Delivering Growth

Annual Review 2013 Review Annual Energy Seven Seven Energy Annual Review 2013

Delivering growth Seven Energy is an indigenous Nigerian oil and gas exploration, development, production and distribution company with a vision to become the leading supplier of gas to the Nigerian domestic market for power generation and industrial consumption.

Read more about Seven Energy Group overview p04

Go online: www.sevenenergy.com Strategic report Strategic

Strategic report Highlights 02 Group overview 04 An overview of the Seven Energy Group, including Chairman’s statement 06 corporate, financial and operational highlights, Group overview, market insights, business model, Market overview 08 strategy and key performance indicators. Integrated business model 12 Chief Executive’s statement 14 Strategy in action 16 Key performance indicators 18 Operational and financialreview

Operational and Upstream 20 Midstream 24 financial review Financial review 28

An overview of Seven Energy’s upstream Risk management 30 and midstream operations, financial profile, Corporate social responsibility 34 risk management and CSR. Corporate governance

Corporate governance Chairman’s overview 39 Board of Directors 40 We are committed to applying high standards Board Committees 42 of corporate governance across our business. Learn more about our Directors, Board Committees Senior management 44 and senior management team, as well as our Directors’ report 46 wider approach to corporate governance. Summary financials Summary

Summary Group income statement 49 Summary financials Summary Group cash flow statement 50 Financial performance for 2013 and extracts from Summary Group balance sheet 50 the consolidated financial statements, prepared in accordance with IFRS as adopted by the European Union. Glossary of terms 51

Seven Energy Annual Review 2013 01 Highlights

Delivering growth Continued strong performance has been achieved across our operations. Increased production and reserves combined with enhanced debt facilities have significantly strengthened our business.

Corporate and financial highlights

Corporate Financial +238% Acquired East Horizon Gas Company 3,104,034 bbls of oil sold at an average increase in liftings sold Limited (“EHGC”), which includes the price of $111 per bbl (2012: 918,676 bbls 3,104 Mbbl 2013 vs 919 Mbbl 2012 East Horizon pipeline and a gas sales at $112 per bbl) agreement with UniCem, for up to $250 million Extension of the Project Finance Facility from a 5-year $55 million facility, to a +237% Acquired SRL 905 Holdings Ltd 7-year $225 million facility and a further increase in revenue (“SRL 905”), which holds a 40% licence $170 million 5.5-year facility to support $345.0m 2013 vs $102.4m 2012 interest in OPL 905 the EHGC acquisition

Secured $255 million of new equity Expansion of the Reserve Based Secured capital from Temasek, the International Facility from $150 million to a revised $201.3 m Finance Corporation (“IFC”) and the 5.5-year $350 million facility to support 2013 EBITDAX IFC African, Latin American and continued development of OMLs 4, vs $33.9m 2012 Caribbean (“ALAC”) Fund to further 38 and 41 develop gas supply opportunities $508.4 m in Nigeria’s domestic gas market 2013 capital expenditure vs $232.0m 2012

Our evolving Group...

Buy-out of a division Acquisition of Gulf of Guinea Acquisition of 62.5% interest of Weatherford Energy – holder of 40% in Universal Energy – holder International and licence interest in the of 51% licence interest in the merger with Uquo Field Stubb Creek Field Exoro Energy

2007 2008 2009 2010

Signed long-term gas sales Strategic Alliance Agreement Corporate highlights agreement to supply the entered into with NPDC for Operational highlights 190 MW Ibom Power station the development of OMLs 4, with 43.5 MMcfpd of gas 38 and 41

02 Seven Energy Annual Review 2013 Strategic report Strategic

Operational highlights

Upstream Midstream Strong growth in production from Commercial deliveries of gas to the Ibom +6.4% OMLs 4, 38 and 41, with a 55% Power station started in January 2014 increase in 2P reserves increase in average gross oil production 232 MMboe 2013 vs 218 MMboe 2012 to 51,600 bopd (2012: 33,350 bopd) Construction of Train 2 of the Uquo Gas Processing Facility completed Gas production at the Uquo-2 well (additional 100 MMcfpd, taking the commenced in December 2013 to total to 200 MMcfpd) +54.7% allow for testing and commissioning increase in average gross oil production at the Ibom Power station Right of way acquisition and clearing 51,600 bopd 2013 vs 33,350 bopd 2012 of the 37 km 24-inch pipeline route from Successful 35 MMcfpd well test on Uquo to Oron completed. Laying of Uquo-4, and two new gas production the pipeline commenced in Q4 2013 to wells, Uquo-7 and Uquo-8ST, drilled and enable full delivery to the Calabar NIPP 8.6m hours scheduled for completion in 2014 power station reached without a Lost Time Incident (“LTI”) by the end of 2013 Continued development of the Stubb Creek Field, with first oil production being targeted during 2014 84% of employees are based in Nigeria, of whom 93% are of Nigerian nationality

Near-term objectives

– Integration of EHGC and establishment Signed long-term gas Train 1 (100 MMcfpd) of of a dynamic gas distribution system sales agreement to the Uquo Gas Processing in south east Niger Delta supply the 560 MW Facility completed Calabar NIPP power station – Completion of the 37 km 24-inch with 131 MMcfpd of gas Uquo to Oron gas pipeline

2011 2012 2014 – Completion of Uquo-7 and Uquo-8ST gas producing wells at the Uquo Field and drilling Completion of 62 km Completion of the 23 km of further new appraisal and development wells 18-inch Uquo to Ikot 6-inch pipeline from the Stubb – Production and first oil from the Stubb Creek Abasi gas pipeline Creek Field to ExxonMobil’s and Uquo Fields Qua Iboe export terminal – Commencement of gas delivery to the Calabar NIPP power station – Appraisal and exploration on OPL 905

Seven Energy Annual Review 2013 03 Group overview

At a glance Seven Energy is a Nigerian oil and gas company, operating along the full value chain from upstream exploration, appraisal, development and production assets; through to midstream activities comprising ownership of processing and distribution infrastructure, and marketing to end users.

Upstream Read more about Upstream operations p20

Seven Energy has a diversified portfolio of onshore oil and gas interests with a substantial reserves and resources base in two focus areas of the Niger Delta and a recently acquired undeveloped asset in the Anambra Basin.

The Group’s assets in north west Niger Delta and south east Niger Delta are Nigeria located in close proximity to oil and gas infrastructure, giving access to major demand centres for gas and export terminals for oil. The Anambra Basin is an underexplored basin but with substantial gas resource potential.

Legend

Seven Energy licence areas

Seven Energy marginal field areas

Licence areas

NPDC Strategic Alliance Agreement areas

04 Seven Energy Annual Review 2013 Strategic report Strategic Strategic investors 2P + 2C reserves and resources Oil vs gas: 2P + 2C Seven Energy benefits from 2P 232 MMboe (1,391 Bcfe) Gas 64% a strong and supportive 2C 122 MMboe (731 Bcfe) Oil 36% investor base.

Read more about Seven Energy’s investors p46

354 MMboe 2P + 2C reserves and resources

Midstream Read more about Midstream operations p24

Seven Energy’s wholly-owned midstream business, Accugas, focuses on sales and marketing, processing and distribution of gas to the domestic Nigerian market. Through the development of gas infrastructure, Accugas serves to assist its upstream partners to monetise their gas resources. Accugas owns the Uquo Gas Processing Facility, which processes gas from the Uquo and Stubb Creek Fields, and a network of pipelines linking the processing facility to both the Ibom Power station and the Calabar NIPP power station. The recent acquisition of EHGC adds the 128 km East Horizon pipeline running from Ukanafun to Mfamosing, just outside Calabar, to the Group’s infrastructure assets, as well as a gas sales agreement with UniCem.

The midstream business has three components:

– Processing: gas processing services are provided by the 200 MMcfpd Uquo Gas Processing Facility to Seven Energy’s upstream subsidiaries and joint venture partners. Similar processing services are planned to be offered to other market participants in due course. – Distribution: gas is transported through an extensive gas pipeline infrastructure from processing facilities directly to offtakers. – Sales and marketing: gas sales agreements are entered into with offtakers.

Legend

Seven Energy marginal field areas

Licence areas

Seven Energy oil and gas fields

Seven Energy gas pipeline

Seven Energy oil pipeline

3rd party gas pipeline

3rd party gas pipeline (under construction)

Seven Energy customer (power station)

Seven Energy customer (industrial)

Seven Energy customer (export terminal)

Demand areas

Seven Energy Annual Review 2013 05 Chairman’s statement

Making strong progress The last year has been an important year in our development; reaching major project milestones, including first production of gas, entering into strategic upstream and midstream acquisitions, further increasing our production and reserves, strengthening our capital base and significantly improving our financial performance.

increased by 55% to 51,600 bopd in 2013 Financial performance (2012: 33,350 bopd). I am pleased to report significantly improved financial performance in 2013, with revenue Our midstream operations commenced growth of 236.7% to $345.0 million commercial deliveries of gas to the Ibom (2012: $102.4 million), $167.4 million higher Power station in January 2014, which is a EBITDAX at $201.3 million (2012: $33.9 major milestone for our business and for the million) and a profit after tax of $39.4 million power sector in Nigeria. During 2013, Train 2 (2012: loss of $6.6 million). Net cash flow of the Uquo Gas Processing Facility was generated from operations was $171.9 mechanically completed, bringing this facility’s million (2012: $77.8 million) with capital Dr Andrew Jamieson OBE capacity up to 200 MMcfpd, and work expenditure amounting to $508.4 million Non-executive Chairman continued on the construction of the 37 km (2012: $232.0 million). These results reflect Uquo to Oron pipeline to deliver gas to the the excellent progress we have made and Calabar NIPP power station. At present, we the committed efforts of our staff. Over the last year, we have seen high levels are supplying gas to generate up to 115 MW, of operational and corporate activity and which will increase to 750 MW once Ibom Board and corporate governance strong performance in our business, all of Power station is at full capacity and the We are committed to high standards of which have positioned us very well for the Calabar NIPP power station is fully operational, corporate governance and during 2013 future growth of Seven Energy. representing in excess of 10% of Nigeria’s we continued to strengthen our Board with current power generation capacity of 6 GW. the appointment of Michael Lynch-Bell as Operational update an independent Non-executive Director and The principal focus of our upstream Corporate development Chair of the Audit Committee. With effect operations has been to bring the Uquo Field In line with our growth strategy, we have from 1 January 2013, I also assumed the into production and by March 2013, we were recently completed two acquisitions. In role of Non-executive Chairman allowing ready to supply gas to Ibom Power station January 2014, we completed the acquisition Phillip Ihenacho, as Chief Executive Officer, with Train 1 of the Uquo Gas Processing of a 40% licence interest in OPL 905 and to focus on delivering performance, Facility and the 62 km Uquo to Ikot Abasi entered into an agreement to acquire an developing our growth strategy and pipeline fully commissioned. additional 50% interest in this licence. executing our business plan. OPL 905 is an exploration licence located In December 2013, we commenced gas in the Anambra Basin, which includes two Senior management and employees production to enable the Ibom Power station gas discoveries with substantial resource In 2013, we made some key senior to undertake commissioning and testing work potential. In March 2014, we completed the management appointments, including that of after a nine-month overhaul of the power acquisition of East Horizon Gas Company Jeff Corey as Chief Operating Officer, based station’s main turbine. Commercial deliveries which operates the 128 km East Horizon in Lagos, and other senior management of up to 25 MMcfpd started in January 2014. pipeline running through Akwa Ibom and positions within operations, capital projects During 2013, the Uquo-4 well was re-entered Cross Rivers States and has a 25 MMcfpd and QHSSE. The benefits of these and completed and two new gas development long-term gas sales agreement with an appointments have already been evident in wells (Uquo-7 and Uquo-8ST) were drilled and industrial offtaker. This acquisition consolidates operational performance and project delivery. are scheduled for completion in 2014. our midstream position in south east Niger Of our 170 employees, 84% are based in Delta and diversifies our customer base. Nigeria and we have opened an additional Further development work has taken place at office in Uyo to support our operations. the Stubb Creek Field, ahead of a scheduled In addition, in April 2014, we entered into commencement of oil production during agreements with Temasek, the IFC and Corporate social responsibility 2014. This work has taken longer than the IFC ALAC Fund under which these Producing and developing gas for anticipated, largely due to a dependence parties have agreed to invest $255 million power generation means enhancement on obtaining the necessary access to of additional equity into Seven Energy. This to the quality of life and wellbeing for undertake work within ExxonMobil’s Qua significantly strengthens our capital base in the people of Nigeria. In our activities, Iboe export terminal. In addition, with an support of our growth ambitions and is a we aim to conduct our business in a active development programme on OMLs strong endorsement of our business plan and responsible and transparent fashion and 4, 38 and 41 and two further fields coming the leading role we are playing in the fast we remain committed to sustainability into production, average gross production developing Nigerian domestic gas market. and the health, safety and security of our

06 Seven Energy Annual Review 2013 Strategic report Strategic “First gas to the Ibom Power station has been a major Zero milestone for both us Total Recordable Incidence Rate (TRIR) and Nigeria” $345.0 million Revenue vs $102.4 million 2012

workforce and the communities impacted by our operations. We are proud of the Corporate governance achievement of over 8.6 million man hours without a Lost Time Incident and to have a Total Recordable Incidence Rate of zero The Board is committed to developing for the second year running. and applying high standards of corporate governance both in the management We continue to engage with our host of its business and its accountability communities to provide employment, education, training and essential to stakeholders as a whole. infrastructure. A particular focus during the year was our land acquisition programme for the Right of Way for the Uquo to Oron pipeline, which was successfully implemented in accordance with the IFC’s Performance Standard for Land Acquisition and Involuntary Resettlement.

Outlook With first commercial delivery of gas from the Uquo Field, we have achieved a major milestone in the development of our business. Dr Andrew Jamieson OBE Phillip Ihenacho Ashley Dunster In four years, we have realised our ambition Non-executive Chairman Chief Executive Officer Non-executive Director to be a supplier of gas to the Nigerian domestic market. Our commitment to support the growth of the power sector in Nigeria and to support the country’s economic growth is clear and we look forward to the next step of this development with completion of the Uquo to Oron pipeline and deliveries of gas to the Calabar NIPP power Osam Iyahen Atul Gupta Dr Yemi Osindero station. In addition, the acquisition of the Non-executive Director Non-executive Director Non-executive Director East Horizon pipeline has consolidated our market leading position in the south east Niger Delta and provides opportunities to expand the reach of our gas distribution network and increase our customer base.

In addition, our investment in the Strategic Alliance Agreement with NPDC has delivered Dr Joshua Udofia Michael Lynch-Bell Robin Pinchbeck significant increases in production from Non-executive Director Non-executive Director Non-executive Director OMLs 4, 38 and 41 and, with an active development and appraisal plan already in Read more about place, we look forward to continued growth corporate governance in production from these interests in 2014. p38

Dr Andrew Jamieson OBE Chairman Fidelis Oditah QC SAN Clare Spottiswoode CBE Board Adviser Board Adviser

Seven Energy Annual Review 2013 07 Market overview Regional knowledge Nigeria presents significant growth opportunities for indigenous players like Seven Energy. With expected strong growth in domestic demand for gas and associated infrastructure developments, the gas market opportunity is particularly strong. Seven Energy is well positioned to utilise this opportunity and to tackle the challenges that are typical to emerging markets.

African experience Seven Energy has a wealth of management experience and expertise in Africa and more specifically in Nigeria, which allows it to navigate the challenges that face oil and gas companies operating in this region and deliver value to stakeholders.

First mover advantage Seven Energy’s first mover advantage, as a supplier to the domestic gas market in its core operating areas, has and will continue to deliver growth.

Strategic partnerships Seven Energy has a track record of fostering successful relationships with strategic partners (NPDC and Petrofac), joint venture partners (Frontier Oil and Sinopec), anchor customers (Ibom Power), regional governments (Akwa Ibom State) and local host communities.

Capital strength Seven Energy has a strong capital base, supported by local and international investors, allowing it to pursue a combination of organic and non-organic growth opportunities.

08 Seven Energy Annual Review 2013 Strategic report Strategic

Nigeria’s growth factors The combination of Nigeria’s positive 174 m demographic changes, economic growth, Nigeria’s population, the mature resource base, power sector reforms largest in Africa (July 2013) and the shift in focus by international oil companies towards offshore assets are all substantial contributors to the attractiveness of this region, enabling the development 6.9 % Nigeria’s forecast average of indigenous players such as Seven Energy. annual economic growth (2013 to 2018)

Seven Energy Annual Review 2013 09 Market overview

Demand for gas in Nigeria Market highlights Demand for gas in Nigeria is growing is growing strongly and the Largest gas reserves in Africa, largely strongly. Seven Energy’s focus areas in the south east Niger Delta of Akwa Ibom State undeveloped, and largest producer of oil region has significant proved (Ikot Abasi) and Cross River State (Calabar), in Africa, mainly for the export markets. but largely undeveloped together with the nearby Rivers State (Port gas reserves. Strong local demand for power, driven Harcourt) and Abia State (Aba), are estimated to have a demand of 450 MMcfpd (2012), by population and economic growth. which is forecast to grow to 970 MMcfpd by Significant need for reliable gas processing 2016, equivalent to 21.2% p.a. growth. and transportation infrastructure. 182 Tcf Power sector reforms Nigeria’s proved gas reserves (2012) Heavy reliance on expensive, imported The deficit of domestic gas supply in Nigeria diesel, particularly for power generation. has a negative effect on the broader Nigerian economy, especially with regard to power generation. The pace of economic development, although strong, has been 4.2 Bcfpd constrained due to a lack of investment in Nigeria’s gas production (2012) Positive demographic changes power infrastructure and the absence of and economic growth a reliable and affordable electricity supply. Nigeria has a large, growing population Relatively low installed electricity generating of 174 million people, the largest in capacity of only 6 GW has led to chronic Africa. Its population is young and rapidly domestic power shortages. The lack of 62% urbanising and the country is one of appropriate power infrastructure also results of Nigeria’s gas is flared or the most developed countries in Africa, in country-wide fuel substitution and self- exported as LNG experiencing rapid economic growth. generation of power. Despite being a major Between 2000 and 2013, real GDP grew oil producer, Nigeria imports approximately at a compound annual average growth 62% of its consumed petroleum products, rate of 8.4% and is projected to grow at largely in the form of diesel, which is a far a compound annual rate of 6.9% between more expensive fuel than gas. Domestic demand for gas 2013 and 2018, making it one of the (2012 – 2025) fastest growing economies in Africa. The development of gas supply for the Bcfpd domestic market is a priority of the Nigerian Power Nigeria’s gas market Government, as demonstrated by a number Feedstock Nigeria has the largest proved gas reserves of reforms and initiatives, including the Gas powered industries in Africa of 182 Tcf (2012), with production Gas Master Plan. The Gas Master Plan aims Light domestic industries of only 4.2 Bcfpd (2012). To date, Nigeria to unlock Nigeria’s gas potential and meet 7.2 has not capitalised on its gas reserves, with growing domestic energy demand by driving only 14% being supplied and used by the power capacity growth. The Gas Master 5.2 domestic market. Approximately 38% of Plan calls for the construction of new Nigeria’s gas production is exported as LNG, cost-competitive gas infrastructure, including 3.6 24% is flared with the remainder being the construction of pipelines and central 1.8 re-injected or used as fuel or processed into processing facilities across the country. liquefied petroleum gas or gas liquids. In particular, the Nigerian Government has As a result, there is a reliance on expensive, implemented several measures to incentivise 2012 2015 2020 2025 imported petroleum products, at a cost of private companies and institutions to invest $17.5 billion for power generation alone. in the power sector with a view to meeting In addition, Nigeria has a limited amount the target of 40 GW of generating capacity of processing and distribution infrastructure by 2020, the majority of which is to come capacity, particularly relative to its reserves, from new gas fired power stations. During production and potential demand. Of the 2013, the Nigerian Government concluded existing 2,000 km network of gas pipelines, the privatisation process of existing generation only a third is estimated to be dedicated to and distribution companies, a development domestic consumption, with the remaining that is considered to be among the largest being utilised for LNG exports. in the Nigerian power sector to date. This followed the establishment of a bulk buyer of electricity in 2012 and implementation of a more appropriate pricing framework in 2010.

10 Seven Energy Annual Review 2013 Strategic report Strategic

As a result of the Nigerian Government’s However, since 2009, the IOCs have shifted reforms and initiatives, combined with the their focus towards large offshore projects. advantageous fuel substitution economics As a result, a number of divestments 37.2 billion bbls and Nigeria’s economic growth prospects, have, and continue to take place, Nigeria’s oil reserves (2012) domestic gas demand in Nigeria is expected creating opportunities for companies like to grow by an average of 11.3% per annum Seven Energy to increase their asset base in from 2012 to 2025, reaching 7.2 Bcfpd. Nigeria. This development, coupled with a strong political backing for the development Nigeria’s oil reserves and production of the indigenous oil industry, allows 96% Seven Energy to be a competitive participant Nigeria holds the second largest oil reserves of Nigeria’s export earnings in the divestment process. in Africa of 37.2 billion bbls (2012) and is are represented by oil exports Africa’s largest producer of oil, with oil production of 2,417 Mbopd in 2012. Most The Seven Energy opportunity of Nigeria’s oil is found in the Niger Delta Having focused our efforts on acquiring, area, with additional reserves being located developing and constructing oil and gas offshore in the Bight of Benin, the Gulf of assets and infrastructure in Nigeria, we Guinea and the Bight of Bonny. The Nigerian believe that we have built up the experience economy is heavily dependent on the oil and knowledge that allow us to overcome sector, and oil represents over 96% of the the challenges that face oil and gas country’s export earnings and approximately companies operating in onshore Nigeria. 40% of the Nigerian Government’s revenue. In particular, we are well positioned to take advantage of the anticipated growth in Shift in focus by international domestic demand for gas, and to pursue oil companies any strategically attractive asset acquisition International oil companies (“IOCs”) have opportunities that may arise. been active in Nigeria since the 1950s and the Nigerian National Petroleum Corporation (“NNPC”) has majority stakes of between 50 and 60% in most fields. The IOCs act as partners and operators of these fields.

African oil production (2012) Mbopd

2,417

1,784 1,667 1,509

728

Nigeria is a fast growing Nigeria Angola Algeria Libya Egypt and attractive market.

Seven Energy Annual Review 2013 11 Integrated business model

How we create value for our stakeholders

Upstream Read more about Upstream operations p20

• Enhance existing reserves and • Seek value-accretive • Identify and focus on controlling interests • Secure access to resources, through investment acquisitions, all within areas in low-cost undeveloped gas fields with discovered, but into lower risk oil and gas considered to be relatively clear near-term monetisation opportunities; undeveloped gas exploration, appraisal and secure, onshore Nigeria. or strategically located oil reserves with in the vicinity development. near-term cash flow potential and gas of existing assets. resource upside.

1 Reserves 2 Development 3 Processing & resources & production

Grow and diversify resource Evaluate and focus on near-term Expand processing base by pursuing lower risk oil development and production assets, capabilities in line with and gas exploration, appraisal to maximise production and convert expected growth in and M&A opportunities in areas contingent resources into reserves. production and demand. considered to be relatively secure, onshore Nigeria.

Commercialisation

Corporate social responsibility Seven Energy nurtures and adds relationships with both indigenous companies and international oil companies, delivering key benefits for employees, customers and communities by acting

KPI summary

Our key performance indicators record a spread of financial and operational measures, which are used to monitor our business performance. $345.0m $171.9m 51,600 bopd Revenue 2013 Operating cash flow 2013 Average gross oil production 2013

12 Seven Energy Annual Review 2013 Strategic report Strategic

Our vision is to become the leading supplier of gas to the Nigerian domestic market for power generation and industrial consumption. We aim to achieve this through sustainable long-term growth across the full value chain.

Midstream Read more about Midstream operations p24

• Diversify existing customer base by • Build and operate, or acquire, entering into further long-term, additional processing and distribution take-or-pay gas sales agreements infrastructure in strategic locations with creditworthy customers. to meet our customers’ needs.

Processing 4 Distribution 5 Sales & 6 Cash marketing flow

Connect to new gas offtakers Drive and expand existing Re-invest the significant and reach additional demand customer relationships, whilst majority of generated centres by constructing new and identifying and evaluating cash flows into the supplementing existing network new offtake opportunities. business to drive further of pipelines along with other growth whilst servicing methods of distribution. the obligations of the capital structure.

as an active, reliable and valued partner with excellent QHSSE/CSR operational and financial capabilities, and will continue to bring standards. Through the partnerships entered into to date, these capabilities to existing and future relationships. Seven Energy has built a reputation for having reliable technical,

Read more about our key Risks performance indicators p18 The Board and senior management have taken the responsibility to ensure that risks facing the Group are identified, assessed and managed to ensure creation 1,115 Bc f 0 TRIR and retention of shareholder value. Contracted gas Total Recordable Read more about our approach to risk management volumes 2013 Incidence Rate 2013 p30

Seven Energy Annual Review 2013 13 Chief Executive’s statement

Increasing our market potential With the foundations in place for future growth, we remain committed and excited in our support to ensure increased utilisation of Nigeria’s vast gas resources to drive economic growth and generate benefits for all stakeholders.

Delta, expanding our pipeline network and “By the end of 2014, diversifying our customer base. Over the next year, we will integrate this business and 10% of Nigeria’s power establish a dynamic gas distribution system in generation capacity south east Niger Delta. We have also acquired SRL 905, which holds a 40% licence interest will be supplied with in OPL 905, located in the Anambra Basin. OPL 905 has significant gas potential, and the gas by Seven Energy” long-term aim will be to explore, develop and commercialise this asset. In addition, the long-term intention Phillip Ihenacho is to develop the gas reserves and Chief Executive Officer Our main aim for 2014 is to achieve first resources, particularly at the Oben field. delivery of gas to the 560 MW Calabar The existing processing and transportation NIPP power station. Construction work infrastructure will be enhanced to Strategic update for the 37 km 24-inch Uquo to Oron create a gas processing hub. With first commercial deliveries of gas to the pipeline is well advanced and on schedule. Ibom Power station achieved in January 2014, We are working in close cooperation with Corporate social responsibility I am proud to report that our ambition of the operator of the Calabar NIPP power We seek to act as a responsible partner becoming a supplier of gas to the domestic station on the construction of its pipeline to our local host communities. The support Nigerian market has become a reality. Our and other infrastructure. In addition, we of these local host communities is vital to us, long-term and principal intention remains, are finalising plans to deliver initial gas to and this is recognised in our efforts to employ however, to leverage our existing infrastructure the Calabar NIPP power station via Ikot locally, where possible, and to provide and expertise in the Nigerian gas market. Abasi and onwards utilising the recently training and development. We are committed acquired East Horizon pipeline. We will also to be engaged at a local level to understand Integrated gas business complete the work on Uquo-7 and Uquo- and provide support for these communities With the combination of limited power 8ST as gas producing wells in order to meet through our foundations and initiatives. capacity, strong economic growth and the production demands for supplying both governmental initiatives to liberalise the the Ibom Power station and the Calabar Outlook Nigerian power sector and encourage private NIPP power station. This has been a year of strong growth and investment, the demand for gas is expected achievement for Seven Energy. I am proud to grow strongly over the next five to ten Oil production at Uquo and of our team, which has overcome numerous years. We are in a unique position with our Stubb Creek Fields challenges to deliver gas to the domestic integrated upstream and midstream business Delivery of first oil from the Uquo Field and market and is delivering our vision to become to capitalise on this opportunity. With spare Stubb Creek Field to ExxonMobil’s Qua Iboe the leading supplier of gas to the domestic transportation capacity, and within reach export terminal is expected during 2014, Nigerian market for power. We have forged of major demand areas in south east Niger and we will work with our partner at the ahead in our support of the changing Delta, our principal aim is to expand our Stubb Creek Field to finalise the plans to gas market landscape in Africa’s most resource and customer base. expand the existing oil processing capacity. dynamic economy.

To support our growth, we will focus on the Continued development of OMLs 4, There is, however, much still to be done. development of our existing gas resources 38 and 41 We remain committed to the growth and look to access third-party gas in the vicinity We will also continue our close cooperation of Seven Energy and to deliver gas to of our assets. It is recognised that additional with NPDC and provide the necessary generators of power and industrial infrastructure may be required to connect financial and technical support to progress consumers. In time, this will bring material such resources and customers to our existing the development plans for OMLs 4, benefit to consumers in Nigeria and to infrastructure, either through proposed 38 and 41. These blocks have seen strong the economy as a whole. new build or via selective acquisitions. The growth in average gross production over acquisition of EHGC is strategically important to the past year, and development plans are in Phillip Ihenacho us and has further enhanced our gas marketing place to increase production from existing Chief Executive Officer and distribution position in south east Niger producing fields and to develop discoveries.

14 Seven Energy Annual Review 2013 Strategic report Strategic

Read more about our key performance indicators p18

Our strategy We aim to be the leading supplier of gas to Nigeria’s domestic market for power generation and industrial consumption by developing our upstream and midstream business portfolios.

Upstream Midstream Enhance existing reserves and resources, through Build and operate processing and distribution investment into lower risk oil and gas exploration, infrastructure in strategic locations. appraisal and development. Identify and acquire interests in low-cost undeveloped Expand from our anchor customers to deliver gas gas fields with clear near-term monetisation to smaller, higher priced, industrial offtakers in areas opportunities. in the vicinity of our distribution infrastructure. Locate and acquire oil reserves with near-term cash Access to third-party gas with a view to processing and flow potential and gas resource upside. transporting it to fully leverage our gas infrastructure.

Progress during 2013 Progress during 2013

– Well re-entry and drilling of additional gas wells on the Uquo Field. – Capacity of the Uquo Gas Processing Facility increased – Start of gas production from the Uquo Field with initial focus on by 100 MMcfpd to 200 MMcfpd. testing and commissioning. – Entered into an agreement to acquire EHGC, with its gas – Continued construction of oil facilities for the Stubb Creek Field. pipeline infrastructure and a gas sales agreement with – 55% increase in average gross production to 51,600 bopd an industrial offtaker. from OMLs 4, 38 and 41. – Entered into an agreement to acquire SRL 905, which holds a 40% licence interest in OPL 905.

Priorities for 2014 Priorities for 2014

– Completion of additional gas producing wells, drilling of new – Increase commercial deliveries of gas to the Ibom Power station, wells and increase Uquo Field’s gross field production capability which commenced in January 2014. to 175 MMcfpd by end of 2014. – Completion of the acquisition of EHGC and integration of the – Commencement of deliveries of oil from the Stubb Creek Field, East Horizon pipeline into the Group’s gas distribution network. up to 2,000 bopd, and in the Uquo Field, up to 600 bopd. – Ready for first commercial deliveries to the Calabar NIPP – Continued increase in production at OMLs 4, 38 and 41. power station. – Completion of the acquisition of SRL 905 and acquisition of – Enter into additional gas sales agreements. seismic data on OPL 905 to continue to evaluate gas potential. – Acquire third-party gas with a view to processing and transporting it to fully leverage the Group’s gas infrastructure.

Long term Long term

– Exploration, appraisal and development of existing assets. – Develop expertise and strategic partnerships for alternative – Acquisition of strategically located reserves and resources. gas markets, such as CNG and micro-LNG. – New licence applications to further build asset portfolio. – Installation of incremental processing capacity driven – Development of gas reserves in the Stubb Creek Field, by gas demand. on OMLs 4, 38 and 41 and on OPL 905.

Corporate Corporate social Operational governance responsibility and financial control

Seven Energy Annual Review 2013 15 Strategy in action

Upstream delivery

Successful drilling In 2013, we re-commenced our drilling programme and concluded a successful 35 MMcfpd well test on Uquo-4, as well as the drilling of the Uquo-7 and Uquo-8ST wells. The result of the drilling has been in line with expectations and confirmed the excellent characteristics of the reservoir at the Uquo Field.

Increased average gross production Through the Strategic Alliance Agreement with NPDC, we invested $338 million in OMLs 4, 38 and 41 during 2013. As a result of a programme of well workovers, new drilling and the addition of two new fields coming into production, average gross production reached 51,600 bopd for the year.

16 Seven Energy Annual Review 2013 Strategic report Report Strategic Strategic

Midstream delivery

Pipeline construction The acquisition and clearing of the Right of Way for the 37 km 24-inch pipeline from Uquo to Oron to supply gas to the Calabar NIPP power station was completed in line with expectations. Pipelaying commenced in October 2013 as planned.

First gas From greenfield to reality. Upon the completion of our construction programme started in 2010, we have commissioned a 200 MMcfpd gas processing facility and constructed over 125 km of gas pipelines. First commercial gas deliveries commenced in early 2014 and strengthened our vision of becoming the leading supplier of gas to the Nigerian domestic market. With the addition of deliveries to the Calabar NIPP power station in late 2014, we will be supplying gas to more than 10% of Nigeria’s power generation capacity.

Seven Energy Annual Review 2013 17 Key performance indicators

Measuring our success We measure our progress through five performance measures that are closely aligned with delivering our strategy. Additional measures will be introduced in 2014 following the commencement of commercial deliveries of gas. In addition, we intend to report on our Carbon Footprint in 2014.

Financial Delivering on Revenue Operating cash flow $ million $ million our strategy 345.0 171.9 During 2013, Seven Energy generated strong 77.8 improvements in production, 102.4 revenue and profits. Our 86.8 -34.6 continued strong QHSSE/CSR performance is also evident. 2011 2012 2013 2011 2012 2013 Definition Definition With first gas to the Ibom Revenue generated from the sale of oil and Cash flow from operations, before capital gas. Revenue from oil is recognised on an expenditure and financing activities. It is an Power station, and scheduled actual invoiced basis for the value of the indicator of the Group’s ability to generate commencement of gas liftings made in the period, while revenue cash from its business operations. deliveries to Calabar NIPP from gas is recognised on a delivery basis. power station and first oil Progress Progress Strong improvement, principally reflecting deliveries from the Uquo Significant growth, due to increased liftings the significant increase in liftings under the Field and Stubb Creek Field, under the Strategic Alliance Agreement, Strategic Alliance Agreement. combined with the financial combined with the effect of acquiring the rights and obligations of the Group’s Outlook effect of the EHGC 30% funding partner. Continued improvement expected in view acquisition, continued of the start of commercial deliveries of financial improvement Outlook gas to the Ibom Power station, scheduled is anticipated. Continued growth expected in view of commencement of oil production from commencement of gas deliveries to the Uquo Field and Stubb Creek Field and further Ibom Power station, start of oil production development of OMLs 4, 38 and 41. at the Uquo Field and the Stubb Creek Field and continued development of OMLs 4, Risk management 38 and 41. In addition, deliveries of gas to Close control of expenditure and project the Calabar NIPP power station are targeted timetables and monitoring of cashflows. before the end of 2014. In addition, credit enhancing measures are sought as part of gas sales agreements. Risk management Close operational review and monitoring of key producing assets and their development, combined with ongoing assessment of market opportunities. In addition, increased focus on strategy for reserves replacement and access to additional gas.

18 Seven Energy Annual Review 2013 Strategic report Strategic

Read more about our Financial review p28

Operational

Gross production Contracted gas volumes Total Recordable Incidence Rate (TRIR) bopd bcf

1,115 1,115 51,600

31,300 33,350

159 0.2 0.0 0.0

2011 2012 2013 2011 2012 2013 2011 2012 2013

Definition Definition Definition The average field production volume from Contracted gas volumes are the total Determined by multiplying the total the Group’s upstream assets over the year. volumes of gas contracted over the recordable workplace incidences by 200,000 Gross production demonstrates the value of remaining life of the Group’s existing and dividing it by the total hours worked the Group’s portfolio of assets and indicates contracts at a specific point in time. during year. Recordable workplace incidences the scale of growth from existing assets. Contracted gas volumes support include fatalities, permanent total disabilities, Seven Energy’s long-term revenue and cash permanent partial disabilities, lost time Progress generation from its portfolio of assets. incidences, restricted work cases and medical Strong uplift experienced, due to continued treatment cases (excluding first aid cases). focus on the development of OMLs 4, Progress It is a measure of the Group’s QHSSE/CSR 38 and 41. To date, gross oil production Unchanged over the period. performance. has entirely derived from operations at OMLs 4, 38 and 41. Outlook Progress Increase as a result of the completion of Unchanged at zero and reflects Outlook the EHGC acquisition, with an additional Seven Energy’s strong focus on QHSSE/CSR Significantly increased gross production gas sales agreement in place with UniCem. matters in connection with the robust levels expected as a result of commencement Further increases expected with additional of activity across its operations. of gas deliveries to the Ibom Power station, gas sales agreements, supported by the scheduled start of oil production additional gas reserves and purchases of Outlook from the Uquo Field and Stubb Creek Field, third-party gas. Seven Energy continues to monitor TRIR combined with further uplift in production closely. The Group is committed to retaining at OMLs 4, 38 and 41. By end of 2014, the Risk management a focus on QHSSE/CSR performance. gas production is expected to be further Detailed monitoring of supply and demand enhanced by supply to the Calabar NIPP constraints (reserves replacement, processing Risk management power station. and delivery capacity). Close and ongoing review of all QHSSE/CSR policies and procedures, and application Risk management thereof, including rigorous incident reporting Continued geological assessment and (including incident analysis, follow-up, evaluation of Seven Energy’s portfolio of remedial action and communications assets. Close monitoring and planning of of learnings). production performance and asset security to guard against unplanned interruptions or project delays.

Seven Energy Annual Review 2013 19 Operational review

Upstream Seven Energy’s portfolio of upstream oil and gas interests is located in relatively secure locations in two key geographic areas of the Niger Delta and a recently acquired undeveloped asset in the Anambra Basin.

20 Seven Energy Annual Review 2013 Upstream Midstream Upstream asset overview

51,600 bopd 354 MMboe 64 % 2013 average gross oil production 2P + 2C reserves and resources gas as a proportion of reserves and resources (2P + 2C) Operational and financialreview South east Niger Delta North west Niger Delta Anambra Basin Uquo Field Stubb Creek Field OMLs 4, 38 and 41 Matsogo Field OPL 9051 Licence interest 40% 51%2 55%3 49% 40% Operator Frontier Oil Universal Energy Seplat Chorus Energy GTPL 2P + 2C gross reserves and resources 111 MMboe 99 MMboe 772 MMboe 11 MMboe 71 MMboe Type of hydrocarbon Oil and gas Oil and gas Oil and gas Gas Gas Status In production Production due 2014 In production Asset held for resale Undeveloped

1) Acquisition completed in January 2014 and the Group is currently in the process of acquiring GTPL 2) Held by Universal Energy (Seven Energy holds a 62.5% interest in Universal Energy) 3) Indirect interest via the Strategic Alliance Agreement with NPDC

During 2013, Seven Energy Both the Uquo Field and the Stubb Creek delivered on key operational Field are located in south east Niger Delta in close proximity to areas where there is milestones within its upstream significant demand for gas from existing business. These included the or planned power stations and other continued development of industrial offtakers, in areas such as Ikot the Uquo Field and first gas Abasi, Calabar, Uyo, Aba and Port Harcourt. These assets are also near to ExxonMobil’s production in December 2013. Qua Iboe export terminal (“QIT”). In addition, continued funding and technical support has been OMLs 4, 38 and 41 are located in the north provided to the operations west Niger Delta, near established oil and gas infrastructure, giving access to Shell’s of OMLs 4, 38 and 41, and an Forcados export terminal for oil and to major average gross production rate demand centres for gas, including Lagos, of 51,600 bopd was achieved in Benin City and Ajaokuta.

2013 (equivalent to an increase OPL 905 is located in the Anambra Basin, of 55% compared to 2012). which is an underexplored area with substantial gas resource potential but with Over the year, 2P reserves grew by no established infrastructure. 6.4% to 232 MMboe (2012: 218 MMboe), and include 1P reserves of 162 MMboe. The 2P + 2C reserves and resources are 354 MMboe, split between oil and gas of 36% and 64%, respectively.

Seven Energy Annual Review 2013 21 Operational review

Uquo Field Stubb Creek Field In 2013, Seven Energy re-commenced Development activities have continued at the its drilling programme and concluded a Stubb Creek Field, which is an oil asset with successful workover and 35 MMcfpd well considerable undeveloped, non-associated test on Uquo-4, as well as the drilling of the gas resources. Oil production is now Uquo-7 and Uquo-8ST gas development scheduled to commence during 2014. wells. The result of the drilling has been in line with expectations and confirmed the The field will be brought into production excellent characteristics of the reservoir. using an Early Production Facility capable of processing oil at a gross rate of In December 2013, the Uquo-2 well, which approximately 2,000 bopd. The Early was completed in 2010, was brought Production Facility is mechanically complete into production to allow testing and and commissioning work is ongoing. commissioning work on the largest of Ibom Construction work continues inside the QIT Power station’s three turbines, following to connect the Frontier-Universal-Network a nine-month programme of repair and (“FUN”) Manifold to the terminal facilities. maintenance. Commercial deliveries of Construction of the FUN Manifold, which gas commenced in January 2014, and the will collect and meter oil and condensate volume will be increased to the full contract produced from the Uquo Field and the volume of up to 43.5 MMcfpd when the Stubb Creek Field, is also ongoing. Delays two additional turbines are expected to have been experienced with this work come online later in 2014. Initially, deliveries during 2013, principally relating to access will primarily be from the Uquo-2 well, permissions as required for work within the with the Uquo-4 well acting as a reserve to QIT, which is a highly restrictive area with ensure consistent production performance. strong security considerations.

The Uquo-7 and Uquo-8ST wells will serve as Engineering work is now underway new gas production wells, and are scheduled to finalise the design for a Central Oil to be completed prior to the commencement Processing Facility at the Stubb Creek Field to of gas deliveries to the Calabar NIPP power increase and optimise production capacity. station which are due to start by end of Upon completion of this facility, scheduled 2014. Drilling of further wells on identified for 2016, the oil production capacity will be prospects at the Uquo Field is also planned. increased to a rate of up to 8,000 bopd. During 2014, it is expected that the Uquo-3 well will commence oil production of up to In addition, plans for developing the 450 Bcf 600 bopd. of non-associated gas resources at the field, which will see the gas transported to the Uquo Gas Processing Facilities for processing and onward transportation, are progressing.

OMLs 4, 38 and 41 Through the Strategic Alliance Agreement, Seven Energy has a profit sharing entitlement with respect to NPDC’s 55% licence interest in OMLs 4, 38 and 41. Under the terms of the Strategic Alliance Agreement, Seven Energy actively participates in the technical and financial discussions and the decision-making process for the development of the blocks through NPDC and also funds NPDC’s 55% share of costs.

These blocks continue to undergo significant development. In 2013, gross production from these blocks averaged 51,600 bopd (2012: 33,350 bopd). The increased annual rate reflects the additional production from 15 wells that were drilled or worked- over during 2013 plus contributions from the Okporhuru and Orogho fields that were brought onto production in May and

22 Seven Energy Annual Review 2013 December 2013, respectively. The blocks also benefited from lower down time over the year compared to 2012. Daily production rates exceeded 60,000 bopd towards the end of the year.

Production is now derived from six fields in total: Oben, Sapele, Ovhor, Amukpe, Okporhuru and Orogho. The future work programme includes further development of these fields and the appraisal and development Operational and financialreview of a portfolio of discoveries on the blocks. In addition, the development plans involve expansion of gas facilities and pipelines to create a gas processing hub that will be a major provider of gas to offtakers, particularly within the power sector.

Seven Energy continues to receive regular liftings of its entitlement to oil production from these fields under its agreement with NPDC. In 2013, Seven Energy’s net production entitlement was 10,400 bopd, an increase of 237% compared to its net production entitlement of 3,100 bopd in 2012. The fact that the Group’s oil entitlement is lifted upon delivery at Shell’s Forcados export terminal helps to shield Seven Energy from certain risks and losses associated with bunkering and transmission prior to delivery.

OPL 905 In January 2014, Seven Energy completed the acquisition of SRL 905, which holds a 40% licence interest (and a 60% economic interest) in OPL 905. OPL 905 lies in the interior Anambra Basin and contains two undeveloped gas discoveries, including the Ihandiagu Field. The gross recoverable resources are estimated to be in the range OMLs 4, 38 and 41 – prospects of 350 – 730 Bcf. Since this acquisition, Seven Energy has sought to consolidate the ownership of the licence interests and has agreed terms to acquire the operator and owner of most of the remaining interest under the licence. The near-term intention is to undertake additional exploration activities on the field, including acquisition of 2D and 3D seismic data followed by drilling of an exploration well and testing of the existing discoveries.

Seven Energy Annual Review 2013 23 Operational review

Midstream Seven Energy’s midstream business, Accugas, in combination with the recently acquired EHGC, focuses on sales and marketing, processing and distribution of gas to the domestic Nigerian market. Accugas and EHGC serve to assist the Group’s upstream partners to monetise the production of gas.

24 Seven Energy Annual Review 2013 Upstream Midstream First delivery of gas Midstream asset overview In early January 2014, Accugas achieved a major milestone, with first commercial delivery of gas to the Ibom Power station, under the 10-year 100% take-or-pay gas sales agreement entered into with Ibom 200 MMcfpd 260 km Power, a public private partnership with gas processing capacity network of gas pipelines Akwa Ibom State. Although nominations under the gas sales agreement commenced in March 2013, the Ibom Power station had 3 long-term, take-or-pay gas sales agreements in place to supply the Ibom Power station, been unable to receive gas until recently, Operational and financialreview the Calabar NIPP power station and the UniCem cement plant. due to a nine-month repair and maintenance 200 MMcfpd Uquo Gas Processing Facility. programme on its three turbines.

260 km of gas pipelines with combined transport capacity of 600 MMcfpd (including With a power generation capacity of Uquo to Ikot Abasi – 62 km, Stubb Creek to Uquo – 31 km, East Horizon pipeline 190 MW, across its three turbines of from Ukanafun to Mfamosing – 128 km and Uquo to Oron – 37 km, which is under 115 MW, 38 MW and 38 MW, the Ibom construction and to be commissioned in 2014). Power station is a major supplier of electricity to Akwa Ibom State. With the main turbine being operational again following the repair and maintenance programme, Seven Energy is currently supplying gas which generates up to 115 MW of electricity. Upon the completion of the work on the remaining two turbines, this will increase to the power station’s full capacity. With the supply of gas from Seven Energy, a more reliable supply of electricity is available in the region which will further economic growth and local employment.

Seven Energy’s midstream infrastructure

Seven Energy Annual Review 2013 25 Operational review

The acquisition of EHGC further enhances Seven Energy’s leading gas sales, marketing and distribution position in the south east Niger Delta.

Accugas is committed to With spare capacity built into the Uquo to Oron pipeline distribution infrastructure, the Group is Having completed the Right of Way aiding in the development also capable of providing a long-term acquisition and clearance in the first half of Nigeria’s gas resources, supply of gas, a lower-cost fuel than most of 2013, construction of the 37 km 24-inch alternatives, to additional offtakers for pipeline from Uquo to Oron commenced in improving power supply power generation and for local industry. October 2013 at the start of the dry season. The Right of Way has been prepared and and supporting local Uquo Gas Processing Facility construction is proceeding with welding economic growth. Following the commissioning of Train 1 completed. Work is on course and due to in 2012, construction of the Uquo Gas enable scheduled deliveries to the Calabar Processing Facility continued in 2013 with NIPP power station in the second half of 2014. Train 2 reaching mechanical completion. Now fully commissioned, this train provides East Horizon Gas Company a further 100 MMcfpd gas processing In March 2014, Seven Energy completed capacity, taking the total to 200 MMcfpd the acquisition of the entire issued share and is fully ready to deliver gas to the capital of East Horizon Gas Company Limited 560 MW Calabar NIPP power station. (“EHGC”) for total consideration of up to $250 million. EHGC is a gas distribution and marketing company that operates the 128 km East Horizon gas pipeline through Akwa Ibom State and Cross Rivers State in south east Nigeria. EHGC also has a gas sales agreement with an industrial offtaker, UniCem, to supply up to 25 MMcfpd, increasing to 50 MMcfpd in 2016 upon completion of the planned expansion of

26 Seven Energy Annual Review 2013 Major customers

With the acquisition of EHGC, Seven Energy has three long-term gas sales agreements in place, providing stable, long-term cash flow. Operational and financialreview

190 MW Ibom Power station, one of Seven Energy’s customers.

Ibom Power station 10-year 100% take-or-pay gas sales agreement to supply the 190 MW Ibom Power station, located near Ikot Abasi, with 43.5 MMcfpd. The Ibom Power station is owned by Ibom Power, owned by Akwa Ibom State.

Calabar NIPP power station the UniCem cement plant, under a 20‑year 20-year 80% take-or-pay gas sales agreement to supply the gas sales agreement expiring in 2032. 560 MW Calabar NIPP power station, located near Calabar, with 131 MMcfpd. The Calabar NIPP power station is owned The acquisition further enhances by the Calabar Electricity Generation Company. Seven Energy’s leading gas marketing and distribution position in south east Niger UniCem Delta, expanding its pipeline network 20-year 80% take-or-pay gas sales agreement, expiring to approximately 260 km, diversifying in 2032, to supply UniCem, a cement factory located its customer base and increasing near Calabar. EHGC is contracted to supply UniCem with long‑term contracted gas sales volumes to 25 MMcfpd. UniCem is owned by a consortium comprising approximately 200 MMcfpd. In 2014, the Flour Mills of Nigeria, Lafarge and Holcim. focus will be the integration of EHGC into the Group’s distribution infrastructure and to establish a dynamic distribution system in the south east Niger Delta.

African Quality Service Award Seven Energy’s integration of both upstream and In September 2013, Accugas won the 2013 midstream operations provides the Group access African Quality Service Award for Gas to expanding new markets, as well as cost pricing Processing and Transportation. The award advantages over non-vertically integrated companies. was presented by the Institute for Government The location of the Group’s onshore infrastructure Research & Leadership Technology during its in south east Niger Delta facilitates access to a broad 2013 African Governance and Corporate geographic area with strong demand. Accugas is Leadership Awards. In particular, Accugas currently in discussions with a number of other was commended for its contribution to offtakers regarding gas supply to both existing and gas processing services in Nigeria. proposed projects.

Seven Energy Annual Review 2013 27 Financial review

Our performance 2013 2013 has been a year of significant improvement in our financial performance. We have also strengthened our capital structure to support the investments in our business and focused on the development of our upstream and midstream assets and operations.

Revenue 2013 2012 Tax In 2013, revenue increased by 236.7% to Year ended 31 December $m $m In 2013, the Group incurred a tax charge of $345.0 million (2012: $102.4 million), driven Operating profit 125.7 13.6 $48.8 million (2012: $1.8 million), principally as by strong performance on OMLs 4, 38 and Add back: a result of movements on deferred tax balances 41 under the Strategic Alliance Agreement – Depletion 67.7 17.5 due to profits arising from the Strategic with NPDC, combined with the impact – Depreciation and Alliance Agreement with NPDC in the year. of acquiring the rights and obligations of amortisation 2.1 2.8 the Group’s 30% funding partner, which EBITDA 195.5 33.9 Profit for the year was completed in March 2013. Following Add back: The Group recorded a profit after tax this acquisition, Seven Energy recognises for the year ended 31 December 2013 – Impairment charge 5.8 – 100% of revenue generated under the of $39.4 million, compared to a loss of Strategic Alliance Agreement, compared EBITDAX 201.3 33.9 $6.6 million in 2012. to 70% previously. This significant improvement in EBITDA Capital expenditure Over the year, the Group sold $343.8 million and EBITDAX in 2013 is principally due Seven Energy has continued to invest heavily of oil (2012: $102.4 million) or 3,104,034 bbls to the increased production volumes and in the development of its upstream and (2012: 918,676 bbls) at an average price of production entitlements from the Strategic midstream assets, with total capital expenditure $111 per bbl (2012: $112 per bbl). In addition, Alliance Agreement, but partly offset by amounting to $508.4 million in 2013 (2012: the Group recognised $1.1 million of gas sales increased administrative expenses from $232.0 million). Set out below is a breakdown (2012: $nil). All revenue has been generated $25.9 million in 2012 to $42.6 million of this capital expenditure by principal assets: under the Strategic Alliance Agreement. in 2013, as the Group continues to build its operational, technical and financial 2013 2012 Cost of sales and depletion capabilities to manage and develop its $m $m Cost of sales, comprising production increasing portfolio of assets. As the OMLs 4, 38 and 41 338.0 85.2 expenses and increase in underlift, increased development of the Group’s assets in Uquo Field 157.3 133.1 from $40.9 million to $100.9 million. south east Niger Delta nears completion, Stubb Creek Field 10.7 11.0 Production expenses, which principally relate fewer administration costs are allocated Other 2.4 2.7 to the Strategic Alliance Agreement, to capital projects. increased by $106.9 million to $171.4 million Total 508.4 232.0 (2012: $64.5 million). The increase reflected During the year, the Group incurred a the significantly increased production $5.8 million impairment charge relating In particular, $338.0 million (2012: $85.2 volumes at OMLs 4, 38 and 41. The increase to the Group’s interest in the Matsogo Field. million) was provided for the development in underlift was $70.9 million (2012: $23.6 Following a review of the Group’s asset of OMLs 4, 38 and 41 under the Strategic million) and reflected unlifted production portfolio, the decision was taken to seek Alliance Agreement, and includes the entitlement at year end under the Strategic a disposal of this asset. The Group has acquisition of the rights and obligations Alliance Agreement. consequently accepted an offer of of the Group’s 30% funding partner. $7.0 million for the asset, and the During 2013, a total of 15 wells were Depletion increased by $50.2 million impairment charge reflects the difference worked-over or drilled on OMLs 4, 38 and to $67.7 million (2012: $17.5 million), between the asset’s carrying value less the 41. In addition, Seven Energy continued also reflecting the significant increase in anticipated consideration upon disposal, its investment programme in south east production volumes at OMLs 4, 38 and 41. adjusted for any transaction costs. Niger Delta, with additions to both its upstream and infrastructure assets. During EBITDA and EBITDAX Finance costs 2013, Seven Energy continued its drilling Earnings before interest, taxation, depletion, Over the past year, Seven Energy has programme at the Uquo Field with well depreciation and amortisation (“EBITDA”) strengthened its capital structure. As a result re‑entry work and the drilling, preparation increased by $161.6 million from $33.9 million of its new and enlarged debt facilities, and construction of the Uquo to Oron in 2012 to $195.5 million in 2013, whilst finance costs have increased by $19.4 million pipeline to supply the Calabar NIPP power EBITDA before impairment (“EBITDAX”) was to $38.1 million (2012: $18.7 million). station and the completion of Train 2 of the $201.3 million for 2013. Uquo Gas Processing Facility.

28 Seven Energy Annual Review 2013 $157m $255m investment in the Uquo Field in 2013 of additional equity from the IFC and Temasek in Q2 2014 Operational and financialreview

Facility Drawn at 31 Maturity Seven Energy’s equity capital structure Summary of debt facilities $m December 2013 date comprises ordinary shares and irredeemable Project Finance Facility to fund Accugas processing 225.0 190.0 March 2020 convertible loan notes (“ICLNs”). Subsequent and pipeline infrastructure to the year end, the IFC, IFC ALAC Fund Reserve Based Secured Facility to fund the 350.0 148.6 December 2017 and Temasek have completed their equity (1,2) development of OMLs 4, 38 and 41 (Tranche 1); investments in the Group. Of the total December 2018 investment of $255 million, $75 million has (Tranche 2) been committed by the IFC, $30 million Convertible Bond listed on the Cayman Islands 150.0 150.0 December 2014 by the IFC ALAC Fund and $150 million by Stock Exchange(3) Temasek. In addition, $33 million of ICLNs Term loan provided by Akwa Ibom Investment 9.9 9.9 September 2017 have been issued to the vendors of SRL 905 and Industrial Promotion Council for Stubb Creek upon completion of this acquisition Field development in January 2014. Working Capital Facility 40.0 40.0 March 2015 Total 774.9 538.5 Outlook Over the past year, the Group’s investments 1. The Reserve Based Secured Facility is also repayable the day before any maturity of the Convertible Bond. in the Strategic Alliance Agreement have 2. During 2013, the borrowing base for the Reserve Based Secured Facility increased from $75.0 million to delivered significant increases in production $208.0 million, and included $33.8 million relating to a facility novated to Seven Energy as a result of the Group’s acquisition of the rights and obligations of its funding partner’s 30% interest. volumes and in the Group’s production 3. The Convertible Bond has a redemption premium of 19.0% on maturity, as well as a conversion option entitlements for cost recovery and share to equity upon a qualifying IPO or company sale event. of incremental production. The development of these blocks continues, with ongoing focus on the six fields currently in production The Group incurred capital expenditure of As at 31 December 2013, the Group’s as well as on key discoveries. $10.7 million (2012: $4.0 million) for its 20% debt structure comprised a mixture of a cost share at the Stubb Creek Field in 2013. Project Finance Facility to fund processing With the commencement of deliveries of and pipeline infrastructure, a Reserve Based gas to the Ibom Power station, the addition Cash flows and cash Secured Facility to fund development of of the UniCem gas sales agreement, Operating cash flows were $171.9 million OMLs 4, 38 and 41, a term loan for Stubb combined with the scheduled deliveries to (2012: $77.8 million). The improvement Creek Field development, a Convertible the Calabar NIPP power station towards the in operating cash flows is largely due Bond and a Working Capital Facility. end of 2014, the Group’s revenue profile will to increased liftings under the Strategic The total net borrowings as of this date were change significantly in 2014 and onwards. Alliance Agreement. $530.1 million (as at 31 December 2012: Seven Energy’s profitability and cash flows $272.4 million). will also start to benefit from the stable, As at 31 December 2013, the Group had cash long-term nature of these agreements. With balances of $50.4 million (2012: $32.2 million). Subsequent to the year end, the Group has the addition of the equity support by IFC, During the year, the Group received $11.5 supplemented its existing Project Finance IFC ALAC Fund and Temasek, combined million of further pre-payments under the Facility to secure part-financing for the with the Group’s debt facilities, the Group 10-year gas sales agreement for supply of gas acquisition of EHGC and assumed an existing has a strong capital structure to support to the Ibom Power station. The total pre- facility of EHGC. further growth, both organically and through payments received to date are $43.3 million. acquisitions. The Group continues, however, Of the Group’s current debt structure, to seek opportunities to strengthen this Financing and capital structure the Reserve Based Secured Facility and capital base, which may include access to In 2013 and in early 2014, the Group has the Convertible Bond have become current the global equity and debt markets. continued to strengthen its financing borrowings, with maturity of less than and capital structure, through new and 12 months. enlarged debt facilities with balanced maturity profiles combined with the issuance of additional equity.

Seven Energy Annual Review 2013 29 Risk management

Risk management framework Risks are inherent and inevitable within every business environment. Seven Energy’s Board and senior management are responsible for ensuring that risks facing the Group are identified, assessed and managed to ensure creation and retention of shareholder value.

Board of Directors

Review and Executive Committee recommendations by the Internal Audit team and assessment by the Governance Board as to the effectiveness of action plans and controls. Senior management

Identification of new risks Updating of existing risks – Identification and assessment of Risk owners – Review and assessment of new risks, including risk grading. existing risks. – Formulation of mitigation plans – Monitoring of progress against and assignment of review cycles. agreed mitigation plans. – Identification of key process – Re-evaluation of review cycle controls. or closing-out of risks.

Short- to medium-term risks

Our continued focus 2013 risks and uncertainties on identifying and Managing for growth: with a strategy focused on organic and acquisitive growth, external and Key strategic opportunities, both in the upstream and midstream Effective integration of both acquisitions to drive strategic mitigating our risks is internal factors drive each investment decision to ensure that long-term value is created for all operations, were identified and evaluated. Two acquisitions were value in line with investment case. Continued review and stakeholders. Risks are inherent across the entire investment process. entered into in late 2013, following detailed commercial, financial, evaluation of other strategic opportunities and work to evident in our strong legal and technical due diligence. leverage existing assets through organic growth. and improving KPIs. Funding and treasury management: the Group relies on a number of capital sources for its operations The capital structure was strengthened during 2013, including Further strengthening of capital structure, including access and availability of financing is essential to its future growth plans. Availability of financing, ongoing expansion and extension of existing debt facilities to enhance the size to additional equity provided by the IFC, IFC ALAC Fund and compliance with financing obligations as well as ongoing liquidity are the main risks. of facilities and to extend their maturity profiles. Improvements were Temasek in early 2014. Ongoing review of Group’s liquidity made to the Group’s processes to monitor liquidity. requirements. Continued assessment of market opportunities in the local and international financial markets.

Project execution: the Group experienced high levels of activity across its key projects during 2013, Train 2 of the Uquo Gas Processing Facility, the Uquo to Oron pipeline Completion of the Uquo to Oron pipeline project in line with including construction and drilling activities. Project planning, execution and cost management are and drilling projects have largely been delivered according to plans. schedule. Completion of additional gas wells on the Uquo Field key risks, together with QHSSE/CSR and community related risks. Successful Right of Way acquisition process accomplished and TRIR and construction of facilities to enable oil deliveries to continues to be zero. Continued delays were, however, experienced ExxonMobil’s Qua Iboe export terminal. Continued strong focus with the FUN Manifold and connections to ExxonMobil’s Qua Iboe on QHSSE/CSR and community related issues. export terminal.

Gas offtakers: core to the Group’s business proposition and capital structure are its long-term gas sales Seven Energy was ready to deliver gas and enforced take-on-pay Close cooperation with the Calabar NIPP power station to agreements. Performance and payments by the customers are the main identified exposures. obligations from March 2013. However, Ibom Power station has been ensure scheduled commencement of deliveries by end 2014. undergoing repair and maintenance, delaying the start of Completion of a guarantee package supported by the World commercial deliveries. Bank. Continued diversification of customer base.

Employee considerations: in view of the Group’s growth across its business, employee retention and Benchmarked remuneration policies have been implemented Ongoing review of remuneration policies, combined with recruitment is essential. In addition, communication across the business is vital to effectively share following an audit of pay equality across all employee band levels. further strengthening of communication across the information and motivate staff on the Group’s achievements. Internal communication strengthened, including quarterly staff organisation. In addition, Phase Two of the intranet project bulletin and introduction of Phase One of an intranet project. expected to go live.

30 Seven Energy Annual Review 2013 Risk distribution To enable the Group to achieve its objectives, risk awareness, monitoring and control is a continuous process that involves everyone in the organisation.

– Probability + Operational and financialreview + Funding Gas and treasury offtakers management

Security Reserves replacement

Managing QHSSE / Legislation Adverse

Impact growth community and media regulation Employee considerations Project Bribery and execution corruption Partnership relations

Each identified risk is given a risk rating, based on the probability of the risk occurring and the estimated impact on the business. The above analysis highlights the Group’s main identified risks. Further details of these risks are set out in “Principal risks and uncertainties” on the following page. –

Performance 2013 Objectives 2014

Managing for growth: with a strategy focused on organic and acquisitive growth, external and Key strategic opportunities, both in the upstream and midstream Effective integration of both acquisitions to drive strategic internal factors drive each investment decision to ensure that long-term value is created for all operations, were identified and evaluated. Two acquisitions were value in line with investment case. Continued review and stakeholders. Risks are inherent across the entire investment process. entered into in late 2013, following detailed commercial, financial, evaluation of other strategic opportunities and work to legal and technical due diligence. leverage existing assets through organic growth.

Funding and treasury management: the Group relies on a number of capital sources for its operations The capital structure was strengthened during 2013, including Further strengthening of capital structure, including access and availability of financing is essential to its future growth plans. Availability of financing, ongoing expansion and extension of existing debt facilities to enhance the size to additional equity provided by the IFC, IFC ALAC Fund and compliance with financing obligations as well as ongoing liquidity are the main risks. of facilities and to extend their maturity profiles. Improvements were Temasek in early 2014. Ongoing review of Group’s liquidity made to the Group’s processes to monitor liquidity. requirements. Continued assessment of market opportunities in the local and international financial markets.

Seven Energy Annual Review 2013 31 Risk management

Principal risks and uncertainties

Key risk factor Responsibility Potential impact Mitigation KPI/Performance metric Strategic risks

Reserve Chief Technical Officer Access to reserves and resources underpins Seven Energy’s business and its growth Ongoing options analysis undertaken to assess opportunities to access additional reserves and resources via appraisal Reserves and resources replacement aspirations. and exploration, third-party purchase arrangements, or through an enlarged asset portfolio following new fields’ bid Assessment: High allocation processes or via M&A activity. Annual assessment by independent experts of existing reserves and resources.

Managing Chief Executive Officer With a strategy focused on organic and acquisitive growth, the Group is exposed For each investment opportunity, significant emphasis is placed on in-depth reviews and evaluation. By using Reserves and resources for growth to risks that are inherent across the entire investment process. Seven Energy’s in-house experience and expertise, combined with that of its advisers, full due diligence and integration Contracted gas volumes Assessment: Medium planning are undertaken as part of the evaluation process. In addition, each asset continues to be closely monitored with decisions being implemented to capture the assets’ long-term value.

Partnership Chief Executive Officer The legal and day-to-day interpretation and status of working relations with the Group’s Through the existing legal arrangements in place for the Group’s portfolio of assets, combined with active technical Capital expenditure relations various partners is key to the development and performance of Seven Energy’s assets. and financial participation, the Group strives to maintain a positive and mutually beneficial working relationship with its Gross production Assessment: Medium strategic and joint venture partners. In addition, the Group monitors closely the obligations attached to the licence of each of its assets and the Strategic Alliance Agreement with NPDC and works with its partners to ensure that the relevant work programmes are met.

Employee Chief Executive Officer Employee retention and recruitment is essential to support the Group’s growth Succession planning, review and benchmarking of remuneration policies are regularly undertaken across the organisation. No of employees considerations and development. In addition, significant focus is being placed on internal communications and to align this with the Group’s external Diversity Assessment: Medium communications programme. % in-country staff of Nigerian nationality Operational risks

Project execution Chief Operating Officer Seven Energy currently has a high level of project-related activities. There are a variety of risks For each project , either construction or drilling related, Seven Energy carefully evaluates the feasibility, cost estimates Capital expenditure Assessment: High associated with such projects, including delays, dependency on third parties, obligations and and the projected rates of return prior to approval. Dedicated project teams oversee the individual projects to ensure Operating cash flows cost overruns. completion in line with timetable, taking into account the Nigerian dry and wet seasons and supply of high-quality contractors. The teams also work in close cooperation with any third parties.

QHSSE/CSR Chief Operating Officer The Group’s focus on upstream and midstream oil and gas activities exposes it to a wide Industry leading QHSSE/CSR policies and procedures have been implemented across the business. The Group has a LTIR Assessment: Medium range of QHSSE/CSR related risks, including injury, loss of life, environmental damage and dedicated QHSSE/CSR team in place to ensure continued high awareness and application of these policies and procedures. TRIR community disturbances. Environmental considerations are also key and are an area of increasing regulation. Work continues to ensure that operations Fatal Accident Rate (“FAR”) meet international standards. Emergency response plans have been updated and implemented and are regularly tested. No of environmental spills Financial risks

Funding and treasury Chief Financial Officer The Group has high levels of debt with associated obligations and restrictions. Therefore, Seven Energy closely monitors its funding and liquidity requirements. Formal budgeting and forecasting processes are in EBITDA management there is a risk of breach and inability to undertake further financing in support of the Group’s place and cash forecasts are regularly produced and reviewed to ensure compliance with funding obligations and growth Operating cash flows Assessment: High growth strategy. plans. To further optimise the Group’s capital structure, continuous evaluation of market opportunities takes place.

Bribery and Chief Executive Officer Seven Energy operates in a region considered particularly prone to bribery and corruption. Strict policies and procedures are in place across the business, and in particular with regard to contracts and procurement % completion of compliance training corruption Especially exposed is its contract and procurement operations. and anti-bribery and corruption. These policies are regularly reviewed and updated and subject to Internal Audit. Careful % compliance certification Assessment: Medium vetting and monitoring processes are in place for suppliers. A programme of regular training and awareness has been implemented and there is an independent reporting hotline. External risks

Gas offtakers Chief Executive Officer Within its midstream business, Seven Energy has a narrow customer base with the risk In addition to the take-or-pay provisions within each gas sales agreement, significant credit enhancing packages are being Revenue Assessment: High of non‑performance and/or non-payment. sought, where appropriate. The Group continues to work closely with its key customers to ensure mutually beneficial Operating cash flows relationships. As part of Seven Energy’s core strategy, additional customers are being sought to diversify the risk. Gross production Contracted gas volumes

Security Chief Operating Officer Security incidences, such as kidnapping and criminal activities, are inherent risks The Group is sensitive to security issues, and its operations are focused on relatively secure areas of the Niger Delta. Gross production Assessment: Medium to Seven Energy’s operations in Nigeria. In addition, the Group has dedicated security teams in each area of operation, with a robust security management and LTI alert system in place. Each asset and operation is assessed regularly from a risk perspective and security considerations TRIR are incorporated into all new projects. No of fatalities

Legislation and Chief Executive Officer Seven Energy’s licences and operating activities are subject to various laws and regulations, The Group and its advisers closely monitor any proposed changes, particularly with regard to the proposed Petroleum Industry Effective tax rate regulation some of which may be changing in the short to medium term. Bill, and consider mitigating and contingency plans, including lobbying and active participation in discussions. In addition, Assessment: High it closely monitors the political situation in general, for example, the recent hearings by the Senate Finance Committee.

Adverse media Chief Financial Officer Negative or speculative media coverage could adversely impact Seven Energy’s reputation The Group and its public relations advisers actively monitor and respond, as required, to the media. In addition, Reputational damage Assessment: High and ability to operate. the Group seeks to provide full transparency of its operations via its external communications programme. It has also established a Crisis Media Plan.

32 Seven Energy Annual Review 2013 Key risk factor Responsibility Potential impact Mitigation KPI/Performance metric Strategic risks

Assessment: High allocation processes or via M&A activity. Annual assessment by independent experts of existing reserves and resources. Operational and financialreview

Seven Energy Annual Review 2013 33 Corporate social responsibility

Partnering to create shared value Our aim is to deliver value and improved standards of living to Nigerians through our integrated business model to supply gas to the Nigerian domestic market.

7. 1. Environment Stakeholder relations

2. 6. Nigerian Health and Corporate social content safety responsibility

5. Asset 3. protection People 4. Compliance

34 Seven Energy Annual Review 2013 20 people trained through our projects in 2013 1. Stakeholder relations 2. Nigerian content Seven Energy recognises the important role Seven Energy remains committed to comply that all of its stakeholders play in its success by with the Nigerian Local Content Act. In 2013, listening to them. The Group strives to play its we continued to monitor industry practices, part in this relationship by acting responsibly. regulatory changes and other directions that have developed as a result of this legislation. Naira 110 m Operational and financialreview funding for community projects spread across During 2013, significant focus was on We also continued to work pro-actively our eight Local Government Areas (2013) the Right of Way acquisition process and directly with our contractors and relating to the 37 km Uquo to Oron gas service providers to meet their local content pipeline. For this process, we improved our requirements and plans. land acquisition procedures by working directly with local communities to obtain We remain focused on the development Right of Way access for our infrastructure of the skills of our local workforce and 27 % project. Through effective and transparent to employ locally as much as possible. of our workforce are female collaboration with non-governmental In addition, we provided training to organisations and local communities, 20 external people as part of our projects, we successfully concluded this process. principally focused on developing trained excavator operators, but also providing opportunities for graduate engineers.

CSR highlights

Won the 2013 African Quality Service Award for Gas Processing and Transportation through Accugas, our wholly-owned midstream subsidiary.

Completed the land acquisition process for the Uquo to Oron gas pipeline project in May 2013 and achieved 98% completion of the Livelihood Restoration Plan and Resettlement Action Plan compensation and closeout on recommendations.

Facilitated pay equality measures across the business through the execution of a detailed salary audit and the design of a remuneration structure to attract and retain people.

Improved safety of the transport route through Akwa Ibom State by the introduction of a journey management hub at Eket, enabling safe access to our operations.

Completed a QHSSE/CSR-wide audit with CSR-in-Action and implemented all tangible recommendations.

Created a platform for the ISO 14001: 2004 management systems and development.

Seven Energy Annual Review 2013 35 Corporate social responsibility

3. People 4. Compliance In 2013, Seven Energy employed on average We continue to develop the skills of our Seven Energy recognises that doing 168 full time staff, of whom 141 were based local workforce and to employ locally, as business in Nigeria brings with it inherent in Nigeria (84%), with the remaining 27 much as possible. Each employee, consultant risks associated with fraud, bribery and being based in the UK. 93% of the Group’s and contractor is expected to abide by our corruption. The Group’s Code of Conduct in-country employees are of Nigerian human resources policies, including our and Business Ethics contains policies and nationality, well in excess of the 70% policy on equal employment opportunities procedures covering how we conduct our requirement of the Local Content Act. and workforce diversity. In 2013, the Group business and maintain our relationships provided strong focus on pay equality across with business partners and ensure Seven Energy also employs a number all employee band levels, and introduced a compliance with applicable anti-corruption of contractors, particularly in connection remuneration structure designed to attract legislation (including the UK Bribery Act with its various infrastructure projects. and retain appropriately qualified personnel. and the US Foreign Corrupt Practices Act). The number of contractors that All employees are required to self-certify Seven Energy utilises is project dependent Seven Energy is committed to providing compliance with the Code of Conduct and varies according to the number, a safe and healthy working environment annually and receive regular training in type and activity level of the projects in which all personal injury is regarded as relation to compliance with anti-bribery and undertaken. As of 31 December 2013, preventable. We recognise the right of all corruption legislation. In addition, we have the number of contractors Seven Energy employees to exercise membership of an adopted rigorous policies and procedures utilised was approximately 130. employee organisation or trade union and relating to contracts and procurement that we seek to protect internationally recognised include due diligence procedures when The Group seeks to maintain workforce human rights. entering into new agreements with either policies that are fair and compliant with new or existing agents. applicable local laws. Seven Energy seeks to During 2013, the internal communications employ individuals on the basis of merit and programme was strengthened with the ability. During the year, the Group has seen introduction of regular staff bulletins and strong growth in the proportion of women Phase One of an intranet project. Phase Two working across the organisation, and women of the intranet project will be launched during currently account for 27% of our workforce. 2014, combined with a further strengthening of internal communications to align with the external communications programme.

With an active community relationship programme in place, we work to improve living standards in Nigeria.

36 Seven Energy Annual Review 2013 5. Asset protection 6. Health and safety 7. Environment The protection of personnel, assets and Seven Energy seeks to protect the health Seven Energy recognises the significant property is one of Seven Energy’s top and safety of everyone that is involved in its environmental considerations attached to priorities. The success of our business in activities, the people who come into contact its operations and in particular its drilling Nigeria is largely dependent on maintaining with its operations and the health and operations. Minimising the impact by its a safe and secure working environment sustainability of the environments in which business and operations is therefore of for all of our employees, contractors, it operates. The Group’s operations are at primary importance to the Group. Operational and financialreview subcontractors, partners and local all times directed by policies and procedures stakeholders, including community groups. that reflect best industry practice. Continual For the assets that the Group operates focus on health and safety performance directly and for those operated by our Seven Energy’s security procedures are is considered critical to the overall success partners, the Group takes an active role continually updated to ensure that it is of the Group. in monitoring the environmental impact pro-active and ready to deal with the of development and production activities. ever changing environment in which it In 2013, the Group met or exceeded all of At all times, Seven Energy’s operations operates. We seek close cooperation with its KPI targets. In particular, it exceeded a are directed by its QHSSE/CSR policies our joint venture partners and their security cumulative total of 8.6 million hours without and procedures, which meet regulatory teams through close communication and a Lost Time Incident (“LTI”). In addition, its requirements and reflect best industry sharing of security information. We also Total Recordable Incidence Rate (“TRIR”) practice. For the projects operated by its maintain effective links with the local host was zero. There were no fatalities across our partners, such as OMLs 4, 38 and 41, communities and seek to ensure that they operations and projects during 2013. the relevant operators have their own too are kept well informed and provided environmental policies and procedures with any available employment opportunities. in place. However, the Group reviews This engagement also encourages local those policies and monitors environmental ownership of potential security issues and activities to ensure compliance with the assists all parties to establish a safe and relevant rules and regulations. secure working relationship. In 2013, Seven Energy commenced the As of 31 December 2013, Seven Energy update of its Environmental Management recorded no serious security related incidents System in accordance with ISO 14001 for the sixth successive year throughout (including the internal audit and training its operations. elements). This Environmental Management System is supported by other health and safety management systems, and policies Our support for teaching excellence and procedures already in place across the organisation as well as the already Inoyo Toro Foundation is one of the students from Nto Nsek, a Government implemented Waste Management Plans, first educational foundations in Nigeria Secondary School, in the Essien Udim Local Environmental Management Plans and involved in recognising teachers by Government Area. The school is adopted Environmental Monitoring Plans. instituting the Annual Award for Teaching by Seven Energy for continuous mentoring. Excellence in public schools. The initiative Our Category B rating by the IFC highlights has been established since 2009 to Seven Energy’s CSR team actively promotes that our projects are having a limited support educational development in such mentoring opportunity to our staff and adverse social and / or environmental Nigeria. It has particularly impacted to complement our organisational efforts. impact that can be readily addressed positively on the educational development through mitigation measures. of Akwa Ibom State.

Seven Energy collaborated with the foundation through sponsorship of Read more: the 2013 Annual Excellence Awards. Corporate Social Motivational awards were given to various Responsibility Report categories of teachers from several public schools in Akwa Ibom State.

Prior to the event, our VP, Operations, Nigeria Content Development Manager and the CSR Manager had the privilege of participating in mentoring sessions with

Seven Energy Annual Review 2013 37 Corporate governance

Corporate governance We are committed to developing and applying high standards of corporate governance both in the management of our business and our accountability to stakeholders as a whole.

38 Seven Energy Annual Review 2013 Chairman’s overview In support of our growing business, we have continued to enhance our corporate governance.

During the year, the Board met on nine The questionnaire focused on the Board’s occasions and focused on matters including: competency and whether there was an appropriate balance of skills, experience – The Annual Operating Plan and 2013 budget; and knowledge amongst Board members – 2013 Corporate Objectives; to enable them to discharge their respective – Business and Strategy; duties and responsibilities. A report on – Medium- and long-term funding strategy; and the outcome of the overall evaluation – Portfolio management and growth. was provided to the Board for discussion. The evaluation concluded that overall the Board visibility, engagement and Board was operating effectively and that Dr Andrew Jamieson OBE communication each Director continues to make a valuable Non-executive Chairman The Board recognises the value of engaging contribution but there was a further need with its employees and shareholders and to strengthen the composition of the Board. Board focus during the year during the year, the frequency in its level This was addressed during 2013 with the In a move towards enhancing corporate of interactions with employees and addition of Michael Lynch-Bell and Robin governance practices, with effect from shareholders increased. Pinchbeck to the Board and the longer-term 1 January 2013, the position of Chairman intention to appoint Clare Spottiswoode and Corporate governance and Chief Executive Officer was split to allow The Board and the Group place a Fidelis Oditah to the Board as Independent Phillip Ihenacho to focus on the role of Chief strong emphasis on engagement with its Non-executive Directors. It was agreed that Executive Officer whilst I assumed the role shareholders and try to ensure that the in 2014, the Board evaluation would be of Non-executive Chairman. channels of communication always remain expanded to include performance of each open for shareholders to provide feedback Board Committee under the leadership and Since my appointment, I have introduced a to Executive management or myself. guidance of the respective Committee Chair rolling agenda for the Board and sought to and Company Secretary. facilitate openness and constructive debate Internal Board evaluation between the Executive management and The performance and effectiveness of the The performance of the Chief Executive Non-executive Directors. At every Board Board is fundamental to the success of the Officer is reviewed by the HR & Remuneration meeting, time is set aside for Non-executive Company and the Board conducted its first Committee and this review is shared with only discussions and informal meetings evaluation during 2013 using an assessment and considered by the Board. are held before Board meetings where our questionnaire prepared by the Company Directors are encouraged to raise issues and Secretary and the Chairman, which all discussions in a less formal setting. Directors completed.

Corporate governance framework

The Group has established an effective corporate governance framework with defined roles and responsibilities that add value to the business, help build its reputation and ensure its long-term continuity.

Board and senior management structure Board of Directors

HR & Remuneration Environment & Audit Committee Committee Community Committee

Executive Committee

Senior management

Seven Energy Annual Review 2013 39 Board of Directors

Our Board composition Seven Energy has a high-quality Board with a strong combination of Nigerian and global oil and gas knowledge and experience to lead the Group into its next phase of growth and development. The Board is committed to developing and applying best corporate governance practices throughout the business.

Dr Andrew Jamieson Phillip Ihenacho Ashley Dunster Osam Iyahen Atul Gupta Michael Lynch-Bell Dr Yemi Osindero Dr Joshua Udofia Robin Pinchbeck Fidelis Oditah Clare Spottiswoode OBE Chief Executive Officer Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director QC SAN CBE Non-executive Chairman Board Adviser Board Adviser Experience Andrew was appointed as Phillip is a co-founder of Ashley is a managing Osam is senior vice Atul has over 25 years Michael has a wealth of Yemi is Head of West Africa Joshua was the co-founder Robin brings nearly 40 years Fidelis was educated at the Clare began her career in Independent Non-executive Amaya Capital Partners, an partner at Capital president, natural resources of experience in the experience in the energy Private Equity at Standard and chief executive officer of experience in the oil and Universities of Lagos and the Treasury before starting Director in 2012 and African-focused principal International Private Equity at Africa Finance international upstream and resources sectors having Chartered. He has of Gulf of Guinea Energy gas upstream and services Oxford and is qualified in a software company. She Non-executive Chairman in investing firm and previously with primary responsibility Corporation. He has a oil and gas business spent 38 years at Ernst & experience in international and has over 36 years of sector. He spent 23 years Nigerian and English law. was Director General of 2013. He spent more than established and ran Afrinvest for Europe, the Middle East wealth of practical industry successively with Young specialising in the investment banking, foreign experience in the oil and with BP, before he moved He began his legal career Ofgas, the UK gas regulator, 30 years with Shell in for over 10 years, overseeing and Africa. Prior to this, experience working with Charterhouse Petroleum, provision of services to a direct investment and gas industry. He served as to the oil services sector at Oxford University where and a member of the UK Europe, Australia and Africa the sale of the company in he was a principal banker in ExxonMobil’s West Africa Petrofina, Monument and wide variety of mining and venture capital. Prior to deputy managing director where he was the managing he taught before going into Treasury’s Independent in various positions and until 2007 to United Bank for the Early Stage Equity Team team, strategy consulting Burren Energy. Atul holds metals and oil and gas joining Standard Chartered, of Shell Nigeria, director director of Atlantic Power full time commercial practice Commission on Banking. his retirement, he held the Africa. Phillip holds a BA in at the European Bank for expertise for the oil and gas a Bachelor's degree in clients. Michael holds a he served as the chief of Shell Petroleum & Gas which was sold to in the City of London. He is She has many years of position of executive vice History from Yale University Reconstruction and sector as well as financing Chemical Engineering from BA in Economics and operating officer of Virgin Development Company Petroleum Geo‑Services and a Queen’s Counsel (QC) in experience in a variety president of gas and and a JD in Law from Development. Ashley holds for large scale oil and gas Cambridge University and Accounting from the Nigeria Airways which he of Nigeria and held director subsequently purchased by England and a Senior of non-executive roles, projects at Shell Gas and Harvard Law School. a BE in Civil Engineering projects. Osam holds a BA a Master's degree in University of Sheffield, is a co-founded in 2005. He positions within Shell Nigeria Petrofac. Robin had a variety Advocate of Nigeria (SAN). particularly in the oil and Power International BV. from the University of in Political Science from Petroleum Engineering from Fellow of the Institute of holds a BEng and a PhD in Exploration and Production of roles over a 10-year He set up ODITAH, a gas industry. Andrew holds a Doctorate Melbourne and a Masters Middlebury College in Heriot-Watt University. Chartered Accountants of Chemical Engineering from and Shell Ultra Deep. period at Petrofac, most private practice, and has in Philosophy from University in Mathematics from Vermont, and an MBA England and Wales and a the University of Bath. recently as group director advised many businesses of Glasgow. Oxford University. in Strategy and General member of the UK Energy of strategy and corporate on various aspects of Management from Cornell Institute. He also holds an development, before retiring Nigerian commercial law University (Johnson School Honorary Doctorate of in 2012. and practice. of Management). Humane Letters from the He has a BSc in Chemical Schiller International Engineering from Imperial University. College, London and an MSc in Management from Stanford Business School, California. Year appointed 2012 2006 2010 2012 2012 2013 2009 2009 2013 2012 2012

Other Independent non-executive Non-executive director of Non-executive director of n/a Non-executive director Independent Non-executive Non-executive Director of Director of Rudof Farms Non-executive Director of Director of Vetiva Capital Non-executive Director director of Woodside Azura Power Holdings Amoun Pharmaceutical of Essar Capital Director of Equus Petroleum Union Bank of Nigeria Nigeria and Jakwell Nigeria IGas and Enteq Upstream Management, Vestor of G4S, Ilika and EnQuest appointments Petroleum, Velocys Group and audit committee chair Properties and the Ngozi and Hoegh LNG at Kazakhmys and board Oditah Foundation member and trustee of Action Aid International Committee HR & Remuneration n/a Audit Committee and HR & Audit Committee n/a Audit Committee (Chair) Audit Committee, HR & Environment & Community Audit Committee, HR & Committee (Chair) Remuneration Committee Remuneration Committee Committee (Chair) Remuneration Committee membership and Environment & and Environment & Community Committee Community Committee

40 Seven Energy Annual Review 2013 Board composition Board experience Board gender diversity

Chairman 1 Oil and gas industry 6 Male 10 (91%) Executive Director 1 Legal and regulation 2 Female 1 (9%) Non-executive Directors 7 Accountancy 1 Board advisers 2 Capital markets 2

Board Advisers

Dr Andrew Jamieson Phillip Ihenacho Ashley Dunster Osam Iyahen Atul Gupta Michael Lynch-Bell Dr Yemi Osindero Dr Joshua Udofia Robin Pinchbeck Fidelis Oditah Clare Spottiswoode OBE Chief Executive Officer Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director QC SAN CBE Non-executive Chairman Board Adviser Board Adviser Experience Andrew was appointed as Phillip is a co-founder of Ashley is a managing Osam is senior vice Atul has over 25 years Michael has a wealth of Yemi is Head of West Africa Joshua was the co-founder Robin brings nearly 40 years Fidelis was educated at the Clare began her career in Independent Non-executive Amaya Capital Partners, an partner at Capital president, natural resources of experience in the experience in the energy Private Equity at Standard and chief executive officer of experience in the oil and Universities of Lagos and the Treasury before starting Director in 2012 and African-focused principal International Private Equity at Africa Finance international upstream and resources sectors having Chartered. He has of Gulf of Guinea Energy gas upstream and services Oxford and is qualified in a software company. She Corporate governance Non-executive Chairman in investing firm and previously with primary responsibility Corporation. He has a oil and gas business spent 38 years at Ernst & experience in international and has over 36 years of sector. He spent 23 years Nigerian and English law. was Director General of 2013. He spent more than established and ran Afrinvest for Europe, the Middle East wealth of practical industry successively with Young specialising in the investment banking, foreign experience in the oil and with BP, before he moved He began his legal career Ofgas, the UK gas regulator, 30 years with Shell in for over 10 years, overseeing and Africa. Prior to this, experience working with Charterhouse Petroleum, provision of services to a direct investment and gas industry. He served as to the oil services sector at Oxford University where and a member of the UK Europe, Australia and Africa the sale of the company in he was a principal banker in ExxonMobil’s West Africa Petrofina, Monument and wide variety of mining and venture capital. Prior to deputy managing director where he was the managing he taught before going into Treasury’s Independent in various positions and until 2007 to United Bank for the Early Stage Equity Team team, strategy consulting Burren Energy. Atul holds metals and oil and gas joining Standard Chartered, of Shell Nigeria, director director of Atlantic Power full time commercial practice Commission on Banking. his retirement, he held the Africa. Phillip holds a BA in at the European Bank for expertise for the oil and gas a Bachelor's degree in clients. Michael holds a he served as the chief of Shell Petroleum & Gas which was sold to in the City of London. He is She has many years of position of executive vice History from Yale University Reconstruction and sector as well as financing Chemical Engineering from BA in Economics and operating officer of Virgin Development Company Petroleum Geo‑Services and a Queen’s Counsel (QC) in experience in a variety president of gas and and a JD in Law from Development. Ashley holds for large scale oil and gas Cambridge University and Accounting from the Nigeria Airways which he of Nigeria and held director subsequently purchased by England and a Senior of non-executive roles, projects at Shell Gas and Harvard Law School. a BE in Civil Engineering projects. Osam holds a BA a Master's degree in University of Sheffield, is a co-founded in 2005. He positions within Shell Nigeria Petrofac. Robin had a variety Advocate of Nigeria (SAN). particularly in the oil and Power International BV. from the University of in Political Science from Petroleum Engineering from Fellow of the Institute of holds a BEng and a PhD in Exploration and Production of roles over a 10-year He set up ODITAH, a gas industry. Andrew holds a Doctorate Melbourne and a Masters Middlebury College in Heriot-Watt University. Chartered Accountants of Chemical Engineering from and Shell Ultra Deep. period at Petrofac, most private practice, and has in Philosophy from University in Mathematics from Vermont, and an MBA England and Wales and a the University of Bath. recently as group director advised many businesses of Glasgow. Oxford University. in Strategy and General member of the UK Energy of strategy and corporate on various aspects of Management from Cornell Institute. He also holds an development, before retiring Nigerian commercial law University (Johnson School Honorary Doctorate of in 2012. and practice. of Management). Humane Letters from the He has a BSc in Chemical Schiller International Engineering from Imperial University. College, London and an MSc in Management from Stanford Business School, California. Year appointed 2012 2006 2010 2012 2012 2013 2009 2009 2013 2012 2012

Seven Energy Annual Review 2013 41 Board Committees

Established Board Committees Our Audit, HR & Remuneration and Environmental & Community Committees have been established with formally delegated duties and responsibilities and terms of reference. Membership of each of the Board Committees is detailed below.

Audit Committee HR & Remuneration Committee Environment & Community Committee

Responsibilities Responsibilities Responsibilities Responsible for selecting the Group’s independent Responsible for determining the terms and Responsible for reviewing the Group’s policies, auditors, pre-approving all audit services and work conditions of service of the executive management procedures and performance in relation to Quality, plans, reviewing with management and with the team including performance related pay and Health, Safety, Security and the Environment and in auditors the financial statements and key audit share-based payments and for setting the Group relation to Corporate Social Responsibility and issues, significant accounting policies and practices remuneration strategy. Community Development and Relations. and the adequacy of internal control systems.

Committee members Committee members Committee members –– Michael Lynch-Bell (Chair) –– Dr Andrew Jamieson OBE (Chair) –– Dr Joshua Udofia (Chair) –– Ashley Dunster –– Ashley Dunster –– Dr Yemi Osindero –– Osam Iyahen –– Dr Yemi Osindero –– Robin Pinchbeck –– Dr Yemi Osindero –– Robin Pinchbeck –– Dr Glenn Bestall (Management) –– Robin Pinchbeck

Board and Committee attendance 2013 HR & Environment & Name Board Audit Remuneration Community Dr Andrew Jamieson1 9/9 – 4/4 – Phillip Ihenacho2 9/9 – – – Ashley Dunster3 7/9 6/7 4/4 – Gordon East4 3/3 4/4 2/2 2/2 Atul Gupta5 6/9 – – – Osam Iyahen6 7/9 6/7 – – Michael Lynch-Bell7 6/6 4/4 – – Dr Yemi Osindero8 9/9 4/7 4/4 1/2 Robin Pinchbeck9 6/6 3/3 2/2 – Dr Joshua Udofia10 7/9 – – 2/2

1 Andrew Jamieson became Non-executive Chairman of the Board on 1 January 2013 when Phillip Ihenacho stepped down as Executive Chairman. 2 Phillip Ihenacho stepped down as Executive Chairman on 1 January 2013 to concentrate on his role as Chief Executive Officer. 3 Ashley Dunster was unable to attend two Board meetings and one Audit Committee meeting due to prior commitments but was represented by Paul-Jeroen van de Grampel. 4 Gordon East stepped down as a member of the Board on 10 May 2013. Gordon was represented by Francesco Verre at the Environment & Community Committee meeting. 5 Atul Gupta was unable to attend three Board meetings due to other commitments but was represented by Paul-Jeroen van de Grampel. 6 Osam Iyahen was unable to attend two Board meetings but was represented by Aliya Shariff. 7 Michael Lynch-Bell joined the Board on 7 May 2013 and replaced Dr Yemi Osindero as Chair of the Audit Committee. 8 Dr Yemi Osindero was represented at the Board and Committee meetings by alternates appointed by Standard Chartered and at the Environment & Community Committee meetings was represented by Peter Baird. 9 Robin Pinchbeck joined the Board on 10 May 2013 and joined the Audit, HR & Remuneration Committees and Environment & Community Committee. 10 Joshua Udofia was unable to attend two Board meetings due to other commitments.

42 Seven Energy Annual Review 2013 Corporate governance

Seven Energy Annual Review 2013 43 Senior management

Experienced management team Seven Energy has a highly experienced senior management team that combines local experience with international oil and gas industry expertise.

The Executive Committee is Executive Committee chaired by the Chief Executive Officer, Phillip Ihenacho, and Phillip Ihenacho Bruce Burrows Chief Executive Officer Chief Financial Officer comprises key executives. Phillip is a co-founder of Amaya Capital Bruce served as the finance director of JKX The day-to-day management Partners, an African-focused principal Oil & Gas, the London Stock Exchange listed of the Company is delegated investing firm, and previously established and exploration and production company with to the Executive Committee ran Afrinvest for over 10 years, overseeing interests in Ukraine and central and eastern the sale of the company in 2007 to United Europe, for 14 years. Prior to this, he held and the senior management Bank for Africa. Prior to this, Phillip was various positions at Ernst & Young in the team. The Executive chairman of the Aureos West Africa Fund Wellington (New Zealand) and London Committee meets on a and before that at McKinsey & Co. He is a offices. He holds a BSc Honours degree graduate of Harvard and Yale. He was born from Canterbury University (New Zealand), monthly basis with agenda and educated in Nigeria. a Diploma in Accounting from Victoria items including operations, University (New Zealand) and is a member financial performance and Campbell Airlie of the Institute of Chartered Accountants planning, project updates, Chief Technical Officer of New Zealand. Campbell has over 30 years’ experience in QHSSE/CSR, business reservoir and production engineering and Jeff Corey development and legal and asset management with Schlumberger, BP, Chief Operating Officer corporate governance. Edinburgh Petroleum Services (EPS) and Jeff has over 30 years of oil and gas Weatherford International. He has held experience spanning five continents. Prior positions as reservoir engineering team roles include executive vice president of leader for BP’s mature assets, development operations for Waha Oil Company in Libya, manager and technical director. He has Australia-Pacific LNG joint venture manager consulted in over 40 countries and has in Australia, development manager for served as an SPE distinguished lecturer in ConocoPhillips in New Mexico (US) and Asset Management. Campbell has degrees operations manager for ConocoPhillips in Physics and Petroleum Engineering in Venezuela. He holds a B.S. Honours and is a Fellow of the Royal Institution in Petroleum Engineering from New of Great Britain. Mexico Institute of Mining & Technology and qualified as a registered Professional Engineering in the state of New Mexico, US. Jeff is a member of the Society of Petroleum Engineers and previously served as Chairman of the Northern Emirates (UAE) section.

44 Seven Energy Annual Review 2013 Senior management

Dr Glenn Bestall Nkem Okoro Bassey Umoh Vice President, QHSSE/CSR Vice President, Wells and Services Vice President, Capital Projects Glenn brings 30 years of experience in both Nkem has over 28 years’ drilling operations Bassey joined Seven Energy in January 2014 safety, CSR and environmental management experience and prior to his appointment and brings more than 30 years of relevant and technical roles, primarily in support of was a drilling superintendent for Addax experience working with ExxonMobil. major capital projects and the upstream / Petroleum. Nkem spent the majority of his He has held key positions in engineering, downstream oil and gas business. Glenn career at Shell in various capacities where operations, maintenance, joint interest, worked for Tullow Oil, based in Uganda and he gained significant international experience projects and acquired various leadership in Ghana, where he was responsible for in The Hague and on secondment to an qualifications both locally and internationally. project focused HSE technical management operating company, NAM, where he spent Bassey gained significant international associated with exploration and field a total of four years. He also undertook experience when he was transferred to development projects. He has also worked the Mike-5 development project in Shell Esso France in Paris to work on various oil on the OKLNG Project in Nigeria, with Shell Cameroon. and gas development projects, where he Global Solutions in the Netherlands and in spent a total of six years. His most recent Nigeria, SPDC/AGIP in Port Harcourt, Nigeria, Stephen Tierney role was a project manager at ExxonMobil. Corporate governance and with Total E&P in Angola. Managing Director, Accugas Bassey holds a B.S. Honours degree in Stephen has specialised expertise in gas Petroleum Engineering from the University Abdullah Bukar projects, business development and M&A of Ibadan, Nigeria. Vice President, Regulatory Affairs in Nigeria. He previously held a number Abdullah has over 35 years of experience in of business and general management Ani Umoren the Nigerian oil and gas industry with Shell. positions in the country, eventually Vice President, Operations Since 1995, he has worked in the area of becoming Weatherford International’s Ani joined Seven Energy on a full time basis production management covering extensive divisional region manager for West Africa in May 2013, after acting as the Group’s work programmes in engineering, support prior to the buyout of Seven Energy from consultant on Production Operations and planning. Prior to his career at Shell, Weatherford International. Management. Ani has nearly 30 years of he gained offshore facilities experience at oil and gas industry experience and has Woodside Australia. Chris Thomas held various positions in engineering, Vice President, Head of Strategy and operations, maintenance and QHSSE/CSR. Chidi Chukwueke Business Development and Group His most recent role was field construction Vice President, Joint Ventures Company Secretary advisor at ExxonMobil. Ani has a First Chidi has over 20 years’ industry experience Chris has over 25 years of experience in Degree in Mechanical Engineering and a with Royal Dutch Shell spanning integrated corporate finance generally and, for the last Master’s Degree in Mechanical & Aerospace exploration, business development, asset 17 years, in the exploration and production Engineering, both from University of development, project and stakeholder sector. Previously, Chris was a founding Delaware, US. management and business relations among director and group company secretary of others. Prior to joining Seven Energy, Melrose Resources, the former London Chidi was the business relations manager Stock Exchange FTSE 250 listed international for Shell Nigeria Exploration and E&P company with interests in EMEA and Production Company. the US. Chris is a member of the Institute of Chartered Accountants in England and Wales.

Seven Energy Annual Review 2013 45 Directors’ report

1. Capital structure As at 31 December 2013, the Company had an issued share capital of 508,906 ordinary shares (2012: 506,240) and fully diluted issued share capital (which comprises ordinary shares and irredeemable convertible loan notes, but excludes warrants, share options and convertible bond options) of 2,708,118 ordinary shares (2012: 2,705,195) and as at 31 May 2014, 3,860,118 ordinary shares.

Issued share capital The Company has been notified of the following direct interests of more than 3% in the issued share capital of the Company:

At 31 December 2013 No. % Exoro Energy Holdings Limited 251,966 49.8 JPP Ocean (Singapore) Pte. Ltd. 78,750 15.6 Diamond Bank 73,302 14.5 Joshua Udofia 27,697 5.5 Kolawole Aluko 22,800 4.5 Amaya Partners Holdings 19,623 3.9

Diluted issued share capital (ultimate beneficial interest) The Company has been notified of the following ultimate beneficial interests of more than 3% in the fully diluted issued share capital of the Company as at 31 December 2013 and 31 May 2014 following the recent issue of additional equity to Temasek, IFC and IFC ALAC Fund (assuming full conversion into ordinary shares of all the outstanding irredeemable convertible loan notes issued by the Company):

At 31 May 2014 At 31 December 2013 No. % No. % Temasek Holdings 600,000 15.5 – – Petrofac Limited 595,845 15.4 595,845 22.0 Capital International Private Equity 516,011 13.4 516,011 19.1 Standard Chartered Private Equity 382,733 9.9 382,733 14.1 International Finance Corporation 300,000 7.7 – – Suntera Management Limited 132,000 3.4 – – IFC ALAC Fund 120,000 3.1 – – Africa Finance Corporation 112,836 2.9 112,836 4.2 JPP Ocean (Singapore) Pte. Ltd. 108,731 2.8 108,731 4.0 Amaya Partners Holdings 107,622 2.7 107,622 4.0 Actis Private Equity 105,468 2.7 105,468 3.9 Investec Africa Private Equity 95,595 2.4 95,595 3.4

46 Seven Energy Annual Review 2013 2. Corporate governance As a private company, the Company is not required to comply with any provisions of the Corporate Governance Code. The Directors are, however, mindful of their responsibilities to all shareholders and have adopted the following provisions of the Corporate Governance Guidance and Principles for Unlisted Companies in the UK:

–– The Board comprises one Executive Director and eight Non-executive Directors who are drawn from diverse industries and include three independent non-executives; –– The Board has full and timely access to all relevant information to enable it to discharge its duties effectively; –– A formal process has been adopted by the Board to manage Directors’ conflict of interest; and –– The Board retains responsibility for the maintenance by the Group of a sound system of internal control and for reviewing its effectiveness. In addition to identifying, managing and mitigating risks across the Group’s operations, the system of internal control is designed to ensure effective and efficient operation and compliance with applicable laws and regulations.

The duties and responsibilities of the Board and its committees are formally agreed in writing, with matters specifically reserved for the Board clearly defined within the constitutional documents governing the Company. The Board meets at least five times a year, with additional meetings arranged as necessary to deal with any special business arising between these scheduled meetings. All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. All Directors also have access to the Group’s professional advisers who they can consult at the Company’s expense should they consider this necessary in order to discharge their responsibilities.

3. Directors’ indemnity and insurance The Company provides an indemnity to all its Directors (to the extent permitted by law) in respect of liabilities incurred as a result of their office. The Group also has in place liability insurance covering the Directors and officers of Group companies. Both the indemnity and insurance were in force during the year ended 31 December 2013. However, neither the indemnity nor the insurance provide cover in the Corporate governance event that the Director is proven to have acted dishonestly or fraudulently.

4. Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law, the Directors have elected to prepare the Group financial statements in accordance with IFRS as adopted by the European Union. Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

–– Properly select and apply accounting policies; –– Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; –– Provide additional disclosures when compliance with the specific IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and –– Make an assessment of the Group’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose, with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the financial statements comply with the Mauritius Companies Act 2001 and International Financial Reporting Standards as adopted by the European Union. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

5. Conflicts of interest A formal process to manage conflicts of interest is in place and the prescribed process provides a framework within which the Board manages potential conflict situations as they arise.

6. Anti-bribery and corruption The Group is committed to complying with all applicable provisions of the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act and all other equivalent anti-corruption and/or anti-bribery legislation applicable to the Group by virtue of its jurisdiction of incorporation or the conduct of its business operations.

Seven Energy Annual Review 2013 47 Directors’ report

7. Employment The Group has adopted a Code of Conduct which provides equal employment opportunities to all employees and applicants for employment and does not discriminate on any grounds including disability discrimination. The Group’s employment strategy is regularly reviewed to incorporate changes to legislation and ensure best practice is maintained.

8. Training and development The Group encourages all employees to seek opportunities for development, ensuring the achievement of competitive advantage at both an individual and business level. The Group keeps all employees informed of events relevant to their employment via all-staff communications and an intranet.

9. Health and Safety The Group is committed to providing and maintaining a clean, hazard free and safe working environment to all employees in accordance with relevant Health and Safety Act in the various jurisdictions it operates in.

48 Seven Energy Annual Review 2013 Summary Group income statement For the year ended 31 December 2013

2013 2012 2011 $000 $000 $000 Revenue 344,961 102,439 86,819 Gross profit 176,744 44,020 28,570 Operating profit/(loss) 125,720 13,604 (6,327) Investment revenue 1,541 1,422 182 Finance costs (38,100) (18,683) (6,763) Foreign exchange losses/(gains) (985) (1,133) 647 Profit/(loss) before tax 88,176 (4,790) (12,261) Tax expense (48,823) (1,832) (14,650) Profit/(loss) after tax 39,353 (6,622) (26,911)

Specific items(1) Year ended 31 December 2013 2012 2011 $000 $000 $000 Cost of sales and depletion – Production expenses (171,412) (64,506) (46,263) – Increase in underlift 70,851 23,588 – Cost of sales (100,561) (40,918) (46,263) Depletion (67,656) (17,501) (11,986) Net specific cost of sales and depletion (168,217) (58,419) (58,249)

Operating costs Depreciation and amortisation expenses (2,123) (2,749) (2,064) Impairment charge (5,802) – – Other operating expenses (478) (1,727) (4,776) Administrative expenses (42,621) (25,940) (28,057) Net specific operating costs (51,024) (30,416) (34,897)

(1) Specific items are those items that in management’s judgement should be disclosed separately. Summary financials Summary

Seven Energy Annual Review 2013 49 Summary Group cash flow statement For the year ended 31 December 2013

2013 2012 2011 $000 $000 $000 Net cash provided by/(used in) operating activities 171,894 77,826 (34,608) Net cash used in investing activities (324,120) (186,220) (171,200) Net cash from financing activities 171,484 128,611 150,835 Net increase/(decrease) in cash and cash equivalents 19,258 20,217 (54,973)

Cash and cash equivalents at beginning of year 32,190 12,717 67,536 Effect of foreign exchange rate changes (1,065) (744) 154 Cash and cash equivalents at end of year 50,383 32,190 12,717

Summary Group balance sheet As at 31 December 2013

2013 2012 2011 $000 $000 $000 Property, plant and equipment 1,150,621 713,347 506,865 Other non-current assets 11,644 28,210 31,977 Current assets 213,796 130,972 86,555 Current liabilities (675,067) (259,445) (175,117) 700,994 613,084 450,280 Non-current liabilities (305,213) (263,002) (173,447) Net assets 395,781 350,082 276,833

This summary information has been extracted from the audited financial statements for year ended 31 December 2013, which were approved by the Board of Directors on 17 April 2014.

50 Seven Energy Annual Review 2013 Glossary of terms

1P Proved reserves 2C Contingent resources 2P Proved and Probable reserves. Those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable reserves bbl Barrel of oil, condensate or natural gas liquids Bcf Billion cubic feet of gas Bcfe Billion cubic feet of gas equivalent Bcfpd Billion cubic feet of gas per day bopd Barrels of oil per day Chorus Energy Chorus Energy Limited, the Operator of the Matsogo Field CNG Compressed natural gas Company Seven Energy International Limited, a company incorporated in Mauritius CSR Corporate social responsibility EHGC East Horizon Gas Company Limited EBITDA Earnings before interest, taxation, depletion, depreciation and amortisation EBITDAX EBITDA before impairment charge Field An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition Frontier Oil Frontier Oil Limited, the Operator of the Uquo Field FUN Manifold Oil collection manifold, jointly owned by the Frontier Oil, Universal Energy and Network Joint Venture GDP Gross domestic product GTPL Gas Transmission & Power Ltd, the Operator of OPL 905 GW Gigawatt hydrocarbons Oil, condensate, natural gas liquids and natural gas IFRS International Financial Reporting Standards the Group/Seven Energy Seven Energy International Limited and its subsidiaries ICLNs Irredeemable convertible loan notes km Kilometre km2 Square kilometre LNG Liquid natural gas LTI Lost Time Incident Mbbl Thousand barrels of oil or condensate Mbopd Thousand barrels of oil per day

Mboepd Thousand barrels of oil equivalent per day financials Summary Mcf Thousand cubic feet of gas MMboe Million barrels of oil equivalent MMBtu Million British thermal units MMcfpd Million cubic feet of gas per day MW Megawatt Naira or NGN The currency of Nigeria NIPP National Integrated Power Project NNPC Nigerian National Petroleum Corporation NPDC Nigerian Petroleum Development Company Limited, a subsidiary of NNPC OML Oil Mining Licence OPL Oil Prospecting Licence Prospect A location where sufficient technical work has been undertaken to justify drilling a well

Seven Energy Annual Review 2013 51 Glossary of terms continued

QHSSE Quality, health, safety, security and environmental QIT ExxonMobil’s Qua Iboe export terminal Reservoir A subsurface body of rock having sufficient porosity and permeability to store and transmit hydrocarbons SPE Society of Petroleum Engineers Strategic Alliance Agreement The Strategic Alliance Agreement with NPDC with respect to OMLs 4, 38 and 41 SRL 905 SRL 905 Holdings Ltd Tcf Trillion cubic feet of gas TRIR Total Recordable Incidence Rate Underlift/overlift The difference between the production entitlement and amounts lifted. Where amounts lifted are less than production entitlement, underlift (asset) is recorded. Where liftings exceed entitlement, overlift (liability) is recorded. UniCem United Cement Company of Nigeria Ltd, is a private company that manufactures cement Universal Energy Universal Energy Resources Limited, a 62.5% subsidiary of Seven Energy, and the Operator of the Stubb Creek Field $ The currency of the US, i.e. US dollars

52 Seven Energy Annual Review 2013 Shareholders’ information

Shareholder enquiries Advisers

Registered Agent and Auditor Registered Address Deloitte LLP Cim Global Management 2 New Street Square Les Cascades London EC4A 3BZ Edith Cavell Street United Kingdom Port-Louis Mauritius Solicitors Addleshaw Goddard Group Company Secretary Milton Gate Chris Thomas 60 Chiswell Street Seven Energy International Limited London EC1Y 4AG 6 Chesterfield Gardens United Kingdom London W1J 5BQ United Kingdom Principal Bankers First Bank of Nigeria Ltd. Samuel Asabia House 35 Marina Lagos Nigeria

First City Monument Bank plc 17A Primrose Tower Tinubu Street Lagos State Nigeria

Standard Chartered Bank 1 Basinghall Avenue London EC2V 5DD United Kingdom

United Bank for Africa plc UBA House 57 Marina Lagos Nigeria

Stanbic IBTC Bank PLC IBTC Place Walter Carrington Crescent Victoria Island Lagos Nigeria

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