Seven Energy International Q3 2014 Financial Results for the nine months ending 30 September www.sevenenergy.com
NEWS RELEASE RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2014 London, Lagos, 27 November 2014: Seven Energy Finance Limited, together with its parent company Seven Energy International Limited ( Seven Energy or the Group ), the independent indigenous Nigerian integrated oil and gas development, production and gas distribution company, announces results for the Group for the nine months ended 30 September 2014. Highlights Completed the placement of $400 million of Senior Secured Notes Profit for the period of $41 million (2013: $4 million) EBITDA for the period of $164 million (2013: $95 million) Gross oil production averaged approximately 49.5 Mbopd Gas deliveries averaged 23 MMcfpd Uquo Gas Processing Facility formally commissioned by President Goodluck Jonathan, President of the Federal Republic of Nigeria Phillip Ihenacho, Chief Executive Officer, Seven Energy, said: This year has been an exciting year for Seven Energy, seeing considerable operational progress including the formal commissioning of the Uquo Gas Processing Facility. Our gas supplies are enabling increased power supply to be delivered in Akwa Ibom State. Our acquisition of the East Horizon Gas Company was successfully completed in March since then we have been supplying gas to the Unicem cement factory in Calabar. Through completing our $400 million note issuance in October we have firmed up our financial position, including paying down our short term debt. Our priority for 2015 is to complete our on- going projects with a focus on the near term cash flows of the business and to take advantage of opportunities with low capital outlays to further develop our core business. Corporate Update On 10 October 2014, Seven Energy completed the placement of $400 million of Senior Secured Notes, of which $100 million was through a private placement with the Nigeria Sovereign Investment Authority with a coupon rate of 10.5%, and $300 million issued at an issue price of 98.781% and a coupon rate of 10.25%, providing a yield of 10.5%. The Notes are due in 2021. The funds were used to repay and cancel existing short term debt; a $150 million Convertible Bond, which was due in December 2014, $200 million outstanding on the Reserve Based Lending facility, and the Working Capital Facility. In August, Seven Energy was proud to receive recognition of its contribution towards Nigeria s Gas Master Plan efforts from the Nigerian Government with the formal commissioning of the Uquo Gas Processing Facility in an opening ceremony conducted by President Goodluck Jonathan in the presence of the Minister of Petroleum Resources, Diezani Alison- Madueke, and Governor Godswill Akpabio of Akwa Ibom State.
In October, the Group completed the sale of its 49% licence interest in the Matsogo field, located within OML 56, in the north- west Niger Delta, for $7 million. Financial Update Revenue for the period decreased $21 million to $241 million from the comparable period in 2013, due to a reduction in oil liftings of $45 million, offset by an increase in gas revenue during the period of $24 million. Profit of $41 million for the period, an increase of $37 million from the same period last year (2013: $4 million), representing an increase of 985% primarily due to the increased production entitlement that the Group recognised as a consequence of increased expenditure on OMLs 4, 38 & 41. The Group s EBITDA increased 71% to $164 million (2013: $95 million). Capital expenditure was $383 million for the period, with $129 million spent on new acquisitions and $254 million on capital projects, funded by operating cash flows, new equity raised during the year, and drawdowns on capital project loan facilities. Operational Overview Gross production from OMLs 4, 38 & 41 (the OMLs ) averaged 49,600 bopd for the nine months ended 30 September 2014 (2013: 49,900 bopd). Production was impacted by over four weeks of shutdown at the Forcados terminal during March and April 2014. The reliance on deliveries to the Forcados terminal is mitigated by the completion of the construction of an alternative pipeline to deliver oil to the Warri refinery. Production from the OMLs has continued to improve since the shutdown. Seven Energy s net entitlement from the OMLs for the period was 10,600 bopd (2013: 3,300 bopd). The average sales price achieved was US$109.2 bbl (2013: US$111.7 bbl). During the nine months ended 30 September 2014, the Group received liftings of 2.0 MMbbl of oil under the Strategic Alliance Agreement (2013: 2.3 MMbbl). Gas deliveries to the Ibom Power station for the period averaged 14.4 MMcfpd, generating revenue of $7 million. Following its acquisition by the Group on 31 March 2014, East Horizon Gas Company delivered gas to the Unicem cement plant at an average rate of 13.5 MMcfpd, during the six months ended 30 September 2014, generating revenue of $17 million. The Group has completed work on the 1km pipeline that bypasses the Ibom Power station and is now ready to commence deliveries to the Calabar NIPP power station via a western route to Ikot Abasi and then along the 128 km East Horizon gas pipeline. Initial gas deliveries will be at a rate sufficient to enable Calabar NIPP power station to proceed with plant commissioning and early power generation. Commencement of these deliveries is being delayed, by a blockage in Niger Delta Power Holding Company s ( NDPHC ) pipeline leading to the power station, caused during pipeline cleaning and commissioning operations. NDPHC is working to resolve this issue. The Group is also in the final stages of commissioning and drying the 37km Uquo to Oron pipeline which is expected to be completed and pressurised in December 2014. The Group continues its discussions with NDPHC
regarding the Oron to Creek Town pipeline under which we would manage and fund its construction, in exchange for which we would seek a higher gas sales price. Before committing to this arrangement the Group will take steps to provide appropriate funding. The FUN Manifold, the oil gathering station adjacent to Exxon Mobils s Qua Iboe Terminal, is now mechanically complete and commissioning is underway, with first oil expected to flow in early 2015. Our revenues, and thus our liquidity, from oil sales are being impacted by the recent drop in the oil price. Seven Energy continues to demonstrate its commitment to a strong QHSSE/CSR performance with a total of 11 million cumulative man- hours to September 2014, for employees, partners and contractors, reached without a Lost Time Incident. About Seven Energy Seven Energy International Limited is an independent Nigerian integrated oil and gas development, production and gas distribution company founded in 2004. With the backing of strategic long- term investors and main offices in Lagos and London, the Group has a unique focus on the emerging Nigerian domestic gas market. The Group s upstream assets include licence interests in the Uquo Field and the Stubb Creek Field (south east Niger Delta), an indirect interest in OMLs 4, 38 & 41 through a Strategic Alliance Agreement with Nigerian Petroleum Development Company (north west Niger Delta) and a licence interest in OPL 905 (Anambra Basin). Its midstream infrastructure assets, focused on south east Niger Delta, include the 200 MMcfpd Uquo Gas Processing Facility and a gas pipeline network of 260 km with distribution capacity of 600 MMcfpd. Seven Energy Finance Limited is a wholly owned subsidiary of Seven Energy International Limited incorporated in the British Virgin Islands. The Company is the issuer of $300 million 10.25% Senior Secured Notes due 2021 which are listed on the Irish Stock Exchange.
For further enquiries, please contact: Seven Energy International Limited +44 20 7518 3850 Joe Kaye, Group Head, Performance and Investor Relations John Arthur, Investor Relations Officer Seven Energy Finance Limited Phillip Ihenacho, Director Bruce Burrows, Director Brunswick Group +44 20 7404 5959 Patrick Handley Anna Carruth Africa Practice +234 805 494 9866 Tim Newbold For more information on Seven Energy please visit www.sevenenergy.com
Seven Energy International Limited Condensed consolidated statement of comprehensive income 9 months ended 30 September 2014 and 30 September 2013 Notes 9 months ended 30 September 2014 9 months ended 30 September 2013 Revenue 3 240,521 261,950 Cost of sales - Production expenses (152,949) (81,163) - Increase/ (decrease) in underlift 120,473 (55,789) Depletion (67,708) (31,946) Gross profit 140,337 93,052 Depreciation and amortisation expenses (2,193) (1,231) Other operating expenses (2,933) (704) Administrative expenses (41,599) (28,845) Operating profit 93,612 62,272 Investment revenue 59 161 Finance costs (39,322) (36,479) Foreign exchange gains/ (losses) (463) 8 Profit before tax 53,886 25,962 Tax expense (12,460) (22,144) Profit for the period 41,426 3,818 Attributable to: Owners of the company 42,420 4,554 Non- controlling interests (994) (736) Other comprehensive income for the period Profit for the period 41,426 3,818 Total other comprehensive income for the period - - Total comprehensive income for the period 41,426 3,818 Attributable to: Owners of the company 42,420 4,554 Non- controlling interests (994) (736) All operations relate to continuing operations in 2014 and 2013.
Seven Energy International Limited Condensed consolidated balance sheet At 30 September 2014 30 September 2014 31 December 2013 Audited Notes Non- current assets Intangible assets 64,131 - Property, plant and equipment 1,717,639 1,150,621 Other receivables 8,483 7,494 Deferred tax assets 34,012 4,150 1,824,265 1,162,265 Current assets Inventories 221,173 97,928 Trade and other receivables 190,621 58,235 Asset held for sale 7,250 7,250 Cash and cash equivalents 16,546 50,383 435,590 213,796 Total assets 2,259,855 1,376,061 Current liabilities Trade and other payables (472,221) (282,973) Borrowings 4 (480,924) (359,282) Deferred revenue (13,487) (31,755) Current tax liabilities (1,145) (1,057) (967,777) (675,067) Non- current liabilities Borrowings 4 (300,734) (170,777) Deferred tax liabilities (156,596) (76,636) Long- term decommissioning provisions (41,502) (26,045) Deferred revenue (43,053) (31,755) (541,885) (305,213) Total liabilities (1,509,662) (980,280) Net assets 750,193 395,781 Equity Share capital 5 5 Share premium account 95,710 95,310 Irredeemable convertible loan notes 895,461 612,583 Retained deficit (331,187) (373,607) Equity reserves 69,092 39,384 Equity attributable to owners of the Company 729,081 373,675 Non- controlling interests 21,112 22,106 Total equity 750,193 395,781
Seven Energy International Limited Condensed consolidated statement of changes in equity 9 months ended 30 September 2014 and 30 September 2013 Share capital Share premium Irredeemable convertible loan notes ( ICLNs ) Retained deficit Equity reserves Total Non- controlling interest Total Equity 1 January 2013 5 94,910 612,686 (414,419) 33,335 326,517 23,565 350,082 Credit to equity for equity- settled share based payments - - - - 5,010 5,010-5,010 Issuance of shares - 400 - - (400) - - - Settlement of ICLNs - - (91) - - (91) - (91) Expenses on issuance of prior year ICLNs - - (12) - - (12) - (12) Total comprehensive income/(loss) for the period - - - 4,554-4,554 (736) 3,818 30 September 2013 (unaudited) 5 95,310 612,583 (409,865) 37,945 335,978 22,829 358,807 Credit to equity for equity- settled share based payments - - - - 1,439 1,439-1,439 Total comprehensive income/ (loss) for the period - - - 36,258-36,258 (723) 35,535 31 December 2013 5 95,310 612,583 (373,607) 39,384 373,675 22,106 395,781 Credit to equity for equity- settled share based payments 1,325 1,325-1,325 Issuance of shares - 400 - - (400) - - - Issuance of ICLNs - - 288,000 - - 288,000-288,000 Expenses on issuance of ICLNs - - (5,122) - - (5,122) - (5,122) Contingent deferred consideration - - - - 28,783 28,783-28,783 Total comprehensive income/ (loss) for the period - - - 42,420-42,420 (994) 41,426 30 September 2014 (unaudited) 5 95,710 895,461 (331,187) 69,092 729,081 21,112 750,193
Seven Energy International Limited Condensed consolidated cash flow statement 9 months ended 30 September 2014 and 30 September 2013 9 months ended 30 September 2014 9 months ended 30 September 2013 Profit for the period 41,426 3,818 Adjustments for: Investment revenues (59) (160) Financing costs 39,322 36,478 Depreciation and amortisation 2,193 1,231 Depletion 67,708 31,946 Loss on disposal of property, plant and equipment 56 221 Income tax charge 12,460 22,144 Deferred revenue released (3,855) - Share- based payment expense 1,325 5,010 Foreign exchange loss/ (gain) 463 (5) Operating cash flows before movements in working capital 161,039 100,683 (Increase)/ decrease in inventories (121,275) 66,605 Decrease/(increase) in receivables 6,048 (5,532) Increase/ (decrease) in payables 63,298 (20,188) Net cash provided by operating activities 109,110 141,568 Investing activities Interest received 19 38 Purchases of property, plant and equipment and intangible assets (253,845) (232,790) Proceeds on disposal of property, plant and equipment 88 182 Acquisition of subsidiaries, net of cash acquired (128,697) 2,000 Net cash used in investing activities (382,435) (230,570) Financing activities Interest and financing fees paid (73,657) (38,366) Financing deposits paid (23,531) (2,256) Repayments of bank borrowings (70,066) (71,167) Proceeds from bank borrowings 260,992 246,050 Proceeds from issue of ICLNs 146,000 - Proceeds from issue of convertible bonds - 28,800 Net cash from financing activities 239,738 163,061 Net (decrease)/ increase in cash and cash equivalents (33,587) 74,059 Cash and cash equivalents at beginning of the period 50,383 32,190 Effect of foreign exchange rate changes (250) (101) Cash and cash equivalents at end of the period 16,546 106,148
1. General information Seven Energy International Limited ( the Company ) is incorporated in Mauritius under the Companies Act, 2001 (Act No. 15 of 2001). The address of the registered office is Cim Global Management, Les Cascades, Edith Cavell Street, Port Louis, Republic of Mauritius. The Company is the parent company of a group of companies ( the Group ) whose principal activities are the exploration, development, production and distribution of oil and gas in Nigeria. 2. Basis of accounting and presentation of financial information Basis of accounting The condensed consolidated financial statements are unaudited and do not include all information and disclosures required in the annual financial statements and should be read in conjunction with the Group s audited consolidated financial statements for the year ended 31 December 2013, which have been prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union. Changes in accounting policies In the current financial period, the Group has adopted the new/ revised standards below. Adoption has had no impact on these condensed consolidated financial statements. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest audited consolidated financial statements. IFRS 10: Consolidated Financial Statements IFRS 11: Joint Arrangements IFRS 12: Disclosure of interests in other entities. IAS 27: Separate Financial Statements (2011) IAS 28: Investments in Associates and Joint Ventures (2011) IAS 36 (amended): recoverable amount disclosures for non- financial assets IAS 39 (amended): Financial Instruments: Recognition & Measurement 3. Revenue 9 months ended 9 months ended 30 September 2014 30 September 2013 Oil sales 215,505 260,836 Gas sales 25,016 1,114 Revenue 240,521 261,950 Revenue from oil sales for both periods relates to the Group s sale of oil lifted from the Strategic Alliance Agreement with Nigerian Petroleum Development Company Limited ( NPDC ) (the Strategic Alliance Agreement ). Revenue from gas sales in 2014 primarily relates to volumes delivered to the Ibom Power plant and Unicem cement factory.
4. Borrowings 30 September 2014 31 December 2013 Audited Secured borrowing at amortised cost Bank loans (i) Loans from non- related parties 578,365 340,383 Loans from related parties 45,530 38,276 Other loans (ii) Loans from non- related parties 173,734 164,189 Secured borrowing at fair value through profit or loss Loans from non- related parties conversion option (ii) 182 182 Unsecured borrowing at amortised cost Loans from related parties 9,946 9,945 Total gross borrowings 807,757 552,975 Unamortised finance costs incurred on raising debt (26,099) (22,916) Total net borrowings 781,658 530,059 Analysed as: Page 11 28/11/2014 Short- term borrowings 480,924 359,282 Long- term borrowings 300,734 170,777 781,658 530,059 Refer to the Group s audited consolidated financial statements for the year ended 31 December 2013 for further details of the Group s loan facilities. (i) Bank loans Project finance facility The Group has a $225.0 million Project Finance Facility (to finance the Uquo gas development of a gas transportation pipeline, processing facilities, related infrastructure and including the Calabar infrastructure development). As at 30 September 2014, the outstanding loan principal was $225.0 million (31 December 2013: $175.0 million). Reserve based secured facility The Group has a $350.0 million Reserve Based Secured Facility with three banks (one of which is Standard Chartered Bank, a related party of the Group) with a current borrowing base of $200.3 million. The total principal outstanding at 30 September 2014 was $200.3 million (31 December 2013: $148.6 million). As set out in note 6, the Reserve Based Secured Facility was fully repaid on 10 October 2014.
Working capital facility The Group has a $40.0 million Working Capital Facility for general funding requirements. At 30 September 2014, $25.0 million was the principal amount drawn under the facility (31 December 2013: $40.0 million). As set out in note 6, the Working Capital Facility was fully repaid on 10 October 2014. Acquisition finance facility On 31 March 2014, the Group obtained control of Eastern Horizon Gas Company Limited by acquiring 100% of its issued share capital. To finance this acquisition the Group entered into an Acquisition Finance loan facility of up to $170.0 million. The facility has a five year term, bears interest of 9.15% and is repayable in quarterly instalments from March 2015. As at 30 September 2014, the outstanding loan principal was $130.0 million. EHGC facilities As part of the acquisition of Eastern Horizon Gas Company Limited, the consideration included novation of the subsidiary s two existing loan facilities. The Bank of Industry Loan Facility is held with the Bank of Industry, bears interest of 7.0% per annum and is repayable in quarterly instalments until June 2017. As at 30 September 2014, the outstanding loan principal was $40.7 million. The Discount House Loan Facility is held with a syndicate of Nigerian banks, bears interest of NIBOR plus 3.5% per annum and is repayable in quarterly instalments until November 2014. As at 30 September 2014, the outstanding loan principal was $2.8 million. At the time of acquisition and EHGC s integration into the Group, EHGC was not in compliance with certain financial covenants under the provisions of its loan facilities. As a consequence, these loans have all been disclosed within Current borrowings.as at 30 September 2014 an informal waiver of these non- compliant covenants was received from the lenders. EHGC is working with the lenders to rectify the position and continues to meet its on- going debt service obligations. As set out in note 6, the Discount House Loan Facility was fully repaid on 10 October 2014. (ii) Other loans Convertible bonds The Group has $150.0 million of Convertible Bonds in issue at 30 September 2014 (31 December 2013: $150.0 million). The convertible bonds have a maturity date of 31 December 2014 and are shown within Current borrowings. As set out in note 6, the Convertible Bonds were fully repaid (including a 21% redemption premium) on 10 October 2014.
5. Financial risk management The Group s activities expose it to a variety of financial risks including commodity price risk, foreign currency risk, credit risk, interest rate risk and liquidity risk. The condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group s audited consolidated financial statements for the year ended 31 December 2013. There have been no significant changes to the Group s risk management policies since the year end. 6. Subsequent events On 10 October 2014, the Group issued $300.0 million of senior secured loan notes. The loan notes are listed on the Irish Stock Exchange, have a 7 year term and a fixed coupon of 10.25%, paid half- yearly. The loan notes were issued at a discount, equivalent to overall 10.5% yield. In addition, and on the same day, the Group issued a $100.0 million private bond, with the Nigeria Sovereign Investment Authority. The Bond has a 7 year term and and a fixed coupon of 10.5%, paid half- yearly. The notes were issued at par. The proceeds from the above bond issuances were used to repay four debt facilities: the Convertible Bond, the Reserve Based Secured Facility, the Working Capital Facility and the Discount House Loan Facility.