SEPLAT 2018 Annual Report and Accounts

Seplat Petroleum Development Company Plc
Annual Report and Accounts 2018

PSetarfboilrimtyance
Growth

As a leading independent
upstream oil and gas company
in Nigeria, we are differentiated
in our offering. The only Nigerian
company fully dual listed on both
the Nigerian Stock Exchange
(SEPLAT) and the Main Market
of the London Stock Exchange
(SEPL), we are an indigenous
business that also has an
international profile.
We have differentiated Seplat
through strong management
and strategic development
which can be demonstrated
across three areas:
Financial strength and flexibility
Production capability
Portfolio diversity

Find out more online:
ar2018.seplatpetroleum.com

TSheeplat
difference

Financial Production Portfolio
strength and capability diversity
flexibility

We have continued to carefully manage Seplat is underpinned by a high quality We have prioritised the commercialisation The Seplat difference
our finances, making focused investments asset base and has invested to consistently and development of the substantial gas
across the portfolio and optimising our grow oil production and capacity. reserves and resources identified at our
capital structure to finance our ambitious blocks, positioning Seplat today as a
future growth plans. Our policy to establish multiple export routes leading supplier of processed natural
for all assets will de-risk over reliance on any gas to the domestic market in Nigeria
We continue to retain discretion one third party system to ensure distribution that will help increase Nigeria’s power
over the majority of our capital of our production to market. generation capacity and industrial output.
expenditure to allow flexibility to
scale our investments appropriately. Looking ahead, we have a large inventory Our gas business is making an increasingly
of production drilling opportunities important financial contribution for Seplat
Alongside this, we have kept in our current portfolio that we will high- with gas prices de-risked from the volatility
downward pressure on our cost grade and implement a work programme of the oil price.
base to enhance margins. to exploit.

2018 Highlights Production within guidance, strong profitability, Strategic report
cash flow & balance sheet

WI production within guidance FY 2018 profit before tax Gas revenues at record levels

49,867 boepd US$263m US$156m

2018 49,867 2018 263 2018 156
2017 2017 2017
2016 36,923 2016 44 2016 124
25,977 (173) 105

Low unit production opex Strong cash flow from operations Net WI domestic market supply

US$5.77/boe US$502m 145 MMscfd

2018 5.77 2018 502 2018 145
2017 5.96 2017 447 2017
2016 2016 114
8.79 2016 172 95

Capital investment Gross debt Cash position

US$88m US$450m US$585m

2018 33 88 2018 450 2018 585
2017 52 2017 578 2017 437
2016 2016 676 2016
160

Strategic report 1 Governance 68

The Seplat difference 2 Chairman’s overview 70 Consolidated five-year financial summary 194
Board of Directors 72
Financial strength 2 Corporate governance report 76 Consolidated supplementary 195
Board Committee reports 82 financial information (unaudited)
Production capabilities 4 Statutory Committee report 94
Directors’ remuneration report 95 Separate statement of profit or loss
Diverse portfolio 6 Report of the Directors 109 and other comprehensive income 197
Statement of Directors’ responsibilities 114
At a glance 8 Separate statement of financial position 198

Chairman’s statement 10 Separate statement of changes in equity 199

Chief Executive Officer’s statement 14 Separate statement of cash flows 200

Our business model 18 Notes to the separate financial statements 201

Market overview 22 Separate statement of value added 267

Strategy 30 Financial statements 115 Separate five-year financial summary 268

Special feature 32 Separate supplementary financial
information (unaudited)
Key performance indicators 40 Independent auditors’ report 116 269

Additional performance metrics 42 Consolidated statement of profit
or loss and other comprehensive income 119
Risk management 44

Principal risks and uncertainties 48 Consolidated statement of financial position 120 Additional information 271

Operational overview 52 Consolidated statement of changes in equity 121 Payments to governments (unaudited) 272
Notice of sixth Annual General Meeting 273
Financial review 58 Consolidated statement of cash flows 122 General information 274
Glossary of terms 275
Corporate social responsibility 62 Notes to the consolidated
financial statements
123

Consolidated statement of value added 193

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 1

The Seplat difference

Financial strength
and flexibility

We have continued to carefully manage our
finances, making focused investments across
the portfolio and optimising our capital structure
to finance our ambitious future growth plans.
Alongside this we have kept downward pressure
on our cost base to enhance margins.

2 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strong profitability, high of these significant improvements in Seplat’s diversifies our capital base and along with Strategic report
margin cash flow and liquidity and financial position, the Board the new RCF strengthened our liquidity
dividend reinstated reinstated dividend payments and in April position which will allow us to scale up our
the Company declared a special dividend work programme in 2019 and focus on
Seplat recorded strong financial performance of US$0.05 per share to help normalise delivering our growth strategy.
in 2018 with revenue up 65% year-on-year at returns to shareholders after the Board
US$746 million and gross profit standing at had suspended dividends for 2016 and 2017. Flexibility and discretion
US$391 million, representing a 52% margin. This was followed by an interim dividend of over spend
Profit before tax increased by 480% US$0.05 per share declared in October which
year-on-year to US$263 million and, after boosted the total dividend return in the As operator of our core production and
adjusting for non-cash corporate tax and calendar year to US$0.10 per share. A final development projects we have been able to
non-cash deferred tax of US$117 million, dividend of US$0.05 has been proposed by retain discretion over the majority of capital
profit after tax stood at US$147 million. the Board subject to shareholder approval expenditures and a level of operational and
at the AGM. budget control that has afforded us the
Alongside this, cash generated from necessary flexibility to scale our investments
operations in 2018 was US$502 million Successful refinancing appropriately to live within our means.
while capital investments were US$88 million. and debut bond issue Having pulled back on capital expenditures
This translated into a significant strengthening in 2016 and 2017 owing to the extended
of the balance sheet with cash at bank of In March 2018 Seplat successfully completed period of force majeure at the Forcados
US$585 million at end 2018 and gross debt of a debut issuance of US$350 million 9.25% terminal, in 2018 we scaled up our capital
US$450 million, placing Seplat in a net cash senior notes due 2023 and refinanced an investments to US$88 million which was
position of US$135 million at year end. In light existing US$300 million revolving credit directed mainly towards the gas business
facility with a new four-year US$300 million and facilities upgrade projects.
revolving credit facility due June 2022
carrying initial interest of LIBOR +6%. Looking ahead into 2019, we will seek to
further scale up our investment programme,
This successful re-financing is a strong taking account of the prevailing operating
endorsement of the quality of Seplat’s environment and availability of crude export
underlying asset base and ability to terminals, oil price and the influence of these
proactively manage the business in factors on free cash generation within the
what can be a challenging macro backdrop underlying business. We will maintain our
and operating environment. Our debut strict discipline of only allocating capital to
bond issuance in particular further the opportunities that offer the greatest
returns to deliver shareholder value.

See our financial review on page 58

52% Pre refinancing debt maturity profile Debt maturity profile at 31/12/181
(US$ million) (US$ million)
Gross profit margin
Seven-year term facility Senior notes
RCF RCF US$100 million drawn
RCF fully drawn
265

120

US$585m 350

Cash at bank at 31 December 2018

145 146
111

56 62.5
37.5

2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
56 - 450 387.5 350 –
Year end balance Year end balance
313 167 450 450

1 Based on US$100 million debt drawn on four-year RCF.
Note that the RCF was paid down to nil at the end of February 2019.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 3

The Seplat difference

Strong operational
track record

Seplat is underpinned by a high quality asset base
and has invested to consistently grow oil production
capacity. Looking ahead, we have a large inventory
of production drilling opportunities in our current
portfolio that we will high-grade and implement
a work programme to exploit.

4 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

2018 production within Multiple oil export routes to A safe and responsible Strategic report
guidance range de-risk access to market operator

2018 full year average working interest Seplat’s policy is to establish multiple The health and safety of our people and
production stood at 49,867 boepd and export routes for all of its current and any communities together with minimising
represents an overall increase of 35% future oil producing assets. This resulted in our environmental impact are at the core
year-on-year. Within this liquids production the Company actively pursuing alternative of how we conduct our business. We have
was up 44% year-on-year whilst gas crude oil evacuation options for production at been working to deliver safe and reliable
production was up 27% year-on-year. The OMLs 4, 38 and 41 and potential strategies to processes in our business since we began
2018 figures reflect an uptime level of 85% further grow and diversify production in order operations in 2010 and have taken a
while overall reconciliation losses arising to reduce any over-reliance on one particular proactive approach to HSSE management
from use of third party infrastructure were third party operated export system. In line to ensure continual improvement towards
around 8% for the year. with this objective, repairs and upgrades our clearly defined key performance
undertaken on two jetties at the Warri refinery indicators. In 2018, we continued to promote
in 2017 provide a back-up option that can best practice operating procedures and
sustain exports of 30,000 bopd (gross) if a safe culture at every Seplat location.
required in the future. Longer term, the
Amukpe to Escravos 160,000 bopd capacity In tandem with this we have built strong
pipeline will provide a third export option for relationships with our host communities
liquids production at OMLs 4, 38 and 41 once since inception, promoting trust and
completed in 2019. With line of sight on the confidence amongst the various
availability of three independent export routes stakeholders, ultimately resulting in
it is Seplat’s ultimate intention to utilise all a stable environment at our operated
three to ensure there is adequate redundancy facilities and infrastructure. In December
in evacuation routes, reducing downtime 2010 (renewed in 2016), we entered into
which has adversely affected the business a five year Global Memorandum of
over a number of years, significantly de-risking Understanding with the host communities
the distribution of production to market. within OMLs 4, 38 and 41 and established a
trust fund structure for projects based on
See our operational review on page 52 sustainable development principles. These
initiatives seek to support capacity building,
Strong operational track record community participation and enhance quality
(boepd) of life through provision of high-standard
healthcare, education and development
Oil production programmes. Since 2011, we have not
Gas production suffered a single day of production downtime
due to disruption at our operated facilities
and infrastructure. It is this successful model
of engagement that also forms the basis of
our community engagement activities at our
other operated assets.

85%
Production uptime in 2018 and
49,867 reconciliation losses around 8%

43,372

28,341 30,823 14,369 25,877 36,923 24,198 35%
4,867 6,571 29,003 15,786 19,070 25,669
Overall production increase
23,474 24,252 10,091 17,853 in 2018

20,020
5,226

14,794

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 5

The Seplat difference

Portfolio
diversity

Portfolio diversification through the gas business.
We have prioritised the commercialisation and
development of the substantial gas reserves and
resources identified at our blocks, positioning
Seplat today as a leading supplier of processed
natural gas to the domestic market in Nigeria.

6 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Looking ahead, we plan Early mover advantage and Greenfield development of Strategic report
to further increase our entrepreneurial vision ANOH to drive future growth
gas production and
processing capacity to Whilst natural gas was largely viewed The ANOH gas development at OML 53 (and
help meet Nigeria’s growing as a by-product from oil production in adjacent OML 21 with which the upstream
demand, particularly in previous years, Seplat was quick to see project is unitised) is set to underpin the next
the gas-to-power and the opportunity created by the increasing step-change expansion of our gas business.
industrial sectors. importance of natural gas as a key source Seplat’s involvement positions it at the heart
of energy for Nigeria. We have invested in the of one of the largest greenfield gas and
US$156m installation of dedicated gas production and condensate developments onshore the
processing facilities as well as the drilling of Niger Delta to date. The project represents
Gas revenues in 2018 (21% of total gas production wells to help meet domestic an opportunity for us to leverage the
revenues in the period and up 26% supply obligations as well as providing a experience and track record we have gained
year-on-year) more environmentally friendly feedstock at Oben to derive repeatability gains and
by displacing diesel generated off grid optimal configuration of facilities. In 2018
power. Rather than being just a by-product, we established an incorporated joint
natural gas for Seplat is a valuable primary venture, ANOH Gas Processing Company
commodity in its own right that will form a Limited, between Seplat and government
significant component of its future growth which was an important precursor to the
and success in Nigeria. Final Investment Decision (‘FID’) for the
ANOH project, that was taken post period
A growing and strategically end in March 2019.
important gas business
2018
A major driver behind the rapid growth of
Seplat’s gas business to date has been the 525 MMscfd
modular build-up of processing capacity at gas
the Oben facility to create a strategic gas hub
ideally located to aggregate and supply gas processing
to Nigeria’s main demand centres on the
Lagos and Abuja axes. As a result, Seplat’s capacity
overall operated gas processing capacity
has increased to the 525 MMscfd level. Of 150 2014
this, 465 MMscfd is located at Oben with
the remaining 60 MMscfd located at Sapele. MMscfd
The 375 MMscfd expansion at Oben (Phases
I and II) was completed by Seplat as a 100% gas processing
sole investment project. capacity

Our gas business is making an increasingly See our operational review on page 58
important financial contribution for Seplat.
In contrast to the oil business where the Portfolio diversity
volatility of oil price has offset the volume (Gas revenues US$ millions)
growth we have delivered in recent years,
the gas business is an area where we have 156
been able to realise the combined benefit of
increasing price and increasing volume. Gas 124
prices in the Nigerian domestic market are 105
de-linked from the oil price and have shown 77
a steady increase in recent years, with the
domestic service obligation price increasing
from US$0.3/Mscf in 2009 to the current
US$2.5/Mscf. Beyond this we have entered
into a number of additional gas sales
agreements on a willing buyer/willing seller
basis that has seen commercial pricing
move towards the US$3.5/Mscf level.

18 27
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 7

At a glance

Who we are

Seplat is a leading independent oil and natural
gas producer in the prolific Niger Delta area of
Nigeria and a leading supplier of processed
natural gas to the domestic market.

Who we are What we do

As a full-cycle upstream oil and gas exploration Full-cycle upstream oil and gas Strategically important
and production company, our focus is on maximising Our portfolio comprises direct midstream gas operations
hydrocarbon production and recovery from our existing interests in five blocks in the Alongside our upstream
production and development assets, acquiring and Niger Delta area, four of which activities, we have successfully
farming into new opportunities in Nigeria (specifically Seplat operates, and one further become a pre-eminent supplier
those which offer production, cash flow and reserve revenue interest. Since acquiring of processed natural gas to the
replacement potential with a particular focus on the our first blocks in 2010, we domestic market in Nigeria
onshore and shallow water offshore areas) and realising have consistently grown oil through substantial investments
the upside potential within our portfolio through production, primarily through made in the commercialisation,
focused appraisal and exploration activities. In addition the drilling of new oil wells development and monetisation of
to our upstream activities we have also prioritised and employing advanced and the large-scale gas reserves that
development of midstream gas processing capacity proven technologies to increase exist on our blocks. Together with
to supply the domestic market. production in mature fields. We growing wellhead production we
have also invested to increase have invested in the installation
gas production and capitalise on of dedicated gas processing
the rapidly growing demand and facilities to meet domestic supply
improving economics for gas. obligations and provide feedstock
to power projects and industry
that will help increase Nigeria’s
power generation capacity and
industrial output.

Our strong track record

A high-quality asset base The only Nigerian company fully listed Strong relationships with
We have consistently increased oil and gas on the Nigerian Stock Exchange and local communities
production capacity and grown reserves London Stock Exchange We have built strong relationships with our
through both organic and inorganic activities In a first for any Nigerian company we host communities, promoting trust and
since inception. We have grown gross completed the dual listing of Seplat on both confidence amongst our various stakeholders.
operated liquids production at OMLs 4, the London Stock Exchange and the Nigerian This has ultimately resulted in stability at
38 and 41 almost six-fold and augmented Stock Exchange in April 2014, where we operations under our control, which then
this with inorganic growth via strategic raised US$535 million in an initial public facilitates the creation of shared value. To
acquisitions, most notably the acquisition of offering. This has allowed us to further continue to nurture these relationships, we
an interest in OML 53 and in turn participation implement the Company’s business strategy, are fully focused on proactive engagement
in one of Nigeria’s largest greenfield gas/ acts as a strong and tangible endorsement with the communities where we operate,
condensate development projects. of our corporate governance standards and implementing community projects based on
opened up greater access to both the sustainable development principles. These
domestic and international capital markets. initiatives seek to promote local capacity
To date we are the only Nigerian company to building and aim to support host community
have achieved this feat, something of which participation and enhance the quality of life
we are justifiably proud. for individuals within these communities.

Corporate social responsibility page 62

8 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Where we operate

OML 4 Onitsha

OML 41 Okwefe Oben
Sapele Mosogar Okporhuru

Ubaleme Amukpe Orogho
Ovhor
OML 38 Strategic report
Okoporo

Umuseti (Pillar)

Escravos Jisike

Warri OPL 283 Igbuku (Pillar) OML 53

Ohaji
South Owerri

Heoma

Forcados Odinma
Emeabiam

Alaoma

Gulf of Guinea Owu
Omerelu

Port Harcourt

OML 55 Krakama

Nigeria Soku Dama

Nembe

Robert Kiri Akaso
Ke Bonny
Belema
Inda Bonny
Brass

Key Operational review page 52
Terminal point
Gas processing facility Looking ahead
Future gas processing facility
Our portfolio provides a robust platform of oil and natural
Working interest 2P liquid reserves (2010 to 2010) gas reserves and production capacity together with an
extensive opportunity set of material organic upside
Movement in working interest 2P liquid +0.4% opportunities through further field developments,2C to
reserves from end 2010 to end 2018. 2P conversion and exploration and appraisal drilling.
We will retain the flexibility and financial discipline that
2018 – 227 MMboe1 has allowed us to successfully operate in a sometimes
2017 – 226 MMboe unpredictable operating environment and volatile macro
2010 – 139 MMboe backdrop.With line of sight on the availability of multiple
export routes at our core oil producing blocks,we aim
Working interest 2P gas reserves (2010 to 2018) +1% to significantly de-risk distribution of oil production to
Movement in working interest 2P gas market and buffer the impact of future disruption.Our gas
reserves from end 2010 to end 2018. business is continuing to make an increasingly important
contribution to our performance with its revenues
2018 – 254 MMboe1 providing a key source of growth and diversification,as
2017 – 251 MMboe well as delivering a much-needed reliable supply of gas
2010 – 142 MMboe to the Nigerian power and industrial sectors.Alongside
this Seplat is well positioned to capture value accretive
Total working interest 2P reserves (2010 to 2018) +1% inorganic growth opportunities that may present
Movement in total working interest 2P themselves,remaining true to its price disciplined
reserves from end 2010 to end 2018. approach,to accelerate growth and further consolidate its
position as a leading Nigerian independent E&P company.
2018 – 481MMboe1
2017 – 477MMboe Chief Executive Officer’s statement page 14
2010 – 281MMboe

1 As certified by Ryder Scott CPR dated 1/1/19.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 9

Chairman’s statement

A focused and Dear shareholders,
performing
business I am pleased to welcome you to Seplat’s
sixth AGM and the presentation of our
annual report and consolidated financial
statements. Looking at Seplat from an
external perspective five years on from our
landmark IPO and dual listing in April 2014
it is clear that while the Company has
operated in a challenging macro and
operational environment, it has
demonstrated a strong resilience and
discipline while retaining its growth
potential. I am more confident than ever
as we enter the 2019 financial year that we
have the right combination of a high quality
underlying portfolio with organic growth
headroom coupled with the financial
capacity and flexibility to capitalise on
step-change inorganic opportunities
which we envisage in the global business
environment. Most importantly I firmly
believe we have the right strategy for
success and the right management
team to deliver on that strategy.

2018 full year working interest production

49,867 boepd

2018 gas revenue

US$156m

2018 contained some notable highlights
for Seplat. Production was in line with
guidance and the strong underlying
profitability and cash flow performance
allowed for reinstatement of the dividend.

A .B.C. Orjiako
Chairman

10 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

We successfully refinanced the balance sheet, As operator of our core production assets, Strategic report
making our debut bond issuance in the process, we are able to exercise discretion over
and are now in a position to accelerate delivery spend and in 2018 stepped up capital
of our growth ambitions. investments to US$88 million (compared
to just US$33 million the year before),
2018 performance overview The combined total of 10 cents per share the majority of which was allocated to the
Our 2018 operational and financial dividend paid in the calendar year 2018 gas business and infrastructure upgrades.
performance reflects the significantly higher amounts to a return of US$59 million to our Looking ahead we intend to scale up our level
year-on-year levels of production uptime shareholders. The Board has recommended of organic growth investments considerably
at our core oil producing assets combined a final dividend of 5 cents per share which is in line with our expected free cash
with a firmer, albeit still volatile, oil price and subject to shareholder approval at this AGM. generation. Meanwhile, with our capital
increased contribution from our gas business. structure reset we have the headroom
As you are aware our results from the A strong financial footing to accelerate growth through inorganic
previous two years were characterised by In March we successfully concluded a acquisitions, while all the time remaining
the extended period of force majeure at the refinancing of the existing US$300 million true to our price disciplined approach.
Forcados terminal from February 2016 to revolving credit facility (‘RCF’) with a new
June 2017. I am pleased to report that in 2018 four-year US$300 million RCF at LIBOR +6% Continued expansion of our gas business
we achieved an overall production uptime and issued a debut US$350 million bond Our strategy to diversify and grow our
of about 85%, within our budgeted levels, priced at 9.25%. Proceeds of the refinancing sources of income through the expansion
meaning that our working interest production were used to repay and cancel pre-existing of our gas business continued to gain
of 49,867 boepd fell comfortably within the indebtedness and also to cash settle crude momentum in 2018, with Seplat remaining
guided range of 48,000 boepd to 55,000 oil prepayments entered into during 2016 at the forefront of gas commercialisation
boepd and was evenly balanced between oil and 2017. The refinancing has enabled us to and continuing to make substantial
and gas. While the Brent oil price averaged longer date our debt maturities which in turn investments in support of the government’s
US$71/bbl over 2018 it remained volatile has freed up significant free cash flow in energy agenda. In 2018 our gas revenue
throughout the year (trading between a low of 2018 and beyond, meaning we have a greater derived from the Oben hub once again
US$62/bbl in February to a high of US$86/bbl financial resource to reinvest in our organic reached a new high of US$156 million, up
in October before falling off sharply to exit the and inorganic growth plans. The bond from US$124 million the year before and
year at around US$51/bbl) which, once again, issuance has also, in particular, diversified representing over an eight-fold increase
served to emphasise the complementary our long-term capital base and it has been since 2013 when our gas revenue stood
benefit of having a stable and growing gas pleasing to see the bond trade positively. at just US$18 million.
business where prices and corresponding In August we also listed the bond on the
revenues are de-linked from oil price volatility. International Securities Market of the The ANOH greenfield development project,
London Stock Exchange in addition to the which incorporates the development of OML
Seplat continues to pride itself on being able original listing on the Euro MTF market of 53’s Ohaji South field (large scale gas and
to withstand and effectively navigate through the Luxembourg Stock Exchange, further condensate reserves), will underpin the
an often challenging operating environment raising Seplat’s profile in the international next phase of growth in our gas business. In
to deliver on its strategy, and in turn generate capital markets. August we signed the Shareholder Agreement
long-term sustainable value to our and Share Subscription Agreement with the
shareholders. I am pleased to report that We ended 2018 with US$585 million of cash Nigerian Gas Processing and Transportation
in 2018 our Nigerian and UK lines of equity on our balance sheet, up from US$437 million Company (‘NGPTC’), a wholly owned
closed the year up +2.2% and +4.8% a year earlier. At the conclusion of the subsidiary of Nigerian National Petroleum
respectively, outperforming Brent oil (down refinancing in March our gross debt stood at Corporation (‘NNPC’), whereby NGPTC
-17.1%), the Nigerian ASI (down -17.8%) and US$550 million, comprising US$200 million subscribed for 50% of the shares in ANOH
listed peers (down -26.9%). In terms of drawn on the RCF and the US$350 million Gas Processing Company Limited (‘AGPC’),
financial performance we recorded a bond. Prudent financial management and a company that was incorporated in 2017
post-tax profit for the year of US$147 million efficient capital allocation have remained for the purpose of processing future wet gas
while cash generated from operations stood a priority of the Board and given the strong production from the upstream unitised gas
at US$502 million, emphasising the high free cash generation of the business fields at OML 53 & OML 21, which is operated
quality of our underlying portfolio and throughout the year we took steps to by Shell. The signed Shareholder Agreement
strength of our business fundamentals. deleverage the balance sheet in the fourth will govern Seplat’s and NGPTC’s respective
The strong operational and financial quarter by repaying US$100 million of the interests in the AGPC incorporated joint
performance led the Board to reinstate the RCF, whilst retaining the undrawn headroom venture together with other commercial
dividend for shareholders, with a special in our capital structure should we require it agreements with NNPC and the Nigerian Gas
dividend of 5 cents per share in April paid to going forward to fund our growth initiatives. Marketing Company (‘NGMC’) that were also
normalise returns to shareholders after the As a result our gross debt at year-end was executed during the signing ceremony held
Board had suspended dividends for 2016 and US$450 million meaning we exited 2018 with at NNPC headquarters in Abuja. These
2017 and an interim dividend of 5 cents per an enviable net cash position of US$135 agreements are an important precursor to
share declared in October in line with our million compared to a net debt position FID which was sanctioned by the Board at
normal dividend distribution timetable. of US$141 million a year earlier. the February Board meeting. Phase 1 of the
ANOH project will comprise a 300 MMscfd
gas processing plant with accommodation
space for future expansion as we strive to
become the single largest supplier of
processed gas to the domestic market.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 11

Chairman’s statement continued

20-year licence renewal for managed our way through difficult periods 123
OMLs 4, 38 and 41 to deliver us to where we are today with our
We were delighted to receive consent from operations, finances and growth prospects A robust approach
the President and Honourable Minister of not just intact but in excellent health. Details to governance
Petroleum Resources in November for the of our full risk management framework can
renewal of OMLs 4, 38 and 41 to a new expiry be found on pages 44 to 47 of this report. Corporate governance remains at the
date of 21 October 2038. Seplat holds a 45% heart of our business. Our Company
working interest in OMLs 4, 38 and 41 and in Seplat continues to remain extremely proud has established its foothold as a major
2018 production from the licences accounted of its identity as an indigenous Nigerian independent oil and gas company both
for 92% of Seplat’s total oil production and independent energy company, and carries a in Nigeria and internationally because
100% of Seplat’s gas production. The early strong sense of responsibility to Nigeria and, of the effective corporate governance
renewal of these licences enables us to plan in particular, our host communities. One of and compliance framework, principles,
and invest with confidence long into the our central priorities is to leave a lasting, standards and practices we have put in
future to realise the full potential of our core positive legacy in our host communities place. These principles, standards and
asset base and continue to deliver value to through implementation of our shared value practices derive and draw their strength
all of our stakeholders. model. We have focused on environmental from applicable legislations and global
stewardship, healthcare, education, best practices. The governance of our
Move to Premium Board of the economic empowerment & capacity building Company, the conduct of our business
Nigerian Stock Exchange and infrastructure development as key areas and engagement with our various
2018 saw an important step taken by Seplat to achieve our goal of being a responsible stakeholders are guided by these
when we migrated to the Premium Board of business at all times. Our CSR committee fundamental principles, standards
the Nigerian Stock Exchange, the listing has oversight and has developed policies and and practices.
segment for an elite group of issuers who a framework which are regularly monitored
have met the Exchange’s most stringent at senior management and Board levels. The successes recorded by Seplat over
corporate governance and listing standards, the years, particularly in the Company’s
capitalisation and liquidity requirements. The We recognise that our growth and success growth and the strengthening of
Premium Board gives us enhanced access to are enhanced by the commitment and shareholder value, are attributable to the
a wide pool of investors and we are particularly professionalism of our people and will continue strong corporate governance principles,
proud of the fact that Seplat has achieved to evolve our employment practices to ensure standards and practices as well as the
another first in becoming to date the only that we can attract and retain the best people. effective management team we have
oil and gas company to achieve this status. at Seplat.
It also means that Seplat gains inclusion in Outlook
the Premium Board Index and NSE Corporate As we enter 2019 our reliable production As a Board, we remain focused on
Governance Index in addition to the Nigerian base, low unit cost of production and building and maintaining a strong
All Share Index. As part of the process all of discretion over capital commitments will reputation that is defined by good
Seplat’s Directors were required to pass the allow the business to remain highly free cash corporate governance especially in the
Fiduciary Awareness Certification Test, which flow generative and profitable. Absent any area of business conduct. The Board is
was achieved. Seplat also achieved a rating major interruption or force majeure event, confident that with our well-thought-out
of 88% under scrutiny from the Corporate this will enable Seplat to honour its dividend and well-articulated business and
Governance Rating System, well ahead of policy and provide an attractive yield to our strategic objectives, the Company’s vision
the minimum requirement of 70% required shareholders in addition to the potential for to be a world-class independent energy
for Premium Board status. capital appreciation. We will selectively company delivering premium value to all
invest in low risk oil production drilling stakeholders, will be achieved.
A responsible corporate citizen opportunities within the existing portfolio
and employer of choice and the continued expansion of the gas
Regardless of the external environment, our business, with 2019 set to be the year that
corporate responsibilities will always remain activity intensifies at the large scale ANOH
of paramount importance to us. The health gas and condensate development. Seplat
and safety of our people and communities remains an ambitious growth orientated
together with minimising our environmental company that is in a position of strength to
impact are at the core of how we conduct our capture inorganic opportunities where we
business. We have been working to deliver can leverage our competitive advantages
safe and reliable processes in our business to seek out carefully considered, price-
since we began operations in 2010 and have disciplined and value accretive acquisitions.
taken a proactive approach to HSSE
management to ensure our continual Finally, I would like to thank all our
improvement towards our clearly defined employees and wider stakeholders for their
key performance indicators. efforts and continuing support and I look
forward to updating all of our stakeholders
A key responsibility of the Board is also on our progress throughout the year ahead.
to ensure we have a comprehensive and
effective risk management framework in A.B.C. Orjiako
place. Our risk management framework has Chairman
been stress-tested to the extreme at times
and I am pleased to say its effectiveness
is evidenced in how we have prudently

12 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

4 5 6 7 8 9 10 11 12

Board composition How the Board spent its Board of Directors
as at 28 February 2018 time during the year (%)
1. Macaulay Agbada Ofurhie
A A Non-Executive Director
B
E B 2. Effiong Okon
C Operations Director;Executive Director
D
D C 3. Lord Mark Malloch-Brown
A Chairman Independent Non-Executive Director
B Executive Directors 1 A Corporate strategy 27
C Non-Executive Directors 3 B Finance 27 4. Charles Okeahalam
D Independent Non-Executive Directors 2 C Structure and capital Independent Non-Executive Director
6 D Risk management and internal control 9
15 5. Michael Richard Alexander
E Corporate governance 22 Senior Independent Non-Executive Director

Board meetings and main subjects discussed in 20181 6. Ambrosie Bryant Chukwueloka (‘A.B.C.’) Orjiako
Non-Executive Chairman
January February April May
– Performance review – Corporate strategy – Refinancing – C orporate strategy 7. Ojunekwu Augustine (‘Austin’) Avuru
– S trategy and budget – Risk management – C orporate Chief Executive Officer;Executive Director

review governance 8. Ifueko M.Omoigui Okauru
Independent Non-Executive Director

9. Basil Omiyi
Independent Non-Executive Director

10. Roger Thompson Brown
Chief Financial Officer;Executive Director

11. Michel Hochard
Non-Executive Director

12. Damian Dinshiya Dodo
SAN, OFR, FCIArb, FNIALS
Independent Non-Executive Director

June July September October
– Risk management – Corporate strategy – Corporate strategy – C orporate
– Performance – C orporate
governance See our Governance on page 68
review governance – Strategy and budget
– Risk management
review

1 13 board meetings in total held during 2018. See more details on page 77.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 13

Chief Executive Officer’s statement

Exploiting improved
operating environment
to deliver strong
profitability growth

How would you summarise
Seplat’s performance in 2018?

2018 was a solid year for Seplat, and a
continued validation of our business model
and strategy. We performed in line with our
operational guidance and achieved robust
profitability and cash flow generation,
providing us with a strong foundation for
growth in the coming years. This is clearly
evidenced when viewing our performance in
2018 against the key performance indicators
and other performance metrics we use
to assess the strength of our business on
pages 40 to 43 of this report. Based upon
this operational stability and financial
performance of the business we reinstated
the dividend and declared a special dividend
of 5 cents per share in April paid to
normalise returns to shareholders after the
dividend suspension in 2016 and 2017, and
an interim dividend of 5 cents per share in
October in line with our normal dividend
distribution timetable. Further to this, the
Board of Seplat is recommending a final
dividend of 5 cents per share which is
subject to approval of our shareholders at
the AGM. It should be noted that since the
IPO we have returned US$210 million to
shareholders. Furthermore our Total
Shareholder Return (“TSR”) for 2018 was
11.8% and 7.1% for the LSE and NSE lines
respectively, representing an upper quartile
performance compared to our peers, oil
price and relevant indices and also against
a challenging equity market backdrop.

2018 was a solid year for Seplat,
and a continued validation of our
business model and strategy.

Austin Avuru
Chief Executive Officer

14 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

A robust strategy for growth Maximise production and cash How will you prioritise Strategic report
flows from operated assets allocation of Seplat’s capital?
Since inception we have been guided by a Move up 2C resources
clear and consistent strategy that is carefully into 2P reserves category The combination of our strong cash
designed to provide sustainable long-term generation in 2018 (when operating cash
value creation and growth for our shareholders C ommercialise and produce flow stood at US$502 million) and the debt
and other stakeholders. We aim to do this by gas reserves refinancing has translated into balance
leveraging our core strengths and expertise to sheet strength, meaning that we exited the
capitalise on growth opportunities available P ursue a focused acquisition year with US$585 million of cash, up from
to us across the upstream oil and gas and and farm-in strategy US$437 million at the end of 2017, and a net
midstream gas value cycle. cash position of US$135 million compared to
Be a highly responsible a net debt position of US$141 million a year
Our strategy comprises the five key priorities corporate citizen earlier. With this robust capital structure and
that we have identified as essential in a portfolio that can continue to generate
allowing us to run the business efficiently Strategy page 30 significant cash flow we have a considerable
and responsibly in order to achieve our vision financial resource to deploy as we continue
of being the leading Nigerian independent oil to deliver our growth strategy and build value
and gas company. for our shareholders.

What were the key Why did you issue a bond In terms of the existing portfolio we expect to
operational targets for 2018 as part of the March step up investments in 2019 to the US$200
and have they been met? 2018 refinancing? million level, and will allocate the capital
on a highly disciplined basis to production
Having set production guidance for full-year As part of the overall refinancing in March and development opportunities that offer
2018 of 48,000 to 55,000 boepd, I am pleased 2018 we concluded a refinancing of the the highest cash returns. We will maintain
to be able to report that our 2018 outcome existing US$300 million revolving credit discretion over our capital spend and keep it
fell within this range at 49,867 boepd, facility with a new four-year US$300 million proportionate with the cash flow generated
comprising 25,699 bopd of oil production RCF at LIBOR +6% and alongside this issued to ensure our existing business can continue
and 145 MMscfd (or 24,198 boepd) of gas a debut US$350 million bond priced at to be the free cash generative machine it
production. We also aim, at a minimum, to 9.25%. Proceeds of the refinancing were was in 2018. This in turn can underpin a
replace the reserves we produce in the year used to repay and cancel pre-existing sustainable core annual dividend yield for
and in 2018 achieved a reserve replacement indebtedness and also to cash settle crude our shareholders in line with our policy with
ration of 121%. As a result our working oil prepayments entered into during 2016 the possibility for special dividends when
interest 2P reserves at 1 January 2019 stood and 2017. profits, cash and capital investments
at 481 MMboe, comprising 227 MMbbls of commitments allow. Further to this we took
oil and 1,473 Bscf of gas, and up marginally This successful refinancing really final investment decision for the large scale
from 477 MMboe the prior year. Alongside represents our final step in resetting the ANOH gas and condensate development
this we have working interest 2C resources business following the extended period post period end and will be making a phased
of 80 MMboe, comprising 38 MMbbls oil and of force majeure in 2016 and 2017 that equity investment into ANOH Gas Processing
244 Bscf gas, that provides us with further restricted distribution of oil production Company (“AGPC”), the incorporated joint
potential to replace production and to market and limited oil sales during that venture owned 50:50 by Seplat and NGC that
organically grow reserves. period. As a consequence we took certain is developing a 300 MMscfd Phase I gas
measures to ensure we maintained a processing plant at OML 53.
More broadly, it remains a key operational liquidity buffer and protected the core
policy to ensure multiple oil export routes business, including the re-profiling of our We have also prioritised deleveraging of the
exist for all of our assets in order to reduce debt facilities which in-turn increased balance sheet and consistently reduced our
any over-reliance on one particular third repayment obligations in 2018 and gross debt from a level of US$899 million at
party operated export system. In line with subsequent years. The refinancing has the start of 2015 to a level of US$1 billion in
this, even though it was not required in 2018 enabled Seplat to longer date its debt March 2019. However, we have retained a
we have retained access to two jetties at the maturities and free up significant cash flow significant un-drawn headroom in our
Warri refinery that will enable sustained in 2018 and beyond that would otherwise capital structure with the revolving credit
exports of 30,000 bopd (gross) if required have been consumed by servicing debt, facility that means we are equipped to
in the future. Looking further ahead, the thereby providing a greater financial capitalise on inorganic growth opportunities
Amukpe to Escravos 160,000 bopd capacity resource to reinvest in our organic and as and when they may arise, in line with our
pipeline is set to provide a third export option inorganic growth plans. price disciplined approach and focus on
for liquids production at OMLs 4, 38 and 41. opportunities that provide near-term
While completion work on the pipeline has The bond issuance has also, in particular, production growth, cash flow and reserve
been slower than we would have liked diversified Seplat’s long term capital base replacement potential.
we now expect the new pipeline to be and helped to lower our overall cost of
commissioned imminently and be fully borrowing. In August the bond was listed
operational to the initial permitted volume on the International Securities Market of
for the Seplat / NPDC joint venture of the London Stock Exchange in addition to
40,000 bopd in the third quarter. With line of the original listing on the Euro MTF market
sight on the availability of three independent of the Luxembourg Stock Exchange, further
export routes it is our intention to ensure all raising Seplat’s profile in the international
three remain available to provide adequate capital markets.
redundancy in evacuation routes,
significantly de-risking the distribution
of our production to market and reducing
downtime which has adversely affected
the business over a number of years.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 15

Chief Executive Officer’s statement continued

What is the optimum oil / The project will see large scale gas reserves What are your plans for 2019?
gas balance for Seplat? in the eastern Niger Delta connected to
Nigeria’s major demand centres and I believe In 2019 we will return to a level of drilling and
Our gas business has continued to record Seplat is uniquely positioned to deliver the development activity not seen since 2015.
significant year-on-year growth with 2018 project by capturing repeatability gains and At OMLs 4, 38 and 41 we have a number of
yet another record year that saw gas leveraging our experience of developing the wells planned at Sapele Shallow, which
revenues climb to US$156 million (21% Oben gas processing hub at OMLs 4, 38 and overlies the main oil productive reservoirs
of Seplat’s total revenue in 2018), up 26% 41 where we have installed an additional 375 in the main Sapele field and is estimated
year-on-year and up from a level of just MMscfd processing capacity to take overall to hold around 500 MMbbls STOIIP. To date
US$18 million in 2013 representing over total capacity to the 525 MMscfd level today. Sapele Shallow has not been fully developed
an eight-fold increase in just five years. and is set to become a longer term focus of
We have always said that we see the gas Upon delivery of the ANOH project and ours as we seek to realise the full potential
business having the potential to consistently combined with Seplat’s existing gas of  our core asset base. Additionally we also
contribute around 30% of Seplat’s bottom business, there will be sufficient gas have new wells planned at the Ovhor field
line and we maintain that as an achievable processing capacity capable of supporting and re-entries of wells at other locations to
outcome. It should be noted, however, that over 3,000 MW of power generation. We are ensure that we not just offset natural
the importance of the gas business is greatly not limiting ourselves either, as at both the decline but realise an incremental benefit.
amplified during periods of oil price Oben and ANOH hubs we are taking a
weakness or disruption to oil exports. modular approach to expansion and have We are also stepping up activities at OML 53
ensured that at each location we have in 2019 and, following the re-entry and
In contrast to the oil business where oil price sufficient accommodation space to grow completion of two existing wells at the
volatility can more than offset volume growth processing capacity to over 1 Bscfd over Ohaji South oil field late last year, plan to
in any period, the gas business is an area time so that we can meet Nigeria’s growing drill additional wells in 2019 as we start
where we have been able to realise the demand for gas and continue to be a first to grow output in the eastern Niger Delta.
combined benefit of increasing price and mover in capturing the domestic gas
increasing volume. Gas prices in the Nigerian opportunity in the years to come. In addition to the major ANOH gas and
domestic market are de-linked from the oil condensate project, which I have already
price and have shown a steady increase What do you see as your outlined, we will also undertake various
since 2012 in particular (when we made the main challenges? facility upgrade and asset integrity projects,
strategic decision to commit investments including further upgrades to our liquid
to capture the gas opportunity), with the There is continuing volatility of the oil price, treatment facilities, booster compression
domestic service obligation price increasing mainly due to over-supply concerns arising and the Sapele gas processing plant. We
from US$1.0/Mscf to the current US$2.5/ from the seemingly relentless growth in US have set our 2019 capex budget at US$200
Mscf. Beyond this we have entered into a output we have seen in recent years and million which is more than double our spend
number of additional gas sales agreements continued geopolitical tensions in key in 2018.
on a willing buyer/willing seller basis that has markets that could erode demand. This
seen commercial pricing move towards the remains a factor, though we have continued What were your CSR
US$3.5/Mscf level. Today our production and to see good demand for Nigerian oil grades highlights in 2018?
reserve mix is evenly balanced between oil and our sales remained strong in 2018. To
and gas, providing a good level of commodity mitigate the risk of severe negative oil price We see a strong HSE performance as
diversification within the business and our movements we maintain an active hedging being key to our licence to operate. Seplat
plan remains to grow both our oil business strategy aimed at providing a levels of cash has always had and continues to have an
and gas business in tandem into the future. flow assurance taking into account our capex uncompromising focus on HSE and has
plans and business costs. We also protect developed a well-established safety
How much further can our margins through strict cost control and in culture which is ingrained at every level in
you grow the domestic 2018 lowered our production operating costs the business. We have consistently improved
market gas business? to US$5.77/boe from US$5.96/boe the year our Lost Time Injury Frequency Rate (“LTIF”)
before. These factors, together with the towards zero and in 2018 our LTIF was 0.14,
There is considerable scope to grow the gas diversification the gas business brings and a significant improvement on the prior year
business further and it is one of our aims to discretion we maintain over spend, help to LTIF of 0.31. However, we understand that
become the largest supplier of processed ensure that the business can break even there is always more to do, and our safety
gas to the domestic market in Nigeria in the at significantly lower oil price levels. policies and training procedures are
coming years. The next driver of step-change therefore consistently reviewed and
growth for our gas business will be the ANOH Another key industry-wide challenge is amended to reflect this.
gas and condensate project that we took continued operational delivery in what can
final investment decision on in March 2019. be a challenging environment and budget Equally important is our commitment to
The project will see a Phase I development control. Since inception we have safely deepening relationships with the communities
of a 300 MMscfd midstream gas processing drilled over 70 new wells at our assets and where we operate and have always prioritised
plant on OML 53 that will purchase and undertaken major infrastructure projects the long-term relationships with our host
process the wet gas from the unitised gas including the 375 MMscfd expansion of the communities ahead of short term gains. As
fields at OML 53 and OML 21, which is Oben gas plant. This means that we have one of Nigeria’s leading indigenous operators,
operated by Shell and in which we have a built a strong track record and take our we understand the importance of working
20% unitised upstream interest. To deliver learnings from past achievements into with our host communities to our mutual
the new gas plant we have formed an future activities. We have also consistently benefit and to establish lasting relationships
incorporated joint venture, AGPC, with NGC remained within our budgeted expenditures based on respect and trust. Collaboration is
in which we each have a 50% equity interest. and demonstrated a prudent approach to key and in 2018 we held 298 community
managing our financial resources that has meetings, 19 meetings with traditional rulers
served us well in more challenging times and and four town hall events. In tandem, we
delivered us to the position of strength we continued to invest in community projects,
are in today. supporting infrastructure development,
education and health programmes in the
areas around our assets.

16 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

You are five years on from Manage the current portfolio to Realise the strategic premium to be Strategic report
IPO, what might the next maximise value and maintain significant derived from the gas business by:
five years hold for Seplat? financial capacity and flexibility by:
­ – A ­ iming to become the largest single
In simple terms we will continue to create ­ – D­ isciplined allocation of capital to supplier of processed gas to the
value by leveraging our core strengths and highest cash return production domestic market
remaining true to our tried and tested opportunities
strategy and business model. I remain ­ – C ontrolling midstream processing
confident that Seplat has the right team, the ­ – E nsuring the current portfolio continues capacity to attract and grow third
right approach, the right assets and access to be free cash flow generative and is party tolling business
to the right opportunities to achieve our able to underpin a sustainable dividend
goals and create significant value for all of yield for shareholders ­ – C onsidering strategic initiatives to
our stakeholders. In positioning the business demonstrate the equity value of the
for the next five years and beyond we will Capture transformational value gas business
seek to: accretive acquisition opportunities by:
Become the African indigenous oil and
­ – C­ apitalising on the Nigerian gas investment of choice by:
opportunity set that remains one of the
most prolific in Africa – Aspiring to mirror our Premium
Segment status on NSE and achieve a
­ – P rioritising new opportunities that premium listing on LSE
offer near term production, cash flow
and reserve growth potential ­ – C ontinuing to capitalise on Seplat’s
unique position in the capital markets
­ – L everaging our core production as the only company to fully dual list on
and development expertise to the NSE and main market of the LSE
capture upside

Our key focus areas as we look to the year ahead

Key focus areas Progress in 2018 Outlook for 2019

Manage and optimise Working interest production up 35% year-on-year at Strong margins at current oil prices, reliable and
our production and 49,867 boepd and in line with production guidance. significant contribution from the gas business and a more
development operations Re-entered two wells in Ohaji South, drilled a new gas aggressive work programme will generate free cash flow
to maximise cash flows production well at Oben and completed a workover of an to be reinvested to offset natural decline and
and value of the business existing gas well. incrementally boost production.

De-risk distribution of The Company’s policy is to establish multiple export Slower than expected progress on completion of the
oil production to market routes for all assets. The barging export solution from 160,000 bopd capacity Amukpe-Escravos pipeline means
Warri capable of sustained exports of 30,000 bopd it is expected to be commissioned and operational in Q2
(gross) was available as a back-up option if required in 2019. Utilising all three routes will ensure adequate
the year. redundancy in evacuation routes.

Grow and maximise Gas revenues reached a new high of US$156 million from In March 2019 the Board sanctioned FID for the large-
utilisation of gas working interest production of 145 MMscfd in 2018. scale ANOH greenfield development project at OML 53.
production and Deliveries to the Azura Edo IPP commenced on take or The Company will also undertake an upgrade of the
processing capacity pay terms. existing Sapele gas plant at OMLs 4, 38 and 41.

Organically grow Achieved a reserve replacement ratio of 121% in 2018 In 2019 the Company will scale up its drilling programme
reserves with working interest 2P reserves at 1 January 2019 and in doing so incorporate an appraisal element into
independently assessed to be 481 MMboe. our activities.

Effective risk Risk management continues to be an integral part of all Seplat will continue to closely monitor risks to the
management business activities in Seplat and good HSSE performance business and implement our proven and reliable risk
was achieved in 2018. management framework.

Prudent financial In March 2018, Seplat refinanced its debt with a new The significantly strengthened balance sheet and
management four-year RCF and debut bond issuance. Unit production improved liquidity will allow for capital investments into
opex and G&A were further reduced by 3% and 13% growth opportunities to be scaled up.
respectively.

Operate safely and Oil and gas activities carry significant levels of HSSE risks As activity levels continue to increase there is a strong
securely and minimise if not properly managed. In 2018, we achieved an LTIF of focus on preventing major environmental, health or safety
the impact on the 0.14, an improvement over the 0.31 recorded in 2017, and incidents.
environment once again avoided any employee or contractor fatalities.

Value accretive No acquisitions were made during the year. With a robust operational platform and headroom in the
acquisitions capital structure Seplat is in a position to capitalise on
new business opportunities such as acquisitions,
farm-ins and bid rounds in accordance with our price-
disciplined approach.

Maintain strong In 2018 Seplat invested over US$4.6 million (US$64 2019 will see continued investment in our host
relationships with million since inception) and undertook a wide range of communities to develop local talent, creating a domestic
host communities community activities focusing on healthcare, education, multiplier effect in the communities where we operate.
economic empowerment, infrastructure development
and environmental stewardship.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 17

Our business model

Generating value for
all of our stakeholders

Our business model leverages our core strengths
and experience to create long-term value and
shared prosperity for all of our stakeholders.

Inputs Our core activities

Operational expertise
and control

97%

of our production More on p52
is Seplat operated

Unified and
motivated workforce

400+

multi-discipline More on p66
employees

Strong financial management
and access to capital

US$585m

Cash at bank More on p58 Acquire Explore Develop
& appraise
Effective HSSE and
risk management

0.14

LTIF More on p62

Good corporate More on p70 To date, we have acquired We will continue to In recent years, Seplat has
governance direct interests in five appraise and test upside been one of the most active
blocks and a revenue at our producing fields drillers in Nigeria and has
88% interest in one further and also have a number of successfully undertaken
block, located in the discovered but undeveloped and completed significant
Corporate Governance onshore and swamp areas discoveries on our blocks, facilities and infrastructure
Rating System score of the Niger Delta. We will some of which may be projects on a fast-track
continue to pursue new considered as appraisal timetable and within
Strong relationships with  acquisition and farm-in targets in the future. budget.
host communities targets to help us grow
reserves and production.
US$64m

Invested in our More on p64
communities since 2010

18 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Read more overleaf page 20 Strategic report

Outcome Value for our stakeholders

The end result of our core activities is For our shareholders
a profitable underlying asset base that – Capital growth
generates strong margin cash flow and – Dividends
within which we have numerous organic
reinvestment opportunities to selectively LSE
redeploy this cash flow. We combine this
with our access to inorganic growth US$59m 11.8%
opportunities, for which we may need
to secure additional external capital, Paid out to Total Shareholder
to generate sustainable long-term value shareholders in 2018 Return in 2018
for our multitude of stakeholders.
For government
We have assembled a multi-disciplinary
team that has an in-depth knowledge of – Royalty and tax revenue
the areas in which we operate, both below – Foreign and local capital
and above the ground. When considering
both our organic and inorganic capital investments
investment opportunities, we benchmark
and high grade each option in the context US$926m
of the whole portfolio so that we can
be sure that each dollar of capital Payments and production entitlement
deployed is efficiently allocated to those to government reported in 2018
opportunities that meet our technical,
Produce, commercial and strategic requirements. For Nigeria
process & sell
– Infrastructure development
Seplat has consistently – Multiplier effect from improved
grown oil production capacity
and has more than doubled gas-to-power supply
gas production following
significant expansion of the 1/3
Oben gas processing plant.
Our oil production is marketed of Nigeria’s current power generation can
and sold internationally to be underpinned by our gas production
offtakers at the export terminal
while our gas production is sold Strong margin Value For our host communities
under a number of gas sales cash flow
agreements wholly into the – Economic empowerment
domestic market. – High grading – Healthcare and education
of portfolio
opportunities 1,300

– Disciplined jobs created via Seplat operations
allocation of
capital

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 19

Our business model continued

Our core activities In line with our strategy, we will maintain a and strengthened capital structure, and in
price-disciplined approach and prioritise turn resume the active identification and
1. Acquire opportunities in the onshore and offshore execution of new growth opportunities that
areas of Nigeria that offer near-term is central to our strategy.
To date, we have acquired direct interests production, cash flow and reserve
in five blocks and a revenue interest in replacement potential. Key strengths & priorities
one further block, all of which are located • First Nigerian operator to acquire blocks
in the onshore and swamp areas of the 2018 was a year where we returned to
Niger Delta, Nigeria. “build and grow” mode following a period from Major IOCs
At any point in time we have an active of stabilisation and consolidation as we • Six blocks acquired to date (five direct
pipeline of new acquisition and farm-in navigated through the extended period of
targets to help us grow our reserves and force majeure at the Forcados terminal in interests and one revenue interest)
production on an ongoing basis. 2016 that continued through the first half • Ability to match opportunities with access
of 2017. Our focus turned to optimising
production by increasing Well, Reservoir to capital
and Facilities Management (WRFM) activities. • Debut US$350 million dollar bond issued

Looking ahead, with the resumption of and refinanced existing US$300 million
operations back to full production and RCF in March 2018
steps underway to achieve long-term
diversification of oil export routes, Seplat
will benefit from the sustained profitability

2. Explore We will continue to appraise and test upside Key strengths & priorities
& appraise at our producing fields and also have a • Continue to evaluate potential for a new
number of discovered but undeveloped
discoveries on our blocks, some of which deeper exploration play in OMLs 4, 38 and
may be considered as appraisal targets in 41 indicated by the Ogegere-1 exploration
the future. well (drilled in 2014)
• OML 53 adds significantly to inventory
In 2018, we did not drill any operated of E&A opportunities
exploration or appraisal wells, electing to • Focus on opportunities close to
focus capital expenditures on development infrastructure that can be monetised rapidly
drilling opportunities that would offer the
greatest cash returns and rapid payback.
Rig based activity will increase significantly
in 2019 and we plan to drill exploration wells
at Owu.

3. Develop treatment facility, upgraded and significantly currently operationalising Oben NAG Booster
expanded the Oben gas plant, completed a Compressor Project, commenced work
In recent years Seplat has been one of the new liquids pipeline linking our assets directly on the Sapele Integrated Gas Processing
most active drillers in Nigeria and has to the Warri refinery, installed additional Facilities Project and Oben LPG plant phase I.
successfully undertaken and completed storage capacity and implemented gas lift
significant facilities and infrastructure to aid our production with pressure support. Post period, FID at the ANOH project
projects on a fast-track timetable and was sanctioned by the Seplat Board in
within budget. In 2018, we focused rig based work on March 2019 following the shareholder
Since we acquired our interest in OMLs 4, re-entry and completion activities at agreement with Nigeria Gas Processing &
38 and 41 in July 2010, as operator we Ohaji-South field of OML 53, and drilling and Transportation Company that was signed in
have drilled 47new development wells, completion of a gas well at Oben of OMLs 4, August formalising an incorporated joint
completed 23 workovers, reactivated 38 and 41. Ohaji south-3 was successfully venture relationship between Seplat and the
production from pre-existing wells, re-entered and completed and the rig is now government subscribed for 50% in ANOH
constructed and installed a new liquid moving to commence operations on Ohaji Gas Processing Limited.
south-4, drilling of Oben-47 ongoing.
Key strengths & priorities
Rig based activities are planned to increase • Proven track record as a skilled operator
in 2019. In OMLs 4, 38 and 41 a total of nine • Retain full discretion over future work
wells (7-development and 2 re-entries) are
planned for 2019; three development wells programmes and flexibility to respond
at Ohaji on OML 53. Early in the year we to macro conditions
completed and commissioned the 10kbopd • Prioritise the most cash generative and
Condensate Train 2 Hook-up, completed and short-cycle return development
opportunities

20 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

4. Produce, Similarly, we have seen our overall annualised Seplat has grown its natural gas gross Strategic report
process & sell average working interest production grow processing capacity to 525 MMscfd and in
from 21,431 boepd in 2011 (our first full year 2018 supplied an average of 323 MMscfd
Seplat has consistently grown oil production of operations) to 49,867 boepd in 2018 as gross exclusively to the domestic market,
capacity since inception and has more than normal operations were restored. enough gas to underpin around a third of
doubled gas production since the Oben gas Nigeria’s current power generation.
processing plant Phase I and Phase II A key priority of ours is to actively pursue
expansions were commissioned. alternative crude oil evacuation options in The Phase II expansion of the Oben gas
With a significant undeveloped reserves and order to reduce any over-reliance on one processing plant provides headroom to
resource base Seplat has a portfolio capable particular third party pipeline system and/or further increase future gas production in the
of yielding significant oil and gas production export terminal. In line with this objective, near term whilst the development of our gas
for many years to come. we upgraded two jetties at the Warri refinery reserves at OML 53 offers significant growth
At OMLs 4, 38 and 41 we increased liquids as an alternative option for crude oil and potential in the medium term.
production six-fold from an initial gross condensate produced at OMLs 4, 38 and 41
rate of 14,000 bopd at time of acquisition whereby crude oil is sent to available storage Key strengths & priorities
in 2010 to a peak rate of over 84,000 bopd. tanks at the via our own 100,000 bopd • Diversification of oil export routes will see
capacity pipeline, from where the barrels
are sold FOB at a loading jetty. access to three options in 2019 with
sufficient redundancy to de-risk
The Amukpe-Escravos 160,000 bopd distribution of product to market
capacity pipeline is set to provide a third • Consistently grown oil production capacity
export option for liquids production at OMLs since inception
4, 38 and 41. Seplat anticipates the pipeline • Operate enough gas production to
to be fully commissioned and operational underpin around a third of Nigeria’s current
in 2019. power generation
• Significant inventory of future development
opportunities in current portfolio to provide
continued growth in coming years

Outputs

Strong margin cash flow

High grading of portfolio opportunities Disciplined allocation of capital Key strengths & priorities
It is important to maintain the financial We also seek to utilise appropriate external • Low unit of production opex
strength and financial flexibility to fund funding sources, including debt, in support • Opportunity to capitalise on cost
our budgeted work programme at our of new business opportunities and
existing portfolio and also a range of greenfield developments where up-front deflation
incremental growth opportunities acquisition costs and early capital • Prudent hedging strategy to provide a
available to us. We aim to operate in the investments may be required to bring them
E&P “sweet-spot” whereby cash flow to self-funding status over the long term. level of cash flow assurance
generation from our current portfolio more • Good balance between oil and gas
than covers investments there too.
derived cash flows

Value for our stakeholders

Shareholders extended the economic life of our assets. Host communities
In addition to offering strong capital Accordingly, the value that the government We have directly and indirectly created
growth potential through the successful will ultimately realise over the life-span of over 1,300 jobs, and since 2010 invested
execution of our strategy, we also have a the assets through royalty and taxes has US$64 million into numerous projects to
clear dividend policy that, in the absence increased dramatically. leave a positive social and economic
of adverse operating and/or macro- legacy for our host communities.
economic conditions, should allow us to Nigeria’s economy
pay our shareholders a regular dividend Seplat has become the second largest supplier Key strengths & priorities
taking into account our financial position of processed natural gas to the domestic • Low unit of production opex
and funding requirements. market and the gas we supply is enough to
underpin around one third of the current grid.
Government
Our investments to grow oil and gas Improved security of supply and greater
production have also translated into a electrification is a critical multiplier effect
significant increase in reserves and to drive future GDP growth for Nigeria.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 21

Market overview

The Nigerian opportunity

– a compelling investment proposition

Nigerian oil
potential
Nigeria’s oil and gas industry
represents a compelling value
proposition and is attractive not just
to Seplat but the wider industry.

World class hydrocarbon geology

Brent oil price 2010-2018 (US$/bbl) Africa’s largest oil producer and
13th largest globally
140
120 1.98 mbpd
100
2017 liquids production
80
60 Sub-Saharan Africa’s largest and
40 11th largest globally, remaining proven
20 oil reserves

0 37.5bn
Jan Jun Jan Jun Jan Jun Jan Jun Jan Jun Jan Jun Jan Jun Jan Jun Jan
2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 Source: BP Statistical Review of World Energy 2018.
Source: Bloomberg.

Prolific hydrocarbon geology Covering an area of approximately 75,000km2 and the presence of good quality reservoir
and with up to 10km sedimentary thickness, rocks and effective trap/seal mechanisms
Nigeria’s oil and gas industry represents the critical factors required for hydrocarbon where hydrocarbons have accumulated in
a compelling value proposition and is generation have all combined to great effect vast quantities. Nigeria is estimated to
attractive, not just to Seplat but also the in the Niger Delta basin, namely the existence hold remaining recoverable proved
wider industry, on many levels. It starts below of source rocks with high levels of organic reserves of around 37.5 billion barrels of oil,
the ground and the prolific hydrocarbon content, high rates of sedimentation and making it a globally significant source of
geology of the Niger Delta area, where rapid burial to allow hydrocarbon generation, long-term supply.
Nigeria’s oil and gas industry is concentrated.

Seplat’s Seplat is underpinned by a high quality asset base in the prolific Niger Delta and since
positioning inception has invested to consistently grow oil and gas production capacity. Our asset base
comprises fields that are currently in production, undeveloped discoveries awaiting
22 development and undrilled exploration prospects that offer future upside potential.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Nigerian ownership Nigerian independent exploration and It has been 11 years since the last oil Strategic report
of the E&P sector production (E&P) companies, which were licensing bid round was conducted in May
restricted to marginal assets before the Act 2007 and plans have since been underway
In recent years, the Government of Nigeria was enacted, now have access to larger to hold a licensing round in a move to fund
has taken significant steps to increase acreages, due to the divestment of onshore a growing budget deficit and jumpstart
the level of local Nigerian participation assets by the IOCs to boost indigenous activities in the upstream sector. Future bid
in the oil and gas industry, both through the participation in the industry. Between 2009 rounds will present opportunities to further
re-licensing of blocks to Nigerian companies and the end of 2018, Nigerian operators – grow indigenous ownership towards
and the enactment of policy such as the including Seplat – had acquired oil and gas ambitious targets, which include a campaign
Nigeria Oil and Gas Industry Content blocks with a total estimated aggregate to improve production capacity to 4 million
Development (NOGICD) Act. The Act not only transaction value in excess of US$17 billion bopd and grow reserves from the current
presents advantages to Nigerian operators from the IOCs, the majority of which was 37.5 to 40 billion barrels.
seeking to acquire oil licences in-country, debt funded.
but also guarantees the creation of
composite value to the Nigerian economy But while progress has been made, and
by a systematic development of capacity Nigeria’s share of ownership in upstream
and capabilities through the deliberate production has been enhanced significantly,
utilisation of Nigerian human resources and long-term sustainability lies in access to
services in the Nigerian oil and gas industry. funding and development of local capacity.
This inclusive approach has gone some way Lower oil prices and under-investment of
to re-engaging with disenfranchised local field development capex have seen the
communities and militants that can threaten support of domestic banks fade as high
the performance of oil and gas operations. exposure to the oil and gas industry along
with deteriorating macroeconomic
Compared to a decade ago, when indigenous conditions in the country led to higher than
operators contributed only 6% (120kbopd) to expected impairment charges on loans made
the nation’s daily production, Nigerian to the energy sector. Declining profitability
players have started to develop the technical and free cash flow generation stifled
expertise and financial resources to manage balancing debt service obligations and
their own assets, which has impacted capital investments required to increase
positively on Nigeria’s cumulative production output has become increasingly difficult for
numbers. Indigenous operator activity has many companies to manage. The longer this
now doubled and accounts for around 12% situation persists the greater the risk
(215kbopd) of Nigeria’s oil production. becomes that Nigerian ownership of the oil
and gas sector will begin to contract. Those
Divestment programmes, whereby the that remain will only continue to succeed if
Major IOCs have sold a number of blocks they possess strong fundamentals that
to Nigerian bidders, have also been a ensure low break-even economics, balance
significant factor in expanding local Nigerian sheet strength and access to capital so that
ownership and participation in the sector. they can invest to diversify and dilute asset
concentration risk, for example in order to
capitalise on the gas-to-power opportunity
in the Nigerian market.

Seplat’s Seplat was one of the first indigenous Nigerian company to directly acquire blocks from the
positioning Major IOCs and is fulfilling the Nigerian local content objective and aligns with the vision of
the NOGICD act. Seplat is estimated to operate over 20% of Nigerian indigenous oil
production and supplies processed gas that underpins up to 1/3 of on grid Nigerian power
generation. With a track record of operations delivery and a strong balance sheet, Seplat is
well positioned to take advantage of any future bid rounds.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 23

Market overview continued

Nigerian gas Sub-Saharan Africa power Gas supply required to scale up
monetisation consumption (kWh/capita, 2011) power generation

Major emerging markets’ power
consumption (kWh/capita, 2011)

4,604 599 40
15 GW
2,438 344 (Bscf per day) 10 GW 12.0
248 GW
684 540 150 155 149 52 4
India GW
South Brazil SSA SSA Zambia Ghana Angola Kenya Nigeria Ethiopia
Africa Average excl. SA 10x
3.2
1.2 2.0

Source: McKinsey study, Company data.

Gas opportunity be flared at 178 flare sites. Consequently, markets. The prior awarding of Pioneer
Nigeria lags behind many of its frontier Tax Status to local Nigerian operators has
For over 50 years, oil has been a critical market peers in electricity production per allowed them to allocate significant capital
economic driver in Nigeria. However, the capita despite considerable domestic expenditure into gas projects to further this
country’s gas reserves exceed those of its demand and its power generation deficit is development and generate employment. To
oil at an estimated 184 Tcf (it is ranked widely recognised as a critical constraint on this end, a more favourable policy environment
tenth in the world for proven gas reserves) economic growth. Despite proven benefits to for producers seeking to commercialise their
with a reserves life estimated at 110 years. the economy including revenue and energy gas reserves has been institutionalised.
Furthermore, prospective gas resources of an generation, natural gas development in
estimated 600 Tcf offer substantial longer- Nigeria for the domestic market is still at In 2015, Nigeria joined the World Bank-led
term growth potential which if proven could a relatively early stage. Global Gas Flaring Reduction Partnership
move Nigeria into the top five gas reserves (GGFR) in the “Zero Routine Flaring by 2030”
globally. Due to institutional and policy But Nigeria has started to look at gas initiative, which aims to end routine flaring of
lapses in the past, there has been very little differently and the Government, through a 5 Tscf of natural gas globally every year. Nigeria
exploration dedicated to non-associated gas combination of penalties, incentives and gas seeks to end its own gas flaring a full decade
in Nigeria and much of the gas discovered to development drive, has been implementing an before the GGFR by 2020 and has also
date is associated with oil production and has ambitious strategy through its Gas Master committed to prohibit any new oil well
been flared. Although difficult to measure Plan (GMP). The plan, implemented in phases, developments from flaring natural gas.
precisely, Nigeria’s current share of total gas seeks to liberalise the domestic gas market Realising that harnessing the gas industry
flared globally is estimated to be as much as and provide fiscal incentives for gas producers constitutes significant development of the
250 Bscf annually, constituting 11% of global to almost triple natural gas production economy, the government in 2017 introduced
gas flared and ranking seventh out of gas capacity to 12 Bscfd to fulfil electricity the National Gas Flaring Commercialisation
producing countries in the world. It is generation and industrial development Programme (NGFCP) to reward companies that
estimated that flaring gas costs Nigeria demand. Central to the GMP is an extensive are compliant with the zero flaring policies, to
around US$700 million a year. The real cost upgrade of gas infrastructure – construction further encourage investment in this space.
of gas flaring is to the economy; if flared gas of gas processing plants and pipelines and Furthermore, the Flare Gas (Prevention of
is properly exploited, it has the potential to significant investment have been required to Waste and Pollution) Regulations were
create at least 300,000 jobs, produce 600,000 translate surplus gas production into gas-fired approved by the President in July 2018 to
MT of LPG per year and generate 3.5 GW power generation. The presence of gas supply provide a legal basis for the implementation
of power from new and existing IPPs, as infrastructure supports the development of of the NGFCP. They adopt the “polluter pays”
approximately 700 MMscfd is thought to industrial hubs, bringing cleaner, cheaper and principle and impose significant obligations on
more environmentally friendly fuel to the producers for the reporting of data in activities
related to gas flaring.

Seplat’s Alongside our oil business, we have also prioritised the commercialisation and
response development of the substantial gas reserves and resources identified at our blocks,
positioning Seplat today as a leading supplier of processed natural gas to the domestic
market in Nigeria. Looking ahead, we plan to further increase our gas production and
processing capacity to help meet Nigeria’s growing demand, particularly in the gas-to-
power sector.

24 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Nigeria’s oil and gas industry Africa’s largest gas reserve Strategic report
represents a compelling value
proposition and is attractive not just 184 Tcf
to Seplat but the wider industry. 4.7 Bscf Africa’sthirdlargestgasproducerat

Source: BP Statistical Review of World Energy 2018. per
day

Nigeria is estimated to have the world’s
10th largest gas reserves

10th

Business environment and the and engagement, the Presidential Amnesty create four new entities whose powers would
reform of Nigeria’s oil industry Programme focused on people-oriented include the ability to conduct bid rounds,
programmes to improve the standard of award exploration licences and make
The oil and gas sector remains the single living in the communities, with zero militancy recommendations to the oil minister on
largest contributor to Nigeria’s GDP and the related activities recorded through 2018. upstream licences. The bill moved closer to
government made concerted efforts Additional key components of the roadmap becoming law after Nigeria’s lower house of
throughout 2018 to resolve local risks to include increasing transparency and parliament passed the same version that
protect the industry’s continued growth. In efficiency in the industry and catalysing a was approved by the Senate in 2017. The only
Nigeria, government investment in other gas revolution to enhance socio-economic outstanding formality for it to become law
sectors to diversify the economy will only be growth. It is the policy reforms for gas remains Presidential sign off, however, the
made possible by a robust oil and gas industry monetisation in terms of infrastructure President in August 2018 withheld assent
that is able to make its maximum economic development and flaring that will help to the PIGB citing legal and constitutional
contribution to the state. stabilise Nigeria’s power supply, increase conflicts as well as divergence from the
electrification rates and ultimately support administration’s policy. Another crucial
In 2018, the Nigerian government continued to the diversification of the economy by section of the PIB, the fiscal bill (PIFB),
prioritise the reform of the oil and gas industry increasing commercial investment in the which aims to reform the fiscal framework
to increase economic income from the sector country. Arrears on cash calls in JVs have also and stimulate oil production under PSCs,
and to protect and encourage continued stabilised with a portion of the government’s was passed by the Senate in July 2017. The
investment in the country. Progress was made, share of oil proceeds remaining with the NNPC passage of these is an important milestone
with a particular focus on increasing allowing the company to honour monthly cash as it means that the government will
transparency amongst the key industry calls. Furthermore, a reform to encourage remove uncertainty in key areas that has
institutions such as the NNPC. Importantly, a self-funded JVs will enable incorporated JVs held back significant upstream investments
Petroleum Industry Roadmap titled the ‘7 Big to raise money and distribute oil profits to in recent years.
Wins for the New Nigerian Petroleum Industry’ shareholders as dividends by 2020.
was launched in 2017 and reflects the With a democratically elected and stable
government’s vision to further open up The Petroleum Industry Bill remains a critical government in place that is committed to
investment opportunities in the country’s oil component of Nigeria’s energy sector reform social and economic growth in Nigeria,
and gas sector. initiatives and was broken up into separate leveraging off the significant contributions of
sections in order to try and expedite its the oil and gas industry, the country is offering
The militancy risk, which is one of the seven passage. The first, newly titled section, the an increasingly more secure political and
key areas, is being addressed constructively Petroleum Industry Governance Bill (‘PIGB’) regulatory landscape for foreign investment.
since a period of prolonged disruption deals with management of the NNPC and will
occurred in 2016 and 2017. Through dialogue

Seplat’s Seplat works constructively with all stakeholders for a mutually beneficial and peaceful co-
response existence in order to create an enabling environment for Seplat’s operations to run safely
and securely. In November 2018 we concluded the early renewal of our core producing
licences, OMLs 4, 38 and 41. With the extension of the licence to 2038 secured, we can now
invest with confidence long into the future as we seek to further realise the full oil and gas
potential of the licences and continue to deliver value to all of our stakeholders

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 25

Market overview continued

Global market
analysis

Key market trend Brent started 2018 around US$67/bbl and decision to waive some export sanctions
traded between US$50-86/bbl during the on Iran. These factors were occurring at the
Oil prices year, ending 2018 around US$51/bbl. Brent same time as the outlook for demand growth
price averaged US$71/bbl for the year, was deteriorating due to macroeconomic
US$17/bbl higher than in 2017, and US$27/ concerns and rising geopolitical tensions
bbl higher than in 2016. Oil prices increased as discussed in the ‘Global equity markets’
gradually through the year, peaking at and ‘Global economy’ sections to follow. In
US$86/bbl in early October 2018, but then December 2018, in order to provide support
fell dramatically through November and to oil prices, OPEC and other non-OPEC
December to a low of US$50/bbl in late nations, most notably Russia, agreed to
December, a fall of 42% from the peak. The reduce production by 1.2 million bbl/d from
sudden price fall was caused primarily due October levels. These actions, alongside an
to the combination of market expectations of improving macroeconomic backdrop, has
higher supply growth during rising concerns seen Brent prices gradually increase in
over lower demand growth. Forecasts for the first few months of 2019.
supply growth rose as the USA and Saudi
Arabia were experiencing record production
levels as well as the US government’s

What this means to us In 2018, our oil business accounted for 79% influence our trading performance as a
of total revenues. Global oil prices are listed company. In terms of evaluating new
• O il price influences our revenue, therefore a key sensitivity that influences business opportunities, oil price is a major
profitability and cash flow our financial performance and driver of valuations and projected cash
correspondingly the level of ongoing flows. High levels of volatility in oil price can
• This in turn shapes our capex investments we can make through recycling therefore lead to higher levels of risk to the
programme free cash flow into growth opportunities, our business and introduce uncertainty into
ability to service our debt and to deliver decision making processes.
shareholder returns. Oil price is also a major
factor in driving equity valuations and
investor appetite for the sector which can

26 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

Key market trend In the UK, Brexit was in heightened focus much of Europe. Markets became even more
as negotiations with the EU continued speculative and macro-driven, reacting to
Global equity throughout the year, with the Draft newsflow and economic data (particularly in
markets Withdrawal agreement published in March relation to the US economy and trade) than
and finally agreed in November. The major UK company fundamentals. Volatility picked up
equity indices, FTSE 100, 250 and All-share, and volumes thinned, the VIX reaching its
were weak in 2018 as a result of the wider highest level since the initial February
market backdrop spurred on largely by Brexit, sell-off. In the US, the focus was remained on
trade concerns between China and the US, President Trump’s foreign policy, primarily on
and other geopolitical events. By the end of US-China trade relations. The S&P 500
the year, the FTSE 100 was down 12.5% with outperformed the majority of global equity
its lowest level being on 27 December 2018. markets and closed the year down 0.4%. In
Similarly, the FTSE 250 also closed near the general, high growth and cyclical stocks
year’s low, underperforming the FTSE 100, fared the worst whilst defensive sectors such
finishing 15.6% down for the year with the as healthcare and utilities outperformed,
FTSE All-share finishing more in line with the however no sectors were immune in the final
large caps, down 12.5%. 2018 marked the quarter of the year. The FTSE lagged global
end of the longest equity market bull run in peers in 2018 as a lack of progress in Brexit
history and the change in market sentiment negotiations stole most of the focus, with
can be traced back to strong US GDP, wage smaller companies outperforming large
growth and employment data which set the companies due to, generally, lower exposure
Federal Reserve on a rapid interest rate to movements in Sterling. Emerging markets
tightening path. The resulting theme was underperformed and suffered a rocky final
dollar strength that applied pressure on quarter as Argentina and Turkey both saw
global equities, bonds and commodities. significant devaluations in their currencies
and Venezuelan inflation was projected to hit
In 2018, forecasts for global economic growth 1 million percent. The performance of the
outside the US were being trimmed back, not Nigerian Stock Exchange ASI was also
helped by escalating tensions between the weaker, finishing the year 17.8% lower.
US and China, and political turmoil across

What this means to us Seplat is the only Nigerian company to be result. We therefore focus on influencing
fully dual listed on both the Nigerian Stock what is in our control, aiming to deliver
• S eplat is listed on two stock Exchange and the main market of the performance in line with guidance,
exchanges London Stock Exchange. As such, our trading underpinned by strong risk management,
performance can be driven by both domestic prudent financial management, operational
• F luctuations in market conditions and international market conditions. Equity control and demanding investment criteria
can impact Seplat’s trading markets performance can be driven by a to help ensure long-term value creation for
performance number of complex factors outside of our shareholders.
control and returns can differ greatly across
different markets and different sectors as a

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 27

Market overview continued

Key market trend Figures show that global economic growth labour market conditions. Meanwhile, the
eased slightly to 3.6% in 2018 from the 3.7% European Central Bank (ECB) concluded net
Global recorded in 2017. However, this masked a asset purchases (or QE) after having judged
economy more pronounced slowdown towards the end that inflation was set to converge with its
of the year in a number of key geographies as target over the medium-term.
What this means to us the fallout from the US-China trade dispute
• T he global economy influences broadened out. Over in Asia the Chinese economy slowed to
6.6% in 2018, the slowest annual growth
oil supply/demand dynamics Over 2018, the Federal Reserve raised interest recorded since 1990. It is set to weaken
• S hapes investment trends and rates four times under the stewardship of its further over 2019, with the authorities having
new Chairman, Jerome Powell, as a lowered the official growth target from
asset allocation considerable fiscal boost lifted full-year “around” 6.5% to a range of 6.0-6.5%. To
economic growth to just shy of 3%. In the UK, prevent the pace of growth slipping below
the Bank of England raised rates by a further this year, Beijing has announced wide-
25 basis points in order to safeguard against ranging tax cuts and has signalled that
the inflationary consequences of tightening further targeted monetary stimulus.

The state of the global economy is particular the equities, debt, commodities
inextricably linked to energy demand and in and currency spaces all of which can impact
turn the oil supply/demand balance which is business decisions of companies operating
a key driver of oil prices and therefore sector in the oil and gas sector. In the investment
profitability, valuations and investment industry the global economy helps drive
decisions. Alongside this, the global investment themes and asset allocation
economy contributes to stability or volatility across sectors and type of investment.
in global financial markets, including in

Key market trend Global oil and gas total deal value increased global oil and gas transitional activity,
by US$79.7 billion during 2018 to total making up more than two-thirds of deal
Global oil and gas US$426.8 billion, despite a decrease of 18% value. Each of the top 10 oil and gas deals in
corporate activity in deal volume. The first two quarters of 2018 2018 involved acquisitions of North American
saw greater deal appetite aided by rising oil assets. Outside of North America, the Middle
What this means to us prices, however corporate deal making East experienced record M&A activity,
• C ompetitive landscape and cost appetite dropped in the second half of the primarily due to the United Arab Emirates
year due to the sudden decline in Brent prices. government’s sale of interests in a number of
of inorganic growth Upstream specific deal value declined from producing fields to several international oil
• D rives industry decision making US$164.8 billion to US$130.3 billion during companies and national oil companies for
2018, while deal counts declined by 26%. US$8 billion. Private equity buying in the
on allocation of capital Consolidation and optimisation continued to upstream sector fell by 40% this year, but
be a major driver of deal flow in 2018, with remained net buyers of upstream assets,
corporate buyers looking to demonstrate their indicating that they still saw value in
ability to return value to shareholders and upstream assets and continue to view the
reduce debt. Despite the expectations of the oil and gas sector positively. More broadly,
transition from oil to gas production, this did global upstream capital expenditure, which
not seem to translate into transactions dropped by just under 45% between 2014
activity, with gas specific deals declining from and 2016, is now forecast to marginally rise
21% to 13% over the course of 2018. year-on-year for the medium term and global
exploration spending is on the rise again for
Looking geographically, the United States the first time since the global recession.
accounted for a record-high share of the total

The oil and gas sector is highly competitive and gas sector where we believe we have
with an often large number of corporate distinct competitive advantages as an
participants pursuing new business indigenous operator with a strong track
opportunities in overlapping areas. record of delivery and price-disciplined
The level of competition and relative acquisition strategy combined with broad
availability/scarcity of new opportunities access to multiple classes of international
can result in competitive tension that can and domestic capital. Seplat is, to date, the
drive up benchmark acquisition multiples. only Nigerian company to be fully dual listed
The cost of new business opportunities can on Nigerian Stock Exchange and the main
also help drive the allocation of capital if market of the London Stock Exchange
opportunities represent good value versus making it a unique investment and partner
organic investment, or vice versa. Currently, of choice in sub Saharan Africa’s largest
Seplat is solely focused on the Nigerian oil and most productive oil and gas plays.

28 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Key market trend 2018 was slated to be a year of recovery but importation to Nigeria was up 37% in Strategic report
underperformed GDP growth expectations. 2018 to US$16.8 billion. However, political
Nigerian A soft recovery in the agricultural and other uncertainties due to upcoming elections
economy non-oil sectors, weighed by ongoing domestic in Nigeria and risk averse sentiments for
concerns including the resurgence of Boko emerging and frontier markets saw foreign
What this means to us Haram attacks in the North East and the portfolio investment (FPI) flows drop from
• W e are a significant contributor escalation of clashes between cattle herders US$4.6 billion in Q1 2018 to US$1.4 billion
and farmers negatively impacted agricultural by Q4 2018.
to the Nigerian economy output. Economic growth was also
• N igeria’s economic performance dampened by heightened capital outflows Through the CBN’s Multiple Currency
on the back of rising yields in developed Policies (MCP) Forex stability remained
influences its attractiveness as countries such as the US and the UK and a priority with marginal spreads between
an investment destination for uncertainty in the political environment. NIFEX and NAFEX and parallel market rates.
capital providers Naira rates to the dollar averaged NGN364
On the whole, the economy expanded 1.93% with the official CBN reference rate at
compared to 0.83% reported in 2017 driven around NGN306, its level since September
by a 2.7% growth in the non-oil sector. With 2016. The foreign reserves are in a healthy
a marginal growth in oil production, the oil position (closed 2018 at US$42.5 billion) with
sector decelerated by 1.1% compared to liquidity effectively managed in the forex
the previous year of 4.7%. The recovery markets through the year.
remained fragile through the year as most
macro economic performance indicators The monetary policy environment has
remained sluggish. remained tight since 2016 with the MPR rate
held at 14% through 2018 to curb inflation.
The pressing issue remains the Government’s Inflation dropped to an average of 12.15% in
dependence on the oil sector, receiving around 2018 from an average of 16.5% in 2017
70% of its tax revenue and 90% of export helped by the tight monetary policy and
income, even though it accounts for only 10% moderation in food prices increases.
of GDP. Consequently, crude oil revenue is
critical to the financing of the government’s Concerns of volatile oil prices, weaker global
Economic Recovery and Growth Plan (ERGP) economic growth and US policies continues
which constitutes a bold attempt to speed to weigh on emerging market dynamics.
up the country’s economic growth and Nigeria’s future economic performance will
development. The key execution priorities of depend on the outcome of the Presidential
plan launched in April 2017 include stabilizing Election in February, which will determine
the macro economic environment, achieving policy direction and implementation.
agriculture and food security, ensuring energy However, given Nigeria’s dynamics with
sufficiency (power and petroleum products), historical stable political environment, large
improving transportation infrastructure and population and growing middle class, growth
driving industrialization with a focus on SMEs. is expected to strengthen in 2019 against a
Some positive results have manifested in key backdrop of favourable oil prices, sustained
economic indices such as year on year GDP oil production and execution of the ERGP.
growth, growth in foreign reserves, downward
trend in inflation, converging foreign exchange
rates and capital importation. Capital

Seplat contributes positively to Nigeria’s of more expensive imported USD
economy through payment of our royalties denominate diesel is seen as a key driver of
and taxes, employment, increasing domestic GDP growth and addressing FX constraints.
gas supply and social investments in The overall state of Nigeria’s economy
particular. We have also raised substantial also influences Nigeria’s and, therefore,
amounts of capital from domestic and Seplat’s attractiveness as an investment
international sources that we have cycled opportunity, as well as our access to and
into investments in Nigeria to drive growth. cost of capital.
Increasing gas supply to underpin domestic
power generation and displace burning

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 29

Strategy

A robust strategy
for growth

Since inception we have been guided by a clear and
consistent strategy that is supportive of our long-
term strategic vision to be the leading indigenous
African independent oil and gas company.

Strategic pillar Progress

Maximise production and cash flows from operated assets • Established alternative
oil export route via Warri
The development stage of the upstream value chain is where the majority of capital investments are usually made. refinery jetties with line
It is imperative that we do this well, maintaining strict cost control, implementing the most appropriate technical of sight on access to the
solutions and organising ourselves and our service providers so that we deliver projects on time and within budget. Amukpe–Escravos
This enables us to generate strong margins and cash flows from our production, which in turn underpins our ability pipeline
to fund our work programme. At the same time, we seek to improve operational efficiency by maximising uptime and
reducing reconciliation losses, mitigating asset concentration and sole reliance on third party export infrastructure. • Discretion over level and
timing of spend allows
alignment with cash flow

Move up 2C resources into 2P reserves category • Converted 151 MMbbls
oil and 84 MMboe gas
Our drilling campaigns have, in addition to development wells, an appraisal component built in so that we are from 2C resources to 2P
constantly testing upside potential at our assets, gathering and interpreting new information to allow us to maximise reserves and revisions
hydrocarbon recovery from the reservoirs and capitalise on low risk reserve addition opportunities. We also recognise since 2010
the importance of exploration as a means of growing reserves. It is our intention that we will return to our objective of
drilling at least one exploration well per year when oil prices and production recover and stabilise, with a focus on • Current 2C resource
prospects that if successful can offer rapid monetisation, utilising our existing infrastructure where possible. base 38 MMbbls oil
and 244 Bscf gas

Commercialise and produce gas reserves • Seplat has become the
second largest supplier
Nigeria has a vast natural gas resource that, to date, has barely been developed. We see the commercialisation of processed gas to the
and monetisation of Nigeria’s natural gas resource as an attractive long-term opportunity and have strategically domestic market
positioned ourselves by developing the Oben facility as a core gas processing hub through which Nigeria’s greatest
demand centres can be accessed and supplied whilst the acquisition of an interest in OML 53 positions Seplat as • Oben Phase I and II
a key participant in what will be one of Nigeria’s largest greenfield gas developments. During periods of oil price expansion projects
weakness, the gas business takes on added importance. Gas prices are de-linked from oil price and have steadily expanded plant
increased to commercial levels, meaning that we can confidently plan, finance and invest in gas opportunities processing capacity
independent of oil price dynamics. to 465 MMscfd from
90 MMscfd

Pursue a focused acquisition and farm-in strategy • Acquired direct interests
in five blocks and
We see a rich opportunity set and a wide range of growth opportunities in Nigeria including further asset divestments further revenue interest
from the Major IOCs, asset farm-in and acquisition opportunities amongst the independent E&P sector as liquidity in in one block to date
the secondary asset inevitably increases and future licensing awards occur. Our focus is on securing blocks in the
onshore and offshore areas of the Niger Delta that offer near-term production growth, cash flow and reserve • Well positioned to
replacement potential. access future deal flow
in Nigeria

Be a highly responsible corporate citizen • Established and proven
community engagement
Being a highly responsible and accountable corporate citizen is a key priority of ours. We recognise that minimising model aligns Seplat with
the effects of our activities on the environment, understanding local issues, positively contributing to our host its host communities
communities, being a first-rate employer and providing our staff with a safe working environment and career
development opportunities are essential enablers that allow us to achieve our goals. Underpinning all of this • High retention rate
is a strict adherence to strong corporate governance and business integrity throughout our organisation. of our skilled and
motivated workforce

30 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

Measuring our performance Risk overview Risk categories Outlook

• Working interest production Oil and gas production operations have a number of risks • Operational risks • Access to multiple long-term
• Earnings before interest and attached, above and below the ground. The Company • External risks alternative oil export routes,
has a skilled technical team with a detailed knowledge • Financial risks mitigating concentration risk
tax (‘EBIT’) of the geology and reservoir dynamics to allow optimal • Strategic risks
• Opex per boe production solutions to be implemented. Above the • Disciplined allocation of capital
ground, the Company has clear systems and procedures to growth opportunities that
in place to ensure the safe and secure operation of its offer strongest cash returns
operated oil and gas production, processing and
transportation facilities. The Company does, however, • Right-sizing of capital
rely on third party operated export infrastructure that investments to match
has been susceptible to interruptions. prevailing environment and
continued downward pressure
on cost base

• Reserves replacement Exploration activities are focused on determining the • Operational risks • Continued evaluation
presence of hydrocarbons whilst appraisal activities • Financial risks and high-grading of the
are focused on better defining and assessing the • Strategic risks E&A potential within
commerciality of a hydrocarbon discovery. Both Seplat’s portfolio
activities by definition carry significant geological risk,
so the technical maturity of an E&A target is key to • Assessment of OML 53
narrowing the range of risk and uncertainty. Seplat E&A potential
seeks to use available technologies including seismic
analysis to minimise pre-drill risks and maximise • Execute plans to drill one
chances of a successful drilling outcome. exploration well a year as
oil prices and free cash
flow permit

• G as reserves, production Despite the abundance of resources in the ground, the • Operational risks • Capitalise on Oben Phase II
and revenues natural gas sector in Nigeria is at a relatively nascent • External risks expansion of processing
stage of development and requires significant ongoing • Financial risks capacity to increase
investment to grow capacity. The pace at which the • Strategic risks production
sector grows and scale of investment will to a large
extent dictate the timing and magnitude of • Progress development of OML
opportunities for producers such as Seplat. 53 strategic gas resource and
aim to aggregate additional
opportunities

• Increase supply to the
domestic market

• Portfolio expansion Competition for upstream oil and gas blocks in Nigeria • Financial risks • Continued long-term pursuit of
• 2P reserves and 2C resources is intense and there are an increasing number of • Strategic risks our focused acquisition strategy
• Working interest production industry participants seeking to grow their presence in
or gain access to the sector. High levels of competitive • Price discipline and seek
tension can drive acquisition prices higher. Oil price to implement innovative
volatility also presents increased uncertainty when structures to protect the
evaluating opportunities and access to capital can also balance sheet
constrain ability to successfully execute transactions.
• Targeting both oil and gas

• Lost time incident frequency Failure to adhere to the highest standards of corporate • Operational risks • Continually strive to improve
(‘LTIF’) responsibility can severely impede the Company’s • External risks environmental, health and
ability to efficiently operate its current portfolio, • Financial risks safety performance
• Corporate responsibility access new business opportunities, secure capital and • Strategic risks
initiatives ultimately deliver value accretion to its shareholders. • Strict adherence and
commitment to international
governance standards

• Positively contribute to our
host communities

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 31

Special feature

Local content
development in
the Nigerian oil
and gas industry

A model for
indigenisation

Local content development is critical for countries like
Nigeria that are rich in natural resources but whose oil
and gas sector has traditionally operated in isolation
from the rest of the economy, thereby allowing minimal
participation from local citizens in its development.

Written by: Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018
Adeola Adenikinju, PhD, FNAEE, FEI
Professor and Director Centre for
Petroleum, Energy Economics and
Law University of Ibadan Ibadan

32

Strategic report

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 33

Special feature

An effective local content development policy seeks to promote
inclusiveness and integration of the sector with the rest of the economy
to ensure that the country and its people benefit from the ownership of
these significant reserves. It also seeks to promote local employment and
the use of local goods and contractors so that a country’s citizens are
involved throughout the entire supply chain. Other desired outcomes
include the increase of domestic capabilities and competencies over time,
improvement of national technological capacity and to manage the equal
distribution of wealth across the country.

Traditionally, major International Oil The poor integration of the oil and gas
Companies (IOCs) have dominated the sector with the wider economy has long
oil and gas sector in Nigeria due to their been a concern for successive Nigerian
technological and financial advantages, Governments. There is a general
alongside a lack of proper regulation in the understanding that the huge potential
past. This has meant that local content of the sector is not being appropriately
development has been lacking due to the leveraged and that, as a result, the country
isolated bubble which the IOCs operated is not reaping the associated benefits. In
in and a critical lack of infrastructure to 2017, the oil and gas industry accounted
support processing and refining locally. for 97.7% of total export earnings and
For example, prior to 2010, nearly 77.5% of government revenue in June 2018
US$380 billion and 2 million jobs were (according to the CBN), its share of the GDP
estimated to have been lost as the is a meagre 9%. Between 1960 and 2016,
majority of construction, engineering Nigeria has earned in excess of US$1.27
and procurement undertaken by the trillion from oil exports. Figure 1. compares
IOCs was carried out overseas. oil-GDP ratio in Nigeria with selected oil
producing countries showing that the
country still has a long way to go to
improve on the non oil synergies.

Figure 1: Oil contribution to GDP 9 40
(%) 12 30

Trinidad & 50
Tobago
42
Ghana

Algeria

Angola

Norway

Nigeria 4

Saudi Arabia

34 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

However, the landscape in Nigeria is The act aims to achieve 70% local content Key Legislation/Regulatory
gradually changing with new regulations by 2020 and there has been significant bodies in Nigeria
and policies aiming to put local content progress as can be seen by the increased
development at the heart of the country’s number of independent and marginal 2010
natural resources sector, ensuring it is producers in Figure 2. and the increased
in-line with international best practice. In production from these independent Nigerian Oil and Gas Industry
addition, we can now see indigenous oil and producers in Figure 3. Content Development Act(NOGICD)
gas companies such as Seplat and Oando Nigerian Content Development
competing directly with the IOCs, leading Post the implementation of the NOGICD and Monitoring Board (NCDMB)
the way in promoting local content Act, the Federal Ministry of Petroleum Nigerian Content Development
development around the regions they Resources launched the Petroleum Fund (NCDF)
operate in. Industry Roadmap which set out the
“7 Big Wins”, providing a set of aims for the 2016
Nigeria, which sits astride one of the industry to achieve between 2015-2019.
largest oil and gas reserves in Africa, Key elements of the new policy, its benefits Petroleum Industry Roadmap
ratified the Nigerian Oil and Gas Industry and delivery status as at year-end 2018 Launched
Content Development (NOGICD) Act in 2010 are outlined in Figure 4.
to promote local content development 2018
throughout the sector. This central piece
of legislation has been put in place to Ministerial Regulation on Local
reverse some of these trends discussed Content Passed
above and established the Nigerian NCDMB Guide-line on Community
Content Development and Monitoring Content Published
Board (NCDMB) as the regulatory body NCDMB Guideline on Research
responsible for ensuring local content and Development
requirements set out in the act are Presidential Execute Order 5 on
implemented across the industry. Local Content

Figure 2: Number of Independent and Marginal Field Producers 35
(Source: NNPC Annual Statistical Bulletin, 2010-2017)

2017 20
2016 22
2015
2014 30
30
2013
2012 34
2011 36
2010 37

41

Figure 3: Independent and Marginal Field Production Trend (Oil Production MMbbls)
(Source: NNPC Annual Statistical Bulletin, 2010-2017)

2017 46
2016 53
2015
2014 64

2013 49 84
2012 89
2011
2010 78

79

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Special feature

Figure 4: Priority areas, benefits and delivery statuses of the 7 Big Wins

Priority Benefit Delivery status

Policy & Regulation Robust fiscal Policy PIGB yet to be passed
& Instrument
Business Environment &
Investment Drive Increased oil production Oil production
below 2mbbl/day
Refinery & Local
Production Capacity • Reduced Petroleum Products Import • No cost refinery license issued
• Net Petroleum Product Exporter • Modular Refineries Commissioned
Gas Revolution
• NCIF launched
Niger Delta Security
Shift to gas from oil • Gas Policy and
Transparency Gas Flare Regulation
& Efficiency
• Improved Security • No major attack on
Stakeholder Management • Environmental Safety crude oil facilities
& International Coordination
Parastatals and Institutions driven • But increased crude oil theft
by profitability and accountability
• No information on
disaggregated revenue streams

and quasi-fiscal activities

Visibility of Nigeria in • Construction of Dangote Refinery
global oil production • Fabrication of Egina FPSO

These ‘wins’ aim to stimulate greater The ultimate objective is to capitalize on
indigenous participation and encourage Nigeria’s status as the ninth-largest gas
technological advancements, infrastructure reserve holder in the world. These robust
development and an increase in economic projects aim to support the growing ‘gas
synergies. While these milestones are revolution’ in the country which looks to
ambitious, their success will ensure greater shift Nigeria away from being an oil-based
security in the Niger Delta, deepened local economy to a gas-based one. This includes
participation in domestic refining, greater expanding Nigeria’s existing domestic
domestic production and improved refinery capacity, improving gas supply
environmental safety. infrastructure across the country and
maximising the use of gas powered
generation in order to encourage
economic development through
access to a continuous, cheap
and reliable power source.

36 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

Key achievements of local
content policy to date

To date, the NOGICD Act and supporting
policies have been well received, with
tangible successes. Despite this, there
are still obstacles to overcome, which
are illustrated in Figure 5.

This demonstrates that while strides are
being made, local content development
must remain a central focus for both the
national government and the oil and gas
sector to ensure its success.

Figure 5:Implementation challenges facing Increased Indigenous Participation
the Nigerian Oil & Gas Sector:
More than 30,000 direct and indirect jobs have been
1 Inadequate local capacity created for local Nigerians in the sector since 2010.
and technical competency Indigenous companies such as Seplat have been
instrumental in maximizing opportunities for local
2 Inadequate national training from content development at their operations. In 2018,
internationally certified institutions 99% of the Company’s entire workforce is Nigerian
and Nigerians account for nearly 80% of the
3 Quality control in infrastructure Company’s top management positions. The Company
development and construction/ also has a rigorous Workforce Capacity Development
engineering training programme to ensure its workforce has the
necessary skills and knowledge required to operate
4 Lack of economic synergies to an international standard.
5 Low oil price
6 Security issues in the Niger Delta 99%
7 Lack of funding for local contractors
8 Difficulty in enforcing the provisions of the Company’s entire
workforce is Nigerian
of the NOGICD Act
80%

of the Company’s top
management positions
are held by Nigerians

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 37

Special feature

Local contractor development Furthermore, Seplat has consistently Addressing militancy
patronized locally manufactured goods and youth unemployment
The NOGICD Act has led to a sizeable portion through its in-sourcing strategy ensuring
of the goods, services and equipment vital local participation throughout their Militancy in the Niger Delta has long been
for the every-day running of operations to supply chain. a key issue facing the oil and gas sector
be sourced locally. The number of contracts in Nigeria and these policies have created
awarded to indigenous contractors and Case Study opportunities which has reduced levels of
sub-contractors has increased over the unrest in the region. Communities are now
years, thereby guaranteeing increased local Judenith Nigerian Limited is a vehicle actively engaged through community
employment and ensuring the emergence rental company operating in the Jess development programmes to support local
of more local companies. community in Delta State. The stakeholders. Seplat’s annual ‘Eye Can See’
Company is currently contracted to and ‘Safe Motherhood’ programmes deliver
Indigenous companies are increasingly supply Seplat with the buses that we comprehensive eye care and medical care
providing programmes specifically use to transport our staff to locations for expectant mothers.
designed to support local contractors and across our portfolio of assets. In 2014,
businesses. Seplat operates their annual Judenith attended the inaugural This two-way dialogue between Seplat and
flagship Community Contractors’ Capacity community contractor’s empowerment the local community alongside the Global
Building programme which equips local programme where they were inspired Memorandum of Understanding (GMOU)
contractors with the necessary skills to to expand into flowline and production signed in 2010 and jointly reviewed and
help them develop their business processes maintenance activities. Through the renewed in 2016 has meant that,
to an international standard. programme they also were able to meet production downtime due to community
and join forces with a local technical unrest against Seplat-owned assets has
Since 2014, over 300 contractors from the partner who has supported their been kept to a bare minimum.
Delta and Imo states have benefitted from growth in this area. A second company,
this programme. This has enabled up to Flow Impacte International has also The Company also has an additional
40% of host community contractors to benefited from the programme, Flow graduate training programme which aims
gain technical skills which were lacking Impacte has since gone from strength to help Nigerian graduates with no prior oil
at the time they originally registered as to strength, executing all flowline jobs and gas industry experience to develop
contractors. In addition, 98% of Seplat’s for Seplat in 2018. their knowledge of the sector and expose
contractor are Nigerian companies – in them to the technology used. Since 2014,
line with the provisions of the NOGICD Act. the Company has spent over US$8m on
Since 2013, contracts worth up to US$1bn employee training.
have been awarded to Nigerian companies.
While there is still work to be done across
the industry, existing data shows that
pipeline vandalisation and human error
related spillages have reduced in the Delta.

38 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

“t he continued progress of Outlook and conclusions Strategic report
local content development
policy remains vital to ensure For Nigeria, as Africa’s largest economy
the company benefits from and with a growing population of 200m,
its vast reserves.” the continued progress of local content
development policy remains vital to
Increase in infrastructure Gas and support to ensure the company benefits from its vast
development and facility upgrades the power sector reserves. The country still has a lot to do to
strengthen local participation in the oil and
Until recently, activities such as Gas supply performance relative to gas sector and to enhance the sector’s
engineering, welding and construction Domestic Gas Supply Obligation (DGSO) integration with the rest of the economy.
were done outside of Nigeria as there were has greatly improved across indigenous
no international standard dockyards or operators including Seplat, Frontier Oil There is no doubt that impressive
construction sites in place in-country. and Gas, and Energia. These companies achievements have already been made with
There have been huge strides in this area have been heavily investing in gas regard to the national content goals set out
with industry leading construction yards production in order to capitalize on the in the NOGICD Act, as highlighted above.
built by companies such as Total, Aveon announcement made by the Ministry However, there is still more to be done for
and Saipem to ensure projects can be of Petroleum in 2014, that the DGSO the benefits of the sector to be felt locally.
completed in-country, providing prices were to increase from $0.3/Mscf
thousands  of local jobs. to $2.5/ Mscf. Seplat: A poster child
for indigenisation
A key example of this is the recent For example, Seplat’s average daily gas
construction of the Egina Floating supply was above 230% of its DGSO in Seplat’s current and future initiatives will
Production Storage and Offloading 2017, making it one of the leading continue to provide a good example to other
Vessel (FPSO), the largest vessel of its domestic suppliers of gas in the country. indigenous operators. The Company has
kind ever installed in Nigeria. 77% of the In addition, it currently contributes 3.5% also been able to position itself as a leader
construction was completed in-country, of the total gas production in Nigeria. in the fast-expanding domestic gas sector,
a ground-breaking achievement for the helping to provide reliable access to power
country. This confirmed that the Nigeria’s The aim of the 2014 price increase was to for millions of Nigerians. In August 2018,
well-equipped construction yards met encourage investment in-country in order Seplat signed five agreements with the
international standards and were to deliver the envisaged 30GW generation, NNPC for the development of the “Assa
successfully managed by competent up from the current 5GW level. Ultimately North and Ohaji South (ANOH) Gas
local personnel. this will guarantee access to reliable, Development Scheme”. The project, which
affordable power for local Nigerians, a will be developed, operated and maintained
vital step to achieve accelerated by the ANOH Gas Processing Company is
economic growth. aimed at delivering between 3 to 3.4 billion
standard cubic feet of gas per day by 2020.
The gas processing plant will be situated in
Imo State, providing thousands of jobs for
local workers.

The future for Seplat and local content
development programmes in Nigeria looks
very bright. The Company must therefore
continue to promote local capacity
development through collaboration with
local Nigerian institutions to ensure quality
infrastructure, equipment and manpower
for the oil and gas industry.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 39

Key performance indicators

Measuring our progress Key
Year-on-year progress
Seplat measures its progress
through certain key performance Below expectations
indicators that are closely linked to In line with expectations
the successful delivery of its Above expectations
strategy.
Linked to remuneration?
Yes, this KPI is linked to remuneration
No, this KPI is not linked to remuneration

Strategic pillars
Maximise production and cash flows
from operated assets
Move up 2C resources into
2P reserves category
Commercialise and produce
gas reserves
Pursue a focused acquisition
and farm-in strategy
Be a highly responsible
corporate citizen

Net working interest Progress Linked to remuneration? Delivering on our
production (boepd) (See page 98) strategic pillars:

49,867 Definition Working interest gas production increased
The Company’s share of oil and gas year-on-year by 27% to 145 MMscfd while oil
43,372 49,867 produced during the year proportionate production increased by 44%, meaning total
to its working interest in each producing production was up 35% at 49,867 boepd.
30,823 36,923 block. Volumes expressed are as Average reconciliation losses arising from use
measured at the Company’s facilities, of third party infrastructure were around 8%.
25,877 prior to any reconciliation losses. Outlook
Relevance The Company expects net working interest
2014 2015 2016 2017 2018 An indicator of production strength at the production in 2019 to be between 49,000 to
Company’s current blocks and the impact 55,000 boepd, comprising 24,000 to 27,000
of development activities at organic and bopd liquids production and 146 to 164 MMscfd
inorganic projects. (or 25,000 to 28,000 boepd) gas production.
Progress Risk management
Rig based activity at OMLs 4, 38 and 41 was The Company has an in-depth understanding
limited in the year to the drilling of one new of the subsurface and constantly monitors
gas production well at the Oben field and individual well and reservoir performance in
the workover on one further existing gas order to optimise the drawdown rate on each
well. The average annual production rate well and maximise long-term economic
is also influenced by the number of days recovery of oil and gas from the reservoirs.
third party export infrastructure is shut-in. It has also prioritised the establishment of
2018 production performance reflects alternative oil export routes to mitigate high
an uptime level of 85% over the full year. concentration risk.

2P reserves movement Progress Linked to remuneration? Delivering on our
(% increase/decrease) (See page 98) strategic pillars:

+1% Definition the Oben gas wells also contributed to the
The number of barrels of oil equivalent added to upward revision, partially offsetting the gas
480 462 477 481 the 2P reserves base during the year, expressed volumes that were produced during the year.
281 as a percentage increase/decrease. Outlook
2014 2015 2016 2017 2018 Relevance The Company has a significant working interest
An indicator of the Company’s ability to 2C resource base of 80 MMboe that offers good
40 capitalise on organic opportunities within long-term reserves growth potential. The
its portfolio and inorganic opportunities Company will also continue to evaluate
to replenish its reserves base. acquisition opportunities and undertake
Progress a focused E&A drilling programme.
Working interest 2P reserves at end 2018 Risk management
stood at 481 MMboe, an overall increase of 1% The Company high grades its inventory of
year-on-year and 121% reserve replacement exploration and appraisal opportunities,
ratio. The main driver to this revision year-on- each being subject to rigorous technical and
year is due to the incorporation of updated 3D commercial evaluation to de-risk as far as
seismic data into field reservoir models (in the possible prior to committing capital. When
case of oil) and the anticipated compression evaluating new acquisitions the Company
benefits resulting from upgrades to the Sapele is careful to maintain price discipline and
gas plant. Sustained good performance from undertake rigorous analysis.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Production opex Progress Linked to remuneration? Delivering on our
(US$/boe) strategic pillars:

5.77 Definition Outlook
The operating costs (excluding non-cash flow The Company remains focused on cost control.
10.27 9.31 8.79 expenses, and financing costs) net to the Whilst increases in certain cost components Strategic report
Company divided by the Company’s working are expected to increase year-on-year there
5.96 5.77 interest barrels of oil and equivalent produced are areas where downwards pressure can be
in the period. applied with the objective of achieving a stable
Relevance unit cost.
An indicator of how cost efficiently the Risk management
Company is able to produce its oil and gas The Company carefully monitors expenditures
reserves. By controlling its operating cost and continually analyses its underlying cost
base the Company is able to be more resilient base, making comparisons to prevailing market
to periods of depressed oil prices. rates in order to ensure that the Company is
Progress identifying and able to action cost saving and
Opex costs per unit of production reduced 3% efficiency gains keeping it competitively
year-on-year to US$5.77d per boe as a result of positioned on the cost curve.
continued efforts to improve operational
2014 2015 2016 2017 2018 efficiency, helped by increased production.

EBIT Progress Linked to remuneration? Delivering on our
(US$m) (See page 98) strategic pillars:

310 Definition Outlook
The Company’s earnings before the deduction Improved oil production levels, tight cost
302 310 of interest and tax expenses. control and anticipated growth in gas
171 112 Relevance production at OMLs 4, 38 and 41 will ensure
An indicator of the Company’s earnings ability. robust earnings potential in the future.
(158) An increase in EBIT requires growth in revenue Development of the substantial gas and
2014 2015 2016 2017 2018 and/or strong cost control. condensate reserves at OML 53 will also
Progress enhance the future earnings profile.
EBIT in 2018 increased to US$310m from Risk management
US$112m in 2017, and reflects the higher oil The Company has robust financial processes
and gas production year-on-year combined in place and carefully monitors revenues, cost
with higher oil price realisations. It has also of sales and admin costs to ensure continued
been positively impacted by ensuring strong profitability. Oil price is a major
operational efficiency and improved influencing factor on the Company’s revenue.
cost controls. The Company is analysing hedging strategies
to help mitigate exposure to oil price volatility.

LTIF (number of incidents Progress Linked to remuneration? Delivering on our
per million man hours) (See page 98) strategic pillars:

0.14 Definition Outlook
The number of lost time incidents recorded per In 2019 efforts will continue to minimise the
0.40 million man hours worked. frequency of lost time incidents in all areas
0.33 0.31 Relevance of operations. The Company will continue to
An indicator of health and safety performance ensure high HSE standards are met and assess
0.00 0.14 that is widely established within the oil and opportunities to constantly improve its HSE
2015 2018 gas industry. systems and protocols.
Progress Risk management
Rig-based activity in 2018 was selective and The Company has in place extensive and
the Company remained operationally active well developed HSE policies and reporting
as full year uptime increased to 85% compared procedures with an emphasis on the early
to 50% in 2017. The Company achieved an LTIF identification and mitigation of HSE risks.
of 0.14 in the year, a reduction of 55% compared The Company closely monitors its HSE
to 0.31 in 2017. performance and is constantly evaluating
ways to improve its performance.

2014 2016 2017

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 41

Additional performance metrics Strategic pillars

Tracking our Maximise production and cash flows
performance from operated assets
Move up 2C resources into
In addition to its key performance 2P reserves category
indicators, Seplat also tracks Commercialise and produce
performance against additional gas reserves
metrics that further assist in Pursue a focused acquisition
measuring progress. and farm-in strategy
Be a highly responsible
corporate citizen

Net cash flow from operating activities Delivering on our Outlook
(US$m) strategic pillars: Strong underlying wellhead oil production
capacity and anticipated future growth in gas
502 Definition production will ensure continued robust cash
The Company’s operating cash flow in the year flow generation. Development of the recently
447 502 before taking into account movements in acquired OML 53 block together with OPL 283
225 167 172 working capital. will also significantly augment future cash
2014 2015 2016 2017 2018 Relevance flow potential.
An indicator of the cash generative potential Risk management
of the Company’s producing oil and gas blocks. Careful financial management and high levels
Progress of operating efficiency allow the Company to
The Company’s operating cash flow in 2018 ensure positive cash generation from its
primarily reflects the higher year-on-year operating activities.
production levels at OMLs 4, 38 and 41 during
the year. Cash flow was also positively
impacted by higher oil prices and a greater
contribution from the gas business, which
continued to increase during the year. In 2018,
all the outstanding legacy cash calls due from
NPDC were settled.

Capital expenditure Delivering on our
(US$m) strategic pillars:

88 Definition Outlook
The total amount of capital expenditure made The Company will continue to invest in the
321 during the year, excluding acquisition costs. development of its portfolio, allocating capital
Relevance to the opportunities that offer the best returns
152 52 33 88 An indicator of the Company’s level of investment and volume growth potential whilst scaling and
2014 2015 2016 2017 2018 activities in production, development and timing investments at appropriate levels to
exploration and appraisal activities. closely match cash flow generation.
Progress Risk management
The Company has continued to invest in Project investments are monitored closely
the development of its portfolio of blocks against budgets to minimise the risk of
onshore the Niger Delta and stepped up over-runs. The Company benchmarks
field development in the second half of 2018. every investment opportunity to ensure
By having discretion over capex, 2018 spend capital is deployed to only the highest return
was increased to US$88 million, which was projects, and adheres to a price disciplined
directed mainly towards the gas business acquisition strategy.
and facilities upgrade projects.

42 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Strategic report

Realised oil price Delivering on our
(US$/bbl) strategic pillars:

70.1 Definition Outlook
The average oil price per barrel sold by the The Company has historically sold its produced
97.2 Company during the period. oil under the Forcados blend that has generally
70.1 Relevance received a premium to a Brent marker price. Oil
The Company’s financial performance is closely prices are expected to remain subject to
51.2 50.4 linked to the oil price. macro-economic volatility.
40.4 Progress Risk management
Oil prices improved in 2018, recording a high of Management continue to closely monitor
2014 2015 2016 2017 2018 US$86.29/bbl in October and exiting the year prevailing oil market dynamics and will consider
with a low around US$51/bbl. The Company put further measures and take advantage of
in place dated Brent put options covering a opportune periods to implement additional
volume of 6.60 MMbbls in 2018 at a combined hedges to provide appropriate levels of cash
weighted average strike price of US$44.5/bbl. flow assurance.
This hedging programme has been continued in
2019 where upfront premium put options at a
strike price of US$50.0/bbl were entered into,
protecting a volume of 4.0MMbbls.

Staff turnover Delivering on our
(%) strategic pillars:

2.2 Definition Outlook
The rate at which full time staff of Seplat The industry is still expected, over the longer
2.7 choose to leave the Company voluntarily, term, to continue to face skills shortages in key
2.2 expressed as a percentage of average full time areas with competition for high performing
headcount during the year. individuals amongst competitors being intense.
1.4 Relevance Risk management
1.0 1.0 An indicator of the Company’s ability to attract The Company’s policy is to provide industry
and retain personnel. The loss of people can competitive benefits packages and provide
2014 2015 2016 2017 2018 result in skills shortage, loss of knowledge progressive career opportunities to retain
and higher recruitment costs. and attract high performing employees.
Progress
The Company has continued to develop its
employment policies with the aim of attracting
and retaining high calibre industry talent. Staff
turnover remained low in 2018 at 2.2% which is
slightly lower than the prior year which was 2.7%.

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 43

Risk management

Protecting
our business

Strong and effective risk management is central Activities in 2018
to how we run our business and enables the In 2018, the Committee analysed and
delivery of our strategy. evaluated the various key risk exposures for
the Company. In doing so, we reviewed the
Basil Omiyi mitigation actions taken by management Corporate Risk Register and the risk reports
and any residual risk exposures. The meetings presented by management. These reports
Chairman, Risk Management and HSSE Committee are attended by Executive Directors who detail the key risks, the potential impact of
have accountability for ensuring that risk the risks and the likelihood of occurrence.
Managing risk in protecting our business identification is comprehensive and Mitigating strategies were comprehensively
Risk management is an integral part of all proposing mitigating measures that are considered, including but not limited to
business activities of Seplat. The Company’s effective in achieving the desired objectives. those related to Niger Delta militancy, oil
risk management policy is focused on the Reports on the Company’s corporate risk price, export line breaches and alternative
early identification of risks and future risks register, key risk exposures and reviews of crude oil evacuation options, funding
that are central to achieving its strategy, its risk management systems are compiled challenges with the majority joint venture
corporate objectives and annual business and presented to the Board of Directors. partner, liquidity, market, contractual and
plans; their possible impacts on the business; litigation risks. The status and effectiveness
and measures that can be implemented to While key risks and associated risk appetites of mitigation actions were reviewed and any
mitigate the identified risks so that Seplat are determined at the top, the business units residual gaps or follow-up actions were
can continue to operate safely and effectively. and functional managers are accountable for identified. Key performance indicators
Seplat recognises that risk management is a the respective risks within their areas. The and other risk indicators and trends were
continuous journey of improvement and not a Company’s enterprise risk management (ERM) monitored. Key risks requiring risk tolerance
destination, and will continue to develop its system, coordinated by the Head, Enterprise considerations and strategic actions were
risk management processes to ensure the Risk Management and overseen by the Risk presented to and debated by the Board.
Company is fully equipped to deal with the Management and HSSE Committee, supports
constantly evolving operating and business risk management across the business and The Committee reviewed the risk
environment of the oil and gas industry. functions. The Company’s ERM includes management systems including the risk
robust risk identification, assessment, dashboard and assessment tables. The
Our risk management system reporting and monitoring mechanisms and Committee gave further consideration
The Company’s risk management system is approaches that include maintenance of both to the achievements made by the Risk
based on guidelines provided in ISO 31000, the corporate and operational levels risk registers, Champions appointed with a view to unify
international standard for risk management. risk dashboard, mitigation actions monitoring risk management approaches and embed
The system is built on a top-down and and risk reporting. risk culture across the organisation.
bottom-up approach with the Board of
Directors (Board) determining the right risk In a bid to continually embed risk In the last quarter of the year, the Committee
appetite necessary to achieve the Company’s management across the business and undertook a physical inspection of the
corporate objectives while the business units functions, the Company utilises specially Company’s key field infrastructures, including
identify and mitigate risks at the unit and appointed and trained Risk Champions to the Oben gas plant and flow station, Amukpe
asset levels. ensure common methodology, language flow station, LTF and Buffer Tanks, and
and approach in the way risks are managed Sapele flow station and gas plant. The visits
The Risk Management and HSSE Committee across the business. identified operational risk matters which
assists the Board in overseeing the Company’s have been reported and are being addressed
risk management framework and the risk/ The Internal Audit unit undertakes periodic by management.
reward strategy as determined by the Board. audits of the various business units including
The Committee ensures that the Company the Company’s corporate governance The Committee received regular updates
has an adequate risk management system systems and risk management processes. on Seplat’s performance in regards to
in place to manage the diverse and changing environmental, health, safety and
risks and opportunities faced by the Key principles that underpin the Company’s community relations matters; reviewing
Company as it creates value for shareholders. risk management framework and system: any strategies and action plans developed
It meets at least three times in a year to by management in response to issues
analyse and evaluate the Company’s key risk ––Strong focus on safety throughout the identified and HSSE performance on
profiles, proposed mitigation strategies, organisation. industry benchmark scorecards.

––Close oversight by senior management in As part of assessing fraud mitigation efforts,
day-to-day business operations. the Committee reviewed the operations
of the whistleblowing system to obtain
––“Risk owners” throughout the business. assurance about its effectiveness in
the organisation.
––Accountability of staff and/or key personnel.

––Regular and timely reporting.

––Clear line of sight on the system of
internal controls.

––Monitoring and independent reviews.

44 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018

Our risk management framework Strategic report
ISO 31000 based, top-down and bottom-up approach

Board of Directors

— Company strategy
— Risk appetite
— Strategic risks oversight

Risk Management & HSSE Committee of the Board

— Approves and updates risk management policy and system
— Defines risk appetite
— Oversees and monitors enterprise risks

Executive Management Risk Management Team Internal Audit

— D elivery of Company strategy — Coordinates enterprise risk — Independent assurance
management activities
— Identify key risks against the — R eports to Audit a nd Finance
achievement of strategy — Articulates and updates risk C ommittees of the Board
management p olicy and system
— Proffer and deploy actions and
c ontrols to address key risks — Risk identification, assessment,
q uantification and rating
— Monitor enterprise risks
— Risk reporting and monitoring

— Enterprise risk register
and dashboard

— Risk champion activities

Business Units

— Business objectives
— R isk identification, assessment and rating
— Mitigation actions and controls
— Monitor risks and mitigation actions
— R eport risk and mitigation action status

Risk identification, monitoring, mitigation action implementation and monitoring are bottom-up from assets, projects and
function levels

Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018 45

Risk management continued

High profile risks Highlighted below are the high profile risks that the Company
and uncertainties dealt with in 2018 and will continue to monitor going into 2019.

1. Niger Delta stability 2. Extended production 3. Low oil price
and geo-political risk shut-in due to third party environment
infrastructure downtime

Seplat core operations are located in Seplat’s primary crude evacuation for its Seplat’s operating results are highly
the Niger Delta region of Nigeria and that main assets (OMLs 4, 38 & 41) is a third party dependent on the prices of crude oil and
comes with significant risks. Historically, operated Trans Forcados export system and natural gas. The Company’s estimated
the Niger Delta has always been a high risk this poses a significant risk to the Company. proved reserve, revenue, operating cash
environment. Cases of militancy, crude oil The system was out of operation for more flows and margins, liquidity and future
theft, pipeline vandalism, environmental than a year between 2016 and 2017 due earnings are all impacted by the volatility of
pollution arising from illegal bunkering to sustained breaches by the militants crude oil and natural gas prices. Seplat’s
activities, and other lawless activities are leading to extended shut-in of production. price risk management policy is to protect
rife in the region. However, militancy activities Even though there was no major breach of the Company’s crude oil cash flow from
reduced significantly in 2018 compared to the the line in 2018, the risk remains significant. downside scenarios with hedging. The
prior two years. The Trans Forcados export The Company is mitigating the risk by seeking Company protected about 4 million barrels
system (major export route for Seplat) saw a second major export line. Work is already of crude oil at an average strike of US$50/bbl
a remarkably improved uptime in 2018 advanced in completion of the line. When in 2018. Our long-term natural gas contracts
compared to 2016/2017. The Company, commissioned, sometime in 2019 as expected, have contracted USD denominated tariffs
working with other industry players in the Company will have at its disposal two and escalation clauses that protect the
the region, continues to put pressure major export systems to evacuate crude from Company against price declines.
on government to find a lasting solution its main assets. The Company also continues
to Niger Delta restiveness and the to maintain relationship with WRPC to retain
current government’s strategy of use of the jetty facilities as an export option
dialogue with stakeholders in the albeit for limited volumes.
region seems to be working.

46 Seplat Petroleum Development Company Plc  Annual Report and Accounts 2018