Half Yearly Report

RNS Number : 1876P

Lekoil Limited

30 September 2013

 



30 September 2013

Lekoil Limited

("Lekoil" or the "Company")

Half Year Results for six months ended 30 June 2013

Lekoil plc (AIM: LEK) the oil and gas exploration and production company with a focus on Nigeria and West Africa more broadly, reports its Half Year Results for the six months ended 30 June 2013.

Summary

·      Successful IPO on the AIM market of the London Stock Exchange completed in May 2013 raising US$50m (approximately £32m).

·      High impact Ogo-1 well located on the OPL 310 licence offshore Nigeria discovered a significant light oil accumulation, based on the results of drilling and wireline logs.

·      Proposed acquisition of a 6.502 per cent. participating interest (16.3 per cent. cost interest and 12.2 per cent. revenue interest) in OML 113 offshore Nigeria, which includes the Aje field, for a consideration of US$30 million.

·      Post the period end, additional US$20m (approximately £13.2m) raised in July 2013 to fund the drilling and testing of the sidetrack well, Ogo-1 ST, on the OPL 310 licence as well as for general working capital.

Financial

·      Loss after tax of $8.7 million,includes one-off costs of $5.4 million, relating to the Company's May 2013 IPO related expenditure.  Cash outflow from operations (before changes in non-cash working capital) of $8.7 million.

·      Cash at 30 June 2013 of $5.9 million and no debt (subsequent to the period end, the Company drew down $15 million of the loan facility entered into with Afren plc at the time of the IPO; $11.1 million of this remains outstanding as at the release date of this report).

Outlook

·      The Ogo-1 sidetrack well is drilling ahead and is currently at a depth of approximately 16,000ft, with a proposed total depth of approximately 17,900ft. Testing is expected to commence thereafter.

·      Based on discussions to date, Lekoil is confident that it will be able to access capital to fund the proposed acquisition and associated capital expenditure related to OML 113.

Lekan Akinyanmi, Lekoil's CEO, commented, "Following the Company's IPO on the AIM market of the London Stock Exchange in May 2013, I would like to welcome our new shareholders and thank our long standing investors for their support. We are successfully executing our strategy to build a business focused on West Africa that will be diversified across lower risk production assets and appraisal projects and higher risk exploration assets in both known exploration basins and newly discovered basins."

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

Lekoil Limited Lekan Akinyanmi (CEO) / Dave Robinson (CFO)	[phone]
Strand Hanson Limited  (Financial and Nominated Adviser) James Harris / James Spinney / Ritchie Balmer	[phone]
Mirabaud Securities LLP (Broker) Peter Krens / Edward Haig-Thomas	[phone] [phone]
Tavistock Communications (Financial PR) Simon Hudson / Conrad Harrington / Ed Portman	[phone]

Corporate

The six months under review witnessed the completion of the acquisition of a 27 per cent. ultimate interest in OPL 310 and the Company's IPO on AIM in May 2013. Lekoil is established such that its shareholders are able to participate in the acquisition and development of Nigerian oil & gas assets (under the Nigerian Government's indigenisation process) as well as evaluate the potential of interests in other West African states.  This allowed us to proceed with the funding and execution of our strategy to build a multi-asset exploration, development and production business in Africa.

Strategy

Our strategy is to build a business focused on West Africa that will have a risk profile diversified across lower risk production assets and appraisal projects and higher risk exploration assets in both known exploration basins and newly discovered basins.  This will be achieved through the acquisition of interests being divested by international oil companies and national oil companies, farm-ins to under-producing assets from indigenous owners, participation in marginal fields licensing rounds and the acquisition of promising undeveloped and unfunded assets, supplemented by longer term exploration interests in overlooked oil basins.

Our ability to acquire, or farm in, to such interests is underpinned by our in-house technical and commercial expertise and experience gained with major international oil companies, service providers and in the global finance industry as well as relationships that provide access to capital.

Progress

To date, we have made a very good start on executing our stated strategy.  We have farmed in to an exploration/appraisal project, in OPL 310 in offshore Nigeria, where we have had our first drilling success, in June, with the Ogo-1 well.  We have also announced the proposed acquisition of an interest in OML 113, (containing the Aje field), a near term production asset located adjacent to OPL 310; and been awarded two blocks, as operator, in an under-explored basin offshore Namibia.  In addition, we continue to study and evaluate other opportunities in our chosen focus areas.

Results

The results we are reporting, for the six months to 30 June 2013, cover only some six weeks of trading as a listed entity and contain no directly comparable figures for prior periods.  They include one-off costs of $5.4 million relating to costs associated with finalizing our corporate structure, the IPO process and the farm-in to OPL 310.  The loss attributable to shareholders was $8.7 million, loss per share was 5.0 cents and cash outflow from operations was $8.7 million, before the one-off costs described above.  At this stage of our development, the Directors will not be recommending a dividend in respect of the current year.

Assets

OPL 310, Nigeria

Lekoil Nigeria has a 17.14 per cent. participating interest and a 30 per cent. economic interest in OPL310, an offshore Nigerian asset located in the Dahomey-Benin Basin.  The Company is entitled to a minimum 90 per cent. of the income and capital distributed by Lekoil Nigeria and therefore net recoverable prospective resources attributable to the Company's interest in OPL310 were originally estimated by NSAI, responsible for the Competent Person's Report on OPL310, at approximately 128.5 mmboe.  Production is estimated to commence, assuming positive drilling results, in late 2015 at the earliest.

In June we announced that the Ogo-1 well discovered a significant light oil accumulation, based on the results of drilling and wireline logs.  At that time, the well had been drilled to a total measured depth of 10,518ft and had encountered a gross hydrocarbon section of 524ft, with 216ft of apparent stacked, net pay. 

The Ogo-1 discovery, testing a four-way dip-closed structure in the Turonian, Cenomanian, and Albian sandstone reservoirs, confirmed the extension of the same Cretaceous play that has yielded other significant discoveries along the West African Transform Margin.  The results also indicated a working hydrocarbon system that is weighted more towards liquids than gas. This was confirmed by Modular Formation Dynamics Testing (MDT) samples; light oil samples in the Turonian and Cenomanian sands and condensate samples in the Albian sands.

Following the completion of operations at Ogo-1, the Partners in OPL310 commenced drilling a side-track well, Ogo-1 ST, which was designed to test a stratigraphic pinch-out trap on the flanks of the basement high - a new potential play in the area.  The Ogo-1 sidetrack well is drilling ahead and is currently at a depth of approximately 16,000ft, with a proposed total depth of approximately 17,900ft.  Testing is expected to commence thereafter.

OML 113, Nigeria

On 18 June 2013, we announced the proposed acquisition of a 6.502 per cent. participating interest (representing c. 16.3 per cent. cost interest and c. 12.2 per cent. revenue interest) in OML 113 offshore Nigeria for a consideration of US$30 million.  OML 113 is located offshore Nigeria in the Benin Embayment along the West African Transform Margin adjacent to OPL 310. 

The OML 113 license area contains the Aje oil and gas field with total contingent resources, estimated by AGR TRACS International Ltd in its most recent Competent Persons Report, of 198.7 mmboe.  The net unrisked Contingent Resources in OML 113 attributable to Lekoil will be approximately 25.3 mmboe.  Approximately 50 per cent. of the contingent resources in the Aje field are liquid hydrocarbons, comprising gas, gas liquids and condensate as well as a significant oil leg in one of the reservoirs.

The Aje discovery lies offshore, within the Benin Basin, about 24 km from the coast of Nigeria, close to the route of the West Africa Gas Pipeline and 64 km from Lagos. The licence covers an area of approximately 960 km² with water depths ranging from 100 to 1,500 metres. Aje is primarily a Turonian gas and gas condensate discovery, but also contains a thin oil leg below the main Turonian gas reservoirs, an oil bearing reservoir in the underlying Cenomanian, and a gas condensate interval in the deeper Albian section.

The field was discovered in 1996 by well Aje-1, with an appraisal well (Aje-2) drilled the following year. A third well, Aje-3, confirmed the structural interpretation and resolved fluid distribution while the most recent appraisal well, Aje-4, drilled in 2008, confirmed the Turonian and Cenomanian reservoirs, and encountered a gas-condensate bearing interval in the deeper Albian interval.  The Aje field is currently in the development planning stage, with first production expected in late 2015. The partners plan to drill a well within the next 6-12 months.

The transfer of the 6.502 per cent. participating interest to Lekoil is conditional upon, among other things, the delivery of a bid bond of US$3 million (since satisfied) and payment of the consideration of US$30 million as adjusted including in respect of any cash calls made between 1st January 2013 and completion, and certain other additional amounts. 

Post the period end we announced, on 16 September 2013, that we had made a payment of US$3 million as part of the consideration to the vendors, a subsidiary of Panoro Energy ASA ("Panoro").  Lekoil and Panoro agreed that Lekoil will now fund the escrow with the balance of the consideration on or before 31 October 2013.  We also announced that we were in advanced discussions with potential debt providers to fund the balance of the consideration.

The future

We are in the process of acquiring a very near term producing asset, we have had our first discovery with the Ogo-1 well and we have put in place longer term, higher risk (and reward) exploration acreage in Namibia.  We do not intend to stop there.  Our ambition is to create an African focused business from our current core assets in Nigeria that will rank among the largest independent players in the region.

The second half of the year is proving to be as active for us as the first six months, as we complete operations on Ogo-1 ST and complete the acquisition of an interest in OML 113.  We are also reviewing other opportunities to acquire other near-production assets to build out our producing assets portfolio.

30 September 2013

Financials

Combined statements of comprehensive income
For the six months ended 30th June 2013		In US Dollars
	Notes	30-Jun-13	30-Jun-12	31-Dec-12
		Unaudited	Unaudited	Audited
Continuing Operations:
Employee Benefits	3	(1,482,783)	(521,383)	(1,962,313)
Depreciation		(17,727)	(12,941)	(30,334)
Other		(2,496,905)	(754,425)	(1,850,287)
Total administrative expenses		(3,997,416)	(1,288,749)	(3,842,934)
Loss from Operating activities		(3,997,416)	(1,288,749)	(3,842,934)
Finance income		64	105	6,918
Finance costs (inclusive of IPO related expenditure)		(4,160,740)	34,666	(3,177)
Foreign currency (loss)/gain		(544,648)	6,236	-
Net finance income		(4,705,324)	41,007	3,741
Total comprehensive income and expense		(8,702,740)	(1,247,742)	(3,839,193)
Loss attributable to:
Owners of the invested capital		(8,691,868)	(1,247,149)	(3,826,699)
Non-controlling interests		(10,872)	(593)	(12,494)
Total comprehensive income and expense for the year		(8,702,740)	(1,247,742)	(3,839,193)
Loss per share:
Basic loss per share ($)	4	(0.05)	(0.19)	(0.51)
Diluted loss per share ($)	4	(0.05)	(0.19)	(0.51)

Combined statements of financial position
For the six months ended 30th June 2013		In US Dollars
	Notes	30-Jun-13	30-Jun-12	31-Dec-12
		Unaudited	Unaudited	Audited
Assets
Property, plant and equipment		111,750	99,778	126,108
Intangible exploration and evaluation assets	5	36,928,090	1,031,217	1,172,160
Total non-current assets		37,039,840	1,130,995	1,298,268
Trade and other receivables		74,470	77,723	81,190
Prepayments		1,992,218	133,529	136,016
Cash and cash equivalents		5,936,510	2,063,754	813,794
Total current assets		8,003,198	2,275,006	1,031,000
Total assets		45,043,038	3,406,001	2,329,268
Invested capital and non-controlling interests
Invested capital		43,850,083	2,835,503	861,924
Non-controlling interests		(22,631)	(733)	(12,492)
Total invested capital and non-controlling interests		43,827,452	2,834,770	849,432
Liabilities
Trade and other payables		1,215,586	571,231	1,479,836
Current and total liabilities		1,215,586	571,231	1,479,836
Total invested capital, non-controlling interests and liabilities		45,043,038	3,406,001	2,329,268

Combined statements of cash flows
For the six months ended 30th June 2013		In US Dollars
		30-Jun-13	30-Jun-12	31-Dec-12
		Unaudited	Unaudited	Audited
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year before tax		(3,997,416)	(1,206,735)	(3,839,193)
Adjustment for:
Equity settled employee share based payment transactions		-	-	477,968
Net finance income		(4,160,676)	(47,243)	(3,741)
Foreign currency (loss)/gain		(544,648)	6,236	(97)
Depreciation		17,727	12,941	30,334
		(8,685,013)	(1,234,801)	(3,334,729)
Changes in:
Trade and other payables		(258,801)	98,991	1,006,799
Prepayments		(1,857,132)	(1,612)	(4,060)
Trade and other receivables		5,794	820	853
Net cash used in operating activities		(10,795,152)	(1,136,603)	(2,331,137)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment		(5,775)	-	(42,173)
Acquisition of exploration and evaluation assets		(35,823,545)	-	(69,660)
Net cash used in investing activities		(35,829,320)	-	(111,833)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of invested capital		51,755,893	1,066,801	1,123,000
Interest received		-	-	208
Net cash from financing activities		51,755,893	1,066,801	1,123,208
Net increase/(decrease) in cash and cash equivalents		5,131,421	(69,802)	(1,319,762)
Cash and cash equivalents at 1 January		805,089	2,133,556	2,133,556
Cash and cash equivalents at reporting Date		5,936,510	2,063,754	813,794

Total invested capital and non-controlling interests
In US Dollars
		Invested Capital	Non Controlling Interests	Total Invested Capital and Non Controlling Interests
Balance on 1 January 2012		3,089,155	-	3,089,155
Loss for the Period		(1,247,149)	(593)	(1,247,742)
Total Comprehensive income and expense for the year		(1,247,149)	(593)	(1,247,742)
Share based payment transactions		-	-	-
Increase in invested capital		993,357	-	993,357
Shares issued by subsidiary		-	-	-
Balance on 30 June 2012		2,835,363	(593)	2,834,770
Balance on 1 July 2012		2,835,363	(593)	2,834,770
Loss for the year		(2,579,550)	(11,901)	(2,591,451)
Total Comprehensive income and expense for the year		(2,579,550)	(11,901)	(2,591,451)
Share based payment transactions		477,968	-	477,968
Increase in invested capital		128,143	-	128,143
Shares issued by subsidiary		-	2	2
Balance on 31 December 2012		861,924	(12,492)	849,432
Balance on 1 January 2013		861,924	(12,492)	849,432
Loss for the Period		(8,707,382)	(10,872)	(8,718,254)
Total Comprehensive income and expense for the year		(8,707,382)	(10,872)	(8,718,254)
Share based payment transactions		(59,617)	-	(59,617)
Increase in invested capital		51,755,893	-	51,755,893
Shares issued by subsidiary		-	-	-
Balance on 30 June 2013		43,850,818	(23,364)	43,827,454

UNAUDITED NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2013

Reporting entities

Lekoil Limited is a company domiciled in the Cayman Islands. The address of the Company's registered office is Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman, Cayman Islands. The Group's principal activity is the exploration and production of oil and gas

1. Basis of Preparation

The combined financial information has been prepared in accordance with the requirements of the AIM Rules and in accordance with this basis of preparation. The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), other than as set out below:

The entities which comprise the Group did not form a legal group in the period 1 January 2012 to 31 December 2012 presented in the combined financial information. However, the entities which comprise the Group have been under common management throughout this period, having the same Board of Directors, which manages the operations of all entities as if they were one entity. Consequently, the combined financial information has been prepared for period 1 January 2012 to 31 December 2012 by combining the financial information of the Company and Lekoil Nigeria, together with their associated subsidiaries. The information for the period 1 January 2013 to June 30 2013 is presented on a consolidated basis as a legal group has been established.

IFRSs as adopted by the EU do not provide for the preparation of combined financial information, and, accordingly, in preparing the combined financial information, certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Analysis of Common Practices on Combined and Carve-out Financial Statements issued by the Federation of European Accountants have been applied.

The application of these conventions results in the following material departure from IFRSs as issued by the International Accounting Standards Board (IFRS). In other respects, IFRS has been applied. The combined financial information has been prepared by aggregating the assets, liabilities, results, share capital and reserves of the relevant entities, after eliminating intercompany transactions and balances. As the Group has not in the past formed a separate legal group, it is not meaningful to present share capital or an analysis of reserves. Instead "Invested capital" is presented, which represents the aggregated share capital, share premiums, retained losses and share-based payment reserves of the Company, Lekoil Nigeria and their subsidiary undertakings.

The IASB has issued a number of new and revised IFRSs. For the purpose of preparing this combined financial information, the Group has adopted all these new and revised IFRSs, except for any new standards or interpretations that were not yet effective as at 31 December 2012. The condensed set of financial statements have been prepared using accounting bases and policies consistent with those used in the preparation of the audited financial statements of the Group for the year ended 31 December 2012 and those to be used in the year ending 31 December 2013. 

Going concern

These condensed consolidated interim financial statements are prepared on a going concern basis, which the Directors believe to be appropriate.

As is typical of an oil & gas exploration and development focused business, the ability of the Company to continue to operate as a going concern is dependent on the availability of additional financing, and the timing and amount of expenditure necessary to successfully fulfill its stated strategic aims. As a result and as has been previously announced, the Company needs to raise additional finance to satisfy its forecast cash requirements to complete its planned acquisition and development activity. Certain economic factors such as on-going economic uncertainty, currency volatility and a possible downturn in the global economy and other factors could affect the Company's ability to generate funding in the future.

Management is confident of raising additional debt finance based on advanced discussions with providers to date and the success of prior equity fundraising. The Company is confident that it will be able to secure additional funding to enable it to continue to meet its commitments as they fall due and to undertake the current planned program of activity over the 12 months from the date of this Report. Accordingly, the financial statements do not include any adjustments, which would be necessary if the Company and Group ceased to be a going concern.

Basis of consolidation

(i) Subsidiaries - Subsidiaries are entities controlled by the Group. The financial information of subsidiaries is included in the combined financial information from the date that control commences until the date that control ceases. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

(ii) Transactions eliminated on combination and consolidation - Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the combined financial information.

Foreign currency

Foreign currency transactions - Transactions in foreign currencies are translated to 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 retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Foreign currency differences arising on retranslation are recognised in profit or loss.

2. Financial reporting period

The interim financial statements for the period 1 January 2013 to 30 June 2013 are unaudited. In the opinion of the Directors the interim financial statements for the period present fairly the financial position, and results from operations and cash flows for the periods and are in conformity with International Financial Reporting incorporated with the Group's accounting policies consistently applied. The interim financial statements incorporate comparative unaudited figures for the interim period 1 January 2012 to 30 June 2012. The full year financial statements for the period 1 January 2012 to 31 December 2012 have been audited.

3. Employee benefit expense

Included in the employee benefit expense for 2013 is the amount of $342,799 (2012, $464,848)  relating to the granting of share options to directors, staff and consultants. This charge is required under the provisions of IFRS 2, Share Based Payments and represents a non cash transaction as all options granted are equity settled instruments.

4. Loss per share

The calculation of basic loss per share is based on the loss attributable to equity shareholders of $8,702,740 (H1 2012: $1,247,742 loss) and the weighted average number of ordinary shares in issue during the period.

Diluted loss per share amounts are calculated by dividing the loss for the periods attributable to ordinary holders by the weighted average number of ordinary shares outstanding during the period, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The effect of the options are anti-dilutive in 2013 and 2012.

		30-Jun-13	30-Jun-12	31-Dec-12
Weighted average number of ordinary shares		182,524,233	6,552,070	7,437,897
Options		13,062,500	3,691,450	4,521,000
Weighted average number of diluted shares		195,586,733	10,243,520	11,958,897

5. Exploration and Evaluation (E&E) Expenditures

License acquisition costs: License 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 license and property acquisition costs is written off. Capitalised license 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 unless they form part of the acquisition process of the license. Prepayments towards the purchase of license interests are classified as license acquisition costs and accounted for in the same manner.

Exploration expenditures: 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 phase 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 intangible exploration and evaluation assets. Capitalised exploration expenditure is measured at cost less accumulated amortisation and impairment losses

6. Events after the Reporting Date

The following activities occurred between the reporting date of 30 June 2013 and the date of authorising this financial Information:

Afren Loan Agreement

The Group has entered into a facility agreement with Afren Plc, under which Afren Plc has agreed to lend the Group $15 million as a term loan. The loan is repayable in full on the date falling 24 months from the date of admission to AIM which was 17 May 2013. Interest will accrue at a rate of 11.5 per cent. per annum and will be repayable on the final repayment date. As at the date of authorising these interim financial statements the facility had been fully drawn and $3.9 million has been repaid. Further information on the loan is disclosed in the Company's admission document which is available on the Company's website.

Equity Placing

On 17 July 2013 the Company raised, in aggregate, gross proceeds of approximately US$20.0 million (approximately £13.2 million) through the placing of, in aggregate, 33,850,000 new Ordinary Shares at a placing price of 39 pence per Ordinary Share with certain existing and new institutional and other investors. The net proceeds of the placing were committed to fund the drilling and testing of the sidetrack well: Ogo-1 ST, on the OPL310 license offshore Nigeria as well as for general working capital purposes.

Update on the Proposed Acquisition of Interest in OML113

On 16 September 2013 the Company announced that further to the announcement on 18 June 2013 in which the Company set out its proposed acquisition from a subsidiary of Panoro Energy ASA ("Panoro") of a 6.502 per cent. participating interest (corresponding to a 12.19 per cent. revenue interest and 16.26 per cent. cost interest) in OML113 offshore Nigeria for a consideration of US$30 million (the "Consideration"), it has made a payment of $3 million as part of the Consideration to Panoro.  Lekoil and Panoro have agreed that the Company will fund the escrow with the balance of the consideration on or before 31 October 2013.

The Company is in advanced discussions with potential debt providers to fund the balance of the Consideration. The Company has issued an addendum to the bid bond which will allow Panoro to draw an additional $3 million if the escrow is not funded by 31 October 2013. In the event that the Consideration has not been paid by 31 October 2013, Panoro may elect to grant another extension or terminate the SPA, retaining the $3 million bid bond and $3 million down payment. The closing date of the transaction is expected to be on or around 9 November 2013.

7. Availability of Interim Report

A copy of these results can also be downloaded from the Company's website at www.lekoil.com 

-ends-

 

END

 

 

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