Reviewed Interim Results for the six months ended 31 August 2014
SACOIL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1993/000460/06)
JSE share code: SCL AIM share code: SAC
(“SacOil” or “the Company” or “the Group”)
Reviewed Interim Results for the six months ended 31 August 2014
• Cementing of Board and executive team
• Transition from development to production initiated
• Acquisition of 20% interest in Nigeria’s OPL 233 completed; seismic survey initiated
• Completion of satellite imagery survey for Botswana assets and ESIA initiation in Malawi
• Strategic entry into Egypt through 100% acquisition of Lagia Oil Field
• Active review of capital structure and funding options
Dr Thabo Kgogo, Chief Executive of SacOil, commented: “We attained a number of milestones during this period with the support of a new Board and re-energised executive team. In particular, the acquisition of Lagia Oil Field in Egypt marks our transition from a development to a production company supported by a reserve base able to deliver production and cash flow in the near term. This transformational transaction also provides us with greater access to the capital markets as we roll out our strategy to build a substantial pan-African exploration and production business.
Looking ahead, our funding situation remains a top priority and we will continue to work towards the successful resolution of the loan situation with EERNL but also actively review alternative options, including rebalancing of our portfolio. The completion of the forensic investigation and resolution of the matters raised will remain a priority of the Board.”
SacOil is an independent African oil and gas company, dual-listed on the JSE and AIM, and has business operations that are focused across the African continent. Currently, the Group operates in the following jurisdictions: the Democratic Republic of Congo (“DRC”); the Republic of Malawi; the Republic of Botswana; and the Federal Republic of Nigeria. Further, the Company continues to evaluate opportunities to secure high-impact acreage in other established and prolific hydrocarbon basins in Africa.
Shareholders are referred to the announcement issued on SENS and RNS on 9 October 2014, in which the Company communicated a detailed update on its assetlevel operations.
The Group reported a decrease of 23% in profit after tax to R20.7 million for the six months ended 31 August 2014 compared to R27.0 million for the corresponding prior comparative period. Although the Group’s investment income increased by 64%, the resultant increase was off-set by foreign exchange losses on the Group’s financial assets coupled with higher other operating costs.
The increase in investment income is attributable to the compounding effect of the interest accruals on the loan advanced to Energy Equity Resources (Norway) Limited (“EERNL”). Furthermore, the loan now attracts interest of 32% compared to 30% for the corresponding prior comparative period, following the renegotiation of the loan repayment terms (refer to note 13). The composition of investment income is disclosed in note 4.
Other operating costs, as disclosed in note 3, increased by 305% to R46.6 million (2013: R11.5 million) during the period under review. The Group impaired its financial assets by R19.7 million (2013: nil). The increase is also reflective of the Group’s investment in business development activities.
The Group’s foreign exchange losses for the six months total R7.2 million (2013: R43.7 million foreign exchange gains). The US dollar / Rand exchange rate was less volatile during the six months under review compared to the corresponding prior comparative period when it fluctuated between R8.8398/US$1 and R10.3016/US$1 at the beginning and end of the reporting period, respectively.
The Group extinguished all its debt in January 2014, resulting in the elimination of borrowing costs (2013: R10.5 million).
Exploration and evaluation assets increased by R29.2 million to R296.0 million (28 February 2014: R266.8 million) as a result of the Group capitalising the seismic survey costs relating to OPL 233.
Other financial assets, as disclosed in note 8, increased by R35.2 million to R691.1 million (28 February 2014: R655.9 million). The net movement comprises:
• An increase in interest of R73.4 million on the EERNL loan (R59.4 million), contingent consideration (R10.7 million) and other financial assets (R3.3 million);
• A part repayment of the EERNL loan of R10.6 million;
• An impairment charge of R19.7 million against the EERNL loan; and
• Foreign exchange losses totalling R7.9 million.
Cash and cash equivalents comprise the translated US$10 million cash collateral held as security for the performance bond on OPL 233 of R106.7 million (28 February 2014: R108.1 million) and cash deposits amounting to R214.0 million (28 February 2014: R273.5 million). The decrease in cash is reflective of the Group’s investment in the OPL 233 seismic survey, business development activities and normal operating costs.
Other financial liabilities, as disclosed in note 10, decreased by R20.9 million, reflecting the settlement of the amounts owed to Nigdel United Oil Company, the operator of OPL 233.
The Board continues to explore funding and other alternatives available to the Group to ensure that the Group has adequate resources to continue operating for the next 12 months. The Group interim financial statements presented have been prepared on a going concern basis as detailed in note 14.
The Board of SacOil recently engaged Ernst & Young Inc. to carry out a forensic investigation on specific historical transactions of the Company between 1 August 2011 and 30 November 2011 relating to the Company’s unsuccessful attempt to acquire interests in Block I and II in the DRC, amongst other matters.
Based on matters raised in the preliminary forensic report, Ernst & Young Inc., the Company’s external auditors, have reported to the Independent Regulatory Board for Auditors that they have reason to believe that Reportable Irregularities committed by previous members of management took place. These Reportable Irregularities relate to matters which do not affect the current condensed consolidated interim financial statements. The directors do not expect that future losses will arise from the matters raised.
The forensic investigation represents a key step taken by the Board to address historical governance issues.
Shareholders will be kept informed of progress made regarding this matter.
CHANGE IN DIRECTORATE
On 1 June 2014 the new CEO, Dr Thabo Kgogo, joined SacOil and was appointed to the Board. On 11 August 2014 Bradley Cerff was appointed to the Board as an Executive Director.
Good progress has been made across the existing portfolio of exploration and appraisal assets during the period.
The acquisition of the Lagia Oil Field in Egypt completed in October 2014 marks an inflexion point in SacOil’s investment profile with the Company transitioning from a pure exploration play to an exploration and production business with cash-generating assets.
SacOil is now focusing on its funding situation and will assess various alternatives to ensure that an adequate capital structure is in place to deliver on its stated strategy. This may include a combination of portfolio rebalancing, rationalisation of assets and alternative funding options which are being continually assessed. The resolution of the US$18 million loan due to SacOil by EERNL is a top priority which is anticipated to be resolved before the end of the financial year.
Longer term, SacOil will continue to execute on ongoing projects in the Democratic Republic of Congo, Malawi, Botswana and Nigeria which are all expected to yield significant future milestones and value for the Group. The partnership announced in March 2014 between SacOil, the Public Investment Corporation of South Africa and the Instituto De Gestão Das Participações Do Estado in Mozambique regarding the investigation of gas opportunities and future distribution of gas in southern Africa also offers exciting prospects.
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