News

Africa Oil 2018 Second Quarter Financial and Operating Results

August 14, 2018

VANCOUVER, Aug. 14, 2018 /CNW/ - (AOI–TSX, AOI–Nasdaq-Stockholm) … Africa Oil Corp. ("Africa Oil" or the "Company") is pleased to announce its financial and operating results for the three and six months ended June 30, 2018. View PDF Version

As at June 30, 2018, the Company had cash of $369.6 million and working capital of $380.2 million as compared to cash of $392.3 million and working capital of $436.3 million at December 31, 2017. During the second quarter of 2017, the Company and Maersk (who has subsequently been acquired by TOTAL) agreed to payment terms related to the $75.0 million advance development carry. Africa Oil is due to receive equal quarterly payments of $18.75 million at the end of each calendar quarter during 2018. The first two quarterly payments were received during the first half of 2018. These proceeds were initially recognized in accounts receivable and intangible exploration assets during 2017.

During the second quarter of 2018, Africa Energy (AFE:TSXV) completed a private placement, in which the Company invested $18.0 million, increasing the Company's ownership interest in Africa Energy from 28.5% to 34.6%.

Blocks 10BB and 13T (Kenya)

Operational activity is focused in the South Lokichar basin. Work has continued in both the Amosing and Ngamia fields, with water injection testing ongoing at Ngamia-11 and continued oil production from the Ngamia-8 well. The Ngamia-3 well also successfully started production in June 2018. The produced oil from testing has been stored in the field. A comprehensive set of results from this program is expected in the third quarter of 2018. To date, the results are positive.

Following the agreement of the terms of The Petroleum Bill, the transfer of stored crude oil from Turkana to Mombasa by road commenced on 3 June 2018. This milestone was marked by a ceremony attended by President H.E. Uhuru Kenyatta, Deputy President H.E. William Ruto, the Turkana County Governor, Turkana MPs as well as many other Government Ministers and officials. The first truck arrived at the KPRL Refinery in Mombasa on 7 June 2018, where the oil will be stored for future export. Initially, the trucks have transported approximately 600 bopd and this is expected to steadily increase to 2,000 bopd once the Early Oil Production System is fully operational and production testing commences from the Amosing production facility. A first lifting of low sulphur Kenyan crude oil from Mombasa is expected in the first quarter of 2019.

At the end of June, trucking and operations were temporarily suspended due to protests by the local community. These issues lead to effective consultations between the local and National Government, and operations safely recommenced in mid-August.

Since January 2018, work to deliver on the agreed development plan has been underway with strong alignment between the Government of Kenya and the Joint Venture Partners. The project remains on track for an FID in 2019. The initial development is planned to include a 60,000 to 80,000 barrels of oil per day (bopd) Central Processing Facility (CPF) and an export pipeline to Lamu, some 750 kilometers from the South Lokichar basin on the Kenyan coast. This approach is expected to bring significant benefits as it enables an early Final Investment Decision (FID) of the Amosing and Ngamia fields, taking full advantage of the current low-cost environment for both the field and infrastructure development, as well as providing the best opportunity to deliver first oil in a timeline that meets the Government of Kenya expectations. The installed infrastructure can then be utilized for the optimization of the remaining and yet to be discovered South Lokichar oil fields, allowing the incremental development of these fields to be completed in an efficient and low cost manner post first oil.

The initial stage is planned to include 210 wells through 18 well pads at Ngamia and 70 wells through seven well pads at Amosing, with a planned plateau rate of 60,000 to 80,000 bopd. Additional stages of development are expected to increase plateau production to 100,000 bopd or greater. Total gross capex associated with the Foundation Stage is expected to be $2.9 billion, of which $1.8 billion is investment in the upstream and $1.1 billion is for the pipeline.

Front End Engineering and Design ("FEED") and Environmental and Social Impact Assessment ("ESIA") work on the upstream are now underway, following the award of the upstream FEED and Integrated Project Management contracts to WorleyParsons in May 2018.

A Joint Development Agreement ("JDA"), setting out a structure for the Government of Kenya and the Kenya Joint Venture Partners to progress the development of the export pipeline, was signed on 25 October, 2017. The associated FEED and ESIA have commenced, with the pipeline FEED contract awarded to Wood Group, as well as studies on pipeline financing and ownership, which are expected to continue throughout 2018.

Africa Oil Corp. has a 25% working interest in Blocks 10BB and 13T with Tullow Oil plc (50% and Operator) and TOTAL S.A. (25%) holding the remaining interests.

During the second quarter of 2018, the Company submitted a notice to the Government of Kenya relinquishing its interest in Block 9 (Kenya) resulting in a $44.7 million impairment of previously capitalized intangible exploration assets.

2018 Second Quarter Financial Results

Results of Operations
(Thousands United States Dollars)
(unaudited)

          
  

Three months

Three months

Six months

Six months

  

ended

ended

ended

ended

(thousands)

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017

          
 

 Salaries and benefits 

$

419

$

320

$

849

$

570

 

 Equity-based compensation 

 

504

 

676

 

737

 

1,131

 

 Travel 

 

356

 

117

 

693

 

314

 

 Office and general 

 

76

 

32

 

432

 

89

 

 Project evaluation 

 

502

 

-

 

682

 

-

 

 Donation 

 

-

 

-

 

-

 

850

 

 Depreciation 

 

27

 

27

 

54

 

52

 

 Professional fees  

 

197

 

269

 

265

 

379

 

 Stock exchange and filing fees 

 

120

 

119

 

302

 

306

 

 Fair market value adjustment of warrants 

 

585

 

-

 

640

 

-

 

 Share of loss from equity investment 

 

941

 

332

 

1,649

 

612

 

 Impairment of intangible exploration assets 

 

44,689

 

-

 

44,689

 

-

 Operating expenses 

$

48,416

$

1,892

$

50,992

$

4,303

 

Operating expenses increased $46.5 million during the second quarter of 2018 compared to the same period in 2017. The Company recognized a $44.7 million impairment of intangible exploration assets during the three months ended June 30, 2018 relating to the relinquishment of Block 9 in Kenya. Salaries and benefits increased $0.1 million during the second quarter of 2018 compared to the same period in 2017 due to the addition of an employee during the quarter. Equity-based compensation decreased $0.2 million which can be mainly attributed to the decrease in the number and fair value of stock options granted at the end of 2017. Travel increased $0.2 million due to an increase in activities relating to business development and current operations.  Project evaluation increased $0.5 million during the second quarter of 2018 due to costs associated with assessing potential Africa-related investment opportunities. The Company recognized $0.6 million in losses relating to the revaluation of Impact warrants acquired during the first quarter of 2018. The share of loss from equity investment increased $0.6 million during the three months ended June 30, 2018 compared to the same period in 2017. This is due to the Company recognizing losses from its investments in Africa Energy, Eco and Impact. The Eco investment was completed during November 2017 and the Impact investment was completed in March 2018.

Operating expenses increased $46.7 million during the six months ended June 30, 2018 compared to the same period in 2017. The Company recognized a $44.7 million impairment of intangible exploration assets during the six months ended June 30, 2018 relating to the relinquishment of Block 9 in Kenya. Salaries and benefits increased $0.3 million during the six months ended June 30, 2018 compared to the same period in 2017 due to the recovery of costs relating to the secondment of an employee during 2017 as well as the addition of an employee during the second quarter of 2018. Equity-based compensation decreased $0.4 million which can be mainly attributed to the decrease in the number and fair value of stock options granted at the end of 2017. Travel increased $0.4 million due to an increase in activities relating to business development and current operations. Office and general increased $0.3 million during the first half of 2018 compared to the same period in 2017 which is primarily due to increased activity related to current operations. Project evaluation increased $0.7 million during the first half of 2018 due to costs associated with assessing potential Africa-related investment opportunities. Donations decreased as the Company made a donation of $0.9 million during the first half of 2017 compared $ nil during the first half of 2018. The Company recognized $0.6 million in losses relating to the revaluation of Impact warrants acquired during the first quarter of 2018. The share of loss from equity investment increased $1.0 million during the six months ended June 30, 2018 compared to the same period in 2017. This is due to the Company recognizing losses from its investments in Africa Energy, Eco and Impact. The Eco investment was completed during November 2017 and the Impact investment was completed in March 2018.

Financial income and expense is made up of the following items:
(Thousands of United States Dollars)
(unaudited)

     
 

Three months

Three months

Six months

Six months

 

ended

ended

ended

ended

 

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017

     

Interest and other income

$

1,592

$

802

$

2,879

$

1,571

Bank charges

(4)

(10)

(41)

(21)

Foreign exchange loss

(15)

(50)

(16)

(38)

     

Finance income

$

1,592

$

802

$

2,879

$

1,571

Finance expense

$

(19)

$

(60)

$

(57)

$

(59)

 

The Company holds the vast majority of its cash on hand in US dollars, the Company's functional currency. Interest Income fluctuates in accordance with cash balances, the currency that the cash is held in, and prevailing market interest rates. Interest rates on short-term U.S. dollar deposits have been increasing during the second half of 2017 and first half of 2018.

Consolidated Balance Sheets
(Thousands United States Dollars)
(unaudited)

    
  

June 30,

December 31,

  

2018

2017

      

ASSETS

    
      

Current assets

    
 

 Cash and cash equivalents 

$

369,577

$

392,290

 

 Accounts receivable  

 

37,561

 

75,052

 

 Prepaid expenses 

 

1,308

 

1,160

   

408,446

 

468,502

Long-term assets

    
 

Equity investments

 

59,166

 

17,053

 

Derivative financial instruments

 

3,704

 

-

 

Property and equipment

 

56

 

105

 

Intangible exploration assets

 

497,309

 

520,652

   

560,235

 

537,810

      

Total assets

$

968,681

$

1,006,312

      

LIABILITIES AND EQUITY

    
      

Current liabilities

    
 

 Accounts payable and accrued liabilities 

$

27,701

$

31,658

 

 Equity-based compensation liability 

 

595

 

552

   

28,296

 

32,210

Long-term liabilities

    
 

 Equity-based compensation liability 

 

286

 

648

   

286

 

648

      

Total liabilities

 

28,582

 

32,858

      

Equity attributable to common shareholders

    
 

 Share capital 

 

1,305,129

 

1,290,796

 

 Contributed surplus 

 

50,296

 

49,814

 

 Deficit 

 

(415,326)

 

(367,156)

Total equity attributable to common shareholders

 

940,099

 

973,454

Total liabilities and equity attributable to common shareholders

$

968,681

$

1,006,312

 

Expenditures on intangible exploration assets of $21.3 million were incurred during the period ended June 30, 2018, which was offset by an impairment charge of $44.7 million relating to Block 9 in Kenya. These expenditures related primarily to costs associated with appraisal activities and development studies associated with the South Lokichar Basin (Blocks 10BB and 13T Kenya). The Company is debt free.

Contingent Liability – Kenya Revenue Authority

The Company's Kenyan Branch, of its wholly owned subsidiary, Africa Oil Kenya B.V., has been assessed corporate income tax and value added tax by the Kenya Revenue Authority ("KRA") relating to farmout transactions completed during the period 2012 to 2017.

The Company has objected to the assessment and is prepared to appeal any further claims made by the KRA in regard to this matter. Management has determined that based on the facts and Kenya tax law that the probability of paying the assessed tax is low. The KRA assessed tax is $51.5 million

Consolidated Statement of Cash Flows
(Thousands United States Dollars)
(unaudited)

           
   

 Three months 

Three months 

Six months 

Six months 

   

ended

ended

ended

ended

   

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017

Cash flows provided by (used in):

        
           

Operations:

        
 

Net loss and comprehensive loss for the period

$

(46,843)

$

(1,150)

$

(48,170)

$

(2,791)

 

Items not affecting cash:

        
  

Equity-based compensation

 

504

 

676

 

737

 

1,131

  

Depreciation

 

27

 

27

 

54

 

52

  

Impairment of intangible exploration assets

 

44,689

 

-

 

44,689

 

-

  

Share of loss from equity investments

 

941

 

332

 

1,649

 

612

  

Fair value adjustment - warrants

 

586

 

-

 

640

 

-

  

Unrealized foreign exchange loss

 

15

 

50

 

16

 

38

  

Changes in non-cash operating working capital

 

(86)

 

28

 

(141)

 

183

    

(167)

 

(37)

 

(526)

 

(775)

           

Investing:

        
  

Property and equipment expenditures

 

(1)

 

(10)

 

(5)

 

(12)

  

Intangible exploration expenditures

 

(10,360)

 

(16,201)

 

(21,346)

 

(31,072)

  

Advance carry relating to farmout

 

18,750

 

-

 

37,500

 

-

  

Equity investment

 

(18,000)

 

-

 

(30,922)

 

-

  

Warrants acquired in equity investment

 

-

 

-

 

(2,857)

 

-

  

Changes in non-cash investing working capital

 

465

 

3,075

 

(3,973)

 

5,942

    

(9,146)

 

(13,136)

 

(21,603)

 

(25,142)

           

Financing:

        
  

Common shares issued

 

-

 

-

 

5

 

304

  

Settlement of Restricted Share Units

 

-

 

-

 

(573)

 

(553)

    

-

 

-

 

(568)

 

(249)

           

Effect of exchange rate changes on cash and  

        

cash equivalents denominated in foreign currency 

 

(15)

 

(50)

 

(16)

 

(38)

Increase (decrease) in cash and cash equivalents

 

(9,328)

 

(13,223)

 

(22,713)

 

(26,204)

           

Cash and cash equivalents, beginning of the period

$

378,906

$

450,080

$

392,290

$

463,061

Cash and cash equivalents, end of the period

$

369,577

$

436,857

$

369,577

$

436,857

 

Supplementary information:

        
  

Interest paid

 

 Nil 

 

 Nil 

 

 Nil 

 

 Nil 

  

Income taxes paid

 

 Nil 

 

 Nil 

 

 Nil 

 

 Nil 

 

The following table breaks down the material components of intangible exploration expenditures for the six months ended June 30, 2018 and 2017:

     

For the six months ended

June 30, 2018

 

June 30, 2017

 

(thousands)

Kenya

Ethiopia

Total

Kenya

Ethiopia

Total

       

Drilling and completion

$

7,657

$

9

$

7,666

$

15,383

$

165

$

15,548

Development studies

6,448

-

6,448

7,148

-

7,148

Exploration surveys and studies

76

61

137

697

32

729

PSA and G&A related

6,465

630

7,095

7,012

635

7,647

Total

$

20,646

$

700

$

21,346

$

30,240

$

832

$

31,072

 

Africa Oil incurred $20.6 million of intangible exploration expenditures in Kenya for the six months ended June 30, 2018.  Drilling and completion expenditures primarily relate to the waterflood pilot test being performed on the Ngamia-11 appraisal well as well as extended well testing on the Ngamia field. Development study expenditures are associated with studies aimed at progressing towards project sanction for the South Lokichar Basin.

The Company incurred $0.7 million of intangible exploration expenditures in Ethiopia for the six months ended June 30, 2018, which consists of license fees and general and administrative costs.

Consolidated Statement of Equity
(Thousands United States Dollars)
(unaudited)

    
  

 June 30, 

June 30,

  

2018

2017

      

Share capital:

    
 

Balance, beginning of the period

$

1,290,796

$

1,290,389

 

Share issuance

 

14,327

 

-

 

Exercise of options

 

6

 

407

 

Balance, end of the period

 

1,305,129

 

1,290,796

      

 Contributed surplus: 

    
 

Balance, beginning of the period

$

49,814

$

49,677

 

Equity-based compensation

 

483

 

1,131

 

Settlement of Restricted Share Units

 

-

 

(553)

 

Exercise of options

 

(1)

 

(103)

 

Balance, end of the period

 

50,296

 

50,152

      

Deficit:

    
 

Balance, beginning of the period

$

(367,156)

$

(362,625)

 

Net loss and comprehensive loss attributable to common shareholders

 

(48,170)

 

(2,791)

 

Balance, end of the period

 

(415,326)

 

(365,416)

      
 

Total equity attributable to common shareholders

$

940,099

$

975,532

 

The Company's consolidated financial statements, notes to the financial statements, management's discussion and analysis for the three and six months ended June 30, 2018 and 2017, and the 2017 Annual Information Form have been filed on SEDAR (www.sedar.com) and are available on the Company's website (www.africaoilcorp.com).  

About Africa Oil

Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya and Ethiopia. The Company is listed on the Toronto Stock Exchange and on Nasdaq Stockholm under the symbol "AOI".

Additional Information

This information is information that Africa Oil Corp. is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out below at 6:30 p.m. Toronto Time on August 14, 2018.

FORWARD LOOKING INFORMATION

Certain statements made and information contained herein constitute "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements and information (together, "forward looking statements") relate to future events or the Company's future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to estimates of reserves and or resources, future production levels, future capital expenditures and their allocation to exploration and development activities, future drilling and other exploration and development activities, ultimate recovery of reserves or resources and dates by which certain areas will be explored, developed or reach expected operating capacity, that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable reserves and resource estimates may also be deemed to constitute forward-looking statements and reflect conclusions that are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "seek", "anticipate", "plan", "continue", "estimate", "expect, "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions) are not statements of historical fact and may be "forward-looking statements". Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. The Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, changes in oil prices, results of exploration and development activities, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government or other regulatory approvals, actual performance of facilities, availability of financing on reasonable terms, availability of third party service providers, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements.

ON BEHALF OF THE BOARD

"Keith C. Hill"
President and CEO

SOURCE Africa Oil Corp.

please contact: Sophia Shane, Corporate Development, (604) 689-7842