LEKOIL, the oil and gas exploration and production company with a focus on Nigeria and West Africa, announces its final audited results for the year to 31 December 2019.
The company, which fell victim to fraud earlier this year, reported a $12m loss in the year ended 31 December 2019 compared to a loss of $7.8m in 2018.
Its total revenue for the year was $42m, down 13 per cent from the previous year due to lower crude listings and production in the year.
Also, total production was approximately 759,666 barrels of oil, down from 780,500 barrels in 2018.
Lekoil had cash and cash balances of $2.7m, down from $10.4m.
Lekan Akinyanmi, LEKOIL’s CEO, commented, “The priority for 2020 is to advance towards the start of the drilling programmes at both Otakikpo and Ogo in OPL 310. The next two years will prove to be transformative and provide key catalysts for value appreciation for shareholders through the drill bit as we advance in building a leading Africa-focused exploration and production business.“
LEKOIL reports an average production volume of 2,122 bopd, net for the year ended 31 December 2019 (2018: 2,076 bopd, net). The year saw a deliberate effort to reduce the cost of sales to achieve a lower cost of production at the Otakikpo marginal field which remains the sole revenue source.
LEKOIL’s annual report and accounts for the year ended 31 December 2019, together with the Notice of Annual General Meeting will be posted to shareholders shortly and a further announcement will be made as and when this has occurred. The Company also intends to publish an operational update and financial guidance for FY 2020 in short order.
In 2019, the underlying cost of sales was reduced by 22%. LEKOIL intends to progress the work programmes in OPL 310 and OPL 276 to bring them to commercial production.
In October 2019, LEKOIL raised further debt capital of US$11.5 million to fund Licence extension fees on OPL 310 and OPL 276 and to fully repay the outstanding quarterly repayments (including principal and interest) due as part of the Advance Payment Facility held with Shell Western Supply and Trading Limited (“SWST”).
The Group recorded a total comprehensive loss of US$12.0 million for the year ended 31 December 2019 (2018: loss of US$7.8 million). Cash and cash balances at the end of the year were US$2.7 million (2018: US$10.4 million), with total outstanding debt financing net of cash increased to US$16.5 million (2018: US$10.1 million).
Production and Revenues
Total production from the Otakikpo marginal field for the year attributable to LEKOIL Nigeria was approximately 759,666 barrels (2018: 780,500 barrels). Total revenue for the year was US$42.0 million, down 13% from the previous year of US$48.7 million. This decrease was mainly due to lower crude liftings and production occurring in 2019.
The Group lifted 677,788 barrels in equity crude for the year 2019 (2018: 739,106 barrels). The Group’s realised oil price was US$62.0 per barrel for the year. The Group does not currently have oil price hedging in place apart from amounts required under the current debt facilities, however, as part of the Company’s risk management strategy, this approach is currently under review.
Cost of sales, depreciation, impairments and administrative expenditure
The underlying cost of sales were US$14.1 million or US$18.6/bbl (2018: US$18.1 million or US$23.2/bbl). The decrease in cost per barrel was largely due to a full-year impact of the cost savings achieved from the cessation of rental charges for production facilities in 2019.
The permanent EPF (“PEPF”) was commissioned in the second quarter of 2018. Depletion and amortisation costs on oil and gas assets were US$6.2 million or US$8.2/bbl (2018: US$7.9 million and US$10.1/bbl).
Operating expenses were US$7.7 million or US$10.2/bbl (2018: US$7.9 million and US$10.2/bbl). Operating expenses captures the Group’s share of expenditure incurred on production operation support activities such as accommodation for field personal. This was marginally lower in 2019, largely due to lower production volumes.
General and administrative expenses were US$21.4 million compared to US$19.1 million for the same period in 2018. Despite the Group’s concerted efforts in bringing down travel costs and legal and consultancy expenses, the increase in 2019 was driven by significant increases in amortisation expenses on intangible assets, as well as marginal year on year increases in personnel, rent and facility management expenses.
In line with previous announcements and with the significant drop in oil prices in the first half of 2020, the Board approved on 3 April 2020, the immediate and accelerated implementation of cost reduction measures aimed at targeting an annual reduction of US$8.0 million or at least 40% in general and administrative expenses.
Capital investment
The Group’s capital expenditure for the year was US$29.7 million (2018: US$12.3 million), focused largely on OPL 310 obligation of US$22.6 million funded on behalf of Optimum, production facilities in the Otakikpo marginal field of US$3.4 million, Licence renewal fees in OPL 310 and Otakikpo of US$1.3 million and US$0.4 million respectively, investment in the enterprise management system of US$0.3 million and exploration and appraisal activities of the Group’s interests in OPL 310 of US$0.6 million.
Taxes
As a Nigerian producing business, the Group is subject to the Petroleum Profit Tax Act of Nigeria (PPTA) and the Company Income Tax Act of Nigeria (CITA). Tax expense for year was US$7.1 million. (2018: tax expense of $10.1 million.) The variance year on year is due to lower earnings and assessable profit including deferred tax expense charges in 2019 relative to 2018.
Profit/ (loss) for the year and loss per share
The Group recorded a total comprehensive loss of US$12.0 million for the year to 31 December 2019 (2018: loss of US$7.8 million) and a basic and diluted loss per share of US$2 cents (2018: loss of US$2 cent).
Cash and bank balances
The Group had cash and bank balances of US$2.7 million as at 31 December 2019 (2018: US$10.4 million). Restricted cash of US$1.1 million (2018: US$3.2 million), represents cash funding of the debt service reserve accounts of FBN Capital Facilities and bank guarantee for MT Nox and Busy Snail contract. Restricted cash has been reported as part of other assets.
Assets and liabilities
The Group’s non-current assets were US$206.1 million as at 31 December 2019 (US$194.9 million at 31 December 2018), reflecting expenditure incurred on behalf of JV partner in OPL 310 in spite of depreciation, depletion and amortisation of oil and gas assets during the year, and reduction in deferred tax assets to US$13.6 million (2018: US$18.3 million).
Current assets, which represent the Group’s cash resources, other assets and other receivables, decreased significantly from US$31.5 million as at 31 December 2018 to US$11.4 million as at 31 December 2019. The decrease is a result of a reduction in year-end cash balance and nil trade receivables balance in 2019 relative to 2018, in spite of the increase in inventory due to the absence of crude lifting in December 2019.
Inventories which consist of the Group’s share of the crude stock increased from US$1.6 million as at 31 December 2018 to US$2.8 million as at 31 December 2019.
Current liabilities consist of the loan facilities set out above due within twelve months, amounting to US$7.1 million (31 December 2018: US$11.4 million), trade and other payables amounting to US$20.6 million (31 December 2018: US$13.6 million) and income tax payable amounting to US$1.1 million (31 December 2018: US$5.1 million).
Despite a concerted effort during the year to pay off vendor financing from prior periods, there was a slight increase in liabilities due to the agreed payments to Optimum pursuant to the Cost and Revenue Sharing Agreement (“CRSA”) executed by the partners to progress the appraisal and development programme activities on OPL 310. (Total liabilities US$43.2 million in 2019, up from US$41.0 million in 2018).
Dividend
The Directors do not recommend the payment of a dividend for the year ended 31 December 2019 (2018: Nil).
Operational Highlights
Otakikpo
- Production levels averaged approximately gross 5,305 bopd (2,122 bopd net to LEKOIL Nigeria)
- Updated Competent Person’s Reports announcing a significant upgrade to 2P oil reserves estimates and prospective resources (unrisked) for LEKOIL Nigeria’s working interest in the field
- Field Licence renewed
- Phase Two plans underway, subject to the securing of funding, for a five to seven well drilling programme, targeting the increase of production to around gross 15,000 to 20,000 bopd (6,000 – 8,000 bopd net to LEKOIL Nigeria)
OPL 310
- Advanced plans for the Ogo appraisal drilling programme with well locations selected. Funding discussions currently underway with industry partners
- LEKOIL executed a legally binding Cost and Revenue Sharing Agreement (“CRSA”) to progress the appraisal and development programme activities at the OGO discovery and conversion to an Oil Mining Licence (“OML”)
- OPL 310 Licence extended to 2 August 2022, following the payment of an extension fee by LEKOIL
OPL 276
- Acquired 45% participating interest in the Production Sharing Contract (“PSC”) in relation to the Oil Prospecting Licence 276 from Newcross Petroleum Limited (subject to receipt of required consents)
- Preliminary resource estimates by Newcross, based on four wells resulting in four discoveries, reported gross recoverable volumes of 29 million barrels of oil and 333 Bcf of gas, upside of 33 million barrels of oil and 476 Bcf of gas (recoverable)
OPL 325
- Execution of the PSC in relation to the Oil Prospecting Licence 325 expected to occur in 2020
- On executing the PSC, LEKOIL intends to farm-down a portion of interest following a detailed prospect and lead risking study
