Earnings Release • Feb 27, 2015
Earnings Release
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Interim Financial Report for the Fourth Quarter 2014
African Petroleum CorporaSon Limited ("African Petroleum" or the "Company") is an independent oil and gas exploraSon company with ten licences in five countries offshore West Africa (Côte d'Ivoire, Liberia, Senegal, The Gambia and Sierra Leone). The Company's assets are located in fast-emerging hydrocarbon basins, where several discoveries have been made in recent years, including three significant discoveries during 2014 by Total in Côte d'Ivoire and Cairn Energy in Senegal.
African Petroleum has a real opportunity to become a leading independent exploraSon company through its highly prospecSve acreage offshore West Africa.
The Company conSnues to achieve key operaSonal milestones across its ten licences, having rapidly matured its exploraSon porjolio by acquiring more than 18,500km² of 3D seismic data and drilling three exploraSon wells, one of which was an oil discovery at Narina-1 in Liberia.
African Petroleum is a significant acreage holder offshore West Africa, rivalling industry majors such as: Anadarko Petroleum, Chevron CorporaSon, Exxon Mobil, Total, ENI and Lukoil. The Company has mean prospecSve oil resources in excess of 7.3 billion barrels (ERC Equipoise Competent Persons Report April 2014 in conjuncSon with ERCE Audit January 2015), further highlighSng the scale of its presence in the region.
"African Petroleum has made significant progress in all areas of the business during the fourth quarter 2014.
We are very pleased to have reached an agreement with The Gambian authoriSes in the Q4 2014 and had the A1 and A4 licences reinstated. We look forward to drilling there within the next 18 months, parScularly in light of the recent commercial discovery by Cairn Energy and partners in the adjacent Senegal acreage.
In December 2014, the Company achieved a significant step towards our goal of securing a farm-out deal through the signing of a term sheet for our Liberia Licence LB-08. We are in ongoing discussions with a number of partners, and reiterate our high degree of confidence that we will complete further farm-out transacSons on favourable terms in the coming months.
Significantly, subsequent to quarter end, despite the challenging industry backdrop caused by the declining oil price, African Petroleum announced a private placement in February 2015, raising gross funds of approximately US\$12.5m. This further highlights the markets confidence in our highly prospecSve assets and the significant potenSal for value creaSon."
Subsequent to year end on 10 February 2015, African Petroleum announced a Private Placement raising NOK 95,106,200 (approximately US\$12.5 million) in gross proceeds through the allocaSon of 271,732,000 shares at a subscripSon price of NOK 0.35 per share. In addiSon, each applicant in the Private Placement is enStled to be allocated one non-transferable NOK 0.75 opSon for every two shares allocated in the placement, corresponding to a total allocaSon of up to 135,866,000 opSons.
The net proceeds of the placing will be used to primarily strengthen the Company's balance sheet and liquidity posiSon and to fund our ongoing exploraSon programme, including seismic costs and licence fees. The fundraising further bolsters the Company's posiSon and provides the addiSon flexibility and opSonality as African Petroleum conSnues advanced discussions with potenSal farm-out partners.
As previously announced, African Petroleum is seeking strategic partners on its ten licences in Côte d'Ivoire, Liberia, Senegal, The Gambia and Sierra Leone in order to share risk and potenSal reward of the Company's exploraSon programme.
In addiSon to the agreement announced on 14 July 2014 to farm-out a 10% interest in Block CI-509 offshore Côte d'Ivoire, on 23 December 2014 African Petroleum announced that it had signed a nonbinding term sheet agreeing terms with a private London based independent oil and gas company to farmin to the Company's 100% owned Liberian LB-08 licence ("Term Sheet").
Pursuant to the Term Sheet, the third party has agreed, subject inter alia to the compleSon of due diligence and the entering into of mutually agreed contracts, to acquire a 50% net parScipaSng interest in the LB08 licence in return for the payment of 50% of all future costs and expenditures relaSng to the LB-08 licence and a contribuSon to past costs and expenditures. CompleSon of the farm-in transacSon, as contemplated by the Term Sheet, is subject to contract and a number of condiSons precedent.
The Company is pleased to have secured an iniSal farm-in on Block CI-509 and to have signed a term sheet for Block LB-08. In addiSon, significant progress has been made on acracSng companies to farm-in to our other acreage. The Company has received a high level of interest in Côte d'Ivoire, Senegal and The Gambia from a number of internaSonal companies and Independents.
The significant oil discoveries made by Cairn Energy (op.) in Senegal has led to the heightened interest in Senegal and The Gambia and similarly with Total's Saphir-1XB discovery well in CI 514 adjacent to our Côte d'Ivoire acreage. African Petroleum has idenSfied a number of analogues in its acreage to Cairn Energy's discoveries at SNE-1 and FAN-1 and the Total discovery in Côte d'Ivoire at Saphir -1XB.
On 28 November 2014, African Petroleum announced that it entered into an agreement with The Government of the Republic of The Gambia to reinstate the Company's Licence Block A1 and Licence Block A4 (the "Gambian Licences"), and secle all prior issues concerning the Gambia Licences including the disconSnuaSon of arbitraSon proceedings.
As part of the agreement with The Government of the Republic of The Gambia, African Petroleum agreed to revise the iniSal exploraSon period that will expire on 1 September 2016 in return for a commitment to drill an exploraSon well on one of the Gambia Licences and reprocess 3D seismic on Licence Block A4 prior to September 2016.
The Company has 2,500km² 3D seismic data over the licences and has idenSfied a number of significant prospects with net unrisked mean prospecSve resources of 593 MMstb (ERC Equipoise CPR, 2014). In H1 2015 the Company expects to release an updated CPR and anScipates there to be significant uplib in this number as many more prospects have now been added to the porjolio in light of the recent success in the adjacent acreage by Cairn Energy and partners.
On 18 December 2014, the Company announced that its subsidiary African Petroleum Senegal Limited received confirmaSon from the President of Senegal in the form of a PresidenSal decree, of entry into the First Renewal Period on licence Senegal Offshore Sud Profond ("SOSP"). Prior to entering into the First Renewal Period, Petrosen agreed to defer the exisSng well commitment of the First Renewal Period of SOSP by 18 months to allow for further technical work by the Company prior to drilling.
SOSP has significant potenSal for both deep-water submarine fans and shelf edge plajorm plays, both of which have recently been proven in nearby acreage by the Cairn Energy (op.) wells FAN-1 and SNE-1. The Company has proposed Pre-Stack Depth MigraSon (PSDM) over the licence area to improve definiSon of the material prospects idenSfied through technical work to date. The forward programme provides an opportunity to analyse the data fully prior to making a commitment to drill the exploraSon well in the second sub period of the First Renewal Period.
Subsequent to quarter end, on 26 January 2015, the Company announced an update to its prospecSve oil resources at its 90% owned and operated CI-509 and CI-513 offshore licence blocks in Côte d'Ivoire ("Côte d'Ivoire Licences") and its 100% owned and operated LB-08 and LB-09 offshore blocks in Liberia ("Liberia Licences").
The Company engaged the independent petroleum consultant, ERC Equipoise Ltd ("ERCE"), to prepare an updated assessment of prospecSve oil resources acributable to the Company's Côte d'Ivoire Licences and Liberia Licences (the "ERCE Audit").
The ERCE Audit of prospecSve resources includes the addiSon of eight new prospects and has taken into account informaSon gathered from third party drilling campaigns in the margin during 2014, parScularly the oil discovery made by Total in CI-514 in April 2014.
The ERCE Audit, in conjuncSon with the ERCE Competent Persons Report April 2014 esSmates the net prospecSve oil resources relaSng to the Côte d'Ivoire Licences and Liberia Licences are as follows:
| Licence | Mean (MMstb) | % Increase in Net Risked Prospec0ve Oil Resources from April 2014 CPR |
|
|---|---|---|---|
| Net Unrisked Prospec0ve Oil Resources |
Net Risked Prospec0ve Oil Resources |
||
| Côte d'Ivoire | |||
| CI-509 and CI-513 | 2,130 | 456 | 118% |
| Liberia | |||
| * LB-08 and LB-09 | 4,192 | 662 | 33% |
| Total Updated PorQolio Côte d'Ivoire and Liberia |
6,322 | 1,118 *Liberia values include four (4) new prospects reviewed in the ERCE Audit as well as unchanged prospects from |
58% |
April 2014 CPR
The impact of de-risking through regional third party drilling acSvity in Côte d'Ivoire and the addiSon of new Turonian and Cenomanian prospects as outlined in the ERCE Audit translates into the addiSon of 410 MMstb in the net risked mean prospecSve oil resources from the April 2014 CPR (an increase of 58%).
On 15 December 2014, African Petroleum announced the appointment of Ian Philliskirk as the Company's Group General Counsel. Mr Philliskirk has over 20 years of corporate legal experience including, 12 years working with a number of internaSonal oil and gas companies. Most recently, Mr Philliskirk was VP and General Counsel at Tethys Petroleum Ltd. Prior to joining Tethys Petroleum Ltd, Mr Philliskirk held senior posiSons at Pinsent Masons LLP, Emirates NaSonal Oil Co. Ltd, Dragon Oil Plc and Kanoo Group UAE and Oman.
As an operator of offshore concessions, it is the duty of African Petroleum to provide a safe working environment and minimise any adverse impact on the environment. Health, safety, environment and security policies are embedded throughout all of the Company's core operaSons. In this regard, we strive for conSnuous improvement as lessons learned from past operaSons are incorporated into business pracSces going forward.
Due to the Ebola outbreak in West Africa, African Petroleum has implemented precauSonary measures to ensure the safety of its staff. There have been office closures in Liberia and Sierra Leone, and local staff have been urged to work from home and avoid dangerous regions. Currently, the Company does not have any acSve operaSons in Sierra Leone or Liberia.
African Petroleum is following the Liberian and Sierra Leone government protocol and has consulted with host government officials to see how strategic social investments can be leveraged to combat Ebola.
The priority for the next two years is to progress and unlock the high potenSal in our West African assets; through leveraging technology to de-risk ahead of the drill bit and, subject to finalising finance, through drilling key exploraSon wells with strategic partners. By obtaining partners to farm-in to our acreage, where we hold high working interest posiSons of between 81-100%, we will miSgate our risk and financial exposure whilst also enabling us to crystallise value for our shareholders.
Despite the fall in oil price impacSng senSment with regards to global exploraSon; we believe that the industry will conSnue to explore the best regions in the world and in that regard we are confident that exploraSon of the West Africa Transform Margin and the wider margin up through The Gambia and Senegal will remain very acSve going forward as evidenced by the recent entry of Kosmos in Senegal and Exxon Mobil in Côte d'Ivoire amongst others. Furthermore, there has been a sizeable reducSon in operaSng costs which presents a significant cost-saving opportunity for exploraSon focused operators such as African Petroleum.
African Petroleum has a real opportunity to become a leading independent exploraSon company through its highly prospecSve acreage offshore West Africa. Plans for our 2015 exploraSon campaign have begun, with mulSple prospects idenSfied and wellheads ordered, we are in a strong posiSon and confident that 2015 will be a transformaSonal year for us. Our long-term strategy is simple: to find commercial oil, and expand our footprint both as a low cost operator and non-operator, leveraging our highly skilled and experienced team, uSlising the latest technology and taking advantage of the low cost environment.
As an exploraSon company in the oil and gas industry, the Company operates in an inherently risky sector. Oil and gas prices are subject to volaSle price changes from a variety of factors, including internaSonal economic and poliScal trends, expectaSon of inflaSon, global and regional demand, currency exchange fluctuaSons, interest rates and global or regional consumpSon pacerns. These factors are beyond the control of the Company and may affect the marketability of oil and gas discovered. In addiSon, the Company is subject to a number of risk factors inherent in the oil and gas upstream industry, including operaSonal and technical risks, reserve and resource esSmates, risks of operaSng in a foreign country (including economic, poliScal, social and environmental risks) and available resources. We recognise these risks and manage our operaSons in order to minimise our exposure to the extent pracScal.
We confirm that, to the best of our knowledge, the condensed set of financial statements for the fourth quarter of 2014, which has been prepared in accordance with IAS34 Interim Financial Statements, gives a true and fair view of the Company's consolidated assets, liabiliSes, financial posiSon and results of operaSons, and that the management report includes a fair review of the informaSon required under the Norwegian SecuriSes Trading Act secSon 5-6 fourth paragraph.
In Senegal, African Petroleum holds an 81% operated working interest in exploraSon blocks Rufisque Offshore Profond ("ROP") and Senegal Offshore Sud Profond ("SOSP") (together the "Senegal Licences"). The Company's Senegal Licences are located offshore southern and central Senegal, with a net acreage of 12,795km².
To date, the Company has acquired 10,000km² of 2D seismic data over its Senegal Licences and has compiled an extensive regional database.
In May 2012, the Company completed a 3,600km² 3D seismic
acquisiSon over the SOSP licence block. In the ROP block an exisSng seismic dataset (2007 vintage) covers 1,800km² and was purchased from Petrosen. This base dataset was reprocessed with the final product delivered in Q4 2014 and interpretaSon is underway. Several large Cretaceous turbidite fan 'leads' have already been idenSfied, these will be matured to prospects as the reprocessed data is evaluated and will be included in the updated CPR anScipated to be released in H1 2015.
Interest in the margin conSnues to grow as evidenced by Kosmos Energy's return to the region. In September 2014, Kosmos Energy signed a farm-in agreement to acquire a 60% interest in two licences offshore Senegal in return for drilling up to three wells and acquiring approximately 7,000km² of 3D seismic. It was reported by Reuters that Kosmos Energy has commiced to drill two wells up to a total value of \$240 million, and it will then drill a third well to a value of another \$120 million.
On 7 October 2014, Cairn Energy announced an important and potenSally commercial oil discovery offshore Senegal. The FAN-1 exploraSon well recovered light oil from a series of stacked Cretaceous sandstones, with APIs ranging from 28° up to 41°. Cairn Energy believes that the discovery "may have significant potenSal as a standalone discovery".
Cairn Energy drilled a second well, SNE-1, offshore Senegal in 1,100m of water and announced, on 10 November 2014, that they had made an addiSonal discovery. IniSal analysis of the well, as reported by Cairn Energy, showed 95m gross oil bearing column with a gas cap. Excellent reservoir sands with net pay of 36 metres of 32 API oil and a P50 conSngent resource of 330 MMbbls. FAR Ltd, one of Cairn Energy's partners, issued noSce of discovery on both wells and reported; "based on preliminary esSmates, it [SNE-1] is highly likely to be a commercial discovery", a significant statement for both African Petroleum and the country.
On 18 December 2014, the Company announced that its subsidiary African Petroleum Senegal Limited received confirmaSon from the President of Senegal in the form of a PresidenSal decree of entry into the First Renewal Period on licence SOSP. Prior to entering into the First Renewal Period, Petrosen agreed to defer the exisSng well commitment of the First Renewal Period of SOSP by 18 months to allow for further technical work by the Company prior to drilling.
The forward programme provides an opportunity to analyse the data fully, prior to making a commitment to drill the exploraSon well in the second sub period of the First Renewal Period.
In January 2015, Cairn Energy announced its intenSon to spud a series of exploraSon and appraisal wells offshore Senegal during the year. African Petroleum will monitor the results of this programme closely.
Each of these developments, especially their proximity to the Company's acreage, provides a very posiSve context to African Petroleum's presence offshore Senegal (and The Gambia - refer next secSon).
African Petroleum holds a 100% operated working interest in offshore licences A1 and A4. The Company has completed a significant 3D seismic survey with data covering 2,500km². The Company has found a number of analogue leads and prospects in its acreage to that of the recent SNE-1 discovery made by Cairn Energy in Senegal.
On 27 November 2014, African Petroleum entered into an agreement with The Government of the Republic of The Gambia to reinstate the Company's Licence Block A1 and Licence Block A4 (together the "Gambian Licences") on a 100% interest basis, and secle all prior issues concerning the
A1 A4
Gambian Licences. The reinstatement of the Gambian Licences is a significant and posiSve step for the Company, parScularly following the recent oil discoveries made by Cairn Energy in Senegal.
Upon reinstatement, African Petroleum agreed to a revised iniSal exploraSon period that will expire on 1 September 2016 in return for a commitment to drill an exploraSon well on one of the Gambian Licences and reprocess 3D seismic on Licence Block A4 prior to 1 September 2016.
The Company has idenSfied leads and prospects in the Gambian Licences, many of which are on trend with the discoveries made at FAN-1 (announced 7 October 2014) and SNE-1 (announced 10 November 2014) by the Cairn Energy operated group in Senegal.
African Petroleum is looking to farm-out both Gambian Licences and has had significant interest from internaSonal and large independent oil companies, we expect this interest to culminate in a farm-in in due course.
African Petroleum is both operator and holder of a 100% working interest, in producSon sharing contracts LB-08 and LB-09, which have a combined net acreage of 5,350km². The Company has completed an extensive work programme on its Liberian licences with 5,100km² of 3D seismic acquired, three wells successfully drilled, including the discovery at Narina-1, and idenSfied key prospects with net unrisked mean prospecSve oil resources in excess of 4,192MMstb (ERCE Audit January 2015 in conjuncSon with ERCE Competent Persons Report).
African Petroleum has completed the acquisiSon and
processing of 5,100km² of 3D seismic data over both licences. The interpretaSon of this data idenSfied numerous prospects and leads in the Upper Cretaceous post rib secSon and also a number of Cretaceous aged syn-rib opportuniSes.
African Petroleum has successfully executed an iniSal exploraSon programme in LB-09, with three wells drilled: Apalis-1, Narina-1 and Bee Eater-1. In September 2011, African Petroleum completed drilling on its first exploraSon well, Apalis-1, on LB-09. The well encountered oil shows in several geological units including the shallow unlogged (TerSary-Paleocene) and proved source rock in the Cenomanian. The Narina-1 well was drilled on LB-09 in January 2012 and encountered a total of 32 metres of net oil pay in the primary objecSve Turonian and underlying Albian reservoirs with no oil water contact observed. African Petroleum's discovery at Narina-1 was the first to prove a working petroleum system in the central Liberian basin, an extremely posiSve result for the Company and one that improves the chances of success elsewhere in the area.
The Company drilled its third well, Bee Eater-1, on LB-09 in January 2013. The well tested an up-dip axial secSon of the Turonian slope fan in which the Company's Narina-1 discovery had been made in 2012. The Bee Eater-1 well encountered a Sght reservoir interval, but provided the impetus to integrate the informaSon into a predicSve model for improved reservoir in slope fans outboard and down-dip. These new findings have been incorporated into a revised interpretaSon of the subsurface across the porjolio, with new basin floor fan prospects idenSfied in both blocks.
In September 2013, the Company completed reprocessing of all the 3D seismic data from its Liberian licences to improve image quality and support the maturaSon of addiSonal prospects and appraisal opportuniSes. The reprocessing has highlighted that certain areas may benefit from improved seismic imaging and so both further targeted 3D reprocessing and acquisiSon of new high-resoluSon 3D seismic are currently being considered for LB-09 to cover two key exploraSon prospects (Narina West and Night Heron) near the Narina-1 well. Detailed straSgraphic analysis and reservoir quality predicSon from seismic data will assist in the rapid assessment of both Narina West and Night Heron to further de-risk the licence area to enable accurate well posiSoning and efficient development in the event of appraisal success. The high-resoluSon 3D seismic survey, should it go ahead, will incorporate lessons learned from seismic reprocessing and will be acquired uSlising state of the art broadband technology.
In LB-08, new seismic data is also being considered to cover three prospects (Lovebird, Darter and Turaco) in the southern corner of the licence area. Encouraging amplitude support for reservoir and potenSal hydrocarbons exist within the current reprocessed dataset; however, near surface effects (shallow slump zone "mass transport deposit") degrades seismic data quality. New 3D high-resoluSon broadband datasets, should they be acquired, will becer delineate and further de-risk the prospects prior to drilling.
On 23 December 2014, African Petroleum signed a non-binding term sheet agreeing terms with a private London based independent oil and gas company to farm-in to the Company's 100% owned Liberian LB-08 licence for a 50% equity and non operated interest. CompleSon of the farm-in transacSon, as contemplated by the Term Sheet, is subject to contract and a number of condiSons precedent.
The signing of the Term Sheet is a significant milestone for African Petroleum. Should the farm-in transacSon complete, the incoming party will bring a breadth of knowledge and experience to the partnership and will allow the Company to conSnue its exploraSon programme in its highly prospecSve acreage offshore Liberia.
In January 2015, African Petroleum announced that independent petroleum consultant ERC Equipoise prepared an updated assessment of prospecSve oil resources acributable to the Company's Liberian Licences. This updated assessment, in conjuncSon with the ERCE Competent Persons Report April 2014, esSmates the net unrisked prospecSve oil resources at 4,192 MMStb.
In Sierra Leone, the Company holds a 100% operated working interest in offshore licences SL-03 and SL-4A-10. African Petroleum was awarded a 100% interest in SL-03 in April 2010, while licence SL-4A-10 was awarded as part of Sierra Leone's third offshore licencing round in 2012. The Company's Sierra Leone licences cover a combined net acreage of 5,855km² and are located to the south of Freetown, offshore Sierra Leone.
Since gaining operatorship of the Sierra Leone licences, African Petroleum has acquired approximately 2,500km² of 3D seismic data over block SL-03, approximately 1,000km² of 3D seismic data over block SL-4A-10 and 2D seismic data over block SL-4A-10. The Company has already idenSfied a number of key prospects in its Sierra Leone licences, one of
which has net unrisked mean prospecSve oil resources of 434 MMstb (ERC Equipoise, CPR 2014).
In September 2013, the Company received a two-year extension to the first exploraSon period for SL-03, extending the first exploraSon period on the block to April 2015.
In September 2014, the Company commenced and completed the acquisiSon of approximately 1,000km² of 3D seismic data on Block SL-4A-10, offshore Sierra Leone. An iniSal version of the data was made available for interpretaSon in late December 2014. The Vega lead looks materially exciSng with iniSal work supporSng an AVO response at the Campanian level over a large potenSally dip-closed area. The seismic acquisiSon fulfills the remaining obligaSons in Sierra Leone ahead of the next exploraSon phase in both blocks.
In Côte d'Ivoire, African Petroleum holds a 90% working interest in offshore licences CI-509 and CI-513 (the "CI Licences"), the remaining 10% is held by Petroci, the NaSonal Oil Company of Côte d'Ivoire. The Company was awarded CI-513 in December 2011 and CI-509 in March 2012, with a combined net acreage of 2,283km². The Company has acquired 4,200km² of 3D seismic data and has idenSfied in excess of 2,130 MMstb net unrisked prospecSve oil resources (ERCE Audit, January 2015).
In October 2012, the Company acquired 4,200km² of 3D
seismic data over the CI Licences, fulfilling the seismic work commitments of the first exploraSon phase for both licences.
Fast-track 3D seismic data was received in November 2012, while final 3D seismic depth processing of the enSre survey was completed in March 2014. InterpretaSon of the data has idenSfied a number of significant prospects, with net unrisked mean prospecSve oil resources of 2,130 MMstb (ERC Audit, January 2015).
On 22 April 2014 African Petroleum announced PSC Amendments to both licences CI-509 and CI-513. The PSC Amendments include an adjustment of the licence periods providing for one-year extensions to the first exploraSon periods of both licences at the expense of the duraSon of future exploraSon periods.
The PSC adjustment allows the Company more Sme for drilling of the first period commitment wells in these blocks. The first exploraSon period for block CI-509 is extended to March 2016 and block CI-513 has been extended to December 2015. The Company intends to use some of this addiSonal Sme to integrate seismic depth processing into the opSmisaSon of exploraSon well locaSons as several new amplitude supported prospects have arisen from processed PSDM 3D data on trend with the Total Saphir-1XB Total discovery.
The new PSDM is being calibrated to the results of Total's oil discovery in CI-514, as African Petroleum had pre-traded the 3D covering both Total's CI-514 operated acreage and the acreage immediately north of CI-513 and CI-509 held by the Vitol operated group. In January 2015, following an independent assessment of the Côte d'Ivoire prospects by ERC Equipoise, the Company announced an addiSonal 570MMstb to be added to the net unrisked prospecSve oil resources. The Company has found that its acreage has been significantly derisked by Total's discovery at Saphir-1XB in April 2014.
The Company intends to use the addiSonal Sme from the licence extensions to secure the appropriate sixth generaSon rig for a wider drilling programme, and build a partnership group to explore in the promising area of the Côte d'Ivoire deep-water margin. In preparaSon for the 2015 drilling campaign, the Company signed an agreement with DrilQuip Limited to provide two SS-15 wellheads. The purchase of these wellheads is a posiSve step for the Company and a move towards iniSaSng the drilling campaign. African Petroleum conSnues to seek strategic partners in its Côte d'Ivoire acreage.
As announced on 14 July 2014, the Company entered into an agreement with Buried Hill Africa Limited ("Buried Hill") to farm-out a 10% interest in Block CI-509, in return for Buried Hill funding 21.1% of the cost of the next exploraSon well to be drilled on the block and an addiSonal cash payment to African Petroleum represenSng 10% of past costs incurred ("Farm-Out Agreement"). Under the terms of the Farm-Out Agreement, African Petroleum will conSnue as Operator on the licence. CompleSon of the Farm-Out Agreement is subject to the saSsfacSon or waiving of certain condiSons precedent. The Company conSnues to seek addiSonal partners in its Côte d'Ivoire acreage and anScipates making a further announcement in H1 2015.
In January 2015, African Petroleum announced that independent petroleum consultant ERC Equipoise prepared an updated assessment of prospecSve oil resources acributable to the Company's Côte d'Ivoire Licences. This updated assessment, in conjuncSon with the ERCE Competent Persons Report April 2014, esSmates the net unrisked prospecSve oil resources at 2,130 MMstb and net risked prospecSve oil resources at 456 MMstb, a 118% increase in net risked prospecSve resources from April 2014 Competent Persons Report.
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||
|---|---|---|---|---|---|
| USD\$ '000s | Note | Q4 2014 |
Q4 2013 |
YTD Q4 2014 |
YTD Q4 2013 |
| (unaudited) | (unaudited) | (unaudited) | (audited) | ||
| Revenue | 6a | 2,209 | 1,096 | 6,033 | 2,794 |
| Aircraft expenses | (1,352) | (1,214) | (4,879) | (3,748) | |
| Depreciation expense | (234) | (249) | (1,005) | (1,699) | |
| Impairment of exploration and evaluation expenditure | (434) | (31,221) | - | (31,221) | |
| Impairment of consumable spares | 154 | 2,769 | - | (3,841) | |
| Impairment of aircraft | - | (408) | - | (1,708) | |
| Impairment of related party loans & deposits | (36) | (545) | (572) | (12,919) | |
| Rig demobilisation/cancellation costs | - | - | - | (3,753) | |
| Gain/(loss) on disposal of consumable spares | 44 | (4,548) | 44 | (4,548) | |
| Consulting expense | (1,532) | (1,801) | (5,824) | (7,622) | |
| Compliance and regulatory expenses | (130) | (353) | (839) | (791) | |
| General administration expenses | (369) | (777) | (1,337) | (3,044) | |
| Employee benefits | 6b | (1,857) | (2,219) | (6,727) | (11,194) |
| Travel expenses | (287) | (765) | (1,209) | (1,838) | |
| Occupancy costs | (192) | (624) | (1,000) | (2,259) | |
| Net foreign currency gain/(losses) | (115) | 291 | 89 | (555) | |
| Finance costs | (1,606) | (105) | (1,561) | (284) | |
| Other expenses | 11 | - | - | ||
| Loss from continuing operations before income tax | (5,726) | (40,673) | (18,787) | (88,230) | |
| Income tax expense | |||||
| Loss for the period from continuing operations |
(5,726) | (40,673) | (18,787) | (88,230) | |
| Discontinued operations | |||||
| Profit/(loss) after tax for the year from discontinued operations | 76 | - | 76 | - | |
| Loss for the period | (5,650) | (40,673) | (18,711) | (88,230) | |
| Other comprehensive income | |||||
| Items that may be subsequently reclassified to profit or loss: |
|||||
| Foreign exchange (loss)/gain on translation of functional currency to presentation | - | (306) | - | (138) | |
| currency | |||||
| Other comprehensive (loss)/income for the period, net of tax |
- | (306) | - | (138) | |
| Total comprehensive loss for the period | (5,726) | (40,979) | (18,711) | (88,368) | |
| Loss for the period is attributable to: | |||||
| Non-controlling interest | (13) | (52) | (30) | (126) | |
| Owners of the parent | (5,637) | (40,621) | (18,681) | (88,104) | |
| (5,650) | (40,673) | (18,711) | (88,230) | ||
| Total comprehensive loss for the period is attributable to: | ||||
|---|---|---|---|---|
| Non-controlling interest | (13) | (52) | (30) | (126) |
| Owners of the parent | (5,638) | (40,927) | (18,681) | (88,242) |
| (5,651) | (40,979) | (18,711) | (88,368) | |
| Basic/diluted loss per share attributable to members (US cents per share) |
(0.82) | (7.19) | (2.86) | (15.59) |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
|---|---|---|---|
| USD\$ '000s | Note | 31 Dec 2014 | 31 Dec 2013 |
| (unaudited) | (audited) | ||
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 7 | 3,847 | 7,914 |
| Trade and other receivables | 8 | 3,745 | 7,709 |
| Restricted cash | 9 | 12,070 | 12,074 |
| Prepayments | 768 | 1,266 | |
| 20,430 | 28,963 | ||
| Assets held for distribution | 942 | - | |
| Total current assets | 21,372 | 28,963 | |
| Non-current assets | |||
| Property, plant and equipment | 1,407 | 3,158 | |
| Exploration and evaluation expenditure | 10 | 418,661 | 403,273 |
| Intangible assets | 170 | 352 | |
| Total non-current assets | 420,238 | 406,783 | |
| Total assets | 441,610 | 435,746 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Issued capital | 12 | 600,592 | 575,912 |
| Reserves | 13 | 17,022 | 17,282 |
| Accumulated losses | (208,252) | (189,571) | |
| Attributable to equity holders of the parent | 409,362 | 403,623 | |
| Non-controlling interests | (327) | (261) | |
| Total equity | 409,035 | 403,362 | |
| LIABILITIES | |||
| Current liabilities | |||
| Trade and other payables | 11 | 32,575 | 32,384 |
| Total current liabilities | 32,575 | 32,384 | |
| Total liabilities | 32,575 | 32,384 | |
| Total equity and liabilities | 441,610 | 435,746 |
| USD\$ '000s |
Note | Ordinary Share capital |
Share-based payment reserve |
Accumulated losses |
Foreign currency translation reserve |
Non-controlling interest |
Total equity |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2013 |
575,912 | 25,795 | (101,467) | (11,951) | (135) | 488,154 | |
| Loss for the period | - | - | (88,104) | - | (126) | (88,230) | |
| Other comprehensive income | - | - | - | (138) | - | (138) | |
| Total comprehensive loss for the period | - | - | (88,104) | (138) | (126) | (88,368) | |
| Transactions with owners in their capacity as owners: | |||||||
| Share-based payments | - | 3,576 | - | - | - | 3,576 | |
| Balance at 31 December 2013 |
575,912 | 29,371 | (189,571) | (12,089) | (261) | 403,362 | |
| Balance at 1 January 2014 |
575,912 | 29,371 | (189,571) | (12,089) | (261) | 403,362 | |
| Loss for the period | - | - | (18,681) | - | (30) | (18,711) | |
| Other comprehensive income | - | - | - | - | - | - | |
| Total comprehensive loss for the period | - | - | (18,681) | - | (30) | (18,711) | |
| Transactions with owners in their capacity as owners: | |||||||
| Discontinued operations | - | - | - | - | (36) | (36) | |
| Issue of capital | 26,175 | - | - | - | - | 26,175 | |
| Capital raising costs | (1,495) | - | - | - | - | (1,495) | |
| Share-based payments | - | (260) | - | - | - | (260) | |
| Balance at 31 December 2014 |
600,592 | 29,111 | (208,252) | (12,089) | (327) | 409,035 |
| USD\$ '000s 31 Dec 2014 31 Dec 2013 (unaudited) (audited) Cash flow from operating activities Payments to suppliers and employees (20,347) (32,587) Rental income 3,559 1,442 Interest received 31 151 Finance costs (137) (74) Net cash flow from operating activities (16,894) (31,068) Cash flow from investing activities Payment for plant, equipment and aircraft (16) (276) Proceeds from disposal of plant and equipment 43 - Payment for investments (14) (1,235) Payment for exploration and evaluation activities (12,954) (75,247) Cash received for sale of consumable spares 714 2,976 Loan repaid by related parties 939 1,061 Loan to related parties (363) (1,297) Cash backing security returned - 60,453 Net cash flow from investing activities (11,651) (13,565) Cash flow from financing activities Proceeds from issue of shares 26,175 - Capital raising costs (1,495) - Net cash flow from financing activities 24,680 - Net change in cash and cash equivalents (3,865) (44,633) Cash and cash equivalents at the beginning of the period 7,914 52,599 Net foreign exchange differences (202) (52) |
CONSOLIDATED STATEMENT OF CASH FLOWS | ||
|---|---|---|---|
| Cash and cash equivalents at the end of the period | 3,847 | 7,914 |
These financial statements are the interim financial statements of African Petroleum Corporation Limited ("African Petroleum Corporation") and its subsidiaries (hereafter "the Company") for the fourth quarter of 2014. African Petroleum Corporation is a public limited company incorporated and domiciled in Australia, with its main office located in London, United Kingdom, whose shares are publicly traded on the Oslo Axess, a regulated market place of the Oslo Stock Exchange, Norway and the National Stock Exchange of Australia.
This general purpose condensed interim financial report for the quarter ended 31 December 2014 has been prepared in accordance with IAS 34 Interim Financial Reporting and the supplement requirements of the Norwegian Securities Trading Act (Verdipapirhandelloven).
The interim financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Company as the full financial report.
It is recommended that the interim financial report be read in conjunction with the annual report for the year ended 31 December 2013 and considered together with any public announcements made by African Petroleum Corporation during the year ended 31 December 2014 in accordance with the continuous disclosure obligations of Oslo Axess and the NSX Listing Rules.
The interim financial report is presented in United States Dollars being the functional currency of the Company.
The accounting policies adopted are consistent with those disclosed in the annual report for the year ended 31 December 2013.
The preparation of the interim financial report entails the use of judgements, estimates and assumptions that affect the application of accounting policies and the amounts recognised as assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered to be reasonable under the circumstances. The actual results may deviate from these estimates. The material assessments underlying the application of the Company's accounting policies and the main sources of uncertainty are the same for the interim accounts as for the annual accounts for 2013.
The interim financial report has been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.
| Q4 2014 (unaudited) US\$'000 |
Q4 2013 (unaudited) US\$'000 |
YTD Q4 2014 (unaudited) US\$'000 |
YTD Q4 2013 (audited) US\$'000 |
|
|---|---|---|---|---|
| a) Revenue |
||||
| Bank interest income | 28 | 30 | 104 | 210 |
| Other interest income | - | 83 | 645 | 325 |
| Aircraft revenue | 1,642 | 981 | 4,381 | 1,857 |
| Other revenue | 539 | 2 | 903 | 402 |
| 2,209 | 1,096 | 6,033 | 2,794 |
| Q4 2014 (unaudited) US\$'000 |
Q4 2013 (unaudited) US\$'000 |
YTD Q4 2014 (unaudited) US\$'000 |
YTD Q4 2013 (audited) US\$'000 |
|
|---|---|---|---|---|
| b) Employee benefits |
||||
| Employee remuneration | 754 | 835 | 4,429 | 5,361 |
| Director's remuneration | 620 | 551 | 2,614 | 3,255 |
| Share-based payments recognised | 199 | (408) | 1,847 | 2,578 |
| Share-based payments reversed | 284 | 1,241 | (2,163) | - |
| 1,857 | 2,219 | 6,727 | 11,194 |
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Cash at bank and on hand | 3,847 | 7,914 |
| 3,847 | 7,914 |
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Trade receivables2 | 1,889 | 2,109 |
| Loans receivable from related parties 1 | 162 | 1,862 |
| Other receivables | 1,694 | 3,738 |
| 3,745 | 7,709 |
1 Further information on loans receivable from related parties:
c) On 2 October 2014 the Company was issued 233,890,450 shares in International Petroleum Limited (IPL) and granted 5,000,000 two year AUD 0.06 share options in IPL in full satisfaction of USD 13,184,231 owed by IPL to the Company ("Total Loan Amount").
The Total Loan Amount is aggregate of two separate amounts (including interest) owed by IPL to the Company calculated as at 31 July 2014:
As at 31 December 2014, the Company has fair valued the shares and options in IPL at zero.
During the year ended 31 December 2014, a further USD 96,884 (year ended 31 December 2013: USD 379,586) was advanced to IPL to cover an employee's costs in relation to work on the exploration and production sharing contracts in the Republic Niger. The payment was made to protect and preserve the Company's security interest in relation to the loan to IPL as described above.
2 Since 2011, the Company has been charging a director related entity, African Minerals Limited ('AML') for use of the corporate aircraft. At the 31 December 2014 the trade receivables was \$1,633,261 (31 December 2013: \$474,912). Due to the Financing and Operations update released by AML on 1 December 2014, stating AML's ordinary shares will remain suspended while there remains a fundamental uncertainty in the financial position of AML. The AML's operations remain under care and maintenance until a funding solution is achieved. As a result, the Company has provided for this outstanding debt in full within Finance costs.
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Current restricted cash | 12,070 | 12,074 |
| 12,070 | 12,074 |
Restricted cash balances represent interest bearing cash backed security provided in relation to the Company's exploration programmes. The security deposits will be released upon achievement of certain drilling milestones. The classification of restricted cash balances as either current or non-current within the Statement of Financial Position is based on management's estimate of the timing of completion of seismic acquisition and drilling milestones.
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Acquisition cost at beginning of period (1 January) | 403,273 | 354,823 |
| Exploration expenditure incurred and capitalised during the period | 15,432 | 94,788 |
| Impairment | - | (46,338) |
| Disposal of consumable spares | (44) | - |
| Acquisition cost at end of period | 418,661 | 403,273 |
The value of the Company's interest in exploration expenditure is dependent upon:
The Directors' assessment of carrying amount was after consideration of prevailing market conditions, previous expenditure carried out and the potential for the discovery of hydrocarbons. The ultimate value of these assets is dependent upon recoupment by commercial development or the sale of the whole, or part, of the Company's interests in those areas for an amount at least equal to the carrying value.
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|---|---|
| 6,063 | |
| 13,551 | |
| 11,279 | |
| 1,491 | |
| 32,575 | 32,384 |
| 3,756 13,587 15,232 - |
1 An accrual for withholding tax in relation to the Company's exploration activities has been recognised. In certain jurisdictions the Company may be required to withhold payment on services provided by subcontractors. Any such amounts withheld are due to the tax authorities and will be credited against the subcontractors own income tax liability.
2 Other payables include amounts accrued for in respect of exploration activities.
| 31 Dec 2014 No. of shares |
31 Dec 2013 No. of shares |
|
|---|---|---|
| Fully paid ordinary shares | 685,857,457 | 565,144,637 |
| Reconciliation | ||
| Number of outstanding shares at beginning of period (1 January) | 565,144,637 | 565,144,637 |
| Issue of shares pursuant to a capital raising | 120,712,820 | - |
| Number of outstanding shares at the end of period | 685,857,457 | 565,144,637 |
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
| Fully paid ordinary shares | 600,592 | 575,912 |
| Reconciliation | ||
| Amount of outstanding shares at beginning of period (1 January) | 575,912 | 575,912 |
| Issue of shares pursuant to a capital raising | 26,175 | - |
| Capital raising cost | (1,495) | - |
| Amount of outstanding shares at the end of period | 600,592 | 575,912 |
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|---|---|
| 25,795 | |
| (260) | 3,576 |
| 29,111 | 29,371 |
| (11,951) | |
| - | (138) |
| (12,089) | (12,089) |
| 17,022 | 17,282 |
| 29,371 (12,089) |
For management purposes, the Company is organised into one main operating segment, which involves exploration for hydrocarbons. All of the Company's activities are interrelated, and discrete financial information is reported to the Board (Chief Operating Decision Makers) as a single segment. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Cote d'Ivoire | 55,603 | 51,492 |
| Gambia | 557 | 133 |
| Liberia | 291,498 | 291,029 |
| Senegal | 39,240 | 37,952 |
| Sierra Leone | 32,906 | 24,064 |
| United Kingdom | 434 | 2,113 |
| 420,238 | 406,783 |
Subsequent to year-end, on 10 February 2015 African Petroleum announced a private placement to existing and new investors (the "Private Placement") of 271,732,000 new ordinary shares raising NOK 95,106,200 (approximately US\$12.5 million) in gross proceeds at a subscription price of NOK 0.35 per share. Each applicant in in the Private Placement is entitled to be allocated one non-transferable option for every two shares allocated in the Private Placement, corresponding to a total allocation of up to 135,866,000 options. The options have an exercise price of NOK 0.75 per share and will have a two-year life from the date of issue.
The Company intends to complete a further NOK 19 million (approximately US 2.5m) in a subsequent repair offering to retail investors during March 2015.
Subsequent to year-end, on 26 January 2015 African Petroleum announced an update to its prospective oil resources at its 90% owned and operated CI-509 and CI-513 offshore licence blocks in Côte d'Ivoire ("Côte d'Ivoire Licences") and its 100% owned and operated LB-08 and LB-09 offshore blocks in Liberia ("Liberia Licences").
The Company engaged the independent petroleum consultant, ERC Equipoise Ltd ("ERCE"), to prepare an updated assessment of prospective oil resources attributable to the Company's Côte d'Ivoire Licences and Liberia Licences (the "ERCE Audit").
The ERCE Audit of prospective resources includes the addition of eight new prospects and has taken into account information gathered from third party drilling campaigns in the margin during 2014, particularly the oil discovery made by Total in CI-514 in April 2014. The ERCE Audit, in conjunction with the ERCE Competent Persons Report April 2014 ("April 2014 CPR"), estimates the net prospective oil resources relating to the Côte d'Ivoire Licences and Liberia Licences are as follows:
| Licence | Mean (MMstb) | % Increase in Net Risked | ||
|---|---|---|---|---|
| Net Unrisked Prospective Oil Resources |
Net Risked Prospective Oil Resources |
Prospective Oil Resources from April 2014 CPR |
||
| Côte d'Ivoire | ||||
| CI-513 & CI-509 | 2,130 | 456 | 118% | |
| Liberia | ||||
| * LB-08 & LB-09 | 4,192 | 662 | 33% | |
| Total Updated Portfolio Côte d'Ivoire & Liberia |
6,322 | 1,118 | 58% |
*Liberia values include four (4) new prospects reviewed in the ERCE Audit as well as unchanged prospects from April 2014 CPR
The impact of de-risking through regional third party drilling activity in Côte d'Ivoire and the addition of new Turonian and Cenomanian prospects as outlined in the ERCE Audit translates into the addition of 410 MMstb in the net risked mean prospective oil resources from the April 2014 CPR (increase of 58%).
The Company has entered into obligations in respect of its exploration projects. Outlined below are the minimum expenditures required as at 31 Dec 2014:
| 31 Dec 2014 US\$'000 |
31 Dec 2013 US\$'000 |
|
|---|---|---|
| Within one year | 54,344 | 40,507 |
| After one year but not more than five years | 40,533 | 66,611 |
| More than five years | - | - |
| 94,877 | 107,118 |
The carrying values of financial assets and financial liabilities at 31 December 2014 approximates their fair values.
| African Petroleum Corporation – I nterim financial report for the fourth quarter 2014
| DIRECTORS | AUDITORS |
|---|---|
| Charles Matthews - Chairman | Ernst & Young |
| Stuart Lake - Chief Executive Officer | 11 Mounts Bay Road |
| Mark Ashurst | Perth |
| Gibril Bangura | Western Australia 6000 |
| Jeffrey Couch | |
| David King | Telephone: +61 8 9429 2222 |
| Bjarne Moe | Facsimile: +61 8 9429 2436 |
| Timothy Turner | |
| Anthony Wilson | SHARE REGISTRAR |
| Computershare Investor Services Pty Ltd | |
| COMPANY SECRETARY | Level 2, 45 St George's Terrace |
| Angeline Hicks | Perth |
| Western Australia 6000 | |
| REGISTERED OFFICE | |
| 32 Harrogate Street | Telephone: +61 8 9332 2000 |
| West Leederville | Facsimile: +61 8 9323 2033 |
| Western Australia 6007 | |
| STOCK EXCHANGE LISTING | |
| Telephone: +61 8 9388 0744 | |
| Facsimile: +61 8 9382 1411 | Oslo Axess |
| Code: APCL | |
| HEAD OFFICE | |
| 5 Stratton House | National Stock Exchange of Australia |
| Stratton Street | |
| London W1J 8LA | Code: AOQ |
| United Kingdom | |
| Telephone: +44 203 435 7700 | |
| Facsimile: +44 203 435 7701 |
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