Performance indicators

We measure our progress through certain key performance indicators that are closely linked to the successful delivery of our strategy.

KPIs

25,877

Definition

The Company’s share of oil and gas produced during the year proportionate to its working interest in each producing block. Volumes expressed are as measured at the Company’s facilities, prior to any reconciliation losses.

Relevance

An indicator of production strength at the Company’s current blocks and the impact of development activities at organic and inorganic projects.

Progress

2016 oil production was heavily influenced by the operator of the Forcados terminal declaring force majeure owing to disruption of the subsea export pipeline in February. An alternative export route via the Warri refinery was established mid-year that allowed for the resumption of exports at a heavily constrained rate. Consequently an uptime level of just 19% was recorded over the full year. Despite this, gas production increased year on year by 10% to 95 MMscfd but total production was down 40% at 25,877 boepd.

Outlook

The Company is making upgrades to the Warri refinery jetties that will permit exports via that route to be increased to a gross rate of around 30,000 bopd. Alongside this, a new export pipeline into the Escravos terminal is expected to be completed in 2017 and become available for Seplat to utilise in the future. Having also increased gas processing capacity to a minimum of 525 MMscfd, the Company expects to sign additional GSAs that will allow for gas production to be increased further.

Risk management

The Company has an in depth understanding of the subsurface and constantly monitors individual well and reservoir performance in order to optimise the drawdown rate on each well and maximise long-term economic recovery of oil and gas from the reservoirs. It has also prioritised the establishment of alternative oil export routes to mitigate high concentration risk.

 

-3.8%

Definition

The number of barrels of oil equivalent added to the 2P reserves base during the year, expressed as a percentage increase/decrease.

Relevance

An indicator of the Company’s ability to capitalise on organic opportunities within its portfolio and inorganic opportunities to replenish its reserves base.

Progress

Working interest 2P reserves at the end of 2016 stood at 462 MMboe, a decrease of 3.8% year on year. The downward revision is due to the reassessment of booked reserves attributed to the revised commercial terms at OML 55 where the Company now holds a revenue interest.

Outlook

The Company has a significant working interest 2C resource base of 90 MMboe that offers good additional reserves growth potential. The Company will also continue to evaluate acquisition opportunities and over the long term undertake a focused E&A drilling programme.

Risk management

The Company high grades its inventory of exploration and appraisal opportunities, each being subject to rigorous technical and commercial evaluation to de-risk them as far as possible prior to committing capital. When evaluating new acquisitions the Company is careful to maintain price discipline and undertake rigorous analysis.

8.79

Definition

The operating costs (excluding non-cash flow expenses, and financing costs) net to the Company divided by the Company’s working interest barrels of oil and equivalent produced in the period.

Relevance

An indicator of how cost efficiently the Company is able to produce its oil and gas reserves. By controlling its operating cost base the Company is able to be more resilient to periods of depressed oil prices.

Progress

Opex costs per unit of production reduced 6% year on year to 2016 as a result of continued efforts to improve operational efficiency. Within overall opex, the costs incurred by exporting crude via barges from the Warri refinery jetty were more than offset by lower crude handling charges and operational maintenance expenses as a result of constraints on exports via the Forcados terminal.

Outlook

The Company remains focused on cost control. Whilst increases in certain cost components are expected to increase year on year, there are areas where downwards pressure can be applied with the objective of achieving a stable unit cost.

Risk management

The Company carefully monitors expenditures and continually analyses its underlying cost base, making comparisons to prevailing market rates in order to ensure that the Company is identifying and able to action cost saving and efficiency gains, keeping it competitively positioned on the cost curve.

-158

Definition

The Company’s earnings before the deduction of interest and tax expenses.

Relevance

An indicator of the Company’s earnings ability. An increase in EBIT requires growth in revenue and/or strong cost control.

Progress

EBIT in 2016 reflects the lower oil production and oil price realisations year on year; and it has also been impacted by a number of non-recurring charges, in particular unrealised foreign exchange losses resulting from the Naira devaluation in 2016.

Outlook

Improved oil production levels, tight cost control and anticipated growth in gas production at OMLs 4, 38 and 41 will ensure robust earnings potential in the future. Development of the substantial gas and condensate reserves at OML 53 will also enhance the future earnings profile.

Risk management

The Company has robust financial processes in place and carefully monitors revenues, cost of sales and administration costs to ensure continued strong profitability. Oil price is a major influencing factor on the Company’s revenue. The Company is analysing hedging strategies to help mitigate exposure to oil price volatility.

0.33

Definition

The number of lost time incidents recorded per million man hours worked.

Relevance

An indicator of health and safety performance that is widely established within the oil and gas industry.

Progress

Despite the low level of rig-based activity in 2016 (with just the workover of the Sapele-4 well and recompletion as a water injector) the Company remained operationally active, undertaking the Oben gas plant Phase II expansion project and establishing an alternative oil export route via the Warri refinery. The Company achieved an LTIR of 0.33 in the year, compared to 0 in 2015.

Outlook

In 2017, efforts will continue to minimise the frequency of lost time incidents in all areas of operations. The Company will continue to ensure high HSSE standards are met and assess opportunities to constantly improve its HSSE systems and protocols.

Risk management

The Company has in place extensive and well developed HSSE policies and reporting procedures with an emphasis on the early identification and mitigation of HSSE risks. The Company closely monitors its HSSE performance and is constantly evaluating ways to improve its performance.

Additional performance metrics

172

Definition

The Company’s net operating cash flow in the year.

Relevance

An indicator of the cash generative potential of the Company’s producing oil and gas blocks.

Progress

The Company’s operating cash flow was severely affected by lower oil production owing to force majeure at the Forcados terminal, compounded by lower realised oil prices. However, the contribution of the gas business increased significantly during the year following expansion of capacity at the Oben gas processing facility and gas sales agreements being secured at progressively higher pricing levels. In 2016, the Company also received US$213 million towards the settlement of outstanding cash calls.

Outlook

Strong underling wellhead oil production capacity and anticipated future growth in gas production will ensure robust cash flow generation in the future when a normalised level of oil exports is restored. Development of the recently acquired OML 53 5 block together with OPL 283 will also significantly augment future cash flow potential.

Risk management

Careful financial management and high levels of operating efficiency allow the Company to ensure positive cash generation from its operating activities.

52

Definition

The total amount of capital expenditure made during the year, excluding acquisition costs.

Relevance

An indicator of the Company’s level of investment activities in production, development and exploration, and appraisal activities.

Progress

The Company has continued to invest in the development of its portfolio of blocks onshore the Niger Delta and in particular has prioritized acceleration of gas capacity development to supply the domestic market. By having discretion over capex, 2016 spend was scaled back from a pre-force majeure budgeted level of US$130 million.

Outlook

The Company will continue to invest in the development of its portfolio, allocating capital to the opportunities that offer the best returns and volume growth potential whilst scaling and timing investments at appropriate levels to closely match cash flow generation.

Risk management

Project investments are monitored closely against budgets to minimise the risk of over-runs. The Company benchmarks every investment opportunity to ensure capital is deployed to only the highest return projects, and adheres to a price disciplined acquisition strategy.

40.4

Definition

The average oil price per barrel sold by the Company during the period.

Relevance

The Company’s financial performance is closely linked to the oil price.

Progress

Oil prices remained weak in 2016, touching a low of US$26/bbl in January but recovering to exit the year around US$55/bbl. The Company put in place dated Brent put options covering a volume of 6.0 MMbbls in 2016 at an average strike price of US$41.8/bbl. This hedging programme has been rolled forward into 2017 when deferred premium put options covering a volume of 3.69 MMbbls have been put in place at a combined weighted average strike price of US$48.38/bbl.

Outlook

The Company has historically sold its produced oil under the Forcados blend that has historically received a premium to a Brent marker price. Oil prices are expected to remain subject to macro-economic volatility.

Risk management

Management continue to closely monitor prevailing oil market dynamics and will consider further measures and take advantage of opportune periods to implement additional hedges to provide appropriate levels of cash flow assurance.

1.0

Definition

The rate at which full-time staff of Seplat choose to leave the Company voluntarily, expressed as a percentage of average full-time headcount during the year.

Relevance

An indicator of the Company’s ability to attract and retain personnel. The loss of people can result in a skills shortage, loss of knowledge and higher recruitment costs.

Progress

The Company has continued to develop its employment policies with the aim of attracting and retaining high caliber industry talent.

Outlook

The industry is still expected, over the longer term, to continue to face skills shortages in key areas with competition for high-performing individuals amongst competitors being intense.

Risk management

The Company’s policy is to provide industry competitive benefits packages and provide progressive career opportunities to retain and attract high-performing employees.