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Seplat Petroleum Development Co PLC
29 October 2019
 
 

 

29 October 2019

 

Seplat Petroleum Development Company Plc

Interim management statement and consolidated interim financial results for the nine months ended 30 September 2019 (expressed in US Dollars and Naira)

Lagos and London, 29 October 2019:  Seplat Petroleum Development Company Plc ("Seplat" or the "Company"), a leading Nigerian independent oil and gas company listed on both the Nigerian Stock Exchange and London Stock Exchange, today announces its results for the nine months ended 30 September 2019.  Information contained within this release is un-audited and is subject to further review.

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

"2019 so far has seen us make significant progress towards furthering our ambitious growth strategy. While our production and financial performance has dipped in Q3 as a result of slippage to our drilling programme and weaker pricing, the core business remains highly cash generative and with four rigs now operational in the field we expect to quickly regain momentum. This is reflected in our decision to declare an interim dividend of US$29 million."

"We have set the next major growth phase of our gas business in motion having taken FID for the large scale ANOH gas and condensate development to position us as Nigeria's largest supplier of processed gas to the domestic market. In another major step, and inline with our overall growth strategy, we have made a strong statement of intent by becoming the first Nigerian company to undertake a public market acquisition of a London Stock Exchange listed company, and in doing so highlighted our ambitions to be a consolidator within our space. The recommended acquisition of Eland for £382 million  is a logical continuation of our business model and represents a rare opportunity to secure a well run asset base that lies firmly within our core geographical area of focus and expertise. Following completion, the enlarged asset base will enhance our inventory of production, development, appraisal and exploration opportunities and enable us to ensure capital continues to be deployed to the most value creative opportunities for shareholders."

Nine months 2019 Results Highlights

Working interest production for the first nine months of 2019

®

Working interest production averaged 47,163 boepd for the period (2018: 50,303 boepd) and reflects slippage to the intended production drilling programme as a result of rig mobilisation delays and availability. Four drilling rigs are now operating across Seplat's portfolio to drive liquids working interest production to an expected exit rate of 30,000 bopd(2)

®

Production uptime stood at 91% while average reconciliation losses for the first nine months stood at 13%. This factor for the third quarter only, stands at 1% while the factor for the first six month period is still under review and expected to be consistent with prior periods when finalised

®

Full year average working interest production guidance has consequently been revised downwards to 45,000 boepd to 48,000 boepd (from 49,000 boepd to 55,000 boepd), comprising 23,000 to 25,000 bopd liquids and 128 to 133 MMscfd gas

 

 

 

Gross

 

Working Interest

 

 

Liquids(1)

Gas

Oil equivalent

 

Liquids

Gas

Oil equivalent

 

Seplat %

Bopd

MMscfd

Boepd

 

bopd

MMscfd

boepd

OMLs 4, 38 & 41

45.0%

46,389

303

98,623

 

20,875

136

44,380

OPL 283

40.0%

2,957

-

2,957

 

1,183

-

1,183

OML 53

40.0%

4,001

-

4,001

 

1,600

-

1,600

Total

 

53,347

303

105,581

 

23,658

136

47,163

(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.

(2)       Excluding the production impact anticipated upon completion of the recently announced all-cash acquisition of Eland Oil & Gas Plc ("Eland")

Financial performance summary

®

9M revenue of US$495 million (2018: US$568 million) reflects lower production and sales year-on-year together with lower price realisations of US$64.22/bbl and US$2.8/Mscf (2018: US$71.14/bbl and US$3.06/Mscf); gas tolling revenue of US$67 million also recognised in relation to the processing of NPDC's gas at the Seplat sole risk funded Oben gas plant 375 MMscfd expansion between June 2015 and end 2018

®

Gross profit of US$265 million (2018: US$306 million) represents a 54% gross profit margin; operating profit of US$211 million (2018: US$264 million) with US$36 million recognised within Other Income (including a US$31 million oil underlift position and US$3 million income generated by third party useage of the Group's Warri pipeline) and a US$5 million net fair value gain offset by a US$40 million impairment of NPDC receivables

®

Profit for the period of US$185 million (2018: US$91 million) positively impacted by a 37% year-on-year reduction in finance costs reflecting de-leveraging of the balance sheet early in the year when the outstanding balance on the 2022 RCF was ultimately reduced to zero

®

Cash generated from operations stood at US$306 million (2018: US$386 million) versus capex incurred of US$64 million (2018: US$29 million). Full year 2019 capex spend expected to be around US$120 million; gross debt of US$350 million at 30 September consists solely of the 2023 senior notes with undrawn headroom of US$225 million available through the 2022 RCF. Cash at bank at 30 September was US$455 million resulting in a net cash position of US$105 million

Gas business performance summary

®

FID taken for the large scale ANOH gas and condensate development in March 2019 and followed by capital markets days in London and Lagos in June and July (see separately released materials on the Company website); Project to comprise of a first phase 300 MMscfd midstream gas processing development with first gas targeted for Q1 2021; key regulatory, commercial and engineering workstreams remain on schedule

®

Equity investment of US$150 million from government received by ANOH Gas Processing Company ("AGPC") with US$150 million equity funding from Seplat also made into AGPC. Final equity injection of US$120 million expected in Q4 and funding discussions have progressed with prospective bank lenders and relevant advisors, in anticipation of debt funding being in place in H1 2020 in advance of the time that such funds are needed to meet project costs

®

Gas sales of US$105 million and tolling fees of US$67 million take total gas derived revenue for the period to US$172 million; Gas sales reflect lower than expected gas production owing to constrained production from the Oben-47 well and delay in completing the Oben-48 gas well. The Oben-48 gas well is expected to be completed in Q4

®

Following NPDC's exercise of back in rights to 55% of the Oben gas plant's 375MMscfd expansion, transfer of NPDC's  interest is in progress and expected to be completed in Q1 2020

 

Q4 2019 drilling programme and operational activities

®

With four rigs now operational in the field, three oil wells (Sapele-29, Sapele-33 and Jisike-06) have been drilled and completed to date. Two oil wells (Ovhor-18, Sapele-34) and Oben-48 (a gas well) are ongoing with two additional oil wells (Ovhor-19 and Sapele-35) to be spuded before year end and completed early 2020. Seplat's net oil production is expected to rise by 7,000 bopd to achieve a 2019 exit rate of 30,000 bopd

®

Based on information provided by the owners and contractors of the Amukpe to Escravos pipeline, Seplat understands that the pipeline has seen further operational delays. The Hydrotesting and Intelligent Pigging of the 20 inch and 160,000 bopd capacity pipeline has been successfully completed with final commissioning activities commenced. The pipeline is now scheduled to be operational during Q1 2020

 

Interim dividend

®

Following a review of Seplat's operational, liquidity and financial position the Board has decided to declare an interim dividend of US$0.05 per share (2018: US$0.05) in line with Seplat's normal dividend distribution timetable

 

Events after the reporting period

Recommended cash acquisition of Eland Oil & Gas Plc

®

On 15 October 2019, the Boards of Seplat and Eland announced that they have reached agreement on the terms of a recommended cash acquisition (the "Acquisition") of the entire issued and to be issued ordinary share capital of Eland by Seplat

®

The Acquisition values the entire issued and to be issued ordinary share capital of Eland at approximately £382 million on a fully diluted basis

®

The Acquisition is to be effected by means of a scheme of arrangement and is expected to complete in Q4 2019; irrevocable undertakings received from Eland's shareholders stand at 60.92%

®

The cash consideration payable under the Acquisition is being wholly funded through a combination of existing cash resources of Seplat and a new loan facility available to Seplat. A US$350 million acquisition bridge facility was put in place after the reporting period in connection with the Eland offer, which would only be drawn in order to meet the acquisition cost upon completion 

®

Seplat believes the combination will leverage Seplat's core production and development expertise to capture potential upsides and increase growth and profitability. The combined business will have greater scale in production and reserves and should create long-term value for stakeholders

®

For more information please refer to the full announcement at https://seplatpetroleum.com/investors/rns-inside-information/

®

Post completion of the Acquisition Seplat will host a presentation for investors and analysts

 

Important notice

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

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

Enquiries:

Seplat Petroleum Development Company Plc

 

Roger Brown, CFO

+44 203 725 6500

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 / Tejas Padalkar

 

+44 207 597 4000

 

 

Notes to editors

Seplat Petroleum Development Company Plc is a leading indigenous Nigerian oil and gas exploration and production company with a strategic focus on Nigeria, listed on the Main Market of the London Stock Exchange ("LSE") (LSE:SEPL) and Nigerian Stock Exchange ("NSE") (NSE:SEPLAT).

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

Interim Condensed Consolidated Financial Statements (Unaudited) for nine months ended 30 September 2019 Expressed in Nigerian Naira ('NGN')

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

for the third quarter ended 30 September 2019

 

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended
30 Sept 2019

3 months ended

30 Sept 2018

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Continuing operations

Notes

'million

'million

'million

'million

Revenue from contracts with customers

7

 151,877

173,710

 42,907

 68,916

Cost of sales

8

 (70,654)

  (80,200)

 (25,218)

 (28,713)

Gross profit

 

 81,223

 93,510

 17,689

 40,203

Other income/(expenses) - net

9

 11,137

6,025 

 8,493

 (2,468)

General and administrative expenses

10

(16,744)

(16,851)

  (3,828)

 (5,086)

(Impairment)/ reversal of  losses on financial assets - net

11

 (12,318)

 521

 -  

 (8)

Fair value gain/(loss) - net

13

 1,515

 (2,450)

 (220)

(323)

Operating profit

 

 64,813

80,755

 22,134

 32,318

Finance income

14

 2,813

 2,050

 1,085

 720

Finance costs     

14

 (11,140)

  (17,760)

 (3,530)

 (5,092)

Finance cost - net

 

(8,327)

(15,710)

(2,445)

(4,473)

Share of profit from joint venture accounted for using the equity method

17

 227

-

 150

-  

Profit before taxation

 

 56,713

65,045

 19,839

 27,946

Taxation

 

 (1,042)

 (37,085)

 (605)

 (14,836)

Profit from continuing operations

 

 55,671

  27,960

 19,234

 13,110

Profit from discontinued operation

12.1

 977

8

 -  

 14

Profit for the period

 

 56,648

  27,968

 19,234

 13,124

Other comprehensive (loss)/income:

 

 

 

 

 

Items that may be reclassified to profit or loss (net of tax):

 

 

 

 

 

Foreign currency translation difference

 

(70)

468

(141)

 315

Total comprehensive income from continuing operations

 

56,578

28,436

19,093

13,439

Total comprehensive income/(loss) from discontinuing operations

 

-

-

-

-

Total comprehensive income for the period

 

56,578

28,436

19,093

13,439

 

 

 

 

 

 

Earnings per share from continuing operations

 

 

 

 

 

Basic earnings per share ()

16

 97.88

  49.18 

 33.82

23.06

Diluted earnings per share ()

16

 94.56

48.33

 32.67

22.66

Earnings per share for the period

 

 

 

 

 

Basic earnings per share ()

16

99.60

 49.20

33.82

 23.09

Diluted earnings per share()

16

96.22

  48.34  

32.67

  22.69

 

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 September 2019

 

 

As at 30 Sept 2019

As at 31 Dec 2018 

 

 

Unaudited

Audited

 

Notes

'million

'million

Assets

 

 

 

Non-current assets

 

 

 

Oil and gas properties

 

381,492

 399,475

Other property, plant and equipment

 

 4,871

 1,300

Right of use assets

31

 3,608

 -  

Investment in joint venture

17

 46,268

 -  

Other asset

 

 46,154

 51,299

Tax paid in advance

 

  3,040

 9,708

Prepayments

 

   19,197

 7,950

Deferred tax assets

15.3

 43,393

 42,487

Total non-current assets                           

 

548,023

512,219

Current assets

 

 

 

Inventories

 

 28,467

 31,485

Trade and other receivables

18

   59,451

 41,874

Contract assets

19

 2,808

 4,327

Prepayments

 

 1,680

 3,549

Derivative financial instruments

20

 115

 2,693

Cash and bank balances

21

 139,562

 179,509

Total current assets

 

232,083

  263,437 

Total assets

 

780,106

775,656

Equity and liabilities

 

 

 

Equity

 

 

 

Issued share capital

22.1

 286

 286

Share premium

 

 82,080

 82,080

Share based payment reserve

 

 10,367

 7,298

Capital contribution

 

 5,932

 5,932

Retained earnings

 

 240,414

 192,723

Foreign currency translation reserve

 

 203,083

 203,153

Total shareholders' equity

 

 542,162

 491,472

Non-current liabilities

 

 

 

Interest bearing loans & borrowings

23

 99,092

 133,799

Lease liabilities

31

2,325

 -  

Contingent consideration

 

 -  

 5,676

Provision for decommissioning obligation

 

 44,442

 43,514

Defined benefit plan                 

 

 2,378

 1,819

Total non-current liabilities

 

  148,237

 184,808

Current liabilities

 

 

 

Interest bearing loans and borrowings

23

 10,634

 3,031

Trade and other payables

24

   72,983

 87,360

Contract liabilities

25

 1,821

 -  

Current tax liabilities

 

 4,269

 8,985

Total current liabilities

 

89,707

 99,376

Total liabilities

 

237,944

284,184

Total shareholders' equity and liabilities

 

780,106

775,656

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

 

The Group financial statements of Seplat Petroleum Development Company Plc and its subsidiaries for the third quarter ended 30 September 2019 were authorised for issue in accordance with a resolution of the Directors on 29 October 2019 and were signed on its behalf by

 

A. B. C. Orjiako

A. O. Avuru

R.T. Brown 

FRC/2013/IODN/00000003161

FRC/2013/IODN/00000003100

FRC/2014/ANAN/00000017939

Chairman

Chief Executive Officer

Chief Financial Officer

29 October 2019

 

29 October 2019

 

29 October 2019

 

 

Interim condensed consolidated statement of changes in equity

 

 

 

 

 

 

 

 

 

Issued share

Capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

million

million

million

million

million

million

million

At 1 January 2018

 283

 82,080

4,332

5,932

166,149

200,870

459,646

Impact of change in accounting policy:

 

 

 

 

 

 

 

Adjustment on initial application of IFRS 9

-

-

-

-

(1,779)

-

(1,779)

Adjusted balance at 1 January 2018

 283

 82,080

4,332

5,932

164,370

200,870

457,867

Profit for the period

-

-

-

-

 27,968

 -  

 27,968

Other comprehensive income

-

-

-

-

-

468

468

Total comprehensive income for the period

-

-

-

-

 27,968

 468

 28,436

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

(9,013)

-

(9,013)

Share based payments

-

-

 2,414

-

-

-

2,414

Issue of shares

3

-

 (3)

-

-

-

-

Total

3

-

2,411

-

(9,013)

-

(6,599)

At 30 September 2018 (unaudited)

 286

 82,080

6,743

 5,932

 183,325

 201,338

479,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued share

Capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total

equity   

 

million

million

million

million

million

million

million

At 1 January 2019

286

82,080

7,298

5,932

192,723

 203,153

491,472

Profit for the period

 

 

 

 

56,648

 

56,648

Other comprehensive income

 

 

 

 

 

 (70)

 (70)

Total comprehensive income for the period

 

 

 

 

 

 

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

Dividends paid

 

 

 

 

(8,957)

 

(8,957)

Share based payments

 

 

3,069

 

 

 

3,069

Total

 -  

 -  

 3,069

 -  

 (8,957)

 -  

 (5,888)

At 30 September 2019 (unaudited)

 286

 82,080

 10,367

 5,932

 240,414

 203,083

 542,162

 

 

 

 

 

 

 

 

 

 

                                 

for the third quarter ended 30 September 2019

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 third quarter ended 30 Sept 2019

 

 

9 months ended
30 Sept 2019

9 months ended
 30 Sept 2018

 

 

'million

'million

                                                                                                           

Notes

Unaudited

Unaudited

Cash flows from operating activities

 

 

 

Cash generated from operations                                                                                               

26

94,000

 118,126

Net cash inflows from operating activities

 

  94,000

118,126

Cash flows from investing activities

 

 

 

Investment in oil and gas properties

 

(15,420)

(8,777)

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

 

 (4,144)

1

Proceeds from sale of other assets

 

 5,137

7,936

Investment in joint venture

 

(31,627)

-

Cash on loss of control of subsidiary

12.3

(47,336)

-

Interest received

 

2,813

2,050

Net cash used in investing activities

 

(90,577)

1,210

Cash flows from financing activities

 

 

 

Repayments of loans

23

(30,690)

 (176,782)

Proceeds from loans

 

 -  

 59,793

Dividend paid

 

 (8,957)

 (9,013)

Proceeds from senior notes received

 

 -

 103,935

Principal repayments on crude oil advance

 

 -

 (23,174)

Interest repayments on crude oil advance

 

 -

(530)

Payments for other financing charges

 

 -

 (1,190)

Interest paid on bank financing

23

(5,396)

 (12,400)

Net cash used in financing activities

 

(45,043)

(59,361)

Net (decrease)/increase in cash and cash equivalents

 

(41,620)

59,975

Cash and cash equivalents at beginning of period

 

178,460

133,699

Effects of exchange rate changes on cash and cash equivalents

 

957

393

Cash and cash equivalents at end of period

 

137,797

194,067

 

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: 16a Temple Road (Olu Holloway), Ikoyi, Lagos, Nigeria.

 

The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and AGIP, a 45% participating interest in the following producing assets:

 

OML 4, OML 38 and OML 41 located in Nigeria. The total purchase price for these assets was 50.4 billion paid at the completion of the acquisition on 31 July 2010.

 

In 2013, Newton Energy Limited ('Newton Energy'), an entity previously beneficially owned by the same shareholders as Seplat, became a subsidiary of the Company. In 2013, Newton Energy acquired from Pillar Oil Limited ('Pillar Oil') a 40% Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the 'Umuseti/Igbuku Fields').   

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

On 12 December 2014, Seplat Gas Company Limited ('Seplat Gas') was incorporated as a private limited liability company to engage in oil and gas exploration and production and gas processing. On 12 December 2014, the Group also incorporated a new subsidiary, Seplat East Swamp Company Limited with the principal activity of oil and gas exploration and production.

In 2015, the Group purchased a 40% participating interest in OML 53, onshore north eastern Niger Delta, from Chevron Nigeria Ltd for 43.5 billion.

 

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

In order to fund the development of the ANOH gas processing plant, on 13 August 2018, the Group entered into a shareholder's agreement with Nigerian Gas Processing and Transportation Company (NGPTC). Funding is to be provided by both parties in equal proportion representing their ownership share and will be used to subscribe for the ordinary shares in ANOH. The agreement was effective on 18 April 2019, which was the date the Corporate Affairs Commission (CAC) approval was received.

Given the change in ownership structure, the Group no longer exercises control and has now deconsolidated ANOH in the consolidated financial statements. However, its retained interest qualifies as a joint arrangement and has been recognised accordingly as investment in joint venture.

 

The Company together with its six wholly owned subsidiaries namely, Newton Energy Limited, Seplat Petroleum Development Company UK Limited ('Seplat UK'), Seplat East Onshore Limited ('Seplat East'), Seplat East Swamp Company Limited ('Seplat Swamp'), Seplat Gas Company Limited ('Seplat Gas') and Seplat West Limited ('Seplat West') are collectively referred to as the Group.

 

Subsidiary

Date of incorporation

Country of incorporation and place of business

Principal activities

Newton Energy Limited

1 June 2013

Nigeria

Oil & gas exploration and production

Seplat Petroleum Development Company UK Limited

21 August 2014

United Kingdom

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

Seplat East Onshore Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat East Swamp Company Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat Gas Company

12 December 2014

Nigeria

Oil & gas exploration and production

 and gas processing

Seplat West Limited

16 January 2018

Nigeria

Oil & gas exploration and production

 

 

2.    Significant changes in the current reporting period

The following significant changes occurred during the reporting period ended 30 September 2019:

·      During the period, the Group changed it registered office address and relocated all its offices to one location. The new address is 16a Temple Road (Olu Holloway), Ikoyi, Lagos.

 

·      The Group's interest bearing borrowings included a four year revolving loan facility of 61 billion. In October 2018, the Group made principal repayments on the four-year revolving facility for a lump sum of 30.7 billion. In the reporting period, the Group repaid the outstanding principal amount of 30.7 billion on the revolving loan facility.

·      There was a change the ownership structure of the Group's wholly owned subsidiary, ANOH Gas Processing Company Limited on 18 April 2019 to a Joint venture after Nigerian Gas Processing and transportation Company Limited's (NGPTC) equity investment. As a result, the Group has deconsolidated ANOH in its financial statements and its retained interest has been recognised as an investment in joint venture.

·      The Group adopted the new leasing standard IFRS 16 Leases (see Note 31).

3.    Summary of significant accounting policies

3.1 Basis of preparation

 

i)       Compliance with IFRS

 

The interim condensed consolidated financial statements of the Group for the reporting period ended 30 September 2019 have been prepared in accordance with accounting standard IAS 34 Interim financial reporting.

 

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

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

 

ii)      Historical cost convention

 

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

iii)     Going concern

 

Nothing has come to the attention of the directors to indicate that the Group will not remain a going concern for at least twelve months from the date of these financial statements.

iv)      New and amended standards adopted by the Group

 

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

a.     IFRS 16 Leases

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

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

The impact of the adoption of this standard and the related new accounting policy are disclosed in Note 31.

b.     Amendments to IAS 19 Employee benefit

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

c.     Amendments to IAS 23 Borrowing costs

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

d.     Amendments to IFRS 11 Joint arrangements

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

e.     Amendments to IAS 12 Income taxes

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

f.     Amendments to IFRS 9 Prepayment features with negative compensation

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

g.     Amendments to IAS 28 Investments in associates and joint ventures

These amendments clarify the accounting for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied. Entities must account for such interests under IFRS 9 Financial Instruments before applying the loss allocation and impairment requirements in IAS 28 Investments in Associates and Joint Ventures.

h.     IFRIC 23 Uncertainty over income tax treatment

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

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

 

v)       New standards, amendments and interpretations not yet adopted

       

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

         

a.    Conceptual framework for financial reporting - Revised

 

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

 

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

b.    Amendments to IAS 1 Presentation of financial statements and IAS 8 Accounting policies, changes in accounting estimates and errors

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

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

c.     Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture

These amendments clarify the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures. They confirm that the accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a business (as defined in IFRS 3 Business Combinations).

Where the non-monetary asset constitutes a business, the investor will recognise the full gain or loss on the sale or contribution of the asset. If the asset does not meet the definition of a business, the gain or loss is recognised by the investor only to the extent of the other investor's interests in the associate or joint venture. These amendments apply prospectively.

 

In December 2015 the IASB decided to defer the application date of this amendment until such time as the IASB has finalised its research project on the equity method.

d.    Amendments to IFRS 3: Definition of a business

 

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of the term 'outputs' is amended to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. The amendments will likely result in more acquisitions being accounted for as asset acquisitions.

 

3.2 Basis of consolidation

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 September 2019. This basis of consolidation is the same adopted for the last audited financial statements as at 31 December 2018 except:

3.2.1  Joint arrangements

Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Group has a joint venture (ANOH Gas Processing Company Limited) in which it has joint control with Nigerian Gas Processing and Transportation Company.

Interest in the joint venture is accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position. All other joint arrangements of the Group are joint operations.

3.2.2  Equity method

Under the equity method of accounting, the Group's investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

Where the Group's share of loss in a joint venture equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other party to the joint venture.

Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures are changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of joint venture investments is tested for impairment.

3.2.3  Change in ownership interest of subsidiary

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the profit or loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company using consistent accounting policies.

3.2.4  Accounting for loss of control

When the Group ceases to consolidate a subsidiary because of a joint control, it does the following:

·      deconsolidates the assets (including goodwill), liabilities and non-controlling interest (including attributable other comprehensive income) of the former subsidiary from the consolidated financial position.

·      any retained interest (including amounts owed by and to the former subsidiary) in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or a joint venture.

 

·      any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred directly to retained earnings if required by other IFRSs.

·      the resulting gain or loss, on loss of control, is recognised together with the profit or loss from the discontinued operation for the period before the loss of control.

·     the gain or loss on disposal will comprise of the gain or loss attributable to the portion disposed off and the gain or loss on remeasurement of the portion retained. The latter is disclosed separately in the notes to the financial statements.

If the ownership interest in a joint venture is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

3.3 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 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 judgements at the end of the third quarter are consistent with those disclosed in the recent 2018 annual financial statements. The following are some of the judgements which have the most significant effect on the amounts recognised in this consolidated financial statements.

 

i)       OMLs 4, 38 and 41

 

OMLs 4, 38, 41 are grouped together as a cash generating unit for the purpose of impairment testing. These three OMLs are grouped together because they each cannot independently generate cash flows. They currently operate as a single block sharing resources for the purpose of generating cash flows. Crude oil and gas sold to third parties from these OMLs are invoiced together.

 

ii)      Deferred tax asset

Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable.

iii)     Lease liabilities

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

In determining the lease liability/right-of-use assets, management considered all fact and circumstances that create an economic incentive to exercise the purchase option. Potential future cash outflow of $45 million (Seplat's 45% share of $100 million), which represents the purchase price, has not been included in the lease liability because the Group is not reasonably certain that the purchase option will be exercised. This assessment will be reviewed if a significant event or a significant change in circumstances occurs which affects the initial assessment and that is within the control of the management.

iv)      Lease term

Management assessed that the purchase option in its head office lease's contract would not be exercised. If management had assessed that it will be reasonably certain that the purchase option will be exercised, the lease term used for depreciating the right-of-use-asset will have been be fifty (50) years rather than the non-cancellable lease term of five (5) years. For the lease contracts, the Group assessed that it could not reasonably determine if the leases would be renewed at the end of the lease term. As a result, the lease term used in determining the lease liability was the contractual lease term. The sensitivity of the Group's profit and net assets to purchase options is disclosed in Note 31.

v)       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.

 

vi)      Revenue recognition

Definition of contracts

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

Performance obligation

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

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

Transactions with Joint Operating Arrangement (JOA) partners

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

 

vii)     Classification of joint arrangements

The joint venture arrangement in relation to ANOH requires the unanimous consent from the controlling parties for all the relevant activities. The parties to the arrangement have rights to the net assets (not direct rights to the assets or joint obligation for the liabilities incurred by the arrangement) of ANOH. The entity is therefore classified as a joint venture and the Group recognises its share of the net assets/(liabilities) as described in Note 3.2.1.

 

4.2 Estimates and assumptions

 

The key assumptions concerning the future and the other key source of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are disclosed in the most recent 2018 annual financial statements. The following are some of the estimates and assumptions made.

 

i)       Defined benefit plans

 

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

 

Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers market yield on federal government bonds in currencies consistent with the currencies of the post-employment benefit obligation and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation.

 

The rates of mortality assumed for employees are the rates published in 67/70 ultimate tables, published jointly by the Institute and Faculty of Actuaries in the UK.

 

ii)      Income taxes

 

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

 

iii)     Impairment of financial assets

 

The loss allowances for financial assets are based on assumptions about risk of default, expected loss rates and maximum contractual period. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. The Group has placed reliance on the assumptions used at the year end reporting period as it does not expect material differences for current period assumptions.

 

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 - foreign exchange

Future commercial transactions

Recognised financial assets and liabilities not denominated in US dollars.

Cash flow forecasting

Sensitivity analysis

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

Market risk - commodity  prices

Derivative financial instruments

 

Sensitivity analysis

Oil price hedges

Credit risk

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

Aging analysis

Credit ratings

Diversification of bank deposits and credit limit on trade receivables

Liquidity risk

Borrowings and other liabilities

Rolling cash flow forecasts

Availability of committed credit lines and borrowing facilities

 

5.1.1 Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due.

 

The Group uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are sufficient cash resources to meet operational needs. Cash flow projections take into consideration the Group's

debt financing plans and covenant compliance. Surplus cash held is transferred to the treasury department which invests in 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.

 

 

Effective interest rate

  Less than

     1 year

        1 -2

years

         2 - 3

years

         3 - 5

years

      Total

 

 

 

'million

'million

'million

'million

'million

30 September 2019

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 10,103

 10,076

 10,076

 117,508

 147,763

 

 

 10,103

 10,076

 10,076

 117,508

 147,763

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

 82,860 

 -  

 -  

 -  

 82,860 

Lease liabilities

7.56%

 -  

 846

 953

 1,430

 3,229

 

 

 92,963

 10,922

 11,029

 118,938

 233,852

 

 

 

 

 

 

 

 

 

 

Effective interest rate

Less than
1 year

1 - 2
year

2 - 3
years

3 - 5
years

Total

 

 

'million

'million

'million

'million

'million

31 December 2018

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 10,130

 10,075

 10,048

 122,220

 152,473

Variable interest rate borrowings

 

 

 

 

 

 

Stanbic IBTC Bank Plc

6.0% +LIBOR

 312

 313

 312

 3,789

 4,726

The Standard Bank of South Africa Limited

6.0% +LIBOR

 208

 209

 208

 2,526

 3,151

Nedbank Limited, London Branch

6.0% +LIBOR

 434

 434

 434

 5,263

 6,565

Standard Chartered Bank

6.0% +LIBOR

 390

 391

 390

 4,736

 5,907

Natixis

6.0% +LIBOR

 304

 304

 304

 3,684

 4,596

FirstRand Bank Limited

6.0% +LIBOR

 304

 304

 304

 3,684

 4,596

Citibank N.A. London

6.0% +LIBOR

 260

 261

 260

 3,158

 3,939

The Mauritius Commercial Bank Plc

6.0% +LIBOR

 260

 261

 260

 3,158

 3,939

Nomura International Plc

6.0% +LIBOR

 130

 130

 130

 1,579

 1,969

 

 

2,602

 2,607

2,602

31,577

39,388

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

48,152

-

-

-

48,152

Contingent consideration

 

-

5,680

 

 

 5,680

 

 

60,884

 18,362

 12,650

 153,797

 245,693

 

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

 

5.1.2  Credit risk

 

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

Risk management

 

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

 

The credit risk on cash and cash balances is managed through the diversification of banks in which the balances are held. The risk 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 Sept

2019

As at 31 Dec

2018 

As at 30 Sept

2019

As at 31 Dec

2018 

 

million

million

million

million

Financial assets

 

 

 

 

Trade and other receivables*

 54,424

 29,466

 54,424

 29,466

Cash and bank balances

 139,562

 179,509

 139,562

 179,509

 

 193,986

 208,975

 193,986

 208,975

Financial assets at fair value

 

 

 

 

Derivative financial instruments

115

2,693

115

2,693

 

115

2,693

115

2,693

Financial liabilities

 

 

 

 

Interest bearing loans and borrowings

 109,726

 136,830

 116,500

 143,158

Contingent consideration

 -  

 5,676

 -  

 5,676

Trade and other payables

82,860  

 48,152

 45,159

 48,152

 

 191,586

 190,658

 161,659

 196,986

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

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

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

 

5.2.1  Fair Value Hierarchy

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

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

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

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 and processing of gas. These two reportable segments make up the total operations of the Group.

For nine months ended 30 September 2019, revenue from the gas segment of the business constituted 40% of the Group's revenue. Management believes that the gas segment of the business will continue to generate higher profits in the foreseeable future. It also decided that more investments will be made toward building the gas arm of the business. This investment will be used in establishing more offices, creating a separate operational management and procuring the required infrastructure for this segment of the business. The gas business is positioned separately within the Group and reports directly to the ('chief operating decision maker'). As this business segment's revenues and results, and also its cash flows, will be largely independent of other business units within Seplat, it is regarded as a separate segment.

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

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

The Group accounting policies are also applied in the segment reports. The results of the discontinued operation has not been included in the segment reporting information.

 

6.1 Segment profit disclosure

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

'million

'million

'million

'million

Oil

 9,999

 4,687

 12,411

 6,343

Gas

 45,672

 23,273

 6,823

 6,767

Total profit after tax

 55,671

27,960

 19,234

  13,110

 

 

 

 

 

Oil

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

'million

'million

'million

'million

Revenue

 

 

 

 

Crude oil sales

  99,076

134,849

  32,783

 56,154

Operating profit before depreciation, amortisation

and impairment

 38,630

 73,561

 21,577

 29,543

Depreciation, amortisation and impairment

 (19,489)

 (24,231)

 (6,266)

 (7,338)

Operating profit

 19,141

 49,330

 15,311

 22,205

Finance income

 2,813

 2,050

 1,085

720

Finance expenses

 (11,140)

 (17,760)

 (3,530)

 (5,092)

Share of profit from joint venture accounted for using equity accounting

 227

 -  

 150

 -  

Profit before taxation

 11,041

 33,620

 13,016

 17,833

Income tax expense

 (1,042)

 (28,933)

 (605)

 (11,490)

Profit for the period

 9,999

 4,687

 12,411

 6,343

                 

 

 

                                                                                                                             Gas

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

'million

'million

'million

'million

Revenue

 

 

 

 

Gas sales

 32,266

 38,861

 10,116

12,762

Gas tolling

 20,535

-

 8

-

 

 52,801

38,861

 10,124

 

Operating profit before depreciation, amortisation

and impairment

 48,649

 35,266

 7,782

 11,388

Depreciation, amortisation and impairment

 (2,977)

(3,841)

 (959)

(1,275)

Operating profit

 45,672

 31,425

 6,823

10,113

Finance income

 -  

 -  

 -  

 -  

Finance expenses

 -  

 -  

 -  

 -  

Profit before taxation

 45,672

31,425

 6,823

10,113

Income tax expense

 -  

(8,152)

 -  

 (3,346)

Profit for the period

 45,672

 23,273

 6,823

6,767

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 and from different geographical regions.

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

million

million

million

Geographical market

 

 

 

 

 

 

Nigeria

 8,706

 52,801

 61,507

 7,137

 38,861

 45,998

Switzerland

 90,370

 

 90,370

 127,712

-

 127,712

Revenue

 99,076

 52,801

 151,877

 134,849

 38,861

 173,710

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

 99,076

 -  

 99,076

 134,849

 -  

 134,849

Over time

 -  

 52,801

 52,801

 -  

 38,861

 38,861

Revenue

 99,076

 52,801

 151,877

 134,849

 38,861

 173,710

 

 

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

million

million

million

Geographical market

 

 

 

 

 

 

Nigeria

 1,714

 10,124

 11,838

 4,351

 12,762

 17,113

Switzerland

 31,069

 

 31,069

 51,803

-

 51,803

Revenue

 32,783

 10,124

 42,907

 56,154

 12,762

 68,916

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

 32,783

 -  

 32,783

 56,154

 -  

 56,154

Over time

 -  

 10,124

 10,124

 -  

 12,762

 12,762

Revenue

 32,783

 10,124

 42,907

 56,154

 12,762

 68,916

The Group's transactions with its major customer, Mercuria, constitutes more than 10% (90 billion) of the total revenue from the oil segment and the Group as a whole. Also, the Group's transactions with NGMC and Azura (24 billion and 9 billion) accounted for more than 10% of the total revenue from the gas segment and the Group as a whole.

6.1.2  (Impairment)/reversal of losses by reportable segments

 

9 months  ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

'million

'million

'million

Impairment losses recognised during the period

(49)

-

(49)

(6)

-

(6)

Reversal of previous impairment losses

116

-

116

527

-

527

Write-off of impairment losses

(12,385)

-

(12,385)

-

-

-

 

(12,318)

-

(12,318)

521

-

521

 

 

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

'million

'million

'million

'million

'million

'million

Impairment losses recognised during the period

-

-

-

(53)

-

(53)

Reversal of previous impairment losses

-

-

-

45

-

45

Write-off of impairment losses

-

-

-

-

-

-

 

-

-

-

(8)

-

(8)

6.2 Segment assets

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

 

 

Oil

Gas 

Total

Total segment assets        

'million

'million

'million

30 September 2019

492,752

287,354

780,106

31 December 2018

623,017

152,639

775,656

         

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. The total reportable segment's liabilities are the same with the total Group's liabilities.

 

 

Oil

Gas 

Total

Total segment liabilities 

'million

'million

'million

30 September 2019

136,833

101,111

237,944

31 December 2018

257,564

26,620

284,184

         

 

7.    Revenue from contracts with customers

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Crude oil sales

 99,076

 134,849

 32,783

 56,154

Gas sales

 32,266

 38,861

 10,116

 12,762

Gas tolling

 20,535

-

 8

-

 

 151,877

 173,710

 42,907

 68,916

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

Gas tolling is revenue received from NPDC for processing its share of the gas extracted from OML 4, 38 and 41 from 2015 to 2018. In prior periods, the Group had not recognised the related income or receivable for the service because the basis for determining the fees was yet to be concluded with NPDC.

8.    Cost of sales

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Crude handling fees

 12,252

 14,450

 4,531

5,511

Royalties

 23,101

 29,352

 7,824

10,293

Depletion, Depreciation and Amortisation

 21,195

27,903

 6,814

 9,312

Nigeria Export Supervision Scheme (NESS) fee

 119

183

 46

66

Niger Delta Development Commission levy

 1,892

1,573

 631

496

Rig related expenses

 1,277

 12

 1,277

-

Operations & maintenance costs

 10,818

 6,727

 4,095

3,035

 

 70,654

80,200

 25,218

 28,713

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

9.    Other income/(expenses) - net

           

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Underlift

 9,370

6,259

 7,635

 (2,224)

Gains/(losses) on foreign exchange

 716

(234) 

 313

 (244)

Tariffs

 1,051

-

 545

 

 

 11,137

6,025

 8,493

 (2,468)

 

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 to the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss as other income.

 

Gains or losses on foreign exchange are principally as a result of translation of naira denominated monetary assets and liabilities into the USD functional currency. Tariffs which is a form of crude handling fee, relate to income generated from the use of the Group's pipeline.

10.  General and administrative expenses

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Depreciation of other property plant and equipment

 575

 689

 186

 (179)

Depreciation of right-of-use assets

 696

 -  

 225

 -  

Employee benefits expense

 8,745

 6,965

 3,101

 2,338

Professional and consulting fees

 527

 2,713

 (2,217)

 301

Auditor's remuneration

 41

 79

 28

 22

Directors emoluments (executive)

 409

 442

 109

 247

Directors emoluments (non-executive)

 787

 765

 300

 266

Rentals

 276

 447

 34

 147

Flights and other travel costs

 1,816

 1,562

 713

 844

Other general expenses

 2,872

 3,189

 1,349

 1,100

 

 16,744

 16,851

 3,828

 5,086

Directors' emoluments have been split between executive and non-executive directors. There were no non-audit services rendered by the Group's auditors during the period. (2018: nil)

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

Rentals for the nine months ended 30 September 2019 relate to expenses on short term leases for which no right-of-use assets and lease liability were recognised on application of IFRS 16. See Note 31 for further details.

11.  (Impairment)/reversal  of losses on financial assets - net

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Impairment losses:

 

 

 

 

Impairment loss on trade receivables

(49)

(6)

-

(6)

Impairment loss on NPDC receivables

-

-

-

(47)

 

(49)

(6)

-

(53)

Reversal of impairment losses:

 

 

-

 

Reversal of/(impairment) loss on NPDC receivables

-

523  

-

-

Reversal of/(impairment) loss on NAPIMS receivables

-

4

-

45

Reversal of impairment loss on other receivables

116

-

-

 

 

116

527

-

45

Write-off of impairment losses:

 

 

-

 

Write-off of NPDC receivables

(12,385)

-

-

-

 

(12,385)

-

-

-

 

(12,318)

521

-

(8)

 

The reversal of other receivables is as a result of changes in management assessment of recoverability of the receivables. Write-off of NPDC receivables relate to amount that has been assessed as uncollectable.

12.  Discontinued operation

On 20 January 2017, the Group incorporated ANOH Gas Processing Company Limited (ANOH), a wholly owned subsidiary, as a midstream Company to develop, design, engineer, construct, operate and maintain the Assa North-Ohaji South gas processing plant.

In order to fund the development of the processing plant, on 13 August 2018, the Group entered into a shareholders agreement with Nigerian Gas Processing and Transportation Company ("NGPTC") so that both parties can provide the required funding for the expansion of the processing plant. The contributing parties will fund the project through capital injection in tranches. However, the monies extended is in form of equity contribution and will be used to subscribe for the ordinary shares in ANOH.

The shareholders agreement, which became effective on 18 April 2019, provides that the shareholding structure in ANOH be revised such that both parties have equal shareholding in the Company. As a result of the change in the ownership structure, the Group lost full control of ANOH from the effective date of the agreement.

ANOH was deconsolidated with effect from 18 April 2019 and is reported in the current period as a discontinued operation. The details of the deconsolidation of ANOH have been disclosed in Note 1 (corporate structure and business), Note 2 (significant changes in the current reporting period) and Note 4 (significant accounting judgements, estimates and assumptions. Financial information relating to the discontinued operation for the period to the date of deconsolidation is set out below:

12.1.  Financial performance and cash flow information

The financial performance and cash flow information for the nine months ended 30 September 2019, the three months ended 30 September 2019 and the respective comparative periods, that is, nine months ended 30 September 2018 and three months ended 30 Sept 2018 are presented below:

 

9 months ended 30 Sept 2019

 

9 months ended

30  Sept  2018

3 months ended

30  Sept  2019

3 months ended

30  Sept  2018

 

'million

 

'million

'million

'million

Revenue

-

 

-

-

-

Cost of sales

-

 -  

-

-

-

General and administrative expenses

(11)

 

(18)

-

 (14)

Other income/(expenses) - net

(7)

 

26

-

 28

Finance income - net

190

-

-

-

 -  

Profit/(loss) before taxation

172

 

8

-

 14

Taxation

-

 

-

-

 -  

Profit/(loss) from discontinued operation

172

 

8

-

 14

Gain on deconsolidation of subsidiary (Note 12.2)

805

 

-

-

 -  

Profit/(loss) from discontinued operation

977

 

8

-

 14

 

 

 

 

 

 -  

Net cash inflow from operating activities

48,956

 

2,395

-

 1,050

Net cash outflows from investing activities

(1,806)

 

(2,352)

-

 (944)

Net cash outflows from financing activities

-

 

-

-

 -  

Net increase/(decrease) in cash and cash equivalents

47,150

 

43

-

 106

 

12.2.  Gain on deconsolidation of subsidiary

 

9 months ended

30 Sept 2019

 

'million

Purchase consideration

-

Add: fair value of 50% retained interest

5

Add: Net liabilities derecognised (Note 12.3)

800

 

805

The gain arising on loss of control is recorded in profit or loss. This gain includes the gain on the portion sold and the gain on remeasurement of the 50% retained interest.

12.2.1.         Gain on portion sold

 

9 months ended

30 Sept 2019

 

'million

Purchase consideration

-

Group's share of net liabilities disposed

400

 

400

12.2.2.         Gain on remeasurement of retained interest

 

9 months ended

30 Sept 2019

 

'million

Purchase consideration

-

Fair value of retained interest

5

Group's share of net liabilities retained

400

 

405

The fair value of the retained interest in ANOH was determined to be ₦1 per share. This is based on the premise that the value of the Company is the same as its issued share capital. ANOH has not entered into any lease arrangements. Therefore, the adoption of IFRS 16 did not have an impact on the Group's discontinued operations. 

12.3.  Net liabilities derecognised

The carrying amounts of assets and liabilities that were deconsolidated on the date of loss of control (18 April 2019) were:

 

As at 18 April 2019

 

'million

Non-current assets:

 

Oil and gas properties

12,141 

Current assets:

 

Trade and other receivables

217

Prepayments

22

Cash and bank balances

47,336

Total assets

59,716

Current liabilities:

 

Trade and other payables

60,516

Total liabilities

60,516

Net liabilities derecognised

800

13.  Fair value gain/(loss) - net

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Cost of hedging

 (1,583)

 (1,063)

 -  

 (303)

Unrealised fair value loss on derivatives

 (2,577)

 -  

 (220)

-

Fair value gain/(loss) on contingent consideration

 5,675

 (1,386)

 -

 (19)

 

 1,515

 (2,449)

 (220)

 (322)

Fair value loss on derivatives represents changes arising from the valuation of the crude oil economic hedge contracts charged to profit or loss.

In 2018, fair value loss on contingent consideration was in relation to the remeasurement of contingent consideration on the Group's acquisition of participating interest in OML 53. The contingency criteria was set on oil price rising above $90/bbl over a one-year period and expiring on 31 January 2020. The contingency criteria was not achieved during the reporting period, and as a result, the contingent consideration has been derecognised.

14.  Finance income/ (costs)

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Finance income

 

 

 

 

Interest income

2,813

2,050

1,085

720

Finance costs

 

 

 

 

Interest on bank loan

 (9,011)

(16,561)

 (2,220)

(4,839)

Other financing charges

 (1,070)

-

 (957)

-

Interest on lease liabilities (Note 31)

 (122)

-

 (41)

-

Interest on advance payments for crude oil sales

 -  

(530)

 -  

 -  

Unwinding of discount on provision for decommissioning 

 (937)

 (669)

 (312)

(253)

 

(11,140)

(17,760)

(3,530)

(5,092)

Finance cost - net

(8,327)

(15,710)

(2,445)

(4,372)

Finance income represents interest on fixed deposits.

Other financing charges include term loan arrangement and participation fees, bank activity fee, annual bank charges, technical bank fee, agency fee and analytical services in connection with annual service charge. These costs do not form an intehral part of the effective interest rate. As a result, they are not included in the measurement of the interest bearing loan.

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

The effective tax rate for the reporting period was 1.84% (September 2018: 57%).

 

15.1.  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 30

Sept 2019

As at 30 Sept

2019

As at 31 Dec

2018

As at 31 Dec

2018

 

'million

'million

'million

'million

 

Gross amount

Tax effect

Gross amount

Tax effect

Other deductible temporary differences

 10,215

 11,322

17,894

11,206

Tax gains

 7,557

 60

10,224

6,011

 

 17,772

 11,382

28,118

17,217

 

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

15.2    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.

15.3    Deferred tax assets

 

Balance at

1 Jan 2019

Charged/credited to profit or loss

Balance at

30 Sept 2019

 

'million

'million

'million

Tax losses

(12)

12

 -  

Other cumulative differences:

 

 

 

Fixed assets

(85,706)

 (20,500)

 (106,206)

Unutilised capital allowance

116,068

 20,118

 136,186

Provision for decommissioning obligation

818

 (821)

 (3)

Defined benefit plan

1,540

 966

 2,506

Share based payment reserve

3,294

 2,639

 5,933

Unrealised foreign exchange loss on trade and other receivables

1,258

 (701)

 557

Other income

5,246

 (4,744)

 502

Impairment provision on trade and other receivables

2,071

 1,668

 3,739

Derivative financial instruments

(2,282)

 2,288

 6

Exchange difference

192

 (19)

 173

 

42,487

 906

 43,393

16.  Earnings per share (EPS)

Basic

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

Diluted

Diluted EPS is calculated by dividing the profit after taxation attributable to the parent entity by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (arising from outstanding share awards in the share based payment scheme) into ordinary shares.

 

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

'million

'million

'million

'million

Profit from continuing operations

 55,671

27,960

 19,234

 13,110

Profit from discontinued operations

 977

8

 -  

 14

Profit for the period

 56,648

27,968

 19,234

 13,124

 

 

Share
'000

Share
'000

Share
'000

Weighted average number of ordinary shares in issue

 568,775

 568,497

 568,775

 568,497

Share awards

 19,960

 10,031

 19,960

 10,031

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

 

588,735

 

578,528

 

588,735

 578,528

 

Earnings per share from continuing operations

 

 

 

 

Basic earnings per share

 97.88

 49.18

 33.82

 23.06

Diluted earnings per share

 94.56

 48.33

 32.67

 22.66

Earnings per share for the period

 

 

 

 

Basic earnings per share

 99.60

 49.20

 33.82

 23.09

Diluted earnings per share

 96.22

 48.34

 32.67

 22.69

 

17.  Interest in other entities

17.1 Investment in subsidiaries

The Group's principal subsidiaries as at 30 September 2019 are set out in Note 1. Unless otherwise stated, their share capital consists solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business.

There were no significant judgements made in consolidating these entities. Also, there were no significant restrictions on any of the entities.

 

17.2    Interest in joint venture

The revised shareholders agreement between the Group and Nigerian Gas Processing and Transportation Company (NGPTC) requires both parties to have equal shareholding in ANOH. With the change in the ownership structure, the Group has reassessed its retained interest in ANOH and determined that it has joint control. The Group's interest in ANOH is accounted for in the consolidated financial statements using the equity method.

Set below is the information on the material joint venture of the Group, ANOH. The Company has share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also its principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. The Company is a private entity hence no quoted price is available.

As at the reporting period, the Group had no capital commitment neither had it incurred any contingent liabilities jointly with its joint venture partner.

 

 

Percentage of ownership interest

Carrying amount

Name of entity

Country of incorporation and place of business

As at 30 Sept 2019

As at 30 Dept 2018

As at 30 Sept 2019

As at 30 Dept 2018

 

 

%

%

'million

'million

ANOH Gas Processing Company Limited

Nigeria

50%

-

46,268

-

 

17.2.1.         Summarised statement of financial position of ANOH

 

As at 30 Sept 2019

 

'million

Current assets:

 

Cash and bank balances

 64,975

Other current assets

 3,066

Total current assets

 68,041

Non-current assets

 24,574

Total assets

 92,615

Current liabilities:

 

Financial liabilities (excluding trade payables)

 (487)

Other current liabilities

 (402)

Total liabilities

 (889)

 

 

Net assets

91,726

 

 

Reconciliation to carrying amounts:

 

Opening net liability as at 18 April 2019

(800)

Profit for the period

454

Share issue

92,072

Dividends paid

-

Closing net assets

91,726

 

 

Group's share (%)

50%

Group's share of net asset ('million)

45,863

Remeasurement of retained interest (Note 12.2.2)

405

Carrying amount ('million)

46,268

 

17.2.2 Summarised statement of profit or loss and other comprehensive income of ANOH

 

5 months ended

30 Sept 2019

 

'million

Revenue

-

Cost of sales

-

General and administrative expenses

(1,208)

Other income/(expenses) - net

1,218

Finance income

444

Profit before taxation

454

Taxation

-

Profit for the period

454

 

 

Group's share (%)

50%

Group's share of profit for the period ('million)

227

 

 

Dividends received from joint venture

-

 

17.2.3          Investment in joint venture

 

As at 30 Sept 2019

 

'million

Fair value of 50% retained interest (Note 12.2)

5

Additional investment

46,036

Share of profit from joint venture accounted for using the equity method (Note 17.2.2)

227

 

46,268

18.  Trade and other receivables

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Trade receivables (note 18.1)

29,765

29,127

Underlifts

-

1,325

National Petroleum Investment Management Services (NAPIMS)

55

-

Advances to suppliers

7,250

1,822

Other receivables (note 18.2)

22,381

9,600

Net carrying amount

59,451

41,874

 

18.1    Trade receivables:

Included in trade receivables is an amount due from Nigerian Gas Marketing Company (NGMC) and Central Bank of Nigeria (CBN) totaling 18 billion (Dec 2018: 14 billion) with respect to the sale of gas.

18.2    Other receivables

Other receivables are amounts outside the usual operating activities of the Group. Included in other receivables is an escrow deposit of 12.35 billion made for a potential investment. The funds were placed in an escrow on 8 January 2019 pursuant to an agreement reached with the vendor on the final terms of the transaction. Also included here is a receivable amount of 9.7 billion (Dec 2018: 9.6 billion) on an investment that is no longer being pursued.

18.3    Reconciliation of trade receivables

 

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Balance as at 1 January

 29,253

33,236

Additions during the period

 189,169

217,553

Receipts for the period

(188,477)

(221,659)

Exchange difference

 (5)

123

Gross carrying amount

  29,940

29,253

Less: impairment allowance

 (175)

(126)

Balance at the end of the period

  29,765

29,127

 

18.4    Reconciliation of impairment allowance trade receivables

 

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Loss allowance as at 1 January

126

499

Increase/(decrease) in loss allowance during the period

49

(374)

Exchange difference

-

1

Loss allowance at the end of the period

175

126

 

19.  Contract assets

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Revenue on gas sales

2,808

4,327

 

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

 

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

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

19.1    Reconciliation of contract assets

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

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Balance as at 1 January

 4,327

4,217

Additions during the period

 39,050

39,120

Receipts for the period

 (40,568)

(39,027)

Exchange difference

 (1)

17

Balance at the end of the period

 2,808

4,327

 

20.  Derivative financial instruments

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

The derivative financial instrument of 0.1 billion (Dec 2018: 2.7 billion) as at 30 September 2019 is as a result of a fair value gain on crude oil hedges. The fair value has been determined using a proprietary pricing model which generates results from inputs. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models.

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Foreign currency option - crude oil hedges

115

2,693

21.  Cash and bank balances

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

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Cash on hand

 3

2

Restricted cash

 1,765

1,049

Cash at bank

 137,830

178,494

 

 139,598

179,545

Less: impairment allowance

(36)

(36)

 

139,562

179,509

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

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

 

As at 30 Sept 2019

As at 30 Sept 2018

 

'million

'million

Cash on hand

 3

 3

Restricted cash

-

564

Cash at bank

137,830

 193,536

 

137,833

194,103

Less: impairment allowance

(36)

(36)

 

137,797

194,067

22.  Share capital

22.1.  Authorised and issued share capital

 

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'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

 

 

568,775,216 (2018: 568,497,025) issued shares denominated in Naira of 50 kobo per share

286

286

 

The Group's issued and fully paid share capital as at the reporting date consists of 568,775,216 ordinary shares (excluding the additional shares held in trust) of 0.50k each, all with voting rights. Fully paid ordinary shares carry one vote per share and the right to dividends. There were no restrictions on the Group's share capital.

 

22.2.  Movement in share capital

 

Number of shares

Issued share capital

Share based payment reserve

Total

 

Shares

'million

'million

'million

Opening balance as at 1 January 2019

568,497,025

286

7,298

7,584

*Share based payments

-

-

3,069

3,069

Vested shares

278,191

-

-

-

Closing balance as at 30 September 2019

568,775,216

286

10,367

               10,653

* The impact of the vested shares on the issued share capital is rounded up to zero.

22.3. Employee share based payment scheme

 

As at 30 September 2019, the Group had awarded 48,400,563 shares (2018: 40,410,644 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 (2018 Deferred Bonus and 2019 LTIP Scheme) awarded during the reporting period. During the reporting period, 278,191 shares had vested (Sept 2018: 5,052,464 shares were vested).

23.  Interest bearing loans & borrowings

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

 

Borrowings due

 within 1 year

Borrowings due

above 1 year

 Total

 

'million

'million

'million

Balance as at 1 January 2019

3,031

133,799

136,830

Principal repayment

 -  

 (30,690)

 (30,690)

Interest repayment

 (5,396)

 -  

 (5,396)

Interest accrued

9,011  

-

 9,011

Transfers

3,988

 (3,988)

-

Exchange differences

-

(29)

(29)

Carrying amount as at 30 September 2019

 10,634

 99,092

109,726

 

Interest bearing loans and borrowings include a revolving loan facility and senior notes. In March 2018 the Group 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 up at the reporting date is 6.9 billion using an effective interest rate of 10.4%. Transaction costs of 2.1 billion have been included in the amortised cost balance at the end of the reporting period. The amortised cost for the senior notes at the reporting period is 109.7 billion (September 2018: 104 billion).

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

The interest rate of the facility is variable. The Group made a drawdown of 61 billion in March 2018. The interest accrued at the reporting period is 0.2 billion (Sept 2018: 2.89 billion) using an effective interest rate of 9.8% (Sept 2018: 9.4%). The interest paid was determined using 3-month LIBOR rate + 6 % on the last business day of the reporting period.

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

24.  Trade and other payables

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Trade payables

 5,308

12,073

Nigerian Petroleum Development Company (NPDC)

  892

10,022

National Petroleum Investment Management Services (NAPIMS)

-

2,785

Accruals and other payables

53,007

53,296

Pension payable

 128

107

NDDC levy

 4,300

345

Royalties payable

 9,348

8,732

 

     72,983

87,360

24.1.  Accruals and other payables

Included in accruals and other payables are field-related accruals 37 billion (Dec 2018: 22 billion) and other vendor payables of 15 billion (Dec 2018: 31 billion). Royalties payable include accruals in respect of crude oil and gas production for which payment is outstanding at the end of the period.

24.2.  NPDC payables

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

25.  Contract liabilities

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Contract liabilities

1,821

-

 

Contract liabilities represents the payment received  in January 2019, from Azura, for the 2018 take or pay volumes contracted and not utilized. In line with contract, Azura can make a demand on the makeup gas but only after they have taken and paid for the take or pay quantity for the current year. The contract liability is accrued for two years after which the ability to take the makeup gas expires and any outstanding balances are recognised as revenue.

25.1.  Reconciliation of contract liabilities

 

As at 30 Sept 2019

As at 31 Dec 2018

 

'million

'million

Balance as at 1 January

-

-

Additions during the period

 1,821

-

Balance at the end of the period

 1,821

-

 

26.  Computation of cash generated from operations

 

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

 

Notes

'million

'million

Profit before tax:

 

 

 

Continuing operations

 

 56,713

 65,045

Discontinued operations

      12.1

 977

 8

Adjusted for:

 

 

 

Depletion, depreciation and amortization

 

 21,770

 28,592

Depreciation of right-of-use assets

 

 696

-

Interest on bank loans

14

 9,011

 16,561

Interest on lease liabilities

14

 122

-

Interest on advance payments for crude oil sales

14

 -  

 530

Unwinding of discount on provision for decommissioning liabilities

14

 937

 669

Finance income

14

 (2,813)

 (2,050)

Fair value(gain)/loss on contingent consideration

13

 (5,675)

 1,386

Fair value gain on derivatives

13

 2,577

-

Unrealised foreign exchange gain

9

 -  

208

Share based payments expenses

 

 3,069

2,413

Defined benefit expenses

 

 561

 63

Impairment/(reversal) of impairment loss on trade and other receivables

11

 12,318

(521)

Gain on deconsolidation of subsidiary

12.2

 (805)

-

Share of profit from joint venture accounted for using the equity method

17

 (227)

-

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

 

 

 

Trade and other receivables

 

   (31,248)

 34,847

Net working capital on loss of control of subsidiary

 

 46,106

-

Prepayments

 

  (10,038)

-

Contract assets

 

 1,520

 (3,401)

Trade and other payables

 

(15,689)

(24,900)

Contract liabilities

 

 1,821

-

Inventories

 

 3,012

 (1,324)

Restricted cash

 

 (715)

-

Net cash from operating activities                                                                            

 

94,000

118,126

27.  Related party relationships and transaction

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

27.1. 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.

 

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.

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

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.

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:

27.2. Related party relationships

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

Purchases of goods and services

'million

'million

Shareholders of the parent company

 

 

SPDCL (BVI)

242

 241

 

242

 241

Entities controlled by key management personnel:

 

 

Contracts > $1million

 

 

Nerine Support Services Limited

 2,025

1,570

Montego Upstream Services Limited

 421

20

Stage Leasing Limited

445

425

Cardinal Drilling Services Limited

454

348

 

3,345

2,363

 

 

 

Contracts < $1million

 

 

 Abbey Court Petroleum Company Limited

264

 232

 Charismond Nigeria Limited

3

22

 Keco Nigeria Enterprises

102

14

 Oriental Catering Services Limited

47

130

 

416

398

Total

4,003

3,002

*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 nine months ended 30 September 2019 is ₦2.0 billion (2018: 1.6 billion).

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

 

27.3. Balances

The following balances were receivable from or payable to related parties as at 30 September 2019:

 

 

As at 30 Sept 2019

As at 31 Dec 2018

Prepayments / receivables

'million

'million

Entities controlled by key management personnel

 

 

Cardinal Drilling Services Limited

1,948

1,495

Montego Upstream Services Limited

-

8

ResourcePro Inter Solutions Limited

-

-

 

1,948

1,503

 

 

As at 30 Sept 2019

As at 31 Dec 2018

Payables

'million

'million

Entities controlled by key management personnel

 

 

Keco Nigeria Enterprises

-

19

Oriental Catering Services Ltd

-

14

Abbey Court Trading Company Limited

-

9

Stage Leasing Limited

-

13

 

-

55

The outstanding balancs payable to/ receivable from related parties are unsecured and are payable/receivable in cash.

28.  Contingent liabilities

The Group is involved in a number of legal suits as defendant. The estimated value of the contingent liabilities is 354 million (Dec 2018: 736 million). The contingent liability for the period ended 30 September 2019 is determined based on possible occurrences though unlikely to occur. No provision has been made for this potential liability in these financial statements. Management and the Group's solicitors are of the opinion that the Group will suffer no loss from these claims.

29.  Dividend

The Board has proposed an interim dividend of $0.05 (2018: 15.29) per share. The aggregate amount of the proposed dividend expected to be paid out of retained earnings but for which no liability has been recognised in the financial statements is $29.4 million (2018: 9 billion).

30.     Events after the reporting period

On 15 October 2019, the Group announced its plans to acquire Eland Oil and Gas Plc. The main asset of Eland Oil and Gas Plc is Oil Mining Lease 40 located in the Niger Delta.

It was disclosed in the notice published by the Group that both companies had reached an agreement on the terms of the acquisition. The financial effects of this transaction have not been recognised at 30 September 2019 as the acquisition has not completed.

 

31.  Changes in accounting policies

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

Leases

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

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

From 1 January 2019, on adoption of IFRS 16, leased assets are recognised as right-of-use assets and a corresponding liability at the date at which the leased asset is available for use by the Group is also recognised. The Group elected to use the transition practical expedient which allows the standard to be applied to contracts that were previously identified as leases under IAS 17 (Leases) and IFRIC 4 (Determining whether an arrangement contains a lease) at the date of initial application.

The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'). The Group had no low value leases on adoption of the new standard. Lease liabilities for leases formerly classified as operating leases were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate of 7.56% as at that date.

Lease liabilities

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

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

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

Right-of-use assets

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

Short-term leases and leases of low value

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

 

 

31.1.  Impact of adoption

The new Leases standard, IFRS 16 replaces the provisions of IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. As discussed in Note 3.1, the Group has elected to apply the new standard using the simplified method. Accordingly, the information presented for the nine months ended 30 September 2018 has not been restated but is presented, as previously reported, under IAS 17.

On adoption of IFRS 16, the lease liabilities as at 1 January 2019 for leases formerly classified as operating leases were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at that date. The Group's weighted average incremental borrowing rates as at 1 January 2019 and 30 September 2019 was 7.56%.

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

§  The Group relied on previous assessment of existing lease contracts

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

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

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

31.2.  Impact on financial statements

a)  Impact on statement of financial position

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

There was no impact of adoption of IFRS 16 on retained earnings as at 1 January 2019.

 

 

 

Amounts without impact of IFRS 16

Impact of IFRS 16

At as 1 January 2019

 

'million

'million

'million

ASSETS

 

 

 

Non-current assets

 

 

 

Right-of-use assets

-

4,216

4,216

Prepayments

7,950

(274)

7,676

Total non-current assets

512,219

3,942

516,161

Current assets

 

 

 

Prepayments

3,549

(1,802)

1,747

Total current assets

263,437

(1,802)

261,635

Total assets

775,656

2,140

777,796

EQUITY AND LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Lease liabilities

-

1,902

1,902

Total non-current liabilities

184,808

1,902

186,710

Current liabilities

 

 

 

Lease liabilities

-

238

238

Total current liabilities

99,376

238

99,614

Total liabilities

284,184

2,140

286,324

§ Right-of-use assets

All the Group's right-of-use assets are non-current assets. A reconciliation of the Group's right-of-use assets as at 1 January 2019 and 30 September 2019 is shown below:

 

'million

Opening balance as at 1 January 2019

-

Effect of initial application of IFRS 16

4,216

Adjusted opening balance as at 1 January 2019

4,216

Additions during the year

88

Less: depreciation for the period

 (696)

Closing balance as at 30 September 2019

 3,608

The right-of-use assets recognised as at 1 January 2019 and 30 September 2019 comprised of the following asset:

 

As at 30 Sept 2019

As at 1 Jan 2019

 

'million

'million

Office buildings

3,608

4,216

Right-of-use assets

3,608

4,216

§ Lease liabilities

A reconciliation of the Group's remaining operating lease payments as at 31 December 2018 and the lease liabilities as at 1 January 2019 and 30 September 2019 is shown below:

 

'million

Total undiscounted operating lease commitment as at 31 December 2018

2,859

Lease liability as at 1 January 2019

2,140

Additions during the year

63

Add: interest on lease liabilities

                  122

Closing balance as at 30 September 2019

2,325

 

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

Short term leases relate to leases of residential buildings, car parks and office building with contractual lease term of less than or equal to 12 months at the date of initial application of IFRS 16. At the end of the reporting period, rental expense of 276 million was recognised within general and administrative expenses for these leases. The Group's future cash outflows from short term lease commitments at the end of the reporting period is 14.8 billion.

The Group's lease payments for drilling rigs are classified as variable lease payments. The variability arises because the lease payments are linked to the use of the underlying assets. These variable lease payments are therefore excluded from the measurement of the lease liabilities. At the end of the reporting period, there was no rental expense recognised within cost of sales for these leases. The expected future cash outflows arising from variable lease payments is estimated at ₦14.8 billion.

The Group's lease liability as at 1 January 2019 and 30 September 2019 is split into current and non-current portions as follows:

 

As at 30 Sept 2019

As at 1 Jan 2019

 

'million

'million

Non-current

2,325

1,902

Current

-

238

Lease liability

2,325

2,140

b)  Impact on the statement of profit or loss (decrease)

 

9 months ended

30 Sept 2019

3 months ended
30 Sept 2019

 

'million

'million

Depreciation expense

(696)

(225)

Operating profit

(696)

(225)

Finance cost

(122)

(41)

Profit for the period

(818)

(266)

c)  Impact on the statement of cashflows (increase)

 

9 months ended

30 Sept 2019

3 months ended
30 Sept 2019

 

'million

'million

Depreciation of right-of-use assets

696

225

Interest on lease liabilities

122

41

Net cash flows from operating activities

818

266

d)  Sensitivity to purchase options

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

 

Effect on profit

 before tax

Effect on profit

 before tax

 

9 months ended

30 Sept 2019

3 months ended
30 Sept 2019

Impact of purchase option

'million

'million

Depreciation

 417

 139

Interest payment

 (544)

 (181)

 

 (127)

 (42)

 

 

30 Sept 2019

 

Effect on

net assets

Impact of purchase option

'million

Right-of-use assets

 9,595

Lease liability

 (10,320)

 

 (725)

 

e)  Impact on segment assets and liabilities

The Group's assets are allocated to segments based on the operations and the geographical location of the assets. All non-current assets of the Group are domiciled in Nigeria. The changes in segment assets and liabilities for each segment as at 30 September 2019 is shown below:

 

Amount under IAS 17

Impact of IFRS 16

Amount under IFRS 16

 

'million

'million

'million

Segment assets:

 

 

 

Oil

489,144

3,608

 492,752

Gas

 287,354

-

 287,354

 

776,498

3,608

 780,106

Segment liabilities:

 

 

 

Oil

 134,508

2,325

  136,833

Gas

  101,111

-

 101,111

 

235,619

2,325

  237,944

f)   Impact on earnings per share

As a result of adoption of IFRS 16, the earnings per share of the Group for the nine months ended 30 September 2019 decreased as shown in the table below:

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

 

Amount under

 IAS 17

Impact of

IFRS 16

Amount under

 IFRS 16

 

'million

'million

'million

Profit for the period

57,466

 (818)

56,648

Earnings per share for profit attributable to the equity shareholders:

 

 

 

Basic earnings per share

 101.03

 (1.44)

 99.60

Diluted earnings per share

 97.61

 (1.39)

 96.22

 

 

 

3 months ended
30 Sept 2019

3 months ended
30 Sept 2019

3 months ended
30 Sept 2019

 

Amount under

 IAS 17

Impact of

IFRS 16

Amount under

IFRS 16

 

'million

'million

'million

Profit for the period                     

19,500

 (266)

19,234

Earnings per share for profit attributable to the equity shareholders:

 

 

 

Basic earnings per share

 34.28

 (0.47)

 33.82

Diluted earnings per share

 33.12

 (0.45)

 32.67

g)  Impact on deferred taxes

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

 

32.  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 Sept 2019

₦/$

30  Sept  2018

 ₦/$

31 December 2018

 ₦/$

 

Fixed assets - opening balances

Historical rate

Historical

Historical

Historical

Fixed assets - additions

Average rate

306.95

305.85

306.10

Fixed assets - closing balances

Closing rate

306.95

306.1

307.00

Non-current assets

Closing rate

306.95

306.1

307.00

Current assets

Closing rate

306.95

306.1

307.00

Current liabilities

Closing rate

306.95

306.1

307.00

Equity

Historical rate

Historical

Historical

Historical

Income and Expenses:

Overall Average rate

306.89

305.85

306.10

                   

 

Interim Condensed Consolidated Financial Statements (Unaudited) for nine months ended 30 September 2019

Expressed in US Dollars ('USD')

 

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

for the third quarter ended 30 September 2019

 

 

9 months ended

30 Sept 2019

9 months  ended

30 Sept 2018

3 months ended
30 Sept 2019

3 months ended

30 Sept 2018

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Continuing operations

Notes

$'000

$'000

$'000

$'000

Revenue from contracts with customers

7

             494,880

 567,956

 139,794

 225,280

Cost of sales

8

 (230,218)

 (262,218)

 (82,165)

 (93,854)

Gross profit

 

 264,662

 305,738

 57,629

 131,426

Other income/(expenses) - net

9

36,291

 19,698

 27,676

 (8,071)

General and administrative expenses

10

              (54,556)

 (55,095)

  (12,472)

 (16,625)

(Impairment)/reversal of losses on financial assets - net

11

              (40,136)

 1,703

 -  

 (27)

Fair value gain/(loss) - net

13

                 4,933 

 (8,004)

 (722)

 (1,050)

Operating profit

 

211,194

 264,040

 72,111

                105,653

Finance income

14

9,169

 6,705

 3,535

 2,354

Finance costs                       

14

(36,295)

 (58,065)

 (11,500)

 (16,641)

Finance cost - net

 

(27,126)

(51,360)

(7,965)

(14,287)

Share of profit from joint venture accounted for using the equity method

17

742

 -  

 488

 -  

Profit before taxation

 

 184,810

212,680

 64,634

 91,366

Taxation

 

 (3,394)

 (121,251)

 (1,968)

 (48,498)

Profit from continuing operations

 

 181,416

 91,429

 62,666

 42,868

Profit from discontinued operation

12.1

 3,182

 25

 -  

 42

Profit for the period

 

 184,598

 91,454

 62,666

 42,910

Other comprehensive income:

 

-  

 

-  

 

Items that may be reclassified to profit or loss (net of tax):

 

 

 

 

 

Total comprehensive income from continuing operations

 

 

-

 

 -  

Total comprehensive income from discontinuing operations

 

 

-

 

 -  

Total comprehensive income for the period

 

184,598

91,454

62,666

42,910

 

 

 

 

 

 

Earnings per share from continuing operations

 

 

 

 

 

Basic earnings per share ($)

16

0.32 

 0.16

0.11

 0.08

Diluted earnings per share($)

16

0.31

 0.16

0.11

 0.07

Earnings per share for the period

 

 

 

 

 

Basic earnings per share ($)

16

0.32

 0.16

0.11

 0.08

Diluted earnings per share($)

16

0.31

 0.16

0.11

 0.07

 

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 September 2019

 

 

As at 30 Sept 2019

As at 31 Dec 2018 

 

 

Unaudited

Audited

 

Notes

$'000

$'000

Assets

 

 

 

Non-current assets

 

 

 

Oil and gas properties

 

  1,242,845

 1,301,220

Other property, plant and equipment

 

 15,868

 4,237

Right of use assets

31

  11,756

-

Investment in joint venture

17

 150,758

-

Other asset

 

 150,363

 167,100

Tax paid in advance

 

 9,896

 31,623

Prepayments

 

  62,547

 25,893

Deferred tax  assets

15.3

 141,367

138,393

Total non-current assets                           

 

1,785,400

 1,668,466

Current assets

 

 

 

Inventories

 

 92,740

 102,554

Trade and other receivables

18

  193,682

 136,393

Contract assets

19

 9,148

 14,096

Prepayments

 

 5,475

 11,561

Derivative financial instruments

20

 376

 8,772

Cash and bank balances

21

 454,670

 584,723

Total current assets

 

  756,091

 858,099

Total assets

 

2,541,491

  2,526,565

Equity and liabilities

 

 

 

Equity

 

 

 

Issued share capital

22.1

 1,834

 1,834

Share premium

 

 497,457

 497,457

Share based payment reserve

 

 37,500

 27,499

Capital contribution

 

 40,000

 40,000

Retained earnings

 

 1,186,367

 1,030,954

Foreign currency translation reserve

 

 3,141

 3,141

Total shareholders' equity

 

 1,766,299

1,600,885

Non-current liabilities

 

 

 

Interest bearing loans & borrowings

23

 322,831

 435,827

Lease liabilities

31

7,574

-

Contingent consideration

 

 -  

 18,489

Provision for decommissioning obligation

 

 144,788

 141,737

Defined benefit plan                 

 

 7,749

 5,923

Total non-current liabilities

 

   482,942

 601,976

Current liabilities

 

 

 

Interest bearing loans and borrowings

23

 34,644

 9,872

Trade and other payables

24

     237,766

 284,565

Contract liabilities

25

 5,932

-

Current tax liabilities

 

 13,908

 29,267

Total current liabilities

 

     292,250

 323,704

Total liabilities

 

775,192

 925,680

Total shareholders' equity and liabilities

 

2,541,491

 2,526,565

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

 

The Group financial statements of Seplat Petroleum Development Company Plc and its subsidiaries for the nine months ended 30 September 2019 were authorised for issue in accordance with a resolution of the Directors on 29 October 2019 and were signed on its behalf by

 

A. B. C. Orjiako

A. O. Avuru

R.T. Brown 

FRC/2013/IODN/00000003161

FRC/2013/IODN/00000003100

FRC/2014/ANAN/00000017939

Chairman

Chief Executive Officer

Chief Financial Officer

 

 

 

29 October 2019

 

29 October 2019

 

29 October 2019

 

 

Interim condensed consolidated statement of changes in equity continued

for the third quarter ended 30 September 2019

 

 

 

 

 

 

 

Issued share

capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total equity

 

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

At 1 January 2018

1,826

497,457

17,809

40,000

944,108

1,897

1,503,097

 

Impact of change in accounting policy:

 

 

 

 

 

 

 

 

Adjustment on initial application of IFRS 9

-

-

-

-

(5,816)

-

(5,816)

 

Adjusted balance at 1 January 2018

 1,826

 497,457

 17,809

 40,000

 938,292

 1,897

 1,497,281

 

Profit for the period

 -  

 -  

 -  

 -  

 91,454

 -  

 91,454

 

Total comprehensive income for the period

-

-

-

-

91,454

-

91,454

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Dividends paid

 -  

 -  

 -  

 -  

 (29,475)

 -  

 (29,475)

 

Share based payments

 -  

 -  

 7,890

 -  

 -  

 -  

 7,890

 

Issue of shares

 8

 -  

 (8)

 -  

 -  

 -  

 -  

 

Total

 8

 -  

 7,882

 -  

 (29,475)

 -  

 (21,585)

 

At 30 September 2018 (unaudited)

 1,834

 497,457

 25,691

 40,000

 1,000,271

 1,897

1,567,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued share

capital

Share premium

Share based

payment reserve

Capital contribution

Retained earnings

Foreign currency translation reserve

Total equity

 

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

At 1 January 2019

 1,834

 497,457

  27,499

 40,000

1,030,954

 3,141

  1,600,885

 

Profit for the period

 -  

 -  

 -  

 -  

 184,598

 -  

 184,598

 

Other comprehensive income

 -  

 -  

 -  

 -  

 -  

 -  

 -  

 

Total comprehensive income for the period

 -  

 -  

 -  

 -  

 184,598

 -  

 184,598

 

Transactions with owners in their capacity as owners:

 

 

 

 

 

 

 

 

Dividend paid

 

 

 

 

 (29,185)

 

 (29,185)

 

Share based payments

 

 

 10,001

 

 -  

 

 10,001

 

Total

 

 

 

 

 

 

 

 

At 30 September 2019 (unaudited)

 1,834

 497,457

 37,500

 40,000

 1,186,367

 3,141

 1,766,299

 

 

 

 

 

 

 

 

 

 

                     

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 third quarter ended 30 September 2019

 

 

9 months ended
30 Sept 2019

9 months ended
30 Sept 2018

 

 

$'000

$'000

                                                                                                           

Notes

Unaudited

Unaudited

Cash flows from operating activities

 

 

 

Cash generated from operations                                                                                               

26

 306,287

 386,300

Net cash inflows from operating activities

 

 306,287

 386,300

Cash flows from investing activities

 

 

 

Investment in oil and gas properties

 

(50,247)

(28,671)

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

 

(13,506)

 3

Proceeds from sale of other assets

 

16,737

 25,927

Investment in joint venture

 

(103,050)

-

Cash on loss of control of subsidiary

12.3

(154,240)

-

Interest received

 

9,169

6,705

Net cash (used)/generated in investing activities

 

(295,137)

3,964

Cash flows from financing activities

 

 

 

Repayments of loans

23

 (100,000)

 (578,000)

Proceeds from loans

 

 -  

 195,499

Dividend paid

 

 (29,185)

 (29,475)

Proceeds from senior notes issued

 

 -  

 339,546

Principal repayments on crude oil advance

 

 -  

 (75,769)

Interest repayments on crude oil advance

 

 

(1,730)

Payments for other financing charges

 

 -  

 (3,894)

Interest paid on bank financing

23

 (17,582)

 (40,507)

Net cash used in financing activities

 

(146,767)

(194,330)

Net (decrease)/increase in cash and cash equivalents

 

(135,617)

195,934

Cash and cash equivalents at beginning of period

21

581,305

437,212

Effects of exchange rate changes on cash and cash equivalents

 

3,232    

851

Cash and cash equivalents at end of period

 

448,920

633,997

 

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: 16a Olu Holloway, Ikoyi, Lagos, Nigeria.

 

The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and AGIP, a 45% participating interest in the following producing assets:

 

OML 4, OML 38 and OML 41 located in Nigeria. The total purchase price for these assets was $340 million paid at the completion of the acquisition on 31 July 2010.

 

In 2013, Newton Energy Limited ('Newton Energy'), an entity previously beneficially owned by the same shareholders as Seplat, became a subsidiary of the Company. In 2013, Newton Energy acquired from Pillar Oil Limited ('Pillar Oil') a 40% Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the 'Umuseti/Igbuku Fields').

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

On 12 December 2014, Seplat Gas Company Limited ('Seplat Gas') was incorporated as a private limited liability company to engage in oil and gas exploration and production and gas processing. On 12 December 2014, the Group also incorporated a new subsidiary, Seplat East Swamp Company Limited with the principal activity of oil and gas exploration and production.

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

 

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

In order to fund the development of the ANOH gas processing plant, on 13 August 2018, the Group entered into a shareholder's agreement with Nigerian Gas Processing and Transportation Company (NGPTC). Funding is to be provided by both parties in equal proportion representing their ownership share and will be used to subscribe for the ordinary shares in ANOH. The agreement was effective on 18 April 2019, which was the date the Corporate Affairs Commission (CAC) approval was received.

Given the change in ownership structure, the Group no longer exercises control and has now deconsolidated ANOH in the consolidated financial statements. However, its retained interest qualifies as a joint arrangement and has been recognised accordingly as investment in joint venture.

 

The Company together with its six wholly owned subsidiaries namely, Newton Energy Limited, Seplat Petroleum Development Company UK Limited ('Seplat UK'), Seplat East Onshore Limited ('Seplat East'), Seplat East Swamp Company Limited ('Seplat Swamp'), Seplat Gas Company Limited ('Seplat Gas') and Seplat West Limited ('Seplat West') are collectively referred to as the Group.

 

 

Subsidiary

Date of incorporation

Country of incorporation and place of business

Principal activities

Newton Energy Limited

1 June 2013

Nigeria

Oil & gas exploration and production

Seplat Petroleum Development Company UK Limited

21 August 2014

United Kingdom

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

Seplat East Onshore Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat East Swamp Company Limited

12 December 2014

Nigeria

Oil & gas exploration and production

Seplat Gas Company

12 December 2014

Nigeria

Oil & gas exploration and production

 and gas processing

Seplat West Limited

16 January 2018

Nigeria

Oil & gas exploration and production

 

2.    Significant changes in the current reporting period

The following significant changes occurred during the reporting period ended 30 September 2019:

·      During the period, the Group changed it registered office address and relocated all its offices to one location. The new address is 16a Temple Road (Olu Holloway), Ikoyi, Lagos.

 

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

·      There was a change the ownership structure of the Group's wholly owned subsidiary, ANOH Gas Processing Company Limited on 18 April 2019 to a Joint venture after Nigerian Gas Processing and transportation Company Limited's (NGPTC) equity investment. As a result, the Group has deconsolidated ANOH in its financial statements and its retained interest has been recognised as an investment in joint venture.

·      The Group adopted the new leasing standard IFRS 16 Leases (see Note 31).

3.    Summary of significant accounting policies

3.1 Basis of preparation

 

i)       Compliance with IFRS

 

The interim condensed consolidated financial statements of the Group for the reporting period ended 30 September 2019 have been prepared in accordance with accounting standard IAS 34 Interim financial reporting.

 

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

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

ii)     Historical cost convention

 

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

iii)    Going concern

 

Nothing has come to the attention of the directors to indicate that the Group will not remain a going concern for at least twelve months from the date of these interim condensed consolidated financial statements.

iv)     New and amended standards adopted by the Group

 

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

a.  IFRS 16 Leases

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

The adoption of IFRS 16 resulted in the recognition of right-of-use assets and corresponding lease liabilities for leases that were formerly classified as operating leases under the provisions of IAS 17, with the exception of the Group's short-term leases, as the distinction between operating and finance leases has been removed. The impact of the adoption of this standard and the related new accounting policy are disclosed in Note 31.

b.  Amendments to IAS 19 Employee benefit

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

c.  Amendments to IAS 23 Borrowing costs

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

d.  Amendments to IFRS 11 Joint arrangements

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

e.  Amendments to IAS 12 Income taxes

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

f.   Amendments to IFRS 9 Prepayment features with negative compensation

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

g.  Amendments to IAS 28 Investments in associates and joint ventures

These amendments clarify the accounting for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture, but to which equity accounting is not applied. Entities must account for such interests under IFRS 9 Financial Instruments before applying the loss allocation and impairment requirements in IAS 28 Investments in Associates and Joint Ventures.

h.  IFRIC 23 Uncertainty over income tax treatment

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

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

 

v)     New standards, amendments and interpretations not yet adopted

       

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

a.  Conceptual framework for financial reporting - Revised

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

 

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

b.  Amendments to IAS 1 Presentation of financial statements and IAS 8 Accounting policies, changes in accounting estimates and errors

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

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

c.  Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture

These amendments clarify the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures. They confirm that the accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a business (as defined in IFRS 3 Business Combinations).

Where the non-monetary asset constitutes a business, the investor will recognise the full gain or loss on the sale or contribution of the asset. If the asset does not meet the definition of a business, the gain or loss is recognised by the investor only to the extent of the other investor's interests in the associate or joint venture. These amendments apply prospectively.

In December 2015 the IASB decided to defer the application date of this amendment until such time as the IASB has finalised its research project on the equity method.

d.  Amendments to IFRS 3: Definition of a business

 

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of the term 'outputs' is amended to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. The amendments will likely result in more acquisitions being accounted for as asset acquisitions.

 

3.2.1. Joint arrangements

Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Group has a joint venture (ANOH Gas Processing Company Limited) in which it has joint control with Nigerian Gas Processing and Transportation Company.

Interest in the joint venture is accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position. All other joint arrangements of the Group are joint operations.

3.2.2. Equity method

Under the equity method of accounting, the Group's investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

Where the Group's share of loss in a joint venture equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other party to the joint venture.

Unrealised gains on transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures are changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of joint venture investments is tested for impairment.

3.2.3. Change in ownership interest of subsidiary

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the profit or loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company using consistent accounting policies.

3.2.4. Accounting for loss of control

When the Group ceases to consolidate a subsidiary because of a joint control, it does the following:

·      deconsolidates the assets (including goodwill), liabilities and non-controlling interest (including attributable other comprehensive income) of the former subsidiary from the consolidated financial position.

·      any retained interest (including amounts owed by and to the former subsidiary) in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or a joint venture.

 

·      any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred directly to retained earnings if required by other IFRSs.

 

·      the resulting gain or loss, on loss of control, is recognised together with the profit or loss from the discontinued operation for the period before the loss of control. 

·      the gain or loss on disposal will comprise of the gain or loss attributable to the portion disposed off and the gain  or loss on remeasurement of the portion retained. The latter is disclosed separately in the notes to the financial statements.

If the ownership interest in a joint venture is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate

3.2 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 third quarter are consistent with those disclosed in the recent 2018 annual financial statements. The following are some of the judgements which have the most significant effect on the amounts recognised in this consolidated financial statements.

 

i)       OMLs 4, 38 and 41

 

OMLs 4, 38, 41 are grouped together as a cash generating unit for the purpose of impairment testing. These three OMLs are grouped together because they each cannot independently generate cash flows. They currently operate as a single block sharing resources for the purpose of generating cash flows. Crude oil and gas sold to third parties from these OMLs are invoiced together.

ii)      Deferred tax asset

Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable.

iii)     Lease liabilities

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

In determining the lease liability/right-of-use assets, management considered all fact and circumstances that create an economic incentive to exercise the purchase option. Potential future cash outflow of $45 million (Seplat's 45% share of $100 million), which represents the purchase price, has not been included in the lease liability because the Group is not reasonably certain that the purchase option will be exercised. This assessment will be reviewed if a significant event or a significant change in circumstances occurs which affects the initial assessment and that is within the control of the management.

iv)      Lease term

Management assessed that the purchase option in its head office lease's contract would not be exercised. If management had assessed that it will be reasonably certain that the purchase option will be exercised, the lease term used for depreciating the right-of-use-asset will have been be fifty (50) years rather than the non-cancellable lease term of five (5) years. For the lease contracts, the Group assessed that it could not reasonably determine if the leases would be renewed at the end of the lease term. As a result, the lease term used in determining the lease liability was the contractual lease term. The sensitivity of the Group's profit and net assets to purchase options is disclosed in Note 31.

 

v)       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.

 

vi)      Revenue recognition

Definition of contracts

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

Performance obligation

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

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

Transactions with Joint Operating Arrangement (JOA) partners

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

 

viii)    Classification of joint arrangements

The joint venture arrangement in relation to ANOH requires the unanimous consent from the controlling parties for all the relevant activities. The parties to the arrangement have rights to the net assets (not direct rights to the assets or joint obligation for the liabilities incurred by the arrangement) of ANOH. The entity is therefore classified as a joint venture and the Group recognises its share of the net assets/(liabilities) as described in Note 3.2.1.

4.2 Estimates and assumptions

The key assumptions concerning the future and the other key source of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are disclosed in the most recent 2018 annual financial statements. The following are some of the estimates and assumptions made.

i)       Defined benefit plans

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

 

Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. The parameter most subject to change is the discount rate.

 

In determining the appropriate discount rate, management considers market yield on federal government bonds in currencies consistent with the currencies of the post-employment benefit obligation and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation.

 

The rates of mortality assumed for employees are the rates published in 67/70 ultimate tables, published jointly by the Institute and Faculty of Actuaries in the UK.

 

ii)      Income taxes

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

iii)     Impairment of financial assets

 

The loss allowances for financial assets are based on assumptions about risk of default, expected loss rates and maximum contractual period. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. The Group has placed reliance on the assumptions used at the year end reporting period as it does not expect material differences for current period assumptions.

 

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 -

foreign exchange

Future commercial transactions

Recognised financial assets and liabilities not denominated in US dollars.

Cash flow forecasting

Sensitivity analysis

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

Market risk - commodity  prices

Derivative financial instruments

 

Sensitivity analysis

Oil price hedges

Credit risk

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

Aging analysis

Credit ratings

Diversification of bank deposits and credit limit on trade receivables

Liquidity risk

Borrowings and other liabilities

Rolling cash flow forecasts

Availability of committed credit lines and borrowing facilities

 

5.1.1. Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due.

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

 

 

Effective interest rate

  Less than

     1 year

        1 -2

years

         2 - 3

years

         3 - 5

years

      Total

 

 

%

$ '000

$ '000

$ '000

$ '000

$ '000

30 September 2019

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 32,914

 32,825

 32,825

 382,825

 481,389

 

 

 32,914

 32,825

 32,825

 382,825

 481,389

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

  269,947

 -  

 -  

 -  

 269,947

Lease liabilities

7.56%

 -  

 2,757

 3,106

 4,658

 10,521

 

 

 302,861

 35,582

 35,931

 387,483

 761,857

 

 

Effective interest rate

Less than
1 year

1 - 2
years

2 - 3
years

3 - 5
years

Total

 

%

$ '000

$ '000

$ '000

$ '000

$ '000

31 December 2018

 

 

 

 

 

 

Non - derivatives

 

 

 

 

 

 

Fixed interest rate borrowings

 

 

 

 

 

 

Senior notes

9.25%

 33,094

 32,915

 32,825

 399,282

 498,116

Variable interest rate borrowings

 

 

 

 

 

 -  

Stanbic IBTC Bank Plc

6.0% +LIBOR

 1,020

 1,023

 1,020

 12,378

 15,441

The Standard Bank of South Africa Limited

6.0% +LIBOR

 680

 682

 680

 8,252

 10,294

Nedbank Limited, London Branch

6.0% +LIBOR

 1,417

 1,421

 1,417

 17,192

 21,447

Standard Chartered Bank

6.0% +LIBOR

 1,275

 1,279

 1,275

 15,473

 19,302

Natixis

6.0% +LIBOR

 992

 995

 992

 12,035

 15,014

FirstRand Bank Limited

6.0% +LIBOR

 992

 995

 992

 12,035

 15,014

Citibank N.A. London

6.0% +LIBOR

 850

 853

 850

 10,315

 12,868

The Mauritius Commercial Bank Plc

6.0% +LIBOR

 850

 853

 850

 10,315

 12,868

Nomura International Plc

6.0% +LIBOR

 425

 426

 425

 5,158

 6,434

 

 

 8,501

 8,527

 8,501

 103,153

128,682

Other non - derivatives

 

 

 

 

 

 

Trade and other payables**

 

 156,847

 -  

 -  

 -  

 156,847

Contingent consideration

 

 -  

 18,750

 -  

-

 18,750

 

 

 198,442

 60,192

41,326

 502,435

802,395

 

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

 

5.1.2. Credit risk

 

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

Risk management

 

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

 

In addition, the Group is exposed to credit risk in relation to the sale of gas to its customers.

 

The credit risk on cash and cash balances is managed through the diversification of banks in which the balances are held. The risk 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 Sept

2019

As at 31 Dec

2018 

As at 30 Sept

2019

As at 31 Dec

2018 

 

$ '000

$ '000

$ '000

$ '000

Financial assets at amortised cost

 

 

 

 

Trade and other receivables*

 177,306

  95,982

 177,306

  95,982

Cash and bank balances

 454,670

584,723

 454,670

584,723

 

 631,976

680,705

 631,976

680,705

Financial assets at fair value

 

 

 

 

Derivative financial instruments

 376

 8,772

 376

 8,772

 

 376

 8,772

 376

 8,772

Financial liabilities at amortised cost

 

 

 

 

Interest bearing loans and borrowings

 357,475

 445,699

 379,542

 466,314

Contingent consideration

 -  

 18,489

 -  

 18,489

Trade and other payables

 269,947  

 156,847

 147,121

 156,847

 

 627,422

 621,035

 526,663

 641,650

           

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

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

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

5.2.1. Fair Value Hierarchy

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

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

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

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 and processing of gas. These two reportable segments make up the total operations of the Group.

For the nine months ended 30 September 2019, revenue from the gas segment of the business constituted 40% of the Group's revenue. Management believes that the gas segment of the business will continue to generate higher profits in the foreseeable future. It also decided that more investments will be made toward building the gas arm of the business. This investment will be used in establishing more offices, creating a separate operational management and procuring the required infrastructure for this segment of the business. The gas business is positioned separately within the Group and reports directly to the ('chief operating decision maker'). As this business segment's revenues and results, and also its cash flows, will be largely independent of other business units within Seplat, it is regarded as a separate segment.

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

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

The Group accounting policies are also applied in the segment reports. The results of the discontinued operations has not been included in the segment reporting information.

6.1 Segment profit disclosure

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

$'000

$'000

$'000

$'000

Oil

 32,597

 15,319

 40,446

 20,727

Gas

 148,819

 76,110

 22,220

 22,141

Total profit after tax

 181,416

 91,429

 62,666

 42,868

 

 

 

 

 

 

 

Oil

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

$'000

$'000

$'000

$'000

Revenue

 

 

 

 

Crude oil sale

  322,832

 440,896

  106,812

 183,564

Operating profit before depreciation, amortisation

and impairment

 125,879

 240,504

 70,307

 96,560

Depreciation, amortisation and impairment

 (63,504)

 (79,227)

 (20,416)

 (23,987)

Operating profit

 62,375

 161,277

 49,891

 72,573

Finance income

 9,169

 6,705

 3,535

 2,354

Finance expenses

 (36,295)

 (58,065)

 (11,500)

 (16,641)

Share of profit from joint venture accounted for using equity accounting

 742

 -  

 488

 -  

Profit before taxation

 35,991

 109,917

 42,414

 58,286

Income tax expense

 (3,394)

 (94,598)

 (1,968)

 (37,559)

Profit for the period

 32,597

 15,319

 40,446

 20,727

 

                                                                                                                                   Gas

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

               

$'000

$'000

$'000

$'000

Revenue

 

 

 

 

Gas sale

 105,136

 127,060

 32,960

41,716

Gas tolling

 66,912

-

 22

-

 

 172,048

 127,060

 32,982

41,716

Operating profit before depreciation, amortisation

and impairment

 

158,522

 

115,318

 

25,345

 

37,243

Depreciation, amortisation and impairment

 (9,703)

 (12,555)

 (3,125)

 (4,163)

Operating profit

 148,819

102,763

 22,220

 33,080

Finance income

 -  

 -  

 -  

 -  

Finance expenses

 -  

 -  

 -  

 -  

Profit before taxation

 148,819

 102,763

 22,220

 33,080

Income tax expense

 -  

 (26,653)

-

 (10,939)

Profit for the period

 148,819

 76,110

 22,220

 22,141

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 and from different geographical regions.

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Geographical market

 

 

 

 

 

 

Nigeria

 28,366

 172,048

 200,414

 23,332

 127,060

 150,392

Switzerland

 294,466

-

 294,466

 417,564

-

 417,564

Revenue

 322,832

 172,048

 494,880

 440,896

 127,060

 567,956

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

 322,832

 -  

 322,832

 440,896

 -  

 440,896

Over time

 -  

 172,048

 172,048

 -  

 127,060

 127,060

Revenue

 322,832

 172,048

 494,880

 440,896

 127,060

 567,956

 

 

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Geographical market

 

 

 

 

 

 

Nigeria

 5,582

 32,982

 38,564

 14,222

 41,716

 55,938

Switzerland

 101,230

-

 101,230

 169,342

-

 169,342

Revenue

 106,812

 32,982

 139,794

 183,564

 41,716

 225,280

Timing of revenue recognition

 

 

 

 

 

 

At a point in time

 106,812

 -  

 106,812

 183,564

 -  

 183,564

Over time

 -  

 32,982

 32,982

 -  

 41,716

 41,716

Revenue

 106,812

 32,982

 139,794

 183,564

 41,716

 225,280

The Group's transactions with its major customer, Mercuria, constitutes more than 10% ($294 million) of the total revenue from the oil segment and the Group as a whole. Also, the Group's transactions with NGMC and Azura ($77 million and $28 million) accounted for more than 10% of the total revenue from the gas segment and the Group as a whole.

6.1.2  (Impairment)/reversal of losses by reportable segments

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

9 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Impairment losses recognised during the period

(161)

-

(161)

(22)

-

(22)

Reversal of previous impairment losses

378

-

378

1,725

-

1,725

Write-off of impairment losses

(40,353)

-

(40,353)

-

-

-

 

(40,136)

-

(40,136)

1,703

-

1,703

 

 

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

3 months ended

30 Sept 2018

 

Oil

Gas

Total

Oil

Gas

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Impairment losses recognised during the period

-

-

-

(173)

-

(173)

Reversal of previous impairment losses

-  

-  

-  

147

-

147

Write-off of impairment losses

-

-

-

-

-

-

 

-

-

-

(27)

-

(27)

6.2 Segment assets

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

 

 

Oil

Gas 

Total

Total segment assets        

$'000

$'000

$'000

30 September 2019

1,605,338

936,153

2,541,491

31 December 2018

2,029,374

497,191

2,526,565

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. The total reportable segment's liabilities are the same with the total Group's liabilities.

 

 

 

Oil

Gas 

Total

Total segment liabilities 

$'000

$'000

$'000

30 September 2019

445,781

329,411

775,192

31 December 2018

838,971

86,709

925,680

         

 

7.    Revenue from contracts with customers

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Crude oil sales

 322,832

 440,896

 106,812

 183,564

Gas sales

 105,136

 127,060

 32,960

 41,716

Gas tolling

 66,912

-

 22

-

 

 494,880

567,956

 139,794

225,280

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

Gas tolling is revenue received from NPDC for processing its share of the gas extracted from OML 4, 38 and 41 from 2015 to 2018. In prior periods, the Group had not recognised the related income or receivable for the service because the basis for determining the fees was yet to be concluded with NPDC.

8.    Cost of sales

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Crude handling

 39,921

 47,246

 14,763

 18,015

Royalties

 75,271

 95,966

 25,493

 33,644

Depletion, Depreciation and Amortisation

 69,065

 91,231

 22,201

 30,437

Nigeria Export Supervision Scheme (NESS) fee

 388

599

 150

217

Niger Delta Development Commission levy

 6,166

 5,143

 2,056

 1,622

Rig related expenses

 4,160

 38

 4,160

 -  

Operations & maintenance costs

 35,247

21,995

 13,342

 9,919

 

 230,218

 262,218

 82,165

 93,854

9.    Other income/(expenses) - net

 

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Underlift

 30,532

 20,463

 24,878

 (7,278)

Gains/(losses) on foreign exchange

 2,333

 (765)

 1,021

 (793)

Tariffs

 3,426

-

 1,777

 

 

36,291

 19,698

 27,676

 (8,071)

 

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 to the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss as other income.

 

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

 

Tariffs which is a form of crude handling fee, relate to income generated from the use of the Group's pipeline.

 

10.  General and administrative expenses

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Depreciation of other property plant and equipment

 1,875

 2,254

 609

 (584)

Depreciation of right-of-use assets

 2,267

 -  

 731

 -  

Employee benefits expense

 28,495

 22,771

 10,104

 7,642

Professional and consulting fees

 1,715

 8,873

 (7,225)

 987

Auditor's remuneration

 132

 256

 90

 70

Directors emoluments (executive)

 1,334

 1,445

 357

 806

Directors emoluments (non-executive)

 2,564

 2,501

 977

 869

Rentals

 899

 1,461

 110

 480

Flights and other travel costs

 5,920

 5,110

 2,324

 2,758

Other general expenses

 9,355

 10,424

 4,395

 3,597

 

 54,556

 55,095

 12,472

 16,625

 

Directors' emoluments have been split between executive and non-executive directors. There were no non-audit services rendered by the Group's auditors during the period. (2018: nil)

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

Rentals for the nine months ended 30 September 2019 relate to expenses on short term leases for which no right-of-use assets and lease liability were recognised on application of IFRS 16. See Note 31 for further details.

11.  (Impairment)/reversal of losses on financial assets - net

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Impairment losses:

 

 

 

 

Impairment loss on trade receivables

(161)

-

-

-

Impairment loss on NAPIMS receivables

-

12

-

147

 

(161)

12

-

147

Reversal of impairment losses:

 

 

 

 

Reversal of/(impairment) loss on NPDC receivables

-

1,713

-

(152)

Reversal of impairment loss on other receivables

378

(22)

-

(22)

 

378

1,691

-

(172)

Write-off of impairment losses:

 

 

 

 

Write-off of NPDC receivables

(40,353)

-

-

-

 

(40,353)

-

-

-

 

(40,136)

1,703

-

(27)

 

The reversal of other receivables is as a result of changes in management assessment of recoverability of the receivables. Write-off of NPDC receivables relate to amount that has been assessed as uncollectable.

12.  Discontinued operation

On 20 January 2017, the Group incorporated ANOH Gas Processing Company Limited (ANOH), a wholly owned subsidiary, as a midstream Company to develop, design, engineer, construct, operate and maintain the Assa North-Ohaji South gas processing plant.

In order to fund the development of the processing plant, on 13 August 2018, the Group entered into a shareholders agreement with Nigerian Gas Processing and Transportation Company ("NGPTC") so that both parties can provide the required funding for the expansion of the processing plant. The contributing parties will fund the project through capital injection in tranches. However, the monies extended is in form of equity contribution and will be used to subscribe for the ordinary shares in ANOH.

The shareholders agreement, which became effective on 18 April 2019, provides that the shareholding structure in ANOH be revised such that both parties have equal shareholding in the Company. As a result of the change in the ownership structure, the Group lost full control of ANOH from the effective date of the agreement.

ANOH was deconsolidated with effect from 18 April 2019 and is reported in the current period as a discontinued operation. The details of the deconsolidation of ANOH have been disclosed in Note 1 (corporate structure and business), Note 2 (significant changes in the current reporting period) and Note 4 (significant accounting judgements, estimates and assumptions. Financial information relating to the discontinued operation for the period to the date of deconsolidation is set out below:

12.1.  Financial performance and cash flow information

The financial performance and cash flow information for the nine months ended 30 September 2019 (effectively 1 January 2019 - 18 April 2019), the three months ended 30 September 2019 and the respective comparative periods, that is, nine months ended 30 September 2018 and three months ended 30 September 2018 are presented below:

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Revenue

-

-

-

-

General and administrative expenses

(36)

(60)

-

 (48)

Other income/(expenses) - net

(22)

85

-

 90

Finance income - net

620

-

-

 

Profit before taxation

562

25

-

 42

Taxation

-

-

-

 -  

Profit from discontinued operation

562

25

-

 42

Gain on deconsolidation of subsidiary (Note 12.2)

2,620

-

-

 -  

Profit from discontinued operation

3,182

25

-

 42

 

 

 

-

 -  

Net cash inflow from operating activities

159,533

7,816

-

 3,419

Net cash outflows from investing activities

(5,893)

(7,685)

-

 (3,089)

Net cash outflows from financing activities

-

-

-

 -  

Net increase in cash and cash equivalents

153,640

131

-

 330

12.2.  Gain on deconsolidation of subsidiary

 

9 months ended

30 Sept 2019

 

$'000

Purchase consideration

-

Add: fair value of 50% retained interest

16

Add: Net liabilities derecognised (Note 12.3)

2,604

 

2,620

The gain arising on loss of control is recorded in profit or loss. This gain includes the gain on the portion sold and the loss on remeasurement of the 50% retained interest.

12.2.1.         Gain on portion sold

 

9 months ended

30 Sept 2019

 

$'000

Purchase consideration

-

Group's share of net liabilities disposed

1,302

 

1,302

12.2.2.         Gain on remeasurement of retained interest

 

9 months ended

30 Sept 2019

 

$'000

Purchase consideration

-

Fair value of retained interest

16

Group's share of net liabilities retained

1,302

 

1,318

The fair value of the retained interest in ANOH was determined to be $0.003 per share. This is based on the premise that the value of the Company is the same as its issued share capital. ANOH has not entered into any lease arrangements. Therefore, the adoption of IFRS 16 did not have an impact on the Group's discontinued operations.   

12.3.  Net liabilities derecognised

The carrying amounts of assets and liabilities that were deconsolidated on the date of loss of control (18 April 2019) were:

 

As at 18 April 2019

 

$'000

Non-current assets:

 

Oil and gas properties

39,557

Current assets:

 

Trade and other receivables

                      711

Prepayments

71

Cash and bank balances

154,240

Total assets

194,579

Current liabilities:

 

Trade and other payables

197,183

Total liabilities

197,183

Net liabilities derecognised

2,604

13.  Fair value gain/(loss) - net

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Cost of hedging

 (5,160)

 (3,474)

 -  

 (990)

Unrealised fair value loss on derivatives

 (8,396)

 -  

 (722)

 -  

Fair value gain/(loss) on contingent consideration

 18,489

 (4,530)

 -  

 (60)

 

 4,933

 (8,004)

 (722)

 (1,050)

Fair value loss on derivatives represents changes arising from the valuation of the crude oil economic hedge contracts charged to profit or loss.

In 2018, fair value loss on contingent consideration was in relation to the remeasurement of contingent consideration on the Group's acquisition of participating interest in OML 53. The contingency criteria was set on oil price rising above $90/bbl over a one-year period and expiring on 31 January 2020. The contingency criteria was not achieved during the reporting period, and as a result, the contingent consideration has been derecognised.

14.  Finance income/ (costs)

 

9 months ended

30 Sept 2019

9 months ended

30 Sept 2018

3 months ended

30 Sept 2019

3 months ended

30 Sept 2018

 

$'000

$'000

$'000

$'000

Finance income

 

 

 

 

Interest income

9,169

6,705

3,535

 2,354

Finance costs

 

 

 

 

Interest on bank loan

 (29,358)

 (54,150)

 (7,230)

 (15,816)

Other financing charges

 (3,488)

 -  

 (3,119)

 -  

Interest on lease liabilities (note 31)

 (398)

 -  

 (134)

 -  

Interest on advance payments for crude oil sales

 -  

 (1,730)

 -  

 -  

Unwinding of discount on provision for decommissioning 

 (3,051)

 (2,185)

 (1,017)

(825)

 

 (36,295)

 (58,065)

 (11,500)

 (16,641)

Finance cost - net

 (27,126)

 (51,360)

 (7,965)

 (14,287)

Finance income represents interest on fixed deposits.

 

Other financing charges include term loan arrangement and participation fees, bank activity fee, annual bank charges, technical bank fee, agency fee and analytical services in connection with annual service charge. These costs do not form an integral part of the effective interest rate. As a result, they are not included in the measurement of the loan.

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 September 2019 were 85% and 65.75% for crude oil activities and 30% for gas activities. As at 31 December 2018, the applicable tax rates were 85%, 65.75% for crude oil activities and 30% for gas activities. The effective tax rate for the reporting period was 1.84% (September 2018: 57%).

15.1.  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 30

Sept 2019

As at 30 Sept

2019

As at 31 Dec

2018

As at 31 Dec

2018

 

$'000

$'000

$'000

$'000

 

Gross amount

Tax effect

Gross amount

Tax effect

Other deductible temporary differences

 33,278

 36,886

 58,288

 36,502

Tax gains

 24,620

 196

 33,303