Results for six months ended 30 June 2021

RNS Number : 4451Q

Lekoil Limited

27 October 2021

 

27 October 2021

Lekoil Limited

("LEKOIL" or the "Company")

Results for six months ended 30 June 2021 - Corporate update

LEKOIL (AIM: LEK), the oil and gas exploration and production company with a focus on Nigeria and West Africa, announces its results for the six-month period ended 30 June 2021 (the "Half Year Report") and a corporate and operational update.

Operational and Corporate Summary

· On 18 October 2021, the Company released its Annual Report and Accounts for the year ended 31 December 2020 ("Annual Report"). 

· To assist the Company to conserve its cash resources, it will commence implementation of a Contractor Shares Arrangement ("CSA"), whereby service providers and directors ("Contractors") who provide goods, services or loans to the Company will be paid in the Company's ordinary shares (the "Contractor Shares") rather than cash.  The use of the CSA was authorised at the 2020 Annual General Meeting, is consistent with the Company's cash management strategy and will align the interests of the Company with the Contractors who are helping it achieve its objectives.  The Board currently expects that the issuance of Contractor Shares in 2021 will be circa 5% of the current issued share capital. 

· Noting that the Company's shares are currently suspended from trading, the Company is in the process of clarifying, for the purposes of the AIM Rules, its relationship with its operating subsidiary. It is doing this as a matter of urgency and will provide updates on the suspension when it has further information.

· The Company continues to pursue the repayment of the CEO Loan from Mr. Olalekan Akinyanmi, with an application for summary judgement in the United Kingdom.  The Company is also challenging a claim bought by Mr. Akinyanmi in the United States and will update the market as necessary.

Financial Summary

· The Company's review of the intercompany and related party debt position between Lekoil Cayman Group and Lekoil Nigeria (and its subsidiaries) shows that the par value of amounts (including accrued interest) which were owing to Lekoil Limited at 30 June 2021 exceeds USD $350 million.  As a part the Company's annual reporting procedures, an assessment of impairment indicators on the Company's loans will be undertaken.  As at 30 June 2021, amounts owing comprise:

o  USD $41.6 million across two loans due from Lekoil Nigeria by January 2026 and February 2029 respectively;

o  USD $19.8 million due from Lekoil Oil & Gas Investments by February 2024 (i.e. Otakikpo);

o  USD $253.0 million due from Mayfair Assets & Trust Limited by May 2023 (i.e., OPL 310);

o  USD $35.5 million due from Ashbert Oil & Gas Limited by September 2022 (i.e., OPL 325);

These loan amounts are in addition to the c. USD $1.6 million (which includes default interest) owing from Mr Akinyanmi as at 30 June 2021.

These interim results have been presented on a group consolidated basis, in line with the previous practice of the Company.  The current Board of Directors note that given Lekoil Nigeria's commitment to adhere to the terms of the Shareholders Agreement, investors and shareholders should consider all relevant factors including those noted above and those noted in the Chairman's statement in the recently published Annual Report, when making an investment decision and not place undue reliance only on the "consolidated" accounts. 

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

SP Angel Corporate Finance LLP (Nominated Adviser and Joint Broker) Jeff Keating / Stuart Gledhill / Richard Hail	[phone]
Tennyson Securities (Joint Broker) Peter Krens / Edward Haig-Thomas	[phone]
Market Abuse Regulation Disclosure

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

 

Interim Chairman's Statement

On 18 October 2021, the Company released its Annual Report and Accounts for the year ended 31 December 2020 ("Annual Report"), which also included material updates and information with respect to the first six months of 2021.  The Company encourages shareholders to read the Annual Report as it contains important information. 

Consistent with the Annual Report, the financial information that the Company is presenting today reflects a picture of the wider Lekoil Group consistent with past presentations.  Further to the statement in the Annual Report, the Company does not currently have day-to-day operational control over, nor access to the day-to-day entity-level financial information relating to Lekoil Nigeria and its subsidiaries. As a result, I would like to stress that this Half-Year Report needs to be read in that context.  Notwithstanding that, the Company is currently working to present a standalone financial position of the Company (and its wholly owned subsidiaries) and in that light has set out below, in the notes to the Accounts, the intercompany debt position vis-à-vis Lekoil Nigeria and its subsidiaries.  

The Company is currently in the process of implementing a Contractor Shares Arrangement ("CSA") whereby certain service providers and directors ("Contractors") who provide goods, services or loans to the Company will be paid in the Company's ordinary shares (the "Contractor Shares") rather than cash.  The use of the CSA was authorised at the 2020 Annual General Meeting and is consistent with the Company's cash management strategy.  In general, the CSA will allow the Contractors to sell Contractor Shares in an orderly manner so as to be re-imbursed for the amounts owing to them.  Where applicable, the Contractors will be subject to suitable lock in periods and orderly sale requirements. The CSA will have an important role in aligning the interests of the Company with the Contractors who are helping it achieve its objectives.  The Board currently expects that the issuance of Contractor Shares in 2021 will be circa 5% of the current issued share capital. 

The Board continues to work towards:

· Presenting a clear and accurate picture of the financial current position of the Company and its wholly owned subsidiaries, as distinct from the wider Lekoil Group;

· Ensuring that the Company is fully financed so it can recover as much value as possible for its shareholders from the investments made to date; and

· Ensuring that the Company enforces its rights under the Shareholders Agreement, including the Company being represented on the Lekoil Nigeria board.  That board representation will be with the aim of assisting in the efficient management of Lekoil Nigeria, streamlining the company to become a low-cost producer without the drag of large exploration assets that the Group has been unable to fund.

Anthony Hawkins, Interim Executive Chairman

27 October 2021

Condensed consolidated statement of profit or loss and other comprehensive income

		Unaudited	Unaudited
		6 months to 30 June 2021	6 months to 30 June 2020
	Notes	US$'000	US$'000
Revenue	6	25,505	13,869
Cost of sales	7	( 12,438 )	( 7,323 )
Gross profit		13,067	6,546
Operating expenses	8	( 2,866 )	( 3,592 )
Impairment loss	9	-	(3,548)
General and administrative expenses	10	( 7,758 )	( 8,439 )
Operating profit/ (loss)		2,443	(9,033)
Finance income		1,440	424
Finance expense		( 1,196 )	( 1,471 )
Net finance income/ (expense)	11	244	(1,047)
Profit/ (loss) before income tax		2,687	(10,080)
Income tax (expense)/ benefit	12	(2,426)	2,156
Profit/ (loss) for the year		261	(7,924)
Total comprehensive profit/ (loss)		261	(7,924)
Attributable to:
Owners of the Company		235	(7,420)
Non-controlling interests		26	(504)
		261	(7,924)
Total comprehensive loss for the year		261	(7,924)
Loss per share:
Basic loss per share ($)	13.1	0.000	(0.014)
Diluted loss per share ($)	13.2	0.000	(0.014)

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

Condensed consolidated statement of financial position

			Unaudited	Audited
			30 June 2021	31 December 2020
	Notes		US$'000	US$'000
Non-current assets
Property, plant and equipment	14		25,684	27,008
Exploration and evaluation assets	15		31,424	26,329
Intangible assets	16		1,645	1,958
Deferred tax assets	12.3		15,562	17,456
Other assets	20		26,340	25,536
			100,655	98,287
Current assets
Inventories	17		1,002	1,002
Trade receivables			8,884	1,133
Other receivables	18		1,725	1,663
Other assets	20		2,025	2,097
Cash and bank balances	21		3,197	3,030
			16,833	8,925
Total assets			117,488	214,742
Current liabilities
Trade and other payables	22		43,715	33,079
Current tax payables	12.5		2,132	2,200
Loans and borrowings	24		6,950	5,800
			52,797	41,079
Non-current liabilities
Provision for Asset Retirement Obligation	23		2,456	2,390
Loans and borrowings	24		6,465	8,353
			8,921	10,743
Total liabilities			61,718	51,822
Net assets			55,770	55,390
Capital and reserves
Share capital	25.1		27	27
Share premium	25.2		264,004	264,004
Accumulated deficit			(203,039)	(203,274)
Other reserves			22	22
Share-based payment reserve			10,386	10,267
Equity attributable to owners of the Company			71,400	71,046
Non-controlling interests	26		(15,630)	(15,656)
Total equity			55,770	55,390

These consolidated financial statements were approved by the Board of Directors on 27 October 2021 and signed on its behalf by:

Anthony Hawkins, Interim Executive Chairman

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

Condensed consolidated statement of changes in equity

		Share capital	Share premium	Accum. deficit	Other reserves	Share-based payments reserve	Total	Non-controlling interests	Total equity
	Notes	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
1 January 2020		27	264,004	(95,226)	22	9,921	178,748	(4,404)	174,344
Total comprehensive income for the year
Loss profit for the year		-	-	(108,048)	-	-	(108,048)	(11,252)	(119,300)
Transactions with owners of the Company
Share-based payment- personnel expenses	27	-	-	-	-	346	346	-	346
1 January 2021		27	264,004	(203,274)	22	10,267	71,046	(15,656)	55,390
Total comprehensive income for the year
Profit for the period		-	-	235	-	-	235	26	261
Transactions with owners of the Company
Share-based payment- personnel expenses	27	-	-	-	-	119	119	-	119
30 June 2021		27	264,004	(203,039)	22	10,386	71,400	(15,630)	55,770

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

Condensed consolidated statement of cash flows

		Unaudited	Unaudited
		6 months to 30 June 2020	6 months to 30 June 2020
	Notes	US$'000	US$'000
Operating activities
Profit/ (loss) for the year		261	(7,924)
Adjustments for:
Equity-settled share-based payment		119	247
Revaluation adjustments for loans and borrowings		-	-
Impairment loss	9	-	3,548
Finance cost		1,136	1,264
Deferred tax		1,894	(2,687)
Depreciation and amortization	14 & 16	3,410	3,988
Cash flows (used in)/ generated from operations before working capital adjustments		6,820	(1,564)
Changes in:
Inventory		-	(662)
Trade and other payables		10,636	7,744
Other assets		72	1,160
Trade and other receivables		(7,813)	580
Income taxes		532	531
Cash generated from operations		10,247	7,789
Income taxes paid	12	(600)	(194)
Net cash generated from operating activities		9,647	7,595
Investing activities
Acquisition of property, plant and equipment	0	(1,773)	(1,139)
Optimum and Third party funded obligation		(804)	(2,283)
Acquisition of exploration and evaluation assets		(5,095)	(2,138)
Net cash used in investing activities		(7,672)	(5,560)
Financing activities
Proceeds from issue of loan note and prepayment facility	24	-	4,350
Repayment of loan	23	( 1450)	( 3,400)
Interest costs related to loan	24	(358)	(1,088)
Net cash used in financing activities		(1,808)	(138)
Increase/ (decrease) in cash and bank balances		167	1,897
Cash and bank balances at 1 January	21	3,030	2,733
Cash and bank balances at end of period	21	3,197	4,630

The notes below 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 registration number WK- 248859. The address of the Company's registered office is c/o Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands. These unaudited condensed consolidated financial statements ("interim financial statements") as at and for the six months to 30 June 2021 comprise the Company and its subsidiaries. Some of the subsidiaries are not wholly owned and the Company does not have complete control over their daily operations. These subsidiaries have been consolidated based on past practice that relied on the  Shareholders Agreement entered in to at Admission, which itself clearly sets out the level of control the Company has over Lekoil Nigeria.  The Company together with its subsidiaries as noted above are 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

2.1.  Statement of compliance

The annual financial statements of the Group are prepared in accordance with IFRSs as issued by the International Accounting Standards Board and as adopted by the European Union. These condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2020. These condensed consolidated financial statements were authorised for issue by the Board of Directors on 27 October 2021.

· The unaudited condensed consolidated financial statements comprise:

· Consolidated statement of profit or loss and other comprehensive income

· Consolidated statement of financial position

· Consolidated statement of changes in equity

· Consolidated statement of cash flows and

· Notes to the consolidated financial statements

2.2.  Material uncertainty related to going concern basis of accounting

These interim 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. There is however a material uncertainty that can cast significant doubt on the Group's ability to continue as a going concern which is discussed below.

The Directors of the Group draw the users' attention to the recurring negative working capital position in its subsidiaries and this is an indicator of a possible liquidity concern in the future. Furthermore, certain Group subsidiaries have reached agreements on the deferral of re-payment terms of its current liabilities with certain of its creditors which alleviates cash flow requirements within the next 12 months. However, included in the account payable balance is an amount of US$6.6 million due to one of its joint operating partners which the Directors have deferred for 18 months in its cash flow forecast.  The Group has not been able to conclude on negotiations with this joint operating partner to defer the payment for the next 18 months when the Group will be able to commence repayment of the liability. The Group also relies on the ability of Lekoil Nigeria to manage the payment of taxes to the Nigerian government.  This situation indicates that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern.

The Group's base assumptions show that it will be able to operate within its contractual financial obligations taking into consideration the Group's ability to defer its creditors' payments, manage the payment of taxes and (if necessary) relinquish assets over the next 12 months. The Company is also limited in terms of funds available to it so it will need to seek additional funding to be able to carry out its work.

Lekoil Nigeria continues to closely monitor cash flow forecasts and would take mitigating actions in advance including further reducing its operational costs; deferment of capital activities on OPL 310 and other capital projects until it has raised the required funds to execute them, continued negotiations with creditors of the deferral of payments.

As at the date of publication, the Group does not have access to the equity capital markets which could severely restrict its ability to raise additional funds to mitigate some of the concerns highlighted above.

Notwithstanding the material uncertainty in the annual audited financials and the ongoing suspension of the shares, the Directors' confidence in the Group's forecasts supports the preparation of the unaudited condensed consolidated financial statements on a going concern basis.

2.3.  Basis of measurement

These interim financial statements have been prepared on the historical cost basis except for financial instruments and share-based payments which are measured at fair values.

2.4.  Functional and presentation currency

These interim financial statements are presented in US Dollars which is the Company's functional currency. All amounts have been rounded to the nearest thousands of dollars (1,000), unless otherwise indicated.

2.5.  Use of estimates and judgments

The judgements, estimates and assumptions applied in the preparation of these interim financial statements are consistent with those of the annual financial statements for the year ended 31 December 2020 except that in the current period, updated crude oil price forecast was used in determining the recoverable amount or value of Oil and Gas assets at period end 30 June 2020. Refer to Note 15.

3.  Significant accounting policies

The accounting policies applied in these interim financial statements are consistent with those of the annual financial statements for the year ended 31 December 2020 except for amendments and interpretations of IFRS that became effective 1 January 2021 and which are stated below:

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2020. The policy for recognising and measuring income taxes in the interim period is consistent with that applied in the previous interim period and is described in Note 12.  The Group has adopted Interest Rate Benchmark Reform Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (the Phase 2 amendments) from 1 January 2021. The Phase 2 amendments has not impact on the Group's reporting.

Specific policies applicable from 1 January 2021 for interest rate benchmark reform

The Phase 2 amendments provide practical relief from certain requirements in IFRS Standards. These reliefs relate to modifications of financial instruments and lease contracts or hedging relationships triggered by a replacement of a benchmark interest rate in a contract with a new alternative benchmark rate.

If the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortised cost changes as a result of interest rate benchmark reform, then the Group updates the effective interest rate of the financial asset or financial liability to reflect the change that is required by the reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if the following conditions are met: - the change is necessary as a direct consequence of the reform; and - the new basis for determining the contractual cash flows is economically equivalent to the previous basis - i.e. the basis immediately before the change. If changes are made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by interest rate benchmark reform, then the Group first updates the effective interest rate of the financial asset or financial liability to reflect the change that is required by interest rate benchmark reform. Subsequently, the Group applies the policies on accounting for modifications set out above to the additional changes.

The amendments also provide an exception to use a revised discount rate that reflects the change in interest rate when remeasuring a lease liability because of a lease modification that is required by interest rate benchmark reform.

Finally, the Phase 2 amendments provide a series of temporary exceptions from certain hedge accounting requirements when a change required by interest rate benchmark reform occurs to a hedged item and/or hedging instrument that permit the hedge relationship to be continued without interruption. The Group applies the following reliefs as and when uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item or hedging instrument: - the Group amends the designation of a hedging relationship to reflect changes that are required by the reform without discontinuing the hedging relationship; and - when a hedged item in a cash flow hedge is amended to reflect the changes that are required by the reform, the amount accumulated in the cash flow hedge reserve is deemed to be based on the alternative benchmark rate on which the hedged future cash flows are determined. While uncertainty persists in the timing or amount of the interest rate benchmark-based cash flows of the hedged item or hedging instrument, the Group continues to apply the existing accounting policies.

4.  Segment information

The Group has a single class of business which is exploration, development and production of crude oil and natural gas. For management purposes, the Group is organised into geographical locations and has one reportable segment under IFRS 8 Operating Segment which is Nigeria. Other geographic locations include USA, Cayman Islands.

The Chief Operating Decision Maker (CODM) monitors the results of these geographical locations for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on total profit or loss.

The accounting policies used by the Group in reporting segments internally are consistent with those of the annual financial statements for the year ended 31 December 2020.

Several adjustments are included within the 'Nigeria' segment, including the elimination of certain inter-group balances and as such, the 'Others' segment does not present an accurate profile of the financial results and position of the Lekoil Cayman group (being Lekoil Limited and its wholly owned subsidiaries) on a standalone basis. 

The following is an analysis of the Group's revenue and results by reportable segment as at 30 June 2021. Profit/(Loss) for the period represents total profit or loss for the period after taxation. This is the measure reported to the Group's CODM for the purpose of resource allocation and assessment of segment performance.

			Unaudited
	Nigeria 30 June 2021		Others 30 June 2021			Consolidated 30 June 2021
	US$'000		US$'000			US$'000
Revenue	25,505		-			25,505
Profit/ (loss) for the period	2,191		(1,930)			261
			Unaudited
	Nigeria 30 June 2020		Others 30 June 2020		Consolidated 30 June 2020
	US$'000		US$'000		US$'000
Revenue	13,869		-		13,869
Loss for the period	(5,043)		(2,881)		(7,924)

Other segment information

			Unaudited
		Nigeria 30 June 2021	Others 30 June 2021	Consolidated 30 June 2021
		US$'000	US$'000	US$'000
Finance income		896	544	1,440
Finance expense		(1,050)	(146)	(1,196)
Income tax		(2,426)	-	(2,426)
Depreciation and amortisation		(3,410)	-	(3,410)
			Unaudited
		Nigeria 30 June 2020	Others 30 June 2020	Consolidated 30 June 2020
		US$'000	US$'000	US$'000
Finance income		109	315	424
Finance expense		(1,471)	-	(1,471)
Income tax		(2,156)	-	(2,156)
Depreciation and amortisation		(3,988)	-	(3,988)

Other segment information represents information included in the measure of segment profit or loss reviewed by the Group's CODM.

Geographical information

The Group's revenue from external customer and information about non-current assets excluding financial instruments, deferred tax assets and other financial assets by geographical locations are detailed below:

Revenue

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Nigeria	25,505	13,869
Others	-	-
	25,505	13,869

Non-current assets

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Nigeria	100,655	208,851
Others	-	-
	100,655	208,851

Information about major customer

The Group has a single customer which contributes 100 percent of the Group's revenue in periods 30 June 2021 and 30 June 2020. The Group's revenue from this customer is disclosed in note 6.

5.  Capital Management

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 bank balances.

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

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Total liabilities	61,718	54,373
Less: cash and bank balances	(3,197)	(4,630)
Net debt	58,521	49,743
Equity	55,770	166,667
Net debt to equity ratio	1.05	0.30

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.

6.  Revenue

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Crude proceeds	24,925	13,869
Third party crude handling revenue	580	-
	25,505	13,869

Crude proceeds of US$24.9 million represents the Group's share of crude oil sales from Otakikpo operation during the period, which is recognised as revenue ("equity crude"), (30 June 2020: US$13.9 million). The Group's equity crude was 394,694 barrels (30 June 2020: 408,800 barrels) out of which the Group lifted 374,545 barrels (30 June 2020: 384,936 barrels). The balance of 20,149 barrels (30 June 2020: 23,863 barrels) representing the Group's share of overriding royalty crude was lifted on its behalf by its joint operating partner GEIL based on an agreed lifting arrangement.

		Unaudited			Unaudited
		30 June 2021			30 June 2020
		Barrels	US$'000	Barrels		US$'000
Equity crude		394,694	24,925	408,800		13,869

The Group has a single customer Shell Western Supply and Trading Limited with whom it executed a crude off take agreement.

The Group earned revenue from Ubima Crude Handling Service Fee Agreement totaling US$0.6 million for storage, handling and exportation services provided to Ubima Joint Venture. The Otakikpo JV processed 197,136 barrels of crude for Ubima Joint Venture during the period (30 June 2020: nil).

7.  Costs of sales

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Depletion	3,032	3,513
Crude handling, evacuation and production operation costs	7,426	3,010
Royalty expenses	1,980	1,462
Change in crude inventory	-	(662)
	12,438	7,323

8.  Operating expenses

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Field support costs	1,289	1,271
Community, security expenses and others	1,131	2,321
Gas flaring	154	-
Other operating costs	292	-
	2,866	3,592

9.  Impairment loss

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Property, plant and equipment	-	3,485
Intangible assets	-	63
Exploration and evaluation assets	-
Charge for the period	-	3,548

Impairment assessment was conducted for the oil and gas assets by the Directors in the current period and the result showed no impairment charge.

10.  General and administrative expenses

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Personnel expenses	2,812	3,972
Depreciation and amortization (Notes 14 and 16)	379	1,978
Rent and facility management expenses	462	443
NDDC levy	475	600
Travel expenses	39	257
IT and telecommunication expenses	172	247
Legal and consultancy expenses	1,015	170
Audit and non-audit services	140	58
Other expenses	2,264	714
	7,758	8,439

11.  Finance income and costs

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Finance income
Other interest income	330	424
Disposal income	15	-
Net foreign exchange gain	1,095	-
	1,440	424
Finance costs
Interest expense	1,070	1,202
Accretion expense	66	62
Other finance fees	60	186
Net foreign exchange loss	-	21
	1,196	1,471

Other interest income represents interest earned on short term deposits and call accounts transactions with the Group's bankers and interest on Director's loan.

Net foreign exchange gain represents exchange differences resulting from the conversion of US$ amounts to Nigerian Naira amounts, to meet obligations settled in Nigerian Naira and revaluation of Nigerian Naira balances to US$ at reporting periods.

Interest expense consists largely of interest costs on third party loans during the period.  

12.  Taxes

12.1.  Petroleum profit tax

The Group with its principal assets and operations in Nigeria is subject to the Petroleum Profit Tax Act of Nigeria ("PPTA"). The Group's Petroleum Profit Tax charge for the period is summarised below:

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	1,874	632
Charge for the period	532	1,074
Tertiary education tax	-	193
Payment for the period	(398)	(25)
Balance at period end	2,008	1,874

12.2.  Company income tax

Interest on recovered carried cost and technical fees earned on Otakikpo operations of the Group is subject to Company Income Tax Act of Nigeria ("CITA"). The Group's Company Income Tax charge for the year is summarised below:

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	326	494
Charge for the period	-	1
Tertiary education tax	-	-
Payment for the period	(202)	(169)
Balance at period end	124	326

12.3.  Deferred tax assets

The Group has an estimated deferred tax asset of US$136.1 million (31 December 2020: US$138.0 million), out of which the Group has recognised deferred tax assets as at 30 June 2021 of US$15.6 million (31 December 2020: US$17.5 million); derived from the activities of its subsidiary LEKOIL Oil and Gas Investments Limited. The Directors have assessed the future profitability of its operation in Otakikpo marginal field and have a reasonable expectation that the Group will make enough taxable profit from LEKOIL Oil and Gas Investments Limited in the near future to utilise the deferred tax assets. There is no expiration period to utilize the deferred tax assets. The balance of US$112.4 million (31 December 2019: US$100.6 million) of unrecognised deferred tax assets relates to unutilised capital allowances and tax losses from other subsidiaries in which the Directors are not certain when there will be available taxable profit from the subsidiaries to utilise the deferred tax assets.

		Unaudited	Audited
		30 June 2021	31 December 2020
		US$'000	US$'000
Recognised deferred tax assets		15,562	17,456
Unrecognised deferred tax assets		120,518	120,518
		136,080	137,974

12.4.  Total income tax charge recognised in the period.

	Unaudited	Unaudited
	30 June 2021	30 June 2020
	US$'000	US$'000
Petroleum profit tax	532	(451)
Tertiary education tax		(80)
Income tax	-	-
Deferred tax benefit/ (expense)	1,894	2,687
	2,426	2,156

The Group had a net tax benefit in the current period compared to prior period due to increase in unutilised capital allowance as a result of low taxable income caused by the slump in crude oil prices attributable to COVID-19.

12.5.  Current tax liabilities

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	2,200	1,126
Charge for the year
Petroleum profit tax	532	1,074
Company income tax	-	1
Tertiary education tax	-	193
Payment during the year	(600)	(194)
Balance at period end	2,132	2,200

13.  Loss per share

13.1.  Basic profit / (loss) per share

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.

	Unaudited	Unaudited
	30 June 2021	30 June 2020
Profit / (loss) attributable to ordinary shareholders (basic)	US$'000	US$'000
Loss for the year attributable to owners of the Company	235	7,420

	Unaudited	Unaudited
	30 June 2021	30 June 2020
Weighted-average number of ordinary shares (basic)	# shares	# shares
Issued ordinary shares	536,529,983	536,529,983
Issued in period	-	-
Weighted-average number of ordinary shares	536,529,983	536,529,983

13.2.  Diluted profit / (loss) per share

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.

	Unaudited	Unaudited
	30 June 2021	30 June 2020
Loss attributable to ordinary shareholders (diluted)	US$'000	US$'000
Loss for the year attributable to owners of the Company	235	7,420

	Unaudited	Unaudited
	30 June 2021	30 June 2020
Weighted-average number of ordinary shares (diluted)	# shares	# shares
Issued ordinary shares	536,529,983	536,529,983
Issued in period	-	-
Weighted-average number of ordinary shares	536,529,983	536,529,983

Basic and diluted loss per share is calculated by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

	Unaudited	Unaudited
	30 June 2021	30 June 2020
Loss for the period attributable to ordinary shareholders (US$'000)	235	7,420
Weighted average number of ordinary shares ('000)	536,530	536,530
Basic/ diluted loss per ordinary share (US$)	(0.000)	(0.014)

14.  Property, Plant and Equipment

	Oil & Gas Assets	Vehicles	Fixtures & fittings	IT & other	PPE	Lease Imprvm't	Total
Cost	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
1 January 2020	54,992	492	436	816	311	1,199	58,246
Additions	2,206	-	-	156	-	-	2,362
1 January 2021	57,198	492	436	972	311	1,199	60,608
Additions	1,773	-	-	-	-	-	1,773
30 June 2021	58,971	492	436	972	311	1,199	62,381
Accumulated depreciation and impairment losses:
1 January 2020	20,432	295	390	764	157	966	23,004
Charge for the period	6,638	56	34	59	71	12	6,870
Impairment	3,726	-	-	-	-	-	3,726
1 January 2021	30,796	351	424	823	228	978	33,600
Charge for the period	3,032	13	2	12	35	3	3,097
30 June 2021	33,828	364	426	835	263	981	36,697
Carrying amount
December 2020	26,402	141	12	149	83	221	27,008
30 June 2021	25,143	128	10	137	48	218	25,684

The additions during the year consist largely of capital expenditure on production facilities in the Otakikpo marginal field.

15.  Exploration and Evaluation (E&E) assets

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

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	26,329	131,832
Additions during the year	5,095	2,027
E&E adjustment / impairment	-	(107,530)
Balance at end of period	31,424	26,329

The additions during the period consists largely of US$5.1 million E&E expenditure in OPL 325. Total expenditure incurred on OPL 310 from inception of the farm-in agreement to 30 June 2021 amounts to US$117.53 million.  In the year ended 31 December 2020, OPL 310 was impaired by US$107.53 million, leaving a residual carrying value of US$10 million

OPL 310 was re-assessed for impairment by the Directors in the current period and it was concluded no further impairment test was necessary. This was based upon management's assessment of the asset's value in use, its expectation that the Group will execute the planned work program during the license period and develop and bring the asset to commercial production.

16.  Intangible Assets

	Mineral Rights Acquisition Costs*	Geological and Geophysical Software	Accounting Software	Total
	US$'000	US$'000	US$'000	US$'000
Costs
1 January 2020	7,400	1,787	382	9,569
Additions during the period	-	-	41	41
1 January 2021	7,400	1,787	423	9,610
Additions during the period	-	-	-	-
30 June 2021	7,400	1,787	423	9,610
Acc. Depn. & Impairment
1 January 2020	4,801	1,787	112	6,700
Charge for the period	627	-	91	718
Impairment loss	232	-	-	232
1 January 2021	5,662	1,787	203	7,652
Charge for the period	270	-	43	313
30 June 2021	5,932	1,787	246	7,965
Carrying amount
31 December 2020	1,738	-	220	1,958
30 June 2021	1,468	-	177	1,645

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

17.  Inventories

Inventories consist of the Group's share of crude stock of US$1.0 million as at 30 June 2021 (31 December 2020: US$1.0 million).

18.  Other receivables

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Director's loan	1,564	1,512
Employee loans and advances	25	15
Other receivables	136	136
	1,725	1,663

The Director's loan represents the balance due on an unsecured loan of US$1,500,000 granted to a Director on 9 December 2014. The loan had a three-year term and bore interest at a rate of four per cent per annum. In September 2017, the loan's maturity date was extended by 3 years to 9 December 2020 under the same terms and conditions.  On 9 December 2020, at the expiration of the extension, the Board approved a final extension to loan for 12 months conditional on the adherence to the following repayment terms: immediate payment of US$0.4 million, while the balance on the loan is settled by quarterly payments of interest and principal at a revised interest rate of 10% plus 3-month LIBOR. The initial US$0.4 million was settled by the Director although no other settlements were made and the loan is in default and accruing interest at a rate of LIBOR plus 14 per cent on the default amount.

19.  Lekoil Limited inter-group / related party loans

Lekoil Limited has several inter-group and related party loans arrangements, which are eliminated upon group consolidation.  The period-end totals in the table reflect the par value of each of the loans plus accrued interest.  These balances reflect the current Board's assessment of amounts owing to Lekoil Limited.  The loan arrangements below are, in certain circumstances, interrelated such that provisions in one arrangement may impact provisions in another. 

Borrower	Lekoil Nigeria Limited ("Nigeria")	Lekoil Oil & Gas Investments Limited ("LOGI")	Mayfair Assets & Trust Limited ("Mayfair")	Ashbert Oil & Gas Limited ("Ashbert")	Total
Guarantor	-	Lekoil Nigeria Limited	Lekoil Nigeria Limited	-
Loan maturity date	01-Jan-26	27-Feb-24	13-May-23	01-Sep-22
2nd loan maturity date	27-Feb-29	-	-	-
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
	US$ '000	US$ 000	US$ 000	US$ 000	US$ 000
	34,041,799	19,765,168	253,007,061	35,455,084	343,872,334
2nd loan (Feb-29 maturity)	7,569,051				7,569,051
Total as at 30 June 2021	41,610,850	19,765,168	253,007,061	35,455,084	351,441,385

20.  Other assets

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Non-current
Optimum funded obligation	23,205	22,401
OPL 310 Third party funded obligation	3,135	3,135
	26,340	25,536
Current
Restricted cash	1,933	1,720
Prepaid rent	1	122
Prepaid insurance	66	229
Others	25	26
	2,025	2,097

Further expenditure on geotechnical survey was made on behalf of Optimum and OPL 310 Third party during the period. All payments on behalf of Optimum are cost recoverable to the Group with a 50% uplift plus an additional compounding of 5 per cent per annum in respect of cost of capital to the Group. The Agreement (i.e. the Cost and Revenue Sharing Agreement) also provides the order of priority for cost recovery by the Group and Optimum.

Restricted cash represents cash funding of the debt service reserve accounts for the FBN Capital Notes and restricted cash on BG MT Nox & Busy Snail.

21.  Cash and bank balances

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Bank balances	3,197	3,030

22.  Trade and other payables

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Accounts payable	10,124	11,155
Accrued expenses	15,799	10,460
Other statutory deductions	4,836	3,949
Non-Government Royalties Payable	383	622
Payroll payables	658	1,256
Carried costs payables	682	682
Overlift payable	1,082	-
Cash call payable	10,151	4,955
	43,715	33,079

Accounts payables represent obligations due vendors and outstanding cash calls. There were significant unpaid vendor and cash call obligations due to cash pressure from lower oil prices during the period resulting to the renegotiation of payment periods.

23.  Provisions for asset retirement obligation

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	2,390	2,265
Unwinding of discount	66	125
Balance at the end of period	2,456	2,390

The Group has recognised a provision for Asset Retirement Obligation ("ARO") which represents the estimated present value of the amount the Group will incur to plug, abandon and remediate the Otakikpo operation at the end of its productive life, in accordance with applicable legislation. The provision has been estimated at a US inflation rate of 2% and discounted to present value at 8.24%. The provision recognised represents 40% of the net present value of the estimated total future cost as the Company's partner, GEIL is obligated to bear 60% of the cost.

The unwinding of the discount on the decommissioning is included as a finance cost. Changes in the estimated timing of decommissioning, or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to property, plant and equipment.

Management estimates that the future decommissioning event will occur in 2026

24.  Loans and borrowings

24.1.  US$15.9 million FBNQuest Facility

The Group executed a Restructuring Offer Letter with its existing lenders, FBNQuest Merchant Bank ("FBNQuest") to restructure and consolidate all existing secured interest-bearing term loans.  Lekoil Limited has provided a parent company guarantee to FBNQuest with respect of these loans.

The following is the outstanding balance of interest-bearing loans and borrowings as at the period end:

		Unaudited	Audited
	Interest rate p.a.	30 June 2021	31 December 2020
		US$'000	US$'000
US$15.9 million FBNQuest Facility	10% + LIBOR	13,415	14,153
Analysis of borrowing
Current		6,950	5,800
Non-current		6,465	8,353
		13,415	14,153

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Balance at beginning of period	14,153	19,198
Draw-down during the year (d)	-	4,350
Effective interest during the year	1,070	2,055
Principal repayment during the year	(1,450)	(9,148)
Interest paid during the year	(358)	(1,984)
Fees paid during the year	-	(318)
Balance at end of period	13,415	14,153

24.2.  Changes in liabilities arising from financing activities:

		Cash items			Non-cash items
	1 January 2021	Draw-down during the year	Principal repayment	Interest and fees paid	Effective interest	30 June 2021
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Loans and borrowings	14,153	-	(1,450)	(358)	1,070	13,415
Total liabilities from financing activities	14,153	-	(1,450)	(358)	1,070	13,415

25.  Capital and reserves

25.1.  Share capital

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Authorised	50	50
Issued, called up and fully paid	27	27
Total issued and called up share capital	27	27

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Authorised - par value US$0.00005	1,000,000,000	1,000,000,000
Issued, called up and fully paid - par value US$0.00005	536,529,983	536,529,983

25.2.  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.

	Unaudited	Audited
	30 June 2021	31 December 2020
	US$'000	US$'000
Share premium	264,004	264,004

26.  Non-controlling interest

		Unaudited	Audited
	% of ownership	30 June 2021	31 December 2020
		US$'000	US$'000
LEKOIL Nigeria Limited	10	(15,976)	(16,002)
LEKOIL Exploration and Production (Pty) Limited	20	346	346
		(15,630)	(15,656)

27.  Share-based payment arrangements

There have been no material changes in the share-based payment arrangements described in the 2020 annual financial statementsof the Group.

28.  Related Party Transactions

Lekoil Nigeria has noted the following related party transactions.

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.

Loans and transactions with key management personnel:

An unsecured loan of US$1,500,000 granted to a Director on 9 December 2014. The loan had a three-year term and bore interest at a rate of four per cent per annum. In September 2017, the loan's maturity date was extended by 3 years to 9 December 2020 under the same terms and conditions. 

On 9 December 2020, at the expiration of the extension, the Board approved a final extension to loan for 12 months conditional on the adherence to the following repayment terms: immediate payment of US$0.4 million, while the balance on the loan is settled by quarterly payments of interest and principal at a revised interest rate of 10% plus 3-month LIBOR. The initial US$0.4 million was settled by the Director although no other settlements were made and the loan is in default and accruing interest at a rate of LIBOR plus 14 per cent on the default amount. At 30 June 2021, the balance outstanding was US$1,563,896 and is included in 'Other receivables'.

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.

29.  Financial Commitments and Contingencies

29.1.  GEIL

On 5 December 2014, the Green Energy International Limited/LEKOIL Oil and Gas Investments Limited joint operation 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 operation will allocate 3% of its revenue from the Liquefied Petroleum Gas (LPG) produced from the field to the Ikuru Community in each financial year;

· The joint operation will allocate the sum of US$0.53 million (NGN 90 million) annually for sustainable community development activities.

Subsequent to period end in July 2021, the MOU was amended to 4% of the net revenue from the Liquefied Petroleum Gas (LPG) produced from the field in each financial year whenever the LPG plant begins production, and the allocation of the sum of N130 million annually for sustainable community development activities to be determined by the host community and the joint operation.

29.2.  Cost and Revenue Sharing Agreement

Based on Cost and Revenue Sharing Agreement signed in August 2019, the Group has the following financial commitments on OPL 310 as at year end.

· The Group is bound to pay (a) 42.85 per cent of US$10m payable to the Nigerian Government on conversion of OPL 310 to an OML and (b) 42.85 per cent of US$10m to the Nigerian Government on reaching First Oil. The balance of the two US$10m payments will be made by the potential Funding Partner.

· The Group is bound to pay Optimum certain production prepayments from the proceeds of a continuous sale of crude oil produced from Ogo, such amounts being subject to 2P reserves or aggressive production milestones being achieved. The payments, once due, include a US$10m per year payment for five years following completion of a successful well (being a well capable of producing 5,000 BBL/d of Crude Oil).

In addition, the Group will, subject to securing funding, cover 42.85 per cent of the capital expenditures and operating expenses of the Block to First Oil, being its 17.14 per cent pro rata of an aggregate 40 per cent participating interest held by it and the potential Funding Partner.  The potential Funding Partner will cover the remaining 57.15 per cent of the capital expenditures.

29.3.  Litigation and claims

There have been no material changes to litigations and claims involving the Group as described in the 2020 Annual Report.

30.  Financial risk management and financial instruments

Fair values vs. carry amounts

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments other than those whose carrying amounts are a reasonable approximation of fair value.

	Note	Carrying Amount			Fair Value
		Unaudited	Audited		Unaudited	Audited
					Level 2	Level 2
		30 Jun 21	31 Dec 20		30 Jun 21	31 Dec 20
		US$'000	US$'000		US$'000	US$'000
Financial liabilities measured at amortised costs
Loans and borrowings	22	13,415	14,153		13,415	14,153

Management assess that the fair values of cash and short term trade receivables, other receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of loans and borrowings classified as level 2 was calculated using the discounted cash flow method. 3-month Libor rate plus 10% was used for discounting future cash flows. However, the carrying amount and the fair value of loans and borrowings are the same because the rate of interest on loans and borrowings is not different from the market rate.

31.  Events after the reporting date

On 2nd September 2021, Lekoil Limited announced it entered into a Convertible Facility Agreement ("CFA") with Hadron Master Fund, TDR Enterprises Ltd (a company controlled by Tom Richardson) and a non-related third party (together "the Lenders") to allow it access GBP200,000 for working capital purposes for a 6-month period. Hadron will provide GBP100,000 while TDR Enterprises Ltd and the third party will provide up to GBP50,000 each. The purpose of the facility is for the payment of corporate costs (regulatory and compliance and legal fees) and for general corporate purposes as approved by the Board of Directors. There is the option to convert the facility in the event of non-payment and expiration of term to ordinary shares of the Group at the conservation price of 0.5 pence. Interest rate as at 10% per annum.

On 22 September 2021, Lekoil Limited announced a one-month extension to the deadline for reporting its interim financial results, accordingly, Company had until 31 October 2021 to publish its interim accounts.

On 24 September following the dismissal of Mr. Olalekan Akinyanmi as CEO of the Company in June 2021 and the commencement of legal proceedings to recover the CEO loan, the Company expected to be served with a number of claims by Lekan Akinyanmi including unfair dismissal/breach of contract.  The Company went on to say it intends to defend any claims.

On 30 September 2021, Lekoil Limited announced that, because of administrative delays, it would be unable to publish its results by the deadline of 30 September 2021 and that as a consequence, its shares would be suspended from trading pending the publication of the Annual Report.

On 18 October 2021, the Company published Group's consolidated Annual Report.  Notwithstanding the adherence to publish its results, the Company was advised by its nominated adviser that trading in its Shares was to remain suspended (under AIM Rule 40) until such time as it has clarified, for the purposes of the AIM Rules, its relationship with its operating subsidiary. The Company went on to confirm, updates on the suspension would be provided in due course.

There were no other subsequent events that could have had material effect on the state of affairs of the Group as at 30 June 2021 and on the profit or loss for the year ended on that date, which have not been considered in the preparation of these financial statements.

- ends -

 

END

 

 

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