22 April 2022
Seplat Energy Plc
2021 Annual Report and Notice of AGM
Seplat Energy Plc ("Seplat" or the "Company") confirms it has today published its Annual Report and Accounts for the year ended 31 December 2021 together with the notice of the Company's ninth Annual General Meeting ("AGM") and forms of proxy. The Company will hold its AGM at 11:00am (WAT) on Wednesday 18 May 2022 at 16a Temple Road (Olu Holloway), Ikoyi, Lagos, Nigeria.
In accordance with Listing Rule 14.3.6 copies of the Company's Annual Report and Accounts for the year ended 31 December 2021, the Notice of AGM and proxy forms have also been submitted to the FCA for publication through the document viewing facility of the National Storage Mechanism and will shortly be available for inspection at https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism
In accordance with Disclosure Guidance and Transparency Rule ("DTR") 6.3.5R(3), copies are available on the Company's website, https://www.seplatenergy.com/
The Company's audited financial statements and extracts of the management report were included in the Company's Final Results announcement on 28 February 2022. That information, together with the Appendices to this announcement, which contains the following additional information that has been extracted from the 2021 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5 only:
· the Directors' Responsibilities Statement;
· a description of principal risks and uncertainties that the Company faces; and
· related party transactions.
This announcement should be read in conjunction with and is not a substitute for reading the full 2021 Annual Report. Page and note references in the text below refer to page numbers and notes in the 2021 Annual Report and terms defined in that document have the same meanings in these extracts.
Enquiries
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Seplat Energy plc
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Emeka Onwuka, CFO
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+234 (0) 1 277 0400
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Edith Onwuchekwa, Company Secretary/General Counsel
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Carl Franklin, Head of Investor Relations
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Ayeesha Aliyu, Investor Relations
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Chioma Nwachuku, Director - External Affairs and Sustainability
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FTI Consulting
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Ben Brewerton / Christopher Laing
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+44 (0) 203 727 1000
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[email protected]
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Notes to editors
Seplat Energy Plc is Nigeria's leading indigenous energy company. It is listed on the Premium Board of the Nigerian Exchange Limited (NGX: SEPLAT) and the Main Market of the London Stock Exchange (LSE: SEPL).
Seplat Energy is pursuing a Nigeria-focused growth strategy through participation in asset divestments by international oil companies, farm-in opportunities, and future licensing rounds. The Company is a leading supplier of gas to the domestic power generation market. For further information please refer to the Company website, http://seplatenergy.com/
Appendices
Appendix A: Statement of Directors' responsibilities
The following Statement of Directors' responsibilities is extracted from the 2021 Annual Report and Accounts (page 136).
The Companies and Allied Matters Act, 2020, requires the Directors to prepare financial statements for each financial year that gives a true and fair view of the state of financial affairs of the Group at the end of the year and of its profit or loss. The responsibilities include ensuring that the Group:
1. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Group and comply with the requirements of the Companies and Allied Matters Act, 2020;
2. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and
3. prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates and are consistently applied.
The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards (IFRS), the requirements of the Companies and Allied Matters Act, 2020 and Financial Reporting Council of Nigeria Act, No. 6, 2011.
The Directors are of the opinion that the financial statements gives a true and fair view of the state of the financial affairs of the Group and of its financial performance and cash flows 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 Group will not remain a going concern for at least twelve months from the date of this statement.
Signed on behalf of the Directors by:
A.B.C Orjiako R.T. Brown
Chairman Chief Executive Officer
FRC/2014/IODN/00000003161 FRC/2014/ ANAN/00000017939
28 February 2022 28 February 2022
Appendix B: Principal risks and uncertainties
The following principal risks and uncertainties table is extracted from the 2021 Annual Report and Accounts (pages 40 to 45).
The implementation of our strategy can be hindered by various risks and uncertainties. The risks that the Board considers most significant are described here.
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Operational risks
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Field operations and project deliverability
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Third-party infrastructure downtime
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HSSE risks
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Description
Failure to manage operational activities in line with planned expectations can lead to production misses, project delays and cost overruns, high production costs and earlier than expected field decommissioning.
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Description
An over-reliance on third-party operated transportation infrastructure can expose the Company to an extended period of production being shut in.
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Description
Oil and gas activities carry significant levels of HSSE risks if not properly managed. As activity levels continue to increase there is a strong focus on preventing major environmental (including the emerging climate change - GHG emissions risk), health or safety incidents.
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Mitigation
Focus on risk management at planning phase and mitigation plans activated. Compulsory 'peer-to-peer' review for high-value projects and better project management techniques.
Protracted land acquisition, preparation and rig startup have been contributory factors which have received focused attention and significant process improvements and improved communications with JV partner and approving regulators to mitigate delays.
Use of smart/ intelligent wells to improve recovery and improved rig performance monitoring and reporting to manage NPTs.
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Mitigation
Work is ongoing to secure a second export line to complement Forcados. Continue to explore export via barging as a back-up option in extreme cases. FEED completed and outcome prepared for presentation to JV Partners to pave way for Contracting Strategy concurrence for Engineering, Procurement, Installation and Commissioning (EPIC) of Amukpe LTF Upgrade.
Finalising the Amukpe to Escravos pipeline (AEP) project in a bid to provide a major alternative for crude evacuation in the core assets. The AEP project is at 99.8% completion and crude deliverability test conducted. Two contingency tanks in Amukpe for partial storage during shut-in over shorter periods.
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Mitigation
Deployment of an HSSE Management System in line with best practices. Monitoring and reporting of HSSE performance scorecards at management and Board levels. Our HSSE systems and process are subjected to independent review and identified improvement initiatives are deployed. Continual focus on HSSE training and initiatives on incidence prevention.
Emergency Response plan set for any eventuality and comprehensive Incident Review panels to identify and channel lessons learnt to improvement activities. Focus on the delivery of projects earmarked to reduce and/or eliminate gas flaring as spelt out under the company's "Gas Flares Out Roadmap" and new energy transition plan..
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KPI/Performance metric
Net working interest production
Operating costs per boe
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KPI/Performance metric
Net working interest production
Days downtime
EBIT
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KPI/Performance metric
HSSE scorecards
LTIF
TRIR
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Strategic pillars
1, 2, 3
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Strategic pillars
2, 3
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Strategic pillars
2, 3, 5
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Assessment
Very high
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Assessment
Very high
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Assessment
High
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Trend
Steady. We continue to redefine our project management approach for improved speed of delivery and efficiency, finalised the integration of the newly acquired Eland assets into our business, consolidate performance across board, maximise production, maintain a strong balance sheet, and strategically position the Company for future growth.
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Trend
Steady. Remarkably improved uptime of Forcados export system. However, risk trend is Steady, even though there is no near term line of sight for an alternative evacuation line, in the sudden event of prolonged outage of the TFP. Alternative line (AEP) is now scheduled for Q2 2021 delivery.
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Trend
Steady. Though the risk is inherent, we will continue to deploy our HSSE risk management in line with best practices and with strong emphasis on prevention.
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Infectious diseases outbreak in Seplat (e.g. Covid-19)
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Sustaining E&A programme
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Description
Risk of an index case manifesting in Seplat offices or field locations. This leads to an unsuccessful initial control of an index case (probably resulting in communal spread of the disease in the Seplat community as a result of late detection of secondary contact cases which may have had close contacts with index case or close contacts from other external primary sources). Risk also covers supply chain disruptions emanating from the pandemic i.e. the extent to which the disease will have an impact on all key projects of the Company (including ANOH) as designed in the work programme (impacting the supply chain and major contractors scheduled to deliver in a few months).
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Description
Exploration and appraisal activities carry significant levels of subsurface risk. Sustained E&A drilling failure will impact the Company's ability to organically replace reserves and production.
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Mitigation
The Company's leadership through the COVIMOG (monitoring and response team) continued to sustain the Company business and observed all recommended preventive measures advised by both the Presidential Task Force (PTF) and State Governments. Over 90% of employees were fully vaccinated via a concerted Industry (OPTS) support, while PCR tests remained mandatory for everyone carrying out activities in the various areas of the company's operation and Travel Advisory updates were shared with staff. Provision continued to remain in place for targeted tests of personnel in all locations as required. Follow up treatment of positive cases continued to be managed and funded by the Company. Also, as facilitated by the Lagos State Government, the Covid-19 booster dose vaccines are now readily available in Government Health centres, and the Company plans to keep on liaising with appropriate bodies in the industry to facilitate this process. Manage press/publicity and communication to avoid miscommunication/ wrong press.
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Mitigation
Strict compliance with reservoir management guidelines. Building internal capacity with skilled sub-surface expertise. Drill a minimum of two exploration wells, as well as continuous M&A work to secure available opportunities at the right price.
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KPI/Performance metric
HSSE scorecards
LTIF
TRIR
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KPI/Performance metric
Reserve replacement
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Strategic pillars
2,5
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Strategic pillars
1, 2, 3
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Assessment
High
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Assessment
Very high
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Trend
Steady. Our risk landscape remained largely stable with respect to existing exposures since our last update in 2020. The Company did well to manage the lingering impact of Covid-19 (infectious disease outbreak), via a strategic management vehicle called COVIMOG.
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Trend
Steady. High grading our exploration portfolio through a thorough prospect screening exercise. In the near term, plan is to commence exploration drilling campaign in the West.
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External risks
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Niger Delta stability and security
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Stakeholder management relationships
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Geopolitical risk
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Description
Seplat Energy's core operations are located in the Niger Delta region of Nigeria and that comes with significant risks. Historically, the Niger Delta has always been a high-risk environment with security incidents such as kidnappings, vandalism and criminal attacks on Oil and Gas installations.
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Description
Failure to manage stakeholders can result in business disruptions and interference. The Company prioritises the effective management of relationships with all stakeholders including host communities, JV partners, government, regulatory bodies and shareholders.
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Description
Nigeria has at times in its history faced political uncertainties and threats such as terrorism aimed at de-stabilising and undermining the orderly and effective rule of central government.
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Mitigation
The Company, working with other industry players in the region, continues to put pressure on government to find a lasting solution to Niger Delta restiveness and the current security measures put in place by the facility operator, together with the government's strategy of dialogue with stakeholders in the region, seems to be working.
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Mitigation
Ensure consistent delivery of CSR initiatives (as well as full compliance with the terms of the GMoU) across all operational areas. Sustain local content development with priority to community contractors. Tailored CSR programmes, capacity building and infrastructure developments with the host communities. Organisational focus and clear strategy to deliver shareholder value pursued by the Board and management. Corporate governance, transparency and proactiveness in dealings with regulators and JV partners.
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Mitigation
Scenarios and response options plan set. Crisis management team in place for high alert political periods. Continue to partner/network with security stakeholders and share intelligence regarding security. Business continuity plans actioned in light of current geo-political situation.
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KPI/Performance metric
LTIR
TRIR
Security incidents
Operating cash flow
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KPI/Performance metric
Net working interest production
LTIR
TRIR
Host community incidences
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KPI/Performance metric
Occurrences of civil
unrest and terrorism.
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Strategic pillars
2, 3, 5
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Strategic pillars
2, 5
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Strategic pillars
2, 3, 5
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Assessment
Very high
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Assessment
High
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Assessment
High
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Trend
Steady. Efforts by the government and industry pressure groups, aimed at enhancing security in the region seems to be paying off as the business recorded zero occurrence in militancy activities, similar to the previous year. We will continue our monitoring and vigilance.
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Trend
Steady. We continue to enjoy good working relations with our stakeholders.
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Trend
Steady.
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Financial risks
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Oil price volatility
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Changes to tax status and legislation
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Availability of capital
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Description
Oil prices have exhibited a history of volatility and can fluctuate sharply in line with external factors.
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Description
If the tax regime/legislation under which the Company operates its assets were to change, profitability may be impacted.
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Description
The oil and gas industry is highly capital intensive. Significant amounts of capital are required to continue development activities and fund M&A. Non funding of cash calls by JV partners impacts activities and liquidity.
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Mitigation
Hedging continues to be our price risk management tool. Price sensitisation on project economics and cost discipline for capital projects sanctioning. Aggressive focus on cost reduction.
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Mitigation
Perform evaluation of business plan and performance metrics exclusive of tax benefits. Project economics were determined on maximum tax basis to mitigate the impact of the now expired pioneer tax status. Impact assessment of potential tax legislature monitored at the Board level.
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Mitigation
Emphasis on compliance with requirements of the JV operating agreement for effective/strict JV partner concurrence. Board review and approval of financial strategy and debt portfolio management with strong banking relationships.
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KPI/Performance metric
Realised oil price
Operating cash flow
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KPI/Performance metric
Effective tax rate
Tax status
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KPI/Performance metric
JV receivables
Capex
New M&A activities
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Strategic pillars
2
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Strategic pillars
2, 3
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Strategic pillars
2, 3, 4
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Assessment
High
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Assessment
High
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Assessment
Very high
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Trend
Decreasing. In the year 2021, we kept focus of our price risk management policy to protect the Company's cash flow stream from downside scenarios. We will also continue to take hedge positions and apply cost reduction strategies.
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Trend
Steady. PIB was passed into law as an Act (PIA) in August, 2021. Impact on Seplat is assessed as moderate.
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Trend
Decreasing. JV partners continue to remain current in paying cash calls.
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Financial risks continued
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Cost control risk
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Liquidity
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Foreign exchange risk
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Description
Cost reduction remains central to the Company's current operating strategy. High operating cost and ineffective capital cost control negatively impacts operating cash flows and profitability.
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Description
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
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Description
The Company is exposed to exchange rate risk to the extent that balances and transactions are denominated in a currency other than the US Dollar.
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Mitigation
Comprehensive budgeting process approved by the joint venture partner and the Board. Clear cost management targets. Grading of portfolio opportunities and project ranking for capital allocation. Focus on reducing drilling costs at well design phase. Cost monitoring and periodic reporting. Focus on effective contracting strategies for cost reduction.
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Mitigation
Manage liquidity risk by ensuring that sufficient funds are available to meet commitments as they fall due. 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 Company's debts 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.
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Mitigation
The Company has options to manage its foreign exchange exposure including financial hedge instruments such as forward exchange contracts.
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KPI/Performance metric
Operating cost per boe
EBIT
Capex
Well costs
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KPI/Performance metric
Operating cash flow
Capex
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KPI/Performance metric
Operating cash flow
Capex
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Strategic pillars
2, 3, 5
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Strategic pillars
1, 2, 3
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Strategic pillars
2, 3
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Assessment
High
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Assessment
Medium
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Assessment
Low
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Trend
Steady. Cost discipline remains key focus of the business.
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Trend
Decreasing. Improved uptime of TFP; improved JV cash call payment; oil price rally; and strategic debt refinancing have all greatly improved liquidity risk.
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Trend
Decreasing. Historically, the Company holds the majority of its cash and cash equivalent in US dollar. Gas contracts are indexed in US dollar.
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Strategic risks
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Portfolio concentration risk
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Merger & Acquisition (M&A) risk
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Bribery and corruption risk
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Description
High dependency on a concentrated portfolio of producing blocks and limited number of wells can leave the Company more susceptible to declining long-term growth and reserves depletion.
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Description
Growth through M&A activities is part of the Seplat's strategy to pursue a focused acquisition and farm-in. M&A deals and transactions come with significant risk including structural, commercial and integration risks. There is also the risk of nonachievement of acquisition targets due to highly competitive landscape.
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Description
Bribery and corruption presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company.
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Mitigation
Focus on portfolio expansion strategy from the Board level to diversify current portfolio. Integrated long-term planning on crude oil, gas and other renewables business.
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Mitigation
New business development unit is always looking for the right opportunities for Seplat. Decision review board (DRB) process is in place to ensure deals are properly vetted and adequate due diligence done on new opportunities. The DRB ensures the commercial, structural, KYC and integration risks are fully considered and addressed with mitigation plan approved and in place prior to deal closing.
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Mitigation
Extensive training on anti-bribery and corruption. Embedding corporate governance principles with key focus on areas of the business which may be more susceptible to corruption such as the contracting and procurement process. Processes exist to guide dealings with public officials.
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KPI/Performance metric
Successful execution of new acquisition and farm-in opportunities
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KPI/Performance metric
Successful execution of new acquisition and farm-in opportunities
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KPI/Performance metric
Whistleblowing reports
Number of disciplinary cases
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Strategic pillars
2, 3
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Strategic pillars
1, 3, 4
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Strategic pillars
5
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Assessment
High
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Assessment
Very high
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Assessment
Very high
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Trend
Steady. The Company is in transform phase.
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Trend
Steady. DRB process in place to vet opportunities and deals. Risk trend steady following ongoing integration of Eland Oil and Gas Plc, as well as ongoing strategy to acquire more strategic assets. M&A landscape remains competitive.
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Trend
Decreasing. Our geographical location continues to be susceptible to corruption. However, risk trend changed from steady to decreasing following lower cases of whistle blowing during the year.
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Fraudulent activity risk
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Information security risk
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Description
Fraudulent activity presents a risk throughout the global energy industry and represents an ongoing risk to any energy company.
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Description
Potential cyber-attacks and information technology security breaches could result in loss or compromise of sensitive proprietary information, communication and IT business continuity disruption across operations.
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Mitigation
Extensive whistleblowing campaign. Continuous monitoring and improvement of the system of internal controls by all lines of defence with strong internal audit activity. Automation of processes where possible to reduce manual intervention.
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Mitigation
We monitor and regularly upgrade the Company's information technology and security systems. The Company has a clearly defined employee user policy and control of access rights. Our information security framework and infrastructure have been externally reviewed in line with requirements of ISO 27001. IT business continuity plan is in place for quick deployment.
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KPI/Performance metric
Number of reported cases
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KPI/Performance metric
Information security identification and containment reports
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Strategic pillars
5
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Strategic pillars
1, 5
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Assessment
Very high
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Assessment
High
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Trend
Steady. Risk is kept at very high and the Company continues to maintain a zero tolerance policy.
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Trend
Steady. While cyber security continues to hold international attention, there has not been a material IT breach on our operations. However, the triggering of the work from home policy has resulted in a rising trend of the risk, giving the greater number of employees working externally.
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Appendix C: Related Party Transactions
The following Related party relationships and transactions are extracted from the 2021 Annual Report and Accounts (page 221-222)
38. Related party relationships and transactions
The parent Company (Seplat Energy Plc) is owned 6.43% either directly or by entities controlled by A.B.C Orjiako (SPDCL(BVI)) and members of his family and 8.20% either directly or by entities controlled by Austin Avuru (Professional Support Limited and Platform Petroleum Limited). The remaining shares in the parent Company are widely held.
The goods and services provided by the related parties are disclosed below. The outstanding balances payable to/receivable from related parties are unsecured and are payable/receivable in cash.
i. Shareholders of the parent company
Shebah Petroleum Development Company Limited SPDCL ('BVI'): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). The company provided consulting services to Seplat. Services provided to the Group during the period amounted to $1.1 million, ₦0.45 billion (2020: $900 thousand, ₦342 million). Payables amounted to $101.8 thousand, ₦41.9 million in the current period.
ii. Entities controlled by key management personnel (Contracts>$1million in 2021)
Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): The Company is owned by common shareholders with the parent Company. The company provides drilling rigs and drilling services to Seplat. Transactions with this related party amounted to nil (2020: $5.7 million, ₦2.1 billion). Payables amounted to nil in the current period (Payables in 2020: $591 thousand, ₦225 million).
iii. Entities controlled by key management personnel (Contracts<$1million in 2021)
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. This amounted to $222 thousand, ₦88.9 million during the period (2020: $296 thousand, ₦106 million). Receivables amounted to $6, ₦2,649 (2020: $15,273, ₦5.8 million).
Stage leasing (Ndosumili Ventures Limited): A subsidiary of Platform Petroleum Limited. The company provides transportation services to Seplat. This amounted to $278 thousand, ₦111.3 million (2020: $714 thousand, ₦257 million). Payables amounted to $3.2 thousand, ₦1.3 million in the current period (2020: $23.6 thousand, ₦8.9 million).
