Wrap Text
Provisional Audited Results
SacOil Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/000460/06)
JSE share code: SCL AIM share code: SAC
ISIN: ZAE000127460
("SacOil" or "the Company" or together with its subsidiaries "the Group")
PROVISIONAL AUDITED RESULTS
for the year ended 29 February 2016
OVERVIEW
The Group continues to make steady progress in its goal to become a pan-African oil and
gas company, despite significant headwinds in the industry and global economy. Key highlights
for the year ended 29 February 2016 include:
- Completion of Phase 2 of the development plan at the Lagia Oil Field, Eqypt
- Discovery of producible 24 degrees API gravity oil in the Thebes formation for the
Lagia Oil Field
- Reorganisation of the Group's interest in Block III, in the Democratic Republic of Congo
- Granting of a two-year extension to current exploration period of Block III
- Recovery of USD10 million previously associated with the OPL 233 performance bond
- Commencement of pre-feasibility studies on the Bioko Oil Terminal project
- Post period, award of crude trading allocation in Nigeria
Dr Thabo Kgogo, Chief Executive Officer of SacOil, commented: "The 2016 financial year was
characterised by operational and strategic progress against a challenging sector backdrop.
It was a year in which we demonstrated our ability to deliver on core operational objectives
and evolved further towards our strategic goal of becoming a pan-African oil and gas ('O&G')
company with activities across the full industry value chain.
Our core priority for the year was the successful completion of Phase 2 of the development
of the Lagia Oil Field in Egypt. We had set ourselves a target to achieve a peak production
capability of 1 000 bbls/d by the end of the financial year. This was an ambitious target
as we knew the development of this asset would be complex as a result of the heavy oil in place.
Despite the challenges we encountered we were delighted to announce that we successfully
proved the production capability of this asset in line with our stated time frame. Having
demonstrated the field's capacity, we have since returned to production levels more suited to
the current oil price environment.
We continue to make good progress with the implementation of our strategic plan. Late in 2015
we signed a Memorandum of Understanding with a consortium to conduct a detailed evaluation for
the development of the Bioko Oil Terminal in Equatorial Guinea. The consortium tables a
broad array of competencies, from engineering, procurement and construction through to
international marketing and trading. Pre-feasibility studies of the project have commenced,
the results of which aim to prove the commercial viability of the project and will determine
the next steps with regards to SacOil's involvement. The studies are expected to be completed
during the third quarter of the 2016 calendar year.
We recently made the difficult decision to withdraw our participation in the Mozambique pipeline
development during the pre-feasibility stage of the project, due to certain changes introduced
in the Joint Venture Agreement relating to the participants in the project, which impacted the
equity stake attributable to SacOil. Accordingly, the Board made the decision not to proceed as
a participant in the project. We wish the parties well in developing the project over the coming years.
We continue to expand the business into the midstream segment, with the securing of a 12-month
contract for the purchase of crude oil grades from the Nigerian National Petroleum Corporation
for onward sale. The first lifting of the crude oil is expected to take place in the middle of
June 2016 and should contribute positive cash flows to the Group over the contract period.
This diversification of our revenue generation and industry activities is in line with our
previously stated growth strategy and marks a significant milestone for SacOil.
With respect to the outstanding litigation matters previously reported on, the SacOil board and
management team continue to defend the claims from Transcorp and Nigdel in relation to
the Group's exit from OPL 281 and OPL 233, respectively. We remain committed to recovering all
amounts owed by Transcorp and Nigdel and instituting the requisite counterclaims accordingly.
Other litigation matters previously disclosed to shareholders are also still ongoing.
The SacOil board has now completed the evaluation of the findings of the previously documented
forensic investigation and has implemented the recommendations provided in the report. The board
has also completed the process of notifying regulatory authorities of the irregularities identified
as it continues to resolve outstanding legacy issues inherited by the current management team.
The Group is owed R75.5 million by Encha Energy ("Encha") which became due and payable on
29 February 2016. This amount remains unpaid as at the date of this announcement. The Group has
been engaging with Encha since the year end to recover the amount and is in the process of
enforcing its claim to recover these funds.
We thank you, our shareholders, for your continued support of our vision. Although there remains
much to be done to realise the full potential of our strategy, we expect to accelerate progress
in the coming year by intensifying the SacOil team's efforts to secure cash generative assets to
grow the business."
OPERATIONAL REVIEW
The Lagia development programme was successfully completed under budget with no HSE incidents
reported, resulting in the attainment of the targeted production capability of 1 000 bbls/d.
We have since scaled back production to levels more suitable in the current oil price environment.
Post-drilling analysis indicated that the discovery in the deeper Thebes formation is a lighter crude
with higher API gravity of 24 degrees API, when compared to the oil produced from the Nukhul formation
in this field with an API gravity of 11 degrees API.
With the granting of a two-year extension to the current exploration period of Block III from
27 January 2016 to 26 January 2018, by the Minister of Hydrocarbons of the Democratic Republic
of Congo ("DRC"), Total E&P RDC ("Total") as operator of Block III, has commenced with the
acquisition of a 2D seismic survey. This extension sets the platform for the operator to acquire
the seismic data, interpret the results and determine the associated prospectivity. This seismic
acquisition programme is in fulfilment of the work programme obligations.
Activity on the Group's exploration assets was minimal during the year as the focus shifted to
expending available cash resources on a cash-generative asset.
FINANCE REVIEW
For the year ended 29 February 2016 the Group reported a profit of R39.6 million (2015: loss of
R277.0 million), basic EPS of 1.64 cents (2015: basic loss per share of 8.54 cents) and headline
EPS of 1.04 cents (2015: headline loss per share of 4.67 cents) as it continued to benefit from
the weakening of the Rand which contributed R154.6 million (2015: R78.6 million) in foreign exchange
gains on the Group's US Dollar denominated financial assets. Further contributing to this profit
were the gain of R103.6 million achieved on the Reorganisation of the Group's holding in Block III
and the non-recurrence of the one-off write-downs of R420.2 million related to the restructuring of
the Group's portfolio of assets in the prior year. The Group's foreign exchange gains and the
gain on Reorganisation are included in other income.
The results of the Group also reflect the impact of a Lagia impairment charge of R76.5 million
(2015: RNil) emanating from the decline in oil prices as at 29 February 2016, which affected the
valuation of the Group's oil and gas properties by R56.8 million and other intangible assets by
R19.7 million. The Competent Person's Report has confirmed that the 2P reserves at Lagia have risen
from 6.2 million barrels to 6.9 million barrels. As such, the impairment charge is a reflection of
the decline in oil prices, and is offset by additional foreign exchange gains totalling R61.5 million
(2015: R8.7 million) on the translation of these assets included in other comprehensive income.
The delay in activities on Block III due to the civil unrest in the area and in obtaining an
extension of the operating licence resulted in a further impairment of R26.1 million
(2015: R23.8 million) of the contingent consideration receivable, as reported in the interim results,
which reflects the deferral of its receipt by a year. These impairment charges are included under
other operating costs.
Reorganisation of the holding in Block III ("Reorganisation")
Prior to the Reorganisation, Semliki SARL ("Semliki") had a direct 18.3% participating
interest in Block III in the DRC alongside partners Total E&P RDC (66.7%) ("Total") and the
DRC Government (15%). Semliki was 68% directly owned by RDK Mining Proprietary Limited ("RDK"),
a wholly-owned subsidiary of SacOil, with the remaining 32% held by Divine Inspiration Group
Proprietary Limited ("DIG").
During the year SacOil initiated a process to reorganise the holding of its indirect interest
in Block III ("the Interest"). The transaction agreements implementing the Reorganisation were
concluded on 29 February 2016. This resulted in the disposal of the Group's shareholding in
Semliki for USD1 (R16) and the incorporation of SacOil DRC SARL ("SacOil DRC"), in which
RDK owns 100% of the issued shares. The effect of the Reorganisation is the transfer of the
Group's share of assets and liabilities (including the Interest), previously owned in Semliki,
to SacOil DRC, pursuant to various agreements with DIG. This Reorganisation now enables SacOil
to directly represent its interest in Block III and to have a direct line of sight of the
activities of the block. SacOil DRC has an effective 12.5% participating interest in Block III.
As part of the reorganisation, DIG indemnified the Group of outstanding taxes relating to
historical farm-outs of Block III by Semliki. This contributed to the gain of R103.6 million
on the derecognition of current tax payable by the Group as further explained in note 9.
Revenue
The Group has continued to invest in the planned development activities at Lagia to achieve
higher production levels. Production for the year was therefore affected by these development
activities. Although the Group's revenue increased by 127% relative to the prior year, it
remains minimal. Now that Phase 2 of the planned development activities has been completed we
look forward to optimising the production from the field to establish a sustained level of
production that will grow the revenue of the Group over the next financial year.
Other operating costs
The management of the Group's costs was a key priority during the year ended 29 February 2016.
Excluding the impact of the impairment charges totalling R102.6 million (2015: R23.8 million)
and the prior-year write-downs of R420.2 million highlighted above, the Group's cost base
increased by 39% to R91.8 million (2015: R66.1 million). This increase is primarily attributable
to the inclusion of a full year's operating costs relating to Lagia relative to only four months
since acquisition in the prior year.
Investment income
During the financial year the Company announced the conclusion of a settlement agreement with
EERNL. The revised terms of the historical loans advanced to EERNL no longer provide for interest
on the outstanding loans. As such, investment income for the year decreased by 70%.
Exploration and evaluation ("E&E") assets
Developments in the industry led the Group to defer expenditure on exploration activities in an
effort to prioritise focus on the Lagia Oil Field which generates cash for the Group. Consequently,
there was minimal expenditure on the Group's E&E assets. The elimination of DIG's interest in
Block III from the Group results pursuant to the Reorganisation resulted in a decrease in
E&E assets by 32%.
Oil and gas ("O&G") properties
The Group expended R55.4 million on Phase 2 (2015: R7.3 million on Phase 1) of the Lagia
development programme which improved the Group's production profile and increased O&G properties.
Foreign exchange gains totalling R46.8 million (2015: R5.8 million) on translation of the
US Dollar-based O&G assets also contributed to an increase in these assets. The impairment charge
of R56.8 million outlined above and depletion charges of R2.3 million (2015: R0.3 million)
off-set these increases.
Other financial assets (non-current and current)
The Group's other financial assets ("OFA") are primarily denominated in US Dollars. The continued
weakening of the Rand contributed R213.4 million (2015: R52.6 million) in foreign exchange gains
on the contingent consideration, loans due from EERNL and the Transcorp refund. Interest on the
unwinding of the time value discount applied on initial recognition further increased OFA by
R38.0 million (2015: R121.5 million).
The effect of the Reorganisation is that the Group now retains and reports on only its effective
share of assets and liabilities relating to Block III. As such, R202.7 million of the contingent
consideration attributable to DIG was derecognised on completion of the Reorganisation. The part
repayments of R63.1 million (R14.8 million) by EERNL and Greenhills and the impairment charge of
R26.1 million (2015: R23.8 million) further decreased OFA.
The net effect of these transactions on the Group's OFA is a decrease of R40.5 million (6%) year
on year. The Group's OFA are disclosed in note 6.
Cash and cash equivalents
The Group's balances decreased by R122.4 million as a result of the capital expenditure of
R55.4 million (2015: R7.3 million) relating to Lagia, business development expenditure of
R13.2 million (2015: R18.6 million) and operating costs of R53.8 million (2015: R24.3 million).
In June 2015, the Group benefited from the part repayment of R63.1 million (USD5 million) of the
EERNL loan which was off-set by the settlement of the Group's indebtedness to EERNL. The Company's
subsidiary, SacOil 233 Nigeria Limited held this amount in its bank account on behalf of EERNL
with respect to the cash collateral of USD10 million which previously secured the OPL 233 performance
bond. Upon the release of the cash collateral EERNL utilised these funds to part settle the loans
owed to the Group.
Current tax payable
The tax indemnity provided by DIG and Semliki as part of the Reorganisation effectively eliminated
R199.5 million in taxes payable. These taxes had historically been incurred by Semliki pursuant to
a farm-out of Block III which solely benefited DIG.
Commitments
The Group's capital commitments have decreased by 41% following the completion of Phase 2 of the
Lagia development plan.
GOING CONCERN
The Board has performed an assessment of the Group's operations relative to available cash
resources and is confident that the Group is able to continue operating for the next 12 months.
The Group's summarised provisional consolidated audited financial statements presented have been
prepared on a going concern basis.
CHANGES IN DIRECTORATE
Mr Gontse Moseneke did not offer himself for re-election as a Non-executive director at the
Annual General Meeting of the Company held on 1 October 2015. He subsequently retired as a
director of the Company with effect from 1 October 2015.
LITIGATION
Litigation proceedings previously disclosed to shareholders are still ongoing. The Group
continues to defend the claims made by Transcorp, Nigdel, Mr Joe Modibane and Mr Robin Vela,
as previously disclosed.
Outlook
We continue to make good progress with the implementation of our strategic plan. The challenges
that exist in the sector are likely to continue over the next 12 months and will require us to
continue to operate effectively at a lower oil price. As a result of our stable financial
position, which is underpinned by a diverse portfolio with near term revenue generation potential
and no debt, as well as the Board's strategy to diversify the Company's operations, SacOil
remains in a strong position to see out this period and emerge stronger. Through an improved
focus on Corporate Governance under the current management team combined with the support of
its institutional shareholder register, SacOil is able to mitigate the risks and challenges
that currently exist and will continue to look for opportunities to grow into a sustainable,
pan-African integrated energy company.
ABOUT SACOIL
SacOil is a South African based independent African oil and gas company, dual-listed on the
JSE and AIM. The Company has a diverse portfolio of assets spanning production in Egypt;
exploration and appraisal in the Democratic Republic of Congo, Malawi and Botswana;
and midstream and downstream operations. The Company continues to evaluate industry opportunities
throughout Africa as it seeks to establish itself as a leading, full-cycle pan-African oil
and gas company.
SUMMARISED PROVISIONAL CONSOLIDATED AUDITED STATEMENT OF COMPREHENSIVE INCOME
2016 2015
Note R'000 R'000
Revenue 4 746 2 095
Cost of sales (15 286) (3 225)
Gross loss (10 540) (1 130)
Other income 258 239 103 334
Other operating costs (194 429) (510 106)
Profit/(loss) from operations 53 270 (407 902)
Investment income 46 744 158 052
Finance costs (4) (1)
Profit/(loss) before taxation 100 010 (249 851)
Taxation (60 422) (27 178)
Profit/(loss) for the year 39 588 (277 029)
Other comprehensive income:
Items that may be reclassified to profit or loss
in subsequent periods:
Exchange differences on translation of foreign operations 61 460 8 717
Other comprehensive income for the year net of taxation 61 460 8 717
Total comprehensive income/(loss) for the year 101 048 (268 312)
Profit/(loss) attributable to:
Equity holders of the parent 53 584 (269 216)
Non-controlling interest (13 996) (7 813)
Profit/(loss) for the year 39 588 (277 029)
Total comprehensive income/(loss) attributable to:
Equity holders of the parent 115 044 (260 499)
Non-controlling interest (13 996) (7 813)
Total comprehensive income/(loss) for the year 101 048 (268 312)
Earnings/(loss) per share
Basic (cents) 4 1.64 (8.54)
Diluted (cents) 4 1.64 (8.54)
SUMMARISED PROVISIONAL CONSOLIDATED AUDITED STATEMENT OF FINANCIAL POSITION
2016 2015
Note R'000 R'000
ASSETS
Non-current assets
Exploration and evaluation assets 50 975 75 950
Oil and gas properties 5 166 030 122 870
Other financial assets 6 253 799 345 753
Property, plant and equipment 1 075 343
Other intangible assets 7 57 845 61 096
Total non-current assets 529 724 606 012
Current assets
Other financial assets 6 383 145 331 641
Inventories 9 330 6 642
Trade and other receivables 3 405 7 153
Cash and cash equivalents 107 349 229 431
Total current assets 503 229 574 867
Asset held for sale - 21 840
Total assets 1 032 953 1 202 719
EQUITY AND LIABILITIES
Shareholders' equity
Stated capital 8 1 216 504 1 216 504
Reserves 77 963 15 607
Accumulated loss (375 253) (448 655)
Equity attributable to equity holders of parent 919 214 783 456
Non-controlling interest - 4 417
Total shareholders' equity 919 214 787 873
Liabilities
Non-current liabilities
Deferred tax liability 78 526 97 146
Total non-current liabilities 78 526 97 146
Current liabilities
Other financial liabilities - 57 889
Current tax payable 12 851 212 417
Trade and other payables 22 362 25 554
Total current liabilities 35 213 295 860
Total liabilities 113 739 393 006
Liabilities directly associated with asset held for sale - 21 840
Total equity and liabilities 1 032 953 1 202 719
Number of shares in issue (000's) 3 269 836 3 269 836
Net asset value per share (cents) 28.11 24.10
Net tangible asset value per share (cents) 26.55 21.77
SUMMARISED PROVISIONAL CONSOLIDATED AUDITED STATEMENT OF CHANGES IN EQUITY
Total equity
Foreign Share- attributable Non-
Stated currency based to equity controlling
capital translation payment Total Accumulated holders of interest Total
(Note 8) reserve reserve reserves loss the parent ("NCI") equity
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 28 February 2014 1 109 977 - 6 002 6 002 (179 427) 936 552 12 218 948 770
Changes in equity:
Loss for the year - - - - (269 216) (269 216) (7 813) (277 029)
Other comprehensive income
for the year - 8 717 - 8 717 - 8 717 - 8 717
Total comprehensive income/(loss)
for the year - 8 717 - 8 717 (269 216) (260 499) (7 813) (268 312)
Issue of shares 106 527 - - - - 106 527 - 106 527
Share options issued - - 888 888 - 888 - 888
Acquisition of non-controlling
interest - - - - (12) (12) 12 -
Total changes 106 527 8 717 888 9 605 (269 228) (153 096) (7 801) (160 897)
Balance at 28 February 2015 1 216 504 8 717 6 890 15 607 (448 655) 783 456 4 417 787 873
Changes in equity:
Profit/(loss) for the year - - - - 53 584 53 584 (13 996) 39 588
Other comprehensive income
for the year - 61 460 - 61 460 - 61 460 - 61 460
Total comprehensive income/(loss)
for the year - 61 460 - 61 460 53 584 115 044 (13 996) 101 048
Share options issued - - 896 896 - 896 - 896
Acquisition of non-controlling
interest - - - - 19 818 19 818 (19 818) -
Disposal of Semliki (note 9) - - - - - - 29 397 29 397
Total changes - 61 460 896 62 356 73 402 135 758 (4 417) 131 341
Balance at 29 February 2016 1 216 504 70 177 7 786 77 963 (375 253) 919 214 - 919 214
SUMMARISED PROVISIONAL CONSOLIDATED AUDITED STATEMENT OF CASH FLOWS
2016 2015
Notes R'000 R'000
Cash flows from operating activities
Cash used in operations (81 375) (39 130)
Interest income 8 756 6 962
Finance costs (4) (1)
Net cash used in operating activities (72 623) (32 169)
Cash flows from investing activities
Purchase of property, plant and equipment (1 063) (234)
Purchase of exploration and evaluation assets (873) (69 119)
Purchase of oil and gas properties 5 (55 444) (7 270)
Purchase of other intangible assets 7 (409) (136)
Acquisition of subsidiary - (44 540)
Disposal of subsidiary 9 (107) -
Payments received for other financial assets 63 088 13 461
Net cash from/(used in) investing activities 5 192 (107 838)
Cash flows from financing activities
Settlement of borrowings - (20 461)
Proceeds from other financial liabilities - 420
Repayments of other financial liabilities (61 092) -
Net cash used in financing activities (61 092) (20 041)
Total movement in cash and cash equivalents for the year (128 523) (160 048)
Foreign exchange gains on cash and cash equivalents 6 441 7 899
Cash and cash equivalents at the beginning of the year 229 431 381 580
Cash and cash equivalents at the end of the year 107 349 229 431
NOTES
1 BASIS OF PREPARATION
The summarised provisional consolidated audited financial statements of the Group for the year
ended 29 February 2016 have been prepared in accordance with the Group's accounting policies,
which comply with the recognition and measurement criteria of International Financial
Reporting Standards, and the presentation and disclosure requirements of IAS 34 - Interim
Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, the Financial Reporting Pronouncements as issued by Financial Reporting
Standards Council, the Listings Requirements of the JSE Limited for provisional reports and
the Companies Act of South Africa (No. 71 of 2008, as amended). The accounting policies applied
in the preparation of the results for the year ended 29 February 2016 are consistent with those
adopted in the financial statements for the year ended 28 February 2015 except as noted below.
The Group has adopted the amendments to IFRS 2 - Share-based Payments which clarifies the
definition of a "vesting condition". The vesting condition under the Group Share Option Scheme
is for employees to remain in service.
The Group further adopted the amendment to IFRS 8 - Operating Segments. Disclosures required
by this amendment are provided in note 3.
These summarised provisional consolidated audited financial statements have been prepared on
a going concern basis.
All monetary information is presented in the functional currency of the Company, being
South African Rand.
2 AUDITORS' AUDIT REPORT
The directors take full responsibility for the preparation of these summarised provisional
consolidated audited financial statements. These summarised provisional consolidated audited
financial statements for the year ended 29 February 2016 have been prepared under the supervision
of the Chief Financial Officer, Mr Damain Matroos CA(SA). These summarised provisional consolidated
audited financial statements, which have been derived from the audited consolidated annual financial
statements for the year ended 29 February 2016 and with which they are consistent in all material
respects, have been audited by Ernst & Young Inc. Their unmodified audit opinions on the consolidated
financial statements and on the summarised provisional consolidated audited financial statements are
available for inspection at the registered office of the Company. The auditor's report does not
necessarily report on all the information contained in this report. Shareholders are therefore
advised that, in order to obtain a full understanding of the nature of the auditor's engagement,
they should obtain a copy of the auditor's report together with the accompanying consolidated audited
financial statements from the Company's registered office.
3 SEGMENT REPORTING
The Group operates in six geographical locations which form the basis of the information
evaluated by its chief operating decision-maker. For management purposes the Group is organised
and analysed by these locations. These locations are: South Africa, Egypt, Nigeria, DRC,
Botswana and Malawi. Operations in South Africa relate to head office activities of the Group
that include the general management, financing and administration of the Group.
Egypt Nigeria DRC Malawi Botswana South Africa Eliminations Consolidated
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
2016
Revenue 4 746 - - - - - - 4 746
Cost of sales (15 286) - - - - - - (15 286)
Gross loss (10 540) - - - - - - (10 540)
Other income - 52 496 106 026 - - 136 554 (36 837) 258 239
Investment income - 383 26 426 - - 19 935 - 46 744
Finance costs - - - - - (4) - (4)
Other operating expenses (98 158) (31 327) (28 975) - (2 711) (70 095) 36 837 (194 429)
Taxation - - (65 706) - - 5 284 - (60 422)
(Loss)/profit for the year (108 698) 21 552 37 771 - (2 711) 91 674 - 39 588
Segment assets - non-current 223 440 - 246 884 259 146 263 949 (204 954) 529 724
Segment assets - current 28 791 152 916 32 - 2 321 488 - 503 229
Segment liabilities - non-current (117 297) - (162 794) - (3 389) - 204 954 (78 526)
Segment liabilities - current (6 321) (281) - - - (28 611) - (35 213)
Egypt Nigeria DRC Malawi Botswana South Africa Eliminations Consolidated
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
2015
Revenue 2 095 - - - - - - 2 095
Cost of sales (3 225) - - - - - - (3 225)
Gross loss (1 130) - - - - - - (1 130)
Other income - 31 384 6 993 - 6 87 757 (22 806) 103 334
Investment income - 29 595 22 486 - - 117 455 (11 484) 158 052
Finance costs - - (1) - - - - (1)
Other operating expenses (8 182) (13 265) (23 775) - (500) (478 067) 13 683 (510 106)
Taxation - - (30 117) - - 2 939 - (27 178)
(Loss)/profit for the year (9 312) 47 714 (24 414) - (494) (269 916) (20 607) (277 029)
Segment assets - non-current 203 074 - 312 042 1 197 387 238 163 (148 851) 606 012
Segment assets - current 17 852 226 456 41 776 - 1 288 782 - 574 867
Segment liabilities - non-current (19 315) (59 294) (165 312) - - (2 076) 148 851 (97 146)
Segment liabilities - current (6 457) (57 917) (171 582) - - (59 904) - (295 860)
Business segments
The operations of the Group comprise one class of business, being oil and gas exploration and
production. The activities currently undertaken in Mozambique and Equatorial Guinea related to
the Mozambican pipeline and the development of the Bioko Oil Terminal, respectively, are not
significant at this stage and have not been separately disclosed. These activities therefore
do not meet the recognition criteria for operating segments.
Revenue
The Group's reported revenue is generated from one customer, the Egyptian General Petroleum
Corporation ("EGPC") with respect to oil sales. This revenue is attributed to the Egypt segment.
Taxation - Egypt
No income or deferred tax has been accrued by Mena as the Concession Agreement between the
EGPC, the Ministry of Petroleum and Mena provides that the EGPC is responsible for the
settlement of income tax on behalf of Mena, out of EGPC's share of petroleum produced.
The Group has elected the net presentation approach in accounting for this deemed income tax.
Under this approach Mena's revenue is not grossed up for income tax payable by EGPC on behalf
of Mena. Consequently, no income or deferred tax is accrued.
2016 2015
R'000 R'000
4 EARNINGS/(LOSS) PER SHARE
Basic (cents) 1.64 (8.54)
Diluted (cents) 1.64 (8.54)
Profit/(loss) attributable to equity holders of the parent
used in the calculation of the basic and diluted loss
per share 53 584 (269 216)
Weighted average number of ordinary shares used in the
calculation of basic earnings/(loss) per share (000's) 3 269 836 3 151 081
Issued shares at the beginning of the reporting
period (000's) 3 269 836 3 086 169
Effect of shares issued during the reporting period
(weighted) (000's) - 64 912
Add: Dilutive share options (000's) 901 -
Weighted average number of ordinary shares used in the
calculation of diluted earnings/(loss) per share
(000's) 3 270 737 3 151 081
Headline earnings/(loss) per share
Basic (cents) 1.04 (4.67)
Diluted (cents) 1.04 (4.67)
Reconciliation of headline earnings/(loss)
Profit/(loss) attributable to equity holders of the parent 53 584 (269 216)
Adjusted for:
Impairment of non-current asset held for sale - 194 066
Impairment of oil and gas assets 56 849 -
Impairment of other intangible assets 19 659 -
Write-off of property, plant and equipment 5 -
Gain on acquisition of subsidiary - (24 718)
Gain on reorganisation of interest in Block III (103 624) -
Tax effects of adjustments 7 591 (47 417)
Headline earnings/(loss) 34 064 (147 285)
Total
R'000
5 OIL AND GAS PROPERTIES
Cost
At 1 March 2014 -
Acquisition of Mena 110 063
Additions 7 270
Translation of foreign operations 5 812
At 28 February 2015 123 145
At 1 March 2015 123 145
Additions 55 444
Translation of foreign operations 46 833
At 29 February 2016 225 422
Depletion and impairment
At 1 March 2014 -
Depletion (275)
At 28 February 2015 (275)
At 1 March 2015 (275)
Impairment (note 10) (56 849)
Depletion (2 268)
At 29 February 2016 (59 392)
Net book value
At 28 February 2014 -
At 28 February 2015 122 870
At 29 February 2016 166 030
The depletion charge for 2016 represents a full year of depletion of the oil and
gas asset. The depletion charge for 2015 represents the portion since the acquisition
of the oil and gas properties in October 2014.
Details pertaining to the impairment charge are provided in note 10.
2016 2015
R'000 R'000
6 OTHER FINANCIAL ASSETS
Non-current:
Deferred consideration on disposal of
Greenhills Plant (1) - 1 718
Advance payment against future services (2) - 68 627
Loan due from EERNL (3) 57 484 37 732
Contingent consideration (4) 196 315 237 676
253 799 345 753
Current:
Loan due from EERNL (3) 173 571 183 243
Loan due from DIG (5) - 51 037
Transcorp refund (6) 305 764 220 824
Advance payment against future services (2) 75 490 -
Deferred consideration on disposal of
Greenhills Plant (1) 1 891 1 891
556 716 456 995
Less: Provision for impairment (3) (173 571) (125 354)
383 145 331 641
636 944 677 394
(1) The last instalment of R2.0 million of the deferred consideration, due in October 2016,
has been reclassified as short term. The present value of this future receivable is R1.9 million.
(2) The amount due represents Encha Energy's indebtedness to SacOil Holdings Limited under the
Acknowledgement of Debt Agreement concluded between the two parties on 28 February 2013.
The financial asset recognised at 29 February 2016 is R75.5 million (2015: R68.6 million)
representing the present value of this receivable. Interest amounting to R6.9 million
(2015: R6.3 million) arising from the unwinding of the discount applied to the future
receivable on initial recognition, has been included in investment income. The receivable
was due on 29 February 2016 and has been classified as short term. Refer to note 15 for
further details on this loan.
(3) At 29 February 2016 the long-term loan receivable of R57.5 million (2015: R37.7 million)
represents the present value of future amounts (R80.2 million (2015: R57.9 million)
($5 million)) due from EERNL, to be recovered from its share of OML 113's cash flows
expected in 2019 and 2020. Interest amounting to R4.4 million (2015: RNil million) arising
from the unwinding of the discount applied to the future receivable on initial recognition
has been included in investment income in profit or loss. Foreign exchange gains totalling
R15.3 million (2015: R13.0 million) have been recognised in other income on profit or loss
in relation to this long-term loan.
During the year EERNL repaid $5.0 million of the short-term loan from its share of the cash
collateral. The remainder of the loan is expected to be recovered within a year from
recoveries from Nigdel pursuant to the termination of EERNL's and SacOil's participation
in OPL 233. The recovery from Nigdel of R173.6 million (2015: R125.4 million) has been
provided for pending the finalisation of arbitration proceedings. The increase in the loan
and the impairment provision of R48.2 million is attributable to foreign exchange losses as
the amount provided for is denominated in US Dollars.
SacOil agreed to an interest freeze on the outstanding loans from 30 November 2014. The loans
are denominated in US Dollars.
(4) The Farm-In Agreement between Semliki and Total provides for a cash payment by Total to
Semliki upon the occurrence of certain future events ("contingent consideration"). As there
is a contractual right to receive cash from Total, Semliki has historically recognised a
financial asset in its statement of financial position. The asset was initially recognised at
its fair value. Subsequently, the financial asset meets the definition of a loan and receivable,
and is accounted for at amortised cost taking into account interest revenue and currency
movements. At each reporting date SacOil revises its estimate of receipts from the financial
asset in line with the requirements of IAS 39. Included in the statement of comprehensive
income at 29 February 2016 is an impairment loss of R26.1 million (2015: R23.8 million)
representing the write-down of future expected cash flows from the contingent consideration
for the Block III farm-outs in March 2011 and March 2012. The write-down, which is reflective
of the time value of money, arose as a result of the delays in activities on Block III due
to civil unrest in the area and in obtaining an extension to the operating licence.
The extension has, however, now been granted. Consequently, this defers the receipt of the
contingent consideration by a year. A deferred tax charge amounting to R36.6 million
(2015: R6.5 million) was recognised in the statement of comprehensive income.
At 29 February 2016 SacOil's rights to the contingent consideration, previously held
through Semliki, were transferred to SacOil DRC SARL in line with the reorganisation
described in note 9. The assumptions used to measure the contingent consideration are
detailed below:
Probability of exploration success (single well) 26%
Probability of at least one success from two wells 45%
Probability of successful completion given exploration success 89%
Discount rate 10%
First Investment Decision Date ("FID") 28 February 2021
First Oil Date ("FOD") 28 February 2025
Valuation date 29 February 2016
Contingent consideration
FID $29 000 000
FOD $25 000 000
Should the probability factors applied to the valuation model be increased or decreased by
10%, all other variables held constant, post-tax profit would have been R45.5 million
(2015: R55.2 million) higher and R45.5 million (2015: R55.2) million lower, respectively.
(5) The loan comprised the taxes recoverable from DIG with respect to the capital gains tax
payable by Semliki on the farm-out of the 6.67% interest in Block III in March 2012,
which transaction was initiated by and solely benefited DIG. The loan was interest free,
unsecured, has no fixed repayment terms and was denominated in US Dollars. On 29 February 2016
the Group completed the restructuring of its holding in Block III as detailed in note 9,
which resulted in the elimination of its obligations relating to these foreign taxes.
Consequently, the asset previously recognised to reflect the recovery of taxes payable by
the Group from DIG has been derecognised.
(6) The Transcorp Refund represents amounts recoverable from Transcorp under the provisions of
the Farm-in Agreement ("FIA"), following the termination of SacOil 281's participation in
OPL 281. SacOil paid R44.1 million ($6.25 million) on behalf of its subsidiary SacOil 281
and R43.6 million ($6.25 million) on behalf of EER 233 Nigeria Limited for a signature bonus
and other costs relating to OPL 281, which contractually will be refunded by Transcorp with
interest, on the signature bonus component, at 20% per annum. The FIA provides for the accrual
of interest between the date of payment of these amounts and the date of exit from the asset,
being 3 December 2014. As such there is no interest accrued in the current year. Under the
terms of the settlement agreement concluded with EERNL in 2015 EERNL ceded its share of the
refund as settlement of the OPL 281 loan owed to SacOil.
At 29 February 2016 the Company receivable of R152.9 million (2015: R110. 4 million) with
respect to the above transactions represents SacOil's entitlement to EERNL's share of the
Transcorp refund. The Group's receivable of R305.8 million (2015: R220.8 million) further
includes SacOil 281's share of the refund. Pursuant to the exit SacOil will not have future
commitments and obligations associated with the appraisal of OPL 281.
The fair value of other financial assets is given in note 11.
Other
Computer intangible
software assets Total
R'000 R'000 R'000
7 OTHER INTANGIBLE ASSETS
Cost
At 28 February 2014 272 - 272
Additions 136 - 136
Acquisition of Mena - 59 668 59 668
Translation of foreign operations - 3 075 3 075
At 28 February 2015 408 62 743 63 151
Additions 409 - 409
Translation of foreign operations - 22 272 22 272
At 29 February 2016 817 85 015 85 832
Accumulated depreciation and impairment
At 28 February 2014 (96) - (96)
Amortisation (106) (1 853) (1 959)
At 28 February 2015 (202) (1 853) (2 055)
Impairment (note 10) - (19 659) (19 659)
Amortisation (179) (6 094) (6 273)
At 29 February 2016 (381) (27 606) (27 987)
At 28 February 2014 176 - 176
At 28 February 2015 206 60 890 61 096
At 29 February 2016 436 57 409 57 845
The Group's other intangible assets arose from the acquisition of Mena in the prior year.
Mena owns the Lagia Oil Field. The Petroleum Concession Agreement gives Mena the right to
drill for petroleum reserves.
Details pertaining to the impairment charge are provided in note 10.
8 STATED CAPITAL
Number Stated
of shares capital
Date Issued to Nature of issue 000's R'000
Balance at 1 March 2014 3 086 169 1 109 977
22 October 2014 Mena Hydrocarbons Incorporated Specific issue 183 667 106 527
Balance at 28 February 2015 3 269 836 1 216 504
Balance at 29 February 2016 3 269 836 1 216 504
9 REORGANISATION OF INTEREST IN BLOCK III
2016
Background
Prior to the Reorganisation, Semliki had a direct 18.3% participating interest in Block III in
the DRC alongside partners Total E&P RDC (66.7%) ("Total") and the DRC Government (15%).
Semliki was 68% directly owned by RDK Mining Proprietary Limited ("RDK") with the remaining
32% held by Divine Inspiration Group Proprietary Limited ("DIG"). RDK is a wholly-owned
subsidiary of SacOil.
Reorganisation
During the year SacOil initiated a process to reorganise the holding of its indirect interest
in Block III ("the Interest"). The transaction agreements implementing the Reorganisation were
concluded on 29 February 2016. This resulted in the disposal of the Group's shareholding in
Semliki SARL ("Semliki") for $1 (R16) and the incorporation of SacOil DRC SARL ("SacOil DRC"),
in which RDK owns 100% of the issued shares. The effect of the Reorganisation is the transfer
of the Group's share of assets and liabilities (including the Interest), previously owned in
Semliki, to SacOil DRC, pursuant to various agreements with DIG. This Reorganisation now enables
SacOil to represent its interest in Block III directly and to have a direct line of sight of the
activities of the block.
The following table summarises the impact of the Reorganisation on the results of the Group
measured at the carrying amount of the assets and liabilities disposed or transferred.
2016
R'000
Disposal of Semliki:
Exploration and evaluation assets (74 366)
Contingent consideration (329 097)
Loan due from DIG (57 729)
Cash and cash equivalents (107)
Non-controlling interest (29 397)
Deferred tax liability 131 639
Loans from Group companies 84 268
Current tax payable 272 206
Total identifiable net liabilities disposed at carrying amount (2 583)
Plus: Transfer of assets and liabilities to SacOil DRC:
Exploration and evaluation assets 50 569
Contingent consideration 196 315
Deferred tax liability (78 526)
Loans from Group companies (84 268)
Total identifiable net assets recognised 84 090
Plus: Impact of the Reorganisation on SacOil's assets and liabilities (1):
Other financial assets (12 190)
Current tax payable 34 307
Net identifiable liabilities derecognised at carrying amount 22 117
Total impact of the Reorganisation 103 624
Total gain on Reorganisation of Interest (103 624)
Total consideration transferred (2) -
(1) DIG has indemnified the Group of tax obligations pertaining to the farm-out of a
portion of Block III to Total in March 2011 and March 2012 which has resulted in
the derecognition of current tax payable. Consequently, the asset previously recognised
to reflect the recovery of taxes payable by the Group from DIG, under this indemnity,
has simultaneously been derecognised.
(2) Amount less than R1 000.
The gain on Reorganisation of R103.6 million has been recognised in "other income" in
profit or loss.
2016
R'000
The cash outflow on Reorganisation is as follows:
Cash received -
Net cash retained in Semliki 107
Net cash outflow 107
2016
R'000
10 IMPAIRMENT OF NON-CURENT ASSETS
Impairment losses:
Oil and gas properties (note 5) 56 849
Other intangible assets (note 7) 19 659
76 508
The Group's oil and gas properties and other intangible assets form part of a single
cash-generating unit ("CGU"). This CGU falls within the Egypt reportable segment (note 3).
The trigger for impairment testing for the current year was the decline in oil prices, which
significantly affected the revenue of the Group. This decline occurred subsequent to the
acquisition of Mena in October 2014.
In assessing whether an impairment is required the carrying value of the CGU is compared with
its recoverable amount. The recoverable amount is the higher of the CGU's fair value less costs
to sell and value in use. Given the nature of the Group's activities, information on the fair
value of an asset is usually difficult to obtain unless negotiations with potential purchasers
or similar transactions are taking place. Consequently, unless indicated otherwise, the
recoverable amount used in assessing the impairment charges described above is value in use.
The Group generally estimates value in use using a discounted cash flow model.
Key assumptions relating to this valuation include the discount rate and cash flows used to
determine the value in use. Future cash flows are estimated based on financial budgets approved
by management covering a three-year period and are extrapolated over the useful life of the
assets to reflect the long-term plans for the Group using the estimated growth rate for the
specific business. The future cash flows were discounted to their present values using a pre-tax
discount rate of 10%. This discount rate is derived from the Group's post-tax weighted average
cost of capital ("WACC"), with appropriate adjustments made to reflect the risks specific to the
CGU and to determine the pre-tax rate. The WACC takes into account targeted debt and equity,
weighted 50% each. The cost of equity is derived from the expected return on investment by the
Group's investors. The cost of debt is based on the interest rate at which the Group would be
able to borrow for future expenditure. Segment-specific risk is incorporated by applying
individual beta factors. The beta factors are evaluated annually based on publicly available
market data.
Other key assumptions used:
Crude oil prices: Forecast commodity prices are based on management's estimates and available
market data.
Production rates: Based on management's best estimate of production profiles.
Growth rate estimates: Rates are based on published industry research.
Gross margins: Gross margins are based on average values achieved in since the acquisition
of the assets.
Management has considered the sensitivity of the value-in-use calculation to various key
assumptions such as crude oil prices and production rates. These sensitivities have been taken
into consideration in determining the required impairments. A 10% change in any of these
variables could change the recoverable amount by R22.1 million to R113.8 million.
Carrying value Fair value
2016 2015 2016 2015
R'000 R'000 R'000 R'000
11 FAIR VALUE MEASUREMENT
Group
Loans and receivables
Other financial assets (note 6)(1) 636 944 677 394 540 851 590 453
(1) In terms of SacOil's accounting policies and IAS 39 - Financial Instruments: Recognition
and Measurement ("IAS 39") these financial instruments are carried at amortised cost and not
at fair value, given that SacOil intends to collect the cash flows from these instruments when
they fall due over the life of the instrument. Changes in market discount rates which affect
fair value would therefore not impact the valuation of these financial instruments and are not
considered to be objective evidence of impairment for items carried at amortised cost per
IAS 39 as this does not impact the timing or amount of expected future cash flows.
Assets Fair value at
29 February 2016
R'000 Valuation technique Significant inputs
Other financial assets 540 851 Discounted cash flow model Weighted average cost of capital
The Group's own non-performance risk as at 29 February 2016 was assessed to be insignificant.
Fair value hierarchy:
The following table presents the Group's assets not measured at fair value in the statement
of financial position, but for which the fair value is disclosed above. The different levels
have been defined as follows:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2 - Other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly
Level 3 - Techniques which use inputs that have a significant effect on the recorded fair value
that are not based on observable market data
Level 1 Level 2 Level 3 Total
R'000 R'000 R'000 R'000
At 29 February 2016
Other financial assets - - 540 851 540 851
At 28 February 2015
Other financial assets - - 590 453 590 453
Asset held for sale - - 21 840 21 840
There were no transfers between any levels during the year.
12 COMMITMENTS AND CONTINGENT LIABILITIES
2016 2015
R'000 R'000
Commitments
Exploration and evaluation assets
Work programme commitments - due within 12 months 830 68 661
Work programme commitments - due within 13 to 48 months 51 282 19 500
52 112 88 161
Exploration and evaluation commitments will be funded
through a combination of debt and equity funding.
Contingent liabilities
Performance bond on OPL 233 issued by Ecobank in respect
of OPL 233's exploration activities (1) - 173 666
Cost carry arrangement with Total (2) 95 773 96 613
Total 95 773 270 279
(1) Performance bond
The performance bond issued by Ecobank in respect of the OPL 233 exploration activities
expired on 2 May 2015.
(2) Cost carry arrangement
The Farm-In Agreement between Semliki and Total provides for a carry of costs by Total
on behalf of Semliki on Block III. Semliki's rights under this contract were subsequently
assigned to SacOil DRC as part of the Reorganisation concluded on 29 February 2016
(see note 9). Total will be entitled to recover these costs, being SacOil DRC's share of
the production costs on Block III, plus interest, from future oil revenues. The contingency
becomes probable when production of oil commences and will be raised in full at that point.
At 29 February 2016 Total has incurred R95.8 million (28 February 2015: R96.6 million) of
costs on behalf of SacOil DRC. Should this liability be recognised a corresponding increase
in assets will be recognised, which, together with existing exploration and evaluation
assets, will be recognised as development infrastructure assets.
2016 2015
R'000 R'000
13 RELATED PARTIES
Key management compensation
Non-executive directors:
Fees 3 242 2 796
Executive directors:
Salaries 10 610 13 665
Other key management:
Salaries 7 436 4 642
14 DIVIDENDS
The Board has resolved not to declare any dividends to shareholders for the period under review.
15 EVENTS AFTER THE REPORTING PERIOD
The following events occurred after the reporting period:
During April 2016, SacOil and Energy Equity Resources ("EER") signed a Memorandum of Understanding
to explore oil and gas opportunities in the Republic of Nigeria. Pursuant to this initiative,
SacOil and EER were awarded a 12-month contract for the purchase of crude oil grades by the
Nigerian National Petroleum Corporation for onward sale. The first lifting of the crude oil is
expected to take place in the middle of June 2016.
The receivable from Encha Energy ("Encha"), disclosed in note 6, became due and payable on
29 February 2016. This amount remains unpaid as at the date of this report. Under the terms of
the Acknowledgement of Debt Agreement concluded with Encha, interest calculated at the prime
rate plus 3% shall accrue on the outstanding balance. Notwithstanding the date on which the
outstanding balance became due and payable, such interest will be calculated from
28 February 2013 to the date of actual payment. The Group is in discussions to recover these funds.
On behalf of the Board
Tito Mboweni Dr Thabo Kgogo Damain Matroos
Chairman Chief Executive Officer Chief Financial Officer
Johannesburg
31 May 2016
CORPORATE INFORMATION
Registered office and physical address: 1st Floor, 12 Culross Road, Bryanston, 2021
Postal address: PostNet Suite 211, Private Bag X75, Bryanston, 2021
Contact details: Tel: +27 (0) 10 591 2260; Fax: +27 (0) 10 591 2268
E mail: info@sacoilholdings.com
Website: www.sacoilholdings.com
Directors: Dr Thabo Kgogo (Chief Executive Officer), Marius Damain Matroos (Chief Financial Officer),
Bradley Cerff (Executive Director), Tito Mboweni (Chairman)*, Mzuvukile Maqetuka*, Stephanus Muller*,
Vusi Pikoli*, Ignatius Sehoole**, Danladi Verheijen**, Titilola Akinleye**
* Independent non-executive directors ** Non-executive directors
Advisers:
Company Secretary: Fusion Corporate Secretarial Services (Proprietary) Limited
Transfer Secretaries South Africa: Link Market Services South Africa (Proprietary) Limited
Transfer Secretaries United Kingdom: Computershare Investor Services (Jersey) Limited
Corporate Legal Advisers: Norton Rose Fullbright South Africa
Auditors: Ernst & Young Inc
JSE Sponsor: PSG Capital Proprietary Limited
Investor Relations (UK): Buchanan Communications Limited
Investor Relations (SA): Hill+Knowlton Strategies South Africa Proprietary Limited
AIM Nominated Adviser: finnCap Limited
Date: 31/05/2016 04:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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