shaping the future of oil exploration and … · and on the investors section of the lekoil plc...

ShAping the futuReof oil exploRAtion And

pRoduction in AfRicAAnnual Report and Accounts 2015

Lekoil Annual Report and Accounts

2015

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designed and produced by fourthquarterour 2015 Annual Report is available in both printed form and on the investors section of the lekoil plc website at:

www.lekoil.com

Lekoil is an Africa focused oil and gas exploration and productioncompany with interests in Nigeria and Namibia.

the company was founded in 2010 by a group of leading professionals with extensive experience in the international upstream oil and gas industry as well as in global fund management and investment banking.

Contents1 highlights

3 chairman’s and ceo’s statement

10 financial review

12 Board of directors

14 directors’ report

18 Remuneration report

20 Statement of directors’ responsibilities

21 independent Auditor’s report

22 consolidated statement of financial position

23 consolidated statement ofprofit or loss and othercomprehensive income

24 consolidated statement of changes in equity

25 consolidated statement ofcash flows

26 notes to the financial statements

58 company information

LEKOIL Annual Report 2015 1

Highlights

Operational• Converted a significant proportion of the 56.60mmbbls 2C Contingent Resources at Otakikpo

to Proven (1P) and Proven and Probable (2P) Reserves in January 2015.– Phase 1 gross 1P Proved Reserves of 8.43 mmbbls (net to Lekoil: 3.03 mmbbls).– Phase 1 gross 2P Proved and Probable Reserves of 14.99 mmbbls (net to Lekoil: 5.40 mmbbls).– Phase 2 gross 2C unrisked Contingent Resources of 41.61 mmbbls (net to Lekoil: 14.98 mmbbls).

• Received Nigerian Ministerial consent for Otakikpo farm-in in June 2015.• Successfully performed production tests at Otakikpo.

– Production tested the lower E1 zone and flowed oil at various choke sizes for over24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke.

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

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

Corporate• Increased ownership of appraisal asset OPL 310, which includes the Ogo discovery, and

became the technical and financial partner (subject to Nigerian Ministerial consent) of theblock. Consolidated participating interest of 40% and an economic interest of 70%.

• Acquired a 62% indirect interest in the Production Sharing Contract (PSC) for OPL 325(subject to Nigerian Ministerial consent) and effective when the PSC is signed. OPL325depositionally on trend with OPL 310 but 100km to the south.

• Appointment to the Board of Directors of Mr. Hezekiah Adesola Oyinlola as a Non-ExecutiveDirector on 26 June 2015.

Financial• Executed a US$10 million 12-month bridge facility in May 2015 from FBN Capital to

part fund initial development costs of Otakikpo.• Completed a successful, oversubscribed equity fund raise of US$46 million in October 2015

to fund the OPL 310 and OPL 325 acquisitions and to provide additional working capital.• Cash and cash equivalents of US$26.0 million (2014: US$49.2 million) at period end.• Refinanced existing US$10 million facility for a term of three years and secured a new

2 billion Naira (US$10 million at a 199NGN:1USD exchange rate as of the disbursementdate of 16 June 2016) with FBN Capital.

• Executed a new 5 billion Naira (US$17.7 million at a 284NGN:1USD exchange rate as of29 June 2016) debt facility with Sterling Bank Plc. in June 2016. The facility has a term ofthree years and is subject to fulfillment of conditions precedent.

62%Acquired a 62 per cent. indirectinterest in the PSC for oPL 325,which is depositionally ontrend with oPL 310 but 100kmto the south.

2 LEKOIL Annual Report 2015

$30/bblotakikpo projectachieves breakeven atoil prices below US$30on Lekoil’s analysis.

“Lekoil is proud to be part of a group of indigenousNigerian E&P focused companies playing animportant role in developing the country’s resources.With a strong and experienced management team,the Company looks forward to pursuing the excitingopportunities that we see.” Samuel Adegboyega, Chairman

Lekoil’s strengths

Capital market accessExperience, relationships and partnershipsthat connect Africa and international capital markets.

Technical and field competenceExperienced management team with deepinternational industry and local knowledge. Focus on innovative technological solutions.

Indigenous profileExperienced management team and board that understand the operational, regulatory,environmental and security issues that drivesuccessful operations in Nigeria and morewidely across Africa.Well placed to take advantage of proposedadvantageous fiscal terms for localindigenous companies.Extensive government and industryrelationships.

Enabling technical partnershipsLocal and international partners withdomain-specific experience.

Chairman’s and CEO’s statement

Introduction2015 was challenging for the upstream oiland gas sector. A 46 per cent reductionfrom 2014 to 2015 in the average Brentoil price ended in a low for Brent ofUS$37/bbl at the end of 2015 whichmeant the sector remained out of favourwith generalist investors. Despite this,Lekoil Limited successfully delivered on anumber of key objectives. The Companyconducted its first well test at theOtakikpo field (Otakikpo) and increased itsownership of OPL 310 which includes theOgo oilfield to a 40 per cent participatinginterest, subject to obtaining Ministerialconsent and concluding ongoingnegotiations with Optimum (the Licenceholder) successfully. The Company alsocompleted a successful, oversubscribedequity fund raise of US$46 million despitedifficult market conditions, and addedthe highly prospective OPL 325 interestto the exploration portfolio.

These events underpin the continuedexecution of our strategy of building adiversified African exploration andproduction group, carefully selectedpartnerships and strategic acquisitions tokeep our risk profile low and accrue valuefor investors and other stakeholders.

Key eventsThe year began in a positive fashionwhen the Group announced it hadconverted a significant portion of the56.60 mmbbls of 2C ContingentResources at Otakikpo to Proven (1P)

the Company. We continue to apply thehighest standards to our operations.

On 7 September 2015, the Groupannounced that the lower E1 zoneproduced from the first of four plannedproduction tests, flowing oil at variouschoke sizes for over 24 hours at a peakrate of 5,703 bopd at a 36/64 inch choke.However, during completion operationsthe well encountered cementing issuesresulting in the temporary suspension ofthe E1 zone to allow remedial work to takeplace. Subsequent to year end, the Groupannounced on 13 April 2016 that theOtakikpo-002 well flowed oil from twoupper zones during two production testsconcluded on 10 April 2016. The C5 zoneflowed at a peak rate of 6,404 bopd at a36/64 choke and the C6 zone successfullyflowed oil at a peak rate of 5,640 bopd at a 36/64 inch choke. Production testingat the well was curtailed due to storagecapacity limits on well-testing equipment.Following this well test, preparations wereput in place to start re-entry operations onthe Otakikpo-003 well and for onsitestorage and evacuation infrastructureto be completed.

On the corporate front, there have alsobeen notable achievements. In October,the Company agreed to acquire anindirect controlling interest in Ashbert Oiland Gas Limited (Ashbert) and signed ashares sales and purchase agreementwith Ashbert to this effect. Lekoil Limited isin the process of seeking clarifications asto whether or not Ministerial consent isrequired to gain full operational control of Ashbert. Six weeks later the Companyannounced the acquisition of the sharesof Afren’s participating interest andeconomic interest in OPL 310 for US$13million. This acquisition is subject toapproval by the Minister of PetroleumResources of Nigeria, which the Board ofDirectors is optimistic will be obtained.


and Proven and Probable (2P) Reserves.Also, as part of an updated CompetentPerson’s Report, independentconsultants AGR TRACS underlined therobust economics of the Otakikpoproject under lower oil price scenarios.

During the first half of the year, contractsfor the Phase-1 Field Development Planfor Otakikpo, which included the drillingrig and well services, were tendered andawarded. In June, full Ministerial consentwas granted for the transfer of the40 per cent participating stake in theOtakikpo field and we moved into anoperational phase.

As formally announced, we faced logisticalchallenges in developing the site relatingto road remediation and the building of atemporary bridge in order to bringequipment to site. As a result of theseworks, the surrounding host communitieshave gained a significant socio-economicadvantage. Prior to rig mobilisation, largetracts of swamp land were reclaimed bysand-filling and land consolidation. Once asleepy town, Ikuru now boasts significantcommercial activity, with a cottage industryproviding support services to the workersat the rig sites and other allied workers.

The team also faced challenges whilere-entering the Otakikpo-002 well. In July, acritical safety issue was identified while wellre-entry operations were underway. Workpaused briefly until the issue was resolvedfully. No injuries were recorded during theperiod and safety remains a key priority for

56.60mmbblWe converted a significant portion of the 56.60 mmbbl of 2C Contingent Resources at otakikpo to Proven (1P) and Proven and Probable (2P) Reserves.

At Lekoil, we believe our strategy to concentrate onlow risk assets places us in the best possible positionto manage the challenges a low oil price represents.By continuing to execute our strategic plan in a timelyand efficient manner, we will ensure that ourcompany will not just survive but thrive.

OptionalityZone

Block 2514 A + B Namibia

Known Basin Exploration

Appraisal assets

Producing assets

OPL 325

SouthernAfrica

DahomeyBasin

WestAfricaNigerDelta

OPL310

Otakikpo

ValueZone

StabilityZone

New Basin Exploration

RI

SK

10,000bopdBased on the preliminary results ofthis first well test, formal guidanceon the production profile from thefour strings at otakikpo-002 and 003was increased from 6,000 bopdto 10,000 bopd.


Chairman’s and CEO’s statement continuedOperations

These major acquisitions were fundedfrom internal resources and by thesuccessful placing of shares to raiseUS$46 million, which was completed inOctober. Both acquisitions are exactly inline with the strategy we outlined whenthe Company came to the AlternativeInvestment Market in 2013 to seek coreassets within the ‘stability’, ‘value’ and‘optionality’ zones. Attention now turnstowards unlocking value from ourportfolio of highly prospective assetsdriven by reserves and production.

During the year, we have furtherstrengthened both the Board and thecore management team. While we bidfarewell to CFO David Robinson – whogoes with our thanks – we added a newnon-executive Director with theappointment of Hezekiah AdesolaOyinlola. Mr Oyinlola brings a wealth ofindustry experience to the Board havingbeen Chairman of Africa at Schlumbergerprior to joining Lekoil Limited. The Grouphad a total of 56 people across threecontinents as at 31 December 2015.

Positioning Lekoil in alow oil price environmentIn July 2014 oil was trading at over US$100a barrel on the spot market. By January of2016 prices were trading below US$30 abarrel. This clearly means that this is achallenging market for everyone in the oiland energy space through the wholevalue chain from exploration to services.Industry sentiment appeared to changeover the reporting period from ‘denial’ and‘depression’ to ‘acceptance’ that the low oilprice environment is the new reality in theshort (and possibly medium) term. It is upto management teams to navigate theirrespective companies through thesechallenging times.

Given the prevailing market conditions, wehave prioritised the allocation of capital toour production and development assetsto generate short-term cash flow andcompelling economic returns. The Groupis therefore focused on extracting valuefrom the ‘stability’ zone of its portfolio andanticipates limited exploration expenditureunder these current conditions.Exploration on the Company’s highlyprospective assets gives the Group plentyof optionality for the future. In 2016, Lekoilsuccessfully raised additional debt financeof US$45 million after complying with thepre-debt covenants. These funds will beused to accomplish planned activities onthe Otakikpo field.

Ministerial consent to complete thetransfer of the 40 per cent participatinginterest in Otakikpo from the HonourableMinister of Petroleum Resources of Nigeriain June 2015. The Group is due to pay aproduction bonus of US$4 million toGreen Energy International Limited (GEIL)once production of 2,000 bopd isachieved for 30 consecutive days. Finalpayment is expected to be met fromexisting resources.

The Company holds 90 per cent of theeconomic interests in its subsidiary, LekoilNigeria Limited. Lekoil Limited’s economicinterest in Otakikpo therefore equates to36 per cent The Field Development Planconsists of two phases. Phase 1 comprisesthe re-completions of two wells,Otakikpo-002 and Otakikpo-003 with theinstallation of an Early Production Facilityof 10,000 bopd capacity and export viashuttle tanker. Phase 2 covers thesubsequent incremental development ofthe rest of the field with a new CentralProcessing Facility and seven new wells.

2015 ActivityIn January 2015, AGR TRACS updated theGroup’s original Competent Person’sReport (CPR) from September 2014,verifying the conversion of a significantportion of the asset’s 2C Resources into 1P& 2P Reserves. AGR TRACS also confirmedthe robustness of the asset’s economicsunder various oil price scenarios.

Prior to rig mobilisation, the Companysuccessfully overcame a series of logisticalchallenges relating to land reclamation,road remediation and the building of atemporary bridge in order to transportthe necessary equipment to site. Our hostcommunities played a key role in helpingthe Group to overcome these hurdles bysupplying the necessary labour. As aresult of the surrounding communitiessupporting us with this work they gaineda significant socio-economic boost.

Summary outlookAt Lekoil Limited, we believe our strategyto concentrate on low-risk assets placesus in the best possible position tomanage the challenges a low oil pricerepresents. By concentrating oncontinuing to execute our strategic planin a timely and efficient manner, we willensure that our company will not justsurvive but thrive.

Operational review

Otakikpo marginal fieldProduction Q3 2016introductionThe pace of progress at Otakikpo duringthe 12 month period to December2015 was pleasing and the site changedmarkedly over that time. It was,however, not without its challengesalong the way and the Company’soperations team gained valuableexperience after overcoming a numberof significant logistical obstacles anddrilling related interruptions.

Subsequent to year end, the Groupannounced on 13 April 2016 that theOtakikpo-002 well flowed oil from twoupper zones during two production testsconcluded on 10 April 2016. The C5 zoneflowed at a peak rate of 6,404 bopd at a36/64 choke and the C6 zone successfullyflowed oil at a peak rate of 5,640 bopd ata 36/64 inch choke. Production testing atthe well was curtailed due to storagecapacity limits on well-testing equipment.

Background The Otakikpo marginal field (Otakikpo) liesin a coastal swamp location in Oil MiningLease (OML) 11, adjacent to the shorelinein the south-eastern part of the NigerDelta. OML 11 is held by the ShellPetroleum Development Company JointVenture (SPDCJV) which includes theNigerian National Petroleum Corporation,the Shell Petroleum DevelopmentCompany of Nigeria Limited, TotalExploration & Production Nigeria Limitedand Nigerian Agip Oil Company Limited.Otakikpo was awarded to Green EnergyInternational Limited (“Green Energy” or“GEIL”) by the Department of PetroleumResources in 2011.

In May 2014, the Group acquired a40 per cent participating and economicinterest in Otakikpo from Green Energy.As consideration for acquiring the interest,Lekoil Limited paid a signature bonus ofUS$7 million. Lekoil Limited received

OTAKIKPO 1OTAKIKPO 2OTAKIKPO 3OTAKIKPO SOUTH

OML 11OML 51

OML 17OML 52

Opobo

Ngo

Oil Field

Nigeria


In July, the rig had been mobilised,transported to site and assembled, andre-entry activities on well-002 wereprogressing well when the rig crewidentified a potentially critical safety issuearound the crown block of the drilling rig.Thanks to the quick reactions of the rigcrew no injuries were sustained and atemporary suspension of re-entryactivities was implemented to repair therig. Re-entry activities recommencedin August and on 5 September 2015,well testing was conducted on the firststring of Otakikpo-002 with first oilflowing to surface.

Based on the positive flow test and welltest results from September 2015 andApril 2016, we had sufficient confidenceto raise the production profile guidanceof Phase 1 of the Field Development Planat Otakikpo to approximately 10,000bopd, up from our original guidance of6,000 bopd.

On 7 September 2015, the Groupannounced that the lower E1 zoneproduced from the first of four plannedproduction tests, flowing oil at variouschoke sizes for over 24 hours at a peakrate of 5,703 bopd at a 36/64 inch chokesignificantly ahead of expectations.However, during completion operationsthe well encountered cementing issuesresulting in the temporary suspension ofthe E1 zone to allow remedial work totake place. Subsequent to 31 December2015, attention then turned to testingthe upper C5 and C6 zones, finalising theearly production facility and evacuationinfrastructure and preparingOtakikpo-002 for an extended well test.The extended well test determined theoptimal production rate that maximisesvalue from the well and was completedon 10 April 2016. Commercial productionfrom Otakikpo-002 is expected tocommence in Q3 2016.

Otakikpo is central to the Company’sfuture expansion plans and based on theidentified 2C resources and upsidepotential of the field, we believe thatfollowing the implementation of Phase 2of the Field Development Plan peakproduction could reach 20,000 bopd.The Company is at an advanced stageas regards securing the necessary debtfacilities to finance the developmentthrough to Phase 2 and beyond.

Community relations Having signed Memoranda ofUnderstanding (MoUs) with the leaders ofour host community, Ikuru, and the othernearby host communities of Ugama Ekede,Ayama Ekede, Asuk Ama and Asuk Oyet, inthe Andoni Local Government Area ofRivers State surrounding the Otakikpo fieldin December 2014, we proactively setabout fulfilling our obligations. The Groupembraces its responsibilities to assist in

the development of the surroundingcommunities and to improve the qualityof life of its residents.

Following engagement with leaders ofthe local communities, it was clear thatproviding medical support was one of thekey requirements. During the reportingperiod, Lekoil Limited successfullyconducted two major medical outreachprogrammes to Asuk Ama, Asuk Oyet,Ugama Ekede and Ayama Ekede, and theCompany delivered trained professionalsequipped with health services and suppliesto the communities. A comprehensiveimmunisation programme was undertakenat all four villages and over five thousandchildren were inoculated. As Otakikpo isdeveloped additional programmes willbe rolled out and will address thecommunities’ needs of health, educationand skills enhancement.

40%Lekoil received Ministerial consentto complete the transfer of the40 per cent participating interest inotakikpo from the HonourableMinister of Petroleum Resourcesof Nigeria in June 2015.


Chairman’s and CEO’s statement continued

OPL 310Economic interestOptimum – 30%Lekoil – 70%

Particpating interestOptimum – 40%Lekoil – 60%

OPL 325

OPL 311Sunlink NOA 1

Agankerla 4Badashe 4Nepaw 4

Ojo 1

Oil FieldPipeline

OPL 314OPL 313OPL 312

OPL 321

OPL 318ConocoPhillips

OPL 319

OPL 327

OPL 317

Seme NorthSeme South

NigeriaBeninLAGOS

West AfricanGas Pipeline

COTONOU

Afowa 4

OML 113YFP

40%Lekoil acquired Afren’sparticipating interest inoPL 310 taking theCompany’s participatinginterest to 40 per cent.

Ogo-1Ogo Prospect

AdoNE Closure

SynRift-1

Shasha

Syn-Rift-2-HW

Syn-Rift 4 Ogo-B

Syn-Rift 5-Angular

Syn-Rift 3 HW

Eastern Closure

OPL 310OML 113

In addition, Lekoil Limited and its JointVenture partner GEIL, commissionedtwo sets of housing units which weredonated to the Nigerian Navy for useby its Officers at the base in the hostcommunity of Ikuru. Construction ofthese units began on 27 August 2015and was completed on 30 November2015. The funds for the project weredrawn from a Trust Fund which isdisbursed annually to the communityto implement projects of its choice, andin line with its immediate and long-termpriorities – particularly as these relateto community security, povertyreduction, employment creationand wealth generation.

Ogo Discovery and OPL 310 –Appraisal andexploration AssetintroductionFollowing Afren Plc’s difficulties, theGroup made a major breakthrough byacquiring Afren Investments Oil and Gas(Nigeria) Limited’s (Afren Oil & Gas)shares from its parent company whichholds a 22.86 per cent participatinginterest in the OPL 310 block. Thisacquisition marked the culmination ofa considerable amount of work by ourcommercial team and it significantlyenhances Lekoil’s position in a keyexploration asset taking the Company’sparticipating interest to 40 per centsubject to Ministerial consent andfinalisation of arrangements withOptimum Petroleum DevelopmentLimited (Optimum). On 24 October 2015,Optimum and Mayfair Assets and TrustsLimited (Mayfair) being a subsidiary ofthe Group, executed a non-binding termsheet setting out possible terms upon


which the two companies would beprepared to transact in relation to OPL310, together with a plan to draft andexecute definitive agreements within4 to 6 weeks. The definitive agreementsare yet to be executed as negotiationsare still ongoing.

The licence hosts world classexploration and appraisal potential atthe Ogo field and also further upsidepotential in several other targets. LekoilLimited and Optimum are now free tofocus on accelerating appraisal work onthe licence as 3D seismic interpretationwork has been completed. The partnersthen expect to be in a position tomake a decision whether to spud anappraisal in 2017. We are hopeful thatthe definitive agreements would beentered into shortly.

oPL 310 Status

2015 Status Exploration: 3D seismic interpretation

Participating interest 40 per cent(subject to Ministerial consent)

Partner Optimum Petroleum Development Limited

P50 Gross RiskedProspective Resources 774.0 mmboe

Under the terms of the agreement,Lekoil Limited will carry partners untilproduction and be entitled to anaccelerated recovery from net cash flowuntil it recovers 150 per cent of costsafter which it reverts to a share of 40per cent of net cash flow. Lekoil Limitedwill also make certain recoverableprepayments to Optimum at certainproduction milestones.

The OPL 310 licence is located in theUpper Cretaceous fairway that runsalong the West African TransformMargin. The block extends from theshallow water continental shelf closeby the City of Lagos, Nigeria into deeperwater. The main prospects within thelicence area are in water depthsranging from 100 to 800 metres andare within close proximity to theWest Africa Gas Pipeline.

On 1 February 2013, Mayfair Assetsand Trust Limited farmed into AfrenInvestments Oil and Gas (Nigeria)Limited’s interest in OPL 310 for a 17.14per cent participating interest and 30 percent economic interest. The economicinterest would mirror the participatinginterest after cost-recovery. The Group’sright to the participating interest remainssubject to Ministerial consent to thefarm-in agreement. Later that year thefirst exploration well (Ogo-1) drilled bythe OPL 310 partners – then consistingof Optimum, Lekoil and Afren – was theOgo prospect, a four-way dip-closedstructure in the Turonian to Albiansandstone reservoirs. The drillingprogramme included a plannedside-track well (Ogo-1 ST) which aimedto test a new play of stratigraphicallytrapped sediments at the basementof the Ogo prospect.

The Ogo-1 well encountered a grosshydrocarbon section of 524ft, with216ft of net stacked pay whilst the Ogo-1ST well encountered the same reservoirsas Ogo-1 in addition to the syn-riftsection which encountered a 280 ftvertical section gross hydrocarboninterval. Owing to well data collectedfrom the two wells, the partnersestimated P50 gross recoverableresources to be at 774 mmboe acrossthe Ogo prospect four-way dip-closedand syn-rift structure.

On account of the size of the blockand early stage nature, the OPL 310partners agreed the next phase of workwould be to conduct a 3D seismicprogramme to acquire sufficient datato high grade and de-risk prospectssurrounding the Ogo discovery. In May2014, the partners completed a 1,505square kilometre 3D seismic acquisitionprogramme, which representedapproximately 80 per cent of theacreage within OPL 310. Processingand interpretation of the acquired3D seismic data commenced in H22014 and has been completed.

2015 ActivityOn 31 July 2015, Afren Plc, the parentcompany of Afren Oil & Gas that heldinterests in the OPL 310 licence, was putinto administration and its assets put upfor sale. Lekoil moved quickly to protectits interests in OPL 310 by taking legalaction to apply for an injunction thatmeant Afren Oil & Gas could not disposeof its interest in OPL 310. The Companythen began discussions with theadministrator of Afren Plc for thepotential acquisition of its subsidiaryinterests in OPL 310.

On 25 November 2015, the Companyentered into an agreement with theadministrator of Afren Plc and AfrenNigeria Holding Limited to acquire theshares of Afren Oil & Gas which held a22.86 per cent participating interest inOPL 310 for a total consideration ofUS$13 million. The acquisition remainsconditional upon receiving Ministerialconsent. Following the acquisition ofAfren’s interests in OPL 310, the Groupformalised and executed a non-bindingterm-sheet with Optimum setting outpossible terms upon which the twocompanies would be prepared totransact in relation to OPL 310,together with a plan to draft andexecute definitive agreements within4 to 6 weeks. The definitive agreementsare yet to be executed as negotiationsare still ongoing.

Following the significant delay caused byAfren Plc’s insolvency and administration,the acquisition of Afren Plc’s interest inOPL 310 allows Lekoil and Optimum toprogress with exploration activities andfield appraisal planning as soon as theacquisition is approved by the relevantauthorities in Nigeria.

1,505km2The partners completed a1,505 square kilometre 3Dseismic acquisition programme,which representedapproximately 80 per cent ofthe acreage within oPL 310.


Chairman’s and CEO’s statement continued

740km2More than 740km2 of 3D seismicdata has been collected overoPL 325 and the Company isencouraged by the results and itsinterpretation of the analysis.

$46mWe raised an additional US$46 millionin october 2015 to fund thecompletion of the acquisitions ofAfren’s interest in oPL 310 andinterest in oPL 325 and part of thedevelopment of otakikpo.

OPL 325 –exploration AssetintroductionIn line with our strategy of building abalanced portfolio of assets and ourvision of becoming the world’s leadingexploration and production Companyfocused on Africa, the acquisition of an88.57 per cent share interest in AshbertLimited makes good strategic andeconomic sense, and it gives theCompany optionality over potentiallysignificant reserves going forward. Lekoilis in the process of seeking clarificationsas to whether or not Ministerial consentis required to gain full operationalcontrol of Ashbert Limited. As such, thefinancial statements of Ashbert Limitedhave not been consolidated as at21 December 2015.

The prospectivity of the licence was firstidentified by the Group’s geotechnicalteam during its proprietary DahomeyBasin study conducted in 2011 and 2012.The team believes it to be highlyprospective and on trend with OPL 310geologically. The low-cost entry and prolificgeology in a basin the Lekoil explorationteam knows extremely well represents anoutstanding opportunity for the Company,and concludes the search for the finalpiece of the jigsaw to create a balancedportfolio of assets which can maximisevalue for shareholders.

2015 ActivityIn October, Lekoil entered into anagreement with Ashbert Limited toacquire, via Lekoil Exploration andProduction Nigeria Limited (LEPNL), 88.57per cent of the issued share capital ofAshbert Limited, which was awarded OPL325 licence. Lekoil is in the process ofseeking clarifications as to whether or notMinisterial consent is required to gain

full operational control of Ashbert Limited.The other licence partners to OPL 325are National Petroleum DevelopmentCompany Ltd (NPDC) (20 per cent workinginterest) and Local Content Vehicle (10 percent net working interest). The ProductionSharing Contract is yet to be finalised.

In connection with the agreement, Lekoilhas entered into a loan agreement withAshbert Limited pursuant to which it hasagreed to lend Ashbert Limited anaggregate amount of US$40 million toenable Ashbert Limited to pay a US$16million signature bonus to the Departmentof Petroleum Resources (DPR) and furtheramounts totalling US$24 million which willbe payable in equal instalments upon theconversion of the OPL to an OML andupon first commercial production. TheGroup is expected to retain control ofoperatorship on execution of definitiveagreements and will lead the negotiationof the Production Sharing Contract terms.

FinancialThe results for the year ended31 December 2015 showed a total lossof US$18.7 million, as compared toUS$11.9 million in 2014. Cash balancesat the year-end totalled US$26 million,while the balance at the end of 2014was US$49.2 million.

We raised an additional US$46 millionequity in October 2015 to fund thecompletion of the acquisitions of Afren’sinterest in OPL 310, an interest in OPL 325and part of the development of Otakikpo.

Directorate changes• In June 2015, David Robinson stepped

down as the Company’s Chief FinancialOfficer by mutual consent.

• Also in June, Mr Hezekiah AdesolaOyinlola joined the Board as anon-executive Director.

Mr Oyinlola was most recently Chairman ofAfrica at Schlumberger and was also thePresident of the Schlumberger Foundation,a non-profit corporate foundation. Havingworked with Schlumberger for 30 years,Mr Oyinlola has held a number of senioroperational positions across the world,including Vice President and GlobalTreasurer, and Managing Director forNigeria and West Africa.

OutlookAs we transition to a producing company,we believe Lekoil Limited will grow furtherin the coming years – even in aprolonged lower oil price environment.Our focus remains on growing our cashflow and production base at Otakikpo,appraising the significant Ogo discoveryon the OPL 310 licence, exploring thepossibilities in OPL 325 and, subject tofinancing being available, identifyingappropriate opportunities which metour strategic antenna, acquiring furtherassets that we consider will add valuefor the benefit of our shareholders.

We are sincerely grateful for the supportshown by our investors, the NigerianGovernment, the local communitieswe operate in, and our entire workforcewho are allowing us to turn our visioninto a reality.

Samuel AdegboyegaChairman

Olalekan AkinyanmiChief Executive Officer

29 June 2016

Otakikpo Communities shall receiveroyalties based on LPG revenue and acapital sum per annum for sustainablecommunity development through anincorporated community trust fund.


OverviewIn the twelve months ended31 December 2015, the Group recordedan operating loss of US$22.8 million(2014: US$11.8 million) and ended theperiod with cash and cash equivalents ofUS$26.0 million (2014: US$49.2 million).Included in the cash and cash equivalentsbalance is restricted cash amounting toUS$0.5 million relating to cash securitypledged as collateral for bank guaranteesissued on behalf of Lekoil Oil and GasInvestment Limited during the year.

In May 2015, Lekoil Oil and GasInvestments Limited (a wholly ownedsubsidiary of Lekoil Limited), entered intoa Note Issuance Agreement with FBNCapital Limited (FBN Capital) andsubsequently received a debt finance ofUS$10 million for the Otakikpo fielddevelopment secured over the assets ofLekoil Oil and Gas Investments Limited.The Company (Lekoil Limited) issued anunconditional guarantee in favour of FBNCapital for the payment of all principaland interest due on the loan, in theevent of default by Lekoil Oil and GasInvestments Limited.

In June 2015, Lekoil Oil and GasInvestments Limited obtained Ministerialapproval for the 40 per cent participatinginterest acquired in the Otakikpomarginal field following the farm-inagreement with GEIL in May 2014.

On 31 July 2015, Afren plc, the ultimateparent company of Afren Investments Oil

and Gas (Nigeria) Limited (Afren Oil &Gas) the co-venturer with OptimumPetroleum Development Limited(Optimum) on OPL 310 and whoseinterest Mayfair Assets & Trust Ltd.(Mayfair) farmed into in February 2013went into Administration. Subsequent tothis event, on 30 November 2015, Lekoil310 Limited (a subsidiary of LekoilLimited) entered into a Share Sales andPurchase Agreement (SPA) with theadministrators of Afren Plc, relating tothe entire issued share capital of AfrenOil & Gas and certain intra-companydebt. This Share Sales and PurchaseAgreement, which is subject to theapproval of the Minister of PetroleumResources of Nigeria, was entered into ina bid to secure the investment of MayfairAssets and Trust Limited in OPL 310given the financial situation of Afren Plc.The Ministerial consent required, whichis a substantive regulatory approval,is yet to be obtained. Accordingly, thefinancial statements of Afren Oil & Gas,have not been consolidated in thesefinancial statements.

On 1 September 2015, Lekoil Explorationand Production Nigeria Limited, in linewith the Group’s continuing strategy ofassembling a balanced portfolio of oiland gas interests, acquired a controllinginterest in Ashbert Oil and Gas Limited(Ashbert), a Company incorporated inNigeria and awarded OPL 325 Licenceby the Nigerian Government in 2005.All necessary documents relating tochange in Directors and shareholdershave been filed with relevant authorities.

The financial statements of Ashbert havenot been consolidated in these financialstatements as Lekoil is in the process ofseeking clarifications as to whether ornot Ministerial consent is required togain full operational control of AshbertOil and Gas Limited.

On 7 September 2015, the Groupannounced that the lower E1 zone of theOtakikpo-002 well produced from the firstof four planned production tests, flowingoil at various choke sizes for over 24 hoursat a peak rate of 5,703 bopd at a 36/64inch choke. However, during completionoperations the well encounteredcementing issues resulting in thetemporary suspension of the E1 zone toallow remedial work to take place. To keepPhase 1 of the Field Development Plan(“FDP”) on track and under budget, theCompany prioritised production from thesecond and third planned productionzones, in the C5 and C6 reservoirs, andwill pursue development options for theE1 zone in the future.

On 24 October 2015, Optimum andMayfair (a subsidiary of Lekoil Limited)executed a non-binding term sheetsetting out possible terms upon whichthe two companies would be prepared totransact in relation to OPL 310, togetherwith a plan to draft and execute definitiveagreements within 4 to 6 weeks. Thisnon-binding term sheet defined anexpected minimum work programme ofone well on OPL 310 expected to bedrilled in 2016 and also designated Lekoilas the technical and financial partner.In addition, amongst other terms, theterm sheet anticipates that 100 per centof Afren Oil & Gas’ pre-drill cost and 60per cent of Afren Oil & Gas’ post-drill costof US$30.0m and US$49.2m respectively,will be recovered by Optimum and thebalance of Afren Oil & Gas’ post-drill costof US$19.68m by Mayfair. The definitiveagreements are yet to be executed asnegotiations are still ongoing. Until suchagreements are concluded, in the view ofthe Directors, the agreements betweenOptimum and Afren Oil & Gas and byextension the agreements between AfrenOil & Gas and Mayfair remain in force.

On 28 October 2015, Lekoil Limitedcompleted the placing of 125,200,000new ordinary shares at US$0.37 (24pence) per share with certain existingand new institutional and other investors


in the twelve months ended 31 December 2015, the Grouprecorded an operating loss of US$22.8 million (2014:US$11.8 million) and ended the period with cash and cashequivalents of US$26.0 million (2014: US$49.2 million).

Financial overviewIn US Dollars 2015 2014

Loss for the year (18,718,507) (11,932,438)

Retained loss (29,916,203) (18,815,402)

Loss per share (0.03) (0.01)

Net assets 200,760,807 173,766,062

Net assets per share 0.52 0.48

Cash and cash equivalents 26,016,194 49,225,726

Financial review


via an accelerated book build (the“Placing”) and raised gross proceeds ofapproximately US$46 million. Therealised net proceeds of approximatelyUS$44 million is being used to fund theacquisition of an indirect controllinginterest in OPL 325, (located to the southof OPL 310 in the Dahomey Basin)offshore Nigeria as well as for othercorporate uses and for general workingcapital purposes, including the paymentof fees associated with the Placing.

On 18 November 2015, in accordancewith the Note Issuance Agreement withFBN Capital, Lekoil Oil and GasInvestments Limited elected to exercisethe option to re-issue the Notes andsubsequently paid US$2,000,000 plus are-issue fee of US$80,000. In February2016, the Company repaid US$3,000,000and afterwards re-issued the Notes for afinal redemption date of August 2016.

The Notes bear interest at a ratereferencing 90-day LIBOR plus 12 per centper annum. There are ongoing discussionswith other financial institutions for theprovision of debt facilities for the Otakikpomarginal field development and to financethe acquisition of other assets. In 2016,Lekoil successfully raised additional debtfinance of US$45 million after complyingwith the pre-debt covenants. These fundswill be used to accomplish plannedactivities on the Otakikpo field.

Subsequent to year end, the Groupannounced on 13 April 2016 that theOtakikpo-002 well flowed oil from twoupper zones during two productiontests concluded on 10 April 2016. The C5zone flowed at a peak rate of 6,404 bopdat a 36/64 choke and the C6 zonesuccessfully flowed oil at a peak rate of5,640 bopd at a 36/64 inch choke.Production testing at the well wascurtailed due to storage capacity limitson well-testing equipment.

Well re-entry operations on Otakikpo Well003 began in June 2016 targeting the E1and C6 zones. The Company expects tostart commercial production from bothOtakikpo 002 and 003 in Q3 2016.

Full year resultsThe Group recorded a totalcomprehensive loss of US$18.7 millionfor the year ended 31 December 2015(2014: US$11.9 million).

Administrative expensesand operating lossAdministrative expenses and operatinglosses were US$22.8 million comparedto US$11.8 million for the same periodin 2014. The increase in administrativeexpenses is due to increases in staffstrength, technical fees, legal fees,consultancy fees, corporate services,impairment loss on investments in OPL241, community expenses and securityexpenses. All these reflected the Group’sbuild-up in operational and otheractivities in the year.

Income taxNo income tax was payable for thetwelve months ended 31 December2015 (2014: nil).

Capital expenditureThe Group’s capital expenditure duringthe year ended 31 December 2015amounted to US$12.5 million comparedto US$18.5 million incurred for the sameperiod in 2014. Capital expenditureduring the period was primarilyassociated with developmentexpenditure on the Otakikpo marginalfield as well as exploration andexploitation expenditure on OPL 310.

Cash and cash equivalentsThe Group had cash and cashequivalents of US$26.0 million as at31 December 2015 (2014: US$49.2million). Included in the cash and cashequivalents balance is restricted cashamounting to US$0.5 million relating tocash security pledged as collateral forbank guarantees issued on behalf ofLekoil Oil and Gas Investments Limitedduring the year.

Short-term loansThe Group had a short-term loanpayable to FBN Capital of US$8.2 millionas at 31 December 2015 (2014: nil).

Summary statementof financial positionThe Group’s non-current assets increasedfrom US$122.4 million at 31 December2014 to US$164.8 million at 31 December2015, reflecting expenditures on theOtakikpo marginal field, the Ogo discoveryand the OPL 325 acquisition. Currentassets represent the Group’s cashresources, other assets and other

receivables, which increased fromUS$54.1 million as at 31 December 2014to US$56.9 million as at 31 December2015, mainly reflecting an increase inGEIL’s share of joint operation costs onthe Otakikpo field. Current liabilitiesconsists of a short-term loan from FBNCapital amounting to US$8.2 million, tradeand other payables which increased fromUS$2.6 million to US$9.5 million anddeferred income which increased fromUS$0.2 million to US$3.1 million as at31 December 2015.

DividendThe Directors do not recommend thepayment of dividend for the year ended31 December 2015 (2014: nil).

Accounting policiesThe Group’s significant accountingpolicies and details of the significantjudgments and critical accountingestimates are disclosed within the notesto the financial statements. The Grouphas not made any material changes toits accounting policies in the twelvemonths ended 31 December 2015.

Liquidity risk managementThe Group closely monitors andmanages its liquidity risk. Cash forecastsare regularly produced and sensitivitiesrun for different scenarios includingchanges in timing of production andcost overruns of development andexploration activity. At 31 December2015, the Group had liquid resources ofapproximately US$26.0 million, in theform of cash and cash equivalents, whichare available to meet ongoing capital,operating and administrativeexpenditure. The Group’s forecasts,taking into account reasonably possiblechanges as described above, show thatthe Group expects to have sufficientfinancial resources for the 12 monthsfrom the date of approval of theseconsolidated financial statements.

Daniel BarceloHead, Corporate Finance

29 June 2016


Board of Directors

Samuel Adegboyega, Non-Executive ChairmanSamuel, has over 30 years’ experience in the oil and gas industry, and is currentlyManaging Director of SOWSCO Well Services (Nig.) Ltd., in Port Harcourt, Nigeria.Samuel is a member of the Board of Trustees Ile-Oluji Economic Summit Group, a traditional local community leadership organisation as well as being a foundingmember of S.T. Adegboyega & Co., a Nigerian law firm.

Samuel is a founding member and current Executive of the Petroleum TechnologyAssociation of Nigeria, an association formed to bring together Nigerian oil and gasentrepreneurs. Samuel graduated from the University of Ibadan with a degree inPetroleum Engineering.

Olalekan Akinyanmi, Chief Executive OfficerOlalekan (‘Lekan’) is the founder and Chief Executive Officer of LEKOIL Limited.Since inception, he has led the company through an IPO and subsequent fundraisesof over US$200 million on the London Stock Exchange’s AIM market.

Lekan has over 20 years’ experience in the oil and gas industry and was theInternational Energy Sector Head at AllianceBernstein L.P. in New York (Global assetmanager with over US$400 Billion under management) with direct responsibility for aUS$1Billion Energy and Natural Resource Portfolio.

Prior to that he was a member of the #1 institutional investor-ranked team of analystscovering the oilfield services industry as an Associate Director at UBS InvestmentResearch. Lekan has held Engineering and operational roles within Schlumberger ina career that spanned Nigeria, Egypt, Pakistan, Oman and Scotland.

Lekan graduated from the Obafemi Awolowo University in Nigeria with a Bachelor ofScience Degree in Electronic and Electrical Engineering and also holds an MBA fromMassachusetts Institute of Technology (MIT) Sloan School of Management. He is alsoa Member of the Society of Petroleum Engineers.

David Robinson, Chief Financial Officer (resigned 26 June 2015)David, a Chartered Financial Analyst Charterholder, is the Chief Financial Officer ofLekoil Limited. He has been instrumental in raising both private and public capital forthe Company and played a key role in Lekoil’s 2013 IPO and subsequent capitalraisings. Prior to joining Lekoil as a founding Board member in 2011, David worked asa Senior Vice President and Global Sector Head for Energy and Natural Resources atAllianceBernstein L.P., where he managed multi-billion dollar equity portfolios forinstitutional and mutual fund clients.

David has extensive experience in corporate analysis and research, and prior toworking for AllianceBernstein L.P., he worked for Credit Suisse First Boston, HSBCSecurities, and Westpac Investment Management.

David graduated from the University of Western Sydney with a Bachelors degree inCommerce, majoring in Accounting and later attained a Graduate Diploma in AppliedFinance and Investment from the Securities Institute of Australia.


Gregory Eckersley, Non-Executive DirectorGregory (‘Greg’), has 25 years’ experience in international financial markets. He is theglobal head of the Abu Dhabi Investment Authority’s internal equities department, wherehe oversees portfolios, risk management and the due diligence process.

Prior to joining the Abu Dhabi Investment Authority, Greg worked for AllianceBernsteinL.P. in New York, where he acted as Senior Portfolio Manager, leading a team responsiblefor the construction, management and risk control of multiple global and internationalgrowth equity portfolios. Prior to this appointment he was with AllianceBernstein inSouth Africa as Chief Executive of its regional offices, Draycott Partners, Century AssetManagement and Cigma International Investment Advisors in London.

Greg graduated from Oxford University in 1987 with a degree in Philosophy, Politicsand Economics (PPE), where he also received a Rhodes scholarship. He thenundertook a programme in Investment Management and Modern Portfolio Theoryat the London Business School.

H. Adesola Oyinlola, Non-Executive DirectorMr. H. Adesola (‘Sola’) Oyinlola brings a wealth of industry experience to the Board. Hewas most recently Chairman of Africa at Schlumberger and was also the President ofthe Schlumberger Foundation, a non-profit corporate foundation. Having worked withSchlumberger for 30 years, Sola has held a number of senior operational positionsacross the world, including Vice President and Global Treasurer, and Managing Directorfor Nigeria and West Africa.

Sola is a co-founder of the Petroleum Club of Lagos and serves on a number of boardsincluding Guaranty Trust Bank plc and the Schlumberger Foundation. He has a passionfor human capital and host community development, as evidenced by his participationin issues of economic development, inclusion, and mentoring. He holds a BSc inAccounting from the University of Ghana, and an MBA from Stanford University. He isan alumnus of the Oxford Institute for Energy Studies.

Aisha Oyebode, Non-Executive DirectorMrs. Aisha Oyebode is the CEO of the Murtala Muhammed Foundation and GroupChief Executive Officer, Asset Management Group (AMG) Limited. Prior to becomingCEO, Aisha was the Executive Director of AMG from October 1991– June 1993.Aisha is a legal practitioner with an LL.M (Public International Law) from Kings College,University of London and a Masters in Business Administration (MBA) with adistinction in Finance from Imperial College, University of London.

Mrs. Oyebode has several years of practical experience in corporate and litigationmatters having worked in the prestigious law firm of Ajumogobia, Okeke, Aluko andOyebode. She was called to the Nigerian Bar in 1989. She has completed severalattachments with global financial institutions which include Caisse Privee Banque,Brussels; Banque Rivaud, Paris; and Banque Privee, Geneva. Aisha also serves asa member of various boards.

John Van Der Welle, Non-Executive DirectorJohn, has over 25 years’ oil industry experience, having qualified as a charteredaccountant with Arthur Andersen in 1981. He is a member of the Association ofCorporate Treasurers and the Institute of Taxation.

After 11 years at Enterprise Oil where he was Business Development Manager andsubsequently Group Treasurer, John has been Finance Director of a number of listed E&P companies, including Premier Oil between 1999 and 2005.

He was Managing Director and Head of Oil and Gas at the Royal Bank of Scotland in2007-2008 and, since 2010 has worked as a consultant to, and non-executive Directorof, a number of listed and private E&P companies including Hurricane Energy Plc.


Directors’ reportFor the year ended 31 December 2015

The Directors submit their Report on the affairs of the Group together with the financial statements and audit report for the yearended 31 December 2015. The remuneration report on pages 18 to 19 forms part of this Directors’ report.

The Directors are pleased that the Annual Report and financial statements represents the position of the Group as at 31 December 2015.

Principal activityThe principal activity of the Group is the exploration for, and production of oil and gas.

DomicileThe Parent Company, Lekoil Limited (Cayman), is a public limited company and is registered in the Cayman Islands.

Results and dividendThe Consolidated loss recorded for the year ended 2015 was US$18.7 million (2014: US$11.9 million). The Directors have notrecommended the payment of a dividend (2014: US$ nil).

Directors and their interestsThe Directors who served during the year are listed below. Their beneficial interests in the share capital of the Company at31 December 2015 and at 31 December 2014, were as follows:

At 31 At 31 December 2015 December 2014

Number Number

Sam Adegboyega 1,160,000 1,160,000Olalekan Akinyanmi 41,868,293 39,138,601David Robinson* 7,787,004 7,787,004Greg Eckersley (and Family) 2,848,050 2,753,050Aisha Oyebode 256,250 256,250John van der Welle – –Hezekiah Adesola Oyinlola* 632,431 –

* Hezekiah Adesola Oyinlola was appointed as a Director effective 26 June 2015 while David Robinson left the Board of the Company on 26 June 2015 with hisresignation from the Company formally taking effect on 2 November 2015.

Substantial shareholdersAs at 20 April 2016, the following Shareholders held 3% or more of the nominal value of the Company’s shares carrying voting rights:

Number ofordinary shares % of share capital

Capital Research and Management 46,622,000 9.55Olalekan Akinyanmi 41,868,293 8.58Jennison Associates 29,820,541 6.11Consilium Investment Management 24,044,428 4.93Baron Capital Management 23,870,263 4.89Blackrock 21,168,381 4.34Blakeney Management 21,035,502 4.31River and Mercantile Asset Management 21,000,000 4.30Credit Suisse Stock lending Account 20,943,051 4.29Senator Investment Group 17,609,126 3.61Fidelity Worldwide Investments 16,341,658 3.35

Review of business and future developmentsA review on the operations of the Group is contained in the Chairman’s & CEO statements on pages 3 to 8 and financial review onpages 10 to 11.


Financial risk managementThe Group’s risks to financial instruments are outlined on page 55 to 57.

Directors’ indemnity and insuranceThe Group provides indemnity to Directors in respect of liabilities incurred as a result of their office. However, neither the indemnitynor the insurance provides cover in the event that the Director is proven to have acted dishonestly or fraudulently.

Post-reporting date eventsAll events that have occurred since the year end which require reporting have been disclosed in Note 28 to the consolidatedfinancial statements.

Charitable and political donationsCharitable contributions made in 2015 were US$68,000 (2014: US$nil). There were no political contributions made by the Groupduring the year (2014: US$nil).

Health, safety and environmentThe Group has an overriding commitment to health, safety and environmental responsibility. The Group works closely with hostgovernments and communities in the country in which it operates, together with its contractors and partners, to ensureinternationally recognised standards are implemented and maintained along with compliance to local legislation.

The Group’s activities are subject to the relevant environmental protection Acts. The Group closely monitors its activities to ensureto the best of its knowledge there is no potential for the breach of such regulations. There have been no breaches of these Actsrecorded against the Group during the reporting period.

Creditor payment policyIt is the Group’s policy to settle the terms of payment with suppliers when agreeing the terms of the transaction, to ensure thatsuppliers are aware of these terms and to abide by them.

Financial instrumentsDetails of the use of financial instruments by the Group are contained in note 31 of the consolidated financial statements.

Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance withapplicable law and regulations.

Under the Alternative Investment Market (AIM) Rules, the Directors are required to prepare financial statements for each financialyear. The Directors have elected to prepare the Group’s consolidated financial statements in accordance with International FinancialReporting Standards (IFRS) as adopted by the European Union. The Directors will not approve the consolidated financial statementsunless they are satisfied that they give a true and fair view of the financial position of the Group and of the financial performance ofthe Group for that year. The Directors are also required to prepare the consolidated financial statements in accordance with therules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

In preparing these consolidated financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRS as adopted by the European Union, subject to any materialdepartures disclosed and explained in the consolidated financial statements; and

• prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Companywill continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’stransactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure thatthe consolidated financial statements comply with IFRS. They are also responsible for safeguarding the assets of the Group andhence for taking reasonable steps for the prevention and detection of fraud and other irregularities.


Directors’ reportContinued

Number of board meetings during the yearRemuneration

Attendance Board Committee Audit Committee

Sam Adegboyega 6 – –Olalekan Akinyanmi 6 – –David Robinson 2 – –Greg Eckersley 6 2 2Aisha Oyebode 6 2 –John van der Welle 6 2 2Hezekiah Adesola Oyinlola 4 – –

Going concernThe Directors have assessed the ability of the Group to continue as a going concern having prepared detailed cash, funding andliquidity forecast through to 31 December 2017. The Directors believe that the Group will be able to meet financial obligationsthrough a combination of internal and external funding. Details on the going concern disclosure are shown in Note 2(b) to thefinancial statements.

GovernanceThere is no applicable regime of corporate governance to which Directors of a Cayman Islands company must adhere over andabove the general fiduciary duties of care, diligence and skill imposed on such Directors under Cayman Islands law. The Directorsrecognise the importance of sound corporate governance commensurate with the size and nature of the Company and theinterests of its Shareholders.

The Directors recognise the value of the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size QuotedCompanies (QCA Code). While under the AIM rules full compliance with the QCA Code is not required, the Directors seek to applythe recommendations of the QCA Code in so far as is appropriate having regard to the size, current stage of development andresources of the Company.

The Company will be subject to the Market Abuse Regulations which take effect in the United Kingdom from 3 July 2016. TheCompany will be updating its policies on the disclosures and control of inside information and securities dealing by personsdischarging management responsibility.

The Group continues to implement the following internal policies in order to provide guidance on Corporate Governance issues.These policies are reviewed periodically to ensure continued relevance:

• Related Party Transactions Policy

• Disclosure and Insider Trading Policy

• Share Dealing Code

• Whistleblowing Policy

• Anti-Bribery Policy

• Code of Ethics

• Safety, Health, Environment and Security Policy

Related Party Transaction PolicyThe Related Party Policy outlines the procedure for identifying related parties and interests and regulates the disclosure and approvalrequirements for transactions with such parties (“Related Party Transactions”) within the Group, its associates and affiliates. TheRelated Party Policy provides guidelines and procedures on dealing with Related Party transactions and compels all employees andDirectors of the Company to fully understand, and adhere to their responsibilities and obligations in respect of such transactions.

Disclosure and Insider Trading PolicyThe Company is required to comply with the AIM rules and regulations and the Financial Conduct Authority’s Disclosure andTransparency Rules relating to the disclosure and control of inside information. The purpose of the Disclosure Policy is to help theCompany comply with these rules on an ongoing basis by ensuring both timely and orderly communication of key informationconcerning the Company to shareholders, the stock market as a whole and to the press.

The Disclosure Policy provides varying authority levels and consultation requirements for information released to the public includingshareholders, the press, brokers or others, as well as authority levels to issue communications in relation to the Company’s affairsgenerally, including in particular major announcements such as the preliminary and half-year results and any announcementsconcerning major business developments.


In addition to disclosure regulations by the Company the Insider Trading Policy places an overriding obligation on the Company andits Directors to manage “inside information” as stated in the policy both internally and externally, in order to prevent market abuse,insider dealing and similar offences by persons in possession of inside information.

Share Dealing CodeThe Share Dealing Code applies to all employees, Directors, and persons “associated” with employees and Directors of the Companyand sets out the rules governing the dealing in its shares and related securities of by those persons. The Share Dealing Code isintended to serve as a guide to its employees in the various legal requirements relating to dealing in the Company’s shares andrelated securities.

The fundamental principle is that as a matter of law no person should deal in the shares or securities of the Company at any timewhen they are or may be regarded as privy to insider information.

Whistleblowing PolicyThe objective of this policy is to support the Group’s values by encouraging all employees to report the occurrence of anymisconduct (irrespective of location) by employees, Directors or associates of the Group that affects the business of the Group;without fear of risk to themselves or any inhibition or victimisation.

Anti-Bribery PolicyThe purpose of this policy is to reinforce the Group’s reputation for integrity and responsibility and its business principle of zerotolerance to bribery and corruption by providing a framework to guard and promote the Group’s position in this regard.

This Policy applies not only to Directors or employees of the Group but also to agents, intermediaries, consultants, joint venture orother business partners and any other persons, organisations or bodies doing business with the Group.

Code of EthicsThe Group is committed to the highest standards of ethical and professional conduct. The Code of Ethics (the “Code”) provides basicguidelines for business practices, professional and personal conduct which each Director and employee is expected to adopt and uphold.

The Code also serves as the Group’s creed to ensure transparency, accountability and openness in all its dealings and activitiesconducted to promote public trust and confidence in the Group amongst its staff and/or Directors.

Safety, Health, Environment and Security (SHES) PolicyThe Group is committed to understanding, managing and reducing the environmental impact of its activities and implementsinternationally recognised environmental management systems to achieve this goal. The SHES Policy assists the Group in enforcingthe health, safety and welfare of its employees in the work place as well as ensuring the protection of its business partners andsurrounding community at its sites of operations.

Website publicationThe Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financialstatements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparationand dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity ofthe Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of thefinancial statements contained therein.

AuditorAll of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any informationneeded by the Company’s auditor for the purposes of their audit and to establish that the auditor is aware of that information.The Directors are not aware of any relevant audit information of which the auditor is unaware.

KPMG Professional Services have expressed their willingness to continue in office and a Resolution to re-appoint them will beproposed at the annual general meeting.

By order of the board

Gloria IroegbunamCompany Secretary

29 June 2016


Remuneration reportFor the year ended 31 December 2015

Scope of reportThe Remuneration Report sets out the Company’s remuneration policy and, particularly, its approach for Directors. It also explainshow the Company applies the principles of good corporate governance in relation to remuneration.

Composition and roleThe Remuneration Committee (“the Committee”) comprises of Gregory Eckersley (the Chairman), Aisha Oyebode and John van derWelle. The members are all independent Non-Executive Directors of the Company. The Committee is responsible for determiningand reviewing the terms and conditions of service (including remuneration) and termination of employment of Executive Directorsand senior employees and the administration of the Company’s share option and share award schemes. It is responsible fordetermining individual remuneration packages including, where appropriate, bonuses, incentives and share options. The Committeeis also permitted to appoint independent remuneration consultants – H2Glenfern Remuneration Advisory – to advise the Companyon remuneration for the Executive Directors.

Remuneration policyThe Committee, in forming its policy on remuneration has given due consideration to the needs of the Company, Shareholders andbest practice provisions set out in the UK Corporate Governance Code. The ongoing policy of the Committee is that the overallremuneration package should be sufficiently competitive to attract, retain and motivate high quality employees capable of achievingthe Group’s objectives and to incentivise them effectively, so as to deliver long-term shareholder value.

It is the aim of the Committee to reward key employees on a basis which is aligned to the performance of the Company. Also, theremuneration is subject to the broader principle that their remuneration should be competitive with that received by professionalsof comparable companies.

There are four main elements of the remuneration package:

• Base salary• Employee benefits• Performance-related cash bonus• Performance share plan

The Company currently does not have a pension scheme for the Directors.

Base salaryThe policy is to pay a fair and reasonable base salary, taking into account comparable salaries for similar roles in similar companies.The base salary is reviewed annually by the Committee having regard to the performance of the Company, individual performance,market data, levels of increases applicable to other employees of the Company and economic conditions. Base salaries for theExecutive Directors remain at the level set at IPO and are now payable in cash.

Employee benefitsThe Company’s Directors and Officers are covered under a third party indemnity insurance. It also provides Healthcare and PensionPlan arrangements for all its employees.

Performance-related cash bonusThe Group’s bonus performance measurement for Executive Directors and staff is based upon Group performance, achievingoperational targets and personal performance. The key operational targets relate to progress at the Company’s licence areas, buildingthe Company’s reserve base, acquiring further licence interests, achievement of production targets, fundraising and performanceagainst budget. The Group monitors key metrics on share price performance versus its peer group companies and key indices suchas the AIM 50, and AIM E&P Indices.

The Committee considered the development of the Otakikpo field and the impressive effort aimed to achieve continuous productionin 2016. The Company also secured its investment in OPL 310 following the financial strains of the Partner, Afren Investment Oil andGas (Nigeria) Limited by acquiring Afren Oil and Gas giving the Group a total of 40% participating interest in OPL 310. This acquisitionis subject to obtaining Ministerial consent. The Company is also negotiating with Optimum (the licence holder) to agree possibleterms to operate the field. Additional equity funding was raised in October 2015 to improve the funding capacity of the Company.

Although, there was a decline in the share performance in 2015, the Committee considered this to be an industry factor rather thana Company specific factor.

In respect of performance in 2015, the Remuneration Committee determined to award Olalekan Akinyanmi a performance relatedbonus of US$600,000. This reflected the considerable progress made on operational activities. The bonus was paid in the year 2016.

Performance Share PlanShare option awards may be granted to the Company’s employees and Directors by the Board, upon recommendation by theRemuneration Committee. In line with the Long Term Incentive Plan (LTIP), the Board on 26 June 2015 approved the grant of7,895,000 options to employees of the Company. Awards were also made under the Company’s LTIP which was approved on19 November 2014 and amended on 21 December 2015 to the CEO, Olalekan Akinyanmi on 23 December 2015.


On 21 December 2015 the Board adopted the Company’s Non-Executive Director Share Plan designed to provide incentives toNon-Executive Directors. The Committee made awards to the Non-Executive Directors under this plan on 23 December 2015.

Details of the options awarded is set out in Note 23 of the Financial Statements.

The following table summarises the total gross remuneration of the Directors who served during the year ended31 December 2015 (audited):

Performance Compensation Total TotalBasic salary or fees General related for loss of emoluments emoluments

Cash Shares benefits bonus office 2015 2014US$000 US$000 US$000 US$000 US$000 US$000 US$000

ExecutiveOlalekan Akinyanmi 750.00 1.87 131.25 600.00 – 1,483.12 1,509.25David Robinson1 300.00 – 52.50 – 740.66 1,093.16 1,015.99Non-ExecutiveSamuel Adegboyega 140.00 0.10 – – – 140.10 120.00Aisha Muhammed-Oyebode 100.00 5.20 – – – 105.20 92.46Atedo Peterside2 – – – – – – 56.23Greg Eckersley 100.00 0.10 – – – 100.10 80.00John van der Welle 100.00 6.33 – – – 106.33 94.73Hezekiah Adesola Oyinlola3 50.00 0.10 – – – 50.10 –

1,540.00 13.70 183.75 600.00 740.66 3,078.10 2,968.66

1 Left the Board of the Company 26 June 2015 with resignation from the Group formally taking effect in November 20152 Resigned in June 20143 Appointed on 26 June 2015

The interests of the Directors, who were in office at the end of the financial year, in options over the shares of Lekoil Limited at31 December 2015 and 31 December 2014 were:

Outstanding Outstandingas at Exercise Granted in Exercise Exercised in Forfeited in Expired in as at

31 Dec 2014 price the year price the year the year the year 31 Dec 2015number (£) number (£) number number number number Lapse date

Olalekan Akinyanmi 5,480,000 0.49 3,143,000 0.40 – – – 8,623,000 03-Dec-2022-Dec-25

David Robinson1 1,600,000 0.49 – 0.40 – – – 1,600,000 01-Feb-16Greg Eckersley 1,257,986 0.49 100,000 0.40 – – – 1,357,986 03-Dec-20

22-Dec-25Sam Adegboyega 750,000 0.49 100,000 0.40 – – – 850,000 03-Dec-20

22-Dec-25Aisha Oyebode 187,500 0.49 100,000 0.40 – – – 287,500 19-Feb-23

22-Dec-25John van Der Welle 187,500 0.49 100,000 0.40 – – – 287,500 04-Apr-23

22-Dec-25Hezekiah Adesola Oyinlola – – 100,000 0.40 – – – 100,000 22-Dec-25

* The Group issued options with 3 different exercise prices US$1, US$3.75, and US$7.50 in 2012. The share price was estimated based on recent arm’s length shareissues. On 17 May 2013, the issued options with exercise prices of US$1.00 & US$3.75 were cancelled and the issued options with exercise price of US$7.50 weresubdivided by a factor of ten in line with the Company’s capital reorganisation which resulted in a share split of 10:1. The exercise price of the outstanding optionswas also subdivided by a factor of ten resulting in a reduction in exercise price from US$7.50 to US$0.75 and an increase in total number of option shares from6,000,000 to 19,000,000. Effective 26 March 2014, the exercise price of the outstanding stock options was changed from US$0.75 to GB£0.49 using a conversionrate of US$1.53 to GB£1.00 and the existing stock option agreements have been amended to reflect the exercise price in GB£. Options granted in 2015 wereissued at an exercise price of GB£0.40. There were no share options exercised or forfeited by the Directors in the year.

** All options granted to David Robinson lapsed on 1 February 2016 in line with the provisions of the Executive Stock Incentive Plan which allowed him to exerciseoptions awarded at any time within a period of three (3) months after the date of resignation, and not thereafter to the extent such option was exercisable by himon the date of resignation.


Statement of Directors’ responsibilities in relation to the consolidatedfinancial statements for the year ended 31 December 2015

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

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

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

Signed on behalf of the Board of Directors by:

Olalekan Akinyanmi Daniel BarceloChief Executive Officer Head, Corporate Finance

29 June 2016


Independent Auditor’s reportTo the members of Lekoil Limited

We have audited the accompanying financial statements of Lekoil Limited (“the Company”) and its subsidiary companies (together“the Group”), which comprise the consolidated statement of financial position as at 31 December 2015, the consolidated statement ofprofit or loss and other comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows forthe year then ended, a summary of significant accounting policies, and other explanatory information as set out on pages 27 to 66.

Directors’ Responsibility for the Financial StatementsThe Directors are responsible for the preparation of the consolidated financial statements that give a true and fair view inaccordance with International Financial Reporting Standards as adopted by the European Union and for such internal control asthe Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted ouraudit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internalcontrol relevant to the entity’s preparation and fair presentation of the consolidated financial statements that give a true and fairview in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentationof the financial statements.

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

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

Emphasis of matterWithout qualifying our opinion, we draw attention to note 2(b) to these consolidated financial statements which describe theprincipal events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.

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

Signed:

Chibuzor N. Anyanechi, FCAFRC/2013/ICAN/00000000789For: KPMG Professional ServicesChartered Accountants

29 June 2016

Lagos, Nigeria


Consolidated statement of financial positionAs at 31 December

In US Dollars Notes 2015 2014

ASSETSProperty, plant and equipment 8 12,602,414 1,373,904Exploration and evaluation assets 9 111,976,751 111,136,232Intangible assets 10 8,002,389 8,266,103Other receivables 11 1,620,589 1,503,667Other assets 12 30,609,535 121,643Total non-current assets 164,811,678 122,401,549Inventories – 166,337Other receivables 11 939,224 176,753Other assets 12 29,960,484 4,553,882Cash and cash equivalents 13 26,016,194 49,225,726Total current assets 56,915,902 54,122,698Total assets 221,727,580 176,524,247

EqUITyShare capital 14(a) 24,412 18,152Share premium 14(b) 252,207,651 207,947,439Retained losses (29,916,203) (18,815,402)Share based payment reserve 5,173,698 3,726,918Equity attributable to owners of the Company 227,489,558 192,877,107Non-controlling interests 15 (26,728,751) (19,111,045)Total equity 200,760,807 173,766,062

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

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

Olalekan Akinyanmi Daniel BarceloChief Executive Officer Head, Corporate Finance

The notes on pages 26 to 57 are an integral part of these consolidated financial statements.


Consolidated statement of profit or loss and other comprehensive incomeFor the year ended 31 December


Revenue 20 – –Cost of sales – –Gross profit – –General and administrative expenses 21 (22,838,022) (11,820,164)Loss from operating activities (22,838,022) (11,820,164)Finance income 22 4,119,515 79,949Finance costs 22 – (192,223)Net finance income/(costs) 4,119,515 (112,274)Loss before income tax (18,718,507) (11,932,438)Income tax expense – –Loss for the year (18,718,507) (11,932,438)Total comprehensive loss for the year (18,718,507) (11,932,438)

Loss attributable to:Owners of the Company (11,100,801) (1,929,741)Non-controlling interests (7,617,706) (10,002,697)

(18,718,507) (11,932,438)

Total comprehensive loss attributable to:Owners of the Company (11,100,801) (1,929,741)Non-controlling interests (7,617,706) (10,002,697)

(18,718,507) (11,932,438)

Loss per share:Basic loss per share (US$) 24(a) (0.03) (0.01)Diluted loss per share (US$) 24(b) (0.03) (0.01)



Consolidated statement of changes in equityFor the year ended 31 December

Share-based Non-Share Share Retained Other payments controlling Total

In US Dollars capital premium losses reserves reserve Total interests equity

Balance at 1 January 2014 16,497 171,419,410 (16,989,844) 104,183 1,647,608 156,197,854 (9,108,348) 147,089,506Total comprehensiveincome for the yearLoss for the year – – (1,929,741) – – (1,929,741) (10,002,697) (11,932,438)Total comprehensiveincome for the year – – (1,929,741) – – (1,929,741) (10,002,697) (11,932,438)Transactions with ownersof the CompanyIssue of ordinary shares 1,650 36,485,363 – – – 36,487,013 – 36,487,013Share basedpayment settlement – – – – (20,000) (20,000) – (20,000)Transfer – – 104,183 (104,183) – – – –Share-based payment –personal expenses – – – – 2,141,981 2,141,981 – 2,141,981Effect of share option conversion 5 42,666 – – (42,671) – – –Total transactions with ownersof the Company 1,655 36,528,029 104,183 (104,183) 2,079,310 38,608,994 – 38,608,994Balance at 31 December 2014 18,152 207,947,439 (18,815,402) – 3,726,918 192,877,107 (19,111,045) 173,766,062

Share-based Non-Share Share Retained Other payments controlling Total

In US Dollars capital premium losses reserves reserve Total interests equity

Balance at 1 January 2015 18,152 207,947,439 (18,815,402) – 3,726,918 192,877,107 (19,111,045) 173,766,062Total comprehensiveincome for the yearLoss for the year – – (11,100,801) – – (11,100,801) (7,617,706) (18,718,507)Total comprehensiveincome for the year – – (11,100,801) – – (11,100,801) (7,617,706) (18,718,507)Transactions with ownersof the companyIssue of ordinary shares 6,260 44,260,212 – – – 44,266,472 – 44,266,472Share-based payment –personnel expenses – – – – 1,446,780 1,446,780 – 1,446,780Total contributions 6,260 44,260,212 – – 1,446,780 45,713,252 – 45,713,252Total transactions with ownersof the Company 6,260 44,260,212 – – 1,446,780 45,713,252 – 45,713,252Balance at 31 December 2015 24,412 252,207,651 (29,916,203) – 5,173,698 227,489,558 (26,728,751) 200,760,807



Consolidated statement of cash flowsFor the year ended 31 December


CASH FLOWS FROM OPERATING ACTIVITIESLoss for the period (18,718,507) (11,932,438)Adjustments for:– Equity-settled share-based payment 1,446,780 2,141,981– Finance income (72,505) (3,667)– Impairment loss 1,102,500 –– Finance cost – 192,223– Depreciation and amortisation 8,10 860,023 443,935

(15,381,709) (9,157,966)Changes in:– Inventory 166,337 (166,337)– Trade and other payables 6,923,043 (20,069,247)– Other assets (40,792,316) (4,253,925)– Other receivables 15,261,595 (1,776,482)Net cash used in operating activities (33,823,050) (35,423,957)

CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment 8 (10,514,984) (1,456,550)Deposit for investment (12,240,000) –Interest received 11,517 –Proceeds from sale of fixed assets – 48,271Loan to Ashbert Oil and Gas Limited (16,080,000) –Acquisition of exploration and evaluation assets 9 (1,943,019) (8,463,433)Acquisition of intangible assets 10 (46,931) (8,577,638)Net cash used in investing activities (40,813,417) (18,449,350)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of share capital 14 44,266,472 36,487,013Proceeds from issue of loan note 19(a) 10,000,000 –Repayment of loan (2,000,000) –Share based payment settlement – (20,000)Interest and transaction costs related to loan (839,537) –Net cash generated from financing activities 51,426,935 36,467,013Net decrease in cash and cash equivalents (23,209,532) (17,406,294)Cash and cash equivalents at 1 January 49,225,726 66,632,020Cash and cash equivalents at 31 December 26,016,194 49,225,726



Notes to the financial statements

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

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

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after1 January 2015, and have not been applied in preparing these consolidated financial statements. The revised and new accountingstandards and interpretations issued but not yet effective for the accounting year beginning on 1 January 2015 are set out in note 5.

(b) Going concern basis of accountingThese consolidated financial statements have been prepared on the going concern basis of accounting, which assumes that theGroup will continue in operation for the foreseeable future and be able to realise its assets and discharge its liabilities andcommitments in the normal course of business.

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

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

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

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

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

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

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

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

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

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

• In June 2016, well re-entry operations on Otakikpo-003 Well started targeting the E1 and C6 zones and production is expected inQ3 2016. With a combination of production from well 002 and 003, the Company raised production estimates to approximately10,000 bopd.

• Lekoil intends to fund development on the Otakikpo field and future exploratory activities using a combination of cash flows fromoperations, through production from Otakikpo and adequate debt finance. The Company raised funds from investors in October2015 through the successful completion of a Placement which raised US$46m gross.


2. Basis of preparation continued• Lekoil prepared detailed cash flow forecasts to ensure adequate coverage is given to the liquidity position of the Group. In 2016,

Lekoil successfully raised additional debt finance of US$45m after complying with the pre-debt covenants. These funds will be usedto accomplish planned activities on the Otakikpo field.

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

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

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

• The Company sought Ministerial approval in January 2014 following the farm-in of Mayfair to OPL 310 for a participatory interest of17.14% which is still outstanding as at the date of approval of these financial statements. As this application is still valid and notdeclined, a reapplication has not been required. Lekoil continues to monitor the progress of the application and the Directors areconfident that this will be granted.

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

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

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

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

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

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

(c) Basis of measurementThese consolidated financial statements have been prepared on the historical cost basis except for share based payments whichare measured at fair values.


Notes to the financial statementsContinued

2. Basis of preparation continued(d) Functional and presentation currencyThese consolidated financial statements are presented in US Dollars which is the Company’s functional currency. All amounts havebeen rounded to the nearest unit, unless otherwise indicated.

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

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

(i) JudgmentsInformation about judgments made in applying accounting policies that have the most significant effects on the amounts recognisedin the consolidated financial statements is included in the following notes:

• Note 2(b) – Going Concern basis of accounting.

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

• Note 9 – Exploration and Evaluation assets. On the basis that Ministerial consent is required to be obtained and the ongoingnegotiations with Optimum together with the existing arrangements between Optimum and Afren Oil & Gas, will result in afavourable outcome for the Group’s participating and economic interests in OPL 310, the Group has accounted for expendituresincurred on OPL 310 as Exploration and Evaluation assets.

(ii) Assumptions and estimation uncertaintiesInformation about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in theyear ended 31 December 2016 is included in the following notes:

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

• Note 9(b) – Carrying value of Exploration and Evaluation assets. Basis for the conclusion that the carrying value of E&E assets donot exceed their recoverable amount.

• Note 12 – Carrying value of other assets. Basis for the conclusion that the carrying value of other assets do not exceed theirrecoverable amount.

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

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

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

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

3. Significant accounting policiesThe accounting policies set out below have been applied by the Group consistently to all periods presented in these consolidatedfinancial statements.

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

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

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


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

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

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

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

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

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

(v) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, areeliminated in preparing the consolidated financial statements.

(b) Foreign currency(i) Foreign currency transactionsTransactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at thedates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated tothe functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in aforeign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreigncurrency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are measured based onhistorical cost in a foreign currency are not translated.

(ii) Foreign operationsThe assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The incomeand expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions.

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

(c) Share capital(i) Ordinary sharesOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as adeduction from equity, net of any tax effects.

(d) Financial instrumentsThe Group classifies non-derivative financial assets into loans and receivables and non-derivative financial liabilities into the otherfinancial liabilities category.

(i) Non-derivative financial assetsThe Group initially recognises loans and receivables on the date that they are originated. All other financial assets and financialliabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

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



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

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

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

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

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

(ii) Non-derivative financial liabilitiesAll financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisionsof the instrument.

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

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

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

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

(iii) ImpairmentNon-derivative financial assetsA financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there isobjective evidence of impairment. A financial asset is impaired if there is an objective evidence of impairment as a result of one ormore events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cashflows of that asset and can be estimated reliably.

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

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

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

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

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


3. Significant accounting policies continued(ii) DepreciationItems of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructedassets, from the date that the asset is completed and ready for use.

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

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

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

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

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

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

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

An E&E asset is assessed for impairment when facts and circumstances suggest that the carrying amount may exceed itsrecoverable amount. Such circumstances include the point at which a determination is made as to whether or not commercialreserves exist. Where the E&E asset concerned falls within the scope of an established full cost pool, the E&E asset is tested forimpairment together with any other E&E assets and all development and production assets associated with that cost pool, as asingle cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool,generally by reference to the present value of the future net cash flows expected to be derived from production of commercialreserves. Where the E&E asset to be tested falls outside the scope of any established cost pool, there will generally be nocommercial reserves and the E&E asset concerned will be written off in full.

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

(h) Leases(i) Determining whether an arrangement contains a leaseAt inception of an arrangement, the Group determines whether the arrangement is or contains a lease.



3. Significant accounting policies continuedAt inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other considerationrequired by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If theGroup concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability arerecognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are madeand an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate.

(ii) Leased assetsAssets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classifiedas finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present valueof the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accountingpolicy applicable to that asset.

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

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

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

(i) InventoriesInventories comprise consumable materials.

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

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

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

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

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

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

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

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

Type of asset Basis

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

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


3. Significant accounting policies continued(ii) Share-based payment transactionsThe grant-date fair value of equity-settled share-based payment awards granted to employees and others providing similar servicesis recognised as an employee expense and other general and administrative expense respectively, with a corresponding increase inequity, over the vesting period that the employees become unconditionally entitled to the awards. The amount recognised as anexpense is adjusted to reflect the number of awards for which the related service and non-market performance conditions areexpected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related serviceand non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, thegrant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differencesbetween expected and actual outcomes.

(iii) Post-employment benefitsDefined contribution planA defined contribution plan is a post-employment benefit plan (pension fund) under which the Group pays fixed contributions into aseparate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficientassets to pay all employees the benefits relating to the employee service in the current and prior periods.

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

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

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

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

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

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

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

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

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



3. Significant accounting policies continued(n) Earnings per shareThe Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing theprofit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstandingduring the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders andthe weighted average number of ordinary shares after adjusting for the effects of all dilutive potential ordinary shares whichcomprise share options granted to employees. Potential ordinary shares are treated as dilutive when, and only when, theirconversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.

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

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

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

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

(ii) Deferred taxDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amount used for taxation purposes.

Deferred tax is not recognised for:

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

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

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

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

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

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

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

4. Measurement of fair valuesA number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial andnon-financial assets and liabilities.

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


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

Significant valuation issues are reported to the Group Audit Committee.

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

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

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

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

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

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

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

Note 23 – share-based payment arrangements.

Note 31 – financial risk management and financial instruments.

5. Application of new and revised IFRS5.1 New and revised IFRS in issue but not yet effectiveThere are new or revised accounting standards and Interpretations in issue that are not yet effective. These include the followingStandards and Interpretations that are applicable to the business of the entity and may have an impact on future financial statements.

Effective for the financial year commencing 1 January 2016• IFRS 14 Regulatory Deferral Accounts.

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

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

• Disclosure Initiative (Amendments to IAS 1).

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

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

Effective for the financial year commencing 1 January 2018• IFRS 15 Revenue from contracts with customers.

• IFRS 9 Financial Instruments.

Effective for the financial year commencing 1 January 2019• IFRS 16 Leases.

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

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

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint OperationsThe amendments require business combination accounting to be applied to acquisitions of interest in a joint operation thatconstitutes a business.



5. Application of new and revised IFRS continuedBusiness combination accounting also applies to the acquisition of additional interest in a joint operation while the joint operatorretains joint control. The additional interest acquired will be measured at fair value. The previously held interest in the jointoperation will not be remeasured. As a consequence of these amendments, the Group will amend its accounting policy with effectfrom 1 January 2016 for acquisitions of interest in a joint operation.

The amendments apply prospectively.

Amendments to IAS 16 and 38 Clarification of Acceptable Methods of Depreciation and AmortisationThe amendments to IAS 16 Property, Plant and Equipment explicitly state that revenue-based methods of depreciation cannot beused for property, plant and equipment.

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

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

Amendments to IAS 1 Disclosure initiativeThe amendments to IAS 1 (Disclosure Initiative) clarifies the following:• Materiality: the concept of materiality should be applied in the aggregation and providing of information, and these should be

applied to all parts of the financial statements.• Statement of financial position, statement of profit or loss and other comprehensive income: the amendment clarifies aggregation

of line items and gives additional guidance on subtotals. It also clarifies that an entity’s share of OCI of equity-accounted associatesand joint ventures should be presented in aggregates as single line items based on whether or not it will subsequently bereclassified to profit and loss.

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

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

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint VentureThe amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between and investorand its associate or joint venture. The Directors do not anticipate any material impact arising from this amendment in future.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation ExceptionThe amendments to IFRS 10, IFRS 12 and IAS 28 clarify that the exemption from preparing consolidated financial statements is availableto a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all its subsidiaries at fair value inaccordance with IFRS 10. The amendments also clarify that the requirement for an investment entity to consolidate a subsidiaryproviding services related to the former’s investment activities applies only to subsidiaries that are not investment entities themselves.

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

IFRS 15 Revenue from Contracts with CustomersThe standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreementsfor the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue- Barter of Transactions InvolvingAdvertising Services.

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

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

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

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


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

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

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

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

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

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

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

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

Amendments to IAS 19 Defined Benefit Plans: Employee ContributionsThe amendments to IAS 19 clarifies how an entity should account for contributions made by employees or third parties to definedbenefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee.

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

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

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

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

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

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

Non-current assetsIn US Dollars 2015 2014

Nigeria 162,721,851 120,708,703Namibia 407,445 100,415USA 117,727 88,764Cayman 1,564,655 1,503,667

164,811,678 122,401,549

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



7. Capital managementThe Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustainfuture development of the business.

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

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

In US Dollars 2015 2014

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

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

8. Property, plant and equipmentThe movement on this account was as follows:

Computer & Oil and Motor Furniture & Household Leasehold

In US Dollars Gas Assets* Vehicles Fittings Equipment Improvements Total

Cost:Balance at 1 January 2014 – 113,163 63,279 120,459 – 296,901Additions 311,510 61,051 193,892 130,794 759,303 1,456,550Disposals – – (41,204) (28,820) – (70,024)Balance at 31 December 2014 311,510 174,214 215,967 222,433 759,303 1,683,427Balance at 1 January 2015 311,510 174,214 215,967 222,433 759,303 1,683,427Additions 10,752,704* 121,310 136,657 366,801 400,416 11,777,888**

Balance at 31 December 2015 11,064,214 295,524 352,624 589,234 1,159,719 13,461,315

Accumulated depreciationand impairment losses:Balance at 1 January 2014 – 41,717 18,634 24,320 – 84,671Charge for the year – 24,668 28,746 37,755 155,436 246,605Disposals – – (11,005) (10,748) – (21,753)Balance at 31 December 2014 – 66,385 36,375 51,327 155,436 309,523Balance at 1 January 2015 – 66,385 36,375 51,327 155,436 309,523Charge for the year – 42,928 61,965 98,673 345,812 549,378Balance at 31 December 2015 – 109,313 98,340 150,000 501,248 858,901

Carrying amounts:At 31 December 2015 11,064,214 186,211 254,284 439,234 658,471 12,602,414At 31 December 2014 311,510 107,829 179,592 171,106 603,867 1,373,904

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


8. Property, plant and equipment continued* The addition of US$10.8 million during the year is mainly in respect of the production drilling and facilities, infrastructure pipelines, site remediation and

rehabilitation and land reclamation activities on the Otakikpo marginal field.

As a result of these activities, on 7 September 2015, the Group announced that the lower E1 zone of Otakikpo well 002 produced from the first of four plannedproduction tests, flowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke. However, during completion operationsthe well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. To keep Phase 1 of the FieldDevelopment Plan (“FDP”) on track and under budget, the Company prioritised production from the second and third planned production zones, in the C5 andC6 reservoirs, and will pursue development options for the E1 zone in the future.

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

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

9. Exploration and Evaluation (E&E) assetsE & E assets represents the Group’s oil mineral rights acquisition and exploration costs.

(a) The movement on the E&E assets account was as follows:In US Dollars 2015 2014

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

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

OPL 310 is a licence granted to Optimum Petroleum Development Limited (“Optimum”) by the Nigerian Government on 3 February1992 for an initial term of five years. On 19 February 2009, the Department of Petroleum Resources confirmed the re-allocation ofOPL 310 to Optimum with effect from 11 February 2009 for a period of ten years. The unexpired lease term on OPL 310 isapproximately 3 years. The holders of OPL 310 expect to apply for the conversion of the OPL to an Oil Mining Lease (OML) for aduration of twenty years with effect from the end of the OPL, subject to regulatory approval.

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

In February 2013, Mayfair Assets and Trust Limited (“Mayfair”), a subsidiary of Lekoil Limited, farmed into Afren Oil & Gas’ interest inOPL 310. Under the terms of the farm-in agreement with Afren Oil & Gas, Mayfair is entitled to a 17.14% participating interest and30% (post-production) interest in the net proceeds of production from the asset corresponding with a 40% capital and operatingexpenditure responsibilities towards the development of the asset. The Group’s right to the 17.14% participating interest is subjectto Ministerial consent to the farm-in agreement. Where Ministerial consent is not received, any consideration paid by the Group toAfren Oil & Gas will not be refunded; however the company has rights, under a Risk and Financial Services Agreement with Afren Oil& Gas, to interests in OPL 310 reserves and production and the expenditures to date will be classified as loans and advances.

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

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



9. Exploration and Evaluation (E&E) assets continuedOn 24 October 2015, Optimum and Mayfair executed a non-binding term sheet setting out possible terms upon which the twocompanies would be prepared to transact in relation to OPL 310, together with a plan to draft and execute definitive agreementswithin 4 to 6 weeks. This draft agreement defined an expected minimum work programme of one well on OPL 310 expected to be drilledin 2016 and also designated Lekoil as the technical and financial partner. In addition, amongst other terms, the term sheet anticipatesthat 100% of Afren Oil & Gas’ pre-drill cost and 60% of Afren Oil & Gas’ post-drill cost of US$30.0m and US$49.2m respectively, will berecovered by Optimum and the balance of Afren Oil & Gas’ post-drill cost of US$19.68m by Mayfair. The definitive agreements are yetto be executed as negotiations are still ongoing and in the view of the Directors, the agreements between Optimum and Afren Oil &Gas and by extension the agreements between Afren Oil & Gas and Mayfair remain in force.

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

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

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

10. Intangible assetsThe movement on the intangible assets account was as follows:

Geological Mineral Rights and Geophysical Accounting

In US Dollars Acquisition Costs* Software Software Total

CostsBalance at 1 January 2015 7,000,000 1,406,308 57,125 8,463,433Additions during the year – – 46,931 46,931Balance at 31 December 2015 7,000,000 1,406,308 104,056 8,510,364

Accumulated amortisationBalance at 1 January 2015 – 188,547 8,783 197,330Charge for the year – 281,261 29,384 310,645Balance at 31 December 2015 – 468,808 38,167 507,975

Carrying amountsAt 31 December 2015 7,000,000 936,500 65,889 8,002,389At 31 December 2014 7,000,000 1,217,761 48,342 8,266,103

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

11. Other receivablesOther receivables comprise:In US Dollars 2015 2014

Director’s loan (See Note 26) 1,564,655 1,503,667Employee loans and advances 55,934 51,183Due from Afren Investment Oil & Gas (Nigeria) Limited (See Note 11 (a)) 399,980 –Other receivables 539,244 125,570

2,559,813 1,680,420Non-current 1,620,589 1,503,667Current 939,224 176,753

2,559,813 1,680,420

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


12. Other assetsOther assets comprises:In US Dollars 2015 2014

Prepaid development costs (Note 12 (a)) 28,807,397 3,705,797Deposit for investments in Ashbert Oil & Gas Limited (Note 12 (b)) 240,000 –Deposit for investments in Afren Investments Oil & Gas (Nigeria) Limited (Note 12 (c)) 12,000,000 –Prepaid insurance 248,797 118,045Prepaid rent 834,205 753,633Advance for captive generating plant 1,502,448 –Due from Ashbert Oil and Gas Limited (See Note 12 (d)) 16,777,897 –Others 159,275 98,050

60,570,019 4,675,525Non-current 30,609,535 121,643Current 29,960,484 4,553,882

60,570,019 4,675,525

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

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

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

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

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

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

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

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



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

13. Cash and cash equivalentsIn US Dollars 2015 2014

Bank balances 26,016,194 49,225,726Cash and cash equivalents 26,016,194 49,225,726

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

14. Capital and reserves(a) Share capitalIn US Dollars 2015 2014

Authorised 50,000 50,000Issued, called up and fully paid 24,412 18,152Total issued and called up share capital 24,412 18,152

Ordinary shares

2015 2014

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

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

Number of shares@ US$0.00005 each Consideration (US$) Nominal value (US$) Premium (US$)

43,318,430 6,022,165 2,166 6,019,99930,000,000 1,500 1,500 –

2,990,660 1,121,500 150 1,121,3503,500,000 203,000 175 202,825

512,500 98,250 26 98,22419,470,570 1,396,661 974 1,395,68782,732,073 46,100,445 4,137 46,096,308

147,382,000 116,492,386 7,369 116,485,01733,000,000 36,416,700 1,650 36,415,050

93,750 112,984 5 112,979125,200,000 44,266,472 6,260 44,260,212488,199,983 252,232,063 24,412 252,207,651


14. Capital and reserves continuedThe movement in share premium during the year was as follows:In US Dollars 2015 2014

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

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

15. Non-controlling interestsIn US Dollars 2015 2014

Lekoil Nigeria Limited 26,590,168 19,033,565Lekoil Exploration and Production (Pty) Limited (Namibia) 138,583 77,480

26,728,751 19,111,045

16. Trade and other payablesIn US Dollars 2015 2014

Accrued expenses 3,080,574 2,059,550Accounts payable 5,029,596 153,869Payroll liabilities 135,073 199,699Other statutory deductions 1,201,150 117,707Other payables 30,575 23,100

9,476,968 2,553,925

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

(a) The movement in Provision for asset retirement obligation account was as follows:In US Dollars 2015 2014

Balance at 1 January – –Additions during the year 176,621 –Balance at 31 December 176,621 –



18. Deferred incomeDeferred income comprises:In US Dollars 2015 2014

Interest on prepaid development costs (Note 12 (a)) 2,368,541 204,260Interest on loan due from Ashbert Oil and Gas Limited (Note 12 (d)) 697,897 –

3,066,438 204,260Current 2,368,541 204,260Non-current 697,897 –

3,066,438 204,260

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

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

The Notes bear interest at a rate referencing 90-day LIBOR plus 12% per annum. The principal plus accrued interest as at31 December 2015 is US$8,246,746 (2014: nil).

(a) The movement in Short term loan account was as follows:In US Dollars 2015 2014

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

20. RevenueNo revenue is reported in these consolidated financial statements as the Group is yet to commence production of oil and gas (2014: nil).

21. General and administrative expensesIn US Dollars 2015 2014

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

22,838,022 11,820,164


21. General and administrative expenses continued(a) Operating leasesThe Group leases office and residential facilities under cancellable operating leases. Leases payments are made upfront coveringthe lease period with no additional obligations.

(b) Personnel expensesIn US Dollars 2015 2014

Wages and salaries 7,458,236 3,238,920Defined contribution pension expense 140,494 180,351Equity settled share-based payment (Note 23) 1,446,780 2,141,981

9,045,510 5,561,252

(c) Impairment loss on E&E assetsDuring the year, due to the uncertainty surrounding further development of OPL 241, the Group impaired US$1.1 million inExploration and Evaluation asset incurred in respect of OPL 241.

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

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

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

22. Finance income and costsIn US Dollars 2015 2014

Finance incomeInterest income 72,505 3,667Net foreign exchange gains (22(a)) 4,047,010 76,282

4,119,515 79,949

Finance costsImpairment loss on investments – 192,223

– 192,223

(a) Foreign exchange gainsForeign exchange gains presents realised currency exchange difference gains resulting from the conversion of US dollar amounts toNigerian Naira amounts; to meet obligations settled in Nigerian Naira. The significant devaluation of Nigerian Naira to the US dollarsin 2015 and the huge exchange rates disparity between the official exchange rate and the parallel market exchange rate accountedfor the significant foreign exchange gain.



23. Share-based payment arrangementsAt 31 December 2015, the Group had the following share-based payment arrangements:

Share option scheme (equity-settled)The Group established a share option scheme that entitles employees, key management personnel and consultants providingemployment-type services to purchase shares in the Group. In accordance with the scheme, holders of vested options are entitledto purchase shares at established prices of the shares at the date of grant during a period expiring on the tenth anniversary of theeffective date i.e. grant date. The grant dates for awards were 3 December 2010, 1 June 2011, 1 November 2011, 3 June 2012, 19February 2013, 5 April 2013, 17 May 2013, 26 March 2014, 1 July 2015 and 23 December 2015 based upon a shared understandingof the terms of the awards at that time.

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

Number of option shares per vesting

Cumulative vested period and exercise price

Vesting periods percentage US$1 US$3.75 US$7.50

Less than 12 months from the effective date 25% 550,000 475,000 475,00012 months from the effective date 50% 550,000 475,000 475,00024 months from the effective date 75% 550,000 475,000 475,00036 months from the effective date 100% 550,000 475,000 475,000

2,200,000 1,900,000 1,900,000

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

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

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

2015 2014

Weighted Weightedaverage Number of average Number of

exercise price options exercise price options

Outstanding at 1 January 0.58 17,462,986 0.56 12,370,486Granted during the year – – 0.75 5,280,000Forfeited during the year – – 0.75 (93,750)Exercised during the year – – 0.75 (93,750)Outstanding at 31 December 0.58 17,462,986 0.58 17,462,986Exercisable at 31 December 0.75 16,742,778 0.75 15,249,410

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


23. Share-based payment arrangements continuedInputs for measurement of grant date fair valuesThe fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model forplain vanilla European call options with the following inputs:

2015 2014 2013

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

Long-term incentive plan scheme (equity-settled)Awards were made under the Group’s Long Term Incentive Plan (LTIP) which was approved on 19 November 2014 and amendedon 21 December 2015. The Board approved the grant of 7,895,000 stock options to employees of the Group on 26 June 2015 and3,143,000 stock options to the CEO, Olalekan Akinyanmi on 23 December 2015.

The options vest three years from the grant date subject to meeting the performance criteria. If they vest, they will remainexercisable for one year after the vesting date. The granted share options are subject to market-based vesting conditions. Theoptions will vest subject to the Company’s annual compound Total Shareholder Return (“TSR”) over the three year performanceperiod starting on the grant date, with:

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

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

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

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


2015

Weighted averageexercise price Number of options

Outstanding at 1 January – –Granted during the year 0.62 11,038,000Forfeited during the year 0.62 (60,000)Outstanding at 31 December 0.62 10,978,000

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



23. Share-based payment arrangements continuedInputs for measurement of grant date fair valuesThe fair value of each stock option granted was estimated on the date of grant using the Monte-Carlo simulation with thefollowing inputs:

2015

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

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

Non-Executive Director Share Plan (equity-settled)On 21 December 2015 the Board adopted the Group’s Non-Executive Director Share Plan designed to provide incentives toNon-Executive Directors. The Committee made an award of 500,000 stock options to the Non-Executive Directors under this planon 23 December 2015.

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


2015

Weighted averageexercise price Number of options

Outstanding at 1 January – –Granted during the year 0.59 500,000Outstanding at 31 December 0.59 500,000

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

Inputs for measurement of grant date fair valuesThe fair value of each stock option granted was estimated on the date of grant using the Black-Scholes Option Pricing Model withthe following inputs:

2015

Fair value of share options and assumptionsWeighted average fair value at grant date US$0.13Share price at grant date US$0.31Exercise price US$0.59Option life (Expected life in years) 6.0Expected volatility – Stock options issued on 23 December 2015 65%Risk-free Interest rate 1.5%Expected dividends na

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


23. Share-based payment arrangements continuedEmployee benefit expensesIn US Dollars 2015 2014

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

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

(i) Loss attributable to ordinary shareholders (basic)In US Dollars 2015 2014

Loss for the period attributable to owners of the Group (11,100,801) (1,929,741)

(ii) Weighted-average number of ordinary shares (basic)In US Dollars 2015 2014

Issued ordinary shares at I January 362,999,983 329,002,380Effect of shares issued in November 2015 20,580,822 –Effect of shares issued in May 2014 – 20,252,055Effect of share options – 42,894Weighted-average number of ordinary shares at 31 December 383,580,805 349,297,329

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

(i) Loss attributable to ordinary shareholders (basic)In US Dollars 2015 2014

Loss for the period attributable to owners of the Company (11,100,801) (1,929,741)

(ii) Weighted-average number of ordinary shares (diluted)In US Dollars 2015 2014

Weighted-average number of ordinary shares (basic) 383,580,805 349,297,329Effect of share options – 7,386,791Weighted-average number of ordinary shares (diluted) at 31 December 383,580,805 356,684,120



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

(b) Unrecognised deferred tax assetsDeferred tax assets will arise from unrelieved losses as well as the tax base of assets. These have not been recognised due touncertainty over the availability of future taxable profit to offset the losses.


Unrelieved losses 21,766,873 (22,141,689)21,766,873 (22,141,689)

(c) Effective tax ratesIn US Dollars 2015 2014

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

26. Related party transactionsThe Group had transactions during the year with the following related parties:

(a) Transactions with key management personnelKey management personnel are those persons having authority and responsibility for planning, directing and controlling theactivities of the Group, directly or indirectly. These are the Directors of the Group.

(i) Loans to key management personnelAn unsecured loan of US$1,500,000 was granted to a Director on 9 December 2014. The loan has a three year term and bearsinterest at a rate of four per cent per annum. Repayment is due at the end of the term. At 31 December 2015, the balanceoutstanding was US$1,564,655 (2014: US$1,503,667) and is included in ‘trade and other receivables’.

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

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


26. Related party transactions continuedKey management personnel compensation comprised the following:In US Dollars 2015 2014

Short-term benefits 3,064,410 1,697,749Share-based payments 13,686 1,270,918

3,078,096 2,968,667

Short-term employee benefits comprised the following:


Salaries 1,974,410 962,749Fees 490,000 410,000Bonus 600,000 735,000

3,064,410 2,107,749

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

2015

Share-basedIn US Dollars Fees Salaries Bonus payments Total

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

2014

Share-basedIn US Dollars Fees Salaries Bonus payments Total

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

* Salaries include severance benefits amounting to US$740,664** Appointed 26 June 2015*** Resigned 26 June 2015**** Resigned 28 June 2014



26. Related party transactions continued(iii) Key management personnel and Director transactionsDirectors of the Company control 9.57% (2014: 14.20%) of the voting shares of the Company.

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

27. Group entities(a) Significant subsidiaries:

Ownership interest

Country of incorporation 2015 2014

Lekoil Nigeria Limited (See (a)(i)) Nigeria 40% 40%Lekoil Exploration and Production (Pty) Limited Namibia 80% 80%Lekoil Management Corporation USA 100% 100%Lekoil Singapore PTE Limited Singapore 100% 100%Lekoil Limited SARL Benin 100% 100%Lekoil 310 Limited Cayman Islands 100% –Lekoil Management Services Cayman Islands 100% –

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

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

(b) Non-controlling interests (NCI)The following table summaries the information relating to each of the Group’s subsidiaries, before any intra-group eliminations:

31 December 2015Lekoil Exploration

Lekoil Nigeria and Production Intra-group In US Dollars Limited Group (Pty) Limited eliminations Total

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


27. Group entities continued31 December 2014

Lekoil ExplorationLekoil Nigeria and Production Intra-group

In US Dollars Limited Group (Pty) Limited eliminations Total

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

28. Events after the reporting dateThere have been no events between the reporting date and the date of authorising these financial statements that have not beenadjusted for or disclosed in these financial statements.

29. Financial commitments and contingencies(a) On 17 October 2011, Lekoil Nigeria Limited signed the prepayment agreement relating to a proposed acquisition by LekoilNigeria Limited of an interest in another Nigerian field, OPL 241 from Oilworld Limited (“Oilworld”). It was proposed that LekoilNigeria Limited acquire a 10% participating interest in OPL 241 subject to negotiation of a commercial transaction and suitabledocumentation being agreed (the “OPL 241 Acquisition”) and certain payments being made by Lekoil Nigeria Limited to Oilworld.Lekoil Nigeria Limited paid a deposit of US$1,000,000 on the understanding that this would be held by Oilworld as a deposit andapplied by Oilworld towards any subsequent acquisition by Lekoil Nigeria Limited of a 1% participating interest in OPL 241.Ministerial consent would be needed for the transfer of the interests although the OPL 241 acquisition has not been completed andOilworld is still holding the sum of US$1,000,000 as a deposit on the above basis. The Prepayment Agreement also states that, if theOPL 241 acquisition did not complete, Lekoil Nigeria Limited would have a right of first refusal over the 10% participating interest inOPL 241 held by Oilworld (including the 1% interest to which the US$1,000,000 deposit above refers). Oilworld commenced sole risk3D seismic acquisition in 2013.

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

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



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

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

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

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

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

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

• Recovery of Afren Oil & Gas’ past costs: In addition, amongst other terms, this draft agreement anticipates that 100% of Afren Oil& Gas’ pre-drill cost and 60% of Afren Oil & Gas’ post-drill cost of US$30.0 million and US$49.2 million respectively, will berecovered by Optimum and the balance of Afren Oil & Gas’ post-drill cost of US$19.68 million by Mayfair.

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

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

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

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

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

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

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

(g) Litigation and claimsThere are no litigations or claims involving the Group as at 31 December 2015 (2014: nil).

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

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

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

30. Special terms and conditions on OPL No. 310 licenceAs per Oil Prospecting Licence No. 310, the licence is granted subject to the Petroleum Act 1969 and the regulations thereundernow in force or which may come into force during the continuance of this licence (and also subject to the special terms andconditions in the Annex attached thereto).

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


31. Financial risk management and financial instrumentsOverviewThe Group has exposure to the following risks from its use of financial instruments:

• credit risk

• liquidity risk

• market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processesfor measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughoutthese financial statements.

Risk management frameworkThe Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

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

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

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

Carrying amount


Cash and cash equivalents 13 26,016,194 49,225,726Other receivables 11 2,559,813 1,680,420

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

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

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

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

Carrying Contractual 6 monthsIn US Dollars Notes amount cash flows or less

Non-derivative financial liabilities31 December 2015Short-term loan 19 8,246,746 8,408,769 8,408,769Trade and other payables* 17 8,140,745 8,140,745 8,140,745

16,387,491 16,549,514 16,549,51431 December 2014Trade and other payables* 17 2,236,519 2,236,519 2,236,519

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

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



31. Financial risk management and financial instruments continued(c) Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect theGroup’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage andcontrol market risk exposures within acceptable parameters, while optimising the return.

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

Currency riskThe Group is exposed to currency risk on bank balances, employee receivables and trade and other payables denominated inforeign currency.

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

Carrying amounts


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

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

Foreign exchange rate risk

20% -20%

Other Other31 December 2015 Carrying Profit movements Profit movements In US Dollars amount or loss in Equity or loss in Equity

Financial assets:NairaCash and cash equivalents 225,366 45,073 – (45,073) –Trade and other receivables 68 14 – (14) –Impact on financial assets – 45,087 – (45,087) –Financial liabilities:NairaAccounts payable (1,166,513) (233,303) – 233,303 –Impact on financial liabilities – (233,303) – 233,303 –Total increase (decrease) – (188,216) – 188,216 –


31. Financial risk management and financial instruments continuedForeign exchange rate risk

10% -10%

Other Other31 December 2014 Carrying Profit movements Profit movements In US Dollars amount or loss in Equity or loss in Equity

Financial assets:NairaCash and cash equivalents 182,254 18,225 – (18,225) –Trade and other receivables 276 28 – (28) –Impact on financial assets – 18,253 – (18,253) –Financial liabilities:NairaAccounts payable (107,429) (10,743) – 10,743 –Impact on financial liabilities – (10,743) – 10,743 –Total increase/(decrease) – 7,510 – (7,510) –

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

(d) Fair valuesFair values vs carrying amountsThe following table shows the carrying amounts and fair values of financial assets and financial liabilities. It does not include fairvalue information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonableapproximation of fair value.

Carrying amounts31 December 2015 Loans and Other financialIn US Dollars Note receivables liabilities Total

Financial assets not measured at fair valueOther receivables 12 2,559,813 – 2,559,813Cash and cash equivalents 26,016,194 – 26,016,194

28,576,007 – 28,576,007Financial liabilities not measured at fair valueShort-term loan 19 8,246,746 8,246,746Trade and other payables 17 – 8,140,745 8,140,745

– 16,387,491 16,387,491

Carrying amounts31 December 2014 Loans and Other financialIn US Dollars Note receivables liabilities Total

Financial assets not measured at fair valueOther receivables 12 1,680,420 – 1,680,420Cash and cash equivalents 49,225,726 – 49,225,726

50,906,146 – 50,906,146Financial liabilities not measured at fair valueTrade and other payables 16 – 2,236,519 2,236,519

– 2,236,519 2,236,519


Company information

Financial calendar

Announcements• Half-year results for 2016 are

expected in September 2016.

• Full year results for 2016 areexpected in April 2017.

Dates are correct at the time of printing,but are subject to change.

Directors

Samuel Adegboyega Non-Executive ChairmanOlalekan Akinyanmi Chief Executive OfficerDavid Robinson* Chief Financial OfficerGregory Eckersley Non-Executive DirectorH. Adesola Oyinlola Non-Executive DirectorAisha Oyebode Non-Executive DirectorJohn Van Der Welle Non-Executive Director

*Resigned on 26 June 2015

Registered office

Intertrust Corporate Services (Cayman) Limited190 Elgin AvenueGeorge TownGrand Cayman KY1-9005Cayman Islands

Principal place of business and address of the Directors

9th FloorChurchgate Tower 1PC30 Churchgate StreetVictoria Island, Lagos, Nigeria

www.lekoil.com

Advisers

Financial and Nominated AdviserStrand Hanson Limited26 Mount RowMayfair London W1K 3SQUnited Kingdom

Joint BrokersMIRABAUD Securities LLP33, Grosvenor PlaceLondon SW1X 7HY United Kingdom

BMO Capital Markets95 Queen Victoria StreetLondon EC4V 4HGUnited Kingdom

Solicitors to the Company as to English lawNorton Rose Fulbright LLP3 More London RiversideLondon SE1 2AQUnited Kingdom

Solicitors to the Company as to Nigerian lawBanwo & Ighodalo98 Awolowo RoadSouth West Ikoyi LagosNigeria

Solicitors to the Company as to Namibian lawEllis Shilengudwa Inc24 Orban Street PO Box 3300WindhoekNamibia

Solicitors to the Company as to Cayman lawWalkers190 Elgin AvenueGeorge Town Grand Cayman KY1-9001Cayman Islands

Solicitors to the Company as to US lawFulbright & Jaworski LLP(Norton Rose Fulbright)666 Fifth AvenueNew York, NY 10103-3198

Auditors

KPMG Professional ServicesKPMG Tower Bishop Aboyade Cole StreetVictoria IslandLagosNigeria

Competent person

Netherland, Sewell & Associates Inc4500 Thanksgiving Tower1601 Elm StreetSuite 4500DallasTexas 75201

Financial PR

Tavistock Communications131 Finsbury PavementLondon EC2A 1NTUnited Kingdom

Registrars

Computershare Investor Services(Cayman Islands) Ltd.The R&H Trust Co LtdWinward1Regatta Office ParkWest Bay roadGrand Cayman KY-1103Cayman Islands

Depositary

Computershare Investor Services PLCThe PavilionsBridgewater RoadBristol BS99 6ZZUnited Kingdom

designed and produced by fourthquarterour 2015 Annual Report is available in both printed form and on the investors section of the lekoil plc website at:

www.lekoil.com

Lekoil is an Africa focused oil and gas exploration and productioncompany with interests in Nigeria and Namibia.

the company was founded in 2010 by a group of leading professionals with extensive experience in the international upstream oil and gas industry as well as in global fund management and investment banking.

Contents1 highlights

3 chairman’s and ceo’s statement

10 financial review

12 Board of directors

14 directors’ report

18 Remuneration report

20 Statement of directors’ responsibilities

21 independent Auditor’s report

22 consolidated statement of financial position

23 consolidated statement ofprofit or loss and othercomprehensive income

24 consolidated statement of changes in equity

25 consolidated statement ofcash flows

26 notes to the financial statements

58 company information

ShAping the futuReof oil exploRAtion And

pRoduction in AfRicAAnnual Report and Accounts 2015

Lekoil Annual Report and Accounts

2015

OUR OFFICES

Nigeria9th FloorChurchgate Tower 1PC30 Churchgate StreetVictoria Island, Lagos

USA136 Main StreetSuite 301Princeton, NJ 08540

shaping the future of oil exploration and … · and on the investors section of the lekoil plc...

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