Seplat Petroleum Development Company Plc Annual Report and Accounts 2020 POWERING NIGERIA’S ENERGY TRANSITION 10Coping with Covid: How Seplat responded to the challenges of a global pandemic and maintained business continuity while helping our host communities. Resilience and strength Seplat delivered a robust performance in 2020, within the guidance we set, despite the unprecedented shocks of the Covid-19 pandemic that tragically claimed more than a million lives. Never before have energy companies experienced a market in which demand and prices fell so quickly, nor have they faced such a stark realisation that the market may never be the same again. Our continued resilience, proven in crises past, is possible because of our prudent approach to financial management, our careful management of risk and our considered approach to capital allocation. Despite the crises of 2020, we were able to increase investment, repay debt and honour our commitment to shareholders in the form of a $0.10 dividend for the year. Highlights Group production within guidance 51,183boepd Liquids contribution from Eland 8,855bopd Gas for Nigeria's domestic market 101MMscfd Revenues impacted by Covid-19 $530.5m Unit cost per boe including Eland assets $8.90 Loss before tax, after non-cash impairments $80.2m Capital investment increased $150.1m Cash at bank after $100m voluntary loan repayment $258.7m Net debt steady $440m Dividend per share maintained $0.10 12 New CEO Roger Brown talks about taking over in a pandemic and what we can expect from Seplat in the future. Seplat is committed to being a best practice operator and a responsible and accountable corporate citizen as demonstrated in the approach to our operations. 58 42 Find out more about our four point oil value creation strategy. Strategic report At a glance Chairman’s statement Building a resilient business Coping with Covid Chief Executive Officer’s interview Strategy Value creation Key performance indicators Additional performance metrics Risk management Principal risks and uncertainties Operational overview Value creation strategy Financial review Corporate social responsibility 50 How we are diversifying our production base and exploring or creating new export routes over which we have more control. Governance Chairman’s overview Board of Directors Corporate governance report Board Committee reports Directors’ remuneration report Report of the Directors Statement of Directors’ responsibilities Audit Committee’s report Statement of Corporate Responsibility Financial statements 145 Independent auditors’ report Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Separate statement of profit or loss and other comprehensive income Separate statement of financial position Separate statement of changes in equity Separate statement of cash flows Notes to the separate financial statements 146 149 151 152 154 155 238 239 240 242 243 145 Our financial statements and related notes and reports. Additional information Payments to governments (unaudited) Notice of eighth Annual General Meeting Unclaimed dividend list General information Glossary of terms 2 2 4 8 10 12 16 18 20 22 24 30 37 42 52 58 78 80 82 87 96 113 137 142 143 144 294 295 296 298 306 307 1 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Seplat at a glance Polobo OML 40 Sibiri Opuama Abiala Gbetiokun Onitsha OML 4 Oben Okwefe Mosogar Okporhuru OML 41 Sapele Ubaleme Amukpe Ovhor Okoporo Orogho OML 38 Escravos Warri Forcados Umuseti (Pillar) Jisike OPL 283 Igbuku (Pillar) OML 53 Ohaji South Owerri Iheoma Odinma Emeabiam Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny NIGERIA’S ENERGY LEADER Seplat is Nigeria’s leading indigenous, independent oil and gas producer, with a working interest production of nearly 34,000 barrels a day of liquids for export and 101MMscfd of processed natural gas used for domestic power generation. 2 Seplat’s operating portfolio comprises seven oil and gas blocks in the prolific Niger Delta region of Nigeria, which we operate with partners including the Nigerian Government and other oil producers. We have a revenue interest in OML 55. We have a 465MMscfd gas processing plant at Oben, in OML4, we are upgrading our Sapele Gas Plant in OML 41 to 75MMscfd, and are building the 300MMscfd ANOH Gas Processing Plant in OML53. Read more Page 37 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Average daily volume 51,183boepd Liquids exported in 2020 12.3 million barrels Gas supplied to Nigeria’s energy sector 36.9 billion cubic feet PROUDLY NIGERIAN HOW WE BENEFIT OUR COUNTRY Seplat’s oil generated foreign currency income of $380 million for Nigeria in 2020. On this, we paid $72.7 million royalties and a further $107 million in taxes and levies. These contributions support Nigeria’s economy, including its healthcare and educational systems and its creation of essential infrastructure. At times, our gas powered up to 30% of Nigeria’s domestic grid in 2020 and by increasing gas production we can help to reduce Nigeria’s dependence on small-scale, costly and polluting generators. In addition, we spent $14.7 million supporting our host communities, focusing on jobs and business opportunities, security, medical and other assistance during the pandemic. Read more Page 295 101 MMscfd 1,501Bscf 33,714 bopd 241MMbbl Gas/ Production/2P reserves Seplat’s gas business consists of gas fields and associated infrastructure in OML 4, which supports our Oben Gas Processing Plant, and OML 53, where our independent joint venture ANOH Gas Processing Company is building a 300MMscfd gas processing plant. Oil / Production/2P reserves The ANOH plant is considered one of Nigeria’s most important strategic energy projects and will help Nigeria’s transition away from small-scale domestic and business generation. It is expected to produce first gas in 2022. Seplat's oil portfolio was strengthened by the acquisition of Eland Oil and Gas Ltd, in December 2019, along with its interests in OML 40 and the Ubima field. Together they produced 26% of Group liquids in 2020. Read more Page 48 Read more Page 44 Seplat is the investment partner of choice for Nigeria’s transition to cleaner energy production. 3 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Chairman’s statement STRENGTH THROUGH EXPERIENCE Ambrosie Bryant Chukwueloka Orjiako (‘A.B.C.’) Non-Executive Chairman We will be seeking your approval in this AGM to change our name from Seplat Petroleum Development Company Plc to Seplat Energy Plc. I believe this move reflects our intention to be at the forefront of Nigeria’s energy transition in the next decade of our journey. 4 Our ANOH Gas Processing Plant will be a major step forwards in Nigeria’s drive to reduce carbon emissions, replacing potentially millions of small-scale, inefficient, and polluting generators with cleaner utility-scale power generation fired by Nigerian natural gas. Dear Shareholders Our tenth year will be remembered as an extraordinary time, one full of challenge and change, not just for Seplat but for the entire global economy. The Covid-19 pandemic spread quickly across the world, forcing entire societies into lockdown, the new reality of “working from home” and serious economic downturns that naturally impacted demand for oil. But thanks to our prudent approach to managing our Company, I am pleased to report that Seplat has emerged from this crisis in robust health and prepared for an exciting future under its new leadership. Economic challenges of the Covid-19 pandemic The pandemic that emerged in the first quarter of the year was an unprecedented shock to the global economy, with consequent impact on the demand for oil and gas. Nigeria’s economy contracted by just 1.9% in 2020, proving more resilient than many other countries, such as the UK, which experienced a 10% fall as a result of the pandemic. Global GDP, according to IMF estimates, fell by 3.5%, as did the economy of the United States. The economic shock was reflected in lower demand for oil. The International Energy Agency, in its December 2020 Oil Market Report, predicted that daily demand would have fallen by 8.8MMbbl/day in 2020, to 91.2MMbbl/day. Having started the year at US66/bbl, the price of Brent slid sharply as the scale of the pandemic and its necessary responses became clear. Building a resilient business Page 8 Coping with Covid Page 10 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 On 4 April, as a result of the Saudi-Russia supply war, it reached a low of almost $19 before recovering to exit the year at $52/bbl, rising in the last few weeks in response to positive news about vaccines. Overall, Brent averaged $43 across 2020, compared to $64 in 2019. The challenges were reflected in the performance of our shares, with the UK line opening the year at 127p, falling to 40p as the pandemic took hold, before recovering to 65p at the end of the year. The Nigerian line opened at ₦658, reached a low of ₦282 and ended 2020 at ₦402. I am pleased to say that both lines have performed well so far in 2021. Board and management changes At the end of July, as we celebrated the tenth anniversary of our founding, our Co-founder, Austin Avuru, stepped down as Chief Executive Officer. He guided Seplat management from its inception, through many major milestones and his impact on our growth and success of this Company cannot be underestimated. It is a tribute to his management that we are in such a strong position today and we are grateful for the insights he will continue to share with us as a Non-Executive Director on our Board. Austin was succeeded as Chief Executive Officer by the Chief Financial Officer Roger Brown, who has already brought a fresh approach to leadership, announcing in October a streamlining of the organisation to improve efficiency, as I will detail later. Roger joined Seplat in 2013 as the Chief Financial Officer and played a key role in the successful dual listing of the Company in both the London and Nigeria Stock Exchanges in 2014. Also, since joining the Company, he has played significant roles in various asset acquisitions by Seplat. He brings to the CEO role a deep knowledge of the Company as the erstwhile CFO and as a member of the Board. He has strong financial, commercial and merger and acquisition (M&A) experience as well as proven people skills that will be an asset as the Company embarks on implementing our transformation strategy. With Roger stepping up from the role of CFO, we announced the appointment of Emeka Onwuka, OON, as our new Chief Financial Officer and Executive Director. He assumed the role in August. A former tax partner at Anderson Tax Nigeria, Emeka brings more than 30 years’ experience in financial services within Sub-Saharan Africa, including roles as Group Managing Director/ CEO of Diamond Bank Plc. He has held various Board positions as Chairman, FMDQ Securities Exchange Limited; Director, FMDQ Holdings Limited; Director, Ecobank Nigeria Limited; and Director, Bharti Airtel Nigeria. Since we raised $535 million at our initial public offering in May 2014, we have returned $344 million to shareholders in the form of dividends. In August we strengthened the independence of our Board with the appointments of M. Xavier Rolet, KBE and Ms. Arunma Oteh, OON, both of whom bring significant experience of international business and corporate governance. M. Rolet was CEO of the London Stock Exchange for ten years, during which time its market value rose from £800 million to £15 billion. He is currently the Chairman, Board of Directors at Phosagro PJSC, a member of the Board of Directors of the Saudi Stock Exchange Tadawul as an appointee of the Public Investment Fund, and an Expert Adviser to the Shanghai Institute of Finance for the Real Economy. Ms. Oteh is a seasoned business executive with many years’ experience at the highest levels at major multilateral agencies, global financial institutions and in Government. She has been an academic scholar at the University of Oxford since January 2019 and a member of the London Stock Exchange Africa Advisory Group since January 2020. Ms. Oteh served as Treasurer and Vice President of the World Bank from 2015 to 2018 and was the Director General of the Securities and Exchange Commission Nigeria from 2010 to 2015. In November we announced the retirements of Michael Alexander, Senior Independent Non-Executive Director, and Mrs. Ifueko M. Omoigui Okauru, Non-Executive Director, both retiring on 31 January 2021. Mr. Basil Omiyi assumed the role of Senior Independent Non-Executive Director on the same day. I would like to thank all our Directors for the wisdom and guidance they have shared with us over what has been a very challenging year and look forward to their continued counsel in the future. Business reorganisation and imperatives Having acquired Eland Oil & Gas late in 2019, I am pleased to report that it is now fully integrated into Seplat. Its headquarters in Aberdeen have become our Centre for Excellence, responsible for technical training and development across the Group, subsurface expertise, and the appraisal of new energy technologies. Supporting functions such as IT and HR were integrated, as was the management of community relations. In addition, we have begun sharing expertise and best practices with Elcrest, which is a joint venture with Starcrest, and which jointly operates OML 40 with NPDC. In October, our new CEO Roger Brown announced a streamlining of the organisation to improve efficiency at Seplat. Notable changes to the organisational structure included Asset Managers reporting directly to the CEO, the creation of a Corporate Services Department to include HR, IT and Business Services, and the creation of a Research & Sustainability function within the External Affairs Department. In addition, Roger created a New Energy unit, under the leadership of Yetunde Taiwo, tasked with managing our gas business and exploring ways that Seplat can develop a new renewables business for longer-term creation of value. A major force in our gas strategy will be the ANOH Gas Processing Plant that we are developing in a joint venture with the Nigerian National Gas Company. I am pleased to report that we completed equity funding of the project at the end of 2020 and in February 2021, we announced that our AGPC joint venture has successfully raised $260 million of debt to complete the project funding. The fact that a consortium of Nigerian and international banks were prepared to commit up to $450 million was a strong sign of confidence in ANOH, which is one of the most important strategic infrastructure projects in the country. 5 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Chairman’s statement | continued However, our cash position remained strong and the $318 million of cash we generated from operations was significantly more than the $150 million we invested for future growth. In fact, our capital expenditure in this difficult year was higher than the $125 million we spent in 2019, which demonstrates our commitment to growth. Furthermore, we voluntarily repaid $100 million of our Revolving Credit Facility and ended the year with $225 million in cash and net debt of $440 million. Dividend commitment maintained Our financial performance enabled us to maintain our commitment to paying dividends. While other companies were cutting back or cancelling payments for the 2019 financial year, because of prevailing uncertainties, we honoured our commitment and paid a final dividend of US$0.05, for a total dividend of US$0.10 for 2019. In October 2020, we announced an interim dividend of US$0.05 and the Board has since approved an additional top-up of US$0.05, maintaining our US$0.10 dividend for the 2020 financial year. Since we raised $535 million at our initial public offering in May 2014, we have returned $344 million to shareholders in the form of dividends. Towards world-class governance The strengthening of our Board that I have already described is part of our ongoing desire to achieve world-class governance of our Company. Six of our 13-member Board are independent and we continue to work towards increasing diversity. In addition, as we announced in March, we have taken the bold decision to eliminate all Related-Party Transactions – a move that exceeds the requirements of the UK Code of Corporate Governance. I know that shareholders will applaud this move as a sign of our commitment to the highest standards of governance. Sustainability initiatives It is the responsibility of the Board to plan for the long-term sustainability of our Company. We have conducted scenario analyses on our assets under different climate change and demand scenarios, as well as looking towards a future in which Seplat is much more involved in promoting low carbon environment in our operations. Such a transition will involve significant new innovations, technology, skills and relationships, compared to our existing expertise of subsurface exploration, drilling and hydrocarbon processing, but we are determined to be a major part of Nigeria’s future energy mix and help drive the country towards more sustainable energy generation. We drilled six oil wells and three gas wells during the year, choosing to focus on higher-margin oil wells in the first six months of 2020 and the development of gas fields in the second half of the year. As I have mentioned, a tragic accident at OML 40, operated by NPDC and Elcrest, sadly claimed the lives of seven third-party workers working on a maintenance barge. Our thoughts and prayers remain with their families and friends. Three investigations were launched, led by the DPR, a team from NPDC/Elcrest and an independent investigator. The investigations identified failures in the Permit to Work system and 18 safety recommendations were subsequently implemented to ensure that such a tragic event can never happen again. Furthermore, we redoubled our efforts to drive a strong safety culture throughout the organisation. Our financial performance was as good as could be achieved in such a difficult year. Revenues of $530 million reflected the lower demand and pricing environment and non-cash impairment provisions of $153 million, obliged by revaluation of assets at lower oil prices, reversed an operating profit of $121 million to a reported loss of $32 million. Although its completion has experienced some inevitable delays because of Covid-19 restrictions on imports, the ANOH project will significantly enhance Seplat’s position as Nigeria’s leading supplier of processed gas for the domestic energy market. Although driving Nigeria’s transition to gas remains our priority, it is essential that we ourselves transition for a long-term future in which renewables are an important part of Nigeria’s energy mix. Performance in 2020 Our operational and financial performance reflects the very challenging conditions I have described above. Our average working interest production was 51,183boepd, including 33,714bopd of liquids and 101MMscfd gas (17,469boepd). Of this, our Eland assets contributed 8,855bopd, or 26% of total liquid volumes. The performance of our oil business was affected by falling demand, the quotas imposed upon Nigeria by OPEC+, problems with the Trans Forcados Pipeline, a suspension of production resulting from an accident at OML 40 in July and a further suspension following problems with a storage vessel at the same site. Our gas business was affected by turnaround maintenance at our Oben gas plant as well as gas wells ceasing production earlier than anticipated, and of course the impact of Covid-19 related lockdowns on demand in the Nigerian economy. 6 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Thanks to the cost-cutting initiatives we implemented in 2020, as well as our prudent financial management, we are positioned very strongly to take advantage of the global recovery we are beginning to see. At a national level, Seplat was one of 33 organisations that donated a combined total of US$30 million to support the Federal Government’s efforts at curbing the spread of the pandemic. In addition, Seplat provided food assistance, medical and protective equipment worth ₦50 million to help local State authorities. We remain committed to the wellbeing of our host communities and will continue to provide health and education programmes, as well as opportunities for training and employment in the future. Outlook for 2021 Having proved our resilience again, and in the most challenging and unprecedented environment we have ever experienced, I am confident that Seplat will build on its strong foundations to become a larger, more diverse, and more sustainable energy company in the years to come. Given Nigeria’s need to improve access to energy and the potential for significant market growth, I hope you will agree that we are very well positioned to consolidate and strengthen Nigeria’s energy champion. As part of this transition, we will be seeking your approval in this AGM to change our name from Seplat Petroleum Development Company to Seplat Energy Plc. I believe this move reflects our intention to be at the forefront of Nigeria’s energy transition in the next decade of our journey. We will continue to build value for you, our shareholders, either through organic growth or through carefully selected acquisitions that will deliver the scale or expertise we will need in the coming years. As the pandemic and its impacts recede, demand for oil and gas is already recovering and, thanks to the cost-cutting initiatives we implemented in 2020, as well as our prudent financial management, we are positioned very strongly to take advantage of the global recovery we are beginning to see. I extend my heartfelt thanks to all our staff, who have performed so well under the difficult circumstances of the pandemic and the necessity of working from home. I also thank you, our shareholders, for your patience and trust in our Company in what was a very difficult time for your investments and assure you that we will do everything in our power to justify your faith. A.B.C. Orjiako Non-Executive Chairman 7 Selpat’s Covid-19 donations for Imo. Our ANOH Gas Processing Plant will be a major step forwards in Nigeria’s drive to reduce carbon emissions, replacing potentially millions of small-scale, inefficient, and polluting generators with cleaner utility-scale power generation fired by Nigerian natural gas. We commissioned an environmental consultancy, Critical Resource, to conduct a gap analysis on our efforts in the field of sustainability, focusing on the environmental, social and governance aspects of our business. Their extensive report identified numerous areas that we are committed to improving to global standards and we have begun programmes across the Company to ensure we embed sustainability thinking across the organisation. In addition, we intend to increase our disclosure of environmental, social and governance (ESG) data, by adopting the recommendations of the Task Force on Climate-related Financial Disclosures and will commit to reporting CO2 emission data to the Carbon Disclosure Project in the near future. Helping our communities Part of our ESG commitment is already apparent in the long-term projects we implement in our host communities. As the Covid-19 pandemic struck Nigeria, it was our duty to help our host communities and States in whatever ways we could. Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Building a resilient business A HISTORY OF RESILIENCE Financial discipline is the key Since our foundation, most of our revenues have come from oil, a product whose price is beyond our control. Given this uncertainty, we have always operated with a strong philosophy of financial discipline, believing that ‘cash is king’ and we must generate as much of it as we can. We focus on prudent investment to drive the highest possible returns, reducing the cost of our operations and ensuring the maximum possible cash flow from our products, to maintain a manageable level of net debt. This provides a strong cash buffer that, in normal times, enables us to invest, repay debt and return money to shareholders in the form of dividends. In addition, we have increasingly diversified from oil into gas, which provides long-term, more stable cash flows compared to the volatility of oil. Gas provides great potential for growth, given Nigeria’s need to replace small-scale diesel generation with utility- scale power stations powered by much cleaner nature gas, which our country has in abundance. This philosophy saw us through the protracted crises of the oil price collapse and the Trans Forcados force majeure that followed soon after. It is why, in 2020, we were able to maintain investment for growth, repay US$100m of debt and honour our commitment to shareholders with a dividend of US$0.10 per share. 8 Financial discipline and a robust business model have protected Seplat through difficult times Oil price crisis (Jul 14 – Jan 16) The protracted oil price crisis that ran from mid-2014 to early 2016 focused our attention on the need to operate at the lowest possible cost and hedge against future price volatility. As can be seen in the charts, we controlled our cash position by significantly paring back capital expenditure, focusing only on projects that would generate near-term, higher-margin returns. At the same time, our gas revenues increased, diversifying our risk away from oil price volatility. Trans Forcados force majeure (Feb 16 – Jun 17) Repeated problems with the Trans Forcados infrastructure have driven us to look at alternative routes to get our oil to export centres on the coast. Although significantly delayed, the Amuke-Escravos Pipeline will offer an alternative and more secure underground route to the coast that will immediately increase revenues by reducing reconciliation losses and losses from maintenance downtime or pipeline vandalism. Covid-19 pandemic (Mar 20 – ) The pandemic was and still is an existential crisis for the oil industry, resulting in lower demand and lower prices that may persist for some years as economies and global travel recover from its effects. Our business continuity plan, strong cash balance, low cost base, astute risk management and hedging strategy helped us pull through. Furthermore, we remain committed to increasing our gas business to reduce our level of exposure to oil. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 $900 $588 $285 $326 $664 $160 $310 $169 $570 $437 $446 $585 $789 $698 $333 $259 Gross Debt ($m) Cash ($m) $321 $120 $152 $125 $150 $52 $33 $88 Focused cash management strategy Flexibility with capital investment ($m) Increasing gas volumes for growing market needs (boepd) $1,000 $800 $600 $400 $200 $0 $350 $300 $250 $200 $150 $100 $50 $0 50,000 40,000 Gas diversification reduces revenue exposure to oil price ($m) 30,000 28,341 4,867 20,000 30,823 6,571 10,000 23,474 24,252 0 $1,000 $800 $600 $400 $200 $0 2% $18.1 $862.1 4% $27.4 $747.6 43,372 14,369 29,003 13% $77.0 $493.5 49,867 51,183 46,498 24,198 22,563 17,469 25,669 23,935 33,714 36,923 19,070 17,853 25,877 15,786 10,091 Oil Gas 21% $155.6 $590.5 29% $202.4 $495.1 21% $112.5 $417.9 28% $124.0 $318.2 41% $105.6 $148.8 Oil Gas 2013 2014 2015 2016 2017 2018 2019 2020 9 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Coping with Covid A ROBUST BUSINESS RESPONSE TO THE PANDEMIC Seplat has delivered a robust performance despite the unprecedented crises we have experienced since March. Brent Oil price ($) 60 55 50 45 40 35 30 25 20 15 JAN ‘20 FEB ‘20 MAR ‘20 APR ‘20 MAY ‘20 JUN ‘20 JUL ‘20 AUG ‘20 SEP ‘20 OCT ‘20 NOV ‘20 DEC ‘20 Oil market impact The price of our main product suffered greatly in the pandemic as economic activity fell and local and international travel collapsed. As demand for oil fell, the crisis was exacerbated by a pricing and supply dispute between Saudi Arabia and Russia that shocked the market so badly it responded with negative pricing in April on fears that storage capacity would soon run out. As the year progressed, however, the price of oil recovered on optimistic news about vaccines. In response to the market crisis and OPEC+ decisions on supply, Seplat abided by quotas and purposefully hedged to protect our cash flows from downside shocks. We booked hedging income of $26.4 million in 2020, with $8.3 million hedging costs being recognised as fair value charges. Read more Page 52 Nigeria’s response to Covid-19 Thanks to its experience in dealing with previous challenges such as Ebola, the direct impact of Covid-19 has been far less severe in Nigeria than in many other countries. In the year since March 2020 the Nigeria Centre for Disease Control has recorded approximately 160,000 cases and nearly 2,100 deaths. Now, in 2021, a year after the outbreak and with multiple vaccine options available, the threat is beginning to recede and life is returning to normal. The question for all of us is whether that pre-pandemic ‘normal’ was inherently unsustainable and what lessons should be learned from this great shock the world has experienced. 10 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Field operations Despite the pandemic, our fields remained in operation throughout 2020. Although the Federal Government placed restrictions on internal travel, essential industries such as ours were exempted so we could serve Nigeria’s need for exports of oil and gas for local consumption. Recognising the need to adapt our field operations for the health and wellbeing of our colleagues, we implemented essential-only staffing of field operations, based upon 28-day rotations instead of 14-day, with strict quarantines to be observed in the week before deployment. Backed by regular testing, this ensured that all our fields remained Covid-free throughout the crisis. We will continue to monitor the impact of Covid-19 to ensure that we provide appropriate support for our employees, host communities and other stakeholders. Business continuity was assured through the use of secure technologies by staff working from home. Adapting to ‘working from home’ Working from home became the new normal in 2020 as offices were shuttered and travel restrictions took hold. Thanks to our business continuity plans we were fully prepared and continued to run the business from homes offices and kitchen tables, using secure IT and remote collaboration tools for meetings. Our Annual General Meeting was a hybrid affair, broadcast live on the internet as a small audience attended in person with full regard to social distancing protocols. We introduced earnings calls at the first and third quarter results and continued our active engagement with investors by video calls and virtual investor conferences. We even held virtual parties to celebrate our 10th anniversary so we could maintain the strong sense of community we would normally experience through teamwork in the office. Helping our host communities We immediately recognised the need to help our host communities through the difficult times of Covid-19. At a national level, Seplat was one of 33 organisations that donated a combined total of $30 million to support the Federal Government’s efforts at curbing the spread of the pandemic. In addition, Seplat provided food assistance, medical and protective equipment worth ₦50 million to help local State authorities. Read more Page 91 11 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 CEO interview Q&A — PLANNING FOR THE FUTURE Seplat CEO, Roger Thompson Brown talks about taking over in a pandemic and what we can expect from Seplat in the coming years. Roger Thompson Brown Chief Executive Officer 12 I truly feel that we have made a positive difference for our host communities and will continue to do so long into the future. You took leadership of a healthy business surviving a pandemic, what were your initial priorities? A: It’s very challenging to take on the role of CEO when your staff are all working from home, so visibility and communication were essential to motivating staff and reassuring them about the future. For the business itself, priority number one was to increase operational efficiency as well as reducing costs, not simply as a response to the lower oil price but because I believe that a constant focus on improving efficiency will drive us to become a better and more sustainable business. Part of this cultural shift was about motivating our people, breaking down hierarchies and promoting more creativity and innovation. We have an extremely skilled and experienced workforce and I want to harness that potential. Seplat’s staff responded magnificently to the challenge of keeping the business running from home and I commend their efforts in what was an unprecedented and challenging year. As to our longer-term priorities, it is clear that the oil and gas industry is changing rapidly, and the Covid-19 pandemic may have accelerated the drive for energy transition in Nigeria. As the country’s largest indigenous independent energy producer, Seplat will play a major role in that transition, helping Nigeria forge ahead with the development of its existing resources and developing new ways to produce energy at low economic cost and at low cost to the environment. Assessing those new opportunities and preparing Seplat to be at the forefront of implementing them is my major focus going forwards. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 13 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Seplat turned in a robust performance against a very challenging year, to what do you attribute this success? A: We have faced challenging years before and survived because we had a strong balance sheet that was sustained through prudent financial management and this disciplined approach helped us through 2020, which had the twin shocks of reduced demand and lower prices. We responded by negotiating deeper cost reductions, focusing on efficiency, and adjusting our production and operations to reflect the realities of the pandemic and its impact on demand. Much of that is down to the Seplat team who responded quickly to the changes required by Covid-19, ensuring we could remain safe and continue operations throughout. Despite these very considerable challenges we maintained our dividend, voluntarily repaid debt, invested for growth and still managed to progress our key projects. That sets us apart from many of our peers. How will you build on the integration of Eland? A: The steps we have taken already will deliver long-term benefits. We have reduced barging costs, improving the profitability of the Eland production, and we have created a Centre of Excellence at what was Eland’s technical centre in Aberdeen, Scotland. This team in Aberdeen will also support the recently created New Energy unit and it is in a great location for access to industry and academic expertise in all kinds of energy technologies including renewables. If the oil price remains stable, we will allocate capital to drill more production wells at Gbetiokun and Opuama as well as replacing the barging operation at Gbetiokun with a dedicated oil pipeline. In the longer term, there is potential to significantly upgrade our reserves by drilling the high-potential Sibiri (formerly Amobe) exploration prospect at OML 40. 14 Nexant forecasts Nigeria’s gas demand to grow by c.20 Bcm by 2035, with most growth in the power sector. How does oil remain relevant in today’s climate-conscious world? A: There is much debate on whether global demand for oil may have peaked and whether it will reduce over the coming decades as transport is fuelled by electricity instead of oil. That said, the EIA forecasts that demand will still be 96.9 million barrels per day in 2021, only slightly lower than in 2019 before the disruption caused by the pandemic. Of course, there is pressure to reduce oil extraction and the carbon emissions it creates, but that depends on the rest of the world adopting less oil-intensive ways to travel and generate power. Nigeria’s per-capita energy consumption and carbon emissions are actually very low, and its national electricity grid is still very poorly developed. This is why the country is so reliant on small-scale diesel generation to satisfy its energy needs and this is the problem we need to address most urgently. It’s important to recognise that Nigeria is a developing country with low access to energy and a rapidly growing young population. Hydrocarbons are the country’s main resource and provide significant help for its economy. The proceeds from the oil industry fund a wide range of Sustainable Development Goals (SDGs) and are crucial to the country’s societal development. Nigeria needs to achieve significant growth in its capacity to deliver education and health services, food production and energy security. Without the development of its indigenous oil and gas industry these goals will become very difficult to achieve and so in Nigeria, the industry remains not just relevant but essential. Since oil and gas was first discovered in Nigeria in 1956, the country has struggled to fully capture and share with the population the benefits of its abundant natural resources. Finding a way to do so now, even as the world responds to the threat of climate change, is essential for a just transition. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 What opportunities does the imperative of climate change hold for Seplat? A: Seplat is embracing climate change opportunities on two fronts. Firstly, we continue to invest heavily in expanding our domestic gas business in line with the Government’s strategy to achieve universal access to electricity, and to make that energy cheaper and cleaner by replacing diesel generation, which is very damaging to the environment and the economy. Gas is clearly the next step for Nigeria, and we have a leading position domestically with the Nigerian Government declaring the ANOH project as one of the seven critical gas development projects for the country. Secondly, we have created a New Energy unit to focus on lower carbon to zero carbon fuel sources and the natural extension beyond gas is for Seplat to participate in renewable energy, such as solar power, and in emerging technologies such as carbon capture and storage. Our view is that Nigeria will benefit from being able to deploy renewable energy on its electricity grid rather than solely developing an off grid renewable solution. By providing a base load of cheaper, lower carbon gas on the grid, the acceleration of grid-based renewables will be possible, which is why we are currently focusing on accelerating our midstream gas business and additionally expanding into LPG, which is a good fuel source for cooking, preventing deforestation. The priority for 2021 is to address our responsibilities as part of the global energy transition and to set realistic targets for how we as a company evolve to drive that transition along. Government policy is also focused on addressing the undersupply of gas and extending access to electricity. What progress did Seplat make with sustainability in 2020? What future initiatives can we expect? A: We already support most of the UN’s 17 SDGs through the taxes and royalties we pay to government, which support things like health, education, and infrastructure, and through our own community support programmes. On a practical front, we retained a leading ESG consultancy, Critical Resource, to undertake a ‘gap analysis’ and identify where our efforts in sustainability could be improved, and not just in the domain of emissions. The result of this analysis is enabling us to undertake scenario planning to forecast the impact of climate change on an asset-by-asset basis. The analysis will also enable us to align our reporting with best practice for ESG disclosure and we aim to be TCFD and IPIECA compliant as soon as possible. On a practical front, it was our responsibility to provide whatever help we could for local communities hit by the pandemic and its restrictions, and we were involved in several initiatives, both on our own and with industry and government partners. How do you build on success into 2021? What initiatives can we expect? A: The oil price has started to recover and thanks to our cost-saving initiatives I believe we will translate this into higher cash generation this year, which will enable us to invest more for the future. In the second half, the long-delayed Amukpe-Escravos Pipeline is expected to come onstream and reduce downtime, reconciliation and other losses, which will provide a further boost to Seplat’s cash flow. It will provide a reliable, secure alternative to the Trans Forcados route that has frequently shut in our production because of maintenance and other problems. We continue to focus on the ANOH Gas Processing Plant, and although this has experienced some inevitable delays because of the pandemic, it will be transformational for Seplat and for Nigeria when it opens in 2022. In addition to these two key factors, a number of other planned initiatives will provide further operating and financial benefits. Exploration drilling and new gas wells are likely to increase production and reserves whilst an increased focus on operational improvements will improve production uptime. Having survived the worst year in the history of the oil and gas industry, the actions we’ve taken before and during 2020 have left us in a position of strength and I am confident that as demand recovers and the imperative for gas increases, Seplat will exit 2021 a larger, stronger, more profitable company and strengthen its position as Nigeria’s indigenous energy leader. Roger Thompson Brown Chief Executive Officer 15 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Strategy A ROBUST STRATEGY FOR GROWTH 1 2 Strategic pillars Increase our resources Description We must constantly replenish our reserves to assure future supplies. However, we must also increase reserves if we are to maintain growth. We aim to drill at least one exploration well per year, focusing on prospects that offer rapid and low-cost production, using existing infrastructure if possible. Our development drilling programmes also enable us to assess the upside potential of fields, allowing us to maximise hydrocarbon recovery from reservoirs and capitalise on low-risk reserve addition opportunities. Following the successful integration of Eland, we will look to acquire new assets where appropriate. Progress • Converted 151MMbbls oil and 84MMboe gas from 2C resources to 2P reserves and revisions since 2010 Measuring our performance • Reserves replacement See page 20 Risk overview Risk categories See page 30 Outlook 16 Exploration activities are focused on determining the presence of hydrocarbons whilst appraisal activities are focused on better defining and assessing the commerciality of a hydrocarbon discovery. Both activities by definition carry significant geological risk, so the technical maturity of an E&A target is key to narrowing the range of risk and uncertainty. Seplat seeks to use available technologies including seismic analysis to minimise pre-drill risks and maximise chances of a successful drilling outcome. • Operational risks • Financial risks • Strategic risks • Continued evaluation and high-grading of the E&A potential within Seplat’s portfolio • Execute plans to drill one exploration well a year as oil prices and free cash flow permit Increase production and improve its profitability Our value chain involves developing fields and then extracting, processing and exporting the hydrocarbons they produce. We will maximise profitability and return on investment by maintaining strict cost control, implementing the most appropriate technologies and organising ourselves and our service providers to deliver development projects on time and within budget. Once operational, we aim to safely extract the maximum volume of hydrocarbons for lowest possible cost. In the export phase, we must maximise uptime and reduce reconciliation losses, if necessary developing our own export routes, to mitigate asset concentration and reliance on third- party infrastructure. • Focused on highest-impact, value-adding work programme prioritising gas • Eland assets integrated into Group portfolio, immediately contributing 26% of Group liquids volumes • Ongoing cost-saving achievements and continuing negotiations with supplier driven by crisis of 2020 • Work to establish alternative, more reliable export routes • Discretion over level and timing of spend allows alignment with cash flow • Working interest production • Earnings before interest and tax (EBIT) • Opex per boe Oil and gas production operations have a number of risks attached, above and below the ground. The Company has a skilled technical team with a detailed knowledge of the geology and reservoir dynamics to allow optimal production solutions to be implemented. Above the ground, the Company has clear systems and procedures in place to ensure the safe and secure operation of its operated oil and gas production, processing and transportation facilities. The Company does, however, rely on third-party operated export infrastructure that has been susceptible to interruptions. • Operational risks • External risks • Financial risks • Strategic risks • Continue to pursue cost-saving initiatives • Improve efficiency with new technology • Amukpe-Escravos Pipeline delayed but expected to become operational in H2 2021, providing a more reliable export route • Develop new export routes • Increase contribution of gas Develop gas to drive Pursue profitable Nigeria’s energy transition new opportunities Behave responsibly, and share our success Nigeria has vast resources of natural gas and a We see rich opportunities for growth in Nigeria Being a responsible and accountable corporate pressing need to improve access to affordable including future licensing rounds, asset citizen is a key priority. We recognise that energy and bring the country’s energy consumption towards global norms, by divestments from international oil companies, minimising the effects of our activities on asset farm-ins and acquisition opportunities the environment, understanding local issues, replacing millions of inefficient diesel and petrol amongst independent E&P companies. Our positively contributing to our host generators with utility-scale gas power stations. focus is on securing blocks in the onshore and communities, being a first-rate employer The growth of our gas business is therefore a offshore areas of the Niger Delta that offer and providing our staff with a safe working priority that will deliver multiple benefits such near-term production growth, cash flow and environment and career development as protection from oil price volatility, greater reserve replacement potential. In the longer opportunities are essential enablers that earnings visibility, higher cash generation and term we may diversify our hydrocarbon allow us to achieve our goals. Supporting all of cleaner production. Our 465MMscfd Oben portfolio by pursuing assets outside Nigeria. this is a strict adherence to strong corporate Gas Processing Plant, one of Nigeria’s largest, In addition, we will actively look for new governance and business integrity culture will soon be augmented by OML 53’s new 300MMscfd ANOH facility, which will come onstream in late 2021. opportunities in renewable energy to ensure throughout our organisation. We will share we are a major player in this important and our success in the form of remuneration, potentially very profitable growth sector for taxes, royalties, community investment and Nigerian energy companies. dividends for shareholders. • Seplat is a major supplier of processed gas • Acquired direct interests in seven blocks and • Proven community engagement model aligns to the domestic market further revenue interest in one block to date Seplat with host communities • Oben Phase I and II expansion projects expanded plant processing capacity to 465MMscfd from 90MMscfd February 2021 for the 300MMscfd joint-venture ANOH Gas Processing Plant Ubima marginal field onshore and offshore • $680 million fund raising completed in • Well positioned to access future deal flow in 2020 • Completed the acquisition of Eland Oil and • High retention rate of skilled and motivated Gas that holds interests in OML 40 and workforce • Paid $180 million in taxes and royalties • Paid $344 million in dividends to shareholders since IPO • Embarked on new ESG initiatives with view to adopting TCFD and emissions reporting • Gas reserves, production and revenues • Portfolio expansion • 2P reserves and 2C resources • Working interest production • Lost time incident frequency (LTIF) • Corporate responsibility initiatives Despite the abundance of resources in the Competition for upstream oil and gas blocks in Failure to adhere to the highest standards of ground, the natural gas sector in Nigeria is at a Nigeria is intense and there are an increasing corporate responsibility can severely impede relatively nascent stage of development and number of industry participants seeking to the Company’s ability to efficiently operate its requires significant ongoing investment to grow grow their presence in or gain access to the current portfolio, access new business capacity. The pace at which the sector grows sector. High levels of competitive tension can opportunities, secure capital and ultimately and scale of investment will to a large extent drive acquisition prices higher. Oil price deliver value accretion to its shareholders. dictate the timing and magnitude of opportunities for producers such as Seplat. volatility also presents increased uncertainty when evaluating opportunities and access to capital can also constrain ability to successfully execute transactions. • Operational risks • External risks • Financial risks • Strategic risks • Financial risks • Strategic risks • Operational risks • External risks • Financial risks • Strategic risks • Capitalise on Oben Phase II expansion of • Continued long-term pursuit of our focused • Strong focus on driving improvements in processing capacity to increase production acquisition strategy safety and environmental performance • Expect ANOH joint venture to deliver first gas • Price discipline and seek to implement • ESG thinking at heart of Board in H1 2022, further develop OML 53’s innovative structures to protect the decision making strategic gas resource balance sheet • Completion of new Sapele Gas Plant • Targeting both oil and gas expected in 2022 • Focus on monetising new opportunities, e.g. flared gas, LPG market • Explore new energy possibilities • Deliver positive community outcomes • Continue to pay dividends as appropriate Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 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 pillars Increase our resources Increase production and improve its profitability Develop gas to drive Nigeria’s energy transition Pursue profitable new opportunities Behave responsibly, and share our success 3 4 5 Nigeria has vast resources of natural gas and a pressing need to improve access to affordable energy and bring the country’s energy consumption towards global norms, by replacing millions of inefficient diesel and petrol generators with utility-scale gas power stations. The growth of our gas business is therefore a priority that will deliver multiple benefits such as protection from oil price volatility, greater earnings visibility, higher cash generation and cleaner production. Our 465MMscfd Oben Gas Processing Plant, one of Nigeria’s largest, will soon be augmented by OML 53’s new 300MMscfd ANOH facility, which will come onstream in late 2021. We see rich opportunities for growth in Nigeria including future licensing rounds, asset divestments from international oil companies, asset farm-ins and acquisition opportunities amongst independent E&P companies. 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 replacement potential. In the longer term we may diversify our hydrocarbon portfolio by pursuing assets outside Nigeria. In addition, we will actively look for new opportunities in renewable energy to ensure we are a major player in this important and potentially very profitable growth sector for Nigerian energy companies. Being a responsible and accountable corporate citizen is a key priority. We recognise that minimising the effects of our activities on the environment, understanding local issues, positively contributing to our host 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. Supporting all of this is a strict adherence to strong corporate governance and business integrity culture throughout our organisation. We will share our success in the form of remuneration, taxes, royalties, community investment and dividends for shareholders. • Seplat is a major supplier of processed gas to the domestic market • Oben Phase I and II expansion projects expanded plant processing capacity to 465MMscfd from 90MMscfd • $680 million fund raising completed in February 2021 for the 300MMscfd joint-venture ANOH Gas Processing Plant • Acquired direct interests in seven blocks and further revenue interest in one block to date • Completed the acquisition of Eland Oil and Gas that holds interests in OML 40 and Ubima marginal field • Proven community engagement model aligns Seplat with host communities • High retention rate of skilled and motivated workforce • Paid $180 million in taxes and royalties • Well positioned to access future deal flow in 2020 onshore and offshore • Gas reserves, production and revenues Despite the abundance of resources in the ground, the natural gas sector in Nigeria is at a relatively nascent stage of development and requires significant ongoing investment to grow capacity. The pace at which the sector grows and scale of investment will to a large extent dictate the timing and magnitude of opportunities for producers such as Seplat. • Portfolio expansion • 2P reserves and 2C resources • Working interest production Competition for upstream oil and gas blocks in Nigeria is intense and there are an increasing number of industry participants seeking to grow their presence in or gain access to the sector. High levels of competitive tension can drive acquisition prices higher. Oil price volatility also presents increased uncertainty when evaluating opportunities and access to capital can also constrain ability to successfully execute transactions. • Paid $344 million in dividends to shareholders since IPO • Embarked on new ESG initiatives with view to adopting TCFD and emissions reporting • Lost time incident frequency (LTIF) • Corporate responsibility initiatives Failure to adhere to the highest standards of corporate responsibility can severely impede the Company’s ability to efficiently operate its current portfolio, access new business opportunities, secure capital and ultimately deliver value accretion to its shareholders. • Operational risks • External risks • Financial risks • Strategic risks • Financial risks • Strategic risks • Capitalise on Oben Phase II expansion of • Continued long-term pursuit of our focused processing capacity to increase production • Expect ANOH joint venture to deliver first gas in H1 2022, further develop OML 53’s strategic gas resource acquisition strategy • Price discipline and seek to implement innovative structures to protect the balance sheet • Completion of new Sapele Gas Plant • Targeting both oil and gas expected in 2022 • Focus on monetising new opportunities, e.g. flared gas, LPG market • Operational risks • External risks • Financial risks • Strategic risks • Strong focus on driving improvements in safety and environmental performance • ESG thinking at heart of Board decision making • Explore new energy possibilities • Deliver positive community outcomes • Continue to pay dividends as appropriate 17 Description Progress See page 20 Risk overview Risk categories See page 30 We must constantly replenish our reserves to Our value chain involves developing fields and assure future supplies. However, we must also then extracting, processing and exporting the increase reserves if we are to maintain growth. hydrocarbons they produce. We will maximise We aim to drill at least one exploration well per profitability and return on investment by year, focusing on prospects that offer rapid maintaining strict cost control, implementing and low-cost production, using existing the most appropriate technologies and infrastructure if possible. Our development organising ourselves and our service providers drilling programmes also enable us to assess to deliver development projects on time the upside potential of fields, allowing us to maximise hydrocarbon recovery from and within budget. Once operational, we aim to safely extract the maximum volume reservoirs and capitalise on low-risk reserve of hydrocarbons for lowest possible cost. addition opportunities. Following the In the export phase, we must maximise uptime successful integration of Eland, we will look and reduce reconciliation losses, if necessary to acquire new assets where appropriate. developing our own export routes, to mitigate asset concentration and reliance on third- party infrastructure. • Converted 151MMbbls oil and 84MMboe • Focused on highest-impact, value-adding gas from 2C resources to 2P reserves and work programme prioritising gas revisions since 2010 • Eland assets integrated into Group portfolio, immediately contributing 26% of Group liquids volumes • Ongoing cost-saving achievements and continuing negotiations with supplier driven • Work to establish alternative, more reliable by crisis of 2020 export routes • Discretion over level and timing of spend allows alignment with cash flow • Working interest production • Earnings before interest and tax (EBIT) • Opex per boe Exploration activities are focused on Oil and gas production operations have a determining the presence of hydrocarbons number of risks attached, above and below the whilst appraisal activities are focused on better ground. The Company has a skilled technical defining and assessing the commerciality of a team with a detailed knowledge of the geology hydrocarbon discovery. Both activities by and reservoir dynamics to allow optimal definition carry significant geological risk, so production solutions to be implemented. Above the technical maturity of an E&A target is key the ground, the Company has clear systems to narrowing the range of risk and uncertainty. and procedures in place to ensure the safe and Seplat seeks to use available technologies secure operation of its operated oil and gas including seismic analysis to minimise pre-drill production, processing and transportation risks and maximise chances of a successful facilities. The Company does, however, rely on third-party operated export infrastructure that has been susceptible to interruptions. drilling outcome. • Operational risks • Financial risks • Strategic risks • Operational risks • External risks • Financial risks • Strategic risks the E&A potential within Seplat’s portfolio • Execute plans to drill one exploration well a year as oil prices and free cash flow permit • Improve efficiency with new technology • Amukpe-Escravos Pipeline delayed but expected to become operational in H2 2021, providing a more reliable export route • Develop new export routes • Increase contribution of gas Outlook • Continued evaluation and high-grading of • Continue to pursue cost-saving initiatives Measuring our performance • Reserves replacement Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Value creation GENERATING VALUE FOR ALL OF OUR STAKEHOLDERS Inputs Resources and Relationships Value Creation Strategy Unified and motivated workforce 500+ multi-discipline employees Operational expertise and control 81% of production is under Seplat's control Strong financial management and access to capital $259m Cash at bank Effective HSSE and risk management 0.00 LTIF Good corporate governance 88% Corporate Governance Risk Rating System Strong relationships with host communities $14.7m invested in our communities in 2020 Acquire Our expertise Acquire We have an enviable track record of acquiring assets that create value through our transformational expertise in getting the most out of the ground. Explore & appraise The addition of Eland has added significant subsurface expertise that will allow us to maximise exploration and development opportunities across our expanding portfolio. Develop Despite the challenging conditions we drilled eight new wells in 2020, recognising our need for continuous development of our assets to ensure future streams of oil and gas that drive profitable cash flow. Produce, process & sell We aim to maximise production of oil and reduce downstream losses wherever possible, if necessary by developing our own infrastructure. Our ANOH gas development will increase our share of the Nigerian power market. Our strategic pillars Seplat’s value creation strategy is the day-to-day execution of the five strategic pillars that underpin and guide our business activities. They express the priorities we have as a business to grow profitably but responsibly, increase our reach and scope and share our success with our stakeholders. See page 16 1 Increase our resources We must replenish our reserves and increase them if we are to maintain growth. We aim to drill at least one exploration well per year, focusing on prospects that offer rapid and low-cost production, using existing infrastructure if possible. We will also acquire new assets where appropriate. 18 Explore & appraise 2 Increase production and improve its profitability Maximise profitability and return on investment by delivering development projects on time and within budget. Once operational, extract the maximum volume of hydrocarbons for lowest possible cost. On evacuation, we must maximise uptime and reduce reconciliation losses, if necessary developing our own export routes to reduce reliance on third-party infrastructure. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Our business model leverages our core strengths, relationships and experience to create long-term value and shared prosperity for all of our stakeholders. Our competitive advantages Industry expertise We are Nigeria’s leading independent oil and gas producer with a long track record of expertise in the geology and business of Nigerian oil and gas. We build on this expertise every day. Strong relationships We are a trusted partner to the Nigerian Government and to other operators in the region. Our ANOH project is classed as strategically important for Nigeria, to which we are leading supplier of gas. Low-cost production Our focus is on maximising output for the lowest cost and this enables us to remain profitable even at the low oil prices experienced in the second quarter of 2020. Strong cash generation Our prudent approach to investment and low cost base enable strong cash generation to repay debt, invest for the future and pay dividends. This gives us the strength to tap capital markets when needed. 5 Behave responsibly, and share our success Being responsible and accountable is a priority, minimising our impact on the environment, understanding local issues, positively contributing to our host communities, being a first-rate employer and providing our staff with a safe working environment and career development opportunities. We will share our success with our staff, community, shareholders and Nigeria. Outputs in 2020: What we delivered For our shareholders – Capital growth – Dividends $59m Dividends paid to shareholders in 2020 For government – Royalty and tax revenue – Foreign and local capital investments $564m Payments and production entitlement to government reported in 2020 For Nigeria – Infrastructure development – Multiplier effect from improved gas-to-power supply 1/3 of Nigeria’s current power generation can be underpinned by our gas production For our host communities – Economic empowerment – Healthcare and education c.20,000 Jobs created by Seplat’s operations For our employees – Training and development – Shares awarded 26,241 hours of employee training in 2020 19 Develop Produce, process &sell 3 Develop gas to drive Nigeria’s energy transition Growing our gas business will deliver multiple benefits such as protection from oil price volatility, greater earnings visibility, higher cash generation and cleaner production. Our 465MMscfd Oben Gas Processing Plant, one of Nigeria’s largest, will soon be augmented by OML 53’s new 300MMscfd ANOH facility, coming onstream in late 2021. 4 Pursue profitable new opportunities There are opportunities for growth in Nigeria including future licensing rounds, asset divestments, asset farm-ins and acquisition opportunities amongst independent E&P companies. We will also look for new opportunities outside Nigeria and in renewable energy to ensure we are a major player in this important and potentially very profitable sector. Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Key Performance Indicators MEASURING OUR PROGRESS Key performance indicator Working interest production (boepd) Gas Oil 2P reserves movement (% increase/decrease) Gas Oil 51,183 +10.1% 499 -2.0% 2020 17,469 33,714 51,183 2020 258 2019 22,563 23,935 46,498 2019 257 2018 24,198 25,669 49,867 2018 254 241 252 227 499 509 481 Production opex ($/boe) 8.90 EBIT ($m) -32 +44% -110% (number of incidents per million man hours) LTIF 0 Year-on-year progress In line with expectations Below expectations Below expectations Below expectations In line with expectations Linked to remuneration? (See page 121) (See page 121) (See page 121) (See page 121) Delivering on our strategic pillars 1 2 3 4 1 3 4 Definition Relevance Progress Outlook Risk management See page 24 20 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. The number of barrels of oil equivalent added to the 2P reserves base during the year, expressed as a percentage increase/decrease. An indicator of production strength at the Company’s current blocks and the impact of development activities at organic and inorganic projects. An indicator of the Company’s ability to capitalise on organic opportunities within its portfolio and inorganic opportunities to replenish its reserves base. Working-interest production averaged 51,183 boepd, with liquids up 40.9% reflecting the first-time contribution of the acquired Eland assets, whilst gas production was down 22.9% because of Q1 maintenance and the impact of Covid-19 on the economy. The overall 10.1% increase on 2019 was achieved despite constrained production levels in Nigeria following cuts in OPEC+ production quotas and tank-top issues at the terminal arising from the pandemic and the general impact of Covid-19 on operations. There was 83% uptime for the Trans Forcados Pipeline and liquid volumes from OMLs 4, 38 and 41 had 9.4% reconciliation losses. The Company expects to drill eight oil wells and three gas wells in 2021 to achieve working interest production in the range 48-55Kboepd. Working interest 2P reserves at the end 2020 stood at 499MMboe, a 2% decrease on 2019. The change represents an organic decrease in overall 2P reserves of 1.9% year-on-year, due to production of 12.3MMbbls but mitigated by revisions of previous estimates. A working interest 2C resource base of 95MMboe, comprising 59.7MMbbls oil and condensate and 203Bscf gas, offers good long-term reserves with significant growth potential. Sanctioning of additional exploration projects will increase Seplat’s reserves further. The Company will also continue to evaluate acquisition opportunities and undertake a focused E&A drilling programme. The Company has 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. The Company high grades its inventory of exploration and appraisal opportunities, each being subject to rigorous technical and commercial evaluation to de-risk as far as possible prior to committing capital. When evaluating new acquisitions the Company is careful to maintain price discipline and undertakes rigorous analysis. The operating costs (excluding non-cash flow The Company’s earnings before the deduction of The number of lost time incidents recorded per interest and tax expenses. million man hours worked. expenses, and financing costs) net to the Company divided by the Company’s working interest barrels of oil and equivalent produced in the period. An indicator of how cost efficiently the Company An indicator of the Company’s earnings ability. An indicator of health and safety performance is able to produce its oil and gas reserves. By An increase in EBIT requires growth in revenue that is widely established within the oil and controlling its operating cost base the Company and/or strong cost control. gas industry. is able to be more resilient to periods of depressed oil prices. On a cost-per-barrel basis, production opex was After adjusting for non-cash impairments and Lost Time Injury Frequency (LTIF) has dropped higher at $8.90/boe because of the effect of OPEC+ restrictions that curtailed production volumes, as well as the trucking and barging costs at Gbetiokun on OML 40. However, fair value losses, the operating profit was $121.4 steadily from 0.33 in 2016 to 0 in 2019. This was million. Including all adjustments, the operating also sustained in 2020. loss for the year was $31.7 million (operating profit 2019: $311.9 million). The loss reflects benefits of the successful streamlining of the lower oil prices realised and an impairment Gbetiokun operations have driven barging costs provision of $144.3 million booked in the period, down from $14/bbl to $5/bbl. which includes a non-financial asset charge of $114.4 million (IAS 36) and financial asset charges of $29.9 million (IFRS 9). The Company remains focused on cost control. Higher oil prices, improved production, Whilst increases in certain cost components are continuing tight cost controls and growth in In 2020 efforts will continue to minimise the frequency of lost time incidents in all areas expected year-on-year there are areas where gas production will drive earnings potential in of operations to achieve the zero target for downwards pressure can be applied with the objective of achieving a stable unit cost. the future. incidence. The Company will continue to ensure high HSE standards are met and assess opportunities to constantly improve its HSE systems and protocols. The Company carefully monitors expenditures The Company has robust financial processes in The Company has in place extensive and and continually analyses its underlying cost place and carefully monitors revenues, cost of base, making comparisons to prevailing market sales and admin costs to ensure continued rates in order to ensure that the Company is identifying and able to action cost saving and efficiency gains, keeping it competitively positioned on the cost curve. strong profitability. Oil price is a major influencing factor on the Company’s revenue. The Company analyses hedging strategies to help mitigate exposure to oil price volatility. well developed HSE policies and reporting procedures with an emphasis on the early identification and mitigation of HSE risks. The Company closely monitors its HSE performance and is constantly evaluating ways to improve its performance. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Key performance indicator Working interest production Gas Oil 2P reserves movement Gas Oil (boepd) 51,183 +10.1% (% increase/decrease) 499 -2.0% Production opex ($/boe) 8.90 2020 2019 2018 EBIT ($m) -32 +44% 8.90 2020 -32 6.20 5.77 2019 2018 Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Develop gas to drive Nigeria’s energy transition Pursue profitable new opportunities Behave responsibly, and share our success See page 16 LTIF (number of incidents per million man hours) -110% 0 2020 0 2019 0 2018 312 310 0.14 Year-on-year progress In line with expectations Below expectations Below expectations Below expectations In line with expectations Linked to remuneration? (See page 121) (See page 121) (See page 121) (See page 121) Delivering on our strategic pillars 2 3 4 2 3 4 1 2 3 4 5 Definition Relevance Progress The Company’s share of oil and gas produced The number of barrels of oil equivalent during the year proportionate to its working interest in each producing block. Volumes added to the 2P reserves base during the year, expressed as a percentage expressed are as measured at the Company’s increase/decrease. facilities, prior to any reconciliation losses. An indicator of production strength at the Company’s current blocks and the impact of development activities at organic and inorganic projects. An indicator of the Company’s ability to capitalise on organic opportunities within its portfolio and inorganic opportunities to replenish its reserves base. Working interest 2P reserves at the end 2020 stood at 499MMboe, a 2% decrease on 2019. The change represents an organic decrease in overall 2P reserves of 1.9% year-on-year, due to production of 12.3MMbbls but mitigated by revisions of previous estimates. Working-interest production averaged 51,183 boepd, with liquids up 40.9% reflecting the first-time contribution of the acquired Eland assets, whilst gas production was down 22.9% because of Q1 maintenance and the impact of Covid-19 on the economy. The overall 10.1% increase on 2019 was achieved despite constrained production levels in Nigeria following cuts in OPEC+ production quotas and tank-top issues at the terminal arising from the pandemic and the general impact of Covid-19 on operations. There was 83% uptime for the Trans Forcados Pipeline and liquid volumes from OMLs 4, 38 and 41 had 9.4% reconciliation losses. Outlook The Company expects to drill eight oil wells and A working interest 2C resource base of three gas wells in 2021 to achieve working 95MMboe, comprising 59.7MMbbls oil and interest production in the range 48-55Kboepd. condensate and 203Bscf gas, offers good long-term reserves with significant growth potential. Sanctioning of additional exploration projects will increase Seplat’s reserves further. The Company will also continue to evaluate acquisition opportunities and undertake a focused E&A drilling programme. Risk management See page 24 The Company has in depth understanding of the The Company high grades its inventory of subsurface and constantly monitors individual exploration and appraisal opportunities, 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 each being subject to rigorous technical and commercial evaluation to de-risk as far as possible prior to committing capital. When evaluating new acquisitions the Company is prioritised the establishment of alternative oil careful to maintain price discipline and export routes to mitigate high concentration risk. undertakes rigorous analysis. 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. 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. On a cost-per-barrel basis, production opex was higher at $8.90/boe because of the effect of OPEC+ restrictions that curtailed production volumes, as well as the trucking and barging costs at Gbetiokun on OML 40. However, benefits of the successful streamlining of the Gbetiokun operations have driven barging costs down from $14/bbl to $5/bbl. The Company’s earnings before the deduction of interest and tax expenses. The number of lost time incidents recorded per million man hours worked. An indicator of the Company’s earnings ability. An increase in EBIT requires growth in revenue and/or strong cost control. An indicator of health and safety performance that is widely established within the oil and gas industry. After adjusting for non-cash impairments and fair value losses, the operating profit was $121.4 million. Including all adjustments, the operating loss for the year was $31.7 million (operating profit 2019: $311.9 million). The loss reflects lower oil prices realised and an impairment provision of $144.3 million booked in the period, which includes a non-financial asset charge of $114.4 million (IAS 36) and financial asset charges of $29.9 million (IFRS 9). Lost Time Injury Frequency (LTIF) has dropped steadily from 0.33 in 2016 to 0 in 2019. This was also sustained in 2020. The Company remains focused on cost control. Whilst increases in certain cost components are expected year-on-year there are areas where downwards pressure can be applied with the objective of achieving a stable unit cost. Higher oil prices, improved production, continuing tight cost controls and growth in gas production will drive earnings potential in the future. In 2020 efforts will continue to minimise the frequency of lost time incidents in all areas of operations to achieve the zero target for incidence. The Company will continue to ensure high HSE standards are met and assess opportunities to constantly improve its HSE systems and protocols. The Company carefully monitors expenditures and continually analyses its underlying cost base, making comparisons to prevailing market rates in order to ensure that the Company is identifying and able to action cost saving and efficiency gains, keeping it competitively positioned on the cost curve. The Company has robust financial processes in place and carefully monitors revenues, cost of sales and admin costs to ensure continued strong profitability. Oil price is a major influencing factor on the Company’s revenue. The Company analyses hedging strategies to help mitigate exposure to oil price volatility. The Company has in place extensive and well developed HSE policies and reporting procedures with an emphasis on the early identification and mitigation of HSE risks. The Company closely monitors its HSE performance and is constantly evaluating ways to improve its performance. 21 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Additional performance metrics TRACKING OUR PERFORMANCE Key performance indicator Net cash flow from operations (US$m) Capital expenditure (US$m) 309 -8.60% 150 2020 2019 2018 309 338 502 2020 2019 2018 150 125 88 Delivering on our strategic pillars 2 3 4 1 2 3 4 The Company’s operating cash flow in the year before taking into account movements in working capital. The total amount of capital expenditure made during the year, excluding acquisition costs. Strong underlying wellhead oil production capacity and anticipated future growth in gas production will ensure continued robust cash flow generation. Development of the recently acquired OML 40 block together with OML 53 and OPL 283 will also significantly augment future cash flow potential. Net cash flows from operating activities, after movements in working capital, were $308.7 million (2019: $337.8 million). An income tax payment of $10.4 million was made in the period (2019: $3.5 million). The Group received $188.1 million from the major JV towards the settlement of outstanding Dollar-denominated cash calls and $154.2 million (Naira equivalent) to offset Naira cash calls totalling $342.3 million received in 2020. This compares favourably to $179 million received in 2019. The major JV receivable balance now stands at $107.0 million, down from $222.3 million at the end of 2019. The Company has budgeted to drill at least six oil and three gas wells in 2021 to achieve an average net working interest of between 48-55kboepd. The Company has 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. An indicator of the Company’s level of investment activities in production, development and exploration and appraisal activities. Capital expenditures were $150.1 million in 2020 and included costs of around $83.5 million for drilling and completion of nine wells including three gas wells (completion of Oben 48; Oben 49 and Oben 50) and six development oil wells (Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji South-5, Ohaji South-6 and Gbetiokun-5) that were completed earlier in the year. Associated facilities and engineering costs amounted to $61.3 million. The Company will continue to invest in the development of its portfolio, allocating capital to the opportunities that offer the best returns and volume growth potential whilst scaling and timing investments at appropriate levels to closely match cash flow generation. Project investments are monitored closely against budgets to minimise the risk of over-runs. The Company benchmarks every investment opportunity to ensure capital is deployed to only the highest return projects, and adheres to a price disciplined acquisition strategy. Definition Relevance Progress Outlook Risk management See page 24 22 Realised oil price ($/bbl) 39.95 Staff turnover (%) 4.45 -38% The average oil price per barrel sold by the Company during the period. 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. The Company’s financial performance is closely An indicator of the Company’s ability to attract linked to the oil price. and retain personnel. The loss of people can result in skills shortage, loss of knowledge and higher recruitment costs. The Brent oil price averaged $43.21/bbl over The Company has continued to develop its 2020 (2019: $64.04/bbl). Brent remained volatile employment policies with the aim of attracting throughout the year, following the twin shocks and retaining high calibre industry talent. Staff turnover remained low in 2020 at 4.5%. of the Saudi Arabia – Russia price war and the Covid-19 pandemic, trading between a high of $68.91/bbl in January and a low of $19.33/bbl in April, before exiting the year at $51.80/bbl. The Company has historically sold its produced The industry is still expected, over the longer oil under the Forcados blend that has generally term, to continue to face skills shortages in key received a premium to a Brent marker price. Oil areas with competition for high performing individuals amongst competitors being intense. prices are expected to remain subject to macroeconomic volatility, but have recovered strongly from the lows of last year’s pandemic and associated price and supply war. The management continue to closely monitor prevailing oil market dynamics and will consider further measures and take The Company’s policy is to provide industry competitive benefits packages and provide progressive career opportunities to retain advantage of opportune periods to implement and attract high performing employees. additional hedges to provide appropriate levels of cash flow assurance. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Key performance indicator (US$m) Net cash flow from operations Capital expenditure 309 -8.60% (US$m) 150 Delivering on our strategic pillars Definition Relevance Progress Risk management See page 24 working capital. Strong underlying wellhead oil production capacity and anticipated future growth in gas production will ensure continued robust cash flow generation. Development of the recently acquired OML 40 block together with OML 53 and OPL 283 will also significantly augment future cash flow potential. An indicator of the Company’s level of investment activities in production, development and exploration and appraisal activities. Net cash flows from operating activities, after movements in working capital, were Capital expenditures were $150.1 million in 2020 and included costs of around $83.5 million for $308.7 million (2019: $337.8 million). An income drilling and completion of nine wells including tax payment of $10.4 million was made in the three gas wells (completion of Oben 48; Oben 49 period (2019: $3.5 million). The Group received and Oben 50) and six development oil wells $188.1 million from the major JV towards the (Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji settlement of outstanding Dollar-denominated South-5, Ohaji South-6 and Gbetiokun-5) that cash calls and $154.2 million (Naira equivalent) were completed earlier in the year. Associated to offset Naira cash calls totalling $342.3 million facilities and engineering costs amounted to received in 2020. This compares favourably to $61.3 million. $179 million received in 2019. The major JV receivable balance now stands at $107.0 million, down from $222.3 million at the end of 2019. oil and three gas wells in 2021 to achieve an average net working interest of between 48-55kboepd. development of its portfolio, allocating capital to the opportunities that offer the best returns and volume growth potential whilst scaling and timing investments at appropriate levels to closely match cash flow generation. The Company has in depth understanding of the Project investments are monitored closely subsurface and constantly monitors individual against budgets to minimise the risk of well and reservoir performance in order to optimise the drawdown rate on each well and maximise long-term economic recovery of oil and gas from the reservoirs. It has also over-runs. The Company benchmarks every investment opportunity to ensure capital is deployed to only the highest return projects, and adheres to a price disciplined prioritised the establishment of alternative acquisition strategy. oil export routes to mitigate high concentration risk. Outlook The Company has budgeted to drill at least six The Company will continue to invest in the In addition to its key performance indicators, Seplat also tracks performance against additional metrics that further assist in measuring progress. Realised oil price ($/bbl) 39.95 39.95 2020 2019 2018 Staff turnover (%) 4.45 2020 2019 2018 -38% 64.4 70.1 1 2 3 4 2 3 4 5 Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Develop gas to drive Nigeria’s energy transition Pursue profitable new opportunities Behave responsibly, and share our success 4.45 3.6 2.2 See page 16 The Company’s operating cash flow in the year The total amount of capital expenditure made before taking into account movements in during the year, excluding acquisition costs. The average oil price per barrel sold by the Company during the period. The Company’s financial performance is closely linked to the oil price. 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. An indicator of the Company’s ability to attract and retain personnel. The loss of people can result in skills shortage, loss of knowledge and higher recruitment costs. The Brent oil price averaged $43.21/bbl over 2020 (2019: $64.04/bbl). Brent remained volatile throughout the year, following the twin shocks of the Saudi Arabia – Russia price war and the Covid-19 pandemic, trading between a high of $68.91/bbl in January and a low of $19.33/bbl in April, before exiting the year at $51.80/bbl. 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 2020 at 4.5%. The Company has historically sold its produced oil under the Forcados blend that has generally received a premium to a Brent marker price. Oil prices are expected to remain subject to macroeconomic volatility, but have recovered strongly from the lows of last year’s pandemic and associated price and supply war. The 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. 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. The Company’s policy is to provide industry competitive benefits packages and provide progressive career opportunities to retain and attract high performing employees. 23 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Risk management Basil Omiyi Chairman, Risk Management and HSSE Committee PROTECTING OUR BUSINESS Managing risk in protecting our business Risk management is an integral part of all business activities of Seplat. The Company’s risk-management policy is focused on the early identification of risks and future risks that are central to achieving its strategy, corporate objectives and annual business plans; their possible impacts on the business and measures that can be implemented to mitigate the identified risks so that Seplat can continue to operate safely and effectively. Seplat recognises that risk management is a continuous journey of improvement and not a destination and will continue to develop its risk management processes to ensure the Company is fully equipped to deal with the constantly evolving operating and business environment of the oil and gas industry. Our risk management framework ISO 31000 based, top-down and bottom-up approach Strong and effective risk management is central to how we run our business and enables the delivery of our strategy. Board of Directors – Company strategy – Risk appetite – Strategic risks oversight Risk Management and HSSE Committee of the Board – Approves and update risk management policy and system – Defines risk appetite – Oversees and monitors enterprise risks Executive Management – Delivery of Company strategy Risk Management Team – Coordinate enterprise risk management activities – Identify key risks against – Articulate and update the achievement of strategy risk management policy and system – Proffer and deploy – Risk identification, actions and controls to address key risks assessment, quantification and rating – Monitor enterprise risks – Risk reporting and monitoring – Enterprise risk register and dashboard – Risk champion activities Business Units – Business objectives – Risk identification, assessment and rating – Mitigation actions and controls – Monitor risks and mitigation actions – Report risks and mitigation actions status Internal Audit – Independent assurance – Reports to Audit and Finance Committees of the Board Risk identification, monitoring, mitigation action implementation and monitoring are bottom-up from assets, projects and function levels Key principles that underpin the Company’s risk management framework and system: • Strong focus on safety throughout the organisation. • Close oversight by senior management in day-to-day business operations. • ‘Risk owners’ throughout the business. • 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. 24 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Our risk management system The Company’s risk management system is based on guidelines provided in ISO 31000, the international standards for risk management. The system is built on top-down and bottom-up approach with the Board of Directors (Board) determining the right risk appetite necessary to achieve the Company’s corporate objectives while the business units identify and mitigate risks at the unit and asset levels. The Risk Management and HSSE Committee assists the Board in overseeing the Company’s risk management framework and the risk/ reward strategy as determined by the Board. The Committee ensures that the Company has adequate risk management system in place to manage the diverse and changing risks and opportunities faced by the Company as it creates value for shareholders. It meets at least three times in a year to analyse and evaluate the Company’s key risk profiles, proposed mitigation strategies, mitigation actions taken by management and any residual risk exposures. The meetings are attended by Executive Directors who have accountability for ensuring that risk identification is comprehensive and proposing mitigating measures that are effective in achieving the desired objectives. Reports on the Company’s corporate risk register, key risk exposures in the business operations and reviews of its risk management systems are compiled and presented to the Board of Directors. While key risks and associated risk appetites are determined at the top, the business units and functional managers are accountable for the respective risks within their areas. The Company’s enterprise risk management (ERM) system, coordinated by the Head, Enterprise Risk Management and overseen by the Risk Management and HSSE Committee, supports risk management across the business and functions. The Company’s ERM includes a robust risk identification, assessment, reporting and monitoring mechanisms and approaches that include maintenance of both corporate and functional/operational levels risk registers, risk dashboard, mitigation actions monitoring and risk reporting. In a bid to continually embed risk management across the business and functions, the Company utilises specially appointed and trained Risk Champions to ensure common methodology, language and approach in the way risks are managed across the business. The Internal Audit unit undertakes periodic audits of the various business units including the Company’s corporate governance systems and risk management processes. The Company’s risk management policy is focused on the early identification of risks and future risks that are central to achieving its strategy, corporate objectives and annual business plans… Activities in 2020 During the year 2020, our risk landscape remained largely stable with respect to existing exposures since our last update in 2019. However, an unprecedented infectious disease outbreak that emerged and escalated during the first quarter, leading to WHO declaring it a pandemic, introduced a new outlook to the risk landscape. Accordingly, the key highlight of this update is on the infectious diseases outbreak (Covid-19), a new risk item now included for monitoring and management on the enterprise risk dashboard. We also introduce two new risk items, viz, OPEC quota restriction, as well as Climate Change, a risk drawing increasing global attention. Outbreak of the SARS-CoV-2 virus that causes the Covid-19 illness was first declared by the World Health Organization on 31 December 2019. Since that date, the virus has infected over 104 million and killed more than 2.2 million persons. Responses from around the world varied but were largely non-pharmaceutical until about August 2020 when the first vaccine against the virus was produced and deployed in Russia. To date although many countries have vaccination programmes underway, much of the world is still struggling with the virus which has now mutated into different variants originating in South Africa and the United Kingdom. Various governments around the world have responded differently to the management of the pandemic. While some countries followed directive of the World Health Organization on recommended preventive measures, some others chose to approach it differently. In one or two other instances, the leaders chose to do nothing for a long time. These discretionary approach to management of the pandemic resulted in the level of infection and casualties that the illness has claimed to date. The Federal Government of Nigeria (FGN) through the Presidential Task Force (PTF) on Covid-19 introduced several measures to manage the pandemic locally. These measures worked to a large extent for the first wave of the pandemic until when the second wave set in around November 2020 and the number of infected persons and casualties escalated thereafter. NAFDAC has indicated that no vaccine has been approved for use in Nigeria except those that have been imported by FGN. In the wake of the ongoing pandemic, Seplat Leadership through the COVIMOG and in collaboration with Human Resources and the Operations teams have sustained the Company’s business throughout the pandemic period and observed all recommended preventive measures advised by both the PTF and State Governments. Accordingly, the Company’s operations were therefore not significantly impacted during the year 2020, as production operations, as well as delivery of target capital projects and new production wells, continued unabated. Our robust business continuity plans also enabled staff to work from home with secure IT infrastructure. Overall, in 2020, the Committee analysed and evaluated the various key risk exposures for the Company. In doing so, the Corporate Risk Register was reviewed, and the risk reports presented by management. These reports detail the key risks, the potential impact of the risks and the likelihood of occurrence. Mitigating strategies were comprehensively considered, including but not limited to those related to the stability in the Niger Delta, oil price volatility, export line breaches and alternative crude oil evacuation options. Other risks considered are Government and JV relations management, liquidity, market, contractual and litigation risks. The status and effectiveness of mitigation actions were reviewed, and any residual gaps or follow-up actions were identified. Key performance indicators as well as other risk indicators and trends were monitored. Key risks requiring risk tolerance considerations and strategic actions were presented to and debated by the Board. The Committee reviewed the risk management systems including the risk dashboard and assessment tables. The Committee gave further consideration to the achievements made by the Risk Champions appointed with a view to unify risk management approaches and embed risk culture across the organisation. 25 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Risk management | continued HIGH-PROFILE RISKS AND UNCERTAINTIES Highlighted below are the high-profile risks that the Company dealt with in 2020 and will continue to monitor going into 2021. In Nigeria, the rise of the virus was initially slow, but the month of March 2020 witnessed a sharp rise of cases of those infected, affecting up to the presidency. Seplat demonstrated support to the nation and states of its operation (Edo, Delta & Imo) by making notable cash donations during Q1 2020, at the national and state levels, respectively aimed at curbing the spread of Covid-19 disease. At the national level, the donation was consolidated into the pool of funds the Oil Producers Trade Section (OPTS) put together to assist the Federal Government on behalf of the Oil and Gas Industry. At the state level, the donation was used to provide specific requirements by each host community state covering two broad areas: • Provision of Personal Protective Equipment (PPE) and other medical accessories; and • Creation of education and awareness through rigorous public enlightenment campaigns. The risk was viewed from two key perspectives in relation to Seplat’s operations: 1. Risk of an index case manifesting in Seplat offices or field locations This leading to an unsuccessful initial control of an index case (probably resulting in communal spread of the disease in the Seplat community as a result of late detection of secondary contact cases which may have had close contacts with an index case or close contacts from other external primary sources). Major effects of this may be near impossible or very long post- epidemic economic recovery of the business resulting in liquidity crisis, overhead cuts and going concern issues. Also, the business may be badly hit if personnel productivity is severely impacted by increased lockdowns as a result of worsening spread of the virus. 1. Infectious Diseases Outbreak (Covid-19) The ongoing global impact of the Coronavirus Disease, declared a pandemic by the World Health Organization, triggered the need for businesses globally to put in place adequate business continuity strategies, in the wake of such similar outbreak of infectious diseases in the near future. The Covid-19 global pandemic swept at an alarming rate during the year 2020. The scourge of the virus, first recorded in Wuhan, China in December 2019 continued in an upward trajectory globally during the year 2020. According to WHO, the pandemic is manifesting in over 212 countries and territories (152 of these with reported fatalities) in the world, crippling business activities and putting desperate amount of pressure on health infrastructures of nations. Worldwide, frantic efforts are being made by the medical and scientific communities to find a cure or at least a containment for the spread of the virus. 26 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 2. Severe supply chain disruptions following prolonged outbreak of the disease resulting in adverse impact to the planned work programme Resultant impact on sub-suppliers in the countries where the disease is severe leading to significant delays in the supply of items. This risk therefore covers the extent to which the disease will have an impact on all key projects of the Company as designed in the work programme (impacting the supply chain and major contractors scheduled to deliver in a few months). The ability of the contractors to deliver as scheduled is threatened leading to major delays and revisions to the project schedules. Additional measures put in place include: • Visitors are still not allowed in our offices except for critical business needs and clearance issued by the Human Resources team. • Meetings and events continue to be held via electronic media. All indoor meetings take place by exception only and require approval from the Human Resources team. Attendance at such meetings are limited to not more than 20 persons including supporting personnel and all non- pharmaceutical preventive measures are put in place to be observed throughout the event. In terms of managing this exposure, Seplat has continued to maintain status quo on NCDC guidelines even in the wake of the second wave of the pandemic, at all locations. The Company’s existing risk management plans were able to activate the business continuity protocols and it has been a major achievement that the Management team has been able to run the Company so effectively even in the face of the implemented work from home policy. However, Seplat Leadership continues to monitor key indices in considering the return of office-based employees to the Company facilities, especially in the wake of the highly contagious second wave of the pandemic. As at year end, management has continued to maintain the work from home policy, until the indices give indication for re-consideration of a phased return to the office. With regards to field operations, normal crew change happens only after the incoming crew have taken the PCR test with the resultant negative result after 48 hours when it is expected that the test result should have been issued. This requirement is complemented by compliance with other established non-pharmaceutical measures of regular hand washing, hand sanitising, frequent cleaning of commonly touched surfaces, mandatory wearing of face masks and social distancing. Application of non-pharmaceutical preventive measures are mandatory in all the Company’s office environments. 2. Niger Delta stability/ extended production shut-in due to third- party infrastructure downtime, and geo-political risk The risk of Niger Delta Militancy and extended production shut-in due to third-party interference, was consolidated at the year 2020 risk register review session with the operations/technical teams. Seplat core operations are located in the Niger Delta region of Nigeria and that comes with significant risks. Historically, the Niger Delta has always been a high-risk environment. Cases of militancy, crude oil theft, pipeline vandalism, environmental pollution arising from illegal bunkering activities, and other lawless activities are rife in the region. However, in the year 2020, the business recorded zero occurrence in militancy activities, similar to the previous year 2019. Accordingly, the Trans Forcados export system (major export route for Seplat) remained operational throughout the year, with a remarkable uptime as with the previous year 2019. The Company, working with other industry players in the region, continued to put pressure on the Government to find a lasting solution to Niger Delta restiveness and the current security measures put in place by the facility operator, consolidated with the Government’s strategy of dialogue with stakeholders in the region seems to be working. With respect to extended production shut-in due to third-party interference, the third-party operated Trans Forcados export system remains Seplat’s primary crude evacuation for its main assets (OMLs 4, 38 & 41) and this poses a significant risk to Seplat. The system was out of operation for more than a year between 2017 and 2016 due to sustained breaches by the militants leading to extended shut-in of production. Even though there was no major breach of the line in the year 2020, the risk remains significant. The Company is mitigating the risk by seeking a second major export line. The focus for the Company remains to have at its disposal, two major export systems to evacuate crude from its main assets. 3. Low oil price environment Seplat’s operating results are highly dependent on the prices of crude oil and natural gas. The Company’s estimated proved reserve, revenue, operating cash flows and margins, liquidity and future earnings are all impacted by the volatility of crude oil and natural gas prices. Seplat’s price risk management policy is to protect the Company’s crude oil cash flow from downside scenarios with hedging. During the year 2020, the volume of protection stood at c.67-80% and rose alongside the acquisition of Eland. This translates into purchasing between 2-2.5mmbbls/quarter of put protection. Overall, the Company protected about 6 million barrels of crude oil at an average strike of US$45/bbl in 2020. Our long-term natural gas contracts have escalation clauses that protect the Company against severe price decline. 27 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Risk management | continued 4. OPEC quota restrictions A deep-dive assessment was conducted on the OPEC quota restrictions risk which was introduced in the third quarter of 2020. The risk is considered based on the impact due to production shut-in emanating as a result of the OPEC quota imposed on companies in the oil and gas sector. The Company continues to manage this risk through measured operational and commercial tactics and engagements with relevant industry regulators. 5. Climate change Seplat’s contribution to domestic gas/energy supply comes with some implications for climate change, as the gas production activities are accompanied by some gas flaring, which the Company has made concerted efforts to manage within the requirements of regulation. The risk considers the direct impact on the ecosystem as a result of heightened gas flaring activities, resulting in considerable weather (temperature) changes, major ecosystem collapse/damage with serious economic and social consequences, as well as biodiversity loss. A number of mitigation actions have been put in place to manage this risk. These include focus on the delivery on projects earmarked to reduce and or eliminate gas flaring as spelt out under the Company’s ‘Gas Flares Out’ roadmap. The projects include (i) delivery of the LPG projects at Sapele and Oben, (ii) installation of booster compressors, and (iii) the Sapele Integrated Gas Plant project. Other actions include focused delivery on alternative options for cleaner energy. The Company has also put in place a calculator to estimate actual greenhouse gases emissions to determine actual carbon footprint/emissions and determine measures for reduction of greenhouse gases emissions. 28 6. JV Receivable and future cash call funding Seplat has the Nigerian Government as Joint Venture (JV) partner in significant parts of its business. Cash call funding from the Government partners has historically been poor, resulting in build-up of legacy cash call receivables over time. In 2020, the Government JV partners continued to remain current in paying cash calls. However, the risk of cash calls sliding back to pre-2019 practice of late payments is still there. To mitigate this exposure, the Company continues to manage its JV relationships very closely and actively engages the respective Government partners on timely payment of cash calls. 7. Liquidity risk The Trans Forcados Pipeline remained mostly operational throughout 2020 and this assisted Seplat’s liquidity position significantly in the year. We manage liquidity risk by ensuring that sufficient funds are available to meet commitments as they fall due, using both long-term and short-term cash flow projections to monitor funding requirements for activities; and to ensure there are sufficient cash resources to meet operational needs. Our cash flow projections take into consideration the Company’s debts and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest-bearing current accounts, time deposits and money market deposits. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Conclusion In conclusion, the year 2020 was generally a challenging year for the oil and gas industry, following the unprecedented headwinds posed by oil price volatility occasioned by the shock of the Covid-19 pandemic. The debilitating impact of plummeting oil prices was exacerbated by the OPEC quota restrictions imposed in H2 2020. Despite these challenges faced, the Company demonstrated resilience and commitment to delivering the 2020 work programme while proactively monitoring and managing the threat of the Covid-19 pandemic across our operations. The OPEC quota restrictions was effectively managed through measured operational and commercial tactics and engagements with relevant industry regulators. Accordingly, the Company successfully drilled four oil and two gas wells across its portfolio and delivered a consolidated average oil and gas production within the full year guidance of 48kboepd – 52kboepd. Other laudable achievements in 2020 were the safe completion of the first Turnaround Maintenance (TAM) for the Oben gas plant within schedule and cost, the successful implementation of Covid-19 protocols across the Company’s operations without interruption, laying of a foundation and renewed focus towards strengthening the Company’s approach and credibility on Environment, Social and Governance (ESG) issues in response to sustainability needs, as well as the introduction of the Company’s footprint and greenhouse gas (GHG) emissions quantification. Overall, the Committee is satisfied that the Company has a robust Risk Management System that serves to ensure integrity of business processes, decisions and activities going into the future. The Company’s HSSE Management System is also mature and reliable and has continued to deliver good HSSE performance year-on-year. Basil Omiyi Chairman, Risk Management and HSSE Committee Mapping our risk The mapping of our risks considered both quantitative and qualitative factors. Seplat’s risk mapping is underpinned by a two-factor spectrum – Likelihood and Impact, which are further plotted on the basis of Seplat 5x5 methodology, to arrive at a final assessment for each risk. i n a t r e C d e t c e p x E e l b i s s o P y l e k i l n U e r a R 15 16 11 17 18 5 8 1 19 14 9 12 13 4 2 6 3 7 10 Negligible Minor Moderate Significant Severe Assessment Very high High Medium Low Movement trend Decreasing Increasing Steady 29 TopicAssessmentTrend1.Infectious diseases outbreak in Seplat (Covid-19)2.Niger Delta militancy/third-party interference3.Portfolio concentration risk4.Sustaining E&A programme 5.Oil price volatility6.Merger & acquisition (M&A) risk7.Stakeholder management relationships8.HSSE risks9.Availability of capital10.Liquidity11.Changes to tax status and legislation12.Bribery and corruption risk13.Fraudulent activity risk14.Field operations and project deliverability15.Geopolitical risk16.Cost control risk17.Foreign exchange risk18.Information security risk19.Loss of key employeesStrategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Principal risks and uncertainties MONITORING AND MITIGATING RISKS TO THE BUSINESS Operational risks Field operations and project deliverability Third-party infrastructure downtime HSSE risks Infectious diseases outbreak in Seplat Sustaining E&A programme Description Failure to manage operational activities in line with planned expectations can lead to production misses, project delays and cost overruns, high production costs and earlier than expected field decommissioning. Risk also expanded to cover the emerging OPEC quota restriction risk on production, resulting in production shut-ins. Description An over-reliance on third-party operated transportation infrastructure can expose the Company to an extended period of production being shut in. Description Oil and gas activities carry significant levels of HSSE risks if not properly managed. As activity levels continue to increase there is a strong focus on preventing major environmental (including the emerging climate change – GHG emissions risk), health or safety incidents. Mitigation Focus on risk management at planning phase and mitigation plans activated. Compulsory ‘peer-to-peer’ review for high-value projects and better project management techniques. Protracted land acquisition, preparation and rig startup have been contributory factors which have received focused attention and significant process improvements and improved communications with JV partner and approving regulators to mitigate delays. Use of smart/ intelligent wells to improve recovery and improved rig performance monitoring and reporting to manage NPTs. Mitigation Work is ongoing to secure a second export line to complement the Trans Forcados Pipeline. Continue to explore export via barging as a back-up option in extreme cases. Have two contingency tanks in Amukpe for partial storage during shut-in over shorter periods. More tanks are planned. Additional plans to scope FEED/DED of a new export line in the coming year 2021. Mitigation Deployment of an HSSE Management System in line with best practices. Monitoring and reporting of HSSE performance scorecards at management and Board levels. Our HSSE systems and process are subjected to independent review and identified improvement initiatives are deployed. Continual focus on HSSE training and initiatives on incidence prevention. Emergency Response plan set for any eventuality and comprehensive Incident Review panels to identify and channel lessons learnt to improvement activities. Focus on the delivery on projects earmarked to reduce and or eliminate gas flaring as spelt out under the Company’s ‘gas flares out roadmap’. KPI/Performance metric • Net working interest production • Operating costs per boe KPI/Performance metric • Net working interest production • Days downtime • EBIT KPI/Performance metric • HSSE scorecards • LTIF • TRIR Strategic pillars 1 2 3 Assessment Very high Trend Strategic pillars 2 3 Assessment Very high Trend Strategic pillars 2 3 5 Assessment High Trend (e.g. Covid-19) Description Risk of an index case manifesting in Seplat offices Exploration and appraisal activities carry or field locations. This leads to an unsuccessful significant levels of subsurface risk. Sustained E&A initial control of an index case (probably resulting drilling failure will impact the Company's ability to in communal spread of the disease in the Seplat organically replace reserves and production. Description Appointment of the COVIMOG (monitoring and response team) to assess the dynamics of the Strict compliance with reservoir management guidelines. Building internal capacity with skilled virus and report to leadership weekly. Install hand sub-surface expertise. Drill a minimum of two washing and sanitiser dispensers across all exploration wells, as well as continuous M&A business locations. Avoid large crowd and physical work to secure available opportunities at the meetings of more than 50 people. Avoid external right price. Mitigation community as a result of late detection of secondary contact cases which may have had close contacts with index case or close contacts from other external primary sources). Risk also covers supply chain disruptions emanating from the pandemic i.e. the extent to which the disease will have an impact on all key projects of the Company (including ANOH) as designed in the work programme (impacting the supply chain and major contractors scheduled to deliver in a few months). Mitigation meetings; encourage online meetings. Encourage staffs and other tenants on the building on washing of hands and use of sanitiser. Suspend all non critical travel plans and in the event of critical travels, put in place mandatory self quarantine and testing. Put in place mandatory PCR testing for all field operations. LT alignment on business scenarios to gain stability post-epidemic. Have a Business Continuity Plan in place to curb post-economic recovery challenges. Run an operations impact assessment and trigger identification of quick remediation strategies/wins across the business. Manage press/publicity and communication to avoid mis-communication/ wrong press. Declare work from home with effective IT support. KPI/Performance metric • HSSE scorecards • LTIF • TRIR Strategic pillars 1 2 3 4 Assessment High Trend KPI/Performance metric • Reserve replacement Strategic pillars 1 2 3 5 Assessment Very high Trend Steady. We continue to refine our project management approach for improved speed of delivery and efficiency, conclude the integration of the newly acquired Eland Assets into our business, consolidate performance across board, maximise production, maintain a strong balance sheet, and strategically position the Company for future growth. 30 Steady. Remarkably improved uptime of Forcados export system. However, risk trend is Steady, even though there is no near term line of sight for an alternative evacuation line, in the sudden event of prolonged outage of the TFP. Alternative line (AEP) is now scheduled for Q2 2021 delivery. Steady. Though the risk is inherent, we will continue to deploy our HSSE risk management in line with best practices and with strong emphasis on prevention. Rising. Trend is rising given the second wave of Steady. High grading our exploration portfolio the pandemic with its attendant contagious spread and the notable cases recorded. The through a thorough prospect screening exercise. In the near term, plan is to commence exploration Company will sustain the deployment of our HSE drilling campaign in the West. risk management in line with best practices and with strong emphasis on reducing the impact of this unprecedented pandemic. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The implementation of our strategy can be hindered by various risks and uncertainties. The risks that the Board considers most significant are described here. Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Grow our gas business to serve Nigeria Pursue profitable new opportunities Behave responsibly, and share our success See page 16 Field operations and project deliverability Third-party infrastructure downtime HSSE risks Infectious diseases outbreak in Seplat (e.g. Covid-19) Sustaining E&A programme Description Description Description Failure to manage operational activities in line An over-reliance on third-party operated Oil and gas activities carry significant levels of HSSE with planned expectations can lead to production transportation infrastructure can expose the misses, project delays and cost overruns, high Company to an extended period of production production costs and earlier than expected field being shut in. decommissioning. Risk also expanded to cover the emerging OPEC quota restriction risk on production, resulting in production shut-ins. risks if not properly managed. As activity levels continue to increase there is a strong focus on preventing major environmental (including the emerging climate change – GHG emissions risk), health or safety incidents. Mitigation Mitigation Mitigation Focus on risk management at planning phase Work is ongoing to secure a second export line Deployment of an HSSE Management System in and mitigation plans activated. Compulsory ‘peer-to-peer’ review for high-value projects and better project management techniques. Protracted land acquisition, preparation and to complement the Trans Forcados Pipeline. Continue to explore export via barging as a back-up option in extreme cases. Have two line with best practices. Monitoring and reporting of HSSE performance scorecards at management and Board levels. Our HSSE systems and process contingency tanks in Amukpe for partial storage are subjected to independent review and rig startup have been contributory factors which during shut-in over shorter periods. More tanks identified improvement initiatives are deployed. have received focused attention and significant are planned. Additional plans to scope FEED/DED Continual focus on HSSE training and initiatives process improvements and improved of a new export line in the coming year 2021. communications with JV partner and approving regulators to mitigate delays. Use of smart/ intelligent wells to improve recovery and improved rig performance monitoring and reporting to manage NPTs. on incidence prevention. Emergency Response plan set for any eventuality and comprehensive Incident Review panels to identify and channel lessons learnt to improvement activities. Focus on the delivery on projects earmarked to reduce and or eliminate gas flaring as spelt out under the Company’s ‘gas flares out roadmap’. KPI/Performance metric • Net working interest production • Operating costs per boe KPI/Performance metric • Net working interest production KPI/Performance metric • HSSE scorecards Strategic pillars 1 2 3 Assessment Very high Trend • Days downtime • EBIT Strategic pillars 2 3 Assessment Very high Trend • LTIF • TRIR Strategic pillars 2 3 5 Assessment High Trend Description Risk of an index case manifesting in Seplat offices or field locations. This leads to an unsuccessful initial control of an index case (probably resulting in communal spread of the disease in the Seplat community as a result of late detection of secondary contact cases which may have had close contacts with index case or close contacts from other external primary sources). Risk also covers supply chain disruptions emanating from the pandemic i.e. the extent to which the disease will have an impact on all key projects of the Company (including ANOH) as designed in the work programme (impacting the supply chain and major contractors scheduled to deliver in a few months). Mitigation Appointment of the COVIMOG (monitoring and response team) to assess the dynamics of the virus and report to leadership weekly. Install hand washing and sanitiser dispensers across all business locations. Avoid large crowd and physical meetings of more than 50 people. Avoid external meetings; encourage online meetings. Encourage staffs and other tenants on the building on washing of hands and use of sanitiser. Suspend all non critical travel plans and in the event of critical travels, put in place mandatory self quarantine and testing. Put in place mandatory PCR testing for all field operations. LT alignment on business scenarios to gain stability post-epidemic. Have a Business Continuity Plan in place to curb post-economic recovery challenges. Run an operations impact assessment and trigger identification of quick remediation strategies/wins across the business. Manage press/publicity and communication to avoid mis-communication/ wrong press. Declare work from home with effective IT support. KPI/Performance metric • HSSE scorecards • LTIF • TRIR Strategic pillars 1 2 3 4 Assessment High Trend Description Exploration and appraisal activities carry significant levels of subsurface risk. Sustained E&A drilling failure will impact the Company's ability to organically replace reserves and production. Mitigation Strict compliance with reservoir management guidelines. Building internal capacity with skilled sub-surface expertise. Drill a minimum of two exploration wells, as well as continuous M&A work to secure available opportunities at the right price. KPI/Performance metric • Reserve replacement Strategic pillars 1 2 3 5 Assessment Very high Trend Steady. We continue to refine our project Steady. Remarkably improved uptime of Forcados Steady. Though the risk is inherent, we will management approach for improved speed of export system. However, risk trend is Steady, even continue to deploy our HSSE risk management in delivery and efficiency, conclude the integration though there is no near term line of sight for an line with best practices and with strong emphasis of the newly acquired Eland Assets into our alternative evacuation line, in the sudden event of on prevention. business, consolidate performance across board, prolonged outage of the TFP. Alternative line (AEP) is maximise production, maintain a strong balance now scheduled for Q2 2021 delivery. sheet, and strategically position the Company for future growth. Rising. Trend is rising given the second wave of the pandemic with its attendant contagious spread and the notable cases recorded. The Company will sustain the deployment of our HSE risk management in line with best practices and with strong emphasis on reducing the impact of this unprecedented pandemic. Steady. High grading our exploration portfolio through a thorough prospect screening exercise. In the near term, plan is to commence exploration drilling campaign in the West. 31 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Principal risks and uncertainties | continued External risks Niger Delta stability and security Stakeholder management relationships Geopolitical risk Description The Company operates in a region where security incidents such as kidnappings, vandalism and criminal attacks on O&G installations can occur. Description Failure to manage stakeholders can result in business disruptions and interference. The Company prioritises the effective management of relationships with all stakeholders including host communities, JV partners, government, regulatory bodies and shareholders. Description Nigeria has at times in its history faced political uncertainties and threats such as terrorism aimed at de-stabilising and undermining the orderly and effective rule of central government. Mitigation Continuous security monitoring and intelligence work. Quick mechanism for security advisory to staff and movement restriction for high alert situations. Active participation in the industry pressure groups to find lasting solution. Mitigation Successful operation of the GMOU agreement with host communities, periodic engagement and feedback forums. Tailored CSR programmes, capacity building and infrastructure developments with the host communities. Sustain local content development with priority to community contractors. Organisational focus and clear strategy to deliver shareholder value pursued by the Board and management. Corporate governance, transparency and proactiveness in dealings with regulators and JV partners. Mitigation Scenarios and response options plan set. Crisis management team in place for high alert political periods. Continue to partner/network with security stakeholders and share intelligence regarding security. Business continuity plans actioned in light of current geo-political situation. KPI/Performance metric • LTIR • TRIR • Security incidents • Operating cash flow Strategic pillars 2 5 Assessment Very high Trend KPI/Performance metric • Net working interest production • LTIR • TRIR • Host community incidences KPI/Performance metric • Be a highly responsible corporate citizen • Maximise production and cash flows from existing assets • Commercialise and produce gas reserves Strategic pillars 2 3 5 Assessment High Trend Strategic pillars 1 2 5 Assessment High Trend Steady. Steady. Efforts by the Government and industry pressure groups, aimed at enhancing security in the region seems to be paying off as there was a significant drop in targeted oil and gas facilities attacks in the region in year 2020. We will continue our monitoring and vigilance. Steady. We continue to enjoy good working relations with our stakeholders. 32 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Grow our gas business to serve Nigeria Pursue profitable new opportunities Behave responsibly, and share our success See page 16 Financial risks Oil price volatility Changes to tax status and legislation Availability of capital Description Oil prices have exhibited a history of volatility and can fluctuate sharply in line with external factors. Description If the tax regime/legislation under which the Company operates its assets were to change, profitability may be impacted. Description The oil and gas industry is highly capital intensive. Significant amounts of capital are required to continue development activities and fund M&A. Non funding of cashcalls by JV partners impacts activities and liquidity. Mitigation Hedging continues to be our price risk management tool. Price sensitisation on project economics and cost discipline for capital projects sanctioning. Aggressive focus on cost reduction. Mitigation Perform evaluation of business plan and performance metrics exclusive of tax benefits. Project economics were determined on maximum tax basis to mitigate the impact of the now expired pioneer tax status. Impact assessment of potential tax legislature monitored at the Board level. Mitigation Emphasis on compliance with requirements of the JV operating agreement for effective/strict JV partner concurrence. Board review and approval of financial strategy and debt portfolio management with strong banking relationships. KPI/Performance metric • Realised oil price • Operating cash flow KPI/Performance metric • Effective tax rate • Tax status Strategic pillars 2 Assessment High Trend Strategic pillars 2 3 Assessment High Trend KPI/Performance metric • JV receivables • Capex • New M&A activities Strategic pillars 2 3 5 Assessment Very high Trend Decreasing. In the year 2020, we kept focus of our price risk management policy to protect the Company’s cash flow stream from downside scenarios. We will also continue to take hedge positions and apply cost reduction strategies. Steady. PIB is going through legislative process. Versions in circulation currently being reviewed to assess the impact on Seplat valuation. Decreasing. JV partners continues to remain current in paying cash calls. 33 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Principal risks and uncertainties | continued Financial risks continued Cost control risk Liquidity Foreign exchange risk Description Cost reduction remains central to the Company's current operating strategy. High operating cost and ineffective capital cost control negatively impacts operating cash flows and profitability. Description Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Description The Company is exposed to exchange rate risk to the extent that balances and transactions are denominated in a currency other than the US Dollar. Mitigation Comprehensive budgeting process approved by the joint venture partner and the Board. Clear cost management targets. Grading of portfolio opportunities and project ranking for capital allocation. Focus on reducing drilling costs at well design phase. Cost monitoring and periodic reporting. Focus on effective contracting strategies for cost reduction. Mitigation Manage liquidity risk by ensuring that sufficient funds are available to meet commitments as they fall due. Uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are sufficient cash resources to meet operational needs. Cash flow projections take into consideration the Company’s debts and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest-bearing current accounts, time deposits and money market deposits. Mitigation The Company has options to manage its foreign exchange exposure including financial hedge instruments such as forward exchange contracts. KPI/Performance metric • Operating cost per boe • EBIT • Capex • Well costs Strategic pillars 2 3 5 Assessment High Trend KPI/Performance metric • Operating cash flow • Capex KPI/Performance metric • Operating cash flow • Capex Strategic pillars 2 Assessment Medium Trend Strategic pillars 2 3 Assessment High Trend Steady. Cost discipline remains key focus of the business. Steady. Improved uptime of TFP; improved JV cash call payment; oil price rally; and strategic debt refinancing all have greatly improved liquidity risk. Steady. Historically, the Company holds majority of its cash and cash equivalent in US Dollar. Gas contracts are indexed in US Dollar. 34 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Grow our gas business to serve Nigeria Pursue profitable new opportunities Behave responsibly, and share our success See page 16 Strategic risks Portfolio concentration risk Merger & Acquisition (M&A) risk Bribery and corruption risk Description High dependency on a concentrated portfolio of producing blocks and limited number of wells can leave the Company more susceptible to declining long-term growth and reserves depletion. Description Growth through M&A activities is part of Seplat’s strategy to pursue a focused acquisition and farm-in. M&A deals and transactions come with significant risk including structural, commercial and integration risks. There is also the risk of non achievement of acquisition targets due to highly competitive landscape. Description Bribery and corruption presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. Mitigation Focus on portfolio expansion strategy from the Board level to diversify current portfolio. Integrated long-term planning on crude oil and gas business. Mitigation New business development unit is always looking for the right opportunities for Seplat. Decision review board (DRB) process is in place to ensure deals are properly vetted and adequate due diligence done on new opportunities. The DRB ensures the commercial, structural, KYC and integration risks are fully considered and addressed with mitigation plan approved and in place prior to deal closing. Mitigation Extensive training on anti-bribery and corruption. Embedding corporate governance principles with key focus on areas of the business which may be more susceptible to corruption such as the contracting and procurement process. Processes exist to guide dealings with public officials. KPI/Performance metric • Successful execution of new acquisition and KPI/Performance metric • Successful execution of new acquisition and farm-in opportunities farm-in opportunities KPI/Performance metric • Whistleblowing reports • Number of disciplinary cases Strategic pillars 2 3 Assessment High Trend Strategic pillars 1 3 5 Assessment Very high Trend Strategic pillars 5 Assessment Very high Trend Steady. The Company is in build/transform phase. Steady. DRB process in place to vet opportunities and deals. Risk trend steady following ongoing integration of Eland Oil and Gas Plc, as well as ongoing strategy to acquire more strategic assets. M&A landscape remains competitive. Decreasing. As geographical location continues to be susceptible to corruption, risk trend changed from steady to decreasing. 35 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Principal risks and uncertainties | continued Strategic pillars 1 2 3 4 5 Increase our resources Increase production and improve its profitability Grow our gas business to serve Nigeria Pursue profitable new opportunities Behave responsibly, and share our success See page 16 Strategic risks continued Loss of key employees Fraudulent activity risk Information security risk Description The oil and gas industry is very specialised in certain areas and there is competition within the industry to secure talent and highly-skilled and experienced personnel in core areas. Description Fraudulent activity presents a risk throughout the global oil and gas industry and represents an ongoing risk to any oil and gas company. Description Potential cyber attacks and information technology security breaches could result in loss or compromise of sensitive proprietary information, communication and IT business continuity disruption across operations. Mitigation Annual benchmark reviews to ensure competitiveness in reward and recruitment. Succession planning in place as part of business continuity. Focus on training as a key differentiating factor in the operating environment. Mitigation Extensive whistleblowing campaign. Continuous monitoring and improvement of the system of internal controls by all lines of defence with strong internal audit activity. Automation of processes where possible to reduce manual intervention. Mitigation We monitor and regularly upgrade the Company’s information technology and security systems. The Company has a clearly defined employee user policy and control of access rights. Our information security framework and infrastructure have been externally reviewed in line with requirements of ISO 27001. IT business continuity plan is in place for quick deployment. KPI/Performance metric • Staff turnover KPI/Performance metric • Number of reported cases KPI/Performance metric • Information security identification and containment reports Strategic pillars 2 5 Assessment Medium Trend Strategic pillars 5 Assessment Very high Trend Strategic pillars 2 5 Assessment High Trend Steady. Risk trend changed to steady this period. Steady. Risk is kept at very high and the Company continues to maintain a zero tolerance policy. Rising. While cyber security continues to hold international attention, there has not been material IT breach on our operations. However, the triggering of the work from home policy has resulted in a rising trend of the risk, given the greater number of employees working externally. 36 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 OPERATIONAL REVIEW 37 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review | continued OUR ASSETS Seplat’s portfolio comprises direct interests in seven oil and gas blocks and a revenue interest in one further block, all of which are located in the onshore land and swamp areas of the prolific Niger Delta, close to essential infrastructure. This portfolio provides the Company with a robust platform of oil and natural gas reserves and production capacity, together with significant opportunities for future development projects, 2C to 2P conversion and exploration and appraisal drilling. We also continue to view the shallow and deep-water offshore assets of the Niger Delta as potentially appealing opportunities for future expansion. Polobo OML 40 Sibiri Opuama Abiala Gbetiokun Onitsha OML 4 Oben Okwefe Mosogar Okporhuru OML 41 Sapele Ubaleme Amukpe Ovhor Okoporo Orogho OML 38 Escravos Warri Forcados Oil producing assets OML 40 Share Partner 45% NPDC Starcrest W.I. 2P reserves (MMboe) Oil 27 W.I. production 2020 (boepd) Oil 7,884 OML 55 Share Partner Revenue interest Belema Oil W.I. 2P reserves (MMboe) Oil 5 W.I. production 2020 (boepd) Oil – Ubima Share Partner 88% All Grace Energy W.I. 2P reserves (MMboe) Oil 4 W.I. production 2020 (boepd) Oil 971 38 Umuseti (Pillar) Jisike OPL 283 Igbuku (Pillar) OML 53 Ohaji South Owerri Iheoma Emeabiam Odinma Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Escravos Warri Forcados OML 40 Abiala Polobo Sibiri Opuama OML 41 Sapele Okwefe Gbetiokun Mosogar Okporhuru OML 4 Oben Ubaleme Amukpe Ovhor Okoporo Orogho OML 38 Onitsha Umuseti (Pillar) Jisike OPL 283 Igbuku (Pillar) OML 53 Ohaji South Owerri Iheoma Odinma Emeabiam Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny Oil & gas producing assets Our major assets at OML 4/38/41 and OML 53 have substantial reserves of both oil and gas and are ideally located to supply oil for export or local refining, or for the supply of gas to nearby power stations. Gas processing takes place at Oben and Sapele and the new ANOH Gas Processing Plant will be commissioned in 2022 at OML 53. OML 4/38/41 Share Partner 45% NPDC W.I. 2P reserves (MMboe) Oil Gas Total 156 119 275 W.I. production 2020 (boepd) Oil Gas Total 21,249 17,469 38,718 OML 53 (not yet producing gas) Share Partner 40% NAPIMS W.I. 2P reserves (MMboe) Oil Gas Total 44 128 172 W.I. production 2020 (boepd) Oil Gas Total 2,639 – 2,639 OPL 283 (not yet producing gas) Share Partner 40% Pillar Oil W.I. 2P reserves (MMboe) Oil Gas Total W.I. production 2020 (boepd) Oil Gas Total 970 – 970 5 12 17 39 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 CONTINUING FOCUS ON IMPROVING OUR EFFICIENCY Reserves Seplat’s portfolio comprises direct interests in seven oil and gas blocks and a revenue interest in one other block. This portfolio provides the Company with a robust platform of oil and gas reserves and production capacity, together with material upside opportunities through future development. Total working-interest 2P reserves, as assessed independently by Ryder Scott Company, L.P., at 1 January 2021, stood at 499.4 MMboe, comprising 240.5 MMbbls of oil and condensate and 1,501.3 Bscf of natural gas. The change represents an organic decrease in overall 2P reserves of 1.9% year-on-year, due to production of 12.3 MMbbls but mitigated by revisions of previous estimates. Working-interest 2C resources stood at 94.8 MMboe, comprising 59.7 MMbbls of oil and condensate and 203.3 Bscf of natural gas. Consequently, the Group’s working-interest 2P reserves and 2C resources stood at 594.1 MMboe at 1 January 2021, comprising 300.2 MMbbls oil and condensate and 1,704.7 Bscf of natural gas. Production Our oil and gas assets are located in the onshore land and swamp areas of the prolific Niger Delta in Nigeria. Principal areas of production are Edo, Delta, Imo and Rivers States. Full-year total working-interest production for 2020 was within guidance and averaged 51,183 boepd. Within this, liquids production was up 40.9% year-on-year, reflecting the first-time contribution of the acquired Eland assets whilst gas production was down 22.9% year-on-year, because of Q1 maintenance and the impact of the Covid-19 pandemic on the economy. Production decline rates are at levels typical of the region at 10-15% per annum. This represents an overall production increase of 10.1% compared with 2019 despite constrained production levels in Nigeria following cuts in OPEC+ production quotas and tank-top issues experienced at the terminal arising from the pandemic and the general impact of Covid-19 on operations. There was 83% uptime for the Trans Forcados Pipeline during the period and the produced liquid volumes from OMLs 4, 38 and 41 were subject to 9.4% reconciliation losses. Operational Review | continued Effiong Okon Operations Director Seplat delivered production within guidance despite challenging operating conditions and the collapse of demand caused by the Covid-19 pandemic. 51,183 boepd Volume within guidance $8.90/boe Cost of production $150m Capital investment 40 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 2020 performance highlights Seplat turned in a robust performance despite the most challenging year in its history, during much of which the Company was kept running by staff working from home. Successful drilling programme – Six oil wells – Three gas wells – Focus drilling on gas and high-return oil Production within guidance – 51,183boepd total – 33,714bopd liquids – 101MMscfd gas (17,469 boepd) Development of Eland Focus on cost and efficiency Update on key projects Safety initiatives – Integration of assets, staff and infrastructure – Contributed 26.3% of Group liquids – Aberdeen office becomes Seplat’s Centre of Excellence – US$8.90/boe opex – Reduced OML40 barging costs from $14/bbl to $5/bbl – Other cost-saving initiatives driven throughout operations – ANOH project expected to produce first gas in H1 2022 after Covid-related delays – New Sapele Gas Plant expected operational H2 2022 – Amukpe-Escravos Pipeline (third- party) expected operational H2 2021 – Implemented recommendations of independent BRVS safety investigations – Seplat operations achieve zero LTI – Leadership reinforcing safety culture across organisation W.I. 2P reserves by block (MMboe) W.I. 2P reserves by type (MMboe) 5 4 252 27 509 MMboe 172 17 240.5 258.9 275 2020 working interest production (boepd) 51,183 17,469 33,714 60,000 50,000 40,000 49,867 24,198 46,498 22,563 36,924 19,070 30,000 25,877 15,786 25,669 23,935 20,000 17,853 10,000 10,091 0 2016 2017 2018 2019 2020 Oil Gas ESG developments In our continuing drive to improve our environmental performance and prepare for both the opportunities and challenges posed by climate change, we are working with external consultants Environment Resource Management and Critical Resource to conduct scenario analysis of our assets under the IEA’s Stated Policies Scenario (STEPS) and its Sustainable Development Scenario to simulate a well-below 2°C outcome against which we can test the resilience of our portfolio. In addition, we are developing a carbon footprint calculator so that we can more accurately measure our emissions. We will publish the results of these initiatives in due course and use the insights they deliver to drive our corporate strategy and sustainability initiatives going forward. 257 OML 4,38,41 257 OML 53 257 OML 40 OPL 283 OML 55 Ubima Oil Gas Read more: Corporate social responsibility Page 59 41 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review | continued SEPLAT OIL VALUE CREATION STRATEGY Increase reserves Increase production Seplat pursues a four- pronged approach to value creation for its oil assets. 42 Diversify export routes Acquire assets Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 W.I. 2P reserves (MMbbl) 156 OML 4,38,41 Liquids production 44 OML 53 27 OML 40 5 5 OPL 283 OML 55 4 Ubima OMLs 4, 38 & 41 21,249 OML 40 OML 53 OPL 283 Ubima 7,884 2,639 970 971 Future prospects – Unlock existing 2C resources of 59.7MMbbl oil and condensate – Explore, appraise and develop OML 40’s Sibiri field (formerly called Amobe) for potential 78MMbbl at relatively low risk – Acquire new blocks in future government licensing rounds, but at appropriate value – Acquire established operating assets from exiting/divesting IOCs or local operators – Acquire distressed operators and improve exploration and efficiency – Average W.I. production was 33,714bopd in 2020 – Includes maiden contribution from Eland assets of 7,884bopd from OML 40 and 97bopd from Ubima; combined contribution was 26.3% of Group liquids volume – 83% uptime on Trans Forcados export route, 9.4% reconciliation losses – Six oil wells drilled or completed – Sapele 35 – Ovhor 6ST, Ovhor 20 – Ohaji South 5, Ohaji South 6 – Gbetiokun 5 – Focus on increasing efficiency at wellheads – Deploy innovative drilling and production technologies to increase productivity Polobo OML 40 Sibiri Opuama Abiala Gbetiokun OML 41 Sapele Okwefe Mosogar Ubaleme Amukpe Ovhor Okoporo Escravos Warri OML 4 Amukpe-Escravos – Third-party project not managed by Seplat Oben – Delayed with likely commissioning in H2 2021 Orogho – New underground Onitsha OML40 – Currently evacuated through Trans Escravos Pipeline, with lower reconciliation and downtime losses than TFP – Option to connect AEP OML 38 pipe will significantly reduce losses from poor maintenance, vandalism, other damage etc – Seplat can inject up to 40,000bopd capacity OPL 283 and TEP via 8km spur line, thereby creating additional route for OML 4, 38, 41 liquids Umuseti (Pillar) – Potential to use offshore Floating Storage and Offloading (FSO) facility and use it as a crude oil Igbuku (Pillar) export terminal, reducing costs of using third-party infrastructure Increases Reserves – Eland added 31MMbbl W.I. 2P reserves – High-quality Sibiri prospect has potential to add 78MMbbl at low risk Forcados Increases Production – OML 40 added 7,884bopd in 2020 with potential to increase in 2021 – Ubima added 971bopd – New Gbetiokun wells expected to increase output Add Export Routes – OML 40 added Enhances Expertise – Eland brings significant substantial production resource not dependent on Trans Forcados Pipeline – Potential for new export routes as detailed above sub-surface, exploration, and technical expertise – Eland’s HQ now Seplat’s Centre of Excellence in Scotland’s energy hub, close to industry and academic expertise Jisike OML 53 Ohaji South Owerri Iheoma Emeabiam Odinma Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe 43 Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review – Oil assets SEPLAT’S OIL PRODUCING ASSETS 2020 IN REVIEW Oil business performance The Group’s oil operations continued despite the Covid-19 crisis and produced an average 33,714bopd on a working-interest basis during 2020, up 40.9% on 2019. This increase reflects a maiden contribution of 8,855bopd (26.3% of Group liquid volumes) from the OML 40 and Ubima assets, as well as higher production from OML 53 compared to 2019. Exports from the Group’s operations were constrained by approximately 410,000 bbls on a gross basis as a result of the OPEC+ production cuts implemented in the third quarter of 2020. Production output increased as a result of wells drilled earlier in the year, which has necessitated discussions with the DPR and NNPC for increased quotas to reflect this uptick. During the period, six oil wells were drilled/completed (Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji South-5, Ohaji South-6 and Gbetiokun-5), while the Extended Well Test for Ubima continued with production up to 1,200bopd. The wells flowed at a combined initial rate of approximately 18,700bopd. Production improvement through Well, Reservoir and Facilities Management (WRFM) interventions included rigless restoration and optimisation activities that resulted in optimised well head production and LTF performance. The average price realised per barrel in 2020 was $39.95 (2019: $64.40). OMLs 4/38/41 Operator: Seplat Working interest: 45.0% Partner: NPDC Main fields: Oben, Amukpe, Okporhuru, Ovhor, Orogho, Sapele Acreage: 267km2,094km2/291km2 Available export route: Forcados, Warri Refinery, Escravos Concession expiry date: October 2038 2020 working interest liquids production: 21,249bopd 2020 working interest gas production: 101MMscfd Remaining working interest 2P oil reserves: 156MMbbls Remaining working interest 2P gas reserves: 693Bscf 2021 activities: Production and development Seplat holds a 45% working interest in OMLs 4, 38 and 41, with the Nigerian Petroleum Development Company (NPDC) holding the remaining 55% interest. In OML 4, the partners drilled two new gas production wells in the second half of the year. Oben-49 was completed in the period with an initial gross production rate of 35MMscfd of gas and 600bopd of condensate. Oben-50 came onstream in the first quarter of 2021. In OML 38, further to the earlier commissioning of the liquid treatment facility (LTF) at Amukpe, we undertook a crude quality upgrade project aimed at achieving an export-grade specification of 0.5% BS&W. By doing this, we have eliminated the cost component of crude handling charges that have historically been incurred for evacuating wet crude to the Forcados terminal and freed up additional ullage on the export pipeline for dry crude. The upgrade ensures the ability to produce more than 40,000bopd of dry crude. Further optimisation of the LTF, with additional automation to achieve less than 0.5% dry crude and 60,000bopd dry crude, is expected to be completed in the first half of 2021. The two wells completed in the period, Ovhor-6ST and Ovhor-20, came onstream at a combined average gross rate of 5,200bopd. In a bid to realise the full potential of the wells in this area, additional bulk lines were laid and we expect will be commissioned in first quarter of 2021. In OML 41, the ongoing focus was on full development of Sapele Shallow, which overlies the productive reservoirs in the main Sapele field and is estimated to hold a significant accumulation of oil (around 500 MMbbls STOIIP). In 2020, one well, Sapele-35, was completed with a potential initial gross rate of approximately 1,000bopd. Working interest liquids production 2020 (Bopd) OPL 283 Ubima OML 53 970 971 2,639 OML 40 7,884 OMLs 4/38/41 21,249 44 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Polobo OML 40 Sibiri Opuama Abiala Gbetiokun Onitsha OML 4 Oben Okwefe Mosogar Okporhuru OML 41 Sapele Ubaleme Amukpe Ovhor Okoporo Orogho OML 38 Escravos Warri Forcados Umuseti (Pillar) Jisike OPL 283 Igbuku (Pillar) OML 53 Ohaji South Owerri Heoma Odinma Emeabiam Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny OML 53 Operator: Seplat Working interest: 40.0% Partner: NNPC Main fields: Jisike (producing) and Ohaji South (producing) and Owu (discovery) Acreage: 1,585km2 Available export route: Bonny, Brass Concession expiry date: June 2027 2020 working interest liquids production: 2639bopd 2020 working interest gas production: n/a Remaining working interest 2P oil reserves: 44MMbbls Remaining working interest 2P gas reserves: 742Bscf 2021 activities: Production, development and field appraisal OPL 283 Operator: Pillar Oil/OPGC Working interest: 40.0% Partner: Pillar Oil Main fields: Umuseti and Igbuku Acreage: 102.2km2 Available export route: Forcados, Escravos Concession expiry date: October 2028 2020 working interest liquids production: 970bopd 2020 working interest gas production: n/a Remaining working interest 2P oil reserves: 5MMbbls Remaining working interest 2P gas reserves: 66Bscf 2021 activities: Production and development Seplat holds a 40% working interest in OPL 283, alongside partner Pillar Oil. Following the conclusion of the Anagba-1 appraisal well, Pillar-Newton JV and other Partners have executed the Pre-Unitisation Agreement, Crude Handling Agreement and Facility Services Agreement for the Ashaka/Anagba fields. Production allocation to Newton commenced in September. The Igbuku 3D seismic data acquired by Pillar-Newton JV was interpreted and formed the basis for the Integrated Petroleum Engineering Studies, which along with the Field Development Plan will underpin the Igbuku gas development. The planned Igbuku re-entry was temporarily put on hold due to cuts in capital expenditure, given the challenging year. However, the team ensured that the Interim Crude Supply and Associated Gas for power swap agreements were executed in the period. Seplat holds a 40% working interest in OML 53, with the National Petroleum Investment Management Services (NAPIMS) holding the remaining 60% interest. Seplat completed two wells at the Ohaji South (OHS) oil field, OHS-5 and OHS-6. The two wells came onstream in the third quarter of 2020 at a combined average production rate of 5,000bopd, thus ramping up production from the acreage from c.6,500bopd to achieve an exit rate of c.11,500bopd. Infrastructure projects completed during the year were focused on supporting production growth from Ohaji South field, which included the upgrade of existing 10,000bopd Early Production Facility (EPF) to 15,000bopd capacity, construction of 4”x10km flowlines, 8”x12km bulkline and capacity expansion of remote manifold at Ohaji South Field. In December, Seplat signed a Crude Purchase Agreement (CPA) with Waltersmith Petroman Oil Limited. The CPA is for the supply of between 2,000 and 4,000bopd from existing working-interest production from the Ohaji South Field within OML 53, for Waltersmith’s new 5,000bopd modular refinery at Ibigwe Field, in Imo State. Previously, Seplat’s share of Ohaji South crude was primarily evacuated to the export terminal via a third-party Crude Handling Agreement with Waltersmith. This new agreement benefits Seplat by selling its crude oil directly to Waltersmith for refining, thereby eliminating crude losses and downtime experienced along the evacuation and export route. The transaction will also boost the capacity of Waltersmith in providing its products particularly to the immediate region of our operations thereby supporting Seplat’s commitment to national energy security. Apart from its oil, OML 53 has substantial gas reserves that can provide feedstock for the ANOH Gas Processing Plant that Seplat is building in partnership with the National Gas Company (NGC). A portion of dry gas production (70MMscfd) from the plant has been earmarked to meet the domestic supply obligations associated with the OML 53 reserves. At the upstream supplying ANOH, four wells are planned to be delivered by the upstream operator, Shell Petroleum Development Company (SPDC) in 2021. SPDC has commenced the drilling for the first set of two wells scheduled to be completed in Q2 2021, which will be followed by another set of two wells scheduled to be completed in Q4 2021. 45 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review – Oil assets | continued OML 40 Operator: NPDC Working interest: 45% Partner: NPDC, Starcrest Main fields: Opuama (producing), Gbetiokun, Amobe, Abiala Available export route: Forcados, Barging Concession expiry date: October 2038 2020 working interest liquids production: 7,884bopd 2020 working interest gas production: n/a Remaining working interest 2P oil reserves: 27MMbbls Remaining working interest 2P gas reserves: n/a 2021 activities: Production and development Seplat completed the acquisition in the United Kingdom of the entire issued share capital of Eland in December 2019. Eland has a 45% interest in Elcrest, which in turn owns a 45% working interest in OML 40. Elcrest is a joint venture between Starcrest (55%) and Eland (45%). OML 40 is operated by the Nigerian Petroleum Development Company (NPDC) on behalf of the NPDC/Elcrest Joint Venture. Since inception, Eland has arranged the funding of Elcrest’s share in OML 40. The current aggregate loan balance owed by Elcrest at the end of 2020 was $520 million (including RBL) and until the $417 million shareholder loan is repaid, Seplat will continue to consolidate Elcrest into its results. In 2020, Gbetiokun-5 was completed, with initial well production capacity of c.5,000bopd. While the possibility of a permanent export pipeline solution is being explored, evacuation of processed crude via shuttle tankers from Gbetiokun to the injection point on the main OML 40 export pipeline has been enhanced with the mooring facilities rehabilitation and crude injection system upgrade. This allowed the successful streamlining of the Gbetiokun barging operations with the use of a self-propelled, 28 kbbl capacity vessel to evacuate liquids and has driven barging costs down from $14/bbl to $5/bbl. Facility projects progressed during the year included Gbetiokun-Adagbasa pipeline, Opuama flow station upgrade, BRVS and Gbetiokun EPF upgrades. The Opuama focus was on deferment management, reservoir management ranging from incorporation of recently drilled well results into subsurface models, production monitoring, reduction of Mean Time-to-Repair, well optimisation and the identification of further opportunities to increase overall recovery. Preparatory activities for drilling of the high-impact, near-field Sibiri (formerly Amobe) exploration prospect continued during the year with the evaluation of possible acceleration of first oil in the event of exploration success. Sibiri carries a risked best estimate gross prospective oil resource of 78 MMbbls. In accordance with the revised commercial arrangement that was agreed in July 2016, which provides for a discharge sum of $330 million to be paid to Seplat over a six-year period through allocation of crude oil volumes produced from OML 55, Seplat received payments amounting to $4.8 million in 2020. Total payments received from inception to the end of 2020 stood at $124.8 million and the outstanding discharge sum to be paid to Seplat is $205.2 million. Recovery during the year was impacted by OPEC+ production cuts and low oil prices. In a bid to sustain production from this block, Seplat’s Asset Management Team has received the field data for technical evaluation to resolve production challenges that have delayed target recovery of the investment. In 2021, Seplat will continue to monetise liftings towards full recovery of the $330 million discharge sum. Seplat’s Eland subsidiary, through Wester Ord, owns a 40% working interest in the Ubima marginal field, with All Grace Energy Limited (AGEL) owning 60%. Wester Ord is the Technical and Financial partner to AGEL in the Ubima development. The Extended Well Test for Ubima continued through the year with a production of c.1,200bopd. The Field Development Plan for Ubima has been finalised. OML 55 Operator: Asset Management Team Working interest: Revenue interest Partner: NNPC, Belemaoil Main fields: Robertkiri, Idama and Inda (producing) Acreage: 840km2 Available export route: Brass, Bonny Concession expiry date: June 2027 2020 working interest liquids production: n/a 2020 working interest gas production: n/a Remaining working interest 2P oil reserves: 5MMbbls Remaining working interest 2P gas reserves: n/a 2021 activities: Recovery of discharge sum Ubima Technical partner: Wester Ord Working interest: 88% Partner: All Grace Energy Ltd Main fields: Ubima Available export route: Trucking Concession expiry date: 2020 working interest liquids production: 971bopd 2020 working interest gas production: n/a Remaining working interest 2P oil reserves: 4MMbbls Remaining working interest 2P gas reserves: n/a 2021 activities: Production and development 46 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Following the tragic BRVS accident in July, operations at Gbetiokun were suspended for several weeks but exports were able to recommence at the end of August. The three investigation teams deployed identified failure of the Permit to Work system as the root cause of the incident and recommended improvement actions. Sixteen of the recommendations, including all high-urgency items, have been closed out and the final two items will be concluded shortly. Operations were further impacted by the incident on the MT Harcourt, a 180,000 bbls storage vessel used at Gbetiokun that occurred in November. A JV led investigation team identified poor contractor practices as the root cause of the incident which led to a rupture of the vessel’s ballast tank hull. MT Harcourt is a self-contained vessel operated by Union Maritime leased under the Project Management Team arrangement between NPDC and Elcrest for the development of OML 40 Gbetiokun field. Three of the six actions recommended have been closed out, including a marine audit of all OML 40 vessels and spill clean-up completed. Elcrest’s management has prioritised building a robust HSE culture across the organisation and aims to finalise implementation of the enhanced standards across its locations. Maintenance and safety are a constant focus for Seplat’s operational employees. Development of Eland The acquisition of the entire issued share capital of Eland Oil & Gas PLC completed in the United Kingdom at the end of 2019 and was Seplat’s first corporate acquisition. Seplat acquired the jointly operated OML 40 through its indigenous joint-venture subsidiary Elcrest, the share of Ubima, and the Aberdeen-based technical and service support of the Eland organisation. Between them, OML40 and Ubima produced 26.3% of the Group’s liquids in 2020. Eland provides Seplat with increased production and reserves and further exposure to exploration potential, as well as furthering Seplat’s access to international technical expertise and services in Aberdeen to augment our staff in Nigeria. From December 2019, we have been focused on identifying ways in which the Seplat and Elcrest organisations could work effectively together, and ways in which the joint venture company Elcrest could leverage the Seplat corporate organisation to enhance its capabilities and improve operations at OML40. From the start of 2020, despite the challenging environment of the Covid-19 pandemic and suppressed oil prices, Aberdeen- based staff continued to support OML 40 operations and, as the year progressed the inherent value of the Aberdeen office emerged and in December 2020 it was reorganised to become a Centre of Excellence for the Seplat group. It will allow Seplat greater access to the global energy hub of Aberdeen for traditional oil and gas expertise, together with expertise in power, renewables and carbon capture. This will include access to vendors, technology development and industry networks, and importantly to build university links between Nigeria and Scottish universities and enable knowledge transfer to Nigeria through training of Seplat staff, government partners and communities. The Seplat Aberdeen office will also host teams for exploration, technical support for business development and new energy, subsurface, engineering and finance. All of these teams report into the Seplat corporate organisation. Within Nigeria, Seplat has supported Elcrest in areas such as corporate social responsibility (CSR), drawing upon the experience and expertise of Seplat to develop improved policies and procedures, community engagement structures and sustainability strategy. 47 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review – Gas assets SEPLAT’S GAS ASSETS 2020 IN REVIEW Gas business performance Alongside the oil business, the Company has also prioritised the development and commercialisation of the substantial gas reserves identified in its assets. Today, Seplat is a leading supplier of processed natural gas to the Nigerian domestic market. Seplat’s working-interest production for the year was 101MMscfd at an average selling price of $2.87/Mscf (2019: 131MMscfd, $2.84/Mscf). Gas contributed $112.5 million of Group revenues, or 21.2%. This was lower than planned as a result of the indirect impact of Covid-19 on Nigerian businesses for most of the year, which affected bulk offtake from Oben. Delays in production from Oben-50 gas well further exacerbated the effect, following a restoration in demand in the later part of the year. An electricity tariff increase, that saw prices to consumers rise by an average of 75%, became effective in November 2020. This cost-reflective tariff has improved the collection system recently implemented by the Government and is expected to improve cash flow to the power sector and therefore future invoice settlements. Oben Gas Plant Sapele Gas Plant We successfully completed a 15-day turnaround maintenance (TAM) for the Oben Gas Plant in March and lessons learned were successfully embedded. Gas production was affected during the maintenance period and this impact was amplified by third-party infrastructure downtime of 17% due to associated condensate handling challenges. The Oben-48 gas well, drilled in late 2019, came onstream in the first quarter of 2020, while Oben-49 came onstream in the fourth quarter of 2020. Both wells are currently producing a gross 42MMscfd combined. Oben-50 was drilled in the fourth quarter, coming onstream in Q1 2021. The project is expected to be completed in the second half of 2022, with Sapele’s processing capacity increasing from 60MMscfd to 75MMscfd. The upgraded facility will produce gas that meets export specifications, and the LPG processing unit module will enhance the economics of the plant, as well as ensuring that any gas flaring is eliminated. Decommissioning of the surface infrastructure of the existing gas plant reached completion in the fourth quarter of the year. Site preparation and civil construction works for the new plant have commenced alongside piling activities. For the new plant, we have taken delivery of the Associated Gas Compressors and seven gas generators have been completed ex-works. Procurement of the remainder packages and the balance of the plant equipment is at various stages of contracting, detailed engineering design and fabrication. 48 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Polobo OML 40 Sibiri Opuama Abiala Gbetiokun Onitsha OML 4 Oben Okwefe Mosogar Okporhuru OML 41 Sapele Ubaleme Amukpe Ovhor Okoporo Orogho OML 38 Escravos Warri Forcados Umuseti (Pillar) Jisike OPL 283 Igbuku (Pillar) OML 53 Ohaji South Owerri Heoma Odinma Emeabiam Alaoma Omerelu Owu Ubima Port Harcourt Krakama OML 55 Soku Nembe Dama Robert Kiri Ke Belema Brass Akaso Bonny Inda Bonny ANOH Gas Processing Plant The initial total project cost was budgeted at $700 million. Following a cost optimisation programme, the AGPC construction cost is now expected to be no more than $650 million, inclusive of financing costs and taxes, significantly lower than the original projected cost at FID. The ANOH Gas Processing Plant development at OML 53 (and adjacent OML 21 with which the upstream project is unitised) will drive the next phase of growth for Seplat’s expanding gas business. The project will comprise a Phase One 300MMscfd midstream gas processing plant. The ANOH plant, is being built by AGPC, which is an IJV owned equally between Seplat and the Nigerian Gas Company (NGC), a wholly owned subsidiary of Nigerian National Petroleum Corporation (NNPC). In February 2021, The IJV, AGPC, successfully raised $260 million in debt to fund completion of the ANOH project. The project is now fully funded following completion of equity investments of $210 million by each partner ($420 million combined). ANOH is one of Nigeria’s most strategic gas projects. It will help Nigeria to accelerate its transition away from small-scale diesel generators to cleaner, less expensive fuels such as natural gas for power generation. The upstream development, including the drilling of six production wells, will be delivered by the upstream unit operator SPDC, with four wells expected to be completed in 2021. We have made excellent progress on the project despite the Covid-19 challenges and we expect the major gas processing units to arrive in Nigeria in Q3 2021, to commence installation before the end of the year, with mechanical completion and pre-commissioning in Q1 2022 and first gas flowing to customers by the end of H1 2022. Working interest 2P reserves (Bscf) OPL 283 OMLs 4/38/41 66 693 OML 53 742 49 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Operational Review – Special report DIVERSIFYING EXPORT ROUTES New export routes should significantly improve sales volumes by reducing downtime and reconciliation losses currently experienced by using third-party infrastructure. The minor completion works on the 160,000bopd pipeline are not within Seplat’s control and have been slower than anticipated due to a combination of challenges associated with access to the Escravos terminal owing to Covid-19 and issues relating to ownership of the pipeline. Our partner NPDC now owns a direct stake in the pipeline and we understand they are working with the other pipeline owner and their banks to enable the completion of the project. We have consequently adjusted our plan and budgets to expect commencement of export of the initial permitted volume of 40,000bopd through the Escravos terminal in the second half of 2021. Our strategy is to reduce over-reliance on any operated asset or associated third-party export route by diversifying our production base and exploring or creating new export routes over which we have more control. At OMLs 4, 38 and 41, we have retained access to two jetties at the Warri Refinery that will enable sustained exports of 30,000bopd (gross) if required, should there be problems with the primary export route, the Trans Forcados Pipeline (TFP). However, it was not necessary for us to activate this alternative export route in 2020. Security initiatives undertaken by the Nigerian Government, as well as our own continuity strategies, minimised downtime experienced because of the TFP. The Amukpe-Escravos Pipeline (AEP) is set to provide a third and more secure underground evacuation option for liquids production from OMLs 4, 38 and 41. Once completed, we believe it will significantly improve the assets’ production uptime (83% in 2020) and reduce losses from crude theft and reconciliation (9.4% in 2020). 50 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 OML 40’s production is evacuated through the Trans Escravos Pipeline (TEP), which has lower reconciliation losses and better uptime than the Trans Forcados Pipeline (TFP). There is an option being explored to connect the AEP line to the TEP through a short 8km spur providing an additional route for OML 4, 38 and 41 production. In addition, an option exists to combine the production and secure an offshore Floating Production Storage and Offloading (FPSO) facility and use it as a crude oil export terminal. This should significantly improve sales volumes by reducing downtime and reconciliation losses currently experienced by using third-party infrastructure, which are budgeted to average an aggregate of 30% per annum. A dedicated team is developing these export options and we will communicate the details in due course. At OML 53, Seplat plans to construct a crude export line to convey production from Ohaji South field into Ebocha-Brass Trunkline via Ebocha manifold. This will provide an alternate evacuation route to Brass Terminal and thereby help alleviate production deferment from the field. 51 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Financial review ENSURING FINANCIAL SUSTAINABILITY Seplat’s prudent financial management has enabled us to maintain dividends, increase capital investment and voluntarily repay $100m debt, despite the challenging conditions of 2020. Emeka Onwuka Chief Financial Officer 52 Our approach to financial sustainability Our robust financial performance in 2020 demonstrated the importance of a prudent approach to managing our finances, focusing on capital allocation, revenue diversification, cost control, hedging and debt management. Despite a challenging year in which revenues fell 24% we repaid $100 million debt, invested $150 million for growth and maintained our dividend at $0.10 per share for the year. Our approach to financial sustainability is outlined below. Capital allocation Financial sustainability begins with the decisions we make about capital allocation and the priorities we consider when using cash. Our aim has always been to maintain a healthy balance sheet, focusing on cash generation first and foremost so we can build up a large reserve for future deployment and protect ourselves against the kind of downturns the world experienced in 2020. Our priorities for the allocation of capital are shown in the chart opposite. We focus on uses that offer the best possible returns for the lowest risk. In our capital investment programme, we are investing heavily in our gas business in order to serve a potentially huge market in which we are already a leader. Investing in gas will also help us to diversify our revenues against oil price volatility as well as provide the kind of long-term, highly visible contracts that are simply not possible with oil. When we consider investments in oil, we look at which fields will offer the highest returns at a range of different price levels. We prioritise those that will have the lowest operating costs and are capable of profitability even at the low prices we experienced in 2020. As price scenarios increase, more expensive fields will naturally come into consideration and this determines our drilling priorities for the future. We will also consider supporting infrastructure investments that will assure our flow of oil more securely, for example through dedicated pipelines, to ensure higher revenues through the reduction of losses. Overall, we invested $150 million in capital projects in 2020, compared to $125 million in 2019, thereby demonstrating our continuing commitment to growth despite the crises of 2020. However, referring to the chart on page 9, it is clear that we have used reductions in capital investment as a strategy to conserve cash when necessary, and this is an option that remains open to us in the future. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The reduction of debt is another priority for the allocation of our capital. During the year we voluntarily repaid $100 million of our Revolving Credit Facility, thereby reducing our debt but maintaining the headroom to use it, if necessary, in the future. In addition, we constantly seek to optimise the terms under which we take on debt. We continue to look at refinancing opportunities as appropriate, including in the debt capital markets. Dividends are another priority for capital allocation. Our aim is to maintain a core dividend of $0.05 per share and top it up with a further $0.05 per share whenever we feel it is appropriate. As other companies were cutting back their dividend payments for the 2019 financial year and looking to keep them low in 2020, we honoured our commitments for 2019 and again declared a total dividend of $0.10 per share in 2020. In addition to organic growth we continue to look for low-risk, value-enhancing opportunities to growth through acquisitions, either of operating assets or in the case of Eland, other energy companies. It should be remembered that our acquisition of Eland not only brought us its operating assets but also the right to be repaid a loan of more than $400 million in cash over the coming years. Our robust financial performance in 2020 demonstrated the importance of a prudent approach to managing our finances, focusing on capital allocation, revenue diversification, cost control, hedging and debt management. Revenue diversification Given the volatility of oil revenues, our expansion into gas represents another strategy to ensure long-term financial (and environmental) sustainability. As outlined in pages 64-67, gas has huge potential to power Nigeria’s future economic and societal growth. Gas has the benefits of long-term, more visible contracts with lower royalties and taxes that enable higher drop-through of cash. We will continue to increase the contribution of gas to our revenue mix and expect a significant boost from dividends we receive when our joint-venture ANOH Gas Processing Plant begins operation next year. Clearly focused capital allocation priorities We are focused on low-risk strategies to generate and deploy cash to grow the business and improve stakeholder returns Low-risk capital investment Returns to shareholders Repayment of debt • 10c for 2020 • Successful $650m • Invest in growing the gas business to fuel Nigeria’s increasing demand • Develop ANOH for long-term growth • Since raising $535m at listing we have returned $344m (by end of 2020) • Offset expected • Maintain core decline in oil wells by developing low-risk wells / prospects • Sustain and optimise production dividend of $0.05 per share at 9M results, top up $0.05 at full-year results as appropriate Value-creating M & A • Seek low-risk opportunities for growth that enhance NAV and FCF • Opportunity to consolidate Nigerian market though acquisition of assets divested by IOCs and distressed small-scale operators bond offer in March 2021 to redeem existing $350m Senior notes and repay $250m drawn on $350m Revolving Credit Facility • Refinanced Eland’s $100m Reserve- Based Loan on 18th March 2021 with new five-year $100m RBL facility due March 2026 • Maintain optimal balance of cash and debt Cost control We maintain a relentless focus on cost control at all times but in 2020 we were able to achieve even deeper cuts as the pandemic took hold and demand for oil was reduced. We renegotiated key supply contracts to achieve cuts of more than 30% in some cases, thereby enabling us to remain profitable at the lower prices experienced during the year. A notable example was the saving we achieved in barging costs at OML 40, where we were able to reduce these from $14/bbl to around $5/bbl during the second half of the year. In addition, a natural consequence of the pandemic was a reduction in travel and office costs. Hedging Our approach to hedging oil revenues is based upon the desire to protect from excessive downside shocks at the best achievable cost. In 2020, this strategy proved its worth as oil prices collapsed in the second quarter. The details of our hedging strategy are shown in the table below. Details of hedging 2020 Revenue, production and commodity prices The Brent oil price averaged $43.21/bbl over 2020 (2019: $64.04/bbl). Brent remained volatile throughout the year, following the twin shocks of the Saudi Arabia – Russia price war and the Covid-19 pandemic, trading between a high of $68.91/bbl in January and a low of $19.33/bbl in April, before exiting the year at $51.80/bbl. Total revenue in 2020 was $530.5 million, down 24.0% from the $697.7 million achieved in 2019. Crude oil revenue was $417.9 million (2019: $495.1 million) a 15.6% reduction compared to 2019, largely reflecting lower realised oil prices of $39.95/bbl for the period (2019: $64.4/bbl) offset by added production primarily from the Eland assets. Following the completion of its acquisition, Eland’s revenues and costs are included in the full-year 2020 accounts but not reflected in 2019. A $50.0 million oil underlift was recorded under other income in the period, compared to an overlift of $6.8 million in 2019. Period Q1 Q2 Q3 Q4 Barrels hedged (Mbbls) 1.5 Strike price ($) $45 1.5 1.5 1.5 0.5 $45 $45 $30 $35 Cost (bbl) $0.83 $0.75 $0.99 $1.49 $1.04 Payment received (gross) – $23.16m $3.08m – – 53 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Financial review | continued Average working-interest liquids production was 33,714bopd, up 40.9% from 23,935bopd in 2019, whilst the total volume of crude lifted in the year was 10.5 MMbbls compared to 7.7 MMbbls in 2019. The higher volume was due to a maiden contribution from OML40 and Ubima, and higher production from OML 53, though constrained by OPEC+ cuts of 410,000bbls (on a gross basis) allotted to the Group. The Company experienced TFP reconciliation losses of 9.4% for the period, but we expect these to fall when the Amukpe-Escravos underground pipeline comes onstream. Gas sales revenue decreased by 17.1% to $112.5 million (2019: $135.8 million), due to lower gas sales volumes of 37.1 Bscf compared to 47.8 Bscf in 2019. The lower gas sales volumes reflect lower-than-expected gas production owing to constrained demand due to the impact of the pandemic and delays in completing the Oben-50 gas well, following a restoration in demand. There were no gas-processing revenues in the period, compared with the one-off gas-processing revenue of $66.9 million in 2019, which was the Oben gas plant tolling payment by NPDC. The average realised gas price was slightly higher, at $2.87/Mscf (2019: $2.84/Mscf). Gas sales contributed 21.2% of total Group revenue in 2020 (2019: 19.5%). Cost-saving initiatives During the year, a comprehensive cost- saving programme was developed to adapt to current market conditions. Through the implementation of these actions, the Group aims to reduce costs by at least 30% across the business by the end of 2021. Across 2020, we achieved $17 million in cost savings through these various initiatives. Towards opex and G&A reduction, IT, administrative and travel costs have been reduced to the essentials and all third-party and service contracts were renegotiated downwards. This is reflected in General and Administrative expenses holding relatively stable at $76.0 million despite a higher depreciation charge and the consolidation of Eland (2019: $70.6 million). The capital investment programme was revised to conserve cash and manage liquidity. In terms of efficiency, we significantly improved our technologies to support secure and reliable virtual collaboration, which increased employee productivity in a work from home environment. Additionally, Wells, Reservoir and Facilities Management recommendations and learnings from the Oben Gas Plant maintenance were implemented. The Group intends to continue to simplify activities and increase their efficiency. 54 As other companies were cutting back their dividend payments for the 2019 financial year and looking to keep them low in 2020, we honoured our commitments for 2019 and again declared a total dividend of $0.10 per share in 2020. Gross profit Gross profit decreased to $124.6 million (2019: $395.7 million) due to lower oil prices and higher non-production costs primarily consisting of royalties and DD&A, which were $228.8 million compared to $187.7 million in the prior year. The DD&A charge for oil and gas assets increased to $127.5 million during 2020 (2019: $91.1 million), reflecting higher depletion of reserves because of increased production compared to the prior year. Direct operating costs, which include crude-handling fees, rig-related costs and operations and maintenance costs amounted to $151.8 million in 2020, 44.2% higher than $105.3 million in 2019. Production evacuation from the Gbetiokun and Ubima fields resulted in barging and trucking costs of $15.9 million. These increased costs reflect the additional production volumes from the Eland assets and resultant increase in royalties and crude handling fees. On a cost-per-barrel basis, production opex was higher at $8.90/boe (2019: $6.20/boe) because of the effect of OPEC+ restrictions that curtailed production volumes and the trucking and barging costs at Gbetiokun. However, benefits of the successful streamlining of the Gbetiokun operations have driven barging costs down from $14/bbl to $5/bbl. Non-cash IAS 36 impairments As previously reported, under IAS 36 the Company identified the need to revalue its assets due to the significant economic uncertainty of the Covid-19 crisis. Following a reassessment of the business models and assumptions to establish their reasonableness and practicality, particularly in the current and expected oil price environment, we decided to book a non-cash provision of $114.4 million across non-financial assets in the period. Operating results After adjusting for non-cash impairments and fair value losses, the operating profit was $121.4 million. Including all adjustments, the operating loss for the year was $31.7 million (operating profit 2019: $311.9 million). The loss reflects lower oil prices realised and an impairment provision of $144.3 million booked in the period, which includes a non-financial asset charge of $114.4 million (IAS 36 as detailed above) and financial asset charges of $29.9 million (IFRS 9). The financial asset charge includes charges against a deposit made for a potential investment that the Company will no longer pursue. Other income of $83.9 million includes an adjustment for a $50.0 million underlift position (shortfalls of crude lifted below Seplat’s share of production, which is priced at the date of lifting and recognised as other income) and the $2.2 million tariff income generated from the use of the Company’s pipeline. Hedging income of $26.4 million was received in the period; $8.3 million hedging costs are recognised as fair value charges. The stated $7.2 million provision no longer required relates to a contingent liability initially recognised on acquisition of Eland. An EBITDA of $265.8 million adjusts for impairment and other non-cash items, equating to a margin of 50.1% for the year. Tax The Group’s tax charge for 2020 was $5.1 million, compared to $29.1 million for 2019. The tax charge is made up of a deferred tax credit of $8.5 million and a current tax charge of $13.6 million. The deferred tax credit is mainly driven by the unutilised capital allowances and unutilised tax losses for the period. The estimated effective tax rate used for the year ended 31 December 2020 was 6% (2019: 10%). The reduction in the effective tax rate was principally due to the recognition of tax losses available for utilisation against future profit. In May 2015, in line with sections of the Companies Income Tax Act, which provides incentives to companies that deliver gas utilisation projects, Seplat was granted a three-year tax holiday with a possible extension of two years. In 2018, upon review of the performance of the business, the Group provided a notification to the Federal Inland Revenue Service (FIRS) for the extension of claim for the additional two-year tax holiday. Effective May 2020, the five-year tax holiday benefit for the gas business ended and the financial statements have been prepared on this basis. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Net result Loss before tax was $80.2 million, compared to a profit before tax of $292.9 million in 2019. The higher net finance charge of $50.2 million in 2020 includes interest on the $350 million RCF in December and the consolidation of Eland finance (2019: $20.1 million). Loss for the year was $85.3 million (2019: $277.0 million profit). The resultant basic loss per share was $0.13 in 2020, compared to an EPS of $0.49 in 2019. The reduction was mainly due to lower oil prices and impairment charges described above. Dividend In line with the dividend policy, the Board has recommended a final dividend of $0.05 per share. This will bring the total dividend to $0.10 per share (2019: $0.10 per share). Subject to approval of shareholders, the dividend will be paid shortly after the Annual General Meeting, which will be held in Lagos, Nigeria, on 20 May 2020. Repayment of Elcrest development loan to Seplat In acquiring Eland, Seplat has acquired the right to be repaid a shareholder loan. The loan was advanced to Elcrest by Westport, Eland’s 100%-owned financing subsidiary for the development of OML 40. Following its acquisition of Eland, Seplat is entitled to 100% of Elcrest’s production and net cash flows until the loan is repaid in full. At 31 December 2020, the outstanding balance of the loan was approximately $417 million. After repayment of the loan, Seplat’s interest in OML 40’s production and net cash flows will revert to 20.25%, representing its 45% interest in Elcrest, which in turn owns 45% of OML 40. Cash flows from operating activities Net cash flows from operating activities, after movements in working capital, were $308.7 million (2019: $337.8 million). An income tax payment of $10.4 million was made in the period (2019: $3.5 million). The Group received $188.1 million from the major JV towards the settlement of outstanding dollar-denominated cash calls and $154.2 million (Naira equivalent) to offset Naira cash calls totalling $342.3 million received in 2020. This compares favourably to $179 million received in 2019. The major JV receivable balance now stands at $107.0 million, down from $222.3 million at the end of 2019. Revenue breakdown by oil and gas ($m) 2019 2020 202.4 495.1 112.5 417.9 Gas Oil Gas Oil -24.0% Revenue $530.5 million Oil revenue was 15.6% down at $417.9 million, largely reflecting lower realised oil prices of $39.95/bbl for the period (2019: $64.4/bbl) offset by added production primarily from the Eland assets. -52.0% Major JV receivable reduced The major JV receivable balance now stands at $107.0 million, down from $222.3 million at the end of 2019. -8.6% Net cash flow from operations $309 million Net cash flows from operating activities, after movements in working capital, were $308.7 million (2019: $337.8 million). An income tax payment of $10.4 million was made in the period (2019: $3.5 million). +20.3% -3.7% Capital expenditure $150.1 million Capital expenditures were $150.1 million including costs of around $83.5 million for drilling and completion of nine wells including three gas wells and six development oil wells that were completed earlier in the year. Associated facilities and engineering costs amounted to $61.3 million. Net debt $439.7 million Seplat ended the year with gross debt of $698.4 million with most maturities in 2023, and cash at bank of $258.7 million, which includes restricted cash of $33.6 million, leaving net debt at $439.7 million. 55 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Cash flows from investing activities The Group implemented a modest capex programme for the majority of 2020, in response to low oil prices caused by a price war between OPEC+ members in the first half of the year, exacerbated by the impact of Covid-19 on global oil demand. Our planned spend of $120.0 million for 2020 was designed to sustain production from our oil wells and increase gas production in order to meet our gas contractual obligations. Mindful that we cannot fully control the pace of project execution in this environment, the Group established various initiatives to maximise work programme flexibility while preserving cash. Most of the Group’s capital expenditures are discretionary with the flexibility to align investment with cash flow in response to prevailing conditions and future growth opportunities. As oil prices improved, an additional capex of $30 million was approved in the fourth quarter of 2020, towards drilling the ANOH upstream wells at OML 53 and project costs related to delivery of the Sapele Gas plant. Most of the Group’s capital expenditures are discretionary with the flexibility to align investment with cash flow in response to prevailing conditions and future growth opportunities. Capital expenditures were $150.1 million in 2020 and included costs of around $83.5 million for drilling and completion of nine wells. As a result, capital expenditures were $150.1 million in 2020 and included costs of around $83.5 million for drilling and completion of nine wells including three gas wells (completion of Oben 48; Oben 49 and Oben 50) and six development oil wells (Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji South-5, Ohaji South-6 and Gbetiokun-5) that were completed earlier in the year. Associated facilities and engineering costs amounted to $61.3 million. The payment of $60.0 million reflects the final equity contribution towards the ANOH Gas Processing Plant project. The Group received total proceeds of $4.8 million under the revised OML 55 commercial arrangement with Belema Oil for the monetisation of 67.5 kbbls. Recovery during the year was impacted by OPEC+ production cuts and low oil prices. After adjusting for interest receipts of $1.7 million, the net cash outflow from investing activities was $203.7 million compared to a net cash outflow in 2019 of $732.9 million, which included the AGPC deconsolidation, ANOH equity contribution and acquisition costs in 2019. 56 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Cash flows from financing activities Net cash outflows from financing activities were $217.4 million (2019 net cash inflows: $145.2 million). This reflects a further $10.0 million drawn from the Westport RBL facility, interest of $64.8 million paid on loans and dividend payments to shareholders of $58.3 million. In August 2020, the Company repaid $100.0 million of the revolver. Seplat ended the year with gross debt of $698.4 million with most maturities in 2023, and cash at bank of $258.7 million, which includes restricted cash of $33.6 million, leaving net debt at $439.7 million. Issue of $650m senior notes On 25 March 2021, the Company priced its offering of $650 million in aggregate principal amount of 7.75% senior notes due 2026 (the “Notes”). The gross proceeds of the Notes will be used to redeem the existing $350 million 9.25% senior notes due 2023, to repay drawings of $250 million under the existing $350 million revolving credit facility, for general corporate purposes, and to pay transaction fees and expenses. Reserve-Based Loan (RBL) Eland’s existing RBL was consolidated into the Group’s balance sheet in 2020. The RBL was most recently refinanced in November 2018, via the Group’s subsidiary Westport Oil Limited, and was a five-year loan agreement with interest payable semi-annually, with the maximum facility amount starting to reduce in January 2020. The RBL was secured against the Group’s producing assets in OML 40 via the Group’s shares in Elcrest, and by way of a debenture that created a charge over certain assets of the Group, including its bank accounts. The available facility was capped at the lower of the available commitments and the borrowing base. In March 2021 we announced that Seplat’s wholly owned subsidiary, Westport Oil Limited, had successfully refinanced its existing US$100 million reserve-based lending facility due November 2023 with a new five-year US$100 million reserve-based lending facility due March 2026. The RBL carries initial interest of LIBOR + 8% payable semi-annually. The five-year RBL is scheduled to commence repayment from March 2023. The RBL includes a US$75 million accordion to accommodate further commitments in the future. Dividends returned to shareholders $m Hedging Seplat’s hedging policy aims to guarantee appropriate levels of cash flow assurance in times of oil price weakness and volatility. During 2020, the Group had in place dated Brent put options covering a volume of 6.5 MMbbls as follows: (i) for Q1, Q2 and Q3, 1.5MMbbls for each quarter at a strike price of $45/bbl; and (ii) for Q4, 1.5MMbbls at a strike price of $30/bbl and 0.5MMbbls at a strike price of $35/bbl. This hedging programme has been continued in 2021 with up-front-premium put options as follows: (i) for Q1, 1.0MMbbls at a strike price of $30/bbl and 1.0MMbbls at a strike price of $35/bbl; (ii) for Q2, 2.0MMbbls at a strike price of $35/bbl; and (iii) for Q3, 1.0MMbbls at a strike price of $35/bbl and 1.0MMbbls at a strike price of $40/bbl. The Board and management team continue to closely monitor prevailing oil market dynamics and will consider further measures to provide appropriate levels of cash flow assurance in times of oil price weakness and volatility. Credit ratings Seplat maintains corporate credit ratings with Moody’s Investor Services (Moody’s), Standard & Poor’s (S&P) Rating Services and Fitch. The current corporate ratings are as follows: (i) Moody’s B2 (negative); (ii) S&P B (although the bonds are rated B- due to priority indebtedness) and (ii) Fitch B- (positive). $344m total 58.3 58.7 58.9 Emeka Onwuka Chief Financial Officer 22.5 0.0 71.8 400.0 300.0 200.0 100.0 73.2 0 2014 2015 2016 2017 2018 2019 2020 Liquidity The balance sheet continues to remain healthy with a solid liquidity position. Net debt reconciliation at 31 December 2020 Senior Notes* Revolving Credit Facility* Westport RBL* Total borrowings Cash and cash equivalents Net debt * including amortised interest. Coupon 9.25% LIBOR+6.00% Maturity June 2023 June 2022/ December 2023 LIBOR+8% November 2023 $ million 353.4 246.4 98.6 698.4 258.7 439.7 57 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility 58 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 SAFETY ENVIRONMENT COMMUNITIES PEOPLE Seplat is committed to being a best practice operator and a responsible and accountable corporate citizen as demonstrated in the approach to our operations. This is further illustrated through the strong relationships that we have built with our host communities and other stakeholders to create a stable operating environment with positive socio-economic outcomes. 59 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued Corporate social responsibility | continued ENSURING A HEALTHY WORKFORCE, SAFE OPERATIONS AND ENVIRONMENTAL CONSERVATION At Seplat, we believe we have a role to play in shaping the future of energy in Nigeria. • At the start of the Covid-19 pandemic, measures were immediately put in place to protect our personnel and operations from the spread of the illness: • Lessons learnt from incident investigations were shared company-wide via LFIs, HSE meetings and other personnel and contractors’ engagement fora. • We continued sustained focus on asset integrity and maintenance of safety critical elements by conducting a comprehensive audit and health check on the Asset Integrity and Maintenance Management Systems. • We conducted trainings for frontline leaders to drive safety leadership amongst the workforce. Environment In all Seplat projects and operations, our objective is to manage the environmental and social impacts of our activities. • We remain committed to environmental protection and sustainability by identifying and evaluating the impacts of our activities on the environment. Environmental Impact Assessment studies were carried out for four fields – Amukpe, Jisike, Ogume and Owu. • We continued with our Environmental Compliance Monitoring Programme to ensure environmentally safe and sound operations and compliance with all regulatory requirements. • We developed a verifiable process for Green House Gas Emissions quantification to monitor effectiveness of the ongoing Flares Out projects. Jay Smulders Technical Director HSE strategic principles Our HSE Policy is implemented with consideration for guidelines stipulated in ISO 45001 & ISO 14001. This is further reinforced by the Company’s HSE Management System to guarantee adherence to local regulations, industry standards, and international best practices. Our HSE philosophy is communicated to all employees, customers, contractors, and other stakeholders of our business. At Seplat, we are governed by the three core strategic principles of our HSE policy: – Infrared thermometers, hand sanitisers and face masks were deployed to all operating locations for immediate distribution and use. – A multi-discipline Corona Virus Monitoring Group (COVIMOG) was set up to monitor and coordinate Seplat’s response to the pandemic with a view to sustaining operations. – Operations Continuity Teams were set • Healthy Employees and Safe Workplaces up at the two operational bases. • Environmental Protection and Sustainability • Mutual Respect with Host Communities and Local Stakeholders Health We have been working to protect our people through a more systematic approach to health. • We provided comprehensive health services and access to all employees. • We provided 24-hour clinical coverage in all our areas of operation with standby ambulances for emergencies. • Employees and guests are encouraged to be more proactive towards a healthy lifestyle via health campaigns and provision of biometric monitoring equipment in all facilities. • A personal fitness programme has been introduced into daily activities of office-based personnel while a fitness gym is provided in our Field Logistic Bases. – NCDC approved laboratories and hospitals were engaged for provision of PCR testing and clinical services for positive cases. – Almost 3,000 PCR tests conducted with less than 0.5% positive cases; all positive cases treated and returned to work. Safe operations and prevention of major incidents We continue to promote deep capability and safe operating culture across our locations. • Recorded Zero Lost Time Injury or Fatality for more than two years of our operation. • Introduced 11 Mandatory Safety Rules which were rolled out across the organisation to reinforce the required foundations for improvements in our safety culture. • Leadership Commitment continued to be demonstrated through senior management review of all high potential incidents. 300% more incidents were reviewed in 2020 compared with 2019 and all recommendations are being implemented. 60 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 2020 Performance review In 2020, we sustained our performance in keeping people safe with zero lost time injury incidents (LTI) and fatality. Due to a variety of safety initiatives implemented across the organisation, Lost Time Injury Frequency (LTIF) has dropped steadily from 0.33 in 2016 to 0 in 2019. This was also sustained in 2020. The gas stations were optimised to achieve high availability of compressor uptime. The compressor units were also overhauled in some stations to attain a 39% reduction in gas flared in 2020 from 2019. The Flares Out project is still on course with planned construction of additional Booster Compressors in all operating facilities in 2021. We continue to improve on environmental impact via effective pipeline integrity and leaks management. Seven spills (>0.75bbl or equivalent of 1kg) were recorded. Replacement of aged pipelines and integrity checks are continuously conducted. We took proactive steps to protect biodiversity and groundwater in our operations and like previous years, the effects of our operations on groundwater contamination remained nil. In the coming years we will continue to strive for an even greater improvement in our HSE performance across Seplat operations. 5 Years Lost Time Injury Frequency (LTIF) Trend 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 2016 2017 2018 2019 2020 Health and Safety – 2020 performance review: Fatalities (employee and contractor) Lost Time Injury Frequency (LTIF) 2014 0 2015 0 2016 0 2017 0 2018 0 2019 0 2020 0 0.4 0 0.33 0.31 0.14 0 0 Environment – 2020 performance review: Flaring – million standard cubic feet (MMscf) Volume of oil spilled through own operations (Thousand tonnes) Volume of oil spilled through sabotage (Thousand tonnes) Groundwater contamination Freshwater consumption (MMbbls) Total Greenhouse Gas Emissions (MM tonnes CO2 equivalent) 2014 9,465 2015 7,642 2016 4,757 2018 2017 2020 8,418 6,487.99 8,910.18 10,624.97 2019 0.0004 0.1089 0.002 0.002 0.0032 0.001 0.0091 0.0014 0.0021 0.002 Nil 0.0001 0.0001 0.0037 Nil 1.18 Nil 1.5 Nil 0.28 Nil 0.24 Nil 0.19 Nil 0.19 N/A N/A N/A N/A N/A N/A Nil 0.19 2.8 61 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued Corporate social responsibility | continued ELCREST HSE REPORT Ensuring a healthy workforce, safe operations and environmental conservation. HSE strategic principles At Elcrest, we are governed by the three core strategic principles of our HSE policy: • No harm to people • Accident free workplaces • No damage to the environment Health • We provide comprehensive health services to all employees and access to a medical doctor to provide medical advice • We provide 24-hour clinical coverage in all our areas of operation with standby ambulances for emergencies and retainership agreements with local hospitals/clinics • Covid-19 pandemic preventive/control measures were immediately implemented to protect our personnel and operations from the spread of the illness, these included: – Infrared thermometers, hand sanitisers and face masks were deployed to all operating locations for immediate distribution and use. – C-19 Monitoring by HR interfaces with Seplat COVIDMOG for coordination and response to the pandemic with a view to sustaining operations with minimum impact of the C-19 virus. – C-19 protocols have been implemented and complied with strictly at field operations to ensure business continuity with minimum impact of Covid-19 virus. – Temperature testing and medical assessment of all personnel arriving on site, either first time arrivals or returning from rotational leave. Safe operations and prevention of major incidents HSE Manager and Technical HSE Lead appointed to Elcrest HSE Team in November and December 2020. Environment • We remain committed to environmental protection and sustainability by identifying and evaluating the impacts of our activities on the environment. • Environmental Impact Assessment study was carried out for Gbetiokun field development. • Standby spill response team and equipment provided for response to the risky impact of potential oil/chemical spill in the swamps. 2020 performance review In 2020, we maintained zero LTI and disseminated the learning from BRVS incident and commenced safety culture improvement programmes Company-wide. All operational sites have competent Site HSE Officers (and back-to-back) in place to monitor, advise, train workforce and report daily to Project and HSE Management. • Sixteen of the recommendations, including all high-priority items, have been closed out and the final two items will be concluded shortly. • Clear Leadership commitment demonstrated through Management Facilities Visits (MFV), reviews of all incidents at the monthly Incident Review Panel (IRP) meeting and active participation at all HSE meetings. Management involvement in implementation of incident investigation and site inspection recommended actions has taken a high priority. • Lessons learnt from incident investigations were shared Company-wide through HSE meetings and the quarterly contractor’s engagement forum. • Conducted Permit to Work and Safe Systems of Work training for field personnel and supervisors. Health and Safety – 2020 performance review: Fatalities (employee and contractor) Lost Time Injury Frequency (LTIF) Environment – 2020 performance review: Flaring – million standard cubic feet (MMscf) Volume of oil spilled through own operations (Thousand tonnes) Volume of oil spilled through sabotage (Thousand tonnes) Groundwater contamination Freshwater consumption (MMbbls) Total Greenhouse Gas Emissions (MM tonnes CO2 equivalent) 2020 7 0.00 2020 2,257 0.1159 0.000567 Nil N/A 0.13 62 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 BRVS incident Accident summary On 7 July 2020, a tragic accident involving seven fatalities occurred due to an explosion during planned maintenance work by contractors at the Benin River Valve Station on OML 40 in Delta State. Our thoughts and prayers remain with the families and friends of all those who lost their lives. The NPDC/Elcrest joint venture has provided support to all the bereaved families. Field operations at Gbetiokun, 30km away, were unaffected, but we suspended operations to allow repairs to the export site, which were concluded in August. Three investigation teams including a DPR-led team, an independent investigator and a combined team of NPDC/Elcrest (led by NPDC as the operator) began separate investigations in the immediate aftermath of the accident. Over the course of the investigation, a multi-disciplinary team of experienced internal and external specialist personnel was constituted to distil out lessons from the accident and review operational practices with a view to revising operational controls to prevent such incidents in the future. Results of investigations The investigations identified failure of the Permit to Work system as the root cause of the incident and recommended improvement actions. A total of 16 key findings related to the causes of the accident emerged. The team developed a series of 18 recommendations to address each of its key findings, which are intended to enable prevention of similar accidents as well as address other potential issues. Categories of the findings included gaps in documentation, training, processes and interface management. Our response We recognised that full implementation of the 18 recommendations would involve long-term commitment and a team was set up to drive HSE gap closure. A prioritised action plan was put in place with due dates and accountabilities for each element of the plan, with actions tracked to completion. Sixteen of the recommendations, including all high-urgency items, have been closed out and the final two items will be concluded shortly. Elcrest’s management has prioritised building a robust HSE culture across the organisation and aims to finalise implementation of the enhanced standards across its locations. 63 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued ENVIRONMENT Roger Thompson Brown Chief Executive Officer Our primary aim at Seplat is to meet Nigeria’s energy needs in an economically, socially and environmentally responsible way. We are committed to taking utmost care to properly assess and manage environmental risks and minimise our environmental impact. Following an extensive gap analysis of Seplat’s sustainability approach, conducted by an external party in 2020, we have taken steps to integrate climate change into our overall corporate strategy. These steps, and the actions we are planning to undertake will move Seplat towards full alignment with the guidelines of the Taskforce for Climate-related Financial Disclosures (TCFD). They will help ensure that all strategic decision making is informed by a proper assessment of climate-related risks and opportunities, in line with our broader sustainability commitments. The TCFD recommendations are structured around four thematic areas: governance, strategy, risk management, and metrics and targets. GOVERNANCE Role of management Climate change and sustainability are integrated across all business functions within Seplat, with each area of the business playing a role in shaping and working towards our long-term climate ambition. As CEO, I am responsible for guiding Seplat’s climate strategy, identifying the main climate-related risks to the business and monitoring the Company’s progress against key climate and sustainability goals. To enhance governance of sustainability and climate-related issues, we created a dedicated organisational structure in 2020 to streamline our work in this area. The figure below shows the business functions and executives with clear responsibilities related to managing and mitigating climate-related risks and opportunities. While we believe that fossil fuels are critical to ensuring the sustainable development of Nigeria, we also recognise the risks that climate change poses to our business and the local communities around our operations. We are therefore committed to providing clean and affordable energy to Nigeria while minimising the effects of climate change and preserving the environment. We believe the most immediate priority is to replace small-scale off-grid diesel power generation by transitioning to utility-scale gas-fired power stations, providing much needed base load energy as a step towards a longer-term renewable generation. We recognise climate science and support the goals of the Paris Agreement to keep global temperature increase to well below 2°C. We also support the United Nations Sustainable Development Goals (SDGs) and are actively working towards achieving these goals in Nigeria, including Goal 13 on Climate Action. To that end, we support the efforts of the Nigerian Government and the international community to minimise and manage the impacts of climate change and facilitate economic development in a climate-resilient Nigeria. 64 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The Risk Management and HSSE Committee supports the Board in maintaining effective oversight of Seplat’s risk management framework and profile, including as it pertains to climate-related risks and opportunities. Under its current composition, our Board is well positioned to assess the strategic implications of climate change on our business and scrutinise our response, with several of our Board members having sufficient subject-matter knowledge to understand climate-related risks and opportunities. Nevertheless, we are working to enhance our Board’s knowledge and understanding of climate change as it relates to our business and intend to consider the climate-specific credentials of future appointees, alongside our assessment of their broader experience in sustainability-related issues in the oil and gas industry. In 2021, we will continue engagement and training activities for Seplat employees relating to sustainability, including specific training on climate change for relevant personnel in order to increase internal awareness and understanding of the issue and its importance to our business. Role of the Board Responsibility for the governance of sustainability issues, including climate change, within Seplat rests with our Board of Directors. The Board recognises both the risks and opportunities that climate change presents to Seplat’s business and works with Executive Management to ensure the Company’s response considers both the external context and the interests of stakeholders. The Board plays a crucial role in guiding Seplat’s strategic approach to climate change and assessing the main climate- related risks to the Company’s portfolio. Several committees support the Board’s oversight of climate-related issues. The CSR Committee assists the Board in overseeing the Company’s sustainability and ESG-related performance, policies and practices, including on climate-related issues. The Committee is responsible for understanding the impact of climate change on local communities and ensuring that Seplat has taken the necessary steps to mitigate its impacts. Seplat Board of Directors (BoD) Climate change management is overseen by Seplat’s BoD and is discussed at every Board meeting. Board Committees The BoD is supported in its oversight function by two main committees. The Terms of Reference for both committees have been recently revised to include clear mandates for climate change-related issues: • The Risk Management and HSSE Committee oversees Seplat’s processes for identifying, managing and mitigating climate-related risks and opportunities. • The CSR/Sustainability Committee has primary responsibility for providing strategic direction on Company-wide ESG, social responsibility and climate change issues. The committee also monitors Company performance against its climate goals. Chief Executive Officer (CEO) Seplat’s CEO is responsible for managing climate change-related risks and opportunities and implementing our climate change response. External Affairs Department Seplat’s sustainability function sits under the External Affairs Department. The Director, External Affairs & Communications reports to the CEO and BoD on climate and sustainability- related issues. Research & Sustainability Division Established in 2020, the Research & Sustainability Division plays a crucial role in shaping Seplat’s climate strategy, goals and targets. Led by the GM Research & Sustainability, the department is responsible for the coordinating all sustainability- related activities across the business, including climate change. Sustainability Working Group In 2020, we established a cross-functional working group, with senior representation from all departments, to coordinate ESG and climate-related activities across the Group. 65 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued Our ‘New Energy’ business forms the core of our efforts to deliver cleaner fuels for Nigeria and will be key to delivering our climate strategy. Under this new unit, we will explore opportunities to expand our gas business as well as opportunities to use renewable energy. We are already investigating ways to incorporate solar power at our own operations to minimise our emissions and supply local communities with electricity using renewable sources instead of gas. As recommended by the TCFD, we have begun climate-change scenario analysis to stress-test the resilience of our portfolio against a variety of low-carbon scenarios, including a well-below 2°C scenario. With the support of independent consultants, we are developing our approach to scenario analysis, which explores both how global hydrocarbon prices may alter under different transition pathways and what the impacts may be on the Nigerian energy market. More details of this scenario analysis are below. We are protected to a degree from commodity price fluctuations given that a material proportion of our production, namely the gas business, is contracted at fixed prices. However, our analysis finds that we face relatively high risks of climate-induced changes to fiscal policy in Nigeria. Finally, we have analysed the implications of an energy transition on country risk in Nigeria, and the implied impacts on borrowing costs, and have found these impacts to be limited. Combining the effects of these three risk factors, we estimate that Seplat faces a reduction in portfolio-level NPV of approximately 13% under a low-carbon scenario. In the coming year, we intend to integrate this analysis fully with our financial risk assessments to provide a solid foundation for strategic decision-making. This will provide the basis for the development of Seplat’s long-term strategy and help ensure that the Company remains resilient and creates value for shareholders through the energy transition. RISK MANAGEMENT Seplat has a robust process for identifying, assessing and managing risks to our business through our enterprise risk management (ERM) system. While in previous years we have not identified climate change as a key risk, we recognise the potentially material impact that climate change and the energy transition could have on our business, especially given growing global attention on the issue. Consequently, we are in the process of developing our understanding of our exposure to climate- related risks and opportunities. As part of this process, we are looking to integrate climate change into our ERM system and our Corporate Risk Register. This will help us assess the potential impact of the various climate-related risks and opportunities and develop coherent mitigation and adaptation strategies in response. There are two main categories of climate- related risks that we are exposed to: transition risks and physical risks. Transition risks We have identified several categories of risk resulting from the transition to a lower- carbon economy. These include regulatory and policy, technology, market, reputational and financial risks. • Regulatory and policy risks include impacts resulting from the increased cost of GHG emissions (such as through any regulatory emissions pricing, taxing or emissions trading schemes), enhanced emissions-reporting obligations and international efforts to limit fossil fuel use. While these risks are unlikely to be material for Seplat in the short term, intensifying action on climate change by governments could result in increased operating costs in the medium term. We intend to mitigate this risk by working to reduce our emissions, ensure accurate emissions accounting, and monitor the international and Nigerian regulatory environment. • Technology risks include the adoption of new or improved lower-carbon alternatives to Seplat’s current products by our competitors. This could result in reduced demand for our products in the short to medium term. We aim to mitigate this risk by integrating climate-related risks into our business strategy and by improving the efficiency and reducing the carbon intensity of our operations. STRATEGY While climate change poses a significant challenge to our society and business, our primary aim is to provide Nigerians with access to clean, affordable and reliable energy. Currently the majority of electricity in Nigeria is generated using small scale off-grid diesel generation. This is GHG intensive, expensive, noisy and uses vital foreign currency as the diesel is imported. Affordable on-grid electricity generation will be the catalyst for infrastructure development, education, healthcare, food security and general employment of a young fast growing population. We believe that gas will provide the base load for a function grid which will have a twofold benefit of initially displacing diesel generated power as well as providing a means to develop and distribute on grid renewable energy. We have developed our climate strategy around this vision and have integrated climate-related risks and opportunities into our long-term commercial planning and corporate strategy to ensure resilience during the energy transition. Scenario analysis This year, for the first time, Seplat conducted a deep-dive scenario exercise to assess the commercial implications of a global transition to a lower-carbon economy. We intend to update this analysis annually and use it to inform our corporate strategy and overall risk and opportunities assessment. Industry best practice around climate change-related scenario analysis continues to evolve and there is no one-size-fits-all approach. At Seplat, we use the IEA’s Stated Policies Scenario (STEPS) as our base case and the IEA’s Sustainable Development Scenario (SDS) to simulate a well-below 2°C outcome against which we can test the resilience of our portfolio. Finally, we test for the impacts of additional climate-related value drivers, including fiscal and country risk. Our analysis shows that our business is resilient to a low-carbon energy transition, and all of our assets remain NPV positive in a low-carbon scenario. However, we face material risks to profitability and valuation should the transition occur rapidly and we will continue to monitor this closely. 66 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 • Market risks include changes in demand for our product due to changing customer behaviour as a result of the increased stigmatisation of fossil fuels and preferences for lower-carbon alternatives. This is a short- to medium-term risk that could have a negative impact on our revenues. We have undertaken scenario analysis to enhance our understanding of this risk and intend to adapt our strategy based on the findings. • Reputational risks could arise from increased stakeholder concern or negative stakeholder feedback, such as divestment campaigns or criticism from local communities over Seplat’s environmental impact. These risks are considered to be medium term and could both impact our licence to operate and limit our access to capital. The development and implementation of robust climate and sustainability-related governance structures will help us to mitigate this risk. • Financial risks could result from the decisions of financial institutions and investors to withdraw from financing the oil and gas sector as a result of external pressure, stigmatisation of fossil fuels or Seplat’s strategy. This is a medium- to long-term risk. We hope to mitigate this risk through integrating climate change into our long-term business strategy and investigating opportunities to diversify into renewables. Physical risks In addition, we recognise that Nigeria is extremely vulnerable to physical climate risks – including temperature increases, variable rainfall, sea level rise, drought and desertification, land degradation and more frequent and extreme weather events – and the stress these risks could put on both our operations and the resilience of the local communities around our assets. We intend to undertake a risk assessment of our assets’ resilience to physical risks and adapt them accordingly, while also working to help local communities respond to and mitigate the physical impacts of climate change. METRICS & TARGETS Seplat supports the Paris Agreement with its aim to limit global temperature rise to below 2°C. In line with our aim to be a leader on climate change in the Nigerian oil and gas industry, we are constantly working to monitor and reduce our GHG emissions. As the majority of our emissions currently come from gas flaring, our primary goal in relation to emissions reduction is to eliminate gas flaring by 2023. We have been investing in infrastructure and technology to help us achieve this goal, for instance we are installing compressors at our Sapele operations to help us move towards zero-flaring. While we do not envisage setting an emissions reduction target for our scope 1 and 2 emissions in the short term due to the ongoing work to develop a historic understanding of our emissions profile, we are investigating other opportunities to reduce our emissions. Carbon footprint calculator In 2020, we partnered with an independent consultant to develop a comprehensive GHG emissions calculator to build an accurate measurement of our emissions. The calculator was developed in accordance with the American Petroleum Institute (API) compendium of greenhouse gas emissions methodologies for the oil and natural gas industry (2009). The API compendium provides comprehensive guidance on accounting and reporting GHG emissions in the oil and gas industry. Factors such as global warming potentials (GWP) and liquid fuels properties are taken from the Intergovernmental Panel on Climate Change (IPCC) fifth assessment report. The calculator will be important in developing a comprehensive understanding of our contribution to emissions in Nigeria, and as a basis for identifying opportunities for emissions reduction. We will disclose our emissions in future annual reports. TCFD NEXT STEPS Governance Strategy Risk management 2022 • Establish an early-warning system to monitor stakeholder, investor or policy actions • Adopt an internal carbon price • Develop mitigation and adaptation strategies for the physical risks identified 2021 • Further enhance Board-level expertise on climate and sustainability issues • Informed by the results of the scenario analysis, incorporate climate-related risks and opportunities into broader company strategy and investment decision-making • Investigate opportunities to engage external stakeholders on Seplat’s climate strategy • Conduct an in-depth physical risk assessment of Seplat’s exposure to climate change- related risks • Update scenario analysis, enhanced by the development of a bespoke gas demand scenario for Nigeria Metrics & targets • Investigate opportunities to • Set emissions reduction targets invest in carbon offsets for scope 1 and 2 emissions • Initiate data collection on further Scope 3 emissions categories • Become a signatory of the Methane Guiding Principles 67 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued COMMUNITIES Lord Mark Malloch-Brown Independent Non-Executive Director Seplat aspires to be a good corporate citizen, committed to driving positive socio-economic benefits for our country and our host communities, and recognising that we must continuously earn our social licence to operate. Indeed, we embed this commitment in one of the five strategic pillars that guide our approach to business: Behave responsibly and share our success. We endeavour to align our activities with the United Nations’ 17 Sustainable Development Goals (SDGs). Our community relationships are governed by a Global Memorandum of Understanding, which is a guideline document that sets out goals, intentions, and responsibilities agreed after consultation with the host oil and gas producing communities themselves. Through proactive collaboration and needs analysis, we identify and address opportunities for development and concerns for mitigation. Regular dialogue with our host communities has helped broaden our social investment programmes from health, education, and infrastructure improvement to nurturing local entrepreneurship. There is a growing imperative to address the challenges of climate change and this imperative may force a shift away from fossil fuels long before Nigeria’s reserves are depleted. Therefore, we must help our communities prepare for a time when our industry may no longer be operating in their midst. Helping them diversify their economies is a priority that will ensure robust, resilient communities long after reserves have been extracted or renewables have overtaken fossil fuels. Aside from this long-term commitment, we recognise the need to help our host communities with more immediate concerns. As you will read in this report, we helped provide medical and other assistance that helped our communities cope with the Covid-19 pandemic. As this pandemic continues, and long beyond, we will never waver from our commitment to provide whatever help we can to drive positive change in our host communities. We look forward to working with them to deliver real impact where it is most needed. Seplat’s approach to community relations Seplat develops relationships of trust with its local communities by recognising the need to engage and listen, understand their needs and concerns, proactively inform them of our intentions and involve them in collaborations they find empowering. In doing so, we aim to assure peaceful and mutually beneficial relationships that support our prosperity, which in turn allows us to help theirs. We operate fairly and transparently, engaging in open dialogue, managing expectations, and conducting ourselves with the utmost respect for their cultural and ethnic traditions, while helping them understand our operations’ social, environmental, and economic potential. To clearly understand and respond appropriately, we collaborate with the communities, analyse local needs and then design and implement sustainable development projects accordingly. Our social investment aligns with the United Nations’ SDGs, and our development projects are designed to promote the socio-economic development for the benefit of the population. 68 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 We operate fairly and transparently, engaging in open dialogue, managing expectations, and conducting ourselves with the utmost respect for their cultural and ethnic traditions, while helping them understand our operations’ social, environmental, and economic potential. Resolution of problems We recognise that sometimes, things do not go as planned. Accidents happen, commitments may be overlooked, and misunderstandings can cause problems for both Seplat and our host communities. Our grievance management mechanism equips us to listen to concerns and identify relevant problems or grievances at the local level, monitor and handle complaints and then prepare adequate responses or communicate appropriate actions to alleviate any issues of concern. Besides, our conflict management guidelines ensure that any conflicts, disagreements, misunderstandings and disputes between any community or their representatives and Seplat or its agents or contractors will be resolved peacefully and amicably through dialogue and in line with the grievance mechanism and conflict resolution processes. Grievance management mechanism Specific activities 1. Potential operation disruption dispute averted 2. Mediation/ arbitration efforts requiring support of traditional rulers, regulatory agencies and government Training on grievance management/ conflict resolution 3. 4. Environmental scanning/ heads off & detected early warning signs of conflicts 5. Peaceful community awards 6. Major issue raised during grievance In addition to the direct grievance management and conflict resolution efforts by our Community Relations team, we use reliable, unbiased third-party or independent mediators and arbitrators to bring resolution. Depending on the appropriacy, we use but are not limited to the following: local community leaders, key influencers, and key state government offices (e.g. state Ministry of Justice and the Ministry of Oil and Gas). Working with traditional rulers is particularly helpful in matters regarding intra-community disputes, while state governments may provide support in the resolution of boundary disputes and multiple land ownership claims. Western Assets 10 Specific achievements Eastern Assets 11 49 1 20 1* 27 1 N/A 1 i. ii. iii. More employment opportunity Employment of community person into managerial position More contract awards to community vendors** i. More labour slots during projects * Under the terms of the GMOU, communities that ensured peaceful/disruption free operations during the year receive incentive in the form of peaceful community awards. All the host oil and gas bearing and facility hosting communities qualified for the awards in 2019 in the Western Assets. Awards are presented retroactively in the following year ** Quality employment opportunities and award of more contracts to qualifying community vendors 69 The Global Memorandum of Understanding Seplat’s community relations are implemented through formal stakeholder engagement procedures governed by our Global Memorandum of Understanding (GMoU) signed with each of our host communities. The principles embodied in this GMoU are also applied when dealing with communities that are impacted by our operations, but which do not host them – for example, communities through which our pipelines pass or to whose land we need essential access. By working within the frameworks of the GMoU and our stakeholder engagement procedures, we can sustain good relationships with local communities before the commencement of our projects, throughout our operations to the decommissioning phase. We strive to leave the area as we found it and hope to say goodbye to a community that has benefited from our presence. Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued Capacity development and local economic empowerment We recognise the need to help create long-term value and drive prosperity in the communities where we operate in Nigeria. Our social and economic initiatives aim to boost inclusive and sustainable economic growth, the creation of small businesses and, as a result, improvements in local employment opportunities, in line with the UN’s SDG 8. To address the levels of poverty and unemployment among youth and women and reduce the prospect of militancy in the communities, we implement economic development programmes that help improve prosperity through skills training and the encouragement of community entrepreneurship. This effort is complemented by direct employment from the community by Seplat, when appropriate, supported by the necessary training programmes for local people. These programmes are implemented with Seplat’s technical support and oversight and are monitored throughout all phases of the initiative. The beneficiaries are selected from a wide range of communities within our operating locations. Candidates can choose trades or courses that best fit their individual skills and interests at designated training centres. At the end of the training period, students are provided with the tools and equipment and a start-up grant to establish a small business. We organised structured training on Leadership Competence, Grievance Management and Conflict Resolution for Community Leaders and GMoU Administration for four Ohaji South communities (Avu, Awarra, Obitti and Umuapu) in February 2020 at Crystal Lake Resort, Oguta. A total of 16 participants from four communities were trained. This was to complete the training commenced in 2019 where 40 participants from ten other communities were given the same training in November 2019 in Port Harcourt. Our social and economic initiatives aim to boost inclusive and sustainable economic growth, the creation of small businesses and, as a result, improvements in local employment opportunities. 70 We focus on improving literacy, discouraging school dropout, and providing infrastructure that improves positive teaching outcomes. Sustainable community development infrastructure and other initiatives In addition to our direct business investments, and our contribution to local and national economies through the payment of taxes and levies to the various government tiers, we fund a significant amount of sustainable community development initiatives. These initiatives aim to create long-lasting benefits that contribute to improving human development indexes, thereby raising living standards in our host communities. These social investment activities align with the UN’s SDGs. Working with the local communities’ approved leaders to create shared value for communities, Seplat channels investment to areas that align local priorities to its business objectives whilst addressing the people’s broader development objectives. In 2020, and despite the Covid-19 pandemic, we continued these efforts, making significant investments in strategic community development projects and programmes in such core areas as community infrastructure, education, health and water schemes. Our social development approach aligns with the UN’s SDG 6 (access to clean water and sanitation), SDG 4 (quality education), SDG 3 (good health and wellbeing) and SDG 2 (zero hunger), amongst others, SDG 8 (Decent Work and Economic Growth) and SDG 1 (No Poverty). Education Education is a priority for social and economic development and helping to improve local educational facilities and outcomes is one of our core priorities. We focus on improving literacy, discouraging school dropout, and providing infrastructure that improves positive teaching outcomes. Our efforts include scholarships, building and renovating classrooms and teachers’ offices, providing equipment, library facilities and teachers’ living quarters. Also, in 2020 we continued our annual Seplat Pearls Quiz and launched our new Seplat JV Teachers Empowerment Programme (STEP) initiative designed to improve teaching standards in our local communities. We implemented the National Undergraduate Scholarship, which assists needy students in completing their studies; 120 undergraduates benefited in 2020. Seplat trained 15 entrepreneurs through the Conversations for Change partnership, in which young people with great ideas are empowered to use these ideas to make a living. We published a Sustainability Report, which enabled Seplat to provide transparent reporting against ESG milestones showing value creation to stakeholders. CSR achievements accounted for 95% of positive messages on Seplat across all media channels thus enhancing our Brand and Reputation. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Case study: SEPLAT TEACHERS EMPOWERMENT PROGRAMME (STEP) In November 2020 Seplat launched another initiative to improve the standard of education in our host states. The Seplat Teachers Empowerment Programme (STEP) is a well-rounded programme that provides six months’ in-person and online training designed to help teachers enhance their knowledge and skills, enabling them to be more effective and motivate their students to learn. The maiden STEP made its debut in Benin City, Edo State, in November with a five-day residential workshop that kicked off a three-month programme online. Participants were trained in specially designed teaching applications for Science, Technology, Engineering, Arts and Mathematics (STEAM). Following the introductory workshop, the training continues online with teachers receiving customised training modules on efficient pedagogical methods for STEAM education, as well as leadership and self-improvement training using a Seplat customised application. Seplat developed an Online Teachers Resource Centre that provides the teachers with access training on the best techniques and practices for implementing STEAM teaching methods, focusing on how best to implement these in the classroom for the benefit of students. The learning platform will provide teachers with resources to enhance their skills and teach STEAM subjects more effectively, motivating students through engaging discussions and demonstrations. Seplat is supporting the teachers with the provision of electronic devices and internet data for the period of training. As a responsible corporate citizen, we are delighted to play a role in improving schools’ educational capabilities in our host states. A hundred teachers and 43 Chief Inspectors of Education, drawn from Edo and Delta States, benefit from this initial project. They were selected from an initial application of nearly 400 teachers from schools in Edo and Delta States. Of the 100 teachers to be trained, 75% are from public schools, while 25% are from private schools. STEAM education is crucial in creating a robust educational foundation for students pursuing careers in Science, Technology, Engineering, Arts and Mathematics, all of which will help drive growth and prosperity in Nigeria. Highly skilled teachers are a critical success factor for delivering the quality education it requires. The Seplat Teachers Empowerment Programme has reinforced our widely acclaimed track record for supporting education. Seplat is optimistic that the newly introduced STEP initiative will enhance and sustain the quality of education in Nigeria. As a responsible corporate citizen, we are delighted to play a role in improving schools’ educational capabilities in our host states. With the STEP programme, Seplat now has a full suite of programmes to address the entire educational value chain, with our initiatives covering the improvement of school infrastructure, enhancing students’ academic performance, and building teachers’ skills and competencies. Seplat’s firm belief is that education is the bedrock for national growth and prosperity; we invested significantly in various educational Corporate Social Responsibility (CSR) programmes. These programmes support Sustainable Development Goals, notably Goal 4, which aims to “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”. 71 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued Case study: PEARLS QUIZ Despite the challenges posed by the Covid-19 pandemic, Seplat held its annual Pearls Quiz competition amongst schools in Edo and Delta States where the Company operates. In November, following a mix of online and contact sessions for the preliminaries, the winner of the 2020 competition emerged. The winning school, St. Michael Academy in Benin City, Edo State joyfully went home with the coveted prize comprising ₦7 million and other awards in November. The victorious team beat off intense competition from 574 other schools that entered the competition in June, whittling down through rounds that began online, which ended up with a final featuring the four best schools battling it out in front of a packed audience at the Imaguero College Hall in Benin City. Winning students Iyere Godiy, Ehizogie Jeffrey and Okanofua Eseose also walked away with prizes worth ₦100,000 to support their education. Students from McNell Secondary School, Sapele, Delta State, took the second prize of ₦3 million for their school and ₦75,000 each, while the third prize of ₦1 million and ₦50,000 in student grants was won by students from Gloryland Secondary School, Igarra, Edo State. 72 This programme rekindles the spirit of academic excellence and healthy competition in our youths by motivating, encouraging and rewarding the scholarship spirit in them. Launched in 2012, by Seplat and its JV partner, the Nigerian Petroleum Development Company (NPDC), the annual contest is part of our efforts to boost Delta and Edo States’ educational achievement, which host our operations. It aims to support the UN’s Sustainable Development Goal 4, to “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”. In its ninth year, the Pearls Quiz aims to foster a spirit of healthy competition in students by motivating, encouraging and rewarding the ethos of scholarship while providing them with the right platform to prepare for their examinations. Since its inception, the Quiz has impacted 45,140 students through prizes won or just through competition enjoyed in a fun and learning spirit. Likewise, many winning schools have benefited from prize-funded projects, including a new language laboratory, three roofing projects, five computer laboratories deployed in different schools and four brand new school buses. Promoting educational excellence is a crucial objective of our community-based programmes. Speaking at the awards ceremony, our CEO Roger Brown commented: “This programme rekindles the spirit of academic excellence and healthy competition in our youths by motivating, encouraging and rewarding the scholarship spirit in them as they inculcate the principles of teamwork and hard work.” We hope that the Quiz has contributed to the fact that students in Delta and Edo States have maintained very high pass rates in external examinations such as the West Africa Examination Council (WAEC). Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 SEPLAT’S COMMUNITY INITIATIVES IN 2020 Seplat joins Covid-19 relief effort In March 2020, as the pandemic began to take hold, Seplat joined the Nigerian National Petroleum Corporation (NNPC), and 32 oil and gas companies to contribute $30 million to help the Federal Government fight Covid-19 in Nigeria. The sector donation supported healthcare delivery facilities, including ventilators, personal protective equipment, test kits and ambulances to different states in the country. In addition, Seplat joined an effort to fight the pandemic in Edo, Imo and Delta states. For Edo State, the donation was made in the form of medical supplies and equipment including motorised sprayers, backpack sprayers, eye goggles, hand sanitisers, nose masks, temperature guns, chemical gloves, and personal protective equipment. Similar donations and donations of additional equipment were made in Imo State. In Delta State, Seplat, First Hydrocarbon Nigeria (FHN) and ND Western also donated critical medical equipment and materials to the state in the quest to check the spread of Coronavirus, thus enhancing Government’s readiness to manage possible incidences of Covid-19. The essential medical supplies donated by the independent oil and gas companies included high power suction machines, infusion pumps, syringe drivers, personal protective equipment (PPE), and nebulisers. Other vital medical materials that were delivered by Seplat, FHN and ND Western to the state government comprised temperature guns, hand sanitisers and examination gloves. The sector donation supported healthcare delivery facilities, including ventilators, personal protective equipment, test kits and ambulances to different states in the country. A.B.C. Orjiako, Non-Executive Chairman at the groundbreaking ceremony of a permanent 150-200 bed Emergency and Infectious Diseases Hospital at Imo State University Teaching Hospital (IMSUTH) Orlu, Imo State donated by the NNPC/Seplat JV. Seplat donates medical supplies and equipment to Edo State as Covid-19 intervention. Imo State Infectious Diseases Hospital In June 2020, Seplat and its joint venture partner NNPC commenced constructing a permanent 150-200 bed Emergency and Infectious Diseases Hospital at Imo State University Teaching Hospital (IMSUTH) Orlu, Imo State. The facility is one of the 12 hospitals that the NNPC intends to construct across the country’s six geo-political zones. The NNPC in collaboration with its partners embarked on this initiative to strengthen the country’s national healthcare delivery facilities in combating the ravaging Coronavirus (Covid-19) pandemic sustainably. At the groundbreaking ceremony, Dr. A.B.C. Orjiako, Chairman of Seplat, said the hospital represented Seplat’s philosophy of improving local communities’ wellbeing in Seplat’s areas of operation. 73 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued If the community is good to host your business, the people from the community should also be good to be part of the management. Seplat partners Ugborhen community to promote security In August 2020, we provided the Ugborhen Community, in Delta State, critical support leading to the community handing over three security vehicles to the Nigeria Police, Navy and the Nigeria Security and Civil Defense Corps (NSCDC). Seplat also provided technical input on vehicle types to be procured and provided guidance on how to agree with the security agencies (the Nigerian Navy, the Nigerian Police and the NSCDC). Though procured by the community, Seplat helped to inspect the vehicles and ensured they were fit for the intended purpose. The vehicles were presented to the Navy commander for the Nigerian Navy logistics base, Sapele; the Police Area Commander and the Commander of the Nigerian Security and Civil Defence Corps in Sapele Local Government by the President of the community, Engineer Phillip Mebradu. Ugborhen is one of Seplat’s foremost oil and gas host or producing communities in Ovhor field in OML 38 & 41, a swampy terrain in Okpe Kingdom in the Western Niger Delta of Nigeria. The three Toyota Hilux vehicles’ presentation was made at the Ugborhen Community town hall, following a period of security in the area. Seplat responded to community concerns about the security situation, which had been raised in our regular liaison with local representatives. After assessing the problem and the community’s needs, we provided advice on how to address the situation, particularly the community’s location, where ease of access by both land and water makes it vulnerable to insecurity. 74 Strengthening relationships with Imo communities Seplat’s ongoing commitment to community engagement was highlighted in August, when our Chairman Dr. A.B.C. Orjiako, led a team of the Company’s representatives on a courtesy call to Governor Hope Uzodinma and leaders of host communities in Ohaji and others, at the Government House, Owerri. The visit aimed at fostering better relationships among stakeholders to drive sustainable development in the State. At the meeting, Governor Uzodinma urged Seplat to take advantage of the current shared prosperity model of 3-R, representing the Rehabilitation, Reconstruction and Recovery of key economic and political institutions in the State and its host communities. He stated that: “If the community is good to host your business, the people from the community should also be good to be part of the management. If you think they do not have the requisite qualifications, train them to your standard and use them.” Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 He pledged to work with Seplat to ensure that the ANOH Gas Project at Assa becomes a success story. Responding to the Governor, Dr. Orjiako agreed on the need for development plans and stressed the Company’s commitment to developing communities where its facilities are located. Seplat formed a Community Engagement Management Board (CEMB) in April 2020 with 10 Ohaji – Egbema Communities to manage the Ohaji South (OHS) GMOU, which officially commenced in January 2020. The Government of Imo State led by the Commissioner for Environment swore in the members of CEMB from the communities. Seplat donates medical Items to Delta State Government to equip Delta State Covid-19 Treatment Centre in Asaba. Further Covid-19 assistance In June, Seplat and its joint venture partners, the NNPC and its subsidiary, the Nigerian Petroleum Development Company (NPDC) Limited, made additional donations to state governments to fight against the Coronavirus pandemic. For Edo State, the items donated were 25 hospital beds and a transport ventilator, the same donations being made to Delta State. For Imo State, the items donated were 25 hospital beds, sanitary buckets, alcohol-based hand sanitisers, infrared thermometers, protective equipment and a transport ventilator, amongst other donations. 75 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate social responsibility | continued OUR PEOPLE ARE OUR GREATEST ASSETS The health, happiness and professional development of our employees is at the heart of our Human Resources and employment development policies. EMPLOYEE WELFARE Employees are our greatest assets, and we are committed to ensuring their safety and welfare. In response to the Covid-19 pandemic in 2020, we continued to take proactive steps to offer a safe and reliable business environment for our employees by establishing a robust Covid-19 protocol. Career development To Support Seplat’s vision and mission statements, we ensure to attract and retain the right mix of skilled personnel and develop them into the highest calibre of professionals required to grow a world-class energy company. This includes our Graduate Trainee Programme, where recent graduates launch their careers. In 2020, despite the Covid-19 pandemic and the resulting work from home strategy adopted to protect employees from exposure to the virus, the Company leveraged on ‘learning’ as a strategic tool for organisational transformation, growth and development. We adopted deployment of learning intervention programmes via virtual mentored learning (VML) and other online training courses, to address identified competency gaps. Also, continuous coaching, mentoring and engagement of employees through online platforms to ensure that our employees have the internal support they need to develop professionally. We undertake rigorous skills and competency management, to ensure employees make the most of the career development opportunities that Seplat has to offer. The Leadership Development programme and other transformational activities that focused on capabilities and behaviours linked to value drivers of the business were delivered online. 76 Employee engagement Seplat recognises that effective communication and consultation with employees is essential to ensuring an engaged workforce and a conducive work environment. Through consultation, engagement, fairness, and proactive intervention, the Seplat Joint Consultative Committee (JCC) plays an advisory role to management and has additional jurisdiction on matters of mutual concern relating to industrial relations in the workplace such as safety, work organisation, business tools and more. Employee wellness initiatives such as the Employee Assistance Programme (EAP), a confidential and voluntary workplace service, support employees to address work related or personal issues and improve job performance. It promotes the general wellbeing of the workforce thus ensuring they remain happy and fulfilled at work. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Welfare Initiatives • Online Fitness Programme: To ensure employee wellbeing especially during the period of lockdown, self-isolating or physical distancing, the Online Fitness Daily class was launched, enabling employees to keep fit and reduce stress. • Under the Seplat Medical Scheme, employees and registered dependants were provided free access to 24-hour comprehensive medical care through designated health management organisations. • A robust Covid-19 protocol was established by Seplat where employees were provided access to medical treatment and test centres at designated facilities. • In accordance with best practices, the mandatory remote working policy was issued to outline the Company’s minimum expectations from employees for any period of Mandatory Remote Working and to manage the spread of the Covid-19 virus thus ensuring employee safety during high-risk conditions. Other initiatives such as the Joint Consultative Committee which is a committee of management and staff representatives review issues of mutual concern. The Employee Assistance Programme also promotes employee wellbeing through counselling, wellness seminars, stress management and so much more. HOW WE WORKED DURING THE YEAR Employee wellness programmes To ensure employee wellbeing especially during the period of lockdown, self-isolating or physical distancing, the Online Fitness Daily class was launched. In addition, regular interactive sessions with the Employee Assistance Programme (EAP) consultant were held to provide information on prevailing developments as it relates to the Covid-19 pandemic and help build resilience. Employees and dependants also had access to the EAP consultant for private consultations. Meetings and engagements A couple of major activities were planned and executed during the year by employees working from home. A lot of planning meetings were held online during this period to achieve the success rate recorded. General departmental meetings were also held online to track progress of activities and foster engagement between colleagues while working from home. Activities such as exhibitions, the Company’s Annual General Meeting, Seplat Energy Summit etc were planned and executed successfully due to the hard work and resilience of staff working at home despite internet challenges. COVID-19: SHOULD WE BE WORRIED? Covid workshop/HSE meeting – September 2020 A special HSE edition was organised by the HSE team to discuss the Covid-19 pandemic from a health perspective. The Guest Speakers were Dr Adeyemi Johnson of First Cardiology Hospital and Dr Chikwe Ihekweazu, the Director General of the Nigeria Centre for Disease Control. The two-hour session comprised of two enlightening presentations by the guest speakers followed by a question and answer session. Staff were able to get answers to burning questions from qualified medical personnel. Scenarios and experience of some members of staff were also shared during the session. Seplat at 10 – online celebrations The month of July, which marked ten years since the Company commenced operations, was well celebrated. A team of volunteers made up of staff from different departments worked arduously to bring a variety of activities to mark the anniversary. These exciting activities were well liked and enjoyed by all staff included the Anniversary Staff Quiz; Seplat Ideas Challenge; Seplat Got Talent; My Seplat Story; and Meet the Seplat Family. These activities ran through the week with live events which concluded with finals that produced winners. The activities ignited the Company with excitement and peaked with a fun-filled virtual party dubbed ‘A Toast to Seplat at 10’ on Saturday, July 25, 2020. At the party, leaders commended staff members for the many milestones achieved by the Company and enjoined them to continue to put in their best. The Operations Director, Mr. Effy Okon closed out the session thanking the guest speakers and encouraging all staff to stay safe. Everyone left the session with a lot of knowledge on how to manage during the pandemic and as well as reassurance. members for the many milestones achieved by the Company and enjoined to continue to put in their best. 77 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 78– 144 Chairman’s overview Board of Directors Corporate governance report Board Committee reports Directors’ remuneration report Report of the Directors Statement of Directors’ responsibilities Audit Committee’s report Statement of Corporate Responsibility 80 82 87 96 113 137 142 143 144 78 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 GOVERNANCE REPORT 79 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Chairman’s overview CORPORATE GOVERNANCE: THE ROADMAP TO SUSTAINABILITY As we continue to experience major disruptions to the world as we once knew it, agility, adaptability, and innovation are critical factors to an organisation’s resilience and sustainability. The ability to keep all of these factors on a well-balanced scale, should be the focus of an effective board in an unprecedented time.” Dear Shareholders It gives me great delight to present to you the Corporate Governance report for the financial year ending 31 December 2020. In the last one year, the entire world has been saddled with the major task of responding and adapting to the disruptions brought about by the Coronavirus (Covid-19) pandemic. The Covid-19 pandemic which inflicted the world with a wave of existential threat equally inflicted an unprecedented shock on the global economy. In response to this major disruptor, governments all over the world were forced to shut down economic activities. As a result of the suspension of economic activities across aviation, road and rail transportation, crude demand dropped drastically resulting in an all-time crude demand loss. The combination of demand loss and the oil price war pushed oil price off the cliff, left the entire world in turmoil with global economies shrinking and corporate entities struggling for survival. I am happy to report, on behalf of the Board, that despite the existential threat posed by the health and economic circumstances in the financial year 2020, Seplat, as a company remained resilient and responded with agility to, ensure protection of employees, maintain financial prudence and operational efficiency, support the communities where we operate and contributed our fair share in support of both the Federal and State governments in the provision of palliatives to the most impacted communities. A.B.C. Orjiako Non-Executive Chairman 80 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In furtherance of the Board succession planning, our former Senior Independent Non-Executive Director (S.I.D) Mr. Michael Alexander and Mrs. Ifueko Omoigui Okauru (INED) both retired from the Board on 31st January 2021. I would like to seize this opportunity to thank both Independent Non-Executive Directors for their meritorious service to the Company and wish them all the best in their future endeavours. I would also like to thank the Board, the Senior Leadership Team, and most importantly, our employees for the commitment, passion they brought to work and for contributing immensely to the stability of the Company in such an unprecedented year. I would like to thank our shareholders for their support and for staying the course with us through the years. We are assured that together we would deliver the world class energy company of our dream. A.B.C. Orjiako Chairman Seplat’s ability to effectively respond to the disruptions in the financial year under review, is underpinned by the effective governance framework already in place, the collaborative approach adopted by the Board and management in prioritising , addressing existential risk, proffering innovative short, medium, and long-term solutions for a sustainable business and environment which cannot be overemphasised. As a dual listed company, Seplat continues to be bound by several corporate governance laws and regulations both in Nigeria and in the United Kingdom. These laws and regulations include but are not limited to, the Companies and Allied Matters Act, 2020 (‘CAMA’), the Financial Reporting Council of Nigeria (“FRCN”)’s Nigerian Code of Corporate Governance, 2018 (“NCCG”), the Securities & Exchange Commission (‘SEC’) Code of Corporate Governance for Public Companies in Nigeria (the ‘Nigerian Code’), the Nigerian Stock Exchange (‘NSE’) Rulebook, the United Kingdom (“U.K”) Corporate Governance Code, 2018 (the ‘UK Code’), UK Listing Rules (‘LRs’) and the Market Abuse Regulations, 2016 (‘MAR’). These laws and regulations have played a pivotal role in the laying of a solid foundation for our Company’s governance framework and practice; culminating in the Company’s demonstrated resilience amidst the health and economic challenges occasioned by the Covid-19 pandemic. In the 2020 financial year, the Board, through its Corporate Governance, Compliance and Culture Board Committee, carried out extensive review and updates to its governance policies including but not limited to the Board Charter, Code of Business Conduct, Conflict of Interest policy and the Whistleblowing policy. The annual Board evaluation was externally facilitated to assess how the Directors, Board Committees are committed to their roles and work together effectively in the achievement of the Company’s objectives. As a forward looking Company, Seplat is mindful of the increasing focus, by climate change advocacy groups, investors, and regulators alike, on Environmental, Social and Governance (ESG) approach to sustainability of business and our world. In recognition of the changing narrative in the energy space, the Board and management kept at the fore of deliberations in the year under review, the urgent need to reduce carbon footprint, innovative ways to leverage gas as an energy transition, whilst keeping sight on the Company’s transformational strategy of portfolio diversification. Details of the Board’s activities for the financial year under review, are contained in the Corporate Governance Statement and Board Committee reports. The year 2020 also witnessed the deliberate effort at refreshing the Board membership. To invigorate its capabilities, the Board welcomed three new members in the financial year under review – Mr. Emeka Onwuka as an Executive Director/Chief Financial Officer (CFO), Ms. Arunma Oteh, OON and Mr. Xavier Rolet, KBE as Independent Non-Executive Directors (INEDs). The Board is gratified by the relevant skills and fresh perspectives that these directors bring to the Board. The Company also witnessed the retirement of Mr. Austin Avuru as the Chief Executive Officer (CEO) and the resumption of Mr. Roger Brown as the new CEO. Mr. Avuru’s retirement as CEO is a testament to the success of the Company’s succession planning. I would like to take this opportunity to thank Mr. Austin Avuru for leading the development of a strong organisation, deployment of agile systems, processes and stakeholder relationships that allowed Seplat to grow rapidly both organically and inorganically to be a listed exploration and production company on both the Nigerian and London international stock markets and recognised as a major player in the Nigerian and wider African hydrocarbon industry. The Board of Seplat is grateful to Mr. Avuru for these accomplishments. To ensure that the Company retains valuable knowledge, skills, experience, and maintain continuity, Mr. Avuru continues on the Board as a Non-Executive Director. 81 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board of Directors EXPERIENCED, PROACTIVE AND EFFECTIVE LEADERSHIP Board meetings and main subjects discussed in 20201 Non-Executive Chairman 25 Corporate strategy 27 Finance 7 Structure and capital Risk management and internal control 12 29 Corporate governance and ESG Board composition as at 1 March 2021 Chairman Executive Directors Non-Executive Directors Independent Non-Executive Directors Board skills and experience 2020 1. Executive and strategic leadership 2. Governance and Board 3. Work health, safety, environment and sustainability 4. Financial and risk management 5. Capital management 6. Oil & gas 7. Strategy 1 3 3 6 13 11 7 10 9 8 11 Dr. Ambrosie Byrant Chukwueloka (A.B.C.) Orjiako Non-Executive Chairman Biography Dr. A.B.C. Orjiako is the Chairman and co-founder of Seplat since inception in 2009. He is a fellow of the West African College of Surgeons in Orthopaedics and Traumatology. Dr. Orjiako ventured into full-time business in 1996 after 11 years of active medical practice and has developed extensive experience in the Nigerian oil and gas sector. Since the inception of Seplat, Dr. Orjiako has spearheaded new business development, providing leadership on strategy and stakeholder management. Seplat under his leadership, has become a highly reputable Nigerian Independent recording several milestones and firsts; successfully closing landmark acquisitions, growing exponentially under a strong and transparent corporate governance framework. He is also a founding member of the London Stock Exchange Group’s Africa Advisory Group (LAAG). He is a recipient of several awards for his service to humanity and entrepreneurial achievements, including a knighthood award from Pope John Paul II and Officer of the Order of the Niger (OFR) among others. Experience Dr. Orjiako brings a wealth of leadership experience in the Nigerian oil and gas sector having established and managed several companies in the upstream, downstream and service sectors of the industry in Nigeria. These include: Abbeycourt Trading Company Ltd, Abbeycourt Energy Services Ltd, Zebbra Energy Ltd and Shebah Exploration and Production Company Ltd. He also has other business interests in construction, real estate development, pharmaceuticals and shipping. 1. Senior executive experience including international experience exposed to a range of political, cultural, regulatory and business environment. 2. Experience as a board member or member of a governance body. 3. Experience related to health, safety, environmental, sustainability or social responsibility. 4. Senior executive or equivalent experience in financial accounting and reporting, corporate finance, risk and internal controls. 5. Experience in capital management strategies, including capital partnerships, debt financing and capital raisings. 6. Experience in oil and gas industry with knowledge of markets, competitors, operational issues, technology and regulatory concerns. 7. Track record of developing and implementing successful business strategies including assets or business portfolio. Date of appointment • As Director on 14 December 2009 • As Executive Chairman on 1 February 2010 • As Non-Executive Chairman on 1 January 2014 Board meetings attended • 10/10 Committee membership • No longer applicable Independent • Not applicable 82 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Executive Directors Roger Thompson Brown Chief Executive Officer; Executive Director Emeka Onwuka Chief Financial Officer; Executive Director Effiong Okon Operations Director; Executive Director Biography Mr. Brown joined Seplat as Chief Financial Officer in 2013. With a background in finance, he is a qualified Chartered Accountant with the Institute of Chartered Accountants of Scotland and also a member of Association of National Accountants of Nigeria. Mr. Brown has over 25 years’ experience in the financial sector, primarily focused on emerging markets with extensive experience in structuring energy and infrastructure transactions on the African continent. Prior to joining the Company, he held the position of Managing Director of Oil and Gas EMEA for Standard Bank Group. Following Mr. Avuru's retirement on 31st July 2020, Mr. Brown was appointed CEO and assumed the role on 1st August 2020. Experience Mr. Brown brings to Seplat extensive financial, accounting, M&A, debt and equity capital markets experience in the emerging markets space, and in particular the African oil and gas sector. He has advised on some of the largest and highest profile transactions that have occurred in Nigeria in recent years. Biography Mr. Emeka Onwuka brings over 30 years of experience in the financial services sector in the Sub-Saharan Africa region. He was the former Group Managing Director & CEO of Diamond Bank Plc and former Chairman Board of Directors, Enterprise Bank Limited. Mr. Onwuka was a Partner at Andersen Tax Nigeria until his appointment in Seplat. Mr. Onwuka received his B.Sc. in Political Science from the University of Nigeria, Nsukka and holds an MBA from the University of Benin. He is a Chartered Accountant, a Fellow of the Institute of Chartered Accountants of Nigeria (FCA), a Fellow of Chartered Institute of Taxation of Nigeria (FCIT), a Fellow of the Institute of Directors Nigeria (FIoD). He has attended executive programmes at the Lagos Business School, Wharton Business School and Harvard Business School. He holds the Nigerian National Honour, Officer of the Order of the Niger (OON) Experience Mr. Onwuka brings to Seplat his extensive board experience as non-executive Director at several companies in the financial sector in Nigeria and West Africa including Chairman of the Board of FMDQ Securities Exchange Limited, FMDQ Holdings Limited, Ecobank Nigeria Limited and Bharti Airtel Nigeria and formerly First Atlantic Bank Ghana. Mr. Onwuka began his professional career with Arthur Andersen Nigeria in 1988 as a Staff Assistant and left in 1992 as a Senior Consultant, providing accounting, audit, tax, business advisory and strategic services to companies in banking, oil and gas, manufacturing and general commerce. At Diamond Bank, he successfully manoeuvred the bank through the industry-wide consolidation and recapitalization challenges of 2004/2005 through private placements, listing on the Nigerian Stock Exchange and the acquisition of Lion Bank Plc. He also expanded the bank into the West African sub region from Benin Republic to Senegal, Ivory Coast and Togo. He concluded a strategic partnership in 2007 with Actis and launched in 2008 a GDR offering on the London Stock Exchange (LSE). Date of appointment • As Chief Financial Officer and Executive Director on 22 July 2013 • As Chief Executive Officer; Executive Director on 1 August 2020 Board meetings attended • 10/10 Committee membership • Not applicable Independent • Not applicable Date of appointment • 1 August 2020 Board meetings attended • 3/3 Committee membership • Not applicable Independent • Not applicable Biography Engineer Effiong Okon (MNSE) joined Seplat in February 2018 as Operations Director and brings 27 years’ experience in upstream and integrated oil and gas operations across Africa, Europe, USA, Middle East, and Nigeria. He is primarily a Petroleum Reservoir Engineer with extensive experience across all aspects of the Exploration & Production business including strategy, leadership, petroleum engineering, exploration, front end development studies, project execution, operational excellence in production and asset management. Prior to joining Seplat, in 2018 Engr. Okon was appointed Vice President Cost Leadership and Continuous Improvement for Royal Dutch Shell, most recently General Manager Deepwater Production for Shell Nigeria. Previous appointments at Shell also include General Manager Offshore Assets (Shallow Water and Deepwater), Deputy Vice President Technical/ Manager North Field Wells and Reservoir Business for the commissioning, start-up and early production phase of two mega projects for Qatar Shell (Pearl GTL and Qatar Gas LNG Trains 7 & 8). Experience Engr. Okon brings extensive experience in Safety, Leadership, Strategy, Cost Leadership, Field Development, Project Delivery, Asset Management, Full Life Cycle Management of Complex Oil and Gas Assets (Upstream and Midstream), Onshore and Offshore, diverse geographies and cultures, successfully leading multi-disciplinary teams, leading change and innovation, talent identification and development, managing service providers and controlling material budgets. Engr. Okon is a member of several professional organisations, including the Society of Petroleum Engineers (SPE), Nigeria Society of Engineers (NSE), Council for the Regulation of Engineering in Nigeria (COREN), etc. Engr. Okon is Alumni of IMD Business School (Lausanne, Switzerland) and Harvard Business School (Boston Massachusetts, USA). Date of appointment • 23 February 2018 Board meetings attended • 10/10 Committee membership • Risk Management and HSSE Committee Independent • Not applicable 83 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board of Directors | continued Non-Executive Directors Ojunekwu Augustine (‘Austin’) Avuru Non-Executive Director Madame Nathalie Delapalme Non-Executive Director Olivier de Langavant Non-Executive Director Biography Madame Delapalme is an Independent Director on the Board of Directors of Maurel et Prom, and since 30 June 2014, acts as an alternate to Maurel et Prom’s nominee, Michel Hochard until 18th July 2019, when she was appointed a Non-Executive Director on the Board of Seplat. Experience Madame Delapalme served the French Government as an Inspector General of Finances at the Ministry of Economy and Finance, and as the advisor for Africa and Development in the offices of various Foreign Affairs Ministers. She also served as an advisor for the Finance and Budgetary Commission in the French Senate. Currently Executive Director of the Mo Ibrahim Foundation, she remains deeply involved in governance and development in Africa. Biography Mr. Avuru is a co-founder of Seplat and became the Chief Executive Officer (CEO) on 1 May 2010 until he retired as CEO on 31 July 2020. A geologist by background, Mr. Avuru spent 12 years at the Nigerian National Petroleum Corporation, where he held various positions including Well Site Geologist, Production Seismologist and Reservoir Engineer. In 1992, he joined Allied Energy Resources in Nigeria, a pioneer deep water operator, where he served as Exploration Manager and Technical Manager. In 2002, Mr. Avuru established Platform Petroleum Ltd and held the role of Managing Director until 2010, when he left to take up the CEO position at Seplat. Experience Mr. Avuru has over 40 years’ experience (1980 – 2020), working in the Nigerian Oil and Gas Sector in increasingly senior technical and management roles. He has spent the last 15 years in CEO roles at Platform Petroleum and Seplat Petroleum, and has built up a strong reputation as a reference resource professional on the Nigerian Oil and Gas Industry play. Biography Mr. Olivier Cleret de Langavant has been CEO of Maurel & Prom since 1 November 2019. Before that position, he did most of his career with the Total Group which he joined in 1981. He started as a Reservoir Engineer, holding positions in France, Congo, the United States and Colombia, before being appointed Senior Vice President, Operations in the Netherlands. Mr. De Langavant was then Deputy Managing Director of Total E&P Angola from 1998 to 2002 during which time he was heavily involved in the early development phase of the deepwater Girassol field. Following this post, he was appointed Managing Director of Total E&P Myanmar. In 2005, Mr. de Langavant returned to Angola as Managing Director of Total E&P Angola, a position he held until 2009. Upon leaving Angola in 2009, Mr. de Langavant was appointed Senior Vice President, Finance, Economics & Information Systems of Total’s Exploration Production (E&P) branch. In March 2011, Mr. de Langavant took up the position as Senior Vice President E&P Strategy, Business Development and R&D which he held until February 2015. Starting March 2015, Mr. de Langavant was appointed Senior Vice President Asia Pacific. Mr. de Langavant became a member of the Total Group Management Committee (thereafter Performance Group Committee) in January 2012. Mr. de Langavant holds an engineering degree from the National School of Mines of Paris (1978). Date of appointment • 1 May 2010 Board meetings attended • 10/10 Committee membership • Risk Management and HSSE Committee Independent • Not applicable Date of appointment • 18 July 2019 Board meetings attended • 10/10 Committee membership • CRS Committee • Corporate Governance, Compliance and Culture Committee Independent • Not applicable Date of appointment • 28 January 2020 Board meetings attended • 10/10 Committee membership • Audit Committee Independent • Not applicable 84 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Independent Non-Executive Directors Basil Omiyi Senior Independent Non-Executive Director Lord Mark Malloch-Brown Independent Non-Executive Director Charles Okeahalam Independent Non-Executive Director Biography Mr. Omiyi’s career spans 40 years at Royal Dutch Shell, during which time he occupied a number of senior roles in Nigeria and Europe, including Managing Director of Shell Petroleum Development Company of Nigeria Limited and Country Chairman of Shell Companies, Nigeria. Mr. Omiyi also holds board positions in a range of other companies including as Chairman of a Banking and Financial Services company as well as Chairman of a Real Estate Company. In 2011, he was awarded the National Honour of Commander of the Order of the Niger by the President of Nigeria for pioneering Nigerian leadership in the oil and gas sector. Experience Mr. Omiyi has extensive insight into and experience in the global oil and gas industry and in particular brings a detailed knowledge and understanding of the Nigerian oil and gas sector together with senior management expertise gained in a large-scale multinational organisation. Biography Lord Malloch-Brown is a former Deputy Secretary General of the United Nations as well as a previous Administrator of United Nations Development Programme. He has also served in the British Cabinet and Foreign Office. He is active both in business and in the non-profit world. He also remains deeply involved in international affairs. Lord Malloch-Brown is a former Chair of the Royal Africa Society. Experience Lord Malloch-Brown brings a great deal of knowledge and experience on international and external affairs, and particularly the promotion of business and commerce in African economies, including Nigeria, within a global context. He also brings extensive experience on corporate responsibility and governance systems to the Board. Biography Dr. Okeahalam is a co-founder and Chairman of AGH Group, a private equity and diversified investment holding company with assets in several African countries. Prior to co-founding AGH Group in 2002, he was a professor of finance and banking at the University of the Witwatersrand in Johannesburg. His other roles have included advising a number of African central banks and government ministries, the World Bank and the United Nations. He has held board positions in several companies including ABSA, South African Airways, Sun International and is a former non-executive chairman of Heritage Bank Limited, Nigeria and non- executive chairman of the Nigeria Mortgage Refinance Company. He is the chairman of the board of directors of AMREF Health Africa. Experience Dr. Okeahalam brings extensive corporate finance, banking and capital markets expertise and experience to the Board. Date of appointment • 1 March 2013 Board meetings attended • 10/10 Committee membership • Gas Committee (Chairman) • Risk Management and HSSE Committee (Chairman) • Nomination and Establishment Committee • Remuneration Committee Independent • Yes Date of appointment • 1 February 2014 Board meetings attended • 9/10 Committee membership • CSR Committee (Chairman) • Finance Committee • Nomination and Establishment Committee Independent • Yes Date of appointment • 1 March 2013 Board meetings attended • 10/10 Committee membership • Finance Committee (Chairman) • Gas Committee • Remuneration Committee Independent • Yes 85 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board of Directors | continued Independent Non-Executive Directors Damian Dinshiya Dodo, SAN Independent Non-Executive Director Arunma Oteh, OON Independent Non-Executive Director Xavier Rolet, KBE Independent Non-Executive Director Biography A renowned lawyer, Mr. Dodo, SAN has acted and continues to act for a wide range of major Nigerian corporations, governmental and regulatory bodies across a number of business sectors and has served on a number of panels and commissions in Nigeria, including the NNPC Commission of Inquiry, the Governing Board of the National Agency for the Prohibition of Trafficking in Persons (NAPTIP) and National Lottery Regulatory Commission where he all served as Chairman. In 2001, Mr. Dodo, SAN was awarded Nigeria’s highest legal practice rank of Senior Advocate of Nigeria (SAN). In 2011, he was awarded the National Honour of Officer of the Order of the Federal Republic of Nigeria by the President of Nigeria. He was also awarded a fellowship by the Nigerian Institute for Advanced Legal Studies. In 2017, Mr. Dodo, SAN was appointed a Fellow of the Nigerian Chartered Institute of Arbitrators; a Member of the Taraba State Judicial Service Commission; and a life Bencher. He is also an alumnus of the Said Business School of the University of Oxford, an alumnus of the IMD Business School, Lausanne, Switzerland; an associate of the Chartered Institute of Arbitrators in London; a Member of the Institute of Directors; a member of the Nigerian Institute of International Affairs; and a member of the National Judicial Council (NJC). Experience Mr. Dodo, SAN brings an extensive legal expertise and knowledge base to the Board together with a firm understanding of relevant regulatory regimes and corporate governance. Biography Ms. Oteh is a seasoned C-suite executive with several years of experience operating at the highest levels at major global institutions and in Government. She has been an academic scholar at the University of Oxford since January 2019 and a member of the London Stock Exchange Africa Advisory Group since January 2020. Ms. Oteh served as Treasurer and Vice President of the World Bank from 2015 to 2018. She was the Director General, Securities and Exchange Commission (SEC) Nigeria from 2010 to 2015. Previous to SEC Nigeria, she worked in a variety of roles notably as Group Vice President, Corporate Services and Group Treasurer, African Development Bank. Her career started in 1985 at Centre Point Investments Limited, a Nigerian investment bank. She obtained a first-class honours degree in Computer Science, from University of Nigeria Nsukka in 1984 and a Master’s degree in Business Administration, from Harvard Business School in 1990. She has received several recognitions, notably, the Officer of the Order of the Niger (OON) National Honour for her contribution to the economic development and role in transforming the Nigerian capital markets. She was among New African’s “100 Most Influential Africans” in 2015, and Ai 2018 Global Institutional Investment Personality of the Year. In 2020, she was named amongst the top 100 people in the UK of African heritage, by Power list and Africa’s top 50 women by Forbes. Experience Ms. Oteh brings to the Board over 34 years of global experience, spanning securities regulation, the capital markets and business. She also has extensive experience in corporate governance, the public sector and sustainability. Ms. Oteh has also served on several Boards, notably, the International Organization of Securities Commissions (2010 to 2015) which regulates 95% of the world’s securities markets. Date of appointment • 30 June 2014 Board meetings attended • 8/10 Committee membership • Nomination and Establishment Committee (Chairman) • Audit Committee • Corporate Governance, Compliance & Culture Committee • Remuneration Committee • CSR Committee Independent • Yes 86 Date of appointment • 1 October 2020 Board meetings attended • 3/3 Committee membership • Finance Committee • Nomination and Establishment Committee • Gas Committee Independent • Yes Biography Mr. Xavier R. Rolet, KBE is an experienced CEO, Co-Founder, and Entrepreneur. He was named one of the 100 Best CEOs in the World in the 2017 Harvard Business Review, Mr. Rolet has demonstrated a history of successful turnarounds in the global financial services industry. In his decade at the helm of the London Stock Exchange, the LSE’s market valuation rose from £800 million to more than £15 billion, transforming it into one of the world’s largest exchanges by market capitalization. He is currently the Chairman, Board of Directors at Phosagro PJSC, a member of the Board of Directors of the Saudi Stock Exchange Tadawul as an appointee of the Public Investment Fund, Senior Advisor, TowerBrook Capital Partners LLC, Chairman of the Board, Shore Capital Markets, INED, Golden Falcon Special Purpose Acquisition Company and an Expert Adviser to the Shanghai Institute of Finance for the Real Economy. He has held various senior positions in the financial services industry throughout his career: CEO of CQS, a global hedge fund; CEO of Banque Lehman Brothers in Paris; co-head of Global Equity & Derivatives Trading at Lehman Brothers New York; Global Head of Risk and Trading at Dresdner Kleinwort Wasserstein; Vice-President, International Equity Risk Arbitrage at Goldman Sachs New York; and co-Head of European Equities Sales and Trading at Goldman Sachs International Ltd in London. Mr. Rolet received his post-graduate degree in Defense Studies and Economic Intelligence from Institut des Hautes études de défense Nationale (“IHEDN”), an MBA in International Finance from Columbia Business School, and an MSc in Management from Kedge Business School. Mr. Rolet is an Honorary Knight. Commander of the Order of the British Empire (KBE), a Knight of the National Order of the Legion of Honour of France, an Officer of the Royal Sharifian Order of Al-Alawi, and a Member of the Order of Friendship of the Russian Federation. Experience Mr. Rolet brings to the Board an extensive expertise in the fields of regulation, capital markets, Technology and Environmental Conservation and business governance. His knowledge and wisdom are great additions to the Board. Date of appointment • 1 October 2020 Board meetings attended • 3/3 Committee membership • Remuneration Committee • Risk Management and HSSE Committee • CSR Committee Independent • Yes Picture credit: Roger Askew/ Shutterstock Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate governance report The Board of Directors of Seplat Petroleum Development Company Plc. (the ‘Board’) continues to strive towards ensuring that management acts in the best interest of the shareholders and other stakeholders of the Company while sustaining the prosperity of the Company. To this end, the Board exercised its oversight and control function in relation to the Company in the financial year under review. The Board equally provided entrepreneurial, strategic as well as ethical culture leadership for the Company to ensure that the affairs of the Company were conducted in a responsible manner becoming of a good corporate citizen. The Board, as the highest governing body in Seplat, is aware and alive to its overall responsibility for – corporate governance, setting the Company’s short, medium, and long-term strategies, providing oversight in the achievement of the Company’s objectives, and supporting management in their day to day running of the Company’s business. The Board has the appropriate mix of knowledge, skills, and experience, including business, commercial and industry expertise; which they brought to bear in the discharge of their duties in the financial year under review. The Board equally has the appropriate mix of Executive, Non-Executive, and Independent Non-Executive Directors. The majority of the Seplat Board are Non-Executive Directors, most of whom are Independent Non-Executive Directors. As a Company with dual listing under both the Nigerian and the London Stock Exchanges, Seplat is subject to a number of listing and governance provisions. Some of the key provisions that apply to Seplat for the year ended 31 December, 2020, are the Companies and Allied Matters Act (CAMA) 2020, the Nigerian Securities Exchange Commissions’ Rules and Regulations on Code of Corporate Governance for Public Companies (2011) as amended (‘SEC Code’), the Nigerian Code of Corporate Governance 2018 (NCCG), UK Listing Rules (LRs), the Market Abuse Regulations, 2016 (MAR), the UK Corporate Governance Code as updated and published by the Financial Reporting Council (FRC) in July 2018 (UK Code). In line with the requirements of these Laws, rules and regulations, the Board of Seplat strives to ensure that the Company meets high standards of environmental, social and governance performance in order to sustain and improve on shareholders’ value. The Board regards corporate governance as a critical factor in the achievement of the Company’s objectives and has therefore put in place and adopted appropriate charters, policies, and processes for the day to day running of the Company. Board processes Scope and authority In line with relevant codes of corporate governance and regulations, the Board is responsible for ensuring compliance with all applicable laws, rules, and regulations. In discharging this responsibility, the Board is supported by the Company Secretariat and the Compliance Unit headed by the Company Secretary/General Counsel (“CS/GC”). In addition, the Board is also supported by key members of the Senior Leadership Team and management as are required from time to time. To aid the Directors’ effective participation and making of informed decisions at Board and committee meetings, all Board and Board Committee papers are distributed to each Director in advance of their meetings using the Board pad software that is designed for that purpose. Formal minutes of Board and all Committee meetings are taken by the Company Secretariat team and are reviewed, discussed by the Board prior to approval and adoption at the subsequent Board meeting. The Company Secretary also advises and gives guidance to the Board in the discharge of its obligations as stipulated in the applicable Nigerian and UK laws, codes, rules, and regulations. Members of the Board are aware of their right to obtain independent professional advice at the Company’s expense, where required. The roles and responsibilities of the Chairman and the CEO are clearly separated and are outlined under their respective appointment letters. This role separation is monitored by the Senior Independent Non-Executive Director (SID) and is periodically assessed during Board evaluations. The Board has adopted a comprehensive Board Charter that sets out the matters that are exclusively reserved for its approval. The matters that require exclusive approval of the Board are also captured in the Authority Matrix of the Company to ensure strict compliance by the Senior Leadership Team and management. The Board deliberated on the following matters for the financial year under review: • Appointment of Non-Executive Director • Review of the Interim Condensed Consolidated Financial Statements (Unaudited) for the fourth quarter ended 31 December 2019 • Group Tax Strategy • Production Performance • Financial Performance • Update of Capital Projects • Legal Risk Analysis • 2019 Full Year Audited Financial Result • 2020 Budget Reforecast and effects of oil price slump • Bond Refinancing 2020 • 5 Year Corporate Plan • Consideration and adoption of Annual General Meeting (AGM) Process Documents • Consideration and Adoption of the Re-election of retiring Directors at the AGM • Re-Election of the Chairman of the Board • Update on Chief Financial Officer (CFO)’s succession plan • Update on Board Refreshment • Nomination of Board representatives to the Statutory Audit Committee • Board Approval of the selection of new CFO • Update on Covid-19 and Seplat’s participation in containment support efforts through donation of palliatives • Update on 2020 Annual General Meeting • Approval of Q1 2020 Financial Result • Gas Update • Risk Management Report • Update on Board Evaluation • Review of Half-Year (1H2020) Result • Review of Company’s approach to ESG • Changes to Seplat’s Corporate Representatives on AGPC Board • Appointment of Two (2) Independent Non-Executive Directors • Update on ANOH Project • Presentation on new Organisational Structure • Review of Q3 2020 Financial Result • Review of 2021 Budget & Work Programme • Appointment of New MD and additional Directors for AGPC • Review of Directors’ Conflict of Interest and Recusal proposal. 87 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate governance report | continued To facilitate an efficient and effective discharge of its responsibilities, the Board has established seven Board Committees and has delegated specific aspects of its responsibilities to these Committees. These Board Committees are: 1. The Finance Committee (established in line with the UK Code’s requirement for an Audit Committee). 2. The Remuneration Committee. 3. The Nomination and Establishment Committee. 4. The Risk Management and HSSE Committee. 5. The Corporate Social Responsibility (CSR) Committee. 6. The Gas Committee. 7. The Corporate Governance, Compliance & Culture Committee. In addition to these Board Committees, the Company has established a statutory Audit Committee at its 30 June 2014 Annual General Meeting (AGM). The establishment of the Audit Committee is in line with Sections 404(2) of the Companies and Allied Matters Act (CAMA) as amended. In line with the provisions of Section 404 (3) of CAMA, the Audit Committee, currently consists of three shareholder representatives and three Non-Executive Directors who are elected at every AGM to sit on the Audit Committee. All eight Committees (including the Audit Committee) have their respective terms of reference that guide their members in the discharge of their assigned duties, and these Terms of Reference are available for review by the public. All the Committees present a report to the Board, highlighting matters deliberated upon as well as each Committee’s proposals/recommendations on matters within the remit of their respective Terms of Reference. The details of these eight Committees are contained in the individual Committee reports in this governance section. Board review and evaluation In line with the NCCG and the UK Code, which prescribes the establishment of a formal and rigorous annual evaluation of the performance of the Board, its committees, the Chairman, individual Directors and that the process should be externally facilitated by an independent external consultant at least once in three (3) years, the Board in the year under review, engaged the services of an independent external consultant, Messrs. DCSL Corporate Services Limited (DCSL) to carry out an evaluation of the Board for the financial year 2019. The independent consultant also carried out an assessment of the corporate governance practices within the Company. In carrying out the evaluation, the following seven key corporate governance areas were considered: 1. Board Structure and Composition; 2. Strategy and Planning; 3. Board Operations and Effectiveness; 4. Measuring and Monitoring of Performance; 5. Risk Management and Compliance; 6. Corporate Citizenship; and 7. Transparency and Disclosure. 88 Board meetings One of the principal ways in which the Board performs its oversight function and monitoring of the Company’s performance is through Board meetings. In accordance with regulatory requirements, the Board meets at least once every quarter. However, additional meetings are scheduled as matters which require the attention of the Board prior to the convening of next quarterly Board meeting arise. The Board held ten meetings during the 2020 financial year. The dates of the meetings and attendance of each Director at the meetings are as stated below. During the year under review, the Non-Executive Directors held exclusive meetings, without the Executive Directors. In addition, the Chairman, and the Senior Independent Non-Executive Director each held different meetings with the Non-Executive Directors, with the absence of the Executive Directors. In compliance with the Nigerian Code and the UK Code, it is the policy and practice of Seplat that no Director is involved in any deliberation pertaining to his/her remuneration. Dates of 2020 Board meetings are as follows: 1. 28 January 2020. 2. 3 March 2020. 3. 19 March 2020. 4. 28 April 2020. 5. 28 May 2020. 6. 6 July 2020. 7. 28 July 2020. 8. 8 October 2020. 9. 27 October 2020. 10. 24 December 2020. S/N Name Designation No. of meetings in the year No. of times in attendance 1. A.B.C. Orjiako Chairman 2. Roger Brown Chief Executive Officer 3. Emeka Onwuka2 Chief Financial Officer 4. Effiong Okon Operations Director 5. Austin Avuru Non-Executive Director 6. Olivier Langavant Non-Executive Director 7. Nathalie Delapalme Non-Executive Director 8. Michael Alexander1 Senior Independent Non-Executive Director 9. Charles Okeahalam Independent Non- Executive Director 10. Basil Omiyi Independent Non- Executive Director 11. Ifueko M. Omoigui Okauru1 Independent Non- Executive Director 12. Lord Mark Malloch-Brown Independent Non- Executive Director 13. Damian Dodo, SAN Independent Non- Executive Director 14. Arunma Oteh, OON2 Independent Non- Executive Director 15. Xavier Rolet, KBE2 Independent Non- Executive Director 10 10 3 10 10 10 10 10 10 10 10 10 10 3 3 10 10 3 10 10 10 10 10 10 10 9 9 8 3 3 1. Ifueko M. Omoigui Okauru and Michael Alexander voluntarily retired from the Board effective 31 January 2021. 2. The Board appointed Emeka Onwuka as Chief Financial Officer/Executive Director effective 1 August 2020; Arunma Oteh, OON and Xavier Rolet, KBE as Independent Non-Executive Directors effective 1 October 2020. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Appointment of the new Chief Executive Officer (CEO) On 1 August 2020, Mr. Roger Brown assumed the role of the CEO of the Company. Mr. Brown brings to the CEO role, a deep knowledge of the Company in his six (6) years as the Chief Financial Officer (CFO) and a member of the Board. Mr. Brown has strong financial, commercial and Mergers and Acquisition (M&A) experience as well as proven people skills which is an asset as the Company embarks on the next phase of its growth plan. Prior to joining the Company, Mr. Brown was an advisor to the Company since 2010 while he was the Managing Director and head of EMEA Oil and Gas at Standard Bank Group. During his time at the bank, he was instrumental in providing advice and deploying capital across the African continent in the Oil & Gas, Power & Infrastructure, and the renewable energy sectors. Appointment of new Chief Financial Officer The Board is pleased to formally introduce Mr. Emeka Onwuka as the new Chief Financial Officer (CFO) of the Company. Emeka Onwuka joined as CFO and Board member on 1 August 2020. Mr. Onwuka has more than 30 years’ experience in financial services within Sub- Saharan Africa. He has served as Group Managing Director/CEO of Diamond Bank Plc and is a former Chairman of Enterprise Bank Limited. Mr. Onwuka was a Partner at Andersen Tax Nigeria and holds various Board positions at companies including FMDQ Securities Exchange Limited, FMDQ Holdings Limited, Ecobank Nigeria Limited and Bharti Airtel Nigeria. Appointment of two Independent Non-Executive Director (INEDs) The Board is equally pleased to formally introduce Ms. Arunma Oteh, OON and Mr. Xavier R. Rolet KBE as newly appointed Independent Non-Executive Directors of the Company, with effect from 1 October, 2020. Ms. Arunma Oteh, OON is a seasoned C-suite executive with several years of experience operating at the highest levels at major multilateral agencies, global financial institutions and in Government. She has been an academic scholar at University of Oxford since January 2019 and a member of the London Stock Exchange Africa Advisory Group since January 2020. Board policies and insurance cover In addition to the Board Charter earlier discussed, the Board has in place a Code of Business Conduct policy and other corporate governance policies covering anti-bribery and corruption, anti-fraud policy, related party transactions, conflicts of interest, share dealing, whistleblowing, community relations, risk management, electronic information, and communication systems etc, details of which are discussed later in this governance section. The Board has also adopted the Market Abuse Regulations (MAR) which replaced the Model Code for Directors’ dealings. The MAR governs the disclosure and control of inside information and the reporting of transactions by persons discharging managerial responsibilities (PDMRs). The Board is responsible for taking appropriate steps to ensure observance of the Article provisions of MAR by the Directors. The Company is therefore committed to observing the MAR provisions as part of its commitment to good corporate governance practices. The Company has arranged appropriate insurance cover for legal action against its Directors. This insurance cover losses and actions arising from matters involving a Director’s failure to act in good faith and in the Company’s best interest, failure to exercise his/her powers for a proper purpose, failure to use his/her skill reasonably, failure to comply with the law, etc. The Company regularly reviews this insurance coverage to ensure adequate protection of its Directors. Appointment, development and evaluation of Directors The Board has adopted a Board Succession Policy to guide the appointment of its Directors in accordance with corporate laws, corporate governance codes, regulations, and international best practice. The Board Succession Policy which requires the Nomination and Establishment Committee (NOMCO) to submit to the Board on a yearly basis a succession plan identifying key and critical positions, definitive designation of successors for such positions, articulation of specific development plans for identified successor which is tied to the Company’s overall performance management and career communication. NOMCO has overall responsibility for the Board appointment, induction, training, and evaluation processes, as well as changes to the Company Secretary and other senior management staff, all of which are subject to approval by the Board. The fundamental principles of the appointment process include evaluation of the balance of skills, knowledge and experience on the Board, leadership needs of the Company and ability of the candidate to fulfil his/her duties and obligations as a Director. New Directors are required to attend an induction programme on the Company’s business, their legal duties, and responsibilities as well as other information that would assist them in effectively discharging their duties. The Company believes in and provides continuous training and development opportunities for its Directors to equip them with required skills to effective discharge their duties. Retirement of the Founding Chief Executive Officer (CEO) On 31 July 2020, the Company’s founding CEO, Mr. Austin Avuru voluntarily retired after putting in ten years of meritorious service to the Company. Within ten years, Mr. Avuru led the development of a strong organisation, the deployment of agile systems, processes and stakeholder relationships that allowed the Company to grow rapidly into a leading independent oil and natural gas producer in Nigeria. The Board is immensely grateful to Mr. Avuru for the accomplishments during his tenure as CEO and will continue to count on his repertoire of knowledge and experience as a Non-Executive Director. 89 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate governance report | continued Ms. Oteh served as Treasurer and Vice President of the World Bank from 2015 to 2018. As Treasurer, she led a global team that managed the World Bank’s $200 billion debt portfolio as well as an asset portfolio of $200 billion for the World Bank Group and several public sector clients including 65 Central Banks. She was the Director General of the Securities and Exchange Commission (SEC) Nigeria from 2010 to 2015. As Director General of Nigeria’s apex capital market regulator, she was responsible for the regulation of Nigeria's capital markets, including the Nigerian Stock Exchange, and led the rebuilding of the capital markets after the global financial crisis. She also served on Nigeria’s Economic Management team, chaired by the Nigerian President. Prior to the SEC Nigeria, she worked at the Africa Development Bank for 17 years in a variety of roles including Group Vice President, Corporate Services (2006 to 2009) and Group Treasurer (2001 to 2006). While Mr. Xavier Rolet, KBE, is an experienced CEO, Co-Founder, and Entrepreneur. Named as one of Harvard Business Review’s 100 Best CEOs in the World in 2017, Mr. Rolet has demonstrated a history of successful turnarounds in the global financial services industry. In his decade at the helm of the London Stock Exchange, the LSE’s market valuation rose from £800 million to more than £15 billion, transforming it into one of the world’s largest exchanges by market capitalisation. He is currently the Chairman, Board of Directors at Phosagro PJSC, a member of the Board of Directors of the Saudi Stock Exchange Tadawul as an appointee of the Public Investment Fund, and an Expert Adviser to the Shanghai Institute of Finance for the Real Economy. He has held various senior positions in the financial services industry throughout his career: CEO of CQS, a global hedge fund; CEO of Banque Lehman Brothers in Paris; Co-Head of Global Equity & Derivatives Trading at Lehman Brothers New York; Global Head of Risk and Trading at Dresdner Kleinwort Wasserstein; Vice-President, International Equity Risk Arbitrage at Goldman Sachs New York; and Co-Head of European Equities Sales and Trading at Goldman Sachs International Ltd in London. The Seplat Board is indeed privileged to have Arunma and Xavier on board and look forward to their contributions towards the continued success of the Board and Company. Retirement of two Independent Non-Executive Directors The Board during the financial under review, announced the retirement of Mr. Michael Alexander, Senior Independent Non- Executive Director (SID), and Mrs. Ifueko M. Omoigui Okauru, Independent Non-Executive Director (INED), effective 31 January 2021. Mr. Alexander was appointed to the Board in June 2013 while Mrs. Okauru was appointed in March 2013. In the past seven (7) years, Mr. Alexander and Mrs. Okauru served the Board meritoriously, deploying their multi-facetted experiences towards the growth of the Company. Seplat remains grateful for their immense contributions to the Board and the Company and wish them the very best in all of their future endeavours. Following the retirement of Mr. Alexander as SID, the Board has appointed Mr. Basil Omiyi, Independent Non-Executive Director (INED) as the new Senior Independent Non-Executive Director effective 1 February 2021. Mr. Omiyi’s career spans 40 years’ experience at Royal Dutch Shell, during which time he occupied a number of senior roles in Nigeria and Europe, including Managing Director of Shell Petroleum Development Company of Nigeria Limited and Country Chairman of Shell Companies, Nigeria. Mr. Omiyi has extensive insight into and experience in the global oil and gas industry and in particular brings a detailed knowledge and understanding of the Nigerian oil and gas sector together with senior management expertise gained in a large-scale multinational organisation. The appointment and removal or reappointment of Directors is governed by its Articles of Association and the Companies and Allied Matters Act, 2020. It also sets out the powers of Directors. Accountability Details of the Directors’ responsibility for preparing the Company’s financial statements and accounts, and a statement that they consider the financial statements and accounts, taken as a whole, to be fair, balanced, and understandable and to contain the information necessary for shareholders to assess the Company’s position and performance, business model and strategy, are given on page 142 of this report. Seplat’s business model and strategy for delivering the objectives of the Company and the assumptions underlying the Directors’ assessment of the business as a going concern are given on pages 16 and 19 of this report, respectively. The Board, during the financial under review, carried out an assessment of the Company’s risk management and internal controls systems, including financial, operational and compliance controls, and reviewed their effectiveness, details of which are given on pages 24-36 of this report. In compliance with CAMA and the NCCG, the Company has established a statutory Audit Committee (mentioned earlier), and in compliance with the UK Code’s requirement for an Audit Committee, the Board has established a Finance Committee comprising four Independent Non-Executive Directors. Details of the Finance and Audit Committees’ membership and activities are given in their respective reports, on pages 98 and 112. The Board has also established the Risk Management and HSSE Committee, which is responsible for reviewing on behalf of the Board, operational risk, health and safety, and environment matters. Details of the Committee’s membership and activities are given in its report on page 106. Corporate governance In line with the recommended practices under the Nigerian Code of Corporate Governance, the Board established a Board Committee on Corporate Governance, Compliance & Culture (CG, C& C Committee). The CG, C & C Committee, which comprises only Independent Non-Executive Directors, is saddled with the responsibility of assisting the Board in promoting, modelling, institutionalising, and maintaining sound ethical culture and good corporate citizenship. The Committee, which was chaired by Mrs. Ifueko Omoigui Okauru for the financial year under review, advises the Board on modalities of strengthening the Company’s corporate governance, compliance, and cultural ethos, to achieve the Company’s continued survival and prosperity. Details of the Committee’s membership and activities are given in page 110. Remuneration In compliance with the Nigerian Code of Corporate Governance and UK Code, the Board has established a Remuneration Committee solely comprising Independent Non-Executive Directors and was chaired by Mr. Michael Alexander (SID) for the financial year under review. Details of the Committee’s membership and activities are given in its report on page 96. Details of how Seplat’s remuneration policy links remuneration to the achievement of the Company’s strategy and the level of remuneration paid to each of the Directors during the financial year are outlined on pages 130 and 131. Seplat stated at the time of the IPO that remuneration for certain Non-Executive Directors may include performance-related elements and certain Executive Directors’ service contracts may include an initial fixed term of more than one year. In compliance with both the Nigerian Code and the UK Code, no Executive Director is a member of the Remuneration Committee and no Director is involved in any deliberation of his/her remuneration. The Company’s remuneration policy and practices are outlined on page 120 of this report. 90 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Engaging with our stakeholders The Board recognises the need to nurture successful relationships with our stakeholders to secure the Company’s long-term goals. Through regular engagement, the Board is able to understand the views of all stakeholders and considers them in their decision- making process. Protection of shareholder rights The Board ensures that the statutory and general rights of shareholders are always protected. It further ensures that all shareholders are treated equally. On 25 March 2014, the Company entered into a Relationship Agreement with its founding shareholders (who are represented on the Board) to regulate their degree of control over the Company so that the rights of minority shareholders and the independence of the Board are protected. All other shareholders are given equal access to information and no shareholder is given preferential treatment. Communication with shareholders Seplat values effective communication with its shareholders. As a matter of practice and based on regulatory requirements, the Company reports formally to shareholders four times a year with the announcement of quarterly and full-year results as well as providing disclosure on material changes to the business as and when required. However, with the new SEC requirement for Public companies to elect whether to file its fourth Quarter report, the Company has elected the option of filing its Annual Audited Financial Statement within the regulatory stipulated period. The full-year Annual Report and Accounts are issued to shareholders and are posted on the Company’s website. Results presentations are also made available on the Company’s website together with replays of webcasts. Seplat’s seventh (7th) AGM was held on 28 May 2020 in Lagos, Nigeria, in line with the NCDC guidelines and CAC approval for holding the AGM by proxy only and was attended by four shareholders in person while 288 shareholders were represented by proxies (holding 510,329,595 units of shares). The business transacted at the meeting was based on CAMA requirements and as such, diverged in some respects from that common to UK companies. The Company’s AGM affords shareholders present the opportunity to discuss matters regarding the Company’s business with the Chairman, the Committee Chairmen, and individual Directors. The AGM also provides the opportunity for the shareholder representatives to be elected to sit on the Audit Committee, as required by CAMA. The notice of the 2021 AGM has been sent to Shareholders with this Annual Report and Accounts and it is intended that the best practice for AGMs as detailed in the Nigerian Code and the UK Code will be followed. The Board maintains a dialogue with investors outside the AGM to foster mutual understanding of objectives and to gain a balanced view of key issues and concerns of shareholders. The primary contact is through the Executive Directors. The Non-Executive Directors, the Chairman and the SID, are available to attend meetings if requested specifically by shareholders. Engagement with existing and potential shareholders regarding business strategy and performance is coordinated by the Investor Relations function. The Head of Investor Relations reports directly to the Chief Financial Officer. Matters regarding the general administration of shareholdings are coordinated by the Company Secretary. The Company conducts an active investor relations programme with institutional investors and analysts. This includes participation at conferences, both within and outside Nigeria, where a few one-on- one meetings and group presentations are made, including investor roadshows in key financial centres. In 2020, the Company held over 247 meetings with institutional investors and expanded its analyst coverage. Regular analysis of Seplat’s shareholder register and major movements, together with market feedback, trading analysis and peer performance, are communicated to the Board via the Chief Financial Officer and the Head of Investor Relations. The Board welcomes enquiries from shareholders, encourages attendance at the Company’s AGM and participation in its results presentations and webcasts. The Board further encourages shareholders to subscribe to receiving news alerts via the subscription service on the Company’s website. Host community engagement; donation of Covid-19 palliatives Sustainable community development remains a priority and we have continued to work collaboratively with our local partners to foster positive social and economic development. Executive Directors met with leaders of the host communities, visited community events and projects in areas of operations. Additionally, Directors met with ministers, state governors in the states where the Company operates as well as other key government officials during the financial year under review. In response to the Covid-19 pandemic emergency and the Nigerian National Petroleum Corporation (NNPC)’s call for contributions from the petroleum industry to support the Nigerian Government both at the federal and state levels, the Company made donations in support of the federal and state level palliative initiatives. In addition to the above, the Company, supplied medical consumables and in-patient support systems to the three (3) states where the Company carries out its operations (i.e., Edo, Delta & Imo States respectively). This gesture was made to support the states’ medical infrastructure for the fight against the Covid-19 pandemic. Employee engagement The Company has over the years established a Joint Consultative Council (JCC) which comprises of Senior Management and representatives of Seplat employees drawn from across the various business units of the Company. The JCC, which is headed by the General Manager Human Resources, meets at least once every quarter to update employee representatives on key management decisions regarding the Company and to address issues which are of concern to employees. Deliberations, suggestions, and recommendations made during such meetings are cascaded to the entire employees and where required, recommendations which require approval are cascaded to the Senior Leadership Team headed by the CEO and to the Board, where necessary. The Company also facilitated four town hall interactive sessions, where the CEO updated all employees of happenings and developments within the organisation. In line with the UK Corporate Governance Code relating to employee engagement, the Board, nominated one the Independent Non- Executive Directors (INEDs), Mrs. Ifueko Omoigui Okauru, as the employee engagement representative of the Board, to work with the General Manager Human Resources to engage with employees, obtain their views and report its findings to the Board. 91 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate governance report | continued Disclosure of information As a company listed on both the Premium Board of the NSE and on the Main market of the LSE, Seplat strives to comply with the highest standards of disclosure. As a matter of practice, the Company simultaneously releases announcements through the relevant regulatory channels in both Nigeria and the UK. It also ensures that all announcements are available on the Company’s website together with copies of its latest results, financial reports, and other relevant information. The Company has put in place relevant controls and processes for the management of inside information. The Executive Directors are ultimately responsible for the approval of Company announcements and ensuring that such documents comply with relevant legal and regulatory requirements. Corporate governance framework, sustainability, response to Covid-19 and compliance initiatives The Board places high premium on corporate governance as a veritable tool for compliance risk management, ensuring the Company’s sustainability, achievement of the Company’s strategic objectives and enhancement of shareholders’ value. Consequently, the Board in fulfilment of its primary responsibility has put in place a corporate governance framework with a ‘tone from the top’ approach to governance compliance. The Board regularly subjects itself to evaluations to determine level of corporate governance compliance and takes remedial action to resolve any areas of potential or perceived non-compliance. The Covid-19 pandemic which led to lockdown at the tail end of first quarter of 2020, Organisation of Petroleum Exporting Countries (OPEC)’s restrictions on production, increasing stakeholder expectations regarding Environment, Social and Governance (ESG) and intensifying pressure from capital markets for the industry to generate higher total returns to shareholders brought to focus discussions regarding sustainability of the Company, including the need for reduction in carbon footprint and re-evaluation of the Company’s overall strategy development. Consequently, the Board organised a two (2) day Board and Management Strategy session, where the Board and Management engaged in debate and analysis of the market outlook for global oil & gas and its implication for the Company in the short, medium, and long term. The Board and Management also considered issues such as – viability of gas as transition fuel (particularly the gas to power opportunity) and key messages on global renewables outlook. Further to the Board/ Management Strategy session, the Board also had a session on strengthening the Company’s approach to ESG reporting with focus on how ESG trends are evolving, its impact on shareholders’ value and how an integrated ESG strategy would benefit the Company’s business. To safeguard the health and safety of employees, the Board implemented various strategies to combat the Covid-19 pandemic such as the adoption of 28-day field rotations with frequent health checks, remote working for non-field location staff in the Lagos, Abuja, and London offices. The Company also set up a Covid-19 monitoring group (COVIMOG) to review areas of risks and exposure. A Business Continuity Plan was also put in place and implemented to mitigate identified risks due to the Covid-19 pandemic. Some of the measures put in place included: • restriction of all travels to business-critical needs only and with approval of CEO; • mandatory 14-days’ self-quarantine of all Seplat personnel returning from oversea trips and the completion of a Risk Assessment Form to be evaluated by the Company’s Medical Consultant; • personnel are re-admitted back to work location only on satisfactory assessment of information indicated in the Risk Assessment Form, mandatory temperature screening and hand-sanitising at all entry points into our facilities. • suspension of participation in any crowded event like training, workshops, seminars, and meetings whether internal or external; and • COVIMOG team led by the Corporate HSE Manager monitored developments locally and internationally in management of the virus spread and advised SEPLAT leadership on actions to address its threat to our personnel and operations. As part of our continuous corporate governance awareness campaign in 2020, the Company administered the annual corporate governance online recertification programme for all employees including contract staff. The Board also paid close attention to ethical issues by formally launching the updated Code of Business Conduct, where select members of the Board engaged with the entire workforce at the workshop on the importance of compliance with the Code of Business Conduct, after which all employees individually signed personal commitment to abide by the tenants of the Code of Business Conduct. In the course of the same event, the Company held a round table discussion on the need for employees to speak up against unethical behaviour, which was facilitated by the Business Integrity Unit. To buttress the importance for employees to speak up, the Company held a Company-wide workshop on whistleblowing. The workshop, which was equally facilitated by our Business Integrity unit in conjunction with KPMG, was designed to further sensitise and to encourage employees to report concerns openly without fear of any form of victimisation and/or reprisals. Employees were also reminded that they may elect to make a report anonymously by making use of the Seplat/KPMG Ethics Line which includes dedicated whistleblowing hotlines – 0800 444 1234 (Toll Free) or KPMG’s MTN toll free number: 0703-000-0026. Employees could also report their concerns by sending email to speakup@seplatpetroleum.com or kpmgethicsline@ng.kpmg.com. The facilitators also demonstrated to employees that all reported cases in times past were treated with utmost confidentiality. To further encourage anonymity, the Company recently introduced the Vault App, which grant employees real-time access to the Senior Leadership Team, particularly the CEO, to air their views make valuable suggestions and come up with innovative ideas that would move the Company forward. The Company also held a Bullying and Harassment awareness session to underscore the importance of maintaining a friendly workplace environment for all employees. The Board in addition, reviewed reported incident of conflict of interest, set up a review panel to consider the conflict and mitigations to ensure that the Company’s overall interests are well protected. To foster an effective day to day implementation of our well- established corporate governance framework, a dedicated Governance Compliance team has been put in place in the Company. The Company collaborates with the Company’s regulators (NSE, SEC, FRCN, CAC, LSE and FCA) as at when necessary to ensure the Company maintains its robust corporate governance framework and an effective compliance programme. The Company frequently attends engagement sessions with its regulators. The Board, during the year, had engagements with its industry regulators to discuss and explain the steps the Company has and is taking to ensure compliance with the relevant provisions of applicable laws, codes, regulations and sectorial guidelines. As of the date of this Annual Report and Accounts, the Board has adopted the following corporate governance policies and practices; most of which can be found on the Corporate Governance page in the Investor Relations section of the Seplat’s website: https://seplatpetroleum.com/investor-centre/corporate- governance/corporate-governance-policies/ 92 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In the financial year under review, the Board, through its Corporate Governance, Compliance and Culture Board Committee, carried out second level review of the Company’s Corporate Governance Policies and recommended updates to bring the respective policies and procedures to date with new laws, listing rules as well as the Nigerian Code of Corporate Governance, 2018 and the UK Code of Corporate Governance, 2018. The recommended updates were approved, and the reviewed policies were adopted by the Board. The already adopted as well as reviewed corporate governance policies/ practices are: 1) Board Charter. 2) Code of Business Conduct Policy. 3) Code of Business Conduct. 4) Board Succession Policy. 5) Board Representation Policy for IJVs & Other Arrangements. 6) Anti-Bribery and Corruption Policy. 7) Anti-Fraud Policy. 8) Gifts and Hospitality Policy. 9) Bullying & Harassment Policy. 10) Community Relations Policy. 11) Investors Complaint Management Policy. 12) Conflicts of Interest for Policy Directors & Employees. 13) Corporate Communications Policy. 14) Electronic Information & Communication Systems Policy. 15) Inside Information Policy. 16) Political and Charitable Contributions Policy. 17) Related Party Transactions Policy and Guideline. 18) Risk Management Policy. 19) Share Dealing Policy. 20) Whistleblowing Policy. 21) Market Sounding Policy. 1) Board Charter The Board has adopted a Board Charter which has been updated to align its provisions with the requirements of the NCCG 2018, SEC Code of Corporate Governance, UK Code of Corporate Governance, 2018 as well as other applicable listing rules and international best practice. The Board Charter sets out the responsibilities of the Board; the establishment of the Board Committees with clear delegated responsibilities; the matters reserved for the exclusive approval of the Board; and the conduct of Board proceedings. The Board Charter stipulates the following – the separate and distinct duties of the Board Chairman and the CEO, appendage of Sample Appointment Letter of the Board of Directors, inclusion of the role of the Non-Executive Directors (NEDs) and the Independent Non-Executive Directors (INEDs), the role of the Company Secretary; the respective Terms of References for all the Board Committees and Matters Reserved for the Board. 2) Code of Business Conduct Policy The Code of Business Conduct Policy establishes that the Company shall have a Code of Business Conduct that states the general business principles and commitments of the Company to its stakeholders, sets out the values that guide the Company’s conduct, legitimate and strategic expectations of its employees in their everyday decision-making and with stakeholders. The Policy also requires the Code to explain and give guidance on the behavioural, attitudinal, and emulative roles of the Directors, Senior Management, and employees. The Code is to provide guidance to questions or concerns, steps to take and additional resources and support on other topics and policies. The Policy also provides for the role of the Board, senior managers, managers, and employees. It also requires suppliers, contractors, consultants, business partners and third parties to apply the standards equivalent to that of the Company towards their employees, subcontractors, and suppliers. 3) Code of Business Conduct The Board has adopted a Code of Business Conduct (CoBC), which outlines the ethical framework under which Seplat conducts business – with the highest standards of ethics, accountability, and transparency. The CoBC has been designed into an easy-to-read format and is an implied contract between the Company and its employees, contract staff and business partners to conduct business with the highest ethical standards. The Board has reviewed and restructured the COBC to provide for the following – (i) The Code (which summarises the principles and values by which the Company conducts its business); (ii) The Charge (which requires directors, employees and contractors to embrace the enshrined ethical values of the Code); (iii) Personal Commitment Statement (which models a top-down commitment to professional business and ethical standards from directors, to employees and contractors and which everyone is expected to subscribe to by appending their signatures); (iv) The Code of Business Conduct Policy (which states the principles and values that the Code should embody, including guidance notes) (v) The Code’s Practice Guide; and (vi) Frequently Asked Questions (FAQs), which states examples of dilemmas that could arise in the course of carrying out work for and on behalf of Seplat. The reviews carried out are all in line with the NCCG, UK principles and recommended practices. 4) Board Succession Policy The Board has adopted a Board Succession Policy which sets out the parameters for developing and implementing a succession planning programme for Directors of Seplat and ensures that a framework is in place for an effective and orderly succession of Directors that will result in the collective knowledge, skills and experience in place for the Board to effectively govern Seplat. The Policy stipulates Criteria for selection of Succession candidate as well as competencies that such candidate must possess. The Policy provides Guidelines for Implementing the Succession Planning Programme as well as Procedure for Executing a Board Succession Plan. The Policy which requires the Nominations and Establishment Committee (NOMCO) to submit to the Board on a yearly basis a succession plan identifying key and critical positions, definitive designation of successors for such positions, articulation of specific development plans for identified successor which is tied to the Company’s overall performance management and career communication. 5) Board Representation Policy for Incorporated Joint Ventures (IJVs) & Other Arrangements The Board has adopted a Board Representation Policy which stipulates principles and defines the parameters within which the Seplat IJV Directors will execute their duties and represent Seplat on the IJV Boards. The Policy states the qualities, competencies, and skill which a candidate nominated to such IJV Boards must possess as well as the roles and responsibilities of such IJV representative (including responsibilities prior to, during and after IJV Board meetings). 6) Anti-Bribery and Corruption Policy The Board has adopted an Anti-Bribery and Corruption Policy which is updated from time to time. The Policy demonstrates Seplat’s zero tolerance and commitment to the eradication of bribery and corruption. It prohibits payment or receipt of facilitation payments, misappropriation, ‘kickbacks and blackmail/extortion’. It also sets the parameters under which Directors and employees may give or receive gifts and hospitality, deal with public officials, and make political and charitable donations. The Policy includes reporting, documentation, and whistleblowing provisions as well as provisions regarding the Company’s zero tolerance and disciplinary action for any violation. 93 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate governance report | continued 7) Anti-Fraud Policy The Board has adopted an Anti-Fraud Policy which provides Seplat stakeholders with relevant guidance on how to recognise and deal with fraud, the responsibilities of employees, Directors and third parties in upholding Seplat’s position regarding fraud and misconduct, mechanisms for prevention, detection and response to possible fraud and misconduct in Seplat’s operations; and how to foster a culture of integrity, transparency, thereby enhancing anti-fraud culture within Seplat. The Policy covers transactions conducted by Seplat, with Seplat or on behalf of Seplat and states the responsibilities of each stakeholder. The Policy states potential indicators of fraud, protection of whistleblowers, fraud risk management strategy, reporting of fraud to law enforcement agency(-ies) and applicable consequent management following investigation findings. 8) Gifts and Hospitality Policy The Board has adopted a Gifts and Hospitality Policy which establishes acceptable exchange of items of value, conditions under which gifts, hospitality and associated expenses may be made, received, offered, incurred, or reimbursed in compliance with Seplat’s related policies and international best practices. The Policy, which serves as part of the implementation strategy for the Anti-Bribery and Corruption Policy and other related corporate governance policy, applies to all Seplat employees, Directors, business partners and other stakeholders. The Policy also sets out Guidelines on accepting or offering gifts/hospitality as well as acceptable gifts to Host Communities. 9) Bullying and Harassment Policy The Board has adopted a Bullying and Harassment Policy which sets parameters within which the Company will deal with all forms of bullying and harassment within the workplace, reinforces Company’s commitment to diversity inclusion and mutual respect, creates a platform for rewarding conduct that aligns with the Company’s value for diversity and outlines zero tolerance approach to addressing all acts of bullying and harassment. The Policy applies to all employees as well as third parties dealing with Seplat staff. The Policy stipulates examples of behaviour that could amount to bullying and harassment, implications of bullying and harassment, procedure for making complaint and disciplinary action. 10) Community Relations Policy The Board has adopted a Community Relations Policy which demonstrates Seplat’s value for the communities in which it operates, and the Company’s commitment to developing the communities through capacity building, business opportunities, employment, academic scholarships, charitable donations, awareness creation, etc. The details of Seplat’s CSR activities are contained in the CSR section of this report. 11) Investors’ Complaint Management Policy The Company established a Complaint Management Policy pursuant to the Rules of the Nigerian SEC released on 16 February 2015 and the subsequent directive of the NSE to all listed companies in Nigeria. The Policy outlines the procedures established by Seplat to address the complaints and other communications received by its shareholders and the public in relation to specific matters. The Policy is available on the ‘Corporate governance policies’ page of the Company’s website. 12) Conflict of Interest Policy for Directors and Employees The Board has adopted a Conflict of Interest Policy for Directors and employees. This Policy applies to Seplat Directors, shareholder representatives on our statutory Audit Committee, and employees. The Policy clearly sets out the legally imposed duties of the Board, its members, and employees, along with some ethical requirements adopted by the Company. Particular attention is given to conflicts involving Independent Directors to ensure compliance with both the letter and spirit of corporate governance regulations on such Directors. The Policy outlines a clear disclosure, review, and documentation process for all conflicts of interest involving a Director, beginning with a yearly declaration to the Company, for the consideration of a dedicated conflict of interest review panel. During the year under review, all members of the Board and employees participated in the annual declaration of conflict of interest or affirmation of independence as applicable. This policy has been further reviewed to include special requirements on Independent Directors as provided in the SEC code of corporate governance, NCCG and UK Code of 2018. 13) Corporate Communications Policy The Board has adopted a Corporate Communications Policy which establishes guidelines for communication with current and potential stakeholders, guarantee accurate and effective communication of the Company’s perspective on all issues, ensures compliance with all relevant regulatory requirements and best practice standards and guidelines governing corporate communication. The Policy sets out modalities for both internal and external communications, Company’s Authorised Media Spokespersons, preparation and release of regulatory announcements, social media/ internet communication. 14) Electronic Information & Communications Systems Policy The Board has adopted an Electronic Information & Communications Systems Policy which demonstrates Seplat’s commitment to responsible, secure, and efficient use of communication systems, such as the internet, electronic mail, social media, intellectual property, etc. 15) Inside Information Policy The Board has adopted an Inside Information Policy. The Policy clearly defines what constitutes ‘inside information’ and sets a clear process for the confidential preservation of such information. It also prohibits Seplat Directors, employees, contract staff, business partners and their connected persons from using inside information to deal in Seplat shares or securities or those of another public company. This policy has equally been reviewed to bring it in line with the Market Abuse Regulations (MAR). 16) Political and Charitable Contributions Policy The Board has adopted a Political and Charitable Contributions Policy. The Policy prohibits Directors, employees, contract staff and business partners from making political donations or engaging in other political activities on behalf of Seplat. It also sets the standard and processes for making charitable donations to lawfully constituted charitable organisations, in line with the Corporate Social Responsibility (CSR) initiatives of the Company. 17) Related Party Transactions Policy and Guidelines The Company has adopted a Related Party Transactions Policy which sets out the policy statement, stringent disclosure requirements as well as the review and decision-making process for such transactions. The policy also sets out the special requirements on Interested Person Transaction as well as transfer pricing guidelines. The Related Party Transactions Policy and Guidelines is a live document that is revised from time to time to reflect changes in both the Nigerian and the UK laws and regulations. The Policy was updated by the Board on 29 January 2016. The list of Seplat’s related party transactions is outlined in Note 41 to the financial statements of the Annual Report and Accounts. Seplat is committed to conducting all related party transactions in accordance with the arm’s length principles and good corporate governance practices. 94 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ interest in contracts The Chairman and the CEO have disclosable indirect interest in contracts with which the Company was involved as of 31 December 2020 for the purpose of section 303 of the Companies and Allied Matters Act, 2020, Laws of the Federation of Nigeria. These are contained under the related party disclosures in Note 41. 18) Risk Management Policy The Board has adopted a Risk Management Policy which is updated from time to time. Risk Management Policy demonstrates Seplat’s commitment to the enterprise risk management and reporting system that ensures efficient identification of operational, financial, health, safety and environmental risks, and risk eradication and management. 19) Share Dealing Policy The Board has adopted a Share Dealing Policy which is updated from time to time. The Policy demonstrates Seplat’s commitment to trading securities in compliance with the requirements of the NSE Amended Listing Rules (ALR), the Nigerian Code, the UK Listing Rules and European Union Market Abuse Regulations (MAR). The Share Dealing Policy reflects the Company’s dual participation in the Nigerian and UK Stock Exchanges and highlights the Company’s respective obligations under both Nigerian and UK listing regulations. The Share Dealing Policy sets the parameters under which Directors and employees of Seplat and its subsidiaries, and their connected persons, must deal with the Company’s shares, securities and inside information. This Policy has been further reviewed by the Board in line with MAR provisions which took effect from 3 July 2016. 20) Whistleblowing Policy The Board has adopted a Whistleblowing Policy which is updated from time to time. In addition to this Policy, whistleblowing provisions are entrenched in all Seplat corporate governance policies. The Company has a dedicated whistleblowing hotline for employees and other stakeholders to confidentially report unlawful and unethical conduct involving the Company, its Directors, or employees. The Company’s whistleblowing system comprises an internal and an external channel, which are operated concurrently. The internal whistleblowing channel is managed by the Company’s Business Integrity Unit, reporting directly to the CEO, while the external whistleblowing channel is managed by KPMG. The Business Integrity Unit and KPMG ensure that all reports are kept confidential and appropriately investigated and resolved. 21) Market Sounding Policy The Board has adopted a Market Sounding Policy which sets out guidelines that ensures that the Company and disclosing market participant (DMP) acting on the Company’s behalf complies with the provisions of MAR when conducting market soundings. The Policy stipulates procedure to be followed before conducting market soundings, procedure to be followed during market sounding process and specific information to be provided and requested where a market sounding involves or would not involve the disclosure of inside information. Declaration of Compliance In compliance with Section 14.4(b) of the NSE ALR, following specific enquiry, all Directors acted in compliance with the NSE ALR and Seplat’s Share Dealing Policy in respect of their securities transactions during the financial year ending 31 December 2019. Directors’ declarations None of the Directors have: • ever been convicted of an offence resulting from dishonesty, fraud, or embezzlement; • ever been declared bankrupt or sequestrated in any jurisdiction; • at any time been a party to a scheme of arrangement or made any other form of compromise with their creditors; • ever been found guilty in disciplinary proceedings by an employer or regulatory body, due to dishonest activities; • ever been involved in any receiverships, compulsory liquidations, or creditors’ voluntary liquidations; • ever been barred from entry into a profession or occupation; or • ever been convicted in any jurisdiction of any criminal offence or an offence under any Nigerian or UK legislation. Signed by: A.B.C. Orjiako Board Chairman Edith Onwuchekwa Company Secretary/ General Counsel Statement of Compliance with Nigerian Stock Exchange on Listing on the Premium Board In Compliance with Section 12.4 of the Rules of the Nigerian Stock Exchange on Listing on the Premium Board, we wish to state that the SEC Code of Corporate Governance for Public Companies in Nigeria, the Financial Reporting Council of Nigeria’s Nigerian Code of Corporate Governance, 2018 and the UK Corporate Governance Code govern the operations of Seplat Petroleum Development Company Plc. We hereby confirm that to the best of our knowledge, Seplat is in compliance with the Codes. Signed by: A.B.C. Orjiako Board Chairman Edith Onwuchekwa Company Secretary/ General Counsel 95 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports Remuneration Committee report 6 Remuneration Committee meetings in 2020 Xavier Rolet, KBE Picture credit: Roger Askew/ Shutterstock The Remuneration Committee is a standing committee of the Board and is comprised wholly of Independent Non-Executive Directors in compliance with the Nigerian Code and the UK Code. Michael Alexander was chairman of the Remuneration Committee throughout 2020 and on his retirement from the Board on 31 January 2021 was succeeded by Xavier Rolet. You will see below details of the terms of reference for the Remuneration Committee and a summary of the activities carried out during the year. The Remuneration Committee is established to ensure that remuneration arrangements for Seplat’s Chairman, Executive Directors, Non-Executive Directors and senior management support the strategic aims of the business and enable the recruitment, motivation and retention of relevant skilled personnel while satisfying the expectations of shareholders. Details of the Company’s proposed remuneration policy are outlined on pages 115-116 of the 2020 Annual Report and Accounts. In the interest of transparency, no Director by reason of being a member of the Committee, is involved in any decisions relating to his/her own remuneration. Xavier Rolet, KBE Chairman of the Remuneration Committee 96 27 Jan 18 Mar 28 April 22 July 20 Oct 2 Dec 2020 Members Michael Alexander (SID) 1, Chairman to 31 January 2021 Charles Okeahalam 2, Member Basil Omiyi 2, Member Damian Dodo SAN2, Member Xavier Rolet, KBE 3, Member and Chairman from 1 February 2021 – – – – 6/6 6/6 6/6 6/6 2/2 1. Senior Independent Non-Executive Director. 2. Independent Non-Executive Director. 3. Xavier Rolet was appointed to the Board as an Independent Non-executive Director on October 1, 2020. Following his appointment, he attended the two Remuneration Committee meetings that were held after his appointment and he was appointed Chairman of the Remuneration Committee from 1 February 2021. In the financial year ended 31 December 2020, the Committee held six meetings, the dates and attendance records for which can be seen in the table above. All members of the Remuneration Committee are Independent Non-Executive Directors in order to preserve the transparency and integrity of remuneration processes. The Remuneration Committee meets at least four times a year and, when required, the meetings are attended by appropriate senior management of the Company (such as the Chief Executive Officer and General Manager of Human Resources), and external advisers upon invitation. When proposing remuneration to the Board, the Committee ensures that: • the remuneration for Executive Directors is appropriately balanced between fixed and variable pay elements, which may include annual bonus and equity-based awards; • Executive Directors do not receive any sitting allowances or fees that may be payable to Non-Executive Directors; • the remuneration of Non-Executive Directors is determined by the Chairman and the Executive Directors; and • no Director or manager is involved in any decisions as to his/her own remuneration. In accordance with its terms of reference, the Remuneration Committee assists the Board in: • Determining the framework for the remuneration of the Chairman, Chief Executive Officer, Executive Directors and members of senior management, including without limitation, the schemes of performance-based incentives (including share incentive plans), awards, and pension arrangements and benefits for the Executive Directors and senior management. • Ensuring that contractual terms and payments in respect of dismissal, loss of office or termination (whether for misconduct or otherwise) are fair and not excessive to the individual. • Providing appropriate input on Directors’ remuneration for the Company’s Annual Report and Accounts. • Preparing necessary remuneration procedures and policies in compliance with the Nigerian Code, UK Code and other applicable laws and regulations, and in consideration of remuneration trends in the oil and gas industry in the area where Seplat operates. • Reviewing remuneration and related matters to ensure that they are consistent with corporate governance best practice. • Reviewing up-to-date information about remuneration in other companies in the oil and gas sector with the aid of qualified consultants. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 • Overseeing any major changes in employee benefits structures throughout Seplat. • Designing the policy for authorising claims for expenses from • Granting awards under the Company’s LTIP as well as monitoring performance progress of outstanding awards and determining the vesting of the 2017 LTIP awards in current financial year. Executive and Non-Executive Directors. • Drafting the Company’s Directors’ Remuneration Report. • Regularly reviewing the ongoing appropriateness and relevance of • Reviewing the role of the Remuneration Committee and its the Company’s remuneration policy. Highlights of business carried out by the Remuneration Committee during the year include: • Monitoring the implementation of the Company’s remuneration policy and practice. • Ensuring the appropriate cascade of the remuneration policy to the senior management grades. • Setting the forthcoming year Annual Bonus Performance targets for the CEO; CFO; Board executives and senior management. These targets are cascaded throughout the Company to ensure alignment. • Review of executive remuneration and pay for the wider workforce for FY 20 in light of the economic impact of the depressed oil price and the Covid-19 implications on the economy. compliance with the 2018 UK Corporate Governance Code and the 2018 Nigerian Code of Corporate Governance. • Reviewing the scale of the completed supplementary activity requested by the Board carried out by the Finance Committee Chairman and the additional one-off payment to the Finance Committee Chair in compensation for the time involved in line with approved policy. • Review of the outgoing CEO remuneration and exit package. • Review of the remuneration terms for the new CEO and CFO. • Reviewed the framework for termination payments for senior management employees and Non-Executive Directors. • Review of the Chairman’s Supplementary contract and proposed continuation of the contract from 1 January 2021. • Review Executive Management performance over the past year • Review of the Remuneration Policy in line with corporate to determine the appropriate levels of Annual Bonus – the consequence of this review cascades throughout the Company. • Determining the 2021 fee and salary levels for the Chairman, Executive Directors and senior management. • Reviewing the LTIP performance measures and targets to ensure continued appropriateness of the incentive structure and alignment with underlying corporate performance. governance best practice, changes to the Company’s business strategy, the need to attract, retain and motivate executives and investor sentiment and drafting the proposed remuneration policy set out on pages 115-116 of the 2020 Annual Report and Accounts. The Committee will continue to be mindful of the concerns of shareholders and other stakeholders and welcomes shareholder feedback on any issue related to executive remuneration. 97 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued Finance Committee report 5 Finance Committee meetings in 2020 Dr. Charles Okeahalam Dr. Charles Okeahalam I am pleased to make this report to Seplat shareholders on the activities of the Finance Committee, which I trust you will find to be of interest. The Finance Committee was constituted in 2013 in compliance with the UK Code’s requirement for an audit committee and consists wholly of Independent Non-Executive Directors as listed above. You will see below the details of the terms of reference for the Finance Committee. During the year, the Committee focused on strategies to bolster the Company’s financial performance amidst volatile oil prices and an extremely challenging operating and financial environment. We remained steadfast in our resolve to explore and execute viable solutions to each operational and financial challenge. The details of our activities are contained below. I shall be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to talk with shareholders, or if you are not able to meet me there, I can be contacted via the Company Secretary. Dr. Charles Okeahalam1 Chairman of the Finance Committee 1 Independent Non-Executive Director. 98 27 Jan 12 Mar 21 Apr 21 July 21 Oct 2020 Members Charles Okeahalam 1, Chairman Michael Alexander 1, Member Lord Mark Malloch-Brown 1, Member Ifueko Omoigui Okauru 1, Member Arunma Oteh 1&2, Member – – – – 5/5 5/5 5/5 5/5 1/1 1. Independent Non-Executive Director. 2. Arunma Oteh was appointed to the Board as an Independent Non-Executive Director on October 1, 2020. Following her appointment, she attended one (1) Finance Committee meeting that held after her October 2020 appointment. Charles Okeahalam, Ifueko Omoigui Okauru and Arunma Oteh have recent and relevant financial experience, as highlighted in the profile of Directors on page 85. In the financial year ended 31 December 2020, the Committee held five meetings, dates and attendance records for which can be seen in the table above. The Finance Committee consists of five members, all of whom are Independent Non-Executive Directors. The Committee meets at least four times a year, and its meetings are attended by appropriate senior management of the Company, including the Chief Financial Officer, the Head of Internal Audit, the Head of Business Integrity and the Head of Internal Controls. The Finance Committee assists the Board in: • monitoring the integrity of financial statements and any formal announcements relating to its financial performance, reviewing any significant financial reporting judgements contained in them; • reviewing the Company’s financial controls and financial risk management systems; • overseeing financial strategy, policy and treasury matters; • reviewing and approving major capital expenditures; • making recommendations to the Board for presentation to the shareholders for approval at the AGM in relation to the appointment, re-appointment and removal of the external auditor; and approving the remuneration and terms of engagement of the external auditor; • reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the audit process; • developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken; • monitoring and reviewing the effectiveness of the Company’s Internal Audit function and its activities; • providing advice on whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; and • overseeing and evaluating the effectiveness of (and compliance with) the Company’s corporate governance policies (including without limitation: conflicts of interest, related-party transactions and whistleblowing). Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The Committee’s activities during 2020 The Committee met five times during 2020. In compliance with the Committee’s terms of reference, it considered the following: Financial statements: the Committee reviewed the report from the external auditors and management on the interim and annual financial statements and the accompanying public releases. In doing so, it considered the following: • the oil and gas reserve estimates; • revenue recognition; • fraud and management override; • Impact of new accounting standards and regulations • impact of the fair value adjustments on oil hedges; • amount provisioned on OML 25 and OML 55; • impairments on the oil and gas assets; • contingent liability; • areas that required significant estimation, judgement or uncertainty; • compliance with financial reporting and governance standards; • the basis for the going concern assessment; • related party transactions; • Company’s compliance with OPEC quotas and deferments across all assets; and • NPDC and NAPIMS receivables. Strengthening the Company’s statement of financial position: the Committee worked closely with Management to explore the immediate and long-term strategies for improving the Company’s statement of financial position. The US$350 million SEPLAT Revolving Credit Facility (RCF) is currently drawn at US$250 million. US $100million was repaid on the RCF resulting in a savings of c. US $10,000 per day in interest charges. The US$100 million remains available for drawdown if required. The Company’s position of established financial strength ensures the Company is now positioned to fund growth opportunities. Cash flow analyses: the Committee worked closely with Management and ensured the disciplined approach to capital allocation was achieved following a substantial leverage of the statement of financial position. The minimum cash position was established and reviewed as adequate during the period. Alternative export routes: Management had continued to achieve considerable progress to ensure completion of the Amukpe-Escravos Pipeline Project. The Trans Forcados pipeline uptime in the period was significantly higher than prior years at over 83%. The Amukpe Escravos Pipeline is expected to be commissioned in 2021. Cost management: the Committee reviewed the continuous efforts by Management to efficiently manage costs. General and administrative costs were maintained at relatively flat levels during the year. Oil hedging: the Committee reviewed the implementation of the existing oil hedging strategy and ensured that appropriate levels of revenue protection were considered at the same time as ensuring that the risk and costs of hedging were manageable. Budgets: the Committee reviewed the annual budget in detail to ensure the assumptions were consistent with the business environment and appropriate growth targets. Oil price sensitivities, alternative export routes, cost reductions, impact of major acquisitions and impact of Naira devaluation were considered as a part of the process. Deferred tax: the Committee reviewed the appropriateness of deferred tax charges in the year. Internal and external audit: the Committee reviewed and made recommendations on the internal and external audit plans and the underlying activities, and monitored the extent and timing of remediation by Management. Internal controls and risk management: the Committee reviewed the business risks including the management and mitigation of financial risks and the timeline for remediation. Corporate governance compliance: the Committee reviewed the corporate governance framework to determine and make recommendations on its alignment with current Nigerian and UK regulations as well as the levels of compliance in the Company. The Committee also reviewed the effectiveness of the Business Integrity Unit, the whistleblowing policy, as well as reports made through the whistleblowing system and efforts to resolve them. Interim and final dividend: the Committee considered the impact of declaring an interim and final dividend. The significant issues considered by the Committee in relation to the financial statements were: Payment of dividends in foreign currency: the Committee considered the implication of the Central Bank of Nigeria foreign exchange directive on the ability of the Company to pay dividends and contracts in foreign exchange. Related party transactions: the Committee undertook a thorough review as to the number and extent of related party transactions. It was decided that the Committee would continue to monitor these closely with a goal of reducing the number and value of related party transactions through the introduction of other service providers. Impairment: the Committee reviewed the impairment tests performed by management which was also an area of focus for the external auditor. In assessing the impact of impairment, oil price assumptions were compared with a number of external reference points and compared to ensure that the management estimates were appropriate. The impairment trigger resulted from the oil price impact due mainly to the Covid-19 global crisis. Eland financing: the Committee reviewed the two lending facilities in place at Elcrest Level: Eland Reserve Based Loan Facility and the Westport Shareholder loan and recommended the restructuring of the Westport Shareholder Loan to the Board. 99 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 External audit The objectiveness and independence of the external auditor are taken seriously by the Company and this is reviewed each year prior to commencement of the audit process. The Committee has a policy of ensuring that the external auditors’ independence is maintained by minimising the provision of non-audit services and this is monitored closely throughout the year. Further to the process for the appointment of a new external auditor following the ten-year tenure completed by the previous external auditor, PwC were appointed as the external auditor for 2020. The statutory audit fees earned by the external auditor for the audit services can be found in Note 10 to the financial statements. Prior to commencement of the audit, the Finance Committee meets with the external auditor to review the audit plan and reports. This is to ensure that the Committee has a thorough understanding of the higher risk areas designed to ensure that there are no material misstatements in the financial statements. The Committee has reviewed the external auditors’ performance and independence taking into account input from Management as well as interaction with the external auditor without Management present. In making its assessment, the Committee focused on the robustness of the audit, the extent of investigation into the business and the quality and objectiveness of the audit team. Based on this information, the Committee concluded that the audit process is operating effectively and has thus recommended to the Board that the current auditor, PwC Nigeria, be reappointed as external auditor at the 2021 AGM. PwC was first appointed on 28 May 2020. The Company complies with the Nigerian corporate governance regulations, while observing those in the UK by strategically adopting the most stringent conditions under both sets of regulations. This results in the audit partner being rotated every five years and the audit being put out to tender at least every ten years. Board Committee reports | continued Internal Audit During 2020, the Finance Committee on behalf of the Board reviewed the audit plan and received quarterly reports on the Internal Audit activities. EY supported the Internal Audit team under a manpower call-off contract to provide resources as required in delivering the Internal Audit plan. The Head of Internal Audit reports directly to the Board through the Chairman of the Finance Committee with an administrative reporting line to the CEO. The Internal Audit function therefore has direct access to the Finance Committee and its main responsibilities include: • evaluating the adequacy, reliability and effectiveness of governance, risk management and internal controls systems; • evaluating the reliability and integrity of information and the means used to identify, measure, classify and report on such information; • evaluating the means of safeguarding assets and verifying the existence of such assets, as appropriate; • evaluating the systems established to ensure compliance with those policies, plans, procedures, laws and regulations which could have a significant impact on the organisation; and • performing consulting and advisory services on new initiatives and matters related to governance, risk management and internal controls as appropriate for the Company. The Internal Audit strategy in 2020 provided greater focus on operational areas of capital spend to provide assurance about the effectiveness of operational controls, project management efficiency and delivery and achievement of strategic objectives underpinning the capital deployment. Internal Audit focused on risk areas in the selection of key projects for Audits, detailed testing of contracts and procurement processes and controls, regulatory compliance and reporting of corporate governance, review of information technology general controls and processes. In light of the ongoing global pandemic, Internal Audit also focused on the following key enterprise risk areas; Covid pandemic and threat to the global economy, oil price slump and lockdown/work from home. The results of the Internal Audit findings were considered by the Committee at the majority of the meetings and the remedial plans were discussed with Management. As a quarterly activity, Internal Audit also conducted checkpoint remediation reviews to ensure that management was effectively closing out identified control gaps from prior audit findings. Internal Audit continued to work through the approved implementation roadmap following the external assessment of its function and activities which occurred in the previous two years. This included the implementation of Internal Audit management software to further enhance effectiveness and quality of the audit function. 100 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Nomination and Establishment Committee report 6 Nomination and Establishment Committee meetings in 2020 Mr. Damian Dodo, SAN 2020 Members Damian Dodo, SAN1, Chairman 27 Jan 22 April 19 May 18 Jun 22 July 20 Oct Michael Alexander (SINED)2, Member Basil Omiyi1, Member Mark Malloch-Brown1*, Member Arunma Oteh1**, Member – – – – – – 6/6 6/6 6/6 5/5 1/1 1. Independent Non-Executive Director. 2. Senior Independent Non-Executive Director. * Lord Mark Malloch-Brown was appointed to the Committee in April 2020. ** Ms. Arunma Oteh joined the Board in October 2020 and the Committee in the same month. In the financial year ended 31 December 2020, the Committee held six meetings (four quarterly meetings and two emergency meetings). The dates and attendance records for all the meetings are reflected in the table above. The Nomination and Establishment Committee was very vigorous and effective during the year. During the first quarter of the year, the Committee was informed that Mr. Michel Hochard in his role as the Chief Executive Officer of Maurel et Prom (M&P), was appointed to the Board of SEPLAT as a nominee of M&P. However, following his retirement as the CEO of M&P, the Board of M&P appointed Mr. Olivier De Langavant as its new CEO thereby replacing Mr. Hochard as its nominee on the Board of Seplat. In the desire to refresh the Board and in line with its Succession Plan, the Committee received the CVs of two proposed nominees to the Board, for its consideration and approval. The nominees were: (i) Ms. Arunma Oteh – Former DG, Securities and Exchange Commission, Former Treasurer – World Bank, etc.; and (ii) Mr. Xavier R. Rolet, KBE – Chairman, Board of PHOSAGRO PJSC, UK, etc. Both were duly considered and approved. They joined the Board in October 2020 as Independent Non-Executive Directors. The Committee considered a Travel Policy for Directors which also approved by the Board. As part of developing the capacity of Board members, a training offered by CERAWEEK Partners was scheduled in early March 2020 for interested Board members. However, due to the outbreak of the global pandemic Covid-19, the training was cancelled. The Committee was informed that the concluded CEO Succession Plan had opened the position of the CFO for resourcing and that an executive recruiting firm, Pedersen & Partners (external consultant) had already been briefed to commence the recruitment process for the role. On the succession plan for key management roles, the Committee took note of some high-level departures such as the CEO (Mr. Austin Avuru) who retired on 31 July 2020 and was replaced by the CFO (Mr. Roger Brown). In the second quarter of the year, the Committee focused on the recruitment of a new CFO for Seplat. A Committee made up of all members of the Nomination Committee, the Finance Committee Chairman and CEO, was put together to oversee this process in conjunction with the external consultant. The process was finalised with the appointment of Mr. Emeka Onwuka who emerged the best qualified candidate with years of experience in this role. He thereafter joined the Company and the Board on 1 August as the new CFO of Seplat. In the third quarter the Committee received an update on the new organisational structure from the new CEO (Mr. Brown) who took over on 1 August 2020. Following his retirement as the CEO of Seplat on 31 July, Mr. Austin Avuru was appointed a Non-Executive Director on the Board and as a nominee shareholder of Platform Petroleum Limited effective 1 August 2020. The Committee also undertook a critical review of the Company’s subsidiary board governance. This review led to the restructuring of the subsidiary companies in line with the new internal reorganisation and provisions of the new Companies and Allied Matters Act, 2020. Other 2020 activities of the Committee are outlined below. For further clarification, I shall be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to speak with shareholders. If you are not able to meet me at this year’s AGM, I can be contacted through the Company Secretary. Mr. Damian Dodo, SAN Chairman of the Nomination and Establishment Committee 101 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued All five members of the Nomination and Establishment Committee are Independent Non-Executive Directors. The Committee meets at least four times a year. When required, the meetings of the Committee are attended by other members of the Board such as the Board Chairman and the Finance Committee Chairman, appropriate Senior Management of the Company (such as the Chief Executive Officer, Company Secretary/Chief Governance Compliance Officer and General Manager Human Resources) and external advisers upon invitation by the Committee Chairman. In accordance with the provisions of the SEC Code of Corporate Governance and the Nigerian Code of Corporate Governance, 2018, the Nomination and Establishment Committee assists the Board to: • review at least annually the size, composition and balance of the Board and its Committees and make recommendations on any proposed changes to the Board; • evaluate the balance of skills, experience, independence and knowledge on the Board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment and ascertain that the nominees are fit and proper to carry out the duties of a Director; • review the criteria for Board and Board Committee memberships, review candidates’ qualifications and any potential conflict of interest, assess the contribution of current Directors in connection with their re-nomination and make recommendations to the Board; • ensure that a Board Succession Policy and Succession Plan exists for the positions of Chairman, CEO, Executive Directors and managing directors for the subsidiary companies; Highlights of the business carried out by the Nomination and Establishment Committee during the year include: • confirmed the retirement of Mr. Michel Hochard and the appointment of Mr. Olivier De Langavant in his place on the Board as a Non-Executive Director; • deliberated and closed out on a petition by a Seplat employee who alleged unfair treatment and wrongful termination of his contract of employment with the Company; • update on Management Succession Plan with the retirement of the CEO (Mr. Avuru) in July 2020 and the appointment of a new CEO (Mr. Brown) effective 1 August 2020; early retirement of some other members of the Senior Management Team and recruitment of new hires to fill some of these positions; • received a presentation on Job Evaluation Overview and Performance Management from Korn Ferry, an HR Consultant; • full oversight on the recruitment of a new CFO who joined the Company and Board in August 2020; • considered and approved the Travel Policy for Directors; • deliberated and approved the proposal on Board refreshment which led to the appointment of Mr. Xavier R. Rolet and Ms. Arunma Oteh as Independent Non-Executive Directors on the Board effective 1 October 2020; • received notice of retirement from Mr. Michael Alexander and Mrs. Ifueko M. Omoigui Okauru as Directors effective 31 January 2021; • reviewed and dealt with a misguided petition against the Board • ensure that the Company has a formal programme for the induction Chairman; and training of Directors; • undertake the annual assessment of the independent status of each INED; • review the performance and effectiveness of the subsidiary company boards on an annual basis where applicable; • keep up to date and be fully informed about strategic issues and commercial changes affecting the Company and the market in which it operates; • prepare a job specification for the Chairman’s position, including an assessment of time commitment required of the candidate; • identify and nominate for the approval of the Board, candidates to fill Board vacancies as and when they arise; • recommend to the Board any proposed appointments or removals of Directors to be made in accordance with Seplat's Memorandum and Articles of Association; and evaluate the performance of Directors and make recommendations on the addition or replacement of Executive and Non-Executive Directors and the Chairman of the Board; • appointment of Mr. Avuru as a Non-Executive Director and a representative of Platform Petroleum Limited on the Board of Seplat; • quarterly review of the HR Dashboard which highlighted the following key updates: (i) new hires and departures including resignations; (ii) total number of males & females; (iii) maintenance of a healthy workforce; (iv) staff turnover compared to the global average annual rate; (v) Ongoing initiatives and preventive measures put in place for employees in response to the global Covid-19 pandemic such as work from home rule, setting up of a monitoring committee to advise leadership on business continuity and to educate employees on any update regarding the pandemic, availability of medical treatment for employees and their dependants for Covid-19 testing and treatment where necessary; (vi) gradual return of employees to the office post Covid-19, etc. • re-election of retiring Directors by rotation at the AGM; • recommendation for promotion of members of the Senior Management Team; • proposal on nomination of Directors to the Statutory Audit • oversee management’s implementation of the Company’s human Committee; capital development policies and procedures; • appointment of Lord Mark Malloch-Brown and Ms. Arunma Oteh as • recruit, promote, develop, review succession planning or disciplinary measures affecting Executive Directors and Senior Management; and • develop a process for, and ensure that the Board undertakes, an annual performance evaluation of itself, its Committees, the Chairman and individual Directors as well as the Company’s CG policies and practices. members of the Committee effective April and October 2020 respectively; • considered and approved the proposal on Board restructuring of all the Company’s subsidiaries and affiliates companies in view of the new internal reorganisation and provisions of the new CAMA 2020; • update on the new organisational structure which led to the key changes in the functions of the Senior Team and reporting lines to the CEO, etc. 102 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The Board appointment process: The Nomination and Establishment Committee leads the process for identifying and recommending the appointment of new Directors to the Board. This process involves engaging an external search company, which conducts external search for prospective candidates with appropriate skills and qualifications for specified directorship. Following an external search, the Nomination and Establishment Committee also receives internal proposals from the Board members before conducting interviews of the short-listed candidates and recommends the selected candidate(s) to the Board for appointment after it has determined that the selected candidate(s) has the balance of skills, knowledge and experience that meets the leadership needs of the Company and that the selected candidate(s) is able to fulfil his/her duties and obligations as a Director. In the event that the candidate(s) is to be appointed as an Independent Non-Executive Director, the Board will determine whether the candidate is independent in character and judgement, and whether there are circumstances which are likely to affect, or appear to affect, the candidate’s judgement as a Director. Diversity at Seplat Seplat’s Board and employees are amongst its greatest assets and key stakeholders. The Company is therefore committed to promoting a diverse and an inclusive workplace that will maximise value to the business and ensure the sustainable success of the Company. It is therefore the policy and practice of the Company to attract, recruit and retain diverse and talented members of the Board, Management and workforce. The Company during the year under review adopted a Diversity and Inclusion (D&I) Policy aimed at setting the parameters within which Seplat will promote diversity and inclusion within the organisation. This Policy applies to all Directors, employees, and business partners, including their respective recruitment, engagement, remuneration, evaluation, and promotion. This Policy also applies in all countries and locations in which Seplat operates, except in jurisdictions where the Company has adopted a specific policy on D&I. The current Board consists of nationals from a variety of cultures within Nigeria and internationally, who have diverse expertise in the local and international oil and gas industry and different business sectors. The Nomination and Establishment Committee’s consideration of candidates for directorship includes a review of diversity matters. Diversity among Directors provides a strong mix of views and experiences to leverage the Board’s decision-making processes and leadership activities. There are currently two female Directors on the Board: (a) Madame Nathalie Delapalme; and (b) Ms. Arunma Oteh. The Board also promotes diversity throughout the business. Seplat’s Senior Management Team consists of men and women from different cultures in Nigeria and internationally, who have varying skills and experience in the different sub-sectors of the oil and gas industry. The Board is proud of the increasing number of women within the Senior Management Team. Overall, the Company’s full-time workforce comprises of 26% women and *five different nationalities. The Board is committed to continuous investment in diversity among its Directors and employees. *Note: Some have dual nationalities. 103 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued Gas Committee report 3 Gas Committee meetings in 2020 Basil Omiyi I am pleased to present to you the Gas Committee report for the 2020 financial year. The Gas Committee was constituted by the Board in 2018 with the goal of fine tuning Seplat’s gas strategy and to bring greater focus to the management of the Company’s gas business risks. The Gas Committee aims to help the Company successfully navigate the dynamic landscape of the gas market and to position the gas business as a robust stand-alone midstream business. I shall be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to talk with shareholders, or if you are not able to meet me there, I can be contacted via the Company Secretary. Basil Omiyi1 Chairman of the Gas Committee 1. Independent Non-Executive Director. 104 2020 Members Basil Omiyi1, Chairman Michael Alexander (SID)2, Member Charles Okeahalam, Member Arunma Oteh, Member3 18 March 20 July 20 Oct 3/3 3/3 3/3 1/1 – – 1. Independent Non-Executive Director. 2. Senior Independent Non-Executive Director. 3. Appointed Independent Non-Executive Director October 2020 and became a Member of the Gas Committee in October 2020. The Committee held three meetings in the financial year ended 31 December 2020. The dates, attendance and new membership records are as shown in the table and Notes 1-3 above. The Gas Committee, in the financial year under review, was comprised of four Independent Non-Executive Directors who have strong leadership experience in the Nigerian and International Gas industry, as well as in-depth knowledge of finance. Ms. Arunma Oteh joined the Committee in October 2020. Details of the terms of reference for the Gas Committee and a summary of the activities carried out during the financial year are as shown below. In accordance with its terms of reference, the Gas Committee is established to assist the Board in: 1. 2. 3. 4. 5. periodic review of a long-term strategic Gas Master Plan for SEPLAT that is consistent with the vision of the Company, and a framework for implementing the Plan; overseeing the Company’s successful transition from upstream operations into the midstream value chain and beyond, including gas prospects, commercial activities and legislative implications; reviewing issues as they arise in major ongoing midstream investments of the Company, such as the Assa-North Ohaji- South (ANOH) project; reviewing the investment portfolio and opportunities of Seplat’s gas subsidiary company, Seplat Gas Company Limited; receiving and considering reports relating to the Gas business, including gas prospects, commercial activities and legislative updates; and 6. overseeing other activities that are related to the Gas business of Seplat as the Board may approve from time to time. Gas business oversight The Gas Committee oversaw, among other activities, the following activities of the Gas business: I. Gas sales volume: Over the course of the financial year, the Committee paid close attention to gas sales volumes, particularly as Nigeria and the global economy were impacted by the Covid-19 pandemic. The lockdown occasioned by the Covid-19 pandemic affected gas demand by industrial customers. However, the Company was able to meet its gas sales volume in the year under review. The Committee equally monitored the drilling of the gas wells planned for the year. The wells planned for drilling were successfully completed and are expected to boost gas sales volumes. II. Turnaround maintenance of Oben Gas Plant: The Committee received the report on the Oben Gas Plant turnaround maintenance, which was successfully completed on 13 March 2020, with the plant restarting on 14 March 2020, a day ahead of schedule. Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 III. IV. Collection of outstanding debt: The Committee monitored the collection of outstanding debts from Gas business customers. The Company made impressive strides in the collection of payments, considering the business disruptions experienced due to Covid-19. The improved collections kept the Company’s total overdue receivables well below the target of not more than US$50million. The Company intends to sustain the improvements achieved to support further growth in the Gas business. Gas to grid power: The power sector is the major customer for gas in Nigeria and the Company therefore will remain exposed to the sector’s fortunes. There are a number of challenges in the gas-to-power value chain, including inadequate liquidity and dilapidated facilities. The Power Sector Reform Programme being implemented by the Government, if successful, will alleviate these challenges. In the year under review, the Committee monitored developments in the Gas-to-Grid Power space; particularly as it relates to the following: a) The new electricity tariff: The implementation of the new electricity tariff provides some level of comfort of improved cash flow in the gas-to-power value chain in the near term, based on the 60% increase and a promise of further improvement from 2021. b) Review of domestic gas pricing: The Committee deliberated on proposals being made to the Federal Government on reduction of gas price for Domestic Supply Obligation (DSO) from current $2.50/Mscf to $2.00/Mscf. This is being monitored to ensure cost-reflective pricing for gas. V. VI. New Petroleum Industry Bill (PIB) draft: The Committee deliberated on the new PIB draft, which proposes a gas price of $3.20/Mscf. However, there are indications that the proposed gas price under the draft PIB could be challenged by some stakeholders. Sapele Gas Project: The Committee considered progress recorded and the challenges faced regarding Project. Notwithstanding the budget constraints and current funding, the associated gas compressors (to reduce gas flares) and the generators that will power the plant have been completed and are being accelerated ahead of full completion of the project. VII. Diversification of customer base and markets: The Committee continued to pay attention to the drive for diversification of customer base and achievement of good balance between the Power and other sectors, particularly the off-grid opportunities that would ensure delivery of gas to various enterprise and industrial parks. The Committee also considered updates regarding opportunities for delivery of gas to the regional gas market. ANOH Project: Key highlights of deliberations and activities relating to the ANOH Project carried out by the Gas Committee during the year include: I. Funding: The Committee monitored the funding availability for the ANOH Gas Processing Company Limited (AGPC) during the financial year. AGPC received a final equity injection from both the Nigerian Gas Company (USD$60million) and Seplat (USD$30 million) respectively. Thus, both NGC and Seplat completed their respective equity injection obligations of USD$210million each, eliminating the risk of equity funding on the Project). The Committee also considered the debt financing for the Project which was to be provided by a consortium of seven banks – Stanbic IBTC Bank Plc (advisor), United Bank for Africa Plc, Zenith Bank Plc, FirstRand Bank Limited (London Branch)/RMB Nigeria Limited, The Mauritius Commercial Bank Limited, Union Bank of Nigeria Plc and FCMB Capital Markets Limited. The completion of this funding was signed on 1 February 2021. II. Resourcing: The Committee also considered the level of resourcing available to support the ANOH project. AGPC recorded the following milestones in terms of resourcing for the project: • Approval of the Project construction phase organisation by the AGPC Board; • Operations phase organisation plan has been put in place for the project; • Completion of the Graduate Trainee recruitment selection process, which was based on merit, while putting into consideration indigenes from the immediate community, Imo state and its environs; • Recruitment of a Company Secretary/Legal Adviser for AGPC; • Approval of the remuneration policy by the AGPC board. III. Stakeholder Management/Community Relations: The Committee also monitored the stakeholder management and community relations activities in relation to the project. Some of the progress recorded includes: • finalisation of the ANOH Global Memorandum of Understanding (GMoU), which is being discussed with the communities; • donation of palliative items to the Assa community as part of efforts to curb the spread of the Covid-19 pandemic in local area; IV. V. VI. Change in the Seplat and NGC nominees to the AGPC Board: During the financial year, Seplat and NGC went through a reorganisation that resulted in the appointment of Mr. Okechukwu Mba as the new Managing Director of AGPC, while Mrs. Yetunde Taiwo has been appointed the General Manager to lead Seplat’s New Energy portfolio and to be General Manager of Seplat’s Gas Business. Gas evacuation pipelines: The Committee also considered the readiness of the Dry Gas Export Pipelines, i.e., the Obiafu- Obrikom-Oben (OB3) and spur line, particularly on the River Niger crossing. The Company is lending its expertise to NGC to accelerate progress. Condensate evacuation: The Committee also considered potential offtakers in respect of crude offtake from Bonny terminal in view of the Government’s plan to recommend lower gas prices. As part of mitigation to having a single condensate evacuation route, the Committee considered options for a condensate evacuation pipeline, particularly as the planned condensate refinery in the vicinity of the ANOH Project is still at initial stages and unlikely to be operational at the early years of operations of the ANOH gas plant. VII. Contracts and commercial: The Committee also considered progress made with the respective contract packages required for the project completion as well as the respective commercial agreements such as: • Crude Handling & Transportation Agreements; • Condensate Off-take Agreement; • Gas Sale Agreements; and • Other arrangements to as potential de-risking mitigation opportunities against the spur line readiness. VIII. Project Risks: The Committee also considered the risks associated with the project with focus on: Gas evacuation risk (i.e. OB3 and spur pipeline); condensate evacuation risks; project schedule risk; community interference risk; and oversaw mitigation plans for the identified risks. 105 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued Risk Management and HSSE Committee report 4 Risk Management and HSSE Committee meetings in 2020 Basil Omiyi The Board assigned its responsibilities for the oversight of matters relating to risk management to the Risk Management and HSSE Committee. The role of this Committee in compliance with the provisions of the Securities & Exchange Commission (SEC) Code of Corporate Governance and the Nigerian Code of Corporate Governance 2018, is to assist the Board in overseeing the Company’s risk management processes, and key business risks including the risk appetite, risk profile and risk-reward strategies for the Company and as determined by the Board. It also reviews the adequacy and effectiveness of risk management and controls, has the oversight of the Company’s process for identification of significant risks across its business operations and the adequacy of prevention, detection and reporting mechanisms. The Committee also carries out a periodic review of changes in the economic and business environment, including trends and other factors relevant to the Company’s risk profile. However, following the declaration of Covid-19 illness as a pandemic by the World Health Organization and its arrival in Nigeria in the first quarter of 2020, Seplat immediately introduced the following measures: • A multi-discipline coronavirus monitoring group (COVIMOG) led by the Corporate HSE Manager was set up to monitor developments locally, internationally and report to Seplat leadership weekly on increasing or relaxing established preventive measures; • An Operations Continuity Team was also set up in the field locations led by the Base Managers to implement established preventive measures in the field locations and ensure continuity of operations. Location Base Managers are members of COVIMOG; • All personnel returning from overseas trip were made to quarantine for 14 days and thereafter complete a Covid-19 Illness Risk Assessment Form that is reviewed by the Company Medical Consultant and can only be allowed into any Seplat location after clearance by the Medical Consultant. PCR testing commenced in all field locations on the 5 September 2020 with retention of approved hospitals for Covid-19 treatment. The activities of the Risk Management and HSSE Committee are summarised below with highlights on certain key activities carried out in 2020. I will be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to discuss with shareholders, or if you are not able to meet me there, I can be contacted via the Company Secretary. Basil Omiyi Chairman, Risk Management and HSSE Committee (Independent Non-Executive Director). 106 2020 Members Basil Omiyi 3, Chairman Ifueko M. Omoigui Okauru 3, Member Effiong Okon1, Member Austin Avuru2, Member* Xavier R. Rolet3, Member* 23 Jan 23 Apr 20 July 19 Oct 4/4 4/4 4/4 1/1 1/1 – – – – – – 1. Executive Director. 2. Non-Executive Director. 3. Independent Non-Executive Director. * Mr. Xavier R. Rolet was appointed to the Board and Committee as an Independent Non-Executive Director in October 2020 while Mr. Austin Avuru joined the Committee as a Non-Executive Director in August 2020. In the financial year ended 31 December 2020, the Committee held four meetings. The dates and attendance records for all the meetings can be seen in the table above. Membership of the Risk Management and HSSE Committee was increased from three members to five members consisting of three Independent Non-Executive Directors (one of whom is the Committee Chairman), one Non-Executive Director and an Executive Director (appointed in accordance with the provisions of NCCG which provides in section 11.5.2 that, “Members of the Committee responsible for risk management should include EDs and NEDs, a majority of whom should be NEDs”). During the year, Mr. Avuru (who retired as CEO of the Company in July 2020) joined the Committee as a Non-Executive Director in August 2020 while Mr. Rolet was appointed to the Board and Committee as an Independent Non-Executive Director in October 2020. The Risk Management and HSSE Committee meets at least four times a year, and more if necessary. In addition to the quarterly meetings held in 2020, the Committee held two emergency meetings to review the following incidents: (a) In July 2020 – to deliberate on a fire and explosion incident that had occurred on 7 July 2020 at the mooring dolphin at Benin River Valve Station (BRVS) located on OML 40. The incident resulted in the fatalities of seven third-party contractors, the families of whom have been compensated; and (b) In November 2020 – to review the Gbetiokun Third Party Crude Storage vessel, MT Harcourt, laden with 118,000 bbls of crude on which a pump exploded on 2 November 2020, rupturing a storage tank and causing an oil spill into the Gbetiokun dredged slot. No fire, injury or fatality was recorded. At the above meetings, appropriate members of the Senior Management such as the Chief Executive Officer, Chief Financial Officer, Technical Director, Company Secretary/General Counsel, General Manager Operations Support, General Managers Eastern and Western Assets, Manager Corporate HSE and Head of Internal Controls and Risk Management were in attendance. Specialists with appropriate technical expertise are invited to attend and present to meetings of the Committee. The Risk Management and HSSE Committee assists the Board to: • review and recommend for approval of the Board, the risk management policies and framework, as well as assist the Board in its oversight of risk management strategy; • review the adequacy and effectiveness of risk management and controls in the Company; • receive reports from, review with, and provide feedback to, senior management on the categories of risk that Seplat faces, including credit, market and operational risk, the exposures in each category, significant concentrations within those risk categories, the metrics used to monitor the exposures and management’s views on the acceptable and appropriate levels of those risk exposures; Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 • evaluate the adequacy of the Risk Management function; and review the adequacy and frequency of risk reporting to the Board; Highlights of the business carried out by the Committee during the year were as follows: • review Seplat’s credit, market, liquidity and operational risk management frameworks, including significant policies, processes and systems that senior management uses to manage risk exposures, as well as risk measurement methodologies and approaches to stress testing; • quarterly review of the high risks, new risks on the Enterprise Risk Dashboard, associated risk mitigations put in place; the Enterprise Risk Register; update on Management Dashboard in respect of both Western and Eastern Assets; and risk framework and policy deployment in the Company; • highlights of high-level technical, operational business activities including ongoing capital projects; update on Asset Integrity and Process Safety Management, Gas Business Updates, Oil/ Condensate and Gas Production Performance, OPEC Quota and 2020 Production Forecast, Key Risks Deep Dive into key projects delivery, Flares Out, security within the Niger Delta region and Amukpe Water Well Contamination, etc.; • quarterly update on Covid-19 Management Strategy for Operations Continuity; Prevention and Management of Covid-19 spread in Seplat Operations and locations; • quarterly update on Community Relations operations, alternative export routes, and update on crude oil evacuation performance forecast; government receivables; etc.; • quarterly review of risk notes on the ANOH Gas Project including the ANOH Risk Dashboard; • review of 2020 Corporate HSSE Business Plan; quarterly update on HSE performance across the Company with highlights on LTI-free manhours achieved for the period, incident review panel sessions, campaign to embed Seplat mandatory safety rules in the Seplat personnel; etc.; • quarterly review of the Legal Risk Dashboard and Litigation Matrix which highlights the key legal risks and high-profile litigations within the Company; and • review of risk papers on the operations of the business such as Okpe Contaminated Water wells Investigation; incident at the Mooring Dolphin at Benin River Valve Station (BRVS) and the explosion on MT Harcourt, both located in OML40, etc. • exercise oversight over the processes for the identification and assessment of significant risks across Seplat and the adequacy of prevention, detection and reporting mechanisms; • review the Company’s level of compliance with applicable laws and regulatory requirements including those that may impact Seplat’s risk profile; and the procedures and controls for any new businesses acquired or developed by Seplat; • periodically review relevant changes in the economic and business environment, including emerging trends, management procedures, controls for risk associated with new business and other factors relevant to Seplat’s risk profile and those trends which may threaten Seplat’s business model, key strategies, future performance, solvency and liquidity and make recommendations to the Boards as appropriate; • receive information from the CFO, Operations Director, Technical Director, General Managers Assets, Internal Controls and Risk Management Unit, the General Counsel, others from senior management, Seplat’s independent auditors, regulators and outside experts as appropriate regarding matters related to risk management; • in consultation with the Audit Committee, review and discuss with senior management, at least annually: (a) the key guidelines and policies governing Seplat’s significant processes for risk assessment and risk management; and (b) Seplat’s major financial risk exposures and the steps senior management has taken to monitor and control such exposures; • review the Company’s policies and procedures for detecting fraud and prevention of bribery including review of the Company’s whistleblowing policy and procedures; • evaluate the effectiveness of Seplat’s policies and systems for identifying and managing environmental, health and safety risks within its operations; • assess the policies and systems within Seplat for ensuring compliance with environmental, health and safety regulatory requirements; and perform other activities related to these terms of reference and as requested by the Board; • review and recommend for approval of the Board, at least annually, the Company’s Information Technology (IT) data governance framework to ensure that IT data risks are adequately mitigated, and relevant assets are managed effectively. The framework may include: (a) Development of IT strategy and policy; (b) Proactive monitoring and management of cyber threats and attacks as well as adverse social media incidents; (c) Management of risks relating to third-party and outsourced IT service providers; (d) Assessment of value delivered to the Company through investments in IT; and (e) Periodic independent assurance on the effectiveness of the Company’s IT arrangements. In the financial year ended 31 December 2020, the Risk Management and HSSE Committee held four meetings and two emergency meetings, the dates of which are listed above in this report. 107 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued Corporate Social Responsibility (CSR) Committee report 2020 Members Lord Mark Malloch-Brown 1, Chairman Ifueko Omoigui Okauru 1, Member Madame Nathalie Delapalme 2, Member Mr. Damian Dodo, SAN 1, Member Mr. Xavier R. Rolet 3, Member* 23 April 16 July 23 Oct 3/3 3/3 3/3 3/3 – – AB 0/1 1. Independent Non-Executive Director. 2. Non-Executive Director. 3. Mr. Rolet was appointed to the Board in October 2020 and joined the Committee the same month. In the financial year ended 31 December 2020, the Committee held three meetings. The dates and attendance records for all the meetings can be seen in the table above. The CSR Committee comprises five Non-Executive Directors, four of whom are Independent. The Committee meets at least three times a year and when required, the meetings are attended regularly by the Chairman as well as senior management of the Company (such as the Chief Executive Officer; Operations Director; Company Secretary/ General Counsel; General Manager, External Affairs & Communication; and the General Manager, Operations Support). External advisers may also attend at the invitation of the Committee Chairman. The CSR Committee helps the Board to: • review, agree and establish Seplat’s Corporate Strategy to ensure that CSR is and remains an integral part of the strategy and its implementation in practice and that the Group’s social, environmental and economic activities are aligned; • ensure that there is recognition by all within the Group of the impact of its activities upon all stakeholders including shareholders, customers, suppliers, employees and the wider community and environment; and that those activities are regulated such that they are consistent with sustainable business and development, conducted in a socially responsible manner and have a positive impact on communities; • oversee the development of strategy and implementation of Seplat’s Community Relations Policy, CSR programmes, corporate branding efforts and policies on all key areas of CSR including standards of business conduct, ethics, charitable activities, community initiatives, while ensuring that Seplat maintains a cooperative relationship with relevant environmental, health and safety agencies (public and private) as well as with community representatives; • develop and support the activities necessary to convert CSR Policies into an effective plan for implementation across the Group and to agree a programme of specific CSR activities and focus for each financial year, supported by appropriate targets and key performance indicators; • develop a comprehensive Environmental Sustainability Policy/ strategy and monitor its total compliance by all parties with respect to protecting the sanctity of the environment; • oversee and ensure compliance with the CSR Policy and review performance against agreed targets and have full responsibility for all environmental matters in relation to the activities and operations of Seplat; 3 CSR Committee meetings in 2020 Lord Mark Malloch-Brown Seplat is committed to sharing its success with its stakeholders. The Company’s Corporate Social Responsibility (CSR) programmes helped thousands of people to achieve better living standards, access quality education, enjoy healthier lives, and benefit from social and economic opportunities, while driving positive business outcomes for Seplat. The year was overshadowed by the global pandemic of Covid-19, which spread across the world at an alarming rate and quickly reached Nigeria. As urgent efforts were being made to contain the virus, lockdowns and social distancing measures naturally impacted our normal CSR activities, affecting many of our planned or ongoing programmes that would usually benefit thousands of people. Seplat, amongst other independents in the oil and gas industry, made numerous contributions and donations at both Federal and State levels, as well as in the communities of our operations. We supplied medical consumables and in-patient support systems to support medical infrastructure in our host states, Edo, Delta & Imo. Wherever possible, we continued to focus on our priorities – to help improve healthcare, education, and financial independence in the communities in which we operate. The CSR Committee, which was constituted in 2014, has oversight of Seplat’s Community Relations Policy, practices and procedures, its CSR initiatives and review of key issues that impact relations with host and other communities. It also advises the Board on broader societal related matters in addition to key issues that may impact Seplat’s reputation, brand and successful business operations. The Committee focuses CSR activities on three strategic areas: educational improvements, better healthcare and nurturing local entrepreneurship. You will see below details of the activities carried out during the year. Further details of the Company’s CSR activities during 2020 are also contained on pages 68-75. I will be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to engage with shareholders, or if you are not able to meet me there, I can be contacted via the Company Secretary. Lord Mark Malloch-Brown Chairman of the CSR Committee (Independent Non-Executive Director) 108 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 • oversee and monitor implementation of the executed Global Memorandum of Understanding (GMoU) between Seplat and its host communities towards ensuring that equity and fairness are promoted in the distribution of CSR-related initiatives amongst the various communities and that the programmes/activities positively impact the lives of all host communities; • engaged a CSR Consultant, Critical Resource Strategy and Analysis Ltd (CR) to commence an assessment of Seplat’s ESG processes by analysing relevant materials on aspects of Seplat business operations. CR also interviewed members of management, Directors and external stakeholders and provided a gap analysis report on Seplat’s approach to ESG; • ensure that other communities which are impacted by Seplat’s operations though not necessarily designated ‘host communities’ are given due regard in allocation of CSR initiatives as may be necessary; • successfully deployed the online test for the Seplat JV Pearls Quiz Modified Programme with 574 school in participation and 1,764 students that took the online test; • successfully deployed the Seplat Teachers Empowerment • assess the performance of Seplat with regards to the impact of CSR decisions and actions upon employees, communities and other third parties. It shall also assess the impact of such decisions and actions on the reputation of the Group; Programme (STEP) with 389 teachers that participated in the online qualifying test from 15 public schools and 12 private schools. The top 100 teachers will be trained for six months on modules aligned with WAEC syllabus; • evaluate and oversee on an ongoing basis, the quality and integrity of any reporting to shareholders and external stakeholders concerning community relations issues and approve the annual CSR report for submission to the Board for ratification and publication in the Company’s Annual Reports and Accounts; • ensure that Seplat has a system to identify and evaluate the interests of all stakeholders (both internal and external) and review the Seplat Stakeholders’ Map and Matrix on a regular basis in order to be aware of changes and initiatives required to address stakeholders’ interests; • review the results of any independent audits of the Group’s performance in regard to community relations matters, review any strategies and action plans developed by management in response to issues raised and, where appropriate, make recommendations to the Board concerning the same; • ensure appropriate monitoring tools are put in place to measure the • commenced the National Undergraduate Scholarship scheme with 64,000 applications from the Western Assets and 21,000 from the Eastern Assets and 2,000 students qualified to take the test; • Initiated the process of adopting the guidelines of ISO 26000 Social Responsibility Management System standard implementation in Seplat. This is a way of assessing the Company’s commitment to sustainability and overall performance; • completing the Phase 1 of Seplat’s ESG approach and external positioning through gap analysis and recommendations. Also completed Phase 2, which focused on designing the right approach for Seplat to strengthen its strategic positioning and profile on ESG. Phase 3 is currently ongoing which is focused on finalising and implementing Seplat’s ESG Strategy. This includes ongoing support of implementation of identified core streams, a strategic response to climate change and the sustainability narrative for the gas business, etc.; impact of programmes under the CSR Policy; • continuous strategic stakeholders’ engagement to resolve community issues and crisis, capacity development and economic empowerment through skills acquisition training programme, take-off grants, starter packs, etc.; • Effective GMOU implementation and partnership management through sustainable community development – infrastructure development projects, relationship management and support of the operations of the Company; • successfully submitted the 2019 Sustainability Report to the Exchange in compliance with the NSE Directive to all listed companies to submit and publish their sustainability reports before March of every year. • review and oversee other related matters and topics in relation to CSR as may be assigned to it by the Board from time to time; and • lay down policy guidelines for charitable donations and CSR of Seplat, in line with Seplat’s corporate social strategy and as allowed by the Memorandum and Articles of Association of the Company, having considered the recommendations of the CSR Committee. Highlights of business carried out by the CSR Committee during the year include: • implementation of Covid-19 assistance, which was achieved in a three-pronged strategy to: (a) support state and local governments in the areas of our operations (Edo, Delta/Imo) by donating medical consumables to help their capacity to contain the spread of the virus and treat infected people; (b) directly assist the host communities by providing food and medical consumables to enhance personal hygiene and contain the spread of the virus; and (c) participate in the IPPG/NNPC intervention initiatives covering provision of medical consumables/deployment of logistics and in-patient support system/delivery of medical infrastructure across the 36 states and the FCT; • following the approval of the new CSR Strategy, JV partners (NPDC and NAPIMS) buy-in and concurrence were sought and obtained to implement the new strategic focus on quality education. Both JV partners approved the proposed budgets for implementing the new educational programmes in 2020; • holding several brainstorming sessions and engagements at various levels to develop the implementation frameworks which included service providers being invited to make presentations of their capabilities to enable Seplat identify resources available for the programmes; 109 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Board Committee reports | continued Corporate Governance, Compliance & Culture Committee report 4 Corporate Governance, Compliance & Culture Committee meetings in 2020 Mrs. Ifueko M. Omoigui Okauru, MFR 2020 Members Ifueko M. Omoigui Okauru 1, Chairman Michael Alexander (SID)2, Member Damian Dinshiya Dodo SAN1, Member 20 Jan 23 Apr 22 July 20 Oct Madame Nathalie Delapalme, Member3,4 – 4/4 4/4 4/4 3/3 1. Independent Non-Executive Director, retired 31 January 2021. 2. Senior Independent Non-Executive Director, retired 31 January 2021. 3. Non-Executive Director. 4. Appointed Committee member effective 23 April, 2020. In the financial year ended 31 December 2020, the Committee held four (4) meetings. The meeting dates and attendance records is as shown in the table above. I am pleased to present to you the Corporate Governance, Compliance & Culture Committee (‘CG, Compliance & Culture’) report for the 2020 financial year. The CG, Compliance & Culture Committee was constituted by the Board on 18 July 2019 with the goal of bringing to greater focus of the Board, the Corporate Governance, Compliance and Corporate Culture of the Company. The CG, Compliance & Culture Committee exists to assist the Board in promoting, modelling, institutionalising, and maintaining sound ethical culture and good corporate citizenship within the Company. The CG, Compliance & Culture Committee intends to achieve this goal by working alongside Management in the establishment of parameters for measuring corporate governance, compliance, and corporate culture within the Company. The Chairman of the Board will be available at the AGM of the Company to be held on 20 May 2021 in Lagos, Nigeria to discuss any of these matters with shareholders, or if you are not able to meet him there, he can be contacted through the Company Secretary/Chief Governance Compliance Officer. Mrs. Ifueko M. Omoigui Okauru, MFR Chairman, Corporate Governance, Compliance & Culture Committee The CG, Compliance & Culture Committee is comprised of three (3) Independent Non-Executive Directors and one (1) Non-Executive Director who have strong leadership experience in the Board governance, compliance and human capacity building as well as in-depth knowledge of board development, change management, management, and Board integration. Details of the terms of reference for the CG, Compliance & Culture Committee and a summary of the activities carried out during the financial year is as shown below. In accordance with its terms of reference, the CG, Compliance & Culture Committee is established to assist the Board in achieving, amongst others, the following: • strengthening the Company’s corporate governance and compliance ethos, so as to achieve Seplat’s continued survival and prosperity; • reviewing and assessing all aspects of the Company’s corporate governance, compliance, and cultural practices, review the effectiveness of relevant governance and compliance issues such as – ethics, culture, integrity, transparency, including opportunities for improving the governance and compliance framework, compliance with all applicable legislations and make necessary recommendations to the Board with respect to changes to the Company’s governance and compliance practices; • reviewing developments in corporate governance space and advise the Board periodically with respect to significant developments in the law and practice of corporate governance and recommend the approach to be taken by the Company in relation to such corporate governance standards; • review all Board-related policies and recommend to the Board such changes as it considers appropriate; • assessing all aspects of the Company’s culture and ensuring that a healthy corporate culture is promoted as vital to the creation and protection of long-term value; • make recommendations to the Board regarding the development of the Company’s values, purpose and culture and associated behaviours for approval by the Board; • periodically recommend and drive correct behaviours by linking the Company’s overall purpose to its values; • monitor and advise the Board on the implementation of the values, purpose, and behaviour within the Company; and • keep under review the Company’s culture and ensure that it is embedded throughout the organisation at every level and in all aspects. 110 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Highlights of business carried out by the CG, Compliance & Culture Committee during the year include: A. Corporate Governance, Compliance & Culture (CG, C & C) Targets for 2020: The Committee deliberated extensively on the 2020 CG, C & C targets for the year 2020. Key focus areas for the financial year 2020 included the following: Corporate Governance 1. Code of Business Conduct (CoBC) – Organise Company-wide workshop for employees on the new CoBC and to secure written affirmation of understanding and compliance with CoBC by all employees including third-party staff; facilitation of CoBC trainings for all staff and new employees during induction. 2. 3. 4. Board/Management Alignment for organisational growth and development particularly as it relates to strategic objectives, CEO transition and organisational restructuring. Annual Board Governance Evaluation – ensuring that annual Board evaluations are held and that identified gaps are addressed. Information Technology Data Governance – ensuring that IT strategy and policy monitors and manages potential cyber threats, carry out risk assessment of third-party outsourced service providers and assessment of IT investments versus value to the Company. (2) Post Investment Review; (3) After Action Review; (4) Relaunch of Thank God It’s Friday (TGIF); (5) Informal collaboration initiatives such as Seplat Co-league, Team Mixers; Lessons Learned; (6) Defining and measuring quality service delivery via Service Level Agreements (SLAs); (7) Strengthening recognition for delivering result; and (8) Decentralisation of decision-making process. B. Corporate Governance Policies: In furtherance of the policy review process commenced in 2019, the Committee continued in-depth review of majority of the Company’s corporate governance policies with focus on key changes necessitated by updated laws, regulations, and the Company’s ongoing organisational restructuring. At the end of the financial year under review, the Committee reviewed and secured Board adoption of sixteen (16) policies. The policies reviewed/developed by the Committee and adopted by the Board in the year under review include: 1. The Board Charter; 2. Code of Business Conduct Policy; 3. The Code of Business Conduct; 5. Environment, Social Governance Policy – ensuring that the Company’s reporting of its EGS reporting is in line with the regulatory requirements. 4. Board Succession Policy; 5. Anti-Fraud Policy; Compliance 1. Conflict of Interest (COI) – review employees’ and Directors’ declarations and ensure identified conflicts are resolved in line with the policy. 2. 3. Related Party Transactions (RPT) – continuous tracking of reduced RPTs to ensure thresholds are not exceeded and necessary approvals obtained. Share Dealings – ensure that Directors and employees disclose share dealings before trading in shares and notification to regulators within stipulated timeframe. 4. Inside Information – ensure tracking and automation of insiders. 5. Third-party Due Diligence – ensure proper due diligence of third-party contractors. Culture 1. Culture of Care – focus is to embed a culture of care within the Company through the following initiatives: a. create a community of oneness amongst employees irrespective of cadre or categorisation; b. ensure safety leadership through the slogan ‘everyone returns home every day unharmed’; c. foster efficient customers’/stakeholders’ management; 6. Conflict of Interest for Directors and employees; 7. Bullying & Harassment Policy; 8. Gifts & Hospitality Policy; 9. Whistleblowing Policy; 10. Share Dealing Policy; 11. Inside Information Policy; 12. Electronic Information & Communication Policy; 13. Market Sounding Policy; 14. Investor Complaints Management Policy; 15. Related Party Transaction Policy; and 16. Board Representation Policy for IJVs and Other Arrangements. In reviewing these policies, emphasis was placed on – the new Nigerian Code of Corporate Governance, the UK Code of corporate governance and best practices. The review of the Company’s corporate governance policies is an ongoing task being carried out by the Committee, after which such policies are submitted for consideration and adoption by the Board. C. Other Committee deliberations for the year under review included: d. conduct regular opinion polls (What Do You Think ‘WDYT’) with 1. results displayed in public places; and Organisational restructuring following the resumption of the new CEO. e. create open informal networks and strengthening of coaching 2. and mentoring scheme. 2. We Deliver on Our Promise: Evaluation of the cultural impact of Covid-19 in the short, medium, and long term as well as measures and activities to mitigate such impact. a. Customer Orientation. Emphasis here was on moving away from Internally Oriented culture to Externally Driven culture. b. Focus was on moving away from Local culture towards Professional culture. Some of the activities targeted at driving the delivery on promise goal included: (1) Roll out of health-check tool; 111 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Audit Committee report 4 Audit Committee meetings in 2020 Chief Anthony Idigbe, SAN In compliance with Section 404(7) of the Companies and Allied Matters Act 2020 (CAMA), we the members of the Audit Committee have reviewed the financial statements of the Company for the year ended 31 December 2020 and reports thereon, and confirm as follows: • the accounting and reporting policies of the Company are in compliance with legal requirements and agreed ethical practices; • the scope and planning of audit requirement were, in our opinion, compliant with legal requirements and best practice; • we have reviewed the findings on management matters, in conjunction with the external auditor, and we are satisfied with the response of management in dealing with such matters; • the Company’s systems of accounting and internal controls are in compliance with legal requirements and best practice; and • we have, in response to these matters, made the required recommendations to the auditors of the Company. 2020 Members Chief Anthony Idigbe SAN., Chairman and Shareholder Member Dr. Faruk Umar, Shareholder Member Sir Sunday N. Nwosu, KSS Shareholder Member Ifueko Omoigui Okauru 1, Director Member Damian Dodo, SAN 1, Director Member Olivier De Langavant2, Director Member 12 Mar 21 Apr 21 July 21 Oct 4/4 4/4 4/4 4/4 4/4 4/4 1. Independent Non-Executive Director. 2. Mr. Michel Hochard retired from the Board and was replaced by Mr. Olivier De Langavant as a Director member on the Audit Committee. In the financial year ended 31 December 2020, the Committee held four meetings, the dates and attendance records which can be seen in the table above. In addition to the foregoing, we the members of the Audit Committee conducted the following business during the year: • review of the implementation of the Company’s corporate governance framework; • review of the 2020 external audit plan and the 2021 Internal Audit plan, including an assessment of the external auditors’ independence; and • review of the proposed 2021 budget and work programme. Chief Anthony Idigbe, SAN Chairman of the Audit Committee FRC/2015/NBA/00000010414 112 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report Remuneration Committee Chairman’s Annual Statement Xavier Rolet, KBE Picture credit: Roger Askew/ Shutterstock Dear Shareholders, As the Chairman of the Remuneration Committee (the ‘Committee’), I am delighted to present our 2020 Remuneration Report, on behalf of the Board which is my first since assuming the role. The Remuneration Report covers our proposed Remuneration Policy to be put to vote at the 2021 AGM, how we intend to implement it for 2021, as well as the implementation of our current remuneration policy for the year ended 31 December 2020. I would like to thank my predecessor as Remuneration Committee Chair, Mr. Michael Alexander, for his leadership and for establishing a Committee with a strong set of policies and practices upon which our decisions are able to be made. Corporate performance highlights and responding to Covid-19 The Business has continued to operate effectively throughout 2020 despite the restraints of the Covid-19 pandemic and recent unrest in Nigeria. Nigeria has been fortunate in that Covid-19 has had minimal direct impact on the corporate environment, in comparison to other countries, and there has been little direct impact on Seplat and its operations at fields or offices. Nonetheless, Seplat has continued to monitor the developments of Covid-19 throughout the year, and we have enforced suitable measures to ensure the safety of our colleagues. This year, the sector has faced an unprecedented period of oil price volatility following decrease in demand as a result of Covid-19, as well as the OPEC oil production cuts imposed in Nigeria. As a result, Seplat production was constrained by approximately 410,000 bbls on a gross basis as a result of the OPEC+ production cuts implemented in the third quarter of 2020. Despite the difficult market place, Seplat performed robustly with production well within guidance, a continuing strong balance sheet allowing us to repay $100 million of debt and declare a $0.05 interim dividend and propose a $0.05 final dividend (to be approved by shareholders at the AGM), as well as a significant expansion in CAPEX to underpin future revenues with a focus on gas projects with the large scale ANOH gas and condensate development on target for first gas in 2022. The key areas of FY20 performance and FY19 comparative performance are set out below: Profit (loss) before tax (US$ million) Oil production volume (MMbbls) Gas production (average daily rate, bopd) 2P Reserves (MMboe) Lost time incident frequency rate (‘LTIF rate’) 2020 (80) 12.3 101 499 nil 2019 293 8.7 131 509 Nil The resilience of our business has allowed us to respond to the economic uncertainty without having to access any government Covid-19 related support funds and schemes. We are fortunate to be in a position to provide stability and security of pay for our workforce through this difficult period and are pleased to say that we have continued to pay all colleagues in full. We have not had to furlough any of our colleagues or make any redundancies as a result of Covid-19. The Company continues to increase base salaries for our employees, whilst showing appropriate restraint in freezing salary and fees for our Board Directors in 2021. In addition, to recognise the conditions faced by Seplat and the whole sector in early 2020, the Committee determined that the maximum bonus that could be achieved for 2020 was half the normal bonus opportunity. This was implemented by ensuring that the maximum payout for each element of the bonus scorecard was 50% of maximum opportunity. The Committee also reduced the number of shares granted as part of the 2020 LTIP offering by calculating this using a £1 share price rather than the lower Q1 2020 average in line with the operation of policy and has the discretionary power to scale back the value at vesting if it is out of line with underlying company performance. Remuneration outcomes for the 2020 financial year Our remuneration policy is closely aligned to our strategy, the market and shareholder interests. However, as set out above the Committee determined that payouts from the 2020 annual bonus would be capped at 50% of the normal maximum. The Committee calibrated the corporate scorecard around targets linked to operational, technical, profitability, corporate responsibility and strategic progress. The 2018 LTIP award measured our success in maintaining and expanding quality reserves, and delivering long- term relative shareholder value. Assess performance against targets Review outcomes with management and other committees to ensure holistic reflection of performance Consider outcomes in the context of the wider workforce and environment Use judgement to reflect whether discretion is required, considering the market and shareholder interests In line with this approach, the performance levels set out below resulted in reduced 2020 pay outcomes compared to 2019. The main remuneration outcomes are set out below: The Committee reviewed the Company’s performance against the bonus scorecard and established that the Company overall had performed broadly at Target (30% of maximum payout for 2020). On the basis of the enforced OPEC production restrictions and the completion of the OB3 pipeline were outside of Management’s control, the Committee applied judgement in relation to these elements of the bonus scorecard given the impact of these unforeseen events. The resulting 2020 annual bonus outcomes were 30.6% of maximum for the CEO, 30.6% for the CFO and 29.1% for the Operations Director. The bonus levels represent a reduction from 2019 reflecting that a number of objectives were not met in full for 2020. The determination of the corporate scorecard is cascaded through the organisation, affecting not only the Executive Directors, but also the bonuses of senior and middle management. The Committee is cognisant of the impact on the wider workforce when determining outcomes using the process laid out above. 113 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued The Committee considered the levels of scorecard achievement reflective of the Company’s underlying performance and therefore no discretion was exercised in relation to the annual bonus outcome to the annual bonus outcome. The 2018 LTIP awards, for which the performance period ended on 31 December 2020, will vest in May 2021 I am delighted to announce that the Company placed significantly above the upper quartile of the TSR comparator group. The level of reserves growth delivered between FY17 and FY20 was 4.696%, including growth resulting from M&A activity, which resulted in overall LTIP vesting of 86.74%. 60% of these awards will be released immediately, with the remaining 40% being released in equal instalments after a one and two-year holding period. Seplat’s TSR growth of -27% over the three-year period and placing between the third and fourth placed company in the comparator group was considered a strong outcome given the sustained adverse external conditions. The Committee felt that this achievement, combined with the downward adjustment resulting from the application of the reserves growth underpin, warranted the 86.74% vesting and therefore no discretion was exercised in relation to the LTIP. Main Remuneration Committee actions and decisions in 2020 We set out below the key Remuneration Committee actions and decisions in 2020: • Reviewed the remuneration policy against alignment to strategy, market best practice and compliance with the Nigerian and UK corporate governance codes, and agreed a number of changes, mostly in respect of the LTIP. • Approved the 2020 Annual Bonus targets and reduction in opportunity for the Executive Directors and senior management. These targets are cascaded throughout the Company to ensure alignment. • Reviewed and approved the mix of performance measures and targets for the 2020 LTIP award. The Committee also approved the grant of 2020 LTIP award to the Executive Directors, senior management and selected junior management and reviewed performance progress of outstanding awards. • Approved the annual bonus and LTIP performance outcomes which were cascaded throughout the Company. CEO and CFO succession As disclosed in last year’s report, Mr. Austin Avuru retired as CEO on 31 July 2020, and transitioned into his role as a Non-Executive Director. Mr. Roger Brown succeeded Mr. Avuru on 1 August 2020, transitioning from his role as CFO. We would like to take this opportunity to thank Mr. Austin Avuru for his excellent leadership, and welcome Mr. Roger Brown to his new role. Mr. Austin Avuru’s leaver arrangements are disclosed in full on page 133. In summary, the Committee determined that he would be entitled to the following: • Payment of fixed pay (base salary, pension and benefits) for remainder of notice period in line with policy; • One-off loss of office payment of one year’s salary. The payment reflects the Company’s shareholder approved policy, Nigerian market practice and the special circumstances of the CEO’s retirement; • 2020 annual bonus pro-rated for time served as CEO in the year and payout based on performance in line with policy; • In-flight deferred bonus shares vesting on normal dates without proration in line with policy; • In-flight LTIP awards continue to vest on the normal vesting dates based on achievement of performance targets. The Committee determined not to pro-rate the number of awards vesting on the basis that Mr Avuru remains an eligible employee under the rules of the LTIP as a Non-Executive Director and to reflect the length of his tenure as CEO and the corporate successes achieved during this period. Details of the remuneration for Mr. Austin Avuru’s role going forward as a Non-Executive Director is set out on page 130. Mr. Roger Brown’s new remuneration arrangements applied from 1 August 2020, and all elements were paid from this date. We set out below the key details of Mr. Roger Brown’s remuneration arrangements for his role as CEO. Further details can be found on page 130. • A base salary of $850,000 (including a residency allowance in line with standard Nigerian practice). This is a significant reduction to his predecessor’s base salary of $1,130,000. • Considered any Executive pay decisions that could be required in • In line with policy, maximum annual bonus and LTIP opportunities are 150% and 250% of salary, respectively and pension contribution has been set at 17% of salary, in line with that provided to the wider Nigerian workforce. • Benefits are in line with the Company's policy for Nigerian based Executive Directors. To reflect his promotion in the year, Mr Brown received an additional LTIP award to reflect the increase in his salary and LTIP opportunity. Mr. Emeka Onwuka was appointed as CFO from 1 August 2020, with a base salary of $705,000 (including housing allowance and 13th month payment), and annual bonus and LTIP maximum opportunity in line with that provided to his predecessor of 100% and 200% of salary, respectively. Mr. Emeka Onwuka’s pension contribution has also been set at 17% of salary. Benefits are in line with the Company's policy for Nigerian based Executive Directors. light of the emerging Covid-19 situation. • Approved the remuneration package for the outgoing CEO, incoming CEO and incoming CFO. • Considered salary and fee levels for its employees and Directors for FY21. Given the current competitive market positioning and in order to apply consistent treatment to all senior employees and Directors, the Committee determined that no salary increases should be awarded to Executive and Non-Executive Directors as well as UK senior management. Increases up to a maximum of 10% were awarded to other employees in Nigeria to cushion the effects of inflation. • Approved the remuneration for Shebah’s Consultancy Service Agreement. • Reviewing the scale of the completed supplementary activity requested by the Board to be carried out by the Finance Committee Chairman and the additional one off payment to the Finance Committee Chair in compensation for this. • Reviewed the framework for termination payments for senior management, employees and Non-Executive Directors 114 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Remuneration Policy review During 2020 and early 2021, the Remuneration Committee conducted a full review of the current Remuneration Policy, as it comes to the end of its three-year cycle. The review considered the current policy’s alignment to strategy, market best practice and compliance with the Nigerian and UK corporate governance codes, and agreed several changes to the current Policy: Proposed change • Introduce an absolute TSR performance measure in the LTIP. • 50% of salary increase for the CEO and 40% for other Executive Directors to the LTIP, only payable subject to the achievement of an exceptional Absolute TSR performance target. Rationale • Ensure Executives are appropriately incentivised to implement the new Strategy, encompassing M&A activity and renewable priorities • Appropriate blend of relative and absolute performance with increased alignment with shareholder experience. • Replace the formulaic operational and technical LTIP underpin with a broad underpin, operated as a qualitative review of Seplat’s operations by the Remuneration Committee at the end of the vesting period, with the application of downwards discretion, where appropriate. • Aligns with typically market practice in the E&P sector. • To bring arrangements in line with governance and emerging market practice, whilst still ensuring high quality operations are required to achieve high levels of vesting. • Replace the mechanisms by which the grant size is determined • Align the remuneration policy with market best practice that has (i.e. the £1 share price floor) and the potential reduction of vesting when the payout is more than 2.5 times grant value), with the following: • A policy whereby the Remuneration Committee will review any share price windfall gains at the end of the vesting period, and make any discretionary adjustments, as required, in line with market best practice. emerged since 2018 UK Code was released. • Maintain an approach to deal with short term volatility in share price. • Ensure the new management team are fairly remunerated for their performance going forward, and their execution of the growth strategy. • Extend the malus and clawback provisions to include all market • Aligns with best practice governance. best practice trigger events. The proposed new Remuneration Policy will be put to Shareholder vote at the AGM in 2021. Operation of the proposed remuneration policy in 2021 • The Committee determined that no salary or fee increases should be awarded to Executive and Non-Executive Directors. • The annual bonus will be operated in line with the remuneration policy. Awards at a maximum opportunity of 150% of salary for the CEO and 100% for the CFO and the Operations Director. The performance conditions will remain a mix of financial, operational and strategic metrics, as set out on page 121. • LTIP awards will be granted in 2021 which vest over three years subject to relative and absolute TSR performance and a broad underpin, operated as a qualitative review of Seplat’s operations. This will ensure a close alignment of payouts for participants with the long-term interests of shareholders. The award levels, performance targets and weightings will be disclosed in the RNS announcement at grant, in line with Investment Association guidance. • Overall total remuneration opportunity will be kept under review. Engagement with stakeholders The Committee takes the views of shareholders seriously and these views are taken into account in shaping remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy. If any shareholders wish to discuss the Company’s remuneration arrangements, The Remuneration Committee Chairman would be delighted to meet with you. The Company operates an extensive range of mechanisms and instruments for workforce engagement which cover all employee populations, including a Joint Consulting Committee, a workshop on remuneration philosophy, the HR quarterly dashboard, visiting employees, Town Hall meetings, Seplat’s voice survey and the whistleblowing policy. Please see page 119 for details of actions undertaken in 2020. The Board and investor relations team manage and develop Seplat’s external relationships with current and prospective investors. The Company regularly monitors shareholder reaction and commentary regarding its remuneration practices. The main shareholder engagement activities take place at our Annual General Meetings where we address any questions and provide clarifications on issues raised by shareholders. The Board and senior management team of the Company are also available to discuss any issues with shareholders before the Annual General Meeting. Details of the shareholder voting outcomes in respect of the remuneration policy and Remuneration Report are presented on page 136. Additionally, the Board maintains a dialogue with investors outside the AGM so as to foster mutual understanding of objectives and to gain a balanced view of key issues and concerns of shareholders. Summary I hope that you find the information in this report helpful and I look forward to your support at the Company’s AGM. I am always happy to hear from the Company’s shareholders and you can contact me via the GM Human Resources, Charles Gbandi, if you have any questions on this report or more generally in relation to the Company’s remuneration. Notes This report has been prepared taking into account the principles of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended, the provisions of the UK Corporate Governance Code (the ‘Code’) and the Listing Rules. As Seplat is a Nigerian registered company, this report has also been prepared taking into account the disclosure requirements under Nigerian law, and specifically the Companies and Allied Matters Act (‘CAMA’). These rules, consistent with the UK regulations, require the remuneration of all Directors, other than the Chief Executive Officer, to be approved by shareholders at the AGM. The report consists of four sections: • the Annual Statement by the Remuneration Committee Chairman (pages 113-116); • the At a Glance section (pages 116-119); • the proposed Remuneration Policy; and • the Annual Report on Remuneration which sets out payments made to the Directors and details the link between Company performance and remuneration for the 2020 financial year (pages 130-136). 115 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued At a glance Introduction In this section, we highlight the performance and remuneration outcomes for the 2020 financial year, how the remuneration policy will be implemented in 2021 and the wider employee context. 2020 single total figure of remuneration The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of the 2020 financial year. Executive Directors Roger Brown (CEO) Emeka Onwuka (CFO) Effiong Okon (Operations Director) Austin Avuru (Former CEO) 3 Period Salary1 US$’000 Taxable benefits US$’000 Pension US$’000 Other US$’000 Total fixed pay US$’000 Bonus US$’000 LTIP2 US$’000 Total variable pay US$’000 Total US$’000 2020 2019 2020 2019 2020 2019 2020 2019 733 643 294 0 719 719 659 1,130 446 123 116 0 137 174 274 507 117 97 50 0 122 122 112 192 96 0 0 0 39 0 501 0 1,392 863 460 0 1,018 1,015 1,547 1,829 278 304 90 0 209 315 302 756 528 613 0 0 541 0 869 1,009 806 917 90 0 751 315 1,171 1,765 2,198 1,780 549 0 1,768 1,330 2,717 3,594 1. Salaries for Executive Directors are set in USD – 2020 salaries were $850,000 for the current CEO inclusive of residency allowance, $705,000 for the CFO and $719,000 for the Operations Director inclusive of housing and 13th month allowances. For the former CEO, his 2020 salary was £663,000 and is paid based the July 2014 USD: GBP exchange rate which has been used to calculate 2019 and 2020 remuneration. For the current CEO’s service as CFO during 2020, the average 2020 USD: GBP exchange rate of $1.284 has been used where applicable. 2. The value of the 2018 LTIP awards vesting in May 2021 is shown in 2020 as the performance period ended on 31 December 2020. The estimated value of these awards uses a 2020 Q4 average share price of $0.80; the actual value will be updated in the 2021 Directors’ Remuneration Report when the awards vest on 2nd May 2021. The value of the 2017 LTIP awards that vested in April 2020 is shown in 2019. The value has been restated based on the actual share price on 20 April 2020 ($0.62) and includes dividend equivalents. 3. The CFO joined the Company 3 August 2020. Further detail regarding the disclosures in the table above is presented in the Annual Report on Remuneration on page 132. Variable pay outcomes for 2020 The Remuneration Committee determined both the 2020 annual bonus outcome and the vesting level of the 2018 LTIP awards (where the performance ended on 31 December 2020). We set out below a summary of the 2020 annual bonus performance outcomes, together with details of the determination of the 2018 LTIP vesting level. Further detail is set out in the Annual Report on Remuneration on page 132. 2020 annual bonus performance assessment The chart below summarises the 2020 annual bonus performance assessment against the corporate and personal targets for the Executive Directors. On the basis of the enforced OPEC production restrictions that were outside of Management’s control, the Committee applied judgement to the net Oil production element outcome given the impact of this unforeseen event. The Committee also determined that the completion of the OB3 pipeline was outside of Management’s control, and therefore also applied their judgement to this element. As set out in the Chairman’s statement, the Committee determined that the bonus opportunity would be capped at 50% of maximum for 2020 and this chart reflects that decision: CEO CFO OD 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Corporate performance Personal performance Actual 2020 2018 LTIP awards vesting The 2018 LTIP awards vest on 2 May 2021. However, the performance period for these awards ended on 31 December 2020 and their value is included in the single figure table above. Seplat’s TSR performance resulted in 100% vesting for this element of the award as the Company was placed above the upper quartile of the comparator group. The FY20 audited reserves are 499.4 mmboe which represents a 4.696% increase from the FY17 reserves of 477 mmboe, based on including the increase in reserves from the Eland acquisition. Given the audited reserves, including Eland assets, have increased by less than 10% then the 13.26% relative TSR vesting level has been reduced in line with the underpin vesting schedule, such that overall vesting is 86.74% TSR performance vs comparator group Seplat TSR growth -27% Median TSR growth (25% vesting) -67% Upper quartile TSR growth (100% vesting) -37% Vesting under TSR condition 100% Seplat reserves growth between FY17 and FY20 4.696%* Reserves growth required to fully satisfy underpin 10% Reduction in vesting based on the underpin 13.26% Final vesting level 86.74% 2P Reserves growth underpin * Reserves include growth resulting from M&A activity. Summary of application of discretion 116 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In summary, the Committee is satisfied that the formulaic outcomes described above are a fair reflection of the performance of management in the year in the context of the wider business performance. Therefore, no discretion has been applied to the variable pay outcomes. Executive Director shareholdings We also set out below how our executive’s shareholdings compare to the requirements of our policy using the 31 December 2020 share price of $0.89. In addition, we provide the pre-tax value of the Executive Directors’ unvested or unexercised equity awards. ) y r a l a s f o % ( ) y r a l a s f o % ( ) y r a l a s f o % ( O E C O F C s n o i t a r e p O r o t c e r i D Shareholding requirement Value of beneficially owned shares Value of unvested and/or unexercised awards Shareholding requirement Value of beneficially owned shares Value of unvested and/or unexercised awards 0% 0% Shareholding requirement Value of beneficially owned shares 0% Value of unvested and/or unexercised awards 150% 150% 200% 297% 360% 360% 0% 100% 200% 300% 400% Remuneration alignment to performance The following analysis compares CEO’s pay against his remuneration opportunity and Company performance. Actual pay versus opportunity The chart below illustrates how the 2020 total single figure of remuneration for the CEO compares to minimum, on-target and maximum opportunity in accordance with the remuneration policy that applied in the year. 2020 remuneration is below the on-target opportunity due to the annual bonus paying out at a relatively low level, 86.74% vesting of the 2018 LTIP and as a result of a significant proportion of remuneration being based off the current CEO’s previous CFO remuneration package. Actual CEO pay versus total shareholder return (‘TSR’) The Company feels it is critical that CEO pay reflects the returns delivered to shareholders, where TSR is the core performance measure chosen to reflect shareholder experience. In 2020 the Committee took the decision to not award base salary and fee increases to Executive and Non-Executive Directors for 2021. Annual bonus resulted in 30.6% of maximum payout, reflecting the difficult industry conditions throughout 2020. Seplat remains one of the sector’s stocks of choice by continuing to perform above the upper quartile TSR. This is illustrated in the chart below. CEO (US$’000) CEO pay vs. TSR performance 80% 60% 53% 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 US$6,001 US$4,938 US$1,063 18% US$3,504 US$2,125 43% US$2,125 35% US$1,328 38% US$1,538 US$638 18% US$1,275 26% US$1,275 21% US$2,198 US$528 US$278 23% 11% US$1,538 100% US$1,538 44% US$1,538 31% US$1,538 26% US$1,392 40% ) m u m i x a m f o % ( t u o y a p s u n o b l a u n n A 40% 20% 0% Minimum On-Target Maximum Maximum including share price appreciation Actual Fixed Multiple Reporting Periods Annual Variable Share price appreciation 68% 46% 49% 45% 35% 31% 120 100 ) 4 1 0 2 o t d e s a b e r ( R S T 80 60 40 20 0 3% 0% 0% 0% 3% 0% 0% 2014 2015 2016 2017 2018 2019 2020 Salary increase (%) Annual bonus payout (% of maximum) Seplat TSR The Committee considered disclosing CEO pay ratios and the Company’s gender pay gap in 2020. However, given the Company’s main operations are based in Nigeria whilst the UK workforce consists of significantly fewer than 250 employees, the results would not be representative of our business, statistically significant and provide little or no insight to investors. We will reassess this disclosure as the Company embeds Eland into its UK operations in future years. 117 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Implementation of the remuneration policy for 2021 Our Directors’ remuneration policy will be put to Shareholder vote at the AGM on 20 May 2021, and will apply for three years starting on 20 May 2021. We set out below a summary of our proposed Directors’ remuneration policy and its implementation for 2021. The Committee does not expect implementation to deviate from its proposed policy. Element Base salary Benefits Pensions Annual Bonus Long Term Incentive Plan 2021 operation There will be no salary increase for Executive Directors, in line with the treatment applied to other senior management. The base salaries ($000s) from 1 January 2021 will be: • CEO1: $850 • CFO1: $705 • Operations Director1: $719 1. The CEO’s base salary includes a residency allowance, whereas the CFO’s and Operations Director’s base salaries include Housing and 13th month allowance, in line with local market practice No change from 2020 policy on the basis that benefits are dependent on the working location and are either in the form of a cash allowance or the actual benefit itself. The CEO’s pension contributions increased from 15% of salary to 17% of salary on his promotion to CEO and move to Nigeria to align with the other Executive Directors and the wider Nigerian workforce. Pensions contributions as % of base salary will be as follows: • CEO: 17% • CFO: 17% • Operations Director: 17% Levels of pension contributions for the Executive Directors are in line with those provided to the wider workforce. No change to the maximum opportunity as % of base salary, as follows: • CEO: 150% • CFO: 100% • Operations Director: 100% 25% of the Executive Directors’ bonus will be deferred into shares and will be released at the end of year 3 subject to continued employment. The Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed financial, operational and strategic targets used for the annual bonus, disclosing precise targets for the bonus plan in advance would not be in the best interests of shareholders. The performance measures, achievement against targets and the value of awards made will be published at the end of the performance periods, so shareholders can assess the basis for any pay-outs under the annual bonus. 50% of salary increase for the CEO and 40% for other Executive Directors to the LTIP opportunity from 2020: • CEO: 300% • CFO: 240% • Operations Director: 240% All awards will vest subject to performance measures (and the Executive Director’s continued employment) at the date of vesting after three years and are then subject to a two-year holding period. Malus and clawback will continue to apply to LTIP awards. The 2021 LTIP awards will be subject to a Relative TSR performance against a bespoke group of E&P companies, 25% of awards will vest for median performance rising on a straight line basis to 100% vesting for upper quartile. The increase in award levels for 2021 will only be payable subject to the achievement of an exceptional Absolute TSR performance target Full details of the weightings and performance targets will be disclosed in the RNS announcement at the time of grant, in line with the Investment Association’s expectations. • The primary measures will be moderated by a broad underpin, operated as a qualitative review of Seplat’s operations by the Remuneration Committee at the end of the vesting period, with the application of downwards discretion, where appropriate. In addition, to ensure that remuneration outcomes are not unreasonable the Remuneration Committee will review any share price windfall gains at the end of the vesting period, and make any discretionary adjustments, as required, in line with market best practice. Element 2021 operation Non-Executive Director fees Shareholding requirement Non-Executive Directors are paid a base fee and additional fees for chairmanship / membership of Committees and Senior Independent Directorship. In special circumstances additional Director fees can be paid for Board commissioned specific longer-term activities led by the Director. There will be no fee increase for Non-Executive Directors for 2021, in line with the Executive Directors and other senior management. Fees are shown on a gross basis i.e. before withholding tax is withheld. • Chairman: US$1,099 • Board: US$151 • Senior Independent Director: US$214 • Committee Chairmanship: US$42 • Finance Committee Chairmanship1: US$57 • Committee membership: US$29 • Finance Committee membership1: US$36 1. Only applicable to those Directors who have additional responsibilities. 2. For all Non-Executive Directors except the Chairman actual amount paid in 2020 will depend on the USD: GBP exchange rate in the year. The amounts are shown based on the 2020 average exchange rate, other than the Chairman, who is paid at an agreed exchange rate. Executive Directors are given five years from the date of the policy implementation or date of appointment, if later, to satisfy the following shareholding requirement: • CEO: 200% of base salary • Other Executive Directors: 150% of base salary The Committee determined that the shareholding requirement would continue to apply for one year post cessation of employment for the Executive Directors and at 50% of the requirement between one and two years post-cessation. It is the Committee’s intention that commitments made in line with its current remuneration policy and policies prior to Admission will be honoured. 118 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The Wider Workforce Employee value proposition 1. Competitive tool rewards Our policy is to provide industry competitive benefits and various incentive schemes to retain and attract high performing employees, carrying out market benchmarking annually to ensure this. 2. Employee engagement Seplat holds annual meetings of the Employee Forum and conducts an annual online survey to gather employee views on a range of matters. 3. Workforce policies Seplat operates a number of policies which apply to both our Directors and employees including diversity, conflict of interests and share dealing. Detailed description is provided on page 96. 4. Talent development We support our employee development with individually tailored training programmes. We provide educational assistance and subscriptions to various professional bodies. Reward structure cascade The table below illustrates the cascade of our reward structure from Executive Directors to the wider employee population. As shown below, senior management and key employees participate in the LTIP and annual bonus schemes. Additionally, pension contribution levels are consistent for all employee levels. Employee level – % of salary Number of participants Executive Directors, senior management, other key employees Executive Directors All employees All employees All employees All employees Element of pay CEO Board Senior management (grades 1-4) Other key employees LTIP Annual bonus – Deferred shares Annual bonus – Cash Pension Benefits Salary 300% 37.5% 112.5% 17% 25-35% 240% n/a 25% Up to 30% 75% 17% 17% in Nigeria 17% in Nigeria 50-150% n/a 40-75% All employees Employee engagement The Remuneration Committee oversees compensation of the Chairman, Executive Directors and senior management, having regard to remuneration trends across the Company. The Remuneration Committee and management are committed to fair pay practices across the organisation. The Company holds annual meetings of the Employee Forum chaired by the General Manager, HR. Additionally, an online survey platform exists to gather views of the workforce on a wide range of matters. When setting remuneration policy and making decisions on remuneration, the Committee references a number of factors including the general workforce pay structure, workforce policies, talent development needs and wider stakeholder impact, as illustrated below. Employee engagement activities in 2020 In 2019 the Board nominated Ifueko Okauru to be the designated Non-Executive Director who will be working with GM HR to engage with employees, gather their views and report any feedback to the Board to inform their decision-making. At the HR Forum the Company presented pay structure for all grades of employees including Executive Directors and addressed questions from employees to explain any differences between executive pay and the broader Company pay structure. A summary of the reward framework for all grades is presented above. Gender pay gap and CEO pay ratio The Committee considered disclosing CEO pay ratio and the Company’s gender pay gap in 2020. However, given the Company’s main operations are based in Nigeria whilst the UK workforce consists of significantly fewer than 250 employees, the results would not be representative of our business, statistically significant and provide little or no insight to investors. We will reassess this disclosure as the Company embeds Eland into its UK operations in future years. 119 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Directors’ remuneration policy Introduction As we reach the end of the three year cycle of our Remuneration Policy, the Remuneration Committee has conducted a review of the previous Directors’ Remuneration Policy (the ‘Policy’) and the changes to its operation adopted in 2018 and deemed that a small number of changes are required to ensure that the remuneration policy remains aligned with the strategy, market best practice and compliance with the Nigerian and UK corporate governance codes. The new Policy will be put to a shareholder vote at the Annual General Meeting on 20 May 2021 and will apply for a period of three years from commencement, unless the Remuneration Committee decide that it is appropriate to put a new Remuneration Policy to vote before this date. The table below sets out the proposed changes to our Remuneration Policy: Element of remuneration Proposed changes Base salary Pension and benefits Annual bonus LTIP No changes proposed No changes proposed No changes proposed • 50% of salary increase for the CEO and 40% for other Executive Directors to the LTIP, only payable subject to the achievement of an exceptional Absolute TSR performance target. • Introduce an absolute TSR performance measure in the LTIP. • Replace the formulaic operational and technical LTIP underpin with a broad underpin, operated as a qualitative review of Seplat’s operations by the Remuneration Committee at the end of the vesting period, with the application of downwards discretion, where appropriate. • Replace the mechanisms by which the grant size is determined (i.e. the £1 share price floor) and the potential reduction of vesting when the payout is more than 2.5 times grant value), with the following: • A policy whereby the Remuneration Committee will review any share price windfall gains at the end of the vesting period, and make any discretionary adjustments, as required, in line with market best practice. Malus and Clawback provisions Shareholding Guidelines Non-Executive Director fees Extend the malus and clawback provisions to include all market best practice trigger events No changes proposed No changes proposed Policy summary The Company’s aim is to attract, retain and motivate the best talent to help execute the business strategy successfully and ensure long-term value creation for shareholders in the current challenging environment for the oil and gas industry. Overall remuneration levels have been set at a level that is considered by the Committee to be appropriate for the size, nature and aspirations of the business, having taken specialist, independent advice where necessary, in order to ensure that the policies and remuneration structure are appropriate for the listed company environment. Our principles of remuneration The remuneration policy aims to align the interests of the Executive Directors, senior managers and employees to the long-term interests of shareholders and aims to support a high performance culture with appropriate reward for superior performance without creating incentives that will encourage excessive risk taking or unsustainable Company performance. The guiding principles behind the setting and implementation of our remuneration policy are as follows: Principle Balanced Competitive Equitable Risk-weighted Aligned Explanation There should be an appropriate balance between fixed and performance-related elements of the remuneration package. Remuneration packages should be competitive, taking into account the level of remuneration paid in respect of comparable positions in similar companies within the industry. There should be an appropriate level of gearing in the package to ensure that Executive Directors receive an appropriate proportion of the value created for shareholders whilst taking into account pay and conditions throughout the remainder of the Group, where the Company operates and where it is listed. Remuneration should not raise environmental, social or governance risks by inadvertently motivating irresponsible behavior. More generally, the overall remuneration policy should not encourage inappropriate operational risk. There should be suitable provision of equity awards over the longer term, focusing the Executive Directors on delivering the business strategy, allowing them to build a meaningful holding in the Company to further align their interests with those of shareholders. 120 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 How our remuneration structure supports the business strategy In line with our remuneration principles, the Committee will manage incentive plans for the Executive Directors such that they are closely linked to the business success, as outlined below: Maximise production and cash flows from operated assets Oil and Gas Production Profit before Tax and cashflow Commercialise and produce gas reserves Gas development projects Be a highly responsible corporate citizen Health & Safety High quality governance Annual Bonus To ensure we act as a team, the Committee, on behalf of the Board, sets management a challenging annual bonus performance scorecard. Whilst many scorecard elements are financial and operational at the Executive Director level, they do contain a number of quality targets (for example, around health and safety and corporate governance) designed to ensure we deliver the longer-term goals as a responsible and sustainable company. This scorecard is devolved down into the management line with an increasing emphasis on the quality and technical component elements needed to sustain corporate progress. The content of this annual scorecard will change to mitigate short-term pressures and exploit short-term opportunities – all aligned to deliver the longer-term strategic objectives. Successfully develop fields Move up 2C resources into 2p reserves category Good quality operations Deliver shareholder value Share price growth and dividends (TSR) LTIP Our overall strategic goal is to be a high performing oil & gas company – a shareholder stock of choice, within our sector and region. To achieve this, we align Executive Director equity awards with the fortunes of the shareholders through a relative TSR measure – based on performance against comparable oil & gas companies – seeking to attain regular upper quartile results. If we achieve median positioning or above over a three-year cycle, management are well rewarded in that year; if we fall below the median position, management share the financial disappointment. We ensure Executives are appropriately incentivised to implement the new Strategy, encompassing M&A activity and renewable priorities, whilst providing outcomes aligned to the Shareholder experience through the implementation of an Absolute TSR performance measure. This strategic three to five-year reward structure is further underpinned by the need to sustain good quality operations, as measured by a qualitative review of Seplat’s operations by the Remuneration Committee at the end of the vesting period, with the application of downwards discretion, where appropriate. Alignment to shareholder interests Shareholding requirement Success will deliver growing management share-ownership with extended retention periods, clawback in case of mis-statement, ability to override formulaic outcomes if they are out of line with corporate performance and sizable personal retained shareholdings. This is all working towards aligning the Company’s executive leadership with the interests of shareholders. In addition to supporting strategy, the policy also aligns with the six factors under provision 40 of the UK Corporate Governance Code, as set out below: Description How the remuneration policy is aligned Factor Clarity Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce. Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. Risk Remuneration arrangements should ensure reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated. Predictability The range of possible values of rewards to individual Directors and any other limits or discretions should be identified and explained at the time of approving the policy. Proportionality The link between individual awards, the delivery of strategy and the long term performance of the Company should be clear. Outcomes should not reward poor performance. Incentive schemes should drive behaviours consistent with company purpose, values and strategy. Alignment to culture Our Directors’ remuneration policy is based on the remuneration principles (see page 120) which are aligned with the strategic priorities. The policy is cascaded throughout the organisation as shown on page 119. The Company promotes meaningful engagement with its key stakeholders, including shareholders (via Annual Report / AGM / investor events where the remuneration structure and main pay-related decisions made in the year are communicated) and workforce (via annual engagement). The remuneration structure is based on a simple principle of maximising the long-term shareholder value. Key metrics are chosen to fulfil this objective by encouraging strong operational and financial performance. We are constantly seeking feedback on the remuneration structure and are reviewing ways in which it could be simplified. The Remuneration Committee constantly monitors potential risks arising from the operation of the remuneration arrangements. We closely monitor compensation arrangements provided to joiners and leavers, including senior management, to ensure that any payments are appropriate and aligned with the remuneration policy. The Committee also has discretion to override formulaic outcomes to ensure that any payments are reflective of the underlying performance. Post-vesting holding period and post-cessation shareholding requirement apply to Executive Directors. The Remuneration Committee actively manages expectations of its key stakeholders in relation to the remuneration outcomes. The Company provides in its Annual Report an illustration of the potential levels of remuneration receivable by the Executive Directors under a number of performance scenarios. As set out on page 124, the Committee has discretion to override formulaic outcomes of the incentives to ensure alignment with the underlying performance. The Committee annually reviews the continued appropriateness of the remuneration policy to ensure that the structure and performance metrics remain aligned to the strategic objectives and long-term value creation. As set out on page 124, the Committee has discretion to override formulaic outcomes of the incentives to ensure alignment with the underlying performance. The Board reviewed culture in 2019 and the Committee is comfortable that incentive schemes operate in line with the key values of the organisation. Alignment of our incentives structure to strategy is illustrated on page 121. 121 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Remuneration policy in practice In order to deliver upper quartile performance against our oil and gas contemporaries, making Seplat the investor’s sector choice, we need to attract and retain highly experienced individuals. This applies not just at the executive level, but also within the management line. This is a recruitment and selection function led by the Nomination and Establishment Committee at the highest level, through the CEO, and into management levels. To attract and retain the top talent within the industry, we will be paying median to upper quartile packages. We accept that this requires strong performance delivery and hence expect to set challenging performance targets. Our Executive Director remuneration policy which, once approved, will apply for three years starting from 20 May 2021, is outlined below. Operation Opportunity Performance metrics Changes from previous policy None. An Executive Director’s base salary is set on appointment and is aimed to provide a competitive base salary relative to an appropriate benchmark. When determining an appropriate level of salary, the Committee considers: • remuneration practices within the Group; • the general performance of the Group; • salaries within the ranges paid by the companies in the comparator group used for remuneration benchmarking1; and • the economic environment. It is reviewed annually (effective from 1 January each year) or when there is a change in position or responsibility. Any subsequent salary increases will take into account factors such as: • the performance of the individual; • pay and conditions throughout the Company; • inflation/cost of living in jurisdictions where Executive Directors reside; and • the levels of base salary for similar positions with comparable status, responsibility and skills, in organisations of broadly similar size and complexity in the E&P sector. Benefits provided to the Executive Directors are dependent on their working location.2 Benefits can be provided either in the form of a cash allowance or as the actual benefit itself. The Committee recognises the need to maintain suitable flexibility in the determination of benefits that ensures it is able to support the objective of attracting and retaining personnel. Employer retirement funding is determined as a percentage of gross basic salary, up to a maximum limit of 17%. This may be provided either as a contribution into a personal pension fund or as a cash supplement. Element, purpose and link to strategy Base Salary Provides a base level of remuneration to support recruitment and retention of Executive Directors with the necessary experience and expertise to deliver the Group’s strategy. Set to reflect the role, the nature of operations and the contribution, skills and experience of the individual. Benefits Provides a level of benefits consistent with local market practice to support individuals in carrying out their roles. Pension Provides a competitive level of retirement benefit. 122 N/A Over the policy period, base salaries for current Executive Directors will be set at a competitive level within the comparator group and will increase in line with the increase for the general workforce in the Company other than in exceptional circumstances or when there is a change in role or responsibility. Base salary increases will be capped at 10% p.a. New promotes or recruits to the Board may on occasion have their salaries set below the targeted policy level while they become established in their role. In such cases salary increases may be higher than the increase for the general workforce of the Company until the target market positioning is achieved. The Company will set out in the section headed implementation of remuneration policy in the following financial year the salaries for that year for each of the Executive Directors (see page 135). N/A None. N/A None. The maximum opportunity for benefits is defined by the nature of the benefit itself and the cost of providing it. As the cost of providing such benefits is dependent on market rates and other factors, there is no formal maximum monetary value. A maximum pension contribution of 17% of salary. The Company will set out in the section headed implementation of remuneration policy in the following financial year the pension contributions for that year for each of the Executive Directors (see page 135). Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Changes from previous policy None. See table on page 132. Element, purpose and link to strategy Annual Bonus Provides a significant incentive to the Executive Directors linked to achievement in delivering goals that are closely aligned with the Company’s strategy (by including performance conditions around both financial and quality targets) and the creation of value for shareholders. In particular, it supports the Company’s objectives allowing the setting of annual targets based on the Company’s’ strategic objectives at that time, meaning that performance conditions will change to mitigate short-term pressures and exploit short-term opportunities – all aligned to deliver the longer-term objective. Long Term Incentive Plan Awards are designed to incentivise the Executive Directors to maximise total shareholder return by successfully delivering the Company’s objectives and to share in the resulting increase in total shareholder value. If targets are reached, Executive Directors are well rewarded – however if we fail, management share the financial disappointment. The use of relative and absolute TSR measures the success of the implementation of the Company’s strategy in delivering an above market level of return and strong absolute returns. The use of a broad underpin, operated as a qualitative review of Seplat’s operations ensures that vesting is further underpinned by good quality operations. Operation Opportunity Performance metrics Maximum bonus opportunity of 200% of salary. Percentage of bonus maximum earned for levels of performance: • Threshold – 30% • Target – 50% • Maximum – 100% Maximum value of 300% of salary p.a. based on the market value at the date of award set in accordance with the rules of the Plan. There is no requirement to make this level of award every year. The Committee will determine the maximum annual participation in the annual bonus for each year, which will not exceed 200% of salary. 75% of any bonus earned will be paid in cash at the end of year one. The remaining 25% of any bonus earned will be deferred into shares (under the rules of the LTIP) and paid at the end of year three. The Company operates an annual bonus scorecard of performance metrics, incorporating the Company’s KPIs as well as individual performance targets. Details of the performance conditions and their level of satisfaction for the year being reported on will be set out in the Annual Report on Remuneration. The Committee retains discretion to make adjustments to the amount of annual bonus payable resulting from the application of the performance measures if it believes that the outcomes are not a fair and accurate reflection of corporate performance. The Committee may award dividend equivalents on deferred share awards to the extent that these vest based on dividends paid between grant and vesting. Awards are made annually to Executive Directors. The number of share awards to be granted under the LTIP will be calculated based on the average share price over the 5 days preceding the date of grant. The awards will vest at the end of a three-year period subject to: • the Executive Director’s continued employment at the date of vesting; and • satisfaction of the performance conditions. To the extent that awards vest, the awards will be subject to a further two-year holding period. The Committee retains discretion to make adjustments to the amount of LTIP vesting payable resulting from the application of the performance measures if it believes that the outcomes are not a fair and accurate reflection of corporate performance. The Committee may award dividend equivalents on awards to the extent that these vest based on dividends paid between grant and release. The Company operates an annual bonus scorecard of performance metrics, incorporating the Company’s KPIs around financial, strategic and operational / technical conditions as well as individual performance targets. The Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed financial targets used for the annual bonus, disclosing precise targets for the bonus plan in advance would not be in shareholder interests. The performance measures, achievement against targets and the value of awards made will be published at the end of the performance periods so shareholders can assess the basis for any pay-outs under the annual bonus. Although there are no specific plan rules for the annual bonus, the Committee has decided to adopt malus and clawback provisions. The deferred bonus shares are awarded under the LTIP and so will be subject to the malus and clawback provisions contained within the LTIP rules. The committee will determine the performance measures, weightings and targets for the LTIP awards on an annual basis. In relation to the Relative TSR element, 25% of the award will vest for threshold performance, increasing on a straight-line basis to100% of the award for maximum performance. In relation to the Absolute TSR element, the additional opportunity will vest only if the performance target is met. This level of vesting outcome under the primary performance conditions will be moderated by a broad underpin, operated as a qualitative review of Seplat’s operations by the Remuneration Committee at the end of the vesting period, with the application of downwards discretion, where appropriate. The Committee may change the balance of the measures, or use different measures for subsequent awards, as appropriate. Details of the performance conditions for awards made in the year will be set out in the Annual Report on Remuneration or an RNS announcement at the time of grant and for future awards in the statement of implementation of remuneration policy in the future financial year. The LTIP contains malus and clawback provisions. 1 Salaries are set compared to a peer group of international oil and gas companies. 2 Benefits may include Life Assurance, Employee Compensation Scheme, Personal Accident Assurance, Housing allowance / housing costs, Long Term Disability Assurance, Private Healthcare, Gym/Club Membership, Logistics support, Car and driver, Phone Allowance / Mobile Phone, Children’s Education allowance, Rest and Recreation allowance, Residence Allowance, In country allowance and 13th month allowance. 123 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Element, purpose and link to strategy Operation Opportunity Performance metrics Changes from previous policy None. N/A In general the level of fee increase for the Non-Executive Directors will be set taking account of any change in responsibility and will take into account the general rise in salaries across the workforce. The Company will pay reasonable expenses incurred by the Chairman and Non-Executive Directors. Non-Executive Director Fees Provides a level of fees to support recruitment and retention of Non-Executive Directors with the necessary experience to advise and assist with establishing and monitoring the Group’s strategic objectives. Shareholding requirement The Board as a whole is responsible for setting the remuneration of the Non-Executive Directors. Non-Executive Directors are paid a base fee and additional fees for chairmanship/ membership of Committees/ Senior Independent Directorship. Fees are reviewed annually based on equivalent roles in UK listed companies taking account of the Company’s location and sector. Non-Executive Directors do not participate in any variable remuneration arrangements. To ensure that Executive Directors’ interests are aligned with those of shareholders over a longer time horizon the Committee operates formal shareholder guidelines to encourage long-term share ownership by the Executive Directors. N/A None. CEO: 200% of annual base salary Other Executive Directors: 150% of annual base salary Executive Directors will be given five years from the date of the previous (2018) policy implementation, or date of appointment if later, to satisfy the shareholding requirement. The shareholding requirement continues to apply for one year post cessation of employment for the Executive Directors and at 50% of the requirement between for an additional year. It is the Committee’s intention that commitments made in line with its current and previous remuneration policies and policies prior to Admission will be honoured. The Committee is satisfied that its approach to the Directors’ remuneration is designed to promote the long-term success of the Company. Performance Measures Please see the ‘How our remuneration structure supports the business strategy’ section for information on why the LTIP performance measures have been chosen and how the annual bonus scorecard will be determined by the Committee each year. Discretion The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of the Annual Bonus and LTIP (the LTIP being operated in general terms according to the rules). These include, but are not limited to, the following: • the participants; • the timing of an award; • the size of an award; • the determination of vesting and/or payout; • discretion required when dealing with a change of control or restructuring of the Group; • determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen; • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and • the annual review of performance measures and weighting for the Annual Bonus and LTIP. These discretions, which in certain circumstances can be operated in both an upward and downward manner, are consistent with market practice and are necessary for the proper and fair operation of the plans so that they achieve their original purpose. The Committee retains discretion to make adjustments to the amount of incentives payable (following approval of this policy) resulting from the application of the performance measures if it believes that the outcomes are not a fair and accurate reflection of corporate performance. It is the Committee’s policy that there should be no element of reward for failure and any upward discretion will only be applied in exceptional circumstances. Differences in policy from the wider employee population The Group aims to provide a remuneration package for all employees that is market competitive and operates the same core structure as for the Executive Directors. The Executive Directors’ annual scorecard is devolved down into the management line with an increasing emphasis on the quality and technical component elements needed to sustain corporate progress. The Company continues to cascade the LTIP to management grades below Executive Directors, ensuring a consistent reward framework. The Group also operates variable pay plans on a discretionary basis, with pension provision offered to all Executives and employees. 124 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Recruitment policy The Company’s principle is that the remuneration of any new recruit will be assessed in line with the same principles as for the Executive Directors, as set out in the remuneration policy table on pages 125. The Committee is mindful that it wishes to avoid paying more than it considers necessary to attract candidates of the appropriate calibre and experience needed for the role from the market in which the Company competes. As a result, the Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments made on recruitment and the appropriateness of any performance measures associated with an award. The Company’s detailed policy when setting remuneration for the appointment of new Directors is summarised in the table below: Element of remuneration Recruitment policy Salary Benefits Pension Annual Bonus LTIP Maximum variable pay (incentive opportunity) Sign-on compensation “Buy Out”’ Of incentives forfeited on cessation of employment It is the Committee’s intention that commitments made in line with its current and previous remuneration policies and policies prior to The Committee is satisfied that its approach to the Directors’ remuneration is designed to promote the long-term success of the Company. Please see the ‘How our remuneration structure supports the business strategy’ section for information on why the LTIP performance measures have been chosen and how the annual bonus scorecard will be determined by the Committee each year. Relocation The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of the Annual Bonus and LTIP (the LTIP being operated in general terms according to the rules). These include, but are not limited to, the following: Salary will be set in line with the policy for existing Executive Directors. New promotes and recruits to the Board may on occasion have their salaries set below the targeted policy level while they become established in their role. In such cases salary increases may be higher than the increase for the general workforce of the Company until the target market positioning is achieved. The standard benefits package (depending on the local market) will apply. The maximum employer contribution will be set in line with the Company’s policy for existing Executive Directors which is also aligned with the wider workforce. Maximum annual participation will be set in line with the Company’s policy for existing Executive Directors and will not exceed 200% of salary. Maximum annual participation will be set in line with the Company’s policy for existing Executive Directors and will not exceed 300% of salary. In the year of recruitment the maximum variable pay will be 500% of salary. For the avoidance of doubt this excludes the value of any “Buy Out” of incentives forfeited on cessation of previous employment. The Committee’s policy is not to provide sign-on compensation. The Committee’s policy is not to provide buy outs as a matter of course. However, should the Committee determine that the individual circumstances of recruitment justified the provision of a Buy Out, the equivalent value of any incentives that will be forfeited on cessation of an Executive Director’s previous employment will be calculated taking into account the following: • the proportion of the performance period completed on the date of the Executive Director’s cessation of employment; • the performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied; and • any other terms and conditions having a material effect on their value (‘lapsed value’). The Committee may then award up to the same expected value as the lapsed value, where possible, under the Company’s incentive plans. To the extent that it was not possible or practical to provide the Buy Out within the terms of the Company’s existing incentive plans, a bespoke arrangement would be used. In instances where the new Executive Director is relocated from one work-base to another, the Company will provide ongoing compensation to reflect the cost of relocation for the executive in cases where they are expected to spend significant time away from their country of domicile. The level of the relocation package will be assessed on a case by case basis but will take into consideration any cost of living differences and/or any other benefits/allowances which are standard market practice in the host location. The Committee’s policy is to align internal promotes to the Board with the remuneration policy from the date of promotion. However, new promotes to the Board may on occasion have their salaries set below the targeted policy level while they become established in their role. In such cases salary increases may be higher than the increase for the general workforce of the Company until the target market positioning is achieved. In exceptional circumstances, where contractual benefits are forfeited on promotion, an equivalent cash payment can be made to compensate the value of contractual arrangements foregone. Any such payment will be made at the Remuneration Committee’s discretion on a fair and reasonable basis. The Company’s policy when setting fees for the appointment of new Non-Executive Directors is to apply the policy which applies to current Non-Executive Directors. Opportunity Performance metrics In general the level of fee increase N/A Changes from previous policy None. Element, purpose and link to strategy Operation Non-Executive Director Fees Provides a level of fees to support recruitment and The Board as a whole is responsible for setting the remuneration of the Non-Executive Directors. retention of Non-Executive Non-Executive Directors are Directors with the necessary experience to advise and assist with establishing and monitoring the Group’s strategic objectives. paid a base fee and additional fees for chairmanship/ membership of Committees/ Senior Independent Directorship. Fees are reviewed annually based on equivalent roles in UK listed companies taking account of the Company’s location and sector. Non-Executive Directors do not participate in any variable remuneration arrangements. with those of shareholders over a longer time horizon the Committee operates formal shareholder guidelines to encourage long-term share ownership by the Executive Directors. for the Non-Executive Directors will be set taking account of any change in responsibility and will take into account the general rise in salaries across the workforce. The Company will pay reasonable expenses incurred by the Chairman and Non-Executive Directors. annual base salary Executive Directors will be given five years from the date of the previous (2018) policy implementation, or date of appointment if later, to satisfy the shareholding requirement. The shareholding requirement continues to apply for one year post cessation of employment for the Executive Directors and at 50% of the requirement between for an additional year. Shareholding requirement To ensure that Executive CEO: 200% of annual base salary N/A Directors’ interests are aligned Other Executive Directors: 150% of None. Admission will be honoured. Performance Measures Discretion • the participants; • the timing of an award; • the size of an award; • the determination of vesting and/or payout; • discretion required when dealing with a change of control or restructuring of the Group; • determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen; • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and • the annual review of performance measures and weighting for the Annual Bonus and LTIP. These discretions, which in certain circumstances can be operated in both an upward and downward manner, are consistent with market practice and are necessary for the proper and fair operation of the plans so that they achieve their original purpose. The Committee retains discretion to make adjustments to the amount of incentives payable (following approval of this policy) resulting from the application of the performance measures if it believes that the outcomes are not a fair and accurate reflection of corporate performance. It is the Committee’s policy that there should be no element of reward for failure and any upward discretion will only be applied in exceptional circumstances. Differences in policy from the wider employee population The Group aims to provide a remuneration package for all employees that is market competitive and operates the same core structure as for the Executive Directors. The Executive Directors’ annual scorecard is devolved down into the management line with an increasing emphasis on the quality and technical component elements needed to sustain corporate progress. The Company continues to cascade the LTIP to management grades below Executive Directors, ensuring a consistent reward framework. The Group also operates variable pay plans on a discretionary basis, with pension provision offered to all Executives and employees. 125 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Service Contract and letter of appointment The Committee’s policy for setting notice periods is that a 12-month period will apply for Executive Directors unless the Committee determines otherwise. The Non-Executive Directors of the Company do not have service contracts. The Non-Executive Directors are appointed by letters of appointment, which are kept at Seplat’s registered office along with Executive Director service contracts. As required by Nigerian law, the Company follows the provisions set out in its Memorandum and Articles of Association and annually places one-third of its Independent Non-Executive Directors for re-election. Executive Directors Roger Brown Emeka Onwuka Effiong Okon Nature of Date of service contract contract Rolling 20 May 2013 3 August 2020 Rolling 1 February 2018 Rolling Non-Executive Directors A.B.C. Orjiako Date of letter of appointment 1 June 2017 Michael Alexander 6 June 2018 Michel Hochard1 Basil Omiyi Ifueko M. Omoigui Okauru 30 June 2014 Charles Okeahalam Lord Mark Malloch-Brown 6 June 2018 Nature of contract Fixed term to 31 May 2020 Fixed term to 2021 AGM Rolling 14 December 2009 1 June 2017 1 June 2017 Fixed term to 2020 AGM Fixed term to 2022 AGM Fixed term to 2020 AGM Fixed term to 2021 AGM Fixed term to 2022 AGM Fixed term to 2022 AGM Fixed Term 1 August 2020 28 January 2020 Fixed Term 1 October 2020 Fixed Term to 30 June 2014 18 July 2019 Damian Dodo Nathalie Delapalme Austin Avuru Olivier de Langavant Arumah Oteh Notice period from Company 12 months 12 months 12 months Notice period from Director 12 months 12 months 12 months Notice period from Company 12 months Notice period from Director 12 months Compensation provisions for early termination Payment in lieu of notice equal to 12 months’ salary and benefits, including any payments accrued at the date of termination. Compensation provisions for early termination None. 6 months 6 months 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months 6 months 6 months 6 months None. None. 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months’ fees if not re-elected or retired. 6 months 6 months 6 months’ fees if not re-elected or retired. 12 months 12 months 6 months 12 months 12 months 6 months None None. 6 months’ fees if not re-elected or retired. Mr. Xavier R. Rolet 1 October 2020 Fixed Term to 6 months 6 months 6 months’ fees if not re-elected or retired. next AGM Next AGM Illustrations of the application of the remuneration policy The charts below illustrate the remuneration that would be paid to each of the Executive Directors, based on salaries at the start of financial year 2021, under four different performance scenarios: (i) Minimum; (ii) On-target; (iii) Maximum; and (iv) Maximum plus 50% share price appreciation over three years on the LTIP. The elements of remuneration have been categorised into three components: (i) Fixed; (ii) Annual Variable; and (iii) Multiple Reporting Periods. Element Fixed Annual Variable Multiple Reporting Periods Share price appreciation Description Salary, benefits and pension Annual bonus (including deferred shares) Award under the Long Term Incentive Plan N/A Minimum Included On-target Included Maximum Included No annual variable 50% of Maximum No multiple year variable 62.5%1 of the maximum N/A award N/A 100% of maximum bonus 100% of the maximum award N/A Maximum plus 50% share price appreciation Included 100% of maximum bonus 100% of the maximum award 50% share price appreciation over three years applied to 100% of the maximum LTIP award 1. On-target % pay-out is calculated as the mid-point between threshold vesting of 25% (for threshold performance) and the maximum vesting of 100% (for maximum performance). 126 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 CEO (US$’000) CFO (US$’000) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 US$6,391 US$1,275 20% US$5,116 US$3,523 US$2,550 50% US$2,550 40% US$1,594 45% US$1,291 US$638 18% US$1,275 25% US$1,275 20% 5,000 4,000 3,000 2,000 US$4,184 US$846 21% US$3,338 US$2,352 US$1,692 51% US$1,692 40% US$1,058 45% 1,000 US$941 US$353 15% US$705 21% US$705 17% US$1,291 100% US$1,291 37% US$1,291 25% US$1,291 20% US$941 100% US$941 40% US$941 28% US$941 22% Minimum On-Target Maximum Maximum including share price appreciation 0 Minimum On-Target Maximum Maximum including share price appreciation Operations Director (US$’000) 5,000 4,000 3,000 2,000 1,000 0 US$4,286 US$863 20% US$3,423 US$2,417 US$1,726 50% US$1,726 40% US$1,079 45% US$978 US$360 15% US$719 21% US$719 17% US$978 100% US$978 40% US$978 29% US$978 23% Minimum On-Target Maximum Maximum including share price appreciation Fixed Multiple Reporting Periods Annual Variable Share price appreciation The following table sets out the key aspects of policy used to populate the charts above. Role CEO CFO Operations Director 2021 salary (US$’000) 850 705 719 Benefits 296 116 137 Annual Bonus (% salary) 150% 100% 100% LTIP (% salary)1 300% 240% 240% Pension (% salary) 17% 17% 17% In accordance with the regulations, dividend equivalents have not been added to deferred share bonus and LTIP share awards. Payment for loss of office policy When determining any loss of office payment for a departing individual the Committee will always seek to minimise the cost to the Company whilst seeking to reflect the circumstances in place at the time. The Committee retains overriding discretion to make loss of office payments appropriate to the circumstances and applying the overriding principle that there should be no element of reward for failure. Under Nigerian law, any payment for loss of office to Directors must be approved by shareholders at the AGM. The table on the following page sets out, for each element of total remuneration, the Company’s policy on payment for loss of office in respect of the Executive Directors and any discretion available to the Committee. In any year where a Director has received payment for loss of office the Company will ask shareholders to vote on that payment on a retrospective basis. 127 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Remuneration Element Treatment on cessation of employment Salary Benefits Pension Annual Bonus Annual Bonus (deferred shares) In the event of termination by the Company, there will be no compensation for loss of office due to misconduct or normal resignation. In other circumstances, Executive Directors may be entitled to receive compensation for loss of office which will be a maximum of 12 months salary. Salary will be paid over the notice period. The Company has discretion to make a lump sum payment on termination of the salary payable during the notice period. In all cases the Company will seek to mitigate any payments due. Benefits will normally be provided over the notice period. The Company has discretion to make a lump sum payment on termination equal to the value of the benefits payable during the notice period. In all cases the Company will seek to mitigate any payments due Company pension contributions will normally be provided over the notice period. The Company has discretion to make a lump sum payment on termination equal to the value of the Company pension contributions, or equivalents, during the notice period. In all cases the Company will seek to mitigate any payments due. Good leaver reason Performance conditions will be measured at the normal measurement date. The bonus will normally be pro-rated for the period worked during the financial year and paid entirely in cash. Good leaver reason All subsisting deferred share awards will vest in full on the normal vesting dates. Other reason No bonus payable for year of cessation. Discretion The Committee has the following elements of discretion: • to determine that an executive is a good leaver; • whether to pro-rate the maximum number of shares to Other reason Lapse of any unvested deferred share awards. LTIP Good leaver reason Pro-rated to time and performance in respect of each subsisting LTIP award with awards vesting on the normal vesting dates. Other reason Lapse of any unvested LTIP awards. the time from the date of award to the date of cessation. The Committee’s policy is generally to not pro-rate to time. The Committee will determine whether to pro-rate based on the circumstances of the Executive Director’s departure; and • whether to deliver awards at the time of cessation or at the normal vesting date. The Committee’s policy is to deliver awards at the normal vesting date. Discretion The Committee has the following elements of discretion: • to determine that an executive is a good leaver; • to measure performance (or any other condition) over the original performance period or at the date of cessation; • whether to pro-rate the maximum number of shares to the time from the date of award to the date of cessation (rounded up to the nearest month). The Committee’s policy is generally to pro-rate to time; and • whether to deliver awards at the time of cessation or at the normal vesting date. The Committee’s policy is to deliver awards at the normal vesting date. Other contractual obligations Compensation for forfeited remuneration: • On termination, any “buy out” awards would normally lapse. • Other benefits e.g. relocation allowances, international mobility benefits and expenses: • Will depend on what has been agreed on appointment; the Committee would not expect any or all of these elements of pay to form part of any termination arrangement. • The Committee has discretion to make payments in respect of these elements of remuneration, provided the termination is not as a result of poor performance. A good leaver reason is defined as cessation in the following circumstances: • death; • ill-health; • redundancy; • injury or disability; • retirement with the consent of the Company; • employing company ceasing to be a Group company; • transfer of employment to a company which is not a Group company; and • at the discretion of the Committee (as described above). Cessation of employment in circumstances other than for ‘good leaver’ reasons is classified as cessation for ‘other reasons’ as set out in the table above. 128 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Change of control The Committee’s policy on the payment and vesting of incentives on a change of control is summarised below: Name of Incentive plan Change of control Discretion Annual Bonus (cash) Annual Bonus (deferred shares) LTIP Performance conditions will be measured at the date of the change of control. The bonus will normally be pro-rated to the date of the change of control. Subsisting deferred share awards will vest on a change of control. The number of shares subject to subsisting LTIP awards on a change of control will be pro-rated to time and performance. The Committee retains discretion to continue the operation to the end of the bonus year. The Committee will only waive pro-rating in exceptional circumstances where it views the change of control as an event which has provided a material enhanced value to shareholders which will be fully explained to shareholders. In all cases the performance conditions must be satisfied. The Committee retains the discretion to pro-rate to time. The Committee has discretion: • to determine whether to pro-rate the award to time. The Committee will only waive pro-rating in exceptional circumstances where it views the change of control as an event which has provided a material enhanced value to shareholders which will be fully explained to shareholders. In all cases the performance conditions must be satisfied; and • to determine to pay cash in lieu of shares. Malus and Clawback Malus provisions apply to the Annual bonus and LTIP. Malus is the reduction of a payout or the number of shares under an award (including to zero) as a result of the occurrence of one or more circumstances as set out below. Clawback is the recovery of cash payments made or vested share awards as a result of the occurrence of one or more circumstances as set out below. Clawback may apply to all or part of a participant’s payment under the LTIP or annual bonus and may be effected, among other means, by requiring the transfer of shares, payment of cash or reduction of awards or bonuses. The malus and clawback trigger events are set out below: • discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group company; • the assessment of any performance condition, or condition in respect of a payment or award under the annual bonus or LTIP, that was based on error, inaccurate or misleading information; • the discovery that any information used to determine the annual bonus or the LTIP award was based on error, inaccurate or misleading information; • action or conduct of a participant which amounts to fraud or gross misconduct; • event or behaviour of a participant leading to the censure of a Group company by a regulatory authority or have had a significant detrimental impact on the reputation of any Group company, provided that the Board is satisfied that the relevant participant was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to the participant; • a material failure or risk management; and • corporate failure (to the extent the Group company believes such a trigger would be broader than those already in use). The following table sets out the periods during which malus and clawback may be effected by the Committee: Malus At any time prior to the payment / vesting date of deferred shares. Annual Bonus Long Term Incentive Plan (“LTIP”) At any time prior to the vesting date. Clawback Two years from the date of payment of cash bonus or vesting of the deferred share element. Five years from the date of grant. Statement of conditions elsewhere in the Company The Committee, along with setting the remuneration packages of the Executive Directors, also has purview over the reward arrangements of the Senior Management Team, which consists of 30 additional employees. The Committee did not specifically take employee views into consideration when setting Policy. When considering the salary movements on a year-on-year basis for the Senior Management Team, the Committee will take account of salary increases across the general employee base. Executive Director annual bonus targets are also devolved down into the management line with an increasing emphasis on the quality and technical component elements needed to sustain corporate progress. In addition, the Company continues to cascade the LTIP to management grades below Executive Directors, ensuring a consistent reward framework, as set out in more detail in the At A Glance section on page 116. Consideration of shareholder views The Committee takes the views of shareholders seriously and these views are taken into account in shaping remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy. If any shareholders wish to discuss the Company’s remuneration arrangements, The Remuneration Committee Chairman would be delighted to meet with you. 129 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Annual report on remuneration Single total figure of remuneration Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of the 2020 financial year, on a receivable basis in accordance with the policy as approved by shareholders. Comparative figures for the 2019 financial year have also been provided. Executive Directors Roger Brown (CEO) Emeka Onwuka (CFO) Period 2020 2019 2020 2019 Effiong Okon (Operations Director) 2020 Austin Avuru (Former CEO) 3 2019 2020 2019 Salary1 $’000 Taxable benefits $’000 Pension $’000 733 643 294 0 719 719 659 1,130 446 123 116 0 137 174 274 507 117 97 50 0 122 122 112 192 Other $’000 Total fixed pay $’000 96 1,392 0 0 0 39 0 501 0 863 460 0 1,018 1,015 1,547 1,829 Bonus $’000 278 304 90 0 209 315 302 756 Total variable pay $’000 806 917 90 0 751 315 1,171 1,765 LTIP2 $’000 528 613 0 0 541 0 869 1,009 Total $’000 2,198 1,780 549 0 1,768 1,330 2,717 3,594 1. Salaries for Executive Directors are set in USD – 2020 salaries were $850,000 for the current CEO inclusive of residency allowance, $705,000 for the CFO and $719,000 for the Operations Director inclusive of housing and 13th month allowances. For the former CEO, his 2020 salary was £663,000 and is paid based the July 2014 USD: GBP exchange rate which has been used to calculate 2019 and 2020 remuneration. For the current CEO’s service as CFO during 2020, the average 2020 USD: GBP exchange rate of 1.284 has been used where applicable. 2. The taxable benefits for each Executive Director comprise those which are quantifiable. 3. Bonus relates to the year it was earned and includes the deferred proportion of the award. 4. The value of the 2018 LTIP awards vesting in May 2021 is shown in 2020 as the performance period ended on 31 December 2020. The estimated value of these awards uses a 2020 Q4 average share price of $0.80; the actual value will be updated in the 2021 Directors’ Remuneration Report when the awards vest on 2 May2021. The value of the 2017 LTIP awards that vested in April 2020 is shown in 2019. The value has been restated based on the actual share price on 20 April 2020 ($0.62) and includes dividend equivalents. 5. Pension contributions are provided as a cash supplement/contribution. 6. CFO joined the Company on 3 August 2020 as an executive director 7. Mr. Roger Brown was appointed as the CEO effective 1 August 2020 Non-Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director for 2020 on a paid basis in accordance with the policy as approved by shareholders. Name A.B.C. Orjiako Michael Alexander Michel Hochard3 Basil Omiyi Ifueko M. Omoigui Okauru Charles Okeahalam Lord Mark Malloch-Brown Damian Dodo Nathalie Delapalme Oliver de Langavant4 Austin Avuru5 Arumah Oteh Xavier Rolet 2020 fees1,2 ($’000) 1,099 522 13 294 287 330 223 280 203 140 75 59 59 2019 Fees1,2 ($’000) Role 1,155 Non-Executive Chairman and Nomination and Establishment Committee member 524 Senior Independent Director, Remuneration Committee Chairman, Finance, Gas and Nomination and Establishment Committee, Corporate Governance, Compliance & Culture member 151 298 Gas and Risk Management Committee Chairman, Remuneration, Nomination and Establishment Committee member 267 Corporate Governance, Compliance & Culture Committee Chairman Finance, CSR and Risk Management Committee member 254 Finance Committee Chairman, Remuneration and Gas Committee member 232 CSR Committee Chairman and Finance Committee member 242 CSR and Nomination and Establishment Committee Chairman, Remuneration, Corporate Governance, Compliance & Culture member 82 CSR Committee member n/a n/a Risk and HSSE Committee n/a Nomination, gas and finance committee member n/a Remuneration Committee Chairman, Risk and HSSE&CSR committee member 1. Fees shown are those receivable in GBP, converted at the average exchange rate for the relevant year. This is with the exception of the Chairman, whose fees are converted at the July 2014 USD: GBP exchange rate. 2. The above capture the gross pay in line with the directors contract i.e. before withholding tax is withheld. We have re-stated the 2019 figure based on the same approach. 3. Michel Hochard stepped down as a Non-Executive Director of the Company with effect from 31 January 2020. 4. Oliver de Langavant joined the Board as a Non-Executive Director of the Company with effect from 28 January 2020. 5. Austin Avuru joined the Board as a Non-Executive Director of the Company with effect from 1 August 2020. 6. Xavier Rolet and Arunma Oteh joined the Board as a Non-Executive Director of the Company with effect from 1 October 2020. 130 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Annual fees Position Chairman Board Senior Independent Director Committee Chairmanship Finance Committee Chairmanship3 Committee membership Finance Committee membership3 2020 Annual fee2 ($’000) 1,099 151 214 43 57 29 36 2019 Annual fee2 ($’000) 1,099 150 213 43 57 28 35 1. In special circumstances additional Director fees can be paid for Board commissioned specific longer-term activities led by the Director. 2. Fees shown are those pain in GBP, converted at the average exchange rate for the relevant year. This is with the exception of the Chairman, whose fees are converted at the July 2014 USD: GBP exchange rate. 3. Only applicable to those Directors who have additional responsibilities. Additional information regarding single figure table The Committee considers that the performance conditions for all incentives are suitably demanding, having regard to the business strategy, shareholder expectations, the cyclical nature of the markets in which the Group operates and external advice. To the extent that any performance condition is not met, the relevant part of the award will lapse. There is no retesting of performance. Annual bonus Seplat promotes a culture of high performance and uses a scorecard to assess the annual bonus outcome. The bonus scorecard is reviewed annually to ensure strong alignment with Company strategic priorities, prevailing market practice and the operating environment. In setting the measures and targets for 2020, the Committee was conscious of the beginning of the pandemic and the impact the many lockdowns were having on the oil and gas sector. Recognising the difficulties faced by Seplat and the whole sector, the Committee determined that the maximum bonus that could be achieved for 2020 was 50% of maximum i.e. half the normal bonus opportunity. This was implemented by ensuring that the maximum payout for each element of the scorecard was 50% of maximum opportunity. In respect of the 2020 financial year, the bonus awards payable to Executive Directors were approved by the Committee having reviewed the Company’s underlying performance. On the basis of the enforced OPEC production restrictions that were outside of Management’s control, the Committee applied judgement to the net Oil production element outcome given the impact of this unforeseen event. The Committee also determined that the completion of the OB3 pipeline was outside of Management’s control, and therefore also applied their judgement to this element. On this basis, the Committee was comfortable not to exercise discretion in relation to the formulaic outcomes set out below. Details of the achievement of the measures used to determine bonuses in respect of the 2020 financial year and the extent to which they were satisfied are shown in the table below. These resulting bonus figures are included in the single figure table. Achievement of corporate performance conditions The Executive Directors’ bonus scorecard is weighted in favour of corporate measures, as shown below. Additionally, individual strategic goals are set for each Executive Director annually based on the Company’s strategic priorities for the respective year. These measures would typically fall under one of the following categories: development of strategic focus, team development and succession planning, technical and operational excellence. It is the Committee’s view that the specific individual performance conditions are commercially sensitive and therefore details cannot be fully disclosed. Overall, the annual bonus reward level for Executive Directors was broadly on-target (30% maximum) as set out below: Performance measure Total weighting Specific Performance achieved against targets Nil Payout 10%-30% of maximum 30%-50% of maximum 50% of maximum Production and operational excellence 30% Oil production volume Gas production volume CAPEX Production OPEX Revenue Net cash flow Financial 50% G&A costs Health and safety Development projects Strategy 5% 5% 10% Reduction in NPDC receivables Profit before tax LTIF rate OB3 pipeline Strategic objectives (set for each Director individually) 1. The levels of award and weightings for each element of the 2020 bonus is shown as per the CEO scorecard for simplicity. Other Executive Directors’ scorecards are calibrated to ensure greater focus on areas most relevant for their roles. 131 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Annual bonus pay-out The table below sets out the annual bonus earned for the year: CEO CFO Operations Director Former CEO Performance measures Corporate measures Individual performance Total Achieved (% of max) 25.6% out of 90% 5% out of 10% 30.6% out of 100% Bonus earned (US$’000) $232 $45 $277 Achieved (% of max) 25.6% out of 90% 5% out of 10% 30.6% out of 100% Bonus earned (US$’000) $75 $15 $90 Achieved (% of max) 24.1% out of 90% 5% out of 10% 29.1% out of 100% Bonus earned (US$’000) $173 $36 $209 Achieved (% of max) 25.6% out of 90% 5% out of 10% 30.6% out of 100% Bonus earned (US$’000) $253 $49 $302 In line with policy, 25% of the Executive Directors’ bonus will be deferred into shares and will be released at the end of year 3 subject to continued employment. Long-term incentives vesting in 2020 The 2018 LTIP awards were made to the CEO and CFO on 2 May 2018. The awards vest on 2 May 2021; however the performance period for these awards ended on 31 December 2020. The performance conditions for these awards are relative TSR measured against a bespoke group of E&P companies underpinned by a reserves growth target. Seplat’s TSR performance resulted in 100% vesting for this element of the award as the Company was placed above the upper quartile of the comparator group. The FY20 audited reserves are 499.4mmboe which represents a 4.496% increase from the FY17 reserves of 477 mmboe, based on excluding the increase in reserves from the Eland acquisition. Given the audited reserves, including Eland assets, have increased by less than 10% then the 100% relative TSR vesting level has been reduced in line with the underpin vesting schedule, such that overall vesting is 86.74%. TSR performance vs comparator group Reserves growth underpin Seplat TSR growth -27% Median TSR growth (25% vesting) Upper quartile TSR growth (100% vesting) Vesting under TSR condition Seplat reserves growth between FY17 and FY 20 Reserves growth required to fully satisfy underpin Reduction in vesting based on the underpin Final vesting level -67% -37% 100% 4.696%1 10% 13.26% 86.74% 1 Reserves exclude growth resulting from M&A activity. The following table presents the number of 2018 LTIP awards that will vest in May 2021 based on the assessment of the performance conditions and the resulting value of awards on vesting for each Executive Director. Role Roger Brown Effiong Okon Austin Avuru Number of 2018 LTIP awards granted Number of 2018 LTIP awards vesting in May 2021 Value of vested awards ($)1 Value attributable to share price growth 760,046 779,061 1,250,077 659,263 675,757 1,084,316 528,110 541,322 868,603 nil nil nil 1. Based on Q4 2020 average share price of $0.80 and excludes dividend equivalents. The Committee was comfortable that the vesting value and value attributable to share price growth was commensurate with the underlying performance and as such, did not exercise any discretion to change the outcomes of the 2018 LTIP We also present detail on the number of 2017 LTIP awards that vested in 20 April 2020 based on the assessment of the performance conditions and the resulting value of awards on vesting for each Executive Director. This has been restated from last year to reflect the actual share price at vesting and dividend equivalents due on the vested awards. Role Austin Avuru Roger Brown Number of 2017 LTIP awards granted 1,609,375 978,500 Number of 2017 LTIP awards vesting in March 2020 1,310,031 796,499 Value of vested awards1 1,008,724 613,304 Value attributable to share price growth nil nil 1. Based on closing share price on $0.62 20 April 2020 and includes dividend equivalents paid on shares vested to date. Long-term incentives awarded in 2020 The table below sets out the details of the long-term incentive awards made in the 2020 financial year where vesting will be determined according to the achievement of performance conditions that will be tested at the end of the three-year performance period on 31 December 2022. Relative TSR measure Operational and technical scorecard underpin Percentage of award vesting at threshold performance (median performance) Maximum percentage of face value that could vest (upper quartile performance) 60% and below of objectives met at threshold over 3 years 70% of objectives met at threshold over 3 years 80% and above of objectives met at threshold over 3 years 25% 100% TSR vesting reduced by 75% TSR vesting reduced by 35% TSR vesting not reduced Role Roger Brown Type of award Nil-cost options Nil-cost options Basis on which award made Annual Additional award on promotion to CEO Effiong Okon Austin Avuru Conditional shares Annual Conditional shares Annual Face value of award (US$) 634,949 198,341 707,753 1,044,225 132 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In line with the Company’s operation of policy, the share price used to calculate the number of shares awarded was the higher of the average share price in Q1 2020 and £1 which at both awards dates was £1. Therefore, the face value of award shown, based on the share price at grant in the table above will be lower than the policy level of awards to the Executive Directors as a percentage of salary. There is straight-line vesting between the threshold and maximum TSR and straight-line reduction between the levels of operational and technical performance. The comparator group used for assessing relative TSR for awards granted in 2020 consists of the following companies: • Africa Oil • Cairn Energy • DNO • Energean Oil & Gas • Enquest • Frontera Energy • Genel Energy • Gran Tierra Energy • Hurricane Energy • Kosmos Energy • Parex Resources • Phoenix Global Resources • Premier Oil • Serica Energy • Tullow Oil Deferred Annual Bonus shares awarded in 2020 The table below sets out the details of the Deferred Annual Bonus shares awards made in the 2020 financial year. No further performance conditions will apply, other than continued employment and the normal Vesting date of the Award will be 31 December 2021 (two years following the end of the performance year in respect of which the Award is made). Role Roger Brown Effiong Okon Austin Avuru Type of award Nil-cost options Conditional shares Conditional shares Basis on which award made Annual Annual Annual Deferred Bonus Share 48,850 48,713 116,936 Face value of award (US$’000) 30,776 30,689 73,670 Performance conditions Continued employment The share price used to calculate the face value of awards was that at the date of award, being 30 April 2020 of US$0.63 for all annual awards above. Payments to past Directors None. Payments for loss of office The Remuneration Committee and Board approved to grant Mr. Austin Avuru an exit package in recognition of his meritorious services to Seplat from inception. The sum of $1,130,000 and $543,994 as compensation for loss of office and payment in lieu of notice respectively were paid after his retirement. Mr Avuru’s 2020 annual bonus will be pro-rated for time served as CEO in the year and the payout will be based on performance in line with policy as set out above. In-flight deferred bonus shares will vest on their normal dates without proration in line with policy. Mr Avuru’s LTIP awards granted in 2018, 2019 and 2020 will continue to vest on the normal vesting dates based on achievement of performance targets. The Committee determined not to pro-rate the number of awards vesting on the basis that Mr Avuru remains an eligible employee under the rules of the LTIP as a Non-Executive Director and to reflect the length of his tenure as CEO and the corporate successes achieved during this period. Mr. Austin Avuru received maintenance of his security logistics for Lagos, Abuja and all areas of Seplat operations for three years. Fees retained for external non-executive directorships Executive Directors may hold positions in other companies as non-executive directors and retain the fees. Statement of Directors’ shareholdings The table below sets out the number of shares of the Company in which current Directors had a beneficial interest and details of long-term incentive interests as at 31 December 2020. Director Roger Brown Emeka Onwuka5 Effiong Okon Shares required to be held % of salary 200% 150% 150% Beneficially owned1 2,840,585 0 0 Share plan Interests subject to performance Conditions4 2,848,015 0 2,792,227 Shareholding Share plan Interests not subject to performance conditions6 592,265 0 119,579 Vested but unexercised share plan interests2 2,840,5850 0 0 Shareholding requirement met3 Yes No No Total interests held as at 31/12/2020 6,280,865 0 2,911,806 1. Beneficial interests include shares held directly or indirectly by connected persons. 2. Shares held by Stanbic IBTC Trustee Limited/Seplat LTIP which vested but are unexercised. 3. Shareholding requirement had to be met by April 2019 (5 years post IPO) or five years after joining if later. The total of beneficially owned shares, interests not subject to performance conditions and vested but unexercised interests are included in the calculation and the share price of $0.89 on 31 December 2020 was used. 4. 2018, 2019 and 2020 LTIP awards. 5. Emeka Onwuka joined the Board on 3 August 2020. 6. 2019 Deferred bonus shares 133 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Details of the Non-Executive Directors’ interests in shares are set out below: Director A.B.C. Orjiako Michael Alexander Basil Omiyi Ifueko M. Omoigui Okauru Charles Okeahalam Lord Mark Malloch-Brown Damian Dodo Nathalie Delapalme Oliver de Langavant2 Austin Avuru3 Xavier Rolet4 Arunma Oteh4 Shares held as at 31/12/20201 37,818,522 115,238 95,238 95,238 495,238 31,746 0 0 0 60,098,823 0 0 1. Beneficial interests include shares held directly or indirectly by connected persons. 2. Oliver de Langavant joined the Board as a Non-Executive Director of the Company with effect from 28 January 2020. 3. Austin Avuru joined the Board as a Non-Executive Director of the Company with effect from 1 August 2020. Austin Avuru is complying with his Post Cessation Shareholding Requirement in operation due to his previous role as an Executive Director. 4. Arunma Oteh, OON and Xavier Rolet KBE joined the Board as Independent Non-Executive Directors effective 1 October 2020. Directors’ interest in contracts Between 31 December 2020 and 23 March 2021, shares held by Austin Avuru increased by 1,128,359. There were no other changes to Directors’ shareholdings. Comparison of overall performance and pay The graph below shows the value of US$100 invested in the Company’s shares since listing compared to the median of the FTSE All Share Exploration & Production companies. The graph shows the Total Shareholder Return generated by both the movement in share value and the reinvestment over the same period of dividend income. The Committee considers that the FTSE All Share Exploration & Production is an appropriate comparator group as it contains the UK companies that are constituents of Seplat’s TSR comparator group. This graph has been calculated in accordance with the Regulations. It should be noted that the Company began trading conditionally on the London Stock Exchange on 9 April 2014 and therefore only has a listed share price for the period of 9 April 2014 to 31 December 2020. TSR (rebased to 100 at 9 April 2014)1 31/03/14 30/06/14 30/09/14 31/12/14 31/03/15 30/06/15 30/09/15 31/12/15 31/03/16 30/06/16 30/09/16 31/12/16 31/03/17 30/06/17 30/09/17 31/12/17 31/03/18 30/06/18 30/09/18 31/12/18 31/03/19 30/06/19 30/09/19 31/12/19 Seplat FTSE All Share Exploration & Production Source: Thomson Reuters Datastream 1. In line with the methodology used for LTIP performance assessment, TSR was calculated using a three-month average. 120 100 80 60 40 20 0 134 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 CEO historical remuneration The table below sets out the total remuneration delivered to the CEO between 2014 and 2020 valued using the methodology applied to the single total figure of remuneration. The Committee does not believe that the remuneration payable in its earlier years as a private company bears any comparative value to that paid in its later years and therefore the Remuneration Committee has chosen to disclose remuneration only from 2014: CEO Total single figure (US$’000)1 Annual bonus payment level achieved (% of maximum opportunity) LTIP vesting level achieved (% of maximum opportunity) Roger Brown 20203 836 30.6% 86.7% Austin Avuru 20203 2,717 30.6% 86.7% Austin Avuru 2019 3,954 45% 81% 2017 2018 4,987 5,158 68% 49% 75% 100% 2016 3,143 35% 97% 2015 3,004 46% N/A2 2014 2,866 53% N/A2 1. Includes vesting in relation to the one-off Global Offer Bonus award in 2014 and 2015. 2. No LTIP awards vested in 2014 and 2015 – vesting of the first LTIP awards (awarded in 2014) occurred in 2017 (however the performance period for these awards ended on 31 December 2016 so it is included in the 2016 column). There were no equity based arrangements operating prior to listing. 3. Mr. Austin Avuru retired as CEO on 31 July 2020. Mr. Roger Brown was appointed to the Board as his successor on 1 August 2020, transitioning from his role as CFO. The Single Figure details above for Roger Brown include amounts paid in relation to his role as CEO only. Change in the Directors’ remuneration compared with employees The table below shows the percentage change in Executive Director and Non-Executive Director total remuneration from 2019 to 2020, alongside the change for the average of employees within the Company. Roger Brown (CEO) Emeka Onwuka (CFO) Effiong Okon (Operations Director) A.B.C. Orjiako Michael Alexander Basil Omiyi Ifueko M. Omoigui Okauru Charles Okeahalam Lord Mark Malloch-Brown Damian Dodo Nathalie Delapalme Oliver de Langavant2 Austin Avuru3 Average of Employees Salary / fees 14% n/a 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 8.2% Taxable benefits 263% n/a (21%) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 34% Short-term variable pay (9)% n/a (34)% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a (2%)% 1. The Directors year-on-year change has been expressed in currency in which their pay has been set i.e. USD for the Executive Directors and Chairman and GBP£ for the other Non-executives. The annual bonus change for the Executive Directors reflects the change in maximum bonus opportunity achieved. 2. Average employee pay year-on-year change is expressed in Naira as a significant majority of employees are paid in Naira. The numbers are provided for all employees of Seplat. The large change in average value of benefits provided to all employees is due to an increase in the eligibility of individuals for certain benefits at lower grades. Relative importance of the spend on pay The table below sets out the overall spend on pay for all employees compared with the dividends distributed to shareholders: Significant contributions Overall spend on pay1 Distributions to shareholders (dividends)2 2020 ($m) 68.0 58.8 2019 ($m) 62.0 58.8 % change 10.26% 0% 1. Calculated by converting 2020 and 2021 figures (from Naira) at the relevant year’s average NGN: USD exchange rate and excludes LTIP. 2. For 2020 this includes an interim dividend paid in December 2020 and a final dividend paid in May 2021. Statement of implementation of policy in following year Date of letter of appointment 1 June 2017 6 June 2018 14 December 2009 Rolling Non-Executive Directors A.B.C. Orjiako Michael Alexander Michel Hochard1 Basil Omiyi Ifueko M. Omoigui Okauru Charles Okeahalam Lord Mark Malloch-Brown Damian Dodo Nathalie Delapalme Austin Avuru Olivier de Langavant Arumah Oteh Mr. Xavier R. Rolet, Please see at a glance section. 1 June 2017 30 June 2014 1 June 2017 6 June 2018 30 June 2014 18 July 2019 1 August 2020 28 January 2020 1 October 2020 1 October 2020 Notice period from Company Nature of contract Fixed term to 31 May 2020 12 months Fixed term to 2021 AGM 6 months 6 months 6 months Fixed term to 2020 AGM 6 months 6 months Fixed term to 2022 AGM Fixed term to 2020 AGM 6 months 6 months Fixed term to 2021 AGM Fixed term to 2022 AGM 6 months Fixed term to 2022 AGM 6 months 12 months Fixed Term Fixed Term 12 months Fixed Term to Next AGM 6 months Fixed Term to next AGM 6 months Notice period from Director 12 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 12 months 12 months 6 months 6 months Compensation provisions for early termination None. 6 months’ fees if not re-elected or retired. None. None. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. None None. 6 months’ fees if not re-elected or retired. 6 months’ fees if not re-elected or retired. 135 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Directors’ remuneration report | continued Service agreements and letters of appointment Executive Directors Roger Brown Emeka Onwuka Effiong Okon Date of service contract 20 May 2013 3 August 2020 1 February 2018 Nature of contract Rolling Rolling Rolling Notice period from Company 12 months 12 months 12 months Notice period from Director 12 months 12 months 12 months Compensation provisions for early termination Payment in lieu of notice equal to 12 months’ salary and benefits, including any payments accrued at the date of termination. 1. Michael Hochard stepped down as Non-Executive Director on 31 January 2020. The Committee’s policy for setting notice periods is that a 12-month period will apply for Executive Directors unless the Committee determines otherwise. The Non-Executive Directors of the Company do not have service contracts. The Non-Executive Directors are appointed by letters of appointment, which are kept at Seplat’s registered office along with Executive Director service contracts. As required by Nigerian law, the Company follows the provisions set out in its Memorandum and Articles of Association and annually places one-third of its Independent Non-Executive Directors for re-election. Composition and terms of reference of the Remuneration Committee The members of Seplat’s Remuneration Committee are as follows: • Xavier R. Rolet (Chairman) • Basil Omiyi • Charles Okeahalam • Damian Dodo Michael Alexander stepped down as the Chairman of the Remuneration Committee from 31 January 2021, with Xavier Rolet succeeding Michael in the role from that date. The Board has delegated to the Committee, under agreed terms of reference, responsibility for the remuneration policy and for determining specific packages for the Executive Directors, the Chairman, Non-Executive Directors and other members of the senior management team. The terms of reference for the Committee are available on the Company’s website, www. seplatpetroleum.com, and from the Company Secretary at the registered office. The Committee receives assistance from the GM Human Resources, who attends meetings by invitation. The Executive Directors attend by invitation on occasions, except when issues relating to their own remuneration are being discussed. The Committee met 6 times during the financial year. Advisers to the Remuneration Committee The Committee continues to engage the services of PricewaterhouseCoopers LLP (‘PwC’) as independent remuneration adviser. Other services received by the Company from PwC UK during the financial year included tax and accounting related services. During the financial year, PwC UK supported the Committee on all aspects of remuneration policy for Executive Directors, Non-Executive Directors and members of the Executive Team. The Committee is satisfied that advice received from PwC UK during the year was objective and independent. PwC UK is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to ensure objective and independent advice is given to remuneration committees. Shareholder voting at general meeting At the AGM held on 6 June 2018, the Company received a vote of 99.7% in favour of its remuneration policy and the Remuneration Report through the acceptance of the 2017 Directors’ Remuneration Report. At the most recent AGM on 28 May 2020 the Company received a vote of 100.00% in favour of its Remuneration Report through the acceptance of the Annual Accounts, Directors' Report, Auditors' Report for the year ended 31 December 2019. Xavier Rolet, KBE (‘S.I.D.’)1 Chairman of the Remuneration Committee 1 Independent Non-Executive Director 136 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Report of the Directors For the year ended 31 December 2020 The Directors are pleased to present to the shareholders of the Company their report with the audited financial statements for the year ended 31 December 2020. Principal activity The Company is principally engaged in oil and gas exploration and production. Operating results Revenue Operating profit(loss) Profit before taxation (loss) Profit for the year (loss) Nigerian ₦ million 2020 190,922 (11,418) (28,872) (30,712) 2019 214,157 95,749 89,914 85,016 $’000 2019 2020 697,777 530,647 (31,716) 311,975 (80,209) 292,967 (85,322) 277,008 Dividend During the year, the Directors recommended and paid to members an interim dividend of $0.05 per share declared in October in line with our normal dividend distribution timetable (2019: $0.05). Further to this, the Board of Seplat is recommending a final dividend of $0.05 per share, which is subject to approval of shareholders, at the AGM which will be held on 20 May 2021 in Lagos, Nigeria. Unclaimed dividend The total amount outstanding at 31 December 2020 is US$593,230.86 and ₦642,070,562.85. A list of shareholders and corresponding unclaimed dividends is available on the Company’s website: www.seplatpetroleum.com. Changes in property, plant and equipment Movements in property, plant and equipment and significant additions thereto are shown in Note 19 to the financial statements. Rotation of Directors In accordance with the provisions of Section 285 of the Companies and Allied Matters Act, 2020, one third of the Directors of the Company shall retire from office. The Directors to retire every year shall be those who have been longest in office since their last election. However, in accordance with Article 131 of the Company’s Articles of Association, apart from the Executive Directors and Founding Directors, all other Directors are appointed for a fixed term. Upon expiration of the terms, they become eligible for re-appointment. The Directors who are eligible for re-appointment this year are Mr. Damian Dodo, SAN and Lord Mark Malloch-Brown. Management transition and Board changes As previously announced, our co-founder Austin Avuru stepped down as Chief Executive Officer on 31 July 2020 but remains a member of the Board as a Non-Executive Director. Roger Brown, who has been Seplat’s Chief Financial Officer since 2013, assumed the position of CEO on 1 August 2020. Emeka Onwuka joined as CFO and Board member on 1 August 2020. Mr. Onwuka has more than 30 years’ experience in financial services within Sub-Saharan Africa. He has served as Group Managing Director/CEO of Diamond Bank Plc and is a former Chairman of Enterprise Bank Limited. Mr. Onwuka is a Partner at Andersen Tax Nigeria and holds various Board positions at companies including FMDQ Securities Exchange Limited, FMDQ Holdings Limited, Ecobank Nigeria Limited and Bharti Airtel Nigeria. The Board accepted the voluntary resignation/retirement of Mr. Michael Alexander, Senior Independent Non-Executive Director (SINED), and Mrs. Ifueko M. Omoigui Okauru, Independent Non- Executive Director (INED), effective 31 January 2021. Mr. Alexander was appointed to the Board in June 2013 while Mrs. Okauru was appointed in March 2013. For the past seven years, both Directors served the Board meritoriously, deploying their multi-facetted experiences towards the growth of the organisation. Seplat remains grateful for their immense contributions to the Board and the Company. Consequently, the Board has appointed Mr. Basil Omiyi, Independent Non-Executive Director (INED) as the new Senior Independent Non-Executive Director from 1 February 2021. The Board during the course of the year, appointed Ms. Arunma Oteh, OON and Mr. Xavier R. Rolet KBE as Independent Non-Executive Directors (INEDs) of the Company, with effect from 1 October 2020. Ms. Arunma Oteh, OON is a seasoned C-suite executive with several years of experience operating at the highest levels at major multilateral agencies, global financial institutions and in Government. She has been an academic scholar at University of Oxford since January 2019 and a member of the London Stock Exchange Africa Advisory Group since January 2020. Ms. Oteh served as Treasurer and Vice President of the World Bank from 2015 to 2018. As Treasurer, she led a global team that managed the World Bank’s $200 billion debt portfolio as well as an asset portfolio of $200 billion for the World Bank Group and several public sector clients including 65 Central Banks. She was the Director General of the Securities and Exchange Commission (SEC) Nigeria from 2010 to 2015. As Director General of Nigeria’s apex capital market regulator, she was responsible for the regulation of Nigeria’s capital markets, including the Nigerian Stock Exchange, and led the rebuilding of the capital markets after the global financial crisis. She also served on Nigeria’s Economic Management team, chaired by the Nigerian President. Prior to the SEC Nigeria, she worked at the Africa Development Bank for 17 years in a variety of roles including Group Vice President, Corporate Services (2006 to 2009) and Group Treasurer (2001 to 2006). While Mr. Xavier Rolet, KBE, is an experienced CEO, Co-Founder, and Entrepreneur. Named as one of Harvard Business Review’s 100 Best CEOs in the World in 2017, Mr. Rolet has demonstrated a history of successful turnarounds in the global financial services industry. In his decade at the helm of the London Stock Exchange, the LSE’s market valuation rose from £800million to more than £15billion, transforming it into one of the world’s largest exchanges by market capitalisation. He is currently the Chairman, Board of Directors at Phosagro PJSC, a member of the Board of Directors of the Saudi Stock Exchange Tadawul as an appointee of the Public Investment Fund, and an Expert Adviser to the Shanghai Institute of Finance for the Real Economy. He has held various senior positions in the financial services industry throughout his career: CEO of CQS, a global hedge fund; CEO of Banque Lehman Brothers in Paris; Co-Head of Global Equity & Derivatives Trading at Lehman Brothers New York; Global Head of Risk and Trading at Dresdner Kleinwort Wasserstein; Vice-President, International Equity Risk Arbitrage at Goldman Sachs New York; and Co-Head of European Equities Sales and Trading at Goldman Sachs International Ltd in London. The Seplat Board is indeed privileged to have Arunma and Xavier on board and look forward to their contributions towards the continued success of the Board and Company. The appointment and removal or reappointment of Directors is governed by its Articles of Association and the Companies and Allied Matters Act, 2020. It also sets out the powers of Directors. 137 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Finance Committee Designation S/N Name Chairman 1. Charles Okeahalam Member 2. Michael Alexander 3. Ifueko M. Omoigui Okauru Member 4. Lord Mark Malloch-Brown Member 5. Arunma Oteh, OON1 Member No. of meetings in the year 5 5 5 5 1 No. of times in attendance 5 5 5 5 1 Meeting dates: 27 January, 12 March, 21 April, 21 July, 21 October 1. Ms. Arunma Oteh, OON was appointed to the Board as an Independent Non-Executive Director on October 1, 2020. Following her appointment, she attended one (1) Finance Committee meeting that held after her October 2020 appointment. Nomination and Establishment Committee Designation S/N Name Chairman 1. Damian Dodo, SAN Member 2. Basil Omiyi 3. Michael Alexander Member 4. Lord Mark Malloch-Brown1 Member 5. Arunma Oteh, OON2 Member No. of meetings in the year 6 6 6 5 1 No. of times in attendance 6 6 6 5 1 Meeting dates: 27 January, 22 April, 19 May, 18 June, 22 July, 20 October 1. Lord Mark Malloch-Brown was appointed to the Committee in April 2020. 2. While Ms. Arunma Oteh, OON joined the Board in October 2020 and the Committee in the same month. Remuneration Committee S/N Name 1. Michael Alexander 2. Basil Omiyi 3. Charles Okeahalam 4. Damian Dodo, SAN 5. Xavier R. Rolet, KBE1 Designation Chairman Member Member Member Member No. of meetings in the year 6 6 6 6 2 No. of times in attendance 6 6 6 6 2 Meeting dates: 27 January, 18 March, 28 April, 22 July, 20 October, 2 December 1. Xavier Rolet, KBE was appointed to the Board as an Independent Non-executive Director on October 1, 2020. Following his appointment, he attended the two (2) Remuneration Committee meetings that held after his appointment and he was appointed Chairman of the Remuneration Committee from 1 February 2021. Risk Management and HSSE Committee S/N Name 1. Basil Omiyi 2. 4. Xavier R. Rolet, KBE1 5. Austin Avuru1 Ifueko M. Omoigui Okauru Member Member Member Designation Chairman No. of meetings in the year 4 4 1 1 No. of times in attendance 4 4 1 1 Meeting dates: 23 January, 21 April, 20 July, 19 October 1. Mr. Xavier R. Rolet, KBE was appointed to the Board and Committee as an Independent Non-Executive Director in October 2020 while Mr. Austin Avuru joined the Committee as a Non-Executive Director in August 2020. Report of the Directors | continued For the year ended 31 December 2020 Corporate governance The Board of Directors is committed to sound corporate governance and ensures that the Company complies with the Nigerian and UK corporate governance regulations as well as international best practice. The Board is aware of the Code of Corporate Governance issued by the Securities and Exchange Commission, the Nigerian Code of Corporate Governance 2018, issued by the Financial Reporting Council of Nigeria and the UK Corporate Governance Code 2018, issued by the Financial Reporting Council and ensures that the Company complies with them. The Board is responsible for keeping proper accounting records with reasonable accuracy. It is also responsible for safe guarding the assets of the Company through prevention, detection of fraud and other irregularities. In order to carry out its responsibilities, the Board has established seven Board Committees and the Statutory Audit Committee and has delegated aspects of its responsibilities to them. All eight Committees have terms of reference that guide their members in the execution of their duties, and these terms of reference are available for review by the public. All the Committees present a report to the Board with recommendations on the matters within their purview. Board Committees and record of attendance at meetings The Board met 10 times during the year and at least once every quarter in line with Section 12.1 of the SEC Code. Board meetings were well attended with attendance of all Directors exceeding two-thirds as required by Section 12.2 of the SEC Code. The record of attendance of Directors at Board meetings and that of its Committees in the year under review is published herewith: Board of Directors No. of meetings in the year Designation S/N Name Chairman 10 1. A.B.C. Orjiako Chief Executive Officer 10 2. Roger Brown 3. Emeka Onwuka2 Chief Financial Officer 3 Operations Director 10 4. Effiong Okon 5. Austin Avuru Non-Executive Director 10 6. Olivier Langavant Non-Executive Director 10 No. of times in attendance 10 10 3 10 10 10 Nathalie Delapalme 7. 8. Michael Alexander1 9. Charles Okeahalam 10. Basil Omiyi Ifueko M. Omoigui Okauru1 Lord Mark Malloch-Brown 12. 11. 13. Damian Dodo, SAN 14. Arunma Oteh, OON2 15. Xavier Rolet, KBE2 10 10 Non-Executive Director 10 Senior Independent Non-Executive Director 10 Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director 10 10 10 3 3 10 10 10 10 9 9 8 3 3 Meeting dates: 28 January, 3 March, 19 March, 28 April, 28 May, 6 July, 28 July, 8 October, 27 October and 24 December 1. Ifueko M. Omoigui Okauru and Michael Alexander voluntarily retired from the Board effective 31 January 2021 2. The Board appointed Emeka Onwuka as Chief Financial Officer/Executive Director effective 1 August 2020; Arunma Oteh, OON and Xavier Rolet, KBE as Independent Non-Executive Directors effective 1 October 2020. 138 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Corporate Social Responsibility Committee Designation Lord Mark Malloch-Brown Chairman S/N Name 1. 2. Xavier R. Rolet, KBE1 3. 4. Damian Dodo, SAN 5. Nathalie Delapalme Member Ifueko M. Omoigui Okauru Member Member Member No. of meetings in the year 3 1 3 3 3 No. of times in attendance 3 0 3 3 3 Meeting dates: 23 April, 20 July, 19 October 1. Mr. Xavier Rolet, KBE was appointed to the Board in October 2020 and joined the Committee the same month. Gas Committee S/N Name 1. Basil Omiyi 2. Michael Alexander 3. Arunma Oteh, OON1 4. Charles Okeahalam Designation Chairman Member Member Member Meeting dates: 18 March, 20 July, 19 October No. of meetings in the year 3 3 1 3 No. of times in attendance 3 3 1 3 1. Ms. Arunma Oteh, OON was appointed to the Board as an Independent Non-Executive Director in October 2020 and became a Member of the Gas Committee in the same month. 5. Corporate Governance Compliance and Culture Committee Ifueko M. Omoigui Okauru Chairman S/N Name 1. 2. Michael Alexander 3. Damian Dodo, SAN 4. Nathalie Delapalme1 Designation Member Member Member No. of meetings in the year 4 4 4 3 No. of times in attendance 4 4 4 3 Meeting dates: 20 January, 23 April, 22 July, 20 October 1. Madame Nathalie Delapalme joined the Committee in April 2020. Statutory Audit Committee S/N Name 1. Chief Anthony Idigbe, SAN Chairman/ Designation No. of meetings in the year 4 No. of times in attendance 4 2. Dr. Faruk Umar Shareholder Member Shareholder Member 3. Sir Sunday Nnamdi Nwosu Shareholder 4. Olivier De Langavant1 Member Director Member Ifueko M. Omoigui Okauru Director Member Director Member 6. Damian Dodo, SAN 4 4 4 4 4 4 4 4 4 4 Meeting dates: 12 March, 21 April, 21 July, 21 October 1. Mr. Michel Hochard retired from the Board in January 2020 and was replaced by Mr. Olivier De Langavant as a Director member on the Audit Committee in January 2020 and a Non-Executive Director on the Board. Directors’ interest in shares In accordance with Section 301 of the Companies and Allied Matters Act, 2020, the interests of the Directors (and of persons connected with them) in the share capital of the Company (all of which are beneficial unless otherwise stated) are as follows: A.B.C. Orjiako1 Austin Avuru2 Roger Brown Effiong Okon Emeka Onwuka4 Oliver De Langavant Michael Alexander3 Charles Okeahalam Basil Omiyi Ifueko M. Omoigui Okauru3 Lord Mark Malloch-Brown Damian Dodo, SAN Nathalie Delapalme Arunma Oteh, OON4 Xavier Rolet, KBE4 Total 31-Dec-19 31-Dec-20 No. of Ordinary Shares 37,818,522 71,727,906 2,022,363 — n/a n/a 115,238 495,238 495,238 95,238 31,746 — — n/a n/a 112,896,727 No. of Ordinary Shares 37,818,522 60,098,823 2,840,585 — — — 115,238 495,238 495,238 95,238 31,746 — — — — 102,085,866 As a percentage of Ordinary Shares in issue 6.43% 10.21% 0.48% 0.00% 0.00% 0.00% 0.02% 0.08% 0.08% 0.02% 0.01% 0.00% 0.00% 0.00% 0.00% 17.35% 01-Mar-21 No. of Ordinary Shares 37,818,522 61,227,182 2,840,585 0 0 0 n/a 495,238 495,238 n/a 31,746 0 0 0 0 103,003,749 As a percentage of Ordinary Shares in issue 6.43% 10.40% 0.48% 0.00% 0.00% 0.00% 0.00% 0.08% 0.08% 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 17.50% 1. 24,318,522 ordinary shares are held directly by A.B.C. Orjiako and Shebah Petroleum Development Company Limited, which is an entity controlled by A.B.C. Orjiako and members of his family; 900,000 ordinary shares are held by Pursley Resources Limited, a company owned by A.B.C. Orjiako's wife; and 12,600,000 ordinary shares are held directly by A.B.C. Orjiako’s siblings. 2. At 31 December 2019, total direct holdings were nil and indirect ordinary shares were 71,727,906. At 29 July 2020, total direct holdings were nil and indirect ordinary shares were 60,098,823. During the period, a transfer of 7,831,534 ordinary shares held by Platform Petroleum Limited (an entity in which Austin Avuru has an equity interest) to Professional Support Limited (an entity wholly controlled by Austin Avuru). Similarly, a transfer of 12,828,161 shares held directly by Platform Petroleum was made to certain shareholders of Platform Petroleum and they are therefore no longer considered to be connected persons. A further 2,352,652 LTIP awards for Austin Avuru were released to him and transferred to Professional Support. Following these transfers, Platform Petroleum holds 20,000,000 shares (3.40%) and Professional Support holds 41,227,182 shares (7.01%). Mr. Avuru now holds nil direct interest and an indirect interest of 61,227,182 ordinary shares (10.40%). As a result of the transfers, Mr. Avuru has now increased his equity interest in Platform Petroleum from 23% to 37.11% interest. 3. Ifueko M. Omoigui Okauru and Michael Alexander voluntarily resigned/retired from the Board effective 31 January 2021. 4. The Board appointed Emeka Onwuka as Chief Financial Officer/Executive Director effective 1 August 2020; Arunma Oteh, OON and Xavier Rolet KBE as Independent Non-Executive Directors effective 1 October 2020. 139 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Report of the Directors | continued For the year ended 31 December 2020 Directors’ interest in contracts The Chairman and the Chief Executive Officer have disclosable indirect interest in contracts with which the Company was involved as at 31 December 2020 for the purpose of section 303 of the Companies and Allied Matters Act, 2020. These have been disclosed in Note 43. Substantial interest in shares At 1 March 2021, the following shareholders held more than 5.0% of the issued share capital of the Company: Shareholder MPI Petrolin Allan Gray Professional Support Sustainable Capital Free float The Company’s free float at 31 December 2020 was 30%. Acquisition of own shares The Company did not acquire any of its shares during the year. Shareholding analysis The shareholding pattern at 31 December 2020 is as stated below: Share range 1-10,000 10,001-50,000 50,001-100,000 100,001-500,000 500,001-1,000,000 1,000,001-5,000,000 5,000,001-10,000,000 10,000,001-50,000,000 100,000,001-500,000,0001 Total Number of holdings 120,400,000 81,015,319 42,477,722 38,970,463 33,822,817 % of shareholding 20.46 13.77 7.22 7.01 5.75 Number of shareholders 2,805 177 51 66 16 21 2 3 1 3,142 % of shareholders 89.27 5.63 1.62 2.10 0.51 0.67 0.06 0.10 0.03 100.00 Number of holdings 1,837,808 4,272,420 3,730,375 15,016,002 10,845,802 44,693,232 13,506,800 58,195,849 436,346,273 588,444,561 % of shareholding 0.31 0.73 0.63 2.55 1.84 7.60 2.30 9.89 74.15 100.00 1. Includes shares held by Computer Share on the London Stock Exchange. Share capital history Year Jun-09 Mar-13 Jul-13 Aug-13 Dec-14 Dec-15 Dec-16 Dec-17 Feb-18 Dec-19 Dec-20 Authorised increase — 100,000,000 200,000,000 600,000,000 — — — — — — — Cumulative 100,000,000 200,000,000 400,000,000 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 Issued increase 100,000,000 100,000,000 200,000,000 153,310,313 — 10,134,248 — — 25,000,000 — — Cumulative 100,000,000 200,000,000 400,000,000 553,310,313 553,310,313 563,444,561 563,444,561 563,444,561 588,444,561 588,444,561 588,444,561 Consideration cash stock split from N1.00 to 50k bonus (1 for 2) cash No change staff share scheme No change No change staff share scheme No change No change Donations The following donations were made by the Group during the year (2020: ₦72,660,069, $236,678). Name of Beneficiary Aret Adams Foundation Covid-19 Support in Edo State and Delta State Covid-19 Support in Imo State Ikoyi Golf Community Nigeria Association Independent Petroleum Producer Group Covid-19 Support Others Pillar Oil Limited Total NG₦ 527,555.54 41,920,848.37 32,150,407.59 1,055,282.75 58,738,510.50 21,138,644.42 2,638,582.99 158,169,832.15 $ 1,465.80 116,475.92 89,329.02 2,932.07 163,203.33 58,733.14 7,331.23 439,470.51 140 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Employment and employees Employee involvement and training: The Company continues to observe industrial relations practices such as the Joint Consultative Committee and briefing employees on the developments in the Company during the year under review. Various incentive schemes for staff were maintained during the year while regular training courses were carried out for the employees. Educational assistance is provided to members of staff. Different cadres of staff were also assisted with payment of subscriptions to various professional bodies during the year. The Company provides appropriate HSSE training to all staff, and Personal Protective Equipment (PPE) to the appropriate staff. Health, safety and welfare of employees: The Company continues to enforce strict health and safety rules and practices at the work environment which are reviewed and tested regularly. The Company provides free medical care for its employees and their families through designated hospitals and clinics. Fire prevention and fire-fighting equipment is installed in strategic locations within the Company’s premises. The Company operates Group life insurance cover for the benefit of its employees. It also complies with the requirements of the Pension Reform Act, 2004 regarding its employees. Employment of disabled or physically challenged persons: The Company has a policy of fair consideration of job applications by disabled persons having regard to their abilities and aptitude. The Company’s policy prohibits discrimination of disabled persons in the recruitment, training and career development of its employees. As at the end of the reporting period, the Group has no disabled persons in employment. Brexit It is the view of the Board that, given the Group’s single country focus on Nigeria, Seplat’s business, assets and operations will not be materially affected by Brexit. Seplat also derives most of its income from crude oil, a globally traded commodity which is priced in US Dollars. Furthermore, Seplat’s gas revenues are derived solely from sales to the domestic market in Nigeria and therefore are unaffected by international factors. Auditor The auditor, PriceWaterhouseCoopers (PWC), has indicated its willingness to continue in office in accordance with Section 401(2) of the Companies and Allied Matters Act, 2020. A resolution will be proposed at the AGM for the re-appointment of PriceWaterhouseCoopers (PWC) as the Company’s auditor and for authorisation to the Board of Directors to fix the auditors’ remuneration. Assurance service Logic Professional Services provided Actuary Valuation Services on the 2020 financial statements. The assurance was signed by Ganiu Dare Shefiu (FRC/2017/NAS/00000017548). By Order of the Board Edith Onwuchekwa FRC/2013/NBA/00000003660 Company Secretary Seplat Petroleum Development Company Plc 16A Temple Road, Ikoyi, Lagos, Nigeria 1 March 2021 141 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Statement of Directors’ Responsibilities For the year ended 31 December 2020 The Companies and Allied Matters Act, 2020, requires the Directors to prepare financial statements for each financial year that gives a true and fair view of the state of financial affairs of the Group at the end of the year and of its profit or loss. The responsibilities include ensuring that the Group: 1. 2. 3. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Group and comply with the requirements of the Companies and Allied Matters Act, 2020; establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates and are consistently applied. The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards (IFRS), the requirements of the Companies and Allied Matters Act, 2020 and Financial Reporting Council of Nigeria Act, No. 6, 2011. The Directors are of the opinion that the financial statements gives a true and fair view of the state of the financial affairs of the Group and of its financial performance and cash flows for the year. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the Directors to indicate that the Group will not remain a going concern for at least 12 months from the date of this statement. Signed on behalf of the Directors by: A.B.C. Orjiako Chairman FRC/2014/IODN/00000003161 R.T. Brown Chief Executive Officer FRC/2014/ANAN/00000017939 1 March 2021 1 March 2021 142 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Audit Committee’s Report For the year ended 31 December 2020 To the members of Seplat Petroleum Development Company Plc In accordance with the provisions of Section 404 (7) of the Companies and Allied Matters Act, 2020, members of the Audit Committee of Seplat Petroleum Development Company Plc hereby report on the financial statements of the Group for the year ended 31 December 2020 as follows: • The scope and plan of the audit for the year ended 31 December 2020 were adequate; • We have reviewed the financial statements and are satisfied with the explanations and comments obtained; • We have reviewed the external auditors’ management letter for the year and are satisfied with the management’s responses and that management has taken appropriate steps to address the issues raised by the Auditors; • We are of the opinion that the accounting and reporting policies of the Company are in accordance with legal requirements and ethical practices. The external Auditors confirmed having received full co-operation from the Company’s management in the course of the statutory audit and that the scope of their work was not restricted in any way. Chief Anthony Idigbe, SAN Chairman, Audit Committee FRC/2015/NBA/00000010414 1 March 2021 143 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Statement of Corporate Responsibility For the year ended 31 December 2020 In line with the provision of S.405 of CAMA 2020, we have reviewed the audited financial statements of the Group for the year ended 31 December 2020 and based on our knowledge confirm as follows: 1. 2. 3. The audited financial statements do not contain any untrue statement of material fact or omit to state a material fact, which would make the statements misleading. The audited financial statements and all other financial information included in the statements fairly present, in all material respects, the financial condition and results of operation of the Company as of and for, the period ended 31 December 2020. The Company’s internal controls has been designed to ensure that all material information included relating to the Company and its subsidiaries is received and provided to the Auditors in the course of the Audit. 4. The Company’s internal controls were evaluated within 90 days of the financial reporting date and are effective as of 31 December 2020. 5. That we have disclosed to the Company’s Auditor’s and the Audit Committee the following information: a. There are no significant deficiencies in the design or operation of the Company’s internal control which could adversely affect the Company’s ability to record, process, summarise and report financial data, and have discussed with the auditors any weaknesses in internal controls observed in the cause of the Audit. b. There is no fraud involving management or other employ needs which could have any significant role in the Company’s internal control. 6. There are no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of this audit, including any corrective actions with regard to any observed deficiencies and material weaknesses. R.T. Brown FRC/2014/ANAN/00000017939 Chief Executive Officer E.Onwuka FRC/2020/003/00000020861 Chief Financial Officer 1 March 2021 1 March 2021 144 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 146 Independent auditors’ report Consolidated statement of profit 149 or loss and other comprehensive income 151 Consolidated statement of financial position 152 Consolidated statement of changes in equity Consolidated statement of cash flows 154 Notes to the consolidated financial statements 155 234 Consolidated statement of value added 235 Consolidated five-year financial summary Consolidated supplementary financial information (unaudited) 236 145– 237 CONSOLIDATED STATEMENTS Seplat Petroleum Development Company Plc Annual Report and Accounts 2020 145 Strategic Report 01—77Governance Report 78—145Financial Statements 145—308 Independent auditor’s report To the Members of Seplat Petroleum Development Company Plc Report on the audit of the consolidated and separate financial statements Our opinion In our opinion, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of Seplat Petroleum Development Company Plc (“the Company”) and its subsidiaries (together “the group”) as at 31 December 2020, and of their consolidated and separate financial performance and their consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies and Allied Matters Act and the Financial Reporting Council of Nigeria Act. What we have audited Seplat Petroleum Development Company Plc’s consolidated and separate financial statements comprise: • the consolidated and separate statements of profit or loss and other comprehensive income for the year then ended 31 December 2020; • the consolidated and separate statements of financial position as at 31 December 2020; • the consolidated and separate statements of changes in equity for the year then ended; • the consolidated and separate statements of cash flows for the year then ended; and • the notes to the consolidated and separate financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards), i.e. the IESBA Code issued by the International Ethics Standards Board for Accountants. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. How our audit addressed the key audit matter Our procedures were as follows: • We evaluated the competence, independence and objectivity of management’s experts. We understood their methods and evaluated the relevance and reasonableness of the assumptions used by them in determining the proved and probable oil and gas reserves. • We tested how management determined the recoverable amount of the group’s CGUs which included the following: • involving our specialist in evaluating the appropriateness of the models used by management in making these estimates. • testing the data used in determining these estimates. • evaluating the reasonableness of significant assumptions with regard to future development and production costs, forecasted oil and gas prices, volume of reserves, reserves life and discount rate used in developing the underlying estimates. • We recalculated the unit-of-production rate to determine the depletion expense included in the DD&A of the group’s CGUs. • We evaluated the adequacy of the disclosures in the group financial statements. Key audit matter The impact of crude oil and gas reserves on Oil and Gas properties (Impairments and Depletion, Depreciation and Amortisation – DD&A). This is considered a key audit matter due to the significant judgment made by management through the use of experts, when developing the expected future cash flows of oil and gas properties and the proved and probable oil and gas reserves involving the use of significant assumptions. (a) Oil and gas properties are grouped for recoverability assessment purposes into Cash Generating Units (CGUs). Management assesses its CGUs for indicators of impairment that suggest the carrying amount may exceed its recoverable amount. Impairment is identified by comparing the recoverable amount of the CGU to its carrying amount. This involves the calculation of discounted after-tax cash flows of proved and probable oil and gas reserves based on significant assumptions including, future development and production costs, forecasted oil and gas prices, volume of reserves, reserves life and discount rate. (b) Depletion of all capitalized costs of proved oil and gas properties (included in DD&A) are expensed using the unit-of-production method as the proved developed reserves are produced. The group’s upstream oil and gas properties net balance was $1.60 billion as of December 31, 2020, and related depletion expense was $125.99 million. Impairments of $114.40 million was recognised for the year ended December 31, 2020. The accounting policies, estimates and disclosures are set out in Notes 3.9, 5, 12.2, 17.1 and 17.6. This was considered a key audit matter in the consolidated financial statements only. 146 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Other information The directors are responsible for the other information. The other information comprises Report of the Directors, Statement of Directors’ Responsibilities, Audit Committee’s Report, Statement of Corporate Response Responsibility, Value Added Statement, Five-Year Financial Summary and Supplementary Financial Information but does not include the consolidated and separate financial statements and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the other sections of the Seplat Petroleum Development Company Plc 2020 Annual Report, which are expected to be made available to us after that date. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not and will not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other sections of the Seplat Petroleum Development Company Plc 2020 Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of the directors and those charged with governance for the consolidated and separate financial statements The directors are responsible for the preparation of the consolidated and separate financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Companies and Allied Matters Act, the Financial Reporting Council of Nigeria Act, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. 147 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Independent auditor’s report | continued To the Members of Seplat Petroleum Development Company Plc Auditor’s responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements The Companies and Allied Matters Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: i. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; ii. the Company has kept proper books of account, so far as appears from our examination of those books and returns adequate for our audit have been received from branches not visited by us; iii. the Company’s statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the books of account and returns. For: PricewaterhouseCoopers Chartered Accountants Lagos, Nigeria Engagement Partner: Pedro Omontuemhen FRC/2013/ICAN/00000000739 1 March 2021 148 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2020 Continuing operations Revenue from contracts with customers Cost of sales Gross profit Other income General and administrative expenses Impairment loss on financial assets Impairment losses on non-financial assets Fair value (loss)/gain Operating (loss)/profit Finance income Finance cost Finance cost-net Share of profit from joint venture accounted for using the equity method (Loss)/Profit before taxation Income tax expense (Loss)/profit from continued operations Profit from discontinued operations (Loss)/Profit for the year Attributable to: Equity holders of the parent Non-controlling interests (Loss)/Earnings per share from continuing operations Basic (loss)/earnings per share (₦)/$ Diluted (loss)/earnings per share (₦)/$ (Loss)/Earnings per share for the year Basic (loss)/earnings per share (₦)/$ Diluted (loss)/earnings per share (₦)/$ 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Notes ₦ million ₦ million $’000 $’000 8 9 10 11 12 12 13 14 14 22 15 39 39 39 39 190,922 (146,088) 44,834 30,184 (27,372) (10,778) (41,175) (7,111) (11,418) 601 (18,656) (18,055) 601 (28,872) (1,840) (30,712) – (30,712) 214,157 (92,698) 121,459 9,170 (21,675) (14,911) – 1,706 95,749 4,134 (10,294) (6,160) 325 89,914 (8,939) 80,975 4,041 85,016 530,467 (405,892) 124,575 83,864 (76,047) (29,947) (114,402) (19,759) (31,716) 1,671 (51,834) (50,163) 1,670 (80,209) (5,113) (85,322) – (85,322) 697,777 (302,039) 395,738 29,876 (70,617) (48,581) – 5,559 311,975 13,471 (33,539) (20,068) 1,060 292,967 (29,125) 263,842 13,166 277,008 (26,906) (3,806) (30,712) 85,016 – 85,016 (74,747) (10,575) (85,322) 277,008 – 277,008 (46.42) (45.72) (46.42) (45.72) 142.25 139.22 149.35 146.17 (0.13) (0.13) (0.13) (0.13) 0.46 0.45 0.49 0.48 Notes 1 to 50 on pages 155-236 are an integral part of these financial statements. 149 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of profit or loss and other comprehensive income | continued For the year ended 31 December 2020 (Loss)/profit for the year Other comprehensive income: Items that may be reclassified to profit or loss: Foreign currency translation difference Items that will not be reclassified to profit or loss: Remeasurement of post-employment benefit obligations Deferred tax credit on remeasurement losses Other comprehensive income/(loss) for the year (net of tax) Total comprehensive income/(loss) for the period Attributable to: Equity holders of the parent Non-controlling interests 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Notes ₦ million ₦ million $’000 $’000 (30,712) 85,016 (85,322) 277,008 128,379 (243) (1,399) (750) 35 29 (25) 4 128,383 97,671 101,477 (3,806) 97,671 (201) 171 (30) (273) 84,743 84,743 – 84,743 81 (69) 12 (1,387) (86,709) (656) 558 (98) (848) 276,160 (76,134) (10,575) (86,709) 276,160 – 276,160 The above year end consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 150 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of financial position As at 31 December 2020 Assets Non-current assets Oil & gas properties Other property, plant and equipment Right-of-use assets Intangible assets Other asset Investment accounted for using equity accounting Prepayments Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Prepayments Contract assets Derivative financial instruments Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Foreign currency translation reserve Non-controlling interest Total shareholders’ equity Non-current liabilities Interest-bearing loans and borrowings Lease liabilities Provision for decommissioning obligation Deferred tax liabilities Defined benefit plan Total non-current liabilities Current liabilities Interest-bearing loans and borrowings Lease liabilities Derivative financial instruments Trade and other payables Contingent liability Contract liabilities Current tax liabilities Total current liabilities Total liabilities Total shareholders’ equity and liabilities 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Notes ₦ million ₦ million $’000 $’000 17 17 19 20 18 22 21 15 23 24 21 25 26 27 28 28 28 29 30 22 31 32 34 35 31 32 26 36 33 37 15 609,475 5,330 3,965 22,301 44,630 84,642 23,463 289,877 1,083,683 28,337 96,774 1,385 2,343 – 98,315 227,154 1,310,837 293 86,917 7,174 5,932 211,790 331,289 (11,058) 632,337 229,880 1,591 61,795 202,020 4,063 499,349 35,518 679 626 130,468 – 3,599 8,261 179,151 678,500 1,310,837 478,372 4,360 4,026 53,592 40,190 49,448 19,309 68,367 717,664 25,944 149,436 1,965 6,527 457 102,240 286,569 1,004,233 289 84,045 8,194 5,932 259,690 202,910 (7,252) 553,808 207,863 2,617 45,411 – 3,012 258,903 34,486 212 – 143,925 2,215 5,005 5,679 191,522 450,425 1,004,233 1,603,888 14,027 10,435 58,687 117,448 222,741 61,744 762,833 2,851,803 74,570 254,671 3,644 6,167 – 258,718 597,770 3,449,573 1,855 511,723 27,592 40,000 1,116,079 992 (34,196) 1,664,045 604,947 4,187 162,619 531,632 10,691 1,314,076 93,468 1,787 1,648 343,340 – 9,470 21,739 471,452 1,785,528 3,449,573 1,558,213 14,201 13,115 174,566 130,915 161,071 62,892 222,697 2,337,670 84,508 486,762 6,397 21,259 1,486 333,028 933,440 3,271,110 1,845 503,742 30,426 40,000 1,249,156 2,391 (23,621) 1,803,939 677,075 8,518 147,921 – 9,808 843,322 112,333 692 – 468,804 7,217 16,301 18,502 623,849 1,467,171 3,271,110 Notes 1 to 50 on pages 155-236 are an integral part of these financial statements. The financial statements of Seplat Petroleum Development Company Plc and its subsidiaries (the Group) for the year ended 31 December 2020 were authorised for issue in accordance with a resolution of the Directors on 28 February 2021 and were signed on its behalf by A.B.C. Orjiako FRC/2013/IODN/00000003161 Chairman 1 March 2021 R.T. Brown FRC/2014/ANAN/00000017939 Chief Executive Officer 1 March 2021 E. Onwuka FRC/2020/003/00000020861 Chief Financial Officer 1 March 2021 151 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of changes in equity For the year ended 31 December 2020 At 1 January 2019 Profit/(loss) for the year Other comprehensive loss Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments (Note 28.4) Vested shares Non-controlling interest on acquisition of subsidiaries Total At 31 December 2019 At 1 January 2020 Profit/(loss) for the year Other comprehensive income Total comprehensive (loss)/ income for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments (Note 28.4) Vested shares Total At 31 December 2020 Issued share capital ₦ million 286 – – Share premium ₦ million 82,080 – – Share based payment reserve ₦ million 7,298 – – – – – – – 1,965 2,864 (1,968) – 1,965 84,045 84,045 – – – – – 896 8,194 8,194 – – – – Capital contribution ₦ million 5,932 – – Retained earnings ₦ million 192,723 85,016 (30) Foreign currency translation reserve ₦ million 203,153 – (243) Non- controlling interest ₦ million – – – Total equity ₦ million 491,472 85,016 (273) – 84,986 (243) – 84,743 – – – (18,019) – – – – – – – – (18,019) 2,864 – – – 5,932 5,932 – – – (18,019) 259,690 – – 202,910 (7,252) (7,252) (7,252) (7,252) (22,407) 553,808 259,690 (26,906) 4 202,910 – 128,379 (7,252) (3,806) – 553,808 (30,712) 128,383 – (26,902) 128,379 (3,806) 97,671 – (20,998) – – (20,998) – 2,872 2,872 86,917 1,856 (2,876) (1,020) 7,174 – – – 5,932 – – (20,998) 211,790 – – – 331,289 – – – (11,058) 1,856 – (19,142) 632,337 – – – 3 – 3 289 289 – – – – – 4 4 293 Notes 1 to 50 on pages 155-236 are an integral part of these financial statements. 152 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 At 1 January 2019 Profit for the year Other comprehensive loss Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments (Note 28.4) Vested shares Non-controlling interest on acquisition of subsidiary Total At 31 December 2019 At 1 January 2020 Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive loss for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments (Note 28.4) Vested shares Total At 31 December 2020 Issued share capital $’000 1,834 – – Share premium $’000 497,457 – – Share based payment reserve $’000 27,499 – – Capital contribution $’000 Retained earnings $’000 40,000 – – 1,030,954 277,008 (98) Foreign currency translation reserve $’000 3,141 – (750) Non- controlling interest $’000 Total equity $’000 – 1,600,885 277,008 – (848) – – – – – 276,910 (750) – 276,160 – – 11 11 1,845 1,845 – – – – – 10 10 1,855 – – 6,285 – 6,285 503,742 503,742 – – – – – 7,981 7,981 511,723 – 9,223 (6,296) – 2,927 30,426 30,426 – – – – 5,157 (7,991) (2,834) 27,592 – – – (58,708) – – – – – – – – (58,708) 9,223 – – – – (58,708) 40,000 1,249,156 – – 2,391 (23,621) (23,621) (73,106) (23,621) (23,621) 1,803,939 40,000 – – – 1,249,156 (74,747) 12 (74,735) 2,391 – (1,399) (1,399) (23,621) 1,803,939 (85,322) (10,575) (1,387) – (86,709) (10,575) – – – – 40,000 (58,342) – – (58,342) 1,116,079 – – – – 992 – – – – (58,342) 5,157 – (53,185) (34,196) 1,664,045 Notes 1 to 50 on pages 155-236 are an integral part of these financial statements. 153 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of cash flows For the year ended 31 December 2020 Cash flows from operating activities Cash generated from operations Tax paid Defined benefits paid Contribution to plan assets Hedge premium paid Net cash inflows from operating activities Cash flows from investing activities Payment for acquisition of oil and gas properties Proceeds from disposal of oil and gas properties Payment for acquisition of other property, plant and equipment Payment for acquisition of subsidiary, net of cash acquired Cash on loss of control of subsidiary Payment for investment in joint venture Proceeds from disposal of other property, plant and equipment Receipts from other asset Interest received Net cash outflows from investing activities Cash flows from financing activities Repayments of loans Proceeds from loans Dividends paid Lease payments Payments for other financing charges Interest paid on loans Net cash (outflows)/inflows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the year 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Notes ₦ million ₦ million $’000 $’000 16 15 35 35 13 17 17 17 22 17 18 14 31 31 40 32 31 31 27 118,558 (2,337) (77) (601) (3,016) 112,527 (52,090) – (1,872) – – (21,595) 1 1,705 601 (73,250) (35,991) 3,599 (20,998) (1,858) – (23,310) (78,558) (39,281) 100,184 24,651 85,554 104,714 (1,084) (86) – – 103,544 (35,091) 15,527 (3,203) (138,479) (47,352) (31,627) – 11,106 4,134 (224,985) (30,690) 106,345 (18,019) – (2,696) (10,364) 44,576 (76,865) 178,460 (1,411) 100,184 329,414 (10,431) (213) (1,670) (8,380) 308,720 (144,729) – (5,202) – – (60,000) 3 4,737 1,671 (203,520) (100,000) 10,000 (58,342) (4,334) – (64,767) (217,443) (112,243) 326,330 11,050 225,137 341,571 (3,533) (280) – – 337,758 (114,339) 50,614 (10,438) (451,199) (154,240) (103,050) – 36,185 13,471 (732,996) (100,000) 346,500 (58,708) – (8,783) (33,770) 145,239 (249,999) 581,305 (4,976) 326,330 For the purposes of the cash flow statements, the restricted cash balance of $12.8 million, ₦ 4.8 billion has been excluded from the cash and cash equivalents at the end of the year. These amounts are subject to legal restrictions and are therefore not available for general use by the Group. An additional $20.8 million, ₦ 7.9 billion, of funds deposited in Access bank Plc bank accounts in the ordinary course of business are being unilaterally restricted by Access bank Plc in connection with the court case between Seplat Petroleum Development Company Plc and Access bank Plc. Notes 1 to 50 on pages 155-236 are an integral part of these financial statements. 154 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Notes to the consolidated financial statements 1. Corporate structure and business Seplat Petroleum Development Company Plc (‘Seplat’ or the ‘Company’), the parent of the Group, was incorporated on 17 June 2009 as a private limited liability company and re-registered as a public company on 3 October 2014, under the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004. The Company commenced operations on 1 August 2010. The Company was principally engaged in oil and gas exploration and production and gas processing activities. The Company’s registered address is: 16a Temple Road (Olu Holloway), Ikoyi, Lagos, Nigeria. The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, SPDC, TOTAL and AGIP, a 45% participating interest in OML 4, OML 38 and OML 41 located in Nigeria. In 2013, Newton Energy Limited (‘Newton Energy’), an entity previously beneficially owned by the same shareholders as Seplat, became a subsidiary of the Company. On 1 June 2013, Newton Energy acquired from Pillar Oil Limited (‘Pillar Oil’) a 40% Participant interest in producing assets: the Umuseti/Igbuku marginal field area located within OPL 283 (the ‘Umuseti/Igbuku Fields’). On 21 August 2014, the Group incorporated a new subsidiary, Seplat Petroleum Development UK Limited. The subsidiary provides technical, liaison and administrative support services relating to oil and gas exploration activities. On 12 December 2014, Seplat Gas Company Limited (‘Seplat Gas’) was incorporated as a private limited liability company to engage in oil and gas exploration and production and gas processing. On 12 December 2014, the Group also incorporated a new subsidiary, Seplat East Swamp Company Limited with the principal activity of oil and gas exploration and production. In 2015, the Group purchased a 40% participating interest in OML 53, onshore north eastern Niger Delta (Seplat East Onshore Limited), from Chevron Nigeria Ltd for ₦79.6 billion. On 16 January 2018, the Group incorporated a subsidiary, Seplat West Limited (‘Seplat West’). Seplat West was incorporated to manage the producing assets of Seplat Plc. In 2017, the Group incorporated a new subsidiary, ANOH Gas Processing Company Limited. The principal activity of the Company is the processing of gas from OML 53 using the ANOH gas processing plant. In order to fund the development of the ANOH gas processing plant, on 13 August 2018, the Group entered into a shareholders' agreement with Nigerian Gas Processing and Transportation Company (NGPTC). Funding is to be provided by both parties in equal proportion representing their ownership share and will be used to subscribe for the ordinary shares in ANOH. The agreement was effective on 18 April 2019, which was the date the Corporate Affairs Commission (CAC) approval was received. Given the change in ownership structure as at 31 December 2019, the Group no longer exercises control and has deconsolidated ANOH in the consolidated financial statements. However, its retained interest qualifies as a joint arrangement and has been recognised accordingly as investment in joint venture. On 31 December 2019, Seplat Petroleum Development Company acquired 100% of Eland Oil and Gas Plc’s issued and yet to be issued ordinary shares. Eland is an independent oil and gas company that holds interest in subsidiaries and joint ventures that are into production, development and exploration in West Africa, particularly the Niger Delta region of Nigeria. On acquisition of Eland Oil and Gas Plc (Eland), the Group acquired indirect interest in existing subsidiaries of Eland. Eland Oil & Gas (Nigeria) Limited, is a subsidiary acquired through the purchase of Eland and is into exploration and production of oil and gas. Westport Oil Limited, which was also acquired through purchase of Eland is a financing company. Elcrest Exploration and Production Company Limited (Elcrest) who became an indirect subsidiary of the Group purchased a 45% interest in OML 40 in 2012. Elcrest is a Joint Venture between Eland Oil and Gas (Nigeria) Limited (45%) and Starcrest Nigeria Energy Limited (55%). It has been consolidated because Eland is deemed to have power over the relevant activities of Elcrest to affect variable returns from Elcrest at the date of acquisition by the Group (see details in Note 4.1.vi). The principal activity of Elcrest is exploration and production of oil and gas. Wester Ord Oil & Gas (Nigeria) Limited, who also became an indirect subsidiary of the Group acquired a 40% stake in a licence, Ubima, in 2014 via a joint operations agreement. The principal activity of Wester Ord Oil & Gas (Nigeria) Limited is exploration and production of oil and gas. Other entities acquired through the purchase of Eland are Tarland Oil Holdings Limited (a holding company), Brineland Petroleum Limited (dormant company) and Destination Natural Resources Limited (dormant company). On 1 January 2020, Seplat Petroleum Development Company Plc transferred its 45% participating interest in OML 4, OML 38 and OML 41 (‘transferred assets’) to Seplat West Limited. As a result, Seplat ceased to be a party to the Joint Operating Agreement in respect of the transferred assets and became a holding company. Seplat West Limited became a party to the Joint Operating Agreement in respect of the transferred assets and assumed its rights and obligations. 155 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The Company together with its subsidiaries as shown below are collectively referred to as the Group. Subsidiary Date of incorporation Country of incorporation and place of business Percentage holding Principal activities Nature of holding Newton Energy Limited 1 June 2013 Nigeria 100% Seplat Petroleum Development Company UK Limited 21 August 2014 United Kingdom 100% Seplat Gas Company Limited 12 December 2014 Nigeria Seplat East Onshore Limited 12 December 2014 Nigeria Seplat East Swamp Company Limited 12 December 2014 Nigeria Seplat West Limited Eland Oil & Gas Limited 16 January 2018 28 August 2009 Nigeria United Kingdom Eland Oil & Gas (Nigeria) Limited Elcrest Exploration and Production Nigeria Limited Westport Oil Limited Tarland Oil Holdings Limited Brineland Petroleum Limited 11 August 2010 Nigeria Nigeria 6 January 2011 Jersey 8 August 2011 16 July 2014 Jersey 18 February 2013 Nigeria Wester Ord Oil & Gas (Nigeria) Limited Wester Ord Oil and Gas Limited Destination Natural Resources Limited 18 July 2014 16 July 2014 – Nigeria Jersey Dubai 100% 100% 100% 100% 100% 100% 45% 100% 100% 49% 100% 100% 70% Direct Direct Direct Direct Oil & gas exploration and production Technical, liaison and administrative support services relating to oil & gas exploration and production Oil & gas exploration and production and gas processing Direct Oil & gas exploration and production Oil & gas exploration and production Oil & gas exploration and production Holding company Oil & gas exploration and production Oil & gas exploration and production Financing Holding Company Dormant Oil & gas exploration and production Holding Company Dormant Direct Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect 2. Significant changes in the current accounting period The following significant changes occurred during the reporting period ended 31 December 2020: Oil price has reduced significantly due to the global Coronavirus (Covid-19) pandemic and other geopolitical events around the world. These recent events will continue to have an impact on oil price volatility. The Group will continue to monitor the oil price and take adequate steps to manage its business and any financial impact of same. The Group’s operations are not affected by seasonality or cyclicality. The financial position and performance of the Group were particularly affected by the following events and transactions during the year ended 31 December 2020: • There was a change in the Group’s operational structure which took effect on 1 January, 2020; Seplat Plc ceased to be a party to the Joint Operating Agreement (JOA) in respect of the Oil Mining Lease Numbers 4, 38 and 41 and transferred its right and obligation to Seplat West Limited. Seplat West Ltd became a party to the JOA and assumed the rights and obligations of the transferred assets. Seplat Plc is now a holding company. • The Group recognised impairment loss of $114.4 million (₦ 41.1 billion) on its non-financial assets. The impairment is as a result of re- assessment of future cash flow from the Group’s oil and gas properties due to significant fall in oil prices (see Note 12). • The Group experienced a decline in the revenue from crude oil majorly due to the global Covid-19 pandemic. • An explosion occurred during the installation of a ladder on a platform at the Benin River Valve Station on OML 40 in Delta State which is used for exporting Gbetiokun production. There was no major impact to the Group’s operation as the site of the incident is some distance from OML 40 field operations, which were unaffected. • The Group’s interest-bearing borrowings included a four-year revolving loan facility of $350million (₦133billion). In October 2020, the Group made principal repayments on the four-year revolving facility for a lump sum of $100million (₦35.9billion). In the reporting period, the Group repaid the outstanding principal amount of ₦3.59 billion ($10million) on the revolving loan facility. • During the year, the Central Bank of Nigeria (CBN) adjusted the exchange rate from ₦ 307/$1 to ₦ 360/$1 on 20 March 2020 and from ₦ 360/$1 to ₦ 380/$1 on 6 August 2020. This was done to unify the official exchange rate around the Nigerian Autonomous Foreign Exchange (NAFEX) rate. 3. Summary of significant accounting policies Introduction to summary of significant accounting policies 3.1 This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements. These accounting policies have been applied to all the years presented, unless otherwise stated. The financial statements are for the Group consisting of Seplat and its subsidiaries. 156 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3.2 Basis of preparation The consolidated financial statements of the Group for the year ended 31 December 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRSIC). The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). Additional information required by national regulations is included where appropriate. The financial statements comprise the statement of profit or loss and other comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and the notes to the financial statements and have been prepared under the going concern assumption and historical cost convention, except for contingent liability and consideration, and financial instruments measured at fair value on initial recognition, defined benefit plans – plan assets measured at fair value and assets and liabilities acquired on business combination. The financial statements are presented in Nigerian Naira and United States dollars, and all values are rounded to the nearest million (₦’million) and thousand ($’000) respectively, except when otherwise indicated. Nothing has come to the attention of the Directors to indicate that the Group will not remain a going concern for at least twelve months from the date of these financial statements. 3.3 New and amended standards adopted by the Group The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IFRS 3 Definition of a Business a. The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group but may impact future periods should the Group enter any business combinations. Amendments to IFRS 9 and IAS 39 Interest Rate Benchmark Reform b. These amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and of amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the consolidated financial statements of the Group as it does not have any interest rate hedge relationships. Amendments to IAS 1 and IAS 8 Definition of Material c. The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Group. Amendments to IFRS 16 Covid-19 Related Rent Concessions d. On 28 May 2020, the IASB issued Covid-19 Related Rent Concessions – amendment to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from the lessor is a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment had no impact on the consolidated financial statements of the Group. Conceptual Framework for Financial Reporting issued on 29 March 2018 e. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group. 3.4 Standards issued but not yet effective The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. IFRS 17 Insurance Contracts i. In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition, measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. 157 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.4 Standards issued but not yet effective continued The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group. Amendments to IAS 1: Classification of Liabilities as Current or Non-current ii. In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Group is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require renegotiation. Reference to the Conceptual Framework – Amendments to IFRS 3 iii. In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately. At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. Property, Plant and Equipment – Proceeds before Intended Use – Amendments to IAS 16 iv. In May 2020, the IASB issued Property, Plant and Equipment – Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 v. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest. Inherent in allowing the use of this practical expedient is the requirement that the transition from an IBOR benchmark rate to an RFR takes place on an economically equivalent basis with no value transfer having occurred. The practical expedient is required for entities applying IFRS 4 Insurance Contracts that are using the exemption from IFRS 9 Financial Instruments (and, therefore, apply IAS 39 Financial Instruments: Classification and Measurement) and for IFRS 16 Leases, to lease modifications required by IBOR reform. The amendment is effective for annual reporting periods beginning on or after 1 January 2021 with earlier application permitted. While application is retrospective, an entity is not required to restate prior periods. Onerous Contracts- Costs of Fulfilling a Contract – Amendments to IAS 37 vi. In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. 158 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities vii. As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued an amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted. The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. IAS 41 Agriculture – Taxation in fair value measurements viii. As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. An entity applies the amendment prospectively to fair value measurements on or after the beginning of the first annual reporting period beginning on or after 1 January 2022 with earlier adoption permitted. The amendments are not expected to have a material impact on the Group. 3.5 Basis of consolidation i. Subsidiaries are all entities (including structured entities) over which the Group has control. Subsidiaries The consolidated financial information comprises the financial statements of the Company and its subsidiaries as at 31 December 2020. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); • Exposure, or rights, to variable returns from its involvement with the investee; and • The ability to use its power over the investee to affect its returns. Subsidiaries are consolidated from the date on which control is obtained by the Group and are deconsolidated from the date control ceases. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement(s) with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights Change in the ownership interest of subsidiary ii. The acquisition method of accounting is used to account for business combinations by the Group. Non -controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of financial position respectively. Intercompany transaction balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Disposal of subsidiary iii. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary; • Derecognises the carrying amount of any non-controlling interests; • Derecognises the cumulative translation differences recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; and • Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. 159 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.5 Basis of consolidation continued Joint arrangements iv. Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Interest in the joint venture is accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position. All other joint arrangements of the Group are joint operations. Associates v. Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investment in associates is accounted for using the equity method of accounting (see (vi) below) after initially being recognised at cost. Equity method vi. Under the equity method of accounting, the Group’s investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Where the Group’s share of loss in an equity accounting investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other party. Unrealised gains on transactions between the Group and its associate and joint venture are eliminated to the extent of the Group’s interest in the entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees are changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of equity accounted investments is tested for impairment in accordance with the policy described in Note 3.19. Changes in ownership interest vii. The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the Group. When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. viii. Accounting for loss of control When the Group ceases to consolidate a subsidiary because of a joint control, it does the following: • deconsolidates the assets (including goodwill), liabilities and non-controlling interest (including attributable other comprehensive income) of the former subsidiary from the consolidated financial position. • any retained interest (including amounts owed by and to the former subsidiary) in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or a joint venture. • any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred directly to retained earnings if required by other IFRSs. • the resulting gain or loss, on loss of control, is recognised together with the profit or loss from the discontinued operation for the period before the loss of control. • the gain or loss on disposal will comprise of the gain or loss attributable to the portion disposed of and the gain or loss on remeasurement of the portion retained. The latter is disclosed separately in the notes to the financial statements. • if the ownership interest in a joint venture is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. Non-controlling interests ix. The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. 160 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Goodwill x. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised, but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Group reorganisation xi. A Group reorganisation involves restructuring the relationship between entities under common control. It is the transfer of assets (shares or businesses of a group entity), from one group entity to another. This may be between existing or newly formed entities within the Group. Common control means all the combining entities or businesses are ultimately controlled by the same party both before and after the reorganisation. The Group accounts for reorganisation involving entities under common control using pooling of interest method. On the date of transfer, the assets and liabilities are transferred to the acquirer at their carrying value, no adjustments are made to reflect their fair value, and no new goodwill is recognised. Any difference between the consideration transferred and the acquired net assets (or liabilities) is reflected within equity. The assets and liabilities transferred are reflected prospectively in the Group’s financial statements from the date of transfer without restating the comparative period. Functional and presentation currency 3.6 Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiaries operate (‘the functional currency’), which is the US dollar except the UK subsidiary which is the Great Britain Pound. The consolidated financial statements are presented in Nigerian Naira and the US dollar. The Group has chosen to show both presentation currencies and this is allowable by the regulator. Transactions and balances i. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end are generally recognised in profit or loss. They are deferred in equity if attributable to net investment in foreign operations. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss or other comprehensive income depending on where fair value gain or loss is reported. Group companies ii. The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the reporting date. • income and expenses for statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not – a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and all resulting exchange differences are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that foreign operation is recognised in profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. 3.7 Oil and gas accounting i. Pre-licensing costs are expensed in the period in which they are incurred. Pre-licensing costs Exploration licence cost ii. Exploration licence costs are capitalised within intangible assets. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised on a straight-line basis over the life. Licence costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and sufficient progress is being made to establish development plans and timing. If no future activity is planned or the licence has been relinquished or has expired, the carrying value of the licence is written off through profit or loss. The exploration licence costs are initially recognised as cost and subsequently amortised on a straight-line based on the economic life. They are subsequently carried at cost less accumulated amortisation and impairment losses. Acquisition of producing assets iii. Upon acquisition of producing assets which do not constitute a business combination, the Group identifies and recognises the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The purchase price paid for the group of assets is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. 161 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.7 Oil and gas accounting continued Exploration and evaluation expenditures iv. Geological and geophysical exploration costs are charged to profit or loss as incurred. Exploration and evaluation expenditures incurred by the entity are accumulated separately for each area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure, but do not include general overheads or administrative expenditure that is not directly related to a particular area of interest. Each area of interest is limited to a size related to a known or probable hydrocarbon resource capable of supporting an oil operation. Costs directly associated with an exploration well, exploratory stratigraphic test well and delineation wells are temporarily suspended (capitalised) until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs, delay rentals and payments made to contractors. If hydrocarbons (‘proved reserves’) are not found, the exploration expenditure is written off as a dry hole and charged to profit or loss. If hydrocarbons are found, the costs continue to be capitalised. Suspended exploration and evaluation expenditure in relation to each area of interest is carried forward as an asset provided that one of the following conditions is met: • the costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; • exploration and/or evaluation activities in the area of interest have not, at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves; and • active and significant operations in, or in relation to, the area of interest. Exploration and/or evaluation expenditures which fail to meet at least one of the conditions outlined above are written off. In the event that an area is subsequently abandoned or exploration activities do not lead to the discovery of proved or probable reserves, or if the Directors consider the expenditure to be of no value, any accumulated costs carried forward relating to the specified areas of interest are written off in the year in which the decision is made. While an area of interest is in the development phase, amortisation of development costs is not charged pending the commencement of production. Exploration and evaluation costs are transferred from the exploration and/or evaluation phase to the development phase upon commitment to a commercial development. Development expenditures v. Development expenditure incurred by the Group is accumulated separately for each area of interest in which economically recoverable reserves have been identified to the satisfaction of the Directors. Such expenditure comprises net direct costs and, in the same manner as for exploration and evaluation expenditure, an appropriate portion of related overhead expenditure directly related to the development property. All expenditure incurred prior to the commencement of commercial levels of production from each development property is carried forward to the extent to which recoupment is expected to be derived from the sale of production from the relevant development property. 3.8 Revenue recognition (IFRS 15) IFRS 15 uses a five-step model for recognising revenue to depict transfer of goods or services. The model distinguishes between promises to a customer that are satisfied at a point in time and those that are satisfied over time. It is the Group’s policy to recognise revenue from a contract when it has been approved by both parties, rights have been clearly identified, payment terms have been defined, the contract has commercial substance, and collectability has been ascertained as probable. Collectability of a customer’s payments is ascertained based on the customer’s historical records, guarantees provided, the customer’s industry and advance payments made if any. Revenue is recognised when control of goods sold has been transferred. Control of an asset refers to the ability to direct the use of and obtain substantially all of the remaining benefits (potential cash inflows or savings in cash outflows) associated with the asset. For crude oil, this occurs when the crude products are lifted by the customer (buyer) Free on Board at the Group’s loading facility. Revenue from the sale of oil is recognised at a point in time when performance obligation is satisfied. For gas sales, revenue is recognised when the product passes through the custody transfer point to the customer. Revenue from the sale of gas is recognised over time using the practical expedient of the right to invoice. The surplus or deficit of the product sold during the period over the Group’s share of production is termed as an overlift or underlift. With regard to underlifts, if the over-lifter does not meet the definition of a customer or the settlement of the transaction is non-monetary, a receivable and other income is recognised. Initially, when an overlift occurs, cost of sale is debited, and a corresponding liability is accrued. Overlifts and underlifts are initially measured at the market price of oil at the date of lifting, consistent with the measurement of the sale and purchase. Subsequently, they are remeasured at the current market value. The change arising from this remeasurement is included in the profit or loss as other income/expenses-net. Definition of a customer A customer is a party that has contracted with the Group to obtain crude oil or gas products in exchange for a consideration, rather than to share in the risks and benefits that result from sale. The Group has entered into collaborative arrangements with its Joint arrangement partners to share in the production of oil. Collaborative arrangements with its Joint arrangement partners to share in the production of oil are accounted for differently from arrangements with customers as collaborators share in the risks and benefits of the transaction, and therefore, do not meet the definition of customers. Revenue arising from these arrangements are recognised separately in other income. 162 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Contract enforceability and termination clauses It is the Group’s policy to assess that the defined criteria for establishing contracts that entail enforceable rights and obligations are met. The criteria provide that the contract has been approved by both parties, rights have been clearly identified, payment terms have been defined, the contract has commercial substance, and collectability has been ascertained as probable. Revenue is not recognised for contracts that do not create enforceable rights and obligations to parties in a contract. The Group also does not recognise revenue for contracts that do not meet the revenue recognition criteria. In such cases where consideration is received it recognises a contract liability and only recognises revenue when the contract is terminated. The Group may also have the unilateral rights to terminate an unperformed contract without compensating the other party. This could occur where the Group has not yet transferred any promised goods or services to the customer and the Group has not yet received, and is not yet entitled to receive, any consideration in exchange for promised goods or services. Identification of performance obligation At inception, the Group assesses the goods or services promised in the contract with a customer to identify as a performance obligation, each promise to transfer to the customer either a distinct good or series of distinct goods. The number of identified performance obligations in a contract will depend on the number of promises made to the customer. The delivery of barrels of crude oil or units of gas are usually the only performance obligation included in an oil and gas contract with no additional contractual promises. Additional performance obligations may arise from future contracts with the Group and its customers. The identification of performance obligations is a crucial part in determining the amount of consideration recognised as revenue. This is due to the fact that revenue is only recognised at the point where the performance obligation is fulfilled, management has therefore developed adequate measures to ensure that all contractual promises are appropriately considered and accounted for accordingly. Transaction price is the amount allocated to the performance obligations identified in the contract. It represents the amount of revenue recognised as those performance obligations are satisfied. Complexities may arise where a contract includes variable consideration, significant financing component or consideration payable to a customer. Variable consideration not within the Group’s control is estimated at the point of revenue recognition and reassessed periodically. The estimated amount is included in the transaction price to the extent that it is highly probable that a significant reversal of the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As a practical expedient, where the Group has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Group’s performance completed to date, the Group may recognise revenue in the amount to which it has a right to invoice. Significant financing component (SFC) assessment is carried out (using a discount rate that reflects the amount charged in a separate financing transaction with the customer and also considering the Group’s incremental borrowing rate) on contracts that have a repayment period of more than 12 months. As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between when it transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Instances when SFC assessment may be carried out include where the Group receives advance payment for agreed volumes of crude oil or receives take or pay deficiency payment on gas sales. A take or pay gas sales contract ideally provides that the customer must sometimes pay for gas even when not delivered to the customer. The customer, in future contract years, takes delivery of the product without further payment. The portion of advance payments that represents significant financing component will be recognised as interest expense. Consideration payable to a customer is accounted for as a reduction of the transaction price unless the payment to the customer is in exchange for a distinct goods or services that the customer transfers to the Group. Breakage The Group enters into take or pay contracts for sale of gas where the buyer may not ultimately exercise all of their rights to the gas. The take or pay quantity not taken is paid for by the buyer called take or pay deficiency payment. The Group assesses if there is a reasonable assurance that it will be entitled to a breakage amount. Where it establishes that a reasonable assurance exists, it recognises the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. However, where the Group is not reasonably assured of a breakage amount, it would only recognise the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. Contract modification and contract combination Contract modifications relate to a change in the price and/or scope of an approved contract. Where there is a contract modification, the Group assesses if the modification will create a new contract or change the existing enforceable rights and obligations of the parties to the original contract. Contract modifications are treated as new contracts when the performance obligations are separately identifiable and transaction price reflects the standalone selling price of the crude oil or the gas to be sold. Revenue is adjusted prospectively when the crude oil or gas transferred is separately identifiable and the price does not reflect the standalone selling price. Conversely, if there are remaining performance obligations which are not separately identifiable, revenue will be recognised on a cumulative catch-up basis when crude oil or gas is transferred. The Group combines contracts entered into at near the same time (less than 12 months) as one contract if they are entered into with the same or related party customer, the performance obligations are the same for the contracts and the price of one contract depends on the other contract. 163 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.8 Revenue recognition (IFRS 15) continued Portfolio expedients As a practical expedient, the Group may apply the requirements of IFRS 15 to a portfolio of contracts (or performance obligations) with similar characteristics if it expects that the effect on the financial statements would not be materially different from applying IFRS to individual contracts within that portfolio. Contract assets and liabilities The Group recognises contract assets for unbilled revenue from crude oil and gas sales. The Group recognises contract liability for consideration received for which performance obligation has not been met. Disaggregation of revenue from contract with customers The Group derives revenue from two types of products, oil and gas. The Group has determined that the disaggregation of revenue based on the criteria of type of products meets the disaggregation of revenue disclosure requirement of IFRS 15. It depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See further details in Note 7.1.1. 3.9 Property, plant and equipment Oil and gas properties and other plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the entity, the expenditure is capitalised. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period to the next inspection. Overhaul costs for major maintenance programmes are capitalised as incurred as long as these costs increase the efficiency of the unit or extend the useful life of the asset. All other maintenance costs are expensed as incurred. Depreciation Production and field facilities are depreciated on a unit-of-production basis over the estimated proved developed reserves. Assets under construction are not depreciated. Other property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Depreciation commences when an asset is available for use. The depreciation rate for each class is as follows: Plant and machinery Motor vehicles Office furniture and IT equipment Buildings Land Intangible asset Leasehold improvements 20% 25%-30% 10%-33.33% 4% – 5% Over the unexpired portion of the lease The expected useful lives and residual values of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively. Gains or losses on disposal of property, plant and equipment are determined as the difference between disposal proceeds and carrying amount of the disposed assets. These gains or losses are included in profit or loss. 3.10 Right-of-use assets The Group recognises right-of-use assets at the commencement date of a lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, decommissioning costs (if any), and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Short-term leases and leases of low-value The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low-value (i.e. low-value assets). Low-value assets are assets with a lease amount of less than $5,000 when new. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. 3.11 Lease liabilities At the commencement date of a lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs. 164 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The weighted average incremental borrowing rate for the Group is 7.56%. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The lease term refers to the contractual period of a lease. The Group has elected to exclude non-lease components in calculating lease liabilities and instead treat the related costs as an expense in profit or loss. 3.12 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. These costs may arise from; specific borrowings used for the purpose of financing the construction of a qualifying asset, and those that arise from general borrowings that would have been avoided if the expenditure on the qualifying asset had not been made. The general borrowing costs attributable to an asset’s construction is calculated by reference to the weighted average cost of general borrowings that are outstanding during the period. Investment income earned on the temporary investment of specific borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.13 Finance income and costs Finance income is recognised in the statement of profit or loss as it accrues using the effective interest rate (EIR), which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the amortised cost of the financial instrument. The determination of finance income takes into account all contractual terms of the financial instrument as well as any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate (EIR), but not future credit losses. Finance cost Finance costs includes borrowing costs, interest expense calculated using the effective interest rate method, finance charges in respect of lease liabilities, the unwinding of the effect of discounting provisions, and the amortisation of discounts and premiums on debt instruments that are liabilities. Impairment of non-financial assets 3.14 Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently. Other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. This should be at a level not higher than an operating segment. If any such indication of impairment exists or when annual impairment testing for an asset group is required, the entity makes an estimate of its recoverable amount. Such indicators include changes in the Group’s business plans, changes in commodity prices, evidence of physical damage and, for oil and gas properties, significant downward revisions of estimated recoverable volumes or increases in estimated future development expenditure. The recoverable amount is the higher of an asset’s fair value less costs of disposal (FVLCD) and value in use (VIU). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets, in which case, the asset is tested as part of a larger cash-generating unit to which it belongs. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. In calculating VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset/CGU. In determining FVLCD, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. Impairment – exploration and evaluation assets Exploration and evaluation assets are tested for impairment once commercial reserves are found before they are transferred to oil and gas assets, or whenever facts and circumstances indicate impairment. An impairment loss is recognised for the amount by which the exploration and evaluation assets’ carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets’ fair value less costs to sell and their value in use. Impairment – proved oil and gas production properties Proven oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. 165 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.15 Cash and bank balances Cash and bank balances in the statement of cash flows comprise cash at banks and at hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Inventories 3.16 Inventories represent the value of tubulars, casings, spares and wellheads. These are stated at the lower of cost and net realisable value. Cost is determined using the invoice value and all other directly attributable costs to bringing the inventory to the point of use determined on a first in first out basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated cost necessary to make the sale. 3.17 Other asset The Group’s interest in the oil and gas reserves of OML 55 has been classified as other asset. On initial recognition, it is measured at the fair value of future recoverable oil and gas reserves. Subsequently, the other asset is recognised at fair value through profit or loss. 3.18 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Board of Directors has appointed a steering committee which assesses the financial performance and position of the Group and makes strategic decisions. The steering committee, which has been identified as the chief operating decision maker, consists of the Chief Financial Officer, the General Manager (Finance), the General Manager (Gas) and the Financial Reporting Manager. See further details in Note 7. 3.19 Financial instruments IFRS 9 provides guidance on the recognition, classification and measurement of financial assets and financial liabilities; derecognition of financial instruments; impairment of financial assets and hedge accounting. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments: Disclosures. Classification and measurement a. Financial assets It is the Group’s policy to initially recognise financial assets at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss which are expensed in profit or loss. Classification and subsequent measurement are dependent on the Group’s business model for managing the asset and the cash flow characteristics of the asset. On this basis, the Group may classify its financial instruments at amortised cost, fair value through profit or loss and at fair value through other comprehensive income. All the Group’s financial assets as at 31 December 2020 satisfy the conditions for classification at amortised cost under IFRS 9 except for derivatives which are classified at fair value through profit or loss. The Group’s financial assets include trade receivables, NPDC receivables, NAPIMS receivables, other receivables, cash and bank balances and derivatives. They are included in current assets, except for maturities greater than 12 months after the reporting date. Interest income from these assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in finance income/cost. Financial liabilities Financial liabilities of the Group are classified and measured at fair value on initial recognition and subsequently at amortised cost net of directly attributable transaction costs, except for derivatives which are classified and subsequently recognised at fair value through profit or loss. Fair value gains or losses for financial liabilities designated at fair value through profit or loss are accounted for in profit or loss except for the amount of change that is attributable to changes in the Group’s own credit risk which is presented in other comprehensive income. The remaining amount of change in the fair value of the liability is presented in profit or loss. The Group’s financial liabilities include trade and other payables and interest-bearing loans and borrowings. Impairment of financial assets b. Recognition of impairment provisions under IFRS 9 is based on the expected credit loss (ECL) model. The ECL model is applicable to financial assets classified at amortised cost and contract assets under IFRS 15 Revenue from Contracts with Customers. The measurement of ECL reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date, about past events, current conditions and forecasts of future economic conditions. The Group applies the simplified approach or the three-stage general approach to determine impairment of receivables depending on their respective nature. The simplified approach is applied for trade receivables and contract assets while the general approach is applied to NPDC receivables, NAPIMS receivables, other receivables and cash and bank balances. The simplified approach requires expected lifetime losses to be recognised from initial recognition of the receivables. This involves determining the expected loss rates using a provision matrix that is based on the Group’s historical default rates observed over the expected life of the receivable and adjusted forward-looking estimates. This is then applied to the gross carrying amount of the receivable to arrive at the loss allowance for the period. The three-stage approach assesses impairment based on changes in credit risk since initial recognition using the past due criterion and other qualitative indicators such as increase in political concerns or other macroeconomic factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial performance. 166 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Financial assets classified as stage 1 have their ECL measured as a proportion of their lifetime ECL that results from possible default events that can occur within one year, while assets in stage 2 or 3 have their ECL measured on a lifetime basis. Under the three-stage approach, the ECL is determined by projecting the probability of default (PD), loss given default (LGD) and exposure at default (EAD) for each ageing bucket and for each individual exposure. The PD is based on default rates determined by external rating agencies for the counterparties. The LGD is determined based on management’s estimate of expected cash recoveries after considering the historical pattern of the receivable, and it assesses the portion of the outstanding receivable that is deemed to be irrecoverable at the reporting period. The EAD is the total amount of outstanding receivable at the reporting period. These three components are multiplied together and adjusted for forward-looking information, such as the gross domestic product (GDP) in Nigeria and crude oil prices, to arrive at an ECL which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the related financial assets and the amount of the loss is recognised in profit or loss. Significant increase in credit risk and default definition c. The Group assesses the credit risk of its financial assets based on the information obtained during periodic review of publicly available information, industry trends and payment records. Based on the analysis of the information provided, the Group identifies the assets that require close monitoring. Furthermore, financial assets that have been identified to be more than 30 days past due on contractual payments are assessed to have experienced significant increase in credit risk. These assets are grouped as part of Stage 2 financial assets where the three-stage approach is applied. In line with the Group’s credit risk management practices, a financial asset is defined to be in default when contractual payments have not been received at least 90 days after the contractual payment period. Subsequent to default, the Group carries out active recovery strategies to recover all outstanding payments due on receivables. Where the Group determines that there are no realistic prospects of recovery, the financial asset and any related loss allowance are written off either partially or in full: Write-off policy d. The Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include: • ceasing enforcement activity; and • where the Group’s recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Group may write-off financial assets that are still subject to enforcement activity. The outstanding contractual amounts of such assets written off during the year ended 31 December 2020 was Nil (2019: ₦14.8 million, $48.4 million). The Group seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of full recovery. Derecognition e. Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or when it transfers the financial asset and the transfer qualifies for derecognition. Gains or losses on derecognition of financial assets are recognised as finance income/cost. Financial liabilities The Group derecognises a financial liability when it is extinguished i.e. when the obligation specified in the contract is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised immediately in the statement of profit or loss. Modification f. When the contractual cash flows of a financial instrument are renegotiated or otherwise modified and the renegotiation or modification does not result in the derecognition of that financial instrument, the Group recalculates the gross carrying amount of the financial instrument and recognises a modification gain or loss immediately within finance income/(cost)-net at the date of the modification. The gross carrying amount of the financial instrument is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial instrument’s original effective interest rate. Offsetting of financial assets and financial liabilities g. Financial assets and liabilities are offset, and the net amount is reported in the statement of financial position. Offsetting can be applied when there is a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right is not contingent on future events and is enforceable in the normal course of business, and in the event of default, insolvency or bankruptcy of the Company or the counterparty. 167 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.19 Financial instruments continued Derivatives h. The Group uses derivative financial instruments such as forward exchange contracts to hedge its foreign exchange, risks as well as put options to hedge against its oil price risk. However, such contracts are not accounted for as designated hedges. Derivatives are initially recognised at fair value on the date a derivative contract is entered and subsequently remeasured to their fair value at the end of each reporting period. Any gains or losses arising from changes in the fair value of derivatives are recognised within operating profit in profit or loss for the period. An analysis of the fair value of derivatives is provided in Note 6, Financial risk management. The Group accounts for financial assets with embedded derivatives (hybrid instruments) in their entirety on the basis of its contractual cash flow features and the business model within which they are held, thereby eliminating the complexity of bifurcation for financial assets. For financial liabilities, hybrid instruments are bifurcated into hosts and embedded features. In these cases, the Group measures the host contract at amortised cost and the embedded features is measured at fair value through profit or loss. For the purpose of the maturity analysis, embedded derivatives included in hybrid financial instruments are not separated. The hybrid instrument, in its entirety, is included in the maturity analysis for non-derivative financial liabilities. Fair value of financial instruments i. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily available and represent actual and regularly occurring market transactions on an arm’s length basis. If a market for a financial instrument is not active, the Group establishes fair value using valuation techniques. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, and discounted cash flow analysis. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measure the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or received. However, in some cases, the fair value of a financial instrument on initial recognition may be different to its transaction price. If such fair value is evidenced by comparison with other observable current market transactions in the same instrument (without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in the income statement on initial recognition of the instrument. In other cases, the difference is not recognised in the income statement immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. 3.20 Share capital On issue of ordinary shares, any consideration received net of any directly attributable transaction costs is included in equity. Issued share capital has been translated at the exchange rate prevailing at the date of the transaction and is not retranslated subsequent to initial recognition. 3.21 Earnings per share and dividends Basic EPS Basic earnings per share is calculated on the Group’s profit or loss after taxation attributable to the parent entity and on the basis of weighted average of issued and fully paid ordinary shares at the end of the year. Diluted EPS Diluted EPS is calculated by dividing the profit or loss after taxation attributable to the parent entity by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (after adjusting for outstanding share awards arising from the share-based payment scheme) into ordinary shares. Dividends Dividends on ordinary shares are recognised as a liability in the period in which they are approved. 3.22 Post-employment benefits Defined contribution scheme The Group contributes to a defined contribution scheme for its employees in compliance with the provisions of the Pension Reform Act 2014. The scheme is fully funded and is managed by licensed Pension Fund Administrators. Membership of the scheme is automatic upon commencement of duties at the Group. The Group’s contributions to the defined contribution scheme are charged to the profit and loss account in the year to which they relate. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. The Group operates a defined contribution plan and it is accounted for based on IAS 19 Employee benefits. Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Under defined contribution plans the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. 168 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee. Defined benefit scheme The Group operates a defined benefit gratuity plan, which requires contributions to be made to a separately administered fund. The Group also provides certain additional post-employment benefits to employees. These benefits are unfunded. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method and calculated annually by independent actuaries. The liability or asset recognised in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets (if any). The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using government bonds. Remeasurements gains and losses, arising from changes in financial and demographic assumptions and experience adjustments, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of: • the date of the plan amendment or curtailment; and • the date that the Group recognises related restructuring costs. Net interest is calculated by applying the discount rate to the net defined benefit obligation and the fair value of the plan assets. The Group recognises the following changes in the net defined benefit obligation under employee benefit expenses in general and administrative expenses: • Service costs comprises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements. • Net interest cost. 3.23 Provisions Provisions are recognised when: i. the Group has a present legal or constructive obligation as a result of past events; ii. it is probable that an outflow of economic resources will be required to settle the obligation as a whole; and iii. the amount can be reliably estimated. Provisions are not recognised for future operating losses. In measuring the provision: • risks and uncertainties are taken into account; • the provisions are discounted (where the effects of the time value of money is considered to be material) using a pre-tax rate that is reflective of current market assessments of the time value of money and the risk specific to the liability; • when discounting is used, the increase of the provision over time is recognised as interest expense; • future events such as changes in law and technology, are taken into account where there is subjective audit evidence that they will occur; and • gains from expected disposal of assets are not taken into account, even if the expected disposal is closely linked to the event giving rise to the provision. Decommissioning Liabilities for decommissioning costs are recognised as a result of the constructive obligation of past practice in the oil and gas industry, when it is probable that an outflow of economic resources will be required to settle the liability and a reliable estimate can be made. The estimated costs, based on current requirements, technology and price levels, prevailing at the reporting date, are computed based on the latest assumptions as to the scope and method of abandonment. Provisions are measured at the present value of management’s best estimates of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as a finance cost. The corresponding amount is capitalised as part of the oil and gas properties and is amortised on a unit-of- production basis as part of the depreciation, depletion and amortisation. If the change in estimate results in an increase in the decommissioning provision and, therefore, an addition to the carrying value of the asset, the Group considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment in accordance with IAS 36. If, for mature fields, the revised oil and gas assets net of decommissioning provisions exceed the recoverable value, that portion of the increase is charged directly to expense. 169 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.24 Contingencies A contingent asset or contingent liability is a possible asset or obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events. The assessment of the existence of the contingencies will involve management judgement regarding the outcome of future events. 3.25 Contingent consideration A contingent consideration to be transferred by the acquirer is recognised at fair value through profit or loss at the acquisition date by the Group. Contingent consideration classified as an asset or liability is measured at fair value in accordance with IFRS 13 Fair value Measurement with the changes in fair value recognised in the statement of profit or loss. Income taxation Current income tax 3.26 i. The income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Deferred tax ii. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Uncertainty over income tax treatments iii. The Group examines where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates. It considers each uncertain tax treatment separately or together as a group, depending on which approach better predicts the resolution of the uncertainty. The factors it considers include: • how it prepares and supports the tax treatment; and • the approach that it expects the tax authority to take during an examination. If the Group concludes that it is probable that the tax authority will accept an uncertain tax treatment that has been taken or is expected to be taken on a tax return, it determines the accounting for income taxes consistently with that tax treatment. If it concludes that it is not probable that the treatment will be accepted, it reflects the effect of the uncertainty in its income tax accounting in the period in which that determination is made (for example, by recognising an additional tax liability or applying a higher tax rate). The Group measures the impact of the uncertainty using methods that best predict the resolution of the uncertainty. The Group uses the most likely method where there are two possible outcomes, and the expected value method when there is a range of possible outcomes. The Group assumes that the tax authority with the right to examine and challenge tax treatments will examine those treatments and have full knowledge of all related information. As a result, it does not consider detection risk in the recognition and measurement of uncertain tax treatments. The Group applies consistent judgements and estimates on current and deferred taxes. Changes in tax laws or the presence of new tax information by the tax authority is treated as a change in estimate in line with IAS 8 Accounting policies, changes in accounting estimates and errors. Judgements and estimates made to recognise and measure the effect of uncertain tax treatments are reassessed whenever circumstances change or when there is new information that affects those judgements. New information might include actions by the tax authority, evidence that the tax authority has taken a particular position in connection with a similar item, or the expiry of the tax authority’s right to examine a particular tax treatment. The absence of any comment from the tax authority is unlikely to be, in isolation, a change in circumstances or new information that would lead to a change in estimate. 170 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3.27 Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • fair values of the assets transferred; • liabilities incurred to the former owners of the acquired business; • equity interests issued by the Group; • fair value of any asset or liability resulting from a contingent consideration arrangement; and • fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the: • consideration transferred; • amount of any non-controlling interest in the acquired entity; and • acquisition-date fair value of any previous equity interest in the acquired entity. over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. 3.28 Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). Equity-settled transactions The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised in employee benefits expense together with a corresponding increase in equity (share-based payment reserve), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service and non-market performance conditions are not taken into account when determining the grant date and for fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award provided the original terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. The dilutive effect of outstanding awards is reflected as additional share dilution in the computation of diluted earnings per share. 4. Significant accounting judgements, estimates and assumptions The preparation of the Group’s consolidated historical financial information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Judgements 4.1 In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated historical financial information: OMLs 4, 38 and 41 i. OMLs 4, 38, 41 are grouped together as a cash-generating unit for the purpose of impairment testing. These three OMLs are grouped together because they each cannot independently generate cash flows. They currently operate as a single block sharing resources for the purpose of generating cash flows. Crude oil and gas sold to third parties from these OMLs are invoiced when the Group has an unconditional right to receive payment. Deferred tax asset ii. Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. See further details in Note 15. 171 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 4. Significant accounting judgements, estimates and assumptions continued 4.1 Judgements continued Lease liabilities iii. In 2018, the Group entered into a lease agreement for its new head office building. The lease contract contains an option to purchase and right of first refusal upon an option of sales during the initial non-cancellable lease term of five (5) years. In determining the lease liability/right-of-use assets, management considered all fact and circumstances that create an economic incentive to exercise the purchase option. Potential future cash outflow of $45 million (Seplat’s 45% share of $100 million), which represents the purchase price, has not been included in the lease liability because the Group is not reasonably certain that the purchase option will be exercised. This assessment will be reviewed if a significant event or a significant change in circumstances occurs which affects the initial assessment and that is within the control of the management. Group re-organisation iv. On 1 January 2020, the Group’s operations were restructured with the transfer of OML 4, OML 38 and OML 41 from Seplat Plc to Seplat West Limited. Management determined that this was a group reorganisation involving entities under common control, as Seplat Plc controlled the Group before and after the reorganisation. In addition, the assets and liabilities of the Group were the same immediately before and after the reorganisation. See Note 40 for a summary of assets and liabilities transferred to Seplat West Limited. Foreign currency translation reserve v. The Group has used the CBN rate to translate its dollar currency to its Naira presentation currency. Management has determined that this rate is available for immediate delivery. If the rate used was 10% higher or lower, revenue in Naira would have increased/decreased by ₦19 billion (2019: ₦21.4 billion). See Note 50 for the applicable translation rates. Consolidation of Elcrest vi. On acquisition of 100% shares of Eland Oil and Gas Plc, the Group acquired indirect holdings in Elcrest Exploration and Production (Nigeria) Limited. Although the Group has an indirect holding of 45% in Elcrest, Elcrest has been consolidated as a subsidiary for the following basis: • Eland Oil and Gas Plc has power over Elcrest through due representation of Eland in the board of Elcrest, and clauses contained in the Share Charge agreement and loan agreement which gives Eland the right to control 100% of the voting rights of shareholders. • Eland Oil and Gas Plc is exposed to variable returns from the activities of Elcrest through dividends and interests. • Eland Oil and Gas Plc has the power to affect the amount of returns from Elcrest through its right to direct the activities of Elcrest and its exposure to returns. vii. Revenue recognition Performance obligations The judgements applied in determining what constitutes a performance obligation will impact when control is likely to pass and therefore when revenue is recognised i.e. over time or at a point in time. The Group has determined that only one performance obligation exists in oil contracts which is the delivery of crude oil to specified ports. Revenue is therefore recognised at a point in time. For gas contracts, the performance obligation is satisfied through the delivery of a series of distinct goods. Revenue is recognised over time in this situation as gas customers simultaneously receive and consume the benefits provided by the Group’s performance. The Group has elected to apply the ‘right to invoice’ practical expedient in determining revenue from its gas contracts. The right to invoice is a measure of progress that allows the Group to recognise revenue based on amounts invoiced to the customer. Judgement has been applied in evaluating that the Group’s right to consideration corresponds directly with the value transferred to the customer and is therefore eligible to apply this practical expedient. Significant financing component The Group has entered into an advance payment contract with Mercuria for future crude oil to be delivered. The Group has considered whether the contract contains a financing component and whether that financing component is significant to the contract, including both of the following: a. The difference, if any, between the amount of promised consideration and cash selling price and; b. The combined effect of both the following: • The expected length of time between when the Group transfers the crude to Mercuria and when payment for the crude is received; and • The prevailing interest rate in the relevant market. The advance period is greater than 12 months. In addition, the interest expense accrued on the advance is based on a comparable market rate. Interest expense has therefore been included as part of finance cost. 172 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Transactions with Joint Operating arrangement (JOA) partners The treatment of underlift and overlift transactions is judgemental and requires a consideration of all the facts and circumstances including the purpose of the arrangement and transaction. The transaction between the Group and its JOA partners involves sharing in the production of crude oil, and for which the settlement of the transaction is non-monetary. The JOA partners have been assessed to be partners not customers. Therefore, shortfalls or excesses below or above the Group’s share of production are recognised in other income/(expenses) – net. Exploration and evaluation assets The accounting for exploration and evaluation (E&E) assets require management to make certain judgements and assumptions, including whether exploratory wells have discovered economically recoverable quantities of reserves. Designations are sometimes revised as new information becomes available. If an exploratory well encounters hydrocarbon, but further appraisal activity is required in order to conclude whether the hydrocarbons are economically recoverable, the well costs remain capitalised as long as sufficient progress is being made in assessing the economic and operating viability of the well. Criteria used in making this determination include evaluation of the reservoir characteristics and hydrocarbon properties, expected additional development activities, commercial evaluation and regulatory matters. The concept of ‘sufficient progress’ is an area of judgement, and it is possible to have exploratory costs remain capitalised for several years while additional drilling is performed or the Group seeks government, regulatory or partner approval of development plans. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Board of Directors has appointed a steering committee which assesses the financial performance and position of the Group and makes strategic decisions. The steering committee, which has been identified as being the chief operating decision maker, consists of the chief financial officer, the general manager (Finance), the general manager (Gas) and the financial reporting manager. See further details in Note 7. 5. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Defined benefit plans (pension benefits) i. The cost of the defined benefit retirement plan and the present value of the retirement obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and changes in inflation rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers market yield on federal government bonds in currencies consistent with the currencies of the post-employment benefit obligation and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation. The rates of mortality assumed for employees are the rates published in 67/70 ultimate tables, published jointly by the Institute and Faculty of Actuaries in the UK. Oil and gas reserves ii. Proved oil and gas reserves are used in the units of production calculation for depletion as well as the determination of the timing of well closure for estimating decommissioning liabilities and impairment analysis. There are numerous uncertainties inherent in estimating oil and gas reserves. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may ultimately result in the reserves being restated. Share-based payment reserve iii. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share award or appreciation right, volatility and dividend yield and making assumptions about them. The Group measures the fair value of equity-settled transactions with employees at the grant date. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 28.4. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Such estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Provision for decommissioning obligations iv. Provisions for environmental clean-up and remediation costs associated with the Group’s drilling operations are based on current constructions, technology, price levels and expected plans for remediation. Actual costs and cash outflows can differ from estimates because of changes in public expectations, prices, discovery and analysis of site conditions and changes in clean-up technology. 173 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 5. Estimates and assumptions continued Property, plant and equipment v. The Group assesses its property, plant and equipment, including exploration and evaluation assets, for possible impairment if there are events or changes in circumstances that indicate that carrying values of the assets may not be recoverable, or at least at every reporting date. If there are low oil prices or natural gas prices during an extended period, the Group may need to recognise significant impairment charges. The assessment for impairment entails comparing the carrying value of the cash-generating unit with its recoverable amount, that is, higher of fair value less cost to dispose and value in use. Value in use is usually determined on the basis of discounted estimated future net cash flows. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation on operating expenses, discount rates, production profiles and the outlook for regional market supply-and-demand conditions for crude oil and natural gas. During the year, the Group carried out an impairment assessment on OML 4, 38 and 41, OML 56, OML 53, OML 40 and OML 17. The Group used the higher of the fair value less cost to dispose and the value in use in determining the recoverable amount of the cash-generating unit. In determining the value, the Group used a forecast of the annual net cash flows over the life of proved plus probable reserves, production rates, oil and gas prices, future costs (excluding (a) future restructurings to which the entity is not yet committed; or (b) improving or enhancing the asset’s performance) and other relevant assumptions based on the 2020-year end Competent Persons Report (CPR). The pre-tax future cash flows were adjusted for risks specific to the forecast and discounted using a pre-tax discount rate of 15% and post-tax discount rate of 10% for OML 40 and OML 17, which reflects both current market assessment of the time value of money and risks specific to the asset. The impairment test did not result in any impairment loss for OML 4,38 and 41, OML 56 and OML 53. However, there were impairment losses recognised on OML 40 and OML 17. Management has considered whether a reasonable possible change in one of the main assumptions will cause an impairment and believes otherwise (see Note 17.1). Useful life of other property, plant and equipment vi. The Group recognises depreciation on other property, plant and equipment on a straight-line basis in order to write-off the cost of the asset over its expected useful life. The economic life of an asset is determined based on existing wear and tear, economic and technical ageing, legal and other limits on the use of the asset, and obsolescence. If some of these factors were to deteriorate materially, impairing the ability of the asset to generate future cash flow, the Group may accelerate depreciation charges to reflect the remaining useful life of the asset or record an impairment loss. Income taxes vii. The Group is subject to income taxes by the Nigerian tax authority, which does not require significant judgement in terms of provision for income taxes, but a certain level of judgement is required for recognition of deferred tax assets. Management is required to assess the ability of the Group to generate future taxable economic earnings that will be used to recover all deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. The estimates are based on the future cash flow from operations taking into consideration the oil and gas prices, volumes produced, operational and capital expenditure. Impairment of financial assets viii. The loss allowances for financial assets are based on assumptions about risk of default, expected loss rates and maximum contractual period. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward-looking estimates at the end of each reporting period. Details of the key assumptions and inputs used are disclosed in Note 6.1.3. Intangible asset ix. The contract-based intangible assets were acquired as part of a business combination. They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line basis over their estimated useful lives which is also the economic life of the asset. The fair value of contract-based intangible assets is estimated using the multi period excess earnings method. This requires a forecast of revenue and all cost projections throughout the useful life of the intangible assets. A contributory asset charge that reflects the return on assets is also determined and applied to the revenue but subtracted from the operating cash flows to derive the pre-tax cash flow. The post-tax cash flows are then obtained by deducting out the tax using the effective tax rate. Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. 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-bearing borrowings the Group is obliged to service. See Note 20 for more details. 174 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management Financial risk factors 6.1 The Group’s activities expose it to a variety of financial risks such as market risk (including foreign exchange risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Group’s risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the treasury department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity. Risk Exposure arising from Measurement Management Market risk – foreign exchange Market risk – interest rate Market risk – commodity prices Credit risk Liquidity risk Future commercial transactions Recognised financial assets and liabilities not denominated in US Dollars Interest-bearing loans and borrowings at variable rate Future sales transactions Cash and bank balances, trade receivables and derivative financial instruments Borrowings and other liabilities Cash flow forecasting Sensitivity analysis Sensitivity analysis Match and settle foreign denominated cash inflows with foreign denominated cash outflows Review refinancing opportunities Sensitivity analysis Oil price hedges Aging analysis Credit ratings Diversification of bank deposits Rolling cash flow forecasts Availability of committed credit lines and borrowing facilities 6.1.1 Market risk Market risk is the risk of loss that may arise from changes in market factors such as foreign exchange rates, interest rates and commodity prices. Commodity price risk i. The Group is exposed to the risk of fluctuations on crude oil prices. The uncertainty around the rate at which oil prices increase or decline led to the Group’s decision to enter into an option contract to insure the Group’s revenue against adverse oil price movements. Crude hedge During the last quarter of 2020, the Group entered an economic crude oil hedge contracts with an average strike price of ₦12,903 ($34/bbl.) for 5 million barrels at an average premium price of ₦580.64 ($1.53/bbl.) was agreed at the contract dates. These contracts, which will commence in 1 January 2021, are expected to reduce the volatility attributable to price fluctuations of oil. The Group has pre-paid a premium of ₦672 million, 2019: ₦838 million ($1.77 million; 2019: $2.73 million) for 1 million barrels while the premium for 4 million barrels will be settled on a deferred basis. An unrealised fair value loss of ₦600 million, $1.67 million and a gain of ₦337 million, $1.1 million was recognised for these hedges in 2020 and 2019 respectively. The termination date is 31 March and 30 September 2021 respectively. Hedging the price volatility of forecast oil sales is in accordance with the risk management strategy of the Group. The maturity of the commodity options the Group holds is shown in the table below: Less than 6 months 6 to 9 months 10 to 12 months Above 12 months Total Fair value ₦ million Fair value $’000 As at 31 December 2020 Crude oil hedges Volume (bbl.) As at 31 December 2019 Crude oil hedges Volume (bbl.) Currency forwards (Notional amount – $’000) 2,000,000 3,000,000 – – 5,000,000 (626) (626) (1,648) (1,648) Less than 6 months 6 to 9 months 10 to 12 months Above 12 months Total Fair value ₦ million Fair value $’000 1,500,000 1,500,000 – – 3,000,000 500 1,500 2,000 2,000 6,000 308 149 457 1,002 484 1,486 175 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.1 Market risk continued The following table summarises the impact of the commodity options on the Group’s profit before tax due to a 10% change in market inputs, with all other variables held constant: Increase/decrease in Commodity Price +10% -10% Increase/decrease in Commodity Price +10% -10% Effect on profit before tax 2020 ₦ million 63 (63) Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million 31 (31) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 165 (165) – – 100 (100) – – The Group may be exposed to business risks from fluctuations in the future prices of crude oil and gas. The following table summarises the impact on the Group’s profit before tax of a 10% change in crude oil prices, with all other variables held constant: Increase/decrease in market inputs +10% -10% Increase/decrease in market inputs +10% -10% Effect on profit before tax 2020 ₦ million 15,042 (15,042) Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million 15,195 (15,195) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 41,794 (41,794) – – 49,510 (49,510) – – The following table summarises the impact on the Group’s profit before tax of a 10% change in gas prices, with all other variables held constant: Increase/decrease in Commodity Price +10% -10% Increase/decrease in Commodity Price +10% -10% Effect on profit before tax 2020 ₦ million 4,050 (4,050) Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million 4,167 (4,167) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 11,253 (11,253) – – 13,576 (13,576) – – Cash flow and fair value interest rate risk ii. The Group’s exposure to interest rate risk relates primarily to interest-bearing loans and borrowings. The Group has both variable and fixed interest rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and short-term fixed deposit held at variable rates. Fixed rate borrowings only give rise to interest rate risk if measured at fair value. The Group’s borrowings are not measured at fair value and are denominated in US dollars. The Group is exposed to cash flow interest rate risk on short-term deposits to the extent that the significant increases and reductions in market interest rates would result in a decrease in the interest earned by the Group. 176 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The contractual re-pricing date of the interest-bearing loans and borrowings is between 3-6 months. The exposure of the Group’s variable interest-bearing loans and borrowings at the end of the reporting period is shown below. Corporate loan 2020 ₦ million 131,107 2019 ₦ million 135,112 2020 $’000 2019 $’000 345,019 440,130 The following table demonstrates the sensitivity of the Group’s profit before tax to changes in LIBOR rate, with all other variables held constant. Increase/decrease in interest rate +1% -1% Increase/decrease in interest rate +1% -1% Effect on profit before tax 2020 ₦ million 131 (131) Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million (41) 42 Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 345 (345) – – (135) 136 – – 6.1.2 Foreign exchange risk The Group has transactional currency exposures that arise from sales or purchases in currencies other than the respective functional currency. The Group is exposed to exchange rate risk to the extent that balances and transactions are denominated in a currency other than the US dollar. The Group holds most of its cash and bank balances in US dollar. However, the Group maintains deposits in Naira in order to fund ongoing general and administrative activities and other expenditure incurred in this currency. Other monetary assets and liabilities which give rise to foreign exchange risk include trade and other receivables, trade and other payables. The following table demonstrates the carrying value of monetary assets and liabilities exposed to foreign exchange risks for Naira exposures at the reporting date: Financial assets Cash and bank balances Trade and other receivables Contract assets Inventory Financial liabilities Trade and other payables Net exposure to foreign exchange risk 2020 ₦ million 85,223 443 2,343 – 88,009 2019 ₦ million 31,945 15,201 6,527 248 53,921 2020 $’000 2019 $’000 224,270 1,167 6,167 – 231,604 103,892 49,515 21,259 807 175,473 (126,116) 49,357 (90,663) (2,654) (41,847) 12,074 (238,587) (6,983) The following table demonstrates the carrying value of monetary assets and liabilities exposed to foreign exchange risks for pound exposures at the reporting date: Financial assets Cash and bank balances Trade and other receivables Financial liabilities Trade and other payables Net exposure to foreign exchange risk 2020 ₦ million 396 29,799 30,195 – 30,195 2019 ₦ million 611 1,624 2,235 (4,948) (2,713) 2020 $’000 1,041 78,419 79,460 – 79,460 2019 $’000 2,153 5,290 7,443 (16,117) (8,674) 177 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1 Financial risk factors continued Sensitivity to foreign exchange risk is based on the Group’s net exposure to foreign exchange risk due to Naira and pound denominated balances. If the Naira strengthens or weakens by the following thresholds, the impact is as shown in the table below: Increase/decrease in foreign exchange risk +5% -5% Increase/decrease in foreign exchange risk +5% -5% Effect on profit before tax 2020 ₦ million (20,983) 23,192 Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million (722) 798 Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (55,218) 61,030 – – (2,350) 2,598 – – If the pound strengthens or weakens by the following thresholds, the impact is as shown in the table below: Increase/decrease in foreign exchange risk +5% -5% Increase/decrease in foreign exchange risk +5% -5% Effect on profit before tax 2020 ₦ million (1,438) 1,589 Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2019 ₦ million 127 (140) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (3,784) 4,182 – – 413 (457) – – 6.1.3 Credit risk Credit risk refers to the risk of a counterparty defaulting on its contractual obligations resulting in financial loss to the Group. Credit risk arises from cash and bank balances, derivative financial assets as well as credit exposures to customers (i.e. Mercuria, Shell western, Pillar, Azura, Geregu Power, Sapele Power and Nigerian Gas Marketing Company (NGMC) receivables), and other parties (i.e. NAPIMS receivables, NPDC receivables and other receivables). Risk management a. The Group is exposed to credit risk from its sale of crude oil to Mercuria, Vitol, Eni Trading and Shell western. There is a 30-day payment term after Bill of Lading date in the off-take agreement with Mercuria (OMLs 4, 38 & 41) which runs for five years until 31 July 2021 and on Vitol off-take agreement (OML53 – Ohaji South Field) which expires in May 2021. While payment term is 10 days in the Eni off-take agreement (OML53 – Jisike Field) which expires in December 2020. The Group is exposed to further credit risk from outstanding cash calls from Nigerian Petroleum Development Company (NPDC) and National Petroleum Investment Management Services (NAPIMS). In addition, the Group is exposed to credit risk in relation to the sale of gas to its customers. The credit risk on cash and cash balances is managed through the diversification of banks in which the balances are held. The risk is limited because the majority of deposits are with banks that have an acceptable credit rating assigned by an international credit agency. The Group’s maximum exposure to credit risk due to default of the counterparty is equal to the carrying value of its financial assets. Impairment of financial assets b. The Group has six types of financial assets that are subject to IFRS 9’s expected credit loss model. Contract assets are also subject to the expected credit loss model, even though they are not financial assets, as they have substantially the same credit risk characteristics as trade receivables. The impairment of receivables is disclosed in the table below. • Nigerian Petroleum Development Company (NPDC) receivables • National Petroleum Investment Management Services (NAPIMS) receivables • Trade receivables • Contract assets • Other receivables • Cash and bank balances 178 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Reconciliation of impairment on financial assets As at 1 January 2020 Increase in provision for Nigerian Petroleum Development Company (NPDC) receivables Increase in provision for National Petroleum Investment Management Services (NAPIMS) receivables Increase in provision for trade receivables Increase in provision for cash and bank balances: short-term fixed deposits Increase in provision for other receivables Exchange difference Impairment charge to the profit or loss As at 31 December 2020 As at 1 January 2019 (A) Increase in provision for Nigerian Petroleum Development Company (NPDC) receivables Increase in provision for National Petroleum Investment Management Services (NAPIMS) receivables Increase in provision for trade receivables Decrease in provision for cash and bank balances: short-term fixed deposits Increase in provision for other receivables Impairment charge to the profit or loss (B) Total impairment before acquisition (A+B) Receivables written off during the year as uncollectible As at 31 December 2019 Notes 24.2 24.3 24.1 27 24.4 Notes 24.2 24.3 24.1 27 24.4 ₦’million 6,911 $’000 22,524 171 476 456 542 60 9,548 1 10,778 17,689 ₦’million 6,871 1,268 1,507 167 26,529 – 29,947 52,471 $’000 22,382 12,836 41,813 23 525 (13) 1,540 14,911 21,782 (14,871) 6,911 77 1,710 (39) 5,020 48,581 70,963 (48,439) 22,524 The parameters used to determine impairment for NPDC receivables, NAPIMS receivables, other receivables and short-term fixed deposits are shown below. For all receivables presented in the table, the respective 12-month Probability of Default (PD) equates the lifetime PD for stage 2 as the maximum contractual period over which the Group is exposed to credit risk arising from the receivables is less than 12 months. Other receivables Short-term fixed deposits The PD for stage 3 is 100%. Nigerian Petroleum Development Company (NPDC) receivables National Petroleum Investment Management Services (NAPIMS) receivables The PD for base case, downturn and upturn is 9.45%, 9.85% and 9.23% respectively for stage 1 and stage 2. The PD for stage 3 is 100%. The PD for base case, downturn and upturn is 9.45%, 9.85% and 9.23% respectively for stage 1 and stage 2. The PD for stage 3 is 100%. Probability of Default (PD) Loss Given Default (LGD) The 12-month LGD and lifetime LGD were determined using Moody’s recovery rate for senior unsecured corporate bonds for emerging economies. The 12-month LGD and lifetime LGD were determined to be 100% as no collateral was used. The 12-month LGD and lifetime LGD were determined using Management’s estimate of expected cash recoveries. Exposure at default (EAD) The EAD is the maximum exposure of the receivable to credit risk. The EAD is the maximum exposure of the receivable to credit risk. The EAD is the maximum exposure of the receivable to credit risk. The PD for base case, downturn and upturn is 11.77%, 12.75% and 10.88% respectively for stage 1 and stage 2. The PD for stage 3 is 100%. The 12-month LGD and lifetime LGD were determined using the average recovery rate for Moody’s senior unsecured corporate bonds for emerging economies. The EAD is the maximum exposure of the short- term fixed deposits to credit risk. Macroeconomic indicators The historical inflation, unemployment growth rate in Nigeria and crude oil price were used. The historical gross domestic product (GDP) growth rate in Nigeria and crude oil price were used. The historical gross domestic product (GDP) growth rate in Nigeria and crude oil price were used. The historical gross domestic product (GDP) growth rate in Nigeria and crude oil price were used. Probability weightings 80%, 11% and 9% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. 80%, 11% and 9% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. 89%, 2% and 9% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. 78%, 12% and 10% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. 179 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.3 Credit risk continued The Group considers both quantitative and qualitative indicators in classifying its receivables into the relevant stages for impairment calculation as shown below: • Stage 1: This stage includes financial assets that are less than 30 days past due (Performing). • Stage 2: This stage includes financial assets that have been assessed to have experienced a significant increase in credit risk using the days past due criteria (i.e. the outstanding receivables amounts are more than 30 days past due but less than 90 days past due) and other qualitative indicators such as the increase in political risk concerns or other macroeconomic factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial performance. • Stage 3: This stage includes financial assets that have been assessed as being in default (i.e. receivables that are more than 90 days past due) or that have a clear indication that the imposition of financial or legal penalties and/or sanctions will make the full recovery of indebtedness highly improbable. Nigerian Petroleum Development Company (NPDC) receivables i. NPDC receivables represent the outstanding cash calls due to Seplat from its Joint Arrangement partner, Nigerian Petroleum Development Company. The Group applies the IFRS 9 general model for measuring expected credit losses (ECL). This requires a three-stage approach in recognising the expected loss allowance for NPDC receivables. The ECL recognised for the period is a probability-weighted estimate of credit losses discounted at the effective interest rate of the financial asset. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). The ECL was calculated based on actual credit loss experience from 2014, which is the date the Group initially became a party to the contract. The following analysis provides further detail about the calculation of ECLs related to these assets. The Group considers the model and the assumptions used in calculating these ECLs as key sources of estimation uncertainty. There was no write-off during the year (2019: ₦14.9 billion ($48.4 million)) (see details in Note 24.2). 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL ₦’million 41,300 (619) 40,681 Stage 2 Lifetime ECL ₦’million Stage 3 Lifetime ECL ₦’million – – Stage 1 12-month ECL ₦’million 68,712 (448) 68,264 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 114,439 (7,386) 107,053 – – – – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 223,817 (1,460) 222,357 – – – – – – Total ₦’million 41,300 (619) 40,681 Total ₦’million 68,712 (448) 68,264 Total $’000 114,439 (7,386) 107,053 Total $’000 223,817 (1,460) 222,357 National Petroleum Investment Management services (NAPIMS) receivables ii. NAPIMS receivables represent the outstanding cash calls due to Seplat from its Joint Operating Arrangement (JOA) partner, National Petroleum Investment Management Services. The Group applies the general model for measuring expected credit losses (ECL) which uses a three-stage approach in recognising the expected loss allowance for NAPIMS receivables. The ECL was calculated based on actual credit loss experience from 2016, which is the date the Group initially became a party to the contract. The following analysis provides further detail about the calculation of ECLs related to these assets. The Group considers the model and the assumptions used in calculating these ECLs as key sources of estimation uncertainty. The tables below show the expected credit losses for the years ended 31 December 2020 and 31 December 2019. 180 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL ₦’million 11,832 (479) 11,353 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 31,221 (1,345) 29,876 – – – – – – Stage 1 12-month ECL ₦’million 377 (23) 354 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 1,229 (77) 1,152 – – – – – – Total ₦’million 11,832 (479) 11,353 Total $’000 31,221 (1,345) 29,876 Total ₦’million 377 (23) 354 Total $’000 1,229 (77) 1,152 Trade receivables (Gerugu Power, Sapele Power and Nigerian Gas Marketing Company) iii. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. The impairment of trade receivables (Gerugu Power, Sapele Power and NGMC) was estimated by applying the provision matrix. The expected loss rate was calculated as the percentage of the receivable that is deemed uncollectible during a particular period. The expected loss rates as at 31 December 2020 and 31 December 2019 are as follows: 31 December 2020 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total 31 December 2020 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total Current ₦’million 1,844 0.14% (2) 1,842 Current ₦’million 2,515 0.16% (4) 2,511 Current $’000 4,859 0.14% (6) 4,859 1-30 days ₦’million – 0.14% – – 1-30 days ₦’million – 0.16% – – 31-60 days ₦’million 1,005 0.14% (1) 1,004 31-60 days ₦’million 1,790 0.17% (3) 1,787 61-90 days ₦’million 1,377 0.15% (2) 1,375 61-90 days ₦’million – 0.17% – – 91- 120 days ₦’million 1,556 4.43% (66) 1,490 91- 120 days ₦’million – 0.17% – – 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – 0.14% – – 2,649 0.14% (4) 2,645 3,629 0.15% (5) 3,624 4,099 4.43% (173) 3,926 Above 120 days ₦’million 6,900 6.27% (452) 6,448 Above 120 days ₦’million 12,176 3.0% (333) 11,843 Above 120 days $’000 18,137 6.27% (1,191) 16,946 Total ₦’million 12,682 (523) 12,159 Total ₦’million 16,481 (340) 16,141 Total $’000 33,373 (1,379) 31,994 181 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.3 Credit risk continued 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total Current $’000 8,192 0.16% (11) 8,181 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – 0.16% – – 5,831 0.17% (8) 5,823 – 0.17% – – – 0.17% – – Above 120 days $’000 39,661 3.0% (1,090) 38,571 Total $’000 53,684 (1,109) 52,575 Trade receivables (Mercuria) iv. The impairment of trade receivables (Mercuria) was estimated by applying the provision matrix. The expected loss rate was calculated as the percentage of the receivable that is deemed uncollectible during a particular period. The expected loss rates as at 31 December 2020 was nil. 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total Current ₦’million 15,863 0.4% (68) 15,795 Current $’000 51,669 0.4% (219) 51,450 1-30 days ₦’million – – – – 31-60 days ₦’million – – – – 61-90 days ₦’million – – – – 91-120 days ₦’million – – – – 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – – – – – – – – – – – – – – – – Above 120 days ₦’million – – – – Above 120 days $’000 – – – – Total ₦’million 15,863 0.4% (68) 15,795 Total $’000 51,669 – (219) 51,450 Trade receivables (Pillar) v. The impairment of trade receivables (Pillar) was estimated by applying the provision matrix. The expected loss rate was calculated as the percentage of the receivable that is deemed uncollectible during a particular period. The expected loss rates as at 31 December 2020 and 31 December 2019 are as follows: 31 December 2020 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total Current ₦’million 89 1.22% (1) 88 Current ₦’million 915 1.2% (11) 904 1-30 days ₦’million – 1.22% – – 1-30 days ₦’million – 1.2% – – 31-60 days ₦’million – 2.16% – – 31-60 days ₦’million 555 15% (83) 472 61-90 days ₦’million – 15.03% – – 61-90 days ₦’million – 15% – – 91-120 days ₦’million – 52.65% – – 91-120 days ₦’million – 15% – – Above 120 days ₦’million 346 100% (346) – Above 120 days ₦’million 274 54% (149) 125 Total ₦’million 435 (347) 88 Total ₦’million 1,744 (243) 1,501 182 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31 December 2020 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24.1) Total Current $’000 234 1.22% (2) 232 Current $’000 2,980 1.2% (35) 2,944 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – 1.22% – – – 2.16% – – – 15.03% – – – 52.65% – – 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – 1.2% – – 1,808 15% (272) 1,536 – 15% – – – 15% – – Above 120 days $’000 913 100% (913) – Above 120 days $’000 894 54% (483) 411 Total $’000 1,147 (915) 232 Total $’000 5,682 (790) 4,891 Contract assets vi. The expected credit losses on contract assets have been assessed to be immaterial and the loss rates insignificant. vii. Other receivables Other receivables are amounts outside the usual operating activities of the Group. Included in other receivables is a receivable amount on an investment that is no longer being pursued. The Group applied the general approach in estimating the expected credit loss. 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL ₦’million – – – Stage 1 12-month ECL ₦’million – – – Stage 2 Lifetime ECL ₦’million – – – Stage 2 Lifetime ECL ₦’million 29,633 (2,685) 26,948 Stage 3 Lifetime ECL ₦’million 16,348 (15,303) 1,045 Stage 3 Lifetime ECL ₦’million 3,070 (3,070) – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 – – – – – – 48,070 (45,319) 2,751 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 – – – 96,571 (8,790) 87,781 10,000 (10,000) – Total ₦’million 16,348 (15,303) 1,045 Total ₦’million 32,703 (5,755) 26,948 Total $’000 48,070 (45,319) 2,751 Total $’000 106,571 (18,790) 87,781 183 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.3 Credit risk continued viii. Cash and cash equivalent Short-term fixed deposits The Group applies the IFRS 9 general model for measuring expected credit losses (ECL) which uses a three-stage approach in recognising the expected loss allowance for cash and bank balances. The ECL was calculated as the probability weighted estimate of the credit losses expected to occur over the contractual period of the facility after considering macroeconomic indicators. 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL ₦’million 8,061 (93) 7,968 Stage 1 12-month ECL ₦’million 29,741 (23) 29,718 Stage 2 Lifetime ECL ₦’million – – – Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 21,212 (246) 20,966 – – – – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 96,878 (79) 96,799 – – – – – – Total ₦’million 8,061 (93) 7,968 Total ₦’million 29,741 (23) 29,718 Total $’000 21,212 (246) 20,966 Total $’000 96,878 (79) 96,799 Other cash and bank balances The Group assessed the other cash and bank balances to determine their expected credit losses. Based on this assessment, they identified the expected credit loss to be nil as at 31 December 2020 (2019: nil). The assets are assessed to be in stage 1. Credit quality of cash and bank balances The credit quality of the Group’s cash and bank balances are assessed on the basis of external credit ratings (Fitch national long-term ratings) as shown below cash and bank balances are all in Stage 1 based on the ECL assessment: Non-rated BBB- B B+ A A+ AA- AAA Allowance for impairment recognised during the year (Note 27) Net cash and cash bank balances 2020 ₦ million 4,841 672 – – – 80,832 9,004 3,059 98,408 (93) 98,315 2019 ₦ million 6 – 25,987 1,713 4,182 65,684 750 3,941 102,263 (23) 102,240 2020 $‘000 12,740 1,764 – – – 212,717 23,694 8,049 258,964 (246) 258,718 2019 $‘000 19 – 84,649 5,580 13,623 213,956 2,444 12,836 333,107 (79) 333,028 184 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Maximum exposure to credit risk – financial instruments subject to impairment c. The Group estimated the expected credit loss on NPDC receivables, NAPIMS receivables and short-term fixed deposits by applying the general model. The gross carrying amount of financial assets represents the Group’s maximum exposure to credit risks on these assets. All financial assets impaired using the General model (NPDC, NAPIMS and short-term fixed deposits) are graded under the standard monitoring credit grade (rated B- under Standard and Poor’s unmodified ratings) and are classified under Stage 1, except for the other receivables which are graded under the investment grade (rated AA under Standard and Poor’s unmodified ratings) and classified in Stage 2 and Stage 3. Roll forward movement in loss allowance d. The loss allowance recognised in the period is impacted by a variety of factors, as described below: • Transfers between Stage 1 and Stage 2 or Stage 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit impaired in the period, and the consequent ‘step up’ (or ‘step down’) between 12-month and lifetime ECL; • Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments derecognised in the period; • Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models; • Discount unwind within ECL due to passage of time, as ECL is measured on a present value basis; • Foreign exchange retranslation for assets dominated in foreign currencies and other movements; and • Financial assets derecognised during the period and write-off of receivables and allowances related to assets. The following tables explain the changes in the loss allowance between the beginning and end of the annual period due to these factors: Nigerian Petroleum Development Company (NPDC) receivables Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Stage 1 12-month ECL ₦ million 448 171 171 619 Stage 2 Lifetime ECL ₦ million – – – Stage 3 Lifetime ECL ₦ million – Purchased credit-impaired ₦ million – – – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Purchased credit-impaired $’000 Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Loss allowance as at 31 December 2020 1,460 476 476 1,936 National Petroleum Investment Management services (NAPIMS) receivables – – – – Stage 2 Lifetime ECL ₦ million – – – – – – – – – – – – Stage 3 Lifetime ECL ₦ million – Purchased credit-impaired ₦ million – – – – – – – Stage 1 12-month ECL ₦ million 23 456 456 479 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Purchased credit-impaired $’000 77 1,268 1,268 1,345 – – – – – – – – – – – – Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Total ₦ million 448 171 171 619 Total $’000 1,460 476 476 1,936 Total ₦ million 23 456 456 479 Total $’000 77 1,268 1,268 1,345 185 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.3 Credit risk continued Other receivables Loss allowance as at 1 January 2020 Movements with profit or loss impact Changes in PDs/LGDs/EADs Transfer to stage 3 Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Loss allowance as at 1 January 2020 Movements with profit or loss impact Changes in PDs/LGDs/EADs Transfer to stage 3 Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Short-term fixed deposit Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Other movements with no profit or loss impact Exchange difference Loss allowance as at 31 December 2020 Loss allowance as at 1 January 2020 Movements with profit or loss impact New financial assets originated or purchased Total net profit or loss charge during the period Loss allowance as at 31 December 2020 Stage 1 12-month ECL ₦ million – – – – – Stage 1 12-month ECL $’000 – – – – – Stage 1 12-month ECL ₦ million 23 60 60 10 93 Stage 2 Lifetime ECL ₦ million 1,227 – (1,227) (1,227) – Stage 2 Lifetime ECL $’000 3,980 – (3,980) (3,980) – Stage 2 Lifetime ECL ₦ million – – – – – Stage 3 Lifetime ECL ₦ million 4,528 9,548 1,227 10,775 15,303 Stage 3 Lifetime ECL $’000 14,810 26,529 3,980 30,509 45,319 Stage 3 Lifetime ECL ₦ million – – – – – Purchased credit-impaired ₦ million – – – – – Purchased credit-impaired $’000 – – – – Purchased credit-impaired ₦ million – – – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Purchased credit-impaired $’000 79 167 167 246 – – – – – – – – – – – – Total ₦ million 5,755 9,548 – 9,548 15,303 Total $’000 18,790 26,529 – 26,529 45,319 Total ₦ million 23 60 60 10 93 Total $’000 79 167 167 246 Estimation uncertainty in measuring impairment loss e. The table below shows information on the sensitivity of the carrying amounts of the Group’s financial assets to the methods, assumptions and estimates used in calculating impairment losses on those financial assets at the end of the reporting period. These methods, assumptions and estimates have a significant risk of causing material adjustments to the carrying amounts of the Group’s financial assets. Expected cash flows recoverable i. The table below demonstrates the sensitivity of the Group’s profit before tax to a 20% change in the expected cash flows from financial assets, with all other variables held constant: Effect on profit before tax 2020 ₦ million Effect on other components of equity before tax 2020 ₦ million Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 41 (41) – – 108 (108) – – Increase/decrease in estimated cash flows +20% -20% 186 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Increase/decrease in estimated cash flows +20% -20% Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 94 (94) – – 305 (305) – – Significant unobservable inputs ii. The table below demonstrates the sensitivity of the Group’s profit before tax to movements in the loss given default (LGD) for financial assets, with all other variables held constant: Increase/decrease in loss given default +10% -10% Increase/decrease in loss given default +10% -10% Effect on profit before tax 2020 ₦ million Effect on other components of equity before tax 2020 ₦ million Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 (285) 285 – – (749) 749 – – Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (46) 46 – – (145) 145 – – The table below demonstrates the sensitivity of the Group’s profit before tax to movements in probabilities of default, with all other variables held constant: Increase/decrease in probability of default +10% -10% Increase/decrease in probability of default +10% -10% Effect on profit before tax 2020 ₦ million Effect on other components of equity before tax 2020 ₦ million Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 (188) 188 – – (496) 496 – – Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (49) 49 – – (159) 159 – – The table below demonstrates the sensitivity of the Group’s profit before tax to movements in the forward-looking macroeconomic indicators, with all other variables held constant: Increase/decrease in forward-looking macroeconomic indicators +10% -10% Effect on profit before tax 2020 ₦ million Effect on other components of equity before tax 2020 ₦ million Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 (230) 230 – – (605) 605 – – Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 Increase/decrease in forward-looking macroeconomic indicators +10% -10% (46) 46 – – (145) 145 – – 187 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.4 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due. The Group uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are sufficient cash resources to meet operational needs. Cash flow projections take into consideration the Group’s debt financing plans and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest-bearing current accounts, time deposits and money market deposits. The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed maturity periods. The table has been drawn based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Group can be required to pay. Effective interest rate % Less than 1 year ₦ million 1 – 2 year ₦ million 2 – 3 years ₦ million 3 – 5 years ₦ million Total ₦ million 31 December 2020 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings Citibank, N.A., London Branch Nedbank Limited London Stanbic IBTC Bank Plc The Standard Bank of South Africa Limited RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd JPMorgan Chase Bank, N.A., London Branch Standard Chartered Bank Natixis Société Générale, London Branch Zenith Bank Plc United Bank for Africa Plc First City Monument Bank Limited First Bank of Nigeria The Mauritius Commercial Bank Ltd Stanbic IBTC Bank Plc/The Standard Bank of South Africa Limited Total variable interest borrowings Other non-derivatives Trade and other payables** Lease liability Total 9.25% – – 133,000 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 8% + LIBOR 8% + LIBOR 724 724 362 362 724 724 543 543 543 271 271 271 271 1,140 3,268 10,133 10,133 5,067 5,067 10,133 10,133 7,600 7,600 7,600 3,800 3,800 3,800 3,800 2,993 8,579 8% + LIBOR 5,092 13,367 – – – – – – – – – – – – – 428 1,226 1,910 15,833 113,605 3,564 130,468 933 131,401 147,234 – 895 895 114,500 – 731 731 137,295 – – – – – – – – – – – – – – – – – – – 25 25 25 133,000 10,857 10,857 5,429 5,429 10,857 10,857 8,143 8,143 8,143 4,071 4,071 4,071 4,071 4,561 13,073 20,369 133,002 130,468 2,584 133,052 399,054 188 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Effective interest rate % Less than 1 year ₦ million 1 – 2 year ₦ million 2 – 3 years ₦ million 3 – 5 years ₦ million Total ₦ million 9.25% 31 December 2019 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings 6.0% +LIBOR Citibank, N.A., London Branch 6.0% +LIBOR Nedbank Limited London 6.0% +LIBOR Stanbic IBTC Bank Plc 6.0% +LIBOR The Standard Bank of South Africa Limited 6.0% +LIBOR RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd 6.0% +LIBOR JPMorgan Chase Bank, N.A., London Branch 6.0% +LIBOR 6.0% +LIBOR Standard Chartered Bank 6.0% +LIBOR Natixis 6.0% +LIBOR Société Générale, London Branch 6.0% +LIBOR Zenith Bank Plc 6.0% +LIBOR United Bank for Africa Plc 6.0% +LIBOR First City Monument Bank Limited Acquired through business combination – Stanbic IBTC Bank Plc & The Mauritius Commercial Bank Ltd Total variable interest borrowings Other non-derivatives Trade and other payables** Lease liability Total 8.0% +LIBOR 10,105 10,077 10,077 112,475 142,734 1,020 1,020 510 510 1,020 1,020 764 764 764 383 383 383 383 8,924 10,230 19,154 114,388 247 114,635 143,894 5,078 5,078 2,539 2,539 5,078 5,078 3,808 3,808 3,808 1,904 1,904 1,904 1,904 44,430 9,461 53,891 – 155 155 64,123 4,750 4,750 2,375 2,375 4,750 4,750 3,564 3,564 3,564 1,781 1,781 1,781 1,781 41,566 7,844 49,410 – 1,059 1,059 60,546 4,421 4,421 2,211 2,211 4,421 4,421 3,316 3,316 3,316 1,658 1,658 1,658 1,658 38,686 5,835 44,521 – 2,036 2,036 159,032 15,269 15,269 7,635 7,635 15,269 15,269 11,452 11,452 11,452 5,726 5,726 5,726 5,726 133,606 33,370 166,976 114,388 3,496 117,884 427,594 189 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued Financial risk factors continued 6.1 6.1.4 Liquidity risk continued Effective interest rate % Less than 1 year $’000 1 – 2 year $’000 2 – 3 years $’000 3 – 5 years $’000 Total $’000 31 December 2020 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings Citibank, N.A., London Branch Nedbank Limited London Stanbic IBTC Bank Plc The Standard Bank of South Africa Limited RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd JPMorgan Chase Bank, N.A., London Branch Standard Chartered Bank Natixis Société Générale, London Branch Zenith Bank Plc United Bank for Africa Plc First City Monument Bank Limited First Bank of Nigeria The Mauritius Commercial Bank Ltd Stanbic IBTC Bank Plc/The Standard Bank of South Africa Limited Total variable interest borrowings Other non – derivatives Trade and other payables** Lease liability Total 9.25% – – 350,000 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 8% + LIBOR 8% + LIBOR 1,905 1,905 952 952 1,905 1,905 1,429 1,429 1,429 714 714 714 713 3,000 8,600 26,667 26,667 13,333 13,333 26,667 26,667 20,000 20,000 20,000 10,000 10,000 10,000 10,000 7,875 22,575 – – – – – – – – – – – – – 1,125 3,225 8% + LIBOR 13,400 35,175 5,025 41,666 298,959 9,375 343,341 2,455 345,796 387,462 – 2,354 2,354 301,313 – 1,924 1,924 361,299 – – – – – – – – – – – – – – – – – – – 67 67 67 350,000 28,572 28,572 14,285 14,285 28,572 28,572 21,429 21,429 21,429 10,714 10,714 10,714 10,713 12,000 34,400 53,600 350,000 343,324 6,800 350,141 1,050,142 190 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Effective interest rate % Less than 1 year $’000 1 – 2 year $’000 2 – 3 years $’000 3 – 5 years $’000 Total $’000 32,915 32,825 32,825 366,367 464,932 9.25% 31 December 2019 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings 6.0% +LIBOR Citibank, N.A., London Branch 6.0% +LIBOR Nedbank Limited London 6.0% +LIBOR Stanbic IBTC Bank Plc 6.0% +LIBOR The Standard Bank of South Africa Limited 6.0% +LIBOR RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd 6.0% +LIBOR JPMorgan Chase Bank, N.A., London Branch 6.0% +LIBOR 6.0% +LIBOR Standard Chartered Bank 6.0% +LIBOR Natixis 6.0% +LIBOR Société Générale, London Branch 6.0% +LIBOR Zenith Bank Plc 6.0% +LIBOR United Bank for Africa Plc 6.0% +LIBOR First City Monument Bank Limited 3,321 3,321 1,661 1,661 3,321 3,321 2,491 2,491 2,491 1,246 1,246 1,246 1,246 29,063 16,540 16,540 8,270 8,270 16,540 16,540 12,405 12,405 12,405 6,203 6,203 6,203 6,203 144,727 Acquired through business combination – Stanbic IBTC Bank Plc & The Mauritius Commercial Bank Ltd Total variable interest borrowings Other non-derivatives Trade and other payables** Lease liability Total 8.0% +LIBOR 33,322 62,385 30,820 175,547 372,599 803 373,402 468,702 – 505 505 208,877 15,471 15,471 7,736 7,736 15,471 15,471 11,604 11,604 11,604 5,802 5,802 5,802 5,802 135,376 25,549 160,925 – 3,449 3,449 197,199 14,402 14,402 7,201 7,201 14,402 14,402 10,802 10,802 10,802 5,401 5,401 5,401 5,401 126,020 19,005 145,025 – 6,632 6,632 518,024 49,734 49,734 24,868 24,868 49,734 49,734 37,302 37,302 37,302 18,652 18,652 18,652 18,652 435,186 108,696 543,882 372,599 11,389 383,988 1,392,802 Trade and other payables (exclude non-financial liabilities such as provisions, taxes, pension and other non-contractual payables) 6.1.5 Fair value measurements Set out below is a comparison by category of carrying amounts and fair value of all financial instruments: Financial assets at amortised cost Trade and other receivables* Contract assets Cash and bank balances Financial assets at fair value Derivative financial instruments (Note 26) Financial liabilities at amortised cost Interest-bearing loans and borrowings Trade and other payables Financial liabilities at fair value Derivative financial instruments (Note 26) Carrying amount Fair value 2020 ₦ million 2019 ₦ million 2020 ₦ million 2019 ₦ million 58,398 2,343 98,315 159,056 – – 35,225 6,527 102,240 143,992 457 457 58,398 2,343 98,315 159,056 – – 35,225 6,527 102,240 143,992 457 457 265,398 93,537 358,935 242,349 106,260 348,609 277,170 93,537 370,707 229,805 106,260 336,065 626 626 – – 626 626 – – 191 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1 Financial risk factors continued 6.1.5 Fair value measurements continued Financial assets at amortised cost Trade and other receivables* Contract assets Cash and bank balances Financial assets at fair value Derivative financial instruments (Note 26) Financial liabilities at amortised cost Interest-bearing loans and borrowings Trade and other payables Financial liabilities at fair value Derivative financial instruments (Note 26) Carrying amount 2020 $’000 2019 $’000 Fair value 2020 $’000 153,680 6,167 258,718 418,565 – – 114,740 21,259 333,028 469,027 1,486 1,486 153,680 6,167 258,718 418,565 – – 2019 $’000 114,740 21,259 333,028 469,027 1,486 1,486 698,415 246,150 944,565 789,408 346,125 1,135,533 729,395 246,150 975,545 748,551 346,125 1,094,676 1,648 1,648 – – 1,648 1,648 – – *Trade and other receivables exclude Geregu Power, Sapele Power and NGMC VAT receivables, cash advances and advance payments. In determining the fair value of the interest-bearing loans and borrowings, non-performance risks of the Group as at year end were assessed to be insignificant. Trade and other payables (exclude non-financial liabilities such as provisions, taxes, pension and other non-contractual payables), trade and other receivables (excluding prepayments), contract assets and cash and bank balances are financial instruments whose carrying amounts as per the financial statements approximate their fair values. This is mainly due to their short-term nature. 6.1.6 Fair value hierarchy As at the reporting period, the Group had classified its financial instruments into the three levels prescribed under the accounting standards. There were no transfers of financial instruments between fair value hierarchy levels during the year. • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities. • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The fair value of the financial instruments is included at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Recurring fair value measurements Financial liability 31 Dec 2020 Financial liabilities: Derivative financial instruments Financial assets 31 Dec 2019 Financial assets: Derivative financial instruments Level 1 ₦ million Level 2 ₦ million Level 3 ₦ million Level 1 $’000 Level 2 $’000 Level 3 $’000 – (626) – – (1,648) – Level 1 ₦ million Level 2 ₦ million Level 3 ₦ million Level 1 $’000 – – 457 457 – – – – Level 2 $’000 1,486 1,486 Level 3 $’000 – – The fair value of the Group’s derivative financial instruments has been determined using a proprietary pricing model that uses marked to market valuation. The valuation represents the mid-market value and the actual close-out costs of trades involved. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models. The derivative financial instruments are in level 2. Financial liabilities 31 Dec 2020 Financial liabilities: Interest-bearing loans and borrowings Level 1 ₦ million Level 2 ₦ million Level 3 ₦ million Level 1 $’000 Level 2 $’000 Level 3 $’000 – 277,170 – – 729,395 – 192 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Recurring fair value measurements continued Financial liabilities continued 31 Dec 2019 Financial liabilities: Interest-bearing loans and borrowings Level 1 ₦ million Level 2 ₦ million Level 3 ₦ million Level 1 $’000 Level 2 $’000 Level 3 $’000 – – 229,805 229,805 – – – – 748,551 748,551 – – The fair value of the Group’s interest-bearing loans and borrowings is determined by using discounted cash flow models that use market interest rates as at the end of the period. The interest-bearing loans and borrowings are in level 2. The valuation process The finance & planning team of the Group performs the valuations of financial and non-financial assets required for financial reporting purposes, including level 3 fair values. This team reports directly to the General Manager (GM) Commercial who reports to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussions of valuation processes and results are held between the GM and the valuation team at least once every quarter, in line with the Group’s quarterly reporting periods. 6.1.7 Capital management Risk management The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, to maintain optimal capital structure and reduce cost of capital. Consistent with others in the industry, the Group monitors capital on the basis of the following gearing ratio, net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank balances. Interest-bearing loans and borrowings Lease liabilities Less: cash and bank balances Net debt Total equity Total capital Net debt (net debt/total capital) ratio 2020 ₦ million 265,398 2,270 (98,315) 169,353 632,337 801,690 21% 2019 ₦ million 242,349 2,829 (102,240) 142,938 553,808 696,746 21% 2020 $’000 698,415 5,974 (258,718) 439,697 1,664,045 2,103,742 21% 2019 $’000 789,408 9,210 (333,028) 465,590 1,803,939 2,269,529 21% During the year, the Group’s strategy, which was unchanged from 2019, was to maintain a net debt gearing ratio of 20% to 40%. Capital includes share capital, share premiums, capital contribution and all other equity reserves. As the Group continuously reviews its funding and maturity profile, it continues to monitor the market in ensuring that it's well positioned for any refinancing and or buy back opportunities for the current debt facilities – including potentially the US$350 million 9.25% 144A/Reg S bond maturing in 2023. Loan covenant Under the terms of the major borrowing facilities, the Group is required to comply with the following financial covenants: • Total net financial indebtedness to annualised EBITDA is not to be greater than 3:1. • The sources of funds exceed the relevant expenditures in each semi-annual period within the 18 months shown in the Group’s liquidity plan. • The minimum production levels stipulated for each six-month period must be achieved. • The Cash Adjusted Debt Service Cover Ratio should be equal to or greater than 1.20 to 1 for each Calculation Period through to the applicable Termination Date. The Group has complied with these covenants throughout the reporting periods. 7. Segment reporting Business segments are based on the Group’s internal organisation and management reporting structure. The Group’s business segments are the two core businesses: Oil and Gas. The Oil segment deals with the exploration, development and production of crude oil while the Gas segment deals with the production and processing of gas. These two reportable segments make up the total operations of the Group. For the year ended 31 December 2020, revenue from the gas segment of the business constituted 21% (2019: 29%) of the Group’s revenue. Management is committed to continued growth of the gas segment of the business, including through increased investment to establish additional offices, create a separate gas business operational management team and procure the required infrastructure for this segment of the business. The gas business is positioned separately within the Group and reports directly to the chief operating decision maker. As the Gas business segment’s revenues, results and cash flows are largely independent of other business units within the Group, it is regarded as a separate segment. The result is two reporting segments, Oil and Gas. There were no intersegment sales during the reporting periods under consideration, therefore all revenue was from external customers. 193 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 7. Segment reporting continued Amounts relating to the Gas segment are determined using the gas cost centres, with the exception of depreciation. Depreciation relating to the Gas segment is determined by applying a percentage which reflects the proportion of the Net Book Value of oil and gas properties that relates to gas investment costs (i.e. cost for the gas processing facilities). The Group accounting policies are also applied in the segment reports. 7.1 Segment profit disclosure Oil Gas Total (loss)/profit from continued operations for the year Oil Revenue from contract with customers Crude oil sales (Note 8) Operating profit before depreciation, amortisation and impairment Depreciation and amortisation Impairment Operating (loss)/profit Finance income (Note 14) Finance costs (Note 14) (Loss)/profit before taxation Income tax credit/(expense) (Note 15) (Loss)/profit for the period Gas Revenue from contract with customer Gas sales Gas processing Operating profit before depreciation, amortisation and impairment Depreciation and amortisation (Impairment loss)/reversal of impairment loss Operating profit Share of profit from joint venture accounted for using equity accounting Profit before taxation Taxation Profit for the year 2020 ₦’million (56,471) 25,759 (30,712) 2019 ₦’million 26,623 54,352 80,975 2020 $’000 (156,893) 71,571 (85,322) 2019 $’000 86,743 177,099 263,842 2020 ₦’million 2019 ₦’million 2020 $’000 2019 $’000 150,422 151,954 417,941 495,104 64,977 (52,766) (51,856) (39,645) 601 (18,656) (57,700) 1,229 (56,471) 2020 ₦’million 40,500 – 40,500 32,024 (3,700) (97) 28,227 601 28,828 (3,069) 25,759 81,984 (25,570) (14,692) 41,722 4,134 (10,294) 35,562 (8,939) 26,623 2019 ₦’million 41,668 20,535 62,203 60,277 (6,031) (219) 54,027 325 54,352 – 54,352 159,979 (126,044) (144,080) (110,145) 1,671 (51,834) (160,308) 3,415 (156,893) 268,597 (84,792) (47,869) 135,936 13,471 (33,539) 115,868 (29,125) 86,743 2020 $’000 2019 $’000 112,526 – 112,526 88,977 (10,279) (269) 78,429 1,670 80,099 (8,528) 71,571 135,761 66,912 202,673 188,835 (12,085) (712) 176,039 1,060 177,099 – 177,099 During the reporting period, impairment losses recognised in the Gas segment relates to Geregu Power, Sapele Power and NGMC. Impairment losses recognised in the Oil segment relate to receivables from trade receivables (Pillar and Mercuria) NPDC, NAPIMS and other receivables. See Note 12 for further details. 7.1.1 Disaggregation of revenue from contracts with customers The Group derives revenue from the transfer of commodities at a point in time or over time and from different geographical regions. 2020 Oil ₦’million 53,587 96,835 150,422 150,422 – 150,422 2020 Gas ₦’million 40,500 – 40,500 – 40,500 40,500 2020 Total ₦’million 94,087 96,835 190,922 150,422 40,500 190,922 2020 Oil $’000 148,890 269,051 417,941 417,941 – 417,941 2020 Gas $’000 112,526 – 112,526 – 112,526 112,526 2020 Total $’000 261,416 269,051 530,467 417,941 112,526 530,467 Geographical markets Nigeria Switzerland Revenue from contract with customers Timing of revenue recognition At a point in time Over time Revenue from contract with customers 194 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Geographical markets Nigeria Switzerland Revenue from contract with customers Timing of revenue recognition At a point in time Over time Revenue from contract with customers 2019 Oil ₦’million 13,424 138,530 151,954 151,954 – 151,954 2019 Gas ₦’million 62,203 – 62,203 – 62,203 62,203 2019 Total ₦’million 75,627 138,530 214,157 151,954 62,203 214,157 2019 Oil $’000 43,740 451,364 495,104 495,104 – 495,104 2019 Gas $’000 202,673 – 202,673 – 202,673 202,673 2019 Total $’000 246,413 451,364 697,777 495,104 202,673 697,777 The Group’s transactions with its major customer, Mercuria, constitutes more than 64% ($269 million, ₦97 billion) of the total revenue from the Oil segment and the Group as a whole. Also, the Group’s transactions with Geregu Power, Sapele Power and NGMC ($63 million, ₦22.7 billion) accounted for more than 59% of the total revenue from the Gas segment and the Group as a whole. 7.1.2 Impairment/(reversal of) losses on financial assets by reportable segments Impairment losses recognised during the period Receivables written off during the year as uncollectible Reversal of previous impairment losses Impairment losses recognised during the period Receivables written off during the year as uncollectible Reversal of previous impairment losses 2020 Oil ₦’million 10,761 – (80) 10,681 2020 Oil $’000 29,899 – (221) 29,678 2020 Gas ₦’million 2020 Total ₦’million 2019 Oil ₦’million 2019 Gas ₦’million 97 – – 97 2020 Gas $’000 269 – – 269 10,858 1,870 – (80) 10,778 2020 Total $’000 14,871 (2,049) 14,692 2019 Oil $’000 30,168 6,097 – (221) 29,947 48,439 (6,667) 47,869 219 – – 219 2019 Gas $’000 712 – – 712 2019 Total ₦’million 2,089 14,871 (2,049) 14,911 2019 Total $’000 6,809 48,439 (6,667) 48,581 7.1.3 Impairment/(reversal of) losses on non-financial assets by reportable segments Impairment losses recognised during the period Impairment losses recognised during the period 2020 Oil ₦’million 41,175 41,175 2020 Oil $’000 114,402 114,402 2020 Gas ₦’million – – 2020 Gas $’000 – – 2020 Total ₦’million 41,175 41,175 2020 Total $’000 114,402 114,402 2019 Oil ₦’million 2019 Gas ₦’million 2019 Total ₦’million – – 2019 Oil $’000 – – – – 2019 Gas $’000 – – – – 2019 Total $’000 – – Segment assets 7.2 Segment assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the reporting segment and the physical location of the asset. The Group had no non-current assets domiciled outside Nigeria. Total segment assets 31 December 2020 31 December 2019 Oil ₦’million 1,101,463 763,322 Gas ₦’million 209,374 240,911 Total ₦’million 1,310,837 1,004,233 Oil $’000 2,898,588 2,563,147 Gas $’000 550,985 707,963 Total $’000 3,449,573 3,271,110 Segment liabilities 7.3 Segment liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment. Total segment liabilities 31 December 2020 31 December 2019 Oil ₦’million 654,095 434,334 Gas ₦’million 24,405 16,091 Total ₦’million 678,500 450,425 Oil $’000 1,721,305 1,398,462 Gas $’000 64,223 68,709 Total $’000 1,785,528 1,467,171 195 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 8. Revenue from contracts with customers Crude oil sales Gas sales Gas processing 2020 ₦ million 150,422 40,500 – 190,922 2019 ₦ million 151,954 41,668 20,535 214,157 2020 $’000 417,941 112,526 – 530,467 2019 $’000 495,104 135,761 66,912 697,777 The major off-taker for crude oil is Mercuria and Shell Western. The major off-taker for gas is Geregu Power, Sapele Power, Nigerian Gas Marketing Company and Azura. Gas processing is revenue received from Nigerian Petroleum Development Company (NPDC) for processing its share of the gas extracted from OML 4, 38 and 41 from 2015 to 2018. Subsequently, NPDC acquired 55% stake in the gas plant, as a result of this acquisition, Seplat has ceased to process gas for NPDC. 9. Cost of sales Royalties Depletion, depreciation and amortisation (Note 17.7) Crude handling fees Nigeria Export Supervision Scheme (NESS) fee Barging and Trucking Niger Delta Development Commission Levy Rig related costs Operational & maintenance expenses 2020 ₦ million 36,483 45,876 20,198 130 5,753 3,224 – 34,424 146,088 2019 ₦ million 29,654 27,952 17,616 181 – 2,599 1,872 12,824 92,698 2020 $’000 101,366 127,464 56,119 361 15,986 8,957 – 95,639 405,892 2019 $’000 96,622 91,075 57,396 589 – 8,469 6,101 41,787 302,039 Operational & maintenance expenses relates mainly to maintenance costs, gas flare penalty, warehouse operations expenses, security expenses, community expenses, clean-up costs, fuel supplies and catering services. Included in operational and maintenance is a gas flare penalty of $6.2million. Also included in operational & maintenance expenses are OML 40 and OML 17 Ubima field expenses totalling $42million for Eland group which were not included in 2019 financials. Barging and Trucking relates to costs for the OML 40 Gbetiokun field and OML 17 Ubima field respectively under Eland Group, which were not included in 2019 financials. 10. Other income Underlift/(Overlift) (Loss)/gain on foreign exchange Gains on disposal of oil and gas assets Crude hedging income Provision no longer required (Note 33) Tariffs 2020 ₦ million 17,996 (680) 1 9,487 2,597 783 30,184 2019 ₦’million (2,101) 735 9,462 – – 1,074 9,170 2020 $’000 50,001 (1,890) 3 26,358 7,217 2,175 83,864 2019 $’000 (6,847) 2,395 30,830 – – 3,498 29,876 Overlifts are excess crude lifted above the share of production. It may exist when the crude oil lifted by the Group during the period is above its ownership share of production. Overlifts are initially measured at the market price of oil at the date of lifting and recognised in profit or loss. At each reporting period, overlifts are remeasured at the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss. Underlifts are shortfalls of crude lifted below the share of production. It may exist when the crude oil lifted by the Group during the period is less than its ownership share of production. The shortfall is initially measured at the market price of oil at the date of lifting and recognised as other income. At each reporting period, the shortfall is remeasured at the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss as other income. (Loss)/gains on foreign exchange are principally as a result of translation of Naira denominated monetary assets and liabilities. Provision no longer required relates to contingent liability initially recognised on acquisition of Eland. The liability is an outcome of the European union state aid – UK Controlled Foreign Companies (CFC) case required companies in tax efficient jurisdictions to assess the profit allocable to UK significant people functions (SPFs). Tariffs, which is a form of crude handling fee, relate to income generated from the use of the Group’s pipeline. 196 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 11. General and administrative expenses Depreciation (Note 17.5) Depreciation of right-of-use assets (Note 19) Auditor’s remuneration Professional and consulting fees Directors’ emoluments (executive) Directors’ emoluments (non-executive) Donations Employee benefits (Note 11.1) Flights and other travel costs Rentals 2020 ₦ million 1,936 1,254 366 4,111 1,642 1,284 158 15,179 1,257 185 27,372 2019 ₦’million 872 908 170 3,195 770 1,056 73 11,565 2,792 274 21,675 2020 $’000 5,376 3,483 1,017 11,421 4,561 3,567 439 42,172 3,495 516 76,047 2019 $’000 2,841 2,960 553 10,408 2,508 3,440 237 37,681 9,097 892 70,617 Included in employee benefits are Eland staff costs of ₦3.6 billion ($10.2 million). There were non-audit services rendered by the Group’s auditors during the period. Share-based payment expenses are included in employee benefits expense. 11.1 Salaries and employee related costs include the following: Short-term employee benefits: Basic salary Housing allowances Other allowances Post-employment benefits: Defined contribution expenses Defined benefit expenses (Note 35.2) Other employee benefits: Share-based payment expenses (Note 28.2) 2020 ₦ million 2019 ₦ million 8,458 1,356 2,374 726 409 1,856 15,179 5,300 622 1,814 622 343 2,864 11,565 2020 $’000 23,498 3,768 6,596 2,018 1,135 5,157 42,172 2019 $’000 17,272 2,026 6,017 2,026 1,117 9,223 37,681 Other allowances relate to staff bonus, car allowances and relocation expenses. 11.2 Below are details of non-audit services provided by the auditors: Entity Service PWC office Fees ($) Seplat Petroleum Development UK Eland Oil and Gas Limited Seplat Petroleum Development UK Seplat Petroleum Development Company Plc Seplat Petroleum Development UK Tax compliance Review of G&A costs allocation VAT compliance service Remuneration committee support, advice to management on reward matters PWC UK Personal/individual tax services PWC UK PWC UK PWC UK PWC UK 27,300 68,250 13,650 750,750 27,300 Year 2021 2020 2020 2020 2021 11.3 Below are details of assurance service providers to the Group during the year: S/N Name of Signer Name of firm Service rendered 1 2 3 4 Gen Wingrave* Tosin Famurewa* Stephen T. Philips* Matthew Johnson* Ganiu Shefiu* *The signers and firms do not have FRCN numbers. RPS Group (UK) Decommissioning cost valuation Ryder Scott Petroleum Consultants Ascension Consulting Logic Professional Service Reserve valuation Tax consultancy service Actuarial valuation service 197 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 12. Impairment loss Impairment losses on financial assets – net (Note 12.1) Impairment loss on non-financial assets (Note 12.2) 12.1 Impairment losses on financial assets – net Impairment losses on: NAPIMS receivables NPDC receivables Other receivables Trade receivables (Geregu Power, Sapele Power and NGMC) Short-term deposits Other trade receivables Trade receivables (Mercuria) Receivables written off during the year as uncollectible Reversal of impairment losses on: Mercuria NPDC receivables Short-term deposits Exchange difference Total impairment loss allowance 12.2 Impairment loss on non-financial assets: Impairment loss 2020 ₦ million 10,778 41,175 51,953 2020 ₦ million 456 171 9,548 97 60 525 – 10,857 – 10,857 (80) – – (80) 1 10,778 2020 ₦ million 41,175 2019 ₦ million 14,911 – 14,911 2019 ₦ million 23 – 1,540 219 – 239 68 2,089 14,871 16,960 – (2,036) (13) (2,049) – 14,911 2019 ₦ million – 2020 $’000 29,947 114,402 144,349 2019 $’000 48,581 – 48,581 2020 $’000 2019 $’000 1,268 476 26,529 269 167 1,459 – 30,168 – 30,168 (221) – – (221) – 29,947 2020 $’000 114,402 77 – 5,020 712 – 779 221 6,809 48,439 55,248 – (6,628) (39) (6,667) – 48,581 2019 $’000 – During the year, the Group recognised impairment loss of $114.4 million (₦41.1 billion) on its non-financial assets. The impairment is primarily as a result of re-assessment of future cash flows from the Group’s oil and gas properties due to significant fall in oil prices (see Notes 18 and 20). 13. Fair value gain/(loss) Realised fair value losses on crude oil hedges Unrealised fair value loss Fair value gain on contingent consideration Fair value loss on other assets 2020 ₦ million (3,016) (953) – (3,142) (7,111) 2019 ₦ million (1,733) (2,236) 5,675 – 1,706 2020 $’000 (8,380) (2,649) – (8,730) (19,759) 2019 $’000 (5,160) (7,770) 18,489 – 5,559 Fair value gain/(loss) on derivatives represents changes in the fair value of hedging receivables charged to profit or loss. In 2019, the write-off of the contingent consideration due to production milestones not achieved resulted in a gain. Fair value loss on other assets relates to changes in fair value of financial interest in OML 55 (see Note 18). 14. Finance income/(cost) Finance income Interest income Finance cost Interest on bank loans (Note 31) Interest on lease liabilities (Note 32) Unwinding of discount on provision for decommissioning (Note 34) Finance (cost) – net Finance income represents interest on short-term fixed deposits. 198 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 601 4,134 1,671 13,471 (17,504) (106) (1,046) (18,656) (18,055) (8,890) (164) (1,240) (10,294) (6,160) (48,634) (295) (2,905) (51,834) (50,163) (28,966) (534) (4,039) (33,539) (20,068) Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the Group’s general borrowings denominated in dollars during the year, in this case 8.93% (2019: 12.33%). The amount capitalised during the year is ₦5.8 billion ($15.4 million), 2019: ₦6 billion ($21 million). 15. Taxation The major components of income tax expense for the years ended 31 December 2020 and 2019 are: Income tax expense Current tax: Current tax expense on profit for the year Education tax Total current tax Deferred tax: Deferred tax expense in profit or loss (Note 15.6) Total tax expense in statement of profit or loss Deferred tax recognised in other comprehensive income (Note 15.6) Total tax charge for the period Effective tax rate 2020 ₦ million 2019 ₦ million 4,170 749 4,919 (3,079) 1,840 25 1,865 (6%) 6,009 955 6,964 1,975 8,939 (171) 8,768 10% 2020 $’000 11,586 2,082 13,668 (8,555) 5,113 69 5,182 (6%) 2019 $’000 19,578 3,111 22,689 6,436 29,125 (558) 28,567 10% 15.1 Reconciliation of effective tax rate The income tax expense is recognised based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year. The estimated annual tax rate used for the year ended 31 December 2020 is 85%, 65.75% for crude oil activities and 30% for gas activities. As at 31 December 2019, the applicable tax rate was 85%, 65.75% and 30% respectively. The effective tax rate for the period was (6%) (2019: 10%). A reconciliation between income tax expense and accounting profit before income tax multiplied by the applicable statutory tax rate is as follows: Profit before taxation Tax rate of 85%, 65.75% and 30% Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Income not subject to tax Expenses not deductible for tax purposes Recognition of previously unrecognised deductible temporary difference Impact of unutilised tax losses Effect of differences in tax rates Effect of permanent differences Impact of tax incentive Education tax Tax loss utilised Impact of exchange difference Total tax charge in statement of profit or loss 15.2 Current tax liabilities/(assets) The movement in the current tax liabilities is as follows: As at 1 January Tax charge Tax paid Acquired in business combination As 31 December 2020 ₦ million (28,872) 7,882 (32,594) 42,804 – (3,079) – – (13,922) 749 – – 1,840 2020 ₦ million 5,679 4,919 (2,337) – 8,261 2019 ₦ million 89,914 76,427 (19,038) 37,911 (34,050) 1,975 (6,994) (801) (46,329) 955 (1,119) 2 8,939 2019 ₦ million (723) 6,964 (1,084) 522 5,679 2020 $’000 (80,209) 21,899 (90,560) 118,929 – (8,555) – – (38,682) 2,082 – – 5,113 2020 $’000 18,502 13,668 (10,431) – 21,739 2019 $’000 292,967 249,022 (62,029) 123,525 (110,943) 6,436 (22,789) (2,610) (150,953) 3,111 (3,645) – 29,125 2019 $’000 (2,356) 22,689 (3,533) 1,702 18,502 199 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 15. Taxation continued 15.3 Deferred tax The analysis of deferred tax assets and deferred tax liabilities is as follows: Deferred tax assets Deferred tax asset to be recovered within 12 months Deferred tax asset to be recovered after more than 12 months Deferred tax liabilities Deferred tax liabilities to be recovered within 12 months Deferred tax liabilities to be recovered after more than 12 months Net deferred tax asset 2020 ₦ million 9,437 280,440 2020 ₦ million (2,282) (199,738) 87,857 2019 ₦ million – 182,352 2019 ₦ million – (113,985) 68,367 2020 $’000 33,151 729,682 2020 $’000 (7,456) (524,176) 231,201 2019 $’000 – 595,132 2019 $’000 – (372,435) 222,697 15.4 Deferred tax assets Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Tax losses Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit Share-based payment plan Unrealised foreign exchange loss on trade and other receivables Overlift/(underlift) Acquired in business combination Impairment provision on trade and other receivables Previously unrecognised deferred tax asset Effect of exchange differences Balance at 1 January 2020 ₦ million – (Charged)/ credited to profit or loss ₦ million 927 Credited to other comprehensive income ₦ million – Balance at 31 December 2020 ₦ million 927 124,433 296 2,725 5,670 1,046 10,866 27,686 3,399 6,050 182,171 181 182,352 44,563 824 1,080 723 17,093 (11,844) – 7,016 – 60,382 47,168 107,550 – – (25) – – – – – – (25) (25) 168,996 1,120 3,780 6,393 18,139 (978) 27,686 10,415 6,050 242,528 47,349 289,877 Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit Share-based payment plan Unrealised foreign exchange loss/(gain) on trade and other receivables Overlift/(underlift) Acquired in business combination Impairment provision on trade and other receivables Previously unrecognised deferred tax asset Effect of exchange differences Balance at 1 January 2019 ₦ million (Charged)/ credited to profit or loss ₦ million Credited to other comprehensive income ₦ million Acquisition of subsidiary ₦ million Balance at 31 December 2019 ₦ million 116,068 818 1,540 3,294 1,258 5,246 – 2,071 – 130,295 183 130,478 8,365 (522) 1,014 2,376 (212) 5,620 – 1,328 6,050 24,019 (2) 24,017 – – 171 – – – – – – 171 – 171 – – – – – 27,686 – – 27,686 27,686 124,433 296 2,725 5,670 1,046 10,866 27,686 3,399 6,050 182,171 181 182,352 200 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Tax losses Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit Share-based payment plan Unrealised Foreign exchange loss Overlift/(underlift) Acquired in business combination Impairment provision on trade and other receivables Previously unrecognised deferred tax asset Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit Share-based payment plan Unrealised Foreign exchange loss/(gain) Overlift/(underlift) Acquired in business combination Impairment provision on trade and other receivables Previously unrecognised deferred tax asset Balance at 1 January 2020 $’000 (Charged)/ credited to profit or loss $’000 – 2,576 406,848 974 8,897 18,519 3,433 35,469 90,182 11,096 19,714 595,132 123,815 2,290 3,002 2,010 47,491 (32,907) – 19,493 – 167,770 Credited to other comprehensive income $’000 – – – (69) – – – – – – (69) Balance at 31 December 2020 $’000 2,576 530,663 3,264 11,830 20,529 50,924 2,562 90,182 30,589 19,714 762,833 Balance at 1 January 2019 $’000 (Charged)/ credited to profit or loss $’000 Credited to other comprehensive income $’000 Acquisition of subsidiary $’000 Balance at 31 December 2019 $’000 379,592 2,674 5,036 10,778 4,123 17,158 – 6,770 – 426,131 27,256 (1,700) 3,303 7,741 (690) 18,311 – 4,326 19,714 78,261 – – 558 – – – – – – 558 – – – – – – 90,182 – – 90,182 406,848 974 8,897 18,519 3,433 35,469 90,182 11,096 19,714 595,132 Previously unrecognised deferred tax asset relates Newton Energy Limited. The Company resumed payment of taxes in 2019. 15.5 Deferred tax liabilities Deferred tax liabilities are recognised for amounts of income taxes payable in future periods in respect of taxable temporary differences. Tax losses Other cumulative timing differences: Fixed assets Derivative financial instruments Effect of exchange differences Tax losses Other cumulative timing differences: Fixed assets Derivative financial instruments Effect of exchange differences Balance at 1 January 2020 ₦ million 1,131 Charged /(credited) to profit or loss ₦ million – Balance at 31 December 2020 ₦ million 1,131 110,582 2,282 113,995 (10) 113,985 57,297 – 57,297 30,738 88,035 167,879 2,282 171,292 30,728 202,020 Balance at 1 January 2019 ₦ million 12 Charged /(credited) to profit or loss ₦ million 1,119 Balance at 31 December 2019 ₦ million 1,131 85,706 2,282 88,000 (10) 87,990 24,876 – 25,995 - 25,995 110,582 2,282 113,995 (10) 113,985 201 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 15. Taxation continued Tax losses Other cumulative timing differences: Fixed assets Derivative financial instruments Tax losses Other cumulative timing differences: Fixed assets Derivative financial instruments 15.6 Deferred tax recognised in profit or loss Credited/(Charged) to profit or loss: Unutilised capital allowance Provision for defined benefit Share-based payment plan Overlift/(underlift) Impairment provision on trade and other receivables Unrecognised deferred tax asset Tax losses Provision for decommissioning obligation Unrealised foreign exchange loss/(gain) on trade and other receivables Fixed assets Exchange difference Total (charged) to profit or loss Charged to other comprehensive income Deferred tax credit/(expense) on remeasurement Balance at 1 January 2020 $’000 Charged/ credited to profit or loss $’000 Balance at 31 December 2020 $’000 3,645 – 3,645 361,334 7,456 372,435 159,197 – 159,197 520,531 7,456 531,632 Balance at 1 January 2019 $’000 Charged/ credited to profit or loss $’000 Balance at 31 December 2019 $’000 – 3,645 3,645 280,282 7,456 287,738 81,052 – 84,697 361,334 7,456 372,435 As at 31 Dec 2020 ₦’million As at 31 Dec 2019 ₦’million As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 44,563 1,080 723 (11,844) 7,016 – 927 824 17,093 (57,297) (6) 3,079 (25) (25) 8,365 1,014 2,376 5,620 1,328 6,050 (1,119) (522) (212) (24,876) 1 (1,975) 171 171 123,815 3,002 2,010 (32,907) 19,493 – 2,576 2,290 47,491 (159,197) (18) 8,555 (69) (69) 27,256 3,303 7,741 18,311 4,326 19,714 (3,645) (1,700) (690) (81,052) – (6,436) 558 558 15.7 Unrecognised deferred tax assets The unrecognised deferred tax assets relate to the Group’s subsidiaries and will be recognised once the entities return to profitability. There are no expiration dates for the unrecognised deferred tax assets. Other deductible temporary differences Tax losses Other deductible temporary differences Tax losses As at 31 Dec 2020 ₦’million Gross amount As at 31 Dec 2020 ₦’million Tax effect As at 31 Dec 2019 ₦’million Gross amount As at 31 Dec 2019 ₦’million Tax effect – – – – – – 2,469 6,429 8,898 As at 31 Dec 2020 $’000 Gross amount As at 31 Dec 2020 $’000 Tax effect As at 31 Dec 2019 $’000 Gross amount – – – – – – 8,042 20,942 28,984 1,623 4,227 5,850 As at 31 Dec 2019 $’000 Tax effect 5,288 13,769 19,057 15.8 Unrecognised deferred tax liabilities There were no temporary differences associated with investments in the Group’s subsidiaries for which a deferred tax liability would have been recognised in the periods presented. 202 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 16. Computation of cash generated from operations Profit before tax Continuing operations Discontinued operations Adjusted for: Depletion, depreciation and amortisation Depreciation of right-of-use asset Impairment losses on financial assets Impairment losses on non-financial assets Gain on disposal of other property, plant and equipment Interest income Interest expense on bank loans Interest on lease liabilities Unwinding of discount on provision for decommissioning Fair value gain on contingent consideration Fair value on other assets Unrealised fair value loss on derivatives financial instrument Unrealised foreign exchange gain Share-based payment expenses Defined benefit expenses Gain on deconsolidation of subsidiary Gain on disposal of oil and gas properties Share of profit in joint venture Provision no longer required Changes in working capital: (excluding the effects of exchange differences) Trade and other receivables Inventories Prepayments Contract assets Net working capital on loss of control of subsidiary Trade and other payables Contract liabilities Restricted cash Net cash from operating activities Notes 10 2020 ₦ million (28,872) – 47,811 1,254 10,778 41,175 (1) (601) 17,504 106 1,046 – 3,142 953 (680) 1,856 409 – – (601) (2,597) 72,754 3,577 1,404 5,432 – (45,156) (2,459) (9,676) 118,558 2019 ₦ million 89,914 4,041 28,824 908 14,911 – – (4,134) 8,890 164 1,240 (5,675) – 2,236 (735) 2,864 343 (3,869) (9,462) (325) – (95,451) (1,007) 6,864 (11,606) (2,198) 60,277 12,698 5,002 104,714 2020 $’000 2019 $’000 (80,209) – 292,967 13,166 132,840 3,483 29,947 114,402 (3) (1,671) 48,634 295 2,905 – 8,730 2,649 (1,890) 5,157 1,135 – – (1,670) (7,217) 202,144 9,938 3,901 15,092 – (125,464) (6,831) (26,883) 329,414 93,916 2,960 48,581 – – (13,471) 28,966 534 4,039 (18,489) – 7,770 (2,395) 9,223 1,117 (12,604) (30,830) (1,060) – (311,001) (3,280) 22,365 (37,816) (7,163) 196,401 41,374 16,301 341,571 203 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Production and field facilities ₦ million 595,817 – 4,244 – 141,913 741,974 Assets under construction ₦ million 37,469 52,089 – 5,753 11,818 107,129 Exploration and evaluation assets ₦ million 18,072 – – – 4,295 22,367 172,986 45,344 43,665 261,995 – – – – – – – – Total ₦ million 651,358 52,089 4,244 5,753 158,026 871,470 172,986 45,344 43,665 261,995 479,979 107,129 22,367 609,475 480,556 34,130 19,567 94,823 – (28,126) (5,142) – 9 595,817 151,989 27,511 (6,522) 8 172,986 61,914 961 (19,567) – (12,141) – – 6,308 (6) 37,469 – – – – – – – 18,072 – – – – – 18,072 – – – – – 542,470 35,091 – 112,895 (12,141) (28,126) (5,142) 6,308 3 651,358 151,989 27,511 (6,522) 8 172,986 422,831 37,469 18,072 478,372 17. Property, plant and equipment 17.1 Oil and gas properties Cost At 1 January 2020 Additions Changes in decommissioning Interest capitalised Exchange differences At 31 December 2020 Depreciation At 1 January 2020 Charge for the year Exchange differences At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Additions Transfers Acquired in business combination Loss of control Disposal of producing assets Changes in decommissioning Interest capitalised Exchange differences At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Disposal of producing assets Exchange difference At 31 December 2019 NBV At 31 December 2019 204 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Cost At 1 January 2020 Additions Changes in decommissioning Interest capitalised At 31 December 2020 Depreciation At 1 January 2020 Charge for the year At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Additions Transfers Acquired in business combination Loss of control Disposal of producing assets Changes in decommissioning Interest capitalised Exchange differences At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Disposal of producing assets Exchange difference At 31 December 2019 Production and field facilities $’000 Assets under construction $’000 Exploration and evaluation assets $’000 1,940,771 – 11,793 – 1,952,564 563,473 125,987 689,460 122,050 144,729 – 15,140 281,919 – – – 58,865 – – – 58,865 – – – Total $’000 2,121,686 144,729 11,793 15,140 2,293,348 563,473 125,987 689,460 1,263,104 281,919 58,865 1,603,888 1,565,328 111,207 63,755 308,869 – (91,643) (16,745) – – 1,940,771 495,081 89,636 (21,244) – 563,473 201,676 3,132 (63,755) – (39,557) – – 20,554 – 122,050 – – – – – – – – 58,865 – – – – – 58,865 – – – – – 1,767,004 114,339 – 367,734 (39,557) (91,643) (16,745) 20,554 – 2,121,686 495,081 89,636 (21,244) – 563,473 NBV 1,377,298 122,050 58,865 1,558,213 Assets under construction represent costs capitalised in connection with the development of the Group’s oil fields and other property, plant and equipment not yet ready for their intended use. Some of which are qualifying assets that take a substantial period to get ready for its intended use. A capitalisation rate of 8.93*% (2019: 12.3%) has been determined and applied to the Group’s general borrowing to determine the borrowing cost capitalised as part of the qualifying assets. Borrowing costs capitalised during the year amounted to ₦5.8 billion, 2019: ₦8 billion ($15.1 million, 2019: $26 million). There was no oil and gas property pledged as security during the reporting period. Impairment testing During the year ended 31 December 2020, the Group performed an impairment test. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 31 December 2020, the market capitalisation of the Group was below the book value of its equity, indicating a potential impairment. In addition, the overall decline in oil price and development activities around the world, as well as the ongoing economic uncertainty, have led to a decreased in the value of oil and gas assets. OML 4, 38, 41 CGU The recoverable amount of $1,332.6 million as at 31 December 2020 has been determined based on a value in use calculation using cash flow projections from financial budgets extracted from the Competent Person’s Report covering the economic limit of the assets. The projected cash flows have been updated to reflect the decrease in global oil price and production forecasts derived from proved plus probable reserves and associated future development costs extracted from the Competent Person’s Report for the oil and gas industry as at December 2020. The cash flow was estimated using three scenarios (base case, worst case and upturn). The pre-tax discount rate applied was 15%. As the recoverable amount ($1,332.6 million) was higher than the carrying amount ($871.3 million), no impairment loss was recorded. There is a significant headroom between the recoverable amount and carrying amount. A rise in the discount rate to 17.5% would result in a recoverable amount of $1,241.2 million which would still not result in an impairment loss. 205 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 17. Property, plant and equipment continued 17.1 Oil and gas properties continued OML 53 CGU The recoverable amount of $532.8 million as at 31 December 2020 has been determined based on a value in use calculation using cash flow projections from financial budgets extracted from the Competent Person’s Report covering the economic limit of the assets. The projected cash flows have been updated to reflect the decrease in global oil price and production forecasts derived from proved plus probable reserves and associated future development costs extracted from the Competent Person’s Report for the oil and gas industry as at December 2020. The cash flow was estimated using three scenarios (base case, worst case and upturn). The pre-tax discount rate applied was 15%. As the recoverable amount ($532.8 million) was higher than the carrying amount ($330.8 million), no impairment loss was recorded. There is a significant headroom between the recoverable amount and carrying amount. A rise in the discount rate to 17.5% would result in a recoverable amount of $475 million which would still not result in an impairment loss. OML 56 CGU The recoverable amount of $92.1 million as at 31 December 2020 has been determined based on a value in use calculation using cash flow projections from financial budgets extracted from the Competent Person’s Report covering the economic limit of the assets. The projected cash flows have been updated to reflect the decrease in global oil price and production forecasts derived from proved plus probable reserves and associated future development costs extracted from the Competent Person’s Report for the oil and gas industry as at December 2020. The cash flow was estimated using three scenarios (base case, worst case and upturn). The pre-tax discount rate applied was 15%. As the recoverable amount ($92.1 million) was higher than the carrying amount ($76.1 million), no impairment loss was recorded. There is a significant headroom between the recoverable amount and carrying amount. A rise in the discount rate to 17.5% would result in a recoverable amount of $82.4 million which would still not result in an impairment loss. Key assumptions used in value in use calculations and sensitivity to changes in assumptions Management approach to valuing the assumptions used in the value in use calculations were based on both experience, recent sales and external data sources. The most sensitive assumptions are shown below: Discount rates Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Oil price Oil prices used were indexed to the Brent crude forward curve. The prices when compared to external market prices are deemed to be reasonable. Years Oil price ($) Years Oil price ($) 2021 47.5 2022 52.3 2031 71.3 2023 57.6 2032 72.8 2024 60.7 2033 74.2 2025 62.3 2034 75.7 2026 63.9 2035 77.2 2027 65 2036 78.7 2028 66 2037 80.3 2029 67.6 2030 69.8 2038 till the estimated life span of the reserves 81.9 A further rise/(decline) in oil price by 10% would result in a recoverable amount of $1,486.6 million ($1,180.7 million) for OML 4, 38 and 41 CGU; $555.8 million/($511.2 million) for OML 53 CGU and $102.8 million/($81.5 million) for OML 56 CGU. This would not result in an impairment loss for any of the CGU. Projection period The cash flows projection was based on management estimation of the performance of the well. This was independently verified. The projected periods were 24 years for OML 3, 38 and 41, 37 years for OML 53 and 27 years for OML 56. Growth rate No growth rate was used to extrapolate cash flows. The production volume was determined based on the estimated performance of the well. 17.2 Reclassification of oil and gas properties to intangible asset There was no reclassification in the current year (2019: ₦9 billion, $29 million). For the purpose of the statement of cash flows, the reconciliation of the oil and gas properties and intangible asset is shown below: As at 31 Dec 2020 ₦’million – – – As at 31 Dec 2019 ₦’million 35,091 – 35,091 As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 – – – 114,339 – 114,339 Addition Reclassified to intangible assets 206 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 17.3 Disposal of oil and gas properties Purchase consideration for disposal of oil and gas assets (Note 18.4) Net book value of Production and Field Facilities (Note 18.1): Cost Depreciation Gain on disposal of oil and gas properties 17.4 Other property, plant and equipment As at 31 Dec 2020 ₦’million – As at 31 Dec 2019 ₦’million – – – 28,126 (6,522) As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 – – – Building ₦ million 1,194 – – 284 1,478 20 57 – 9 86 – 91,643 (21,244) Total ₦ million 13,700 1,872 (44) 3,360 18,888 9,340 1,936 (44) 2,326 13,558 Plant & machinery ₦ million 1,526 57 – 367 1,950 1,396 126 – 339 1,861 Motor vehicles ₦ million 3,375 965 (44) 854 5,150 Office furniture & IT equipment ₦ million 6,293 335 – 1,515 8,413 Leasehold improvements ₦ million 1,291 515 – 336 2,142 2,239 653 (44) 566 3,414 4,778 656 – 1,171 6,605 907 444 – 241 1,592 Land ₦ million 21 – – 4 25 – – – – – 89 1,736 1,538 550 25 1,392 5,330 1,498 28 – – 1,526 1,247 150 (1) 1,396 2,663 393 319 – 3,375 2,003 235 1 2,239 4,680 1,280 332 1 6,293 4,424 354 – 4,778 130 1,136 1,515 928 287 76 – 1,291 795 113 (1) 907 384 Plant & machinery $’000 Motor vehicles $’000 Office furniture & IT equipment $’000 Leasehold improvements $’000 4,972 159 – 5,131 4,549 350 – 4,899 10,992 2,682 (122) 13,552 7,294 1,814 (122) 8,986 20,499 932 – 21,431 15,565 1,819 – 17,384 4,208 1,430 – 5,638 2,955 1,235 – 4,190 – 21 – – 21 – – – – 21 Land $’000 68 – 68 – – – – 1,194 – – 1,194 – 20 – 20 9,769 3,203 727 1 13,700 8,469 872 (1) 9,340 1,174 4,360 Building $’000 3,891 – – 3,891 66 158 224 Total $’000 44,630 5,203 (122) 49,710 30,429 5,376 (122) 35,683 232 4,566 4,046 1,448 68 3,667 14,027 207 Cost At 1 January 2020 Additions Disposals Exchange differences At 31 December 2020 Depreciation At 1 January 2020 Charge for the year Disposals Exchange differences At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Addition Acquired in business combination Exchange difference At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Exchange differences At 31 December 2019 NBV At 31 December 2019 Cost At 1 January 2020 Additions Disposals At 31 December 2020 Depreciation At 1 January 2020 Charge for the year Disposal At 31 December 2020 NBV At 31 December 2020 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 17. Property, plant and equipment continued Cost At 1 January 2019 Addition Acquired in business combination At 31 December 2019 Depreciation At 1 January 2019 Charge for the year At 31 December 2019 NBV At 31 December 2019 Plant & machinery $’000 Motor vehicles $’000 Office furniture & IT equipment $’000 Leasehold improvements $’000 4,880 92 – 4,972 4,062 487 4,549 8,675 1,279 1,038 10,992 6,527 767 7,294 15,244 4,172 1,083 20,499 14,411 1,154 15,565 3,026 936 246 4,208 2,588 367 2,955 423 3,698 4,934 1,253 17.5 Gain on disposal of other property, plant and equipment Proceeds from disposal of assets Less net book value of disposed assets 17.6 Depletion, depreciation and amortisation Oil and gas properties (Note 17.1) Amortisation of intangible asset (Note 20) Charged to cost of sales Other property, plant and equipment charged to general and administrative expense (Note 17.5) Right-of-use assets Total depletion, depreciation and amortisation 18. Other asset Fair value at the beginning of the year Receipts from crude oil lifted Fair value loss Exchange differences Fair value at the end of the year 2020 ₦ million 1 – 1 2020 ₦ million 45,344 532 45,876 1,936 1,254 49,066 2020 ₦ million 40,190 (1,705) (3,142) 9,287 44,630 Land – 68 – 68 – – – 68 2019 ₦ million – – – 2019 ₦ million 27,511 441 27,952 872 908 29,732 2019 ₦ million 51,299 (11,106) – (3) 40,190 Building $’000 – 3,891 – 3,891 – 66 66 Total $’000 31,825 10,438 2,367 44,630 27,588 2,841 30,429 3,825 14,201 2020 $’000 3 – 3 2020 $’000 125,987 1,477 127,464 5,376 3,483 136,323 2020 $’000 130,915 (4,737) (8,730) – 117,448 2019 $’000 – – – 2019 $’000 89,636 1,439 91,075 2,841 2,960 96,876 2019 $’000 167,100 (36,185) – – 130,915 Other assets represents the Group’s rights to receive the discharge sum of ₦63 billion, 2019: ₦65 billion ($204 million, 2019: $210 million) from the crude oil reserves of OML 55. The asset is measured at fair value through profit or loss (FVTPL) and receipts from crude oil lifted reduce the value of the asset. At each reporting date, the fair value of the discharge sum is determined using the income approach in line with IFRS 13 Fair Value Measurement (discounted cash flow). This asset is categorised within Level 3 of the fair value hierarchy. The fair value is shown above. Significant change in the discount rate of 10% would result in significant higher or lower fair value. 19. Right-of-use asset As at 1 January Additions during the year Acquired in business combination Less: depreciation for the period As at 31 December 2020 ₦ million 4,026 1,193 – (1,254) 3,965 2019 ₦ million 4,217 87 630 (908) 4,026 2020 $’000 13,115 803 – (3,483) 10,435 2019 $’000 13,737 285 2,053 (2,960) 13,115 In 2018, the Group entered into a lease agreement for an office building in Lagos. The non-cancellable period of the lease is five years commencing on 1 January 2019 and ending on 31 December 2023. However, the Group has an option of either extending the lease period on terms to be mutually agreed by parties to the lease on the expiration of the current term or purchase the property. 208 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 20. Intangible assets Cost At 1 January 2020 Exchange difference At 31 December 2020 At 1 January 2020 - Impairment - Amortisation Exchange difference At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Acquired in business combination At 31 December 2019 Amortisation At 1 January 2019 Charge for the year At 31 December 2019 NBV At 31 December 2019 Goodwill ₦ million 9,068 2,156 11,224 – 11,224 – – 11,224 Licence ₦ million 45,041 10,710 55,751 517 30,544 561 1,828 33,450 Total ₦ million 54,109 12,866 66,975 517 41,768 561 1,828 44,674 Goodwill $’000 29,538 – 29,538 – 29,538 – – 29,538 Licence $’000 146,713 – 146,713 1,685 84,864 1,477 – 88,026 Total $’000 176,251 – 176,251 1,685 114,402 1,477 – 117,564 – 22,301 22,301 – 58,687 58,687 – 9,068 9,068 – – – 9,070 35,971 45,041 76 441 517 9,070 45,039 54,109 76 441 517 – 29,538 29,538 – – 29,543 117,170 146,713 246 1,439 1,685 29,543 146,708 176,251 246 1,439 1,685 9,068 44,524 53,592 29,538 145,028 174,566 Licence relates to costs paid in connection with the renewal of a right for exploration of an oil mining lease field. The licence of ₦36 billion ($117 million) were acquired as part of business combination in 2019. ₦34 billion ($110 million) relates to the fair value of the identified intangible asset on business combination (see Note 5 xii for details) and ₦2 billion ($7 million) relates to licence acquisition cost assumed on business combination. They are recognised at their fair values at the date of acquisition and subsequently amortised on a straight-line based on the useful life. During the year ended 31 December 2020, the Group performed an impairment test. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 31 December 2020, the market capitalisation of the Group was below the book value of its equity, indicating a potential impairment. In addition, the overall decline in oil price and development activities around the world, as well as the ongoing economic uncertainty, have led to a decreased in the value of oil and gas assets. OML 40 CGU The recoverable amount of $400.7 million as at 31 December 2020 has been determined based on a fair value less cost to dispose calculation using cash flow projections from financial budgets extracted from the Competent Person’s Report covering the economic limit of the assets. The projected cash flows have been updated to reflect the decrease in global oil price and production forecasts derived from proved plus probable reserves and associated future development costs extracted from the Competent Person’s Report for the oil and gas industry as at December 2020. The post-tax discount rate applied was 10% resulting in an impairment loss of $97 million (including goodwill of $23.4 million allocated to the CGU) recorded in profit or loss. The carrying value of the CGU was $497.7 million. A rise in the discount rate to 12.5% would result in a further impairment loss of $45.2 million. The fair value less cost to disposal is categorised within Level 2 of the fair value hierarchy. OML 17 CGU The recoverable amount of $69.9 million as at 31 December 2020 has been determined based on a fair value less cost to dispose calculation using cash flow projections from financial budgets extracted from the Competent Person’s Report covering the economic limit of the assets. The projected cash flows have been updated to reflect the decrease in global oil price and production forecasts derived from proved plus probable reserves and associated future development costs extracted from the Competent Person’s Report for the oil and gas industry as at December 2020. The post-tax discount rate applied was 10% resulting in an impairment loss of $20.6 million (including goodwill of $6.1 million allocated to the CGU) recorded in profit or loss. The carrying value of the CGU was $90.5 million. A rise in the discount rate to 12.5% would result in a further impairment loss of $7.74 million. The fair value less cost to disposal is categorised within Level 2 of the fair value hierarchy. 209 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 20. Intangible assets continued Key assumptions used in value in use calculations and sensitivity to changes in assumptions Management approach to valuing the assumptions used in the value in use calculations were based on both experience, recent sales and external data sources. The most sensitive assumptions are shown below: Discount rates Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Oil price Oil prices used were indexed to the Brent crude forward curve. The prices when compared to external market prices are deemed to be reasonable. Years Oil price ($) Years Oil price ($) 2021 47.5 2022 52.3 2031 71.3 2023 57.6 2032 72.8 2024 60.7 2033 74.2 2025 62.3 2034 75.7 2026 63.9 2035 77.2 2027 65 2036 78.7 2028 66 2037 80.3 2029 67.6 2030 69.8 2038 till the estimated life span of the reserves 81.9 A further decline in oil price by 10% would result in a further impairment loss of $77.4 million for OML 40 CGU and $13.4 million for OML 17 CGU. A rise of 10% in oil price would reduce the impairment loss recognised by $77.4 million for OML 40 CGU and $13.4 million for OML 17 CGU. Projection period The cash flows projection was based on management estimation of the performance of the well. This was independently verified. The projected period were 13 years for OML 40 and 14 years for OML 17. Growth rate No growth rate was used to extrapolate cash flows. The production volume was determined based on the estimated performance of the well. 21. Prepayments Non-current Rent Advances to suppliers Current Prepayment for service charge Rent Crude oil hedge Other prepayments 2020 ₦ million – 23,463 23,463 – 364 – 1,021 1,385 24,848 2019 ₦ million 381 18,928 19,309 320 – 838 807 1,965 21,274 2020 $’000 – 61,744 61,744 – 957 – 2,687 3,644 65,388 2019 $’000 1,238 61,654 62,892 1,040 – 2,730 2,627 6,397 69,289 21.1 Rent Rent relate to short-term leases of residential buildings, car parks and office buildings with contractual lease term of less than or equal to 12 months. At the end of the reporting period, rental expense of ₦185 million ($516 thousand) (2019: ₦427 million ($1.4 million)) was recognised within general and administrative expenses for these leases. The Group’s future cash outflows from short-term lease commitments at the end of the reporting period are ₦416 million, $1.1 million (2019: ₦14.8 billion ($48 million)). 21.2 Advances to suppliers Advances to suppliers relate to a milestone payment made to finance the construction of the Amukpe Escravos Pipeline Project and other related facilities. At the end of the reporting period, the total prepaid amount was ₦23.4 billion ($61.7 million), 2019: ₦18.9 billion ($61.6 million). 21.3 Other prepayments Included in other prepayments are prepaid service charge expenses for office buildings, health insurance, software licence maintenance, motor insurance premium and crude oil handling fees. 210 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 22. Interest in other entities 22.1 Material subsidiaries The Group’s principal subsidiaries as at 31 December 2020 are set in Note 1. Unless otherwise stated, their share capital consists solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. The Group exercised significant judgement in consolidating Elcrest. Please see Note 4.1 for details. Also, there were no significant restrictions on any of the entities. 22.2 Non-controlling interest (NCI) Summarised financial information in respect of Elcrest Exploration and Production Nigeria Limited which has a material non-controlling interest is set out below. The information disclosed reflects amounts presented in the financial statements of the subsidiary amended to reflect fair value adjustments made by the Group, and modifications for differences in accounting policy during the business combination. Current assets Current liabilities Current net liabilities Non-current asset Non-current liabilities Non-current net assets Net liabilities Accumulated NCI at 55% 22.3 Investment accounted for using equity accounting method Investment in joint venture (note 22.3.1) Investment in associate (note 22.3.2) As at 31 Dec 2020 ₦’million 28,845 (252,364) (223,519) 208,264 (4,950) 203,414 (20,105) (11,058) As at 31 Dec 2020 $’000 66,643 (664,116) (597,473) 548,325 (13,026) 535,299 (62,174) (34,196) As at 31 Dec 2019 ₦’million 24,634 (194,910) (170,276) 162,667 (5,576) 157,091 (13,185) (7,252) As at 31 Dec 2019 $’000 80,242 (634,887) (554,645) 529,861 (18,163) 511,698 (42,947) (23,621) As at 31 Dec 2020 ₦’million 84,639 3 84,642 As at 31 Dec 2019 ₦’million 49,445 3 49,448 As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 222,730 11 222,741 161,060 11 161,071 22.3.1 Interest in joint ventures The revised shareholders agreement between the Group and Nigerian Gas Processing and Transportation Company (NGPTC) requires both parties to have equal shareholding in ANOH. With the change in the ownership structure, the Group has reassessed its retained interest in ANOH and determined that it has joint control. The Group’s interest in ANOH is accounted for in the consolidated financial statements using the equity method because the Group interest in ANOH (Joint venture) is assessed to be a joint venture. Set below is the information on the material joint venture of the Group, ANOH. The Company has share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also its principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. The Company is a private entity hence no quoted price is available. As at the reporting period, the Group had no capital commitment neither had it incurred any contingent liabilities jointly with its joint venture partner. Name of entity Country of incorporation and place of business ANOH Gas Processing Company Limited Nigeria As at 31 Dec 2020 % As at 31 Dec 2019 % As at 31 Dec 2020 ₦’million As at 31 Dec 2019 ₦’million As at 31 Dec 2020 $’000 As at 30 Dec 2019 $’000 50 50 84,639 49,445 222,730 161,060 Percentage of ownership interest Carrying amount 211 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 22. Interest in other entities continued 22.3.1.1 Summarised statement of financial position of ANOH As at 31 Dec 2020 ₦’million As at 31 Dec 2020 $’000 As at 31 Dec 2019 ₦’million As at 31 Dec 2019 $’000 Current assets: Cash and bank balances Other current assets Total current assets Non-current assets Total assets Current liabilities: Financial liabilities (excluding trade payables) Other current liabilities Total liabilities Net assets Reconciliation to carrying amounts: Opening net liability Profit for the period Additional contribution Dividends paid Closing net assets Group’s share (%) Group’s share of net asset Exchange difference Remeasurement of retained interest Carrying amount 32,025 28,380 60,405 121,565 181,970 (3,119) (18,227) (21,346) 160,624 91,951 601 45,600 – 138,152 50% 69,076 11,268 4,295 84,639 22.3.1.2 Summarised statement of profit or loss and other comprehensive income of ANOH General and administrative expenses Finance income Profit before taxation Profit for the period Group’s share (%) Group’s share of profit for the period Dividends received from joint venture 22.3.1.3 Investment in joint venture Opening balance Fair value of 50% retained interest Additional investment Exchange difference Share of profit from joint venture accounted for using the equity method 22.3.1.4 Reconciliation of additional investment in joint venture Cash paid in the current period Amount reclassified from other receivables 212 84,275 74,685 158,961 319,907 478,868 (8,209) (47,967) (56,176) 422,856 299,516 3,340 120,000 – 422,856 50% 211,428 – 11,302 222,730 31 Dec 2020 $’000 516 2,824 3,340 3,340 50% 1,670 – 31 Dec 2020 $’000 161,060 – 60,000 – 1,670 222,730 54,404 3,445 57,849 51,472 109,321 (93) (17,277) (17,370) 91,951 177,213 11,220 188,433 167,661 356,094 (302) (56,276) (56,578) 299,516 (800) 650 92,101 (2,604) 2,120 300,000 91,951 299,516 50% 45,976 – 3,469 49,445 50% 149,758 – 11,302 161,060 31 Dec 2019 ₦’million (25) 675 650 650 50% 325 – 31 Dec 2019 ₦’million – 3,069 46,051 – 325 49,445 31 Dec 2019 $’000 (82) 2,202 2,120 2,120 50% 1,060 – 31 Dec 2019 $’000 – 10,000 150,000 – 1,060 161,060 31 Dec 2020 ₦’million 186 1,016 1,202 1,202 50% 601 – 31 Dec 2020 ₦’million 49,445 – 21,595 12,998 601 84,639 31 Dec 2020 ₦’million 21,595 – 21,595 31 Dec 2020 $’000 60,000 – 60,000 31 Dec 2019 ₦’million 31,627 14,424 46,051 31 Dec 2019 $’000 103,050 46,950 150,000 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 22.3.2 Investment in associate Investment in Elandale As at 31 Dec 2020 ₦’million 3 As at 31 Dec 2019 ₦’million 3 As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 11 11 Elandale Nigeria Limited is an associate acquired on the business combination. Elandale was incorporated in Nigeria on 17 January 2019. Elandale is an unquoted investment and valued based on fixed asset investment. The Group indirectly owns 40% ownership interest and voting rights in Elandale. The associate is deemed to be immaterial, as a result, financial information is not provided. 23. Inventories Tubulars, casings and wellheads 2020 ₦ million 28,337 2019 ₦ million 25,944 2020 $’000 74,570 2019 $’000 84,508 Inventory represents the value of tubulars, casings and wellheads. The inventory is carried at the lower of cost and net realisable value. Inventory charged to profit or loss and included in cost of sales during the year is ₦3.6 billion ($9.4 million), 2019: (₦1.3 billion ($4.1 million)). There was no write down or reversal of previously recognised write down of inventory for the year ended 31 December 2020 (2019: nil). 24. Trade and other receivables Trade receivables (Note 24.1) Nigerian Petroleum Development Company (NPDC) receivables (Note 24.2) National Petroleum Investment Management Services (NAPIMS) receivables (Note 24.3) Underlift Advances to suppliers Receivables from ANOH Other receivables (Note 24.4) 2020 ₦ million 20,662 40,681 11,353 7,827 10,280 4,926 1,045 96,774 2019 ₦ million 37,465 68,264 354 3,445 9,015 3,945 26,948 149,436 2020 $’000 54,375 107,053 29,876 20,600 27,053 12,963 2,751 254,671 2019 $’000 122,033 222,357 1,152 11,224 29,368 12,847 87,781 486,762 24.1 Trade receivables Included in trade receivables is an amount due from Geregu Power ($22.9 million, ₦8.6 billion), Sapele Power ($7 million, ₦2.7 billion) and Nigerian Gas Marketing Company ($3.4 million, ₦1.3 billion) totalling $33.3 million (Dec 2019: $52 million), ₦13.6 billion (Dec 2019: ₦16 billion) with respect to the sale of gas. Also included in trade receivables is $0 (Dec 2019: ₦16 billion) $0 (Dec 2019: $52 million) and ₦7 billion (Dec 2019: ₦3 billion) $19 million (Dec 2019: $9 million) due from Mecuria and Shell Western respectively for sale of crude. Reconciliation of trade receivables Balance as at 1 January Additions during the year Receipts for the year Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December Reconciliation of impairment allowance trade receivables Loss allowance as at 1 January Increase in loss allowance during the period Loss allowance as at 31 December 2020 ₦’million 37,465 66,343 (82,631) 29 21,206 (544) 20,662 2020 ₦’million 651 544 1,195 2019 ₦’million 29,127 263,676 (254,690) 3 38,116 (651) 37,465 2019 ₦’million 126 525 651 2020 $’000 122,033 184,330 (250,481) – 58,882 (1,507) 54,375 2020 $’000 2,118 1,507 3,625 2019 $’000 94,875 859,131 (829,855) – 124,151 (2,118) 122,033 2019 $’000 408 1,710 2,118 Increase in expected credit loss on trade receivables is due to increase in the receivable balance at the end of the reporting period. 213 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 24. Trade and other receivables continued 24.2 NPDC receivables The outstanding cash calls due to Seplat from its JOA partner, NPDC is ₦44 billion (Dec 2019: ₦68 billion), $107 million (Dec 2019: $222 million). Reconciliation of NPDC receivables Balance as at 1 January Additions during the year Receipts for the year Write-off of accrued interest Reversal of impairment loss on accrued interest written off Acquired on business combination Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December Reconciliation of impairment allowance NPDC receivables Loss allowance as at 1 January Increase in loss allowance during the period Receivables written off during the year as uncollectible Exchange difference Loss allowance as at 31 December 24.3 NAPIMS receivables Reconciliation of NAPIMS receivables Balance as at 1 January Additions during the year Receipts for the year Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December Reconciliation of impairment allowance NAPIMS receivables Loss allowance as at 1 January Increase in loss allowance during the period Loss allowance as at 31 December 2020 ₦’million 68,264 81,861 (109,282) – – – 9 40,852 (171) 40,681 2020 ₦’million 448 171 – – 619 2020 ₦’million 354 19,347 (8,318) 26 11,809 (456) 11,353 2020 ₦’million 23 456 479 2019 ₦’million (10,022) 129,927 (54,880) (14,871) 2,475 16,075 8 68,712 (448) 68,264 2019 ₦’million 2,475 12,836 (14,871) 8 448 2019 ₦’million (2,785) 10,611 (7,452) 3 377 (23) 354 2019 ₦’million – 23 23 2020 $’000 222,357 227,446 (342,274) – – – – 107,529 (476) 107,053 2020 $’000 6,910 476 – – 7,386 2020 $’000 1,152 54,866 (24,874) – 31,144 (1,268) 29,876 2020 $’000 77 1,268 1,345 2019 $’000 (32,643) 423,337 (178,884) (48,439) 8,086 52,360 – 223,817 (1,460) 222,357 2019 $’000 8,086 47,263 (48,439) – 6,910 2019 $’000 (9,073) 34,597 (24,295) – 1,229 (77) 1,152 2019 $’000 – 77 77 Increase in expected credit loss on NAPIMS receivables is due to increase in the receivable balance at the end of the reporting period. 24.4 Other receivables Other receivables are amounts outside the usual operating activities of the Group. Included in other receivables is an escrow deposit of ₦11 billion ($40 million) made for a potential investment. The funds were placed in an escrow on 8 January 2019 pursuant to an agreement reached with the vendor on the final terms of the transaction. During the reporting period, the fund has been returned. Reconciliation of other receivables Balance as at 1 January Additions during the year Receipts for the year Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December 214 2020 ₦’million 26,948 12,494 (29,382) 533 10,593 (9,548) 1,045 2019 ₦’million 9,600 176,910 (153,815) 8 32,703 (5,755) 26,948 2020 $’000 87,781 34,715 (93,216) – 29,280 (26,529) 2,751 2019 $’000 31,272 576,998 (501,699) – 106,571 (18,790) 87,781 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Reconciliation of impairment allowance on other receivables Loss allowance as at 1 January Increase in loss allowance during the period Loss allowance as at 31 December 25. Contract assets Revenue on gas sales (Note 25.1) 2020 ₦’million 5,755 9,548 15,303 2019 ₦’million 4,215 1,540 5,755 2020 $’000 18,790 26,529 45,319 2019 $’000 13,770 5,020 18,790 2020 ₦’million 2,343 2019 ₦’million 6,527 2020 $’000 6,167 2019 $’000 21,259 A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. The Group has recognised an asset in relation to a contract with Geregu Power, Sapele Power and NGMC for the delivery of gas supplies which the three companies have received but which has not been invoiced as at the end of the reporting period. The terms of payments relating to the contract are between 30- 45 days from the invoice date. However, invoices are raised after delivery between 14-21 days when the receivable amount has been established and the right to the receivables crystallises. The right to the unbilled receivables is recognised as a contract asset. At the point where the final billing certificate is obtained from Geregu Power, Sapele Power and NGMC authorising the quantities, this will be reclassified from contract assets to trade receivables. 25.1 Reconciliation of contract assets The movement in the Group’s contract assets is as detailed below: Balance as at 1 January Addition during the year Receipts for the year Price adjustments Exchange difference Balance as at 31 December 2020 ₦’million 6,527 29,200 (32,895) (13) (476) 2,343 2019 ₦’million 4,327 49,092 (46,893) – 1 6,527 2020 $’000 21,259 91,115 (106,161) (46) – 6,167 2019 $’000 14,096 159,956 (152,793) – – 21,259 There were no impairment allowances recognised on contract assets as it was immaterial (2019: Nil). 26. Derivative financial instruments The Group uses its derivatives for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. They are presented as current assets to the extent they are expected to be settled within 12 months after the reporting period. The fair value of the derivative financial instrument as at 31 December 2020 is as a result of a fair value gain on crude oil hedges. The fair value has been determined using a proprietary pricing model which generates results from inputs. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models. Crude oil options Currency forwards 2020 ₦’million (626) – (626) 2019 ₦’million 308 149 457 2020 $’000 (1,648) – (1,648) 2019 $’000 1,002 484 1,486 In 2020, the Group commenced a crude oil hedge of ₦12,903 ($34/bbl) 2019: ₦13,815 ($45/bbl) for 5 million barrels (2019: 3 million barrels at a cost of ₦2.9 billion ($7.65 million) 2019: ₦0.8 billion ($2.7 million). 215 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 27. Cash and bank balances Cash and bank balances in the statement of financial position comprise of cash at bank and on hand, short-term deposits with a maturity of three months or less and restricted cash balances. Cash on hand Short-term fixed deposits Cash at bank Gross cash and cash equivalent Loss allowance Net cash and cash equivalents per cash flow statement Restricted cash Cash and bank balance 2020 ₦’million 2,620 160 82,867 85,647 (93) 85,554 12,761 98,315 2019 ₦’million 3 29,741 70,463 100,207 (23) 100,184 2,056 102,240 2020 $’000 6,896 422 218,065 225,383 (246) 225,137 33,581 258,718 2019 $’000 9 96,878 229,522 326,409 (79) 326,330 6,698 333,028 Included in restricted cash, is a balance of $12.8 million (₦4.8 billion) set aside in the Stamping Reserve account for the revolving credit facility (RCF). The amount is to be used for the settlement of all fees and costs payable for the purposes of stamping and registering the Security Documents at the stamp duties office and at the Corporate Affairs Commission (CAC). The amounts are restricted for a period of three (3) years, which is the contractual period of the RCF. These amounts are subject to legal restrictions and are therefore not available for general use by the Group. These amounts have therefore been excluded from cash and bank balances for the purposes of cash flow. An additional $20.8 million, ₦7.9 billion, of funds deposited in Access bank Plc bank accounts in the ordinary course of business are being unilaterally restricted by Access bank Plc in connection with the court case between Seplat Petroleum Development Company Plc and Access bank Plc. 27.1 Reconciliation of impairment allowance on cash and bank balance Loss allowance as at 1 January Increase/(decrease) in loss allowance during the period Exchange difference Loss allowance as at 31 December 28. Share capital 28.1 Authorised and issued share capital Authorised ordinary share capital 1,000,000,000 ordinary shares denominated in Naira of 50 kobo per share Issued and fully paid 581,840,856 (2019: 575,321,598) issued shares denominated in Naira of 50 kobo per share 2020 ₦’million 23 60 10 93 2019 ₦’million 36 (13) – 23 2020 $’000 79 167 – 246 2019 $’000 118 (39) – 79 2020 ₦’million 2019 ₦’million 2020 $’000 2019 $’000 500 293 500 289 3,335 3,335 1,856 1,845 Fully paid ordinary shares carry one vote per share and the right to dividends. There were no restrictions on the Group’s share capital. 28.2 Movement in share capital and other reserves Number of shares 575,321,598 – 6,519,258 581,840,856 Number of shares 575,321,598 – 6,519,258 581,840,856 Issued share capital ₦’million 289 – 4 293 Share premium ₦’million 84,045 – 2,872 86,917 Share-based payment reserve ₦’million 8,194 1,856 (2,876) 7,174 Issued share capital $’000 Share premium $’000 Share-based payment reserve $’000 1,845 – 10 1,855 503,742 – 7,981 511,723 30,426 5,157 (7,991) 27,592 Total ₦’million 92,528 1,856 – 94,384 Total $’000 536,013 5,157 – 541,170 Opening balance as at 1 January 2020 Share-based payments Vested shares Closing balance as at 31 December 2020 Opening balance as at 1 January 2020 Share-based payments Vested shares Closing balance as at 31 December 2020 216 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 28.3 Share premium Share premium 2020 ₦ million 86,917 2019 ₦ million 84,045 2020 $’000 2019 $’000 511,723 503,742 Section 120.2 of Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 requires that where a Company issues shares at premium (i.e. above the par value), the value of the premium should be transferred to share premium. During the year, an additional 6,519,258 shares vested with a fair value of $7.99 million. The excess of $7.98 million above the nominal value of ordinary shares have been recognised in share premium. 28.4 Employee share-based payment scheme As at 31 December 2020, the Group had awarded 60,487,999 shares (2019: 48,400,563 shares) to certain employees and senior executives in line with its share-based incentive scheme. Included in the share-based incentive schemes are two additional schemes (2019 Deferred Bonus and 2020 LTIP Scheme) awarded during the reporting period. During the reporting period, 4,700,028 shares had vested out of which 381,117 shares were forfeited in relation to participants whose employment was terminated during the vesting period. Also, the reserves growth underpins (non-market performance condition) which was partially achieved (at 81.4% vesting) resulted in a further reduction in the number of shares vested by 1,379,283. The total number of shares forfeited during the period amount to 1,760,400. The number of shares that eventually vested during the year after the forfeiture and conditions above is 6,519,258 (Dec 2019: 6,824,573 shares were vested). Description of the awards valued i. The Group has made a number of share-based awards under incentive plans since its IPO in 2014: IPO-related grants to Executive and Non-Executive Directors, 2018/2019 deferred bonus awards and 2020 Long-Term Incentive Plan (LTIP) awards. Shares under these incentive plans were awarded at the IPO in April 2014, 2015, 2016, 2017, 2018 and 2019 conditional on the Nigerian Stock Exchange (NSE) approving the share delivery mechanism proposed by the Group. A number of these awards have fully vested. Seplat Deferred Bonus Award 25% of each Executive Director’s 2019 bonus (paid in 2020) has been deferred into shares and released on 1 June 2017, 1 June 2018, 20 April 2019 respectively subject to continued employment over the vesting period. The 2018 bonus is expected to be released on 31 December 2020. No performance criteria are attached to this award. As a result, the fair value of these awards is calculated using a Black Scholes model. Long-Term Incentive Plan (LTIP) awards Under the LTIP Plan, shares are granted to management staff of the organisation at the end of every year. The shares were granted to the employees at no cost. The shares vest (after three years) based on the following conditions: • 25% vesting for median relative TSR performance rising to 100% for upper quartile performance on a straight-line basis. • Relative TSR vesting reduced by 75% if 60% and below of operational and technical bonus metrics are achieved, with 35% reduction if 70% of operational and technical bonus metrics are achieved and no reduction for 80% or above achievement. • The Group outperforms the median TSR performance level with the LTIP exploration and production comparator group. The LTIP awards have been approved by the NSE. Share-based payment expenses ii. The expense recognised for employee services received during the year is shown in the following table: Expense arising from equity-settled share-based payment transactions 2020 ₦’million 1,856 2019 ₦’million 2,864 2020 $’000 5,157 2019 $’000 9,223 217 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 28. Share capital continued There were no cancellations to the awards in 2020. The share awards granted to Executive Directors and confirmed employees are summarised below: Scheme Deemed grant date Start of service period End of service period Vesting status 21 April 2016 4 November 2015 Global Bonus Offer 4 November 2015 Non-Executive Shares 2014 Deferred Bonus 14 December 2015 2014 Long-Term Incentive Plan 14 December 2015 2015 Long-Term Incentive Plan 31 December 2015 2015 Deferred Bonus 2016 Long-Term Incentive Plan 22 December 2016 2016 Deferred Bonus 24 November 2017 2017 Long-Term Incentive Plan 24 November 2017 2017 Deferred Bonus 29 December 2017 2018 Long-Term Incentive Plan 2 May 2018 2018 Deferred Bonus 2 May 2019 2019 Long-Term Incentive Plan 2 May 2019 2019 Deferred Bonus 30 Apr 2020 2020 Long-Term Incentive Plan 30 Apr 2020 2020 Long-Term Incentive Plan 2 Dec 2020 9 April 2014 9 April 2014 14 December 2015 14 December 2015 14 December 2015 21 April 2016 22 December 2016 24 November 2017 24 November 2017 29 December 2017 2 May 2018 2 May 2019 2 May 2019 30 Apr 2020 30 Apr 2020 2 Dec 2020 9 April 2015 9 April 2015 21 April 2017 9 April 2017 21 April 2018 20 April 2018 21 December 2019 20 April 2019 20 April 2020 31 December 2019 1 May 2021 31 December 2020 2 May 2022 31 Dec 2021 1 May 2023 2 Dec 2023 Fully Fully Fully Fully Fully Fully Fully Fully Fully Fully Partially Fully Partially Partially Partially Partially Number of awards 6,472,138 793,650 212,701 2,173,259 5,287,354 247,610 10,294,300 278,191 7,938,589 193,830 6,519,022 341,069 7,648,850 214,499 10,762,880 1,110,057 60,487,999 Determination of share awards outstanding iii. Share awards used in the calculation of diluted earnings per shares are based on the outstanding shares granted as at 31 December 2020. Share award scheme (all awards) Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December Share award scheme (all awards) Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 12,386,617 4,700,028 (1,760,400) (6,519,258) 8,806,987 2020 Number 12,386,617 4,700,028 (1,760,400) (6,519,258) 8,806,987 – 2020 WAEP ₦ 474 395 – – 843 2020 WAEP $ 1.54 1.04 – – 2.22 – 2019 Number 12,350,871 10,802,067 (6,824,573) (3,941,748) 12,386,617 – 2019 Number 12,350,871 10,802,067 (6,824,573) (3,941,748) 12,386,617 – 2019 WAEP ₦ 310 387 – – 474 – 2019 WAEP $ 1.01 1.26 – – 1.54 – The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in deferred bonus scheme and long-term incentive plan during the year for each available scheme. Deferred bonus scheme Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December Deferred bonus scheme Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 136,091 291,129 – (341,069) 86,151 – 2020 Number 136,091 291,129 (341,069) – 86,151 – 2020 WAEP ₦ 572 525 – – 236 – 2020 WAEP $ 1.86 1.38 – – 0.62 – 2019 Number 315,603 292,509 – (472,021) 136,092 – 2019 Number 315,603 292,509 (472,021) 136,091 – 2019 WAEP ₦ 451 522 – – 572 – 2019 WAEP $ 1.47 1.70 – 1.86 – The fair value of the modified options was determined using the same models and principles as described in the table below on the inputs to the models used for the scheme. 218 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Long-Term Incentive Plan (LTIP) Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December Long-Term Incentive Plan (LTIP) Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 12,250,525 8,166,900 (6,178,189) (1,760,400) 12,478,836 2020 Number 12,250,525 8,166,900 (6,178,189) (1,760,400) 12,478,836 2020 WAEP ₦ 209 390 – – 509 2020 WAEP $ 0.68 1.03 – – 1.34 2019 Number 12,035,268 10,509,557 (6,352,552) (3,941,748) 12,250,525 – 2019 Number 12,035,268 10,509,557 (6,352,552) (3,941,748) 12,250,525 – 2019 WAEP ₦ 361 362 – – 209 – 2019 WAEP $ 1.18 1.18 – – 0.68 – The shares are granted to the employees at no cost. The weighted average remaining contractual life for the share awards outstanding as at 31 December 2020 range from 0.3 to 3 years (2019: 0.3 to 2.3 years). The weighted average fair value of awards granted during the year range from ₦142.8 to ₦235.98 (2019: ₦362.26 to ₦521.9), $0.32 to $0.68 (2019: $1.18 to $1.70). The fair value at grant date is independently determined using the Monte Carlo model which takes into account the term of the award, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the award and the correlations and volatilities of peer group companies. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Inputs to the models iv. The following table lists the inputs to the models used for the share awards outstanding in the respective plans for the year ended 31 December 2020: Weighted average fair values at the measurement date Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share options Share price at grant date ($) Share price at grant date (₦) Model used 29. Capital contribution 2018 LTIP 0.00% 41% 0.83% 3.00 1.93 589.90 2019 LTIP 2019 Deferred Bonus 2020 LTIP 2020 LTIP 0.00% 35% 0.76% 3.00 1.7 521.9 0.00% 43% 0.44% 3.00 0.51 193.48 Monte Carlo Monte Carlo Black Scholes Monte Carlo 0.00% 43% 0.44% 3.00 0.38 135.38 0.00% 56% 0.63% 1.67 0.62 190.15 This represents M&P additional cash contribution to the Group. In accordance with the Shareholders’ Agreement, the amount was used by the Group for working capital as was required at the commencement of operations. Capital contribution 30. Foreign currency translation reserve 2020 ₦ million 5,932 2019 ₦ million 5,932 2020 $’000 40,000 2019 $’000 40,000 Cumulative foreign exchange differences arising from translation of the Group’s results and financial position into the presentation currency and from the translation of foreign subsidiary is recognised in foreign currency translation reserve. 219 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31. Interest-bearing loans and borrowings 31.1 Net debt reconciliation Below is the net debt reconciliation on interest-bearing loans and borrowings for 2020: Balance as at 1 January 2020 Interest accrued Interest capitalised Principal repayment Interest repayment Proceeds from loan financing Transfers Exchange differences Carrying amount as at 31 December 2020 Borrowings due within 1 year ₦ million 34,486 17,504 5,449 (35,991) (23,310) – 29,559 7,821 35,518 Borrowings due above 1 year ₦ million 207,863 – – – 3,599 (29,559) 47,977 229,880 Below is the net debt reconciliation on interest-bearing loans and borrowings 2019: Balance as at 1 January 2019 Interest accrued Interest capitalised Principal repayment Interest repayment Other financing charges Proceeds from loan financing Acquired on business combination Exchange differences Carrying amount as at 31 December 2019 Borrowings due within 1 year ₦ million 3,031 8,890 6,308 (3,029) (10,364) (2,696) 19,151 13,187 8 34,486 Borrowings due above 1 year ₦ million 133,799 – – (27,661) – – 87,194 14,509 22 207,863 Borrowings due within 1 year $’000 Borrowings due above 1 year $’000 112,333 48,634 15,140 (100,000) (64,767) – 82,128 – 93,468 677,075 – – – 10,000 (82,128) – 604,947 Borrowings due within 1 year $’000 Borrowings due above 1 year $’000 9,872 28,966 20,554 (9,872) (33,770) (8,783) 62,399 42,967 – 112,333 435,827 (90,128) – – 284,101 47,275 – 677,075 Total ₦ million 242,349 17,504 5,449 (35,991) (23,310) 3,599 – 55,798 265,398 Total ₦ million 136,830 8,890 6,308 (30,690) (10,364) (2,696) 106,345 27,696 30 242,349 Total $’000 789,408 48,634 15,140 (100,000) (64,767) 10,000 – – 698,415 Total $’000 445,699 28,966 20,554 (100,000) (33,770) (8,783) 346,500 90,242 – 789,408 Other financing charges include term loan arrangement and commitment fees, annual bank charges, technical bank fee, agency fee and analytical services in connection with annual service charge. These costs do not form an integral part of the effective interest rate. As a result, they are not included in the measurement of the interest-bearing loan. 31.2 Amortised cost of borrowings Senior loan notes Revolving loan facilities Reserve based lending (RBL) facility 2020 ₦’million 134,291 93,634 37,473 265,398 2019 ₦’million 107,237 107,416 27,696 242,349 2020 $’000 353,396 246,406 98,613 698,415 2019 $’000 349,278 349,888 90,242 789,408 $350 million Senior notes – March 2018 Interest-bearing loans and borrowings include senior notes. In March 2018 the Group issued ₦107 billion ($350 million) senior notes at a contractual interest rate of 9.25% with interest payable each year on 1 April and 1 October, and principal repayable as a bullet at maturity. The notes are scheduled to mature in June 2023. The interest accrued up at the reporting date is ₦12.5 billion ($34.7 million) using an effective interest rate of 10.3%. Transaction costs of ₦2.1 billion ($7 million) have been included in the amortised cost balance at the end of the reporting period. The amortised cost for the senior notes at the reporting period is ₦134.3 billion ($353.8 million) (December 2019: ₦107.2 billion, $349.3 million), although the principal is $350 million. $350 million Revolving credit facility – December 2019 The Group’s parent Company on 20 December 2019 entered into a four-year revolving loan agreement with interest payable semi-annually. There is a two-year moratorium on the principal which ends on 1 July 2021 but will be extended to 1 July 2022 if the Notes are not refinanced before then. The revolving loan has an initial contractual interest rate of 6% +LIBOR and a settlement date of 31 December 2023. The interest rate of the facility is variable. The interest accrued at the reporting period is ₦8.4 billion, $23.4 million using an effective interest rate of 7.5%. The interest paid was determined using three-month LIBOR rate + 6 % on the last business day of the reporting period. The outstanding amount of this borrowing as the reporting period is ₦94.2 billion, $250 million. $125 million Reserved based lending (RBL) facility – November 2018 The Group through its subsidiary Westport on 28 November 2018 entered into a five-year loan agreement with interest payable semi-annually. The RBL facility has an initial contractual interest rate of 8% +LIBOR as at half year (8.30%) and a final maturity date of 29 November 2023. The RBL is secured against the Group’s producing assets in OML 40 via the Group’s shares in Elcrest, and by way of a debenture which creates a charge over certain assets of the Group, including its bank accounts. 220 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The available facility is capped at the lower of the available commitments and the borrowing base. The current borrowing base is more than $100 million, with the available commitments at $100 million. The commitments are scheduled to reduce to $87.5 million on 31 March 2021. The first reduction in the commitments occurred on 31 December 2019 in line with the commitment reduction schedule contained within the Facility Agreement. This resulted in the available commitments reducing from ₦45 billion ($125.0 million) to ₦40.6 billion ($112.5 million), with a further reduction to ₦36.1 billion ($100.0 million) as at December 2020. The RBL has a maturity of five years, the repayments of principal are due on a semi-annual basis so that the outstanding balance of the RBL will not exceed the lower of (a) the borrowing base amount and (b) the total commitments. Interest rate payable under the RBL is LIBOR plus 8%, so long as more than 50% of the available facility is drawn. On 4 February 2020 Westport drew down a further ₦3.6 billion ($10 million) increasing the debt utilised under the RBL from ₦32.4 billion ($90 million) to ₦36.1 billion ($100 million). The interest rate of the facility is variable. The Group made a drawdown of ₦3.79 billion ($10 million) as at period end. The interest accrued at the reporting period is ₦3.9 billion ($11 million) using an effective interest rate of 8.3%. The interest paid was determined using six-month LIBOR rate + 8 % on the last business day of the reporting period. The outstanding amount of this borrowing as at the date of acquisition is ₦37.4 billion ($98.6 million). 31.3 Outstanding principal exposures The following is the analysis of the principal outstanding showing the lenders of the facility as at the year end: 31 December 2020 Fixed interest rate Senior notes: Variable interest rate Corporate loan: Citibank, N.A., London Branch Nedbank Limited London Stanbic IBTC Bank Plc The Standard Bank of South Africa Limited// RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd JPMorgan Chase Bank, N.A., London Branch Standard Chartered Bank Natixis Société Générale, London Branch Zenith Bank Plc United Bank for Africa Plc First City Monument Bank Limited First Bank of Nigeria The Mauritius Commercial Bank Ltd Stanbic IBTC Bank Plc/ The Standard Bank of South Africa Limited Interest 9.25% 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% +LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 6% + LIBOR 8% + LIBOR 8% + LIBOR 8% + LIBOR Current ₦ million Non-current ₦ million Total ₦ million Current $’000 Non-current $’000 Total $’000 – – – – – – – – – – – – – – – – – – 133,000 133,000 10,857 10,857 5,429 10,857 10,857 5,429 5,429 5,429 10,857 10,857 10,857 10,857 8,143 8,143 8,143 4,071 4,071 4,071 4,071 4,561 8,143 8,143 8,143 4,071 4,071 4,071 4,071 4,561 13,073 13,073 20,369 266,002 20,369 266,002 – – – – – – – – – – – – – – – – – – 350,000 350,000 28,572 28,572 14,285 28,572 28,572 14,285 14,285 14,285 28,572 28,572 28,572 28,572 21,429 21,429 21,429 10,714 10,714 10,714 10,713 12,000 21,429 21,429 21,429 10,714 10,714 10,714 10,713 12,000 34,400 34,400 53,600 700,000 53,600 700,000 221 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31. Interest-bearing loans and borrowings continued 31 December 2019 Fixed interest rate Senior notes: Variable interest rate Corporate loan: Citibank, N.A., London Branch Nedbank Limited London Stanbic IBTC Bank Plc The Standard Bank of South Africa Limited// RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd JPMorgan Chase Bank, N.A., London Branch Standard Chartered Bank Natixis Société Générale, London Branch Zenith Bank Plc United Bank for Africa Plc First City Monument Bank Limited Acquisition through business combination; Stanbic IBTC Bank Plc & The Mauritius Commercial Bank Ltd 32. Lease liabilities Interest 9.25 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR Current ₦ million Non-current ₦ million Total ₦ million Current $’000 Non-current $’000 Total $’000 107,450 107,450 350,000 350,000 – – – – – – – – – – – – – 12,280 12,280 6,140 12,280 12,280 6,140 6,140 6,140 12,280 12,280 12,280 12,280 9,210 9,210 9,210 4,605 4,605 4,605 9,210 9,210 9,210 4,605 4,605 4,605 4,605 4,605 – – – – – – – – – – – – – 40,000 40,000 20,000 40,000 40,000 20,000 20,000 20,000 40,000 40,000 40,000 40,000 30,000 30,000 30,000 15,000 15,000 15,000 30,000 30,000 30,000 15,000 15,000 15,000 15,000 15,000 8.0% +LIBOR 7,675 7,675 19,955 234,855 27,630 242,530 25,000 25,000 65,000 765,000 90,000 790,000 As at 1 January Additions during the year Payments during the year Acquired in business combination Interest on lease liabilities As at 31 December 2020 ₦ million 2,829 1,193 (1,858) – 106 2,270 2019 ₦ million 2,140 64 – 461 164 2,829 2020 $’000 9,210 803 (4,334) – 295 5,974 2019 $’000 6,972 204 – 1,500 534 9,210 In 2018, the Group entered into a lease agreement for an office building in Lagos. The non-cancellable period of the lease is five years commencing on 1 January 2019 and ending on 31 December 2023. However, the Group has an option of either extending the lease period on terms to be mutually agreed by parties to the lease on the expiration of the current term or purchase the property. The Group’s lease liability as at 31 December 2020 is split into current and non-current portions as follows: Current Non-current The following amount are the amount recognised in profit or loss: Depreciation expense of right-of-use assets Interest expense on lease liabilities 2020 ₦ million 679 1,591 2,270 2020 ₦ million 1,254 106 1,360 2019 ₦ million 212 2,617 2,829 2019 ₦ million 908 164 1,072 2020 $’000 1,787 4,187 5,974 2020 $’000 3,483 295 3,778 2019 $’000 692 8,518 9,210 2019 $’000 2960 534 3,494 222 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The following are the impact of the lease on cash flow: Depreciation expense of right-of-use assets Interest expense on lease liabilities Net cash flows from operating activities Lease payments Net cash flows from financing activities 2020 ₦ million 1,254 106 1,360 (1,858) (1,858) 2019 ₦ million 908 164 1,072 – – 2020 $’000 3,483 295 3,778 (4,334) (4,334) 2019 $’000 2,960 534 3,494 – – The Group’s lease payments for drilling rigs are classified as variable lease payments. The variability arises because the lease payments are linked to the use of the underlying assets. These variable lease payments are therefore excluded from the measurement of the lease liabilities. At the end of the reporting period, there was no rental expense recognised within cost of sales for these leases. The expected future cash outflows arising from variable lease payments is estimated at ₦1.2 billion, $3.1 million (2019: ₦14.8 billion, $48 million). The following tables summarise the impact that exercising the purchase option would have had on the profit before tax and net assets of the Group: Depreciation Interest payment Depreciation Interest payment 33. Contingent liability At 1 January 2019 Acquired in business combination At 31 December 2019 At 1 January 2020 Exchange difference Provision no longer required (Note 10) At 31 December 2020 Effect on profit before tax Effect on profit before tax 2020 ₦ million 651 (844) (193) 2020 $’000 1,810 (2,346) (536) 2019 ₦ million 556 (725) (169) 2019 $’000 1,810 (2,363) (553) Effect on net assets Effect on net assets 2020 ₦ million 11,188 (11,885) (697) 2020 $’000 29,441 (31,275) (1,834) 2019 ₦ million 9,594 (10,322) (728) ₦ million – 2,215 2,215 2,215 382 (2,597) – 2019 $’000 31,251 (33,621) (2,370) $’000 – 7,217 7,217 7,217 – (7,217) – A contingent liability of $7.2 million was recognised on the acquisition of Eland Group for a pending investigation by the European Commission into the UK’s Controlled Foreign Company (CFC) tax regime. Notwithstanding the ongoing appeal in the European Courts, the UK tax authority, HMRC, were obligated to review impacted companies and collect taxes in the UK. In February 2021, Eland Oil & Gas Limited (Eland) received written notification from HMRC that they had formed a view that Eland was not a beneficiary of State Aid in the period, 1 January 2013 to 31 December 2018. For that reason, it is extremely unlikely that any cash outflow will result from the State Aid investigation, irrespective of the outcome of the ongoing appeal between the UK government and the European Commission regarding UK CFC rules in the period. There is therefore no longer any need to recognise a contingent liability in respect of the State Aid investigation (2019: $45.4 million was estimated as the maximum exposure in the event of an adverse decision related to the investigation). 223 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 34. Provision for decommissioning obligation At 1 January 2020 Unwinding of discount due to passage of time Change in estimate Exchange difference At 31 December 2020 At 1 January 2019 Unwinding of discount due to passage of time Changes in estimate Acquired in business combination At 31 December 2019 ₦ million 45,411 1,046 4,244 11,094 61,795 43,514 1,240 (5,142) 5,799 45,411 $’000 147,921 2,905 11,793 – 162,619 141,737 4,039 (16,745) 18,890 147,921 The Group makes full provision for the future cost of decommissioning oil production facilities on a discounted basis at the commencement of production. This relates to the removal of assets as well as their associated restoration costs. This obligation is recorded in the period in which the liability meets the definition of a “probable future sacrifice of economic benefits arising from a present obligation”, and in which it can be reasonably measured. The provision represents the present value of estimated future expenditure to be incurred as highlighted in the table below which is the current expectation as to when the producing facilities are expected to cease operations. Management engaged a third party to assist with an estimate of the expenditure to be incurred. These provisions were based on estimations carried out by Netherland, Sewell and Associates for OML 40 and Ubima in 2019. The estimate for 2020 were done by Ryder Scott for all the OMLs based on current assumptions of the economic environment which management believes to be a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to consider any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. Seplat Petroleum Development Company: OML 4 OML 38 OML 41 Seplat West Limited: OML 4 OML 38 OML 41 Newton Energy Limited (OPL 283) Seplat East Onshore Ltd (OML 53) Elcrest (OML 40) Ubima (OML 17) 35. Employee benefit obligation Current estimated life span of reserves 2020 In years 2019 In years – – – 2027 – 2037 2027 – 2034 2037 2027 – 2037 2027 – 2034 2037 2037 – 2044 2028 – 2054 2031 2032 – – – 2037 – 2044 2028 – 2054 2033 – 35.1 Defined contribution plan The Group contributes to a funded defined contribution retirement benefit scheme for its employees in compliance with the provisions of the Pension Reform Act 2014. A defined contribution plan is a pension plan under which the Group pays fixed contributions to an approved Pension Fund Administrator (PFA) – a separate entity. The assets of the scheme are managed by various Pension Fund Administrators patronised by employees of the Group. The Group’s contributions are charged to the profit and loss account in the year to which they relate. Investment management strategy and policy 35.2 Defined benefit plan i. The Group operates a funded defined benefit pension plan in Nigeria under the regulation of National Pension Commission. The plan provides benefits to all the employees (excluding Directors holding salaried employment in the Group) who have been employed by the Group for a continuous period of five years and whose employment have been confirmed. The employee’s entitlement to the accrued benefits occurs on retirement from the Group. The level of benefits provided on severance depends on members’ length of service and salary at retirement age. The overall investment philosophy of the defined benefit plan fund is to ensure safety, optimum returns and liquidity in line with the regulation and guidelines of the Pension Reform Act 2014 or guidelines that may be issued from time to time by National Pension Commission. Plan assets are held in trust. Responsibility for supervision of the plan assets (including investment decisions and contributions schedules) lies jointly with the trustees and the pension fund managers. The trustees are made up of members of the Group’s senior management appointed by the Chief Executive Officer. The Group does not have an investment strategy of matching match plan assets with the defined obligations as they fall due, however, the Group has an obligation to settle shortfalls in the plan asset upon annual actuarial valuations. 224 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The provision for the defined benefit plan is based on an independent actuarial valuation performed by Logic Professional Services (LPS) using the projected unit credit method. The provision is adjusted for inflation, interest rate risks, changes in salary and changes in the life expectancy for the beneficiaries. The amount payable as at 31 December 2020 was ₦4 billion ($10.7 million), 2019: ₦3 billion ($9.8 million). The following tables summarise the components of net defined benefit expense recognised in the statement of profit or loss and other comprehensive income and in the statement of financial position for the respective plans: ii. Liability recognised in the financial position Defined benefit obligation Fair value of plan assets iii. Amount recognised in profit or loss Current service cost Interest cost on defined benefit obligation Return on plan assets 2020 ₦ million 5,304 (1,241) 4,063 2020 ₦ million 687 498 1,185 (124) 1,061 2019 ₦ million 3,595 (583) 3,012 2019 ₦ million 602 364 966 (129) 837 2020 $’000 13,958 (3,267) 10,691 2020 $’000 1,909 1,383 3,292 (346) 2,946 2019 $’000 11,707 (1,899) 9,808 2019 $’000 1,961 1,186 3,147 (420) 2,727 The Group recognises a part of its defined benefit expenses in profit or loss and recharges the other part to its joint operations partners, this is recognised as a receivable from the partners. Below is the breakdown: Charged to profit or loss Charged to receivables Balance as at 31 December iv. Remeasurement (gains)/losses in other comprehensive income Remeasurement losses/(gains) due to changes in financial and demographic assumptions Remeasurement (gains)/losses due to experience adjustment Remeasurement gain on plan assets Deferred tax credit/(expense) on remeasurement losses 2020 ₦ million 409 652 1,061 2019 ₦ million 343 494 837 2020 ₦ million 2019 ₦ million 36 (74) (27) (65) 55 (10) (508) 111 (51) (448) 381 67 2020 $’000 1,135 1,811 2,946 2020 $’000 101 (206) (75) (180) 153 (27) 2019 $’000 1,117 1,610 2,727 2019 $’000 (1,655) 362 (166) (1,459) 1,240 219 The Group recognises a part of the remeasurement losses in other comprehensive income and recharges the other part to its joint operations partners. Below is the breakdown: Recharged to receivables Charged/(credited) to other comprehensive income Remeasurement (losses)/gain due to changes in financial and demographic assumptions 2020 ₦ million (36) (29) 2019 ₦ million (247) (201) (65) (448) 2020 $’000 (99) (81) (180) 2019 $’000 (803) (656) (1,459) 225 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 35. Employee benefit obligation continued Deferred tax (expense)/credit on remeasurement (gains)/losses 35.2 Defined benefit plan continued v. The Group recognises deferred tax (credit on a part of the remeasurement (gain)/losses in other comprehensive income/(loss). Below is the breakdown: Charged to other comprehensive income Charged to receivables Deferred tax on remeasurement losses 2020 ₦ million 25 30 55 vi. Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation as at 1 January Current service cost Interest cost on benefit obligation Remeasurement losses due to changes in financial and demographic assumptions Remeasurement gains due to experience adjustment Benefits paid by the employer Benefits from the fund Exchange differences Defined benefit obligation at 31 December vii. The changes in the fair value of plan assets is as follows: Balance as at 1 January Employer contributions Return on plan assets Benefits paid from fund Remeasurement loss on plan assets Exchange differences Balance as at 31 December The net liability disclosed above relates to funded plans as follows: Present value of funded obligations Fair value of plan assets Deficit of funded plans 2020 ₦ million 3,595 687 498 36 (74) (77) (260) 899 5,304 2020 ₦ million (583) (601) (124) 260 (27) (166) (1,241) 2020 ₦ million 5,304 (1,241) 4,063 2019 ₦ million 171 210 381 2019 ₦ million 2,324 602 364 508 (111) (86) – (6) 3,595 2019 ₦ million (505) – (129) – 51 – (583) 2019 ₦ million 3,595 (583) 3,012 2020 $’000 69 84 153 2020 $’000 11,707 1,909 1,383 101 (206) (213) (723) – 13,958 2020 $’000 (1,899) (1,670) (346) 723 (75) – (3,267) 2020 $’000 13,958 (3,267) 10,691 2019 $’000 558 682 1,240 2019 $’000 7,568 1,961 1,186 1,655 (362) (280) – (21) 11,707 2019 $’000 (1,645) – (420) – 166 – (1,899) 2019 $’000 11,707 (1,899) 9,808 The fair value of the plan asset of the Group at the end of the reporting period was determined using the market values of the comprising assets as shown below: Equity instrument Treasury bills and money market Bonds Cash at bank Payables Total plan asset as at 31 December Money market Equity instrument Treasury bills Bonds Cash at bank Payables Total plan asset as at 31 December 226 Quoted ₦ million 19 637 564 – – 1,220 Quoted ₦ million – 12 50 386 – – 448 Not quoted ₦ million – – – 25 (4) 21 Not quoted ₦ million 136 – – – 2 (3) 135 2020 Total ₦ million 19 637 564 25 (4) 1,241 2019 Total ₦ million 136 12 50 386 2 (3) 583 Quoted $’000 50 1,679 1,486 – – 3,215 Not quoted $’000 – – – 66 (14) 52 Quoted $’000 Not quoted $’000 – 40 163 1,258 – – 1,461 442 – – – 6 (10) 438 2020 Total $’000 50 1,679 1,486 66 (14) 3,267 2019 Total $’000 442 40 163 1,258 6 (10) 1,899 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 viii. The principal assumptions used in determining defined benefit obligations for the Group’s plans are shown below: Discount rate Average future pay increase Average future rate of inflation a. Mortality in service Sample age 25 30 35 40 45 Withdrawal from service Age band Less than or equal to 30 31 – 39 40 – 44 45 – 55 56 – 60 2020 % 8.00 8.00 12.00 2019 % 14.00 12.00 12.00 Number of deaths in year out of 10,000 lives 2020 2019 3 36 64 97 90 Rates 2020 1.0% 1.5% 1.5% 1.0% 0.0% 7 7 9 14 26 2019 1.0% 1.5% 1.5% 1.0% 0.0% A quantitative sensitivity analysis for significant assumption is as shown below: Assumptions Sensitivity Level: Impact on the net defined benefit obligation 31 December 2020 31 December 2019 Assumptions Sensitivity Level: Impact on the net defined benefit obligation 31 December 2020 31 December 2019 Discount rate Salary increases Mortality Base 1% increase ₦ million 1% decrease ₦ million 1% increase ₦ million 1% decrease ₦ million 1% increase ₦ million 1% decrease ₦ million 5,304 3,595 (578) (225) 682 262 702 280 (605) (243) (249) 3 223 (3) Discount rate Salary increases Mortality Base 1% increase $’000 1% decrease $’000 1% increase $’000 1% decrease $’000 1% increase $’000 1% decrease $’000 13,958 11,707 (219) (733) 259 854 267 912 (230) (792) (95) 10 85 (10) The sensitivity analyses above have been determined based on a method that extrapolates the impact on net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The methods and assumptions used in preparing the sensitivity analysis did not change compared to prior period. The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. The expected maturity analysis of the undiscounted defined benefit plan obligation is as follows: Within the next 12 months (next annual reporting period) Between 2 and 5 years Between 6 and 10 years Beyond 10 years 2020 ₦ million 89 1,458 4,763 55,285 61,595 2019 ₦ million 198 1,403 5,421 127,029 134,051 2020 $’000 234 3,842 12,551 145,678 162,305 2019 $’000 646 4,569 17,658 413,775 436,648 227 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 35. Employee benefit obligation continued The weighted average liability duration for the plan is 13.67 years (2019: 11.35 years). The longest weighted duration for Nigerian Government bond as at 31 December 2020 was about 10.92 years (2019: 7.26 years) with a gross redemption yield of about 7.42% (2019: 13.31%). Risk exposure a. Through its defined benefit pension plans, the Group is exposed to several risks. The most significant of which are detailed below: Liquidity risk b. The plan liabilities are not fully funded and as a result, there is a risk that the Group may not have the required cash flow to fund future defined benefit obligations as they fall due. Inflation risk c. This is the risk of an unexpected significant rise/fall of market interest rates. A rise leads to a fall in long-term asset values and a rise in liability values. Life expectancy d. The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant, where inflationary increases result in higher sensitivity to changes in life expectancy. Asset volatility e. The Group holds a significant proportion of its plan assets in equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the short term. Details of the Actuary is shown below: Name of signer Name of firm FRC number Services rendered Ganiu Dare Shefiu Logic Professional Services FRC/2017/NAS/00000017548 Actuary valuation services 36. Trade and other payables Trade payable Accruals and other payables Pension payables NDDC levy Royalties payable Overlift 2020 ₦ million 51,351 56,816 – 4,780 10,500 7,021 130,468 2019 ₦ million 31,977 84,527 (29) 8 9,096 18,346 143,925 2020 $’000 135,134 149,521 – 12,578 27,632 18,475 343,340 2019 $’000 104,161 275,330 (97) 23 29,629 59,758 468,804 Included in accruals and other payables are field accruals of $109 million, ₦41 billion (2019: $127 million, ₦39 billion) and other vendor payables of $49 million, ₦19 billion (Dec 2019: $80 million, ₦25 billion). Royalties payable include accruals in respect of crude oil and gas production for which payment is outstanding at the end of the period. 37. Contract liabilities 37.1 Reconciliation of contract liabilities Opening balance Recognised as revenue during the year Addition during the year 2020 ₦ million 3,599 2020 ₦ million 5,005 (1,406) – 3,599 2019 ₦ million 5,005 2019 ₦ million – – 5,005 5,005 2020 $’000 9,470 2020 $’000 16,301 (6,831) – 9,470 2019 $’000 16,301 2019 $’000 – – 16,301 16,301 Contract liabilities represents take or pay volumes contracted with Azura for 2019 which is yet to be utilised. In line with contract, Azura can make a demand on the makeup gas but only after they have taken and paid for the take or pay quantity for the respective year. The contract liability is accrued for two years after which the ability to take the makeup gas expires and any outstanding balances are recognised as revenue from contracts with customers. 228 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 38. Summary of net assets transferred During the year, Seplat Plc transferred its rights and obligations in respect of OML 4, OML 38 and OML 41 to Seplat West Limited. The transfer had no impact on the consolidated financial statements for 2020. Summary of net assets transferred from Seplat Plc to Seplat West Ltd Assets Non-current assets Oil & Gas properties Other property, plant and equipment Right-of-use assets Intangible assets Prepayment Deferred tax asset Current assets Inventories Trade and other receivables Prepayments Contract assets Derivative financial instruments Cash and bank balances Total assets Liabilities Non-current liabilities Interest-bearing loans and borrowings Lease liabilities Provision for decommissioning Defined benefit plan Current liabilities Interest-bearing loans and borrowings Contract liabilities Total liabilities Net assets transferred At 1 January 2020 ₦ million At 1 January 2020 $’000 249,888 3,581 3,397 8,552 19,228 37,610 322,256 24,316 270,907 1,478 6,527 308 77,583 381,119 703,375 193,349 2,367 34,988 3,011 233,715 21,295 5,004 26,299 260,014 813,967 11,666 11,064 27,858 62,633 122,508 1,049,696 79,205 882,434 4,814 21,259 1,002 252,713 1,241,427 2,291,123 629,800 7,709 113,968 9,808 761,285 69,366 16,301 85,667 846,952 443,361 1,444,171 229 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 39. (Loss)/Earnings per share (LPS)/EPS Basic Basic (LPS)/EPS is calculated on the Group’s profit after taxation attributable to the parent entity, which is based on the weighted average number of issued and fully paid ordinary shares at the end of the year. Diluted Diluted (LPS)/EPS is calculated by dividing the profit after taxation attributable to the parent entity by the weighted average number of ordinary shares outstanding during the year plus all the dilutive potential ordinary shares (arising from outstanding share awards in the share-based payment scheme) into ordinary shares. (Loss)/profit attributable to Equity holders of the parent (Loss)/profit attributable to Non-controlling interests (Loss)/profit from continued operations Profit from discontinued operations (Loss)/profit for the year Weighted average number of ordinary shares in issue Outstanding share-based payments (shares) Weighted average number of ordinary shares adjusted for the effect of dilution Basic (loss)/earnings per shares From continuing operations attributable to the ordinary equity holders of the Group From discontinuing operations attributable to the ordinary equity holders of the Group Total basic (loss)/earnings per share attributable to the ordinary equity holders of the Group Diluted (loss)/earnings per shares From continuing operations attributable to the ordinary equity holders of the Group From discontinuing operations attributable to the ordinary equity holders of the Group Total diluted (loss)/earnings per share attributable to the ordinary equity holders of the Group 2020 ₦ million (26,906) (3,806) (30,712) – (30,712) Shares ‘000 579,638 8,807 2019 ₦ million 80,975 – 80,975 4,041 85,016 Shares ‘000 569,228 12,387 2020 $’000 2019 $’000 (74,747) (10,575) (85,322) – (85,322) Shares ‘000 579,638 8,807 263,842 – 263,842 13,166 277,008 Shares ‘000 569,228 12,387 588,445 ₦ 581,615 ₦ 588,445 $ 581,615 $ (46.42) 142.25 (0.13) – 7.10 (46.42) ₦ 149.35 ₦ (45.72) 139.22 – 6.95 – (0.13) $ (0.13) – (45.72) 146.17 (0.13) 0.46 0.02 0.48 $ 0.45 0.02 0.48 The weighted average number of issued shares was calculated as a proportion of the number of months in which they were in issue during the reporting period. 40. Dividends paid and proposed As at 31 December 2020, the final proposed dividend for the Group is ₦19 ($0.05), 2019: ₦15.35 ($0.05). Cash dividends on ordinary shares declared and paid: Dividend for 2020: ₦37.32 ($0.10) per share 583,260,187 shares in issue (2019: ₦30.7 ($0.10) per share, 575,321,598 shares in issue) Proposed dividend on ordinary shares: Final proposed dividend for the year 2020: ₦19 ($0.05) (2019: ₦15.35 ($0.05) per share) 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 20,998 18,019 58,342 58,708 11,082 8,831 29,163 28,766 As at 31 December 2020, ₦10.61 billion, ($29.4 million) (2019: ₦9 billion, $29.4 million) of interim dividend was paid at ₦18.03 ($0.05) per share as at 30 June 2020 and the remaining dividend ₦10.61 billion ($29.3 million) was paid at ₦19.29 ($0.05) per share as at 30 November 2020. Final Naira dividend payments will be based on the Naira/dollar rates on the date for determining the exchange rate. The payment is subject to shareholders’ approval at the 2020 Annual General Meeting. The tax effect of dividend paid during the year was $5.8 million (₦2.09 billion). 230 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 41. Related party relationships and transactions The Group is controlled by Seplat Petroleum Development Company Plc (the parent Company). The parent Company is owned 6.43% either directly or by entities controlled by A.B.C. Orjiako (SPDCL(BVI)) and members of his family and 10.21% either directly or by entities controlled by Austin Avuru (Professional Support Limited and Platform Petroleum Limited). The remaining shares in the parent Company are widely held. The goods and services provided by the related parties are disclosed below. The outstanding balances payable to/receivable from related parties are unsecured and are payable/receivable in cash. Shareholders of the parent Company 1. Shebah Petroleum Development Company Limited SPDCL (BVI): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). The Company provided consulting services to Seplat. Services provided to the Group during the period amounted to $900 thousand, ₦342 million (2019: $1.05 million, ₦322 million). Entities controlled by key management personnel (Contracts>$1million in 2020) 2. Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): The Company is owned by common shareholders with the parent Company. The Company provides drilling rigs and drilling services to Seplat. Transactions with this related party amounted to $5.7 million, ₦2.1 billion (2019: $9.44 million, ₦2.89 billion). Payables amounted to $591 thousand, ₦225 million in the current period (Payables in 2019: nil). Entities controlled by key management personnel (Contracts<$1million in 2020) 3. Abbeycourt Trading Company Limited: The Chairman of Seplat is a director and shareholder. The Company provides diesel supplies to Seplat in respect of Seplat’s rig operations. This amounted to $296 thousand, ₦106 million during the period (2019: $0.93 million, ₦286 million). Payables amounted to $15,273, ₦5.8 million (2019: nil). Stage leasing (Ndosumili Ventures Limited): A subsidiary of Platform Petroleum Limited (an entity in which Austin Avuru has an equity interest). The Company provides transportation services to Seplat. This amounted to $714 thousand, ₦257million (2019: $1.45 million, ₦445 million). Payables amounted to $23,572, ₦8.9 million (2019: nil). 42. Information relating to employees 42.1 Key management compensation Key management includes executive and members of the leadership team. The compensation paid or payable to key management for employee services is shown below: Salaries and other short-term employee benefits Post-employment benefits Share-based payment expenses 42.2 Chairman and Directors’ emoluments Chairman (Non-executive) Chief Executive Officer Executive Directors Non-Executive Directors Total 2020 Executive Director emoluments includes 2019 bonus paid in 2020. 42.3 Highest paid Director Highest paid Director Emoluments are inclusive of income taxes. 2020 ₦ million 1,074 105 971 2,150 2020 ₦ million 395 679 750 862 2,686 2019 ₦ million 728 95 166 989 2019 ₦ million 354 763 800 702 2,619 2020 ₦ million 484 2019 ₦ million 763 2020 $’000 2,984 291 2,699 5,974 2020 $’000 1,098 1,886 2,083 2,395 7,462 2020 $’000 1,346 2019 $’000 2,373 308 540 3,221 2019 $’000 1,155 2,486 2,606 2,287 8,535 2019 $’000 2,486 231 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 42. Information relating to employees continued 42.4 Number of Directors The number of Directors (excluding the Chairman) whose emoluments fell within the following ranges was: Zero – ₦19,896,500 ₦19,896,501 – ₦115,705,800 ₦115,705,801 – ₦157,947,600 Above ₦157,947,600 Zero – $65,000 $65,001 – $378,000 $378,001 – $516,000 Above $516,000 2020 Number 2019 Number – – – 4 4 – – – 3 3 2020 Number 2019 Number – – – 4 4 – – – 3 3 42.5 Employees The number of employees (other than the Directors) whose duties were wholly or mainly discharged within Nigeria, and who earned over ₦1,989,650 ($6,500), received remuneration (excluding pension contributions) in the following ranges: ₦1,989,650 – ₦4,897,600 ₦4,897,601– ₦9,795,200 ₦9,795,201 – ₦14,692,800 Above ₦14,692,800 $6,500 – $16,000 $16,001 – $32,000 $32,001 – $48,000 Above $48,000 42.6 Number of persons employed during the year The average number of persons (excluding Directors) in employment during the year was as follows: Senior management Managers Senior staff Junior staff 42.7 Employee cost Seplat’s staff costs (excluding pension contribution) in respect of the above employees amounted to the following: 2020 Number 2019 Number 9 146 182 191 528 9 142 132 180 463 2020 Number 2019 Number 9 146 182 191 528 9 142 132 180 463 2020 Number 2019 Number 30 111 227 160 528 19 100 200 144 463 2020 ₦ million 9,055 9,055 2019 ₦ million 7,015 7,015 2020 $’000 25,159 25,159 2019 $’000 22,851 22,851 Salaries & wages 232 Notes to the consolidated financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 43. Commitments and contingencies 43.1 Contingent liabilities The Company is involved in a number of legal suits as defendant. The estimated value of the contingent liabilities for the year ended 31 December 2020 is ₦23.2million, $61,194 (2019: ₦14 billion, $48 million). The contingent liability for the year is determined based on possible occurrences, though unlikely to occur. No provision has been made for this potential liability in these financial statements. Management and the Company’s solicitors are of the opinion that the Company will suffer no loss from these claims. Under the OML 40 Joint Operating Agreement (JOA), the Company is responsible for its share of expenditures incurred on OML 40 in respect of its participating interest, on the basis that the operator’s estimated expenditures are reasonably incurred based on the approved work programme and budget. From time to time, management disputes such expenditures on the basis that they do not meet these criteria, and when this occurs management accrues at the period end for its best estimate of the amounts payable to the operator. Consequently, the amounts recognised as accruals as of 31 December 2020 reflect management’s best estimate of amounts that have been incurred in accordance with the JOA and that will ultimately be paid to settle its obligations in this regard. However, management recognises there are a range of possible outcomes, which may be higher or lower than the management’s estimate of accrued expenditure. It is estimated that around $8,383,356 (2019: $5,946,000) of possible expenditure currently remains under dispute. The movement from the prior year is driven majorly by a non-JOA compliant and unbudgeted expenditure on Escravos pipeline, a project that the Joint Venture has since jointly taken a decision to suspend and overheads from the Operator’s parent company over and above the JOA stipulated 2.5% of actual Capital Expenditure. Management considers the merits for these cost items to remain rejected to be very high, but in recognition of possible range of outcomes has included them in the contingent liability estimates. 43.2 Capital commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment 31 Dec 2020 ₦ million – 31 Dec 2019 ₦ million 31,022 31 Dec 2020 $’000 – 31 Dec 2019 $’000 101,050 Anoh Joint Venture: The above commitments include capital expenditure commitments of (2019: ₦18.4 billion ($60 million)) relating to the Anoh Joint Venture. 44. Events after the reporting period On 1 February 2021, ANOH Gas Processing Company Limited, a joint venture of the Group, successfully raised $260 million (₦98.8 billion) in debt to fund completion of its ANOH Gas Processing Plant. 233 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated statement of value added For the year ended 31 December 2020 Revenue from contracts with customers Other income (net) Finance income Cost of goods and other services: Local Foreign Valued added Applied as follows: To employees: – as salaries and labour related expenses To external providers of capital: – as interest To Government: – as Group taxes Retained for the Group’s future: – For asset replacement, depreciation, depletion and amortisation Deferred tax (charges)/credit (Loss)/profit for the year Valued added 2020 ₦ million 190,922 30,184 601 (102,472) (68,315) 50,920 % 2019 ₦ million 214,157 9,170 4,134 % 2020 $’000 530,467 83,864 1,671 % 2019s $’000 697,777 29,876 13,471 % (49,694) (33,129) 100% 144,638 (284,712) (189,808) 100% 141,482 (161,913) (107,942) 100% 471,269 100% 2020 ₦ million % 2019 ₦ million % 2020 $’000 % 2019 $’000 13,324 26% 11,565 8% 37,017 26% 37,681 18,656 37% 10,294 7% 51,834 37% 33,539 4,919 10% 6,964 5% 13,668 10% 22,689 % 8% 7% 5% 47,812 (3,079) (30,712) 50,920 28,824 94% 1,975 (6%) (60%) 85,016 100% 144,638 1% 20% 132,840 (8,555) 59% (85,322) 100% 141,482 93,916 94% 6,436 (6%) (60%) 277,008 100% 471,269 20% 1% 59% 100% The value added represents the additional wealth which the Group has been able to create by its own and its employees’ efforts. This statement shows the allocation of that wealth to employees, providers of finance, shareholders, government and that retained for the creation of future wealth. 234 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated five-year financial summary As at 31 December 2020 Revenue from contracts with customers (Loss)/profit from continuing operation before taxation (Loss)/profit from discontinuing operation before taxation (Loss)/profit before tax Income tax (expense)/credit (Loss)/profit for the year Capital employed: Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Foreign currency translation reserve Non-controlling interest Total equity Represented by: Non-current assets Current assets Non-current liabilities Current liabilities Net assets Revenue from contracts with customers (Loss)/profit from continuing operation before taxation Profit from discontinuing operation before taxation (Loss)/profit before tax Income tax (expense)/credit (Loss)/profit for the year Capital employed: Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Foreign currency translation reserve Non-controlling interest Total equity Represented by: Non-current assets Current assets Non-current liabilities Current liabilities Net assets 2020 ₦ million 190,922 (28,872) – (28,872) (1,840) (30,712) 2020 ₦ million 293 86,917 7,174 5,932 211,790 331,289 (11,058) 632,337 1,083,683 227,154 (499,349) (179,151) 632,337 2020 $’000 530,467 (80,209) – (80,209) (5,113) (85,322) 2019 ₦ million 214,157 89,914 4,041 93,955 (8,939) 85,016 2019 ₦ million 289 84,045 8,194 5,932 259,690 202,910 (7,252) 553,808 717,664 286,569 (258,903) (191,522) 553,808 2019 $’000 697,777 292,967 13,166 306,133 (29,125) 277,008 2018 ₦ million 228,391 80,599 16 80,615 (35,748) 44,867 2018 ₦ million 286 82,080 7,298 5,932 192,723 203,153 – 491,472 502,512 264,159 (184,808) (90,391) 491,472 2018 $’000 746,140 263,314 50 263,364 (116,788) 146,576 2017 ₦ million 138,281 13,454 – 13,454 67,657 81,111 2017 ₦ million 283 82,080 4,332 5,932 166,149 200,870 – 459,646 539,672 259,881 (131,925) (207,982) 459,646 2017 $’000 452,179 43,997 – 43,997 221,233 265,230 2016 ₦ million 63,384 (47,419) – (47,419) 2,035 (45,384) 2016 ₦ million 283 82,080 2,597 5,932 85,052 200,429 – 376,373 462,402 202,274 (141,473) (146,830) 376,373 2016 $’000 254,217 (172,766) – (172,766) 6,672 (166,094) 2020 $’000 2019 $’000 2018 $’000 2017 $’000 2016 $’000 1,855 511,723 27,592 40,000 1,116,079 992 (34,196) 1,664,045 2,851,803 597,770 (1,314,076) (471,452) 1,664,045 1,845 503,742 30,426 40,000 1,249,156 2,391 (23,621) 1,803,939 2,337,670 933,440 (843,322) (623,849) 1,803,939 1,834 497,457 27,499 40,000 1,030,954 3,141 – 1,600,885 1,639,843 860,455 (601,976) (294,437) 1,600,885 1,826 497,457 17,809 40,000 944,108 1,897 – 1,503,097 1,764,789 849,841 (431,407) (680,126) 1,503,097 1,826 497,457 12,135 40,000 678,922 3,675 – 1,234,015 1,516,073 663,200 (463,847) (481,411) 1,234,015 235 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Consolidated supplementary financial information (unaudited) For the year ended 31 December 2020 45. Estimated quantities of proved plus probable reserves At 31 December 2019 Revisions of previous estimates Discoveries and extensions Production At 31 December 2020 Oil & NGLs MMbbls Natural Gas Bscf Oil Equivalent MMboe 251.8 1.01 – (12.3) 240.51 1,493.5 – 45 (37.08) 1,501.42 509.3 1.01 7.76 (18.70) 499.37 Reserves are those quantities of crude oil, natural gas and natural gas liquid that, upon analysis of geological and engineering data, appear with reasonable certainty to be recoverable in the future from known reservoirs under existing economic and operating conditions. Elcrest holds a 45% participating interest in OML40. Eland holds a 45% interest in Elcrest although has control until such point as Westport loan is fully repaid. As additional information becomes available or conditions change, estimates are revised. 46. Capitalised costs related to oil producing activities Capitalised costs: Unproved properties Proved properties Total capitalised costs Accumulated depreciation Net capitalised costs 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 871,470 871,470 (261,995) 609,475 – 651,358 651,358 (172,986) 478,372 2,293,348 2,293,348 (689,460) 1,603,888 – 2,121,686 2,121,686 (563,473) 1,558,213 Capitalised costs include the cost of equipment and facilities for oil producing activities. Unproved properties include capitalised costs for oil leaseholds under exploration, and uncompleted exploratory well costs, including exploratory wells under evaluation. Proved properties include capitalised costs for oil leaseholds holding proved reserves, development wells and related equipment and facilities (including uncompleted development well costs) and support equipment. 47. Concessions The original, expired and unexpired terms of concessions granted to the Group as at 31 December 2020 are: Seplat West Limited Newton Seplat East Swamp Seplat Swamp Elcrest Elcrest OML 4, 38 & 41 OML 56 OML 53 OML 55 OML 40 OML 17 48. Results of operations for oil producing activities Revenue from contracts with customers Other income – net Production and administrative expenses Impairment losses Depreciation and amortisation (Loss)/profit before taxation Taxation (Loss)/profit after taxation Original Term in years expired Unexpired 38 16 30 30 18.8 20 2019 ₦ million 151,954 9,170 (85,300) (14,692) (25,570) 35,562 (8,939) 26,623 20 10 22 22 1 1 2020 $’000 417,941 83,864 (391,989) (144,080) (126,044) (160,308) 3,415 (156,893) 18 6 8 8 17.8 19 2019 $’000 495,104 29,876 (276,451) (47,869) (84,792) 115,868 (29,125) 86,743 2020 ₦ million 150,422 30,184 (133,684) (51,856) (52,766) (57,700) 1,229 (56,471) 49. Reclassification Certain comparative figures have been reclassified in line with the current year’s presentation. 50. Exchange rates used in translating the accounts to Naira The table below shows the exchange rates used in translating the accounts into Naira. Fixed assets – opening balances Fixed assets – additions Fixed assets – closing balances Current assets Current liabilities Equity Income and expenses 236 Basis Historical rate Average rate Closing rate Closing rate Closing rate Historical rate Overall average rate 31 December 2020 ₦/$ Historical 359.91 380.00 380.00 380.00 Historical 359.91 31 December 2019 ₦/$ Historical 306.91 307.00 307.00 307.00 Historical 306.91 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 SEPARATE STATEMENTS Separate statement of profit or loss and other comprehensive income Separate statement of financial position Separate statement of changes in equity Separate statement of cash flows Notes to the separate financial statements Separate statement of value added Separate five-year financial summary Separate supplementary financial information (unaudited) 238 239 240 242 243 291 292 293 238– 293 237 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate financial statements Statement of profit or loss and other comprehensive income For the year ended 31 December 2020 Revenue from contracts with customers Cost of sales Gross profit Other income General and administrative expenses Impairment losses on financial assets Fair value loss Operating (loss)/profit Finance income Finance cost Finance income/(cost)-net Loss on disposal of investment in subsidiary Profit before taxation Income tax credit (Loss)/Profit for the year Other comprehensive income/(loss): Items that may be reclassified to profit or loss: Foreign currency translation difference Items that will not be reclassified to profit or loss: Remeasurement of post-employment benefit obligations Deferred tax credit on remeasurement losses Other comprehensive loss for the year (net of tax) Total comprehensive income for the year (net of tax) Basic earnings per share ₦/($) Diluted earnings per share ₦/($) Notes 8 9 10 11 12 13 14 14 22 15 30 34 15 37 37 31 Dec 2020 ₦ million – – – (2,383) (5,054) – – (7,437) 277 – 277 – (7,160) – (7,160) (5,319) – – – (5,319) 31 Dec 2019 ₦ million 200,733 (85,987) 114,746 4,096 (17,044) (12,784) (3,969) 85,045 4,702 (10,129) (5,427) (5) 79,613 (13,484) 66,129 (17) (201) 171 (30) (47) 31 Dec 2020 $’000 – – – (6,621) (14,046) – – (20,667) 770 – 770 – (19,897) – (19,897) – – – – – 31 Dec 2019 $’000 654,037 (280,162) 373,875 13,346 (55,531) (41,652) (12,930) 277,108 15,321 (33,001) (17,680) (17) 259,411 (43,934) 215,477 – (656) 558 (98) (98) (12,479) 66,082 (19,897) 215,379 (12.35) (12.17) 116.17 113.70 (0.03) (0.03) 0.38 0.37 Notes 1 to 46 on pages 243-293 are an integral part of these financial statements. 238 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate statement of financial position As at 31 December 2020 Assets Non-current assets Oil & gas properties Other property, plant and equipment Right-of-use assets Intangible assets Prepayments Deferred tax Investment in subsidiaries Investment in Joint Ventures Total non-current assets Current assets Inventories Trade and other receivables Prepayments Contract assets Derivative financial instruments Cash and bank balances Total current assets Total assets Equity and liabilities Equity Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Foreign currency translation reserve Total shareholders’ equity Non-current liabilities Interest-bearing loans and borrowings Lease liabilities Provision for decommissioning obligation Defined benefit plan Total non-current liabilities Current liabilities Interest-bearing loans and borrowings Trade and other payables Contract liabilities Current tax liabilities Total current liabilities Total liabilities Total shareholders’ equity and liabilities Notes 31 Dec 2020 ₦ million 31 Dec 2019 ₦ million 31 Dec 2020 $’000 31 Dec 2019 $’000 17 17 19 18 20 15 21 22 23 24 20 25 26 27 28 28 28 29 30 32 33 32 35 36 15 – 304 – – – – 593,425 79,806 673,535 – 501 2 – – 72,621 73,124 746,659 293 86,917 7,174 5,932 254,070 191,216 545,602 – – – – – – 201,057 – – 201,057 201,057 746,659 249,888 3,582 3,397 8,553 19,228 37,609 150,054 46,055 518,366 24,315 423,475 1,479 6,527 308 83,319 539,423 1,057,789 289 84,045 8,194 5,932 282,228 196,535 577,223 193,349 2,367 34,988 3,011 233,715 21,295 215,669 5,005 4,882 246,851 480,566 1,057,789 – 799 – – – – 1,932,983 210,016 2,143,798 – 1,320 5 – – 191,105 192,430 2,336,228 1,855 511,723 27,592 40,000 1,225,958 – 1,807,128 – – – – – – 529,100 – – 529,100 529,100 2,336,228 813,967 11,666 11,064 27,858 62,633 122,508 488,779 150,016 1,688,491 79,205 1,379,404 4,814 21,259 1,002 271,398 1,757,082 3,445,573 1,845 503,742 30,426 40,000 1,304,197 – 1,880,210 629,800 7,709 113,968 9,808 761,285 69,366 702,510 16,301 15,901 804,078 1,565,363 3,445,573 Notes 1 to 46 on pages 243-293 are an integral part of these financial statements. The financial statements of Seplat Development Company Plc for the year ended 31 December 2020 were authorised for issue in accordance with a resolution of the Directors on 28 February 2021 and were signed on its behalf by: A.B.C. Orjiako FRC/2013/IODN/00000003161 Chairman 1 March 2021 R.T. Brown FRC/2014/ANAN/00000017939 Chief Executive Officer 1 March 2021 E. Onwuka FRC/2020/003/00000020861 Chief Financial Officer 1 March 2021 239 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate financial statements Statement of changes in equity As at 31 December 2020 At 1 January 2019 Profit for the year Other comprehensive loss Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments (Note 28) Vested shares (Note 28) Total At 31 December 2019 At 1 January 2020 Loss for the year Other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners: Dividend paid Share-based payments (Note 28) Vested shares (Note 28) Total At 31 December 2020 Issued share capital ₦ million 286 – – Share premium ₦ million 82,080 – – Share-based payment reserve ₦ million 7,298 – – Capital contribution ₦ million 5,932 – – Retained earnings ₦ million 234,148 66,129 (30) Foreign currency translation reserve ₦ million 196,552 – (17) Total equity ₦ million 526,296 66,129 (47) – – – 3 3 289 289 – – – – – 4 4 293 – – – 1,965 1,965 84,045 84,045 – – – – – 2,872 2,872 86,917 – – 2,864 (1,968) 896 8,194 8,194 – – – – 1,856 (2,876) (1,020) 7,174 – – – – – 5,932 5,932 – – – – – – – 5,932 66,099 (17) 66,082 (18,019) – (18,019) – – (18,019) 282,228 282,228 (7,160) – – – – 196,535 196,535 – (5,319) 2,864 – (15,155) 577,223 577,223 (7,160) (5,319) (7,160) (5,319) (12,479) (20,998) – – (20,998) 254,070 – (20,998) – – – 191,216 1,856 – (19,142) 545,602 Notes 1 to 46 on pages 243-293 are an integral part of these financial statements. 240 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Share-based payment reserve $’000 Capital contribution $’000 At 1 January 2019 Profit for the year Other comprehensive loss Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments Issue of shares Total At 31 December 2019 At 1 January 2020 Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners in their capacity as owners: Dividend paid Share-based payments (Note 28) Issue of shares (Note 28) Total At 31 December 2020 Issued share capital $’000 1,834 – – – – – 11 11 1,845 1,845 – – – – – 10 10 1,855 Share premium $’000 497,457 – – – – – 6,285 6,285 503,742 503,742 – – – – – 7,981 7,981 511,723 Notes 1 to 46 on pages 243-293 are an integral part of these financial statements. 27,499 – – – – 9,223 (6,296) 2,927 30,426 30,426 – – – – 5,157 (7,991) (2,834) 27,592 Retained earnings $’000 1,147,526 215,477 (98) 215,379 (58,708) – – (58,708) 1,304,197 1,304,197 (19,897) – (19,897) 40,000 – – – – – – – 40,000 40,000 – – – – – – – 40,000 (58,342) – – (58,342) 1,225,958 Total equity $’000 1,714,316 215,477 (98) 215,379 (58,708) 9,223 – (49,485) 1,880,210 1,880,210 (19,897) – (19,897) (58,342) 5,157 – (53,185) 1,807,128 241 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate financial statements Statement of cash flows For the year ended 31 December 2020 Cash flows from operating activities Cash generated from operations Tax paid Defined benefit paid Net cash inflows from operating activities Cash flows from investing activities Payment for acquisition of subsidiary Cash transferred as additional investment in subsidiary Payment for acquisition of oil and gas properties Proceeds from disposal of oil and gas properties Payment for acquisition of other property, plant and equipment Payment for investment in joint venture Interest received Net cash outflows from investing activities Cash flows from financing activities Increase in investment in subsidiary Repayments of loans Proceeds from loans Dividends paid Payments for other financing charges Interest paid on bank financing Net cash (outflows)/inflows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the year Notes 31 Dec 2020 ₦ million 31 Dec 2019 ₦ million 31 Dec 2020 $’000 31 Dec 2019 $’000 16 15 34 21 31 17 17 17 22 14 21 32 32 38 32 32 99,361 – – 99,361 – (77,583) – – (289) (21,595) 277 (99,190) (10) – – (20,998) – – (21,008) (20,837) 81,263 1,524 61,950 78,734 (1,036) (86) 77,612 (148,127) – (29,367) 15,532 (3,154) (31,627) 4,702 (192,041) – (30,691) 106,346 (18,019) (2,696) (10,364) 44,576 (69,853) 152,486 (1,370) 81,263 276,065 – – 276,065 – (252,713) – – (802) (60,000) 770 (312,745) (33) – – (58,342) – – (58,375) (95,055) 264,700 (6,621) 163,024 256,433 (3,380) (280) 252,773 (482,637) (95,685) 50,614 (10,274) (103,050) 15,321 (625,711) – (100,000) 346,500 (58,708) (8,783) (33,770) 145,239 (227,699) 496,698 (4,299) 264,700 For the purposes of the cash flow statements, the restricted cash balance of $7.3 million, ₦2.8 billion has been excluded from the cash and cash equivalents at the end of the year. These amounts are subject to legal restrictions and are therefore not available for general use by the Company. An additional $20.8 million, ₦7.9 billion, of funds deposited in Access bank Plc bank accounts in the ordinary course of business are being unilaterally restricted by Access bank Plc in connection with the Court case between Seplat Petroleum Development Company Plc and Access bank Plc. Notes 1 to 46 on pages 243-293 are an integral part of these financial statements. 242 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Notes to the separate financial statements 1. Corporate information and business Seplat Petroleum Development Company Plc (‘Seplat’ or the ‘Company’) was incorporated on 17 June 2009 as a private limited liability company and re-registered as a public company on 3 October 2014, under the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004. The Company commenced operations on 1 August 2010. The Company is principally engaged in oil and gas exploration. The Company’s registered address is: 16a Temple Road (Olu Holloway), Ikoyi, Lagos, Nigeria. The Company acquired, pursuant to an agreement for assignment dated 31 January 2010 between the Company, Shell Petroleum Development Company, TOTAL and AGIP, a 45% participating interest in the following producing assets: OML 4, OML 38 and OML 41 located in Nigeria. The total purchase price for these assets was ₦104 billion ($340 million) paid at the completion of the acquisition on 31 July 2010 and a contingent payment of ₦10 billion ($33 million) payable 30 days after the second anniversary, 31 July 2012, if the average price per barrel of Brent Crude oil over the period from acquisition up to 31 July 2012 exceeds ₦24,560 ($80) per barrel. ₦110 billion ($358.6 million) was allocated to the producing assets including ₦5.7 billion ($18.6 million) as the fair value of the contingent consideration as calculated on acquisition date. The contingent consideration of ₦10 billion ($33 million) was paid on 22 October 2012. On 1 January 2020, Seplat Petroleum Development Company Plc transferred its 45% participating interest in OML 4, OML 38 and OML 41 (‘transferred assets’) to Seplat West Limited. As a result, Seplat ceased to be a party to the Joint Operating Agreement in respect of the transferred assets and became a holding company. Seplat West Limited became a party to the Joint Operating Agreement in respect of the transferred assets and assumed its rights and obligations. 2. Significant changes in the current accounting period The following significant changes occurred during the reporting year ended 31 December 2020: • There was a change in the Company’s operational structure which took effect on1 January, 2020 where Seplat Plc ceased to be a party to the Joint Operating Agreement in respect of the Oil Mining Lease Numbers 4, 38 and 41 and transferred its right and obligation to Seplat West Limited. Seplat West Plc became a party to the Joint Operating agreement and assumed the rights and obligation in respect of the transferred asset. Seplat Plc is now a holding company. 3. Summary of significant accounting policies Introduction to summary of significant accounting policies 3.1 This note provides a list of the significant accounting policies adopted in the preparation of these financial statements. These accounting policies have been applied to all the years presented, unless otherwise stated. 3.2 Basis of preparation The financial statements for the year ended 31 December 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC). The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). Additional information required by national regulations is included where appropriate. The financial statements comprise the statement of profit or loss and other comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and the notes to the financial statements. The financial statements have been prepared under the going concern assumption and historical cost convention, except for contingent liability and consideration, and financial instruments measured at fair value on initial recognition and defined benefit plans – plan assets measured at fair value. The financial statements are presented in Nigerian Naira and United States dollars, and all values are rounded to the nearest million (₦’million) and thousand ($’000) respectively, except when otherwise indicated. Nothing has come to the attention of the Directors to indicate that the Company will not remain a going concern for at least 12 months from the date of this statement. 3.3 New and amended standards adopted by the Company The following standards and amendments became effective for annual periods beginning on or after 1 January 2020. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IFRS 3 Definition of a Business a. The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the separate financial statements of the Company but may impact future periods should the Company enter into any business combinations. Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform b. These amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relation is affected if the reform gives rise to uncertainties about the timing and of amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the separate financial statements of the Company as it does not have any interest rate hedge relationships. Amendments to IAS 1 and IAS 8 Definition of Material c. The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” 243 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Notes to the separate financial statements | continued 3. Summary of significant accounting policies continued 3.3 New and amended standards adopted by the Company continued c. Amendments to IAS 1 and IAS 8 Definition of Material continued The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the separate financial statements of, nor is there expected to be any future impact to, the Company. Amendments to IFRS 16 Covid-19 Related Rent Concessions d. On 28 May 2020, the IASB issued Covid-19 Related Rent Concessions-amendment to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from the lessor is a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment had no impact on the separate financial statements of the Company. Conceptual Framework for Financial Reporting issued on 29 March 2018 e. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the separate financial statements of the Company. 3.4 Standards issued but not yet effective The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. IFRS 17 Insurance Contracts i. In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Company. Amendments to IAS 1: Classification of Liabilities as Current or Non-current ii. In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Company is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require renegotiation. Reference to the Conceptual Framework – Amendments to IFRS 3 iii. In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately. 244 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. Property, Plant and Equipment – Proceeds before Intended Use – Amendments to IAS 16 iv. In May 2020, the IASB issued Property, Plant and Equipment – Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Company. Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37 v. In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Company will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities vi. As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted. The Company will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendments are not expected to have a material impact on the Company. IAS 41 Agriculture – Taxation in fair value measurements vii. As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. An entity applies the amendment prospectively to fair value measurements on or after the beginning of the first annual reporting period beginning on or after 1 January 2022 with earlier adoption permitted. The amendments are not expected to have a material impact on the Company. Functional and presentation currency 3.5 Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates (‘the functional currency’), which is the US dollar. The financial statements are presented in Nigerian Naira and the US dollar. The Company has chosen to show both presentation currencies and this is allowable by the regulator. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end are generally recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss or other comprehensive income depending on where fair value gain or loss is reported. Joint arrangements 3.6 Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Company accounts for interest in the joint venture at cost. 245 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.7 Group reorganisation A Group reorganisation involves restructuring the relationship between entities under common control. It is the transfer of assets (shares or businesses of a group entity), from one group entity to another. This may be between existing or newly formed entities within the Group. Common control means all the combining entities or businesses are ultimately controlled by the same party both before and after the reorganisation. The Company accounts for reorganisation involving entities under common control using pooling of interest method. On the date of transfer, the assets and liabilities are transferred to the acquirer at their carrying value, no adjustments are made to reflect their fair value, and no new goodwill is recognised. The net effect of assets and liabilities transferred is recognised as additional investment in subsidiaries. The assets and liabilities transferred are reflected prospectively in the Company’s financial statements from the date of transfer without restating the comparative period. 3.8 Oil and gas accounting i. Pre-licensing costs are expensed in the period in which they are incurred. Pre-licensing costs Exploration licence cost ii. Exploration licence costs are capitalised within intangible assets. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised on a straight-line basis over the life of the permit. Licence costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and sufficient progress is being made to establish development plans and timing. If no future activity is planned or the licence has been relinquished or has expired, the carrying value of the licence is written off through profit or loss. The exploration licence costs are initially recognised as cost and subsequently amortised on a straight-line based on the economic life. Exploration and evaluation expenditures iii. Geological and geophysical exploration costs are charged to profit or loss as incurred. Exploration and evaluation expenditures incurred by the entity are accumulated separately for each area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure, but do not include general overheads or administrative expenditure that is not directly related to a particular area of interest. Each area of interest is limited to a size related to a known or probable hydrocarbon resource capable of supporting an oil operation. Costs directly associated with an exploration well, exploratory stratigraphic test well and delineation wells are temporarily suspended (capitalised) until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs, delay rentals and payments made to contractors. If hydrocarbons (‘proved reserves’) are not found, the exploration expenditure is written off as a dry hole and charged to profit or loss. If hydrocarbons are found, the costs continue to be capitalised. Suspended exploration and evaluation expenditure in relation to each area of interest is carried forward as an asset provided that one of the following conditions is met: • the costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; • exploration and/or evaluation activities in the area of interest have not, at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves; and • active and significant operations in, or in relation to, the area of interest. Exploration and/or evaluation expenditures which fail to meet at least one of the conditions outlined above are written off. In the event that an area is subsequently abandoned, or exploration activities do not lead to the discovery of proved or probable reserves, or if the Directors consider the expenditure to be of no value, any accumulated costs carried forward relating to the specified areas of interest are written off in the year in which the decision is made. While an area of interest is in the development phase, amortisation of development costs is not charged pending the commencement of production. Exploration and evaluation costs are transferred from the exploration and/or evaluation phase to the development phase upon commitment to a commercial development. Development expenditures iv. Development expenditure incurred by the entity is accumulated separately for each area of interest in which economically recoverable reserves have been identified to the satisfaction of the Directors. Such expenditure comprises net direct costs and, in the same manner as for exploration and evaluation expenditure, an appropriate portion of related overhead expenditure directly related to the development property. All expenditure incurred prior to the commencement of commercial levels of production from each development property is carried forward to the extent to which recoupment is expected to be derived from the sale of production from the relevant development property. 3.9 Revenue recognition (IFRS 15) IFRS 15 uses a five-step model for recognising revenue to depict transfer of goods or services. The model distinguishes between promises to a customer that are satisfied at a point in time and those that are satisfied over time. It is the Company’s policy to recognise revenue from a contract when it has been approved by both parties, rights have been clearly identified, payment terms have been defined, the contract has commercial substance, and collectability has been ascertained as probable. Collectability of a customer’s payments is ascertained based on the customer’s historical records, guarantees provided, the customer’s industry and advance payments made if any. Revenue is recognised when control of goods sold has been transferred. Control of an asset refers to the ability to direct the use of and obtain 246 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 substantially all of the remaining benefits (potential cash inflows or savings in cash outflows) associated with the asset. For crude oil, this occurs when the crude products are lifted by the customer (buyer) Free on Board at the Company’s loading facility. Revenue from the sale of oil is recognised at a point in time when performance obligation is satisfied. For gas, revenue is recognised when the product passes through the custody transfer point to the customer. Revenue from the sale of gas is recognised over time using the practical expedient of the right to invoice. The surplus or deficit of the product sold during the period over the Company’s share of production is termed as an overlift or underlift. With regard to underlifts, if the over-lifter does not meet the definition of a customer or the settlement of the transaction is non-monetary, a receivable and other income is recognised. Conversely, when an overlift occurs, cost of sale is debited, and a corresponding liability is accrued. Overlifts and underlifts are initially measured at the market price of oil at the date of lifting, consistent with the measurement of the sale and purchase. Subsequently, they are remeasured at the current market value. The change arising from this remeasurement is included in the profit or loss as other income/expenses-net. Definition of a customer A customer is a party that has contracted with the Company to obtain crude oil or gas products in exchange for a consideration, rather than to share in the risks and benefits that result from sale. The Company has entered into collaborative arrangements with its joint venture partners to share in the production of oil. Collaborative arrangements with its joint venture partners to share in the production of oil are accounted for differently from arrangements with customers as collaborators share in the risks and benefits of the transaction, and therefore, do not meet the definition of customers. Revenue arising from these arrangements are recognised separately in other income. Contract enforceability and termination clauses It is the Company’s policy to assess that the defined criteria for establishing contracts that entail enforceable rights and obligations are met. The criteria provide that the contract has been approved by both parties, rights have been clearly identified, payment terms have been defined, the contract has commercial substance, and collectability has been ascertained as probable. Revenue is not recognised for contracts that do not create enforceable rights and obligations to parties in a contract. The Company also does not recognise revenue for contracts that do not meet the revenue recognition criteria. In such cases where consideration is received it recognises a contract liability and only recognises revenue when the contract is terminated. The Company may also have the unilateral rights to terminate an unperformed contract without compensating the other party. This could occur where the Company has not yet transferred any promised goods or services to the customer and the Company has not yet received, and is not yet entitled to receive, any consideration in exchange for promised goods or services. Identification of performance obligation At inception, the Company assesses the goods or services promised in the contract with a customer to identify as a performance obligation, each promise to transfer to the customer either a distinct good or series of distinct goods. The number of identified performance obligations in a contract will depend on the number of promises made to the customer. The delivery of barrels of crude oil or units of gas are usually the only performance obligation included in oil and gas contracts with no additional contractual promises. Additional performance obligations may arise from future contracts with the Company and its customers. The identification of performance obligations is a crucial part in determining the amount of consideration recognised as revenue. This is due to the fact that revenue is only recognised at the point where the performance obligation is fulfilled, Management has therefore developed adequate measures to ensure that all contractual promises are appropriately considered and accounted for accordingly. Transaction price Transaction price is the amount allocated to the performance obligations identified in the contract. It represents the amount of revenue recognised as those performance obligations are satisfied. Complexities may arise where a contract includes variable consideration, significant financing component or consideration payable to a customer. Variable consideration not within the Company’s control is estimated at the point of revenue recognition and reassessed periodically. The estimated amount is included in the transaction price to the extent that it is highly probable that a significant reversal of the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As a practical expedient, where the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, the Company may recognise revenue in the amount to which it has a right to invoice. Significant financing component (SFC) assessment is carried out (using a discount rate that reflects the amount charged in a separate financing transaction with the customer and also considering the Company’s incremental borrowing rate) on contracts that have a repayment period of more than 12 months. As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between when it transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Instances when SFC assessment may be carried out include where the Company receives advance payment for agreed volumes of crude oil or receives take or pay deficiency payment on gas sales. A take or pay gas sales contract ideally provides that the customer must sometimes pay for gas even when not delivered to the customer. The customer, in future contract years, takes delivery of the product without further payment. The portion of advance payments that represents significant financing component will be recognised as interest expense. Consideration payable to a customer is accounted for as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to the Company. Examples include barging costs incurred, demurrage and freight costs. These do not represent a distinct service transferred and is therefore recognised as a direct deduction from revenue. 247 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.9 Revenue recognition (IFRS 15) continued Breakage The Company enters into take or pay contracts for sale of gas where the buyer may not ultimately exercise all of their rights to the gas. The take or pay quantity not taken is paid for by the buyer called take or pay deficiency payment. The Company assesses if there is a reasonable assurance that it will be entitled to a breakage amount. Where it establishes that a reasonable assurance exists, it recognises the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. However, where the Company is not reasonably assured of a breakage amount, it would only recognise the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. Contract modification and contract combination Contract modifications relate to a change in the price and/or scope of an approved contract. Where there is a contract modification, the Company assesses if the modification will create a new contract or change the existing enforceable rights and obligations of the parties to the original contract. Contract modifications are treated as new contracts when the performance obligations are separately identifiable and transaction price reflects the standalone selling price of the crude oil or the gas to be sold. Revenue is adjusted prospectively when the crude oil or gas transferred is separately identifiable and the price does not reflect the standalone selling price. Conversely, if there are remaining performance obligations which are not separately identifiable, revenue will be recognised on a cumulative catch-up basis when crude oil or gas is transferred. The Company combines contracts entered into at near the same time (less than 12 months) as one contract if they are entered into with the same or related party customer, the performance obligations are the same for the contracts and the price of one contract depends on the other contract. Portfolio expedients As a practical expedient, the Company may apply the requirements of IFRS 15 to a portfolio of contracts (or performance obligations) with similar characteristics if it expects that the effect on the financial statements would not be materially different from applying IFRS to individual contracts within that portfolio. Contract assets and liabilities The Company recognises contract assets for unbilled amounts from crude oil and gas sales. Contract liability is recognised for consideration received for which performance obligation has not been met. 3.10 Property, plant and equipment Oil and gas properties and other plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the entity, the expenditure is capitalised. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period to the next inspection. Overhaul costs for major maintenance programmes are capitalised as incurred as long as these costs increase the efficiency of the unit or extend the useful life of the asset. All other maintenance costs are expensed as incurred. Depreciation Production and field facilities are depreciated on a unit-of-production basis over the estimated proved developed reserves. Assets under construction are not depreciated. Other property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Depreciation commences when an asset is available for use. The depreciation rate for each class is as follows: Plant and machinery Motor vehicles Office furniture and IT equipment Building Land Intangible assets Leasehold improvements 20% 25%-30% 10%-33.33% 4% – 5% Over the unexpired portion of the lease The expected useful lives and residual values of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively. Gains or losses on disposal of property, plant and equipment are determined as the difference between disposal proceeds and carrying amount of the disposed assets. These gains or losses are included in profit or loss. 248 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3.11 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. These costs may arise from: specific borrowings used for the purpose of financing the construction of a qualifying asset, and those that arise from general borrowings that would have been avoided if the expenditure on the qualifying asset had not been made. The general borrowing costs attributable to an asset’s construction is calculated by reference to the weighted average cost of general borrowings that are outstanding during the period. Investment income earned on the temporary investment of specific borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.12 Finance income and costs Finance income Finance income is recognised in the statement of profit or loss as it accrues using the effective interest rate (EIR), which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the amortised cost of the financial instrument. The determination of finance income takes into account all contractual terms of the financial instrument as well as any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate (EIR), but not future credit losses. Finance cost Finance costs includes borrowing costs, interest expense calculated using the effective interest rate method, finance charges in respect of lease liabilities, the unwinding of the effect of discounting provisions, and the amortisation of discounts and premiums on debt instruments that are liabilities. Impairment of non-financial assets 3.13 Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently. Other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. This should be at a level not higher than an operating segment. If any such indication of impairment exists or when annual impairment testing for an asset group is required, the entity makes an estimate of its recoverable amount. Such indicators include changes in the Company’s business plans, changes in commodity prices, evidence of physical damage and, for oil and gas properties, significant downward revisions of estimated recoverable volumes or increases in estimated future development expenditure. The recoverable amount is the higher of an asset’s fair value less costs of disposal (FVLCD) and value in use (VIU). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets, in which case, the asset is tested as part of a larger cash-generating unit to which it belongs. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount. Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. In calculating VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset/CGU. In determining FVLCD, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. Impairment – exploration and evaluation assets Exploration and evaluation assets are tested for impairment once commercial reserves are found before they are transferred to oil and gas assets, or whenever facts and circumstances indicate impairment. An impairment loss is recognised for the amount by which the exploration and evaluation assets’ carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets’ fair value less costs to sell and their value in use. Impairment – proved oil and gas production properties Proven oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. 3.14 Cash and bank balances Cash and bank balances in the statement of cash flows comprise cash at banks and at hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Inventories 3.15 Inventories represent the value of tubulars, casings and wellheads. These are stated at the lower of cost and net realisable value. Cost is determined using the invoice value and all other directly attributable costs to bringing the inventory to the point of use determined on a first in first out basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated cost necessary to make the sale. 249 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.16 Financial instruments IFRS 9 provides guidance on the recognition, classification and measurement of financial assets and financial liabilities; derecognition of financial instruments; impairment of financial assets and hedge accounting. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments: Disclosures. Classification and measurement a. Financial assets It is the Company’s policy to initially recognise financial assets at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss which are expensed in profit or loss. Classification and subsequent measurement are dependent on the Company’s business model for managing the asset and the cash flow characteristics of the asset. On this basis, the Company may classify its financial instruments at amortised cost, fair value through profit or loss and at fair value through other comprehensive income. All the Company’s financial assets as at 31 December 2020 satisfy the conditions for classification at amortised cost under IFRS 9 except for derivatives which are reclassified at fair value through profit or loss. The Company’s financial assets include trade receivables, NPDC receivables, intercompany receivables, other receivables, cash and bank balances and derivatives. They are included in current assets, except for maturities greater than 12 months after the reporting date. Interest income from these assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in finance income/cost. Financial liabilities Financial liabilities of the Company are classified and measured at fair value on initial recognition and subsequently at amortised cost net of directly attributable transaction costs, except for derivatives which are classified and subsequently recognised at fair value through profit or loss. Fair value gains or losses for financial liabilities designated at fair value through profit or loss are accounted for in profit or loss except for the amount of change that is attributable to changes in the Company’s own credit risk which is presented in other comprehensive income. The remaining amount of change in the fair value of the liability is presented in profit or loss. The Company’s financial liabilities include trade and other payables and interest-bearing loans and borrowings. Impairment of financial assets b. Recognition of impairment provisions under IFRS 9 is based on the expected credit loss (ECL) model. The ECL model is applicable to financial assets classified at amortised cost and contract assets under IFRS 15 Revenue from Contracts with Customers. The measurement of ECL reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date, about past events, current conditions and forecasts of future economic conditions. The Company applies the simplified approach or the three-stage general approach to determine impairment of receivables depending on their respective nature. The simplified approach is applied for trade receivables and contract assets while the general approach is applied to NPDC receivables, other receivables, intercompany receivables and cash and bank balances. The simplified approach requires expected lifetime losses to be recognised from initial recognition of the receivables. This involves determining the expected loss rates using a provision matrix that is based on the Company’s historical default rates observed over the expected life of the receivable and adjusted forward-looking estimates. This is then applied to the gross carrying amount of the receivable to arrive at the loss allowance for the period. The three-stage approach assesses impairment based on changes in credit risk since initial recognition using the past due criterion and other qualitative indicators such as increase in political concerns or other macroeconomic factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial performance. Financial assets classified as stage 1 have their ECL measured as a proportion of their lifetime ECL that results from possible default events that can occur within one year, while assets in stage 2 or 3 have their ECL measured on a lifetime basis. Under the three-stage approach, the ECL is determined by projecting the probability of default (PD), loss given default (LGD) and exposure at default (EAD) for each ageing bucket and for each individual exposure. The PD is based on default rates determined by external rating agencies for the counterparties. The LGD is determined based on management’s estimate of expected cash recoveries after considering the historical pattern of the receivable, and it assesses the portion of the outstanding receivable that is deemed to be irrecoverable at the reporting period. The EAD is the total amount of outstanding receivable at the reporting period. These three components are multiplied together and adjusted for forward-looking information, such as the gross domestic product (GDP) in Nigeria and crude oil prices, to arrive at an ECL which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the related financial assets and the amount of the loss is recognised in profit or loss. Significant increase in credit risk and default definition c. The Company assesses the credit risk of its financial assets based on the information obtained during periodic review of publicly available information, industry trends and payment records. Based on the analysis of the information provided, the Company identifies the assets that require close monitoring. Furthermore, financial assets that have been identified to be more than 30 days past due on contractual payments are assessed to have experienced significant increase in credit risk. These assets are grouped as part of Stage 2 financial assets where the three-stage approach is applied. 250 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 In line with the Company’s credit risk management practices, a financial asset is defined to be in default when contractual payments have not been received at least 90 days after the contractual payment period. Subsequent to default, the Company carries out active recovery strategies to recover all outstanding payments due on receivables. Where the Company determines that there are no realistic prospects of recovery, the financial asset and any related loss allowance are written off either partially or in full. Write-off policy d. The Company writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include: • ceasing enforcement activity; and • where the Company's recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Company may write off financial assets that are still subject to enforcement activity. The outstanding contractual amounts of such assets written off during the year ended 31 December 2020 was Nil (2019: ₦14 billion, $48 million). The Company seeks to recover amounts it is legally owed in full but which have been partially written off due to no reasonable expectation of full recovery. Derecognition e. Financial assets The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or when it transfers the financial asset and the transfer qualifies for derecognition. Gains or losses on derecognition of financial assets are recognised as finance income/cost. Financial liabilities The Company derecognises a financial liability when it is extinguished i.e. when the obligation specified in the contract is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised immediately in the statement of profit or loss. Modification f. When the contractual cash flows of a financial instrument are renegotiated or otherwise modified and the renegotiation or modification does not result in the derecognition of that financial instrument, the Company recalculates the gross carrying amount of the financial instrument and recognises a modification gain or loss immediately within finance income/(cost)-net at the date of the modification. The gross carrying amount of the financial instrument is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial instrument’s original effective interest rate. Offsetting of financial assets and financial liabilities g. Financial assets and liabilities are offset, and the net amount is reported in the statement of financial position. Offsetting can be applied when there is a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right is not contingent on future events and is enforceable in the normal course of business, and in the event of default, insolvency or bankruptcy of the Company or the counterparty. Derivatives h. The Company uses derivative financial instruments such as forward exchange contracts to hedge its foreign exchange, risks as well as put options to hedge against its oil price risk. However, such contracts are not accounted for as designated hedges. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured to their fair value at the end of each reporting period. Any gains or losses arising from changes in the fair value of derivatives are recognised within operating profit in profit or loss for the period. The Company accounts for financial assets with embedded derivatives (hybrid instruments) in their entirety on the basis of its contractual cash flow features and the business model within which they are held, thereby eliminating the complexity of bifurcation for financial assets. For financial liabilities, hybrid instruments are bifurcated into hosts and embedded features. In these cases, the Company measures the host contract at amortised cost and the embedded features is measured at fair value through profit or loss. For the purpose of the maturity analysis, embedded derivatives included in hybrid financial instruments are not separated. The hybrid instrument, in its entirety, is included in the maturity analysis for non-derivative financial liabilities. Fair value of financial instruments i. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily available and represent actual and regularly occurring market transactions on an arm’s length basis. If a market for a financial instrument is not active, the Company establishes fair value using valuation techniques. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, and discounted cash flow analysis. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Company, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measure the risk-return factors inherent in the financial instrument. The Company calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data. 251 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.16 Financial instruments continued i. Fair value of financial instruments continued The best evidence of the fair value of a financial instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or received. However, in some cases, the fair value of a financial instrument on initial recognition may be different to its transaction price. If such fair value is evidenced by comparison with other observable current market transactions in the same instrument (without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in the income statement on initial recognition of the instrument. In other cases, the difference is not recognised in the income statement immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. 3.17 Share capital On issue of ordinary shares any consideration received net of any directly attributable transaction costs is included in equity. Issued share capital has been translated at the exchange rate prevailing at the date of the transaction and is not retranslated subsequent to initial recognition. 3.18 Earnings per share and dividends Basic EPS Basic earnings per share is calculated on the Company’s profit or loss after taxation and on the basis of weighted average of issued and fully paid ordinary shares at the end of the year. Diluted EPS Diluted EPS is calculated by dividing the profit or loss after taxation by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (after adjusting for outstanding share options arising from the share-based payment scheme) into ordinary shares. Dividend Dividends on ordinary shares are recognised as a liability in the period in which they are approved. 3.19 Post-employment benefits Defined contribution scheme The Company contributes to a defined contribution scheme for its employees in compliance with the provisions of the Pension Reform Act 2014. The scheme is fully funded and is managed by licensed Pension Fund Administrators. Membership of the scheme is automatic upon commencement of duties at the Company. The Company’s contributions to the defined contribution scheme are charged to the profit and loss account in the year to which they relate. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. The Company operates a defined contribution plan and it is accounted for based on IAS 19 Employee benefits. Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Under defined contribution plans the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee. Defined benefit scheme The Company operates a defined benefit gratuity plan, which requires contributions to be made to a separately administered fund. The Company also provides certain additional post-employment benefits to employees. These benefits are unfunded. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method and calculated annually by independent actuaries. The liability or asset recognised in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets (if any). The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using government bonds. Remeasurements gains and losses, arising from changes in financial and demographic assumptions and experience adjustments, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of: • the date of the plan amendment or curtailment; and • the date that the Company recognises related restructuring costs. Net interest is calculated by applying the discount rate to the net defined benefit obligation and the fair value of the plan assets. The Company recognises the following changes in the net defined benefit obligation under employee benefit expenses in general and administrative expenses: • Service costs comprises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements. • Net interest cost. 252 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3.20 Provisions Provisions are recognised when (i) the Company has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of economic resources will be required to settle the obligation as a whole; and (iii) the amount can be reliably estimated. Provisions are not recognised for future operating losses. In measuring the provision: • risks and uncertainties are taken into account; • the provisions are discounted (where the effects of the time value of money is considered to be material) using a pre-tax rate that is reflective of current market assessments of the time value of money and the risk specific to the liability; • when discounting is used, the increase of the provision over time is recognised as interest expense; • future events such as changes in law and technology, are taken into account where there is subjective audit evidence that they will occur; and • gains from expected disposal of assets are not taken into account, even if the expected disposal is closely linked to the event giving rise to the provision. • Decommissioning Liabilities for decommissioning costs are recognised as a result of the constructive obligation of past practice in the oil and gas industry, when it is probable that an outflow of economic resources will be required to settle the liability and a reliable estimate can be made. The estimated costs, based on current requirements, technology and price levels, prevailing at the reporting date, are computed based on the latest assumptions as to the scope and method of abandonment. Provisions are measured at the present value of management’s best estimates of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as a finance cost. The corresponding amount is capitalised as part of the oil and gas properties and is amortised on a unit-of- production basis as part of the depreciation, depletion and amortisation charge. Any adjustment arising from the estimated cost of the restoration and abandonment cost is capitalised, while the charge arising from the accretion of the discount applied to the expected expenditure is treated as a component of finance costs. If the change in estimate results in an increase in the decommissioning provision and, therefore, an addition to the carrying value of the asset, the Company considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment in accordance with IAS 36. If, for mature fields, the revised oil and gas assets net of decommissioning provisions exceed the recoverable value, that portion of the increase is charged directly to expense. 3.21 Contingencies A contingent asset or contingent liability is a possible asset or obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events. The assessment of the existence of the contingencies will involve management judgement regarding the outcome of future events. Income taxation Current income tax 3.22 i. The income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, based on amounts expected to be paid to the tax authorities. Deferred tax ii. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Uncertainty over income tax treatments iii. The Company examines where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates. It considers each uncertain tax treatment separately, depending on which approach better predicts the resolution of the uncertainty. The factors it considers include: • how it prepares and supports the tax treatment; and • the approach that it expects the tax authority to take during an examination. 253 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 3. Summary of significant accounting policies continued 3.22 iii. Income taxation continued Uncertainty over income tax treatments continued If the Company concludes that it is probable that the tax authority will accept an uncertain tax treatment that has been taken or is expected to be taken on a tax return, it determines the accounting for income taxes consistently with that tax treatment. If it concludes that it is not probable that the treatment will be accepted, it reflects the effect of the uncertainty in its income tax accounting in the period in which that determination is made (for example, by recognising an additional tax liability or applying a higher tax rate). The Company measures the impact of the uncertainty using methods that best predict the resolution of the uncertainty. The Company uses the most likely method where there are two possible outcomes, and the expected value method when there are a range of possible outcomes. The Company assumes that the tax authority with the right to examine and challenge tax treatments will examine those treatments and have full knowledge of all related information. As a result, it does not consider detection risk in the recognition and measurement of uncertain tax treatments. The Company applies consistent judgements and estimates on current and deferred taxes. Changes in tax laws or the presence of new tax information by the tax authority is treated as a change in estimate in line with IAS 8 Accounting policies, changes in accounting estimates and errors. Judgements and estimates made to recognise and measure the effect of uncertain tax treatments are reassessed whenever circumstances change or when there is new information that affects those judgements. New information might include actions by the tax authority, evidence that the tax authority has taken a particular position in connection with a similar item, or the expiry of the tax authority’s right to examine a particular tax treatment. The absence of any comment from the tax authority is unlikely to be, in isolation, a change in circumstances or new information that would lead to a change in estimate. 3.23 Share-based payments Employees (including senior executives) of the Company receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). Equity-settled transactions i. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised in employee benefits expense together with a corresponding increase in equity (share-based payment reserve), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service and non-market performance conditions are not taken into account when determining the grant date and for fair value of awards, but the likelihood of the conditions being met is assessed as part of the Company’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award, provided the original terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. The dilutive effect of outstanding awards is reflected as additional share dilution in the computation of diluted earnings per share. 4. Significant accounting judgements, estimates and assumptions The preparation of the Company’s historical financial information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Judgements 4.1 In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the historical financial information: Foreign currency translation reserve i. The Company has used the CBN rate to translate its dollar currency to its Naira presentation currency. Management has determined that this rate is available for immediate delivery. If the rate used was 10% higher or lower, revenue in Naira would have increased/decreased by Nil (2019: ₦20.1 billion). See Note 45 for the applicable translation rate. Group re-organisation ii. On 1 January 2020, the Company’s operations were restructured with the transfer of OML 4, OML 38 and OML 41 from the Company to Seplat West Limited. Management determined that this was a Group reorganisation involving entities under common control, as Seplat Petroleum Development Company Plc retained control of the Group before and after the reorganisation. See Note 31 for a summary of assets and liabilities transferred to Seplat West Limited. 254 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 5. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Share-based payment reserve i. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share award or appreciation right, volatility and dividend yield and making assumptions about them. The Company measures the fair value of equity-settled transactions with employees at the grant date. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 28. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Such estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Useful life of other property, plant and equipment ii. The Company recognises depreciation on other property, plant and equipment on a straight-line basis in order to write off the cost of the asset over its expected useful life. The economic life of an asset is determined based on existing wear and tear, economic and technical ageing, legal and other limits on the use of the asset, and obsolescence. If some of these factors were to deteriorate materially, impairing the ability of the asset to generate future cash flow, the Company may accelerate depreciation charges to reflect the remaining useful life of the asset or record an impairment loss. Income taxes iii. The Company is subject to income taxes by the Nigerian tax authority, which does not require significant judgement in terms of provision for income taxes, but a certain level of judgement is required for recognition of deferred tax assets. Management is required to assess the ability of the Company to generate future taxable economic earnings that will be used to recover all deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. The estimates are based on the future cash flow from operations taking into consideration the oil and gas prices, volumes produced, operational and capital expenditure. 6. Financial risk management Financial risk factors 6.1 The Company’s activities expose it to a variety of financial risks such as market risk (including foreign exchange risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Company’s risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. Risk management is carried out by the treasury department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity. Risk Exposure arising from Measurement Management Market risk – foreign exchange Market risk – interest rate Market risk – commodity prices Credit risk Liquidity risk Future commercial transactions Recognised financial assets and liabilities not denominated in US dollars Interest-bearing loans and borrowings at variable rate Future sales transactions Trade receivables, cash and bank balances Cash flow forecasting Sensitivity analysis Sensitivity analysis Sensitivity analysis Aging analysis Credit ratings Borrowings and other liabilities Rolling cash flow forecasts Match and settle foreign denominated cash inflows with foreign denominated cash outflows Review refinancing opportunities Oil price hedges Diversification of bank deposits and credit limits Availability of committed credit lines and borrowing facilities 6.1.1 Market risk Market risk is the risk of loss that may arise from changes in market factors such as commodity prices, interest rates and foreign exchange rates. Commodity price risk i. The Company was exposed to the risk of fluctuations on crude oil prices. The uncertainty around the rate at which oil prices increase or decline led to the Company’s decision to enter into an option contract to insure the Company’s revenue against adverse oil price movements. Crude hedge On 28 June and 19 December 2019, the Company entered an economic crude oil hedge contracts with Standard Chartered Bank and J.P Morgan Bank respectively. Strike price of ₦13,815 ($45/bbl.) for 3 million barrels at an average premium price of ₦338 ($1.1/bbl.) was agreed at the contract dates. During the year, the Company transferred its crude oil hedge contract to Seplat West Limited; hence, there were no economic crude hedge contracts for the year 2020. 255 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1.1 Market Risk continued i. Crude hedge continued Commodity price risk continued The maturity of the commodity options the Company holds in 2019 comparative year is shown in the table below: As at 31 December 2019 Crude oil hedges Volume barrels (bbl.) 1,500,000 1,500,000 – 3,000,000 308 1,002 Less than 6 months 6 to 9 months 9 to 12 months Total Fair value ₦ million Fair value $’000 The following table summarises the impact of the commodity options on the Company’s profit before tax due to a 10 % change in market inputs, with all other variables held constant Increase/decrease in Commodity Price +10% -10% Effect on profit before tax 2019 ₦ million 31 31 Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 100 (100) – – The Company may be exposed to business risks from fluctuations in the future prices of crude oil and gas. The following table summarises the impact on the Company’s profit before tax of a 10 % change in crude oil prices, with all other variables held constant: Increase/decrease in crude oil prices +10% -10% Effect on profit before tax 2019 ₦ million 13,853 (13,853) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 45,136 (45,136) – – The following table summarises the impact on the Company’s profit before tax of a 10% change in gas prices, with all other variables held constant: Increase/decrease in Commodity Price +10% -10% Effect on profit before tax 2019 ₦ million 4,167 (4,167) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 13,576 (13,576) – – Cash flow and fair value interest rate risk ii. The Company’s exposure to interest rate risk relates primarily to interest-bearing loans and borrowings. The Company has both variable and fixed borrowings issued at variable rates expose the Company to cash flow interest rate risk which is partially offset by cash and short-term fixed deposit held at variable rates. Fixed rate borrowings only give rise to interest rate risk if measured at fair value. The Company’s borrowings are not measured at fair value and are denominated in US dollars. The Company is exposed to cash flow interest rate risk on short-term deposits to the extent that the significant increases and reductions in market interest rates would result in a decrease in the interest earned by the Company. The contractual re-pricing date of the interest-bearing loans and borrowings is between 3 – 6 months. During the year, the Company transferred its interest-bearing loans and borrowings to Seplat West Limited. The exposure of the Company’s variable interest-bearing loans and borrowings for the year 2019 is shown below. Corporate loans 2020 ₦ million – 2019 ₦ million 107,407 2020 $’000 – 2019 $’000 349,888 The following table demonstrates the sensitivity of the Company’s profit before tax to changes in LIBOR rate, with all other variables held constant. Increase/decrease in interest rate +1% -1% 256 Effect on profit before tax 2019 ₦ million (41) 42 Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (296) 296 – – Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6.1.2 Foreign exchange risk The Company has transactional currency exposures that arise from sales or purchases in currencies other than the respective functional currency. The Company is exposed to exchange rate risk to the extent that balances and transactions are denominated in a currency other than the US dollar. The Company holds the majority of its bank balances equivalents in US dollar. However, the Company does maintain deposits in Naira in order to fund ongoing general and administrative activities and other expenditure incurred in this currency. Other monetary assets and liabilities which give rise to foreign exchange risk include trade and other receivables, trade and other payables. The following table demonstrates the carrying value of monetary assets and liabilities (denominated in Naira) exposed to foreign exchange risks at the reporting date: Financial assets Cash and bank balances Contract assets Trade and other receivables Financial liabilities Trade and other payables Net exposure to foreign exchange risk 2020 ₦ million 6,453 – 10 6,463 (60) 6,403 2019 ₦ million 25,839 6,527 16,835 49,201 (43,666) 5,535 2020 $’000 16,982 – 27 17,009 2019 $’000 84,165 21,259 54,836 139,000 (157) 16,852 (142,233) (3,233) The following table demonstrates the carrying value of monetary assets and liabilities exposed to foreign exchange risks for pound exposures at the reporting date. Financial assets Cash and bank balances 2020 ₦ million 2019 ₦ million 228 45 2020 $’000 599 2019 $’000 147 Sensitivity to foreign exchange risk is based on the Company’s net exposure to foreign exchange risk due to Naira and pound denominated balances. If the Naira strengthens or weakens by the following thresholds, the impact is as shown in the table below: Increase/decrease in foreign exchange risk +5% -5% Increase/decrease in foreign exchange risk +5% -5% Effect on profit before tax 2020 ₦ million (305) 337 Effect on profit before tax 2019 ₦ million 47 (52) Effect on other components of equity before tax 2020 ₦ million – – Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 (802) 887 – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (2,346) 2,593 – – If the pound strengthens or weakens by the following thresholds, the impact is as shown in the table below: Increase/decrease in foreign exchange risk +5% -5% Increase/decrease in foreign exchange risk +5% -5% Effect on profit before tax 2020 ₦ million 11 (12) Effect on other components of equity before tax 2020 ₦ million – – Effect on profit before tax 2020 $’000 Effect on other components of equity before tax 2020 $’000 29 (32) – – Effect on profit before tax 2019 ₦ million 2 (2) Effect on other components of equity before tax 2019 ₦ million – – Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 7 (7) – – 257 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1.3 Credit risk Credit risk refers to the risk of a counterparty defaulting on its contractual obligations resulting in financial loss to the Company. Credit risk arises from cash and bank balances, derivative assets, deposits with banks and financial institutions as well as credit exposures to customers (i.e. Mercuria and NGMC receivables), and other parties (i.e. NPDC receivables and other receivables). During the year, the Company transferred its derivative assets, receivables from NPDC and contract assets to Seplat West Limited. Risk management a. The credit risk on cash and bank balances is managed through the diversification of banks in which cash and bank balances are held. This risk on cash is limited because the majority of deposits are with banks that have an acceptable credit rating assigned by an international credit agency. The Company’s maximum exposure to credit risk due to default of the counterparty is equal to the carrying value of its financial assets. The maximum exposure to credit risk as at the reporting date is: Trade and other receivables (Gross) Contract assets Cash and bank balances (Gross) Gross amount Impairment of receivables Impairment of cash and bank balance Net amount 2020 ₦ million 501 – 72,621 73,122 – – 73,122 2019 ₦ million 409,055 6,527 83,332 498,934 (2,460) (15) 496,459 2020 $‘000 1,320 – 191,105 192,425 – – 192,425 2019 $‘000 1,332,497 21,259 271,441 1,625,197 (8,012) (51) 1,617,134 Impairment of financial assets b. The Company has five types of financial assets that are subject to IFRS 9’s expected credit loss model. Contract assets are also subject to the expected credit loss model, even though they are not financial assets, as they have substantially the same credit risk characteristics as trade receivables. The impairment of receivables disclosed in the table below is for 2019 comparative only, as there was no impairment loss for 2020. • Nigerian Petroleum Development Company (NPDC) receivables • Trade receivables • Contract assets • Cash and bank balances • Intercompany receivables Reconciliation of impairment on financial assets: As at 1 January 2019 Increase in provision for Nigerian Petroleum Development Company (NPDC) receivables Decrease in provision for bank balance (fixed deposit) Decrease in provision for intercompany receivables Increase in provision for trade receivables Exchange difference Impairment charge to the profit or loss Receivables written off during the year as uncollectible As at 31 December 2019 Notes 24.4 24.4 ₦’million 4,541 12,836 (13) (322) 287 (4) 12,784 (14,871) 2,454 $’000 14,848 41,811 (39) (1,053) 933 – 41,652 (48,439) 8,061 258 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The parameters used to determine impairment for NPDC receivables, intercompany receivables and short-term fixed deposits are shown below. For all receivables presented in the table, the respective 12-month Probability of Default (PD) equate the Lifetime PD for stage 2 as the maximum contractual period over which the Company is exposed to credit risk arising from the receivables is less than 12 months. Nigerian Petroleum Development Company (NPDC) receivables Intercompany receivables Short-term fixed deposits Probability of Default (PD) The PD for base case, downturn and upturn is 2.03%, 2.10% and 2.10% respectively. The 12-month PD and lifetime PD for stage 1 and stage 2 is 0.05%. The PD for stage 3 is 100%. The 12-month PD and lifetime PD for stage 1 and stage 2 is 0.09%. The PD for stage 3 is 100%. Loss Given Default (LGD) Exposure at default (EAD) Macroeconomic indicators Probability weightings The 12-month LGD and lifetime LGD were determined using Moody’s recovery rate for senior unsecured corporate bonds for emerging economies. The EAD is the maximum exposure of the receivable to credit risk. The 12-month LGD and lifetime LGD were determined using management’s estimate of expected cash recoveries. The EAD is the maximum exposure of the receivable to credit risk. The historical inflation, unemployment growth rate in Nigeria and crude oil price were used. 80%, 10% and 10% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. The historical gross domestic product (GDP) growth rate in Nigeria and crude oil price were used. 89%, 2% and 9% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. The 12-month LGD and lifetime LGD were determined using the average recovery rate for Moody’s senior unsecured corporate bonds for emerging economies. The EAD is the maximum exposure of the short-term fixed deposits to credit risk. The historical gross domestic product (GDP) growth rate in Nigeria and crude oil price were used. 78%, 12% and 10% of historical GDP growth rate observations fall within acceptable bounds, periods of boom and periods of downturn respectively. The Company considers both quantitative and qualitative indicators in classifying its receivables into the relevant stages for impairment calculation. Impairment of financial assets are recognised in three stages on an individual or collective basis as shown below: • Stage 1: This stage includes financial assets that are less than 30 days past due (Performing). • Stage 2: This stage includes financial assets that have been assessed to have experienced a significant increase in credit risk using the days past due criteria (i.e. the outstanding receivables amounts are more than 30 days past due but less than 90 days past due) and other qualitative indicators such as the increase in political risk concerns or other microeconomic factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial performance. • Stage 3: This stage includes financial assets that have been assessed as being in default (i.e. receivables that are more than 90 days past due) or that have a clear indication that the imposition of financial or legal penalties and/or sanctions will make the full recovery of indebtedness highly improbable. Nigerian Petroleum Development Company (NPDC) receivables i. NPDC receivables represent the outstanding cash calls due to Seplat from its Joint Arrangement partner, Nigerian Petroleum Development Company. The Company applies the IFRS 9 general model for measuring expected credit losses (ECL). This requires a three-stage approach in recognising the expected loss allowance for NPDC receivables. The ECL recognised for the period is a probability-weighted estimate of credit losses discounted at the effective interest rate of the financial asset. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive). The ECL was calculated based on actual credit loss experience from 2014, which is the date the Company initially became a party to the contract. The following analysis provides further detail about the calculation of ECLs related to these assets. The Company considers the model and the assumptions used in calculating these ECLs as key sources of estimation uncertainty. There was no write-off during the year (2019: ₦14.9 billion ($48.4 million)). 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL ₦’million 52,637 (448) 52,189 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 171,457 (1,460) 169,997 – – – – – – Total ₦’million 52,637 (448) 52,189 Total $’000 171,457 (1,460) 169,997 259 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1.3 Credit risk continued Trade receivables ii. Nigerian Gas Marketing Company The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. The impairment of trade receivables (NGMC) was estimated by applying the provision matrix. The expected loss rate was calculated as the percentage of the receivable that is deemed uncollectible during a particular period. The expected loss rates as at 31 December 2019 are as follows: 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24) Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL (Note 24) Total Current ₦’million 2,515 0.16% (4) 2,511 Current $’000 8,192 0.16% (12) 8,180 1-30 days ₦’million – 0.16% – – 31-60 days ₦’million 1,790 0.17% (3) 1,787 61-90 days ₦’million – 0.17% – – 91-120 days ₦’million – 0.17% – – 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – 0.16% – – 5,831 0.17% (8) 5,823 – 0.17% – – – 0.17% – – Above 120 days ₦’million 12,176 3.0% (333) 11,843 Above 120 days $’000 39,661 3.0% (1,090) 38,571 Total ₦’million 16,481 (340) 16,141 Total $’000 53,684 (1,110) 52,574 Mercuria The impairment of trade receivables (Mercuria) was estimated by applying the provision matrix. The expected loss rate was calculated as the percentage of the receivable that is deemed uncollectible during a particular period. The expected loss rates as at 31 December 2020 was nil. 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL Total 31 December 2019 Gross carrying amount Expected loss rate Lifetime ECL Total Current ₦’million 15,863 0.4% (68) 15,795 Current $’000 51,669 0.4% (219) 51,450 1-30 days ₦’million – – – – 31-60 days ₦’million – – – – 61-90 days ₦’million – – – – 91-120 days ₦’million – – – – 1-30 days $’000 31-60 days $’000 61-90 days $’000 91-120 days $’000 – – – – – – – – – – – – – – – – Above 120 days ₦’million – – – – Above 120 days $’000 – – – – Total ₦’million 15,863 0.4% (68) 15,795 Total $’000 51,669 – (219) 51,450 Cash and cash equivalent iii. Short-term fixed deposits The Company applies the IFRS 9 general model for measuring expected credit losses (ECL) which uses a three-stage approach in recognising the expected loss allowance for cash and bank balances. The ECL was calculated as the probability weighted estimate of the credit losses expected to occur over the contractual period of the facility after considering macroeconomic indicators. 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 260 Stage 1 12-month ECL ₦’million 7,958 – 7,958 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Total ₦’million 7,958 – 7,958 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 20,941 – 20,941 – – – – – – Stage 1 12-month ECL ₦’million 7,304 (15) 7,289 Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 23,794 (51) 23,743 – – – – – – Total $’000 20,941 – 20,941 Total ₦’million 7,304 (15) 7,289 Total $’000 23,794 (51) 23,743 Other cash and bank balances iv. The Company assessed the other cash and bank balances to determine their expected credit losses. Based on this assessment, they identified the expected credit loss to be nil as at 31 December 2020 (2019: nil). The assets are assessed to be in stage 1. Credit quality of cash and bank balances The credit quality of the Company’s cash and bank balances is assessed based on external credit ratings (Fitch national long-term ratings) as shown below: Non-rated BBB- B A+ AA- AA+ AAA Allowance for impairment recognised during the year (Note 27) Net cash and cash bank balances Intercompany receivables v. 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 2020 ₦ million 130 211 – 63,995 – 5,226 3,059 72,621 – 72,621 2019 ₦ million 9 473 25,399 57,213 – – 240 83,334 (15) 83,319 2020 $‘000 343 554 – 168,408 – 13,751 8,049 191,105 – 191,105 Stage 1 12-month ECL ₦’million 487,752 – 487,752 Stage 1 12-month ECL ₦’million 313,508 (1,605) 311,903 Stage 2 Lifetime ECL ₦’million – – – Stage 2 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – Stage 3 Lifetime ECL ₦’million – – – 2019 $‘000 17 1,542 82,735 186,373 – – 782 271,449 (51) 271,398 Total ₦’million 487,752 – 487,752 Total ₦’million 313,508 (1,605) 311,903 261 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1.3 Credit risk continued v. Intercompany receivables continued 31 December 2020 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) 31 December 2019 Gross Exposure at Default (EAD) Loss allowance Net Exposure at Default (EAD) Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 1,283,558 – 1,283,558 – – – – – – Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 1,021,194 (5,223) 1,015,971 – – – – – – Total $’000 1,283,558 – 1,283,558 Total $’000 1,021,194 (5,223) 1,015,971 Maximum exposure to credit risk – financial instruments subject to impairment c. The Company estimated the expected credit loss on NPDC receivables, Intercompany receivables and fixed deposits by applying the general model. The gross carrying amount of financial assets represents the Company’s maximum exposure to credit risks on these assets. During the year, there was no ECL. All financial assets impaired using the General model (NPDC, Intercompany and Fixed deposits) are graded under the standard monitoring credit grade (rated B under Standard and Poor’s unmodified ratings) and are classified under Stage 1. Roll forward movement in loss allowance d. The loss allowance recognised in the period is impacted by a variety of factors, as described below: • additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments derecognised in the period; • discount unwind within ECL due to passage of time, as ECL is measured on a present value basis; • foreign exchange retranslation for assets dominated in foreign currencies and other movements; and • financial assets derecognised during the period and write-off of receivables and allowances related to assets. Estimation uncertainty in measuring impairment loss e. The table below shows information on the sensitivity of the carrying amounts of the Company’s financial assets to the methods, assumptions and estimates used in calculating impairment losses on those financial assets at the end of the reporting period. These methods, assumptions and estimates have a significant risk of causing material adjustments to the carrying amounts of the Company’s financial assets. Expected cash flow recoverable f. The table below demonstrates the sensitivity of the Company’s profit before tax to a 20% change in the expected cash flows from financial assets, with all other variables held constant: Increase/decrease in estimated cash flows +20% -20% Effect on profit before tax 2019 ₦ million Effect on other components of profit before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of profit before tax 2019 $’000 94 (94) – – 305 (305) – – Significant unobservable inputs g. The table below demonstrates the sensitivity of the Company’s profit before tax to movements in the probability of default (PD) and loss given default (LGD) for financial assets, with all other variables held constant: Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (46) 46 – – (145) 145 – – Increase/decrease in loss given default +10% -10% 262 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The table below demonstrates the sensitivity of the Company’s profit before tax to movements in probabilities of default, with all other variables held constant. Increase/decrease in probability of default +10% -10% Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (49) 49 – – (159) 159 – – The table below demonstrates the sensitivity of the Company’s profit before tax to movements in the forward-looking macroeconomic indicators, with all other variables held constant: Increase/decrease in forward-looking macroeconomic indicators +10% -10% Effect on profit before tax 2019 ₦ million Effect on other components of equity before tax 2019 ₦ million Effect on profit before tax 2019 $’000 Effect on other components of equity before tax 2019 $’000 (46) 46 – – (145) 145 – – 6.1.4 Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by ensuring that enough funds are available to meet its commitments as they fall due. The Company uses both long-term and short-term cash flow projections to monitor funding requirements for activities and to ensure there are enough cash resources to meet operational needs. Cash flow projections take into consideration the Company’s debt financing plans and covenant compliance. Surplus cash held is transferred to the treasury department which invests in interest-bearing current accounts, time deposits and money market deposits. The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed maturity periods. The table has been drawn based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Company can be required to pay. The table below represents the loans and borrowings for 2019, the Company had no borrowings in the current year as they have been transferred to Seplat West Ltd. Effective interest rate % Less than 1 year ₦ million 1 – 2 year ₦ million 2 – 3 years ₦ million 3 – 5 years ₦ million Total ₦ million 9.25% 31 December 2019 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings 6.0% +LIBOR Citibank, N.A., London Branch 6.0% +LIBOR Nedbank Limited London 6.0% +LIBOR Stanbic IBTC Bank Plc 6.0% +LIBOR The Standard Bank of South Africa Limited 6.0% +LIBOR RMB International (Mauritius) Limited The Mauritius Commercial Bank Ltd 6.0% +LIBOR JPMorgan Chase Bank, N.A., London Branch 6.0% +LIBOR 6.0% +LIBOR Standard Chartered Bank 6.0% +LIBOR Natixis 6.0% +LIBOR Société Générale, London Branch 6.0% +LIBOR Zenith Bank Plc 6.0% +LIBOR United Bank for Africa Plc 6.0% +LIBOR First City Monument Bank Limited Total variable interest borrowings Other non-derivatives Trade and other payables** Lease liabilities Total 10,105 10,077 10,077 112,475 142,734 1,020 1,020 510 510 1,020 1,020 764 764 764 383 383 383 383 8,924 105,632 247 105,879 124,908 5,078 5,078 2,539 2,539 5,078 5,078 3,808 3,808 3,808 1,904 1,904 1,904 1,904 44,430 – 155 155 54,662 4,750 4,750 2,375 2,375 4,750 4,750 3,562 3,562 3,562 1,781 1,781 1,781 1,781 41,560 – 1,059 1,059 52,696 4,421 4,421 2,211 2,211 4,421 4,421 3,316 3,316 3,316 1,658 1,658 1,658 1,658 38,686 – 2,036 2,036 153,197 15,269 15,269 7,635 7,635 15,269 15,269 11,450 11,450 11,450 5,726 5,726 5,726 5,726 133,600 105,632 3,496 109,128 385,462 263 ** Trade and other payables (exclude non-financial liabilities such as provisions, taxes, pension and other non-contractual payables). Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.1.4 Liquidity risk continued Effective interest rate % Less than 1 year $’000 1 – 2 year $’000 2 – 3 years $’000 3 – 5 years $’000 Total $’000 9.25% 31 December 2019 Non-derivatives Fixed interest rate borrowings Senior notes Variable interest rate borrowings 6.0% +LIBOR Citibank, N.A., London Branch 6.0% +LIBOR Nedbank Limited London 6.0% +LIBOR Stanbic IBTC Bank Plc 6.0% +LIBOR The Standard Bank of South Africa Limited 6.0% +LIBOR RMB International (Mauritius) Limited 6.0% +LIBOR The Mauritius Commercial Bank Ltd JPMorgan Chase Bank, N.A., London Branch 6.0% +LIBOR 6.0% +LIBOR Standard Chartered Bank 6.0% +LIBOR Natixis 6.0% +LIBOR Société Générale, London Branch 6.0% +LIBOR Zenith Bank Plc 6.0% +LIBOR United Bank for Africa Plc First City Monument Bank Limited 6.0% +LIBOR Total variable interest borrowings Other non-derivatives Trade and other payables** Lease liability Total 32,915 32,825 32,825 366,367 464,932 3,321 3,321 1,661 1,661 3,321 3,321 2,491 2,491 2,491 1,246 1,246 1,246 1,246 29,063 344,078 803 344,881 406,859 16,540 16,540 8,270 8,270 16,540 16,540 12,405 12,405 12,405 6,203 6,203 6,203 6,203 144,727 – 505 505 178,057 15,471 15,471 7,736 7,736 15,471 15,471 11,604 11,604 11,604 5,802 5,802 5,802 5,802 135,376 – 3,449 3,449 171,650 14,402 14,402 7,201 7,201 14,402 14,402 10,802 10,802 10,802 5,401 5,401 5,401 5,401 126,020 – 6,632 6,632 499,019 ** Trade and other payables (exclude non-financial liabilities such as provisions, taxes, pension and other non-contractual payables). Fair value measurements 6.1.5 Set out below is a comparison by category of carrying amounts and fair value of all financial instruments: Carrying amount Fair value 2020 ₦ million 501 – 72,621 73,122 – – – 201,057 201,057 2019 ₦ million 345,007 6,527 83,319 434,853 308 308 214,644 189,701 404,345 2020 ₦ million 501 – 72,621 73,122 – – – 201,057 201,057 Financial assets at amortised cost Trade and other receivables* Contract assets Cash and bank balances Financial assets at fair value Derivative financial instruments Financial liabilities at amortised cost Interest-bearing loans and borrowings Trade and other payables 264 49,734 49,734 24,868 24,868 49,733 49,733 37,302 37,302 37,302 18,652 18,652 18,652 18,652 435,184 344,078 11,389 355,467 1,255,583 2019 ₦ million 345,007 6,527 83,319 434,853 308 308 202,101 189,701 391,802 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Financial assets at amortised cost Trade and other receivables Contract assets Cash and bank balances Financial assets at fair value Derivative financial instruments Financial liabilities at amortised cost Interest-bearing loans and borrowings Trade and other payables Carrying amount 2020 $’000 2019 $’000 Fair value 2020 $’000 2019 $’000 1,320 – 191,105 192,425 – 1,123,802 21,259 271,398 1,416,459 1,002 1,002 1,320 – 191,105 192,425 – 1,123,802 21,259 271,398 1,416,459 1,002 1,002 – 529,100 529,100 699,166 617,919 1,317,085 – 529,100 529,100 658,309 617,919 1,276,228 * Trade and other receivables exclude NGMC VAT receivables, cash advances and advance payments. In determining the fair value of the interest-bearing loans and borrowings, non-performance risks of the Company as at year end were assessed to be insignificant. Trade and other payables (exclude non-financial liabilities such as provisions, taxes, pension and other non-contractual payables), trade and other receivables and contract assets (excluding prepayments) and cash and bank balances are financial instruments whose carrying amounts as per the financial statements approximate their fair values. This is mainly due to their short-term nature. 6.1.6 Fair value hierarchy As at the reporting period, the Company had classified its financial instruments into the three levels prescribed under the accounting standards. These are all recurring fair value measurements. There were no transfers of financial instruments between fair value hierarchy levels during the year. • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities. • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The fair value of the financial instruments is included at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets 31 December 2019 Financial assets: Derivative financial instruments Level 1 ₦ million Level 2 ₦ million Level 3 ₦ million Level 1 $’000 Level 2 $’000 Level 3 $’000 308 – – 1,002 – – The fair value of the Company’s derivative financial instruments has been determined using a proprietary pricing model that uses marked to market valuation. The valuation represents the mid-market value and the actual close-out costs of trades involved. The market inputs to the model are derived from observable sources. Other inputs are unobservable but are estimated based on the market inputs or by using other pricing models. Financial liabilities 31 December 2019 Financial liabilities: Interest-bearing loans and borrowings Level 1 ₦ million – – Level 2 ₦ million 202,101 202,101 Level 3 ₦ million Level 1 $’000 Level 2 $’000 Level 3 $’000 – – – – 658,309 658,309 – – The fair value of the Company’s interest-bearing loans and borrowings is determined by using discounted cash flow models that use market interest rates as at the end of the period. The interest-bearing loans and borrowings are in level 2. The carrying amounts of the other financial instruments are the same as their fair values. 265 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 6. Financial risk management continued 6.2 Capital management 6.2.1 Risk management The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, to maintain optimal capital structure and reduce cost of capital. Consistent with others in the industry, the Company monitors capital based on the following gearing ratio, net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank balances. Interest-bearing loans and borrowings Less: cash and bank balances Net debt Total equity Total capital Net debt (net debt/total capital) ratio 2020 ₦ million – (72,621) (72,621) 102,241 29,620 – 2019 ₦ million 214,644 (83,319) 131,325 577,223 708,548 19% 2020 $’000 – (191,105) (191,105) 362,957 171,852 – 2019 $’000 699,166 (271,398) 427,768 1,880,210 2,307,978 19% Capital includes share capital, share premium, treasury shares, capital contribution and all other equity reserves. During the year, the Company had nil gearing ratio due to the transfer of its interest-bearing loans and borrowings to Seplat West Limited. 7. Segment reporting Due to the change in the Company’s operation, Seplat Plc is now a holding Company and no longer has operating or reportable segments (see Note 2). 8. Revenue from contracts with customers Crude oil sales Gas sales Gas processing 2020 ₦ million – – – – 2019 ₦ million 138,530 41,668 20,535 200,733 2020 $’000 – – – – 2019 $’000 451,364 135,761 66,912 654,037 The major off taker for crude oil in 2019 was Mercuria and Shell Western. The major off taker for gas is the Nigerian Gas Marketing Company and Azura. Gas processing is revenue received from Nigerian Petroleum Development Company (NPDC) for processing its share of the gas extracted from OML 4, 38 and 41 from 2015 to 2018. Subsequently, NPDC 55% stake in the gas plant, as a result of this acquisition, Seplat has ceased to process gas for NPDC. During the year, Seplat became a holding Company, hence, no revenue was generated from contracts with customers (see significant changes in Note 2). 9. Cost of sales Royalties Depletion, depreciation and amortisation (Note 17.5) Crude handling fees Nigeria Export Supervision Scheme (NESS) fee Niger Delta Development Commission Levy Rig related costs Operational and maintenance expenses 2020 ₦ million – – – – – – – – 2019 ₦ million 28,072 26,964 15,382 170 2,126 1,871 11,402 85,987 2020 $’000 – – – – – – – – 2019 $’000 91,465 87,856 50,121 553 6,925 6,094 37,148 280,162 Operational and maintenance expenses mainly relates to maintenance costs, warehouse operations expenses, security expenses, community expenses, clean-up costs, fuel supplies and catering services. 10. Other income Overlifts Exchange (loss)/gain Gain on disposal of oil and gas assets Tariffs 266 2020 ₦ million – (2,383) – – (2,383) 2019 ₦’million (7,028) 588 9,462 1,074 4,096 2020 $’000 – (6,621) – – (6,621) 2019 $’000 (22,898) 1,916 30,830 3,498 13,346 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Overlifts are excess crude lifted above the share of production. It may exist when the crude oil lifted by the Company during the period is above its ownership share of production. Overlifts are initially measured at the market price of oil at the date of lifting and recognised in profit or loss. At each reporting period, overlifts is remeasured at the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss. Underlifts are shortfalls of crude lifted below the share of production. It may exist when the crude oil lifted by the Company during the period is less than its ownership share of production. The shortfall is initially measured at the market price of oil at the date of lifting and recognised as other income. At each reporting period, the shortfall is remeasured at the current market value. The resulting change, as a result of the remeasurement, is also recognised in profit or loss as other income. (Loss)/gains on foreign exchange are principally as a result of translation of Naira denominated monetary assets and liabilities. Tariffs which is a form of crude handling fee, relate to income generated from the use of the Company’s pipeline. 11. General and administrative expenses Depreciation (Note 17) Depreciation of right-of-use assets Auditor’s remuneration Professional and consulting fees Directors’ emoluments (executive) Directors’ emoluments (non-executive) Donations Employee benefits (Note 11.1) Flights and other travel costs Rentals Other general expenses 2020 ₦ million 1 – – 630 – 1,201 – 1,856 75 – 1,291 5,054 2019 ₦’million 857 907 120 3,157 735 1,048 68 7,347 2,607 198 – 17,044 2020 $’000 3 – – 1,751 – 3,337 – 5,157 211 – 3,587 14,046 2019 $’000 2,791 2,955 389 10,285 2,393 3,416 221 23,941 8,495 645 – 55,531 Directors’ emoluments have been split between Executive and Non-Executive Directors. There were no non-audit services rendered by the Company’s auditors during the year. Other general expenses relate to costs such as office maintenance costs, rentals, telecommunication costs, logistics costs and others. Share-based payment expenses are included in employee benefits expense. 11.1 Salaries and employee related costs include the following: 2020 ₦ million 2019 ₦’million 2020 $’000 Short-term employee benefits: Basic salary Housing allowances Other allowances Post-employment benefits: Defined contribution expenses Defined benefit expenses Other employee benefit: Share-based payment expenses (Note 28.4) Other allowances relate to staff bonus, car allowances and relocation expenses. 12. Impairment/(reversal) of losses on financial assets Impairment loss on NPDC receivables Impairment loss on trade receivables (Mercuria) Impairment loss on trade receivables (NGMC) Receivables written off during the year as uncollectible Reversal of impairment on NPDC receivables Reversal of impairment loss on intercompany receivables Reversal of impairment loss on trade receivables (NGMC) Reversal of impairment loss on cash and bank balances (fixed deposits) Exchange difference Total impairment loss allowance – – – – – 1,856 1,856 2020 ₦ million – – – – – – – – – – – – – 2,712 500 462 500 309 2,864 7,347 2019 ₦ million – 68 219 287 14,871 15,158 (2,036) (322) – (13) (2,371) (3) 12,784 2019 $’000 8,839 1,630 1,614 1,630 1,005 – – – – – 5,157 5,157 9,223 23,941 2020 $’000 – – – – – – – – – – – – – 2019 $’000 – 221 712 933 48,439 49,327 (6,628) (1,053) – (39) (7,720) – 41,652 267 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 13. Fair value (loss)/gain Realised fair value losses on crude oil hedges Unrealised fair value gain 2020 ₦ million – – – 2019 ₦ million (1,584) (2,385) (3,969) Fair value gain/(loss) on derivatives represents changes in the fair value of hedging receivables charged to profit or loss. 14. Finance income/(cost) Finance income Interest income Finance cost Interest on bank loans Interest on lease liabilities Unwinding of discount on provision for decommissioning Finance income/(cost) – net Finance income represents interest on short-term fixed deposits. 15. Taxation 2020 ₦ million 277 – – – – 277 2019 ₦ million 4,702 8,890 164 1,075 10,129 (5,427) The major components of income tax expense for the years ended 31 December 2020 and 2019 are: 15.1 Income tax expense 2020 $’000 – – – 2020 $’000 770 – – – – 770 2019 $’000 (5,160) (7,770) (12,930) 2019 $’000 15,321 28,966 534 3,501 33,001 (17,680) Current tax: Petroleum profit tax Education tax Total current tax Deferred tax: Deferred tax expense in profit or loss Total tax expense in statement of profit or loss Deferred tax recognised in other comprehensive income Total tax charge for the period Effective tax rate 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 – – – – – – – – 5,741 900 6,641 6,843 13,484 (171) 13,313 17% – – – – – – – – 18,704 2,933 21,637 22,296 43,934 (558) 43,376 17% 15.2 Reconciliation of effective tax rate The income tax expense is recognised based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year. The estimated annual tax rate used for the year ended 31 December 2020 is 30%. As at 31 December 2019, the applicable tax rate was 85%, 65.75% and 30%. The effective tax rate for the period was nil (2019: 17%). A reconciliation between income tax expense and accounting profit before income tax multiplied by the applicable statutory tax rate is as follows: Profit before taxation Tax rate of 85%, 65.75% and 30% Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Income not subject to tax Expenses not deductible for tax purposes Recognition of previously unrecognised deductible temporary difference Impact of unrecognised deferred tax on temporary differences Effect of permanent differences Impact of tax incentive Impact of tax losses Education tax Total tax credit in statement of profit or loss 2020 ₦ million (7,160) (2,148) 557 – – – – – 1,591 – – 2019 ₦ million 79,613 67,671 (18,684) 36,374 (32,529) 6,847 (765) (46,330) – 900 13,484 2020 $’000 (19,897) (5,969) 1,548 – – – – – 4,421 – – 2019 $’000 259,411 220,499 (60,877) 118,517 (105,989) 22,297 (2,494) (150,953) 2,933 43,934 268 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 15.3 Current tax liabilities/(assets) The movement in the current tax liabilities is as follows: As at 1 January Tax charge Transfer to Seplat West Tax paid As 31 December 15.4 Deferred tax The analysis of deferred tax assets and deferred tax liabilities is as follows: Deferred tax assets Deferred tax asset to be recovered after more than 12 months Deferred tax liabilities Deferred tax liabilities to be recovered after more than 12 months 2020 ₦ million 4,882 – (4,882) – – 2020 ₦ million – – 2020 ₦ million – 2019 ₦ million (723) 6,641 (1,036) 4,882 2019 ₦ million 147,513 147,513 2019 ₦ million (109,904) Net deferred tax (liabilities)/assets – 37,609 2020 $’000 15,901 – (15,901) – – 2020 $’000 – – 2020 $’000 – – 2019 $’000 (2,356) 21,637 (3,380) 15,901 2019 $’000 481,634 481,634 2019 $’000 (359,126) 122,508 15.5 Deferred tax assets Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Tax losses Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit plan Share-based payment reserve Unrealised foreign exchange (gain)/loss on trade and other receivables Overlift/(underlift) Impairment provision on trade and other receivables Effect of exchange differences Balance at 1 January 2020 ₦ million – – 122,647 (3) 2,725 5,670 1,046 11,219 4,021 147,325 188 147,513 Transfer to Seplat West ₦ million – – (122,647) 3 (2,725) (5,670) (1,046) (11,219) (4,021) (147,325) (188) (147,513) (Charged)/ credited to profit or loss ₦ million – – – – – – – – – – – – Balance at 31 December 2020 ₦ million – – – – – – – – – – – – Balance at 1 January 2020 $’000 Transfer to Seplat West $’000 (Charged)/ credited to profit or loss $’000 Balance at 31 December 2020 $’000 Tax losses Other cumulative timing differences: Unutilised capital allowance Defined benefit plan Share-based payment Unrealised foreign exchange (gain)/loss on trade and other receivables Overlift/(underlift) Impairment provision on trade and other receivables Total charged to profit or loss – – 401,027 – 8,896 18,519 3,433 36,622 13,137 481,634 (401,027) – (8,896) (18,519) (3,433) (36,622) (13,137) (481,634) – – – – – – – – – – – – – – – – – – 269 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 15. Taxation continued 15.5 Deferred tax assets continued Tax losses Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Provision for defined benefit plan Share-based payment reserve Unrealised foreign exchange (gain)/loss on trade and other receivables Overlift/(underlift) Impairment provision on trade and other receivables Effect of exchange differences Tax losses Other cumulative timing differences: Unutilised capital allowance Provision for decommissioning obligation Defined benefit plan Share-based payment Unrealised foreign exchange (gain)/loss on trade and other receivables Overlift/(underlift) Impairment provision on trade and other receivables Total charged to profit or loss Balance at 1 January 2019 ₦ million – (Charged)/ credited to profit or loss ₦ million – Credited to other comprehensive income ₦ million – Balance at 31 December 2019 ₦ million – 116,068 818 1,540 3,294 1,258 5,246 3,863 132,087 188 132,275 6,579 (821) 1,014 2,376 (212) 5,973 158 15,067 – 15,067 – – 171 – – – – 171 171 122,647 (3) 2,725 5,670 1,046 11,219 4,021 147,325 188 147,513 Balance at 1 January 2019 $’000 (Charged)/ credited to profit or loss $’000 Credited to other comprehensive income $’000 Balance at 31 December 2019 $’000 – – 379,592 2,674 5,035 10,778 4,123 17,159 12,623 431,984 21,435 (2,674) 3,303 7,741 (690) 19,463 514 49,092 – – – 558 – – – – 558 – 401,027 – 8,896 18,519 3,433 36,622 13,137 481,634 15.6 Deferred tax liabilities Deferred tax liabilities are recognised for amounts of income taxes payable in future periods in respect of taxable temporary differences. Balance at 1 January 2020 ₦ million – Transfer to Seplat West ₦ million – (Charged)/ credited to profit or loss ₦ million – Balance at 31 December 2020 ₦ million – 113,546 (113,546) (6) 113,540 6 (113,540) – – – – – – Balance at 1 January 2019 ₦ million – (Charged)/ credited to profit or loss ₦ million – Credited to other comprehensive income ₦ million – Balance at 31 December 2019 ₦ million – 85,706 2,282 87,988 (9) 87,979 27,840 (2,282) 25,558 3 25,561 – – – – – 113,546 – 113,546 (6) 113,540 Tax losses Other cumulative timing differences: Fixed assets Effect of exchange difference Tax losses Other cumulative timing differences: Fixed assets Derivative financial instruments Effect of exchange difference 270 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Tax loss Other cumulative timing differences: Fixed assets Tax loss Other cumulative timing differences: Fixed assets Derivative financial instruments 15.7 Deferred tax recognised in profit or loss Credited to profit or loss; Unutilised capital allowance Provision for defined benefit Share-based payment plan Overlift Tax losses Charged to profit or loss: Provision for decommissioning obligation Unrealised foreign exchange loss/(gain) on trade and other receivables Fixed assets Impairment provision on trade and other receivables Exchange difference Charged to other comprehensive income Deferred tax credit/(expense) on remeasurement 16. Computation of cash generated from operations Notes (Loss)/profit before tax Adjusted for: Depletion, depreciation and amortization Depreciation of right-of-use assets Impairment of losses on financial assets Interest income Interest expense on bank loans Interest on lease liabilities Unwinding of discount on provision for decommissioning Fair value loss on derivative financial instruments Unrealised foreign exchange gain Share-based payment expenses Defined benefit expenses Gain on disposal of oil and gas properties Changes in working capital: (excluding the effects of exchange differences) Trade and other receivables Inventories Prepayments Contract assets Trade and other payables Contract liabilities Restricted cash Net cash from operating activities Balance at 1 January 2020 $’000 Transfer to Seplat West $’000 (Charged)/ credited to profit or loss $’000 Balance at 31 December 2020 $’000 – – 370,993 370,993 (370,993) (370,993) – – – – – – Balance at 1 January 2019 $’000 Charged/ credited to profit or loss $’000 Credited to other comprehensive income $’000 Balance at 31 December 2019 $’000 – – 280,282 7,456 287,738 90,711 (7,456) 83,255 – – – – – 370,993 – 370,993 As at 31 Dec 2020 ₦’million As at 31 Dec 2019 ₦’million As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 – – – – – – – – – – – – – 2020 ₦ million (7,160) 1 – – (277) – – – – 2,383 1,856 – – 172,668 – (2) – (62,412) – (7,696) 99,361 6,579 1,014 2,376 5,973 – (821) (212) (21,910) 158 – (6,843) 171 171 2019 ₦ million 79,613 27,821 907 12,784 (4,702) 8,890 164 1,075 2,385 (588) 2,864 309 (9,462) (113,396) 6,083 (11,478) (2,199) 73,668 5,003 (1,007) 78,734 – – – – – – – – – – – – – 21,435 3,303 7,741 19,463 – (2,674) (690) (71,388) 514 – (22,296) 558 558 2020 $’000 2019 $’000 (19,897) 259,411 3 – – (770) – – – – 6,621 5,157 – – 479,749 – (5) – (173,410) – (21,383) 276,065 90,647 2,955 41,652 (15,321) 28,966 534 3,501 7,770 (1,916) 9,223 1,005 (30,830) (369,472) 19,817 (37,396) (7,163) 240,029 16,301 (3,280) 256,433 271 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 17. Property, plant and equipment 17.1 Oil and gas properties Cost At 1 January 2019 Additions Transfers Disposal of producing assets Changes in decommissioning Interest capitalised Exchange differences At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Disposal of producing assets Exchange differences At 31 December 2019 NBV At 31 December 2019 Cost At 1 January 2020 Transfers to Seplat West Ltd At 31 December 2020 Depreciation At 1 January 2020 Transfers to Seplat West Ltd At 31 December 2020 NBV At 31 December 2020 17.2 Disposal of oil and gas properties Purchase consideration for disposal of oil and gas assets Net book value of Production and Field Facilities: Cost Depreciation 17.3 Purchase consideration Cash received Purchase consideration outstanding Production and field facilities ₦ million 371,722 Assets under construction ₦ million 41,612 28,406 19,567 (28,126) (3,745) – 5 961 (19,567) – – 6,308 (3) Total ₦ million 413,334 29,367 – (28,126) (3,745) 6,308 2 Production and field facilities $’000 Assets under construction $’000 Total $’000 1,210,820 135,544 1,346,364 92,553 63,755 (91,643) (12,199) – – 3,132 (63,755) – – 20,554 – 95,685 – (91,643) (12,199) 20,554 – 387,829 29,311 417,140 1,263,286 95,475 1,358,761 147,243 26,523 (6,522) 8 167,252 – – – – – 147,243 26,523 (6,522) 8 479,621 86,417 (21,244) – 167,252 544,794 – – – – – 479,621 86,417 (21,244) – 544,794 220,577 29,311 249,888 718,492 95,475 813,967 Production and field facilities $’000 Assets under construction $’000 Production and field facilities ₦ million 387,829 (387,829) – Assets under construction ₦ million 29,311 (29,311) – 167,252 (167,252) – – – – – – Total ₦ million 417,140 (417,140) – 167,252 (167,252) – 1,263,286 (1,263,286) – 544,794 (544,794) – – – 95,475 (95,475) – – – – – Total $’000 1,358,761 (1,358,761) – 544,794 (544,794) – – 2019 $’000 2020 ₦ million 2019 ₦ million 2020 $’000 – – 28,126 (6,522) – – 91,643 (21,244) 2020 ₦ million – – – 2019 ₦ million 15,532 15,534 31,066 2020 $’000 – – – 2019 $’000 50,614 50,615 101,229 * Approximately 50% of the proceeds expected from the disposal of oil and gas assets have been paid, the other 50% is recognised within the receivables. Assets under construction represent costs capitalised in connection with the development of the Company’s oil fields and other property, plant and equipment not yet ready for their intended use. Some of which are qualifying assets which take a substantial period of time to get ready for their intended use. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the Company’s general borrowings denominated in dollars during the year was nil (2019: 12.3%). Borrowing costs capitalised during the year was nil (2019: ₦8 billion, $26 million). 272 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Leasehold improvements ₦ million 1,200 – (1,200) – – Land ₦ million 21 – (21) – – Buildings ₦ million 1,194 – (1,194) – – 17.4 Other property, plant and equipment Plant & machinery ₦ million 1,518 15 (1,518) 1 16 1,391 (1,391) 1 1 Motor vehicle ₦ million 2,979 274 (2,979) 15 289 2,187 (2,187) – – Office furniture & IT equipment ₦ million 5,725 – (5,725) – – 4,562 (4,562) – – 15 289 – 1,490 29 – (1) 1,518 1,243 – 149 (1) 1,391 2,610 369 – – 2,979 1,950 – 236 1 2,187 4,470 1,254 – 1 5,725 4,220 – 342 – 4,562 127 792 1,163 895 (895) – – – 913 287 – – 1,200 785 – 110 – 895 305 Plant & machinery $’000 Motor vehicle $’000 Office furniture & IT equipment $’000 Leasehold improvements $’000 4,945 41 (4,945) 41 4,532 3 (4,532) 3 9,704 761 (9,704) 761 7,124 – (7,124) – 18,647 – (18,647) – 14,858 – (14,858) – 3,908 – (3,908) – 2,916 – (2,916) – 38 761 – – 4,852 93 4,945 4,048 484 – 4,532 8,503 1,201 – 9,704 6,356 768 – 7,124 14,560 4,087 – 18,647 13,745 1,113 – 14,858 2,973 935 – 3,908 2,556 360 – 2,916 Cost At 1 January 2020 Additions Transfer to Seplat West Ltd Exchange difference At 31 December 2020 Depreciation At 1 January 2020 Transfer to Seplat West Ltd Charge for the year At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Addition Disposal Exchange differences At 31 December 2019 Depreciation At 1 January 2019 Disposals Charge for the year Exchange differences 31 December 2020 NBV 31 December 2019 Cost At 1 January 2020 Additions Transfer to Seplat West Ltd At 31 December 2020 Depreciation At 1 January 2020 Charge for the year Transfer to Seplat West Ltd At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Addition Disposal At 31 December 2019 Depreciation At 1 January 2019 Charge for the year Disposal At 31 December 2019 NBV At 31 December 2019 Total ₦ million 12,637 289 (12,637) 16 305 9,055 (9,055) 1 1 304 9,483 3,154 – – 12,637 8,198 – 857 – 9,055 20 (20) – – – 1,194 – – 1,194 – – 20 – 20 1,174 3,582 Buildings $’000 3,890 – (3,890) – 66 – (66) – – – 3,890 – 3,890 – 66 – 66 Total $’000 41,162 802 (41,162) 802 29,496 3 (29,496) 3 799 30,888 10,274 – 41,162 26,705 2,791 – 29,496 – – – – – 21 – – 21 – – – – – 21 Land 68 – (68) – – – – – – – 68 – 68 – – – – 413 2,580 3,789 992 68 3,824 11,666 273 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 17. Property, plant and equipment continued 17.5 Depletion, depreciation and amortisation Oil and gas properties Amortisation of intangible asset Charged to cost of sales Charged to general and administrative expense Total depletion, depreciation and amortisation 2020 ₦ million – – – – – 2019 ₦ million 26,523 441 26,964 857 27,821 18. Intangible assets Cost At 1 January 2020 Transfer to Seplat West Ltd At 31 December 2020 Amortisation charge At 1 January 2020 Transfer to Seplat West Ltd At 31 December 2020 NBV At 31 December 2020 Cost At 1 January 2019 Additions At 31 December 2019 Amortisation charge At 1 January 2019 Charge for the year At 31 December 2019 NBV At 31 December 2019 19. Right-of-use asset As at 1 January Additions during the year Less: depreciation for the period Transfer to Seplat West Ltd As at 31 December 20. Prepayments Non-current Rent Advances to suppliers Current Rent Crude oil hedge Other prepayments 2020 ₦ million 3,397 – – (3,397) – 2020 ₦ million – – – – – 2 2 2 2019 ₦ million 4,216 88 (907) – 3,397 2019 ₦ million 301 18,927 19,228 283 839 357 1,479 20,707 2020 $’000 – – – – – ₦ million 9,070 (9,070) – 517 (517) – – 9,070 – 9,070 76 441 517 2019 $’000 86,417 1,439 87,856 2,791 90,647 $’000 29,543 (29,543) – 1,685 (1,685) – – 29,543 – 29,543 246 1,439 1,685 8,553 27,858 2020 $’000 11,064 – – (11,064) – 2020 $’000 – – – – – 5 5 5 2019 $’000 13,734 285 (2,955) – 11,064 2019 $’000 979 61,654 62,633 921 2,730 1,163 4,814 67,447 20.1 Advances to suppliers Advances to suppliers relate to a milestone payment made to finance the construction of the Amukpe Escravos Pipeline Project and other related facilities. At the end of the reporting period, there was no advance paid to suppliers (2019: ₦18.9 billion, $61.6 million). 20.2 Other prepayments Included in other prepayments are prepaid service charge expenses for office buildings, health insurance, software licence maintenance, motor insurance premium and crude oil handling fees. 274 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 21. Investment in subsidiaries Newton Energy Limited Seplat Petroleum Development Company UK Limited Seplat East Onshore Limited Seplat East Swamp Company Limited Seplat Gas Company Limited Eland Oil and Gas Limited Seplat West Limited 21.1 Interest in other entities Name of entity Newton Energy Limited Seplat Petroleum Development Company UK Limited Country of incorporation & place of business Nigeria United Kingdom Seplat East Onshore Limited Seplat East Swamp Company Limited Nigeria Nigeria Seplat Gas Company Limited Nigeria Eland Oil and Gas Limited United Kingdom Seplat West Limited Nigeria 21.2 Reconciliation of investment in subsidiary At 1 January 2020 Increase in Investment (Seplat West) Capital contribution (Note 31) At 31 December 2020 At 1 January 2019 Acquisition of subsidiary (Eland Oil and Gas Limited) Deconsolidation of subsidiary (Anoh Gas Limited) At 31 December 2019 21.3 Purchase consideration – cash outflow Purchase consideration Less: Liabilities assumed Fair value of outstanding payment Exchange difference Net outflow of cash – investing activities 2020 ₦ million 290 15 10 10 10 149,719 443,371 593,425 2019 ₦ million 290 15 10 10 10 149,719 – 150,054 2020 $’000 950 50 32 32 32 487,683 1,444,204 1,932,983 2019 $’000 950 50 32 32 32 487,683 – 488,779 As at 31 Dec 2020 As at 31 Dec 2019 As at 31 Dec 2020 As at 31 Dec 2019 As at 31 Dec 2020 As at 31 Dec 2019 Percentage of ownership interest Carrying amount % 100 100 100 100 100 100 100 % 100 100 100 100 100 100 – ₦’million ₦’million 290 290 15 10 10 10 15 10 10 10 $’000 950 50 32 32 32 $’000 950 50 32 32 32 149,719 443,371 149,719 487,683 487,683 – 1,444,204 – 2020 ₦ million 150,054 10 443,361 593,425 2019 ₦ million 345 149,719 (10) 150,054 2019 ₦ million 149,719 (1,549) (43) 148,127 2020 $’000 488,779 33 1,444,171 1,932,983 2019 $’000 1,129 487,683 (33) 488,779 2019 $’000 487,683 (5,046) – 482,637 275 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 22. Investment in joint ventures Cost 22.1 Reconciliation of investment in joint venture As 1 January Reclassified from investment in subsidiary (Anoh Gas Processing Limited) Loss on disposal of investment in subsidiary (AGPC) Additional investment in joint venture (AGPC) Exchange difference At 31 December 22.2 Reconciliation of additional investment in joint venture Cash paid in the current period Amount reclassified from other receivables 31 December 2020 ₦ million 79,806 31 December 2019 ₦ million 46,055 31 December 2020 $’000 31 December 2019 $’000 210,016 150,016 31 December 2020 ₦ million 46,055 – – 21,595 12,156 79,806 31 December 2019 ₦ million – 10 (5) 46,051 (1) 46,055 31 December 2020 $’000 31 December 2019 $’000 150,016 – – 60,000 – 210,016 – 33 (17) 150,000 – 150,016 As at 31 Dec 2020 ₦’million 21,595 – 21,595 As at 31 Dec 2019 ₦’million 31,627 14,424 46,051 As at 31 Dec 2020 $’000 As at 31 Dec 2019 $’000 60,000 – 60,000 103,050 46,950 150,000 Name of entity ANOH Gas Processing Company Limited 23. Inventories Tubulars, casings and wellheads Country of incorporation and place of business Nigeria Percentage of ownership interest Carrying amount As at 31 Dec 2020 As at 31 Dec 2019 As at 31 Dec 2020 As at 31 Dec 2019 As at 31 Dec 2020 As at 31 Dec 2019 % 50 % 50 ₦’million ₦’million $’000 $’000 79,806 46,055 210,016 150,016 2020 ₦ million – 2019 ₦ million 24,315 2020 $’000 – 2019 $’000 79,205 Inventory represents the value of tubulars, casings and wellheads. The inventory is carried at the lower of cost and net realisable value. Inventory charged to profit or loss and included in cost of sales during the year was nil (2019: ₦0.9 billion, $3 million). There was no write down or reversal of previously recognised write down of inventory for the year ended 31 December 2020. 24. Trade and other receivables Trade receivables Nigerian Petroleum Development Company (NPDC) receivables Intercompany receivables Advances on investments Advances to related parties Advances to suppliers Receivables from joint venture (Anoh) Other receivables 2020 ₦ million – – 313 – – – 178 10 501 Other receivables are transactions outside the usual operating activities of the Company. 24.1 Reconciliation of trade receivables Balance as at 1 January Additions during the year Receipts for the year Transfer to Seplat West Exchange differences Gross carrying amount Less: impairment allowance Balance as at 31 December 276 2020 ₦’million 32,555 – – (32,555) – – – – 2019 ₦ million 32,555 52,189 311,903 12,512 – 4,347 3,848 6,121 423,475 2019 ₦’million 27,203 8,787 (3,025) – (2) 32,963 (408) 32,555 2020 $’000 – – 824 – – – 469 27 1,320 2020 $’000 106,043 – – (106,043) – – – – 2019 $’000 106,043 169,997 1,015,971 40,757 – 14,160 12,536 19,940 1,379,404 2019 $’000 88,608 28,620 (9,856) – – 107,372 (1,329) 106,043 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 24.2 Reconciliation of impairment allowance trade receivables Loss allowance as at 1 January Increase/(decrease) in loss allowance during the period Transfer to Seplat West Exchange difference Loss allowance as at 31 December 2020 ₦’million 408 – (408) – – 2019 ₦’million 122 287 (1) 408 2020 $’000 1,329 – (1,329) – – 2019 $’000 396 933 – 1,329 Increase in expected credit loss on trade receivables to due to increase in the receivable balance at the end of the period. 24.3 Reconciliation of NPDC receivables Balance as at 1 January Additions during the year Receipts for the year Transfer to Seplat West Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December 24.4 Reconciliation of impairment allowance NPDC receivables Loss allowance as at 1 January Increase in loss allowance during the period Transfer to Seplat West Ltd Receivables written off during the year as uncollectible Exchange difference Loss allowance as at 31 December 24.5 Reconciliation of intercompany receivables Balance as at 1 January Additions during the year Receipts for the year Transfer to Seplat West Ltd Exchange difference Gross carrying amount Less: impairment allowance Balance as at 31 December 25. Contract assets Revenue on gas sales (Note 25.1) 2020 ₦’million 52,189 – – (52,189) – – – – 2020 ₦’million 448 – (448) – – – 2020 ₦’million 311,903 297 (153,135) (181,281) 22,529 313 – 313 2019 ₦’million – 339,930 (287,308) 15 52,637 (448) 52,189 2019 ₦’million 2,475 12,836 – (14,871) 8 448 2019 ₦’million 256,874 350,120 (293,501) – 15 313,508 (1,605) 311,903 2020 $’000 169,997 – – (169,997) – – – – 2020 $’000 1,460 – (1,460) – – – 2020 $’000 1,015,971 824 (425,478) (590,493) – 824 – 824 2019 $’000 – 1,107,587 (936,130) – – 171,457 (1,460) 169,997 2019 $’000 8,086 41,813 – (48,439) – 1,460 2019 $’000 836,723 1,140,782 (956,311) – – 1,021,194 (5,223) 1,015,971 2020 ₦’million – 2019 ₦’million 6,527 2020 $’000 – 2019 $’000 21,259 A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. The Company has recognised an asset in relation to a contract with NGMC for the delivery of Gas supplies which NGMC has received but which has not been invoiced as at the end of the reporting period. The terms of payments relating to the contract is between 30-45 days from the invoice date. However, invoices are raised after delivery between 14-21 days when the receivable amount has been established and the right to the receivables crystallises. The right to the unbilled receivables is recognised as a contract asset. At the point where the final billing certificate is obtained from NGMC authorising the quantities, this will be reclassified from contract assets to trade receivables. 25.1 Reconciliation of contract assets The movement in the Company’s contract assets is as detailed below: As at 1 January Additions during the year Receipts for the year Transfer to Seplat West Ltd Exchange difference As at 31 December 2020 ₦’million 6,527 – – (6,527) – – 2019 ₦’million 4,327 52,275 (50,077) – 2 6,527 2020 $’000 21,259 – – (21,259) – – 2019 $’000 14,096 170,327 (163,164) – – 21,259 277 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 26. Derivative financial instruments The Company uses its derivatives for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. They are presented as current assets to the extent they are expected to be settled within 12 months after the reporting period. Crude oil hedges 27. Cash and bank balances 2020 ₦’million – 2019 ₦’million 308 2020 $’000 – 2019 $’000 1,002 Cash and bank balances in the statement of financial position comprise of cash at bank and on hand, short-term deposits with a maturity of three months or less and restricted cash balances. Cash on hand Short-term fixed deposits Cash at bank Gross cash and cash equivalent Loss allowance Net cash and cash equivalents per statement of cash flow Restricted cash Cash and bank balance 2020 ₦’million – 151 61,799 61,950 – 61,950 10,671 72,621 2019 ₦’million 2 7,304 73,972 81,278 (15) 81,263 2,056 83,319 2020 $’000 – 397 162,627 163,024 – 163,024 28,081 191,105 2019 $’000 8 23,794 240,949 264,751 (51) 264,700 6,698 271,398 Included in restricted cash, is a balance of $7.2 million (₦2.7 billion) set aside in the Stamping Reserve account for the revolving credit facility (RCF). The amount is to be used for the settlement of all fees and costs payable for the purposes of stamping and registering the Security Documents at the stamp duties office and at the Corporate Affairs Commission (CAC). The amounts are restricted for a period of three (3) years, which is the contractual period of the RCF. These amounts are subject to legal restrictions and are therefore not available for general use by the Company. These amounts have therefore been excluded from cash and bank balances for the purposes of cash flow. An additional $20.8 million, ₦7.9 billion, of funds deposited in Access bank Plc bank accounts in the ordinary course of business are being unilaterally restricted by Access bank Plc in connection with the court case between Seplat Petroleum Development Company Plc and Access Bank Plc. 28. Share capital 28.1 Authorised and issued share capital Authorised ordinary share capital 1,000,000,000 ordinary shares denominated in Naira of 50 kobo per share Issued and fully paid 581,840,856 (2019: 575,321,598) issued shares denominated in Naira of 50 kobo per share 2020 ₦’million 2019 ₦’million 2020 $’000 2019 $’000 500 293 500 289 3,335 3,335 1,855 1,845 Fully paid ordinary shares carry one vote per share and the right to dividends. There were no restrictions on the Company’s share capital. 28.2 Movement in share capital and other reserves Number of shares 575,321,598 – 6,519,258 581,840,856 Number of shares 575,321,598 – 6,519,258 581,840,856 Issued share capital ₦’million 289 – 4 293 Share premium ₦’million 84,045 – 2,872 86,917 Share-based payment reserve ₦’million 8,194 1,856 (2,876) 7,174 Issued share capital $’000 Share premium $’000 Share-based payment reserve $’000 1,845 – 10 1,855 503,742 – 7,981 511,723 30,426 5,157 (7,991) 27,592 Total ₦’million 92,528 1,856 – 94,384 Total $’000 536,013 5,157 – 541,170 Opening balance as at 1 January 2020 Share-based payments Vested shares Closing balance as at 31 December 2020 Opening balance as at 1 January 2020 Share-based payments Vested shares Closing balance as at 31 December 2020 278 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 28.3 Share premium Share premium 2020 ₦ million 86,917 2019 ₦ million 84,045 2020 $’000 2019 $’000 511,723 503,742 Section 120.2 of Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 requires that where a company issues shares at premium (i.e. above the par value), the value of the premium should be transferred to share premium. During the year, an additional 6,519,258 shares vested with a fair value of $7.99 million. The excess of $7.98 million above the nominal value of ordinary shares have been recognised in share premium. 28.4 Employee share-based payment scheme As at 31 December 2020, the Company had awarded 60,487,999 shares (2019: 48,400,563 shares) to certain employees and senior executives in line with its share-based incentive scheme. Included in the share-based incentive schemes are two additional schemes (2019 Deferred Bonus and 2020 LTIP Scheme) awarded during the reporting period. During the reporting period, 4,700,028 shares had vested out of which 381,117 shares were forfeited in relation to participants whose employment was terminated during the vesting period. Also, the reserves growth underpins (non-market performance condition) which was partially achieved (at 81.4%) resulted in a further reduction in the number of shares vested by 1,379,283. The total number of shares forfeited during the period amount to 1,760,400. The number of shares that eventually vested during the year after the forfeiture and conditions above is 6,519,258 (Dec 2019: 6,824,573 shares were vested). Description of the awards valued i. The Company has made a number of share-based awards under incentive plans since its IPO in 2014: IPO-related grants to Executive and Non-Executive Directors, 2018/2019 deferred bonus awards and 2020 Long-Term Incentive Plan (LTIP) awards. Shares under these incentive plans were awarded at the IPO in April 2014, 2015, 2016, 2017, 2018 and 2019 conditional on the Nigerian Stock Exchange (NSE) approving the share delivery mechanism proposed by the Company. A number of these awards have fully vested. Seplat Deferred Bonus Award 25% of each Executive Director’s 2019 bonus (paid in 2020) has been deferred into shares and released on 1 June 2017, 1 June 2018, 20 April 2019 respectively subject to continued employment over the vesting period. The 2018 bonus is expected to be released on 31 December 2020. No performance criteria are attached to this award. As a result, the fair value of these awards is calculated using a Black Scholes model. Long-Term Incentive Plan (LTIP) awards Under the LTIP Plan, shares are granted to management staff of the organisation at the end of every year. The shares were granted to the employees at no cost. The shares vest (after three years) based on the following conditions: • 25% vesting for median relative TSR performance rising to 100% for upper quartile performance on a straight-line basis. • Relative TSR vesting reduced by 75% if 60% and below of operational and technical bonus metrics are achieved, with 35% reduction if 70% of operational and technical bonus metrics are achieved and no reduction for 80% or above achievement. • If the Company outperforms the median TSR performance level with the LTIP exploration and production comparator group. The LTIP awards have been approved by the NSE. Share-based payment expenses ii. The expense recognised for employee services received during the year is shown in the following table: Expense arising from equity-settled share-based payment transactions 2020 ₦’million 1,856 2019 ₦’million 2,864 2020 $’000 5,157 2019 $’000 9,223 There were no cancellations to the awards in 2020. The share awards granted to Executive Directors and confirmed employees are summarised below: Scheme Global Bonus Offer Non-Executive Shares 2014 Deferred Bonus 2014 Long-Term Incentive Plan 2015 Long-Term Incentive Plan 2015 Deferred Bonus 2016 Long-Term Incentive Plan 2016 Deferred Bonus 2017 Long-Term Incentive Plan 2017 Deferred Bonus 2018 Long-Term Incentive Plan 2018 Deferred Bonus 2019 Long-Term Incentive Plan 2019 Deferred Bonus 2020 Long-Term Incentive Plan 2020 Long-Term Incentive Plan Deemed grant date 4 November 2015 4 November 2015 14 December 2015 14 December 2015 31 December 2015 21 April 2016 22 December 2016 24 November 2017 24 November 2017 29 December 2017 2 May 2018 2 May 2019 2 May 2019 30 Apr 2020 30 Apr 2020 2 Dec 2020 Start of service period 9 April 2014 9 April 2014 14 December 2015 14 December 2015 14 December 2015 21 April 2016 22 December 2016 24 November 2017 24 November 2017 29 December 2017 2 May 2018 2 May 2019 2 May 2019 30 Apr 2020 30 Apr 2020 2 Dec 2020 End of service period 9 April 2015 9 April 2015 21 April 2017 9 April 2017 21 April 2018 20 April 2018 21 December 2019 20 April 2019 20 April 2020 31 December 2019 1 May 2021 31 December 2020 2 May 2022 31 Dec 2021 1 May 2023 2 Dec 2023 Vesting status Fully Fully Fully Fully Fully Fully Fully Fully Partially Fully Partially Partially Partially Partially Partially Partially Number of awards 6,472,138 793,650 212,701 2,173,259 5,287,354 247,610 10,294,300 278,191 7,938,589 193,830 6,519,022 341,069 7,648,850 214,499 10,762,880 1,110,057 60,487,999 279 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 28. Share capital continued Determination of share awards outstanding iii. Share awards used in the calculation of diluted earnings per shares are based on the outstanding shares as at 31 December 2020. Share award scheme (all awards) Outstanding at 1 January Granted during the year Exercise during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December Share award scheme (all awards) Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 12,386,617 4,700,028 (6,519,258) (1,760,400) 8,806,987 – 2020 Number 12,386,617 4,700,028 (6,519,258) (1,760,400) 8,806,987 – 2020 WAEP ₦ 474 395 – – 843 – 2020 WAEP $ 1.54 1.04 – – 2.22 – 2019 Number 12,350,871 10,802,067 (6,824,573) (3,941,748) 12,386,617 – 2019 Number 12,350,871 10,802,067 (6,824,573) (3,941,748) 12,386,617 – 2019 WAEP ₦ 310 387 – – 474 – 2019 WAEP $ 1.01 1.26 – – 1.54 – The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in deferred bonus scheme and long-term incentive plan during the year for each available scheme. Deferred Bonus Scheme Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December Deferred Bonus Scheme Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 136,091 291,129 – (341,069) 86,151 – 2020 Number 136,091 291,129 – (341,069) 86,151 – 2020 WAEP ₦ 572 525 – – 236 – 2020 WAEP $ 1.86 1.38 – – 0.62 – 2019 Number 315,603 292,509 – (472,021) 136,092 – 2019 Number 315,603 292,509 – (472,021) 136,092 – 2019 WAEP ₦ 451 522 – – 572 – 2019 WAEP $ 1.47 1.70 – – 1.86 – 280 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 The fair value of the modified options was determined using the same models and principles as described in the table below on the inputs to the models used for the scheme. Long-Term Incentive Plan (LTIP) Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December Long-Term Incentive Plan (LTIP) Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December Vested and exercisable at 31 December 2020 Number 12,250,525 4,700,028 (6,178,189) (1,760,400) 12,478,836 – 2020 Number 12,250,525 4,700,028 (6,178,189) (1,760,400) 12,478,836 – 2020 WAEP ₦ 209 390 – – 509 – 2020 WAEP $ 0.68 1.03 – – 1.34 – 2019 Number 12,035,268 10,509,557 (6,352,552) (3,941,748) 12,250,525 – 2019 Number 12,035,268 10,509,557 (6,352,552) (3,941,748) 12,250,525 – 2019 WAEP ₦ 361 362 – – 209 – 2019 WAEP $ 1.18 1.18 – – 0.68 – The shares are granted to the employees at no cost. The weighted average remaining contractual life for the share awards outstanding as at 31 December 2020 range from 0.3 to 3 years (2019: 0.3 to 2.3 years). The weighted average fair value of awards granted during the year range from ₦142.8 to ₦235.98, (2019: ₦362.26 to ₦521.9), $0.32 to $0.68 (2019: $1.18 to $1.70). The fair value at grant date is independently determined using the Monte Carlo Model which takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the option and the correlations and volatilities of the peer group companies. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Inputs to the models iv. The following table lists the inputs to the models used for the share awards outstanding in the respective plans for the year ended 31 December 2020: 2018 LTIP 2019 LTIP 2019 Deferred Bonus 2020 LTIP Weighted average fair values at the measurement date Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share options Share price at grant date ($) Share price at grant date (₦) Model used 29. Capital contribution 0.00% 41% 0.83% 3.00 1.93 521.51 0.00% 43% 0.44% 3.00 0.44 135.38 Monte Carlo Monte Carlo Black Scholes Monte Carlo 0.00% 35% 0.76% 3.00 1.7 521.9 0.00% 56% 0.63% 1.67 0.62 190.15 This represents M&P additional cash contribution to the Company. In accordance with the Shareholders’ Agreement, the amount was used by the Company for working capital as was required at the commencement of operations. Capital contribution 30. Foreign currency translation reserve 2020 ₦ million 5,932 2019 ₦ million 5,932 2020 $’000 40,000 2019 $’000 40,000 Cumulative exchange difference arising from translation of the Company’s results and financial position into the presentation currency and from translation of foreign subsidiary is taken to foreign currency translation reserve through other comprehensive income. 281 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 31. Summary of net assets transferred During the year, Seplat Plc transferred the assets and liabilities of OML 4, OML 38 and OML 41 to Seplat West Limited (see Note 2 significant changes in the current accounting period) resulting in a net transfer of $1.4 billion (₦443 billion), which was recognised as an additional investment in subsidiary (Note 21). Summary of net assets transferred from Seplat Plc to Seplat West Ltd Assets Non-current assets Oil & Gas properties Other property, plant and equipment Right-of-use assets Intangible assets Prepayment Deferred tax asset Current assets Inventories Trade and other receivables Prepayments Contract assets Derivative financial instruments Cash and bank balances Total assets Liabilities Non-current liabilities Interest-bearing loans and borrowings Lease liabilities Provision for decommissioning Defined benefit plan Current liabilities Interest-bearing loans and borrowings Contract liabilities Current tax liabilities Total liabilities Net assets transferred At 1 January 2020 ₦ million At 1 January 2020 $’000 249,888 3,581 3,397 8,552 19,228 37,610 322,256 24,316 275,789 1,478 6,527 308 77,583 386,001 708,257 193,349 2,367 34,988 3,011 233,715 21,295 5,004 4,882 31,181 264,896 813,967 11,666 11,064 27,858 62,633 122,508 1,049,696 79,205 898,335 4,814 21,259 1,002 252,713 1,257,328 2,307,024 629,800 7,709 113,968 9,808 761,285 69,366 16,301 15,901 101,568 862,853 443,361 1,444,171 32. Interest-bearing loans and borrowings 32.1 Net debt reconciliation During the year, the Company became a holding Company and transferred the interest-bearing loans and borrowings to Seplat West Limited (see significant changes on page 8). Below is the net debt reconciliation on non-current and current interest-bearing loans and borrowings for 2019: Balance as at 1 January 2019 Principal repayment Interest repayment Interest accrued Other financing charges Proceeds from loan financing Exchange difference Carrying amount as at 31 December 2019 Borrowings due within 1 year ₦ million 3,031 (3,029) (10,364) 15,198 (2,696) 19,151 4 21,295 Borrowings due above 1 year ₦ million 133,799 (27,662) – – – 87,195 17 193,349 Borrowings due within 1 year $’000 Borrowings due above 1 year $’000 9,872 (9,872) (33,770) 49,520 (8,783) 62,399 – 69,366 435,827 (90,128) – – – 284,101 – 629,800 Total ₦ million 136,830 (30,691) (10,364) 15,198 (2,696) 106,346 21 214,644 Total $’000 445,699 (100,000) (33,770) 49,520 (8,783) 346,500 – 699,166 282 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 32.2 Amortised cost of borrowings Senior loan notes Revolving loan facilities 2020 ₦’million – – – 2019 ₦’million 107,237 107,407 214,644 2020 $’000 – – – 2019 $’000 349,278 349,888 699,166 $350 million Senior notes – March 2018 Interest-bearing loans and borrowings include senior notes. In March 2018 the Company issued ₦107 billion ($350 million) senior notes at a contractual interest rate of 9.25% with interest payable each year on 1 April and 1 October, and principal repayable as a bullet at maturity. The notes are scheduled to mature in June 2023. The interest accrued up at the reporting date is ₦12.5 billion ($34.7 million) using an effective interest rate of 10.3%. Transaction costs of ₦2.1 billion ($7 million) have been included in the amortised cost balance at the end of the reporting period. The amortised cost for the senior notes at the reporting period is nil (December 2019: ₦107.2 billion, $349.3 million). $200 million Revolving credit facility – March 2018 The Company entered into a four-year revolving loan agreement with interest payable semi-annually and principal repayable on 31 December of each year. The revolving loan has an initial contractual interest rate of 6% +LIBOR (7.7%) and a settlement date of June 2022. The interest rate of the facility is variable. The Company made a drawdown of ₦61 billion, $199 million in March 2018. The interest accrued at the reporting period is ₦0.2 billion (Sept 2018: ₦2.89 billion) using an effective interest rate of 9.8% (Sept 2018: 9.4%). The interest paid was determined using three-month LIBOR rate + 6% on the last business day of the reporting period. In October 2018, the Company made principal repayments on the four-year revolving facility for a lump sum of ₦30.7 billion, $100 million. The repayment was accounted for as a prepayment of the outstanding loan facility. The gross carrying amount of the facility was recalculated as the present value of the estimated future contractual cash flows that are discounted using the effective interest rate at the last reporting period. Gain or loss on modifications are recognised immediately as part of interest accrued on the facility. $350 million Revolving credit facility – December 2019 The Company on 20 December 2019 also entered into a four-year revolving loan agreement with interest payable semi-annually. There is a two-year moratorium on the principal which ends on 31 December 2021. The revolving loan has an initial contractual interest rate of 6% +LIBOR (7.9%) and a settlement date of 31 December 2023. The interest rate of the facility is variable. The Company made a drawdown of ₦107.45 billion, $350 million as at year end. The interest accrued at the reporting period is ₦3.58 billion, $1.1 million using an effective interest rate of 10.2%. The interest paid was determined using three-month LIBOR rate + 6% on the last business day of the reporting period. 32.3 Outstanding principal exposures The following is the analysis of the principal outstanding showing the lenders of the facility as at the year end: 31 December 2019 Interest Current ₦ million Non-current ₦ million Total ₦ million Current $’000 Non-current $’000 Total $’000 9.25 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR Fixed interest rate Senior notes: Variable interest rate Corporate loan: Citibank, N.A., London Branch Nedbank Limited London Stanbic IBTC Bank Plc The Standard Bank of South Africa Limited 6.0% +LIBOR RMB International (Mauritius) Limited 6.0% +LIBOR The Mauritius Commercial Bank Ltd 6.0% +LIBOR JPMorgan Chase Bank, N.A., London Branch Standard Chartered Bank Natixis Société Générale, London Branch Zenith Bank Plc United Bank for Africa Plc First City Monument Bank Limited Total variable cost 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 6.0% +LIBOR 107,450 107,450 350,000 350,000 – – – – – – – – – – – – – 12,280 12,280 6,140 6,140 12,280 12,280 9,210 9,210 9,210 4,605 4,605 4,605 4,605 107,450 214,900 12,280 12,280 6,140 6,140 12,280 12,280 9,210 9,210 9,210 4,605 4,605 4,605 4,605 107,450 214,900 – – – – – – – – – – – – – – – 40,000 40,000 20,000 20,000 40,000 40,000 30,000 30,000 30,000 15,000 15,000 15,000 15,000 350,000 700,000 40,000 40,000 20,000 20,000 40,000 40,000 30,000 30,000 30,000 15,000 15,000 15,000 15,000 350,000 700,000 283 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 33. Provision for decommissioning obligation At 1 January 2020 Transfer to Seplat West Ltd At 31 December 2020 At 1 January 2019 Unwinding of discount due to passage of time Change in estimate At 31 December 2019 ₦ million 34,988 (34,988) – 37,658 1,075 (3,745) 34,988 $ ‘000 113,968 (113,968) – 122,666 3,501 (12,199) 113,968 The Company makes full provision for the future cost of decommissioning oil production facilities on a discounted basis at the commencement of production. This relates to the removal of assets as well as their associated restoration costs. This obligation is recorded in the period in which the liability meets the definition of a “probable future sacrifice of economic benefits arising from a present obligation”, and in which it can be reasonably measured. The provision represents the present value of estimated future expenditure to be incurred as highlighted in the table below which is the current expectation as to when the producing facilities are expected to cease operations. Management engaged a third party to assist with an estimate of the expenditure to be incurred. These provisions were based on estimations carried out by Ryder Scott based on current assumptions on the economic environment which management believes to be a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to consider any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. Seplat Petroleum Development Company: OML 4 OML 38 OML 41 34. Employee benefit obligation Current estimated life span of reserves 2020 In years 2019 In years – – – 2027 – 2037 2027 – 2034 2037 34.1 Defined contribution plan The Company contributes to a funded defined contribution retirement benefit scheme for its employees in compliance with the provisions of the Pension Reform Act 2014. A defined contribution plan is a pension plan under which the Company pays fixed contributions to an approved Pension Fund Administrator (PFA) – a separate entity. The assets of the scheme are managed by various Pension Fund Administrators patronised by employees of the Company. The Company’s contributions are charged to the profit and loss account in the year to which they relate. Investment management strategy and policy 34.2 Defined benefit plan i. The Company operates a funded defined benefit pension plan in Nigeria under the regulation of National Pension Commission. The plan provides benefits to all the employees (excluding Directors holding salaried employment in the Company) who have been employed by the Company for a continuous period of five years and whose employment have been confirmed. The employee’s entitlement to the accrued benefits occurs on retirement from the Company. The level of benefits provided on severance depends on members’ length of service and salary at retirement age. The overall investment philosophy of the defined benefit plan fund is to ensure safety, optimum returns and liquidity in line with the regulation and guidelines of the Pension Reform Act 2014 or guidelines that may be issued from time to time by National Pension Commission. Plan assets are held in trust. Responsibility for supervision of the plan assets (including investment decisions and contributions schedules) lies jointly with the trustees and the pension fund managers. The trustees are made up of members of the Company’s senior management appointed by the Chief Executive Officer. The Company does not have an investment strategy of matching match plan assets with the defined obligations as they fall due, however, the Company has an obligation to settle shortfalls in the plan asset upon annual actuarial valuations. The provision for the defined benefit plan is based on an independent actuarial valuation performed by Logic Professional Services (LPS) using the projected unit credit method. The provision is adjusted for inflation, interest rate risks, changes in salary and changes in the life expectancy for the beneficiaries. 284 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 34.2 Defined benefit plan continued i. Investment management strategy and policy continued The following tables summaries the components of net defined benefit expense recognised in the statement of profit or loss and other comprehensive income and in the statement of financial position for the respective plans: ii. Liability recognised in the financial position Defined benefit obligation Fair value of plan assets iii. Amount recognised in profit or loss Current service cost Interest cost on defined benefit obligation Return on plan assets 2020 ₦ million – – – 2020 ₦ million – – – – – 2019 ₦ million 3,594 (583) 3,011 2019 ₦ million 602 364 966 (129) 837 2020 $’000 – – – 2020 $’000 – – – – – 2019 $’000 11,707 (1,899) 9,808 2019 $’000 1,961 1,186 3,147 (420) 2,727 The Company recognises a part of its defined benefit expenses in profit or loss and recharges the other part to its joint operations partners, this is recognised as a receivable from the partners. Below is the breakdown: Charged to profit or loss Charged to receivables Balance as at 31 December iv. Remeasurement (gains)/losses in other comprehensive income Remeasurement losses due to changes in financial and demographic assumptions Remeasurement gains due to experience adjustment Remeasurement gain on plan assets Deferred tax credit/(expense) on remeasurement losses 2020 ₦ million – – – 2019 ₦ million 309 528 837 2020 ₦ million 2019 ₦ million – – – – – – (508) 111 (51) (448) 381 67 2020 $’000 – – – 2020 $’000 – – – – – – The Company recognises a part of the remeasurement losses in other comprehensive income and recharges the other part to its joint operations partners. Below is the breakdown: Recharged to receivables (Charged)/credited to other comprehensive income Remeasurement (losses)/gain due to changes in financial and demographic assumptions 2020 ₦ million – – 2019 ₦ million (247) (201) – (448) 2020 $’000 – – – 2019 $’000 1,005 1,722 2,727 2019 $’000 (1,655) 362 (166) (1,459) 1,240 219 2019 $’000 (803) (656) (1,459) Deferred tax (expense)/credit on Remeasurement (gains)/losses v. The Company recognises deferred tax (credit on a part of the remeasurement (gain)/losses in other comprehensive income/(loss). Below is the breakdown: Credited/(charged) to other comprehensive income Charged to receivables Deferred tax on remeasurement losses 2020 ₦ million – – – 2019 ₦ million 171 210 381 2020 $’000 – – – 2019 $’000 558 682 1,240 285 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 34. Employee benefit obligation continued vi. Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation as at 1 January Current service cost Interest cost on benefit obligation Remeasurement losses due to changes in financial and demographic assumptions Transfer to Seplat West Limited Remeasurement gains due to experience adjustment Benefits paid by the employer Exchange differences Defined benefit obligation at 31 December vii. The changes in the fair value of plan assets is as follows: Balance as at 1 January Return on plan assets Transfer to Seplat West Limited Remeasurement loss on plan assets Balance as at 31 December The net liability disclosed above relates to funded plans as follows: Present value of funded obligations Fair value of plan assets Deficit of funded plans 2020 ₦ million 3,594 – – – (3,594) – – – – 2020 ₦ million (583) – 583 – – 2020 ₦ million – – – 2019 ₦ million 2,324 602 364 508 – (111) (86) (7) 3,594 2019 ₦ million (505) (129) – 51 (583) 2019 ₦ million 3,594 (583) 3,011 2020 $’000 11,707 – – – (11,707) – – – – 2020 $’000 (1,899) – 1,899 – – 2020 $’000 – – – 2019 $’000 7,568 1,961 1,186 1,655 – (362) (280) (21) 11,707 2019 $’000 (1,645) (420) – 166 (1,899) 2019 $’000 11,707 (1,899) 9,808 The fair value of the plan asset of the Company at the end of the reporting period was determined using the market values of the comprising assets as shown below: Money market Equity instrument Treasury bills Bonds Cash at bank Other current asset Total plan asset as at 31 December Quoted ₦ million – 12 50 386 – – 448 Not quoted ₦ million 136 – – – 2 (3) 135 2019 Total ₦ million 136 12 50 386 2 (3) 583 Quoted $’000 – 40 163 1,258 – – 1,461 Not quoted $’000 442 – – – 6 (10) 438 viii. The principal assumptions used in determining defined benefit obligations for the Company’s plans are shown below: 2019 Total $’000 442 40 163 1,258 6 (10) 1,899 2019 % 14.00 12.00 12.00 2020 % – – – Number of deaths in year out of 10,000 lives 2020 2019 – – – – – Rates 2020 – – – – – 7 7 9 14 26 2019 1.0% 1.5% 1.5% 1.0% 0.0% Discount rate Average future pay increase Average future rate of inflation ix. Mortality in service Sample age 25 30 35 40 45 x. Withdrawal from service Age band Less than or equal to 30 31 – 39 40 – 44 45 – 55 56 – 60 286 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 A quantitative sensitivity analysis for significant assumption is as shown below: Assumptions Base Sensitivity Level: Impact on the net defined benefit obligation 31 December 2019 Assumptions Base Sensitivity Level: Impact on the net defined benefit obligation 31 December 2019 Discount rate Salary increases Mortality 1% increase ₦ million 1% decrease ₦ million 1% increase ₦ million 1% decrease ₦ million 1% increase ₦ million 1% decrease ₦ million 3,595 (225) 262 280 (243) 3 (3) Discount rate Salary increases Mortality 1% increase $’000 1% decrease $’000 1% increase $’000 1% decrease $’000 1% increase $’000 1% decrease $’000 11,707 (733) 854 912 (792) 10 (10) The sensitivity analyses above have been determined based on a method that extrapolates the impact on net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The methods and assumptions used in preparing the sensitivity analysis did not change compared to prior period. The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. The expected maturity analysis of the undiscounted defined benefit plan obligation is as follows: Within the next 12 months (next annual reporting period) Between 2 and 5 years Between 5 and 10 years Beyond 10 years 2020 ₦ million – – – – – 2019 ₦ million 198 1,403 5,421 127,029 134,051 2020 $’000 – – – – – 2019 $’000 646 4,569 17,658 413,775 436,648 The weighted average liability duration for the plan is 11.35 years. Risk exposure h. Through its defined benefit pension plans, the Company is exposed to a number of risks. The most significant of which are detailed below: Liquidity risk i. The plan liabilities are not fully funded and as a result, there is a risk of the Company not having the required cash flow to fund future defined benefit obligations as they fall due. Inflation risk ii. This is the risk of an unexpected significant rise/fall of market interest rates. A rise leads to a fall in long-term asset values and a rise in liability values. Asset volatility iii. The Company hold significant proportion of its plan assets in equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the short term. Life expectancy iv. Most of the the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant, where inflationary increases result in higher sensitivity to changes in life expectancy. 35. Trade and other payables Trade payable Accruals and other payables Pension payable NDDC levy Royalties Overlift Intercompany payable 2020 ₦ million 177 939 – – – – 199,941 201,057 2019 ₦ million 16,282 61,242 (14) 6 5,813 13,227 119,113 215,669 2020 $’000 466 2,474 – – – – 526,160 529,100 2019 $’000 53,034 199,490 (48) 21 18,936 43,085 387,992 702,510 287 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 36. Contract liabilities Contract liabilities 36.1 Reconciliation of contract liabilities Opening balance Transfer to Seplat West Ltd Addition during the year 2020 ₦ million – 2020 ₦ million 5,005 (5,005) – – 2019 ₦ million 5,005 2019 ₦ million – – 5,005 5,005 2020 $’000 – 2020 $’000 16,301 (16,301) – – 2019 $’000 16,301 2019 $’000 – – 16,301 16,301 Contract liabilities represents take or pay volumes contracted with Azura for 2018 which is yet to be utilised. In line with contract, Azura can make a demand on the makeup gas but only after they have taken and paid for the take or pay quantity for the current year. The contract liability is accrued for two years after which the ability to take the makeup gas expires and any outstanding balances are recognised as revenue. 37. (Loss)/Earnings per share (LPS)/EPS Basic Basic (LPS)/EPS is calculated on the Company’s profit after taxation attributable to the company and based on weighted average number of issued and fully paid ordinary shares at the end of the year. Diluted Diluted (LPS)/EPS is calculated by dividing the profit after taxation attributable to the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (arising from outstanding share awards in the share-based payment scheme) into ordinary shares. (Loss)/Profit for the year Weighted average number of ordinary shares in issue Outstanding share-based payment (shares) Weighted average number of ordinary shares adjusted for the effect of dilution Basic (loss)/earnings per share Diluted (loss)/earnings per share 2020 ₦ million (7,160) Shares ‘000 579,638 8,807 2019 ₦ million 66,129 Shares ‘000 569,228 12,387 2020 $’000 2019 $’000 (19,896) Shares ‘000 579,638 8,807 215,477 Shares ‘000 569,228 12,387 588,445 ₦ (12.35) (12.17) 581,615 ₦ 116.17 113.70 588,445 $ (0.03) (0.03) 581,615 $ 0.38 0.37 The shares were weighted for the proportion of the number of months they were in issue during the reporting period. 38. Dividends paid and proposed As at 31 December 2020, the final proposed dividend for the Company is ₦19 ($0.05), 2019: ₦15.35 ($0.05). Cash dividends on ordinary shares declared and paid: Dividend for 2020: ₦37.32 ($0.10) per share 583,260,187 shares in issue (2019: ₦30.7 ($0.10) per share, 575,321,598 shares in issue) Proposed dividend on ordinary shares: Final proposed dividend for the year 2020: ₦19 ($0.05) (2019: ₦15.35 ($0.05) per share 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 20,998 18,019 58,342 58,708 11,082 8,831 29,163 28,766 As at 31 December 2020, ₦10.61 billion, ($29.4 million) (2019: ₦9 billion, $29.4 million) of interim dividend was paid at ₦18.03 ($0.05) per share as at 30 June 2020 and the remaining dividend ₦10.61 billion ($29.3 million) was paid at ₦19.29 ($0.05) per share as at 30 November 2020. Final Naira dividend payments will be based on the Naira/dollar rates on the date for determining the exchange rate. The payment is subject to shareholders’ approval at the 2020 Annual General Meeting. 39. Related party relationships and transactions The Company is owned 6.43% either directly or by entities controlled by A.B.C. Orjiako (SPDCL(BVI)) and members of his family and 10.21% either directly or by entities controlled by Austin Avuru (Professional Support Limited and Platform Petroleum Limited). The remaining shares in the parent Company are widely held. The goods and services provided by the related parties are disclosed below. The outstanding balances payable to/receivable from related parties are unsecured and are payable/receivable in cash. 288 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Shareholders of the parent Company 1. Shebah Petroleum Development Company Limited SPDCL (BVI): The Chairman of Seplat is a director and shareholder of SPDCL (BVI). The Company provided consulting services to Seplat. Services provided to the Group during the period amounted to $900 thousand, ₦342 million (2019: $1.05 million, ₦322 million). Entities controlled by key management personnel (Contracts>$1 million in 2020) 2. Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): Company is owned by common shareholders with the parent Company. The Company provides drilling rigs and drilling services to Seplat. Transactions with this related party amounted to $5.7 million, ₦2.1 billion (2019: $9.44 million, ₦2.89 billion). Payables amounted to $591 thousand, ₦225 million in the current period (2019: Receivable: Nil). Entities controlled by key management personnel (Contracts<$1 million in 2020) 3. Abbeycourt Trading Company Limited: The Chairman of Seplat is a director and shareholder. The Company provides diesel supplies to Seplat in respect of Seplat’s rig operations. This amounted to $296 thousand, ₦106 million during the period (2019: $0.93 million, ₦286 million). Payables amounted to $15,273, ₦5.8 million (2019: Nil). Stage leasing (Ndosumili Ventures Limited): A subsidiary of Platform Petroleum Limited (an entity in which Austin Avuru has an equity interest). The Company provides transportation services to Seplat. This amounted to $714 thousand, ₦257 million (2019: $1.45 million, ₦445 million). Payables amounted to $23,572, ₦8.9 million (2019: Nil). 40. Information relating to employees 40.1 Key management compensation Key management includes executive and members of the leadership team. The compensation paid or payable to key management for employee services is shown below: Salaries and other short-term employee benefits Post-employment benefits Share-based payment expenses 40.2 Chairman and Directors’ emoluments Chairman (Non-executive) Chief Executive Officer Executive Directors Non-Executive Directors Total 2019 Executive Director emoluments includes 2018 bonus paid in 2019. 40.3 Highest paid Director Highest paid Director Emoluments are inclusive of income taxes. 2020 ₦ million – – – – 2020 ₦ million – – – – – 2019 ₦ million 728 95 166 989 2019 ₦ million 354 763 800 702 2,619 2020 ₦ million – 2019 ₦ million 440 40.4 Number of Directors The number of Directors (excluding the Chairman) whose emoluments fell within the following ranges was: Zero – ₦19,896,500 ₦19,896,501 – ₦115,705,800 ₦115,705,801 – ₦157,947,600 Above ₦157,947,600 Zero – $65,000 $65,001 – $378,000 $378,001 – $516,000 Above $516,000 2020 $’000 – – – – 2020 $’000 – – – – – 2020 $’000 – 2019 $’000 2,373 308 540 3,221 2019 $’000 1,155 2,486 2,606 2,287 8,535 2019 $’000 1,434 2020 Number 2019 Number – – – 4 4 – – – 3 3 2020 Number 2019 Number – – – 4 4 – – – 3 3 289 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 40. Information relating to employees continued 40.5 Employees The number of employees (other than the Directors) whose duties were wholly or mainly discharged within Nigeria, and who earned over ₦1,989,650 ($6,500), received remuneration (excluding pension contributions) in the following ranges: ₦1,989,650 – ₦4,897,600 ₦4,897,601– ₦9,795,200 ₦9,795,201 – ₦14,692,800 Above ₦14,692,800 $6,500 – $16,000 $16,001 – $32,000 $32,001 – $48,000 Above $48,000 40.6 Number of persons employed during the year The average number of persons (excluding Directors) in employment during the year was as follows: Senior management Managers Senior staff Junior staff 40.7 Employee cost Seplat’s staff costs (excluding pension contribution) in respect of the above employees amounted to the following: Salaries & wages 41. Commitments and contingencies 2020 ₦ million – – 2019 ₦ million 7,015 7,015 2020 Number 2019 Number 9 121 156 172 458 9 142 132 180 463 2020 Number 2019 Number 9 121 156 172 458 9 142 132 180 463 2020 Number 2019 Number 27 101 209 121 458 2020 $’000 – – 19 100 200 144 463 2019 $’000 22,851 22,851 41.1 Contingent liabilities The Company is involved in a number of legal suits as defendant. The estimated value of the contingent liabilities for the year ended 31 December 2020 is ₦23.2million, $61,194 (2019: ₦11 billion, $35.5 million). The contingent liability for the year is determined based on possible occurrences, though unlikely to occur. No provision has been made for this potential liability in these financial statements. Management and the Company’s solicitors are of the opinion that the Company will suffer no loss from these claims. 41.2 Capital commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment 42. Events after the reporting period 31 Dec 2020 ₦ million – 31 Dec 2019 ₦ million 31,022 31 Dec 2020 $’000 – 31 Dec 2019 $’000 101,050 On 1 February 2021, ANOH Gas Processing Company Limited, a joint venture of the Company, successfully raised $260 million (₦98.8 billion) in debt to fund completion of its ANOH Gas Processing Plant. 290 Notes to the separate financial statements | continuedSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate statement of value added For the year ended 31 December 2020 Revenue from contracts with customers Other income – net Finance income Cost of goods and other services: Local Foreign Valued added Applied as follows: To employees: – as salaries and labour related expenses To external providers of capital: – as interest To Government: as Company taxes Retained for the Company’s future: – For asset replacement, depreciation, depletion & amortisation Deferred tax (charges)/credit Profit for the year Valued added 2020 ₦ million – (2,383) 277 (1,918) (1,279) (5,303) % 2019 ₦ million 200,733 4,096 4,702 % 2020 $’000 – (6,621) 770 % 2019 $’000 654,037 13,346 15,321 % (50,773) (33,848) 100% 124,910 (5,332) (3,554) (14,737) (165,422) (110,282) 100% 407,000 100% 100% 2020 ₦ million % 2019 ₦ million 1,856 (35%) 7,347 – – – – 10,129 6,641 % 6% 8% 5% 2020 $’000 % 2019 $’000 5,157 (35%) 23,941 – – – – 33,001 21,637 % 6% 8% 5% 1 – (7,160) (5,303) 27,821 – 6,843 – 135% 66,129 100% 124,910 22% 5% 53% 100% 3 – (19,897) (14,737) – – 90,647 22,297 135% 215,477 100% 407,000 22% 5% 53% 100% The value added represents the additional wealth which the Company has been able to create by its own and its employees’ efforts. This statement shows the allocation of that wealth to employees, providers of finance, shareholders, government and that retained for the creation of future wealth. 291 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 2020 ₦ million – (7,160) – (7,160) 2019 ₦ million 200,733 79,613 (13,484) 66,129 2018 ₦ million 217,174 85,429 (35,748) 49,681 2017 ₦ million 127,655 28,759 67,657 96,416 2016 ₦ million 51,995 (29,261) 4,421 (24,840) 2020 ₦ million 2019 ₦ million 2018 ₦ million 2017 ₦ million 2016 ₦ million 293 86,917 7,174 5,932 254,070 191,216 545,602 289 84,045 8,194 5,932 282,228 196,535 577,223 286 82,080 7,298 5,932 234,148 196,552 526,296 283 82,080 4,332 5,932 194,526 203,072 490,225 283 82,080 2,597 5,932 193,499 106,670 391,061 673,535 73,124 – (201,057) 545,602 518,366 539,423 (233,715) (246,851) 577,223 328,870 514,131 (173,276) (143,429) 526,296 359,097 474,837 (125,880) (217,829) 490,225 277,618 404,274 (137,722) (153,109) 391,061 2020 $’000 – (19,897) – (19,897) 2019 $’000 654,037 259,411 (43,934) 215,477 2018 $’000 2017 $’000 2016 $’000 709,493 279,093 (116,788) 162,305 417,428 94,056 221,233 315,289 202,446 (138,911) 14,499 (124,412) 2020 $’000 2019 $’000 2018 $’000 2017 $’000 2016 $’000 1,855 511,723 27,592 40,000 1,845 503,742 30,426 40,000 1,225,958 1,304,197 1,807,128 1,880,210 1,826 1,826 1,834 497,457 497,457 497,457 12,135 17,809 27,499 40,000 40,000 40,000 1,147,526 730,740 1,045,985 1,714,316 1,603,077 1,282,158 2,143,798 1,688,491 192,430 1,757,082 (761,285) – (529,100) (804,078) 1,807,128 1,880,210 1,071,233 1,174,286 1,674,694 1,552,758 (411,642) (564,416) (712,325) (467,195) 1,714,316 1,603,077 910,221 1,325,488 (451,549) (502,002) 1,282,158 Separate five-year financial summary As at 31 December 2020 Revenue from contracts with customers (Loss)/profit before taxation Income tax (expense)/credit (loss)/profit for the year Capital employed: Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Foreign translation reserve Total equity Represented by: Non-current assets Current assets Non-current liabilities Current liabilities Net assets Revenue from contracts with customers (Loss)/profit before taxation Income tax (expense)/credit (Loss)/profit for the year Capital employed: Issued share capital Share premium Share-based payment reserve Capital contribution Retained earnings Total equity Represented by: Non-current assets Current assets Non-current liabilities Current liabilities Net assets 292 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Separate supplementary financial information (unaudited) For the year ended 31 December 2020 43. Capitalised costs related to oil producing activities Capitalised costs: Unproved properties Proved properties Total capitalised costs Accumulated depreciation Net capitalised costs 2020 ₦ million 2019 ₦ million 2020 $’000 2019 $’000 – – – – – – 417,140 417,140 (167,252) 249,888 – – – – – – 1,358,761 1,358,761 (544,794) 813,967 Capitalised costs include the cost of equipment and facilities for oil producing activities. Unproved properties include capitalised costs for oil leaseholds under exploration, and uncompleted exploratory well costs, including exploratory wells under evaluation. Proved properties include capitalised costs for oil leaseholds holding proved reserves, development wells and related equipment and facilities (including uncompleted development well costs) and support equipment. 44. Results of operations for oil producing activities Revenue from contracts with customers Other income – net Production and administrative expenses Depreciation and amortisation Profit before taxation Taxation Profit after taxation 45. Reclassification 2020 ₦ million – – – – – – – 2019 ₦ million 138,530 4,096 (96,032) (21,328) 25,266 (13,484) 11,782 2020 $’000 – – – – – – – 2019 $’000 451,364 13,346 (301,574) (80,806) 82,330 (43,934) 38,396 Certain comparative figures have been reclassified in line with the current year’s presentation. 46. Exchange rates used in translating the accounts to Naira The table below shows the exchange rates used in translating the accounts into Naira. Fixed assets – opening balances Fixed assets – additions Fixed assets – closing balances Current assets Current liabilities Equity Income and expenses Basis 31 December 2020 31 December 2019 Historical rate Average rate Closing rate Closing rate Closing rate Historical rate Overall average rate Historical 359.91 380 380 380 Historical 359.91 Historical 306.91 307 307 307 Historical 306.91 293 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Payments to governments (unaudited) Notice of eighth Annual General Meeting Unclaimed dividend list General information Glossary of terms 295 296 298 306 307 295– 308 ADDITIONAL INFORMATION 294 XxxxxxxxxxxxxxxxxxXxxxxxxxxxxxxSeplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Report on Payments to Governments for the Year 2020 Introduction The following information is included to comply with the Disclosure and Transparency Rules of the Financial Conduct Authority in the United Kingdom and it is prepared in accordance with Directive 2013/34/EU (the EU Accounting Directive (2013). BASIS FOR PREPARATION – REPORT ON PAYMENTS TO GOVERNMENTS FOR THE YEAR 2020 Reporting entities This Report includes payments to governments made by Seplat Petroleum Development Company and its subsidiaries (Seplat). All payments to governments arise from operations within Nigeria. Activities Payments made by Seplat to governments arising from activities involving the exploration, prospection, discovery, development and extraction of minerals, gas processing, oil and natural gas deposits or other materials (extractive activities) are disclosed in this Report. It excludes payments related to refining, natural gas liquefaction or gas-to-liquids activities. When payments cover both extractive and processing activities and cannot be split, the payments have been disclosed in full. Government Government includes any national, regional or local authority of a country to which Seplat has made payment related to these regulations, and includes any department, agency or entity that is controlled by such authority. Project Payments are reported at project level except for payments that are not attributable to a specific project, these are reported at entity level. A project is defined as operational activities which are governed by a single contract, license, lease, concession or similar legal agreement, and form the basis for payment to government. However, if multiple of agreements are substantially interconnected, this shall be considered as a project. Indicators of integration include, but are not limited to, geographic proximity, the use of shared infrastructure and common operational management. Payments The information is reported under the following payment types. Production entitlements These represent the government’s share of production in the reporting period arising from projects operated by Seplat. It comprises of crude oil and gas attributable to the Nigerian government by virtue of its participation as an equity holder in projects within its sovereign jurisdiction (Nigeria). Production entitlements to the government are lifted independently by the relevant government agency. Royalties These are payments for the rights to extract oil and gas resources, typically at a set percentage of revenue less any deductions that may be taken. License fees, rental fees, entry fees and other considerations for licenses and/or concessions These are fees and other sums paid as consideration for acquiring a license for gaining access to an area where extractive activities are performed. Administrative government fees that are not specifically related to the extractive sector, or to obtain access to extractive resources, are excluded. Also excluded are payments made in return for services provided by a government. Corporate taxes Corporate taxes are charges based on taxable profit which are payable to the government. Examples of corporate taxes in Nigeria include Petroleum Profit Tax (PPT), corporate income tax (CIT) and education tax. Corporate income tax (CIT) is a tax imposed on profit of a company from all sources. Gas operations are liable to CIT. Petroleum profit tax (PPT) is a tax applicable to upstream operations in the oil industry in lieu of corporate income tax. Oil operations such as oil mining, prospecting and exploration leases are liable to PPT. Education tax is tax applicable to both oil and gas operations based on assessable profit. Assessable profit is the profit derived after deducting all the allowable expenses. Other types of payments that are required to be disclosed in accordance with the Regulations are the following: • Dividends • Signature, discovery and production bonuses • Infrastructure improvements However, for the year ended 31 December 2020, there were no such reportable payments made by Seplat to government that were above the materiality threshold as determined below. Materiality For each payment type, total payments below £89,934 (€100,000, $122,760) whether made as a single payment or as a series of related payments, to a government agency are excluded from this Report. Reporting currency Payments in this report have been disclosed in US Dollars. Where actual payments have been recorded in a currency other than US Dollars, they have been translated using the annual average exchange rate. Government and Expense Report (In USD) GOVERNMENTS Nigerian National Petroleum Corporation Department of Petroleum Resources Nigeria Export Supervision Scheme Niger Delta Development Commission Nigerian Content Development and Monitoring Board Federal Inland Revenue Service Total Project and Expense Report (In USD) Production Entitlement Royalties Fees Taxes $’000 389,575,992 – – – – – 389,575,992 – 111,632,919 – – – – 111,632,919 – 18,376,189 579,361 17,934,968 4,826,290 – 41,716,808 – – – – – 21,239,383 21,239,383 389,575,992 130,009,108 579,361 17,934,968 4,826,290 21,239,383 564,165,102 Production Entitlement Royalties Fees Taxes $’000 PROJECTS OML 4, 38 and 41 OML 17 OML 40 OML 53 OML 56 Total 326,107,787 – – 63,468,205 – 389,575,992 75,617,803 – 29,915,648 5,750,039 349,429 111,632,919 35,400,094 1,002,000 736,144 4,292,293 286,277 41,716,808 9,551,123 39,645.77 10,589,779 – 1,058,835 21,239,383 446,676,808 1,041,646 41,241,571 73,510,536 1,694,541 564,165,102 295 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Notice of 8th Annual General Meeting of Seplat Petroleum Development Company Plc. 11. THAT a new Article 26 be and is hereby included to read as follows: (26.1) “Subject to the provisions of the Act, the Company shall be entitled to purchase its own shares, including redeemable shares, provided that: (a) the shareholders shall, by special resolution, approve the acquisition by the Company of the shares that it intends to purchase; (b) only fully paid up shares of the Company may be purchased by the Company, and the terms of purchase shall provide for payment for the purchase; and (c) within seven (7) days after the passing of the special resolution referred to above, the Company shall publish in two (2) national newspapers, a notice of the proposed purchase by the Company of its own shares. (26.2) Where the Company buys back its shares, payment for the share buyback shall be made from the distributable profits of the Company. (26.3) The Company may buy back its shares: (a) from the existing shareholders or security holders on a proportionate basis; (b) from the existing shareholders in a manner permitted pursuant to a scheme of arrangement sanctioned by the court; from the open market; and (c) by purchasing the securities issued to employees of the Company pursuant to a scheme of stock option or any other similar scheme. 12. THAT the Company Secretary be and is hereby authorised to take all necessary steps to give effect to the above resolutions. Copies of the Annual Report and Accounts for SEPLAT Petroleum Development Company Plc for the financial year ended 31 December 2020 will be mailed to the shareholders and will be available on the Company’s website: www.seplatpetroleum.com. Printed versions can also be obtained by contacting DataMax Registrars in Nigeria at 2C Gbagada Expressway, by Beko Ransom Kuti Park, Gbagada, Lagos/+ 234 1 7120012; or Computershare in the UK on +44 (0) 370 703 6101. BY ORDER OF THE BOARD. MRS. EDITH ONWUCHEKWA FRC/2013/NBA/00000003660 Company Secretary Dated 7 April 2021 NOTICE IS HEREBY GIVEN that the 8th Annual General Meeting of SEPLAT Petroleum Development Company Plc (the ‘‘Company’’) will hold at 16A Temple Road (Olu Holloway), Ikoyi, Lagos, Nigeria on Thursday, 20 May 2021 at 11:00am to transact the following business: Ordinary business: 1. To receive the Audited Financial Statements of the Company for the year ended 31st December 2020, together with the Reports of the Directors, Auditors and the Statutory Audit Committee thereon. 2. 3. To declare a final dividend recommended by the Board of Directors of the Company in respect of the financial year ended 31 December 2020. To re-appoint PriceWaterhouseCoopers (“PWC”) as Auditors of the Company from the conclusion of this meeting until the conclusion of the next general meeting of the Company at which the Company’s Annual Accounts are laid. 4. To authorize the Board of Directors of the Company to determine the Auditors’ remuneration. 5. To elect/re-elect the following Directors1: a. To approve the appointment of the following Directors: i. ii. Mr. Emeka Onwuka, as an Executive Director of the Company; Ms. Arunma Oteh, OON as an Independent Non-Executive Director of the Company; and iii. Mr. Xavier R. Rolet, KBE as an Independent Non-Executive Director of the Company. b. To re-elect the following Directors who are eligible for retirement by rotation: i. ii. Lord Mark Malloch-Brown (Independent Non-Executive Director); and Mr. Damian Dodo, SAN (Independent Non-Executive Director). 6. To disclose the Remuneration of Managers of the Company2 7. To elect the Shareholder Representatives of the Statutory Audit Committee. Special business: To consider and, if thought fit, to transact the following Special Business, which will be proposed and passed as Ordinary Resolutions: 8. 9. To approve the Remuneration Section of the Directors’ Remuneration Report set out in the Annual Report and Accounts for the year ended 31 December 2020. (including the forward-looking Remuneration Policy).3 THAT in view of the Company’s strategy of transitioning into an energy Company promoting renewable energy and sustainability, that the name of the Company be changed from SEPLAT Petroleum Development Company Plc to “SEPLAT Energy Plc.” and the Memorandum and Articles of the Company be amended to reflect the change of name. 10. THAT in view of the newly enacted Companies and Allied Matters Act (“CAMA”) 2020 and in accordance with section 53 of CAMA, that the Company’s Memorandum and Articles of Association (“Memart”) be amended by aligning all references to the sections of the Companies and Allied Matters Act, 2004 with the corresponding sections in CAMA 2020 and the successive Articles be renumbered serially. 1 The Profiles of the Directors are set out on pages 82 to 86. 2 The Remuneration of the Managers of the Company is set out on page 130. 3 The Directors’ Remuneration Policy is set out on page 118. 296 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 5. UNCLAIMED DIVIDEND: Shareholders are hereby informed that a number of dividends still remains unclaimed. The list of all unclaimed dividend will be circulated with the Annual Report and Financial Statements. Any member affected by this notice is advised to write to or call the office of the Company's Registrar, DataMax Registrars Limited, at No. 2c Gbagada Expressway, by Beko Ransom Kuti Park, Gbagada Phase 1, Lagos or through any of these numbers: 07064000751, 07064000752, 07064000758, 0700DATAMAX. The list of unclaimed dividends can be accessed at the Registrars' office or via the Company's website: www.seplatpetroleum.com. 6. NOMINATION FOR THE STATUTORY AUDIT COMMITTEE: In accordance with section 404(3) of the Companies and Allied Matters Act 2020, the Audit Committee shall consist of five (5) members comprising of two (2) Non-Executive Directors and three (3) representatives of the Shareholders of the Company. Any shareholder may nominate a shareholder as a member of the Audit Committee. In accordance with 404(6) of the Companies and Allied Matters Act 2020, such nomination should be in writing and should reach the Company Secretary at least twenty-one (21) days before the Annual General Meeting and any nomination not received prior to the meeting as stipulated is invalid. The Companies and Allied Matters Act 2020 and the Nigerian Code of Corporate Governance 2018 stipulates that members of the Audit Committee should be financially literate and at least one member must be a member of a professional accounting body in Nigeria established by the Act of the National Assembly and be knowledgeable in internal control processes. Thus, a detailed Curriculum Vitae confirming the nominee’s qualification should be submitted with each nomination to the Statutory Audit Committee. 7. E-REPORT: In order to improve efficiency and delivery of the Annual Report, Shareholders who wish to receive the Annual Report of SEPLAT Petroleum Development Company Plc in an electronic format should provide their email addresses to the Registrars for processing. In addition, Annual Reports are available online for viewing and download from the Company’s website at www.seplatpetroleum.com. 8. RIGHT OF MEMBERS TO ASK QUESTIONS: In line with Rule 19.12(c) of the Listing Rules of the Nigerian Stock Exchange, Shareholders have a right to ask questions not only at the Annual General Meeting, but also in writing prior to the Meeting. Questions submitted prior to the Meeting should be addressed to the Company Secretary and must reach the head office of the Company no later than seven (7) days before the date of the Meeting (being 13 May 2021) or by email at AGMQuestions@seplatpetroleum.com. 9. VIEWING OF THE PROCEEDINGS OF THE MEETING: The Meeting will be streamed live online to enable shareholders and other stakeholders who will not be attending physically to follow the proceedings. The link for the live streaming of the Meeting will be made available on the Company’s website at www.seplatpetroleum. com and will be streamed live on the YouTube social media channel. Notes: 1. PROXY: In line with the guidelines of the Corporate Affairs Commission (CAC) on the conduct of the Annual General Meeting (AGM) of Public Companies by Proxies and taking advantage of Section 254 of the Companies and Allied Matters Act, 2020, the Company has obtained the approval of CAC to hold the AGM with attendance by proxies. Further, in the interest of public safety and having regard to the Nigeria Centre for Disease Control (NCDC) COVID-19 Guidance for Safe Mass Gatherings in Nigeria and the restrictions on public gatherings by the Lagos State Government, only persons indicated to be selected as proxies on the Proxy Form shall attend the meeting physically while the other members may participate online through a live streaming of the AGM. In compliance with the above guidelines, members who are entitled to attend and vote at the AGM of the Company are hereby advised to select a proxy from the following selected proxies to attend and vote in their place: (a) Dr. A. B. C. Orjiako (Chairman, Board of Directors) (b) Mr. Roger Brown (Chief Executive Officer) (c) Sir Sunny Nwosu (d) Dr. Faruk Umar (e) Mr. Amatare Oki (f) Mrs. Ngozi Osuzoka (g) Mr. Boniface Okezie (h) Mr. Matthew Akinlade (i) Mr. Samuel Esan Ogunleye (j) Dr. Anthony Omoniyi Omojola (k) Mrs. Adebisi Oluwayemisi Bakare (l) Alhaja Ayodele Sarat Kudaisi For the appointment to be valid for the purposes of the meeting, the Company has made arrangements at its cost for the stamping of the duly completed proxy forms which must be deposited at the office of the Registrar, DataMax Registrars Limited, 2C Gbagada Express Way, by Beko Ransom Kuti Park, Gbagada, Lagos or at the head office of the Company, marked for the attention of the “Company Secretary” or by email to proxy@seplatpetroleum.com, not less than 48 hours before the time fixed for the meeting. For convenience purposes, a blank proxy form is attached to the 2020 Annual Report & Accounts, both of which are available at the Company’s website: www. seplatpetroleum.com and at the Company’s head office: 16a Temple Road (Olu Holloway), Ikoyi, Lagos. 2. CLOSURE OF REGISTER: The Register of Members and Transfer Books of the Company (Nigeria & UK) will be closed on 5 May 2021 in accordance with the provisions of section 114 of the Companies and Allied Matters Act, 2020, to enable the Registrars to prepare for the Annual General Meeting. 3. PAYMENT OF DIVIDENDS: If the Dividend recommended by the Directors is approved by members at the Annual General Meeting, dividend will be paid on or around 28 May 2021, to shareholders whose names appear in the Company’s Register of Members at the close of business on 4 May 2021. 4. E-DIVIDEND MANDATE: Shareholders are kindly requested to advise DataMax Registrars Limited of their updated records and relevant bank accounts, by completing the e-mandate form. The e-mandate form can be downloaded from DataMax Registrars Limited’s website at http:// www.datamaxregistrars.com. The duly completed form(s) should be returned to DataMax Registrars Limited, at No. 2c Gbagada Expressway, by Beko Ransom Kuti Park, Gbagada Phase 1, Lagos. 297 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Unclaimed dividend list S/No Beneficiary 1 2 3 4 5 6 30TH JUNE CONCEPT LTD ABUBAKAR SHEHU AAYINDE RAHMON, ISIAKA ABDUL ADENIYI, OMOTAYO ABDUL OLUWASOLA, HAMMED ABDULAZEEZ AYOMIDE, ABDUSSALAAM ABDULLAHI TAMBARI, KABIRU A.T. ABEJIDE KEHINDE, DAVID ABIDOYE TAOFIK, OWOLABI ABILAWON VICTORIA, IYANUOLUWA ABIMBOLA ATINUKE, DEBORAH ABIMBOLA OLUBUNMI, EUNICE ABIODUN SYLVESTER, OLUSANMI ABIOLA VICTORIA, ABOSEDE ABIOYE VICTORIA, FEYISIKEMI ABODERIN OLAJUMOKE, ABOD-REUBENS NIG LTD ABOLUDE OLANIKE, OMOYIOLA ABRAHAM KEHINDE, P ABUBAKAR MUHAMMAD, BASHIR ABUJA INVESTMENTS COMPANY LIMITED ABURIME SYLVANUS, STEPHEN ADAMS BODE, THOMAS ADAMU ISMAIL, ADDAX STAFF COOPERATIVE ADEAKIN FOLAYEMI, DIDANLOLA ADEBAMIRO OLUWATOYIN, OLUBUNMI ADEBANJO ADENIKE, ADERONKE ADEBAYO ABOSEDE, JOSEPHINE ADEBAYO ADEBOLA, ADEREMI ADEBAYO ADEDAYO, OLUWASEUN ADEBAYO OLALEKAN, OLASUNKANMI ADEBAYO OLUWAFEMI, ABAYOMI ADEBAYO OLUWASEYI, OLUWAFEMI ADEBAYO RAHEEM, ADEWALE ADEBAYO RAMONI, AKANO ADEBISI ADENIYI, ARAUNSI ADEBIYI ADEOLA, KATE ADEBIYI BABAJIDE, ADESOLA ADEBIYI OLUDARE, EMMANUEL ADEBOWALE AYISAT, ADEDOLAPO ADEBOWALE ISLAMIAH, IDOWU ADEDAPO FOLASHADE, AKINTOLA ADEDEJI NOSIRU, ADIGUN ADEDINSEWO ADEDEJI, FREDERICK ADEDIRAN OKIKIADE, ISAAC ADEDOYIN ADEKIITE, OLUTOYIN ADEDOYIN ADEKIITE, OLUTOYIN ADEDOYIN ADENIKE, FLORENCE ADEDOYIN BUSOLA, ELIZABETH ADEDOYIN PAUL, TIMILEHIN ADEDUNMOLA ANDREW, ADEGBEMIRO ADEEKO RACHAEL, OLULAYO ADEFARASIN EMMANUEL, ADEMOLA ADEFARASIN HERBERT, A. ADEFEHINTI OLUWAFOLAKEMI, ADEFUYE MICHAEL, OLORUNTELE S/No Beneficiary 58 59 ADEGBAMIYE JOHNSON, ADEKUNLE ADEGBITE -, AYODELE SAMSON GBADEBO ADEGBITE CHRISTIANAH, ADEBUKOLA ADEGBITE ISAAC, ADEREMI ADEGBITE WAHEED, BABATUNDE ADEGBULUGBE OLUFEMI, ADELEYE ADEGOKE O.S., PROF. & DR (MRS) ADEGOROYE MONISADE, OLUKEMI ADEJARE ABIDEEN, ABIODUN ADEKOLA ABOSEDE, ADERONKE ADEKUNLE MIKAIL, ODUNAYO ADELAKUN RILWAN, ABIODUN ADELANWA KUBURAT, AYOKA ADELE-AKINTAYO ADEROJU, WASILAT ADELEKE ADEBAYO, ADETUNJI ADELEKE ADEBISI, SHOLA ADELEKE IDRIS, OLAWUNMI ADELEKE JUSTUS, ADEBANJO ADELEYE ADEREMI, ADELUOLA OLOYEDE, RILWAN ADENIJI LATEEF, ADEJARE ADENIKINJU HANNAH, ADENIRAN ADEKUNLE, AMOS ADENIRAN ADEKUNLE, AMOS ADENIRAN BABATUNDE, VICTOR (DR) ADENIYI OLATUNDE, OLADEJI ADENOLA BAMIDELE, ABAYOMI ADENRELE AL-CUDUZ, ADEFOWOPE ABIODUN ADENRELE SHERIFAT, ADEBOLA ADENRELE SULAIMON, BABATUNDE ADENUGA OLUFEMI, S. TRUST ACCOUNT ADENUGA OLUSOLA, ESTHER ADENUGA OLUSOLA, ESTHER ADENUSI OLUWATOSIN, ADEOGUN ODUNLAMI, ABIODUN ADEOYE DANIEL, ADEOYE OLUBUNMI, BABATUNDE ADEPOJU IBITOMI, MOWANUOLA ADEPOJU JAMIU, ALADE ADERIBIGBE ZAINAB, YETUNDE ADESANYA OLUKAYODE, PATRICK ADESERI TOLUWANI, OLUFEMI ADESINA AYOTUNDE, EMMANUEL ADESINA OLALEKAN, OLADEPO ADESINA OLUWADARE, BABATUNDE ADESOGAN SAMUEL, ADEDAYO ADESOLA SELIMOT, NIYIOLA ADESUA DOZIE ADETIBA ADEREMI, AKABA ADEUSI ILUYOMADE, STEPHEN ADEYEGBE OLUWOLE, ADEYEMI ADEKUNLE, ADEYEMI FUNSHO, ADEDIRAN ADEYEMI KAFAYAT, TEMITOPE ADEYEMI MOTUNRAYO, RAMOTA ADEYEMO ADETOKUNBO, OLUMIDE ADEYEMO TITI, LATIFAT 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 S/No Beneficiary 115 116 117 118 119 120 121 ADEYEYE ADESHINA, TOSIN ADEYEYE SHAKIRAT, KIKELOMO ADEYINKA AJAYI, ADIO ADEMOLA, ALEXANDER ADISA GANIYU, DAMILARE ADU AYODELE, ADUBA JUDE, AND SAMAILA SULEIMAN ADUNMO KEHINDE, MOSES AFINJU TAIWO, ANUOLUWA AFOLABI AKINWALE, IBRAHIM AFOLABI OLAYINKA, AFOLABI OLORODE TRUST( FBN TRUSTEES) AGADA CHIDINMA, EVIDENCE AGADA MATHIAS, USMAN AGBAJE OLUWATOBI, OLUWATOKI AGBEDE OLAYINKA, FOLAYEMI AGBOOLA FATIMAT, BINTU AGORO AFOLABI, AGU MADUKA, OGBONNAYA AGUNBIADE OLUFUNMILAYO, JULIUS AGWUIBE NNEKA, ROSEYMARY D AGWUNCHA IFEYINWA, EVELYN AHARANWA IKECHUKWU, BRIGHT AHMAD SALIHIJO, BILIKISU AIBONI SAM, AMAIZE AIKHOMU ANITA, OTIBHOR AIKHOMU EKANEM, BASSEY AIKHOMU WILLIAMS, EHIZOGIE AIKHOMU WILSON, OMOGBALE AINA BABATUNDE, OLASOJI AIYEBIWO OLUBUNMI, MOTUNRAYO AIYEDENU EBUNOLUWA, OMOTAYO AJA UKPA, NNAEMEKA AJADI YEKINNI, OLANREWAJU AJAERO KINGSLEY, UCHECHUKWU AJAGUN ADEDEJI, OLATUNDE AJANI MUSA, ADEKOLA AJANI RASHEED, OLALEKAN AJANI TUNDE, OLUWOLE AJANI WAHAB, ABIDOYE AJAO ADEFUNSHO, ADEYI AJAO AJIBADE, OLADAPO AJAO JOHNNY, ADELAKUN AJAYI ADENIYI, MUHIDEEN AJAYI EDWARD, OLADELE AJAYI IBUKU, OLUWASEUN AJAYI LATIFAT, DAMILOLA AJAYI OLATUNDE, ADEWUYI AJAYI OLUSOJI, AJAYI OMOLARA, SHOLA AJAYI OPEYEMI, AANU AJAYI RAMOTA, TOWOBOLA AJIBOLA SAMSON, GBADEBO AJIBOYE ADETAYO, OKUNOLA AJIROBA TOFUNMI, BUSAYO AJITENA DENIKE, AJOSE-ADEOGUN OLUREMI, MAJEOLAGBE AJUMOBI GRACE, OMONIYI AJUMOBI OLUYEMI, JOSEPH (EST OF) 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 298 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 S/No Beneficiary 174 175 176 177 178 179 180 AJUMOGOBIA AWUNEBA SOTONYE AKANBI MOSES, ADENIYI AKANMI PIUS, KAYODE AKANMU MARY, TEMILADE AKANMU OLUWASEYI, OYEYEMI AKANNI PIUS, KAYODE AKEEM-SHADARE KAAMIL, IFEOLUWAPO AKEEM-SHADARE OMAR, OLUWAJUWON AKENDE CLARA, TEMILADE AKHIGBE OKHIRIA, TOM AKHIMIEN EHIAVBI, FESTUS AKINBO OLAYIWOLA, ADIO AKINBOLA PHILLIP, OLADIRAN AKINJIDE ABAYOMI, AKINJOBI TEMITOPE, ANUOLUWAPO AKINLADE TITILOLA, OLUSOLA AKINLAJA MICHEAL, ADEBOWALE AKINLOTAN AYINDE, BABATUNDE AKINLUYI TOLULOPE, STEPHEN AKINOLA AKINMAYOWA, OLUWASEYI AKINOLA KAYODE, ADEFEMI AKINOLA OLUDOTUN, OLUFEMI AKINOLA OLUWASEUN, AKINRINWALE OLUSEGUN, AMOBI AKINSANYA FOLASHADE, OMOLAYO AKINSANYA LATEEF, AYINDE AKINSANYA OLABISI, TOLU AKINSANYA,O.ADEYEMI &, BALOGUN,O.OLUFUNMI AKINTUNDE MARY, ADEOLA AKINTUNDE MOHAMMED, SABITU AKINWUNMI OMOLAJA, ADISA AKINYEMI ABIOLA, ADEYINKA AKINYEMI MONSURAT, MOPELOLA AKINYERA OLUWASANMI, AKINTOYINBO AKINYODE OLAYINKA, SHAKIRAT AKINYODE RAFIAT, AKINYOMI JANET, OLA AKIODE OLATUNJI, AKOREDE MOROUNMUBO, AKPAN SAMUEL, FELIX AKPORE GOODLUCK, AKPOTOBOR GOD, SPOWER OMONIGHO AKPOVBOVBO HELEN, OGHENEYOUWE AKWIWU ADANNAYA, CHINEMEREM AKWIWU NDUKWE, NNADOZIE ALABI DAMILARE, ALADEGBEINGBE FRANCIS, OLUFEMI ALADESUYI OLAKITAN, ALAGA KOLAWOLE, MUFTAU ALAGBE ADEYINKA, (PRINCE) ALAKWE FAUSTINUS, IZUCHUKWU ALATIRON NIGERIA LIMITED ALAYAKI FAHEEM, OLADIPUPO ALAYAKI FAKHTAH, OLAOLUWA ALAYAKI FAROUQ, OLAWALE ALAYAKI FATIMAH, OLAMIDE 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 S/No Beneficiary 230 231 232 ALAYAKI IDOWU, MOSIDAT ALIU GABRIEL, TOBA ALIYU KAYAUKI, SGT ABBA ABUBAKAR ALLI OLALEKAN, JAMIU ALLI-BALOGUN AMINAT, ALLISON-OGURU EDMUND, ANIENKEDIGIRI ALPHA VC PREMIER PARTNERS ALUKO TEMILOLUWA, OMOLOLU ALUKWU CHIBUIKE, AMA OKORE, OKEREKE AMADI CHARITY, CHIKWADOM AMADI CHIMA, EMEKA AMAECHI MOSHE, CHIJINDU AMANFO LILIAN, UGONNA AMEGUNU VICTOR, RAYMOND AMUDA FUNKE, IYABO ANAGBOGU MICHAEL, MATHEW ANAGBOGU MICHAEL, MATTHEW ANEGBU JOSEPH, IKECHI ANIGIORO AMOS, OLADAPO ANOSIKE SUNNY, ANTHONY EBERE, MERCYMERIT ANYA EUGENE, UCHECHUKWU ANYABUIKE NKECHI, RONNIE ANYANWU CHRISTOPHER, CHIBUZOR ANYIBUOFU CHRISTOPHER, APEL ASSET LTD - NOMINEES APU OKEOGHENE, ANIEFIOK APU SUNDAY, ERUOHWO SAMUEL AREGBESOLA ABRAHAM, ABIODUN AREMU JOSEPHINE, MOJISOLA AREMU JOSHUA, O & JOSEPHINE REV & MRS AREMU OLUSEGUN, ABIDEEN AREMU RASHIDAT, KEHINDE ARIGBABOWO ENIOLA, ARIGBABOWO OLUWATOSIN, ARIKAWE OLUTAYO, MORADEKE ARM NOM: ESTATE OF CLEMENT ISONG ARM NOM: HAJIA AISHA KATAGUN ARM SECURITIES LTD/ TROVE TECHNOLOGIES AROLEOWO GANIAT, ABIODUN ARUM IFEANYICHUKWU, IGNATIUS ARUM JOHN, YMAR .C.M ASANGANSI EFFIONG, OKWONG ASANGANSI EFFIONG, OKWONG ASEDEKO HENRY, ABIODUN ASOBARA IFEYINWA, M. ATLAS INT ENGINEERING SERVICES NIG LTD ATOBATELE TAOREED, ABIODUN ATOYEBI MUFUTAU, ADEBAYO ATRUISM VENTURES NIG. LTD ATTAH EMMANUEL, OGEBE ATTAH ENEYE, DANIEL ATURAMU TOLULOPE, ATUWO DAVID, HYELHIRRA AUDU MATTHEW, ABU ESTATE OF 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 S/No Beneficiary 286 287 288 289 290 291 292 293 294 295 AUDU YUSUF, BUBA AUGUSTINE ESTHER, FUNKE AWE BABALOLA, BABAJIDE AWEDA FELICIA, OLUWAKEMI AWERE GODWIN, AJIROGHENE AWOBIMPE KAYODE, CAMALDEEN K AWODERO MICHAEL, OLUSEGUN AWOJUYIGBE OLUMUYIWA, OLUDARE AWONAIKE ESTHER, OLADUNNI AWONAIKE RACHAEL, MOSEBOLATAN AWONIYI OLUFEMI, AXHOLME NOMINEES LTD 'IZ' A/C AYADIUNO CHRISTOPHER, BELUCHUKWU AYALOGU OBIANUJU, JENNIFER AYANDA TITILAYO, AYANRUOH ELIZABETH, DORA D. AYIDA OMATSEYIN, AKENE AYODEJI NURUDEEN, AYODEJI OLAWALE, T AYODELE OLAJIDE, ABAYOMI AYODELE OLUSHOLA, OMOTAYO AYO-VAUGHAN DANIEL, AZEEZ AL-AMEEN, ISHOLA AZEEZ JIMOH, OGUNBANWO AZEEZ LUKMAN, ADEKUNLE AZEEZ RASAKI, KOLAWOLE AZEEZ SULAIMAN, AKINADE BABALOLA ADEWALE, BABATUNDE ADEWUNMI, TAIBAT BABATUNDE MOSES, SUNDAY BABATUNDE SAHEED-OLADIMEJI, BAIYEWU OLUSEGUN(DR), BAKARE ABDULAZEEZ, TOMISIN BAKARE ADEBISI, OLUWAYEMISI BAKARE OLAYEMI, KAFILU BAKARE SHERIFAT, BALOGUN ALAKE, LOLA BALOGUN DEJI, BALOGUN MUSA, (ALHAJI) BALOGUN OLUWATOYIN, OLUWABUNMI BALOGUN SEKINAT, MOPELOLA BALOGUN SIKIRU, BOLARINWA BALOGUN TOLULOPE, BAMGBOSE ADERINOLA, ELIZABETH BAMIGBOLA HABEEB, OLAKUNLE BAMIGBOYE OLUWADARE, OLAYIWOLA BANJOKO ABIODUN, OLUBUSOLA BANJOKO OLASOJI, OLAKUNLE BANKOLE JOSEPH, OLUMAYOKUN ADEFOLARIN BANKOLE MOTUNRAYO, BANKOLE OLUMUYIWA, JACOB BANKOLE OLUWAKEMI, EKUNDAYO BARANGO KENNEDY, S. BAREEK GENERAL ENTERPRISES NIG LTD BATHANNA STEPHEN, JALVA BATULA ADISA, BOONYAMIN ALHAJI 299 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Unclaimed dividend list | continued S/No Beneficiary 342 343 344 345 346 347 348 349 350 351 352 BATULA HAKEEM, BAYOKO EBI, REGINALD BEECROFT JOHN, OLUWAFEMI BELLO ADISA, SULE BELLO AUGUSTINE, OLUSANYA BELLO ITOPA, PAUL BELLO KOKO, MOHAMMED ATP BELLO MUIBAT, AINA BENEDICT ALBERT, AJIBOLA BENSON AYODELE, BABATUNDE BINITIE EBOSENOBUWATALE, ADEOLUWA BISAMI NIGERIA LTD - ACCOUNT 2 BODE ADEOLU GLOBAL ASSOCIATES BOLARINWA TOSIN, LUQMAN BUKO ADESHOLA, AKINLOLU CALEB CHRISTINE LTD CAPITAL SHAREHOLODERS ASSOCIATION CELLCORE LTD CHIALIKA FESTUS, SUNDAY CHIDUME NWANNEAMAKA, JACINTA CHIKEKA VIVIAN, ADANMA CHRIS-ASOLUKA SOMACHI, CHIDUMEBI CHUKWU EUCHARIA, NWAKAEGO CHUKWU JULIET, NNENNA CHUKWU NWAKAEGO, CHRISTANA CHUKWUDI FRANCIS, CHIDERA CHUKWUEMEKA ANTHONY, AZUKA CHUKWUMA OFEBI, CONNAL STUART CORNERSTONE STAFF COOPERATIVE SOCIETY CSL NOMINEE ACCOUNT 'CX' CSL NOMINEES A/C 'BR' CYRIACUS CHUKWUDI, MAXIMILIAN CYRIACUS IFEANYI, VALENTINE DA SILVA, TEKOA TIAGO DADA AKINLOLUWA, JOHN DAIRO SEGUN, DAYO DAN -, JUMBO TAMUNOALA M DANIEL-IYOGUN CHUKWUBUIKEM, ODENOSE DANJUMA KAMORUDEEN, AJAO DARA ADEOLUWA, EMMANUEL DARAMOLA AWOYINKA, DARAMOLA KOLAWOLE, DANIEL DAUKORU EDMUND, MADUABEBE DAWODU OMOLARA, ADIAT DAYO OLAGUNJU, OLUBUNMI DAYO-OLAGUNJU OLUBUNMI, ONAJITE D-BEST ACHIEVERS SHAREHOLDERS ASS DEKE OGENAGWE, VICTOR DELANO OLUFISOYE, DENG ANDREW, JADEN DENNI-FIBERESIMA DAMIEBI, DIEKOLOLA LATEEF, KUNLE DIKE EVA, CHIJIOKE DIKKO AISHA, IBRAHIM 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 300 S/No Beneficiary 397 398 DOKUBO IGONIBO, WILFRED DONNA OBASEKI-OGUNNAIKE, OLOHI DREAMBEAUTY VENTURES LIMITED DUROJAIYE ADEDOYIN, DUROJAIYE ANTHONIA, OLAIDE DUROJAIYE KOLAWOLE, OLALEKAN DUROWAIYE ADEWUNMI, AFUSAT DUROWAIYE IYABO, YETUNDE DURU P., NGOZI EBELECHUKWU UBAKA, EBIEFIE ANTE, OKON EBOH ERIC, CHIEDUM ECOMARK INVESTMENT LIMITED EDAFE OGHENERUKEWE, ALEXANDER EDDO MARK, EDE MODINAT, ADEDOYIN EDEVBIE DAVID, EFFIONG ODUOBIT, EFUNTADE ALANI, OLUSEGUN EFUWAPE JOSHUA, AFOLABI EGBAGBE AUGUSTINE, SUNDAY EGBUCHELEM NNAMDI, JACOB EGEIN MUNAFA, MOSES EGIARHUOYI PAUL, IYAEZERE EGWU OLUWAYEMISI, ADEDOYIN EGWUENU CHIDI I. & ROSALINE O. EHINMOWO AFOLABI, OLUSEGUN EHUWA OLUWATOBI, BLESSING EHUWA SUNDAY, VICTOR EJALONIBU IBRAHEEM, ADEGBOYEGA EJEMBI PATRICK, OKO EJISHE OPI, JUSTIN EKANEM EMA-EKOP, SAMPSON EKANEM JOE, & CAROLINE EKANEM SAMPSON, EKANEM EKE CHIBUZOR, EMMANUEL EKE CHIDIUTO, CHIDERA EKE CHIKAMSO, NWAYINMA EKE KELECHI, PASCHAL EKE THELMA, IJEOMA EKEBI KENNETH, IDO EKEGHE OGBONNAYA, NDUKA EKERE CHUKWUEMEKA, IHEANACHO EKHOIYAYI AGHAHOWA, EKONG EBONG, UDO EKPE CYRIL, EZIEFULE & KARIN CHINYERE EKPEKI OMOWHARE, WILLIAM EKWELI EMMANUEL, CHUKWUNYEAKA EKWERIKE KENNEDY, OGBONNA ELEKEDE BABATUNDE, SULAY ENIOLA ELF COOP OMESURU UMEJURU AKE ELLA VINCENT, EMENUWA &, IJEOMA JAJA- WACHUKU EMHIOBOH I, MICHAEL EMMANUEL NANPAN, JAMES 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 S/No Beneficiary 452 453 454 455 456 457 458 ENE LEO, CHINEDU ENEH PEARL, NKECHI ENE-ITA ANNE, NKESE ENI CHUKWUEMEKE, JOHNNIE ENIAFE MUJIDAT, TEMITOPE ENLIL INVESTMENT LTD ENTERPRISE TRUST INSURANCE BROKERS LTD EPHRAIM ANIEFIOK, DANIEL ERETAN OLUWOLE, RICHMOND ERINFOLAMI BOSERECALEB, IJAODOLATIOLUWA ERINFOLAMI SALEMSON, ADEMOLA TEMILOLUWA ERINOLA MATTHEW, KOLAWOLE AKEEM ERUKAKPOMREN CHRISTOPHER, OKOTETE ERUVBETINE OBOR, ENAEME ERUVBETINE PREM, ENAEME ESSIEN PETER, SIMON ESTHER OMIKUNLE, ETIKO ASIMIU, MONINUOLA ETIM EMMANUEL, EDET ETIM NATHANIEL, OTO-OBONG ETOMI DAMINABO, DENNIS OSAGIE EVBOTA HARRIET, ADEKUNBI EWHRUDJAKPOR OBIKU, EYETSEMITAN TOJU, PHILIP EZE SOBECHUKWU, FRANCIS EZEANI IGNATIUS, MAJESTY EZECHUKWU AUGUSTINE, NNAEMEKA EZEIGBO OBINALI, G EZEKWEM CHIDUBEM, IKENNA WILLIAM EZENDIOKWERE BENJAMIN, J.E. EZENMA CHUKWUKA, COSMAS EZENWAJIAKU THEOPHILUS, EZEOKE ROSEMARY, AMARACHUKWU EZEOKEKE AUGUSTUS, AMECHI CHUKWUDUM EZIKE RAPHAEL, EMEKA EZUGWU EMILIA, CHISOM EZULIKE CHIJIOKE, DENNIS EZULIKE CHIKA, VICTORIA FABUDAH SEGUN, RAPHAELS FABYAN FLORA, FAGBAYIDE OLUKAYODE, OLUWOLE FAGBOHUNGBE AYOMIDE, FAJOYE OGUNYEMI, FAJUSIGBE SONIA, ONOVUGHAKPO FALADE OLUMUYIWA, TEMITOPE FALESE TEMITOPE, FALORE OLUWASIKEMI, AYONITEMI FAMOUS AKEEM, FANIYI GRACE, OLUWATOYIN FARODOYE OLAYEMI, JAMES FAROMBI OLUSHOLA, ABIOLA FASASI ADEOLA, SARIYU FASHINA AJIBADE, TAOFEEK FATOLA JOSEPH, OLUFUNMILADE 459 460 461 462 463 464 465 466 467 468 469 470 471 472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 S/No Beneficiary 506 507 508 509 FATUNBI RUTH, BOSEDE FAWOLE TAIWO, GANIYU FAWUNMI ABIODUN, BAMIDELE FBNQAM/ MR ROTIMI ASHLEY-DEJO & MRS FEYIDE OLUFEMI, ADEOLA FEYIDE OLUFEMI, ADEOLA FIDELIS EJIMAMU, OKEHIE FIN INSURANCE CO. LIMITED FOLAMI & ASSOCIATES FOLAYAN OLUWAROTIMI, CHRISTOPHER FOSUG NIG LTD FOWOKAN MACLEAN, AKANBI FOWOWE MICHAEL, OLASUPO ABIOLA FRANCIS OLAMIDE, LOLA ABOSEDE GAFAR RASHEED, GANIYU WASIU, AYINDE GARUBA SAIDU, KEWUYEMI GBADAMOSI MOJISOLA, MULIKAT ADEOLA GBADAMOSI MUDASHIRU, ATANDA GBADEGESIN SUNDAY, AJIBOLA GBADERO MICHAEL, KAYODE GEM ASSETS MANAGEMENT LIMITED GESUNDHEIT & REICHTUM LIMITED GOFWEN NENGAK, GOFWEN NENPINMWA, GREEN LEAF PHARMACY - HAFSATU NASIRU, ABOKI HAMILTON RACHAEL, OLUFUNKE HAMZA RIDHWAN, BOLADALE HASSAN FEYISAYO, AISHAT HASSAN TITILAYO, AZEEZAT HENSHAW BASSEY, EWA HOUNTON CHRISTIANA, HUSSAINI IBRAHIM, IBE LEO, IBITOYE EMMANUEL, KOLAWOLE IBIWOYE JOSEPH, TAYE IBRAHEEM MOSES, GBOLAHAN IBRAHIM DIKKO, IBRAHIM ISSA, LEKAN IBRAHIM IYANUOLUWA, DAVID IBRAHIM MURITALA, IYANDA IBRAHIM NANA, HAUWA IDEAL GLOBAL INVEST RESOURCES LTD IDOWU BOLAJI, AFOLABI IDRIS MUSA, ISA IDUMA JOHN, JENNIFER IFABUA AHMED, OHIORENUWAN IFEANYI OKEY, FESTUS IFEDIORA EMMANUEL, EBERE IFEOBU MMELICHUKWU, IGBASANMI BUKOLA, AKINRINBIDO IGBASANMI OLATOMIDE, JOHN (ALLEGED DECEASED PHC NO.1759L/2015) IGBINOVIA MARYANN, HUNONYEMESI 510 511 512 513 514 515 516 517 518 519 520 521 522 523 524 525 526 527 528 529 530 531 532 533 534 535 536 537 538 539 540 541 542 543 544 545 546 547 548 549 550 551 552 553 554 555 556 557 558 559 S/No Beneficiary 560 561 562 563 564 565 566 IGBRUDE MOSES, OKE IGE GABRIEL, BABASOLA IGE YUSUF, AMUDA IGHODARO KUDI, YEMI IGWEZE FELIX, NNAEMEKA IHEANACHO STEPHEN, CHINONSO IHEGBU CHIDIEBERE, MACLAWRENCE IHEJIENE NGOZI, AUGUSTINA IHUOMA BENJAMIN, TOCHUKWU IJOMA FIDELIS.OPIA.ODILI, IKOKU ALVAN, ENYINNAYA IKOTUN OLALEKAN, KAYODE ILESANMI OLUDOLAPO, ILUFOYE OYELOLA, ALLI IMAGELINKS ROYAL PROPERTIES LTD IMAGELINKS TRAVEL AND TOURS LIMITED IMEH GODWIN, GBOTA IMO OBUMNEME, EZE IMOLEOLU ADESOLA, FLORENCE IMORU CLEMENT, AYODELE INDI THOMAS, INENEMO ABDULWAHAB, USMAN INNIH IYOBO, INVEST.ONE/AXA MANSARD EQUITY INC.FUND-T I-ONE E-PORTFOLIO AC - 188 I-ONE E-PORTFOLIO AC - 195 I-ONE E-PORTFOLIO AC - 197 IOU INVESTMENT, ADVISERS LTD ISAH LUCKY, IMOBE ISAIAH EMEKA, PHILIP ISAIAH PRINCE, JOSHUA ISAIAH ROSELINE, NGOZI ISHAKU ISRAEL, MALLAM ISIAKA MARZUQ, OLADIPUPO ISIAKA YUSUFF, ORIYOMI ISIJOLA AYOKA, OLUWARANTI ISMAILA ZUBAIRU, ISOKRARI NENGI, ISSA NIMOTA, BOLANLE ITAUMA MERCY, ETEAKAMBA ITONYO EBITARI, CHIMA ITSUOKOR CHARLES, IWU ELIZABETH, ADA IWU GABRIEL, CHINEYE IYANIWURA MODINAT, KOFOWOROLA IYEIMO ILAMINA, JAIYE-GBENLE BOLUWATIFE, JAJA-WACHUKU CHUKWUEMEKA, JAMES AKINTOMIDE, JAMES AYODELE, MORAYO JAMES DANIEL, ONUCHE JAMES EMMANUEL, EDET JIMOH AUGUSTINE, A & JIMOH IYABO O JIMOH BISIRIYU, AYINLA JIMOH MOHAMMED, OLUWAFEMI JIMOH-KUKU ISMAIL, OLANIRAN JINADU LAMIDI, OLANIRAN JINADU MUSTAPHA, ISHOLA 567 568 569 570 571 572 573 574 575 576 577 578 579 580 581 582 583 584 585 586 587 588 589 590 591 592 593 594 595 596 597 598 599 600 601 602 603 604 605 606 607 608 609 610 611 612 613 614 615 616 617 S/No Beneficiary 618 619 620 621 622 623 JINADU RASAK, ADISA (ALHAJI) JINADU WASIU, OLABISI JIWUMETO ADEBISI, AJOKE JOHNSON ADEOLA, JOHNSON FRANCIS, IKWUE JOSEPH OLUWASEGUFUNMI, ELIZABETH JOSHUA SEUN, OSHUNOLALE JOWOSIMI ADEMOLU, MATTEW JOWOSIMI OLUBUNMI, TEMITOPE KADIRI ABAYOMI, SHEWU KALU-ANYA CHRISTIAN, KAREEM OLADIMEJI, OLOLADE KAREEM TAWA, JUMOKE KASIM FAUZIYYAH KIKELOMO KASIM JOSHUA, TIWATAYO KASIM JOTHAM, TIWATOPE KATSINA STATE INVESTMENT & PROPERTY DEVELOPMENT COMPANY LIMITED KAYODE OLUWASEUN, MARY KAZEEM ABIBOLA, MUSILI KAZEEM MUSINO, IYABO KESANDU-UCHENYI ONYENWE, IFEUDE KEYSTONE GLOBAL SYNERGY LTD KLUB SUPREMOS KOLAWOLE IBRAHIM, INUMIDUN KOLAWOLE YEKINNI, ALABI KOLAWOLE-YUSUF OLAMIDE, BUNMI KOLEOSO HIKMOT, ADUNOLA KOLEOSO KAZEEM, ADEWALE KRAGHA CHRISTOPHER, OGHENERUME KRUGER HOTEL & SUITES LTD KRUKRUBO AYEBADOMO, IKIOMOYE KUKU ABIMBOLA, ALAMI KUMOEI LIMITED, KUPOLOKUN MOSES, FUNSHO KUYORO DANIEL, AYODEJI KWAKPOVWE VERONICA, LAIYENBI KARIMO, MOPELOLA O LAIYENBI KASSIM, ADEWALE LAMINA SIKIRU, TAIWO LANIYAN JONATHAN, OLADEJO SUNDAY LATEEF MUFUTAU, (MR.) LATEEF YAHAYA, FUNSHO LATINWO TOLANI, LAWAL ADEREMI, KOKUMO DUROJAIYE LAWAL BOSE, ADENIKE LAWAL FALILAT, OLAWUNMI LAWAL GANIYAT, OMOTOLANI LAWAL LATEEFU, ATANDA LAWAL MORUF, OLANREWAJU LAWAL MUFUTAU, ASHERU LAWAL NOJEEM, OLAWALE LAWAL OLAYINKA, ISMAIL LAWAL RASAQ, OLANREWAJU LAWAL RASHEED, OLASUNKANMI LAWAL RISIKAT, JOKE LAWAL TIMILEHIN, ANU-OLUWAPO 301 624 625 626 627 628 629 630 631 632 633 634 635 636 637 638 639 640 641 642 643 644 645 646 647 648 649 650 651 652 653 654 655 656 657 658 659 660 661 662 663 664 665 666 667 668 669 670 671 672 673 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Unclaimed dividend list | continued S/No Beneficiary 674 675 676 677 678 679 680 LAWAL WAHAB, OLATUNJI LAWANSON GANIAT, OLAYEMI LAWSON BERNARD, LAYADE OLUWABUSAYOMI, LESLIE ASARE, LIASU TOYIN, RACHEAL LINKAGE ASSURANCE PLC - TRADING LOTUS CAPITAL LIMITED - LUFADEJU OLUGBENGA, ADERINOLA LUKMON OLADAYO, BULIAMEEN 681 682 683 684 MACAULAY AYOKUNLE, OMOTOLA 685 MACAULAY KAREEM, ABIODUN 686 MACGREGOR JOSEPH, OLUSOLA 687 MADUEKE UGONNA, ALISON 688 MADUFORO GOLDEN, C. 689 MADUFORO GOLDEN, CLEMENT 690 MADUKO FIDELIS, OGBOGU 691 MAJARO AKINWALE, & ADEBUKUNOLA 692 MAJEKODUNMI ADEWUNMI, EDMUND 693 MAJEKODUNMI OLUTOBILOBA, ABIOLA 694 MAKANJUOLA OLADAYO, ABDUL YEKINI 695 MAKINDE ADEMOLA, STEPHEN KAYODE 696 MAKINDE OLABISI, AINA 697 MAKINDE TOMIWA, MATTHEW 698 MARAYESA OLUWADUROTIMI, OLUWASEUN 699 MARTINS TOYIN, TOLULOPE 700 MAYOWA-PATRICK BAMIDELE, ODUNAYO (MRS) 701 MBAEGBU INNOCENT, CHUKWUDI 702 MBAEGBU INNOCENT, CHUKWUDI 703 MBAH LAWRENCE, KWENDE 704 MBAM ALFRED, EZE 705 MBC SECURITIES, NOMINEE OBUM 706 MEGGISON TITILOLA, 707 MENSAH NICHOLAS, TAWIAH 708 MGBEAHURIKE ONYEBUCHI, IGBOKWE 709 MGBENU IFEANYICHUKWU, CHIKAODILI 710 MOMOH DOYINSOLA, ABDULQUAYUM 711 MORADEYO DAVID, ADEMOLA 712 MORDI ANTHONIA, EKENE 713 MORGAN CAPITAL SEC-TRADED- STCK-AC 714 MOROCCO-CLARKE SUSAN, AYODELE 715 MOSHOOD ISIAKA, TUNDE 716 MOSURO YAKUBU, TITILAYO 717 MOT OLAYIWOLA, TOBUN 718 MOTOLATOB NIG. LIMITED 719 MOUNT ZION HOLY TOURS LTD 720 MPAMAUGO EDITH, NWANWEREUCHE 721 MPAMAUGO SAMUEL, CHINENYE 722 MR&MRS CHRISTOPHER, & ROSALIND OYENEKAN 302 S/No Beneficiary 723 MR&MRS IKPONMWOSA, JAMES ODIASE 724 MR&MRS NATHANIEL, OLADAYO OYATOGUN 725 MUDASHIRU USMAN, AKANBI 726 MUFUTAU OMOLOLA, BUKOLA 727 MUHAMMED ABDULLAHI, ADESHINA 728 MUHAMMED IBRAHIM, 729 MUKAILA KAFILAT, AJOKE 730 MUKAILA-LAWAL KENECHUKWU, LAURA 731 MUKHTAR ABDULBASIT, TENIOLA 732 MULTRACTS INVESTMENT LTD 733 MUNADAS MULTI CONCEPT LIMITED 734 MURITALA IDAYAT, TEMITOPE 735 MUSA SHITTU, ABOKI 736 MUSTAFA MUHAMMED, HAMISU 737 MUSTAPHA WASILAT, AYOBAMI 738 MWML NOMINEES LTD-MAO ACCOUNT NAJEEM SALAWA, OLUWAKEMI NARDAU INVESTMENT CO. LTD NDUBUISI EKENEDIRICHUKWU, CHIOMA NEM INSURANCE PLC NGWUOCHA CHIKE, CHARLES NIGERIAN INTER., SEC-TRADED- STOCK-A/C NISL INVESTMENT NOMINEE NISL VENTURES LIMITED NJEMANZE JULIET, CHINYERENGOZI NJOKU CHRISTIAN, CHINONYEREM NJOKU REMIGIUS, NWACHUKWU NNAETO ONYINYE, UZOAMAKA NNAJI DANIEL, NNAMDI JOHN, OKONKWO NNAMNO C, NWOSU NNOROM HARISON, U NOJEEM ISMAILA, SEGUN NORTH WEST PETROLEUM & GAS LTD NORTHWEST PETROLEUM & GAS NURUDEEN ABOLORE, MODINAT NURUDEEN OLUSEGUN, OYELEYE NWABUEZE KINSLEY, KENECHUKWU NWABUGHOGU BRIGHT, NWABUIHE OLIVER, SIL NWABUNIKE HARRISON, CHIAGOZIE NWACHUKWU AKOWUNDU, NWACHUKWU JOHN, IFESINACHI NWACHUKWU OGBONNAYA, OBI NWAGBOM CONSTANTINA, ONYEKACHI NWAGURU CHRISTOPHER, OKECHUKWU NWAIGBO CHILEZIEMANYA, K. NWAKANMA N, KINGSLEY NWANKPA EJIKE, C. NWOGU PRECIOUS, ONYEDIKACHI NWOKEH OMENUKOR-AKU, NWOKO EDWIN, ONUWA CHIKWEKWEM NWOKORIE EUGENE, MADU 739 740 741 742 743 744 745 746 747 748 749 750 751 752 753 754 755 756 757 758 759 760 761 762 763 764 765 766 767 768 769 770 771 772 773 774 775 S/No Beneficiary 776 777 778 779 780 781 782 783 784 785 786 787 788 789 790 791 792 793 794 NWOSU HYGINUS, EMEKA JP NWOSU PEACE, CHIDI NWOSU SUNDAY, NNAMDI NWOSU SYLVESTER, ETEKWUTE NYONG OKON, ABRAHAM OBA KAFILAT, MOJISOLA OBADEMI JOSHUA, OLUYEMI OBAFEMI ADENIYI, ESURUOSO OBARINDE ISAAC, OBATOSHO OBASI CHRISTIAN, ANELECHI OBATAYO JOHN, OLUWAFEMI OBAYEMI FEYISARA, JANET OBAYOMI IDOWU, OBI AZUBUIKE, EMMANUEL OBI EJIOFOR, ANTHONY OBI FIDELIS, CHUKS OBI OKEZIE, PRINCE OBIANYOR EMEKA, TOBENNA OBIDEYI ASEPENISEOLUWA, VINCENT OBIDEYI EFUNYEMI, OLATUNDE OBIDEYI ITEOLUWAKIISHI, JOAN MORENIKE OBIDIKE ANTHONY, IKECHUKWU OBIERI CHUKWUEBUKA, OBIORA OBIERI CHUKWUEBUKA, OBIORA OBINNAYA SOLOMON, OLUWATOBI OBISESAN AKINWALE, TAIWO & JOY OBISESAN OLUGBENGA, OBODOZIE CONSTANCE, ONYEKA OCHEI DENNIS, OSADEBAY OCHOGU EMMANUEL, CHIBUEZE ODARANILE MOHAMMED, ODE COMFORT, OLUWASEYI ODELEYE OLUWASESAN, JAMES ODEYEMI JOSHUA, OLALEKAN ODITA CHARLES, CHIEDU ODOI-OLUDEMILADE PAUL, NII PRINCE ODOZI UCHE, ODU CYRIL, ODUGBEMI REGINA, AITUAJE ODUKALE ABIMBOLA, ADEBOYE ODUMADE PETER, AFOLABI OLAREWAJU ODUME FESTUS, AZUBUIKE ODUNAIYA ABIOLA, OLUBUNMI ODUNGIDE IMA, ODUNSI TOLULOPE, JOSHUA ODUNTAN GANIYU, ADE ODUNTAN OMOTAYO, MORENIKE ODUNUGA SAMIAT, ADEBANKE ODUSANYA OPE, ANIKE ODUSOLA BABAJIDE, ODUSOTE OLATUNBOSUN, ANIKE ODUWOLE OLADAYO, OFFOR KINGSLEY, ONYEMAENCHI OFFOZOR MATTHEW, OFILI OGHENEFEGO, OFILI VICTOR, NNABUNDO OFOHA IKENNA, KENNETH OFOYELA ENOR, 795 796 797 798 799 800 801 802 803 804 805 806 807 808 809 810 811 812 813 814 815 816 817 818 819 820 821 822 823 824 825 826 827 828 829 830 831 832 833 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 850 851 852 853 854 839 840 841 842 843 844 845 846 847 848 849 855 856 857 858 859 860 861 862 863 864 865 866 S/No Beneficiary OGBE DAVID, 834 OGBE TASHEGBONE, KOKOGHO 835 OGBU CHUKWUMA, 836 OGBUDJA OSCAR, 837 OGBUMMAH WOGWUGWU, 838 THEOPHILUS U. OGHENERUKEVWE AKPORE, OGIDI ANTHONIA, OMOLOLA OGINNI JOSHUA, OLUWOLE OGINNI SUNDAY, PATRICK OGUIKE-OLERU FABIAN, NNAMDI OGUJIUBA GRACE, IFEYINWA OGUNADE TAIWO, ADEBIYI OGUNBESAN SHOLA, JAMIU OGUNBIYI YUSUF, GBENGA OGUNBOR RISI, E. OGUNDAHUNSI OLUMIDE, & OMOBOLA OGUNDARE AKINNIYI, MOSES OGUNDEJI MOSES, AYODELE OGUNDELE ADETUTU, OLUREMI OGUNEKUN ADEBOYE, LAPEKUN O OGUNKANMBI SAMUEL, OLANREWAJU OGUNKENU OLUSOLA, (MRS) OGUNLEYE AFOLARIN, AFOLABI OGUNLEYE AYODELE, (DR) OGUNMODEDE GABRIEL, OGUNNAIKE OLUBUKOLA, OMOLARA OGUNNIYI TUNBOSUN, OLUFEMI OGUNSOLA ADEDAYO, OLUWASEGUN OGUNTOYE OLUWATOPE, LAWRENCE OGUNYEMI OLUSEGUN, OHADOMERE OSINACHI, EMMANUEL OHAEGBULAM NESHMET, CHIKE OHIFUEMEH OLAYINKA, ANUOLUWAPO OHUABUNWA NNAMDI, GODFREY OJISUA MOYO, OJO ADELEKE, ISEOLUWA OJO JOSHUA, AKINDELE OJO STEPHEN, ADETUNJI OJOLOWO HAMMED, OLAYIWOLA OJUKOTOLA RAHAMON, OLUWOLE OJUMU ROLAND, OKAFOR ANWULI, OKAFOR AUGUSTINE, AZUBUIKE OKAFOR BLESSING, NKEONYERE OKAFOR CHRISTIAN, CHUKWUEMEKA OKAFOR CHUKWUDERA, SAMUEL OKAFOR CHUKWUEMEKA, ADRIAN OKAFOR EMMANUEL, NKWACHUKWU OKAFOR EMMANUEL, NKWACHUKWU MR & MRS OKAFOR RUTH, ESOHE OKANLAWON SAMUEL, ADEGOKE OKEKE M, JOHN OKELEYE ADENIKE, ELIZABETH OKELEYE DAMILOLA, OKELEYE ENOCH, ANJOLA-OLUWA OKELEYE ISRAEL, AYODAMOPE 867 868 869 870 871 872 873 874 875 876 877 878 883 884 885 886 887 888 889 879 880 881 882 S/No Beneficiary 890 891 892 893 894 895 896 897 898 899 900 901 902 903 904 905 906 907 908 909 910 911 912 913 914 OKELEYE RACHAEL, OREOLUWA OKENWA EBUKA, SAMUEL OKEOLA SALIU, BAYO (MR) OKESOOTO IPADEOLA, JONATHAN OKETE PETER, OSUBU OKOAHABA INNOCENT, BOLUM OKODO IFEANYI, CORNELIUS OKOH EMMANUEL, ODE OKOH PETER, KNIGHT OKOLIE HUMPHREY, EZE OKOLO UMUNALI, OKON EMMANUEL, E. OKORIE RICHARD, OKORO IBEKWE, APOLLOS OKOROAFOR CHIKE, SOPURUCHI OKOROAFOR IGNATIUS, EJILUGWU OKOROIGWE ESTHER, ONYEKACHI OKOYE LEONARD, CHUKWUEMEKA OKOYE NNENNA, CHIOMA OKOYE VICTOR, OKPADILE LESLIE, OKPARA CHUKWUMAIHE, OKPARA CHUKWUMAIHE, G. OKPO UNO, EDET OKUNGBURE BABATUNDE, OLUWAYOMI OKUNRIBIDO OLADIPUPO, OLUFOLARANMI OKUNROBO MARY, ABIEYUWA OKWUADA SAMUEL, KESSINGTON OKWUSA CHUKWUEBUKA, CHIDIEBERE OLABISI ADEDAYO, OLABODE FELICIA, OLURANTI OLABODE JEREMIAH, OLABODE OLUSEGUN, VICTOR OLABODE SHADIAT, OLABISI OLADAPO LATIFAT, KEMI OLADELE SEGUN, OLADIJI OLAYIMIKA, OLUWAFEMI OLADOKE SUNDAY, ISAAC OLADOSU ISLAMIYAT, ADETUTU OLAGBAIYE OLAMILEKAN, TOBI OLAGBAJU NIMOTA, ADEPEJU OLAGUNJU GABRIEL ADEWALE OLAITAN OLAOLU, OLAJIDE ADEBAYO, BAMIDELE OLAJIDE OLUKAYODE, OLAJIGA OLUFEMI, AYODEJI OLAJOSAGBE JOHN, OLUBUNMI OLAJOSAGBE JOHN, OLUBUNMI OLAJUWON ENIOLA, OLAKUNLE OLALEKAN LIADI, RASAKI OLALEKAN PEDRO, OLALEYE ADEYEMI, ELIJAH OLALEYE OLAKUNLE, MICHAEL OLANIYAN RAMOTA, OLUWABUNMI OLANREWAJU FILANI OLADAPO OLANREWAJU KAZEEM, ADIO OLASEHINDE ADENIKE, KEMI OLASEHINDE FESTUS, OLUWASEUN 915 916 917 918 919 920 921 922 923 924 925 926 927 928 929 930 931 932 933 934 935 936 937 938 939 940 941 942 943 944 945 946 947 S/No Beneficiary 948 949 950 951 952 953 954 955 956 957 958 959 960 961 962 963 964 965 966 967 968 969 970 971 972 973 974 975 976 977 978 979 980 981 982 983 984 985 986 987 988 989 990 991 992 993 994 995 OLASEHINDE OLUWATOSIN, BENJAMIN OLASUPO SHITTU, KAZEEM OLATONA REBECCA, OPEYEMI OLATUNDUN RASHEED, OLABISI OLAWUMI JOSEPH, OLALEKAN OLAYEYE RAOLAT, TOLANI OLAYIWOLA MARIAM, OLAIDE OLEKA JOHNBOSCO, CHIGOZIE OLEKA SIXTUS, UCHE OLIVE COURT CHARITY FOUNDATION OLIVER IKE ORJIAKO OLIYIDE TITILOLA, OLOAPUPO RAHMAT, ADEOLA OLOKPA DAROCHA, JOHNSON OLOKPA FIDELIA, OLOTU OLUSOJI, OLABODE OLOWOOKERE ENIOLA, ABOSEDE OLOWOOKERE SULAIMON, AYINDE OLOWOSALE AYOMIDE, BASIT OLOWU ABIODUN, ABODUNRIN OLUBIYI ROTIMI, ALFRED OLUGBOSUN ARIYO, AYO OLUGBOSUN BANJI, OLUJITAN ABAYOMI, TOLULOPE OLUKEMI ESAN ADEWONUOLA OLUKOJU AYODEJI, ABAYOMI OLUSANYA OLUREMI, OLUKUNLE OLUSEGUN OLUFEMI, DANIEL OLUSOLA OLUSEYI, OLABIYI OLU-TIMA OLUMIDE, TAMUNO OLUWAJEMISIN FAVOUR, OLUWASEUN OLUWANIYI JEREMIAH, OLUGBENGA OLUWASEUN OMOTOSHO, OLUWOLE GABRIEL, AKANBI OMARUAYE FRANCES, OMIPITAN OMOTAYO, JONAH OMOGBEHIN SOLA, ZACH OMOGBEYISOLA ADEMOLA, MARTINS OMOGIAFO OWEN, DIANA OMOJOLA JOSHUA, DAMILOLA OMOLE ABRAHAM, OLAMILEKAN OMOLE DEBORAH, MORADEKE OMOLE JOSEPH, ADEDEJO OMONIYI KIKEYEMI, ELIZABET OMOSHEBI STEPHEN, EKUNDAYO OMOTESO ADEBAYO, OPEYEMI OMOTOLA ADURALERE, ADEOLUWA OMOTOLANI ADETOUN, LAIYENBI MUTIAT OMOTOYE ADEWALE, OMOYA OLANREWAJU, AYOBAMI OMOYELE ADESOJI, BODUNDE ONABANJO OLUROTIMI, OLUGBUYI 996 997 998 999 1000 ONADEKO SAMUEL, IMOLEAYO 1001 ONAKPOVHIE ONAGITE, EMMANUEL 1002 ONASANYA BAKIU, ADENIYI 1003 ONASANYA OMOLOLA, ARIBIKE 1004 ONEKUTU EMMANUEL, AKAGU 1005 ONIFADE MUYIWA, WAHEED 303 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Unclaimed dividend list | continued S/No Beneficiary 1006 ONIKOYI BABATUNDE, YEKEEN 1007 ONIOVOSA SAMUEL 1008 ONITIRI ADESUNBO, ADENIJI DAVID 1009 ONIWINDE OMOLARA, ADEBISI 1010 ONOKA NNENNA, 1011 ONOKURHEFE BENSON, IRHIKEVWIE 1012 ONOKURHEFE BENSON, IRHIKEVWIE 1013 ONU BERNARD, OKECHUKWU 1014 ONUCHE JAMES, DANIEL 1015 ONUIGWE JOHNSON, CHIMA 1016 ONUOHA CHIDI, CHIKWENDU 1017 ONWELUZO UZOAMAKA, SOPHIA 1018 ONWUJI JOHN, CHUKWUEMEKA 1019 ONWUKA LAZARUS, NNADOZIE 1020 ONWULIRI CHUKWUEMEKA, ONYEMAUCHE 1021 ONWUNYI LOTANNA, 1022 ONYEANUNA CHINEDU, KENNETH 1023 ONYEBUAGU IJEOYIBO, JENNIFER 1024 ONYEBUCHI HYCIENTH, ONYEAHIALAM 1025 ONYEBUCHI NNAEMEKA, CALEB 1026 ONYECHI IKECHUKWU, TAGBO 1027 ONYEJI UCHE, LILIAN 1028 ONYEKELU EMMANUEL, ONYEKACHI 1029 ONYEKELU EMMANUEL, ONYEKACHI 1030 ONYEKWELU NNAEMEKA, CHIJINDU 1031 ONYEMAEKE CHINWENDU, MATILDA 1032 ONYENOBI IJEOMA, 1033 ONYIA EMEKA, JUDE 1034 ONYIA ISRAEL, CHUKWUKA 1035 ONYIA UCHENNA, CHINYERE 1036 OPARA CLEMENT, ANAELE CHUKWUDI 1037 OPATOLA JOSEPH, OGUNDEYI 1038 OPATOLA JOSEPH, OGUNDEYI 1039 OPEGBUYI OKANLAWON, TAJUDEEN 1040 OPURUM EMMANUEL, THOMAS 1041 ORAGWU ALUBA, I. & PETER O. 1042 ORAH CHINEDU, JEROME 1043 OREFUWA BABATUNDE, ADEMOLA 1044 OREFUWA OLUWAGBENGA, GABRIEL 1045 OREFUWA OLUWASEYIFUNMI, D 1046 OREFUWA TEMITOPE, M 1047 ORENIYI TEMITOPE, LEKE 1048 ORIADE ABIODUN, JOB 1049 ORIOWO MARGARET, MAYOWA 1050 ORIVOH VICTOR, 1051 ORUADE OGHENEKOME, 1052 OSABUOHIEN KINGSLEY, OSARODION 1053 OSAMO DARE, OLUWASEGUN 1054 OSAYIMWEN OSASUMWEN, OSAYANDE 1055 OSHEWA FRANCISCA, AINA 1056 OSHIN ADESEGUN, 1057 OSHINFADE BOLA, TAYO 1058 OSHO ALEX, ABIOLA 1059 OSIKALU LUCIA, FUNMILAYO 1060 OSILEYEOLUGBENGA AFOLABI, 1061 OSOBA ADEYEMI, SOLOMON 1062 OSONDU JULIAN, IKECHUKWU 304 S/No Beneficiary 1063 OSOTA OBAFUNMILAYO, OLABOYE 1064 OSUJI UGOCHUKWU, 1065 OSUNDINA ADEDEJI, AKINKUNMI 1066 OSUNKOYA SUNDAY, AFOLABI 1067 OSUNKWO EBERE, WALTER 1068 OSUNYOMI OLUMIDE, YETUNDE 1069 OSUOHA A, CHIMA 1070 OTENIYA THERESA, OMOPONMILE 1071 OTOROLEHI-OKEZIE VICTORIA, 1072 OTSEMOBOR ENETOMHE, 1073 OTTIH CHIMAMANDA, CLAIRE 1074 OTUNLA DAPO, 1075 OTUONYE MERCY, NKECHI 1076 OVIAWE NOSAMUDIANA, ABIGAIL 1077 OWIEADOLOR OSARIEMEN, SIMON 1078 OWIEADOLOR OSARIEMEN, SIMON 1079 OWO FAUSAT, ABIODUN 1080 OWOLABI ALONWONLE, NURUDEED ADEKUNLE 1081 OWOLABI TAWAKALITU, 1082 OWOPETU OLUFEMI, 1083 OWOYEMI OLAWALE, 1084 OWUMI ANTHONY, AGHOGHO 1085 OYAKHILOME MOMODU, KABIR 1086 OYATOGUN NATHANIEL O. O. 1087 OYEBANJI GRACE, ABIMBOLA 1088 OYEDELE ABDULAZEEZ, ADEMOLA TAIWO 1089 OYEDELE NURAT, ADENIKE EJIDE 1090 OYELAKIN OMOSHALEWA, SHERIFAT 1091 OYELUDE BABATUNDE., S. 1092 OYENUGA FOLASHADE, MARY 1093 OYEOKA JOY, NJIDEKA 1094 OYEOKA ONYINYE, 1095 OYESOLA FIYINFOLUWA, OYEBISI 1096 OYETIMEIN OLUWAPELUMI, MICHAEL 1097 OYEWOLE ISAIAH, OLUWATOSIN 1098 PASADENA ENERGY CORPORATION (FUTUREVIEW) - 1099 PATIENCE TUBOLAIFA, DORGU 1100 PATRICK AKINWUNTAN, MR & MRS 1101 PATRICK CHINELO, FAVOUR 1102 PATRICK UGOCHUKWU, NNAMDI 1103 PAUL AUGUSTINE, IDEYE 1104 PAUL SUNDAY, KINGSLEY 1105 PEARL TRADING & INVESTMENT LTD 1106 PEREIRA THEODORE, SHOBOWALE 1107 PESACH CAPITALS LIMITED 1108 PETER TAIWO, RACHEAL 1109 PETERS ADENIKE, MODUPE 1110 PHILIP IKECHUKWU, 1111 1112 1113 POPOOLA FUNKE, ANIKE 1114 POPOOLA SHERIFAT, BOLA 1115 POUSSE CAPITAL LIMITED 1116 PREYE JERRY, NYENYE 1117 1118 QADIR LATEEF, OLAMILEKAN 1119 QUADRI SULAIMON, 1120 RABIU SULE, ADEYEMO 1121 RAHMAN ADAM, TOLULOPE PHILLIPS BOLAJI, OLUFUYI PIUS UGHAKPOTENI, O. PROF CHRIS EKONG FOUNDATION S/No Beneficiary 1122 RAIMI RAMONI, ADEMOLA 1123 RAMON ADIJAT, KUBURA 1124 RASAQ OLALEKAN, MUMUNI 1125 RENCAP SECURITIES, NIG LTD-MM TRADING 1126 REUBEN VICTORIA, KEHINDE 1127 RIBIAX INVESTEMENT SERVICES LIMITED 1128 RIMDAP ABDUL, BIN 1129 ROBBINS LINWOOD, LADELL 1130 ROBSON SAMUEL, 1131 ROSGATE NIGERIA LIMITED 1132 RUFAI ADEMOLA, ELIAS 1133 RUNSEWE OLAOLUWA, OLUWOLE 1134 SAADU FALILAT, BOLANLE 1135 SADA VICTOR, OGHOGHO MR 1136 SAGOE KWEKU-MENSAH, OLAKUNLE 1137 SAKA HAKEEM, OLORUNTOYIN 1138 SAKA KOLAWOLE, ADAMS 1139 SAKA NUSIRAT, OMOBOLANLE 1140 SAKARIYAHU SHUAIB, TOYIN 1141 SALABIU WASIU, ROTIMI 1142 SALAMI JUSTIINA, SOBALOJU 1143 SALAMI OLASUNKANMI, TIRIMISIYO 1144 SALAMI RASHEEDAT, ABOSEDE 1145 SALAMI SILIFAT, ADEBOLA 1146 SALAMI SULAIMON, ABIODUN 1147 SALAMI YUSUFU, BISI 1148 SALAMI ZACHAEUS, OTITOJU 1149 SALAU MOHAMMED, ADEBANJO 1150 SALAU NURUDEEN, BABATUNDE 1151 SALAWU OMOLARA, WAKILAT 1152 SALEMSON SHAREHOLDERS ASSO OF NIGERIA 1153 SALISU SHUIBU, RAKIYA 1154 SALIU FAUSAT, REMILEKUN 1155 SANGUDI GENEVIEVE 1156 SANNI ABIODUN, CHRISTIANA 1157 SANNI TOYIN, FOLASHADE 1158 SANUSI IBRAHEEM, BUKUNLE 1159 SANUSI ISMAIL, FOLAWIYO 1160 SANUSI ISMAIL, OLASUKANMI 1161 SANYAOLU JONATHAN, AYO 1162 SARKI -, UMAR ALIA FEYISAYO ASAKE 1163 SARUMI TUNDE, KABIR 1164 SAVAGE ADEBUKOLA, ARIKE 1165 SCHLUMBERGER SEP INDEM FUND- CONS-TRADING 1166 SCOTT GABRIELLA, OYINKA 1167 SHAREMAN LIMITED 1168 SHITTA MORUFAT, ABIOLA 1169 SHITTA-BEY DHIKRULLAHI, OLAWALE 1170 SHITTA-BEY OMOWUNMI, 1171 SHITTU SULAIMON, AYINLA 1172 SHOBANDE COMFORT, OLUSHOLA 1173 SHODEINDE OLUWATOBI, EMMANUEL 1174 SHODEKE OMOLARA, DORCAS 1175 SHOFOLAHAN ANTHONIA, OLUWATOYIN 1176 SHOFOLAHAN CHARLES, OLUSEGUN Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 S/No Beneficiary 1284 YINKA ADETUBERU, DAVID 1285 YINUSA NOIMOT, OMOLOLA 1286 YINUSA RIDWAN, ADESHINA 1287 YUSSUF ZAINAB, ADESHINA 1288 YUSUF BASHIR, AHMED 1289 YUSUF IBRAHEEM, MUHAMMAD 1290 YUSUF NURUDEEN, 1291 YUSUF RIDWAN, OLALEKAN 1292 YUSUFF FEMI, LATEEF 1293 ZAMBLERA MAURO, 1294 ZARMUNEN ANFISA, GOFWEN 1295 ZARMUNEN ANFISA, GOFWEN 1296 OKONORHO LIZ, OGHENEKEVWE 1297 ZIRA MAURICE, S/No Beneficiary 1177 SHOFOLAHAN ELIZABETH, OLUBUKONLA S/No Beneficiary 1233 TITUS UCHE, 1234 TRUSTHOUSE INV. LTD.-TRADED- 1178 SHOFOLAHAN FRANCISCA, STOCK-A/C BOLATITO 1179 SHOFOLAHAN SUNDAY, O. 1180 SHOKUNBI KHADIJAT, OLASUMBO 1181 SHOMORIN OLUWAKEMI, SEUN 1182 SHOPEJU EFUNBOSEDE, AYOTUNDE 1183 SHOTUNDE BABATUNDE, SUNDAY 1184 SHYLON OLATUNBOSUN, 1185 SIAML/TY HOLDING LIMITED 1186 SIFFRE DADA, BIOLA 1187 SIMAN LARAI, 1188 SIMPSON ADETUNDE, OPEYEMI 1189 SIMPSON ADETUNDE, OPEYEMI 1190 SMARTT FUTURES RESOURCES LTD - 1191 SMITH BUKOLA, 1192 SOARES AKINOLA, (EVANG) 1193 SOBANDE RAPHAEL, OLUDARE 1194 SOBODU ADESOLA, OLUWAWEMIMO 1195 SOBOWALE SESAN, OLUFUNMILADE 1196 SOFOWORA SHAMSONDEEN, AINA 1197 SOKARE BEULAH, EFEOGHENE KARINATE 1198 SONIBARE WAHEED, AKANNI 1199 SORINOLA SAMUEL, OLUDARE 1200 SOSANWO REUBEN, SINA 1201 SOWEMIMO BASIRU, SOLA 1202 SOWEMIMO OLUSOLA, OLABISI 1203 SOYE BRIGGS, 1204 STERLING ASSURANCE NIGERIA LIMITED 1205 STERLING REGISTRARS LTD 1206 SULE ABIOLA, SEKINAT 1207 SULE ABIOLA, SEKINAT 1208 SULE ANARUGU, SHEHU 1209 SUNDAY YUSUF, GAJERE 1210 SURAKAT KAZEEM-IDOWU, TAIRU TAIWO, KAMALIDEEN 1211 TAIWO ADEMOLA, SIMEON 1212 TAIWO ATINUKE, ADUKE 1213 TAJUDEEN KABIR, BANKOLE 1214 TAJUDEEN TAIWO, JAMIU 1215 TAJUDEEN TINUBU, TEMILOLUWA 1216 TATIN TRUE CONCEPTS LIMITED 1217 TAYO MOJISOLA, OLUFUNSO 1218 1219 TEBI CAPITAL INVESTMENT LIMITED 1220 TEDEYE OMAJUWA, J. 1221 THOMAS AKINBAYO, OLAWALE 1222 THOMAS AKINBAYO, OLAWALE 1223 THOMSON ISRAEL, 1224 TIAMIYU MUSTAPHA, OLADELE 1225 TIJANI AJIMOTU, MONYENI 1226 TIJANI OLUWANISOLA, M. 1227 TIJANI SHUKURAT, EBUNDOLA 1228 TIJANI, ADIJATU-KUBURA, OLUWATOSIN 1229 TIJANI, QUZEEM, AYOMIDE OLUWADUROTIMI 1230 TIJANI, SODIQ, OLUWAGBEMIGA 1231 TIJANI, SUKURAT, EBUDOLA 1232 TIJANI, SULEIMAN, OLUWASEUN 1235 TRW STOCKBROKERS, LTD- T+2 ACCOUNT NOMINE 1236 TRW STOCKBROKERS, LTD- T+2 ACCOUNT NOMINE 1237 TRW STOCKBROKERS LTD- T+2 ACCOUNT NOMINE 1238 TUEDOR FRANCIS, 1239 TWO EDGE PARTNERS GLOBAL LIMITED 1240 UBAH IRENE, NNABUOGO 1241 UBAKA CHIAGOZIE, ONYEKACHI 1242 UBOGU FELIX, NKWAONYE & OLUFUNMILAYO ITUN 1243 UCHENYI CHIOMA, CHIDUBEM 1244 UCHENYI KESANDU, CHUKWUBUEZE E 1245 UCHENYI KESANDU, ONYIMGBA MELVYN 1246 UCHENYI UZOAMAKA, UCHECHI 1247 UDOFIA NKO, 1248 UDOFIA WILLIAMS, ETUK 1249 UDOH INEMESIT, BRIAN EZEKIEL 1250 UGBALA CHIGOZIE, CHRISTIAN MONDALE 1251 UGBOR ULODIAKU, PETER 1252 UGWUEDE BENEDICT, CHIDEBERE 1253 UKEGBU AZUBUIKE 1254 UKONGA FLORENTINA, ADENIKE 1255 UKPONG CHRISTIANA, LUCKY 1256 UKPONG UKPONG, S. 1257 UMAR FARUK, (DR.) 1258 UMEH IFY, 1259 UMEOKORO IFEANYICHUKWU, JUDE 1260 UMEZE NZE, INNOCENT 1261 UMOH OTOBONG, ISAIAH 1262 UMUKORO EMMANUEL, FRANKLIN 1263 USIAPHRE PATRICK, 1264 USIAPHRE PATRICK, ONOME 1265 USMAN HAMMED, OLUWASHOLA 1266 VETIVA NOMINEES A/C OGE PETERS 1267 VETIVA TRUSTEES LIMITED-CLIENTS CSCS 1268 VICTOR &, BRIDGET DANIA 1269 VICTOR EFFIOM, OROK 1270 VINCENT CHRISTIE, OTUOSOROCHUKWU 1271 VINSTAR CONSULTING 1272 VISTA INVESTMENT PROPERTY LIMITED - 1273 WASIU ADEWALE, AZEEZ 1274 WASIU ADEWALE, AZEEZ 1275 WEWE MARY, IMADE 1276 WILLIAMS ESTHER, FOLASHADE 1277 WILLIAMS GRACE, NWAKEGO 1278 WILLIAMS OLUWASEYI, 1279 WILLIAMS RUTH, OLAMIDE 1280 WILLIAMS SERAH, QUEEN 1281 WOODCOTE LIMITED 1282 WOODGREEN GLOBAL RESOURCES LIMITED 1283 YARROW ALIMOT, SHADIAT 305 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 General information Board of Directors Ambrosie Bryant Chukwueloka Orjiako Chairman Roger Thompson Brown Managing Director and Chief Executive Officer Emeka Onwuka Effiong Okon Chief Financial Officer (Executive Director) Operations Director (Executive Director) Ojunekwu Augustine Avuru Non-Executive Director Madame Nathalie Delapalme Non-Executive Director Olivier Cleret De Langavant Non-Executive Director Basil Omiyi Senior Independent Non-Executive Director Xavier R. Rolet, KBE Independent Non-Executive Director Arunma Oteh, OON Independent Non-Executive Director Charles Okeahalam Independent Non-Executive Director Lord Mark Malloch-Brown Independent Non-Executive Director Damian Dinshiya Dodo, SAN Independent Non-Executive Director Nigerian British Nigerian Nigerian Nigerian French French Nigerian French Nigerian Nigerian British Nigerian Company Secretary Edith Onwuchekwa Solicitors Olaniwun Ajayi LP Registered office and +.business address of Directors 16a Temple Road (Olu Holloway), Ikoyi Lagos Nigeria Registered number RC No. 824838 FRC number FRC/2013/NBA/00000003660 Auditor PriceWaterhouseCoopers Landmark Towers 5b Water Corporation Road Victoria Island Lagos PWC Registrar DataMax Registrars Limited 2c Gbagada Expressway Gbagada Phase 1 Lagos Nigeria 306 Adepetun Caxton-Martins Agbor & Segun (“ACAS-Law”) White & Case LLP Whitehall Solicitors Chief J.A. Ororho & Co. Ogaga Ovrawah & Co. Consolex LP Mike Igbokwe & Co. V.E. Akpoguma & Co. Thompson Okpoko & Partners G.C. Arubayi & Co. Streamsowers & Kohn Tonbofa Law Practice Chris E Anokam & Co Adebiyi Tax & Legal Tsedaqah Attorneys J.E. Okodaso & Company Bankers First Bank of Nigeria Limited Stanbic IBTC Bank Plc United Bank for Africa Plc Zenith Bank Plc Citibank Nigeria Limited Standard Chartered Bank HSBC Bank FirstRand Bank Limited Acting Natixis Nedbank Limited Nomura International Plc The Standard Bank of South Africa The Mauritius Commercial Bank Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Glossary of terms AEPS Amukpe Escravos Pipeline System AG Associated Gas AGPC ANOH Gas Processing Company ALR Amended Listing Rules ANOH Assa North Ohaji South BTU British Thermal Unit CAMA Companies and Allied Matters Act CBI Convention on Business Integrity CBN Central Bank of Nigeria CGRS Corporate Governance Rating System DD&A Depreciation, Depletion & Amortization DSO Domestic Supply Obligation E&A Exploration and Appraisal EBIT Earnings Before Interest Tax EPF Early Production Facility EPS Earnings Per Share ERGP Economic Recovery & Growth Plan ERM Enterprise Risk Management ESIA Environmental Social Impact Assessment FID Final Investment Decision FTSE Financial Times Stock Exchange Index GDP Gross Domestic Product GGFR Global Gas Flaring Reduction GHDI Global Human Development Initiative GMOU Global Memorandum of Understanding GMP Gas Master Plan GSA Gas Supply Agreement GTL Gas To Liquids GW Giga Watt IEFX Investors, Exporters Foreign Exchange window IOC International Oil Company IOGP International Association of Oil & Gas Producers IPP Independent Power Plants ISO International Standards Organisation KPI Key Performance Indicator KWH KiloWatt Hour LNG Liquefied Natural Gas LPS Loss Per Share LTF Liquid Treatment Facility LTIF Lost Time Incident Frequency LTIP Long Term Incentive Plan MCP Multiple Currency Practices MOPU Mobile Offshore Production Unit NAPIMS National Petroleum Investment Management Service NBS National Bureau of Statistics NED Non Executive Director NGC Nigerian Gas Company NGMC Nigerian Gas Marketing Company NGMP Nigeria Gas Master Plan NGO Non Governmental Organisation NGPTC Nigerian Gas Processing and Transportation Company NIIMP Nigerian Integrated Infrastructure Master Plan NNPC Nigerian National Petroleum Company NOGICD Nigeria Oil and Gas Industry Content Development NPC National Population Commission NPDC Nigerian Petroleum Development Company O&G Oil & Gas OB3 Obiafu-Obrikom-Oben gas pipeline OPEC Organisation of Petroleum Exporting Countries PIB Petroleum Industry Bill PIFB Petroleum Industry Fiscal Bill PIGB Petroleum Industry Governance Bill PPP Public Private Partnership PSC Production Sharing Contracts RCF Revolving Credit Facility SDG Sustainable Development Goals SEC Securities Exchange Commission SID Senior Independent Director SPDC Shell Petroleum Development Company TRIR Total Recordable Incident Rate TSR Total Shareholder Return WEF World Economic Forum WRPC Warri Refinery Petrochemical Company 307 Strategic Report 01—77Governance Report 78—144Financial Statements 145—308Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Notes 308 Seplat Petroleum Development Company PlcAnnual Report and Accounts 2020 Forward-looking statements This document may include statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the Company’s control and all of which are based on the Company’s current beliefs and expectations about future events. These forward-looking statements may be identified by the use of forward- looking terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements reflect the Company’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company’s business, results of operations, financial position, liquidity, prospects, growth, strategies and the oil and gas business. Forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance. Designed and produced by SampsonMay Telephone: 020 7403 4099 www.sampsonmay.com Seplat Petroleum Development Company Plc Head Office 16a Temple Road, Ikoyi, Lagos, Nigeria London Office Fourth Floor, 50 Pall Mall, London SW1Y 5JH United Kingdom www.seplatpetroleum.com