2017 ANNUAL REPORT AND FINANCIAL STATEMENTS

Transcription

1 ANNUAL REPORT AND FINANCIAL STATEMENTS

2 Eland is an AIM-listed independent oil and gas company focused on production and development in West Africa, particularly the highly prolific Niger Delta region of Nigeria. OPERATIONAL HIGHLIGHTS AVERAGE GROSS PRODUCTION* (OML 40) 8,743bopd EXIT GROSS PRODUCTION* (December) GROSS OML40 RESERVES** (2P) 2P RESERVES REPLACEMENT (1/1/17-31/12/17) >18.5kbopd 83.4mmbbls 124 % * Elcrest Exploration & Production Nigeria Ltd has a 45% interest in OML 40. OML 40 net position reflects Elcrest ownership. ** NSAI December

3 FINANCIAL HIGHLIGHTS TABLE OF CONTENTS REVENUES CASH end OPEX Via Forcados only excluding royalties OPUAMA-7 PAYBACK $68.9m $36.7m $10/bbl 65 days STRATEGIC REPORT A Breakthrough Year 02 Leveraging Production Success 04 Chairman s Statement 06 Chief Executive Officer s Report 08 Our Business: Driving Production 12 Performance Leadership 14 Market Overview 16 Strategy in Action 18 Operational Excellence 20 Successful Barging Exports Implemented 22 Opuama 24 Gbetiokun 28 OML Ubima 32 Values and Responsibilities 34 Monitoring and Mitigating Risks to the Business 36 GOVERNANCE Board of Directors 44 Senior Management 46 Financial Leadership 48 Directors Report 52 Corporate Governance Report 54 Directors Responsibility Statement 57 Directors Remuneration Report 58 Independent Auditor s Report 62 FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income 68 Consolidated Balance Sheet 69 Consolidated Statement of Changes in Equity 70 Consolidated Cash Flow Statement 71 Notes to the Group Financial Statements 72 Company Balance Sheet 103 Company Statement of Changes in Equity 104 Company Cash Flow Statement 105 Notes to the Company Financial Statements 106 OTHER INFORMATION Shareholder Information 113 Directors and Advisers 114 Glossary 115 Office Locations inside back cover 1

4 STRATEGIC REPORT ELAND A BREAKTHROUGH YEAR : OML 40 AS IT PROGRESSED 1 JANUARY Started year with zero production as Forcados terminal and export pipeline still down END JANUARY Restarted production from OML40 after successful implementation of shipping export system, producing and exporting c8,000 bopd gross (c3,600 bopd net) from Opuama-3 only 11,849 12,460 END MAY Halted shipping, restarted production via pipeline to Forcados terminal, initially c8,500 bopd gross (c3,825 bopd net) from Opuama-3 only 6,716 EARLY JUNE Increased production to c11,500 bopd gross (c5,275 bopd net) with Opuama-1 also onstream FEBRUARY 2018 Opuama-8 now producing, total combined rate c22,000 bopd gross (c9,900 bopd net) MID-NOVEMBER Increased production to c19,000 bopd gross (c8,550 bopd net) with successful sidetrack of Opuama-7 (highest ever combined rate from OML40) 3,818 Q1 Q2 Q3 Q4 OML 40 AVERAGE QUARTERLY PRODUCTION DURING (BOPD) GROSS Barging of oil from OML 40 commenced in late January, with produced crude being transported to a secure offshore storage facility In late May, exports from OML 40 to the Forcados terminal re-commenced following repairs to the terminal's export line The OES Teamwork rig drilled the Opuama-7 sidetrack and commenced Opuama-8 infill well in late 2 Eland Oil & Gas PLC Annual Report and Financial Statements

5 has been the most successful year in Eland s history. This is primarily due to the growth in oil production from OML 40, from an average of 1,500 bopd during 2015 and (and zero at the start of ) to 18,500 bopd gross at year end. Investor interest improved in the market as evidenced by the company s $19.5 million equity fund raise in June which was oversubscribed. GEORGE MAXWELL Chief Executive Officer 3

6 STRATEGIC REPORT LEVERAGING PRODUCTION SUCCESS TO DELIVER SHAREHOLDER VALUE HIGHLIGHTS AND 2018 DEVELOPMENTS Step-change year for the company with production increasing from zero at the start of to 18,500 bopd gross (Elcrest net 8,325 bopd) in December* Successful implementation of an alternative oil export system by shipping to a secure offshore storage facility, leading to the recommencement of production in January Opuama-7 sidetrack well commenced drilling in September, resulting in initial production of 7,500 bopd gross (Elcrest net 3,375 bopd) in November. This was followed by a successful infill well on Opuama-8 Successful equity placing in June raising $19.5 million to accelerate the ongoing work programme Syndication of the Reserve Based Lending ( RBL ) facility in December and the re-profiling of the repayment period in March The $35 million facility is based on production and cash flows from only the Opuama-1, 3, 7 and 8 wells, with principal repayments not due until March 2019 Cash balance of $36.7 million at end- * Elcrest Exploration & Production Nigeria Ltd has a 45% interest in OML 40. Eland has a 45% equity shareholding in Elcrest. OML 40 net position reflects Elcrest ownership. 4 Eland Oil & Gas PLC Annual Report and Financial Statements

7 The Hinde storage tanker, part of OML 40's shipping operation moored on the Benin River. OUTLOOK The Opuama-8 infill well commenced production in January 2018 at rates in excess of 6,000 (net 2,700) bopd. This contributed to a record high production rate for OML 40 of 23,164 bopd from the four producing wells (Opuama-1, 3, 7 and 8) in March Drilling operations for Opuama-9 has commenced and the well is expected to contribute an additional 4,000 6,000 (1,800 2,700 net) bopd to total Opuama production on completion. The well will also appraise the excellent quality shallow C reservoirs indicated in Opuama-8 and the deeper E2000 reservoir Following on from Opuama-9, the Opuama-10 well will be drilled, targeting all reservoirs from the C3000 to D5000, with initial production rates expected of 4,000 6,000 (1,800 2,700 net) bopd By mid-2018 total OML 40 production in excess of 30,000 (13,500 net) bopd is anticipated In H Eland currently expects to complete an Early Production System (EPS) on Gbetiokun field in OML 40. Gross initial production rates of around 8,000 (3,600 net) bopd are anticipated from the Gbetiokun well In H the Company also expects to commence operations on the Ubima field including the re-entry and completion of Ubima-1 5

8 STRATEGIC REPORT MESSAGE FROM THE CHAIRMAN Russell Harvey Dear shareholders, was a year of recovery for the Nigerian oil industry and production growth for Eland. This included Eland s key asset, OML 40 in the Niger Delta, which resumed production in late January following an 11-month shut-in, exporting through shipping operations. I am delighted to report that by the end of, OML 40 was producing at its highest ever rates with a development programme in place to further materially increase production from this world-class asset. saw oil prices continue the recovery that commenced in. Some weakness in the first half of the year was followed by a strong recovery in the second, primarily due to the impact of OPEC cutbacks on global crude stock levels. These stronger oil prices together with material increase in production throughout have led to a welcome cash flow boost for your company. Throughout Eland has demonstrated a flexibility which has allowed the Company to overcome the disruptions caused by the Forcados system shutdown while substantially increasing the Opuama production potential. This was initially accomplished through the launch of an alternative tanker export route which capitalised on the successful workover increasing stabilised field production to c.8,000 (3,600 net) bopd. 6 Eland Oil & Gas PLC Annual Report and Financial Statements

9 With the reopening of the Forcados terminal in May, tanker shipping operations were concluded but remain a viable alternative should the need arise, giving security to future cashflows. The company has since embarked upon its planned Opuama drilling campaign which has to date provided peak production in excess of 23,000 (10,350 net) bopd. Opuama's current infill drilling programme is expected to conclude in 2018 and provide a solid base for further field developments on the OML 40 licence. IMPROVING GOVERNANCE Eland's Board strives to achieve best practice across all disciplines. During we enhanced our Board with the addition of a new independent non-executive (read more on page 44); we implemented a revised Code of Conduct to all employees and we continue to address the UK Bribery Act with online training for all employees. On the financing side of the business, was very successful. An oversubscribed equity placing was completed in June, raising $19.5 million at a price of 55p/share. This combined with increased cashflow from operations resulted in the company ending the year with $37 million, well positioned for During the year there were two changes to the Board. Ron Bain joined the company as Chief Financial Officer in August following the resignation of Olivier Serra. Ron brings a wealth of experience in the oil industry relevant to the growth phase that the company is entering. The Board was further strengthened with the appointment of Brian O Cathain as Non-executive director in October. Brian is a seasoned oil industry professional whose experience and knowledge is additive to the board and we welcome both his and Ron s appointments. The progress made in continues to demonstrate both the undoubted potential of OML 40 and the management's ability to deliver in a challenging and ever-changing environment. The achievements of are just the first step in a potential multifield development within the block which the company is on the cusp of unlocking. While challenges remain, the team assembled has demonstrated the skills necessary to succeed and I look forward to substantial growth in RUSSELL HARVEY Chairman 17 April

10 STRATEGIC REPORT REPORT FROM THE CEO George Maxwell RECORD YEAR FOR ELAND has been the most successful year in Eland s history. This is primarily due to the growth in oil production from OML 40, from an average of 1,500 (675 net) bopd during 2015 and (and zero at the start of ) to 18,500 (8,325 net) bopd gross at year end. Contributory factors to this success were improved infrastructure performance and higher oil prices, ending the year at $66.61 per barrel. Eland also benefited from a marked improvement in overall market conditions for the Oil & Gas industry. Investor interest improved in the market as evidenced by the company s $19.5 million equity fund raise in June which was oversubscribed. has been the most successful year in Eland s history. It was mentioned within our report that since production re-started in early, this would be a part recovery year with a focus on improving our production levels, increasing our investment in OML 40 and improving the overall working capital deficit. Over the period our activities resulted in an increase in overall shareholder value of more than 75.0 million. This improvement has continued into Q with an increase of over million over the 15-month period. Overall working capital has improved by around $20 million from its peak of $(49) million net liabilities in May and continues to improve into Investment in our assets continues into 2018 with remarkable results in production performance. During and so far in 2018 production records have been set for OML 40 and we expect to continue this record breaking performance in production and value growth during 2018 and beyond. ALTERNATIVE ROUTE TO MARKET Late in, as the re-opening of Forcados Export Terminal (FOT) was further delayed, the Company, through Elcrest, begin the process of establishing an alternative export route for crude oil monetisation. This involved significant logistical and maritime planning in conjunction with major engineering works around our pipeline. This method was designed, engineered, contracted and operational within 3 months of concept. During the 5 months of sole risk shipping operations, Elcrest delivered over 515,000 (231,750 net) bbls of crude oil without loss. This was accomplished through a detailed study of internal capabilities, skill set requirements for marine operations, a detailed work plan which included a comprehensive risk matrix on each event and possible outcome with a full mitigation plan build into the operation. This innovative approach satisfied 8 Eland Oil & Gas PLC Annual Report and Financial Statements

11 multiple issues facing the Company in early, the key issue of re-starting production operations after almost a one-year delay, proof of concept for an alternative evacuation route and generation of cash flow relieving working capital pressures. Compared to our peer group, the turnkey approach adopted by the Company was hailed as the most successful, incident free, approach during this period and has now been adopted by others in the industry. The Forcados system has been operating normally since May. However, should there be long-term problems with the Forcados system in future, we now have an alternative, secure and cost-effective method of oil export that can be implemented at short notice. DRILLING & PRODUCTION OPERATIONS During the enforced shut down in the Company continued with investing activities. This was primarily on the Opuama-3 workover, which was completed in May. However, the full benefit of this investment was only evident in. The success of the workover enabled the Company to deliver export quality crude (zero or low water content) during the shipping operation without the additional investment of de-watering equipment (de-watering was installed later during ). This well, produced throughout the shipping period, producing all of the crude exported via shipping. The other production well Opuama-1 could not be produced as it had a higher water content. In May of the FOT came back on line and the production could be accessed for all wells (Opuama-1 and 3). This increased production to over 12,000 bopd and enabled the Company to make the commitment to our planned drilling program. Drilling planning activities had been on-going throughout early, and we had already identified the available drilling units in country. Well planning and design was completed with our partners Nigeria Petroleum Development Company (NPDC) and submitted to the Department of Petroleum Resources (DPR) for approval. Elcrest, through agreement with NPDC contracted the drilling unit OES Teamwork for the planned drilling campaign, and following the completion of dredging, community consents and a full inspection of the rig and drill site, the unit was mobilised in August. Drilling commenced on Opuama-7ST, a side tracked well from the original Opuama-7 well. This side track proved very successful and was completed in November delivering initial rates of up to 7,500 (3,375 net) bopd at a cost of just $14.1 million resulting in a payback period of just 65 days for the well. The rig moved to drill the next target, Opuama-8. This was to be the first new well drilled on OML 40 since 1982, and the first new drill on the Opuama field since 1977, a significant milestone for the asset and the Company. Opuama-8 was successfully drilled to a depth of 9,500 ft and intersected over 160 ft of combined net pay. The well was completed on multiple producing zones in January 2018, contributing initial rates around 6,200 (2,790 net) bopd. The Company exited with production rates in excess of 18,500 (net 8,325) bopd which has subsequently increased to over 23,000 bopd (net 10,350) during 1st quarter Drilling operations for Opuama-9 has commenced and the well is expected to contribute an additional 4,000 6,000 (1,800 2,700 net) bopd to total Opuama production on completion. During our drilling operations we have performed subsurface logging as we drill each well. This has provided new information with regard to our understanding of the subsurface structure. This information is currently being evaluated and processed into updated mapping of the subsurface and this currently looks promising for the future of the Opuama field and a continued infill drilling program beyond the planned Opuama-10 well due to spud in Q There has been a significant improvement in production facilities and flow station management during. A full audit of the flow station was performed during and a number of processes, practises and equipment issues were identified. A plan was established for the introduction of revised HSE and safe working environment policies and procedures have been introduced and significant equipment upgrades have been completed during and continue into The re-enforcement of the safety culture into the flow station operations is fully supported by the Company and our partner NPDC. Near miss reporting was introduced and Total Recordable Incident Rate (TRIR) is a key performance indicator for the Company. 9

12 STRATEGIC REPORT REPORT FROM THE CEO continued In the Company procured a new metering system to be installed at the custody transfer point at the Otumara Manifold near a Shell Flow Station. This Lease Automatic Custody Transfer unit (LACT), measures both volumetric and petro-physical characteristics of the crude oil. The installation of this meter has been ongoing since Q3- and is expected to be fully commissioned in Q This will provide accurate and indisputable measurements of the crude oil delivered from OML 40 for transportation by Shell onwards to the FOT. This investment should significantly reduce the computed loss allocation on the Trans Escravos Pipeline (TEP) and provide a detailed measurement of pipeline performance between Opuama and Otumara. Further investment on de-watering capability was made during. A leased unit was installed to de-water produced crude to near export quality. This system currently has the capacity for over 10,000 bopd and is proving very effective in ensuring available ullage in both the flow station and pipeline to maximise crude oil export. Further studies and remedial work is currently underway on the flow station to maximise production capacity within the current set-up. Our performance during is testament to our ability to monetise significantly increased production volumes production has and is expected to continue to show rapid growth and we will continue to invest and upgrade to support the enormous potential of our subsurface reserves. has been the most successful year in Eland s history. This is primarily due to the growth in oil production from OML 40, from an average of 1,500 bopd during 2015 and (and zero at the start of ) to 18,500 bopd gross at year end. Investor interest improved in the market as evidenced by the company s $19.5 million equity fund raise in June which was oversubscribed. There has been a significant investment in our Ubima development (within OML 17) just north of Port Harcourt. There are plans to re-enter Ubima 1 well and evaluate the shallower reservoirs and evaluate and produce from the deeper zones. To facilitate this drilling plan work on the road access began in. This was further augmented in with more structural work on the road access to ensure we could access the field with heavy equipment during all seasons. The drilling and production site has been landscaped and secured, with all the civil works to be completed during Q This includes the security access, perimeters and drilling cellars. INVESTMENT AND FUNDING The Company held its first Capital Markets Day during April. This presented an ideal opportunity for the management team to highlight the ongoing operational, technical and financial planning around current and future activities. This was fully attended and regarded as a considerable success. It afforded the Company to layout the full range of prospects within OML 40 and Ubima highlighting the considerable potential of the current asset base held by the Company, indicating a success-based potential in excess of 80,000 bopd (Gross). It provides the reminder that OML 40 and Ubima are on the whole mainly green field sites. The more we study our assets the greater potential we discover. 10 Eland Oil & Gas PLC Annual Report and Financial Statements

13 These opportunities also required additional funding, and to kick start our drilling program, we initiated a stock issue in June, raising just over $19.5 million (gross) which was oversubscribed. The majority of the raise was from a number of investors new to the share register, highlighting the increased interest in the Oil & Gas market AND BEYOND Moving into 2018 we have already invested heavily in OML 40 and have plans for Ubima. The drilling programme on OML 40 has had some delays and complexities with the drilling unit. This issue although disappointing is not that unusual in a multi-well campaign especially with the rig having not been operational for some time prior to mobilisation. The program will continue with Opuama-9 and 10 for Further drilling activity on OML 40 is being considered for the Gbetiokun field development with the re-entry and completion of Gbetiokun-1 and the drilling of Gbetiokun-3 also potentially within 2018, subject to the various regulatory approvals being in place. Eland is also planning an exploration well on the Amobe prospect, to potentially be drilled in late 2018 or This large, robust, structure is similar to Opuama in structural style, shows structural closure over a vertical interval of 5,000 feet, and is located less than seven kilometres from the Opuama Flow Station. Best estimate prospective resources are assessed by NSAI 1 at 78 MMstb, with very high upside potential, and the geological risk is low. Further drilling opportunities within Opuama are also a real possibility, building on the information obtained during the current drilling campaign. Similar to Gbetiokun, the exact timing of these additional in-fill wells is subject to the various regulatory requirements and approvals. Preparation work on well proposals, draft Field Development Plans and surface engineering concepts are well underway. These include new flow stations, pipelines and infrastructure centred towards enhanced evacuation opportunities. The potential for further wells on OML 40 to appraise and develop the other prospects around our hub gathering facilities are high on our priority and will feature more heavily in our 2019 programme. The scheduling for evaluation and production of Ubima 1 is planned for 2018, with full field development being scheduled for The exact details of the development will be subject to the results obtained from the Ubima-1 re-entry. Work is currently on-going with pipeline surveys to both evacuation opportunities to the south through the Bonny Oil Terminal and to the north east through Brass River Oil Terminal. We expect to finalise these studies prior to completing the Ubima-1 re-entry, and we still anticipate production from Ubima field to commence during The opportunity for a significant reserves upgrade from the results of Ubima-1 highlights the true value of this asset. The discussions around the renewal of the OML 40 licence began with our Partner NPDC and the DPR early in This process is expected to conclude within the next few months. This will enable us to firm up our long-term work programme and the required debt financing. Although the Company has not proposed a dividend in relation to the financial year, we look forward to reviewing our dividend policy in light of our improved financial performance, increased production, and forward work programme in 2018 and beyond. The Company will continue to pursue the strategy of investing and development on near term producing assets in Nigeria and West Africa. These opportunities are ever increasing for the Company as we continue to prove our capabilities in delivering value to all our stakeholders. GEORGE MAXWELL Chief Executive Officer 17 April Netherland, Sewell & Associates Inc, December 11

14 Onitsha OML 40 STRATEGIC REPORT Warri Imo OUR BUSINESS DRIVING PRODUCTION Bayelsa Ubima Port Harcourt Eland is focused on continuing to build and develop a portfolio of producing upstream oil and gas assets in West Africa. In September 2012, the Company completed the acquisition of a 45% equity stake in OML 40, onshore Nigeria, and listed the Company on AIM, part of the London Stock Exchange. The Group acquired a 40% participating interest in Ubima in August Production from the Opuama oilfield in OML 40 restarted in February The company and its partners have since dedicated significant resources to growing this world class asset base, previously operated by Shell. Further development and growth of the OML 40 licence is anticipated, and we fully expect to commence development operations on the Ubima licence during GROSS 2C CONTINGENT RESOURCES MMBBLS (OML 40 AND UBIMA) mmbbl in Ubima field moved from Contingent Resources to Proved Plus Probable Reserves UNRISKED BEST ESTIMATE GROSS PROSPECTIVE OIL RESOURCES MMBBLS OUR ASSETS OML 40 The OML 40 licence is situated within the Niger Delta, approximately 75km northwest of Warri and covers an area of 498km2. The environment in OML 40 consists of shoreline and coastal mangrove swamps. The region is lightly populated with indigenous groups living in dispersed riverine communities mainly from the Ijaw and Itsekiri ethnic groups. Oil production was re-started in February 2014 from two existing wells in the Opuama field. Oil can be exported by two routes: (i) via the Shell- operated Trans Escravos Pipeline network running from the Opuama field south along the coastline to the Forcados Oil Terminal, (ii) since January via shipping to an offshore FPSO. Production ceased temporarily in February following a force majeure event at Forcados export terminal. Production re-started in January after alternative export facilities were installed to allow the produced crude to be shipped to an offshore storage facility. The OML 40 licence area holds gross 1P reserves of 39.5 mmbbls, gross 2P reserves of 83.4 mmbbls, gross 2C contingent resources of 40.4 mmbbls and a best estimate of mmbbls of gross unrisked prospective resources.* Ubima Field The licence area is 65km2, located onshore in the northern part of Rivers State and has been carved out of OML 17, which is currently operated by Shell Petroleum Development Company. CPR for Ubima published April. Gross 2P reserve estimate of 2.4 mmbbls of oil** Gross 2C resource estimates of 31.1 mmbbls of oil.** Significant upside gross 3C resource estimate of 66.0 mmbbls of oil** The Ubima field has 3D seismic coverage (1997) and four wells have been drilled in the field between the 1960s and Hydrocarbons were encountered in all four wells in multiple stacked reservoirs. * Source: Netherland, Sewell & Associates Inc. December. ** Source: Independent Report by AGR TRACS April. 12 Eland Oil & Gas PLC Annual Report and Financial Statements

15 OUR BUSINESS MODEL DEVELOP Eland was established to develop West African upstream assets through low-cost operations utilising local expertise and high technical competence ACQUIRE PRODUCE Eland increases value through low-cost operations on a strongly optimised production base DISCOVER & APPRAISE Selectively acquiring developed/undeveloped upstream assets that match our expected internal returns criteria MONETISE Generating strong regular cash flows through accelerating production and disciplined allocation of capital Eland has a world class asset base in the Niger Delta with numerous near-term exploration and appraisal opportunities, ultimately aiming to convert prospective resources into reserves to create shareholder value SHAREHOLDER RETURNS Generating high value returns for shareholders through the development of our resource base VALUE COUNTRY & STAKEHOLDER BENEFITS Working closely with government bodies, in-country expertise and local communities with a focus on CSR How we create value We create value in two simple ways: we find oil and we sell oil. To achieve this, we must deliver selective development and appraisal projects, grow our production and ensure we are suitably financed through a mix of diverse funding options and portfolio management. How we run our business Our business model addresses the fundamental areas that we must develop to manage our risks and help us deliver our strategy. These areas include: ensuring sustainable operations by protecting our people; high standards of governance coupled with strong and effective risk management; a multi-disciplined, diverse and entrepreneurial team; and making a positive and lasting contribution where we operate. 13

16 STRATEGIC REPORT PERFORMANCE LEADERSHIP Our KPIs focused on the fundamentals of operational success and our team delivered impressive results. KEY PERFORMANCE INDICATORS 1,351,000 83, Liftings (bbls) Revenues ($m) , Adjusted EBITDA ($m) (note 5) Production OML 40 average (gross OML40 bopd) OML 40: Gross 1P Reserves (mmbbls) OML 40: Gross 2P Reserves (mmbbls) Ubima: Gross 1P Reserves (mmbbls) Ubima: Gross 2P Reserves (mmbbls) 14 Eland Oil & Gas PLC Annual Report and Financial Statements

17 SUPPORTING OUR STRATEGY WITH CLEAR PERFORMANCE INDICATORS During Eland's Board has re-defined stated measures of success to span all aspects of our business and underpin our ambitious strategy. Throughout the year the Board will assess performance against these goals. CORPORATE AND FINANCE Target Achieved Operating Cash Flow Operating costs per bbl Support costs per month OPERATIONS Measure of cash generation of business compared to targets including ability to manage working capital balances Definition: EBITDA adjusted for working capital movements Measure of Company s ability to optimise portfolio value by exploiting available resources at competitive cost compared to target. Definition: Direct field operating, tariff and transportation costs per bbl sold Measure of corporate and executive cost base required support the business who are not directly attributable to delivering operational programme. Definition: Average cost per month for support personnel (Executive, Finance, Commercial, HR & CR). Excludes direct project personnel such as technical and operation departments Production Measure of production delivery compared to target including regular assessment of well delivery. Definition: PD metered production in calendar year on a gross OML 40 basis divided by days in year Infrastructure uptime Measure of Group s effectiveness of maintenance, surveillance, and security programme to maximise uptime availability and cash generation. Definition: Available uptime from owned infrastructure. STRATEGIC Reserve Replacement Total Recordable incident rate (TRIR) Grow our reserves base through continued drilling programme in order to grow business reserve in the longer term. Definition: Additional 2P reserves added in calendar year as validated by external reserve auditor compared to annual production. Assessment of health and safety procedures and practices are effective in protecting the health and safety of those personnel and other stakeholders we owe a duty of care. Definition: Total Recordable incidents * 200,000 / Total man hours 15

18 STRATEGIC REPORT MARKET OVERVIEW At Home in Nigeria Nigeria became a member of the Organisation of the Petroleum Exporting Countries (OPEC) in 1971, more than a decade after oil production began in the oil-rich Bayelsa State in the 1950s*. Nigeria produces mostly light, sweet crude oil of which the majority is exported to global markets. Forcados blend trades at a premium to Brent. Nigeria has the largest oil and gas reserves in Sub-Saharan Africa*. According to the BP Statistical Review of World Energy, Nigeria has an estimated 37.1 billion barrels of proved crude oil reserves as of January. Nigeria is geologically low risk with exceptional exploration and production opportunities. Numerous undeveloped fields exist within Nigeria creating an opportunity for partnership with indigenous companies. Reservoir properties and the oil recovery rates (50% +) are considered to be amongst the best in the world. 3D seismic, stacked reservoirs and deviated wells offer a very high chance of success (typically 75-90%). Large established pipeline network with third party access and export infrastructure with available capacity. * Source: Energy Information Administration. ** Source: BP Statistical Review of World Energy. 16 Eland Oil & Gas PLC Annual Report and Financial Statements

19 SUDAN 1.5 billion bbls NIGERIA 37.1 billion bbls CHAD 1.5 billion bbls SOUTH SUDAN 3.5 billion bbls EQUATORIAL GUINEA 1.1 billion bbls GABON 2.0 billion bbls CONGO BRAZZAVILLE 1.6 billion bbls ANGOLA 11.6 billion bbls Nigeria is Africa s most prolific oil producer and one of the largest in the world PRODUCTION ** RESERVES end ** 2.05 mmbopd 37.1 billion bbls 17

20 STRATEGIC REPORT STRATEGY IN ACTION OML 40 IS ELAND S CORE ASSET WITH OPUAMA PRODUCING AT RECORD LEVELS, NEAR TERM DEVELOPMENT OF GBETIOKUN, AND APPRAISAL AND EXPLORATION UPSIDE OML 40 RESERVES* Gross Oil Reserves (mmbbls) A PORTFOLIO IN A LICENCE The OML 40 licence has been producing light oil with a low GOR for over three years since production was re-started, reaching a record high in early The Opuama field has a very strong aquifer drive which contributes to high recovery factors, these could ultimately lead to increases in recoverable reserves. PARTNERSHIPS The OML 40 partnership successfully recommenced initial oil production from the Opuama field in February 2014 through the recommissioning of the existing infrastructure and the reopening of two wells. Sustained production commenced in the autumn of Four successful well interventions have been completed since 2015 which have materially increased production (Opuama-1, 3, 7, 8). RESERVES OML 40 s booked reserves are found in Opuama in the Proved Reserves (1P) Proved + Probable Reserves (2P) Proved + Probable + Possible Reserves (3P) western, and Gbetiokun in the eastern, part of the licence. Our primary contingent resources lie in the Polobo and Abiala fields and in addition there are numerous prospects and leads across the whole of the OML 40 licence. * Source: Netherland, Sewell & Associates Inc, December 18 Eland Oil & Gas PLC Annual Report and Financial Statements

21 HIGHLIGHTS Licence area of 498 km 2, located in the Niger Delta, approximately 75 km north-west of Warri. Gross 2P oil reserves of 83.4 mmbbls (net 32.9 mmbbls pre-royalties) are found in the Opuama and Gbetiokun fields.* Primary gross contingent resources amount to 40.4 mmbbls*. Crude from Opuama is transported via either a dedicated export line injected into the Trans Escravos pipeline network to the Forcados terminal or via shipping to an offshore FPSO. 19

22 STRATEGIC REPORT OPERATIONAL EXCELLENCE OUR STRATEGY FOR GROWTH Increase production Commence development drilling programme Maximise oil and gas reserves Strong focus on bringing remaining reserves and contingent resources into production through a balanced work programme OML 40 Eland delivered its stakeholders stunning operational results in, taking oil production from zero at the beginning of the year to an exitrate of c18,500 (c8,325 net) bopd: a record high for the licence. This resulted from a huge commitment by management and partners to overcome some difficulties encountered in, when the Forcados terminal was shut-in due to sabotage by militants. It is also a testament to the extremely high quality of the underlying asset base that underpins the future growth of the company. Potential upside Converting OML 40 leads into prospective resources through further 3D seismic acquisition, detailed studies and drilling exploration wells Positioned to secure further opportunities Structured to secure assets with a low entry cost and enhance value through expert knowledge and development INCREASING SHAREHOLDER VALUE RESUMPTION OF OIL PRODUCTION VIA SHIPPING Oil production from Eland s OML 40 licence had been suspended in early following the sabotaging of the Forcados export terminal line by militants. Whilst efforts to repair the damage to the pipeline were ongoing, an alternative system to export crude oil from the licence was developed. Hence OML 40 recommenced exports via shipping, with crude being transferred to a remote offshore oil storage unit in late January. Initial production rates came on at around 10,000 (4,500 net) bopd, a record high for Eland as it included oil flowing from Opuama-3, a well that was drilled in early just prior to the Forcados terminal being suspended. The shipping operations consisted of two shuttle vessels transporting crude on a continuous basis from the Opuama field to an FPSO located offshore Nigeria. Eland achieved this alternative export system in an extremely rapid manner. This involved significant capital and operational challenges and was of enormous credit to the company s staff and partners. 22,500 bopd CURRENT GROSS PRODUCTION April Eland Oil & Gas PLC Annual Report and Financial Statements

23 TRANSFER BACK TO FORCADOS OPERATIONS Eland successfully used the shipping operations for a five-month period, by which point exports via the Forcados terminal resumed, following its repair. Whilst the shipping operations therefore were suspended, the Company is now in a favourable position of having access to an alternate export system if required in the future. Following the resumption of Forcados exports in May, the Opuama-1 well was also brought back online. This had been suspended for the duration of the shipping operations due to the wet nature of the crude oil from Opuama-1. Hence oil production levels increased to c11,500 (c5,175 net) bopd from OML 40 in early June. OPUAMA-7 SIDETRACK WELL In August the Company contracted the OES Teamwork rig to sidetrack the Opuama-7 well. The well encountered both D1000 and D2000 sands as expected with a total of 77 feet of good quality net pay. Over 60ft of the D2000 sands were successfully perforated and the well brought onstream at around 7,500 (3,375 net) bopd, taking total production in OML 40 to c19,000 (c8,550 net) bopd, a new record for the licence. OPUAMA-8 INFILL WELL POST PERIOD-END ACTIVITIES Following the success of Opuama-7 in November, the Company brought forward its plans for infill drilling on the Opuama Field, taking advantage of having the rig in Opuama, and to accelerate production growth through the existing production infrastructure. Originally the Company had planned to drill the Gbetiokun-1 well; this has been postponed until H2-2018, while the Company and its partner NPDC drill three further infill wells on Opuama. Since the start of 2018, Opuama-8 has successfully been brought onstream, contributing to a record high production rate for OML 40 of 23,000 (10,350 net) bopd from the four producing wells (Opuama-1, 3, 7 and 8). Opuama-8 tested three reservoirs penetrated by the well. The deepest of these, the D5000, flowed at 2,800 (1,260 net) bopd, while the shallowest tested, the D3500, flowed at 3,500 (1,575 net) bopd. The third reservoir, the D4000, tested at 2,800 (1,260 net) bopd. Operations on Opuama continue in 2018, with the back to back drilling of Opuama-9 and

24 STRATEGIC REPORT STRATEGY IN ACTION SUCCESSFUL BARGING EXPORTS IMPLEMENTED In early, Eland exported crude from OML 40 via shipping, providing an alternative route to market for our oil, and thus mitigating the risk of any future interruptions to the Forcados pipeline. OPUAMA FACILITIES STORAGE TANKER CAPACITY : 80,000 BBLS SHIPPING PRODUCTION TO MARKET CONTINUOUS SHUTTLE LOOP TO FPSO 2 SHUTTLE TANKERS CAPACITY EACH: 40,000 BBLS PRODUCTION OFFLOADED FOR TRANSPORT TO MARKET FPSO RESERVED CAPACITY: 325,000 BBL 22 Eland Oil & Gas PLC Annual Report and Financial Statements

25 Following an earlier attack by militants on the Forcados pipeline, in H1- Eland and its supply chain partners commenced the development of a diversified route for its crude to a secure offshore facility. This method of exporting OML 40 crude became operational in late January, and was used highly successfully until late May, when the Forcados terminal came back online. The new export route involved oil from the field being piped from the Opuama facilities to an 80,000 barrel capacity storage tanker and then onto one of two shuttle tankers, each holding 40,000 barrels of oil. These then undertook continuous four-day round trips to a floating, production, storage and offloading (FPSO) facility, from where the crude was offloaded and sold. The system was highly effective for the duration of its use and provides the company with a proven and commercial alternative route in the future. Hence we are not restricted to a single route to market, greatly de-risking our production capabilities. KEY BENEFITS Increased capacity to accommodate higher cumulative production volumes Proven export route Risk diversification Improved consistency of delivery to market 515mbbls gross barrels produced in period 23

26 STRATEGIC REPORT OPUAMA-7 SIDETRACK BACKGROUND The Opuama-7 sidetrack completed in November and proved to be an excellent well, delivering initial production rates some 25% ahead of pre-drill expectations at a cost of $14.1 million. Eland originally planned to re-enter Opuama-7 and drill a horizontal sidetrack in the D2000 reservoir. However, the re-completion of well Opuama-3 in demonstrated that vertical wells could provide high flowrates from the D1000 and D2000 reservoirs. It was therefore decided to abandon well Opuama-7 and drill a near-vertical sidetrack (Opuama-7 ST) a short distance to the north of the original well, in a location where interpretation of seismic data indicated both the D1000 and D2000 reservoirs were present. The initial production rate from the D1000 and D2000 reservoirs was forecast to be about 6,000 bopd gross. Results The OES Teamwork drilling rig was used to drill the Opuama-7ST sidetrack. The sidetrack encountered both the D1000 and D2000 reservoirs. Both reservoirs are of excellent quality, although their thickness was lower than forecast due to faulting. However, both reservoirs were encountered at shallower depths than was predicted and structural interpretation indicated the presence of a previously unrecognised structural high immediately to the north of the sidetrack. Opuama-7 ST was completed in the D2000 reservoir and was brought into production at an initial rate of 7,500 bopd. The potential exists to complete the D1000 reservoir at a future date, helping to maintain production. At a cost of $14.1 million the payback on the well was 65 days. North TVDSS (ft) D2000 C4000 D1000 Opuama-7 Base Canyon Base Canyon Z: Top C3000 Top C3000 Z: Z: C3000 Base C3000 Top C4000 Base C4000 Top D2000 Z: Z: Base C3000 Z: Top D1000 Z: Top D2000 Z: Top D3000 Opuama-7ST Z: IFF3 Z: Z: C2000 IFF1 Z: D5000 D4000 D3500 D2000 D1000 C4000 C3000 C metres Geological cross-section through wells Opuama-7 (abandoned) and Opuama-7 ST. Opuama-7ST is producing at excellent rates from the D2000 reservoir. Note the IFF2 South structural high to the north of Opuama-ST, on which well Opuama-10 will be located Eland Oil & Gas PLC Annual Report and Financial Statements

27 OPUAMA-8 BACKGROUND Opuama-8 is the first new well to have been drilled in the Opuama field since 1980, and resulted in another success with initial flow-rates in excess of 6,500 bopd. The well was located to the south of Opuama-1 and was expected to penetrate the undeveloped D3500 and D4000 reservoirs and the D5000 reservoir in a near-crestal location. The initial production rate was forecast to be between 5,000 and 7,000 bopd from two reservoirs. Results The OES Team work was used to drill well Opuama-8. The well encountered oil in six reservoirs, which included the shallow C reservoirs, the first time oil had been discovered in this location. The depths of the D3500, D4000 and D5000 reservoirs were deep to prognosis but these reservoirs have still yielded excellent initial production rates (over 3,500 bopd from the D3500; 2,800 bopd from the D4000 and 2,800 bopd from the D5000). The well is currently producing from the D3500 and D4000 reservoirs whilst the D5000 will be produced at a future date, helping to maintain production. South North Geological cross-section through wells Opuama-1 and Opuama-8. Opuama-8 tested at an initial aggregate rate of over 9,000 bopd from the D3500, D4000 and D5000 reservoirs. TVDSS (ft) D5000 D2000 Opuama-1 D4000 D1000 C4000 IFF1 D3500 Top C4000 C3000 D2000 Opuama-8 D5000 Base Canyon Top C3000 Z: D4000 Z: D3500 Z: C2000 C4000 D2000 D me tres IFF3 IFF2 C3000 C

28 STRATEGIC REPORT OPUAMA-9 (DRILLING) BACKGROUND Opuama-9 is located on the north western flank of the field, on a separate structural culmination to that on which wells Opuama-1, 7ST and 8 are located. The primary target is the D1000 reservoir, with secondary potential in the D2000 reservoir (if un-swept) and D5000 reservoir (if shallow to prognosis). Drilling operations have commenced and the initial production rate from the D1000 is forecast to be between 4,000 and 6,000 bopd. Opuama-9 also has important exploration and appraisal objectives. In terms of exploration, it will penetrate the thick, excellent quality, shallow C reservoirs in a near-crestal location, determining if these contain oil. (The results of Opuama-8, which found oil in the C2000 reservoir for the first time provide encouragement in this respect.) In terms of appraisal, the well will provide important information on the depth and thickness of the D5000 reservoir on the north-west flank of the field, allowing us to assess the volume of oil initially in place ( OIIP ) more accurately. It will also provide information of fault transmissivity and hence on drainage efficiency. Operational constraints permitting, it is planned to deepen Opuama-9 to the E2000 reservoir to determine the current depths of the gas-oil and oil-water contacts in the E2000 reservoir, thereby allowing the merits of a future E2000 horizontal production well to be evaluated and such a well to be planned. TVDSS (ft) North South SBF D1000 D2000 Opuama-8 Opuama-9 Base Canyon Top C1000 Top C2000 C2000 Top C3000 C3000 C3000 Top C4000 IFF1 IFF3 IFF4 Top D1000 C2000 Top D2000 D2000 D1000 D2000 D3500 D3500 Top D3000 C4000 Top D3500 D4000 C4000 D4000 Top D4000 D5000 Top D5000 Top E IFF2 NBF Geological cross-section through wells Opuama-8 and Opuama-9 (drilling). 26 Eland Oil & Gas PLC Annual Report and Financial Statements

29 OPUAMA-10 (PLANNED) BACKGROUND Opuama-10 is located on the structural high identified to the north of Opuama-7ST and is expected to encounter all reservoirs from C3000 to D5000 in a crestal, or near-crestal, location. The primary targets are the D1000 and D5000 reservoirs but if the well comes in close to prognosis, additional targets may include the C reservoirs (if oil-bearing) and the D3500 and D4000 reservoirs. In such circumstances, an additional production well would probably be merited in the same general location as Opuama-10. The initial production rate from the D1000 reservoir is forecast to be between 4,000 and 6,000 bopd. TVDSS (ft) North South D1000 D2000 Opuama-7 Opuama-7ST Opuama-10 C2000 C3000 Base Canyon Top C3000 C3000 Top C4000 C4000 C4000 Top D1000 D1000 Top D2000 IFF3 IFF1 IFF2 D2000 Top D3500 D3500 Top D4000 D4000 Top D5000 D me tres Geological cross-section through wells Opuama-7 (abandoned), Opuama-7ST and Opuama-10 (planned). The D1000 and D5000 reservoirs are the primary targets in this well, with potential additional targets at this location in the C3000 and C4000 reservoirs (if oilbearing) and the D3500 and D4000 reservoirs. 27

30 STRATEGIC REPORT GBETIOKUN BACKGROUND Development of the Gbetiokun oilfield will signal the next material phase of production growth in OML 40. The Gbetiokun discovery is located in the southeast of OML 40. It was discovered in 1987 and was appraised by three wells in 1990 and It is a simple, un-faulted, three way dip closed structure and contains twenty oil-bearing reservoirs at depths between 5,000 and 10,000 feet. Reservoir quality is excellent, and the majority of the reservoirs contain light, under-saturated oil. Although small in areal extent, the multiple reservoirs result in a high volume of oil initially in place (OIIP), estimated by Eland to be between 145 MMstb (low estimate) MMstb (best technical) MMstb (high estimate) gross and by NSAI to be between 125 MMstb (1P) MMstb (2P) MMstb (3P) gross. A Field Development Plan is in preparation. This envisages the re-entry and completion of the Gbetiokun-1 discovery well and the drilling of six additional production wells. Oil export would initially be by ship, to the Benin River Valve Station, where the oil would be injected to the pipeline to the Forcados Oil Terminal. In the medium term, oil export would be by a new pipeline to the Adagbassa Manifold, from where the oil would be injected into the Forcados system. Eland s best estimate of gross reserves is 60 MMstb, with up to 15 MMstb of Contingent Resources in shallow reservoirs. NSAI 1 assesses gross reserves at 21.5 MMstb (1P) - 38 MMstb (2P) MMstb (3P), with 2.6 MMstb of gross 2C contingent resources in shallow reservoirs. Initial production rates of 8,000 (3,600 net) bopd are anticipated from Gbetiokun-1. Dip seismic section across the Gbetiokun structure, through the Gbetiokun-1 discovery well. The location of the seismic line is shown in black on the inset map. TVDSS (ft) D D D8.0.3 Gbetiokun D D D E D D D D8.1 Gbetiokun D D E E E E E7.0_base D D D D D8.0.3 Bime D D D E E E E E7.0_base D8.0.3 Bime D D D E E E E6.0 Water saturation West-east cross-section through Gbetiokun showing stacked, oil-bearing, reservoirs. (The y-axis shows depth in feet. Only the interval below 7,600 feet is shown.) CPR of December 28 Eland Oil & Gas PLC Annual Report and Financial Statements

31 29

32 STRATEGIC REPORT OML 40 EXPLORATION AND APPRAISAL POTENTIAL In addition to Gbetiokun, there are a further five undeveloped discoveries within OML 40 while over twenty prospects and leads are recognised. The largest of these five undeveloped discoveries is thought to be Abiala, while the largest prospect, which also carries a very low geological risk, is Amobe. Map of fields, discoveries, prospects and leads in OML 40. ABIALA The Abiala-1 well is located in the northeast of OML 40. It was drilled in 1989 and discovered oil and gas in multiple reservoirs between 6,900 and 11,000 feet depth. This discovery is an obvious candidate for appraisal and development once production from the Gbetiokun field has commenced. There are a number of undrilled structures in the Abiala area, which provide the potential for follow-on exploration and appraisal drilling. Depth structure map of the Abiala area. 30 Eland Oil & Gas PLC Annual Report and Financial Statements

33 AMOBE The Amobe prospect is a large, clearly defined structure. It is comparable to Opuama in terms of both structural style and areal extent, and shows closure over a 5,000 feet vertical interval, between depths of 5,000 and 10,000 feet. It is located on the fault panel immediately to the north of the Opuama fault panel and its crest lies less than seven kilometres from the crest of the Opuama structure. NSAI, in its CPR of December, assessed unrisked gross prospective resources in Amobe to be in the range 15.3 MMstb (low estimate) 78.4 MMstb (best estimate) MMstb (high estimate), with a probability of success of 42%. Eland s assessment of low and best estimate prospective resources is similar, at 15 MMstb and 80 MMstb, respectively, but its estimate of high case prospective resources is lower than that of NSAI, at about 200 MMstb. However, Eland carries a higher probability of success (65%) than does NSAI. Depth structure map at Top E2000 reservoir level. The Amobe prospect lies to the north-west of Opuama, on the next fault block to the north. The minimum, most likely and maximum closing contours on the Amobe structure are shown in white, yellow and red respectively. Also shown are the Polobo, Polobo East, Polobo North West and Polobo South West structures, which may be candidates for future exploration drilling. Regardless of which assessment of prospective the event of a discovery, enable even the low resources and probability of success is case volume to be developed economically. preferred, the basic facts are simple: Amobe is For these reasons, Amobe is the top-ranked a large, low risk prospect, whose location close prospect in OML 40. Plans are being developed to the Opuama production facilities would, in to drill an exploration well to test the Amobe prospect in late 2018 or DUDU TOWN EAST Another attractive prospect in OML 40 is Dudu Town East. It lies immediately to the west of, and is similar in structural style to Gbetiokun. Eland currently assesses gross unrisked prospective resources in Dudu Town East to be 28 MMstb (best estimate) and this prospect is an obvious candidate for exploration drilling once Gbetiokun is brought into production. In addition to Dudu Town East, there are a number of other prospects to the west of Gbetiokun that provide potential for follow-on exploration and appraisal drilling. Depth structure map on Top D7.4 reservoir showing the Gbetiokun and Dudu Town East structures. 31

34 STRATEGIC REPORT STRATEGY IN ACTION UBIMA Eland has a 40% interest in the Ubima Field licence. The area covers 65 km 2 and was carved out of OML 17 which is operated by Shell Petroleum Development Company. Eland plans to workover Ubima-1 and initiate an Early Production System in APU 13 a ation LO o 3 OBELE Alubi 1 Ogwugwu 1 OML 58 Emohua 1 Olo 2 OML 22 Elele 1 OML 16 Omerelu 1 2 UKPICHI Ikwegbu 1 3 Izomini 1 OGBODO OML 17 4 OPL 2006 Apani 1 Umuanwa 1 Walima 1 OML 53 Owu 1 UBIMA FIELD 2 Nroo 1 OTAMINI NIGERIA 1 AGBADA Isoba 1 Alaoma 2 Alaoma 1 APARA Onyika 1 ISU Ola 2 Ola 1 UMUECHEM Umuechem 6,23 NKALI OBIGBO Amadioha Odagwa 1 Nkali 3 OPL OML IM OBIGNO NORTH Nzua UBIMA HIGHLIGHTS 40% interest in the Ubima Field acquired from All Grace Energy Limited in August Initial farm-in fee of $7 million; contingent production payment of $3 million payable following production of 2,000 bopd gross over a thirty day period. Eland is the Technical and Financial Partner on the field development and production operations. Eland is entitled to 88% of production cash flow from Ubima field until costs have been recovered. * Source: Independent Report by AGR TRACS April. UBIMA FACTS 40% interest held since August % initial production cash flow entitlement 13.1 mmbbls net contingent resource to Eland* Isia 1 Tema 1 Ogbakiri 1 Tema 2 AKPOR PORT HARCOURT Evo mmbbls gross 2C contingent resources* 32 Eland Oil & Gas PLC Annual Report and Financial Statements

35 UBIMA OPPORTUNITY UBIMA DEVELOPMENT PLAN 2C resources of 31.1 mmbbls gross*, with net resources of 13.1 mmbbls to Eland. A CPR published in April assumes an early production system (EPS) on Ubima with gross 2P reserves of 2.4 mmbbls, net to Eland of 1.1 mmbbls. Well appraised field with four wells drilled: Ubima-1, 2, 3, 4. Licence fully covered by 3D seismic which was acquired in 1997 over target reservoirs, covering 64% of the total area. Excellent infrastructure with nearby roads, airport and oil and gas pipelines. Low entry cost for land based operations using conventional technology. Eland has proposed a phased development approach with plans to do: Ubima 1 Re-entry: Planned dual string completion and an early production system (EPS) to be installed at the Ubima 1 well site. Evacuation will be via trucking. Full Field Development: The results of the EPS will be used to optimise this development; four wells are planned to develop the main reservoirs.* New wells on Ubima are expected to deliver high flow rates and high oil recovery through accurate well placing as a result of state of the art 3D seismic imaging and modern drilling techniques. Preparation works at Ubima wellsite. UBIMA CONTINGENT GROSS RESOURCES (mmbbls)* low estimate (1C) best estimate (2C) high estimate (3C) * Independent Report by AGR TRACS April. 33

36 STRATEGIC REPORT ELAND/ELCREST CSR VALUES AND RESPONSIBILITIES As part of its Corporate Social Responsibilities (CSR), Elcrest Exploration and Production Nigeria, in partnership with NPDC, has carried out several programmes for the host communities Opuama and Tsekelewu since the acquisition of OML 40 in Award of annual scholarships (five secondary and two tertiary) to indigenes of the Opuama and Tsekelewu communities Funding the operation and maintenance of power generation sets for the two communities Construction of a concrete jetty for the Opuama community Construction of a walkway for the Tsekelewu community Construction of a cottage hospital (jointly with JV partner) in Opuama Provided potable water borehole (jointly with JV) in Opuama Currently building an ultramodern civic centre for the Tsekelewu community Potable water borehole project in Opuama. 34 Eland Oil & Gas PLC Annual Report and Financial Statements

37 Cottage hospital in Opuama. During the barging operation in early, host communities benefitted from the following: Employment of 20 community members for the surveillance contract 12 community members currently employed to watch mooring point area Engagement of seven Olero Creek community members as marine wardens The following contracts are handled solely by community contractors for production and drilling operations: Dredging of well locations and access route Flowline replacement for wells Op-7, 8 and 9 Pipeline surveillance for wellheads flowlines and export pipeline Supply of marine spread (tugboats, barges, boats etc.) and diesel for Op-7, 8 and 9 Fumigation of houseboat Disposal of domestic waste Supply of potable water and fuel Employment of 42 community members to support dredging and drilling operations 35

38 STRATEGIC REPORT MONITORING AND MITIGATING RISKS TO THE BUSINESS Managing risks and opportunities is a key consideration in delivering our strategy. The approach to risk management is not intended to eliminate risk, but provide a means to identify, prioritise, and manage risks and opportunities and deliver its strategic objectives in line with the Group s appetite for risks. Strategic objectives in the form of KPIs are set annually. Determining the level of risk, the Group is willing to accept in the pursuit of these objectives and determining the level of acceptable risk is a fundamental component of the Group s risk management framework. MANAGING RISK Top-down oversight accountability monitoring and assurance The Board Overall responsibility for the Group's risk management and internal control systems Set strategic objectives and defines risk tolerance Set the tone and influence the risk culture within the business Complets risk assessment and identifies principal risks Audit Committee Chaired by Henry Turcan Management Team Chaired by CEO Performs a quarterly review of the Group risk register Risk identification, assessment and mitigation completed at asset and functional level Asset/Project/Function Level Risk management system embedded throughout the Group Risk culture influences all business activities Bottom-up identification of risks and mitigating actions for assets, projects and functions 36 Eland Oil & Gas PLC Annual Report and Financial Statements

39 HIGH PROFILE RISKS AND UNCERTAINTIES Highlighted below are the key risks the Group has managed during and will continue to monitor in The full risk register and mitigating actions available are documented in the following pages. 1. Niger Delta stability and geo-political risk Eland s core operations are located in the Niger Delta region of Nigeria which brings a significant risk to the Group. Historically, the Niger Delta has always been a high-risk environment. Cases of crude oil theft, pipeline vandalism, environmental pollution arising from illegal bunkering activities, kidnap for ransom, violent community protests and armed robberies are common security challenges in the region. Increased militancy activities during were recorded in the region resulting in damage to several oil and gas facilities including the early- damage of the offshore pipeline from the Forcados Oil Terminal to the offloading point to the export tankers, Eland s only major export route at that time. Force majeure was declared by the operator of the facility on 21 February and was in effect until June. The Group, in collaboration with other industry peers in the region, works alongside host communities at a local level and government at a country level to find a sustainable solution to Niger Delta instability. 2. Extended production shut-in due to third-party owned infrastructure downtime Eland s primary export route is the third-party operated Trans Escravos Pipeline (TEP) into the Forcados Oil Terminal which poses a significant risk to the Group both in terms of concentration of risk and reliance on it to generate revenues from infrastructure that is not directly under the control of the Group. The system was out of operation for the greater part of and into May due to militant attacks. To mitigate the impact of this shut-in, the Company worked with relevant government agencies to enable utilisation to export limited volumes of oil up to 10,000 barrels oil per day through shipping operations, commencing in the early part of. The option to export by ship could be executed again in the future if necessary. Any future implementation would be at higher volumes, reducing the opex per barrel resulting from what is a largely fixed cost export solution. In addition to the option to export by ship, the Group is exploring other opportunities for crude evacuation to reduce dependency on third-party owned infrastructure. 3. Stakeholder Relationships Stakeholders can include numerous relationships and interfaces with who the Group interacts including shareholders, customers, suppliers, government partners, host communities, regulatory bodies and the Company s indigenous shareholder. Specifically, the relationship with Elcrest s Joint Venture partner and OML 40 licence Operator, the Nigerian Petroleum Development Company ( NPDC ), and the regulatory body, the Department of Petroleum Resources ( DPR ), is of fundamental importance in ensuring the sustainability of the business via ensuring the OML 40 Joint venture partnership secures the licence renewal. The term of the original license runs for thirty years from 1 July 1989 until 1 July The Group is in active discussions regarding the license renewal for which there is both a precident and a standard checklist of items to be validated prior to award. The Group has applied for its OML40 renewal, along with its JV partner, recently conducted a workshop in which it presented future opportunities available within the OML 40 license. The application is actively being processed. 4. Future cash call funding A key opportunity for the Group has been to gain control of the timing and capital allocation within the OML 40 license prospects, with the recent /18 drilling campaign an example of Elcrest gaining control of the key value-adding projects. Gaining control has come at the risk of agreeing to fund the drilling campaign as Operator and therefore incurring costs on behalf of the Joint Venture to be subsequently recovered by Elcrest s government partner. Cash call funding from government partner s has historically been poor which could result in a build-up of receivable balances. To date, the Group has been able to offset these balances from amounts Elcrest was due to settle to NPDC as Operator of the OML 40 license. However, the Group recognises as it grows and gains greater control over capital projects the risk of slow or potentially non-settlement of receivables due from its government partner increases and stretches the Group s working capital. The Group is therefore actively engaged with government in delivering innovative solutions to guarantee funding for future operations. 5. Liquidity risk and working capital The Group recognised once Forcados re-opened in May that it represented a good opportunity to invest and increase production in line with the Company s key strategy. However, the combined effect of the extended production shut-down together with a period of high capital investment has stretched the available cash resources of the Group. Revenue inflows were severely impacted by the Forcados interruption during and early. We manage liquidity risk by ensuring sufficient funds are available to meet commitments as they become due. We are working with all stakeholders to ensure that cash resources and revenue receipts are managed to return to a net current asset position in the coming twelve-month period. Our cash flow projections take into consideration the Group s current debt finance and covenant compliance criteria. 37

40 STRATEGIC REPORT KEY RISK DESCRIPTION MITIGATION OPERATIONAL RISKS (OWNER: COO, CTO) Third party infrastructure downtime Production operations An over reliance on third-party owned infrastructure can expose the Company to an extended period of production being shut-in. Failure to manage operational activities in line with planned expectations would lead to production outages, project delays and cost overruns. The Company has explored alternative evacuation routes and deployed a shipping solution in to mitigate the impact of Forcados downtime. Further solutions such as temporary storage tanks to hold oil in the event of short-term downtime are being explored. The Group employs an experienced management team with a proven track record in managing oil and gas production and drilling operations throughout West Africa and in particular in Nigeria. Exploration & appraisal risk Health, Safety, Security and Environment (HSSE) Capital project execution Exploration and appraisal activities carry significant levels of subsurface risks. Sustained failure would impact the ability of the Company to replace reserves and production. Oil and gas activities carry significant levels of HSSE risk if not properly managed. As activity levels increase there is a strong focus preventing major environmental, health or safety incidents. Failure to adequately project manage, or perform due diligence on key equipment hire runs the risk of capital overspend and consequential delays to production. Nigeria presents an increased risk of poorly maintained infrastructure and equipment with a consequence this could stretch working capital resources within the Group. The Group has a very experienced management team with considerable technical experience in Nigeria. The Company engages expert independent reserve auditors to challenge in-house reserve evaluations. The Group has resourced additional in-house expertise to assess health, safety, security and environmental risks. 1. HSSE Policies, Management System and a comprehensive suite of Safe Work Plans and Procedures developed, documented and in place. 2. Environmental Impact Assessment (EIA) developed, documented and in place. 3. Health Risk Assessment planned. 4. Security Management Plan developed, documented and in place. 5. Emergency Response Plan and Procedures developed and in place. ERP exercises and drills to be carried out on a regular basis according to specified schedule. 6. Key Performance Indicator (KPI) Plan 2018 documented and in place. Plan identifies Reactive-Lagging and Proactive- Leading performance indicators for HSSE Activity Plan 2018 documented and in place. Identifies HSSE objectives, actions and schedules to be implemented throughout Incident Reporting Procedure requires all incidents to be reported and investigated, so that root causes can be identified and actions taken to prevent recurrence. 9. Unsafe Acts and Unsafe Actions are reported on Site Safety Observation cards and followed up by site HSSE organisation. Captured on SOC register. The group is to resource competent project managers, site supervisors and facilities staff. Realistic cost and schedules in the Nigerian environment to be put forward for budget purposes. Timely project reviews and peer reviews to be conducted. Ability to force a schedule on other companies if there is an interface ie. Fiscal transfer points. NPDC/partner cooperation to assist and fund capital project execution. Timely payment of local Nigerian contractors. Selection of competent Nigerian contractors with the technical, human and financial capability. Robust community relations, security and logistics support. In Drilling the opportunities to exploit existing assets rely upon securing the technically acceptable rigs, equipment and services. Rigs being available in a timely manner. 38 Eland Oil & Gas PLC Annual Report and Financial Statements

41 Key: deliver exploration & appraisal success sound financial management optimise portfolio value deliver a sustainable business KPI STRATEGIC LINKS MAGNITUDE TREND Infrastructure Uptime Production High Reduced. Situation has improved over last 12 months but remains a key risk to the Company, Infrastructure Uptime Production High Increased. Increasing risk as the Group operates more activities and expands production operations. Opex / bbl Reserve Replacement Medium Steady. Increasing as Group expands and conducts drilling campaigns. HSSE Statistical Analysis Key Performance Indicators (KPI) Plan High Increased. Increasing level of drilling and production operations presents increasing risk profile. HSSE Activity Plan 2018 Actual spend is within Authorisation for Expenditure (AFE) Medium Increased. Increasing risk as Group expands operations. Actual execution time is within schedule 39

42 STRATEGIC REPORT KEY RISK DESCRIPTION MITIGATION Niger delta stability and security Geopolitical risk Licensing and regulatory requirements The Company operates in an area where security incidents such as criminal attacks, theft of oil, and kidnappings occur. In addition to local security at the Niger delta, Nigeria continues to face political and legal uncertainties and threats such as terrorism aimed at de- stabilising and undermining the orderly operations of producers and the effective rule of central government. The Group s operations are subject to regulations and approvals by governmental authorities. Any changes to licences, or regulations may adversely affect the Group s plans. In particular, the Group s OML 40 licence has a current expiry date of 2019, which is extendable upon successful application. Continuous security monitoring and intelligence. We engage host communities to conduct security reviews and we monitor production losses on a daily basis to detect anomalies such as theft or leaks from Company infrastructure. The Group closely monitors these issues and threats to minimise the impact upon our operations as much as possible. We monitor the situation from the perspective of safety and security, with contingency plans in place and tested regularly. Through our contacts in governments and industry, as well as through specialist advisors, we continuously monitor and evaluate the potential impacts on our business arising from changes in the geo-political environment. In relation to OML 40, in line with the licence agreement, the Group has an option to request an extension of up to 20 years on the OML 40 licence at the current licence expiry date of July 2019, at additional cost, provided the terms of OML 40 have been complied with. The Group is actively engaging with its JV partner and licence regulator regarding the renewal of the OML 40 license and would look to secure the renewal during FINANCIAL RISKS (OWNER: CFO) Availability of capital JV partner and funding Liquidity Oil price Changes to tax status and legislation The Group s business necessarily involves significant capital expenditure. If the Group seeks to invest further capital, it may need to seek external debt or future equity financing. There is no guarantee additional financing, if required, will be available on acceptable terms. As the Group begins to conduct more operations on behalf of the Joint Venture there is a funding risk that the Group will not receive back the equity entitlement share due from its government partner. Funding from government partners has historically been poor and the Group is exposed to potentially large amounts of receivable balances not being settled or being settled very slowly. Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due. In the event the Company failed to meet its financial covenants required under its Debt Facility there is a risk the Company would be in default and the Banks request repayment of debt. A significant fluctuation in the oil price could have an impact on the Group s plans and expected returns. If a change in regime/legislation under which the Group operates were to change profitability may be impacted The Group plans to access sufficient cash resources and debt to fully exploit the available opportunities. The Group is actively engaged in discussion with a broad base of potential lenders as evidenced from the addition of two new lenders to the Debt Facility late. Given the fall in oil prices experienced in recent years, the group was able to adapt and change its short term priority to pursue lower capex opportunities within its existing debt capacity. Management continually monitor the amounts being incurred or proposed by the JV partner to be incurred on OML 40. Where management disputes such expenditures on the basis that they do not meet these criteria, management accrues at the period end for its best estimate of the amounts payable to the operator. The amounts recognised as accruals as at year end, therefore, reflect management s best estimate of amounts that have been incurred in accordance with the JOA and that will ultimately be paid to settle its liabilities in this regard. The Company updates short and long-term cashflow projection. The Group Budget is approved before the end of the calendar year setting revenue and cost targets which are reported against on a monthly basis to assess deviations from Budget plans. Short-term cash flows are routinely updated, at least monthly taking account of known working capital fluctuations and corrective working capital management actions are executed as required to ensure funding is always in place to meet liabilities as they fall due. As part of the Company s cash flow projections the Company reviews its financial covenants to ensure compliance. The Group is focused on effective working capital management. The Company reviews its hedging policy and its appetite to price risk on a regular basis. Investment metrics are completed exclusive of tax benefits and all project economics are determined on the maximum tax basis in force to mitigate the impact of pioneer tax status. Group reviews tax updates regularly and engages professional advisors to stay abreast of tax law changes and impact. 40 Eland Oil & Gas PLC Annual Report and Financial Statements

43 Key: deliver exploration & appraisal success sound financial management optimise portfolio value deliver a sustainable business KPI STRATEGIC LINKS MAGNITUDE TREND CSR Initiatives Infrastructure uptime Production High High Reduced. Situation more stable than a year ago with reduced attacks on infrastructure. However, historically Niger delta is a politically unstable region. Steady. Medium Reduced. Indications positive that licence will be renewed during 2018 with workshops in progress in early 2018 between Elcrest, JV partner and regulatory authority. Production Operating Cash Flow Infrastructure uptime Reserve replacement ratio Reduced. Risk is reducing as Group increases production and operating cash flows enabling increased capital availability. Operating Cash Flow Increased. Increasing as more operations conducted by the Group with operatorship control and consequently funding operations. Operating Cash Flow Opex costs /bbl Reduced. Significantly improved working capital position over last 12 months as return to Forcados followed by successful drilling campaign increasing production and cash flows. Operating Cash Flow Reduced. Positive movement in oil price over last 12 months. Effective Tax rate Steady. 41

44 STRATEGIC REPORT KEY RISK DESCRIPTION MITIGATION STRATEGIC RISKS (OWNER: CEO, COUNTRY MD) Concentration risk Eland and Elcrest s relationship with Elcrest s indigenous shareholder Corporate governance & ethical conduct Loss of key employees Community relations High dependency on a concentrated portfolio with a limited number of wells exposes the Company to greater impact in the event of disruption within a local area. The Company is working with a third-party indigenous shareholder in the operation of Elcrest which in turn enables Elcrest to be treated as an indigenous company under Nigerian law. Any misalignment of strategy or common objectives has the ability to cause delays which are inherent in multi-party relationships. The Group operates in Nigeria which is one of the highest ranking countries in the OECD table for risk of bribery and corruption. Loss of key individuals could have an adverse impact on the Group s plans and operations. Host communities could cause disruption to operations and adversely impact production. The Company is actively engaged in broadening its portfolio through drilling at Ubima, licence acquisitions or M&A activity to reduce its concentration risk. The Elcrest Shareholders Agreement provides for default and deadlock situations where Eland may buy the shareholder s interest in Elcrest or vice versa. In the event Eland were to acquire the interest of the shareholder, Eland would still intend to maintain the status of Elcrest as an indigenous Company by ensuring any sale of shares was to another indigenous company or shareholder. Further, as Eland has funded Elcrest through a formal loan agreement agreed by both shareholders this substantially provides the rewards to Eland until such time as this funding has been fully repaid. This therefore limits the rewards which can be returned to the indigenous shareholder until after a substantial amount of development activity has been executed. The Group has updated its Code of Conduct manual which provides for full compliance and transparency throughout the Group s operations and has obtained membership of the QCA. A full programme of compliance and training for the UK Bribery Act and the US FCPA has been implemented by the group. The Company has recently resourced and placed in country a Compliance Manager who will ensure adherence and roll out of training plans is both encouraged and understood. The Group has a competitive compensation package that is reflective of market conditions for these key roles and is constantly under review as conditions change. The Group operates a long-term incentive plan for key employees. The Group has also undertaken a succession planning review of these key roles. The Group works closely with all host communities to ensure that engagement is achieved at all levels. Agreements with host. communities are in place or under negotiation to ensure harmonious working relationships. The Group is committed to community projects to enhance the wellbeing of host communities. In addition, the Group includes host contractors to bid for services and contracts wherever possible to utilise local employees and contractors. 42 Eland Oil & Gas PLC Annual Report and Financial Statements

45 Key: deliver exploration & appraisal success sound financial management optimise portfolio value deliver a sustainable business KPI STRATEGIC LINKS MAGNITUDE TREND Steady. As Company expands and diversifies this risk will reduce as evidenced by the Group s plans to drill Ubima-1 well in Reduced. Elcrest has began to settle legacy liabilities reducing the likelihood of either acceleration or demand for payment. Risk remains regarding misalignment of future strategy between Elcrest s shareholders, Eland and Stracrest. Compliance of Code of Conduct Steady. Nigeria remains a high-risk country in which to operate which has a history of bribery and corruption. Eland will continually assess risks and mitigating actions available. Attrition rates Steady. General oil and gas market conditions have begun to improve and potentially increase likelihood of leavers. The risk is mitigated by implementation of new LTIP scheme. Infrastructure uptime Steady. The Group has provided funds or work programmes for community projects and increasingly awards contracts to local parties as it increases its operations. Approved by the Board of Directors and signed on behalf of the Board. RON BAIN Chief Financial Officer 17 April

46 GOVERNANCE BOARD OF DIRECTORS George has over 20 years of oil industry experience in both the producing and service/manufacturing arena. He was Business Development Manager for Addax and, prior to this, Commercial Manager in Geneva. George joined Addax in 2004 and held the General Manager s position position in Nigeria, where he was responsible for finance, and fiscal and commercial activities. Prior to this, George worked with ABB Oil & Gas as vice president of finance based in the UK with responsibilities for Europe and Africa. He held a similar position in Houston, from where the organisation ran its operations in 10 countries. George was Finance Director in Singapore for Asia Pacific and Middle East, handling currency swaps and minimising exposures during the Asian financial crisis of the late 1990s. GEORGE MAXWELL Chief Executive Officer George graduated from Robert Gordon University in Aberdeen with a Masters in Business Administration. George was appointed to the Board in September 2009 and was appointed as Chief Executive Officer in September Ron recently led the Financial Integration Planning for the Baker Hughes / GE Oil & Gas merger. Prior to this Ron was the Regional Accounting Director of Europe, Africa and Russia/Caspian for Baker Hughes, responsible for all financial reporting, financial management and compliance activities in over 40 countries. He has a depth of experience with roles of increasing scope and responsibility including Controllership, Company Secretarial, Treasury and FP&A with companies such as Baker Hughes, BJ Services, Donside Paper Company and Vetco Gray. He is a qualified Chartered Accountant FCCA. RON BAIN Chief Financial Officer Russell has over 40 years of diversified experience in the upstream oil and gas business. He started his career with Philips Petroleum in Texas and Norway and has held executive positions with Kerr McGee Oil, a leading US independent where he was responsible for properties in the UK, Norway and the Middle East. Russell was Managing Director of Lasmo North Sea from 1991 to Russell has broad international experience, and has experience in the development of a number of startup exploration, production and service companies both in the UK and internationally. RUSSELL HARVEY Chairman Russell has a BSc in Mechanical Engineering from Imperial College and is a member of the Institute of Energy. Russell was appointed to the Board as Independent Non-executive Director in August 2012 and moved to the role of Chairman in December Audit committee Remuneration committee Nomination committee Technical and Reserves committee 44 Eland Oil & Gas PLC Annual Report and Financial Statements

47 Grégory has over 25 years of investment banking experience in the natural resources and related sectors. He held senior positions with Bear Stearns and Morgan Stanley in London, Moscow and New York. More recently, he worked with CIS Capital and Renaissance Capital providing advisory services to small companies and institutions involved with oil, gas and power assets in geographies across Russia, Kazakhstan and Sub-Saharan Africa. He is a member of the Advisory Board of the Graduate School of International and Public Affairs at Columbia University in NY and is active with the University s Centre for Global Energy Policy. He has a BA and a MA from Columbia University. GRÉGORY STOUPNITZKY Senior Independent Non-executive Director Grégory was appointed to the Board as Non-executive Director in January. Henry has worked in financial services since 1996, with a focus on equity capital markets. Having spent the majority of his career advising growth companies within investment banking, he switched to investment management when he joined Henderson Global Investors in In, the funds managed by Volantis were transferred by Henderson to Lombard Odier Investment Management. Henry was an original investor in Eland and prior to joining the board as a Non-executive Director in January 2015 he had advised the Company from its seed funding to its listing on AIM in Henry graduated with an MA (Hons) in Modern Languages from Edinburgh University and is a Member of the Securities Institute. HENRY TURCAN Non-executive Director Henry is a representative of the funds managed or sub-advised by Lombard Odier Investments Manager group entities, collectively one of the Company's largest shareholders. Henry Obi has over 15 years experience in private equity sector and is currently a Partner and Chief Operating Officer at Helios Investment Partners LLP ( Helios ) where he is responsible for its operations and serves on Helios Equity and Credit Investment Committees. Prior to joining Helios in 2006, Henry was a Partner at Aureos Advisers Limited where he was responsible for monitoring the performance of the firm s funds in Africa and Central America and their compliance with investment policy. Prior to Aureos, Henry worked for Actis, CDC Group Plc and Dynegy, a US energy trader. HENRY OBI Non-executive Director Henry holds a BSc. Architecture and MSc. Architecture from University of Nigeria, a B.Arch. from University of Nottingham and an MBA in Finance from the London Business School. Henry was appointed to the Board as Non-executive Director in July and is a representative of Helios, one of the Company s largest shareholders. BRIAN O'CATHAIN Non-executive Director Brian is a geologist and petroleum engineer with over 30 years' experience in senior technical and commercial roles in upstream oil and gas E&P companies, including Shell International, Enterprise Oil and Tullow Oil plc. He has experience in working in West Africa, North Africa, onshore Europe, the North Sea, the Gulf of Mexico, South Asia and offshore Ireland. He was the Managing Director of Tullow Oil's International Business during the Energy Africa acquisition, and served as Chief Executive of Afren plc from 2005 to He was also the Chief Executive of Petroceltic International plc from 2007 to. During this period Petroceltic discovered the Ain Tsila gas condensate field in Algeria, and concluded a nil-premium merger with Melrose Energy. Brian holds a first-class honours degree in Geology from the University of Bristol. 45

48 GOVERNANCE SENIOR MANAGEMENT ADEBAYO AYORINDE Managing Director, Nigeria Adebayo has over 30 years' diversified experience in the upstream oil and gas industry from oil and gas field development, Administration and Business development. Adebayo started his career with Ashland and rose to the level of onshore Production Manager before leaving for Texaco Overseas where he served as Head of HR in Warri. Afterwards, he worked for Moni Pulo ltd and Allied Energy as Executive Director and COO before joining Afren in He was the Managing Director at Afren from 2011 before joining Oriental Energy O&M Services in He then joined Eland as Managing Director of Nigerian operations. Adebayo has a degree in Chemical Engineering from the University of Ife and completed a General Management Programme at Harvard University. PIETER VAN DER GROEN Chief Operating Officer Pieter has 25 years of oilfield exploration and production experience in a variety of technical, operational and management roles. He started his career with Schlumberger as a geologist in London, moving on to become a wireline engineer working in South East Asia and West Africa. After his field work, he trained as a log analyst with Schlumberger in London for multiple clients. Pieter then moved to Amerada Hess initially as a Petrophysicist in the international team, then to technical and management roles. Pieter worked briefly with Gulfsands Petroleum in Syria as Deputy General Manager. In Nigeria he spent four years as General Manager of an independent oil company, overseeing onshore development and production in the Niger Delta, before moving to Eland Oil & Gas PLC as Technical Manager and latterly as Chief Operating Officer. Pieter has a geology degree from Auckland University and a Masters degree in Petroleum Geology from the University of Aberdeen. JOHN DOWNEY Chief Technical Officer John has over 30 years of upstream oil and gas industry experience in a variety of technical, commercial and managerial roles. These cover everything from frontier exploration, through appraisal and development, to mature field production. He is a geologist by background but has also worked as a petroleum economist. He has worked for several companies, holding senior positions at BP, Enterprise Oil, Shell and Dana Petroleum, in Europe, Southeast Asia and East, North and West Africa. John has a BSc in Geology and Geography from Nottingham University and an MSc in Engineering Geology from Leeds University. GIEL KRIJGER Technical Director Giel has over 35 years of upstream oil and gas experience. He joined Royal Dutch Shell in 1976 with assignments to Brunei Shell, Nederlandse Aardolie Maatschappij, Abu Dhabi Company for Onshore Operations, Shell Expro (UK), Shell Argentina, Norske Shell, and Shell Nigeria (SNEPCO). During his career with Shell, Giel held various positions in reservoir and petroleum engineering, new ventures and project management. He joined Addax Petroleum in 1999 and was Head of Reservoir Engineering, Head of Corporate Planning and Corporate Head of Reservoir Engineering/ Reserves Manager. Giel holds a Master s degree in Aeronautical Engineering from the Technical University of Delft, Netherlands. GAFAR OLAGUNJU General Manager, Human Resources & Services Gafar has over 40 years of diversified experience in the upstream oil and gas business covering production, drilling, completion and workover, logistics, administration, human resources, community relations, security and services in both onshore and offshore operations. He started his career with Elf Petroleum Nigeria. Gafar subsequently worked with Mobil Producing Nigeria as Senior Operations Engineer before moving to Ashland Oil Nigeria Company/Addax Petroleum Development (Nigeria) where he worked in various senior managerial positions. Gafar has a degree in Mechanical Engineering from the University of Lagos and a Diploma in Petroleum Engineering from the French Institute of Petroleum, Paris. GODWIN IDOKO General Manager, Facilities Godwin Idoko had his Bachelor's Degree in Mechanical Engineering from the University of Ife, Ile-Ife Nigeria, He obtained his Master s Degree in Mechanical Engineering (Thermofluids) from the University of Lagos, Akoka, Nigeria, in He holds MBA degrees from Cornell University, Ithaca, New York, USA and Queens University, Kingston, Ontario, Canada. He is a Professional Engineer (PE) of the Province of Alberta, Canada, and Registered by Council of Registered Engineers of Nigeria (COREN), a Fellow of the Nigeria Institution of Mechanical Engineers (FNiMechE), and a Member of the Nigeria Society of Engineers (NSE). 46 Eland Oil & Gas PLC Annual Report and Financial Statements

49 He has over 28 years Upstream Oil and Gas Facilities experience that includes Concept Definition, FEED, Detailed Design, and Installation Engineering & Construction for Green fields, Brown fields as well as Onshore and Offshore projects. He was Lead Project Manager at General Electric (GE), Oil and Gas Division (PII) in Canada as Lead Project Manager before joining Eland Oil and Gas. HILARY AZOBA Drilling Manager Hilary Azoba is a versatile Petroleum Engineer and Petroleum Projects Development Manager with 27 years experience working for major energy companies in Nigeria, Oman, Gabon, UK, USA, Russia, and Canada among other countries. He holds B.Eng. (Mechanical Engineering, 1st Class Honours 1984) from the University of Nigeria Nsukka and MBA from the University of Phoenix Arizona (USA). He is a registered professional engineer in the Province of Alberta Canada and Member Society of Petroleum Engineers. His career experience centred around designing and delivering development and exploration wells on land, desert, arctic, swamp, and offshore environments, with stints in production facilities operations and maintenance and safety. THEOPHILUS O. ODIGIE Operations Manager Theophilus O.Odigie holds B.Sc. (Hons) in Instrumentation and Systems Engineering obtained in 1980 from Teeside Polytechnic now Teeside University, Middlesbrough, UK. He has over 34 years post graduation working experience which spans the Power, Steel, Glass, Oil and Gas industries. His technical competence includes Surface facilities Engineering, Maintenance, Operations, Safety Incident Investigation, Technical Auditing and Emergency Response. He is a registered and Certified Engineer. A certified Occupational Health practitioner. A trained Environmental Management System auditor. His last job was with Shell Petroleum Development Company of Nigeria for about twenty two years. The last position held was Operations Manager for Swamp West. EDWARD COZENS General Manager, Commercial Edward joined Eland from GDF Suez E&P UK where he was a business analyst working in the Business Development team. Prior to working in E&P, Edward has four years Corporate Finance and Broking experience having worked at Allenby Capital and Matrix Group. Edward was part of Matrix s successful oil & gas franchise and was involved with numerous corporate actions and fundraisings for both private and public E&P clients. Edward graduated from Loughborough University with a degree in Banking, Finance and Management. MICHAEL CAMERON Head of Finance Michael has over 20 years oil and gas industry experience primarily with Operator companies. After qualifying with KPMG Michael gained oil industry experience first with Transocean before moving to Hess where he latterly headed up the Budgeting and Forecasting team for the North West Europe region. Michael joined Dana Petroleum in 2003 where he spent over 10 years covering a variety of increasingly senior financial and management roles, during which time Dana expanded both within the UK and internationally into Africa. Prior to his departure he held the position of Country Finance Manager for the UK Business Unit and was a member of the Senior Management Team. Michael joined Eland in June from the Parkmead Group where he was Group Financial Controller. Michael graduated from the University of Aberdeen with a BA (Hons) degree in Accounting. He is a Chartered Accountant having qualified with KPMG. DOMINIC MARIZU General Manager, Finance (Nigeria) Dominic has over 35 years of post-university degree work experience. He has a demonstrated history of working in the oil and energy business for over 25 years at various times with Schlumberger and Transocean. He has skills in Finance, Accounting, Internal Control, Operations, Compliance, Tax and Safety Management Systems. He is a graduate of the University of Lagos; a fellow of the Institute of Chartered Accountants of Nigeria and an Associate member of the Chartered Institute of Taxation of Nigeria. He was also the Base Manager and Government Affairs Manager of Transocean for three years. 47

50 GOVERNANCE FINANCIAL LEADERSHIP Ron Bain REVIEW OF A BREAKTHROUGH YEAR was a breakthrough year for the Company, entering the year with zero production and exiting at over 18,500 gross (8,325 net) barrels per day from the OML 40 license. Average annualised gross production for the full year was 8,743 (3,934 net) bbls/day, a record for the Company. This is a remarkable achievement and the Company fully expects to build on this success in As a result, revenue was transformed in rising to $68.9 million (: $2.4 million) derived from net liftings of 1,351,000 bbls (: 83,200), with having been severely impacted by the Forcados downtime experienced from February that year. Eland achieved a realised price of $50.98 (: $28.52) compared to the Brent average for the year at $ The lower realised price compared to Brent was impacted by the timing of liftings in the year. However, as we enter 2018 we are seeing the Forcados blend trading at a premium to Brent which is advantageous to the Company s cash flows. HEDGING Eland was unhedged throughout and thus benefited from the strong rise in the oil price in the latter half of and into The Company will continue to regularly review its approach to managing commodity prices, interest rate and currency fluctuations in the context of its ongoing operating and capital commitments. OPERATING COSTS Operating costs comprise cost of operations, royalties, depreciation of property, plant & equipment ( PPE ) and changes in lifting position totalled $77.3 million (: $25.4 million). Direct field operating costs 10,336 6,359 Tariff & transportation (incl. shipping) 23, Onshore support 11,272 14,191 Royalties and taxes 16,349 2,370 DDA 12, Movement in under/over lift 3,357 1,374 Cost of Sales 77,277 25,447 $000 $ Eland Oil & Gas PLC Annual Report and Financial Statements