SEVEN ENERGY FULL YEAR RESULTS - 2014 30 April 2015
Presentation team Phillip Ihenacho • Co-founder of Amaya Capital Partners, an early investor and active supporter of Seven Energy Chief Executive Officer • Established and ran Afrinvest for over 10 years • Former chairman of the Aureos West Africa Fund and worked with McKinsey & Co • BA in History from Yale University (US) and a JD from Harvard Law School (US) Bruce Burrows • Joined Seven Energy in October 2011 Chief Financial Officer • Former finance director of JKX Oil & Gas for 14 years • Previously worked for Ernst and Young in various positions in London (UK) and Wellington (New Zealand) • BSc Honours from Canterbury University (New Zealand) • Member of the Institute of Chartered Accountants of New Zealand 2
Disclaimer This announcement is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in the United States or Nigeria or in any jurisdiction in which, or to any persons to whom, such offering, solicitation or sale would be unlawful. The information contained in this announcement has not been audited by independent auditors or other third parties and is based on internal records and reporting systems. Certain statements in this report regarding our prospects, plans, financial position and business strategy may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of forward- looking terminology such as “may”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe” or “continue” or the negative of these terms. All forward-looking statements, including discussions of strategy, plans, objectives, goals and future events or performance, involve risks and uncertainties. While we believe these statements to be reasonable, they are merely estimates or predictions and cannot be relied upon. We cannot assure you that future results will be achieved. Factors, risks and uncertainties that may cause actual outcomes and results to be materially different from those indicated, expressed, projected or implied in the forward-looking statements used in this report include, among others: • the concentration of our primary reserves and resources in one geographic region pursuant to one agreement, the Strategic Alliance Agreement; • allegations that negatively portray our business, operations and assets, including but not limited to the Strategic Alliance Agreement, our interest in the OMLs and relationships with third-parties; • a failure to agree upon the interpretation or application of certain contractual terms with our contractual counterparties with respect to the Strategic Alliance Agreement; • logistical and operational difficulties associated with operating in Nigeria; • changes in governmental regulation, including regulatory changes affecting the availability of permits, and governmental actions that may affect operations or our planned expansion; • the exposure to increased market risk and uncertainty as a result of operating in an emerging market; • the inability to obtain funds to maintain our ongoing operations, grow our business and complete planned projects; • delays, disruptions and disputes with third-party operators, partners and other project participants; • limited growth in Nigerian domestic demand for gas; • price fluctuations in oil, gas and refined products markets and related fluctuations in demand for such products; This list of important factors is not exhaustive. When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social, and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made. Accordingly, we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely scenario. These cautionary statements qualify all forward looking statements attributable to us or persons acting on our behalf. 3
Highlights OPERATIONAL • Oil entitlement 15,800 bopd; gas deliveries 23 MMcfpd • Gas deliveries commenced to Ibom Power in January 2014; three new gas take-or-pay customers signed • Ongoing gas infrastructure development – 37km Uquo to Oron gas pipeline completed; Train 2 of Uquo gas processing facility commissioned • Acquisition and successful integration of East Horizon Gas Company • South east Niger Delta oil facilities completed and production commenced in Q1 2015 • Exploration success at Uquo North East 1 prospect: gross 2C resources within licence 15 MMboe • Net 2P + 2C reserves plus resources up 17% to 414 MMboe (2013: 354 MMboe) FINANCIAL • EBITDAX up 35% to $273 million (2013: $202 million) • Profit after tax up 41% to $55 million (2013: $39 million) • Balance sheet significantly strengthened with good progress on further optimising the capital structure 4
Operations overview 5
Operational performance Increased oil entitlement Increased oil liftings (bopd) (bopd) 15,800 10,400 10,000 9,000 3,600 3,100 2012 2013 2014 2012 2013 2014 First gas sales in south east Increased net reserves and resources Average daily deliveries (MMcfpd) 23 (MMboe) 414 363 354 14 9 Ibom Power Unicem Total 2012 2013 2014 6
South east overview Net reserves and resources split Total: 130 (MMboe) 2P 2C Oil 8 5 Gas 65 52 9% Gas 91% Oil Customers and commercial progress Customer Customer details Capacity Progress Ibom Power Akwa Ibom State owned power 190 MW power generation capacity First commercial delivery of gas in January station 2014 Calabar NIPP Federal Government owned 560 MW power generation capacity Commenced delivery March 2015 power station UniCem Nigeria’s third largest cement 2.5 million tonnes annual production Delivered NGC gas until Nov; Uquo gas factory capacity thereafter Notore Leading fertiliser and agro-allied 1,000 metric tonnes of daily ammonia Commenced taking gas in Q1 2015 company production Alaoji NIPP Federal Government owned 1,074 MW power generation capacity Take-or-pay to commence in Q2 2015 power station 7
North west overview Net reserves and resources split Total: 222 (MMboe) 2P 2C Oil 68 50 Gas 80 24 53% Gas 47% Oil 2014 Highlights Production – 52,500 bopd daily average gross production (2013: 51,600 bopd) Entitlement – 15,800 bopd daily average net entitlement (2013: 10,400 bopd) 24 wells drilled or worked over in 2014 2014 capital investment - $408 million (Seven Energy 55% share) 2015 capital budget, net to Seven Energy, approximately $165 million with agreement of budgetary controls with NPDC and Seplat 8
Strategic Alliance Agmt – Group accounting ($m) Cost treatment on Balance Sheet and Income Statement When the cost returns are received they are booked to fixed assets or operating costs and accounts payable or accruals depending on their nature and approval status. Operator submitted costs; approved DR Fixed assets (BS) 230 DR Operating costs (IS) 129 CR Accounts payable (BS) (359) Operator costs submitted; awaiting approval DR Fixed assets (BS) 178 DR Operating costs (IS) 72 CR Accruals (BS) (250) Oil entitlement treatment As the cost returns are received, Seven is entitled to recover “cost oil”: operating costs and intangible capex immediately a nd tangible capex over 5 years. Excess oil after cost recovery goes into the “profit oil” calculation (after taking into account Royalty and PPT); Seven Energy is entitled to a share of this. The entitlement, made up of current years cost recovery, plus prior years tangible capex amortisation and profit oil is recognised as a credit to cost of sales with the entitlement booked as inventory (underlift). Depletion is recorded on entitlement barrels at $15.7/bbl DR Inventory (BS) 536 CR Cost of sales (IS) (536) DR Depletion (IS) 91 CR Fixed Assets (BS) (91) Revenue recognition Under the accounting treatment, revenue is only recognised when the oil has been physically lifted from the terminal. At this point it is considered that the inventory (underlift) has been sold. DR Cost of sales (IS) 345 CR Inventory (underlift) (BS) (345) DR Accounts receivable (BS) 345 CR Revenue (IS) (345) 9
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