seven energy annual reports & accounts 2014

Committed to deliver

Annual Report 2014

Seven Energ

y Annual Report 2014

Seven Energy is an indigenous Nigerian oil and gas exploration, development, production and distribution company, with significant oil and gas assets and integrated operational gas infrastructure in the south east of Nigeria.

Go online: www.sevenenergy.com

Our vision is to be Nigeria’s leading integrated gas developer and supplier for power generation and industrial consumption, with a reputation for quality and reliability, operating to the highest operational and social standards.

Read more in: At a glance

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Being a reliable and valued partnerRead more in: Our strategy

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Generating and sharing wealth Read more in: Corporate social responsibility

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Driving and expanding industrialisationRead more in: Business model

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Independent auditor’s report to the Directors of Seven Energy International Limited 61Consolidated statement of comprehensive income 62Consolidated balance sheet 63Consolidated statement of changes in equity 64Consolidated cash flow statement 65Notes to the consolidated financial statements 66Glossary of terms 100Shareholders’ information 102

Overview 48Board of Directors 50Board Committees 53Senior Management 54Directors’ report 56Remuneration report 58

Operational review:South east Niger Delta 24 North west Niger Delta 28 Anambra basin 32

Financial review 34Risk management 38Corporate social responsibility 42

Highlights 02Group overview 04Chairman’s statement 06Business model 08Market overview 12Chief Executive’s statement 14Our strategy 16Key performance indicators 20

Strategic report

Financial Statements

Operational and financial review

Corporate governance

01Seven Energy Annual Report 2014


Corp

orate governanceO

peratio

nal and fi

nancial reviewStrategic rep

ort

• First commercial gas deliveries commenced in January 2014, providing gas to Ibom Power

• Substantially completed the south east Niger Delta gas infrastructure, including the Uquo gas processing facility and the 37 km Uquo to Oron pipeline

• Gross average oil production of 52,500 bopd (2013: 51,600 bopd) from OMLs 4, 38 & 41; net entitlement of 15,800 bopd (2013: 10,400 bopd)

• Secured substantial appraisal acreage in the Anambra basin region with significant gas resource potential

• First oil deliveries to ExxonMobil’s Qua Iboe terminal commenced from Uquo and Stubb Creek fields in Q1 2015

• Diversified our customer base, with five gas sales agreements in place with customers in the south east Niger Delta region by end of Q1 2015

We have achieved this across our operations, significantly strengthening our business through increased production and reserves, combined with securing enhanced debt facilities.

Continued strong performance

Read more in: Operational review

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N89mfunding for community projects across our eight Local Government Areas (2014)

Corporate social responsibility highlights

Read more in: Financial review

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+17%increase in net 2P plus 2C reserves and resources414 MMboe 2014 vs 354 MMboe 2013

$273m EBITDAX in 2014 vs $202m 2013

11.7m hoursreached without a lost time incident by the end of 2014

$55mprofit after tax vs $39m in 2013

Highlights

Seven Energy Annual Report 201402

33 people trained through our projects in 2014

28%of our workforce are female

Read more in: Key performance indicators

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Read more in: Corporate social responsibility

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Operational and commercial highlights • Accumulated 11.7 million man hours

without a lost time incident, a serious HSE related incident or a reportable environmental spill or loss of containment

• Commercial deliveries of gas commenced in January 2014 to Ibom Power

• Commenced gas supply to the Unicem cement factory utilising our own gas production from the Uquo field

• Average gas deliveries of 23 MMcfpd during 2014

• Continued growth in gross production from OMLs 4, 38 & 41 with average gross oil production of 52,500 bopd (2013: 51,600 bopd); net entitlement 15,800 bopd (2013: 10,400 bopd)

• Construction of Train 2 of the Uquo gas processing facility completed providing an additional 100 MMcfpd processing capacity, taking the total to 200 MMcfpd

• Completed the 37 km Uquo to Oron gas pipeline taking our cumulative gas distribution pipeline network up to 227 km in total

• Entered into two new gas sales agreements with Alaoji Generation Company Limited and Notore Chemical Industries PLC in January 2015

• Successfully completed and brought on-stream two new gas wells, Uquo 7 and Uquo 8, located at the Uquo field resulting in the availability of four gas wells to meet gas sales commitments

• FUN oil gathering manifold completed in 2015 and commenced oil deliveries to ExxonMobil’s Qua Iboe terminal from the Stubb Creek and Uquo fields

• Calabar NIPP commenced taking gas deliveries in 2015 to begin commissioning of their five turbines

Financial highlights • EBITDAX increased by 35% to $273 million

during the year (2013: $202 million)

• Profit after tax up 41% to $55 million (2013: $39 million)

• Short-term borrowings decreased to 15% ($113 million) of total net borrowings at the end of 2014; being 68% in 2013 ($359 million)

• Completed the placement of $400 million of Senior Secured Notes, of which $100 million was through a private placement with the Nigeria Sovereign Investment Authority

• Secured $255 million of new equity investments from Temasek, the International Finance Corporation and the IFC African, Latin American and Caribbean Fund

• Entered into an additional $170 million Acquisition Finance Facility to finance the acquisition of East Horizon Gas Company Limited

• Capital investment of $912 million during the year, comprising $408 million in OMLs, 4, 38 & 41 $334 million related to the acquisitions of OPLs 905, 907 & 917 licence interests and the East Horizon gas pipeline, plus $166 million in the south east Niger Delta gas infrastructure business and $4 million in other capital expenditure

Corporate highlights• Acquired the East Horizon Gas Company

Limited, which includes the 128 km East Horizon gas pipeline and a gas sales agreement with Unicem

• Acquired SRL 905 Holdings Limited, and in 2015, Gas Transmission and Power Limited giving a 90% licence interest currently in OPL 905 located in the Anambra basin

• Acquired a 22.5% interest in Afren Global Energy Resources Limited which holds a 41% and 42% licence interest in OPLs 907 & 917 respectively.

Seven Energy Annual Report 2014 03

Strategic report

Anambra basin

Lagos

Benin City

OroghoOkporhuru

Uquo fieldStubb Creekfield

Sapele

OvhorAmukpe

Oben

PortHarcourt

Calabar

Warri Owerri

Aba

IkotAbasi

Ukanafun

Creek Town

Uyo

Oron

Nsukka

Onitsha

Enugu

OPL 907

OPL 905

OPL 917

Umuahia

North west

South east

OML 4

OML 13

OML 14

North

kilometres 1000

OML 41

OML 38

ELPS-WAGP

Ajaokuta

Niger

Ibom Power

UniCem

Forcados Terminal

CalabarAlaoji

Notore

Qua Iboeterminal

Nigeria

LegendSeven Energy licence areas

Seven Energy marginal field areas

Licence areas

NPDC Strategic Alliance Agreement areas

Oil and gas fields

Seven Energy gas pipeline

Seven Energy gas pipeline (under construction)

Seven Energy oil pipeline

NGC gas pipeline

3rd party oil pipeline

3rd party gas pipeline

Areas of core interest

Seven Energy customer (power station)

Seven Energy customer (industrial)

Seven Energy customer (export terminal)

Uquo gas processsing facility

Major road

At a glanceSeven Energy is an indigenous Nigerian oil and gas exploration, development, production and distribution company, with significant oil and gas assets and integrated operational gas infrastructure.

Our operation locationsSouth east Niger DeltaThe south east Niger Delta is Seven Energy’s flagship gas infrastructure business. Through its wholly owned midstream business, Accugas, the Group owns and operates gas processing capacity, at the Uquo gas processing facility, processing gas from the Uquo and Stubb Creek fields. It also runs a pipeline distribution network, delivering to a diversified customer base.

– 130 MMboe net1 2P + 2C (Uquo and Stubb Creek)

– 200 MMcfpd processing capacity

– 227 km gas distribution pipelines

– Five gas sales contracts signed by Q1 2015, of which four were receiving gas as at April 2015

North west Niger DeltaSeven Energy entered into a Strategic Alliance Agreement in 2010 with the Nigerian Petroleum Development Company, where we agreed to pay all of NPDC’s costs in connection with the development of OMLs 4, 38 & 41 and to provide technical services in exchange for a share of NPDC’s production from its 55% licence interest. Since entering into the agreement, annual average gross production at the OMLs has increased from 25,700 bopd in 2010 to 52,500 bopd in 2014; an increase of over 100%.

– 221 MMboe net2 2P + 2C (OMLs 4, 38 & 41)

– 52,500 bopd average gross production during 2014

– 3.7 MMbbl of oil lifted in 2014

Anambra basinIn 2014, Seven Energy increased its footprint in south east Nigeria, with the acquisition of a 40% licence interest in OPL 905 (increasing to a 90% licence interest in 2015 following the acquisition of GTPL), located in the Anambra basin. Since then we have increased our interest in the area, acquiring a 22.5% share of AGER, which owns a 41% and 42% licence interest in OPLs 907 & 917 respectively. The Anambra basin is a relatively underdeveloped region rich in gas resources, which we look to harness to provide gas for local industry in the medium- to long-term.

– 63 MMboe net1 2C (OPLs 905, 907 & 917)

– Existing gas discoveries

– Appraisal programme in preparation

Read more in: Operational review: South east Niger Delta

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Read more in: Operational review: North west Niger Delta

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Read more in: Operational review: Anambra basin

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1 Net working interest2 Net entitlement from indirect interest

Group overview


2P 220 MMboe (1,318 Bcfe)2C 194 MMboe (1,165 Bcfe) Oil 31%

Gas 69%

Anambra basin

Lagos

Benin City

OroghoOkporhuru

Uquo fieldStubb Creekfield

Sapele

OvhorAmukpe

Oben

PortHarcourt

Calabar

Warri Owerri

Aba

IkotAbasi

Ukanafun

Creek Town

Uyo

Oron

Nsukka

Onitsha

Enugu

OPL 907

OPL 905

OPL 917

Umuahia

North west

South east

OML 4

OML 13

OML 14

North

kilometres 1000

OML 41

OML 38

ELPS-WAGP

Ajaokuta

Niger

Ibom Power

UniCem

Forcados Terminal

CalabarAlaoji

Notore

Qua Iboeterminal

Nigeria

LegendSeven Energy licence areas

Seven Energy marginal field areas

Licence areas


Oil and gas fields



Seven Energy oil pipeline

NGC gas pipeline

3rd party oil pipeline

3rd party gas pipeline

Areas of core interest


Seven Energy customer (industrial)

Seven Energy customer (export terminal)

Uquo gas processsing facility

Major road

2P + 2C net reserves and resources Oil vs gas: net 2P + 2C

414 MMboe2P + 2C net reserves and resources


Strategic report

Continuing good progress against a challenging backdrop

We continue to make good progress on many fronts as we position ourselves as the leading fully integrated supplier of gas to the domestic market in Nigeria. This progress has been frustrated on occasion by factors outside of our control which have unfortunately had an impact on completion of key projects and on financial performance. That said, the Uquo and Stubb Creek fields are now in production and we have gas contracts in place to supply up to 280 MMcfpd, so the strength of our business model is now being realised.

Corporate developmentIn March 2014, we acquired East Horizon Gas Company, which operates the 128 km East Horizon gas pipeline, running through Akwa Ibom and Cross Rivers states, and has a 25 MMcfpd long-term gas sales agreement with Unicem, Nigeria’s third largest cement factory, in Cross Rivers state. This consolidates our dominant midstream position in south east Nigeria, expanding the reach of our distribution network to new markets and diversifying our customer base. We are already realising the benefits of this acquisition as we can now supply Uquo gas to the cement factory rather than gas purchased from third parties, thus securing the full value chain, along with providing an alternative supply route for gas to Calabar NIPP.

During 2014 and in early 2015, we also completed acquisitions of various licence interests in the Anambra basin. This is an undeveloped gas-rich basin to the north of the Niger Delta, in the industrial heartland of Nigeria. We have acquired operated interests in three blocks, OPLs 905, 907 & 917, all having undeveloped gas discoveries and substantial additional gas resource potential. We see this as a significant opportunity for long-term growth, by expanding our domestic gas footprint at a low entry cost.

Strengthening the balance sheetDuring 2014, we strengthened the balance sheet, raising additional equity and debt, and refinancing debt facilities to an extended maturity date. We raised $255 million of additional equity from Temasek, IFC and the IFC ALAC Fund, to support our growth. This was a strong endorsement, from these three prominent international investment funds, of our business plan and the leading role we are playing in the fast developing Nigerian domestic gas market. In October 2014, we issued $400 million Senior Secured Loan Notes and Private Bond, using these proceeds to repay shorter term borrowings.

Financial performanceThe Group’s financial performance continued to improve in 2014, with revenue growing 10% to $378 million (2013: $345 million), EBITDAX 35% higher at $273 million (2013: $202 million), and profit after tax 41% higher at $55 million (2013: $39 million). However, net cash flow generated from operations fell by 18% to $141 million (2013: $172 million), predominantly as a result of an increased underlift position during the year, offset by an increase in an operational expenditure payable. Capital investment in 2014 amounted to $912 million (2013: $508 million), of which $408 million (2013: $338 million) related to OMLs 4, 38 & 41.

Board and corporate governanceAs I have reported previously, we remain committed to the highest standards of corporate governance and during 2014 we continued to strengthen our Board. We appointed three additional Non-executive Directors: Clare Spottiswoode, Fidelis Oditah and Cyril Odu, all of whom add a wealth of relevant experience to our Board. In January 2015, Dale Rollins was also appointed as a Non-executive Director.

“ We are making good progress in developing our business to take advantage of the growth opportunities in the domestic gas market.”

Dr Andrew Jamieson OBENon-executive Chairman

Chairman’s statement


make concerted efforts to incorporate and develop best practice into our daily activities, to comply with national and international standards such as those issued by IFC and Global Reporting Initiative.

OutlookWe have continued to make very good progress in developing our business and creating a sustainable business model with good growth prospects. We are clearly seeing the growth opportunity in the domestic market, with five large volume gas supply contracts now in place. The sharp decline in oil prices over the last six months has created a challenging environment particularly as we look to access additional capital, further details

It is with great regret I have to report the death of Joshua Udofia, a Director of the Company for over five years and one of the founders of Seven Energy, as it now is. The knowledge and wisdom he brought to the Company will be sorely missed.

Corporate social responsibilityWe recognise the important role all our stakeholders play in our success. By listening to their views, we are able to act responsibly and put transparency at the heart of our business. We remain committed to sustainability and the health, safety and security of our workforce and the communities affected by our operations. Our goal is to be a leader amongst our peers in all areas of CSR. We continue to

Read more in: Corporate governance

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Corporate governanceThe Board is committed to developing and applying high standards of corporate governance both in the management of its business and in its accountability to stakeholders as a whole.

of which are provided in the financial review and note 3 to the Financial Statements. It remains our intention to gain deeper access to global equity markets through an Initial Public Offering on an international stock exchange, and whilst current market conditions are not conducive to this move, timing of an IPO remains under constant review.

Finally, I would like to thank shareholders, Board members, Management and employees for their continued support, contribution and commitment in these exciting times.

Dr Andrew Jamieson OBEChairman

Dr Andrew Jamieson OBENon-executive Chairman

Phillip IhenachoChief Executive Officer

Ashley DunsterNon-executive Director

Atul GuptaNon-executive Director

Osam IyahenNon-executive Director

Michael Lynch-BellNon-executive Director

Cyril OduNon-executive Director

Dale RollinsNon-executive DirectorAppointed in 2015

Peter GutmanAlternate Non-executive Director

Dr Yemi OsinderoNon-executive Director

Fidelis Oditah QC SANNon-executive Director

Clare Spottiswoode CBE Non-executive Director


Strategic report

First-mover

We have a sustainable long-term business model in a growing market

Funding

Prominent debt and equity investors

Oil and gas reserves

Our own reserves or access to third parties

Local knowledge and management expertise

Significant indigenous, in-country expertise

Partner relationships

Established relationships with upstream joint venture partners, contractors and customers

Availability of supply

Identify low risk exploration, appraisal and development targets, or access to third party reserves

Proximate demand and growth potential

Establish long-term sales agreements with anchor customers

Corporate social responsibility

Seven Energy nurtures and adds relationships with both indigenous companies and international oil companies, delivering key benefits for employees, customers and communities by acting as an active, reliable and valued partner with excellent QHSSE/CSR standards.

Through the partnerships entered into to date, Seven Energy has built a reputation for having reliable technical, operational and financial capabilities, and will continue to bring these capabilities to existing and future relationships.

Business model


An integrated model, connecting supply with demand in first-mover advantage locations, where gas resources are undeveloped and there exists a growing gas demand due to high dependence on imported petroleum products.

Read more in: Operational and financial review

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Read more in: Corporate governance

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Cash flowReinvested into

the business

Customer satisfaction

Reliable supply of quality gas

Licence to operate

Proven track record of delivery

Clean fuel Our gas business provides clean, cheap fuel to power Nigeria

Local economic growth

Job creation results in/leads to

improved standards of living

Contract management

Engage in secure and economically

beneficial contracts

Exploration and production

Actively developing or seeking reserves to meet our demand

Relationship management

Working closely with all our partners along

the value chain to ensure timely delivery Delivery

of oil and gas

Construct

Integrated processing and distribution network

giving control over the infrastructure

Operate

High operational standards, with

excellent safety record


p42


Strategic report

Power station

Electricity transmission network operator

Manufacturingplants

Distribution company

Processing facility

Oil export terminal

Gas receivingfacility

Production stream

Sales quality gas

Gas pipelineOil and gas

reserves and resources

Residential Industry

From exploration to the consumerAt every stage of Seven Energy’s operations we aim to improve Nigeria’s communities, as well as the country as a whole, by maximising responsible production of the country’s natural resources whilst minimising any effect on the environment.

Business model


Power station

Electricity transmission network operator

Manufacturingplants

Distribution company

Processing facility

Oil export terminal

Gas receivingfacility

Production stream

Sales quality gas

Gas pipelineOil and gas

reserves and resources

Residential Industry

414 MMboenet 2P + 2C reserves and resources

227kmgas pipeline distribution network

200 MMcfpdgas processing capacity

Gas pipelinesLaying of a transportation system which consists of a network of pipelines in which natural gas travels at high pressure, throughout the south east Niger Delta.

Gas receiving facilityFacility where the gas stream is separated into trains where filtration, pressure and temperature adjustment takes place. The gas is metered prior to being dispatched to customers.

Oil and gas reserves and resourcesIdentification, development and production of proximate crude oil and natural gas.

Processing facilityConstruction of an industrial facility to separate and process the various hydrocarbons to produce ‘sales quality’ dry natural gas and its associated condensates.

Power stations Taking gas for the generation of electricity to power Nigerian businesses and homes, including Ibom Power, Calabar NIPP and Alaoji.

Manufacturing plantsTaking gas either to power their processes, in the case of the Unicem cement factory, or as feedstock, in the case of the Notore fertiliser plant.

Oil exportersIOCs who purchase crude and refined oil products for exportation.

Electricity transmission network operatorIt owns and maintains a network of transmission towers which are steel structures with an overhead power line to transmit electrical energy at high voltage over large distances.

Distribution companyIt operates the distribution network of towers and cables that bring electricity to residential, industrial and commercial customers.

Seven Energy Our customers Other operators


Strategic report

20202015 20252012

PowerFeedstockGas powered industriesLight domestic industries

5.2

7.2

3.6

1.8

AlgeriaAngola EgyptLibyaNigeria

2,322

1,8011,575

988

714

This plan calls for the construction of new cost competitive gas infrastructure, including pipelines and processing facilities, across the country, aiming to fulfil Nigeria’s gas potential and meet growing domestic energy demand by increasing domestic power generation capacity.

The current and future gas landscapeNigeria has the largest proved gas reserves in Africa, of 179 Tcf (2013), with production of only 3.5 Bcfpd (2013). However, Nigeria has not yet capitalised on these gas reserves, with only 14% being supplied to, and used by, the domestic market. Approximately 38% of Nigeria’s gas production is exported as LNG, 24% is flared, and the remainder is re-injected, used as fuel, or processed into liquefied petroleum gas or gas liquids. In addition, Nigeria does not yet have the processing and distribution infrastructure to meet its potential demand. Of the existing 2,000 km network of gas pipelines, it is estimated that only one third is used for domestic consumption, with the remainder used for LNG exports.

However, as a result of the Government’s power infrastructure reforms, combined with advantageous fuel substitution economics and Nigeria’s economic growth prospects, domestic gas demand in Nigeria is expected to grow at an average of 11.3% a year from 2012 to 2025, reaching 7.2 Bcfpd.

Changes in the oil sectorNigeria holds the second largest oil reserves in Africa, of 37.1 billion bbls (2013), and is Africa’s largest producer of oil, with production of 2.3 MMbopd in 2013. Most of Nigeria’s oil is found in the Niger Delta area, with additional reserves offshore in the Bight of Benin, the Gulf of Guinea and the Bight of Bonny. The Nigerian economy is heavily dependent on the oil sector, which represents over 96% of the country’s export earnings and approximately 40% of the Nigerian Government’s revenue.

Market highlights

Nigeria is Africa’s largest economy by GDP

Nigeria has the largest gas reserves in Africa which are largely undeveloped, with relatively low production levels

Strong local demand for power, driven by population and economic growth

Nigeria – a growing opportunityNigeria is a rapidly growing economy with the largest population in Africa. The pace of economic growth is held back by a lack of investment in infrastructure, and reliance on expensive diesel for power generation. This is being addressed by Government power sector reforms aiming to unlock the largest gas reserves in Africa. Allied to a shift in focus towards offshore assets by international oil companies, this presents a highly attractive market environment for indigenous players with significant reserves and a focus on gas.

Developing Nigeria’s power capacityThe pace of economic development, although strong, has been constrained by a lack of investment in power infrastructure, leading to domestic power shortages, lack of an affordable electricity supply and self generation of power. Despite being a major oil producer, Nigeria relies on expensive, imported petroleum products to generate power, at a cost of $17.5 billion year. The country also imports approximately 62% of its consumed petroleum products, largely in the form of diesel, which is a far more expensive and environmentally harmful fuel than gas.

The Nigerian Government has privatised the existing power generation and distribution companies, established a bulk buyer of electricity and implemented a more appropriate pricing framework. It has now brought in several measures to encourage private companies and institutions to invest in the power sector, aiming to meet a target of 40GW of generating capacity by 2020. Most of this is expected to come from new gas fired power stations.

However, Nigeria’s domestic gas supply is currently inadequate for this power generation target. Thus, the development of gas supply for the domestic market is a priority for the Nigerian Government, as demonstrated by a number of reforms and initiatives, including the Gas Master Plan.

Domestic demand for gas Bcfpd

African oil production (2013)Mbopd

Power sector reforms driving gas demand

Market overview


International oil companies have been active in Nigeria since the 1950s, and the Nigerian National Petroleum Corporation has majority stakes of between 50% and 60% in most fields. The IOCs act as partners and operators of these fields. However, since 2009, the IOCs have shifted their focus towards large offshore projects. As a result, a number of divestments have taken place, and continue to create opportunities for companies like Seven Energy to increase their asset base in Nigeria. This development, coupled with a strong political backing for the development of the indigenous oil industry, allows Seven Energy to be a competitive participant in the divestment process.

The Seven Energy opportunityHaving focused our efforts on acquiring, developing and constructing oil and gas assets and infrastructure in Nigeria, we believe we have built the experience and knowledge to allow us to overcome the challenges that face oil and gas companies operating in onshore Nigeria. In particular, we are well positioned to take advantage of the anticipated growth in domestic demand for gas and to pursue any strategically attractive asset acquisition opportunities that may arise.

1.3 Tcf Nigeria’s gas production 2013 (BP Statistical Review 2014)

179 Tcf Nigeria’s proven gas reserves 2013 (BP Statistical Review 2014)

174mNigeria’s population, the largest in Africa (World Bank)

$522bnNigeria’s GDP, the largest in Africa (World Bank)

6.0%Nigeria’s forecast average annual economic growth from 2014 to 2017 (World Bank)

177 BcfNigeria’s gas consumption 2010 (CIA World Factbook)

Government reforms to incentivise investment in the power sector, as well as to develop the domestic gas supply market, mean demand for gas in Nigeria will grow strongly. Currently, the region has significant proven gas reserves which are exported, flared or remain largely undeveloped. Against a backdrop of economic growth and positive demographic trends, Nigeria is becoming an attractive market for local gas players.


Strategic report

Strategic updateI am proud to report that Seven Energy now has five contracts to deliver gas to domestic customers in Nigeria. At the start of 2014 we had two. Our vision to be the leading supplier of gas to the Nigerian domestic power market for power generation and industrial consumption is gathering pace. Having attained an average price of $94 per barrel for our oil sales in 2014, seeing oil prices fall to below $50 per barrel in early 2015 reaffirmed to us the suitability of our strategy to develop gas for sale to the Nigerian domestic market. With a combination of our fixed price gas sales and take-or-pay contracts, we look to provide stability in a market that is currently uncertain and volatile. Our strategy to provide gas for domestic consumption is bearing fruit, having provided gas to Ibom Power since the start of 2014, starting our own gas deliveries to Unicem in late 2014, and gas deliveries to Calabar NIPP and Notore Chemicals in early 2015. As we demonstrate our ability to deliver gas to high specifications with reliability, we are attracting new customers thanks to our reputation for quality performance and our first-mover advantage.

South east Niger Delta gas businessThe Nigerian economy continued to grow strongly during 2014, becoming Africa’s largest economy. This is despite the inadequate supply of domestic gas for power generation and industrial use, which has had a negative impact on the Nigerian economy due to the need for costly fuel substitutes. The pace of economic development continues to be constrained by a lack of investment in Nigeria’s power infrastructure and the absence of a reliable and affordable electricity supply. With limited competition, our expanding gas processing and transportation infrastructure means we are ideally positioned to reach a larger distribution and demand area for our own, but also, third party gas.

During 2014, we completed the acquisition and integration of the East Horizon Gas Company into our Group. We also reached agreement with Niger Delta Power Holding Company to construct a further section of pipeline between Oron and Creek Town, thus expanding our geographic reach over this industrialised area of Nigeria. In addition, we reached agreement with the Nigerian Gas Company to transport gas from Ikot Abasi through its pipelines to customers in the Port Harcourt region, and also to deliver our own gas into our East Horizon gas pipeline. We are now able to transport gas to customers covering an area from Port Harcourt in the west, to Calabar in the east. Our strength is in attracting customers to whom we can deliver gas, taking advantage of our existing pipeline network with limited or no additional capital costs, as demonstrated in the recent cases. This expansion and diversification of our customer base significantly reduces our exposure to the performance of any one customer.

During 2014, we completed, as planned, construction of the pipeline from Uquo to Oron, to enable us to deliver gas to the Calabar NIPP power station. Though we had planned to start delivery by the end of 2014, we were delayed, as the third party constructing the pipeline from Oron to Creek Town fell behind schedule. It is a tribute to the flexibility of our pipeline network that we are able to deliver commissioning gas to Calabar NIPP by our western route, and a mark of our operational expertise and financial strength that we have been able to take over construction of the uncompleted section of line. During 2015, we will progress construction of this line and continue to deliver gas to all our customers’ increasing volumes in line with their capacity to accept gas deliveries.


“ We aim to continue to develop our business to achieve our goal of being the leading supplier of gas to the domestic market for power and industrial consumption.”

Consolidating our strategic position in the gas sector

Chief Executive’s statement


During the year we completed two wells, Uquo 7 & 8, as gas producers which are now producing gas at combined rates of up to 85 MMcfpd, with estimated potential of some 140 MMcfpd; a very satisfactory result that confirms our expectations of this large gas field. In addition, in early 2015 we drilled an exploration well, Uquo North East-1 prospect, which encountered both gas and oil reservoirs, achieving results ahead of our expectations. We have suspended this well while we study development options.

Anambra basin prospect We are building our position in the Anambra basin, a gas-rich basin, having acquired a participating interest and operatorship of OPL 905 and adding interests in blocks OPL 907 and OPL 917. Our aim is to build a strong acreage in this industrial heartland, from where we plan to implement an integrated exploration and development scheme to commercialise gas across the region.

Oil production from Uquo and Stubb CreekWe intended to begin oil production from Uquo and Stubb Creek in 2014. In the event, following delays in completing the connection to ExxonMobil’s Qua Iboe Terminal, I am pleased to report that we began production from both fields in February 2015. We are now evaluating development options for the oil accumulation encountered in the Uquo North East-1 prospect well.

Development of OMLs 4, 38 & 41Our cooperation with Nigerian Petroleum Development Company and Seplat on developing the fields on these blocks has continued to result in increased performance. Though production over the year was affected by downtime caused by damage to the Trans Forcados pipeline, we now have an alternative export route to the Warri refinery, providing some mitigation. Gross production rates reached 80,000 bopd in late 2014 for the first time, affirming the potential of these fields. During the year, the operator signed a gas sales agreement with the 450 MW Azura-Edo Independent Power Project, which is a significant step in developing the gas reserves of these blocks, providing the opportunity to both increase revenue and diversify production, once the processing facilities and power plant are constructed. OutlookDuring the year we have continued to develop and consolidate our strategic position in the gas business in the south east Niger Delta, and by expanding our customer base we have diversified our risk profile. We aim to continue to develop our business to achieve our goal of being the leading supplier of gas to the domestic market for power and industrial consumption. In doing so we will play our part in the growing prosperity of Nigeria, and its development of a sustainable and diverse economy that is less dependent on oil.


+17%increase in 2P+2C net reserves & resources414 MMboe 2014 vs 354 MMboe 2013

23 MMcfpdaverage gas deliveries during 2014vs nil 2013

11.7m hoursreached without a Lost Time Incident (“LTI”) by the end of 2014

5gas sales agreements signed by Q1 2015

During 2014 we substantially completed our south east gas infrastructure and commenced gas deliveries. We are now, in early 2015, delivering gas to two power stations and two industrial customers, with deliveries to our fifth customer due to commence in Q2 2015. We are playing our part in developing a sustainable and diverse economy in Nigeria that is less dependent on oil.


Strategic report

Our five strategic priorities

KPIs Relevant risks Progress

Integrated value chain• Be a first mover into regions to build and operate production processing capacity and distribution infrastructure,

ensuring our ability to control the full value chain

• Control the full value chain, from wellhead to delivery, providing assurance to customers of a reliable, quality gas supply; attracting a creditworthy customer base

• Locate and acquire oil reserves with near-term cash flow potential and gas resource upside

• Operating cash flow • Managing for growth

• Partnership relations

We completed the acquistion of the 128 km EHGP, and the construction of the 37 km Uquo to Oron pipeline. Processing capacity was increased to 200 MMcfpd with completion of the second train of the Uquo gas processing facility.

Market penetration• Expand customer base beyond existing anchor customers to deliver gas to smaller volume, higher priced,

industrial off-takers

• Supply gas to generate a significant portion of Nigeria’s power and support the industrialsation of Nigeria’s manufacturing sector

• Weighted average gas price • Managing for growth

• Gas off-takers

Through the acquisition of EHGC, we added Unicem to our customer base, increasing our weighted average gas price and contracted gas volumes by 25 MMcfpd. At the start of 2015, we also added two new customers increasing contracted gas volumes by 50 MMcfpd.

Access to reserves• Enhance existing reserves and resources by investment into lower risk oil and gas exploration, appraisal

and development

• Maximise the use of our infrastructure by processing and delivering of third party gas

• Acquire oil reserves with near-term cash flow potential and accompanying gas resources upside

• Net reserves and resources • Reserve replacement Two wells drilled at Uquo together are capable of meeting current levels of demand. Early 2015, oil and gas deposits encountered at Uquo NE-1 prospect. 24 wells drilled at the OMLs, adding an additional deliverability of 13,800 bopd.

Stakeholder value• Secure investment opportunities with sustainable returns to achieve predictable results and cash flows

• Identify and acquire interests in low cost undeveloped gas fields with clear monetisation capability, predominantly lower risk onshore exploration activity

• Target all gas contracts being supported by payment guarantees

• EBITDAX • Project execution

• Funding and treasury management

• Gas off-takers

• Legislation and regulation

• Adverse media

• Bribery and corruption

Identified significant growth opportunities in the underdeveloped Anambra basin region, with acquistions of licence interests in OPLs 905, 907 & 917 for low entry costs, meeting our first-mover criteria.

Operational excellence• Comply with national and international operational standards

• Conduct operations in a responsible way in respect to both our external environment and the safety of all stakeholders

• Continous improvement of corporate governance across all operations to effectively manage and mitigate risk, investing in our people, policies and procedures

• Total Recordable Incidence Rate (TRIR)


• Employee considerations

• Project execution

• QHSSE/CSR


• Security

We have continued to maintain an excellent safety record during significant, potentially hazardous, construction projects which included the completion of the Uquo gas processing facility and a 37 km gas pipeline.

Our strategy


Capable of adding long-term sustainable value, underpinned by targeted strategic objectives to achieve our vision of providing gas to contribute to the economic growth of Nigeria.

Read more in: Key performance indicators

p20

Read more about our approach to: Risk management

p38

KPIs Relevant risks Progress

Integrated value chain• Be a first mover into regions to build and operate production processing capacity and distribution infrastructure,

ensuring our ability to control the full value chain

• Control the full value chain, from wellhead to delivery, providing assurance to customers of a reliable, quality gas supply; attracting a creditworthy customer base

• Locate and acquire oil reserves with near-term cash flow potential and gas resource upside

• Operating cash flow • Managing for growth


We completed the acquistion of the 128 km EHGP, and the construction of the 37 km Uquo to Oron pipeline. Processing capacity was increased to 200 MMcfpd with completion of the second train of the Uquo gas processing facility.

Market penetration• Expand customer base beyond existing anchor customers to deliver gas to smaller volume, higher priced,

industrial off-takers

• Supply gas to generate a significant portion of Nigeria’s power and support the industrialsation of Nigeria’s manufacturing sector

• Weighted average gas price • Managing for growth

• Gas off-takers

Through the acquisition of EHGC, we added Unicem to our customer base, increasing our weighted average gas price and contracted gas volumes by 25 MMcfpd. At the start of 2015, we also added two new customers increasing contracted gas volumes by 50 MMcfpd.

Access to reserves• Enhance existing reserves and resources by investment into lower risk oil and gas exploration, appraisal

and development

• Maximise the use of our infrastructure by processing and delivering of third party gas

• Acquire oil reserves with near-term cash flow potential and accompanying gas resources upside

• Net reserves and resources • Reserve replacement Two wells drilled at Uquo together are capable of meeting current levels of demand. Early 2015, oil and gas deposits encountered at Uquo NE-1 prospect. 24 wells drilled at the OMLs, adding an additional deliverability of 13,800 bopd.

Stakeholder value• Secure investment opportunities with sustainable returns to achieve predictable results and cash flows

• Identify and acquire interests in low cost undeveloped gas fields with clear monetisation capability, predominantly lower risk onshore exploration activity

• Target all gas contracts being supported by payment guarantees

• EBITDAX • Project execution

• Funding and treasury management

• Gas off-takers

• Legislation and regulation

• Adverse media


Identified significant growth opportunities in the underdeveloped Anambra basin region, with acquistions of licence interests in OPLs 905, 907 & 917 for low entry costs, meeting our first-mover criteria.

Operational excellence• Comply with national and international operational standards

• Conduct operations in a responsible way in respect to both our external environment and the safety of all stakeholders

• Continous improvement of corporate governance across all operations to effectively manage and mitigate risk, investing in our people, policies and procedures

• Total Recordable Incidence Rate (TRIR)


• Employee considerations

• Project execution

• QHSSE/CSR


• Security

We have continued to maintain an excellent safety record during significant, potentially hazardous, construction projects which included the completion of the Uquo gas processing facility and a 37 km gas pipeline.


Strategic report

Pipeline bypassWe completed the construction of the 1 km pipeline that bypasses the Ibom Power power station which connects our 62 km Uquo to Ikot Abasi pipeline to the NGC pipeline, which runs up to Ukanafun. Through negotiations as part of the EHGC acquisition, we successfully agreed to reverse the flow of gas through NGC’s pipeline, which extended our customer reach west to Port Harcourt through access to the extensive third party gas pipeline network.

Integrated value chain and market penetrationOur extended pipeline network enabled us to diversify our customer base and engage in two new gas sales agreements in 2015, with the Notore fertiliser plant in Onne and the Alaoji power station near Aba with minimal extra capital expenditure.

Strategy in action


Strong financial backing We have always been proud of the high quality of investors we have attracted over the years and most recently in 2014, we successfully raised $255 million of equity from Temasek, the International Finance Corporation (a member of the World Bank Group), and the IFC African, Latin American and Caribbean Fund.

Stakeholder valueWe completed the placement of $300 million of Senior Secured Loan Notes and $100 million Private Bond placed with the Nigeria Sovereign Investment Authority.In addition, the Group raised an Acquistion Finance Facility of up to $170 million.

This demonstrates the support of prominent institutions, and their belief in our vision to become the leading domestic gas supplier in Nigeria.


Strategic report

201420132012

354414

363

201420132012

171.9

141.1

77.8

Delivering on our strategy

DefinitionCash flow from operations, before capital expenditure and financing activities. It is an indicator of the Group’s ability to generate cash from its business operations.

ProgressDecreased during the year due to increased underlift, offset by an increase in operational expenditure payables.

OutlookWe expect to receive increased cash flows from our gas customers, under the take-or-pay contracts in place. This may be offset by the challenging oil price environment and timing of oil liftings under the Strategic Alliance Agreement.

Risk managementClose control of expenditure and monitoring of cashflows. In addition, credit enhancing measures are sought as part of gas sales agreements.


DefinitionThe Group’s net entitlement of proved and probable 2P reserves plus 2C resources, measured in million of barrels of oil equivalent.

Progress2P plus 2C net reserves and resources increased by 17% year on year to 414 MMboe (2013: 354 MMboe). This was due in part to the new acreage acquired in the Anambra basin.

OutlookThe Group continues to look for low cost, secure opportunities to increase its interest in reserves and resources, whilst appraising opportunities to convert our existing resources into reserves.

Risk managementDetailed monitoring of supply and demand constraints (reserves replacement, processing and delivery capacity).

We measure our progress through five key performance measures that are closely aligned with delivering on our strategy.

Measuring our success

Net reserves and resourcesMMboe

Operating cash flow$ million

During 2014, In addition to our solid performance on our key KPIs, Seven Energy saw enhancement in gas production, revenue and profits.

With deliveries in 2015 of first oil from the Uquo and Stubb Creek fields, the commencement of deliveries to Calabar NIPP power station and the diversification of our customer base is expected to provide, continued improvement in our KPI measures is anticipated.

Key performance indicators


Integrated value chain

Market penetration

Access to reserves

Stakeholder value

Operational excellence


201420132012

2.492.81

2.49

201420132012

201.3

273.4

33.9

2012

0.0

2013

0.0

2014

0.19


DefinitionThe weighted average contracted gas price weighted by daily contracted gas volumes.

ProgressThe Group has increased its weighted average gas price through the diversification of its customer base to include Unicem.

OutlookThe Group will continue to target diversification of its customer base beyond the power generation sector and into the industrial sector to try to achieve the best price for our reserves and resources.

Risk managementTargeted market research of areas of demand and customer availbility at the right price, to achieve best price for our reserves and resources.


DefinitionProfit or loss before finance costs, investment revenue, foreign exchange gains or losses, taxes, depreciation, depletion and amortisation and unsuccessful exploration costs and impairments.

ProgressContinued strong growth as a result of increased production volumes and production entitlement from the Strategic Alliance Agreement, coupled with the first year of gas revenues from the south east Niger Delta region.

OutlookGas deliveries are anticipated to increase in 2015, which will be potentially offset by a reduction in our production entitlement under the Strategic Alliance Agreement due to the current drop in oil prices and expected reduction in capital expenditures.

Risk managementClose operational review and monitoring of key producing assets and their development, combined with ongoing assessment of market opportunities.


DefinitionDetermined by multiplying the total recordable workplace incidents by 200,000 and dividing by the total hours worked during year. Recordable workplace incidences include fatalities, permanent total disabilities, permanent partial disabilities, lost time incidents, restricted work cases and medical treatment cases (excluding first aid cases). It is a measure of the Group’s QHSSE/CSR performance.

ProgressThe Group had three incidents during 2014, none resulting in fatalities. With the level of construction activity and the potentially hazardous industry we operate in, the Group maintains an excellent safety record.

OutlookSeven Energy continues to monitor TRIR closely. The Group is committed to retaining a focus on QHSSE/CSR performance.

Risk managementClose and ongoing review of all QHSSE/CSR policies and procedures, and application thereof, including rigorous incident reporting (including incident analysis, follow-up, remedial action and communications of learnings).

Read more in: Financial review

p34

Weighted average gas price$/mscf

EBITDAX$ million

Total Recordable Incidence Rate (TRIR)


Strategic report

Operational and financial review

Operational review:

South east Niger Delta 24 North west Niger Delta 28 Anambra basin 32

Financial review 34

Risk management 38

Corporate social responsibility 42



Op

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Our assets in the south east Niger Delta region consist of the Uquo and Stubb Creek fields, and our major gas processing and distribution infrastructure. All are close to areas where there is significant demand for gas from existing or planned power stations and other industrial off-takers, around Ikot Abasi, Calabar, Uyo, Aba and Port Harcourt. These assets are also situated near to ExxonMobil’s Qua Iboe export terminal.

Highlights

• First commercial gas deliveries in January 2014

• Commissioning of Train 2 of the Uquo gas processing facility, resulting in total processing capacity of 200 MMcfpd in May 2014

• Mechanical completion of the 37 km, 24 inch Uquo to Oron pipeline in October 2014

• Delivery of own gas to the Unicem cement factory in November 2014

• Oil production from Uquo and Stubb Creek started in February 2015

South east Niger Delta

Operational review


kilometresNorth

0 40

Stubb Creek field

Uquo field

PortHarcourt

Aba

Ikot Abasi

Ukanafun

Creek Town

128km

62km37km

23km

OML 13

OML 14

Oron

Calabar

Uyo

LegendSeven Energy marginal field areasLicence areas



Seven Energy oil pipelineNGC gas pipeline3rd party gas pipeline


Seven Energy customer (industrial)Seven Energy customer (export terminal)Uquo gas processsing facility

Demand areas

Seven Energy oil and gas fields

Qua Iboeterminal

Ibom Power

AlaojiCalabar

UniCem

Notore

2 short-term(12 months or less) take-or-pay contracts, signed in 2015, adding 55 MMcfpd

130 MMboe2P+2C net reserves and resources

200 MMcfpdUquo gas processing facility capacity

3 long-termtake-or-pay contracts totalling contracted gas sales volumes of 1.4 Bcf from the end of 2014

Throughout 2014, we continued to develop our gas processing and transportation infrastructure. Most of these capital projects are now complete and successfully operating, consolidating our strong local position.

Achieving first gas Notable successes in 2014 began in January, with the start of commercial gas deliveries to the Ibom Power power station in Akwa Ibom State under our 10 year take-or-pay gas sales agreement. Through 2014, we supplied an average of 14 MMcfpd, enabling the Ibom Power station to generate up to 115 MW from its main turbine, total production levels being limited due to only one of three turbines being operational. The power station has total generating capacity of 190 MW from three separate turbines, with individual capacities of 115 MW, 38 MW and 38 MW. The main turbine uses approximately 25 MMcfpd of gas when running. On completion of work on the remaining two turbines, the power station will begin to take its full contracted volumes of 43.5 MMcfpd.

In November 2014, we commenced deliveries of gas from the Uquo field to the Unicem cement factory (prior to this the Group was delivering third party gas supplied by NGC), under a contract to deliver up to 25 MMcfpd. In February 2015 we commenced deliveries to the Notore fertiliser plant under a short-term contract to deliver up to 25 MMcfpd and commenced delivery of commissioning gas to the Calabar NIPP power station.

Asset overview

Uquo field Stubb Creek field

Total

Seven Licence interest 40% 51%1

Operator Frontier Oil

Universal Energy

2P + 2C gross gas reserves and resources (Bcf)

729 503 1,232

2P + 2C gross oil reserves and resources (MMbbl)

8 23 31

2P + 2C gross reserves and resources (MMboe)

130 107 237

2P + 2C net reserves and resources (MMboe)

76 54 130

Type of hydrocarbon Oil and gas Oil and gas

Status In production In production

1 Held by Universal Energy (Seven Energy holds a 62.5% interest in Universal Energy).


Op

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During 2015, whilst we construct this line we are delivering gas to Calabar NIPP for its commissioning programme via the western route via Ikot Abasi and Ukanafun. On completion of the Oron to Creek Town pipeline we will increase deliveries to the full contracted volumes of 131 MMcfpd via the more direct easterly route. Successful drilling campaignsIn October 2014, we successfully completed Uquo wells 7 & 8, drilled in 2013 on the Uquo field within OML 13. During Q1 2015, these wells were fulfilling combined gas deliveries of up to 85 MMcfpd, successfully meeting our daily nominations. We now have four completed gas production wells on the Uquo field which are sufficient to meet our contractual needs in the short term.

In February 2015, we drilled the Uquo North-East 1 prospect in the Uquo field area to a vertical depth of 7,576 feet, encountering gas reservoirs as expected, as well as moderate oil accumulations in two horizons. We have now suspended the well, with plans to complete pending an evaluation of oil and gas development options.

Processing capacity ready to meet delivery agreementsWe completed the commissioning of Train 2 at our Uquo gas processing facility in May, which brought the facility into full operational mode, doubling the Group’s processing capacity to 200 MMcfpd. This achievement led to us receiving recognition from Nigeria’s Federal Government in August for our contribution to its Gas Master Plan, with a Presidential visit to officially commission the Uquo gas processing facility.

Oil production at Stubb Creek and Uquo fieldsIn February 2015 we commenced oil production from one well at the Uquo field and two wells at the Stubb Creek field. This followed completion of the FUN oil gathering manifold and its connection to ExxonMobil’s export terminal at Qua Iboe. We received our first lift of oil from this terminal in April 2015.

Acquiring East Horizon Gas Company In March 2014, we made a significant addition to our gas distribution network by acquiring the 128 km East Horizon gas pipeline, through the acquisition of the East Horizon Gas Company Limited from Oando PLC for a gross consideration of $250 million (net consideration $137 million). The pipeline runs from Ukanafun in Akwa Ibom State to the Unicem cement factory in Cross River State. The acquisition of EHGC also included a gas sales agreement with the Unicem cement factory, Nigeria’s third largest cement manufacturer, located at Mfamosing, in Cross Rivers state. The contract with Unicem is a 20 year take-or-pay agreement to supply up to 25 MMcfpd, with a provision to increase to 50 MMcfpd when the upgrade of the factory, due to be completed in 2016, doubles its production to 5 million metric tonnes per year.

Enhancing our pipeline networkFollowing this acquisition, we agreed terms with NGC to transport gas through their pipelines from our gas receiving facility at the Ibom Power power station to Ukanafun, and from there to the west towards Port Harcourt and also to the east through our East Horizon gas pipeline. To facilitate this we completed a 1 km high pressure pipeline that bypasses the Ibom Power station to connect our gas line to the NGC line to Ukanafun. Completion of this line enabled us to deliver gas from the Uquo field to Unicem from November 2014; prior to this we were delivering purchased third party gas to Unicem.

Connection to Calabar NIPPDuring 2014, we successfully completed the construction of the 37 km, 24 inch pipeline from Uquo to Oron in order to supply gas to Calabar NIPP. In late 2014 it became apparent that Calabar NIPP would not complete its construction of the pipeline from the power station to Oron and in response to this we took over construction of the 26 km section of line from Oron to Creek Town section at a cost of approximately $90 million, which we expect to complete in early 2016. In return for this we have agreed a higher gas price with Calabar NIPP for the duration of the 20 year contract which provides us with a good return on the additional capital investment.

Major customers

Seven Energy has five gas sales agreements in place – three long-term and two short-term, providing stable, diversified and long-term cash flows:

Ibom Power stationA 10 year 100% take-or-pay gas sales agreement to supply the 190 MW Ibom Power power station, near Ikot Abasi, with 43.5 MMcfpd. The station is owned by Ibom Power, which is owned by Akwa Ibom State.

Calabar NIPP power stationA 20 year 80% take-or-pay gas sales agreement to supply the 560 MW Calabar NIPP power station, near Calabar, with 131 MMcfpd. The station is owned by the Calabar Electricity Generation Company.

UnicemA 20 year 80% take-or-pay gas sales agreement, expiring in 2032, to supply Unicem, a cement factory near Calabar. EHGC is contracted to supply Unicem with 25 MMcfpd, increasing to 50 MMcfpd in 2016 with the completion of the factory upgrade. Unicem is owned by a consortium of Flour Mills of Nigeria, Lafarge and Holcim.

Alaoji Power stationA one year 80% take-or-pay gas sales agreement to supply the 1 GW Alaoji Power station with 30 MMcfpd.

Notore fertilizer stationA six month 80% take-or-pay gas sales agreement to supply the Notore fertiliser plant with 25 MMcfpd of gas as feedstock.

Operational review South east Niger Delta continued


UkanafunJunction

26 km24 inch pipeline

8 km4 inch

pipeline

2 km 10 inch pipeline

Oron tie-in

26 km24 inch pipeline

(under construction)

128 km 18 inch East Horizon pipeline

62km 18 inch Uquo to Ikot Abasi pipeline



37 km 24 inch Uquo to Oron pipeline

Ibom Powerpower station190MW

Calabar NIPPpower station560MW

Gas ReceivingFacility

FUN oil gathering manifold

Qua Iboeterminal

Gas wellOil wellOil and gas wellSeven Energy gas pipelineSeven Energy oil pipelineThird-party pipeline

Uquo GasProcessing Facility

Uquo field

StubbCreek field

Stubb Creek Early ProductionFacility

Calabar Junction

Unicem

Notore fertiliser plant The Group, through Accugas, entered into a short-term GSA with, and commenced delivery in 2015 to, Notore Chemical Industries PLC, a leading Nigerian fertiliser and agro-allied company.

Gas is being supplied at a rate of 25 MMcfpd as part of the feedstock to Notore’s fertiliser plant. By this supply arrangement, Seven Energy utilises its existing capacity and proven track record to target strategically located customers.

“ This milestone represents another significant step in our effort to increase domestic gas supply and utilisation of gas for the good of Nigeria, its people and its economy”.

Steve Tierney Managing Director, Accugas

Seven Energy’s midstream infrastructure


Op

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OMLs 4, 38 & 41 are located in the north west Niger Delta, near established oil and gas infrastructure, giving access to Shell’s Forcados export terminal for oil and to major demand centres for gas, including Lagos, Benin City and Ajaokuta.

North west Niger Delta

Highlights

• Average gross production during 2014 of 52,500 bopd (2013: 51,600 bopd). This average was impacted by downtime on the Trans Forcados pipeline

• Net production entitlement to Seven Energy of 15,800 bopd (2013: 10,400 bopd)

• 24 wells drilled during 2014 (2013: 15)

Operational review


Northkilometres 200

OML 4

OML 41

OML 38

Benin River

Umutu

Asuokpu

Ogume

Nugu

Olokun

Ubaleme

Okoporo

Okwefe

Omoja

Ijomi

Jesse

Mosogar

Oriomu

OroghoSapele

Amukpe

Ovhor

Okporhuru

Oben

Legend

Oil pipeline

Third party marginal field


Gas pipeline

Oil field

Gas field

Prospect/discovery

Asset overview

OMLs 4, 38 & 41

Licence interest 55%1

Operator Seplat

2P + 2C gross gas reserves and resources (Bcf)

2,286

2P + 2C gross oil reserves and resources (MMbbl)

427

2P + 2C gross reserves and resources (MMboe)

808

2P + 2C net reserves and resources (MMboe)

222

Type of hydrocarbon Oil and gas

Status In production

1 Indirect interest via the Strategic Alliance Agreement with NPDC.

We hold a diversified portfolio of onshore oil and gas interests in the north west Niger Delta region, with substantial reserves and access to export facilities and demand centres. Our focus has been to support NPDC effectively in continuing to develop OMLs 4, 38 & 41.

52,500 bopdaverage gross oil production

222 MMboe2P + 2C net reserves and resources

15,800 bopdaverage net oil production entitlement

Intensive field development programmeIn 2014, we continued the intensive development programme at the OMLs, drilling 24 wells and utilising six rigs. The drilling programme included 14 development wells, four workover wells and six appraisal wells, bringing on-stream additional deliverability of some 13,800 bopd during the year.

With the growing development activity, expenditure also rose, with our capital additions increasing 21% to $408 million during the year, from $338 million in 2013. We are reducing the work programme for 2015 due to the current oil price, in particular reducing the number of drilling rigs operating at the fields. Currently three rigs are operating.


Op

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We continue to receive regular liftings of our entitlement to oil production from these fields under our agreement with NPDC, lifting 3.7 MMbbl during 2014 (2013: 3.1 MMbbl), which achieved an average sales price of US$94.3 bbl (2013: US$110.8 bbl). In 2014, our net production entitlement was 15,800 bopd, an increase of 52% compared to 10,400 bopd in 2013. As our oil entitlement is lifted on delivery at Shell’s Forcados export terminal, we are shielded from certain risks and losses associated with bunkering and transmission prior to delivery.

Asset disposalDuring the year, the Group completed the sale of its participating interest in the Matsogo field to its joint venture partner, Chorus Energy, for $7 million.

Production potential increasedWe continue to create shareholder value by deriving production from six fields: Oben, Sapele, Ovhor, Amukpe, Okporhuru and Orogho. Average gross production increased from 51,600 bopd in 2013 to 52,500 bopd in 2014. Daily production rates reached 80,000 bopd toward the end of 2014, compared with 60,000 bopd during 2013, a 33% increase, with the additional production from the 24 new oil wells drilled during the year. However, with problems at the Trans Forcados pipeline, there was more downtime than during 2013, which is why there was only a small increase in average daily production.

Operational review North west Niger Delta continued


Op

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Highlights

• Acquired significant acreage positions offering significant gas upside covering interests in OPLs 905, 907 & 917

• Industrial region offering attractive gas market potential

OPLs 905, 907 & 917 are located in the Anambra basin region of Nigeria. The fields contain existing seismic evaluations and undeveloped gas discoveries and are located in a developed industrial part of Nigeria offering significant scope to develop a gas market for power and industrial use.

Anambra basin

Operational review


OPL 905

OPL 916

OPL 908

OPL 906

OPL 903OPL 902

OPL 910 OPL 911

OPL 207

OPL 228

OPL 135

OPL 206

OPL 203

6º30”E 7º00”E 7º30”E

6º30”N

6º00”N

OPL 915

OPL 201 OPL 901

OPL 914

OPL 907

OPL 917

kilometres 250

Nig

er

Mam

u

Aboine

An

amb

raEnugu

Eha-Amufu

Awka

Onitsha

Nsukka

Asaba

Aiddo 1

Ikem 1

Adaobi 1

Ubulu 1

Nemomai 1

Adofi River 2Nsukwa1

Igbariam 1

Ajire 1

Alo 1Nzam 1

Okpo 1

3

2Anambra River 1

Akukwa 1

Ogbabu 1

Ugueme 4

Ishkago 1

3

Mbala 1,2

Amansiodo 1

2

Iji 1

Ihandiagu 1

Legend

OtherOil discovery

Towns / Villages

Gas discovery

License

Asset overview

OPL 905 OPL 907 OPL 917

Licence interest 90%1 41%2 42%2

Operator GTPL AGER AGER

2C gross gas resources (Bcf)

337 183 337

2C gross resources (MMboe)

56 31 56

2C net resources (MMboe)

42 9 12

Type of hydrocarbon Gas Gas Gas

Status Undeveloped Undeveloped Undeveloped

1 Held by GTPL (50%) and SRL Holdings (40%). 2 Held by AGER (Seven Energy holds a 22.5% shareholding in AGER).

With significant gas potential to be developed to serve the surrounding areas of industrial growth and high demand, we have been focusing on acquisitions to capitalise on first-mover advantage in this region.

Building the gas resource baseIn January 2014, we completed the acquisition of SRL 905 Holdings Limited, which holds a 40% licence interest in OPL 905. In addition, following the acquisition of GTPL in 2015, the Group now holds an additional 50% licence interest. With existing seismic and two exploratory wells previously drilled, this fits our target profile of low cost access to low risk evaluation and exploration, with the aim of growing our reserve base. The gross recoverable 2C resources at OPL 905 are estimated to be 337 Bcf.

During the remainder of 2014, and into 2015, we continued to build on our position in the region with acquisitions in further licence areas with existing seismic and exploration wells drilled. This included acquiring a 22.5% shareholding in AGER, which holds a 41% and 42% licence interest in OPLs 907 & 917 respectively. A work programme is being prepared to evaluate the potential of these gas prone blocks.

A growing market opportunityThrough these acquisitions of undeveloped gas resources, we are looking at a long-term development programme to grow market share by replicating our south east Niger Delta business model. Our aim is to harness Nigeria’s vast potential gas resources to provide vital energy to power the growth of this industrial heartland.

We intend to undertake additional exploration activities on the fields in the near-term, including acquisition of 2D and 3D seismic data, followed by drilling exploration wells and testing the existing gas discoveries.


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Our performanceIn a challenging environment for the oil and gas industry we have strengthened our balance sheet through an equity raise and a placement of Senior Secured Loan Notes and Private Bond, and continued improvement in our financial performance.

RevenueIn 2014, revenue increased by 10% to $378 million (2013: $345 million). The growth in revenue was principally due to the commencement of commercial gas deliveries to the Ibom Power power station and the Unicem cement factory, following the acquisition of East Horizon Gas Company on 31 March 2014.

Oil revenues generated from OMLs 4, 38 & 41 under the Strategic Alliance Agreement with NPDC were largely unchanged, year on year, at $344 million (2013: $344 million). The benefit from an increase in the number of lifted barrels to 3.7 MMbbls (2013: 3.1 MMbbls) was offset by a reduction in average realised prices for the year of $94 per bbl (2013: $111 per bbl). Gas revenues to Ibom Power and Unicem amounted to $33 million (2013: $nil) at an average delivery rate of 23 MMcfpd for the year. Cost of sales and depletionCost of sales, comprising production expenses and increase in underlift, decreased from $101 million to $41 million. Production expenses increased by $61 million to $232 million (2013: $171 million). The increase reflected the greater production volumes at the OMLs and commencement of gas production and gas purchases associated with deliveries to Ibom Power and Unicem respectively. The increase in underlift was $191 million (2013: $71 million) which reflected unlifted production entitlement under the Strategic Alliance Agreement. Further details of the mechansim for determining the Group’s production entitlement under the Strategic Alliance Agreement can be found in note 4 to the Financial Statements.

Depletion increased by $54 million to $122 million (2013: $68 million), reflecting the significant increase in production entitlement at the OMLs, gas production at the Uquo field and depletion of infrastructure assets including the Uquo gas processing facility, gas receiving facility at Ikot Abasi and our network of gas pipelines.

EBITDA and EBITDAXEBITDA increased by $77 million from $196 million in 2013 to $273 million in 2014. EBITDAX was also $273 million for 2014 (2013: $202 million), increasing by $71 million.

2014$m

2013 $m

Operating profit Add back:

148 126

– Depletion 122 68

– Depreciation and amortisation 3 2

EBITDA 273 196

Add back:

– Impairment charge – 6

EBITDAX 273 202

This improvement in EBITDA and EBITDAX in 2014 was principally due to the increased production volumes and production entitlement from the Strategic Alliance Agreement coupled with the first year of gas revenues, generated from Ibom Power and Unicem gas sales contracts. This was offset by increased administrative expenses from $43 million in 2013 to $59 million in 2014, as the Group continued to build its operational, technical and financial capabilities to manage and develop its increasing portfolio of assets together with increased costs associated with business development opportunities and other corporate costs.

Finance costsDuring the year Seven Energy continued to strengthen its capital structure. In October 2014, the Group issued $400 million, Senior Secured Loan Notes and Private Bond, the proceeds of which were used to repay the Group’s Reserve Based Lending Facility, Convertible Bond, Working Capital Facility and Discount House Loan Facility. In addition, the Group secured an Acquisition Finance Facility of up to $170 million which was used to finance the acquisition of East Horizon Gas Company. As a result of its new and enlarged debt facilities, additional debt redemption costs, and write-off of

unamortised finance expenses, Seven Energy’s net finance costs increased by $38 million to $76 million (2013: $38 million).

TaxIn 2014, the Group incurred a total net tax charge of $26 million (2013: $49 million). This consisted of a deferred tax charge of $26 million, mainly due to profits arising from the Strategic Alliance Agreement, offset by the recognition of deferred tax assets (mainly due to recognising capital allowances in the Accugas Limited subsidiary).

Profit for the yearThe Group recorded a profit after tax for the year ended 31 December 2014 of $55 million (2013: $39 million), a year on year increase of 41%.

Capital expenditureSeven Energy continued to make significant investment in both exploration and development of its upstream and midstream assets, and also in company acquisitions. Total capital investment amounted to $912 million in 2014 (2013: $508 million). Set out below is a breakdown of this capital investment by principal assets:

2014$m

2013 $m

North west Niger Delta 408 338

South east Niger Delta 166 168

Other 4 2

Total capital additions 578 508

East Horizon Gas Company acquisition

270 -

Suntera (OPL 905) acquisition 64 -

Total capital investment 912 508

In particular, $408 million (2013: $338 million) was provided for the development of the OMLs under the Strategic Alliance Agreement. During 2014, a total of 24 (2013: 15) wells were worked-over or drilled on the OMLs. In addition, Seven Energy continued its investment programme in the south east Niger Delta, with additions to both its upstream and infrastructure assets.

Financial review


11.7m hoursreached without a Lost Time Incident (“LTI”) by the end of 2014

$912mTotal capital investmentvs $508m in 2013

During 2014, Seven Energy continued its drilling programme at the Uquo Field at wells 7 & 8 which were completed in October 2014. In addition, drilling commenced at the Uquo North–East 1 prospect. The Uquo to Oron gas pipeline, to supply the Calabar NIPP power station, was mechanically completed in October 2014. The acquisition of the East Horizon Gas Company and Suntera (OPL 905) resulted in capital investments amounting to $270 million and $64 million respectively.

AcquisitionsOn 31 January 2014, Seven Energy acquired a 40% licence interest in OPL 905 through its acquisition of the entire share capital of SRL 905 Holdings Limited. Total consideration amounted to $48 million.

On 31 March 2014, Seven Energy acquired the entire issued share capital of East Horizon Gas Company Limited, which operates the 128 km East Horizon gas pipeline through Akwa Ibom and Cross Rivers states in the south east Niger Delta and has a gas sales agreement with the Unicem cement factory to supply gas up to 25 MMcfpd, increasing to 50 MMcfpd in 2016, under a 20 year gas sales agreement, expiring in 2032. Total net consideration amounted to $137 million (after taking into account assumed liabilities).

On 12 December 2014, the Group signed a share purchase agreement with Global Energy Company Limited to acquire up to 72.5% of the issued share capital of Afren Global Energy Resources Limited, a Nigerian oil and gas exploration and production company. This company has a 41% and 42% license interest in OPL 907 and OPL 917 respectively and is located in the Anambra basin, adjacent to OPL 905. On initial acquisition only 22.5% of the share capital was acquired, with the remaining 50% to be acquired in 2015 following the re-assignment of the company’s performance bond to Seven Energy. The total expected consideration is approximately $14 million.

Further details of these acquisitions are set out in note 35 of the Financial Statements.

Cash flows and cashAt 31 December 2014, the Group had cash balances of $38 million (2013: $50 million). The cash flow movements in 2013 and 2014 are summarised below:

2014$m

2013 $m

Net cash provided from operating activities

141 172

Net cash invested in capital projects

(328) (324)

Acquisition of subsidiaries (151) –

Net cash inflow from debt financing

174 228

Cash inflow from equity financing

255 –

Net cash outflow from financing costs

(102) (57)

Net cash (outflow)/inflow (11) 19

Effect of foreign exchange rate changes

(1) (1)

Cash balance at start of year 50 32

Cash balance at end of year 38 50

Net cash provided from operating activities reduced from $172 million to $141 million principally due to an increase in underlift during the year, offset by an increase in operational expenditure payables. Acquisition of subsidiaries amounted to $151 million (2013: $nil) related to the purchase of EHGC and Suntera.

With respect to the OMLs there was a net cash outflow of $11 million (2013: $92 million inflow), primarily due to falling oil prices in the second half of 2014, and an increase in the amount of underlifted production entitlement.

Net cash inflow from debt financing of $174 million (2013: $228 million) principally reflected borrowings under the Acquisition Finance Facility, Project Finance Facility and the issue of Senior Secured Loan Notes and Private Bond, offset by the repayment of the Reserve Based Lending facility, Working Capital Facility, Convertible Bond and Discount House Loan Facility in October 2014.

$255 million (2013: $nil) was raised through the issue of ICLNs as described below in the section “Financing and capital structure”.

Net cash outflow from financing costs increased to $102 million (2013: $57 million) which reflected increased interest expense from greater borrowing levels, together with issue costs associated with the Senior Secured Loan Notes and Private Bond, and the premium paid on the repayment of the Convertible Bond. Financing and capital structureThe Group has continued to strengthen its financing and capital structure, through new and enlarged debt facilities with extended maturity profiles together with the issuance of additional equity.

In March 2014, the Group supplemented its existing Project Finance Facility with an Acquisition Finance Facility of up to $170 million to finance the acquisition of EHGC.

On 10 October 2014, the Group issued $300 million of Senior Secured Loan Notes which were listed on the Irish Stock Exchange. In addition, a further $100 million Private Bond was placed with the Nigeria Sovereign Investment Authority. The proceeds from both of these issues were used to repay four near-term facilities, as set out above. Further details of the Group’s debt facilities are set out in note 23 of the Financial Statements.

The maturity profile of the Group’s gross borrowings at 31 December 2014 is set out below:

2014$m

2013 $m

Current

Amount due within one year 113 372

Non-current

Amount due after one but within two years

57 44

Amount due after two but within five years

239 93

Amount due after five years 400 44

Total gross borrowings 809 553


Op

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Seven Energy’s equity capital structure comprises ordinary shares and ICLNs. During the year, $255 million was raised from the issue of new ICLNs for cash. In addition, $33 million of ICLNs were issued to the vendors of SRL 905 Holdings Limited as part of the acquisition consideration.

Going concern basisThe financial position of the Group, its cash flows and liquidity position are described above. In addition, note 24 to the Financial Statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

The Group intends to fund its current and future development projects and operations using a combination of operating cash flows, debt facilities and, from time to time, new equity issues. The Group has in place the Senior Secured Loan Notes, Private Bond, Project Finance and Acquisition Finance facilities, and Bank of Industry Loan Facility. The Group is required to comply with various ongoing financial and non-financial covenants typical to facilities of this nature, details of which are provided in note 23 to the Financial Statements.

The Group’s ongoing funding requirements are sensitive to significant changes in the timing of cash calls from joint venture partners, the frequency of its liftings from oil and gas sales contracts together with the level of funding available under debt facilities.

For the next 12 months, Seven Energy’s funding requirements are based on the Group’s 2015 Annual Funding Plan which assumes:

• completion of the refinancing of the Project Finance and Acquisition Finance facilities into a single combined facility resulting in the deferment of the current amortisation profiles of both facilities for at least 12 months; and

• securing between $50 million and $125 million of additional debt or equity funding.

Further details of the Group’s 2015 Annual Funding Plan are set out in the “Going concern” section of note 3 of the Financial Statements.

As reported in note 23 of the Financial Statements, at the time of acquisition, EHGC’s Bank of Industry Loan Facility was not, and continues not to be, in compliance with certain financial covenants in the loan agreement. Whilst an informal waiver of this non-compliance was received at the time

of acquisition, in the absence of a formal waiver at 31 December 2014 this facility has been disclosed within current borrowings. EHGC expects to receive formal waiver confirmation from the lenders that they do not intend to demand immediate repayment of the amounts due and will allow EHGC to continue to repay in accordance with the agreed repayment schedule.

As a result of these funding requirements in the next 12 months and absent signed commitments, the Directors acknowledge that material uncertainties exist which may cast significant doubt on the Company’s and the Group’s ability to continue as a going concern and, therefore, that the Company and the Group may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, after making enquiries, and considering both the uncertainties described above and the status of discussions with relevant lending banks and existing or potential security holders, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the Financial Statements.

A summary of the Group’s debt facilities at 31 December 2014 is set out below:

Summary of current debt facilities Purpose

Balance at 31 December 2014

$mMaturity

date

Project Finance Facility Funding of Accugas processing and pipeline infrastructure 225 March 2020

Acquisition Finance Facility Funding the acquisition of EHGC 130 June 2019

Senior Secured Loan Notes General funding 300 October 2021

Private Bond General funding 100 October 2021

Bank of Industry Facility Funding of East Horizon pipeline 34 June 2017

UERL term loan Provided by Akwa Ibom Investment and Industrial Promotion Council for Stubb Creek Field development

9 December 2018

Promissory Note Acquisitions of interests in OPL 907 & 917 11 June 2015 (or June 2016)

Total gross borrowings 809

Financial review continued



Op

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d financial review

Effective risk management is essential if the Group is to deliver on its strategic and operational objectives whilst maintaining its excellent HSE record. The Risk Register is the means by which the Group’s principal risks are reported to the Executive Committee and the Board for review.

The Risk Register identifies those risks with the potential to seriously affect the performance, future prospects or reputation of the Group, or prevent us from delivering on our strategic objectives. It includes strategic, financial and operational risks, together with external factors over which the Board may have little or no direct control. The Risk Register is updated quarterly and identifies:

• the specific risks facing the Group

• likelihood of the risks materialising and their potential impact on the business’s strategic objectives

• the Group’s ability to reduce or control the incident and impact of risks

• the risk profile by exposure and by type

• the extent and categories of risk which are regarded as acceptable for the Group to bear

Board of Directors

Executive Committee

Senior Management

Risk owners

Review and recommendationsby the Internal Audit team and assessment by the Governance Board as to the effectiveness of action plans and controls.

Identification of new risks – Identification and assessment of new risks, including risk grading.

– Formulation of mitigation plans and assignment of review cycles.

– Identification of key process controls.

Updating of existing risks – Review and assessment of existing risks.

– Monitoring of progress against agreed mitigation plans.

– Re-evaluation of review cycle or closing-out of risks.

2014 risks and uncertainties Performance 2014 Objectives 2015 Strategic objectivesManaging for growth: with a strategy focused on organic and acquisitive growth, external and internal factors drive each investment decision to ensure that long-term value is created for all stakeholders. Risks are inherent across the entire investment process.

Achieved the effective integration of the acquisitions completed during 2014, following a detailed commercial, financial, legal and technical due diligence process. Further identified strategic upstream opportunities identified during 2014, completed in early 2015.

Continue to look for opportunities targeting growth opportunities that fit with a business model and strategic objectives of stable growth in underdeveloped areas.

Funding and treasury management: the Group relies on a number of capital sources for its operations and availability of financing is essential to its future growth plans. Availability of financing, ongoing compliance with financing obligations as well as ongoing liquidity are the main risks.

The capital structure was strengthened during 2014, through the successful raising of $255 million of ICLNs in early 2014, placement of Senior Secured Loan Notes and Private Bond used for refinancing, and an Acquisition Finance Facility to fund new acquisitions.

Effective management of the Group’s liquidity position, evaluating various options available to the Group. Continue to apply a financially disciplined approach to the way Seven Energy conducts its business.

Project execution: the Group experienced high levels of activity across its key projects during 2014, including construction and drilling activities. Project planning, execution and cost management are key risks, together with QHSSE/CSR and community related risks.

Train 2 of the Uquo gas processing facility, the Uquo to Oron pipeline and drilling projects have largely been delivered according to plan. Continued delays were experienced with the FUN oil gathering manifold and connections to ExxonMobil’s Qua Iboe export terminal, which was completed in February 2015.

Completion of Oron to Creek Town pipeline and effectively manage the Group’s operations with a continued strong focus on QHSSE/CSR and community related issues.

Gas off-takers: core to the Group’s business proposition and capital structure are its long-term gas sales agreements. Performance and payments by the customers are the main identified exposures.

Seven Energy commenced commercial gas deliveries to Ibom Power in January 2014 after a period of delay due to maintenance required at the power station. Also during the year, we increased our customer base through acquisitions and organic growth, utilising our processing and distribution capacity. Unfortunately, we were unable to commence deliveries to Calabar due to their operational delays.

Continual close cooperation with gas off-takers to ensure scheduled commencement of deliveries and timely receipt of payment. Completion of a guarantee package supported by the World Bank. Continued diversification of customer base.

Employee considerations: in view of the Group’s growth across its business, employee retention and recruitment is a priority. In addition, communication across the business is vital to effectively share information and motivate staff on the Group’s achievements.

Benchmarked remuneration policies have been implemented following a benchmarking review of pay equality across all employee band levels. Internal communication strengthened, including quarterly staff bulletin and introduction of an intranet.

Ongoing review of remuneration policies, combined with further strengthening of communication across the organisation, including succession planning.

Our continued focus on identifying and mitigating our risks is evident in our strong and improving KPIs.

Risk management framework

Short- to medium-term risks

Risks are inherent within every business environment. Seven Energy’s Board and senior management are responsible for ensuring that risks facing the Group are identified, assessed and managed to ensure creation and retention of shareholder value.

Risk management



Market penetration

Access to reserves

Stakeholder value



Probability

Impa

ct

Gas off-takers

Funding and treasury management

Reserves replacement

Bribery and corruption

Employee considerations

Project execution

Legislation and

regulation (2013)

Legislation and

regulation

Adverse media

Partnership relations (2013)

Partnership relations

QHSSE/community

Security(2013)

Security

Managing growth

Each identified risk is given a risk rating, based on the probability of the risk occurring and the estimated impact on the business. The above analysis highlights the Group’s main identified risks. Further details of these risks are set out in “Principal risks and uncertainties” on the following page.

2014 risks and uncertainties Performance 2014 Objectives 2015 Strategic objectivesManaging for growth: with a strategy focused on organic and acquisitive growth, external and internal factors drive each investment decision to ensure that long-term value is created for all stakeholders. Risks are inherent across the entire investment process.

Achieved the effective integration of the acquisitions completed during 2014, following a detailed commercial, financial, legal and technical due diligence process. Further identified strategic upstream opportunities identified during 2014, completed in early 2015.

Continue to look for opportunities targeting growth opportunities that fit with a business model and strategic objectives of stable growth in underdeveloped areas.

Funding and treasury management: the Group relies on a number of capital sources for its operations and availability of financing is essential to its future growth plans. Availability of financing, ongoing compliance with financing obligations as well as ongoing liquidity are the main risks.

The capital structure was strengthened during 2014, through the successful raising of $255 million of ICLNs in early 2014, placement of Senior Secured Loan Notes and Private Bond used for refinancing, and an Acquisition Finance Facility to fund new acquisitions.

Effective management of the Group’s liquidity position, evaluating various options available to the Group. Continue to apply a financially disciplined approach to the way Seven Energy conducts its business.

Project execution: the Group experienced high levels of activity across its key projects during 2014, including construction and drilling activities. Project planning, execution and cost management are key risks, together with QHSSE/CSR and community related risks.

Train 2 of the Uquo gas processing facility, the Uquo to Oron pipeline and drilling projects have largely been delivered according to plan. Continued delays were experienced with the FUN oil gathering manifold and connections to ExxonMobil’s Qua Iboe export terminal, which was completed in February 2015.

Completion of Oron to Creek Town pipeline and effectively manage the Group’s operations with a continued strong focus on QHSSE/CSR and community related issues.

Gas off-takers: core to the Group’s business proposition and capital structure are its long-term gas sales agreements. Performance and payments by the customers are the main identified exposures.

Seven Energy commenced commercial gas deliveries to Ibom Power in January 2014 after a period of delay due to maintenance required at the power station. Also during the year, we increased our customer base through acquisitions and organic growth, utilising our processing and distribution capacity. Unfortunately, we were unable to commence deliveries to Calabar due to their operational delays.

Continual close cooperation with gas off-takers to ensure scheduled commencement of deliveries and timely receipt of payment. Completion of a guarantee package supported by the World Bank. Continued diversification of customer base.

Employee considerations: in view of the Group’s growth across its business, employee retention and recruitment is a priority. In addition, communication across the business is vital to effectively share information and motivate staff on the Group’s achievements.

Benchmarked remuneration policies have been implemented following a benchmarking review of pay equality across all employee band levels. Internal communication strengthened, including quarterly staff bulletin and introduction of an intranet.

Ongoing review of remuneration policies, combined with further strengthening of communication across the organisation, including succession planning.

Risk distributionTo enable the Group to achieve its objectives, risk awareness, monitoring and control is a continuous process that involves everyone in the organisation.


Op

erational an

d financial review

Principal risks and uncertainties

Key risk factor

Responsibility

Potential impact

Mitigation

KPI/Performance metric

Strategic objectives

See also

Strategic risks

Reserve replacementAssessment: High (2013: High)

Chief Technical Officer Access to reserves and resources underpins Seven Energy’s business and its growth aspirations.

Ongoing options analysis undertaken to assess opportunities to access additional reserves and resources via appraisal and exploration, third party purchase arrangements, or through an enlarged asset portfolio following new fields’ bid allocation processes or via M&A activity. Annual assessment by independent experts of existing reserves and resources.

Reserves and resources Operational review

Managing for growthAssessment: Medium(2013: Medium)

Chief Executive Officer With a strategy focused on organic and acquisitive growth, the Group is exposed to risks that are inherent across the entire investment process.

For each investment opportunity, significant emphasis is placed on in-depth reviews and evaluation. By using Seven Energy’s in-house experience and expertise, combined with that of its advisers, full due diligence and integration planning are undertaken as part of the evaluation process. In addition, each asset continues to be closely monitored with decisions being implemented to capture the assets’ long-term value.

Reserves and resourcesContracted gas volumesWeighted average gas price

CEO’s statement

Partnership relationsAssessment: Medium(2013: Medium)

Chief Executive Officer The legal and day-to-day interpretation and status of working relations with the Group’s various partners are key to the development and performance of Seven Energy’s assets.

Through the existing legal arrangements in place for the Group’s portfolio of assets, combined with active technical and financial participation, the Group strives to maintain a positive and mutually beneficial working relationship with its strategic and joint venture partners. In addition, the Group monitors closely the obligations attached to the licence of each of its assets, the Strategic Alliance Agreement with NPDC, and works with its partners to ensure that the relevant work programmes are met.

Capital expenditureGross production

CEO’s statement

Employee considerationsAssessment: Medium(2013: Medium)

Chief Executive Officer Employee retention and recruitment is essential to support the Group’s growth and development.

Succession planning, review and benchmarking of remuneration policies are regularly undertaken across the organisation. In addition, significant focus is being placed on internal communications to align this with the Group’s external communications programme.

Employee turnoverDiversity% in-country staff of Nigerian nationality


Operational risks

Project executionAssessment: Medium (2013: High)

Chief Operating Officer Seven Energy currently has a high level of project related activities. There are a variety of risks associated with such projects, including delays, dependency on third parties, obligations and cost overruns.

For each project, either construction or drilling related, Seven Energy carefully evaluates the feasibility, cost estimates and the projected rates of return prior to approval. Dedicated project teams oversee the individual projects to ensure completion in line with timetable, taking into account the Nigerian dry and wet seasons and supply of high quality contractors. The teams also work in close cooperation with any third parties.

Capital expenditureOperating cash flows

Operational review

QHSSE/CSRAssessment: Medium(2013: Medium)

Chief Operating Officer The Group’s focus on upstream and midstream oil and gas activities exposes it to a wide range of QHSSE/CSR related risks, including injury, loss of life, environmental damage and community disturbances.

Industry leading QHSSE/CSR policies and procedures have been implemented across the business. The Group has a dedicated QHSSE/CSR team in place to ensure continued high awareness and application of these policies and procedures. Environmental considerations are also key and are an area of increasing regulation. Work continues to ensure that operations meet international standards. Emergency response plans have been updated and implemented and are regularly tested.

LTIRTRIRFARNo of environmental spills


Financial risks

Funding and treasury managementAssessment: High(2013: High)

Chief Financial Officer The Group has high levels of debt with associated obligations and restrictions. Therefore, there is a risk of breach and inability to undertake further financing in support of the Group’s growth strategy.

Seven Energy closely monitors its funding and liquidity requirements. Formal budgeting and forecasting processes are in place and cash forecasts are regularly produced and reviewed to ensure compliance with funding obligations and growth plans. To further optimise the Group’s capital structure, continuous evaluation of market opportunities takes place.

EBITDAXOperating cash flows

Financial review

Bribery and corruptionAssessment: Medium(2013: Medium)

Chief Executive Officer Seven Energy operates in a region considered particularly prone to bribery and corruption. Especially exposed are its contract and procurement operations.

Strict policies and procedures are in place across the business, and in particular with regard to contracts and procurement and anti-bribery and corruption. These policies are regularly reviewed and updated and subject to internal audit. Careful vetting and monitoring processes are in place for suppliers. A programme of regular training and awareness has been implemented and there is an independent reporting hotline.

% completion of compliance training% compliance certification

Board Committee report

External risks

Gas off-takersAssessment: High(2013: High)

Chief Executive Officer Within its midstream business, Seven Energy has a narrow customer base with the risk of non-performance and/or non-payment.

In addition to the take-or-pay provisions within each gas sales agreement, significant credit enhancing packages are being sought where appropriate. The Group continues to work closely with its key customers to ensure mutually beneficial relationships. As part of Seven Energy’s core strategy additional customers have been, and continue to be, sought to diversify the risk.

Weighted average gas priceOperating cash flowsGross productionContracted gas volumes

Operational review

SecurityAssessment: Medium(2013: Medium)

Chief Operating Officer Security incidents, such as kidnapping and criminal activities, are inherent risks to Seven Energy’s operations in Nigeria.

The Group is sensitive to security issues, and its operations are focused on relatively secure areas of the Niger Delta. In addition, the Group has dedicated security teams in each area of operation, with a robust security management and alert system in place. Each asset and operation is assessed regularly from a risk perspective and security considerations are incorporated into all new projects.

Gross productionLTITRIRNo of fatalities


Legislation and regulationAssessment: High(2013: High)

Chief Executive Officer Seven Energy’s licences and operating activities are subject to various laws and regulations, some of which may be changing in the short- to medium-term.

The Group and its advisers closely monitor any proposed changes, particularly with regard to the proposed Petroleum Industry Bill, and consider mitigating and contingency plans, including lobbying and active participation in discussions. In addition, it closely monitors the political situation in general.

Effective tax rate CEO’s statement

Adverse mediaAssessment: High (2013: High)

Chief Financial Officer Negative or speculative media coverage could adversely impact Seven Energy’s reputation and ability to operate.

The Group and its public relations advisers actively monitor and respond, as required, to the media. In addition, the Group seeks to provide full transparency of its operations via its external communications programme. It has also established a Crisis Media Plan.

Reputational damage CEO’s statement

Risk management continued


Key risk factor

Responsibility

Potential impact

Mitigation

KPI/Performance metric

Strategic objectives

See also

Strategic risks

Reserve replacementAssessment: High (2013: High)

Chief Technical Officer Access to reserves and resources underpins Seven Energy’s business and its growth aspirations.

Ongoing options analysis undertaken to assess opportunities to access additional reserves and resources via appraisal and exploration, third party purchase arrangements, or through an enlarged asset portfolio following new fields’ bid allocation processes or via M&A activity. Annual assessment by independent experts of existing reserves and resources.

Reserves and resources Operational review

Managing for growthAssessment: Medium(2013: Medium)

Chief Executive Officer With a strategy focused on organic and acquisitive growth, the Group is exposed to risks that are inherent across the entire investment process.

For each investment opportunity, significant emphasis is placed on in-depth reviews and evaluation. By using Seven Energy’s in-house experience and expertise, combined with that of its advisers, full due diligence and integration planning are undertaken as part of the evaluation process. In addition, each asset continues to be closely monitored with decisions being implemented to capture the assets’ long-term value.

Reserves and resourcesContracted gas volumesWeighted average gas price

CEO’s statement

Partnership relationsAssessment: Medium(2013: Medium)

Chief Executive Officer The legal and day-to-day interpretation and status of working relations with the Group’s various partners are key to the development and performance of Seven Energy’s assets.

Through the existing legal arrangements in place for the Group’s portfolio of assets, combined with active technical and financial participation, the Group strives to maintain a positive and mutually beneficial working relationship with its strategic and joint venture partners. In addition, the Group monitors closely the obligations attached to the licence of each of its assets, the Strategic Alliance Agreement with NPDC, and works with its partners to ensure that the relevant work programmes are met.

Capital expenditureGross production

CEO’s statement

Employee considerationsAssessment: Medium(2013: Medium)

Chief Executive Officer Employee retention and recruitment is essential to support the Group’s growth and development.

Succession planning, review and benchmarking of remuneration policies are regularly undertaken across the organisation. In addition, significant focus is being placed on internal communications to align this with the Group’s external communications programme.

Employee turnoverDiversity% in-country staff of Nigerian nationality


Operational risks

Project executionAssessment: Medium (2013: High)

Chief Operating Officer Seven Energy currently has a high level of project related activities. There are a variety of risks associated with such projects, including delays, dependency on third parties, obligations and cost overruns.

For each project, either construction or drilling related, Seven Energy carefully evaluates the feasibility, cost estimates and the projected rates of return prior to approval. Dedicated project teams oversee the individual projects to ensure completion in line with timetable, taking into account the Nigerian dry and wet seasons and supply of high quality contractors. The teams also work in close cooperation with any third parties.

Capital expenditureOperating cash flows

Operational review

QHSSE/CSRAssessment: Medium(2013: Medium)

Chief Operating Officer The Group’s focus on upstream and midstream oil and gas activities exposes it to a wide range of QHSSE/CSR related risks, including injury, loss of life, environmental damage and community disturbances.

Industry leading QHSSE/CSR policies and procedures have been implemented across the business. The Group has a dedicated QHSSE/CSR team in place to ensure continued high awareness and application of these policies and procedures. Environmental considerations are also key and are an area of increasing regulation. Work continues to ensure that operations meet international standards. Emergency response plans have been updated and implemented and are regularly tested.

LTIRTRIRFARNo of environmental spills


Financial risks

Funding and treasury managementAssessment: High(2013: High)

Chief Financial Officer The Group has high levels of debt with associated obligations and restrictions. Therefore, there is a risk of breach and inability to undertake further financing in support of the Group’s growth strategy.

Seven Energy closely monitors its funding and liquidity requirements. Formal budgeting and forecasting processes are in place and cash forecasts are regularly produced and reviewed to ensure compliance with funding obligations and growth plans. To further optimise the Group’s capital structure, continuous evaluation of market opportunities takes place.

EBITDAXOperating cash flows

Financial review

Bribery and corruptionAssessment: Medium(2013: Medium)

Chief Executive Officer Seven Energy operates in a region considered particularly prone to bribery and corruption. Especially exposed are its contract and procurement operations.

Strict policies and procedures are in place across the business, and in particular with regard to contracts and procurement and anti-bribery and corruption. These policies are regularly reviewed and updated and subject to internal audit. Careful vetting and monitoring processes are in place for suppliers. A programme of regular training and awareness has been implemented and there is an independent reporting hotline.

% completion of compliance training% compliance certification

Board Committee report

External risks

Gas off-takersAssessment: High(2013: High)

Chief Executive Officer Within its midstream business, Seven Energy has a narrow customer base with the risk of non-performance and/or non-payment.

In addition to the take-or-pay provisions within each gas sales agreement, significant credit enhancing packages are being sought where appropriate. The Group continues to work closely with its key customers to ensure mutually beneficial relationships. As part of Seven Energy’s core strategy additional customers have been, and continue to be, sought to diversify the risk.

Weighted average gas priceOperating cash flowsGross productionContracted gas volumes

Operational review

SecurityAssessment: Medium(2013: Medium)

Chief Operating Officer Security incidents, such as kidnapping and criminal activities, are inherent risks to Seven Energy’s operations in Nigeria.

The Group is sensitive to security issues, and its operations are focused on relatively secure areas of the Niger Delta. In addition, the Group has dedicated security teams in each area of operation, with a robust security management and alert system in place. Each asset and operation is assessed regularly from a risk perspective and security considerations are incorporated into all new projects.

Gross productionLTITRIRNo of fatalities


Legislation and regulationAssessment: High(2013: High)

Chief Executive Officer Seven Energy’s licences and operating activities are subject to various laws and regulations, some of which may be changing in the short- to medium-term.

The Group and its advisers closely monitor any proposed changes, particularly with regard to the proposed Petroleum Industry Bill, and consider mitigating and contingency plans, including lobbying and active participation in discussions. In addition, it closely monitors the political situation in general.

Effective tax rate CEO’s statement

Adverse mediaAssessment: High (2013: High)

Chief Financial Officer Negative or speculative media coverage could adversely impact Seven Energy’s reputation and ability to operate.

The Group and its public relations advisers actively monitor and respond, as required, to the media. In addition, the Group seeks to provide full transparency of its operations via its external communications programme. It has also established a Crisis Media Plan.

Reputational damage CEO’s statement



Market penetration

Access to reserves

Stakeholder value



Op

erational an

d financial review

Generating and sharingwealth

Corporate SocialResponsibility Report 2014

Generating and sharing wealth

Read more:Corporate Social Responsibility Report

Our key areas of focus

Stakeholder relations

Nigerian content

People

Health and safety

Asset protection

Compliance

Environment



We aim to be a leader in our sector and in the region in all areas of Corporate Social Responsibility. We continue to incorporate industry best practice in our daily activities, with our objective being to meet or exceed national and international standards.

CSR highlights

Successful education programme on dangers of hydrocarbons for all pipeline right of way communities.

Training for 23 local graduate trainee engineers and ten local heavy duty equipment operators.

No lost time incidents, serious health, safety and environment related incidents or reportable environmental spills.

Extensive Health, Safety & Environment training and awareness programme for 416 staff and contractors.

Finalised the Seven Energy CSR management system, aiming to meet the IFC performance standards.


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Seven Energy maintained its “social licence” to operate across all its projects and facilities, with no downtime recorded due to community related incidents during 2014. We made significant progress in CSR by finalising the Seven Energy CSR management system. This aims to meet the requirements of the International Finance Corporation performance standards and we introduced it throughout the company in early 2014.

We allocated considerable resources to an extremely successful community education programme on the dangers of hydrocarbons under pressure, which we presented to all our pipeline right of way communities during 2014. The programme used a number of different media outlets such as local and regional newspapers, local radio, town hall meetings and a DVD containing narratives in the local dialect, English and also Pidgin English.

We also completed planning for a community initiative we refer to as the Green Team. In this, we will employ only specific residents nominated by local community leaders to maintain and monitor our pipelines’ RoW, using no third parties or agents. We will provide equipment and oversee the work as required, and pay only the workers that actually undertake this casual labour, into bank accounts opened specifically by the workers themselves. Our supply chain, finance and compliance teams will track and audit this process. This initiative started in early 2015 and has been extremely well received by our RoW communities and others.

To further cement our good working relationship with our local and RoW communities, we allocated N89 million to a programme of community development projects across eight local government authorities in south east Nigeria. The projects were chosen by the communities themselves, and we provided contract and contractor management services to ensure the overall quality. In 2015, we plan to adopt a “human rights based approach” to community projects through a pilot project with ActionAid Nigeria.

We strengthened our Nigerian Content Development strategy during 2014 by focusing on building capacity in the local community, in individual projects and in education for permanent and contract staff. This strategy is evident in our continuous efforts to achieve positive competitive differentiation in a demanding and cost focused business environment. During 2014, we successfully trained 33 local people in Seven Energy projects. These were 23 graduate trainee engineers and ten heavy duty equipment operators. In 2015, we are continuing to focus, through our Nigerian Content Development programme,

Stakeholder relations

Nigerian content

In 2014, Seven Energy employed an average of 189 full time staff. 160 were based in Nigeria (84%), with the remaining 29 being based in the UK. During the year, the Group witnessed growth in the proportion of nationals working in its Nigeria offices. As at December 2014, 94% of our in-country employees were of Nigerian nationality (2013: 93%). Women accounted for 28% of our workforce (2013: 27%).

Seven Energy also employed a number of contractors, particularly in connection with its various infrastructure projects. The number of contractors that Seven Energy utilises is project dependent and varies according to the number, type and activity level of the projects undertaken. As of 31 December 2014, the number of contractors Seven Energy utilised was approximately 175.

During 2014, Seven Energy embarked on multiple employee engagement initiatives including a flexible work schedule, knowledge sharing sessions and evenings of networking in our offices and field locations. Our established employee forums continued to serve as a valuable communication and feedback channel for all staff and contractors.

People A learning and development committee was inaugurated in 2014 to ensure that training events and programmes were adequately planned, target driven and resulted in improved returns on investment. Approximately 85% of our permanent staff across office and field locations participated in technical or soft skill training during the year. 16 office based employees also visited our production facilities in Akwa Ibom State during 2014 on a field orientation, to broaden their knowledge of Seven Energy’s operations. The Company continues to place strong emphasis on training and other forms of staff development such as coaching, mentoring and on the job training.

The Company developed and executed standard requirements to ensure our contractors adhered to regulatory requirements and international best practices in managing their human resources. A Human Resources Information System was implemented during the year to improve documentation of staff performance, automate HR processes and enable staff to take a more active role in managing and accessing their personal files through employee self-service.

During 2015, we plan to implement various new and updated policies, to ensure a constant improvement in the effective management of all our staff and contractors.

on contributing to the sustainable economic development of the communities where we operate. We will take on over 70 community youths for the Oron to Creek Town pipeline project, to undergo specialised skills development in crane, excavator and swamp buggy operations, and in catering services. We also made significant progress in developing capacity in local contractors and vendors through successfully completing a 37 km pipeline from Uquo to Oron. This was in addition to awarding a significant number of material supply and associated services contracts to various local businesses.

Pursuing local services is a critical market differentiator for us, and in achieving sustainable development and a positive economic legacy for the communities where we operate, and for Nigeria as a whole.

Corporate social responsibility continued


We are aware that operating as an indigenous company in Nigeria brings risks associated with regulatory penalties, fraud, bribery and corruption. We continued to review our risks throughout 2014 to ensure our mitigation worked as expected. We also reviewed our business policies and procedures to ensure we maintain adequate controls.

Our compliance training aims to guide people in how to comply with the requirements of compliance legislation, including the UK Bribery Act, US Foreign Corrupt Practices Act, the Nigerian Corrupt Practices and Other Related Offences Act. In 2014, our staff and Directors completed various training modules focused on these.

We continue to conduct due diligence on vendors, confirming they comply with relevant anti-bribery legislation. Our contracting procedures let us achieve value for money, whilst presenting equal opportunities to qualified vendors.

We maintained a high level of Health, Safety & Environment performance throughout 2014, accumulating more than 11.7 million man hours without a lost time incident, a serious HSE related incident or a reportable environmental spill or loss of containment.

We recognise the management interface between client and contractor as potentially the most likely cause of HSE incidents. To mitigate this risk, we developed a full Quality, Health, Safety, Security & Environment and CSR contracts management framework, with supporting processes, and deployed it within our supply chain group in 2014. We assigned a full time adviser to the Group to help introduce it.

One of our objectives for 2014 was to ensure all staff and contractors understood HSE fully, as to maintain our excellent health and safety record, everyone should be a safety leader. To achieve this, we started a programme of site and office based meetings held daily, weekly or monthly. We also devised an extensive HSE training and awareness programme for 2014 that 416 staff and contractors participated in. This covered 11 health and safety modules, both specialised and general, tailored to our needs and presented by trained facilitators.

During 2014, our Asset Protection department ensured the number of serious security incidents remained as low as previous years, with no lost time incidents, or medical treatment cases reported. There were also a relatively low number of road traffic incidents, none serious. We implemented pipeline patrols along all our pipelines, including the newly acquired Eastern Horizon gas pipeline. The AP department identified and prevented multiple encroachments onto the pipelines’ rights of way, and helped resolve all encroachments, working with the CSR, permitting and operations teams.

The AP department introduced monthly security meetings, to include all state and local security agencies within our project and operational local Government areas.

Asset protection

Health and safety

Compliance

We consider the maintenance of our “environmental licence” to operate an important aspect of our CSR strategy. Having started work in 2013 on ensuring our Environmental Management System met the ISO 14001 international standard, we completed a gap analysis between our EMS and the ISO 14001 standard in 2014 and we will continue this in 2015.

We decided at the beginning of 2014 to improve our CSR reporting systems, including environmental reporting, by developing an integrated CSR performance reporting model similar to those required by global and industry best practice bodies such as the IFC, the Global Reporting Initiative, the International Petroleum Industry Environmental Conservation Association and the International Association of Oil & Gas Producers. We developed 15 reporting elements and will use these in our day-to-day activities during 2015 using reporting element “champions”.

Environment

This helped us create a more engaging and inclusive way of sharing information, discussing security and potential issues, and agreeing mutually beneficial solutions. The meetings helped create a feeling of mutual ownership. Additionally, the forums allow us discuss our core values and encourage Group understanding and participation in the Voluntary Principles in Security and Human Rights.

We further improved our emergency response capabilities during 2014, by engaging additional security staff at our Stubb Creek assets and improving our current emergency response plan for dealing with oil spills and medical emergencies. This culminated in the introduction of the oil spill contingency plan, followed by a desk top exercise and a live inspection of the oil spill containment and recovery equipment.


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Overview 48

Board of Directors 50

Board Committees 53

Senior Management 54

Directors’ report 56

Remuneration report 58



47Seven Energy Annual Report 2014

Corp

orate governanceC

orporate governance

As a private company, the Company is not required to comply with the UK Corporate Governance Code. However, the Company sees good corporate governance as being at the heart of a successful business and has, therefore, adopted the Corporate Governance Guidance and Principles for Unlisted Companies in the UK as a framework.

This corporate governance report describes how the Company has applied the guidance and principles during the year.

Overview

Role of the BoardThe Board is responsible for the overall conduct of the Group’s business and to support and advise the Executive Management on the delivery of the Group’s strategy and business plan.

The duties and responsibilities of the Board and its committees are formally agreed in writing, with matters specifically reserved for the Board clearly defined within the constitutional documents governing the Company. The Board meets at least five times a year, with additional meetings arranged as necessary to deal with any special business arising between these scheduled meetings. The Board also has a formal committee structure for;• Audit;

• Human Resources and Remuneration; and,

• Sustainability.

All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. All Directors also have access to the Group’s professional advisers who they can consult at the Company’s expense should they consider this necessary in order to discharge their responsibilities.

The Board has a formal schedule of matters reserved for its decision and these include:

• Group’s development and strategy;

• corporate objectives;

• major capital projects, acquisitions and divestments;

• annual budget and operating plan;

• system of internal control and risk management;

• Group’s corporate governance and compliance arrangements; and

• corporate policies.

CompositionThe Board comprises the Chairman, the Chief Executive Officer, nine non-executive Directors, of whom five are independent.

Conflicts of interestA formal process has been adopted by the Board to manage Directors’ conflicts of interest.

Board meetingsMatters considered at all Board meetings during the year include:

• the Chief Executive Officer’s report on execution of the Company’s strategy and delivery of the business plan;

• the Chief Financial Officer’s report on financial performance and funding requirements;

• the Chief Operating Officer’s report on execution of the annual operational plan and HSE performance; and

• a report on business development opportunities and portfolio management.

In addition to the standing agenda items, topics covered by the Board during the year included a strategic review of the Company’s business plan, the raising of additional equity and the placing of $400 million of Senior Secured Loan Notes and Private Bond.

The Group has established an effective governance framework with defined roles and responsibilities that add value to the business, help build its reputation and ensure its long-term continuity.



Board attendance 2014The attendance of Directors at the eight meetings of the Board held during 2014 was as follows:

Audit Committee HR & Remuneration Committee

Executive Committee

Board of Directors

Senior Management

Environment & Community Committee

Name Number of meetings attended

Dr Andrew Jamieson 8/8

Phillip Ihenacho 8/8

Ashley Dunster 7/8

Osam Iyahen 6/8

Atul Gupta 7/8

Michael Lynch-Bell 6/8

Peter Gutman (as alternate to Dr Yemi Osindero)1 8/8

Dr Joshua Udofia 7/8

Fidelis Oditah2 5/5

Clare Spottiswoode3 5/5

Cyril Odu4 3/3

Robin Pinchbeck5 7/7

Corporate governance frameworkThe Group has established an effective corporate governance framework with defined roles and responsibilities that add value to the business, help build its reputation and ensure its long-term continuity.

Board and senior management structure

1 Peter Gutman attends the Board meetings as alternate to Dr Yemi Osindero.

2 Fidelis Oditah was appointed as a Non-executive Director on 5 June 2014.

3 Clare Spottiswoode was appointed as a Non-executive Director on 5 June 2014.

4 Cyril Odu was appointed as a Non-executive Director on 7 October 2014.

5 Robin Pinchbeck resigned from the Board on 25 November 2014 (and was replaced by Dale Rollins, who was appointed in January 2015).


Corp

orate governance

49

Our Board composition









Clare Spottiswoode CBENon-executive Director

Experience Andrew spent more than 30 years with Shell in Europe, Australia and Africa in various positions and, until his retirement, held the position of executive vice president of gas and projects at Shell Gas and Power International BV. Andrew holds a Doctorate in Philosophy from University of Glasgow, and is a fellow of the Royal Academy of Engineering.

Phillip is a co-founder of Amaya Capital Partners, an African focused principal investing firm, and previously established and ran Afrinvest for over 10 years, overseeing the sale of the company in 2007 to United Bank for Africa. Phillip holds a BA in History from Yale University and a JD in Law from Harvard Law School.

Ashley is a managing partner at Capital International Private Equity with primary responsibility for Emerging Europe, the Middle East and Africa. Prior to this, he was a principal banker in the Early Stage Equity Team at the European Bank for Reconstruction and Development. Ashley holds a BE in Civil Engineering from the University of Melbourne and a Master in Mathematics from Oxford University.

Osam is senior vice president, natural resources at Africa Finance Corporation. He has a wealth of practical industry experience working with ExxonMobil’s West Africa team, strategy consulting expertise for the oil and gas sector as well as financing for large scale oil and gas projects. Osam holds a BA in Political Science from Middlebury College in Vermont, and an MBA in Strategy and General Management from Cornell University (Johnson School of Management).

Atul has over 25 years of experience in the international upstream oil and gas business successively with Charterhouse Petroleum, Petrofina, Monument and Burren Energy. Atul holds a Bachelor’s degree in Chemical Engineering from Cambridge University and a Master’s degree in Petroleum Engineering from Heriot-Watt University.

Michael has a wealth of experience in the energy and resources sectors having spent 38 years at Ernst & Young specialising in the provision of services to a wide variety of mining and metals and oil and gas clients. Michael holds a BA in Economics and Accounting from the University of Sheffield, is a Fellow of the Institute of Chartered Accountants of England and Wales and a member of the UK Energy Institute. He also holds an Honorary Doctorate of Humane Letters from Schiller International University.

Yemi serves as Head of West Africa Private Equity at Standard Chartered. He has several years of experience in international investment banking, foreign direct investment and venture capital. Prior to joining Standard Chartered, he served as the Chief Operating Officer of Virgin Nigeria Airways which he co-founded in 2005. He holds a BEng and a PhD in Chemical Engineering from the University of Bath.

Fidelis was educated at the Universities of Lagos and Oxford and is qualified in Nigerian and English law. He began his legal career at Oxford University where he taught before going into full time commercial practice in the City of London. He was appointed a Queen’s Counsel (QC) in England and a Senior Advocate of Nigeria (SAN). He set up ODITAH, a private practice, and has advised many businesses on various aspects of Nigerian commercial law and practice.

Clare began her career in the Treasury before starting a software company. She was Director General of Ofgas, the UK gas regulator, and a member of the UK Treasury’s Independent Commission on Banking.

Year appointed 2012 2006 2010 2012 2012 2013 2009 2012 (appointed as Non-executive Director in 2014)

2014 (appointed as Non-executive Director in 2014)

Other directorships Independent non-executive director of Woodside Petroleum Ltd, Velocys Group Hoegh LNG Holdings and Hoegh LNG Partners.

Non-executive director of Azura Power Holdings

Non-executive director of Amoun Pharmaceutical

None Non-executive director of Shiva Uranium Pty Ltd and Essar Capital

Non-executive and senior independent director and audit committee chair at Kaz Minerals PLC, director and audit committee chair at Lenta Limited, director at Transocean Partners LLC and trustee of Action Aid International

Non-executive director of Union Bank of Nigeria

Director of Vetiva Capital Management Limited, Vestor Properties Limited and The Ngozi Oditah Foundation

Non-executive director of G4S PLC, Ilika PLC and EnQuest PLC

Committee membership

n/a n/a Audit and HR & Remuneration Committees

Audit Committee n/a Audit Committee (Chair) Audit, HR & Remuneration and Environment & Community Committees

n/a HR & Remuneration Committee (Chair)

Seven Energy has a high quality Board with a strong combination of Nigerian and international oil and gas knowledge and experience to lead the Group into its next phase of growth and development. The Board is committed to developing and applying best corporate governance practices throughout the business.

Board of Directors


Chairman 1Executive Director 1Independent Non-executive Directors 3Shareholders’ representatives 6

Oil and gas industry 6Legal and regulation 2Accountancy 1Capital markets 2









Clare Spottiswoode CBENon-executive Director

Experience Andrew spent more than 30 years with Shell in Europe, Australia and Africa in various positions and, until his retirement, held the position of executive vice president of gas and projects at Shell Gas and Power International BV. Andrew holds a Doctorate in Philosophy from University of Glasgow, and is a fellow of the Royal Academy of Engineering.

Phillip is a co-founder of Amaya Capital Partners, an African focused principal investing firm, and previously established and ran Afrinvest for over 10 years, overseeing the sale of the company in 2007 to United Bank for Africa. Phillip holds a BA in History from Yale University and a JD in Law from Harvard Law School.

Ashley is a managing partner at Capital International Private Equity with primary responsibility for Emerging Europe, the Middle East and Africa. Prior to this, he was a principal banker in the Early Stage Equity Team at the European Bank for Reconstruction and Development. Ashley holds a BE in Civil Engineering from the University of Melbourne and a Master in Mathematics from Oxford University.

Osam is senior vice president, natural resources at Africa Finance Corporation. He has a wealth of practical industry experience working with ExxonMobil’s West Africa team, strategy consulting expertise for the oil and gas sector as well as financing for large scale oil and gas projects. Osam holds a BA in Political Science from Middlebury College in Vermont, and an MBA in Strategy and General Management from Cornell University (Johnson School of Management).

Atul has over 25 years of experience in the international upstream oil and gas business successively with Charterhouse Petroleum, Petrofina, Monument and Burren Energy. Atul holds a Bachelor’s degree in Chemical Engineering from Cambridge University and a Master’s degree in Petroleum Engineering from Heriot-Watt University.

Michael has a wealth of experience in the energy and resources sectors having spent 38 years at Ernst & Young specialising in the provision of services to a wide variety of mining and metals and oil and gas clients. Michael holds a BA in Economics and Accounting from the University of Sheffield, is a Fellow of the Institute of Chartered Accountants of England and Wales and a member of the UK Energy Institute. He also holds an Honorary Doctorate of Humane Letters from Schiller International University.

Yemi serves as Head of West Africa Private Equity at Standard Chartered. He has several years of experience in international investment banking, foreign direct investment and venture capital. Prior to joining Standard Chartered, he served as the Chief Operating Officer of Virgin Nigeria Airways which he co-founded in 2005. He holds a BEng and a PhD in Chemical Engineering from the University of Bath.

Fidelis was educated at the Universities of Lagos and Oxford and is qualified in Nigerian and English law. He began his legal career at Oxford University where he taught before going into full time commercial practice in the City of London. He was appointed a Queen’s Counsel (QC) in England and a Senior Advocate of Nigeria (SAN). He set up ODITAH, a private practice, and has advised many businesses on various aspects of Nigerian commercial law and practice.

Clare began her career in the Treasury before starting a software company. She was Director General of Ofgas, the UK gas regulator, and a member of the UK Treasury’s Independent Commission on Banking.

Year appointed 2012 2006 2010 2012 2012 2013 2009 2012 (appointed as Non-executive Director in 2014)

2014 (appointed as Non-executive Director in 2014)

Other directorships Independent non-executive director of Woodside Petroleum Ltd, Velocys Group Hoegh LNG Holdings and Hoegh LNG Partners.

Non-executive director of Azura Power Holdings

Non-executive director of Amoun Pharmaceutical

None Non-executive director of Shiva Uranium Pty Ltd and Essar Capital

Non-executive and senior independent director and audit committee chair at Kaz Minerals PLC, director and audit committee chair at Lenta Limited, director at Transocean Partners LLC and trustee of Action Aid International

Non-executive director of Union Bank of Nigeria

Director of Vetiva Capital Management Limited, Vestor Properties Limited and The Ngozi Oditah Foundation

Non-executive director of G4S PLC, Ilika PLC and EnQuest PLC


n/a n/a Audit and HR & Remuneration Committees

Audit Committee n/a Audit Committee (Chair) Audit, HR & Remuneration and Environment & Community Committees

n/a HR & Remuneration Committee (Chair)

Board composition Board experience


Corp

orate governance

Cyril OduNon-executive Director

Dale RollinsNon-executive Director

Peter GutmanAlternate Non-executive Director

Experience Cyril has over 40 years of oil and gas experience working for ExxonMobil in Nigeria prior to his retirement in February 2012. He was Vice-Chairman of the Board of Mobil Producing Nigeria and Chief Financial Officer of the ExxonMobil Upstream Companies in Nigeria. He is currently a partner at African Capital Alliance and head of the energy practice. Cyril has a BSc (Hons) in Geology from the University of Ibadan and an MBA from Texas Southern University.

Dale has spent over 30 years working in the oil and gas industry. He began his career at Shell, where he spent 24 years holding various positions including CEO for Salym Petroleum, a Shell joint venture in Russia, and Deputy Managing Director for Shell Petroleum Development Nigeria. Dale is currently a Senior Vice President at Petrofac. Dale has a BSc in Geological Engineering from South Dakota School of Mines.

Peter is a senior adviser to the Principal Finance Group at Standard Chartered Bank. For the last six years he worked at Standard Chartered, most recently leading their Energy, Resources & Infrastructure investing business. Peter has over 25 years of experience across investment banking, private equity and operations. He has an engineering degree from The University of Michigan, an MBA from the University of Chicago and a MSc from the London School of Economics

Year appointed 2014 2015 n/a

Other directorships Non-executive director of Union Bank of Nigeria, Income Electrix, Ventures Gardens Group

Petrofac Integrated Energy Services Ltd

Director of Grenko (Mauritius) Limited


Audit, HR & Remuneration and Environment & Community Committees

Audit and HR & Remuneration Committees

Audit, HR & Remuneration and Environment & Community Committees

Board of Directors continued


Audit, HR & Remuneration and Environmental & Community Committees have been established with delegated duties and responsibilities and formal terms of reference, adopted by the Board and are reviewed on a regular basis. Membership of each of the Committees is detailed below with the Chairman and CEO also in attendance.

Responsibilities Responsible for selecting the Group’s independent auditors, preapproving all audit services and work plans, reviewing with management and the auditors the financial statements and key audit issues, significant accounting policies and practices and the adequacy of internal control systems.

Responsibilities Responsible for determining the terms and conditions of service of the executive management team including performance related pay and share-based payments and for setting the Group remuneration strategy.

Responsibilities Responsible for reviewing the Group’s policies, procedures and performance in relation to Quality, Health, Safety, Security and the Environment and in relation to Corporate Social Responsibility and Community Development and Relations with the host communities affected by the Group’s operations.

Committee attendance 2014

Name Audit Environment &

Community HR &

Remuneration

Ashley Dunster 3/5 – 6/6

Osam Iyahen 3/5 – –

Michael Lynch-Bell 5/5 – –

Peter Gutman (as alternate to Dr Yemi Osindero) 5/5 – 5/6

Dr Joshua Udofia – 2/2 –

Clare Spottiswoode – – 5/5

Robin Pinchbeck – – 6/6

Cyril Odu 1/1 – 1/1

Board Committees

Audit Committee HR & Remuneration Committee Environment & Community Committee


Corp

orate governance

Executive Officer and Senior Management members

Seven Energy has a highly experienced Management team that combines the experience and expertise of the original Nigerian founders with the international operating, commercial and corporate finance capability of the oil and gas super majors and independents.

Experienced Management team

Seven Energy’s day-to-day business is managed and supervised through a function-focused Executive Committee structure of four Committees, each of which meets monthly as a decision making forum and to review performance. This structure has been adopted to take full advantage of the strength and depth of the Company’s Senior Management team.

Phillip IhenachoChief Executive OfficerPhillip is a co-founder of Amaya Capital Partners, an African focused principal investing firm, and previously established and ran Afrinvest for over 10 years, overseeing the sale of the company in 2007 to United Bank for Africa. Phillip holds a BA in History from Yale University and a JD in Law from Harvard Law School.

Campbell AirlieChief Technical OfficerCampbell has over 30 years’ experience in reservoir and production engineering and asset management with Schlumberger, BP, Edinburgh Petroleum Services (EPS) and Weatherford International. He has held positions as reservoir engineering team leader for BP’s mature assets, development manager and technical director. He has consulted in over 40 countries and has served as an SPE distinguished Lecturer in Asset Management. Campbell has degrees in Physics and Petroleum Engineering and is a Fellow of the Royal Institution of Great Britain.

Bruce BurrowsChief Financial OfficerBruce served as the finance director of JKX Oil & Gas PLC, the London Stock Exchange listed exploration and production company with interests in Ukraine and central and eastern Europe for 14 years. Prior to this, he held various positions at Ernst & Young in the Wellington (New Zealand) and London offices. He holds a BSc Honours degree from Canterbury University (New Zealand), a Diploma in Accounting from Victoria University (New Zealand) and is a member of the Institute of Chartered Accountants of New Zealand.

Jeff CoreyChief Operating OfficerJeff has over 25 years’ experience spanning five continents with ConocoPhillips including a secondment to the Libyan oil company Waha Oil, as executive vice president, operations. He holds a B.S. Honours in Petroleum Engineering from New Mexico Institute of Mining & Technology.

– Phillip Ihenacho– Jeff Corey (Chair)– Campbell Airlie– Bruce Burrows– Dr Glenn Bestall– Nkem Okoro– Bassey Umoh– Ani Umoren

– Phillip Ihenacho– Jeff Corey– Campbell Airlie– Bruce Burrows– Ian Brown-Peterside– Chris Thomas (Chair)– Stephen Tierney– Bassey Umoh

– Phillip Ihenacho– Jeff Corey– Bruce Burrows– Ian Brown-Peterside

(Chair)– Abdullah Bukar– Chidi Chukwueke– Chris Thomas– Stephen Tierney

– Phillip Ihenacho– Jeff Corey– Campbell Airlie– Bruce Burrows– Ian Brown-Peterside– Nkem Okoro (Chair)– Chris Thomas

Executive Officers

Senior Management structure

Operations & Capital Projects

Business Development & Finance

Committee Commercial, Legal & Regulatory

Corporate Services

Senior Management


Dr Glenn BestallVice President, QHSSECGlenn brings 30 years of experience in safety, CSR and environmental management and technical roles, primarily in support of major capital projects and the upstream /downstream oil & gas business. Glenn worked for Tullow Oil, based in Uganda and in Ghana, where he was responsible for project focused HSE technical management associated with exploration and field development projects. He has also worked on the OKLNG Project in Nigeria, with Shell Global Solutions in the Netherlands and in Nigeria, SPDC/AGIP in Port Harcourt, Nigeria, and with Total E&P in Angola.

Ian Brown-PetersideGeneral CounselIan joined Seven Energy in August 2014 having previously served as Principal Counsel at BG Group PLC, joining them in 2006. During his time with BG Group, Ian held positions as the Vice President of Legal for BG Kazakhstan, and Legal Director of Karachaganak Petroleum Operating BV, a joint venture between BG, Eni, Chevron, Lukoil and KazMunaiGas. He also worked for BG in Nigeria from 2006 to 2012 as General Manager Legal & Compliance. Ian also worked as senior associate with Herbert Smith, working from their London and Tokyo offices. Ian was admitted as a solicitor in England & Wales in 1999 and holds a BSc Honours degree from King’s College, University of London.

Abdullah BukarVice President, Regulatory AffairsAbdullah has over 35 years of experience in the Nigerian oil and gas industry with Shell. Since 1995, he has worked in the area of production management covering extensive work programmes in engineering, support and planning. Prior to his career at Shell, he gained offshore facilities experience at Woodside Australia.

Chidi ChukwuekeVice President, Joint VenturesChidi has over 20 years’ industry experience with Shell spanning integrated exploration, business development, asset development, project and stakeholder management and business relations among others. Prior to joining Seven Energy, Chidi was the business relations manager for Shell Nigeria Exploration and Production Company.

Nkem OkoroVice President, Wells and ServicesNkem has over 28 years’ drilling operations experience and until his appointment was a drilling superintendent for Addax Petroleum. Nkem spent the majority of his career at Shell in various capacities where he gained significant international experience in The Hague and on secondment to an operating company, NAM, where he spent a total of four years. He also undertook the Mike-5 development project in Shell Cameroon.

Stephen TierneyManaging Director, AccugasStephen has specialised expertise in gas projects, business development and M&A in Nigeria. He previously held a number of business and general management positions in the country, eventually becoming Weatherford International’s divisional region manager for West Africa prior to the buyout of Seven Energy from Weatherford International.

Chris ThomasHead of Strategy & Business Development and Group Company SecretaryChris has over 25 years’ experience in corporate finance generally and, for the last 17 years, in the exploration and production sector. Previously, Chris was a founding director and group company secretary of Melrose Resources, the former London Stock Exchange FTSE 250 listed international E&P company with interests in EMEA and the US.

Bassey UmohVice President, Capital ProjectsBassey joined Seven Energy in January 2014 and brings more than 30 years of relevant experience working with ExxonMobil. He has held several key positions in engineering, operations, maintenance, joint interest, projects and acquired various leadership qualifications both locally and internationally. Bassey gained significant international experience when he was transferred to Esso France in Paris to work on various oil & gas development projects, where he spent a total of six years. His most recent role was as Project Manager at ExxonMobil. Bassey holds a B.S. Honours degree in Petroleum Engineering from the University of Ibadan, Nigeria.

Ani UmorenVice President, OperationsAni has nearly 30 years of oil and gas industry experience and has held various positions in engineering, operations, maintenance and QHSSEC. His most recent role was field construction adviser at ExxonMobil. Ani has a First Degree in Mechanical Engineering and a Master’s Degree in Mechanical & Aerospace Engineering, both from the University of Delaware, US.

Senior Management


Corp

orate governance

1. Principal activitiesThe Group’s principal activities are oil and gas exploration, development, production and distribution in Nigeria.

2. Capital and shareholding structure As at 31 December 2014 the Company had an issued share capital of 511,575 ordinary shares (2013: 508,906) and an adjusted diluted issued share capital (which comprises ordinary shares and irredeemable convertible loan notes, but excludes warrants and share options) of 3,862,784 ordinary shares (2013: 2,708,118).

Issued share capital The Company has been notified of the following direct interests of more than 3% in the issued share capital of the Company:

At 31 December 2014

No. %

Exoro Energy Holdings Limited 251,966 49.3

JPP Ocean (Singapore) Pte. Ltd. 78,750 15.4

Diamond Bank 73,302 14.3

Joshua Udofia 27,697 5.4

Kolawole Aluko 22,800 4.5

Amaya Partners Holdings 19,623 3.8

Adjusted diluted issued share capitalThe Company has been notified of the following ultimate beneficial interests of more than 3% in the adjusted diluted issued share capital of the Company, assuming full conversion into ordinary shares of all the outstanding irredeemable convertible loan notes issued by the Company:

At 31 December 2014

No. %

Temasek Holdings 600,000 15.5

Petrofac Limited 595,845 15.4

Capital International Private Equity 516,011 13.4

Standard Chartered Private Equity 382,733 9.9

International Finance Corporation 300,000 7.8

Suntera Management Limited 132,000 3.4

IFC ALAC Fund 120,000 3.1

Director’s interests in share capitalThe Directors’ beneficial and non-beneficial interests in the adjusted diluted issued share capital of the Company as at 31 December 2014 are summarised below.

Adjusted diluted issued share capital

BeneficialNo.

Non-beneficial1No.

Share optionsNo.

Andrew Jamieson - - -

Phillip Ihenacho 107,622 - 16,172

Ashley Dunster - 516,011 -

Atul Gupta - 516,011 1,000

Osam Iyahen - 112,836 -

Michael Lynch-Bell - - -

Fidelis Oditah - - -

Cyril Odu - 600,000 -

Yemi Osindero - 382,733 -

Dale Rollins - 595,845 -

Clare Spottiswoode - - -

Joshua Udofia 27,697 - 4,584

1 Non-beneficial interests are in respect of the interests of the shareholder that the Director represents on the Board of Directors.

Directors’ report


3. Directors’ indemnity and insuranceThe Company provides an indemnity to all its Directors (to the extent permitted by law) in respect of liabilities incurred as a result of their office. The Group also has in place liability insurance covering the Directors and Officers of Group companies. Both the indemnity and insurance were in force during the year ended 31 December 2014. However, neither the indemnity nor the insurance provides cover in the event that the Director is proven to have acted dishonestly or fraudulently.

4. Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law, the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

– properly select and apply accounting policies; – present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

– provide additional disclosures when compliance with the specific IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

– make an assessment of the Group’s ability to continue as a going concern (see note 3 to the Financial Statements).

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose, with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the financial statements comply with the Mauritius Companies Act 2001 and International Financial Reporting Standards as adopted by the European Union. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that, to the best of their knowledge, they have complied with the above requirements in preparing the Financial Statements.

5. Conflicts of interestA formal process to manage conflicts of interest is in place and the prescribed process provides a framework within which the Board manages potential conflict situations as they arise.

6. Anti-bribery and corruptionThe Group is committed to complying with all applicable provisions of the United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act, the Nigerian Corrupt Practices and Other Related Offences Act and all other equivalent anti-corruption and/or anti-bribery legislation applicable to the Group by virtue of its jurisdiction of incorporation or the conduct of its business operations.

7. EmploymentThe Group has adopted a Code of Conduct which provides equal employment opportunity to all employees and applicants for employment and does not discriminate on any grounds including disability discrimination. The Group’s employment strategy is regularly reviewed to incorporate changes to legislation and ensure best practice is maintained.

8. Training and developmentThe Group encourages all employees to seek opportunities for development, ensuring the achievement of competitive advantage at both individual and business level. The Group keeps all employees informed of events relevant to their employment via all staff communications and a Group-wide intranet.

9. Health and safetyThe Group is committed to providing and maintaining a clean, hazard free and safe working environment to all employees in accordance with relevant Health and Safety Acts in the various jurisdictions it operates in.


Corp

orate governance

1. Report of the HR & Remuneration CommitteeThe Committee met six times during 2014 to conduct the following business.

1.1. Ordinary businessThe principal purpose of the Committee on a recurring basis is to agree annual performance targets for the executives and senior management, to review performance against those targets and objectives, to approve any performance related bonuses or changes to executive remuneration and to approve other performance-related pay or share based payment awards.

1.2. Special businessIn addition to the recurring business of the Committee relating to executive remuneration and performance appraisal, the Committee’s activities during the year also included a review of the executive employment contracts for compliance with best practice and some proposed changes to these contracts to align with best practice for UK listed companies.

2. HR & Remuneration Committee2.1. CompositionThe members of the HR & Remuneration Committee are set out on page 53, with Clare Spottiswoode having assumed the role of Chair of the Committee from Andrew Jamieson during the year. All members of the Committee are Non-executive Directors, with the majority being made up of shareholder representative Directors. The Group Company Secretary, Chris Thomas, is Secretary to the Committee and the Chairman and Chief Executive Officer attend all Committee meetings.

2.2. Terms of reference and operationThe HR & Remuneration Committee’s responsibilities have been delegated by the Board and are set out in its terms of reference. The terms of reference include:• setting and managing a remuneration strategy that will attract, motivate and retain a top-quality Executive team;

• determining the terms of employment and remuneration and benefits for the Chief Executive and the Executive team and ensuring that remuneration recognises individual performance and the achievement of the Company’s objectives;

• recommending to the Board the remuneration of the Chairman and the independent Non-executive Directors; no Director plays a part in any discussion about his own remuneration.

• setting and maintaining performance parameters for remuneration to encourage consistent and sustainable levels of performance, including capital project execution, shareholder value growth and risk management;

• approval of the design and targets of share incentive plans and the levels of participation of each member of the Executive Team in such plans;

• reviewing the remuneration trends across the Company, overseeing any major changes in employee benefits structures and approving the design, targets and payments made in any performance-related pay schemes operated by the Company; and

• considering the effectiveness (and appropriateness) of the management structure, management succession planning, diversity and grievance procedures.

2.3. AdvisersDuring the year, the Remuneration Committee has taken advice internally from the Company Secretary, and has taken external advice from H2glenfern Limited, remuneration consultants who were appointed in 2012 by the Chief Executive Officer and whose appointment is subject to regular review by the Committee.

2.4. Compliance with the Corporate Governance CodeThe Company is not required to comply with the Corporate Governance Code but the Committee recognises that this is best practice and strives to do so to the extent that this is practicable and appropriate. 3. Executive remuneration3.1. Remuneration philosophySeven Energy’s remuneration philosophy is to provide rewards for exceptional achievement leading to long-term increase in shareholder value. Seven Energy operates in a highly competitive talent market and is determined to recruit and retain the most able people. Executive remuneration packages, therefore, have to balance the need to be competitive in the relevant executive markets, whilst ensuring that the highest level rewards are only provided for demonstrated exceptional performance. This philosophy applies equally to all members of the Executive team.

In keeping with this philosophy and to correlate executive remuneration with the creation of long-term shareholder value, the philosophy is to select the performance measures, timescale for delivery of such performance measures and the balance between cash and share rewards so as to align Executive rewards with the returns to shareholders and the respective risks to both parties.

The Company does not have a stated policy regarding Executives accepting appointments outside the Company, but this is permitted provided that the Chairman’s permission is sought. Fees from such appointments are disclosed to the Company but are not accounted for to the Company, except where specifically requested by the Committee.

Remuneration reportFor the year ended 31 December 2014


3.2. Remuneration policyThe Company’s remuneration policy has been designed to reflect this remuneration philosophy, with three overall objectives in mind:1. To provide a package for each Executive that is competitive in the relevant talent market in which they compete in order to retain and

keep the commitment of the Executives. The relevant markets comprise FTSE 250 companies and similar sized global oil exploration and production companies, particularly those with operations in the UK and West Africa;

2. To provide financial incentives to Executives to continue to perform alongside the best in the industry, to implement agreed strategy and build long-term shareholder value; and

3. To ensure the rewards earned are fair to the Executives and shareholders alike, by full performance justification and alignment in terms of risk and timescales of reward and by appropriate differentials within the Executive team.

Element of remuneration Purpose & operation

1. Base salary Basic competitive package to recruit and retain

2. Pension Defined contribution plan with Company contributing 15% of base salary

3. Other benefits Private medical insurance, critical illness and life insurance cover to provide Executives with appropriate protection

4. Annual bonus plan Focus attention on the Group’s annual corporate objectives and other shorter term (1-2 years) priorities: 50% based on Corporate performance and 50% based on individual objectives of the Executive

5. 2009 Share Option Scheme The original purpose of this Scheme was to incentivise long term success on a recurring basis through annual awards to Executives and Senior Management (in the period from 2008–2012); this Scheme has now been replaced by the 2013 Long Term Incentive Plan (“LTIP”) and no recurring annual awards are made under this Scheme to Executives and Senior Management. This Scheme is now only used for annual share option awards to managers and senior employees and in exceptional circumstances (e.g. to provide competitive opportunity to new executives or senior management joining the Company)

6. 2013 LTIP Align Executives with the long-term interests of shareholders by creating a substantial interest in the equity value of the Company. Three to four year performance vesting. One-off grant effective 1 January 2013 or (if later) on joining. This plan has not yet been fully implemented.

3.3. Policy on payment for loss of officeIt is the Company’s policy that Executives should have contracts of an indefinite term providing for a maximum of one year’s notice. The Executives are entitled to receive Base Salary plus Target Bonus as payment in lieu of notice on termination of the contract.

3.4. Performance for the year ended 31 December 20143.4.1. Corporate objectivesAt the beginning of the year the Committee agreed the Corporate objectives for the year which fell into two categories (1) short-term priorities to execute the business plan and to manage and mitigate the key business risks and (2) longer term objectives to build a platform for growth. Key actions and measurable end products were identified, comprising a combination of operational, commercial and financial objectives, and a weighting was given to each of these objectives to enable transparency in the derermination of executive pay. This contributes 50% to the Executive’s bonus entitlement.

3.4.2. Individual performanceThe balance of 50% of each of the Executive’s bonus entitlement was based on individual performance of the Executives.

Further detail of Executive remuneration is included in note 34 to the financial statements.

4. Directors remunerationDuring 2014, the Board of Directors comprised the Chief Executive Officer, five independent Non-executive Directors (including the Chairman) and six shareholder representatives. The shareholder representative directors do not receive any remuneration from the Company for services as a director. The remuneration of the independent Non-executive Directors is determined by the Committee after consultation with the Committee’s external adviser and by reference to market rates for similar roles. The independent Non-executive Directors also receive fees for chairing the various Board Committees. In 2014, total Directors’ emoluments amounted to US$2,160,000 (2013: US$2,203,000).


Corp

orate governance


Independent auditor’s report to the Directors of Seven Energy International Limited 61

Consolidated statement of comprehensive income 62

Consolidated balance sheet 63

Consolidated statement of changes in equity 64

Consolidated cash flow statement 65

Notes to the consolidated Financial Statements 66

Glossary of terms 100

Shareholders’ information 102


We have audited the non-statutory consolidated Financial Statements (the “Financial Statements”) of Seven Energy International Limited and its subsidiaries (the “Group”) for the year ended 31 December 2014 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 37. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.

This report is made solely to the Directors of Seven Energy International Limited (the “Company”) in accordance with our engagement letter dated 18 November 2014 for the purposes of showing the results of management’s stewardship of the resources entrusted to it. Our audit work has been undertaken so that we might state to the Company’s Directors those matters we are required to state to them in an independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditorAs explained more fully in the Directors’ report, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the Financial StatementsAn audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect, based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on Financial StatementsIn our opinion:• the Financial Statements give a true and fair view of the Group’s affairs as at 31 December 2014 and of its profit for the year

then ended;

• the Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union.

Emphasis of matter – going concernIn forming our opinion on the Financial Statements, which is not modified, we have considered the adequacy of the disclosures made in the going concern section of note 3 to the Financial Statements concerning the Company’s and the Group’s ability to continue as a going concern. During the next 12 months, in order to be able to meet its financial commitments as they fall due, the Group needs to refinance certain of its existing debt facilities and also raise additional sources of funding which are not yet committed. These conditions, along with other matters explained in note 3 of the Financial Statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company’s and the Group’s ability to continue as a going concern. The Financial Statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern.

Deloitte LLPChartered AccountantsLondon, United Kingdom29 April 2015


Financial statements

Independent auditor’s report to the Directors of Seven Energy International Limited

Notes2014$000

2013$000

Revenue 5 378,155 344,961

Cost of sales

– Production expenses 6 (231,736) (171,412)

– Increase in underlift 6 190,620 70,851

Depletion 16 (121,973) (67,656)

Gross profit 215,066 176,744

Depreciation and amortisation expenses 16 (3,000) (2,123)

Impairment charge 15 – (5,802)

Other operating expenses 8 (4,925) (478)

Administrative expenses 9 (58,731) (42,621)

Operating profit 148,410 125,720

Investment revenue 5 83 1,541

Finance costs 12 (76,181) (38,100)

Foreign exchange gains/(losses) 7,821 (985)

Profit before tax 80,133 88,176

Tax expense 13 (25,569) (48,823)

Profit for the year 54,564 39,353

Attributable to:

Owners of the Company 56,028 40,812

Non-controlling interests 33 (1,464) (1,459)

Other comprehensive income for the year


Total other comprehensive income for the year – –

Total comprehensive income for the year 54,564 39,353

Attributable to:

Owners of the Company 56,028 40,812

Non-controlling interests (1,464) (1,459)

Earnings per share ($ per share)

Basic from continuing operations 14 15.9 15.1

Diluted from continuing operations 14 15.9 15.1

All operations relate to continuing operations in 2013 and 2014.


Consolidated statement of comprehensive incomeFor the year ended 31 December 2014

Notes2014$000

2013$000

Non-current assets

Interest in joint arrangements 35.3 11,528 –

Intangible assets 15 73,896 –

Property, plant and equipment 16 1,864,008 1,150,621

Other receivables 17 8,267 7,494

Deferred tax assets 22 42,951 4,150

2,000,650 1,162,265

Current assets

Inventories 18 291,396 97,928

Trade and other receivables 17 46,273 58,235

Assets held for sale 19 – 7,250

Cash and cash equivalents 20 38,454 50,383

376,123 213,796

Total assets 2,376,773 1,376,061

Current liabilities

Trade and other payables 21 (603,699) (282,973)

Borrowings 23 (112,510) (359,282)

Deferred revenue 28 (12,204) (31,755)

Current tax liabilities 13 (727) (1,057)

(729,140) (675,067)

Non-current liabilities

Borrowings 23 (653,582) (170,777)

Deferred tax liabilities 22 (172,333) (76,636)

Provisions 25 (49,759) (26,045)

Deferred revenue 28 (34,605) (31,755)

(910,279) (305,213)

Total liabilities (1,639,419) (980,280)

Net assets 737,354 395,781

Equity

Share capital 29 5 5

Share premium 95,710 95,310

Irredeemable convertible loan notes (“ICLNs”) 30 895,442 612,583

Retained deficit (316,183) (373,607)

Equity reserves 31 41,738 39,384

Equity attributable to owners of the Company 716,712 373,675

Non-controlling interests 33 20,642 22,106

Total equity 737,354 395,781

The Financial Statements were approved by the Board of Directors and authorised for issue on 29 April 2015. They were signed on its behalf by:

Phillip IhenachoDirector



Consolidated balance sheetAt 31 December 2014

Share capital

$000

Share premium

$000

Irredeemable convertible loan notes

$000

Retained deficit$000

Equity reserves

$000Total$000

Non-controlling

interests$000

Totalequity$000

At 1 January 2013 5 94,910 612,686 (414,419) 33,335 326,517 23,565 350,082

Credit to equity for share based payments (note 32) – – – – 6,449 6,449 – 6,449

Insurance of shares (note 31) – 400 – – (400) – – –

Settlement of ICLNs (note 30) – – (91) – – (91) – (91)

Expenses on issuance of ICLNs – – (12) – – (12) – (12)

Profit for the year and total comprehensive income – – – 40,812 – 40,812 (1,459) 39,353

At 31 December 2013 5 95,310 612,583 (373,607) 39,384 373,675 22,106 395,781

Credit to equity for share based payments (note 32) – – – – 4,150 4,150 – 4,150

Warrants expiry (note 31) – – – 1,396 (1,396) – – –

Issuance of shares (note 31) – 400 – – (400) – – –

Issuance of ICLNs (note 30) – – 288,000 – – 288,000 – 288,000

Expenses on issuance of ICLNs (note 30) – – (5,141) – – (5,141) – (5,141)

Profit for the year and total comprehensive income – – – 56,028 – 56,028 (1,464) 54,564

At 31 December 2014 5 95,710 895,442 (316,183) 41,738 716,712 20,642 737,354


Consolidated statement of changes in equityFor the year ended 31 December 2014

2014$000

2013$000


Adjustments for:

Investment revenue (83) (1,541)

Financing costs 76,181 38,100

Depreciation and amortisation 3,000 2,123

Depletion 121,973 67,656

Loss on disposal of property, plant and equipment 53 323

Income tax expense 25,569 48,823

Share-based payment expense 4,150 6,449

Foreign exchange (gains)/losses (7,821) 985

Deferred revenue released (16,700) –

Impairment charge – 5,802

Operating cash flows before movements in working capital 260,886 208,073

Increase in inventories (192,226) (60,036)

Decrease in trade and other receivables 5,908 5,909

Increase in trade and other payables 66,504 17,948

Net cash provided by operating activities 141,072 171,894

Investing activities

Interest received 83 169

Proceeds from disposal of property, plant and equipment 89 180

Proceeds from disposal of oil and gas asset 7,000 4,300

Purchases of property, plant and equipment and intangible assets (334,734) (328,769)

Acquisitions of subsidiaries, net of cash acquired (note 35) (151,205) –

Net cash used in investing activities (478,767) (324,120)

Financing activities

Interest and financing fees paid (105,937) (56,317)

Net financing deposits received/ (paid) 3,880 (209)

Repayments of borrowings (483,213) (101,840)

Proceeds from borrowings 657,343 301,050

Proceeds from issue of convertible bonds – 28,800

Proceeds from issue of ICLNs 255,000 –

Net cash from financing activities 327,073 171,484

Net (decrease)/ increase in cash and cash equivalents (10,622) 19,258

Cash and cash equivalents at beginning of year 50,383 32,190

Effect of foreign exchange rate changes (1,307) (1,065)

Cash and cash equivalents at end of year (note 20) 38,454 50,383



Consolidated cash flow statementFor the year ended 31 December 2014

1. General information Seven Energy International Ltd (the “Company”) is incorporated in Mauritius under the Companies Act, 2001 (Act No. 15 of 2001). The address of the registered office is Cim Global Management, Les Cascades, Edith Cavell Street, Port Louis, Republic of Mauritius. The Company is registered with Companies House as an overseas company in the UK. The Company is the parent company of a group of companies (the “Group”) whose principal activities are oil and gas exploration, development, production and distribution in Nigeria.

These financial statements are presented in US Dollars, which is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 3.

2. Adoption of new and revised standardsNew standards and interpretations adopted with no significant effect on the financial statementsThe following new standards and amendments resulting from improvements to IFRS standards and interpretations are effective and have been adopted, but are not considered to have had any impact on the financial position or performance of the Group:

IAS 27: Separate Financial Statements (2011)IAS 28: Investments in Associates and Joint Ventures (2011)IAS 32 (amended): Offsetting Financial Assets and Financial LiabilitiesIAS 36 (amended): Recoverable amount disclosures for Non-financial AssetsIAS 39 (amended): Novation of Derivatives and Continuation of Hedge AccountingIFRS 10: Consolidated Financial StatementsIFRS 11: Joint ArrangementsIFRS 12: Disclosure of interests in other entitiesInvestment Entities: Amendments to IFRS 10, IFRS 12 and IAS 27IFRIC 21: Levies

New standards and interpretations in issue but not yet effective The following new standards and amendments resulting from improvements to IFRS standards and interpretations are in issue but not yet effective. They are applicable to the Group from 1 January 2015 and beyond. The following are expected to have a disclosure impact only:

IFRS 11 (amended): Accounting for acquisitions of Interests in Joint OperationsDisclosure Initiative (amendments to IAS 1)

The Group is still assessing the impact of IFRS 15: Revenue from Contracts with Customers, but initial indications are a disclosure impact only, with no changes expected to the Group’s recognition of revenue.

The following are not expected to have any impact on the financial position or performance of the Group:

IAS 19 (amended): Defined Benefit Plans: Employee Contributions Clarification of acceptable methods of Depreciation and Amortisation (amendments to IAS 16 & IAS 38)Agriculture: Bearer Plants (Amendments to IAS 16 & IAS 41)Equity Method in Separate Financial Statements (amendments to IAS 27)Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amends IFRS 10 & IAS 28)IFRS 9: Financial Instruments; Classification and Measurement (2009, 2010, 2013, superseded 2014)Investment Entities: Amendments to IFRS 10, IFRS 12 and IAS 28IFRS 14: Regulatory Deferral AccountsAnnual improvements: 2010–2012 cycleAnnual improvements: 2011–2013 cycleAnnual improvements: 2012–2014 cycle

3. Significant accounting policiesBasis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments and share-based payments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets at the time of initial recognition. The principal accounting policies adopted are set out below.


Notes to the consolidated financial statements

3. Significant accounting policies (continued)Going concernNote 24 to the Financial Statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

The Group intends to fund its current and future development projects and operations using a combination of operating cash flows, debt facilities and, from time to time, new equity issues. The Group has in place the Project Finance Facility, Acquisition Finance Facility, Bank of Industry Loan facility, Senior Secured Loan Notes and Private Bond which are available to fund the Group’s operations, but require the Group to comply with various ongoing financial and non-financial covenants typical of facilities of this nature. Further details of all these facilities are set out in note 23.

The Group’s ongoing funding requirements continue to be sensitive to changes in the timing of cash calls from joint venture partners, the frequency of its liftings from oil and gas sales, and the level of funding available under any of its undrawn facilities as described above.

In order to meet these financial obligations, the Group is currently pursuing additional funding options including the refinancing of the Project Finance and Acquisition Finance facilities and additional equity funding. The Group’s 2015 Funding Plan requirements for the next 12 months are based on the following assumptions:

• During Q2 2015, complete the refinancing of the Project Finance and Acquisition Finance facilities into a single combined facility resulting in the deferment of the current amortisation profiles for at least 12 months. In lieu of completing this refinancing Seven Energy has reached agreement with the lenders of the Acquisition Finance Facility to defer the commencement of loan repayments to March 2016. Similarly, agreement has been reached with the lenders of the Project Finance Facility to initially defer the commencement of loan repayments to June 2015; and

• Securing between $50 million and $125.0 million of additional debt or equity funding.

The Group continually monitors its cost structures and where possible aims to reduce its cost base without adversely impacting its operational or administrative obligations.

As reported in note 23, EHGC’s Bank of Industry loan was not in compliance with certain financial covenants in accordance with the loan agreement. As such the outstanding loan amounts have been disclosed within Current borrowings. EHGC expects to receive waiver confirmation from the lenders that they do not intend to demand immediate repayment of the amounts due but will allow EHGC to continue to repay in accordance with the agreed repayment schedule.

As a result of these funding requirements in the next 12 months and absent signed commitments, the Directors acknowledge that material uncertainties exist which may cast significant doubt on the Company’s and the Group’s ability to continue as a going concern and, therefore, that the Company and the Group may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, after making enquiries, and considering both the uncertainties described above and the status of discussions with relevant lending banks and existing or potential security holders, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidationThe consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company (“its subsidiaries”), made up to 31 December each year. Control is achieved where the Company:

• has the power over the investee;

• is exposed, or has rights to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date of obtaining control or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination (see below) and the non-controlling interest’s share of changes in equity since the date of the combination.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interest and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.



3. Significant accounting policies (continued)Joint arrangementsA joint arrangement is an arrangement over which two or more parties have joint control. The Group is engaged in oil and gas exploration, development, production and distribution through unincorporated joint ventures or jointly controlled entities. The Group accounts for its share of assets, liabilities, revenues and expenses of unincorporated joint ventures as joint operations. The Group accounts for its interests in jointly controlled entities using the equity method. Under the equity method, the investment is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the venture since the acquisition date. The consolidated statement of comprehensive income reflects the Group’s share of results of operations in the venture.

Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the statement of comprehensive income as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.

Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are re-measured to fair value at the acquisition date (i.e. the date the Group obtains control) and the resulting gain or loss, if any, is recognised in the consolidated statement of comprehensive income. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to consolidated statement of comprehensive income, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that:

• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

• liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IFRS 2 Share-Based Payment; and

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of non-controlling interest of the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year.

Commercial reservesThe Group defines commercial reserves as proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids that geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and that are considered commercially producible. This is equivalent to the 2P classification established by the Society of Petroleum Engineers where there is a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proven and probable reserves and a 50% statistical probability that it will be less.


Notes to the consolidated financial statementscontinued

3. Significant accounting policies (continued)Intangible assets – oil and gas exploration and appraisal assetsThe Group adopts the “successful efforts” method of accounting for exploration and evaluation costs under IFRS 6, Exploration for and Evaluation of Mineral Resources. All licence acquisition, exploration and evaluation costs are capitalised within intangible exploration and appraisal assets in cost centres by well, field or exploration area, as appropriate. Pre-licence expenditures on oil and gas assets are recognised as an expense within the consolidated statement of comprehensive income when incurred.

If commercial reserves are established then the relevant cost is transferred (following an impairment review as described below) from intangible exploration and appraisal assets to upstream assets within property, plant and equipment. Expenditure incurred after the commerciality of the field has been established are capitalised within upstream assets. If prospects are deemed to be impaired (unsuccessful) on completion of an evaluation, the associated capitalised costs are charged to the consolidated statement of comprehensive income. Property, plant and equipmentProperty, plant and equipment is stated at cost, less accumulated depreciation, depletion and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation, if any, and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.

With the exception of upstream oil and gas assets, depreciation is charged to the consolidated statement of comprehensive income on a straight-line basis:

Annual rate

Furniture, fixtures and equipment 20%Vehicles 20%Computer hardware and software 33%Leasehold improvements 10%

The Group’s infrastructure assets (pipelines, processing facility and gas receiving facility) are depreciated on a straight line basis over the useful economic lives of the material component assets being principally between 15-25 years. Depreciation is shown within Depletion in the consolidated statement of comprehensive income.

Oil and gas properties are depleted using a unit-of-production method, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus production in the period, generally on a field-by-field basis. Costs used in the unit-of-production calculation take into account expenditures incurred to date, together with the future capital expenditure expected to be incurred to access the commercial reserves. Changes in the estimates of commercial reserves or future field development costs are accounted for prospectively.

Assets in the course of construction are not depreciated. Depreciation commences on assets in the course of construction when the assets are ready for their intended use.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in administrative expenses.

Assets held for saleAssets or a disposal group classified as held for sale are measured at the lower of carrying value and fair value less costs to sell. Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should expect to be completed within one year from the date of classification.

ImpairmentThe Group assesses assets or groups of assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, for example, low prices or margins for an extended period or, for oil and gas assets, significant downward revisions of estimated commercial reserves or increases in estimated future development expenditure. If any such indication of impairment exists, the Group makes an estimate of the asset’s recoverable amount. Where it is not possible to estimate an asset’s recoverable amount, the Group estimates the recoverable amount and assesses impairment of the cash generating unit (“CGU”) to which the asset belongs. A CGU is the lowest level of a group of individual assets that are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. An asset or CGU’s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using an appropriate discount rate that reflects current market assessments of the time value of money.



3. Significant accounting policies (continued)Impairment (continued)An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of comprehensive income. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Decommissioning provisionProvision for decommissioning is recognised when the Group has a legal or constructive obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located, and where a reliable estimate can be made. A corresponding adjustment to property, plant and equipment of an amount equivalent to the provision is also recognised. This is subsequently depreciated as part of the asset and included in depletion expense in the statement of comprehensive income. Changes in the estimated timing of decommissioning or decommissioning cost estimates are accounted for prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the decommissioning provision is classified in the consolidated statement of comprehensive income as finance costs.

InventoriesInventories of oil and gas assets are stated at their net realisable values and changes in net realisable values are recognised in the income statement.

Other inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in first-out method and comprises direct materials and, where applicable, direct labour, overheads and other charges incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution. Revenue recognitionRevenue arising from the sale of oil and gas products is recognised when the significant risks and rewards of ownership have passed to the buyer and it can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for oil and gas products provided in the normal course of business, net of discounts, customs duties and sales taxes.

Liftings or offtake agreements associated with the sale of oil, natural gas, natural gas liquids, liquefied natural gas, petroleum and petrochemical products in which the Group has an interest in jointly owned or controlled operations are such that each participant may not receive and sell its precise share of the overall production in each period. The resulting imbalance between cumulative entitlement and cumulative production (less inventory) attributable to each participant at a reporting date represents ‘overlift’ or ‘underlift’. Overlift and underlift are valued at market value and recorded as current liabilities or current assets respectively. Movements during an accounting period are adjusted through cost of sales such that gross profit is recognised on an entitlements basis. Revenue is recognised on an actual invoiced basis for the value of the liftings made in the period.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Group’s subsidiaries is the US Dollar, which is also the Company’s functional currency and presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences upon re-measurement are recognised in the statement of comprehensive income in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rates at the date of transactions. Exchange differences arising, if any, are recognised in Other comprehensive income and in the Group’s equity reserves. Upon disposal of an operation, the amounts accumulated in the foreign currency translation reserve are recognised as income or expense in the period in which the operation is disposed of.



3. Significant accounting policies (continued)Borrowing costsFinance costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortised and charged to finance costs over the expected life of the debt.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the consolidated statement of comprehensive income in the period in which they are incurred.

Financial instrumentsFinancial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provision of the instrument.

Effective interest methodThe effective interest method is a method of calculating the amortised cost of an interest bearing financial asset or liability and for allocating interest income or expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts or payments to present value (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period.

Financial assetsAll financial assets are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets “at fair value through profit or loss” (“FVTPL”), “held-to-maturity” investments, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All of the Group’s financial assets are currently classified as “loans and receivables”.

Loans and receivablesTrade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assetsFinancial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been impacted. For financial assets measured at amortised cost, if there is objective evidence of impairment, the impairment is measured as the difference between the present value of estimated future cash flows discounted at the instrument’s original effective interest rate less the carrying value of the financial asset.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the consolidated statement of comprehensive income. Trade receivablesTrade receivables are measured at their fair value upon initial recognition. Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated statement of comprehensive income when there is objective evidence that the asset is impaired.

Cash and cash equivalentsCash and cash equivalents consist of cash at bank or in hand and short-term deposits with an original maturity of three months or less. In addition, the Group holds a number of restricted cash balances relating to deposits and cash balances associated with the Group’s borrowing facilities. These amounts are shown within the Group’s receivable balances.

Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and equity instrument.



3. Significant accounting policies (continued)Financial instruments (continued)Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Compound instrumentsThe component parts of compound instruments issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, in the case of a bond denominated in the functional currency of the issuer that may be converted into a fixed number of equity shares, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole at initial recognition. This is recognised and included in equity, net of income tax effects, and is not subsequently re-measured.

Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.

Financial liabilities Financial liabilities are classified as either financial liabilities at FVTPL or held at amortised cost.

Financial liabilities at FVTPLFinancial liabilities are classified as at FVTPL when the financial liability is either held for trading or is designated as at FVTPL.

A financial liability is classified as held for trading if:

• it has been incurred principally for the purpose of repurchasing it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated or effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”) permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gain or losses arising on re-measurement recognised in the consolidated statement of comprehensive income. The net gain or loss recognised in the consolidated statement of comprehensive income incorporates any interest paid on the financial liability and is included in the finance costs line item in the consolidated statement of comprehensive income.

Other financial liabilities Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis, except for short-term trade payables when the recognition of interest would be immaterial.

Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

Embedded derivativesDerivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months ahead and is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.



3. Significant accounting policies (continued)Financial instruments (continued)Contracts to buy and sell non-financial items The Group enters into forward contracts to fix the price of oil and gas contracts for use in the Group’s business, Such contracts fall outside the scope of IAS 39 provided they were entered into and continue to be held for the purpose of receipt or delivery in accordance with the Group’s purchase, sale or usage requirements. Where these conditions are not met, the contracts are accounted for as derivative instruments. The Group has chosen not to apply hedge accounting to these instruments. Hedging premiums and any gains on exercise are presented within cost of sales.

Share-based paymentsThe Group makes equity-settled share-based payments to certain employees. Equity-settled share-based schemes are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant, measured by use of an option valuation model. The expected lives of the options used in the model are adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated statement of comprehensive income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity reserve.

Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. The Group had no defined benefit schemes in place during the years presented.

TaxationTax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit/loss as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to other comprehensive income or equity, in which case the deferred tax is also recognised in other comprehensive income or equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Group’s best estimate of the expenditure required to settle the obligation at the balance sheet date, taking into account the risks and uncertainties of the obligation, and are discounted to present value where the effect is material.

Operating leasesRentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.



4. Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertaintyThe following are the critical judgements, key assumptions and other key sources of estimation uncertainty at the balance sheet date that may have a significant effect on the amounts recognised in the financial statements.

Upstream and infrastructure oil and gas assets Management is required to assess the Group’s intangible assets and the upstream and infrastructure oil and gas assets for indicators of impairment. Notes 15 and 16 disclose the carrying values of such assets together with details of impairment charges arising. Management take into account the Group’s latest development plans and business strategies and apply judgement in determining the appropriate cash generating units for the purpose of applying the annual impairment assessment. Management compares the carrying value of these assets to the estimated net present value of the underlying oil and gas reserves and related future cash flows that could be generated from these reserves based upon estimates of future production, oil and gas prices, development costs and operating costs and applying a suitable pre-tax (real) discount rate. The reserve estimates are management’s best estimates, taking into consideration independent evaluations of the proved and probable reserves attributable to the Group’s economic interests using industry standard definitions and measurement techniques.

DecommissioningThe Group has decommissioning obligations in respect of certain of its oil and gas field interests and related processing and transportation infrastructure in Nigeria. The extent to which a provision is recognised requires management to make judgements on the legal and constructive obligations at the date of decommissioning, estimates of the restoration costs, timing of work, long-term inflation and discount rates to be applied. Details of the provision are set out at note 25.

Production entitlementThe Group’s Strategic Alliance Agreement with Nigerian Petroleum Development Company Ltd (“NPDC”), (together the “Strategic Alliance Agreement”) relies on an agreed financial model to determine the Group’s production entitlement from this agreement. Within this model, operating and capital expenditure costs are initially estimated from monthly cash calls and then actualised once cost returns are agreed by the operator, resulting in either an over or an under-funded position. Daily field production rates are adjusted to reflect expected terminal through put rates based on past experience and then trued up for actual throughput by the terminal operator. The Group’s share of production is determined at different percentage rates based on both baseline and incremental production volumes which change over the course of the contract.

During 2014 NPDC reached a final determination with the operator in relation to past costs incurred in the year ended 31 December 2013 and earlier years, which were initially unapproved by NPDC. This resulted in additional operating and capital expenditure being attributed to the Group. Cost returns for expenditure in the year ended 31 December 2014 have not yet been agreed but management has taken into consideration the basis of the prior years’ cost determination in assessing their best estimate of the related expenditure for the year ended 31 December 2014. The basis of recognising these expenditures includes monthly costs that NPDC initially do not approve with the operator but which are expected to be approved on subsequent review during 2015. As a result, the recognition of these expenditures has resulted in additional production entitlement, and therefore an increase in underlift for the Group under the terms of the financial model referred to above. The current year results include net credits within cost of sales of $12.9 million (2013: $8.5 million) in relation to the settlement of prior years’ unapproved costs and a net credit of $60.5 million (2013: $31.0) million for the best estimate of the current year unapproved costs.

Going concernManagement are required to make estimates and judgements in respect of the quantum and timing of forecast cashflows used to confirm the application of the going concern principle. Further details are provided in note 3 of the Financial Statements.

Fair value measurementFrom time to time the Group is required to determine the fair values of both financial and non-financial assets and liabilities e.g., when the entity acquires a business (such as East Horizon Gas Company, Suntera and AGER – see note 35), or where an entity measures the recoverable amount of an asset or cash-generating unit (CGU) at Fair Value Less Costs to Sell (FVLCS). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Changes in estimates and assumptions about these inputs could affect the reported fair value.



5. Revenue2014$000

2013$000

Oil sales 344,426 343,847

Gas sales 33,729 1,114

Revenue 378,155 344,961

Investment revenue 83 1,541

Total 378,238 346,502

Revenue from oil sales for both years relates to the Group’s sale of oil lifted from the Strategic Alliance Agreement. Revenue from gas sales in 2014 primarily relates to volumes delivered to Ibom Power and Unicem (2013: gas sales from the Strategic Alliance Agreement).

6. Cost of sales2014$000

2013$000

Production expenses

Production costs 229,329 159,880

Hedging costs 2,407 11,532

231,736 171,412

Less: increase in underlift (note 18) (190,620) (70,851)

Cost of sales 41,116 100,561

Production expenses in both years primarily relates to the Group’s share of production costs associated with the Strategic Alliance Agreement. Production expenses increased in 2014 as a result of an increase in production volumes at the OMLs, commencement of gas deliveries to Ibom Power, along with gas deliveries to Unicem following the Group’s acquisition of EHGC on 31 March 2014. The cumulative underlift balance at 31 December 2014, included within inventories, was $285.0 million (2013: $94.4 million).

7. Business and geographical segmentsIn the prior year, the Group disclosed a Nigeria-wide reportable segment. In the current year, following the commencement of gas sales and acquisitions of EHGC and Suntera, the Directors have concluded that the operations of the Group now comprise three geographically distinguishable reportable segments in Nigeria involved in oil and gas exploration, development, production and distribution, supported by corporate and administrative activities in the UK. Prior year comparatives have been re-presented on this revised basis.

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment operating result represents the profit/(loss) by each segment without allocation of central administration costs, investment revenue, finance costs, and tax expense. Segment operating result is provided to the Board for the purpose of resource allocation and assessment of segment performance.

Segment revenues and resultsThe following is an analysis of the Group’s revenue and results by reportable segment in 2014:

North west2014$000

South east2014$000

Anambra basin2014$000

Corporate2014$000

Total2014$000

Revenue 345,436 32,719 – – 378,155

Production expenses (205,121) (26,615) – – (231,736)

Increase in underlift 190,620 – – – 190,620

Depletion (90,667) (31,306) – – (121,973)

Gross profit/(loss) 240,268 (25,202) – – 215,066

Depreciation and amortisation expenses – (2,328) (15) (657) (3,000)

Other operating costs (247) (4,678) – – (4,925)

Administrative expenses (3,475) (28,902) (256) (26,098) (58,731)

Segment operating result 236,546 (61,110) (271) (26,755) 148,410

Investment revenue 83

Finance costs (76,181)

Foreign exchange gains 7,821

Profit before tax 80,133

Tax expense (25,569)

Profit for the year 54,564



7. Business and geographical segments (continued)Segment revenues and results (continued)The following is a re-presented analysis of the Group’s revenue and results by reportable segment in 2013:

North west2013$000

South east2013$000

Corporate2013$000

Total2013$000

Revenue 344,961 – – 344,961

Production expenses (159,437) (11,975) – (171,412)

Increase in underlift 70,851 – – 70,851

Depletion (54,044) (13,612) – (67,656)

Gross profit/(loss) 202,331 (25,587) – 176,744

Depreciation and amortisation expenses – (1,692) (431) (2,123)

Impairment charge (5,802) – – (5,802)

Other operating expenses (222) (256) – (478)

Administrative expenses (1,678) (20,449) (20,494) (42,621)

Segment operating result 194,629 (47,984) (20,925) 125,720

Investment revenue 1,541

Finance costs (38,100)

Foreign exchange losses (985)

Profit before tax 88,176

Tax expense (48,823)

Profit for the year 39,353

Revenue and cost of sales for the north west Niger Delta in both years relate to the Group’s share of production entitlement from the Strategic Alliance Agreement. Lifting quantities under this agreement, allocated to the Group, are notified by NPDC periodically, with cash received from Shell Western Supply & Trading Ltd (“Shell”) from subsequent sale via Shell’s Forcados Export Terminal. Commencing in 2014, there was additional revenue and cost of sales in south east Nigeria from gas supplied to the Ibom Power power station and Unicem cement factory.

Segment assets2014$000

2013$000

North west 1,009,316 508,195

South east 1,284,365 837,404

Anambra basin 64,131 –

Corporate 18,961 30,462

Total assets 2,376,773 1,376,061

The Board monitors resources allocated to each of the reportable segments through review of segment assets to include property, plant and equipment, intangible assets and financial assets attributable to each segment. With the exception of certain financial assets and tax assets, all assets are allocated to reportable segments. Liabilities are monitored at a Group level and not allocated to reportable segments.

Other segment information - additions to non-current assets2014$000

2013$000

North west 407,900 338,001

South east 489,592 168,523

Anambra basin 64,131 –

Corporate 1,062 1,637

Total additions 962,685 508,161

8. Other operating expenses2014$000

2013$000

Inventory provision (note 18) 577 –

Other operating costs 4,348 478

Total other operating expenses 4,925 478



9. Administrative expenses2014$000

2013$000

Gross staff costs (note 11) 40,755 33,929

Other administrative expenses 33,080 23,343

Timewriting recharges to capital projects or production expenses (15,104) (14,651)

Total administrative expenses 58,731 42,621

10. Auditor’s remunerationThe analysis of auditor’s remuneration is as follows:

2014$000

2013$000

Fees payable to the Company’s auditors for the audit of the Group’s annual accounts 291 264

Fees payable to the Company’s auditor and their associates for other services to the Group:

– Audit of the Company’s subsidiaries pursuant to legislation 330 234

Total audit fees 621 498

Audit related assurance services 66 132

Tax services 3 5

Corporate finance services 610 963

Other services 89 65

Total non-audit fees 768 1,165

Corporate finance services during 2014 includes fees incurred as part of the Group’s Corporate Bond issuance in October 2014. Corporate finance services during 2013 includes fees incurred as part of the Group’s equity and debt raising activities along with acquisition due diligence.

11. Staff costs The average monthly number of employees was:

2014Number

2013Number

Management 4 4

Operations and support staff 116 107

Administration 69 57

Total number of employees 189 168

During 2014, the Group’s administration and operations and support staff increased as a result of commencement of gas operations from the Uquo field along with the acquisition of EHGC on 31 March 2014.

Their aggregate remuneration comprised:2014$000

2013$000

Wages and salaries 31,113 23,782

Social security costs 3,444 2,419

Defined contribution pension costs (note 27) 2,048 1,279

Expense of share-based payments (note 32) 4,150 6,449

Total staff costs 40,755 33,929

Some of the Group’s gross staff costs above were subsequently recharged to the Group’s joint venture partners or capitalised through timewriting into the cost of fixed assets under the Group’s policy for Property, plant and equipment, or recharged through timewriting to Production expenses.



12. Finance costs2014$000

2013$000

Bank and other finance fees 21,031 8,608

Interest on bank loans and loan notes 61,142 25,150

Interest and other financial costs on convertible bonds 31,439 26,074

Total interest expense 113,612 59,832

Unwinding of discount on decommissioning provision (note 25) 1,118 1,467

Gain on redemption of convertible bond (182) –

114,548 61,299

Less: amounts capitalised in the cost of qualifying assets (i) (note 16) (38,367) (23,199)

Total finance costs 76,181 38,100

(i) Interest capitalised relates to directly attributable borrowings raised by the Group’s subsidiary Accugas for the construction of the infrastructure and Uquo to Oron pipeline and other Group borrowings applied to qualifying additions using the Group’s capitalisation rate of 13.9% (2013: 17.5%).

13. Tax The tax expense for the year is as follows:

2014$000

2013$000

Current tax

Adjustment in respect of prior years 330 (7)

Current year – (1,008)

Deferred tax (note 22)

Adjustment in respect of prior years (3,804) 1,221

Current year (22,095) (49,029)

Tax expense for the year (25,569) (48,823)

Corporation tax is calculated at the applicable tax rate for each jurisdiction based on the estimated assessable profit for the year. The Group’s outstanding current tax liabilities of $0.7 million (2013: $1.1 million) relate to corporation tax liabilities in Nigeria.

The charge for the year can be reconciled to the profit before tax per the consolidated statement of comprehensive income as follows:

2014$000

2013$000

Profit before tax: 80,133 88,176

Tax charge at the UK corporation tax rate: (17,229) (20,501)

Tax effects of:

– Income not taxable for tax purposes 148 1,762

– Rate changes during the year (1,963) (823)

– Deferred tax assets not recognised (23,194) (18,781)

– Recognition of previously unrecognised deferred tax 32,059 –

– Effect of tax rates in overseas territories (11,916) (12,440)

Adjustments in respect of prior years (3,474) 1,214

Re-measurement of deferred tax – change in tax rate – 746

Tax expense for the year (25,569) (48,823)

The expected applicable tax rate was the UK corporation tax rate of 21.5% (2013: 23.25%). The 2013 Finance Act, which received Royal Assent on 17 July 2013, announced that the UK corporation tax rate would be reduced from 21% to 20% from 1 April 2015. However, due to no deferred tax being recognised in the UK entities, this rate change would not have any impact on the financial statements.



14. Earnings per shareFrom continuing operationsThe calculation of the basic and diluted earnings per share is based on the following data:

2014 2013

Profit for the purposes of basic and diluted earnings per share ($000) 56,028 40,812

Weighted average number of ordinary shares for the purposes of basic earnings per share (i) 3,514,916 2,708,067

Weighted average number of ordinary shares for the purposes of diluted earnings per share (i) 3,519,808 2,711,559

Basic earnings per ordinary share ($) 15.9 15.1

Diluted earnings per ordinary share ($) 15.9 15.1

(i) The calculation of weighted average number of ordinary shares includes the weighted average number of shares that would be issued on conversion of the ICLNs as, for the reasons outlined in note 30, the ICLNs are believed to represent equity instruments of the Company.

In 2014, there were 302,261 (2013: 286,847) of additional potentially dilutive instruments (being share options, warrants and ICLN pricing options) that were not included in the calculation of diluted earnings per share because they were anti-dilutive.

15. Intangible assets Oil and gas exploration and appraisal assets

Total$000

At 1 January 2013 12,257

Additions 545

Impairment (5,802)

Transfer to assets held for sale (note 19) (7,000)

At 31 December 2013 –

Additions 9,765

Acquisitions (note 35.1) 64,131

At 31 December 2014 73,896

Additions to oil and gas exploration and appraisal assets during 2014 related to expenditure on Uquo North-East 1 prospect exploration well which was drilled towards the end of 2014. On 31 January 2014, the Company acquired a 40% interest in Oil Prospecting Licence 905 via its acquisition of the entire share capital of SRL 905 Holdings Limited.

Following a review of the Group’s asset portfolio during 2013, the decision was taken to seek to dispose of the Group’s interest in the Matsogo field. The Group accepted an offer of $7.0 million for this asset, and as a result the asset was written down to fair value less costs of sale with a corresponding $5.8 million impairment charge. The residual asset of $7.0 million was transferred to Assets held for sale with the final sale to its JV partner, Chorus Energy, concluding during 2014 (note 19).



16. Property, plant and equipmentUpstream

assets$000

Infrastructureassets$000

OtherPP&E(i)

$000Total$000

Cost

At 1 January 2013 532,583 460,816 12,916 1,006,315

Additions 406,359 99,604 1,843 507,806

Reclassifications 495 (822) 327 –

Transfer to assets held for sale (note 19) – (250) – (250)

Disposal – – (1,681) (1,681)

At 31 December 2013 939,437 559,348 13,405 1,512,190

Additions 444,353 120,024 4,222 568,599

Acquisitions (note 35.1 and 35.2) – 269,822 81 269,903

Disposal – – (505) (505)

At 31 December 2014 1,383,790 949,194 17,203 2,350,187

Accumulated depreciation, depletion and impairment

At 1 January 2013 (180,763) (105,100) (7,105) (292,968)

Charge for the year (54,044) (13,612) (2,123) (69,779)

Disposal – – 1,178 1,178

At 31 December 2013 (234,807) (118,712) (8,050) (361,569)

Charge for the year (95,066) (26,907) (3,000) (124,973)

Disposal – – 363 363

At 31 December 2014 (329,873) (145,619) (10,687) (486,179)

Carrying amount

At 31 December 2013 704,630 440,636 5,355 1,150,621

At 31 December 2014 1,053,917 803,575 6,516 1,864,008

(i) Other PP&E consists of vehicles, leasehold improvements and furniture, fixtures and equipment.

In 2014, $100.6 million (2013: $73.2 million) of additions to upstream and infrastructure assets related to assets in the course of construction on the Uquo field, including the construction of the Uquo to Oron gas pipeline and oil facilities at the Uquo field. $6.2 million of additions to upstream assets related to assets in the course of construction on the Stubb Creek field (2013: $10.7 million). During 2014, $330.1 million of assets were transferred from assets in the course of construction being the Uquo-Oron pipeline, Stubb Creekfield, FUN oil gathering manifold and second train of the Uquo gas processing facility. The net book value of assets in the course of construction was $nil (2013: $213.0 million).

Infrastructure asset acquisitions include $269.8 million associated with the acquisition of East Horizon Gas Company Limited on 31 March 2014. See note 35.2 for further details.

$407.9 million was incurred for the Group’s share of ongoing capital expenditures under the Strategic Alliance Agreement (2013: $338.0 million). Additions during 2013 included $70.0 million consideration relating to the Group’s acquisition of its funding partner’s 30% interest in the Strategic Alliance Agreement.

Additions described above included capitalised interest of $38.4 million (2013: $23.2 million) from directly attributable borrowings raised by the Group for the construction of the infrastructure assets along with other general borrowings used to fund qualifying additions using the Group’s capitalisation rate of 13.9% (2013: 17.5%).

The Group has granted fixed charges over $487.5 million of its oil and gas assets to secure borrowings (2013: $440.6 million).



17. Trade and other receivables 2014$000

2013$000

Trade receivables

Receivables from sales 28,040 13,513

Amounts receivable from joint venture partners 325 –

Total trade receivables 28,365 13,513

Other receivables

Advances for future sales (note 28) – 20,254

Deposits (i) 602 5,505

VAT receivables 2,453 624

Other receivables (ii) 7,262 6,255

Rental prepayments 3,210 3,093

Prepaid drilling costs – 1,699

Other prepayments 4,381 7,292

Total trade and other receivables 46,273 58,235

(i) Included within Deposits as at 31 December 2013 are restricted cash balances of $5.0 million associated with the Group’s borrowing facilities.

(ii) Included within Other receivables are amounts owed from related parties of $2.3 million (2013: $2.2 million) (see note 34).

The average credit period given on joint interest billings and oil and gas sales is 60 days. The Group does not currently charge interest on past due receivables although in the event receivables become past due the Group can do so at rates specified in the various agreements. The Group periodically reviews all receivables outstanding to assess their recoverability.

Provisions made within other receivables relate to past withholding taxes refundable from Nigerian vendors and historic payroll taxes. In addition, during the year an additional provision of $0.5 million (2013: $nil) has been made against a supplier prepayment. No other trade and other receivable balances were either past due or impaired.

2014$000

2013$000

Provisions against receivables

Opening balance (1,895) (3,856)

Provided during the year (538) –

Utilisation of provision 390 1,961

Closing balance (2,043) (1,895)

2014$000

2013$000

Non-current other receivables

Stamp duty escrow reserve for Group borrowings 2,440 2,765

Debt service reserve account for Group borrowings 5,827 4,729

Total non-current other receivables 8,267 7,494

The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.



18. Inventories2014$000

2013$000

Underlift 285,057 94,439

Gas inventories 135 –

Spare parts 6,204 3,489

Total inventories 291,396 97,928

The underlift includes the Group’s share of unsold production entitlement under the Strategic Alliance Agreement. The movement of $190.6 million in the year represents the increase in underlift as set out in note 6 (2013: $70.9 million).

The increase in the balance of spare parts during the year amounted to $2.7 million (2013: $0.7 million decrease), the majority of which was acquired as part of the acquisition of EHGC in March 2014. In 2014, a provision of $0.6m was made for obsolete and unusable inventory (2013: $nil) (note 8).

19. Assets held for saleTotal$000

Balance at 1 January 2013 4,300

Disposals (4,300)

Transfers to assets held for sale 7,250

Balance at 31 December 2013 7,250

Disposals (7,000)

Transfer to inventory (250)

At 31 December 2014 –

During the year ended 31 December 2014, the Group completed the sale of its 49% participating interest in the Matsogo field to its JV partner, Chorus Energy, for $7.0 million. In addition, the Group transferred to inventory a surplus generator from its Uquo field’s central processing facility to be used as spares to maintain its existing generators.

During 2013, the Group completed the sale of its Early Production Facility at the Stubb Creek oil field to the Stubb Creek field joint operation for $4.3 million. The Group retains an interest in the asset through its subsidiary Universal Energy’s interest in the joint operation.

20. Cash and cash equivalents2014$000

2013$000

Interest bearing

Held in Nigerian banks 120 8,341

Held in banks outside Nigeria – 19,901

Non-interest bearing

Held in Nigerian banks 26,130 22,122

Held in banks outside Nigeria 12,204 19

Cash and cash equivalents 38,454 50,383

Restricted cash balances 8,272 12,492

Total cash and cash equivalents 46,726 62,875

Presented as:

Restricted cash: in non-current other receivables (note 17) 8,267 7,494

Restricted cash: in trade and other receivables (note 17) 5 4,998

Cash and cash equivalents 38,454 50,383

Total cash and cash equivalents 46,726 62,875

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. Restricted cash balances include deposits, stamp duty and debt service reserve amounts required to be held relating to the Group’s borrowings. The carrying amount of these assets is approximately equal to their fair value.



21. Trade and other payables 2014$000

2013$000

Trade payables 28,052 144,948

Accruals 491,185 113,806

Other payables 55,861 10,899

PAYE and social security 1,004 243

WHT and VAT payable 16,858 11,154

Interest payable 10,739 1,923

Total trade and other payables 603,699 282,973

Trade payables and accruals principally comprise amounts outstanding to the Group’s joint venture partners, for capital expenditures associated with the Group’s capital projects, ongoing operational and corporate costs and amounts cash called or accrued under the Strategic Alliance Agreement. The increase in accruals during the year includes costs associated with the Strategic Alliance Agreement which are initially unapproved by NPDC with the operator, but which are expected to be approved on subsequent review during 2015.

The average credit period taken for trade purchases is 40 days (2013: 59 days). For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. The Group has working capital risk management policies in place to ensure that all payables are paid within the agreed credit terms where possible. The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

22. Deferred taxThe following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior year.

Fixed assets $000

Unrealised FX (gains)/

losses$000

Share-based

payments $000

Taxlosses$000

Strategic alliance

agreement$000

Otherprovisions

$000

Capitalisedinterest

$000Total$000

At 1 January 2013 (40,472) 68 1,095 30,990 (16,282) 568 (645) (24,679)

Adjustments in respect of prior years 8,702 – – (2,080) (5,528) – 127 1,221

Credit/(expense) to income 15,307 639 1,115 (9,602) (56,089) – (399) (49,029)

At 31 December 2013 (16,463) 707 2,210 19,308 (77,899) 568 (917) (72,486)

Adjustments in respect of prior years 1,252 – 1,835 726 (7,617) 2 (2) (3,804)

Acquisitions (39,265) – – 8,268 – – – (30,997)

Credit/(expense) to income 71,243 (3,486) 1,197 4,514 (95,203) – (360) (22,095)

At 31 December 2014 16,767 (2,779) 5,242 32,816 (180,719) 570 (1,279) (129,382)

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

2014$000

2013$000

Deferred tax liabilities (172,333) (76,636)

Deferred tax assets 42,951 4,150

Total net deferred tax liabilities (129,382) (72,486)

At the balance sheet date, the Group has unused tax losses of $302.7 million (2013: $150.6 million) available for offset against future profits. A deferred tax asset has only been recognised where future utilisation of such losses is considered probable. A deferred tax asset has been recognised on gross losses of $88.8 million (2013: $49.7 million) on the basis of the Group’s forecast results for each entity. No deferred tax asset has been recognised in respect of the remaining $213.9 million (2013: $101.0 million) of losses.



22. Deferred tax (continued)The recognised and unrecognised gross tax losses and other temporary differences of the Group are summarised below by jurisdiction:

Recognised tax losses & other temporary differences

Unrecognised tax losses & other temporary differences

Total tax losses & other temporary differences

2014$000

2013$000

2014$000

2013$000

2014$000

2013$000

UK losses (i) – – 96,844 51,844 96,844 51,844

Nigerian non E&P losses (ii) 88,795 49,676 102,363 34,469 191,158 84,145

Nigerian E&P losses (iii) – – 14,430 14,430 14,430 14,430

Losses in other jurisdictions (iv) – – 259 228 259 228

Total tax losses 88,795 49,676 213,896 100,971 302,691 150,647

Other temporary differences (v) 324,462 76,946 23,068 133,824 347,530 210,770

Total losses & other temporary differences 413,257 126,622 236,964 234,795 650,221 361,417

(i) UK losses are available to carry forward indefinitely for offset against future taxable profits.

(ii) Nigerian non E&P losses are available to carry forward indefinitely for offset against future taxable non E&P profits. When granted, pioneer relief provides a tax holiday for up to five years. Net aggregate tax losses arising in the pioneer relief period are available for carry forward to offset taxable profits arising after the end of the pioneer relief period.

(iii) Nigerian E&P losses are available to carry forward indefinitely for offset against future taxable E&P profits.

(iv) Losses in other jurisdictions comprise losses from the Netherlands, that expire nine years from the year incurred, and losses arising from Bermuda which are not carried forward as profits in Bermuda are subject to a 0% corporate tax rate.

(v) Other temporary differences relate to fixed assets, provisions for future expenditure and share based payments for employees.

23. Borrowings2014$000

2013$000

Secured borrowing at amortised cost

Bank loans (i)

– Loans from non-related parties 389,115 340,383

– Loans from related parties – 38,276

Other loans (ii)

– Loans from non-related parties 350,000 164,189

– Loans from related parties 50,000 –

Secured borrowing at fair value through profit or loss

– Loans from non-related parties – conversion option (ii) – 182

Unsecured borrowing at amortised cost (iii)

– Loans from non-related parties 11,056 –

– Loans from related parties 8,533 9,945

Total gross borrowings 808,704 552,975

Unamortised finance costs incurred on raising debt (42,612) (22,916)

Total borrowings (net of unamortised finance costs) 766,092 530,059

Analysed as:

Short-term borrowings 112,510 359,282

Long-term borrowings 653,582 170,777

Total borrowings 766,092 530,059

The maturity profile of the Group’s gross borrowings including future interest expense on an undiscounted basis is shown in the table below. This differs from both the carrying value and the fair value due to the effect of discounting, future interest costs and unamortised finance fees. Interest expense on floating rate debt is based on the relevant US LIBOR forward rates.



23. Borrowings (continued)2014$000

2013$000

Current

Amount due within one year 171,138 398,403

Non-current

Amount due after one year but within two years 140,832 103,160

Amount due after two years but within five years 406,015 126,175

Amount due after five years 482,500 48,175

Total 1,200,485 675,913

(i) Bank loansProject finance facilityThe Group has a Project Finance Facility (to finance the construction of gas transportation pipelines, processing facilities and related infrastructure at the Uquo field). The $225.0 million facility has a seven year term, bears interest of US LIBOR plus 10.0% per annum and is repayable in quarterly instalments from March 2015. Subsequent to the year end, the Group has agreed with the lenders to defer the commencement of repayments until June 2015. As at 31 December 2014, the outstanding loan principal was $225.0 million (2013: $175.0 million). The facility contains various on-going financial and non-financial covenants for the Group to comply with.

Acquisition finance facilityOn 31 March 2014, the Group obtained control of Eastern Horizon Gas Company Limited by acquiring 100% of its issued share capital. To finance this acquisition the Group entered into an Acquisition Finance Facility during the year of up to $170.0 million. The facility has a five year term, bears interest of US LIBOR plus 9.15% and is repayable in quarterly instalments from March 2015. Subsequent to the year end, the Group has agreed with the lenders to defer the commencement of repayments until March 2016. As at 31 December 2014, the outstanding loan principal was $130.0 million. The facility contains various on-going financial and non-financial covenants for the Group to comply with.

Reserve based lending facilityDuring the years presented, the Group had a $350.0 million Reserve Based Lending Facility with three banks (one of which was Standard Chartered Bank, a related party of the Group). The outstanding Reserve Based Lending Facility principal amount of $200.3 million (2013: $148.6 million) was fully repaid on 10 October 2014.

Working capital facility During the years presented the Group had a $40.0 million Working Capital Facility with First City Monument Bank plc for general funding requirements. The $25.0 million principal amount outstanding was fully repaid on 10 October 2014 (2013: $40.0 million).

EHGC facilitiesAs part of the acquisition of Eastern Horizon Gas Company Limited during 2014, the consideration included novation of the subsidiary’s two existing Naira denominated loan facilities. The Bank of Industry Loan Facility, held with the Bank of Industry, bears interest of 7.0% per annum and is repayable in quarterly instalments until June 2017. As at 31 December 2014, the outstanding principal was $34.1 million. The Discount House Loan Facility was held with a syndicate of Nigerian banks and bore interest of NIBOR plus 3.5% per annum. The Discount House Loan Facility was fully repaid on 10 October 2014 when the outstanding principal was $2.7 million.

At the time of acquisition, EHGC was not in compliance with certain financial covenants under the provisions of its loan facilities. EHGC is working with the lenders to rectify the position and continues to meet its on-going debt service obligations. Whilst an informal waiver of these non-compliant covenants was received from the lenders at the time of acquisition, in the absence of a formal waiver at 31 December 2014, the Bank of Industry Loan Facility has been disclosed within Current borrowings.

(ii) Other loansConvertible bondDuring the the years presented, the Group had $150.0 million of Convertible Bond in issue (2013: $150.0 million) with a maturity date of 31 December 2014. The Convertible Bonds bore interest at 10.0%, paid semi-annually, and had a 19.0% redemption premium on maturity. Following the issue of the Senior Secured Loan Notes and Private Bond, the Convertible Bonds were fully repaid early on 10 October 2014 at principal plus a 21.0% revised redemption premium.

The bonds contained an equity conversion option upon a qualifying IPO or company sale event. The conversion option, which was based on the fair value of the shares at the conversion date, was carried at fair value through profit or loss, with a gain on extinguishment of $0.2 million.

Senior secured loan notes On 10 October 2014, the Group issued $300.0 million of Senior Secured Loan Notes. The loan notes are listed on the Irish Stock Exchange and have a seven year term and a fixed coupon of 10.25%, paid semi-annually. The loan notes were issued at a discount in order to provide investors with an overall yield of 10.5%, equivalent with the Private Bond. $50.0 million of loan notes were issued to the IFC, a related party of the Group (note 34).



23. Borrowings (continued)(ii) Other loans (continued)Private bond In addition to the Senior Secured Loan Notes, on 10 October 2014, the Group issued a $100.0 million Private Bond, to the Nigeria Sovereign Investment Authority. The Bond has a seven year term and a fixed coupon of 10.5%, paid semi-annually. The notes were issued at par.

As described earlier, the proceeds from Senior Secured Loan Notes and Private Bond issuances were used to repay four debt facilities: the Convertible Bond, the Reserve Based Lending Facility, the Working Capital Facility and the Discount House Loan Facility. The Senior Secured Loan Notes and Private Bond contain various ongoing financial and non-financial covenants for the Group to comply with.

(iii) Unsecured borrowings at amortised costLoans from non-related partiesOn 12 December 2014, the Company issued a $12.0 million promissory note as part consideration for the acquisition of Afren Global Energy Resources Limited (“AGER”) as described in note 35.3.

The promissory note has an initial six month term and is unsecured and non-interest bearing. The Company has an option to extend the term of the note by a period of up to one year (in which case the note would have an 18 month term in total). Upon extension, the note will become interest bearing at LIBOR plus 10.0% for the extension period (payable semi-annually) and $6.0 million of principal would be repayable on the first anniversary of the note.

At 31 December 2014, the $12.0 million principal amount remained outstanding. The loan has been recognised at $11.1 million in line with the fair value principles of IFRS 3 for acquisition consideration.

Loans from related partiesThe Group, through its subsidiary Universal Energy, holds a Naira denominated loan due to Akwa Ibom Investment and Industrial Promotion Council (a minority shareholder in Universal Energy) for $8.5 million (2013: $9.9 million). The loan is expected to be repaid out of the production revenues generated by the Stubb Creek field, with repayment, including accrued interest by 31 December 2018. At 31 December 2014, the loan remained interest free and is recorded at amortised cost. Following commencement of oil production at the Stubb Creek field in February 2015, the loan now bears interest at 15.0% per annum.

Weighted average interest rate The weighted average effective interest rates charged on borrowings during the years were as follows:

Year ended 31 December

2014%

Year ended 31 December

2013%

Weighted average effective interest rate 12.81 10.64

24. Financial instrumentsCategories of financial instruments

2014$000

2013$000

Financial assets

Cash and cash equivalents (note 20) 38,454 50,383

Loans and receivables 44,497 39,507

Total 82,951 89,890

Financial liabilities

Held at amortised cost

Trade and other payables 281,994 151,091

Borrowings (note 23) 766,092 529,877

Held at fair value through profit or loss

Borrowings – conversion option (note 23) – 182

Total 1,048,086 681,150



24. Financial instruments (continued)Categories of financial instruments (continued)The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are a reasonable approximation to their fair values.

During 2014, the Company fully repaid its Convertible Bonds and extinguished the embedded conversion option to equity upon a qualifying IPO or company sale event. The derivative was carried at fair value through profit or loss. The fair value immediately prior to extinguishment on 10 October 2014 was $0.2 million. Upon extinquishment, a gain of $0.2 million was recorded within Finance costs. The fair value measurements were previously determined by reference to observable data in quoted markets at the balance sheet date and categorised as level 2 in accordance with IFRS 7.

Significant accounting policiesDetails of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements.

Capital risk managementThe Group manages its capital, including ongoing monitoring and adherence to covenants and indebtedness obligations of its borrowings to ensure that entities in the Group will be able to continue as going concerns while maximising the returns to stakeholders. The capital structure of the Group currently consists of net debt, which includes the borrowings and cash and cash equivalents, and equity which consists of irredeemable convertible loan notes and ordinary share capital. The irredeemable convertible loan notes are categorised as equity due to the terms of these instruments.

Financial risk management objectivesThe Group’s Finance function coordinates access to international financial markets and monitors and manages the financial risks relating to the operations of the Group. These risks include commodity price risk, currency risk, credit risk, interest rate risk and liquidity risk.

Commodity price riskThe Group’s activities expose it primarily to the financial risks of changes in oil and gas commodity prices. The Group monitors and manages this risk where considered appropriate through long-term sales contracts.

Under the Reserve Based Lending Facility, certain oil price hedging contracts were entered into with the syndicate banks to enable the Group to secure a minimum $100.00 per barrel oil price for varying quantities (ranging from 9,000 to 67,500 barrels per month) of oil sales between 1 August 2011 and 1 December 2014. All of these contracts settled at the end of each month. Following repayment of the Reserve Based Lending Facility in October 2014, the Group no longer holds any oil hedging contracts.

The Group has exposure to changes in the oil price; however, this is mitigated to an extent as, under the terms of the Strategic Alliance Agreement, the Group recovers its cost oil in absolute US Dollar terms. Changes in the oil price only affects the timing of cost recovery, the number of barrels lifted, and the value of any residual profit oil.

In 2009, the Group entered into a 10 year gas sales agreement to supply 43.5 MMcfpd to the 190 MW Ibom Power power station. In 2011, the Group entered into a 20 year gas sales agreement to supply 131 MMcfpd to the 560 MW Calabar NIPP power station, being commissioned in 2015. Following acquisition of East Horizon Gas Company, the Group also has a 20-year gas sales agreement to supply 25 MMcfpd to the Unicem cement plant. As a result, changes in the market gas price over the duration of each agreement would have no impact on Group’s result and equity in the current or future periods.

Foreign currency risk management and sensitivity analysisThe Group operates internationally and has exposure to currency risk on purchases, sales, cash and cash equivalents that are denominated in currencies other than US Dollars. The currencies giving rise to this are principally the British Pound Sterling and Nigerian Naira. The Group’s exposure to foreign exchange fluctuations is reduced by maintaining cash balances primarily in US Dollars reflecting the currency of the majority of the Group’s transactions, and where possible, the Group seeks to settle non-US Dollar denominated liabilities in the same currency as other cash inflows, therefore providing a natural hedge against currency fluctuations.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Liabilities Assets Net assets/(liabilities)

2014$000

2013$000

2014$000

2013$000

2014$000

2013$000

British Pound Sterling (4,049) (5,631) 4,934 4,844 885 (787)

Nigerian Naira (87,446) (24,586) 13,240 5,009 (74,206) (19,577)

For 2014, a 20% increase and decrease in the US Dollar against the Sterling currency for 2014 would have resulted in an increase in profit and equity of $0.2 million and a decrease of $0.2 million, respectively. For 2013, a 20% increase and decrease in the US Dollar against the Sterling currency would have resulted in an increase in profit and equity of $0.2 million and a decrease of $0.1 million, respectively.



24. Financial instruments (continued)Foreign currency risk management and sensitivity analysis (continued)For 2014, a 20% increase and decrease in the US Dollar against the Naira currency for 2014 would have resulted in an increase in profit and equity of $13.4 million and a decrease of, $17.0 million respectively. For 2013, a 20% increase and decrease in the US Dollar against the Naira currency would have resulted in an increase in profit and equity of $1.6 million and a decrease of $2.4 million, respectively.

Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or advance payment where appropriate, as a means of mitigating the risk of financial loss from defaults.

Exposure to credit risk in the periods shown is considered to be relatively minor because the bulk of cash inflows from sales are from an international super-major (associated with the Strategic Alliance Agreement with a Nigerian national oil company subsidiary) or from a Nigerian state-owned power company (Ibom Power). Other funding sources are reputable and international banking institutions and security holders. Advance payment has also been received for the first year of gas sales to Ibom Power.

Further dilution of credit risk is expected to occur in the future in relation to the sale of oil and gas in Nigeria as the Group’s gas operations expand and the customer base diversifies. The Group will look to further mitigate this risk by obtaining letters of credit or bank guarantees where appropriate to support payment where possible.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk as no collateral or other credit enhancements are held.

Interest rate risk management and sensitivity analysisThe Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group maintaining an appropriate mix between fixed and floating borrowings and floating rates are typically based on stable indices (eg LIBOR).

The sensitivity analyses below have been determined for floating rate liabilities based on the exposure to interest rates at the balance sheet date. For floating rate liabilities, the analysis is prepared based on the average liability outstanding during the year.

If interest rates had been 0.5% higher or lower, and all other variables were held constant, the Group’s gross interest costs (before any interest capitalisation adjustment) for the year ended 31 December 2014 would have increased or decreased respectively by $2.4 million (2013: $1.4 million). This is attributable to the Group’s exposure to interest rates on its variable rate borrowings.

The Group had cash and cash equivalents on hand on which it earned investment income. A 0.5% increase or decrease in the interest rate would have resulted in an increase or decrease in investment income of $0.2 million (2013: $0.2 million).

Liquidity risk managementUltimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group maintains adequate liquid reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group’s portfolio of producing fields and delays in development projects. In addition, the Group regularly monitors its utilised and unutilised amounts of its borrowings in place (further details of which are provided in note 23). Subject to the requirements outlined in the “Going concern” section of the note 3 – Significant accounting policies, the Group’s forecasts show that the Group will be able to operate within its current debt facilities and has sufficient financial headroom for the next 12 months.

Refer to note 20 for the respective locations of the Group’s cash reserves. All of the Group’s cash and cash equivalents are currently held within reputable and well known commercial institutions.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities (excluding borrowings, the repayment terms of which are provided in note 23). The amounts are based on undiscounted cash flows and on the earliest date on which the Group can be required to pay.



24. Financial instruments (continued)Liquidity risk management (continued)

2014$000

2013$000

Less than 30 days 271,255 125,269

31–60 days – –

61–90 days 1,472 25,822

91+ days 9,267 –

Total 281,994 151,091

25. Provisions

Decommissioning provision

$000

Contract provision

$000Total$000

Balance at 1 January 2013 23,774 20,000 43,774

Provided during the year 804 – 804

Unwinding of the discount (note 12) 1,467 – 1,467

Utilisation of provision – (20,000) (20,000)

Balance at 31 December 2013 26,045 – 26,045

Provided during the year 22,596 – 22,596

Unwinding of the discount (note 12) 1,118 – 1,118

Balance at 31 December 2013 49,759 – 49,759

Presented as:

Current balance at 31 December 2013 – – –

Non-current balance at 31 December 2013 26,045 – 26,045

Total balance at 31 December 2013 26,045 – 26,045

Current balance at 31 December 2014 – – –

Non-current balance at 31 December 2014 49,759 – 49,759

Total balance at 31 December 2014 49,759 – 49,759

The Group provides for the present value of estimated future decommissioning costs for certain of its oil and gas properties in Nigeria. The amounts shown are expected to be settled between 2027 and 2039.

During the year, $22.6 million (2013: $0.8 million) was provided relating predominately to the future decommissioning of the Uquo to Oron pipeline and the EHGC pipeline acquired in March 2014.

In 2013 the Group had a provision of $20.0 million for costs of terminating several contracts relating to project management and gas marketing services. Of the $20.0 million, $10.0 million was paid during 2013 and the remaining $10.0 million was included within Trade and other payables – Other payables (note 21) at 31 December 2013 and was paid in April 2014.



26. Capital commitments and other contingenciesOperating lease commitments – Group as lessee

2014$000

2013$000

Minimum lease payments under operating leases recognised as an expense in the year 3,308 2,840

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

2014$000

2013$000

Within one year 644 437

In the second to fifth years inclusive 2,350 –

Total 2,994 437

Operating lease payments represent rentals payable by the Group for certain of its office and staff housing properties. Leases are typically negotiated for terms of one to five years and rentals fixed for an average of two years with an option to extend at the then prevailing market rate for varying terms.

Capital commitments2014$000

2013$000

Oil and gas assets – development 59,377 1,670

Oil and gas assets – exploration and evaluation 3,205 4,715

Total 62,582 6,385

The commitments for development of oil and gas assets relate primarily to the contractually committed amounts for the construction of the Oron to Creek Town pipeline. The construction contract contains a termination clause that can be exercised by the Group with 15 days’ notice with commitment only to reimburse for the value of work performed. The commitments for exploration and evaluation of oil and gas assets relate to the Group’s contracted agreement for the use of a drilling rig in Nigeria, being used at 31 December 2014 to drill the Uquo-North-East 1 prospect well.

27. Retirement benefit schemesDefined contribution schemesThe Group operates defined contribution retirement benefit schemes for all qualifying employees. The assets of the schemes are held separately from those of the Group in funds under the control of trustees.

The employees of the Group’s subsidiaries in Nigeria are members of a state-managed retirement benefit scheme operated by the Government of Nigeria. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of $2.0 million (2013: $1.3 million) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2014, contributions of $0.2 million (2013: $0.1 million) were due in respect of the year ended 31 December 2014 had not been paid over to the schemes and are recorded within Trade and other payables.

28. Deferred revenueThe Group has a gas sales agreement with Ibom Power Company Limited to supply gas for a 10 year period to its power station located in the Akwa Ibom State in south east Niger Delta. Ibom Power Company Limited made an advance payment of $31.7 million upon signing of the contract in 2009, representing one year’s delivery of gas.

The total amount of deferred revenue at 31 December 2014 of $46.8 million (2013: $63.5 million) represents the remainder of the prepayment and new take-or-pay invoices issued during 2014 since gas production commenced offset by amounts delivered and recognised as revenue within the consolidated statement of comprehensive income. The total amount shown as deferred revenue has been split into a current and a non-current liability, based on the future expected gas delivery profile.



28. Deferred revenue (continued)

31 December 2014$000


Current liability 12,204 31,755

Non-current liability 34,605 31,755

Total 46,809 63,510

29. Share capital



Issued and fully paid:

511,575 ordinary shares of $0.01 each (2013: 508,906 ordinary shares of $0.01 each) 5 5

During the year, 2,666 new ordinary shares were issued to a member of the Group’s Executive Committee as part of his employment arrangements. In addition three new ordinary shares were issued to new equity investors.

The Company does not have a specified number of shares authorised for issue. The Company has one class of ordinary shares which carries no right to fixed income.

30. Irredeemable convertible loan notesThe Company has ICLNs in issue. The following ICLNs were issued during 2013 and 2014 and were still outstanding at the year end:

ICLN value$000

Conversion price per share

$

Number of ordinary shares if

converted

At 1 January 2013 612,686 n/a 2,198,955

ICLNs re-purchased (91) 320.86 (285)

Prior year issuance costs (12) n/a –

At 31 December 2013 612,583 n/a 2,198,670

ICLNs issued 288,000 250.00 1,151,997

Issuance costs (5,141) n/a –

At 31 December 2014 895,442 n/a 3,350,667

The ICLNs are non-interest-bearing and are not repayable. They are convertible by the holder into ordinary shares of the Company at any time between the date of issue of the notes and certain mandatory conversion trigger events (including an IPO) as per the irredeemable convertible loan note agreements. The proceeds received, net of transaction costs, from the issue of these irredeemable convertible loan notes have accordingly been included as a component of equity representing the fair value of the option to convert into ordinary shares of the Group. None of the ICLNs issued to date have been converted to ordinary shares.

On 31 January 2014, as part of the consideration to acquire the entire issued share capital of SRL 905 Holdings Limited (now renamed Seven Energy (Jersey) Limited), the Company issued $33.0 million of ICLNs to Suntera Management Limited. The ICLNs are convertible into 132,000 shares at a conversion price of $250.00 per share (see note 35.1).

In April 2014, the Company signed Investment Agreements with three equity investors for a combined investment of $255.0 million. Each investment was in the form of a single ordinary share and the remainder in ICLNs at a conversion price of $250.00 per share. A total of three ordinary shares and 1,019,997 ICLNs have been issued. $146.0 million of the proceeds were received in May 2014, with the remaining $109.0 million received in October 2014 upon successful issuance of the Senior Secured Loan Notes.



30. Irredeemable convertible loan notes (continued)Within the Investment Agreements referred to above, at 31 December 2014, there remains a price adjustment provision that within 15 months following the issue of ICLNs, should the Company issue any new securities (except in a qualifying IPO) at a price (or with a conversion price) of less than $250.00 per share, the conversion price shall be deemed to be adjusted to such a lower price and further securities will be issued as a result.

This price adjustment provision represents an embedded debt arrangement within a host equity contract and accordingly the proceeds received are required to be split between equity and a derivative liability, with movements in the value of the latter recorded through the consolidated statement of comprehensive income until the relevant re-pricing provisions expire. At the inception of the Investment Agreements and the reporting date no liability has been recognised as it was considered to be immaterial.

31. Equity reserves

Other equity reserve

$000

Share-based payments

reserve $000

Foreign currency

translation reserve

$000Total$000

At 1 January 2013 16,176 17,891 (732) 33,335

Share-based payments – 6,449 – 6,449

Issuance of shares – (400) – (400)

At 31 December 2013 16,176 23,940 (732) 39,384

Share-based payments – 4,150 – 4,150

Issuance of shares – (400) – (400)

Expiry of warrants (1,396) – – (1,396)

At 31 December 2014 14,780 27,690 (732) 41,738

Other equity reserve: The other equity reserve is in respect of 148,571 (2013: 268,071) outstanding warrants previously issued at a price of $350.00 per share.

Share-based payments reserve: The reserve represents cumulative amounts charged to the statement of comprehensive income in respect of employee share-based payment plans where the scheme has not yet been settled by means of an award of shares to an individual.

Foreign currency translation reserve: The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations. The reserve was frozen from 1 January 2012 as the functional currency of the associated subsidiary (Seven Energy (UK) Limited) was changed from Sterling to US Dollars.

32. Share-based paymentsThe Group has in place a share-based payment arrangement for its employees, has previously issued warrants to a contractor and has also issued share options in connection with the purchase of the Gulf of Guinea Energy Limited group of companies in 2009. In addition, in 2013, the Company awarded fully paid up shares to a member of the Group’s Executive Committee as part of his employment arrangements.

Details of the total share-based payment charge are as follows: Year ended


Year ended31 December

2013$000

Discretionary share option plan 3,950 5,449

Other share based payments 200 1,000

Total share-based payment charge 4,150 6,449



32. Share-based payments (continued)Discretionary Share Option Plan The Group operates a share option scheme for employees. The Group’s policy is to award options to eligible employees at the sole discretion of the HR & Remuneration Committee of the Board. Options are issued at market price on the grant date and typically have a three-year vesting period. In addition, some options have performance related vesting conditions which require that the Company share price reaches $700.00 per share before they are able to be exercised by the employee. The options expire up to seven years from the date of grant if they remain unexercised and are forfeited if the employee leaves the Group before the options vest except at the discretion of the Board.

The Group granted 47,550 (2013: 60,707) share options to employees under the Discretionary Share Option Plan which will vest in three equal annual tranches from 1 January 2015.

During 2013 the Board approved an amendment to the Discretionary Share Option Plan such that, for some options with performance conditions, the exercise price for options previously issued at $350.00 per share were reduced to $311.87 per share. In addition, the Board also granted a further 875 options (as a result of an issue of ICLNs that occurred in October 2012). In the year ended 31 December 2013, the charge included $0.3 million relating to the modification of previously issued share options as described above which represented the increase in the fair value of the options at the modification date (12 March 2013). No further charge relating to these modified options was expensed during 2014. No such modifications to any options were made during 2014.

Details of the share options outstanding during the year are as follows:

2014Number of

share options

2014Weighted

average exercise

price $

2013Number of

share options

2013Weighted

average exercise

price $

Outstanding at beginning of year 156,059 309.18 130,554 318.54

Granted during the year 47,550 250.00 61,582 311.87

Forfeited during the year (3,569) 291.07 (1,754) 311.87

Expired – – (34,323) 340.00

Outstanding at the end of year 200,040 295.44 156,059 309.18

Exercisable at the end of year 128,124 308.59 98,766 307.45

The weighted average remaining contractual life of the options outstanding at 31 December 2014 was 3.92 (2013: 3.71 years). The range of exercise prices of options outstanding at the year-end were between $250.00 to $350.00, (2013: $285.91 to $350.00) per option.

The options granted during the year without performance conditions have been valued by reference to the Black-Scholes option valuation model. The options grants with a performance condition, which require that the share price reaches $700.00 before vesting, have been valued using a modified binomial model. The inputs into the Black-Scholes and binomial models were as follows:

2014$000

2013$000

Weighted average share price (i) $250.00 $315.00

Weighted average exercise price $250.00 $311.87

Expected volatility 72.3% 74.5%–111.0%

Expected life (years) 1.54 0.81

Risk-free rate 0.41% 0.31%–0.6%

Expected dividends nil nil

Weighted average fair value per option granted $87.02 $112.22

(i) The share price inputs to the share-based payments valuation have been determined on a basis consistent with the issue and valuation of equity linked instruments issued by Seven Energy at a similar time.

The Company’s shares are not listed on an open market; therefore, to determine the expected volatility of the Company shares, the Company used a peer group’s stock prices for three years prior to the option grant date.

Other share-based paymentsDuring 2013, the Company awarded options over 8,000 shares, without any performance conditions, to a member of the Group’s Executive Committee. These options vest equally in three tranches annually from 7 January 2013, with a third vesting immediately a third vesting over 12 months and a third vesting over 24 months. The fair value of the shares issued was considered to be $150.00 per share. The charge for the year was $0.2 million (2013: $1.0 million). No further awards were made during 2014.



33. Non-controlling interests$000

At 1 January 2013 23,565

Share of loss for the year (1,459)

At 1 January 2013 22,106

Share of loss for the year (1,464)

At 31 December 2014 20,642

The non-controlling interest relates to the remaining 37.5% shareholding in the Group’s subsidiary, Universal Energy.

34. Related party transactionsThe Group, through its subsidiary Universal Energy, holds a Naira denominated loan due to Akwa Ibom Investment and Industrial Promotion Council (a minority shareholder of Universal Energy) for $8.5 million (2013: $9.9 million). The loan is expected to be repaid from the production revenues generated by the Stubb Creek field, with repayment, including accrued interest by 30 December 2018. The loan bears interest at 15.0% per annum from the date of first oil production in February 2015. As at 31 December 2014, the loan was interest-free.

Petrofac Ltd (“Petrofac”) the international oil and gas facilities, engineering and project management services provider, holds an equity interest and warrants in the Company. During the year, the Group received project management, engineering and procurement services totalling $1.0 million (2013: $2.6 million) associated with the ongoing development of the Uquo and Stubb Creek fields. At 31 December 2014, the Group had a net receivable balance of $0.3 million due from Petrofac resulting from credit notes received for services provided (31 Dec 2013: $1.9 million payable).

As described in note 23, the Group had a Reserve Based Lending Facility agreement of up to $350.0 million with three banks (one of which was Standard Chartered Bank, a security holder in the Company via its subsidiary Standard Chartered Private Equity (Mauritius) III Ltd). In October 2014, following the issue of the Senior Secured Loan Notes and Private Bond, the Group fully repaid the principal amount outstanding of $200.3 million plus accrued interest. No amounts were outstanding at 31 December 2014 (31 December 2013: $148.6 million, $43.0 million being a related party payable balance with Standard Chartered Bank). For their role as one of the Global Coordinators and Joint Lead Bookrunners for the issue of Senior Secured Loan Notes, Standard Chartered Bank received a fee of $0.3 million.

During 2013 and 2014, the Company had outstanding share purchase loans with a former Director and former employees of the Company, who remain current security holders. The loans accrued interest during the years of US LIBOR plus 2.0%. The amounts outstanding at 31 December 2014 were $2.3 million (2013: $2.2 million) and are included within Trade and other receivables – Other receivables (note 17).

In May 2014, the International Finance Corporation (“IFC”) became a security holder in the Company from its $75.0 million equity investment. In October 2014, the IFC subscribed for $50.0 million of Senior Secured Loan Notes (note 23). In addiition, the IFC received fees of $0.6 million for funding commitment and corporate advisory services provided during the issue of Senior Secured Loan Notes and Private Bond.

Other transactions with key management during the year were as follows:Year ended



2013$000

Transactions with key management personnel during the year

Amounts incurred on behalf of key management (i) – (38)

Amounts owed by key management personnel at year end

Amounts incurred on behalf of key management 25 25

(i) Represents net amounts incurred offset against amounts settled during the year ended 31 December 2013.



34. Related party transactions (continued)Remuneration of key management personnelThe Directors and members of the Group’s Executive Committee are considered to be the key management personnel of the Group. The remuneration of the key management personnel of the Group is set out below in aggregate:


2014$000


2013$000

Short-term employee benefits 5,650 3,936

Other long-term benefits 352 275

Share-based payments 500 1,474

Termination benefits – 248

Total remuneration 6,502 5,933

35. Business combinations and interests in joint arrangements35.1 Suntera On 31 January 2014, the Company acquired from Suntera Management Limited the entire issued share capital of SRL 905 Holdings Limited, a Jersey incorporated company (now renamed Seven Energy (Jersey) Limited), and its wholly-owned Nigerian subsidiary Energy 905 Suntera Limited (“E905S”), an oil and gas exploration and production company. E905S has a 40% licence interest in Oil Prospecting Licence 905 (“OPL 905”) which is located in the Anambra basin. OPL 905 is subject to a Production Sharing Contract between the Nigerian National Petroleum Corporation, Gas Transmission and Power Limited, Ideal Oil and Gas Limited and E905S. OPL 905 has a significant identified gas resource base with additional potential upside in the under-explored Anambra basin.

The acquired business contributed $nil revenues and $0.4 million net loss to the Group for the period from acquisition to 31 December 2014. If the acquisition had occurred on 1 January 2014, consolidated revenue and consolidated loss for the year ended 31 December 2014 would have remained materially unchanged. Total acquisition related costs (included in administrative expenses in the consolidated statement of comprehensive income) for the year ended 31 December 2014 was $0.3 million (2013: $0.4 million).

At 31 January 2014$000

Recognised amounts of identifiable assets acquired and liabilities assumed

Intangible assets 64,131

Property, plant and equipment 81

Cash and cash equivalents 13

Trade and other receivables 206

Trade and other payables (3,510)

Deferred tax liabilities (12,921)

Total fair value of identifiable net assets 48,000

Total fair value of consideration 48,000

Consideration satisfied by:

Cash 15,000

ICLNs 33,000

Buy-back put options –

Total consideration transferred 48,000

Net cash outflow arising on acquisition

Cash consideration 15,000

Less: cash and cash equivalents acquired (13)

Net cash outflow 14,987

As part of the acquisition, the purchase agreement included two buy-back options issued to Suntera Management Limited which enables them to re-purchase a proportional interest in OPL 905. Their exercise is contingent upon achievement of certain future operational milestones. At the current time, the options are considered to have negligible value given the uncertainties of the existing seismic data and prospective resources.



35. Business combinations and interests in joint arrangements (continued)35.1 Suntera (continued)As described in note 37, subsequent to the year end, the Company completed the acquisition of the entire issued share capital of Gas Transmission and Power Limited (“GTPL”), a Nigerian oil and gas exploration and production company with a 50% licence interest in, and operatorship of, OPL 905. The consideration was $27.0 million, comprising $1.4 million of cash with the remainder being ICLNs at a conversion price of $250.00 per share. The Group now has a 90% licence interest in OPL 905.

35.2 East Horizon Gas Company Limited On 31 March 2014 the Company obtained control of East Horizon Gas Company Limited (“EHGC”) by acquiring 100% of its issued share capital from Oando PLC. EHGC operates the 128 km East Horizon gas pipeline through Akwa Ibom and Cross Rivers States in south east Nigeria. EHGC also has a gas sales agreement with an industrial off-taker to supply up to 25 MMcfpd, increasing to 50 MMcfpd in 2016, under a 20 year gas sales agreement, expiring in 2032.

The acquisition is expected to further enhance Seven Energy’s gas marketing and distribution position in the south east Niger Delta region, expanding the reach of its pipeline network, diversifying its customer base and increasing long-term contracted gas sales volumes.

In the nine months since acquisition, EHGC has contributed $21.5 million and $15.6 million to the Group’s revenue and profit respectively. If the acquisition had occurred on 1 January 2014, the Group’s revenue would have further increased by $6.2 million and profit would have decreased by $7.1 million.

Total acquisition related costs (included in administrative expenses in the consolidated statement of comprehensive income) for the year ended 31 December 2014 was $1.2 million and for the year ended 31 December 2013 was $0.9 million.

At 31 March 2014$000

Recognised amounts of identifiable assets acquired and liabilities assumed

Property, plant and equipment 269,822

Cash and cash equivalents 290

Trade and other receivables 3,639

Inventory 1,973

Trade and other payables (51,229)

Borrowings (54,301)

Provisions (15,654)

Net deferred tax liabilities (18,032)

Total fair value of identifiable net assets 136,508

Total fair value of consideration 136,508

Consideration satisfied by:

Cash paid 100,000

Contingent deferred cash 36,508

Total consideration transferred 136,508

Net cash outflow arising on acquisition

Cash consideration 136,508

Less: cash and cash equivalents acquired (290)

Net cash outflow 136,218

The fair value of the pipeline asset has been calculated on a discounted cash flow basis, using estimated market prices for gas sales and purchases and also on estimated future pipeline capacity utilisation.

A provision for contingent liabilities amounting to $3.2 million has been recognised in respect of certain legal claims against the Company. These are based on the claimed amount and on the percentage likelihood that these claims will be successful. This amount is included within Provisions.



35. Business combinations and interests in joint arrangements (continued)35.2 East Horizon Gas Company Limited (continued)The fair value of the consideration is based on gross consideration of $250.0 million less adjusted net liabilities. The gross consideration included amounts that were contingent upon the seller satisfying a number of post-acquisition operational conditions for the future benefit of EHGC’s operations. As previously reported at 30 June 2014, any contingent payments were to be settled equally in cash and through the issue of ICLNs. It was subsequently agreed with the vendor that final settlement would be satisfied entirely in cash.

The amount payable was made up of an initial cash payment of $100.0 million and contingent deferred cash payment of $36.5 million. These post-acquisition conditions were met and the final contingent deferred cash payment was paid in November 2014.

35.3 Afren Global Energy Resources LimitedOn 12 December 2014, the Company signed a share purchase agreement with Global Energy Company Limited (“GEC”) to acquire up to 72.5% of the issued share capital of Afren Global Energy Resources Limited (“AGER”), a Nigerian incorporated, oil and gas exploration and production company.

AGER has a 41% licence interest in Oil Prospecting Licence 907 (“OPL 907”) and a 42% licence interest in Oil Prospecting Licence 917 (“OPL 917”) which are both located in the Anambra basin, close to the Group’s interest in OPL 905 and subject to a Production Sharing Contract with the Nigerian National Petroleum Corporation. OPLs 907 and 917 have a significant identified gas resource base with additional potential upside in the under-explored Anambra basin.

The acquisition is structured in two parts: 22.5% of the share capital was acquired on 12 December 2014, and the remaining 50% (to take the total shareholding to 72.5%) is to be completed in 2015 upon completion of conditions precedent (being principally the placement of a work program performance bond, expected in the first half of 2015).

The total consideration for the full 72.5% shareholding comprises the following: – $12.0 million in the form of a promissory note – $2.0 million in the form of ordinary shares in the Company at a price of $250.00 per share – $0.4 million in the form of cash

The promissory note has an initial six month term and is unsecured and non-interest bearing. The Company has an option to extend the term of the note by a period of up to one year (in which case the note would have an 18 month term in total). In that case (a) the note will become interest bearing at LIBOR plus 10% for the extension period (payable six monthly in arrears), (b) $6.0 million of principal would be repayable on the first anniversary of the note, and (c) SEIL would be required to put a security package in place, to apply during the extension period. The security package would need to be agreed with the lender, whose consent could not be unreasonably withheld or delayed.

As at 31 December 2014, $0.4 million of cash and $12.0 million promissory note have been issued in consideration for 22.5% of the share capital (part 1). At 31 December 2014, the Company is considered to have joint control of AGER on the basis of Board representation and voting rights. The investment has been accounted for as a jointly controlled entity using the equity method and fair value of consideration principles of IFRS 3, with initial investment recognised at a cost of $11.5 million. Given the short space of time from acquisition date to year end, there has been no significant change in AGER’s post acquisition result and thus the investment contributed $nil profit after tax to the Group for the period from acquisition to 31 December 2014. The additional $2.0 million share consideration has not yet been issued as it is subject to a number of conditions precedent.

Total acquisition related costs (included in administrative expenses in the consolidated statement of comprehensive income) for the year ended 31 December 2014 were $0.2 million.



36. Interests in subsidiaries and joint arrangementsDetails of the principal subsidiaries and the percentage of share capital owned by the Company as at 31 December 2014 are set out below. All of these subsidiaries are included in the consolidated Group statements:

NamePlace of incorporationand operation Activity

Acquired during 2014

Ownershipinterest

%

Voting power held

%

Seven Energy (UK) Ltd Scotland Service company No 100 100

Seven Uquo Gas Ltd (formerly Septa Upstream Uquo Ltd) Nigeria Oil and gas exploration and development No 100 100

Seven Exploration and Production Ltd (formerly Septa Energy Nigeria Ltd) Nigeria

Oil and gas exploration and development and related activities No 100 100

Universal Energy Resources Ltd Nigeria Oil and gas exploration and development No 62.5 62.5

Accugas Ltd Nigeria Gas marketing and distribution No 100 100

East Horizon Gas Company Ltd Nigeria Gas marketing and distribution Yes 100 100

E905 Suntera Ltd Nigeria Oil and gas exploration Yes 100 100

Details of the Group’s interests in joint arrangements as at 31 December 2014 are set out below. The cost of investment and the Group’s share of the jointly controlled entity’s post acquisition profit or loss and other comprehensive income is included in the Group’s consolidated financial statements:

NamePlace of incorporationand operation Activity

Acquired during 2014

Ownershipinterest

%

Voting power held

%

Afren Global Energy Resources Ltd Nigeria Oil and gas exploration Yes 22.5 22.5

Details of the Group’s interests in joint operations as at 31 December 2014 are set out below. The Group’s share of assets, liabilities, revenues and expenses are included in the Group’s consolidated financial statements:

Name Joint interest partners

Place of registration and operation Activity

Participatinginterest

%

Uquo field joint operation Frontier Oil Ltd Nigeria Oil and gas exploration and development 40

Stubb Creek field joint operation

SINOPEC International Petroleum Exploration and Production Company Nigeria Ltd

Nigeria Oil and gas exploration and development 51

Strategic Alliance Agreement Nigerian Petroleum Development Company Ltd

Nigeria Oil and gas exploration and development 551

OPL 905 field joint operation Gas Transmission and Power LtdIdeal Oil and Gas Ltd

Nigeria Oil and gas exploration 40

OPL 907 field joint operation Buston Energy Resources LtdAllene Exploration & Production LtdBepta Oil & Gas LtdKaztec Engineering LtdVP Energy LtdDe Atai Oil Services Ltd


OPL 917 field joint operation Petrolog Oil & Gas LtdVP Energy LtdGoland Petroleum LtdDe Atai Oil Services Ltd


1 The Group has a 55% Indirect interest in OMLs 4, 38 & 41 via the Strategic Alliance Agreement with NPDC. The Group accounts for the Strategic Alliance Agreement as a jointly controlled operation as it is considered to exercise joint control through its participation in the technical and financial discussions and the decision making process for the development of the blocks through NPDC, and also funds NPDC’s 55% share of costs.



37. Subsequent eventsSince the year end the Group has drawn down a further combined $30.0 million under the Acquisition Finance Facility. In addition, the Group has agreed the deferral of the commencement of principal repayments of the Acquisition Finance Facility from March 2015 to March 2016, along with deferral of the commencement of principal repayments of the Project Finance Facility from March 2015 to June 2015. The Group is in discussions with the lenders to complete the refinancing of the two facilities into a single combined facility. This is expected to occur in the second quarter of 2015.

On 27 February 2015, the Company completed the acquisition of the entire issued share capital of Gas Transmission and Power Limited (“GTPL”), a Nigerian oil and gas exploration and production company with a 50% licence interest in, and operatorship of, OPL 905, located in the Anambra basin. The consideration was $27.0 million, comprising $1.4 million of cash with the remainder being ICLNs at a conversion price of $250.00 per share. Along with E905 (acquired during 2014), the Group now has a 90% licence interest in OPL 905. OPL 905 has a significant identified gas resource base with additional potential upside in the under-explored Anambra basin. Over the next two years, the Group aims to undertake seismic studies and drill a number of appraisal wells. At the current time, the Group is in the process of preparing the initial accounting entries for the business combination, including assessing the fair value of the acquired assets and liabilities of the acquired entity.



1P Proved reserves

2C Contingent resources

2P Proved and Probable reserves. Those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable reserves

bbl Barrel of oil, condensate or natural gas liquids

Bcf Billion cubic feet of gas

Bcfe Billion cubic feet of gas equivalent

Bcfpd Billion cubic feet of gas per day

bopd Barrels of oil per day

Chorus Energy Chorus Energy Limited, the Operator of the Matsogo Field

CNG Compressed natural gas

Company Seven Energy International Limited, a company incorporated in Mauritius

CSR Corporate social responsibility

EHGC East Horizon Gas Company Limited

EBITDA Earnings before interest, taxation, depletion, depreciation and amortisation

EBITDAX EBITDA before impairment charge

Field An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition

Frontier Oil Frontier Oil Limited, the Operator of the Uquo Field

FUN Manifold Oil collection manifold, jointly owned by the Frontier Oil, Universal Energy and Network Joint Venture

GDP Gross domestic product

GTPL Gas Transmission & Power Limited, the Operator of OPL 905

GW Gigawatt

hydrocarbons Oil, condensate, natural gas liquids and natural gas

IFRS International Financial Reporting Standards

the Group/Seven Energy Seven Energy International Limited and its subsidiaries

ICLNs Irredeemable convertible loan notes

km Kilometre

km2 Square kilometre

LNG Liquid natural gas

LTI Lost Time Incident


Glossary of terms

Mbbl Thousand barrels of oil or condensate

Mbopd Thousand barrels of oil per day

Mboepd Thousand barrels of oil equivalent per day

Mcf Thousand cubic feet of gas

MMboe Million barrels of oil equivalent

MMBtu Million British thermal units

MMcfpd Million cubic feet of gas per day

MW Megawatt

Naira or NGN The currency of Nigeria

NIPP National Integrated Power Project

NNPC Nigerian National Petroleum Corporation

NPDC Nigerian Petroleum Development Company Limited, a subsidiary of NNPC

OML Oil Mining Licence

OPL Oil Prospecting Licence

Prospect A location where sufficient technical work has been undertaken to justify drilling a well

QHSSE Quality, health, safety, security and environmental

QIT ExxonMobil’s Qua Iboe export terminal

Reservoir A subsurface body of rock having sufficient porosity and permeability to store and transmit hydrocarbons

SPE Society of Petroleum Engineers

Strategic Alliance Agreement The Strategic Alliance Agreement with NPDC with respect to OMLs 4, 38 and 41

SRL 905 SRL 905 Holdings Limited

Tcf Trillion cubic feet of gas

TRIR Total Recordable Incident Rate

Underlift/overlift The difference between the production entitlement and amounts lifted. Where amounts lifted are less than production entitlement, underlift (asset) is recorded. Where liftings exceed entitlement, overlift (liability) is recorded.

Unicem United Cement Company of Nigeria Ltd, a private company that manufactures cement

Universal Energy Universal Energy Resources Limited, a 62.5% subsidiary of Seven Energy, and the Operator of the Stubb Creek Field

$ The currency of the US, i.e. US dollars



Shareholder enquiries

Registered Agent and Registered AddressCim Global ManagementLes CascadesEdith Cavell StreetPort-LouisMauritius

Group Company SecretaryChris ThomasSeven Energy International Limited6 Chesterfield GardensLondon W1J 5BQUnited Kingdom

Advisers

AuditorDeloitte LLP2 New Street SquareLondon EC4A 3BZUnited Kingdom

SolicitorsAddleshaw GoddardMilton Gate60 Chiswell StreetLondon EC1Y 4AGUnited Kingdom

Principal BankersFirst Bank of Nigeria Ltd.Samuel Asabia House35 MarinaLagosNigeria

First City Monument Bank plc17A Primrose TowerTinubu StreetLagos StateNigeria

Standard Chartered Bank1 Basinghall AvenueLondon EC2V 5DDUnited Kingdom

United Bank for Africa plcUBA House57 Marina LagosNigeria

Stanbic IBTC Bank PLCIBTC PlaceWalter Carrington CrescentVictoria IslandLagosNigeria

Union Bank Nigeria Stallion Plaza36 Marina LagosNigeria Ecobank Nigeria Plot 21Ahmadu Bello WayVictoria IslandLagosNigeria

Shareholders’ information


Further Bondholders information

To ensure compliance with the reporting covenant relevant to seven Energy Finance Limited’s issue of senior secured Loan notes in October 2014 the Financial Statements for the year ended 31 December 2012 can be located on the Seven Energy website.

For details of the impact business acquisitions would have had on Seven Energy’s revenue and profit, if the acquisition had taken place on 1 January in the year of acquisition, please refer to note 35 in the notes to the consolidated Financial Statements.



Notes


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NigeriaSeven Exploration & Production Limited7 Anifowoshe StreetVictoria IslandLagosNigeria

Tel: +234 1 277 0600

United KingdomSeven Energy International Limited4th Floor6 Chesterfield GardensLondon W1J 5BQUnited Kingdom

Tel: +44 20 7518 3850Email: [email protected]

www.sevenenergy.com

Seven Energ

y Annual Report 2014

seven energy annual reports & accounts 2014

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