REG - SEPLAT PetDevCom Plc - Full Year 2016 financial results <Origin Href="QuoteRef">SEPLAT.LG</Origin> - Part 2
30/03/2017 07:08
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allow future crude oil export via the Escravos terminal, thereby opening up
a third export option to further mitigate against any over-reliance on a single export infrastructure system. Alongside
this we will continue to closely monitor the oil price, performance of our productive asset base and the implications these
factors have on cash generation over the near, medium and long term allowing us to scale and phase our future investments
appropriately.
Our enlarged asset base provides greater optionality and will allow us to more rigorously benchmark and high grade the
extensive inventory of drilling and development opportunities we have, making sure that each dollar invested goes to the
highest cash return projects. We will continue to prioritise expansion of our domestic natural gas business which provides
a revenue stream that is de-linked from the oil price, and underpinned by the strong fundamentals of high demand and
increasing pricing. Eliminating the outstanding NPDC receivables balance remains an absolute priority, and we have
measures in place that will achieve this and allow us to further strengthen and improve our balance sheet. The combination
of all these factors will ensure we have a sound financial platform from which we can build and grow further, both through
organic means and also capitalising on inorganic opportunities to further diversify our business as and when they may
arise.
General information
Board of directors:
Ambrosie Bryant Chukwueloka Orjiako Chairman
Ojunekwu Augustine Avuru Managing Director and Chief Executive Officer
William Stuart Connal Chief Operating Officer (Executive Director)
Roger Thompson Brown Chief Financial Officer (Executive Director)
Michel Hochard* Non-Executive Director
Macaulay Agbada Ofurhie Non-Executive Director
Michael Richard Alexander Senior Independent Non-Executive Director
Ifueko Omoigui-Okauru Independent Non-Executive Director
Basil Omiyi Independent Non-Executive Director
Charles Okeahalam Independent Non-Executive Director
Lord Mark Malloch-Brown Independent Non-Executive Director
Damian Dinshiya Dodo Independent Non-Executive Director
*Madame Nathalie Delapalme acts as alternate Director to Michel Hochard
Company secretary Mirian Kachikwu
Registered office and business 25a Lugard AvenueIkoyiLagosNigeria
address of directors
Registered number RC No. 824838
FRC number FRC/2015/NBA/00000010739
Auditor Ernst & Young(10th & 13th Floors), UBA House57 Marina Lagos, Nigeria
Registrar DataMax Registrars Limited7 Anthony Village RoadAnthonyP.M.B 10014Shomolu Lagos, Nigeria
Solicitors Olaniwun Ajayi LPAdepetun Caxton-Martins Agbor & Segun ("ACAS-Law")Herbert Smith Freehills LLPFreshfields Bruckhaus Deringer LLPNorton Rose Fulbright LLPWinston & Strawn London LLPChief J.A. Ororho & Co.Ogaga Ovrawah & Co.Consolex LPJ.E. Okodaso & CompanyO. Obrik. Uloho and Co.V.E. Akpoguma & Co.Thompson Okpoko & PartnersG.C. Arubayi & Co.Abraham Uhunmwagho & CoWinston & Strawn London LLPAustin and Berns SolicitorsStreamsowers & Kohn
Bankers First Bank of Nigeria LimitedSkye Bank PlcStanbic IBTC Bank PlcUnited Bank for Africa PlcZenith Bank PlcCitibank Nigeria LimitedStandard Chartered BankHSBC Bank
Report of the directors
For the year ended 31 December 2016
The Directors are pleased to present to the shareholders of the Company their report with the audited financial statements
for the year ended 31 December 2016.
Principal activity
The Company is principally engaged in oil and gas exploration and production.
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 2004. The Company commenced operations on 1 August 2010.
The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and
AGIP, a 45 percent 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 US$340 million paid at the
completion of the acquisition on 31 July 2010 and a contingent payment of US$33 million payable 30 days after the second
anniversary, 31 July 2012, if the average price per barrel of Brent Crude oil over the period from acquisition up to 31
July 2012 exceeds US$80 per barrel.
US$358.6 million was allocated to the producing assets including US$18.6 million as the fair value of the contingent
consideration as calculated on acquisition date. The contingent consideration of US$33 million was paid on 22 October
2012.
Seplat Petroleum Development Company Plc was successfully listed on the Nigerian Stock Exchange and the main market of the
London Stock Exchange on 14 April 2014.
In 2013, Newton Energy Limited (''Newton Energy''), an entity previously beneficially owned by the same shareholders as
Seplat, became a subsidiary of the Company. On 1 June 2013, Newton Energy acquired from Pillar Oil Limited (''Pillar Oil'')
a 40 percent Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the
''Umuseti/Igbuku Fields'').
In 2015, the Group purchased a 40% participating interest in OML 53, onshore north eastern Niger Delta, from Chevron
Nigeria Ltd. for US$259.4 million. It also concluded negotiations to buy 56.25% of BelemaOil Producing Ltd., a Nigerian
special purpose vehicle that bought a 40% interest in the producing OML 55, located in the swamp to coastal zone of south
eastern Niger Delta. NNPC holds the remaining 60.00% interest in OML 55, and Seplat's effective participating interest in
OML 55 as a result of the acquisition was 22.50%.
Based on the above, Seplat consolidated BelemaOil in its 31 December 2015 consolidated financial statements.
During the year, the minority shareholders of BelemaOil began to dispute Seplat's majority shareholding in the entity. In
July 2016, Seplat instituted legal action in a bid to secure its investment in OML 55.
Subsequent to the year end, the Asset Management Team of OML 55 has been formally inaugurated, and first lifting has taken
place, the proceeds of which have been deposited into the escrow account as prescribed in the agreements.
Subsequently, and in a bid to resolve pending legal disputes, representatives of both Seplat and BelemaOil have agreed to a
new arrangement which provides for a discharge sum of US$330 million, as at the reporting date fair valued at US$250
million, to be paid to Seplat over a six-year period, through allocation of crude oil reserves of OML 55. In turn, Seplat
relinquishes all claims to its shareholding of BelemaOil as an entity. The 40% stake in OML 55 will be held by Seplat and
BelemaOil over the period of this arrangement through an Asset Management Team comprising equal representatives of both
parties. The Asset Management Team makes all the key decisions regarding the relevant activities of the underlying asset,
and consent of all parties is required for decision making. The agreements have been signed by both parties but are subject
to ministerial consent. The Group however believes consent will be received as the agreements were brokered by the Ministry
of Petroleum Resources.
Report of the directors continued
For the year ended 31 December 2016
As a result of the foregoing, Seplat no longer exercises control and has now deconsolidated BelemaOil in the financial
statements in accordance with IFRS 10 (par B97). Seplat has recorded its rights to receive the discharge sum from the crude
oil reserves of OML 55 as other asset.
The Company together with its subsidiary, Newton Energy, and four wholly owned subsidiaries, namely, Seplat Petroleum
Development Company UK Limited (''Seplat UK''), which was incorporated on 21 August 2014; Seplat East Onshore Limited
(''Seplat East''), which was incorporated on 12 December 2014; Seplat East Swamp Company Limited (''Seplat Swamp''), which
was incorporated on 12 December 2014; and Seplat Gas Company Limited (''Seplat Gas''), which was incorporated on 12
December 2014, is referred to as the Group.
Operating results:
US$'000
The Group The Company
2016 2015 2016 2015
Revenue 254,217 570,477 202,446 497,867
Operating (Loss)/Profit (157,883) 157,865 (164,299) 145,754
(Loss)/Profit before taxation (172,766) 87,079 (138,911) 76,549
(Loss)/Profit after taxation (166,094) 65,607 (45,384) 60,165
Proposed dividend
Owing to the exceptional circumstances as a direct result of force majeure events at the Forcados terminal experienced
during the year, no dividend is recommended by the Directors (2015:US$0.08 per 50kobo share). During a period in which
Seplat is focusing on preservation of liquidity and selective capital allocation and in order to ensure the Company
maintains a necessary level of financial flexibility, the Board believes that the Company and its shareholders are better
served at this point in time by selectively deploying available capital (on a discretionary basis) into the portfolio of
production opportunities and preserving a liquidity buffer.
Changes in property, plant and equipment
Movements in Property, plant and equipment and significant additions thereto are shown in note 15 to the financial
statements.
Rotation of Directors
In accordance with the provisions of Section 259 of the Companies and Allied Matters Act, CAP C20, Laws of the Federation
of Nigeria ('LFN') 2004, one third of the Directors of the Company shall retire from office. The Directors to retire every
year shall be those who have been longest in office since their last election. Apart from the Executive Directors and
Founding Directors (who are referred to as the Non-Executive Directors), all other Directors are appointed for a fixed
term. Upon expiration of the terms, they become eligible for re-appointment. The Directors who are eligible for
re-appointment this year are Basil Omiyi and Charles Okeahalam.
Corporate governance
The Board of Directors of the Company is committed to sound corporate governance, and ensures that the Company complies
with Nigerian and UK corporate governance regulations as well as international best practice.
The Board is aware of the Code of Corporate Governance issued by the Securities and Exchange Commission in the
administration of the Company and is ensuring that the Company complies with it. The Board is responsible for keeping
proper accounting records with reasonable accuracy. It is also responsible for safe guarding the assets of the Company
through prevention and detection of fraud and other irregularities.
Report of the directors continued
For the year ended 31 December 2016
In order to carry out its responsibilities, the Board has established 5 Board Committees and has delegated aspects of its
responsibilities to them. The Committees of the Board and members are as follows:
1. Finance Committee
Dr Charles Okeahalam Committee Chairman
Michael Alexander Member
Ifueko Omoigui Okauru Member
Lord Mark Malloch-Brown Member
2. Nomination and Establishment Committee
A.B.C. Orjiako Committee Chairman
Basil Omiyi Member
Michael Alexander Member
Damian Dinshiya Dodo Member
3. Remuneration Committee
Michael Alexander Committee Chairman
Basil Omiyi Member
Charles Okeahalam Member
Damian Dinshiya Dodo Member
4. HSSE and Risk Management Committee
Basil Omiyi Committee Chairman
Macaulay Agbada Ofurhie Member
Ifueko Omoigui Okauru Member
5. Corporate Social Responsibility Committee
Lord Mark Malloch-Brown Committee Chairman
Macaulay Agbada Ofurhie Member
Ifueko Omoigui Okauru Member
In addition to these Board Committees, the Company formed a statutory Audit Committee at its 30 June 2014 Annual General
Meeting ("AGM") in compliance with Sections 359(3) and (4) of the Companies and Allied Matters Act ("CAMA"). In compliance
with CAMA, three shareholder representatives and three Non-Executive Directors are elected at every AGM to sit on the
Committee.
1. Statutory Audit Committee
Chief Anthony Idigbe, S.A.N. Committee Chairman
Ifueko Omoigui Okauru Dr. Charles Okeahalam MemberMember (until 1 June 2016 AGM)
Macaulay Agbada Ofurhie Member (after 1 June 2016 AGM)
Michel Hochard Member
Dr Faruk Umar Member
Sir Sunday Nnamdi Nwosu Member
Following a proposal made by the Board of Directors, Mr Macaulay Ofurhie was elected at the 1 June 2016 AGM as a Director
member on the Audit Committee in the place of Dr. Charles Okeahalam.
All six Committees have terms of reference that guide their members in the execution of their duties, and these terms of
reference are available for review by the public. All the Committees present a report to the Board with recommendations on
the matters within their purview.
Report of the directors continued
For the year ended 31 December 2016
Record of attendance of board and committee meetings
The record of attendance of Directors at Board meetings and that of its Committees in the year under review is published
herewith:
Board of Directors
S/N Name No. of Meetings No. of times
in the year in Attendance
1. A.B.C. Orjiako Chairman 8 8
2. Austin Avuru 8 8
3. Stuart Connal 8 7
4. Roger Brown 8 8
5. Michel Hochard* 8 8
6. Macaulay Agbada Ofurhie 8 7
7. Michael Alexander 8 8
8. Charles Okeahalam 8 7
9. Basil Omiyi 8 8
10. Ifueko Omoigui-Okauru 8 7
11. Lord Mark Malloch-Brown 8 5
12. Damian Dodo 8 7
*One meeting attended by alternate Director Madame Nathalie Delapalme
Finance Committee
S/N Name No. of Meetings No. of times
in the year in Attendance
1. Charles Okeahalam Chairman 6 6
2. Michael Alexander 6 6
3. Ifueko Ifueko Omoigui Okauru 6 4
4. Lord Mark Malloch-Brown 6 5
Nomination and Establishment Committee
S/N Name No. of Meetings No. of times
in the year in Attendance
1. A.B.C. Orjiako Chairman 3 3
2. Basil Omiyi 3 3
3. Michael Alexander 3 3
4. Damian Dodo 3 2
Remuneration Committee
S/N Name No. of Meetings No. of times
in the year in Attendance
1. Michael Alexander Chairman 5 5
2. Basil Omiyi 5 4
3. Charles Okeahalam 5 5
4. Damian Dodo 5 5
HSSE and Risk Management Committe
S/N Name No. of Meetings No. of times
in the year in Attendance
1. Basil Omiyi Chairman 4 4
2. Macaulay Agbada Ofurhie 4 4
3. Ifueko Omoigui-Okauru 4 4
Report of the directors continued
For the year ended 31 December 2016
Corporate Social Responsibility Committee
S/N Name No. of Meetings No. of times
in the year in Attendance
1. Lord Mark Malloch-Brown Chairman 3 3
2. Macaulay Agbada Ofurhie 3 3
3. Ifueko Omoigui-Okauru 3 3
Statutory Audit Committee
S/N Name No. of Meetings No. of times
in the year in Attendance
1. Chief Anthony Idigbe, SAN Chairman 5 5
2. Ifueko Omoigui Okauru 5 3
3. Charles Okeahalam 1 2 1
4. Macaulay Agbada Ofurhie 3 2
5. Michel Hochard 5 2
6. Dr. Faruk Umar 5 5
7. Sir Sunday Nnamdi Nwosu 5 5
1 Following a proposal made by the Board of Directors, Macaulay Agbada Ofurhie was elected at the 1 June 2016 AGM as a
Director member on the Audit Committee in the place of Charles Okeahalam. Two of the
Audit Committee meetings held in 2016 took place before this 1 June 2016 change.
Directors' interest in shares
The interests of the Directors (and of persons connected with them) in the share capital of the Company (all of which are
beneficial unless otherwise stated) as at 31 December 2016, are as follows:
31-Dec-15 31-Dec-16 24-Mar-17 As a percentage
of Ordinary
Shares in issue
No. of Ordinary Shares No. of Ordinary Shares No. of
Ordinary Shares
A.B.C. Orjiako 84,736,913 77,962,680 67,099,592 11.91%
Austin Avuru 73,297,011 74,064,823 74,064,823 13.15%
Stuart Connal 14,433 657,289 657,289 0.12%
Roger Brown 1 535,715 535,715 0.10%
Michel Hochard 0 95,238 95,238 0.02%
Macaulay Agbada Ofurhie 4,806,373 4,901,611 4,901,611 0.87%
Michael Alexander 0 95,238 95,238 0.02%
Charles Okeahalam 502,000 597,238 597,238 0.11%
Basil Omiyi 400,000 495,238 495,238 0.09%
Ifueko Omoigui Okauru 0 95,238 95,238 0.02%
Lord Mark Malloch-Brown 0 31,746 31,746 0.01%
Damian Dodo 0 0 0 0.00%
Total 163,756,731 159,532,054 148,668,966 26.39%
Notes:
(1) 16,151,325 ordinary shares are held directly by A.B.C. Orjiako and Shebah Petroleum Development Company Limited;
18,500,000 ordinary shares are held by Vitol Energy Limited and 19,848,267 held by Zenith Bank, each for the benefit of
Shebah Petroleum Development Company Limited, which is an entity controlled by A.B.C. Orjiako and members of his family;
and 12,600,000 ordinary shares are held directly by A.B.C. Orjiako's siblings.
(2) 27,217,010 ordinary shares are held by Professional Support Limited and 1,920,000 ordinary shares are held by
Abtrust Integrated Services Limited, each of which is an entity controlled by Austin Avuru. 44,160,000 ordinary shares, are
held by Platform Petroleum Limited, which is an entity in which Austin Avuru has a 23% equity interest and 767,813 ordinary
shares are held by Austin Avuru.
Report of the directors continued
For the year ended 31 December 2016
Director's interest in contracts
The Chairman and the Chief Executive Officer have disclosable indirect interest in contracts with which the Company was
involved as at 31 December 2016 for the purpose of section 277 of the Companies and Allied Matters Act, CAP C20, LFN, 2004.
These have been disclosed in note 34.
Substantial interest in shares
According to the register of members at 31 December 2016 and also the date of this report, the following shareholders held
more than 5.0% of the issued share capital of the Company:
Shareholder Number of Holdings %
CIS PLC - MAIN 353,415,535 62.72
Platform Petroleum Limited 44,160,000 7.84
At 27 March 2017, CIS PLC- MAIN registered holding was 359,287,209 (63.77%). Platform Petroleum Limited remained
unchanged.
Free float
The Company's free float at 31 December 2016 was 47.99%
Acquisition of own shares
The Company did not acquire any of its shares during the year.
Shareholding analysis
The shareholding pattern as at 31 December 2016 is as stated below:
Share Range Number of Shareholders % of Number of %
Shareholders Holdings Shareholding
1-10000 1,574 83.63 1,577,442 0.28
10001-50000 163 8.66 4,239,526 0.75
50001-100000 41 2.18 2,828,884 0.50
100001-500000 67 3.56 14,918,813 2.65
500001-1000000 11 0.58 7,630,767 1.35
1000001-5000000 18 0.96 45,796,731 8.13
5000001-10000000 3 0.16 20,336,351 3.61
10000001-50000000 4 0.21 112,700,512 20.00
100000001-500000000 1 0.05 353,415,535 62.72
Total 1,882 100.00 563,444,561 100.00
Share Capital History
Year Authorised increase Cummulative Issued increase Cummulative Consideration
Jun-09 - 100,000,000 100,000,000 100,000,000 cash
Mar-13 100,000,000 200,000,000 100,000,000 200,000,000 stock split from N1.00 to 50k
Jul-13 200,000,000 400,000,000 200,000,000 400,000,000 bonus (1 for 2)
Aug-13 600,000,000 1,000,000,000 153,310,313 553,310,313 cash
Dec-14 - 1,000,000,000 - 553,310,313 No change
Dec-15 - 1,000,000,000 10,134,248 563,444,561 staff share scheme
Dec-16 - 1,000,000,000 - 563,444,561 No change
Report of the directors continued
For the year ended 31 December 2016
Donations
The following donations were made by the Group during the year (2015: US$169,495).
Name of beneficiary US$
University of Lagos - Faculty of Clinical Science Research Fund 23,488
Society of Petroleum Engineers 19,708
Nigerian Association of Petroleum Engineers 14,446
Petroleum Technology Association 14,076
University of Port Harcourt- Institute of Petroleum Studies 11,744
Milken Institute 11,695
Raitas Communications 11,646
The Nigerian Stock Exchange 7,819
Nigerian Society of Chemical Engineering 7,669
London School of Economics & Political Science 6,604
Delta State Economic Summit 4,959
Congress of Medical Womens Association 4,693
The Nigeria 2015 Cup 3,524
Urhobo Progress Union 2,357
National Judical Institute 2,349
Centre for Petroleum Information 2,346
Nigerian Gas Association 2,308
The Petroleum Club 2,299
Eye Can See 2,276
Nigeria & Enterpreneurship, Summit & Honors (NESH) 1,533
Police Community Relations Committee 1,179
Centre for Petroleum Information 1,115
The Athletics Federation of Nigeria 827
Nigerian American Chamber of Commerce 768
National Associaton of Energy Correspondents 757
University of Ibadan Technical Conference 560
Women in Successful Careers (WISCAR) 385
World Environment Day 352
Total 163,482
Employment and employees
a) Employees involvement and training:
The Company continues to observe industrial relations practices such as joint Consultative Committee and briefing employees
on the developments in the Company during the year under review.
Various incentive schemes for staff were maintained during the year while regular training courses were carried out for the
employees.
Educational assistance is provided to members of staff. Different cadres of staff were also assisted with payment of
subscriptions to various professional bodies during the year.
The Company provides appropriate HSSE training to all staff, and Personal Protective Equipment ('PPE') to the appropriate
staff.
Report of the directors continued
For the year ended 31 December 2016
b) Health, safety and welfare of employees:
The Company continues to enforce strict health and safety rules and practices at the work environment which are reviewed
and tested regularly. The Company provides free medical care for its employees and their families through designated
hospitals and clinics. Fire prevention and fire-fighting equipment are installed in strategic locations within the
Company's premises. The Company operates Group life insurance cover for the benefit of its employees. It also complies with
the requirements of the Pension Reform Act, 2004 regarding its employees.
c) Employment of disabled or physically challenged persons:
The Company has a policy of fair consideration of job applications by disabled persons having regard to their abilities and
aptitude. The Company's policy prohibits discrimination of disabled persons in the recruitment, training and career
development of its employees.
Auditor
The Auditor, Ernst & Young, has indicated its willingness to continue in office in accordance with Section 357(2) of the
Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria, 2004. A resolution will be proposed for the
re-appointment of Ernst & Young as the Company's Auditor and for authorization to the Board of Directors to fix Auditor's
remuneration.
By Order of the Board
Dr.Mirian Kene Kachikwu
FRC/2015/NBA/00000010739
Company Secretary,
Seplat Petroleum Development Company Plc
25a Lugard Avenue
Ikoyi
Lagos
Nigeria
Date: 30 March 2017
Audit Committee's Report
For the year ended 31 December 2016
To the members of Seplat Petroleum Development Company Plc
In accordance with the provisions of Section 359 (6) of the Companies and Allied Matters Act, CAP C20, LFN 2004, members of
the Audit Committee of Seplat Petroleum Development Company Plc hereby report on the financial statements of the Group for
the year ended 31 December 2016 as follows:
· The scope and plan of the audit for the year ended 31 December 2016 were adequate:
· We have reviewed the financial statements and are satisfied with the explanations and comments obtained:
· We have reviewed the external auditors' management letter for the year and are satisfied with the management's responses
and that management has taken appropriate steps to address the issues raised by the Auditors:
· We are of the opinion that the accounting and reporting policies of the Company are in accordance with legal
requirements and ethical practices.
The external Auditors confirmed having received full co-operation from the Company's management in the course of the
statutory audit and that the scope of their work was not restricted in any way.
Dated this day 30 March 2017
Ifueko Omoigui-Okauru
Member, Audit Committee
FRC/2016/ICAN/00000014169
Statement of directors' responsibilities
For the year ended 31 December 2016
The Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004, requires the directors to prepare
financial statements for each financial year that give a true and fair view of the state of financial affairs of the
Company at the end of the year and of its profit or loss. The responsibilities include ensuring that the Company:
a) keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company and
comply with the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004;
b) establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other
irregularities; and
c) prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgments and
estimates, and are consistently applied.
The directors accept responsibility for the annual financial statements, which have been prepared using appropriate
accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial
Reporting Standards (IFRS), the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the Federation of
Nigeria 2004 and Financial Reporting Council of Nigeria Act, No. 6, 2011.
The directors are of the opinion that the financial statements give a true and fair view of the state of the financial
affairs of the Company and of its financial performance for the year. The Directors further accept responsibility for the
maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate
systems of internal financial control.
Nothing has come to the attention of the directors to indicate that the Company will not remain a going concern for at
least twelve months from the date of this statement.
Signed On Behalf Of the Directors By
Ambrosie Bryant Chukwueloka Orjiako Ojunekwu Augustine Avuru
Chairman Chief Executive Officer
FRC/2014/IODN/00000003161. FRC/2014/IODN/00000003100
30 March 2017 30 March 2017
Ernst & Young
10th Floor UBA House
57 Marina
Lagos Nigeria
Tel:+234(01)844996 2/3
Email:services@ng.ey.com
www.ey.com
Independent auditor's report to the members of Seplat Petroleum Development Company Plc
For the year ended 31 December 2016
Opinion
We have audited the consolidated and separate financial statements of Seplat Petroleum Development Company Plc ("the
Company") and its subsidiaries (together "the group") which comprise:
Group Company
Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2016 Company statement of profit or loss and other comprehensive income for the year ended 31 December 2016
Consolidated statement of financial position as at 31 December 2016 Company statement of financial position as at 31 December 2016
Consolidated statement of changes in equity for the year then ended 31 December 2016 Company statement of changes in equity for the year then ended 31 December 2016
Consolidated statement of cash flows for the year then ended 31 December 2016 Company statement of cash flows for the year then ended 31 December 2016
Related notes to the consolidated financial statements Related notes to the company financial statements
In our opinion:
· the financial statements present fairly, in all material respects, the financial position of the group and of the
company as at 31 December 2016, and of the group and company financial performance and cash flows for the year then ended;
· the financial statements of the group and company have been properly prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); and
· the financial statements of the group and company have been prepared in accordance with the requirements of the
Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and in compliance with the Financial
Reporting Council of Nigeria Act, No. 6, 2011.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the group in accordance with the International Ethics Standards Board for Accountants' Code
of Ethics for Professional Accountants (IESBA Code) and other independence requirements applicable to performing audits of
Seplat Petroleum Development Company Plc. We have fulfilled our other ethical responsibilities in accordance with the IESBA
Code, and in accordance with other ethical requirements applicable to performing the audit of Seplat Petroleum Development
Company Plc. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independent auditor's report to the members of Seplat Petroleum Development Company Plc continued
For the year ended 31 December 2016
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For
each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The
results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying financial statements.
Impact of the estimation of the quantity of oil and gas reserves on impairment testing, depreciation, depletion and amortisation, decommissioning provisions and the going concern assessmentAs at 31 December 2016, Seplat reported 461.7 MMboe of proved plus probable reserves.The estimation and measurement of oil and gas reserves impacts a number of material elements of the financial statements including DD&A, impairments and decommissioning provisions. There is technical uncertainty in assessing reserve quantities. We focused on management's estimation process, including whether bias exists in the determination of reserves and resources. We carried out the following procedures:· ensured that significant movements in reserves are compliant with guidelines and
policy;· ensured that additions to oil assets during the year were properly recognised and accounted for;· performed analytical review procedures on reserve revisions;· confirmed that the reserve information at year end is supported by
underlying documentation and data;· performed procedures to assess the competence and objectivity of the experts involved in the estimation process; and· reviewed disclosures in the Annual Report to ensure consistency with the reserves data that we
have reviewed.
The assessment of the recoverable amount of exploration and production assetsAs at 31 December 2016, Seplat recognised US$1.224 billion of oil and gas properties.A sustained low oil and gas price environment could have a significant impact on the recoverable amounts of Seplat's oil and gas properties. In view of the generally long-lived nature of Seplat's assets, the most critical assumption in forecasting future cash flows is management's view on the long term oil and gas price outlook beyond the next three to four years. Other key inputs used in assessing recoverable amounts are the discount rate used, future expected production volumes and capital and operating expenditures. Accounting standards require management to assess at each reporting date whether indicators of impairment exist. Seplat carried out an impairment test. Our audit procedures on the impairment test included:· assessed whether or not reserve movements
represented an impairment trigger; · considered oil and gas forward curves and long term commodity price assumptions and whether these are indicators of impairment;· discussed with management the operational status of key assets;· separately
from management, we assessed whether or not indicators of impairment exist; and· challenged management's assumptions in estimating future cash flows from assets.
The assessment of the recoverable amount of exploration and production assetsAs at 31 December 2016, Seplat recognised
US$1.224 billion of oil and gas properties.A sustained low oil and gas price environment could have a significant impact on
the recoverable amounts of Seplat's oil and gas properties. In view of the generally long-lived nature of Seplat's assets,
the most critical assumption in forecasting future cash flows is management's view on the long term oil and gas price
outlook beyond the next three to four years. Other key inputs used in assessing recoverable amounts are the discount rate
used, future expected production volumes and capital and operating expenditures.
Accounting standards require management to assess at each reporting date whether indicators of impairment exist. Seplat
carried out an impairment test. Our audit procedures on the impairment test included:· assessed whether or not reserve
movements represented an impairment trigger; · considered oil and gas forward curves and long term commodity price
assumptions and whether these are indicators of impairment;· discussed with management the operational status of key
assets;· separately from management, we assessed whether or not indicators of impairment exist; and· challenged
management's assumptions in estimating future cash flows from assets.
Independent auditor's report to the members of Seplat Petroleum Development Company Plc continued
For the year ended 31 December 2016
Deconsolidation of subsidiaryDuring 2016, following the restructuring of the arrangement with BelemaOil, Seplat deconsolidated BelemaOil as it no longer exercised control over the entity.Seplat has recorded its rights to receive the discharge sum of US$330 million from the crude oil reserves of OML 55 as a right to receive oil to the tune of the discharge sum. The fair value of the discharge sum on the date of deconsolidation is US$250 million. We carried out the following audit procedures:· reviewed the terms of the agreements relating to BelemaOil, including the Asset Management Team agreement, Deed of Settlement and Release and other Deeds of Settlement;· reviewed management's
assessment and accounting of the transaction to ensure that the appropriate accounting treatment is reflected in the financial statements; and· assessed the appropriateness of the estimated fair value of the discharge sum and management's assessment
for recoverability.
Recoverability of the Nigerian Petroleum Development Company (NPDC) receivablesAs at 31 December 2016, the undiscounted/discounted value of the receivable balance is US$239/US$229 million respectively.Management has made certain assumptions about the recoverability of financial assets exposed to credit risk from NPDC. These are based on management's past experiences with NPDC, current discussions with NPDC and financial capacity of NPDC. We carried out the following procedures:· validated the receipts during the year and post year-end;· obtained confirmation from NNPC of amounts owed to Seplat;· recalculated the US dollar equivalent of amounts owed in Nigerian naira; ·
discussed and challenged management's expectations in relation to the in-flow of funds; and· ensured that amounts due are discounted to reflect the time value of money in line with expected timing of receipts.
Recoverability of the Nigerian Petroleum Development Company (NPDC) receivablesAs at 31 December 2016, the
undiscounted/discounted value of the receivable balance is US$239/US$229 million respectively.Management has made certain
assumptions about the recoverability of financial assets exposed to credit risk from NPDC. These are based on management's
past experiences with NPDC, current discussions with NPDC and financial capacity of NPDC.
We carried out the following procedures:· validated the receipts during the year and post year-end;· obtained
confirmation from NNPC of amounts owed to Seplat;· recalculated the US dollar equivalent of amounts owed in Nigerian
naira; · discussed and challenged management's expectations in relation to the in-flow of funds; and· ensured that
amounts due are discounted to reflect the time value of money in line with expected timing of receipts.
Other Information
The directors are responsible for the other information. The other information comprises of the Report of the Directors,
Audit Committee's Report, Statement of Directors' Responsibilities and Other National Disclosures, which we obtained prior
to the date of this report, and the Annual Report, which is expected to be made available to us after that date. Other
information does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this auditor's report, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance.
Independent auditor's report to the members of Seplat Petroleum Development Company Plc continued
For the year ended 31 December 2016
Responsibilities of the directors for the financial statements
The directors are responsible for the preparation and fair presentation of the financial statements in accordance with
International Financial Reporting Standards, the requirements of the Companies and Allied Matters Act, CAP C20, Laws of the
Federation of Nigeria 2004 and in compliance with the Financial Reporting Council of Nigeria Act, No. 6, 2011, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to
do so.
Those charged with governance are responsible for overseeing the Group's financial reporting processes.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's
internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors.
· Conclude on the appropriateness of the directors' use of the going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the group's ability to continue as a going concern. If we conclude that a material uncertainty
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