Final Results

RNS Number : 7268C

Lekoil Limited

30 June 2016

Lekoil Limited

("Lekoil", the "Group" or the "Company")

Final Results for the Year to 31 December 2015

Lekoil (AIM: LEK), the Africa focused oil and gas exploration and production company with interests in Nigeria and Namibia, announces final audited results for the year to 31 December 2015. All figures are in US dollars unless otherwise indicated.

Highlights

Operational

· Converted a significant proportion of the 56.75mmbbls 2C Contingent Resources at Otakikpo to Proven (1P) and Proven and Probable (2P) Reserves in January 2015.

o Phase 1 gross 1P Proved Reserves of 8.43 mmbbls (net to Lekoil: 3.03 mmbbls).

o Phase 1 gross 2P Proved and Probable Reserves of 14.99 mmbbls (net to Lekoil: 5.40 mmbbls).

o Phase 2 gross 2C unrisked Contingent Resources of 41.61 mmbbls (net to Lekoil: 14.98 mmbbls).

· Received Nigerian Ministerial consent for Otakikpo farm-in in June 2015.

· Successfully performed production tests at Otakikpo.

o Production tested the lower E1 zone and flowed oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke.

o Production tested the C5 and C6 zones post period end in April 2016. The C5 zone flowed oil at a peak rate of 6,404 bopd at a 36/64 inch choke and the C6 zone flowed oil at a peak rate of 5,684 bopd at a 36/64 choke.

· No material health and safety incidents experienced throughout the reporting period. Safety remains the highest priority to Lekoil.

Corporate

· Increased ownership of appraisal asset OPL 310, which includes the Ogo discovery, and became the technical and financial partner (subject to Nigerian Ministerial consent) of the block. Consolidated participating interest of 40% and an economic interest of 70%.

· Acquired a 62% economic interest in OPL 325, which is depositionally on trend with OPL 310 but 100km to the south.

· Appointment to the Board of Directors of Mr. Hezekiah Adesola Oyinlola as a Non-Executive Director on 26 June 2015.

Financial

· Executed a US$10 million 12-month bridge facility in May 2015 from FBN Capital to part fund initial development costs of Otakikpo.

· Completed a successful, oversubscribed equity fund raise of US$46 million in October 2015 to fund the OPL 310 and OPL 325 acquisitions and to provide additional working capital.

· Cash and cash equivalents of US$26.0 million (2014: US$49.2 million) at period end.

· Refinanced existing US$10 million facility from for a term of three years and secured a new 2 billion Naira (US$ 10 million at a 199NGN:1USD exchange rate as of the disbursement date of 16 June 2016) with FBN Capital.

· Executed a new 5 billion Naira (US$17.7 million at a 284NGN:1USD exchange rate as of 29 June 2016) debt facility with Sterling Bank Plc. in June 2016. The facility has a term of three years and is subject to fulfillment of conditions precedent.

Samuel Adegboyega, Chairman, said, "At Lekoil, we believe our strategy to concentrate on low risk assets places us in the best possible position to manage the challenges a low oil price represents. By continuing to execute our strategic plan in a timely and eﬃcient manner, we will ensure that our company will not just survive but thrive."

Lekan Akinyanmi, Lekoil's CEO, added, "As we transition into a producing company, we believe Lekoil will grow further in the coming years - even in a prolonged lower oil price environment. Our focus remains on growing our cash ﬂow and production base at Otakikpo, appraising the signiﬁcant Ogo discovery on the OPL 310 licence, exploring the possibilities in OPL 325 and subject to ﬁnancing being available, acquiring further assets that we consider will add value for the beneﬁt of our shareholders."

For further information, please visit www.lekoil.com or contact:

Lekoil Limited

Alfred Castaneda, Investor Relations

Hamilton Esi, Corporate Communications

+44 20 3434 5800

+44 20 7920 3150

Strand Hanson Limited (Financial & Nominated Adviser)

James Harris / James Spinney / Ritchie Balmer

+44 20 7409 3494

Mirabaud Securities LLP (Joint Broker)

Peter Krens / Edward Haig-Thomas

+44 20 7878 3362 / +44 20 7878 3447

BMO Capital Markets (Joint Broker)

Neil Haycock / Thomas Rider

+44 20 7236 1010

Tavistock (Financial PR)

Simon Hudson / Ed Portman / Merlin Marr-Johnson

+44 20 7920 3150

Chairman and CEO's Statement

Introduction

2015 was challenging for the upstream oil and gas sector. A 46 per cent reduction from 2014 to 2015 in the average Brent oil price ended in a low for Brent of US$37/bbl at the end of 2015 which meant the sector remained out of favour with generalist investors. Despite this, Lekoil Limited successfully delivered on a number of key objectives. The Company conducted its ﬁrst well test at the Otakikpo ﬁeld (Otakikpo) and increased its ownership of OPL 310 which includes the Ogo oilﬁeld to a 40 per cent participating interest, subject to obtaining Ministerial consent and concluding ongoing negotiations with Optimum (the Licence holder) successfully. The Company also completed a successful, oversubscribed equity fund raise of US$46 million despite difficult market conditions, and added the highly prospective OPL 325 interest to the exploration portfolio.

These events underpin the continued execution of our strategy of building a diversiﬁed African exploration and production group, carefully selected partnerships and strategic acquisitions to keep our risk proﬁle low and accrue value for investors and other stakeholders.

Key Events

The year began in a positive fashion when the Group announced it had converted a signiﬁcant portion of the 56.60 mmbbls of 2C Contingent Resources at Otakikpo to Proven (1P) and Proven and Probable (2P) Reserves. Also, as part of an updated Competent Person's Report, independent consultants AGR TRACS underlined the robust economics of the Otakikpo project under lower oil price scenarios.

During the ﬁrst half of the year, contracts for the Phase-1 Field Development Plan for Otakikpo, which included the drilling rig and well services, were tendered and awarded. In June, full Ministerial consent was granted for the transfer of the 40 per cent participating stake in the Otakikpo ﬁeld and we moved into an operational phase.

As formally announced, we faced logistical challenges in developing the site relating to road remediation and the building of a temporary bridge in order to bring equipment to site. As a result of these works, the surrounding host communities have gained a signiﬁcant socio-economic advantage. Prior to rig mobilisation, large tracts of swamp land were reclaimed by sand-ﬁlling and land consolidation. Once a sleepy town, Ikuru now boasts signiﬁcant commercial activity, with a cottage industry providing support services to the workers at the rig sites and other allied workers.

The team also faced challenges while re-entering the Otakikpo-002 well. In July, a critical safety issue was identiﬁed while well re-entry operations were underway. Work paused brieﬂy until the issue was resolved fully. No injuries were recorded during the period and safety remains a key priority for the Company. We continue to apply the highest standards to our operations.

On 7 September 2015, the Group announced that the lower E1 zone produced from the ﬁrst of four planned production tests, ﬂowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke. However, during completion operations the well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. Subsequent to year end, the Group announced on 13 April 2016 that the Otakikpo-002 well ﬂowed oil from two upper zones during two production tests concluded on 10 April 2016. The C5 zone ﬂowed at a peak rate of 6,404 bopd at a 36/64 choke and the C6 zone successfully ﬂowed oil at a peak rate of 5,640 bopd at a 36/64 inch choke. Production testing at the well was curtailed due to storage capacity limits on well-testing equipment. Following this well test, preparations were put in place to start re-entry operations on the Otakikpo-003 well and for onsite storage and evacuation infrastructure to be completed.

On the corporate front, there have also been notable achievements. In October, the Company agreed to acquire an indirect controlling interest in Ashbert Oil and Gas Limited (Ashbert) and signed a shares sales and purchase agreement with Ashbert to this effect. Lekoil Limited is in the process of seeking clariﬁcations as to whether or not Ministerial consent is required to gain full operational control of Ashbert. Six weeks later the Company announced the acquisition of the shares of Afren's participating interest and economic interest in OPL 310 for US$13 million. This acquisition is subject to approval by the Minister of Petroleum Resources of Nigeria, which the Board of Directors is optimistic will be obtained.

These major acquisitions were funded from internal resources and by the successful placing of shares to raise US$46 million, which was completed in October. Both acquisitions are exactly in line with the strategy we outlined when the Company came to the Alternative Investment Market in 2013 to seek core assets within the 'stability', 'value' and 'optionality' zones. Attention now turns towards unlocking value from our portfolio of highly prospective assets driven by reserves and production.

During the year, we have further strengthened both the Board and the core management team. While we bid farewell to CFO David Robinson - who goes with our thanks - we added a new non-executive Director with the appointment of Hezekiah Adesola Oyinlola. Mr Oyinlola brings a wealth of industry experience to the Board having been Chairman of Africa at Schlumberger prior to joining Lekoil Limited. The Group had a total of 56 people across three continents as at 31 December 2015.

Positioning Lekoil in a Low Oil Price Environment

In July 2014 oil was trading at over US$100 a barrel on the spot market. By January of 2016 prices were trading below US$30 a barrel. This clearly means that this is a challenging market for everyone in the oil and energy space through the whole value chain from exploration to services. Industry sentiment appeared to change over the reporting period from 'denial' and 'depression' to 'acceptance' that the low oil price environment is the new reality in the short (and possibly medium) term. It is up to management teams to navigate their respective companies through these challenging times.

Given the prevailing market conditions, we have prioritised the allocation of capital to our production and development assets to generate short-term cash ﬂow and compelling economic returns. The Group is therefore focused on extracting value from the 'stability' zone of its portfolio and anticipates limited exploration expenditure under these current conditions. Exploration on the Company's highly prospective assets gives the Group plenty of optionality for the future. In 2016, Lekoil successfully raised additional debt finance of US45 million after complying with the pre-debt covenants. These funds will be used to accomplish planned activities on the Otakikpo field.

Summary Outlook

At Lekoil Limited, we believe our strategy to concentrate on low-risk assets places us in the best possible position to manage the challenges a low oil price represents. By concentrating on continuing to execute our strategic plan in a timely and eﬃcient manner, we will ensure that our company will not just survive but thrive.

Operational Review

Otakikpo Marginal Field

Introduction

The pace of progress at Otakikpo during the 12 month period to December 2015 was pleasing and the site changed markedly over that time. It was, however, not without its challenges along the way and the Company's operations team gained valuable experience after overcoming a number of signiﬁcant logistical obstacles and drilling related interruptions.

Subsequent to year end, the Group announced on 13 April 2016 that the Otakikpo-002 well ﬂowed oil from two upper zones during two production tests concluded on 10 April 2016. The C5 zone ﬂowed at a peak rate of 6,404 bopd at a 36/64 choke and the C6 zone successfully ﬂowed oil at a peak rate of 5,640 bopd at a 36/64 inch choke. Production testing at the well was curtailed due to storage capacity limits on well-testing equipment.

Background

The Otakikpo marginal field (Otakikpo) lies in a coastal swamp location in Oil Mining Lease (OML) 11, adjacent to the shoreline in the south-eastern part of the Niger Delta. OML 11 is held by the Shell Petroleum Development Company Joint Venture (SPDCJV) which includes the Nigerian National Petroleum Corporation, the Shell Petroleum Development Company of Nigeria Limited, Total Exploration & Production Nigeria Limited and Nigerian Agip Oil Company Limited. Otakikpo was awarded to Green Energy International Limited ("Green Energy" or "GEIL") by the Department of Petroleum Resources in 2011.

In May 2014, the Group acquired a 40 per cent participating and economic interest in Otakikpo from Green Energy. As consideration for acquiring the interest, Lekoil Limited paid a signature bonus of US$7 million. Lekoil Limited received Ministerial consent to complete the transfer of the 40 per cent participating interest in Otakikpo from the Honourable Minister of Petroleum Resources of Nigeria in June 2015. The Group is due to pay a production bonus of US$4 million to Green Energy International Limited (GEIL) once production of 2,000 bopd is achieved for 30 consecutive days. Final payment is expected to be met from existing resources.

The Company holds 90 per cent of the economic interests in its subsidiary, Lekoil Nigeria Limited. Lekoil Limited's economic interest in Otakikpo therefore equates to 36 per cent The Field Development Plan consists of two phases. Phase 1 comprises the re-completions of two wells, Otakikpo-002 and Otakikpo-003 with the installation of an Early Production Facility of 10,000 bopd capacity and export via shuttle tanker. Phase 2 covers the subsequent incremental development of the rest of the ﬁeld with a new Central Processing Facility and seven new wells.

2015 Activity

In January 2015, AGR TRACS updated the Group's original Competent Person's Report (CPR) from September 2014, verifying the conversion of a signiﬁcant portion of the asset's 2C Resources into 1P & 2P Reserves. AGR TRACS also conﬁrmed the robustness of the asset's economics under various oil price scenarios.

Prior to rig mobilisation, the Company successfully overcame a series of logistical challenges relating to land reclamation, road remediation and the building of a temporary bridge in order to transport the necessary equipment to site. Our host communities played a key role in helping the Group to overcome these hurdles by supplying the necessary labour. As a result of the surrounding communities supporting us with this work they gained a signiﬁcant socio-economic boost.

In July, the rig had been mobilised, transported to site and assembled, and re-entry activities on well-002 were progressing well when the rig crew identiﬁed a potentially critical safety issue around the crown block of the drilling rig. Thanks to the quick reactions of the rig crew no injuries were sustained and a temporary suspension of re-entry activities was implemented to repair the rig. Re-entry activities recommenced in August and on 5 September 2015, well testing was conducted on the first string of Otakikpo-002 with first oil flowing to surface.

Based on the positive ﬂow test and well test results from September 2015 and April 2016, we had suﬃcient conﬁdence to raise the production proﬁle guidance of Phase 1 of the Field Development Plan at Otakikpo to approximately 10,000 bopd, up from our original guidance of 6,000 bopd.

On 7 September 2015, the Group announced that the lower E1 zone produced from the ﬁrst of four planned production tests, ﬂowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke significantly ahead of expectations. However, during completion operations the well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. Subsequent to 31 December 2015, attention then turned to testing the upper C5 and C6 zones, ﬁnalising the early production facility and evacuation infrastructure and preparing Otakikpo-002 for an extended well test. The extended well test determined the optimal production rate that maximises value from the well and was completed on 10 April 2016. Commercial production from Otakikpo-002 is expected to commence in Q3 2016.

Otakikpo is central to the Company's future expansion plans and based on the identiﬁed 2C resources and upside potential of the ﬁeld, we believe that following the implementation of Phase 2 of the Field Development Plan peak production could reach 20,000 bopd. The Company is at an advanced stage as regards securing the necessary debt facilities to finance the development through to Phase 2 and beyond.

Community Relations

Having signed Memoranda of Understanding (MoUs) with the leaders of our host community, Ikuru, and the other nearby host communities of Ugama Ekede, Ayama Ekede, Asuk Ama and Asuk Oyet, in the Andoni Local Government Area of Rivers State surrounding the Otakikpo field in December 2014, we proactively set about fulﬁlling our obligations. The Group embraces its responsibilities to assist in the development of the surrounding communities and to improve the quality of life of its residents.

Following engagement with leaders of the local communities, it was clear that providing medical support was one of the key requirements. During the reporting period, Lekoil Limited successfully conducted two major medical outreach programmes to Asuk Ama, Asuk Oyet, Ugama Ekede and Ayama Ekede, and the Company delivered trained professionals equipped with health services and supplies to the communities. A comprehensive immunisation programme was undertaken at all four villages and over ﬁve thousand children were inoculated. As Otakikpo is developed additional programmes will be rolled out and will address the communities' needs of health, education and skills enhancement.

In addition, Lekoil Limited and its Joint Venture partner GEIL, commissioned two sets of housing units which were donated to the Nigerian Navy for use by its Oﬃcers at the base in the host community of Ikuru. Construction of these units began on 27 August 2015 and was completed on 30 November 2015. The funds for the project were drawn from a Trust Fund which is disbursed annually to the community to implement projects of its choice, and in line with its immediate and long-term priorities - particularly as these relate to community security, poverty reduction, employment creation and wealth generation.

Ogo Discovery and OPL 310 - Appraisal and Exploration Asset

Introduction

Following Afren Investments Oil and Gas (Nigeria) Limited's (Afren Oil & Gas ) difficulties, the Group made a major breakthrough by acquiring Afren Oil & Gas's shares which holds a 22.86 per cent participating interest in the OPL 310 block. This acquisition marked the culmination of a considerable amount of work by our commercial team and it signiﬁcantly enhances Lekoil's position in a key exploration asset taking the Company's participating interest to 40 per cent subject to Ministerial consent and ﬁnalisation of arrangements with Optimum Petroleum Development Limited (Optimum). On 24 October 2015, Optimum and Mayfair Assets and Trusts Limited (Mayfair) being a subsidiary of the Group, executed a non-binding term sheet setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310, together with a plan to draft and execute deﬁnitive agreements within 4 to 6 weeks. The deﬁnitive agreements are yet to be executed as negotiations are still ongoing.

The licence hosts world class exploration and appraisal potential at the Ogo ﬁeld and also further upside potential in several other targets. Lekoil Limited and Optimum are now free to focus on accelerating appraisal work on the licence as 3D seismic interpretation work has been completed. The partners then expect to be in a position to make a decision whether to spud an appraisal in 2017. We are hopeful that the definitive agreements would be entered into shortly.

OPL 310 Status

2015 Status	Exploration: 3D seismic interpretation
Participating interest (subject to Ministerial consent)	40 per cent
Partner	Optimum Petroleum Development Limited
Gross 1P Reserves	-
Gross 2P Reserves	-
Gross 2C Resources	-
P50 Gross Risked Prospective Resources	774.0 mmboe

Under the terms of the agreement, Lekoil Limited will carry partners until production and be entitled to an accelerated recovery from net cash ﬂow until it recovers 150 per cent of costs after which it reverts to a share of 40 per cent of net cash ﬂow. Lekoil Limited will also make certain recoverable prepayments to Optimum at certain production milestones.

The OPL 310 licence is located in the Upper Cretaceous fairway that runs along the West African Transform Margin. The block extends from the shallow water continental shelf close by the City of Lagos, Nigeria into deeper water. The main prospects within the licence area are in water depths ranging from 100 to 800 metres and are within close proximity to the West Africa Gas Pipeline.

On 1 February 2013, Mayfair Assets and Trust Limited farmed into Afren Investments Oil and Gas (Nigeria) Limited's interest in OPL 310 for a 17.14 per cent participating interest and 30 per cent economic interest. The economic interest would mirror the participating interest after cost-recovery. The Group's right to the participating interest remains subject to Ministerial consent to the farm-in agreement. Later that year the ﬁrst exploration well (Ogo-1) drilled by the OPL 310 partners - then consisting of Optimum, Lekoil and Afren - was the Ogo prospect, a four-way dip-closed structure in the Turonian to Albian sandstone reservoirs. The drilling programme included a planned side-track well (Ogo-1 ST) which aimed to test a new play of stratigraphically trapped sediments at the basement of the Ogo prospect.

The Ogo-1 well encountered a gross hydrocarbon section of 524ft, with 216ft of net stacked pay whilst the Ogo-1 ST well encountered the same reservoirs as Ogo-1 in addition to the syn-rift section which encountered a 280 ft vertical section gross hydrocarbon interval. Owing to well data collected from the two wells, the partners estimated P50 gross recoverable resources to be at 774 mmboe across the Ogo prospect four-way dip-closed and syn-rift structure.

On account of the size of the block and early stage nature, the OPL 310 partners agreed the next phase of work would be to conduct a 3D seismic programme to acquire suﬃcient data to high grade and de-risk prospects surrounding the Ogo discovery. In May 2014, the partners completed a 1,505 square kilometre 3D seismic acquisition programme, which represented approximately 80 per cent of the acreage within OPL 310. Processing and interpretation of the acquired 3D seismic data commenced in H2 2014 and has been completed.

2015 Activity

On 31 July 2015, Afren Plc, the parent company of Afren Oil & Gas that held interests in the OPL 310 licence, was put into administration and its assets put up for sale. Lekoil moved quickly to protect its interests in OPL 310 by taking legal action to apply for an injunction that meant Afren Oil & Gas could not dispose of its interest in OPL 310. The Company then began discussions with the administrator of Afren Plc for the potential acquisition of its subsidiary interests in OPL 310.

On 25 November 2015, the Company entered into an agreement with the administrator of Afren Plc and Afren Nigeria Holding Limited to acquire the shares of Afren Oil & Gas which held a 22.86 per cent participating interest in OPL 310 for a total consideration of US$13 million. The acquisition remains conditional upon receiving Ministerial consent. Following the acquisition of Afren's interests in OPL 310, the Group formalised and executed a non-binding term-sheet with Optimum setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310, together with a plan to draft and execute deﬁnitive agreements within 4 to 6 weeks. The deﬁnitive agreements are yet to be executed as negotiations are still ongoing.

Following the signiﬁcant delay caused by Afren Plc's insolvency and administration, the acquisition of Afren Plc's interest in OPL 310 allows Lekoil and Optimum to progress with exploration activities and ﬁeld appraisal planning as soon as the acquisition is approved by the relevant authorities in Nigeria.

OPL 325 - Exploration Asset

Introduction

In line with our strategy of building a balanced portfolio of assets and our vision of becoming the world's leading exploration and production Company focused on Africa, the acquisition of an 88.57 per cent share interest in Ashbert Limited makes good strategic and economic sense, and it gives the Company optionality over potentially signiﬁcant reserves going forward. Lekoil is in the process of seeking clariﬁcations as to whether or not Ministerial consent is required to gain full operational control of Ashbert Limited. As such, the financial statements of Ashbert Limited have not been consolidated as at 21 December 2015. .

The prospectivity of the licence was ﬁrst identiﬁed by the Group's geotechnical team during its proprietary Dahomey Basin study conducted in 2011 and 2012. The team believes it to be highly prospective and on trend with OPL 310 geologically. The low-cost entry and proliﬁc geology in a basin the Lekoil exploration team knows extremely well represents an outstanding opportunity for the Company, and concludes the search for the ﬁnal piece of the jigsaw to create a balanced portfolio of assets which can maximise value for shareholders.

2015 Activity

In October, Lekoil entered into an agreement with Ashbert Limited to acquire, via Lekoil Exploration and Production Nigeria Limited (LEPNL), 88.57 per cent of the issued share capital of Ashbert Limited, which was awarded OPL 325 licence. Lekoil is in the process of seeking clariﬁcations as to whether or not Ministerial consent is required to gain full operational control of Ashbert Limited. The other licence partners to OPL 325 are National Petroleum Development Company Ltd (NPDC) (20 per cent working interest) and Local Content Vehicle (10 per cent net working interest). The Production Sharing Contract is yet to be finalised.

In connection with the agreement, Lekoil has entered into a loan agreement with Ashbert Limited pursuant to which it has agreed to lend Ashbert Limited an aggregate amount of US$40 million to enable Ashbert Limited to pay a US$16 million signature bonus to the Department of Petroleum Resources (DPR) and further amounts totalling US$24 million which will be payable in equal instalments upon the conversion of the OPL to an OML and upon ﬁrst commercial production. The Group is expected to retain control of operatorship on execution of deﬁnitive agreements and will lead the negotiation of the Production Sharing Contract terms.

Financial

The results for the year ended 31 December 2015 showed a total loss of US$18.7 million, as compared to US$11.9 million in 2014. Cash balances at the year-end totalled US$26 million, while the balance at the end of 2014 was US$49.2 million.

We raised an additional US$46 million equity in October 2015 to fund the completion of the acquisitions of Afren's interest in OPL 310, an interest in OPL 325 and part of the development of Otakikpo.

Directorate changes

· In June 2015, David Robinson stepped down as the Company's Chief Financial Officer by mutual consent

· Also in June, Mr Hezekiah Adesola Oyinlola joined the Board as a non-executive Director.

Mr Oyinlola was most recently Chairman of Africa at Schlumberger and was also the President of the Schlumberger Foundation, a non-proﬁt corporate foundation. Having worked with Schlumberger for 30 years, Mr Oyinlola has held a number of senior operational positions across the world, including Vice President and Global Treasurer, and Managing Director for Nigeria and West Africa.

Outlook

As we transition to a producing company, we believe Lekoil Limited will grow further in the coming years - even in a prolonged lower oil price environment. Our focus remains on growing our cash ﬂow and production base at Otakikpo, appraising the signiﬁcant Ogo discovery on the OPL 310 licence, exploring the possibilities in OPL 325 and, subject to ﬁnancing being available, identifying appropriate opportunities which met our strategic antenna, acquiring further assets that we consider will add value for the beneﬁt of our shareholders.

We are sincerely grateful for the support shown by our investors, the Nigerian Government, the local communities we operate in, and our entire workforce who are allowing us to turn our vision into a reality.

Samuel Adegboyega	Olalekan Akinyanmi
Chairman	Chief Executive Officer

29 June 2016

Financial review

Overview

In the twelve months ended 31 December 2015, the Group recorded an operating loss of US$22.8 million (2014: US$11.8 million) and ended the period with cash and cash equivalents of US$26.0 million (2014: US$49.2 million). Included in the cash and cash equivalents balance is restricted cash amounting to US$0.5 million relating to cash security pledged as collateral for bank guarantees issued on behalf of Lekoil Oil and Gas Investment Limited during the year.

In May 2015, Lekoil Oil and Gas Investments Limited (a wholly owned subsidiary of Lekoil Limited), entered into a Note Issuance Agreement with FBN Capital Limited (FBN Capital) and subsequently received a debt ﬁnance of US$10 million for the Otakikpo ﬁeld development secured over the assets of Lekoil Oil and Gas Investments Limited. The Company (Lekoil Limited) issued an unconditional guarantee in favour of FBN Capital for the payment of all principal and interest due on the loan, in the event of default by Lekoil Oil and Gas Investments Limited.

In June 2015, Lekoil Oil and Gas Investments Limited obtained Ministerial approval for the 40 per cent participating interest acquired in the Otakikpo marginal field following the farm-in agreement with GEIL in May 2014.

On 31 July 2015, Afren plc, the ultimate parent company of Afren Investments Oil and Gas (Nigeria) Limited (Afren Oil & Gas) the co-venturer with Optimum Petroleum Development Limited (Optimum) on OPL 310 and whose interest Mayfair Assets & Trust Ltd. (Mayfair) farmed into in February 2013 went into Administration. Subsequent to this event, on 30 November 2015, Lekoil 310 Limited (a subsidiary of Lekoil Limited) entered into a Share Sales and Purchase Agreement (SPA) with the administrators of Afren Plc, relating to the entire issued share capital of Afren Oil & Gas and certain intra-company debt. This Share Sales and Purchase Agreement, which is subject to the approval of the Minister of Petroleum Resources of Nigeria, was entered into in a bid to secure the investment of Mayfair Assets and Trust Limited in OPL 310 given the ﬁnancial situation of Afren Plc. The Ministerial consent required, which is a substantive regulatory approval, is yet to be obtained. Accordingly, the ﬁnancial statements of Afren Oil & Gas, have not been consolidated in these ﬁnancial statements.

On 1 September 2015, Lekoil Exploration and Production Nigeria Limited, in line with the Group's continuing strategy of assembling a balanced portfolio of oil and gas interests, acquired a controlling interest in Ashbert Oil and Gas Limited (Ashbert), a Company incorporated in Nigeria and awarded OPL 325 Licence by the Nigerian Government in 2005. All necessary documents relating to change in Directors and shareholders have been ﬁled with relevant authorities. The ﬁnancial statements of Ashbert have not been consolidated in these ﬁnancial statements as Lekoil is in the process of seeking clariﬁcations as to whether or not Ministerial consent is required to gain full operational control of Ashbert Oil and Gas Limited.

On 7 September 2015, the Group announced that the lower E1 zone of the Otakikpo-002 well produced from the ﬁrst of four planned production tests, ﬂowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke. However, during completion operations the well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. To keep Phase 1 of the Field Development Plan ("FDP") on track and under budget, the Company prioritised production from the second and third planned production zones, in the C5 and C6 reservoirs, and will pursue development options for the E1 zone in the future.

On 24 October 2015, Optimum and Mayfair (a subsidiary of Lekoil Limited) executed a non-binding term sheet setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310, together with a plan to draft and execute deﬁnitive agreements within 4 to 6 weeks. This non-binding term sheet deﬁned an expected minimum work programme of one well on OPL 310 expected to be drilled in 2016 and also designated Lekoil as the technical and ﬁnancial partner. In addition, amongst other terms, the term sheet anticipates that 100 per cent of Afren Oil & Gas ' pre-drill cost and 60 per cent of Afren Oil & Gas ' post-drill cost of US$30.0m and US$49.2m respectively, will be recovered by Optimum and the balance of Afren Oil & Gas ' post-drill cost of US$19.68m by Mayfair. The deﬁnitive agreements are yet to be executed as negotiations are still ongoing. Until such agreements are concluded, in the view of the Directors, the agreements between Optimum and Afren Oil & Gas and by extension the agreements between Afren Oil & Gas and Mayfair remain in force.

On 28 October 2015, Lekoil Limited completed the placing of 125,200,000 new ordinary shares at US$0.37 (24 pence) per share with certain existing and new institutional and other investors via an accelerated book build (the "Placing") and raised gross proceeds of approximately US$46 million. The realised net proceeds of approximately US$44 million is being used to fund the acquisition of an indirect controlling interest in OPL 325, (located to the south of OPL 310 in the Dahomey Basin) oﬀshore Nigeria as well as for other corporate uses and for general working capital purposes, including the payment of fees associated with the Placing.

On 18 November 2015, in accordance with the Note Issuance Agreement with FBN Capital, Lekoil Oil and Gas Investments Limited elected to exercise the option to re-issue the Notes and subsequently paid US$2,000,000 plus a re-issue fee of US$80,000. In February 2016, the Company repaid US$3,000,000 and afterwards re-issued the Notes for a ﬁnal redemption date of August 2016

The Notes bear interest at a rate referencing 90-day LIBOR plus 12 per cent per annum. There are ongoing discussions with other ﬁnancial institutions for the provision of debt facilities for the Otakikpo marginal ﬁeld development and to ﬁnance the acquisition of other assets. In 2016, Lekoil successfully raised additional debt finance of US $45 million after complying with the pre-debt covenants. These funds will be used to accomplish planned activities on the Otakikpo field.

Well re-entry operations on Otakikpo Well 003 began in June 2016 targeting the E1 and C6 zones. The Company expects to start commercial production from both Otakikpo 002 and 003 in Q3 2016.

Full year results

The Group recorded a total comprehensive loss of US$18.7 million for the year ended 31 December 2015 (2014: US$11.9 million).

Administrative expenses and operating loss

Administrative expenses and operating losses were US$22.8 million compared to US$11.8 million for the same period in 2014. The increase in administrative expenses is due to increases in staﬀ strength, technical fees, legal fees, consultancy fees, corporate services, impairment loss on investments in OPL 241, community expenses and security expenses. All these reflected the Group's build-up in operational and other activities in the year.

Income tax

No income tax was payable for the twelve months ended 31 December 2015 (2014: Nil).

Capital expenditure

The Group's capital expenditure during the year ended 31 December 2015 amounted to US$12.5 million compared to US$18.5 million incurred for the same period in 2014. Capital expenditure during the period was primarily associated with development expenditure on the Otakikpo marginal ﬁeld as well as exploration and exploitation expenditure on OPL 310.

Cash and cash equivalents

The Group had cash and cash equivalents of US$26.0 million as at 31 December 2015 (2014: US$49.2 million). Included in the cash and cash equivalents balance is restricted cash amounting to US$0.5 million relating to cash security pledged as collateral for bank guarantees issued on behalf of Lekoil Oil and Gas Investments Limited during the year.

Short-term loans

The Group had a short-term loan payable to FBN Capital of US$8.2 million as at 31 December 2015 (2014: Nil).

Summary statement of ﬁnancial position

The Group's non-current assets increased from US$122.4 million at 31 December 2014 to US$164.8 million at 31 December 2015, reﬂecting expenditures on the Otakikpo marginal ﬁeld, the Ogo discovery and the OPL 325 acquisition. Current assets represent the Group's cash resources, other assets and other receivables, which increased from US$54.1 million as at 31 December 2014 to US$56.9 million as at 31 December 2015, mainly reﬂecting an increase in GEIL's share of joint operation costs on the Otakikpo ﬁeld. Current liabilities consists of a short-term loan from FBN Capital amounting to US$8.2 million, trade and other payables which increased from US$2.6 million to US$9.5 million and deferred income which increased from US$0.2 million to US$3.1 million as at 31 December 2015.

Dividend

The Directors do not recommend the payment of dividend for the year ended 31 December 2015 (2014: Nil).

Accounting policies

The Group's signiﬁcant accounting policies and details of the signiﬁcant judgments and critical accounting estimates are disclosed within the notes to the ﬁnancial statements. The Group has not made any material changes to its accounting policies in the twelve months ended 31 December 2015.

Liquidity risk management

The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for diﬀerent scenarios including changes in timing of production and cost overruns of development and exploration activity. At 31 December 2015, the Group had liquid resources of approximately US$26.0 million, in the form of cash and cash equivalents, which are available to meet ongoing capital, operating and administrative expenditure. The Group's forecasts, taking into account reasonably possible changes as described above, show that the Group expects to have suﬃcient ﬁnancial resources for the 12 months from the date of approval of these consolidated ﬁnancial statements.

Daniel Barcelo

Head, Corporate Finance

29 June 2016

Statement of Directors' Responsibilities in Relation to the Consolidated Financial Statements for the year ended 31 December 2015

The Directors accept responsibility for the preparation of the consolidated ﬁnancial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union.

The Directors further accept responsibility for maintaining adequate accounting records and for such internal control as the Directors determine is necessary to enable the preparation of consolidated ﬁnancial statements that are free from material misstatement whether due to fraud or error.

The Directors have made an assessment of the Group's ability to continue as a going concern and as disclosed in Note 2(b), believe the Group will remain a going concern in the year ahead.

SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:

Olaekan Akinyanmi	Daniel Barcelo
Chief Executive Officer	Head, Corporate Finance

29 June 2016

INDEPENDENT AUDITOR'S REPORT

To the Members of Lekoil Limited

We have audited the accompanying ﬁnancial statements of Lekoil Limited ("the Company") and its subsidiary companies (together "the Group"), which comprise the consolidated statement of ﬁnancial position as at 31 December 2015, the consolidated statement of proﬁt or loss and other comprehensive income, consolidated statement of changes in equity, consolidated statement of cash ﬂows for the year then ended, a summary of signiﬁcant accounting policies, and other explanatory information as set out below.

Directors' Responsibility for the Financial Statements

The directors are responsible for the preparation of the consolidated ﬁnancial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union 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.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated ﬁnancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁnancial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated ﬁnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated ﬁnancial statements that give a true and fair view 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the ﬁnancial statements.

We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, these consolidated ﬁnancial statements give a true and fair view of the consolidated ﬁnancial position of Lekoil Limited and its subsidiaries as at 31 December 2015, and of the consolidated ﬁnancial performance and consolidated cash ﬂows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union

Emphasis of matter

Without qualifying our opinion, we draw attention to note 2(b) to these consolidated ﬁnancial statements which describe the principal events or conditions that may cast signiﬁcant doubt on the Group's ability to continue as a going concern.

The note also describes the directors' plans to deal with these events or conditions and why the Directors believe the use of the going concern assumption is appropriate.

Signed

Chibuzor N. Anyanechi, FCA

FRC/2013/ICAN/00000000789

For: KPMG Professional Services

Chartered Accountants

29 June 2016

Lagos, Nigeria

Consolidated statement of ﬁnancial position

As at 31 December
In US Dollars	Notes	2015	2014
Assets
Property, plant and equipment	8	12,602,414	1,373,904
Exploration and evaluation assets	9	111,976,751	111,136,232
Intangible assets	10	8,002,389	8,266,103
Other receivables	11	1,620,589	1,503,667
Other assets	12	30,609,535	121,643
Total non-current assets		164,811,678	122,401,549

Inventories		-	166,337
Other receivables	11	939,224	176,753
Other assets	12	29,960,484	4,553,882
Cash and cash equivalents	13	26,016,194	49,225,726
Total current assets		56,915,902	54,122,698
Total assets		221,727,580	176,524,247

Equity
Share capital	14(a)	24,412	18,152
Share premium	14(b)	252,207,651	207,947,439
Retained losses		(29,916,203)	(18,815,402)
Share based payment reserve		5,173,698	3,726,918
Equity attributable to owners of the Company		227,489,558	192,877,107

Non-controlling interests	15	(26,728,751)	(19,111,045)

Total equity		200,760,807	173,766,062

Liabilities
Provision for Asset Retirement Obligation	17	176,621	-
Deferred income	18	697,897	-
Non-current liabilities		874,518	-
Trade and other payables	16	9,476,968	2,553,925
Deferred income	18	2,368,541	204,260
Short term loan	19	8,246,746	-
Current liabilities		20,092,255	2,758,185
Total liabilities		20,966,773	2,758,185
Total equity and liabilities		221,727,580	176,524,247

These ﬁnancial statements were approved by the Board of Directors on 29 June 2016 and signed on its behalf by:

Olalekan Ainyanmi - Chief Executive Officer.

Daniel Barcelo - Head, Corporate Finance

The notes are an integral part of these consolidated ﬁnancial statements.

Consolidated statement of proﬁt or loss and other comprehensive income

For the year ended 31 December

In US Dollars	Notes	2015	2014
Revenue Cost of sales	20	- -	- -
Gross proﬁt General and administrative expenses	21 21	- (22,838,022)	- (11,820,164)
Loss from operating activities		(22,838,022)	(11,820,164)

Finance income	22	4,119,515	79,949
Finance costs	22	-	(192,223)
Net ﬁnance income/(costs)		4,119,515	(112,274)
Loss before income tax Income tax expense	25	(18,718,507) -	(11,932,438) -
Loss for the year		(18,718,507)	(11,932,438)
Total comprehensive loss for the year		(18,718,507)	(11,932,438)
Loss attributable to: Owners of the Company		(11,100,801) (11,100,801)	(1,929,741) (1,929,741)
Non-controlling interests		(7,617,706)	(10,002,697)
		(18,718,507)	(11,932,438)
Total comprehensive loss attributable to: Owners of the Company		(11,100,801)	(1,929,741)
Non-controlling interests		(7,617,706)	(10,002,697)
		(18,718,507)	(11,932,438)
Loss per share: Basic loss per share ($)	24(a)	(0.03)	(0.01)
Diluted loss per share ($)	24(b)	(0.03)	(0.01)

The notes are an integral part of these consolidated ﬁnancial statements.

Consolidated statement of changes in equity

For the year ended 31 December

In US Dollars	Share capital	Share premium	Retained losses	Other reserves	Share-based payments reserve	Total	Non-controlling interests	Total equity
Balance at 1 January 2014	16,497	171,419,410	(16,989,844)	104,183	1,647,608	156,197,854	(9,108,348)	147,089,506
Total comprehensive income for the year
Loss for the year	-	-	(1,929,741)	-	-	(1,929,741)	(10,002,697)	(11,932,438)
Total comprehensive income for the year	-	-	(1,929,741)	-	-	(1,929,741)	(10,002,697)	(11,932,438)
Transactions with owners of the company
Issue of ordinary shares	1,650	36,485,363	-	-	-	36,487,013	-	36,487,013
Share based payment settlement	-	-	-	-	(20,000)	(20,000)		(20,000)
Transfer	-	-	104,183	(104,183)	-	-	-	-
Share-based payment - personal expenses	-	-	-	-	2,141,981	2,141,981	-	2,141,981
Effect of share options conversion	5	42,666	-	-	(42,671)	38,608,994	-	-
Total transactions with owners of the Company	1,655	36,528,029	104,183	(104,183)	2,079,310	-	-	38,608,994
Balance at 31 December 2014	18,152	207,947,439	(18,815,402)	-	3,726,918	192,877,107	(19,111,045)	173,766,062
	Share Capital	Share Premium	Retained Losses		Share Based Payment Reserves	Total	Non-Controlling Interests	Total Equity
Balance at 1 January 2015	18,152	207,947,439	(18,815,402)	-	3,726,918	192,877,107	(19,111,045)	173,766,062
Total comprehensive income for the year
Loss for the year	-	-	(11,100,801)	-	-	(11,100,801)	(7,617,706)	(18,718,507)
Total comprehensive income for the year	-	-	(11,100,801)	-	-	(11,100,801)	(7,617,706)	(18,718,507)
Transactions with owners of the Company
Issue of ordinary shares	6,260	44,260,212	-	-	-	44,266,472	-	44,266,472
	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Share-based payment - personnel expenses	-	-	-	-	1,446,780	1,446,780	-	1,446,780
	-	-	-	-	-	-	-	-
Total contributions	6,260	44,260,212	-	-	1,446,780	45,713,252	-	45,713,252
Total transactions with owners of the company	6,260	44,260,212	-	-	1,446,780	45,713,252	-	45,713,252
Balance at 31 December 2015	24,412	252,207,651	(29,618,306)	-	5,173,698	227,489,558	(26,728,751)	200,760,807

The notes are an integral part of these consolidated ﬁnancial statements.

Consolidated statement of cash ﬂows

For the year ended 31 December

In US Dollars	Notes	2015	2014
Cash Flows From Operating Activities Loss for the period		(18,718,507)	(11,932,438)
Adjustments for:
- Equity-settled share-based payment		1,446,780	2,141,981
- Finance income		(72,505)	(3,667)
- Impairment loss - Finance cost		1,102,500 -	- 192,223
- Depreciation and amortisation	8,10	860,023	443,935
Changes in:		(15,381,709)	(9,157,966)
- Inventory		166,337	(166,337)
- Trade and other payables		6,923,043	(20,069,247)
- Other assets		(40,792,316)	(4,253,925)
- Other receivables		15,261,595	(1,776,482)

Net cash used in operating activities		(33,823,050)	(35,423,957)
Cash Flows From Investing Activities Acquisition of property, plant and equipment	8	(10,514,984)	(1,456,550)
Deposit for investment		(12,240,000)	-
Interest received Proceeds from sale of ﬁxed assets Loan to Ashbert Oil and Gas Limited		11,517 - (16,080,000)	- 48,271 -
Acquisition of exploration and evaluation assets	9	(1,943,019)	(8,463,433)
Acquisition of intangible assets	10	(46,931)	(8,577,638)
Net cash used in investing activities		(40,813,417)	(18,449,350)
Cash Flows From Financing Activities Proceeds from issue of share capital	14	44,266,472	36,487,013
Proceeds from issue of loan note	19(a)	10,000,000	-
Repayment of loan Share based payment settlement Interest and transaction costs related to loan		(2,000,000) - (839,537)	- (20,000) -
Net cash generated from ﬁnancing activities		51,426,935	36,467,013
Net decrease in cash and cash equivalents		(23,209,532)	(17,406,294)
Cash and cash equivalents at 1 January		49,225,726	66,632,020
Cash and cash equivalents at 31 December		26,016,194	49,225,726

The notes are an integral part of these consolidated ﬁnancial statements.

Notes to the ﬁnancial statements

1. Reporting entity

Lekoil Limited (the "Company" or "Lekoil") is a company domiciled in the Cayman Islands with registered number WK-248859. The address of the Company's registered oﬃce is Intertrust Group, 190 Elgin Avenue, Georgetown, Grand Cayman, Cayman Islands. These consolidated ﬁnancial statements comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The Group's principal activity is exploration and production of oil and gas.

2. Basis of preparation

(a) Statement of compliance

These consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The ﬁnancial statements were authorised for issue by the Board of Directors on 29 June 2016.

A number of new standards, amendments to standards and interpretations are eﬀective for annual periods beginning after 1 January 2015, and have not been applied in preparing these consolidated ﬁnancial statements. The revised and new accounting standards and interpretations issued but not yet eﬀective for the accounting year beginning on 1 January 2015 are set out in note 5.

(b) Going concern basis of accounting

These consolidated ﬁnancial statements have been prepared on the going concern basis of accounting, which assumes that the Group will continue in operation for the foreseeable future and be able to realise its assets and discharge its liabilities and commitments in the normal course of business.

The ability of the Group to continue to operate as a going concern is dependent on a number of factors considered by the Directors as disclosed below:

• The availability of suﬃcient funds to ensure the satisfactory execution of the development and production activities on Otakikpo ﬁeld as approved by the Department of Petroleum Resources (DPR) of the Ministry of Petroleum Resources in Nigeria. The target dates for production from Otakikpo 002 is July 2016 and Otakikpo 003 is August 2016.

• The terms of the ﬁnal agreement between Lekoil Limited and Optimum Petroleum Development Limited (Optimum) and the initial agreements between Optimum and Afren Investments Oil and Gas (Nigeria) Limited (Afren Oil & Gas ) resulting/continuing to result in a positive outcome for the Lekoil Group.

• The receipt of the approval of the Minister of Petroleum Resources of the Federal Republic of Nigeria of the Farm-in by Mayfair Assets and Trusts Limited (Mayfair) into OPL 310.

• The receipt of the approval of the Minister of Petroleum Resources of the Federal Republic of Nigeria of the shares sales and purchase agreement between Afren Nigeria Holdings Limited, Afren Plc and Lekoil 310 Limited, relating to the entire issued share capital of Afren Oil and Gas and certain intra-company debt.

• The availability of suﬃcient funds to ensure the satisfactory execution of the 2016 ﬁnancial year work program on OPL 310 presented to the Department of Petroleum Resources or the ability to successfully defer the activities to future periods.

• The ability of the parties to OPL 310 to meet both the special terms and conditions in the annexure referenced in the OPL 310 licence and any minimum obligations imposed on OPL 310.

The Directors, having evaluated these factors, believe the use of the going concern assumption is appropriate for the preparation of the 2015 consolidated ﬁnancial statements, for the following reasons:

• In 2015, activities were in full gear on Otakikpo ﬁeld and the pace of progress was intensiﬁed. Events covered in the year included land reclamation, road remediation and the building of a temporary bridge in order to transport the necessary equipment to site. The rig was mobilized in July 2015 propelling the re-entry on well 002. Well testing was conducted in September 2015 on the ﬁrst string of Otakikpo-002 with ﬁrst oil ﬂowing to surface. The well was tested for over 24 hours at various chokes and reached a peak rate of 5,703 bopd. Challenges were faced during the drilling activities which resulted in the suspension of the E1 zone on Well 002 caused by cementing issues and attention turned to testing the upper C5 and C6 zones.

• In 2016, the Company began ﬁnalising the contracting of the early production facility and evacuation infrastructure in preparation for an extended well test. The well test was done in April 2016 and based on the positive results alongside near completed activities, commercial production is expected from Well 002 in July 2016.

• In June 2016, well re-entry operations on Otakikpo-003 well started targeting the E1 and C6 zones and production is expected in Q3 2016. With a combination of production from well 002 and 003, the Company raised production estimates to approximately 10,000 bopd.

• Lekoil intends to fund development on the Otakikpo ﬁeld and future exploratory activities using a combination of cash ﬂows from operations, through production from Otakikpo and adequate debt ﬁnance. The Company raised funds from investors in October 2015 through the successful completion of a Placement which raised US$46m gross.

• Lekoil prepared detailed cash ﬂow forecasts to ensure adequate coverage is given to the liquidity position of the Group. In 2016, Lekoil successfully raised additional debt ﬁnance of $45m after complying with the pre-debt covenants. These funds will be used to accomplish planned activities on the Otakikpo ﬁeld.

• In 2013, Mayfair entered into a farm-in agreement with Afren Investments Oil and Gas Limited (Afren) for a 17.14% participating interest which is subject to Ministerial consent. After the farm-in agreement, Afren held 22.86% participating interest and Optimum ("the Operator") and license holder, held 60% participating interest. In 2015, Afren's parent company Afren Plc went into administration and subsequently, Optimum sought to terminate the interest of Afren in OPL 310 via a petition to the Department of Petroleum Resources (DPR). After several discussions, the DPR informed the Operator in writing on 9 October 2015 that Afren (with the written consent of Optimum) assigned 17.14% out of the 40% participating interest to Mayfair which has been evaluated and found to be in order although the assignment is pending receipt of Ministerial consent. The DPR reminded the Operator that Mayfair had made ﬁnancial contributions to the exploration activities on OPL 310 and the Operator is therefore advised to consider the presence of Mayfair in decisions regarding OPL 310.

• In November 2015, Lekoil acquired Afren to secure its existing investment and furthermore increase the participating interest on OPL 310 to 40% which is subject to Ministerial consent. Subsequently, Lekoil began negotiating with the Operator and a non-binding term sheet was signed setting out possible terms upon which the two Companies would be prepared to transact in relation to OPL 310. The beneﬁts that will accrue to Lekoil together with the obligations in the draft agreement are contingent on the execution of the ﬁnal deﬁnitive agreement. The obligations are detailed in Note 29 to the ﬁnancial statement.

• In assessing the exposure of Lekoil, the Directors identiﬁed that pending the receipt of Ministerial consent and ﬁnal deﬁnitive agreements with the Operator, the risk of disputes of the interest held could arise as observed in the attempted action taken by the Operator on Afren. The Directors having assessed the level of negotiations ongoing with the Operator and having assessed the validity of existing agreements between Afren, Optimum and Mayfair on OPL 310 believes that Lekoil's interest would not be unilaterally terminated. The Directors are also optimistic that the ongoing negotiations between the Company and the Operator to reach a ﬁnal deﬁnitive agreement will result in a positive outcome.

• The Company sought Ministerial approval in January 2014 following the farm-in of Mayfair to OPL 310 for a participatory interest of 17.14% which is still outstanding as at the date of approval of these financial statements. As this application is still valid and not declined, a reapplication has not been required. Lekoil continues to monitor the progress of the application and the Directors are conﬁdent that this will be granted.

• A further Ministerial consent was sought in January 2016 with respect to the additional acquisition of 22.86% interest on OPL 310 after the acquisition of Afren in November 2015. The Company continues to monitor the progress of this application and the Directors are positive that this will be obtained.

• As part of the progress on OPL 310, the Company alongside the operator presented the 2016 work programme to the Department of Petroleum Resources in November 2015 detailing the plans and cost to drill an exploratory well in 2016. The Directors have assessed that execution of such activities may not be carried out in 2016 as a result of the ongoing discussion with Optimum and have therefore not considered the work programme in the cash ﬂow assessment carried out as at 31 December 2015.

• Furthermore, Lekoil carried out detailed analysis of the Net Present Value of cash ﬂows that may arise on OPL 310 over the life of the asset taking into account the weakness in oil price and future cost that may be required on the asset. The assessment was carried out by Wood Mackenzie, an external expert. The Directors are of the opinion that the valuation, although subject to uncertainties remains appropriate in the circumstances and the assets are not impaired. The Directors are satisﬁed with the potential commercial viability of the resources of OPL 310.

• The OPL 310 license granted in November 1992 referred to it being issued subject to special terms and conditions contained within an annexure to the license. From all the documents received in relation to this license, there was no annexure detailing any special terms and conditions or minimum obligations. Having acquired a 40% participating interest on the asset, the Company sought to clarify the terms and conditions referenced in the license by formally writing to the Department of Petroleum Resources and the Operator of the ﬁeld- Optimum. The Company obtained a formal response on 15 June 2016 from the Operator representing that the OPL 310 license had no annexure detailing terms and conditions.

• As at the date of approval of these ﬁnancial statements, the Directors believe based on all available information obtained, that the OPL 310 license is not subject to any special terms and conditions except for the unpaid signature bonus of US$20 million (US$10 million payable on conversion to an Oil Mining Licence and US$10 million payable at start of production). The Company will continue to seek clariﬁcation regarding any terms and conditions attached to the license in order to ensure full compliance where necessary and limit the exposure of Lekoil. Lekoil has complied with all requirements known to Management and in view of this, the ﬁnancial statements have been prepared on the basis that there are no other minimum obligations associated with OPL 310.

• Having considered and taking into account the material uncertainties that may occur with respect to the above matters, the Directors believe that the Group will achieve adequate resources to continue operations into the foreseeable future, and the Group will be able to realise their assets and discharge their liabilities in the normal course of business. The Directors therefore adopt and approve the going concern basis in the preparation of the ﬁnancial statements.

These consolidated ﬁnancial statements have been prepared on the historical cost basis except for share based payments which are measured at fair values

(d) Functional and presentation currency

These consolidated ﬁnancial statements are presented in US Dollars which is the Company's functional currency. All amounts have been rounded to the nearest unit, unless otherwise indicated.

(e) Use of estimates and judgments

The preparation of these consolidated ﬁnancial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that aﬀect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may diﬀer from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods aﬀected.

(i) Judgments

Information about judgments made in applying accounting policies that have the most signiﬁcant eﬀects on the amounts recognised in the consolidated ﬁnancial statements is included in the following notes:

• Note 2(b) - Going concern basis of accounting

• Note 12(b) - On the basis that the Group is required to obtain Ministerial consent for the acquisition of the entire issued share capital of Afren Investments Oil and Gas (Nigeria) Limited (Afren Oil & Gas ) and the acquisition of 88.57% of the issued share capital of Ashbert Oil and Gas Limited together with the control of the oil mineral rights interest held by Afren Oil & Gas and Ashbert Oil and Gas Limited, the Group has accounted for payments made as other assets.

• Note 9 - Exploration and Evaluation assets. On the basis that Ministerial consent is required to be obtained and the ongoing negotiations with Optimum together with the existing arrangements between Optimum and Afren Oil & Gas , will result in a favorable outcome for the Group's participating and economic interests in OPL 310, the Group has accounted for expenditures incurred on OPL 310 as Exploration and Evaluation assets.

(ii) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a signiﬁcant risk of resulting in a material adjustment in the year ended 31 December 2016 is included in the following notes:

• Note 2(b) - Going Concern. Key assumptions made and judgments exercised by the Directors in preparing the Group's cash forecast.

• Note 9(b) - Carrying value of Exploration and Evaluation assets. Basis for the conclusion that the carrying value of E&E assets do not exceed their recoverable amount.

• Note 12 - Carrying value of other assets. Basis for the conclusion that the carrying value of other assets do not exceed their recoverable amount.

• Note 17 - Provisions. Key assumptions underlying the obligation as at year end.

• Note 23 - Share Based Payment Arrangements. Key assumptions made in measuring fair values.

• Note 25(b) - Unrecognised deferred tax assets. Availability of future taxable proﬁt against which carry forward losses can be used.

• Note 29 - Financial Commitments and Contingencies. Key assumptions about the likelihood and magnitude of an outflow of economic resources.

3. Signiﬁcant accounting policies

The accounting policies set out below have been applied by the Group consistently to all periods presented in these consolidated ﬁnancial statements.

(a) Basis of consolidation

(i) Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identiﬁable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in proﬁt or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in proﬁt or loss.

Any contingent consideration is measured at fair value at acquisition date. If the contingent consideration is classiﬁed as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in proﬁt or loss.

If share-based payments awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's award and the extent to which the replacement awards relates to pre-combination service.

(ii) Non-controlling interests

Non-controlling interests (NCI) are measured at their proportionate share of the acquiree's identiﬁable net assets at the acquisition date.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The ﬁnancial statements of subsidiaries are included in the consolidated ﬁnancial statements from the date that control commences until the date on which control ceases. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to aﬀect those returns through its power over the entity. The Group is deemed not to control an entity where regulatory approval is a substantive requirement for the passing of control.

(iv) Interests in joint arrangements

A joint arrangement is an arrangement in which the Group has joint control i.e. either rights to the net assets of the arrangement (joint venture), or rights to the assets and obligations for the liabilities of the arrangement (joint operation).

Interests in joint arrangements relate to joint operations and are recognised by incorporating the Group's share of each of the assets, liabilities, income and expenses line items into the Group's proﬁt or loss and ﬁnancial position on a line-by-line basis.

(v) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated ﬁnancial statements.

(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency diﬀerences arising on retranslation are recognised in proﬁt or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

(ii) Foreign operations

The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions.

Foreign currency diﬀerences are recognised in Other Comprehensive Income (OCI) and accumulated in the translation reserve except to the extent that the translation diﬀerence is allocated to NCI.

(i) Ordinary shares

Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax eﬀects.

(d) Financial instruments

The Group classiﬁes non-derivative ﬁnancial assets into loans and receivables and non-derivative ﬁnancial liabilities into the other ﬁnancial liabilities category.

(i) Non-derivative ﬁnancial assets

The Group initially recognises loans and receivables on the date that they are originated. All other ﬁnancial assets and ﬁnancial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a ﬁnancial asset when the contractual rights to cash ﬂows from the asset expire, or it transfers the rights to receive the contractual cash ﬂows in a transaction in which substantially all the risks and rewards of ownership of the ﬁnancial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are oﬀset and the net amount presented in the statement of ﬁnancial position when, and only when, the Group has a legal right to oﬀset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative ﬁnancial assets: loans and receivables.

Loans and receivables

Loans and receivables are ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the eﬀective interest method, less any impairment losses. Short term loans and receivables that do not attract interest rate are measured at their original invoice amount where the eﬀect of discounting is not material.

Financial assets classiﬁed as loans and other receivables comprise cash and cash equivalents, trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insigniﬁcant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(ii) Non-derivative ﬁnancial liabilities

All ﬁnancial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a ﬁnancial liability when its contractual obligations are discharged, cancelled or expired.

The Group has the following non-derivative ﬁnancial liabilities: trade and other payables and loans & borrowings.

Such ﬁnancial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these ﬁnancial liabilities are measured at amortised cost using the eﬀective interest rate method.

Short term payables that do not attract interest are measured at original invoice amount where the eﬀect of discounting is not material.

(iii) Impairment

Non-derivative ﬁnancial assets

A ﬁnancial asset not classiﬁed at fair value through proﬁt or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A ﬁnancial asset is impaired if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cash ﬂows of that asset and can be estimated reliably.

An impairment loss in respect of a ﬁnancial asset measured at amortised cost is calculated as the diﬀerence between its carrying amount and the present value of the estimated future cash ﬂows discounted at the asset's original eﬀective interest rate. Losses are recognised in proﬁt or loss and reﬂected in an allowance account against loans and receivables.

Non-ﬁnancial assets

At each reporting date, the Group reviews the carrying amounts of its non-ﬁnancial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inﬂows from continuing use that are largely independent of the cash inﬂows of other assets or cash generating units (CGUs).

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash ﬂows, discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in proﬁt or loss. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(e) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have diﬀerent useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the diﬀerence between the net proceeds from disposal and the carrying amount of the item) is recognised in proﬁt or loss.

(ii) Depreciation

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use.

Depreciation is calculated to write oﬀ the cost of items of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives. Depreciation is generally recognised in proﬁt or loss, unless the amount is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

The estimated useful lives for the current and comparative years of signiﬁcant items of property, plant and equipment are as follows:

• Motor vehicles	- 5 years
• Furniture and ﬁttings	- 5 years
• Leasehold improvement	- 2 years
• Computer and household equipment	- 4 years
• Leasehold property	- 25 years
• Oil and gas assets	- Unit of production method based on estimated proved developed reserves

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(f) Exploration and Evaluation (E&E) expenditures

(i) Licence acquisition costs: Licence acquisition costs are capitalised as intangible E&E assets. These costs are reviewed on a continual basis by management to conﬁrm that drilling activity is planned and that the asset is not impaired. If no future activity is planned, the remaining balance of the licence and property acquisition costs are written oﬀ. Capitalised licence acquisition costs are measured at cost less accumulated amortisation and impairment losses. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly as they are incurred.

(ii) Exploration expenditure: All exploration and appraisal costs are initially capitalised in well, ﬁeld or speciﬁc exploration cost centres as appropriate pending future exploration work programmes and pending determination. All expenditure incurred during the various exploration and appraisal phases is capitalised until the determination process has been completed or until such point as commercial reserves have been established. Payments to acquire technical services and studies, seismic acquisition, exploratory drilling and testing, abandonment costs, directly attributable administrative expenses are all capitalised as exploration and evaluation assets. Capitalised exploration expenditure is measured at cost less accumulated amortisation and impairment losses.

Treatment of E & E assets at conclusion of exploratory and appraisal activities

Exploration and evaluation assets are carried forward until the existence, or otherwise, of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below and any impairment loss is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassiﬁed as development and production assets within property, plant and equipment or intangible assets. If however, commercial reserves have not been found, the capitalised costs are charged to expense after the conclusion of the exploratory and appraisal activities. Exploration and evaluation costs are carried as assets and are not amortised prior to the conclusion of exploratory and appraisal activities.

An E&E asset is assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such circumstances include the point at which a determination is made as to whether or not commercial reserves exist. Where the E&E asset concerned falls within the scope of an established full cost pool, the E&E asset is tested for impairment together with any other E&E assets and all development and production assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash ﬂows expected to be derived from production of commercial reserves. Where the E&E asset to be tested falls outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E asset concerned will be written oﬀ in full.

(g) Development expenditure

Once the technical feasibility and commercial viability of extracting oil and gas resources are demonstrable, expenditure related to the development of oil and gas resources which are not tangible in nature are classiﬁed as intangible development expenditure. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. Amortisation of development assets attributable to the participating interest is recognised in proﬁt or loss using the unit-of-production method.

(h) Leases

(i) Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a ﬁnance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed ﬁnance cost on the liability is recognised using the Group's incremental borrowing rate.

(ii) Leased assets

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classiﬁed as ﬁnance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classiﬁed as operating leases and are not recognised in the Group's statement of ﬁnancial position.

(iii) Lease payments

Payments made under operating leases are recognised in proﬁt or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under ﬁnance leases are apportioned between the ﬁnance expense and the reduction of the outstanding liability. The ﬁnance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

(i) Inventories

Inventories comprise consumable materials.

Consumable materials are valued at the lower of cost and net realisable value. Cost of consumable materials is determined using the weighted average method and includes expenditures incurred in acquiring the inventories, and other costs incurred in bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory values are adjusted for obsolete, slow-moving or defective items where appropriate.

(j) Intangible assets

An intangible asset is an identiﬁable non-monetary asset without physical substance. The Group expends resources or incurs liabilities on the acquisition, development, maintenance or enhancement of intangible resources such as scientiﬁc or technical knowledge, design and implementation of new processes on systems, licences, signature bonus, intellectual property, market knowledge and trademarks.

The Group recognises an intangible asset if, and only if;

(a) economic beneﬁts that are attributable to the asset will ﬂow to the entity; and

(b) the costs of the asset can be measured reliably.

The Group assesses the probability of future economic beneﬁts using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset. Intangible assets are measured initially at cost.

Amortisation is calculated to write oﬀ the cost of the intangible asset less its estimated residual value using the straight-line basis over the estimated useful lives or using the units of production basis from the date that they are available for use. The estimated useful life and methods of amortisation of intangible assets for current and comparative years are as follows:

Type of asset	Basis
Mineral rights acquisition costs (signature bonus)	Unit of production method based on estimated proved reserves.
Accounting software	Amortised over a useful life of three years.
Geological and geophysical software	Amortised over a useful life of ﬁve years.

(k) Employee beneﬁts

(i) Short-term employee beneﬁts

Short-term employee beneﬁt obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or proﬁt-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment transactions

The grant-date fair value of equity-settled share-based payment awards granted to employees and others providing similar services is recognised as an employee expense and other general and administrative expense respectively, with a corresponding increase in equity, over the vesting period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reﬂect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reﬂect such conditions and there is no true-up for diﬀerences between expected and actual outcomes.

(iii) Post-employment beneﬁts

Deﬁned contribution plan

A deﬁned contribution plan is a post-employment beneﬁt plan (pension fund) under which the Group pays ﬁxed contributions into a separate entity.

The Group has no legal or constructive obligations to pay further contributions if the fund does not hold suﬃcient assets to pay all employees the beneﬁts relating to the employee service in the current and prior periods.

In line with the provisions of the Pension Reform Act 2014 (Amended), a subsidiary domiciled in Nigeria has instituted a deﬁned contribution pension scheme for its permanent staﬀ. Staﬀ contributions to the scheme are funded through payroll deductions while the subsidiary's contribution is recognised in proﬁt or loss as employee beneﬁt expense in the periods during which services are rendered by employees. Employees contribute 8% each of their gross salary to the fund on a monthly basis. The subsidiary's contribution is 10% of each employee's gross salary.

(l) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic beneﬁts will be required to settle the obligation. Provisions are determined by discounting the expected future cash ﬂows at a pre-tax rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the liability. The unwinding of the discount is recognised as ﬁnance cost.

The Group's asset retirement obligation ("ARO") primarily represents the estimated present value of the amount the Group will incur to plug, abandon and remediate its areas of operation at the end of their productive lives, in accordance with applicable legislations. The Group determines the ARO on its oil and gas properties by calculating the present value of estimated cash ﬂows related to the liability when the related facilities are installed or acquired.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will be conﬁrmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic beneﬁts will be required to settle the obligation; or the amount of the obligation cannot be measured with suﬃcient reliability.

Contingent liabilities are only disclosed and not recognised as liabilities in the statement of ﬁnancial position. If the likelihood of an outflow of resources is remote, the possible obligation is neither a provision nor a contingent liability and no disclosure is made.

(m) Finance income and ﬁnance costs

Finance income comprises, where applicable, interest income on funds invested (including available-for-sale ﬁnancial assets), dividend income, gains on the disposal of available-for-sale ﬁnancial assets, fair value gains on ﬁnancial assets at fair value through proﬁt or loss, gains on the remeasurement to fair value of any pre-existing interest in an acquiree in a business combination, gains on hedging instruments that are recognised in proﬁt or loss and reclassiﬁcations of net gains previously recognised in other comprehensive income. Interest income is recognised as it accrues in proﬁt or loss, using the eﬀective interest method. Dividend income is recognised in proﬁt or loss on the date that the Group's right to receive payment is established.

Finance costs comprise, where applicable, interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, losses on disposal of available-for-sale ﬁnancial assets, dividends on preference shares classiﬁed as liabilities, fair value losses on ﬁnancial assets at fair value through proﬁt or loss and contingent consideration, impairment losses recognised on ﬁnancial assets (other than trade receivables), losses on hedging instruments that are recognised in proﬁt or loss and reclassiﬁcations of net losses previously recognised in other comprehensive income.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in proﬁt or loss using the eﬀective interest method.

Foreign currency gains and losses are reported on a net basis as either ﬁnance income or ﬁnance cost depending on whether foreign currency movements are in a net gain or net loss position.

(n) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the proﬁt or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is determined by adjusting the proﬁt or loss attributable to ordinary shareholders and the weighted average number of ordinary shares after adjusting for the eﬀects of all dilutive potential ordinary shares which comprise share options granted to employees. Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.

(o) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incurs expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed by the Group's Chief Executive Oﬃcer (CEO) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete ﬁnancial information is available.

Segment results that are reported to the Group's CEO include items attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group's head oﬃce expenses) and income tax assets and liabilities.

(p) Income tax

Income tax expense comprises current and deferred tax. It is recognised in proﬁt or loss except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income.

(i) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

(ii) Deferred tax

Deferred tax is recognised in respect of temporary diﬀerences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amount used for taxation purposes.

Deferred tax is not recognised for:

• temporary diﬀerences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that aﬀects neither accounting nor taxable proﬁt or loss;

• temporary diﬀerences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporal diﬀerences and it is probable that they will not reverse in the foreseeable future; and

• taxable temporary diﬀerences arising on the initial recognition of goodwill.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary diﬀerences to the extent that it is probable that future taxable proﬁt will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised.

Deferred tax is measured at the tax rates that are expected to be applied to temporary diﬀerence when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reﬂects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are oﬀset only if certain criteria are met.

4. Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both ﬁnancial and non-ﬁnancial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation expert that has responsibility for overseeing all signiﬁcant fair value measurements, including Level 3 fair values, and reports directly to the Chief Financial Oﬃcer.

The valuation expert regularly reviews signiﬁcant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation expert assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classiﬁed.

Signiﬁcant valuation issues are reported to the Group Audit Committee.

Fair values are categorised into diﬀerent levels in a fair value hierarchy based on the inputs used in the valuation:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in diﬀerent levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is signiﬁcant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

Note 23 - share-based payment arrangements.

Note 31 - ﬁnancial risk management and ﬁnancial instruments.

5. Application of new and revised IFRS

5.1 New and revised IFRS in issue but not yet eﬀective

There are new or revised accounting standards and Interpretations in issue that are not yet eﬀective. These include the following Standards and Interpretations that are applicable to the business of the entity and may have an impact on future ﬁnancial statements.

Eﬀective for the ﬁnancial year commencing 1 January 2016

• IFRS 14 Regulatory Deferral Accounts.

• Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11).

• Clariﬁcation of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38).

• Disclosure Initiative (Amendments to IAS 1).

• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an investor and its Associate or Joint Venture.

• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception.

Eﬀective for the ﬁnancial year commencing 1 January 2018

• IFRS 15 Revenue from contracts with customers.

• IFRS 9 Financial Instruments.

Eﬀective for the ﬁnancial year commencing 1 January 2019

• IFRS 16 Leases.

The Directors are of the opinion that the impact of the application of the new standards and interpretations will be as follows:

IFRS 14 Regulatory Deferral Accounts

IFRS 14 provides guidance on the accounting for regulatory deferral account balances by ﬁrst-time adopters of IFRS. To apply this standard, the entity has to be rate-regulated i.e. the establishment of prices that can be charged to its customers for goods and services is subject to oversight and/or approval by an authorised body. This amendment is not applicable to the Group.

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The amendments require business combination accounting to be applied to acquisitions of interest in a joint operation that constitutes a business.

Business combination accounting also applies to the acquisition of additional interest in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interest in the joint operation will not be remeasured. As a consequence of these amendments, the Group will amend its accounting policy with eﬀect from 1 January 2016 for acquisitions of interest in a joint operation.

The amendments apply prospectively.

Amendments to IAS 16 and 38 Clariﬁcation of Acceptable Methods of Depreciation and Amortisation

The amendments to IAS 16 Property, Plant and Equipment explicitly state that revenue-based methods of depreciation cannot be used for property, plant and equipment.

The amendments to IAS 38 Intangible Assets introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. The presumption can be overcome only when revenue and the consumption of the economic beneﬁts of the intangible assets are 'highly correlated', or when the intangible asset is expressed as a measure of revenue.

The Group uses the straight line method to depreciate items of PPE. For Oil and Gas assets, the Group's policy is to use the unit of production method.

Amendments to IAS 1 Disclosure initiative

The amendments to IAS 1 (Disclosure Initiative) clariﬁes the following:

• Materiality: the concept of materiality should be applied in the aggregation and providing of information, and these should be applied to all parts of the ﬁnancial statements.

• Statement of ﬁnancial position, statement of proﬁt or loss and other comprehensive income: the amendment clariﬁes aggregation of line items and gives additional guidance on subtotals. It also clariﬁes that an entity's share of OCI of equity-accounted associates and joint ventures should be presented in aggregates as single line items based on whether or not it will subsequently be reclassiﬁed to proﬁt and loss.

• Notes: clariﬁes that understandability and comparability should be considered when determining the order of notes.

The Directors of the Company do not anticipate that the application of these amendments will have a material impact on the Group's consolidated ﬁnancial statements.

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between and investor and its associate or joint venture. The Directors do not anticipate any material impact arising from this amendment in future.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

The amendments to IFRS 10, IFRS 12 and IAS 28 clarify that the exemption from preparing consolidated ﬁnancial statements is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all its subsidiaries at fair value in accordance with IFRS 10. The amendments also clarify that the requirement for an investment entity to consolidate a subsidiary providing services related to the former's investment activities applies only to subsidiaries that are not investment entities themselves.

The Directors of the Company do not anticipate that the application of these amendments to IFRS 10, IFRS 12 and IAS 28 will have a material impact on the Group's consolidated ﬁnancial statements as the Group is not an investment entity and does not have any holding company, subsidiary, associate or joint venture that qualiﬁes as an investment entity.

IFRS 15 Revenue from Contracts with Customers

The standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue- Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based ﬁve-step analysis of transactions to determine whether, how much and when revenue is recognised.

The Group is yet to commence generation of revenue and is yet to perform a more detailed assessment of the impact of this standard on the Group.

IFRS 9 Financial Instruments

On 24 July 2014, the IASB issued the ﬁnal IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement.

IFRS 9 includes revised guidance on the classiﬁcation and measurement of ﬁnancial instruments, a new expected credit loss model for calculating impairment on ﬁnancial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of ﬁnancial instruments from IAS 39.

The Group is yet to carry-out an assessment to determine the impact that the initial application of IFRS 9 could have on its business; however, the Group (or Company) will adopt the standard for the year ending 31 December 2018.

The Group will assess the impact once the standard has been ﬁnalised and becomes eﬀective.

IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classiﬁcation of leases as operating leases or ﬁnance leases as required by IAS 17 and introduces a single lessee accounting model. Applying that model, a lessee is required to recognise:

(a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and

(b) depreciation of lease assets separately from interest on lease liabilities in proﬁt or loss.

For the lessor, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or ﬁnance leases, and to account for those two types of leases diﬀerently.

5.2 Amendments to IFRS that are mandatorily eﬀective for the current year

In the current year, the Group considered amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily eﬀective for an accounting period that begins on or after 1 January 2015.

Amendments to IAS 19 Deﬁned Beneﬁt Plans: Employee Contributions

The amendments to IAS 19 clariﬁes how an entity should account for contributions made by employees or third parties to deﬁned beneﬁt plans, based on whether those contributions are dependent on the number of years of service provided by the employee.

The amendments require the Group to account for employee contributions as follows:

• Discretionary employee contributions are accounted for as reduction of the service cost upon payments to the plans.

• Employee contributions speciﬁed in the deﬁned beneﬁt plans are accounted for as reduction of the service cost, only if such contributions are linked to services. Speciﬁcally, when the amount of such contribution depends on the number of years of service, the reduction to service cost is made by attributing the contributions to periods of service in the same manner as the beneﬁt attribution. On the other hand, when such contributions are determined based on a ﬁxed percentage of salary (i.e. independent of the number of years of service), the Group recognises the reduction in the service cost in the period in which the related services are rendered.

The Group operates deﬁned contribution plans and does not operate deﬁned beneﬁt plans. Therefore, the use of these amendments was not applicable to the Group and as such had no impact on the disclosures or on the amounts recognised in the consolidated ﬁnancial statements.

6. Operating segments

The Group has a single class of business which is exploration, development and production of petroleum oil and natural gas. The geographical areas are deﬁned by the Group as operating segments in accordance with IFRS 8- Operating Segments. As at the year end, the Group had operational activities mainly in one geographical segment, Nigeria.

Geographical information

In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets.

Non-current assets In US Dollars	2015	2014
Nigeria	162,721,851	120,708,703
Namibia	407,445	100,415
USA	117,727	88,764
Cayman	1,564,655	1,503,667
	164,811,678	122,401,549

Non-current assets presented consists of property, plant & equipment, intangible assets, long term prepayment, other receivables and E&E assets.

7. Capital management

The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market conﬁdence and to sustain future development of the business.

The Group monitors capital using a ratio of adjusted net debt to adjusted equity. For this purpose, adjusted net debt is deﬁned as total liabilities less cash and cash equivalents.

The Group's net debt to equity ratio at the end of the reporting year was as follows:

In US Dollars	2015	2014
Total liabilities	20,966,773	2,758,185
Less: cash and cash equivalents	(26,016,194)	(49,225,726)
Net debt	(5,049,421)	(46,467,541)
Total equity	227,489,558	192,877,107
Net debt to equity ratio	(0.02)	(0.24)

There were no changes in the Group's approach to capital management during the year. The Group is not subject to externally imposed capital requirements.

8. Property, plant and equipment

The movement on this account was as follows:

				Computer &
	Oil and	Motor	Furniture &	Household	Leasehold
In US Dollars	Gas Assets*	Vehicles	Fittings	Equipment	Improvements	Total
Cost:
Balance at 1 January 2014	-	113,163	63,279	120,459	-	296,901
Additions	311,510	61,051	193,892	130,794	759,303	1,456,550
Disposals	-	-	(41,204)	(28,820)	-	(70,024)
Balance at 31 December 2014	311,510	174,214	215,967	222,433	759,303	1,683,427
Balance at 1 January 2015	311,510	174,214	215,967	222,433	759,303	1,683,427
Additions	10,752,704*	121,310	136,657	366,801	400,416	11,777,888**
Balance at 31 December 2015	11,064,214	295,524	352,624	589,234	1,159,719	13,461,315
Accumulated depreciation
and impairment losses:
Balance at 1 January 2014	-	41,717	18,634	24,320	-	84,671
Charge for the year	-	24,668	28,746	37,755	155,436	246,605
Disposals	-	-	(11,005)	(10,748)	-	(21,753)
Balance at 31 December 2014	-	66,385	36,375	51,327	155,436	309,523
Balance at 1 January 2015	-	66,385	36,375	51,327	155,436	309,523
Charge for the year	-	42,928	61,965	98,673	345,812	549,378
Balance at 31 December 2015	-	109,313	98,340	150,000	501,248	858,901
Carrying Amounts Carrying amounts:
At 31 December 2015	11,064,214	186,211	254,284	439,234	658,471	12,602,414
At 31 December 2014	311,510	107,829	179,592	171,106	603,867	1,373,904

In June 2015, Lekoil Oil and Gas Investments Limited obtained ministerial approval for the 40% participating interest in Otakikpo marginal field following the farm-in agreement with Green Energy International Limited ("GEIL") in May 2014. The unexpired lease term is approximately three years. The Directors believe that the lease term will be renewed for another 10 years upon expiration of the current lease term.

* The addition of US$10.8 million during the year is mainly in respect of the production drilling and facilities, infrastructure pipelines, site remediation and rehabilitation and land reclamation activities on the Otakikpo marginal ﬁeld.

As a result of these activities, on 7 September 2015, the Group announced that the lower E1 zone of Otakikpo well 002 produced from the ﬁrst of four planned production tests, ﬂowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke. However, during completion operations the well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. To keep Phase 1 of the Field Development Plan ("FDP") on track and under budget, the Company prioritised production from the second and third planned production zones, in the C5 and C6 reservoirs, and will pursue development options for the E1 zone in the future.

On the basis of the results of the production tests conducted subsequent to year end and the reserve potential of the Otakikpo marginal ﬁeld, the Directors are satisﬁed that despite the decline in crude oil price and status of E1 zone, the Net Present Value (NPV) of the development and production of hydrocarbon from the Otakikpo marginal ﬁeld remains positive. Accordingly, in line with the Group's accounting policy, the costs incurred on the development of the Otakikpo ﬁeld have been capitalised.

** Included in additions to property, plant and equipment of US$11.7 million are borrowing costs amounting to US$1.1 million representing capitalised interest and transaction costs with respect to the US$10 million loan from FBN Capital and capitalised asset retirement obligation of US$0.17 million. These amounts have been adjusted for in the statement of cashﬂows.

9. Exploration and Evaluation (E&E) assets

E & E assets represent the Group's oil mineral rights acquisition and exploration costs.

(a) The movement on the E&E assets account was as follows:

In US Dollars	2015	2014
Balance at 1 January	111,136,232	102,558,594
Additions during the year (see (b) below)	1,943,019	8,577,638
Impairment loss (see (c) below)	(1,102,500)
Balance at 31 December	111,976,751	111,136,232

(b) The additions during the year mainly consist of the Group's share of expenditure on OPL 310 amounting to US$1.9 million. Total expenditure incurred on OPL 310 from inception of farm-in agreement to 31 December 2015 and expected to be recovered in oil amounts to US$111.6 million.

OPL 310 is a licence granted to Optimum Petroleum Development Limited ("Optimum") by the Nigerian Government on 3 February 1992 for an initial term of ﬁve years. On 19 February 2009, the Department of Petroleum Resources conﬁrmed the re-allocation of OPL 310 to Optimum with eﬀect from 11 February 2009 for a period of ten years. The unexpired lease term on OPL 310 is approximately 3 years. The holders of OPL 310 expect to apply for the conversion of the OPL to an Oil Mining Lease (OML) for a duration of twenty years with eﬀect from the end of the OPL, subject to regulatory approval.

In January 2009, Afren Investments Oil and Gas (Nigeria) Limited ("Afren Oil and Gas ") signed a farm-out agreement with Optimum to acquire a 40% participating interest in OPL 310 and received Ministerial consent in May 2009. Afren Oil and Gas , the technical partner on OPL 310, further signed a Participating Agreement and Production and Revenue Sharing Agreement (PRSA) with Optimum which entitled Afren Oil and Gas to receive (post-production) a 70% interest in the net proceeds of production from the asset corresponding with a 70% capital and operating expenditure responsibilities towards the development of the asset.

In February 2013, Mayfair Assets and Trust Limited ("Mayfair"), a subsidiary of Lekoil Limited, farmed into Afren Oil & Gas' interest in OPL 310. Under the terms of the farm-in agreement with Afren Oil & Gas, Mayfair is entitled to a 17.14% participating interest and 30% (post-production) interest in the net proceeds of production from the asset corresponding with a 40% capital and operating expenditure responsibilities towards the development of the asset. The Group's right to the 17.14% participating interest is subject to Ministerial consent to the farm-in agreement. Where Ministerial consent is not received, any consideration paid by the Group to Afren Oil & Gas will not be refunded; however the company has rights, under a Risk and Financial Services Agreement with Afren Oil & Gas, to interests in OPL 310 reserves and production and the expenditures to date will be classiﬁed as loans and advances.

On 31 July 2015, Afren Plc, the ultimate parent company of Afren Investments Oil & Gas (Nigeria) Ltd. the co-venturer with Optimum Petroleum Development Limited on OPL 310 and whose interest Mayfair Assets & Trust Ltd. farmed into in February 2013 went into Administration. Subsequent to this event, on 30 November 2015, Lekoil 310 Limited (a subsidiary of Lekoil Limited) entered into a share sales and purchase agreement relating to the entire issued share capital of Afren Oil & Gas and certain intra-company debt. This shares and sales purchase agreement which is subject to Ministerial approval was entered into to secure the investment of Mayfair Assets and Trust Limited in OPL 310 given the ﬁnancial situation of Afren Plc. The Ministerial consent required, which is a substantive regulatory approval, is yet to be obtained.

Lekoil carried out a detailed analysis of the net present value of cash flows that may arise on OPL 310 over the life of the asset taking into account the weakness in oil price and future cost that may be required on the asset. This was done by an external expert, Wood Mackenzie. The net present value was compared to the carrying value of the assets at year end and the assets were not impaired. The Directors are satisfied with the potential commercial viability of the discovered resources on the Licence.

On 24 October 2015, Optimum and Mayfair executed a non-binding term sheet setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310, together with a plan to draft and execute deﬁnitive agreements within 4 to 6 weeks. This draft agreement deﬁned an expected minimum work programme of one well on OPL 310 expected to be drilled in 2016 and also designated Lekoil as the technical and ﬁnancial partner. In addition, amongst other terms, the term sheet anticipates that 100% of Afren Oil & Gas ' pre-drill cost and 60% of Afren Oil & Gas ' post-drill cost of US$30.0m and US$49.2m respectively, will be recovered by Optimum and the balance of Afren Oil & Gas ' post-drill cost of US$19.68m by Mayfair. The deﬁnitive agreements are yet to be executed as negotiations are still ongoing and in the view of the Directors, the agreements between Optimum and Afren Oil & Gas and by extension the agreements between Afren Oil & Gas and Mayfair remain in force.

(c) During the year, due to the uncertainty surrounding further development of OPL 241, the Group recognised an impairment of US$1.1 million in respect of this Exploration and Evaluation asset. Further information about the impairment loss is included in Note 21(c).

(d) The unexpired lease term on OPL 310 is approximately 3 years. The Directors are conﬁdent that the licence will be converted or renewed as appropriate upon expiration.

(e) Exploratory, geological and geophysical activities continued on OPL 310 during 2015 ﬁnancial year. On the basis of the expert's evaluation of the resource capability of OPL 310, which is believed to be signiﬁcantly higher than the results of the Competent Persons Report of 2013, the Directors are of the opinion that the investment in OPL 310 is not impaired despite the decline in oil price.

10. Intangible assets

The movement on the intangible assets account was as follows:

	Mineral Rights	Geological and Geophysical	Accounting
In US Dollars	Acquisition Costs*	Software	Software	Total
Costs
Balance at 1 January 2015	7,000,000	1,406,308	57,125	8,463,433
Additions during the year	-	-	46,931	46,931
Balance at 31 December 2015	7,000,000	1,406,308	104,056	8,510,364
Accumulated Amortization Accumulated amortisation
Balance at 1 January 2015	-	188,547	8,783	197,330
Charge for the year	-	281,261	29,384	310,645
Balance at 31 December 2015	-	468,808	38,167	507,975
Carrying Amounts Carrying amounts
At 31 December 2015	7,000,000	936,500	65,889	8,002,389
At 31 December 2014	7,000,000	1,217,761	48,342	8,266,103

*Mineral rights acquisition costs represents the signature bonus for the Otakikpo marginal ﬁeld amounting to $7.0 million.

11. Other receivables

Other receivables comprise:

In US Dollars	2015	2014
Director's loan (See Note 26)	1,564,655	1,503,667
Employee loans and advances	55,934	51,183
Due from Afren Investment Oil & Gas (Nigeria) Limited (See Note 11) (a))	399,980	-
Other receivables	539,244	125,570
	2,559,813	1,680,420
Non-current	1,620,589	1,503,667
Current	939,224	176,753
	2,559,813	1,680,420

(a) The amount due from Afren Investment Oil & Gas (Nigeria) Limited (Afren) represents Afren's share of Optimum's overheads paid by the Company on Afren's behalf.

12. Other assets

Other assets comprises:

In US Dollars	2015	2014
Prepaid development costs (Note 12 (a))	28,807,397	3,705,797
Deposit for investments in Ashbert Oil & Gas Limited (Note 12 (b))	240,000	-
Deposit for investments in Afren Investments Oil & Gas (Nigeria) Limited (Note 12 (c))	12,000,000	-
Prepaid insurance	248,797	118,045
Prepaid rent	834,205	753,633
Advance for captive generating plant	1,502,448	-
Due from Ashbert Oil and Gas Limited (See Note 12 (d))	16,777,897	-
Others	159,275	98,050
	60,570,019	4,675,525
Non-current	30,609,535	121,643
Current	29,960,484	4,553,882
	60,570,019	4,675,525

(a) Prepaid development costs represents the Green Energy International Limited (GEIL) share of costs (60% of joint operations' costs) in the Otakikpo marginal ﬁeld. Under the terms of the farm-in agreement, Lekoil Oil and Gas Investment Limited undertakes to fund GEIL's participating interest share of all costs relating to the joint operation on the Otakikpo marginal ﬁeld, until the completion of the Initial Work Programme. The Group will recover costs at a rate of LIBOR plus a margin of 10% through crude oil lifting when the ﬁeld commences production. However, for expenditure above US$70 million, the recovery rate increases to LIBOR plus a margin of 13%. The interest on carried costs has been included as part of the prepaid development costs.

(b) On 1 September 2015, Lekoil Exploration and Production Nigeria Limited, a wholly owned subsidiary of Lekoil Nigeria Limited, executed a share purchase agreement with Ashbert Oil and Gas Limited "Ashbert" for the acquisition of 88.57% of the issued Capital in Ashbert. As at the date of Lekoil's acquisition of 88.57% shareholding in Ashbert, Ashbert had received only an award letter, notifying the Company of the award of OPL 325 to Ashbert. The payment of the signature bonus on OPL 325 is to be made in three tranches of $16,080,000, $12,060,000 and $12,060,000. The ﬁrst tranche of $16,080,000 was paid on 27 October 2015. The second tranche of $12,060,000 is due on conversion of OPL 325 to an Oil Mining Lease and the last tranche of $12,060,000 is due on achieving ﬁrst oil. The initial payment of $240,000 being part of the consideration for the acquisition of interests in Ashbert has been reported as deposit for investment pending the conclusion of the acquisition and the receipt of the consent of the Minister of Petroluem.

(c) On 30 November 2015, Lekoil 310 Limited, a wholly owned subsidiary of Lekoil Limited also executed a Shares Sale and Purchase Agreement (SPA) with the Administrators of Afren Nigeria Holdings Limited and Afren Plc relating to the entire issued share capital of Afren Investment Oil & Gas (Nigeria) Limited and certain intra-company debts following Afren Plc's insolvency.

In accordance with the agreement, Lekoil 310 Limited shall acquire the entire share of Afren Investment Oil & Gas (Nigeria) Limited and will be assigned the intra-company debts of Afren Nigeria Holdings Limited and Afren Plc, with Afren Investment Oil & Gas (Nigeria) Limited for considerations of US$1, US$6.4 million and US$6.6 million respectively.

Consequently on 18 November 2015, Lekoil 310 Limited made the Initial Payments of US$5.9 million and US$6.1 million for Afren Investment Oil & Gas (Nigeria) Limited intra-company debts with Afren Plc and Afren Nigeria Holdings Limited respectively.

The total amount paid has been considered as part of the consideration for the acquisition of the shares of Afren Investment Oil and Gas (Nigeria) Limited. The SPA gives Lekoil an irrevocable right to the intercompany debt of Afren Plc and Afren Nigeria Holdings. As at the date of execution of the Agreement, the total debt amounted to US$150 million in the books of Afren Investment Oil and Gas (Nigeria) Limited. The Group has evaluated the fair value of this receivable on initial recognition to be nil, considering the recoverability surrounding this balance from Afren Investment Oil and Gas (Nigeria) Limited. Accordingly, this receivable has been recognised as nil as at 31 December 2015.

The shares sales and purchase is subject to Ministerial consent, which is a substantive regulatory approval. The payment has been reported as deposit for share's pending the receipt of the consent of the Minister of Petroleum.

(d) On 1 September 2015, the Company entered into a loan agreement with Ashbert Oil and Gas Limited. In accordance with the loan agreement, the Company will lend an aggregate sum of US$40,200,000 for the payment of the signature bonus on OPL 325 in three tranches of US$16,080,000, US$12,060,000 and US$12,060,000 (Note 12(b)). On 4 September 2015, the Company paid the ﬁrst tranche of US$16,080,000.

The total commitment plus interest, fees, commissions and accessories due in respect thereof shall be repaid in the equivalent of barrels of crude oil from the Borrower's share of crude oil produced from the licence, subject to any existing agreements between the Borrower and the Lender regarding the allocation of crude oil entitlements; converted at the crude oil barrel price prevailing on the open market. The loan bears interest at a rate referencing 90-day LIBOR plus 12.5% per annum. The principal and accrued interest as at 31 December 2015 is US$16.7 million (2014: nil).

13. Cash and cash equivalents

In US Dollars	2015	2014
Bank balances	26,016,194	49,225,726
Cash and cash equivalents	26,016,194	49,225,726

Included in bank balances is restricted cash amounting to US$0.49 million relating to cash security placed as collateral for bank guarantee issued on behalf of Lekoil Oil and Gas Investments Limited during the year (2014: nil).

14. Capital and reserves

(a) Share capital


In US Dollars	2015	2014
Authorised	50,000	50,000
Issued, called up and fully paid	24,412	18,152
Total issued and called up share capital	24,412	18,152

In US Dollars	2015	2014
In issue at 1 January	18,152	16,497
Issued for cash	6,260	1,650
Exercise of share options	-	5
In issue at 31 December - fully paid	24,412	18,152
Authorised - par value $0.00005 (2014: $0.00005)	1,000,000,000	1,000,000,000

(b) Share premium

Share premium represents the excess of amount received over the nominal value of the total issued share capital as at the reporting date. The analysis of this account is as follows:

Number of Shares

@ $0.00005 each	Consideration($)	Nominal value ($)	Premium ($)
43,318,430	6,022,165	2,166	6,019,999
30,000,000	1,500	1,500	-
2,990,660	1,121,500	150	1,121,350
3,500,000	203,000	175	202,825
512,500	98,250	26	98,224
19,470,570	1,396,661	974	1,395,687
82,732,073	46,100,445	4,137	46,096,308
147,382,000	116,492,386	7,369	116,485,017
33,000,000	36,416,700	1,650	36,415,050
93,750	112,984	5	112,979
125,200,000	44,266,472	6,260	44,260,212
488,199,983	252,232,063	24,412	252,207,651

The movement in share premium during the year was as follows:

In US Dollars	2015	2014
Balance at 1 January	207,947,439	171,419,410
Additional issue of shares during the period	44,260,212	36,528,029
Balance at 31 December	252,207,651	207,947,439

The increase of US$44.3 million relates to the placement of new ordinary shares issued in November 2015. The Company raised capital by issuing 125,200,000 new ordinary shares at a placing price of US$0.37 (24 pence) per share raising gross proceeds of US$46 million and net proceeds of US$44.3 million.

15. Non-controlling interests

In US Dollars	2015	2014
Lekoil Nigeria Limited	26,590,168	19,033,565
Lekoil Exploration and Production (Pty) Limited (Namibia)	138,583	77,480
	26,728,751	19,111,045

16. Trade and other payables

In US Dollars	2015	2014
Accrued expenses	3,080,574	2,059,550
Accounts payable	5,029,596	153,869
Payroll liabilities	135,073	199,699
Other statutory deductions	1,201,150	117,707
Other payables	30,575	23,100
	9,476,968	2,553,925

17. Provisions for asset retirement obligation

The Group has recognised provision for asset retirement obligation ("ARO") which represents the estimated present value of the amount the Group will incur to plug, abandon and remediate Otakikpo operations at the end of the productive lives, in accordance with applicable legislations. These costs are expected to be incurred in the year 2040 dependent on government legislation and future production proﬁles of the project. The provision has been estimated at a US inﬂation rate of 0.73% and discounted to present value at 10%. The provision recognised represents 40% of the net present value of the estimated total future cost as the Company's partner GEIL is expected to bear 60% of the cost.

(a) The movement in Provision for asset retirement obligation account was as follows:

In US Dollars

2015

2014

Balance at 1 January

Additions during the year

176,621

Balance at 31 December

176,621

18. Deferred income

Deferred income comprises:

In US Dollars	2015	2014
Interest on prepaid development costs (Note 12 (a))	2,368,541	204,260
Interest on loan due from Ashbert Oil and Gas Limited (Note 12 (d))	697,897	-
	3,066,438	204,260
Current	2,368,541	204,260
Non-current	697,897	-
	3,066,438	204,260

19. Short term loan

Lekoil Oil and Gas Investments Limited (a wholly owned subsidiary of Lekoil Nigeria Limited), entered into a Note Issuance Agreement with FBN Capital and subsequently received a debt ﬁnance of US$10 million for the Otakikpo field development. The Notes are redeemable in one bullet payment on the initial redemption date except the Group elects to exercise the option to re-issue the Note.

In November 2015, Lekoil Oil and Gas Investments Limited elected to exercise the option to re-issue the Notes and subsequently paid US$2,000,000 (plus a re-issue fee of US$80,000). In February 2016, the Company repaid US$3,000,000 and afterwards re-issued the Notes for a ﬁnal redemption date of August 2016.

The Notes bear interest at a rate referencing 90-day LIBOR plus 12% per annum. The principal plus accrued interest as at 31 December 2015 is US$8,246,746 (2014: nil).

(a) The movement in Short term loan account was as follows:

In US Dollars	2015	2014
Balance at 1 January Draw-down during the year	- 10,000,000	- -
Eﬀective interest during the year	1,086,283	-
Repayments during the year	(2,839,537)	-
Balance at 31 December	8,246,746	-

20. Revenue

No revenue is reported in these consolidated ﬁnancial statements as the Group is yet to commence production of oil and gas (2014: nil).

21. General and administrative expenses

In US Dollars	2015	2014
Expenses by nature
Legal, consultancy and technical fees	1,841,823	658,315
Directors' fees	490,000	410,000
Rent expenses (Note 21(a))	941,935	566,179
Personnel expenses (Note 21 (b))	9,045,510	5,561,252
Depreciation and amortisation (Notes 8 and 10)	860,023	443,935
Impairment loss on E&E assets (Note 21(c))	1,102,500	-
Community and security expenses (21(d))	936,581	-
Donations, sponsorships and general administration costs	508,256	358,692
Corporate services, legal, hotel expenses, insurance and travel costs	3,849,898	1,768,135
Other expenses	3,261,496	2,053,656
	22,838,022	11,820,164

(a) Operating leases

The Group leases oﬃce and residential facilities under cancellable operating leases. Leases payments are made upfront covering the lease period with no additional obligations.

(b) Personnel expenses

In US Dollars	2015	2014
Wages and salaries	7,458,236	3,238,920
Deﬁned contribution pension expense	140,494	180,351
Equity settled share-based payment (Note 23)	1,446,780	2,141,981
	9,045,510	5,561,252

During the year, due to the uncertainty surrounding further development of OPL 241, the Group impaired US$1.1 million in Exploration and Evaluation asset incurred in respect of OPL 241.

The impaired E&E asset relates to the payment made by Lekoil Nigeria Limited to Oilworld towards the acquisition of a participating interest in OPL 241 in October 2011. Lekoil Nigeria paid a deposit of US$1 million on the understanding that this would be held by Oilworld as a deposit and applied by Oilworld towards any subsequent acquisition by Lekoil Nigeria of a 1 percent participating interest in OPL 241. Ministerial consent would be needed for the transfer of the interests, and although the OPL 241 acquisition has not been completed, Oilworld has held the sum of US$1 million as a deposit on the above basis.

However, there are uncertainties surrounding the development of the OPL 241 as substantive expenditure on further exploration and evaluation activities in the speciﬁc area is neither budgeted nor planned. Also, Ministerial consent for the transfer of interests has not been received. Consequently, the Company has impaired the E&E asset on OPL 241.

(d) The Group incurred US$0.9 million on community and security costs. A large part of the expenditure was incurred on the Community Trust Fund.

22. Finance income and costs

In US Dollars	2015	2014
Finance income Interest income	72,505	3,667
Net foreign exchange gains (22(a))	4,047,010	76,282
	4,119,515	79,949
Finance costs Impairment loss on investments	-	192,223
	-	192,223

(a) Foreign exchange gains

Foreign exchange gains presents realised currency exchange diﬀerence gains resulting from the conversion of US dollar amounts to Nigerian Naira amounts; to meet obligations settled in Nigerian Naira. The signiﬁcant devaluation of Nigerian Naira to the US dollars in 2015 and the huge exchange rates disparity between the oﬃcial exchange rate and the parallel market exchange rate accounted for the signiﬁcant foreign exchange gain.

23. Share-based payment arrangements

At 31 December 2015, the Group had the following share-based payment arrangements:

Share option scheme (equity-settled)

The Group established a share option scheme that entitles employees, key management personnel and consultants providing employment-type services to purchase shares in the Group. In accordance with the scheme, holders of vested options are entitled to purchase shares at established prices of the shares at the date of grant during a period expiring on the tenth anniversary of the eﬀective date i.e. grant date. The grant dates for awards were 3 December 2010, 1 June 2011, 1 November 2011, 3 June 2012, 19 February 2013, 5 April 2013, 17 May 2013, 26 March 2014, 1 July

2015 and 23 December 2015 based upon a shared understanding of the terms of the awards at that time.

At inception of the share option scheme, the terms and conditions related to the scheme are as follows:

		Number of option shares per vesting period and exercise price
Vesting periods	Cumulative vested percentage	$1	$3.75	$7.50
Less than 12 months from the eﬀective date	25%	550,000	475,000	475,000
12 months from the eﬀective date	50%	550,000	475,000	475,000
24 months from the eﬀective date	75%	550,000	475,000	475,000
36 months from the eﬀective date	100%	550,000	475,000	475,000
		2,200,000	1,900,000	1,900,000

The Group issued options with 3 diﬀerent exercise prices US$1.00, US$3.75, and US$7.50 in 2012. The share price was estimated based on recent arm's length share issues. On 17 May 2013, the issued options with exercise prices of US$1.00 and US$3.75 were cancelled and the aﬀected employees were awarded shares at par value in consideration for the cancellation of the vested options. The issued options with exercise price of US$7.50 were subdivided by a factor of ten in line with the Group's capital reorganisation which resulted in a share split of 10:1. The exercise price of the outstanding options was also subdivided by a factor of ten resulting in a reduction in exercise price from US$7.50 to US$0.75 and an increase in total number of option shares from 6,000,000 to 19,000,000.

Eﬀective 26 March 2014, the exercise price of the outstanding stock options was changed from US$0.75 to GB£0.49 using a conversion rate of US$1.53 to GB£1.00 and the existing stock option agreements was amended to reﬂect the exercise price in GB£. In 2014, 93,750 units of share options were exercised by the Directors.

The number and weighted average exercise prices of share options are as follows:

			2015		2014
	Weighted average	Number of		Weighted average		Number of
	exercise price pririce	options		exercise price		options
Outstanding at 1 January	0.58	17,462,986		0.56		12,370,486
Granted during the year	-	-		0.75		5,280,000
Forfeited during the year	-	-		0.75		(93,750)
Exercised during the year	-	-		0.75		(93,750)
Outstanding at 31 December	0.58	17,462,986		0.58		17,462,986
Exercisable at 31 December	0.75	16,742,778		0.75		15,249,410

The options outstanding at 31 December 2015 have an exercise price of $0.75 and a weighted average contractual life of 6.05 years (2014: 7.05 years).

Inputs for measurement of grant date fair values

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model for plain vanilla European call options with the following inputs:

	2015	2014	2013
Fair value of share options and assumptions
Weighted average fair value at grant date	$0.54	$0.54	$1.04
Share price at grant date	$0.91	$0.91	$1.04
Exercise price	$0.75	$0.75	$0.75
Option life (Expected weighted average life in Years)	7.0	5.0	5.0
Expected volatility	60%	60%	65%
Risk-free Interest rate	1.70%	1.70%	0.68%
Expected dividends	na	na	na

Long-term incentive plan scheme (equity-settled)

Awards were made under the Group's Long Term Incentive Plan (LTIP) which was approved on 19 November 2014 and amended on 21 December 2015. The Board approved the grant of 7,895,000 stock options to employees of the Group on 26 June 2015 and 3,143,000 stock options to the CEO, Lekan Akinyanmi on 23 December 2015.

The options vest three years from the grant date subject to meeting the performance criteria. If they vest, they will remain exercisable for one year after the vesting date. The granted share options are subject to market-based vesting conditions. The options will vest subject to the Company's annual compound Total Shareholder Return ("TSR") over the three year performance period starting on the grant date, with;

• no options vest if annual compound TSR is less than 10%;

• 30% of options vest if annual compound TSR is 10%;

• 100% options vest if annual compound TSR is 20% or more; and

• Between 30% and 100%, the percentage of options that will vest is determined on a straight-line basis for annual compound TSR between 10% and 20%.

The number and weighted average exercise prices of share options are as follows:

2015	Weighted average exercise price	Number of options
Outstanding at 1 January	-	-
Granted during the year	0.62	11,038,000
Forfeited during the year	0.62	(60,000)
Outstanding at 31 December	0.62	10,978,000

The options outstanding at 31 December 2015 had an exercise price in the range of $0.59 to $0.62 and a weighted average contractual life of 3.64 years

Inputs for measurement of grant date fair values

The fair value of each stock option granted was estimated on the date of grant using the Monte-Carlo simulation with the following inputs:

Fair value of share options and assumptions

2015
Weighted average fair value at grant date	$0.67
Share price at grant date - Stock options issued on 26 June 2015	$0.46
Share price at grant date - Stock options issued on 23 December 2015	$0.31
Exercise price - Stock options issued on 26 June 2015	$0.62
Exercise price - Stock options issued on 23 December 2015	$0.59
Option life (Expected life in Years)	3.5
Expected volatility - Stock options issued on 26 June 2015	60%
Expected volatility - Stock options issued on 23 December 2015	65%
Risk-free Interest rate	1.5%
Expected dividends	na

Volatility was estimated with reference to empirical data for proxy companies with listed equity.

Non-Executive Director Share Plan (equity-settled)

On 21 December 2015 the Board adopted the Group's Non-Executive Director Share Plan designed to provide incentives to Non-Executive Directors. The Committee made an award of 500,000 stock options to the Non-Executive Directors under this plan on 23 December 2015.

The NED stock options are not subject to any performance criteria and vest three years from the grant date, subject to successful completion of the three year service period starting on the grant date. The options can be exercised over a seven year period beginning on the expiry of the service period.

The number and weighted average exercise prices of share options are as follows:

2015	Weighted average
	Exercise price	Number of options
Outstanding at 1 January	-	-
Granted during the year	0.59	500,000
Outstanding at 31 December	0.59	500,000

The options outstanding at 31 December 2015 had an exercise price of $0.59 and a weighted average contractual life of 10 years.

Inputs for measurement of grant date fair values

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following inputs:

Fair value of share options and assumptions

2015
Weighted average fair value at grant date	$0.13
Share price at grant date	$0.31
Exercise price	$0.59
Option life (Expected life in Years)	6.0
Expected volatility - Stock options issued on 23 December 2015	65%
Risk-free Interest rate	1.5%
Expected dividends	na

Volatility was estimated with reference to empirical data for proxy companies with listed equity.

Employee beneﬁt expenses

In US Dollars	2015	2014
Non-Executive Director Share Plan (equity-settled)	489	-
Long-term incentive plan scheme (equity-settled)	200,328	-
Share option scheme (equity-settled)	1,245,963	2,141,981
Total expense recognised as employee costs	1,446,780	2,141,981

24. Loss per share

(a) The calculation of basic loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.

(i) Loss attributable to ordinary shareholders (basic)

In US Dollars	2015	2014
Loss for the period attributable to owners of the Group	(11,100,801)	(1,929,741)
(ii) Weighted-average number of ordinary shares (basic)
In US Dollars	2015	2014
Issued ordinary shares at I January	362,999,983	329,002,380
Eﬀect of shares issued in November 2015 Eﬀect of shares issued in May 2014	20,580,822 -	- 20,252,055
Eﬀect of share options	-	42,894
Weighted-average number of ordinary shares at 31 December	383,580,805	349,297,329

(b) The calculation of diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the eﬀects of all dilutive potential ordinary shares. Basic and diluted loss per share are equal as all options are anti-dilutive.

(i) Loss attributable to ordinary shareholders (basic)

In US Dollars	2015	2014
Loss for the period attributable to owners of the Company	(11,100,801)	(1,929,741)
(ii) Weighted-average number of ordinary shares (diluted)
In US Dollars	2015	2014
Weighted-average number of ordinary shares (basic)	383,580,805	349,297,329
Eﬀect of share options	-	7,386,791
Weighted-average number of ordinary shares (diluted) at 31 December	383,580,805	356,684,120

25. Taxes

(a) Income tax

The Group with its principal assets and operations in Nigeria is subject to the Petroleum Proﬁt Tax Act of Nigeria (PPTA). However, the Group is yet to commence production and therefore earned no revenue during the year. As a result, no Petroleum Proﬁt Tax (PPT) was charged during the year.

(b) Unrecognised deferred tax assets

Deferred tax assets will arise from unrelieved losses as well as the tax base of assets. These have not been recognised due to uncertainty over the availability of future taxable proﬁt to oﬀset the losses.

In US Dollars	2015	2014
Unrelieved losses	21,766,873	(22,141,689)
	21,766,873	(22,141,689)

(c) Eﬀective tax rates
In US Dollars	2015	2014
Loss before tax	(18,718,507)	(11,932,438)
Tax at Cayman corporate tax rate of 0%	-	-
Eﬀects of tax rate applicable in foreign jurisdictions
- Nigeria	(12,438,619)	(11,196,655)
- Namibia	(106,930)	(69,217)
- US	-	(10,781)
- Singapore	-	(6,379)
- Benin	(103)	(39)
- UK -	(20,644)
Unrecogbised deferred tax asset	12,566,296	11,283,071
Total tax charge	-	-

26. Related party transactions

The Group had transactions during the year with the following related parties:

(a) Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. These are the Directors of the Group.

(i) Loans to key management personnel

An unsecured loan of US$1,500,000 was granted to a Director on 9 December 2014. The loan has a three year term and bears interest at a rate of four per cent per annum. Repayment is due at the end of the term. At 31 December 2015, the balance outstanding was US$1,564,655 (2014: US$1,503,667) and is included in 'trade and other receivables'.

(ii) Key management personnel transactions

The value of transactions and the outstanding balance at year end due to key management personnel and entities over which they have signiﬁcant inﬂuence was US$2.46 million and US$0.66 million respectively. During the year ended 31 December 2015, Lekoil Oil & Gas Investments Limited entered into a contract with SOWSCO Wells Services Nigeria Limited, a company controlled by a Director, for the provision of well completion services. (The contract terms are based on market rates for this type of services and were due and payable under normal payment terms.)

Key management personnel compensation

In addition to their salaries, the Group also provides non-cash beneﬁts to key management personnel, in the form of share based payments.

Key management personnel compensation comprised the following:
In US Dollars	2015	2014
Short-term beneﬁts	3,064,410	1,697,749
Share-based payments	13,686	1,270,918
	3,078,096	2,968,667

Short-term employee beneﬁts comprised the following:
In US Dollars	2015	2014
Salaries	1,974,410	962,749
Fees	490,000	410,000
Bonus	600,000	735,000
	3,064,410	2,107,749

Details of Directors' remuneration (including fair value of share based payments) earned by each Director of the Company during the period are as follows:

2015 In US Dollars		Fees	Salaries	Bonus	Share-based payments	Total
Olalekan Akinyanmi	-		881,250	600,000	1,868	1,483,118
David Robinson***	-		1,093,160*	-	-	1,093,160
Samuel Adegboyega	140,000		-	-	98	140,098
Aisha Muhammed-Oyebode	100,000		-	-	5,196	105,196
Greg Eckersley	100,000		-	-	98	100,098
John van der Welle	100,000		-	-	6,328	106,328
Hezekiah Adesola Oyinlola**	50,000		-	-	98	50,098
	490,000		1,974,410	600,000	13,686	3,078,096

2014 In US Dollars	Fees		Salaries	Bonus	Share- based payments	Total
Olalekan Akinyanmi	-		296,755	525,000	687,500	1,509,255
David Robinson	-		255,994	210,000	550,000	1,015,994
Samuel Adegboyega	120,000		-	-	-	120,000
Aisha Muhammed-Oyebode	80,000		-	-	12,461	92,461
Atedo Peterside****	50,000		-	-	6,230	56,230
Greg Eckersley	80,000		-	-	-	80,000
John van der Welle	80,000		-	-	14,727	94,727
	410,000		552,749	735,000	1,270,918	2,968,667

* Salaries include severance beneﬁts amounting to $740,664

** Appointed 26 June 2015

*** Resigned 26 June 2015

**** Resigned 28 June 2014

(iii) Key management personnel and Director transactions

Directors of the Company control 9.57% (2014: 14.20%) of the voting shares of the Company.

(b) Lekoil Limited, Cayman Islands has a Management & Technical Services Agreement with Lekoil Management Corporation (LMC) under the terms of which LMC was appointed to provide management, corporate support and technical services. The remuneration to LMC includes reimbursement for charges and operating costs incurred by LMC.

27. Group entities

(a) Signiﬁcant subsidiaries:

	Country of incorporation	Ownership interest
		2015	2014
Lekoil Nigeria Limited (See (a)(i))	Nigeria	40%	40%
Lekoil Exploration and Production (Pty) Limited	Namibia	80%	80%
Lekoil Management Corporation	USA	100%	100%
Lekoil Singapore PTE Limited	Singapore	100%	100%
Lekoil Limited SARL	Benin	100%	100%
Lekoil 310 Limited	Cayman Islands	100%	-
Lekoil Management Services	Cayman Islands	100%	-

(i) Although the Company holds less than 50% ownership interests in Lekoil Nigeria Limited, it has control over the entity and it is entitled to 90% of the beneﬁts related to its operations and net assets based on terms of agreements under which the entity was established. Consequently, the Company consolidates Lekoil Nigeria Limited.

Lekoil Nigeria Limited has ﬁve wholly owned subsidiaries, namely: Mayfair Assets and Trust Limited, Lekoil Oil & Gas Investments Limited, Lekoil Exploration and Production Nigeria Limited, Lekoil Energy Nigeria Limited and Princeton Assets and Trust Limited. The results of these subsidiaries have been included in the consolidated ﬁnancial results of Lekoil Nigeria Limited.

(b) Non-controlling interests (NCI)

The following table summaries the information relating to each of the Group's subsidiaries, before any intra-group eliminations:

31 December 2015

In US Dollars	Lekoil Nigeria Limited Group	Lekoil Exploration and Production (Pty) Limited	Intra-group eliminations	Total
NCI Percentage	60%	20%
Non-current assets	133,654,464	407,445
Current assets	35,102,783	46,065
Non-current liabilities	-	-
Current liabilities	(208,556,166)	(1,146,423)
Net assets	(39,798,919)	(692,914)
Carrying amount of NCI	(23,879,351)	(138,583)	(2,710,817)	(26,728,751)
Revenue	-	-
Loss	(13,672,779)	(305,515)
Net ﬁnance income/(cost)	(10,738,051)	-
Total comprehensive income	(24,410,830)	(305,515)
Loss allocated to NCI OCI allocated to NCI	(14,646,498) -	(61,103) -	7,089,895 -	(7,617,706) -
Cash ﬂows from operating activities	(42,858,455)	(622,107)
Cash ﬂows from investment activities	(13,067,404)	-
Cash ﬂows from ﬁnancing activities	55,439,642	522,160
Net decrease in cash and cash equivalents	(486,217)	(99,947)

31 December 2014

In US Dollars	Lekoil Nigeria Limited Group	Lekoil Exploration and Production (Pty) Limited	Intra-group eliminations	Total
NCI Percentage	60%	20%
Non-current assets	120,708,703	100,415
Current assets	7,870,147	141,616
Non-current liabilities	(145,996,146)	(624,263)
Current liabilities	(2,213,780)	(5,167)
Net assets	(19,631,076)	(387,399)
Carrying amount of NCI	(11,778,646)	(77,480)	(7,254,919)	(19,111,045)
Revenue	-	-
Loss	(16,739,128)	(147,957)
Net ﬁnance income/(cost)	133,886	(49,805)
total comprehensive income	(16,605,242)	(197,762)
Loss allocated to NCI	(9,963,145)	(39,552)	-	(10,002,697)
OCI allocated to NCI	-	-	-	-
Cash ﬂows from operating activities	(40,142,525)	(261,194)
Cash ﬂows from investment activities	(18,033,174)	-
Cash ﬂows from ﬁnancing activities	59,068,613	367,037
Net increase in cash and cash equivalents	892,914	105,843

28. Events after the reporting date

There have been no events between the reporting date and the date of authorising these ﬁnancial statements that have not been adjusted for or disclosed in these ﬁnancial statements.

29. Financial commitments and contingencies

(a) On 17 October 2011, Lekoil Nigeria Limited signed the prepayment agreement relating to a proposed acquisition by Lekoil Nigeria Limited of an interest in another Nigerian ﬁeld, OPL 241 from Oilworld Limited ("Oilworld"). It was proposed that Lekoil Nigeria Limited acquire a 10% participating interest in OPL241 subject to negotiation of a commercial transaction and suitable documentation being agreed (the "OPL 241 Acquisition") and certain payments being made by Lekoil Nigeria Limited to Oilworld. Lekoil Nigeria Limited paid a deposit of US$1,000,000 on the understanding that this would be held by Oilworld as a deposit and applied by Oilworld towards any subsequent acquisition by Lekoil Nigeria Limited of a 1% participating interest in OPL 241. Ministerial consent would be needed for the transfer of the interests although the OPL 241 acquisition has not been completed and Oilworld is still holding the sum of US$1,000,000 as a deposit on the above basis. The Prepayment Agreement also states that, if the OPL 241 acquisition did not complete, Lekoil Nigeria Limited would have a right of ﬁrst refusal over the 10% participating interest in OPL 241 held by Oilworld (including the 1% interest to which the US$1,000,000 deposit above refers). Oilworld commenced sole risk 3D seismic acquisition in 2013.

(b) Lekoil Limited, Namibia is bound to an agreement for the acquisition of a 77.5% participating interest in the Production Sharing Agreement (PSA) and operatorship in respect of Namibia Blocks 2514A and 2514B with Hallie Investments (Namibia) for the sum of US$2.75 million, out of which an initial deposit of US$69,660 was made. The amount of US$69,660 paid is included in exploration and evaluation assets.

The licence will expire in July 2016. However the Group is in the process of obtaining a renewal.

(c) On 24 October 2015, Optimum and Mayfair Assets and Trusts Limited executed a non-binding term sheet setting out possible terms upon which the two companies would be prepared to transact in relation to OPL 310. The obligations in this draft agreement, which are as summarised below are contingent on the execution of the deﬁnitive agreements:

• Minimum work programme: Lekoil as technical and ﬁnancial partner will pay 100% of the costs of drilling one well in the contract area. As of the date of this draft agreement, the plan was for the well to be spudded in early 2016.

• Payments to Optimum: US$10 million will be paid within 30 days of execution of deﬁnitive agreements as reimbursement of past cost. US$3 million will be paid within 180 days of paying the initial US$10 million.

• Payments to Government: Lekoil will make outstanding signature bonus payments to government of US$10 million upon conversion to OML and another US$10 million upon production of ﬁrst oil.

• Production prepayments: Lekoil together with other non-Optimum partners will pay total prepayments costs amounting to US$150 million contingent on future activities which are recoverable from cost oil.

• 100% funding requirements: Lekoil will pay 100% of capital and operating expenditure to ﬁrst oil and recover same as cost oil

• Recovery of Afren Oil & Gas past costs: In addition, amongst other terms, this draft agreement anticipates that 100% of Afren Oil & Gas ' pre-drill cost and 60% of Afren Oil & Gas ' post-drill cost of US$30 million and US$49.2 million respectively, will be recovered by Optimum and the balance of Afren Oil & Gas ' post-drill cost of US$19.68 million by Mayfair.

• US$2.5 million per year Operator general and administrative costs to be paid by Lekoil in quarterly installments in advance, starting in 2016 and payable until ﬁrst oil.

(d) Lekoil Oil and Gas Investments Limited is bound to the terms under a farm-in agreement with respect to Otakikpo marginal ﬁeld. For a 40% economic and participating interest, the Company will fund all costs relating to the joint operation until the completion of the initial work programme.

In accordance with the farm-in agreement with Green Energy International Limited (GEIL), the Company will pay GEIL, contingent on production, a production bonus of US$4 million.

(e) On 5 December 2014, the joint venture signed a Memorandum of Understanding (MoU) with its host community, Ikuru with respect to the Otakikpo marginal field area. The key items of the MoU include the following:

• The joint venture will allocate 3% of its revenue from the Liqueﬁed Petroleum Gas (LPG) produced from the ﬁeld to Ikuru Community in each ﬁnancial year.

• The joint venture will allocate the sum of US$0.53 million (NGN 106million) annually for sustainable community development activities.

(f) In May 2015, the Company provided a corporate guarantee in favour of FBN Capital for loan notes issued by Lekoil Oil and Gas Investments Limited, a sub-subsidiary of the Company.

(g) Litigation and claims

There are no litigations or claims involving the Group as at 31 December 2015 (2014: nil).

(h) Minimum Obligations on licences

Otakikpo

In June 2015, Lekoil Oil and Gas Investments Limited obtained Ministerial approval for the 40% participating interest in Otakikpo marginal field following the farm-in agreement with Green Energy International Limited ("GEIL") in May 2014. The unexpired lease term is approximately three years. As at year end, the Company and its partners were still implementing the initial work plan. In the initial work plan, there are 2 stages of proposed ﬁeld development for Otakikpo.

The ﬁrst phase is the Initial Work Programme (IWP) which spans for 24 Months. Phase 1 development focus is to achieve early production and quick cash ﬂow with optimised capex investments:

• This phase will focus on 4 completable intervals. Well 3 can be completed on C5, C6, and E1 (appropriate completion will be subject to integrated subsurface studies-G&G)

30. Special terms and conditions on OPL No. 310 licence

As per Oil Prospecting Licence No. 310, the licence is granted subject to the Petroleum Act 1969 and the regulations thereunder now in force or which may come into force during the continuance of this licence (and also subject to the special terms and conditions in the Annex attached thereto).

Based on representation from Optimum (the Operator), the Directors are not aware of the existence of an annex attached to the Oil Prospecting licence containing special terms and conditions.

31. Financial risk management and ﬁnancial instruments

Overview

The Group has exposure to the following risks from its use of ﬁnancial instruments:

• credit risk

• liquidity risk

• market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these ﬁnancial statements.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

The Group's risk management policies are established to identify and analyse risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reﬂect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(a) Credit risk

Credit risk is the risk of ﬁnancial loss to the Group if a customer or counterparty to a ﬁnancial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from joint venture partners, employees and related parties.

Exposure to credit risk

The carrying amount of ﬁnancial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount

In US Dollars	Notes	2015	2014
Cash and cash equivalents	13	26,016,194	49,225,726
Other receivables	11	2,559,813	1,680,420

The Group's exposure to credit risk is minimised as the Group is still in the exploratory and development phase. Trade and other receivables represent loans to companies, employee receivables and loan to Director which management has assessed as unimpaired.

Cash and cash equivalents

The cash and cash equivalents of US$26.0 million (2014: US$49.2 million) are held with reputable ﬁnancial institutions.

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have suﬃcient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The following are the contractual maturities of ﬁnancial liabilities, and excluding the impact of netting agreement:

In US Dollars

	Notes	Carrying amount	Contractual cash ﬂows	6 months or less
Non-derivative ﬁnancial liabilities 31 December 2015
Short-term loan	19	8,246,746	8,408,769	8,408,769
Trade and other payables*	17	8,140,745	8,140,745	8,140,745
		16,387,491	16,549,514	16,549,514
31 December 2014
Trade and other payables*	17	2,236,519	2,236,519	2,236,519

It is not expected that the cash ﬂows included in the maturity analysis could occur signiﬁcantly earlier, or at signiﬁcantly diﬀerent amounts.

* The carrying amount of trade and other payables is stated net of statutory deductions.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will aﬀect the Group's income or the value of its holdings of ﬁnancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group manages market risks by keeping costs low through various cost optimisation programmes. Moreover, market developments are monitored and discussed regularly, and mitigating actions are taken where necessary.

Currency risk

The Group is exposed to currency risk on bank balances, employee receivables and trade and other payables denominated in foreign currency.

The summary quantitative data about the Group's exposure to currency risks are as follows:

	Carrying amounts
In US Dollars	2015	2014
Trade and other receivables	68	276
Cash and cash equivalents	225,366	182,254
Trade and other payables	(1,166,513)	(107,429)
Net exposure	(941,079)	75,101

Sensitivity analysis

A 20 per cent strengthening of the US Dollar against the following currencies at 31 December would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

		Foreign exchange rate risk
		20% (-20%)
31 December 2015	Carrying	Proﬁt	Other movements	Proﬁt	Other movements
In US Dollars	amount	or loss	in Equity	or loss	in Equity
Financial assets:
Naira
Cash and cash equivalents	225,366	45,073	-	(45,073)	-
Trade and other receivables	68	14	-	(14)	-
Impact on ﬁnancial assets	-	45,087	-	(45,087)	-
Financial liabilities:
Naira
Accounts payable	(1,166,513)	(233,303)	-	233,303	-
Impact on ﬁnancial liabilities	-	(233,303)	-	233,303	-
Total increase (decrease)	-	(188,216)	-	188,216	-

		Foreign exchange rate risk
		10% --10%
31 December 2014	Carrying	Proﬁt	Other movements	Proﬁt	Other movements
In US Dollars	amount	or loss	in Equity	or loss	in Equity
Financial assets:
Naira
Cash and cash equivalents	182,254	18,225	-	(18,225)	-
Trade and other receivables	276	28	-	(28)	-
Impact on ﬁnancial assets		18,253	-	(18,253)	-
Financial liabilities:
Naira				-
Accounts payable	(107,429)	(10,743)	-	10,743	-
Impact on ﬁnancial liabilities	-	(10,743)	-	10,743	-
Total increase (decrease)		7,510		(7,510)	-

The amounts shown represent the impact of foreign currency risk on the groups consolidated proﬁt or loss. The foreign exchange rate movements have been calculated on a symmetric basis. This method assumes that an increase or decrease in foreign exchange movement would result in the same amount and further assumes the currency is used as a stable denominator.

(d) Fair values

Fair values vs carrying amounts

The following table shows the carrying amounts and fair values of ﬁnancial assets and ﬁnancial liabilities. It does not include fair value information for ﬁnancial assets and ﬁnancial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

In US Dollars		Carrying amounts
31 December 2015	Note	Loans and receivables			Other ﬁnancial liabilities		Total
Financial assets not measured at fair value
Other receivables	12	2,559,813			-		2,559,813
Cash and cash equivalents		26,016,194			-		26,016,194
		28,576,007			-		28,576,007
Financial liabilities not measured at fair value
Short-term loan	19	-			8,246,746		8,246,746
Trade and other payables	17	-			8,140,745		8,140,745
		-			16,387,491		16,387,491
In US Dollars			Carrying amounts
31 December 2014	Note		Loans and receivables		Other ﬁnancial liabilities	Total
Financial assets not measured at fair value
Other receivables	12		1,680,420	-		1,680,420
Cash and cash equivalents			49,225,726	-		49,225,726
			50,906,146	-		50,906,146
Financial liabilities not measured at fair value
Trade and other payables	16		-		2,236,519	2,236,519
			-		2,236,519	2,236,519