs, except in the case of
financial assets recorded at fair value through profit or loss
which are expensed in profit or loss.
Classification and subsequent measurement is dependent on the
Group's business model for managing the asset and the cashflow
characteristics of the asset. On this basis, the Group may classify
it's financial instruments as amortised cost, fair value through
profit or loss and as fair value through other comprehensive
income. All the Group's financial assets as at 30 June 2018 satisfy
the conditions for classification at amortised cost under IFRS
9.
The Group's financial assets include trade receivables, NPDC
receivables, NAPIMS receivables, contract assets, other receivables
and cash and cash equivalents.
-- Financial liabilities
Financial liabilities of the Group are classified and
subsequently recognised at amortised cost net of directly
attributable transaction costs, except for derivatives which are
classified and subsequently recognised at fair value through profit
or loss.
Fair value gains or losses for financial liabilities designated
at fair value through profit or loss are accounted for in profit or
loss except for the amount of change that is attributable to
changes in the Group's own credit risk which is presented in other
comprehensive income. The remaining amount of change in the fair
value of the liability is presented in profit or loss. The Group's
financial liabilities include trade and other payables and interest
bearing loans and borrowings.
b) Impairment of financial assets
Recognition of impairment provisions under IFRS 9 is based on
the expected credit loss (ECL) model. The ECL model is applicable
to financial assets classified at amortised cost and contract
assets under IFRS 15: Revenue from Contracts with Customers. The
measurement of ECL reflects an unbiased and probability-weighted
amount that is determined by evaluating a range of possible
outcomes, time value of money and reasonable and supportable
information, that is available without undue cost or effort at the
reporting date, about past events, current conditions and forecasts
of future economic conditions.
The Group applies the simplified approach or the three-stage
general approach to determine impairment of receivables depending
on their respective nature. The simplified approach is applied for
trade receivables and contract assets while the three-stage
approach is applied to NPDC receivables, NAPIMS receivables and
other receivables.
Notes to the interim condensed consolidated
financial statements continued
The simplified approach requires expected lifetime losses to be
recognised from initial recognition of the receivables. This
involves determining the expected loss rates which is then applied
to the gross carrying amount of the receivable to arrive at the
loss allowance for the period.
The three-stage approach assesses impairment based on changes in
credit risk since initial recognition using the past due criterion.
Financial assets classified as stage 1 have their ECL measured as a
proportion of their lifetime ECL that results from possible default
events that can occur within one year, while assets in stage 2 or 3
have their ECL measured on a lifetime basis.
Under the three-stage approach, the ECL is determined by
projecting the probability of default (PD), loss given LGD and EAD
for each ageing bucket and for each individual exposure. The PD is
based on default rates determined by external rating agencies for
the counterparties. The LGD assesses the portion of the outstanding
receivable that is deemed to be irrecoverable at the reporting
period. These three components are multiplied together and adjusted
using macro-economic indicators. This effectively calculates an ECL
which is then discounted back to the reporting date and summed. The
discount rate used in the ECL calculation is the original effective
interest rate or an approximation thereof.
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the related
financial assets and the amount of the loss is recognised in profit
or loss.
c) Derecognition
-- Financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or when it
transfers the financial asset and the transfer qualifies for
derecognition.
The Group's financial assets include trade receivables, NPDC
receivables, NAPIMS receivables, contract assets, other receivables
and cash and cash equivalents.
-- Financial liabilities
The Group derecognises a financial liability when it is
extinguished i.e. when the obligation specified in the contract is
discharged or cancelled or expires. When an existing financial
liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised immediately in the
statement of profit or loss.
d) Significant increase in credit risk and default
definition
The Group assesses the credit risk of its financial assets based
on the information obtained during periodic review of publicly
available information on the entities, industry trends and payment
records. Based on the analysis of the information provided, the
Group identifies the assets that require close monitoring.
Financial assets that have been identified to be more than 30
days past due on contractual payments are assessed to have
experienced significant increase in credit risk. These assets are
grouped as part of Stage 2 financial assets where the three-stage
approach is applied.
In line with the Group's credit risk management practices, a
financial asset is defined to be in default when contractual
payments have not been received at least 90 days after the
contractual payment period. Subsequent to default, the Group
carries out active recovery strategies to recover all outstanding
payments due on receivables. Where the Group determines that there
are no realistic prospects of recovery, the financial asset and any
related loss allowance is written off either partially or in
full.
3.3.4 IFRS 15 Revenue from Contracts with Customers - Impact of adoption
The Group has adopted IFRS 15 Revenue from Contracts with
Customers from 1 January 2018 which resulted in changes in
accounting policies and adjustments to the amounts recognised in
the financial statements. In accordance with the transition
provisions in IFRS 15, the Group has adopted the new rules
prospectively and has not restated comparatives for the 2017
financial year. There was no impact on the Group's retained
earnings at the date of initial application (i.e. 1 January
2018).
The analysis below shows the impact on the statement of
financial position and statement of other comprehensive income for
the period ended 30 June 2018.
Notes to the interim condensed consolidated
financial statements continued
3.3.4.1. Presentation of contract assets
Amount without impact of
IFRS 15 and IFRS 9 Impact of IFRS 9 Impact of IFRS 15 As at 30 June 2018
-------------------------- ----- ------------------------ ------------------ ----------------- ------------------
Note $'000 $'000 $'000
========================== ===== ======================== ================== ================= ==================
ASSETS
-------------------------- ----- ------------------------ ------------------ ----------------- ------------------
Current assets
-------------------------- ----- ------------------------ ------------------ ----------------- ------------------
Trade and other
receivables (a) 212,965 (4,086) (13,858) 195,021
-------------------------- ----- ------------------------ ------------------ ----------------- ------------------
Contract assets (a) - - 13,858 13,858
-------------------------- ----- ------------------------ ------------------ ----------------- ------------------
a) Trade and other receivables
The Group introduced the presentation of contract assets in the
balance sheet to reflect the guidance of IFRS 15. Contract assets
recognised in relation to unbilled revenue from Nigerian Gas
Marketing Company (NGMC) were previously presented as part of trade
and other receivables.
3.3.4.2. Reclassifications
The following reclassification adjustments were made in the
current reporting period to recognise the impact of the initial
application of IFRS 15.
As at 30 June 2018
------------------
Unaudited
------------------
Note $'000
==================
Revenue from contracts with customers (without IFRS 15 impact) 370,534
------------------
Reclassification of underlifts to other income (a) (27,741)
------------------
Reclassification of demurrage from cost of sales (b) (117)
------------------
Total impact of reclassification on revenue (27,858)
==================
Revenue from contract with customers under IFRS 15 342,676
==================
a) Reclassification of underlifts to other income
In some instances, Joint ventures (JV) partners lift the share
of production of other partners. Under IAS 18, over lifts and
underlifts were recognised net in revenue using entitlement
accounting. They are settled at a later period through future
liftings and not in cash (non-monetary settlements). This is
referred to as the entitlement method. IFRS 15 excludes
transactions arising from arrangements where the parties are
participating in an activity together and share the risks and
benefits of that activity as the counterparty is not a customer. To
reflect the change in policy, the Group has reclassified underlifts
to other income.
b) Reclassification of demurrage from costs of sales
Seplat pays demurrage to Mercuria for delays caused by
incomplete cargoes delivered at the port. These are referred to as
price adjustments and Seplat is billed subsequently by Mercuria.
Under IFRS 15, these are considerations payable to customers and
should be recognised net of revenue. Revenue has therefore been
recognised net of demurrage costs. In the current period, there was
a refund of demurrage which has been added to revenue. In prior
reporting periods, demurrage costs were included as part of
operations and maintenance costs.
Notes to the interim condensed consolidated
financial statements continued
3.3.4.3. Financing components
The Group does not have any contracts where the period between
the transfer of the promised goods or services to the customer and
payment by the customer exceeds one year. As a result, the Group
does not adjust any of the transaction prices for the time value of
money.
3.3.5 IFRS 15 Revenue from Contracts with Customers - Accounting policies
The Group has adopted IFRS 15 as issued in May 2014 which has
resulted in changes in the accounting policy of the Group. IFRS 15
replaces IAS 18 which covers revenue arising from the sale of goods
and the rendering of services, IAS 11 which covers construction
contracts, and related interpretations. In accordance with the
transitional provisions in IFRS 15, comparative figures have not
been restated as the Group has applied the modified retrospective
approach in adopting this standard.
IFRS 15 introduces a five-step model for recognising revenue to
depict transfer of goods or services. The model distinguishes
between promises to a customer that are satisfied at a point in
time and those that are satisfied over time.
a) Revenue recognition
It is the Group's policy to recognise revenue from a contract
when it has been approved by both parties, rights have been clearly
identified, payment terms have been defined, the contract has
commercial substance, and collectability has been ascertained as
probable. Collectability of customer's payments is ascertained
based on the customer's historical records, guarantees provided,
the customer's industry and advance payments made if any.
Revenue is recognised when control of goods sold has been
transferred. Control of an asset refers to the ability to direct
the use of and obtain substantially all of the remaining benefits
(potential cash inflows or savings in cash outflows) associated
with the asset. For crude oil, this occurs when the crude products
are lifted by the customer (buyer) Free on Board at the Group's
loading facility. Revenue from the sale of oil is recognized at the
point in time when performance obligation is satisfied. For gas,
revenue is recognised when the product passes through the custody
transfer point to the customer. Revenue from the sale of gas is
recognised at a over time using the practical expedient of the
right to invoice.
The surplus or deficit of the product sold during the period
over the Group's ownership share of production is termed as an
overlift or underlift. With regard to underlifts, if the
over-lifter does not meet the definition of a customer or the
settlement of the transaction is non-monetary, a receivable and
other income is recognised. Conversely, when an overlift occurs,
cost of sale is debited and a corresponding liability is accrued.
Overlifts and underlifts are initially measured at the market price
of oil at the date of lifting, consistent with the measurement of
the sale and purchase. Subsequently, they are remeasured at the
current market value. The change arising from this remeasurement is
included in the profit or loss as other income or cost of
sales.
-- Definition of a customer
A customer is a party that has contracted with the Group to
obtain crude oil or gas products in exchange for a consideration,
rather than to share in the risks and benefits that result from
sale. 'The Group has entered into collaborative arrangements with
its Joint venture partners to share in the production of oil.
Collaborative arrangements with its Joint venture partners to share
in the production of oil are accounted for differently from
arrangements with customers as collaborators share in the risks and
benefits of the transaction, and therefore, do not meet the
definition of customers. Revenue arising from these arrangements
are recognised separately in other income.
-- Identification of performance obligation
At inception, the Group assesses the goods or services promised
in the contract with a customer to identify as a performance
obligation, each promise to transfer to the customer either a
distinct good or series of distinct goods. The number of identified
performance obligations in a contract will depend on the number of
promises made to the customer. The delivery of barrels of crude oil
or units of gas are usually the only performance obligation
included in oil and gas contract with no additional contractual
promises. Additional performance obligations may arise from future
contracts with the Group and its customers.
The identification of performance obligations is a crucial part
in determing the amount of consideration recognized as revenue.
This is due to the fact that revenue is only recognised at the
point where the performance obligation is fulfilled, Management has
therefore developed adequate measures to ensure that all
contractual promises are appropriately considered and accounted for
accordingly.
Notes to the interim condensed consolidated
financial statements continued
-- Contract enforecability and termination clauses
The Group may enter into contracts that do not create
enforceable rights and obligation to parties in the contract. Such
instances may include where the counterparty has not met all
conditions necessary to kick start the contract or where a
non-contractual promise exists between both parties to the
agreement. In these instances, the agreement is not yet a valid
contract and therefore no revenue can be recognised. The agreement
between Seplat and PanOcean is not a valid contract. Therefore, it
may not be appropriate to reclassify the outstanding balance from
deferred revenue to contract liability. The outstanding balance has
been included as part of accruals and other payables.
No amount has been recognized in revenue in relation to the
transaction"
It is the Group's policy to assess that the defined criteria for
establishing contracts that entail enforceable rights and
obligations are met. The criteria provides that the contract has
been approved by both parties, rights have been clearly identified,
payment terms have been defined, the contract has commercial
substance, and collectability has been ascertained as probable.
The Group may enter into contracts that do not meet the revenue
recognition criteria. In such cases, the consideration received
will only be recognised as revenue when the contract is
terminated.
The Group may also have the unilateral rights to terminate an
unperformed contract without compensating the other party. This
could occur where the Group has not yet transferred any promised
goods or services to the customer and the Group has not yet
received, and is not yet entitled to receive, any consideration in
exchange for promised goods or services.
b) Transaction price
Transaction price is the amount that an entity allocates to the
performance obligations identified in the contract. It represents
the amount of revenue recognised as those performance obligations
are satisfied. Complexities may arise where a contract includes
variable consideration, significant financing component or
consideration payable to a customer.
Variable consideration not within the Group's control is
estimated at the point of revenue recognition and reassessed
periodically. The estimated amount is included in the transaction
price to the extent that it is highly probable that a significant
reversal of the amount of cumulative revenue recognised will not
occur when the uncertainty associated with the variable
consideration is subsequently resolved. As a practical expedient,
where the Group has a right to consideration from a customer in an
amount that corresponds directly with the value to the customer of
the Group's performance completed to date, the Group recognises
revenue in the amount to which it has a right to invoice.
Significant financing component (SFC) assessment is carried out
(using a discount rate that reflects the amount charged in a
separate financing transaction with the customer and also
considering the Group's incremental borrowing rate) on contracts
that have a repayment period of more than 12 months
As a practical expedient,the Group does not adjust the promised
amount of consideration for the effects of a significant financing
component if it expects, at contract inception, that the period
between when it transfers a promised good or service to a customer
and when the customer pays for that good or service will be one
year or less.
Instances when SFC assessment may be carried out include where
the Group receives advance payment for agreed volumes of crude oil
or receivables take or pay deficiency payment on gas sales. Take or
pay gas sales contract ideally provides that the customer must
sometimes pay for gas even when not delivered to the customer. The
customer, in future contract years, takes delivery of the product
without further payment. The portion of advance payments that
represents significant financing component will be recognised as
interest revenue.
Consideration payable to a customer is accounted for as a
reduction of the transaction price and, therefore, of revenue
unless the payment to the customer is in exchange for a distinct
good or service that the customer transfers to the Group. Examples
include barging costs incurred, demurrage and freight costs. These
do not represent a distinct service transferred and is therefore
recognised as a direct deduction from revenue.
c) Breakage
The Group enters into take or pay contracts for sale of gas
where the buyer may not ultimately exercise all of their rights to
the gas. The take or pay quantity not taken is paid for by buyer
called take or pay deficiency payment. The Group assesses if there
is a reasonable assurance that it will be entitled to a breakage
amount. Where it establishes that a reasonable assurance exists, it
recognises the expected breakage amount as revenue in proportion to
the pattern
of rights exercised by the customer. However, where the Group is
not reasonably assured of a breakage amount, it would only
recognise the expected breakage amount as revenue when the
likelihood of the customer exercising its remaining rights becomes
remote.
Notes to the interim condensed consolidated
financial statements continued
d) Contract modification and contract combination
Contract modifications relates to a change in the price and/or
scope of an approved contract. Where there is a contract
modification, the Group assesses if the modification will create a
new contract or change the existing enforceable rights and
obligations of the parties to the original contract.
Contract modifications are treated as new contracts when the
performance obligations are separately identifiable and transaction
price reflects the standalone selling price of the crude oil or the
gas to be sold. Revenue is adjusted prospectively when the crude
oil or gas transferred is separately identifiable and the price
does not reflect the standalone selling price. Conversely, if there
are remaining performance obligations which are not separately
identifiable, revenue will be recognised on a cumulative catch-up
basis when crude oil or gas is transferred.
The Group enters into new contracts with its customers only on
the expiry of the old contract. In the new contracts, prices and
scope may be based on terms in the old contract. In gas contracts,
prices change over the course of time. Even though gas prices
change over time, the changes are based on agreed terms in the
initial contract i.e. price change due to consumer price index. The
change in price is therefore not a contract modifications. Any
other change expected to arise from the modification of a contract
is implemented in the new contracts.
The Group combines contracts entered into at near the same time
(less than 12 months) as one contract if they are entered into with
the same or related party customer, the performance obligations are
the same for the contracts and the price of one contract depends on
the other contract.
e) Portfolio expedients
As a practical expedient, the Group may apply the requirements
of IFRS 15 to a portfolio of contracts (or performance obligations)
with similar characteristics if it expects that the effect on the
financial statements would not be materially different from
applying IFRS to individual contracts within that portfolio.
f) Contract assets and liabilities
The Group recognises contract assets for unbilled revenue from
crude oil and gas sales. A contract liability is consideration
received for which performance obligation has not been met.
g) Disaggregation of revenue from contract with customers
The Group derives revenue from two types of products, oil and
gas. The Group has determined that the disaggregation of revenue
based on the criteria of type of products meets the revenue
disaggregation disclosure requirement of IFRS 15 as it depicts how
the nature, amount, timing and uncertainty of revenue and cash
flows are affected by economic factors. See further details in note
6.
3.4 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 30 June
2018.
This basis of consolidation is the same adopted for the last
audited financial statements as at 31 December 2017.
3.5 Functional and presentation currency
Items included in the financial statements of the Company and
the 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 Great Britain Pound. 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 and
this is allowable by the regulator.
i) 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.
Notes to the interim condensed consolidated
financial statements continued
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 each statement of financial
position presented are translated at the closing rate at the
reporting date.
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not - a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
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's judgements at the end of the half year are
consistent with those disclosed in the recent 2017 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) New tax regime
Effective 1 January 2013, the Company was granted the inter tax
status incentive by the Nigerian Investment Promotion Commission
for an initial three-year period and a further two-year period on
approval. For the period the incentive applies, the Company is
exempted from paying petroleum profits tax on crude oil profits
(which was taxed at 65.75% but increased to 85% in 2017), corporate
income tax on natural gas profits (currently taxed at 30%) and
education tax of 2%.
The Company has completed its first three years of the pioneer
tax status and now required to pay the full petroleum profits tax
on crude oil profits, corporate income tax on natural gas profits
and education tax of 2%.
Newton Energy and Seplat East Onshore Limited (OML 33) were also
granted pioneer tax status on the same basis as the company. Tax
incentives do not apply to Seplat East Swamp Company Limited (OML
55) as it had no activities at the time the incentives were granted
to Seplat and Newton.
Deferred tax assets have been recognised during the half year
period. Deferred tax liabilities are not recognised in the half
year period as the Group was not liable to make future income taxes
payment in respect of taxable temporary differences.
iii) Unrecognised deferred tax asset
Deferred income tax assets are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable. See further
details in note 15.
Notes to the interim condensed consolidated
financial statements continued
iv) Defined benefit plan
The Group has placed reliance on the actuarial valuation carried
at the 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.
v) 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.
-- 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 contract, the performance is satisfied through the
delivery of a series goods. Revenue is recognised overtime in this
situation as NGMC 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 contract. The right to invoice is a measure of
progress that allows the Group to recognised revenue based on
amount invoiced to the customer. Judgement has been applied in
evaluating that the Group right to consideration corresponds
directly with the value transferred to the customers 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 transers
the crude to Mecuria and when payment for the crude is recieved
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 Venture (JV) 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 it's JV partners
involves sharing in the production of crude oil, and for which the
settlement of the transaction is non-monetary The JV partners have
been assessed to be partners not customer. Therefore, shortfalls or
excesses below or above the Group's share of production are
recognised in other income and cost of sales respectively.
-- Barging costs
The Group refunds to Mercuria barging costs incurred on crude
oil barrels delivered. The Group does not enjoy a separate service
as it would have had to pay another party for the delivery of crude
oil. The barging costs is therefore determined to be a
consideration payable to customer as there is no distinct goods or
service being enjoyed by Group. Since no distinct good or service
is transferred, barging costs is accounted for as a direct
deduction from revenue i.e. revenue is recognised net of barging
costs.
Notes to the interim condensed consolidated
financial statements continued
vi) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision
maker.
The Board of directors has appointed a steering committee which
assesses the financial performance and position of the Group, and
makes strategic decisions. The steering committee, which has been
identified as being the chief operating decision maker, consists of
the chief financial officer, the general manager (Finance), the
general manager (Gas) and the financial reporting manager. See
further details in note 6.
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 2017 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. 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) Contingent consideration
During the reporting period, the Group continued to recognise
the contingent consideration of $18.5 million for OML 53 at the
fair value of$18.4 million (2017: $13.9 million). It is contingent
on oil price rising above US$90 per barrel over a one year period
and expirirng on 31st January 2020.
iii) 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.
iv) 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. Details of the key assumptions and inputs used are
disclosed note 3.3.3.
Notes to the interim condensed consolidated
financial statements continued
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, interest rate
risk and commodity price risk), credit risk and liquidity risk. The
Group's risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out by the treasury department under
policies approved by the Board of Directors. The Board provides
written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk,
interest rate risk, credit risk and investment of excess
liquidity.
Risk Exposure arising from Measurement Management
------------ ------------------------------ --------------------- ---------------------------
Market risk Future commercial transactions Cash flow forecasting Match and settle foreign
- foreign Recognised financial Sensitivity analysis denominated cash inflows
exchange assets and liabilities with foreign denominated
not denominated in cash outflows.
US dollars.
------------ ------------------------------ --------------------- ---------------------------
Market risk Long term borrowings Sensitivity analysis Review refinancing
- interest at variable rate opportunities
rate
------------ ------------------------------ --------------------- ---------------------------
Market risk Future sales transactions Sensitivity analysis Oil price hedges
- commodity
prices
------------ ------------------------------ --------------------- ---------------------------
Credit risk Cash and cash equivalents, Aging analysis Diversification of
trade receivables and Credit ratings bank deposits.
derivative financial
instruments.
------------ ------------------------------ --------------------- ---------------------------
Liquidity Borrowings and other Rolling cash flow Availability of committed
risk liabilities forecasts 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 interest bearing current accounts, time deposits
and money market deposits.
The following table details the Group's remaining contractual
maturity for its non-derivative financial liabilities with agreed
maturity periods. The table has been drawn based on the
undiscounted cash flows of the financial liabilities based on the
earliest date on which the Group can be required to pay.
Notes to the interim condensed consolidated
financial statements continued
Effective interest Less than 1 - 2 2 - 3 3 - 5 After Total
rate 1 year years years years 5 years
% $ '000 $ '000 $ '000 $ '000 $ '000 $ '000
===================
30 June 2018
=================== =================== ========== ============= ============== ============== ======== =======
Non - derivatives
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Fixed interest rate
borrowings
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Senior notes 9.25% 33,814 32,915 32,825 415,649 - 515,203
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Variable interest
rate borrowings
(bank loans):
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Stanbic Ibtc Bank
Plc 6.0% +LIBOR 4,886 7,382 6,877 9,377 - 28,522
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
The Standard Bank
Of South Africa L 6.0% +LIBOR 3,257 4,921 4,585 6,251 - 19,014
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Nedbank Limited,
London Branch 6.0% +LIBOR 6,785 10,253 9,551 13,024 - 39,613
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Standard Chartered
Bank 6.0% +LIBOR 6,107 9,227 8,597 11,721 - 35,652
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Natixis 6.0% +LIBOR 4,750 7,177 6,686 9,116 - 27,729
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
FirstRand Bank
Limited Acting 6.0% +LIBOR 4,750 7,177 6,686 9,116 - 27,729
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Citibank N.A.
London 6.0% +LIBOR 4,071 6,151 5,731 7,814 - 23,767
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
The Maritus
Commercial Bank
Plc 6.0% +LIBOR 4,071 6,151 5,731 7,814 - 23,767
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Nomura
International Plc 6.0% +LIBOR 2,036 3,076 2,866 3,907 - 11,885
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Other non -
derivatives
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
Trade and other
payables** - 70,403 - - - - 70,403
------------------- ------------------- ---------- ------------- -------------- -------------- -------- -------
144,930 94,430 90,135 493,789 823,284
=================== =================== ========== ============= ============== ============== ======== =======
Effective Less than 1 - 2 - 3 3 - After Total
interest 1 year 2 years 5 5 years
rate year years
--------- -------- --------
% $ '000 $ '000 $ '000 $ '000 $ '000 $ '000
========= ======== ========
31 December 2017
========= ======== ========
Non - derivatives
--------- -------- --------
Variable interest rate borrowings
(bank loans):
--------- -------- --------
Allan Gray 8.5% + LIBOR 5,546 5,116 3,676 1,759 - 16,097
--------- -------- --------
Zenith Bank Plc 8.5% + LIBOR 76,006 70,109 50,373 24,104 - 220,592
--------- -------- --------
First Bank of Nigeria Limited 8.5% + LIBOR 41,957 38,702 27,807 13,306 - 121,772
--------- -------- --------
United Bank for Africa Plc 8.5% + LIBOR 47,504 43,818 31,483 15,065 - 137,870
--------- -------- --------
Stanbic IBTC Bank Plc 8.5% + LIBOR 7,119 6,567 4,718 2,258 - 20,662
--------- -------- --------
The Standard Bank of South
Africa Limited 8.5% + LIBOR 7,119 6,567 4,718 2,258 - 20,662
--------- -------- --------
Standard Chartered Bank 6.0% + LIBOR 18,794 - - - - 18,794
--------- -------- --------
Natixis 6.0% + LIBOR 18,794 - - - - 18,794
--------- -------- --------
Citibank Nigeria Ltd and Citibank
NA 6.0% + LIBOR 14,617 - - - - 14,617
--------- -------- --------
FirstRand Bank Ltd
(Rand Merchant Bank Division) 6.0% + LIBOR 12,529 - - - - 12,529
--------- -------- --------
Nomura Bank Plc* 6.0% + LIBOR 12,529 - - - - 12,529
--------- -------- --------
NedBank Ltd, London Branch 6.0% + LIBOR 12,529 - - - - 12,529
--------- -------- --------
The Mauritius Commercial Bank
Plc* 6.0% + LIBOR 12,529 - - - - 12,529
--------- -------- --------
Stanbic IBTC Bank Plc 6.0% + LIBOR 9,399 - - - - 9,399
--------- -------- --------
The Standard Bank of South
Africa Ltd 6.0% + LIBOR 13,576 - - - - 13,576
--------- -------- --------
Other non - derivatives
--------- -------- --------
Trade and other payables** - 127,128 - - - - 127,128
--------- -------- --------
437,675 170,879 122,775 58,750 - 790,079
========= ======== ========
*Nomura and The Mauritius Commercial Bank replace JP Morgan and
Bank of America
** Trade and other payables (excludes non-financial liabilities
such as provisions, accruals, taxes, pension and other
non-contractual payables).
Notes to the interim condensed consolidated
financial statements continued
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 cash equivalents,
favourable derivative financial instruments, deposits with banks
and financial institutions as well as credit exposures to customers
and Joint venture partners, i.e. NPDC receivables and NGMC
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 until 31 July
2021 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 period.
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 30 June As at 31 Dec
As at 30 June 2018 As at 31 Dec 2017 2018 2017
$ '000 $ '000 $ '000 $ '000
Financial assets
Trade and other receivables* 116,114 310,345 116,114 310,345
Contract assets 13,858 - 13,858 -
Cash and cash equivalents 509,907 437,212 509,907 437,212
639,879 747,557 639,879 747,557
Financial liabilities
Interest bearing loans and borrowings 544,733 570,077 553,351 570,077
Trade and other payables 70,403 127,128 70,403 127,128
615,136 697,205 623,754 697,205
*Trade and other receivables excludes NGMC VAT receivables, cash
advance and advance payments.
Notes to the interim condensed consolidated
financial statements continued
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 second quarter.
The fair values of the Group's interest-bearing loans and
borrowings are determined by using discounted cash flow models that
use market interest rates as at the end of the period. The
interest-bearing loans and borrowings are in level 2.
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.
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 of gas.
For the half year ended 30 June 2018, revenue from the gas
segment of the business constituted 25% 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 new 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
intrasegment sales during the reporting periods under
consideration. All operating and reportable segments are situated
in Nigeria.
Where applicable, the comparative figures for 2017 have been
restated to match the new structure for the half year ended 30 June
2018.
The Group accounting policies are also applied in the segment
reports.
Notes to the interim condensed consolidated
financial statements continued
6.1 Segment profit disclosure
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
----------------------------------------------------
$'000 $'000 $'000 $'000
---------------------------------------------------- -------------- --------------
Oil (5,425) (61,442) (6,907) (26,659)
---------------------------------------------------- -------------- --------------
Gas 53,969 33,869 34,894 18,223
---------------------------------------------------- -------------- --------------
Total profit/(loss) after tax 48,544 (27,573) 27,987 (8,436)
---------------------------------------------------- -------------- --------------
Oil
====================================================
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------------------------------------------- -------------- --------------
$'000 $'000 $'000 $'000
====================================================
Revenue
---------------------------------------------------- -------------- --------------
Crude oil sale 257,332 77,451 116,297 55,210
---------------------------------------------------- -------------- --------------
Operating profit/(loss) before depreciation,
amortisation
and impairment 143,927 (14,651) 50,546 (9,007)
---------------------------------------------------- -------------- --------------
Depreciation, amortisation and impairment (55,240) (11,982) (26,560) (633)
====================================================
Operating profit/(loss) 88,687 (26,633) 23,986 (9,640)
====================================================
Finance income 4,351 883 2,922 673
---------------------------------------------------- -------------- --------------
Finance expenses (41,424) (34,573) (15,029) (17,392)
---------------------------------------------------- -------------- --------------
Profit/(loss) before taxation 51,614 (60,323) 11,879 (26,359)
---------------------------------------------------- -------------- --------------
Income tax expense (57,039) (1,119) (18,786) (300)
====================================================
Profit/(loss) for the period (5,425) (61,442) (6,907) (26,659)
====================================================
Gas
====================================================
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------------------------------------------- -------------- --------------
$'000 $'000 $'000 $'000
====================================================
Revenue
---------------------------------------------------- -------------- --------------
Gas sale 85,344 54,363 45,791 29,305
---------------------------------------------------- -------------- --------------
Operating profit before depreciation, amortisation
And impairment 78,075 53,223 54,983 37,571
---------------------------------------------------- -------------- --------------
Depreciation, amortisation and impairment (8,392) (19,354) (4,375) (19,348)
====================================================
Operating profit 69,683 33,869 50,608 18,223
====================================================
Finance income - - - -
---------------------------------------------------- -------------- --------------
Finance expenses - - - -
============== ==============
Profit/(loss) before taxation 69,683 33,869 50,608 18,223
============== ==============
Income tax expense (15,714) - (15,714) -
====================================================
Profit for the period 53,969 33,869 34,894 18,223
====================================================
Notes to the interim condensed consolidated
financial statements continued
6.1.1 Disaggregation of revenue from contracts with
customers
The Group derives revenue from the transfer of commodities at a
point in time or over time on the basis of product type. The Group
has not disclosed disaggregated revenue and contract asset for the
comparative periods, as the effect of IFRS 15 adjustments have been
treated prospectively using the simplified transition approach. The
simplified approach does not require an adjustment of the
comparative periods.
Half year ended Half year ended Half year ended 3 months ended 3 months ended 3 months ended
30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018
------------------- --------------- --------------- --------------- -------------- -------------- --------------
Oil Gas Total Oil Gas Total
------------------- --------------- --------------- --------------- -------------- -------------- --------------
$'000 $'000 $'000 $'000 $'000 $'000
=================== =============== =============== =============== ============== ============== ==============
Revenue from
contract with
customers 257,332 85,344 342,676 116,297 45,791 162,088
------------------- --------------- --------------- --------------- -------------- -------------- --------------
Timing of revenue
recognition
------------------- --------------- --------------- --------------- -------------- -------------- --------------
At a point in time 257,332 - 257,332 114,568 - 114,568
------------------- --------------- --------------- --------------- -------------- -------------- --------------
Over time - 85,344 85,344 - 45,791 45,791
------------------- --------------- --------------- --------------- -------------- -------------- --------------
257,332 85,344 342,676 114,568 45,791 162,088
=================== =============== =============== =============== ============== ============== ==============
6.2 Segment assets
Segment assets are measured in the same way as in the financial
statements. These assets are allocated based on the operations of
the reporting segment and the physical location of the asset.
Oil Gas Total
---------
Total segment assets $'000 $'000 $'000
===================== =========
30 June 2018 2,110,646 360,919 2,471,565
--------------------- ---------
31 December 2017 2,343,553 271,077 2,614,630
--------------------- ---------
6.3 Segment liabilities
Segment liabilities are measured in the same way as in the
financial statements. These liabilities are allocated based on the
operations of the segment.
Oil Gas Total
--------- ------ ---------
Total segment liabilities $'000 $'000 $'000
========================== ========= ====== =========
30 June 2018 1,183,483 56,994 1,240,477
-------------------------- ---------
31 December 2017 1,065,950 45,583 1,111,533
-------------------------- ---------
6.4 Contingent consideration
Contingent consideration of US$18.5 million for OML 53 relates
solely to the oil segment. This is contingent on oil price rising
above US$90/bbl. over a one year period and expirirng on 31st
January 2020. The fair value loss arising during the reporting
period is US$4.47 million.
Oil Gas Total
--------- ------ ---------
Total segment liabilities $'000 $'000 $'000
========================== ========= ====== =========
30 June 2018 1,183,483 56,994 1,240,477
-------------------------- ---------
31 December 2017 1,065,950 45,583 1,111,533
-------------------------- ---------
Notes to the interim condensed consolidated
financial statements continued
7. Revenue from contracts with customers
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------- --------------- --------------
$'000 $'000 $'000 $'000
================ =============== =============== ============== ==============
Crude oil sales 257,332 111,183 116,297 81,073
---------------- --------------- --------------- -------------- --------------
Gas sales 85,344 54,363 45,791 29,305
================ =============== =============== ============== ==============
342,676 165,546 162,088 110,378
---------------- --------------- --------------- -------------- --------------
Overlift - (33,732) - (25,863)
================ =============== =============== ============== ==============
Total 342,676 131,814 162,088 84,515
================ =============== =============== ============== ==============
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
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
----------------------------------------- --------------- --------------
$'000 $'000 $'000 $'000
========================================= =============== ==============
Crude handling 29,231 5,006 14,299 4,458
----------------------------------------- --------------- --------------- -------------- --------------
Royalties 62,322 18,753 30,420 13,809
----------------------------------------- --------------- --------------- -------------- --------------
Depletion, Depreciation and Amortisation 60,794 28,974 29,067 17,619
----------------------------------------- --------------- --------------- -------------- --------------
Niger Delta Development Commission 3,521 2,381 1,825 1,240
----------------------------------------- --------------- --------------- -------------- --------------
Barging costs - 6,524 - 4,384
----------------------------------------- --------------- --------------- -------------- --------------
Other Rig related Expenses 38 1,630 13 630
----------------------------------------- --------------- --------------- -------------- --------------
Operations & Maintenance Costs 12,458 14,919 5,012 7,863
========================================= =============== =============== ============== ==============
168,364 78,187 80,636 50,003
========================================= =============== =============== ============== ==============
9. Other income
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------- --------------- --------------
$'000 $'000 $'000 $'000
========== =============== ==============
Underlift 27,741 - 19,150 -
========== =============== =============== ============== ==============
27,741 - 19,150 -
========== =============== =============== ============== ==============
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.
Notes to the interim condensed consolidated
financial statements continued
10. General and administrative expenses
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
------------------------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
=====================================
Depreciation 2,838 2,362 1,868 1,244
------------------------------------- --------------- --------------- -------------- --------------
Employee benefits 15,290 10,776 7,591 4,939
------------------------------------- --------------- --------------- -------------- --------------
Professional and consulting fees 7,910 11,276 4,356 6,831
------------------------------------- --------------- --------------- -------------- --------------
Auditor's remuneration 186 306 64 156
------------------------------------- --------------- --------------- -------------- --------------
Directors emoluments (executive) 639 1,382 356 800
------------------------------------- --------------- --------------- -------------- --------------
Directors emoluments (non-executive) 1,632 1,555 980 802
------------------------------------- --------------- --------------- -------------- --------------
Rentals 984 732 589 494
------------------------------------- --------------- --------------- -------------- --------------
Flights and other travel costs 2,485 2,368 1,671 2,368
------------------------------------- --------------- --------------- -------------- --------------
Other general expenses 6,518 5,558 4,929 1,922
===================================== =============== =============== ============== ==============
38,482 36,315 22,404 19,556
===================================== =============== =============== ============== ==============
Directors' emoluments have been split between executive and
non-executive directors. There were no non-audit services rendered
by the Group's auditors during the period.
Other general expenses relate to costs such as office
maintenance costs, telecommunication costs, logistics costs and
others. Share based payment expenses are included in the employee
benefits expense.
11. Reversal of/(impairment) losses on financial assets -
net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------------------------------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
==================================================== =============== =============== ==============
Reversal of/(impairment) loss on NPDC and NAPIMS
receivables 1,730 - (456) -
==================================================== =============== =============== ============== ==============
On initial application of IFRS 9, an impairment loss of $5.8
million was recognised for NPDC and NAPIMS receivables as at 1
January 2018. The loss allowance was calculated on a total exposure
of $125.1 million. During the reporting period, the outstanding
receivable balance reduced to $4.2 million. The reduction in the
receivables balance led to the reversal of previously recognised
loss allowance.
12. Gain/(loss) on foreign exchange - net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
--------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
===================== =============== =============== ==============
Exchange gain/(loss) 23 (866) (1,847) (2,596)
===================== =============== =============== ============== ==============
This is principally as a result of translation of naira
denominated monetary assets and liabilities.
13. Fair value loss - net
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
-------------------------------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
============================================ =============== =============== ==============
Crude oil hedging payments (2,484) (9,827) (1,242) (4,834)
-------------------------------------------- --------------- --------------- -------------- --------------
Fair value loss on contingent consideration (4,470) (897) (59) (457)
-------------------------------------------- --------------- --------------- -------------- --------------
Fair value gain on other assets - 1,514 - 1,514
============================================ =============== =============== ============== ==============
Fair value loss (6,954) (9,210) (1,301) (3,777)
============================================ =============== =============== ============== ==============
Notes to the interim condensed consolidated
financial statements continued
Crude oil hedging payments represents the payments for crude oil
price options 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.
14. Finance income/ (costs)
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------------------------------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
==================================================== =============== =============== ============== ==============
Finance income
---------------------------------------------------- --------------- --------------- -------------- --------------
Interest income 4,351 883 2,922 673
---------------------------------------------------- --------------- --------------- -------------- --------------
Finance costs -
---------------------------------------------------- --------------- --------------- -------------- --------------
Interest on bank loan 38,334 34,526 14,301 17,368
---------------------------------------------------- --------------- --------------- -------------- --------------
Interest on advance payments for crude oil sales 1,730 - - -
---------------------------------------------------- --------------- --------------- -------------- --------------
Unwinding of discount on provision for
decommissioning 1,360 47 728 24
==================================================== =============== =============== ============== ==============
41,424 34,573 15,029 17,392
==================================================== =============== =============== ============== ==============
Finance cost - net (37,073) (33,690) (12,107) (16,719)
==================================================== =============== =============== ============== ==============
15. 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 30 June 2018 were 85% and 65.75% for crude
oil activities and 30% for gas activities. As at 31 December 2017,
the applicable tax rates were 85%, 65.75% and 30% for gas
activities.
15a. Deferred tax assets
Deferred income tax assets are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable.
As at As at As at As at
30 June 2018 30 June 2018 31 Dec 2017 31 Dec 2017
==================================== ------------- ------------- ------------ ------------
$'000 $'000 $'000 $'000
------------------------------------ ------------- ------------- ------------ ------------
Gross amount Tax effect Gross amount Tax effect
==================================== ============= ============= ============ ============
Tax losses - - 47,674 40,523
Other cumulative timing differences 197,316 167,719 215,539 183,208
197,316 167,719 263,213 223,731
15b. 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 unrecognised
deferred tax assets.
As at As at As at As at
30 June 2018 30 June 2018 31 Dec 2017 31 Dec 2017
======================================= ------------- ------------- ------------ ------------
$'000 $'000 $'000 $'000
--------------------------------------- ------------- ------------- ------------ ------------
Gross amount Tax effect Gross amount Tax effect
======================================= ============= ============= ============ ============
Other deductible temporary differences 45,811 25,631 48,995 25,730
--------------------------------------- ------------- ------------- ------------ ------------
Tax losses 33,975 25,424 47,673 29,132
--------------------------------------- ------------- ------------- ------------ ------------
79,786 51,055 96,668 54,862
======================================= ============= ============= ============ ============
Notes to the interim condensed consolidated
financial statements continued
15c. 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.
16. Earnings/(loss) per share (EPS/LPS)
Basic
Basic EPS/LPS is calculated on the Group's profit or loss after
taxation attributable to the parent entity and on the basis of the
weighted average issued and fully paid ordinary shares at the end
of the period.
Diluted
Diluted EPS/LPS is calculated by dividing the profit or loss
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary
shares (arising from outstanding share awards in the share based
payment scheme) into ordinary shares.
Half year ended Half year ended 3 months ended 3 months ended
30 June 2018 30 June 2017 30 June 2018 30 June 2017
---------------------------------------------------- --------------- --------------- -------------- --------------
$'000 $'000 $'000 $'000
====================================================
Profit/(loss) for the period 48,544 (27,573) 27,987 (8,436)
==================================================== =============== =============== ============== ==============
Share Share Share Share
'000 '000 '000 '000
==================================================== =============== =============== ============== ==============
Weighted average number of ordinary shares in issue 580,112 563,445 580,112 563,445
---------------------------------------------------- --------------- --------------- -------------- --------------
Share awards 3,838 4,943 3,838 4,943
---------------------------------------------------- --------------- --------------- -------------- --------------
Weighted average number of ordinary shares adjusted
for the effect of dilution 583,950 568,388 583,950 568,388
==================================================== =============== =============== ============== ==============
$ $ $ $
---------------------------------------------------- --------------- --------------- -------------- --------------
Basic earnings/(loss) per share 0.08 (0.05) 0.05 (0.01)
---------------------------------------------------- --------------- --------------- -------------- --------------
Diluted earnings/(loss) per share 0.08 (0.05) 0.05 (0.01)
$'000 $'000 $'000 $'000
==================================================== =============== =============== ============== ==============
Profit/(loss) used in determining basic/diluted
earnings/loss per share 48,544 (27,573) 27,987 (8,436)
==================================================== =============== =============== ============== ==============
Notes to the interim condensed consolidated
financial statements continued
17. Interest bearing loans & borrowings
Below is the net debt reconciliation on interest bearing loans
and borrowings.
Borrowings due Borrowings due
within 1 year above 1 year Total
-----------------------------
US$'000 US$'000 US$'000
============================= ============== ============== ==========
Balance as at 1 January
2018 265,400 304,677 570,077
Principal repayment (265,400) (312,600) (578,000)
----------------------------- -------------- -------------- ----------
Interest repayment (4,576) (14,629) (19,205)
----------------------------- -------------- -------------- ----------
Interest accrued 22,939 - 22,939
----------------------------- -------------- -------------- ----------
Effect of loan restructuring - 15,395 15,395
----------------------------- -------------- -------------- ----------
Other financing charges - (1,518) (1,518)
----------------------------- -------------- -------------- ----------
Proceeds from loan financing 25,000 510,045 535,045
----------------------------- -------------- -------------- ----------
Carrying amount as at 30
June 2018 43,363 501,370 544,733
============================= ============== ============== ==========
Interest bearing loans and borrowings include a revolving loan
facility and senior notes. In the reporting period, the Group
repaid its US$700 million seven year term loan and its US$300
million four year revolving loan facility.
In the reporting period, the Group also issued US$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 at the reporting date is $9.6 million using an
effective interest rate of 10.4%.
An agreement for another four year revolving loan facility was
entered into by the Group to refinance its old four year revolving
loan facility with interest payable semi-annually and principal
repayable on 31 December of each year. The new 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 draw down of US$200 million in March
2018. The interest accrued at the reporting period was $13.3
million using an effective interest rate of 8.99%. The interest
paid was determined using 3-months LIBOR rate + 6% on the last
business day of the half-year period. The amortised cost for the
senior notes and the borrowings at the reporting period is $349
million and $196 million respectively.
The proceeds from the notes issue and new revolving loan
facility were used to repay and cancel existing indebtedness, and
for general corporate purposes.
18. Trade and other receivables
As at As at
30 June 2018 31 Dec 2017
--------------------------------------------------------------
$'000 $'000
==============================================================
Trade receivables(note 18a) 100,831 108,685
Nigerian Petroleum Development Company (NPDC)receivables(note
18b) - 112,664
National Petroleum Investment Management
Services
receivables 4,159 12,506
--------------------------------------------------------------
Advances on investment - 65,705
--------------------------------------------------------------
Underlift 2,864 -
--------------------------------------------------------------
Advances to suppliers 39,979 7,861
--------------------------------------------------------------
Other receivable(note 18c) 47,188 2,924
--------------------------------------------------------------
195,021 310,345
==============================================================
18a. Trade receivables:
Included in trade receivables is an amount due from Nigerian Gas
Marketing Company (NGMC) and Central Bank of Nigeria (CBN) totaling
US$51.2 million (2017: US$77 million) with respect to the sale of
gas, for the Group. Also included in trade receivables is an amount
of US$40.8 million (2017: US$27 million) due from Mecuria for sale
of crude.
Notes to the interim condensed consolidated
financial statements continued
18b. NPDC receivables:
NPDC receivables represent the outstanding cash calls due to
Seplat from its JV partner, Nigerian Petroleum Development Company.
Nil (2017: US$113 million)
18c. Other receivables:
Included in other receivables is a receivable amount from SPDC
on an investment that is no longer being pursued. The outstanding
receivable amount as at the reporting date is $45.5 million (2017:
nil).
19. Contract assets
As at As at
30 June 2018 31 Dec 2017
$ '000 $ '000
Revenue on gas sales 13,858 -
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 receivable amount has been
established and 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 As at
30 June 2018 31 Dec 2017
$'000 $'000
Impact on initial application of IFRS 15 13,790 -
----------------------------------------- ------------- ------------
Gas revenue accrued during the period 68 -
----------------------------------------- ------------- ------------
13,858 -
========================================= ============= ============
20. Cash and cash equivalents
As at 30 June As at 31 Dec
2018 2017
---------------- ------------- ------------
$'000 $'000
================ ============
Cash on hand 15 11
Restricted cash - 62,674
Cash at bank 509,892 374,527
509,907 437,212
================ ============
Included in cash and cash equivalents is the total amount of
$108.2million arising from NPDC's share of gas proceeds. These
amounts will be applied against tolling fees from the gas
processing on the expanded Oben Gas Plant solely funded by Seplat
and on-going cash calls.
Notes to the interim condensed consolidated
financial statements continued
21. Share capital
21a. Authorised and issued share capital
As at As at
30 June 2018 31 Dec 2017
$'000 $'000
Authorised ordinary share capital
1,000,000,000 ordinary shares denominated in Naira of 50 kobo per share 3,335 3,335
Issued and fully paid
588,444,561 (2017: 563,444,561) issued shares denominated in Naira of 50 kobo per share 1,867 1,826
21b. Employee share based payment scheme
As at 30 June 2018, the Group had awarded 40,410,644 shares
(2017: 33,697,792 shares) to certain employees and senior
executives in line with its share based incentive scheme. Included
in the share based incentive schemes are two additional schemes
(2017 Deferred Bonus Scheme and 2018 LTIP Scheme) awarded during
the reporting period. During the half year ended 30 June 2018,
5,534,964 shares were vested (31 December 2017: No shares had
vested).
21c. Movement in share capital
Treasury
Number of shares Issued share capital shares Share based payment reserve Total
Shares $'000 $'000 $'000 $'000
Opening balance as at 1 January
2018 563,444,561 1,826 - 17,809 19,635
Share based payments - - - 5,261 5,261
Share issue 19,465,036 41 (41) - -
Vested shares 5,534,964 - 9 (9) -
Closing balance as at 30 June
2018 588,444,561 1,867 (32) 23,061 24,896
22. Trade and other payables
As at As at
30 June 2018 31 Dec 2017
---------------------------------------------- ------------- ------------
$'000 $'000
============================================== ============
Trade payables 53,744 62,758
Nigerian Petroleum Development Company (NPDC) 33,355 -
---------------------------------------------- ------------- ------------
Accruals and other payables 115,288 149,020
---------------------------------------------- ------------- ------------
Pension payable 43 180
---------------------------------------------- ------------- ------------
NDDC levy 6,654 8,383
---------------------------------------------- ------------- ------------
Deferred revenue - 137,248
---------------------------------------------- ------------- ------------
Royalties payable 41,375 53,004
---------------------------------------------- ------------- ------------
250,459 410,593
============================================== ============
Included in accruals and other payables are field-related
accruals of $49.6 million (2017: $56 million) and other vendor
payables of $65.7 million (2017: $94 million). Royalties include
accruals in respect of gas sales for which payment is outstanding
at the end of the year.
Notes to the interim condensed consolidated
financial statements continued
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 net amount of U$33.4 million has been reported after
adjusting for interests as set out in the JOA and undercash call
payments in other currencies.
23. Computation of cash generated from operations
Half year ended Half year ended
30 June 2018 30 June 2017
Notes $'000 $'000
Profit/(loss) before tax 121,297 (26,454)
Adjusted for:
Depletion, depreciation and amortisation 63,632 31,336
Interest on bank loan 14 38,334 34,526
Interest on advance payment for crude oil 1,730
Unwinding of discount on provision for decommissioning 14 1,360 47
Interest income 14 (4,351) (883)
Fair value loss on contingent consideration 13 4,470 897
Fair value gain on other asset 13 - (1,514)
Unrealised foreign exchange loss - 866
Share based payments expenses 20c 5,261 2,673
Defined benefit expenses 1275 1,116
Reversal of impairment loss on NPDC and NAPIMS receivables 11 (1,730) -
Loss on disposal of other property, plant and equipment - 82
Changes in working capital (excluding the effects of exchange differences):
Trade and other receivables, including prepayments 112,325 (26,589)
Contract assets (13,858) -
Trade and other payables (84,365) 86,031
Inventories (25) 4,107
Net cash from operating activities 245,355 106,241
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.
Notes to the interim condensed consolidated
financial statements continued
Stage leasing (Ndosumili Ventures Limited): is a subsidiary of
Platform Petroleum Limited. The company provides transportation
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
provides catering services to Seplat at the staff canteen.
ResourcePro Inter Solutions Limited: The Chief Executive Officer
of Seplat's in-law is its UK representative. The company supplies
furniture to Seplat.
Shebah Petroleum Development Company Limited (BVI): The Chairman
of Seplat is a director and shareholder of SPDCL (BVI). SPDCL (BVI)
provided consulting services to Seplat.
The following transactions were carried by Seplat with related
parties:
24b. Related party relationships
Half year ended Half year ended
30 June 2018 30 June 2017
---------------
Purchases of goods and services $'000 $'000
===============
Shareholders of the parent company
SPDCL (BVI) 450 564
450 564
Entities controlled by key management personnel:
Contracts > $1million in 2017
Nerine Support Services Limited 2,470 2,700
2,470 2,700
Contracts < $1million
Abbey Court trading Company Limited 417 349
Charismond Nigeria Limited 45 31
Cardinal Drilling Services Limited 589 621
Keco Nigeria Enterprises 47 73
STAGE Leasing Limited 762 554
Oriental Catering Services Limited 308 211
ResourcePro Inter Solutions Limited 9 1
2,177 1,840
Total 4,647 4,540
* Nerine charges an average mark-up of 7.5% on agency and
contract workers assigned to Seplat. The amounts shown above are
gross i.e. it includes salaries and Nerine's mark-up. Total costs
for agency and contracts during the half year ended 30 June 2018 is
$2.3 million (2017: $2.6 million).
Notes to the interim condensed consolidated
financial statements continued
24. Balances
The following balances were receivable from or payable to
related parties as at 30 June 2018:
As at As at
30 June 2018 31 Dec 2017
Prepayments / receivables $'000 $'000
Entities controlled by key management personnel
Cardinal Drilling Services Limited 5,498 5,498
5,498 5,498
As at 30 June 2018 As at 31 Dec 2017
Payables $'000 $'000
Entities controlled by key management personnel
Cardinal Drilling Services Limited - 5,498
Montego Upstream Services Limited - 375
Helko Nigeria Limited 1 -
Nerine Support Services Limited 43 8
Keco Nigeria Enterprises - 25
Cardinal Drilling Services Limited - 954
44 1,362
25. Commitments and contingencies
25a. Operating lease commitments - Group as lessee
The Group leases drilling rigs, buildings, land, boats and
storage facilities. The lease terms are between 1 and 5 years. The
operating lease commitments of the Group as at 30 June 2018
are:
Operating lease commitments As at As at
30 June 2018 31 Dec 2017
$'000 $'000
=============
Not later than one year - 2,382
-------------
Later than one year and not later than five years - 1,846
=============
- 4,228
=============
25b. Contingent liabilities
The Group is involved in a number of legal suits as defendant.
The estimated value of the contingent liabilities for the period
ended 30 June 2018 is $1.2 million (2017: $15.5 million). The
contingent liability for the period ended 30 June 2018 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. Dividend
The directors paid an interim dividend of $29.4 million (2017:
Nil) per fully paid ordinary share. The aggregate amount of the
dividend was paid out of retained earnings as at 31 March 2018.
27. Events after the reporting period
There were no significant events that would have a material
effect on the Group after the reporting period.
General information
Board of Directors
Ambrosie Bryant Chukwueloka Chairman
Orjiako
Ojunekwu Augustine Avuru Managing Director and Chief Executive
Officer
Roger Thompson Brown Chief Financial Officer (Executive British
Director)
Effiong Okon Executive Operations Director
*Michel Hochard Non-Executive Director French
Macaulay Agbada Ofurhie Non-Executive Director
Michael Richard Alexander Senior Independent Non-Executive British
Director
Ifueko M. Omoigui Okauru Independent Non-executive Director
Basil Omiyi Independent Non-executive Director
Charles Okeahalam Independent Non-executive Director
Lord Mark Malloch-Brown Independent Non-executive Director British
Damian Dinshiya Dodo Independent Non-executive Director
*Madame Nathalie Delapalme acts
as alternate Director to Michel
Hochard
Company secretary Mirian Kachikwu
Registered office and business 25a Lugard Avenue
address of directors Ikoyi
Lagos
Nigeria
Registered number RC No. 824838
FRC number FRC/2015/NBA/00000010739
Auditor Ernst & Young
(10(th) & 13th Floor), UBA House
57 Marina Lagos, Nigeria.
Registrar DataMax Registrars Limited
2c Gbagada Expressway
Gbagada Phase 1
Lagos
Nigeria
Solicitors Olaniwun Ajayi LP
Adepetun Caxton-Martins Agbor &
Segun ("ACAS-Law")
White & Case LLP
Herbert Smith Freehills LLP
Whitehall Solicitors
Chief J.A. Ororho & Co.
Ogaga Ovrawah & Co.
Consolex LP
Banwo-Ighodalo
Latham & Watkins LLP
V.E. Akpoguma & Co.
Thompson Okpoko & Partners
G.C. Arubayi & Co.
Chukwuma Chambers
Abraham Uhunmwagho & Co
Walles & Tarres Solicitors
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
FirstRand Bank Limited Acting
Natixis
Nedbank Limited
Nomura International Plc
The Standard Bank of South Africa
The Mauritius Commercial Bank
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKCDBFBKDDOB
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