Notes to the Company financial statements

Accounts
Notes to the Company financial statements
For the year ended 31 December 2013
6.1 Accounting policies
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European
Union and therefore the Company financial statements comply with Article 4 of the EU IAS Regulation.
To the extent that an accounting policy is relevant to both Afren Group and Company financial statements, refer to the Group financial
statements for disclosure of the accounting policy.
Foreign currencies
In preparing the financial statements of the Company, transactions in currencies other than the Company’s functional currency (foreign
currencies) are recorded at the rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising are included in the
profit and loss for the period.
The functional and presentation currency of the Company is US dollars.
6.2 Subsidiaries and associated undertakings
Investments in subsidiaries held by the Company as non-current assets are stated at cost less any provision for impairment.
A list of the significant investments in subsidiaries and associated undertakings, including the name, proportion of ownership interest, country
of operation and country of registration, is given below:
%
Country of
operation
Country of
registration
Name
Principal activity
Directly held
Afren Nigeria Holdings Limited
Afren USA inc.
Black Marlin Energy Holdings limited
Afren MENA Limited
Holding company
Service company
Holding company
Oil and gas exploration, development and production
100
100
100
100
Nigeria
USA
Dubai
Kurdistan
region of Iraq
England and Wales
USA, Delaware
British Virgin Islands
England and Wales
Indirectly held
Afren Energy Resources Limited
Afren Investments Oil & Gas (Nigeria) Limited
Afren Energy Services Limited
Afren Exploration and Production Nigeria Alpha Limited
Afren Exploration and Production Nigeria Beta Limited
Afren Nigeria Holdings (Nigeria) Limited
Afren CI One Corporation
First Hydrocarbon Nigeria Company Limited (FHN)
Afren Tanzania Limited
East African Exploration (Kenya) Limited
East African Exploration (Seychelles) Limited
East African Exploration (Madagascar) Limited
East African Exploration (Ethiopia) Limited
Afren Energy Ghana Limited
Afren Resources Limited
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Service company
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Holding company
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
Oil and gas exploration, development and production
100
100
100
100
100
100
100
78
100
100
100
100
100
100
100
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Côte d’lvoire
Nigeria
Tanzania
Kenya
Seychelles
Madagascar
Ethiopia
Ghana
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Cayman
Nigeria
Tanzania
Kenya
British Virgin Islands
British Virgin Islands
British Virgin Islands
Bahamas
Nigeria
6.3 Investment in trust
Afren’s ownership in FHN is structured in order to meet the criteria generally understood and sometimes required under Nigerian oil and
gas industry policies for FHN to be classified as an indigenous Nigerian company, with the majority of its equity interest held by Nigerian
owners. Afren split its legal and beneficial holdings in FHN such that it is the legal owner of not more than 45% of the issued ordinary
shares in FHN. The remaining portion of Afren’s legal interest in FHN is held in trust for the benefit of Afren by Adcax Investments Limited,
a Nigerian‑formed trust company. Accordingly, only the beneficial title to the Option Shares was acquired by Afren, with the legal title acquired
by Adcax Investments Limited while Afren is the beneficiary of all the benefits accruing to the Option Shares.
148
Afren plc
Annual Report and Accounts 2013
6.4 Derivative financial instruments
To the extent a disclosure is relevant to both the Afren Group and Company financial statements, refer to the Group financial statements.
The Company has the following derivatives:
Purpose
Commodity deferred put options (cash flow hedges)
Interest rate swap
Hedge Accounting
Hedge against the price of crude oil falling
To link interest payments to the performance of certain
indices that look to take advantage of a theoretical bias
in the forward curve
Hedge against changes in the USD/GBP exchange rate
Options to buy and sell FHN shares
Foreign exchange hedge
Put (sell) and call (buy) options for FHN shares
2013
Available for sale investments
Financial assets
Financial liabilities
No
No
2012
Current
US$m
Derivative financial instruments
Yes
No
Non-current
US$m
–
0.1
(28.0)
(27.9)
1.3
–
(10.0)
(8.7)
Current
US$m
Non-current
US$m
–
–
(14.0)
(14.0)
0.9
9.1
(5.4)
4.6
The above are shown at fair value and, with the exception of the FHN options, are classified at Level 2 (see note 5.6 of the Group financial
statements for further details).
The FHN options are classified at Level 3. As such their valuation requires assumptions regarding FHN’s share price which is not readily
available. These options were valued using a Black Scholes model (inputs used are detailed below). Changing certain inputs to reasonable
possible alternative assumptions does not change the fair value significantly.
2012
Inputs
Strike price (US$)
Stock price (US$)
Time (days)
Volatility (%)
Risk free interest rate (%)
2013
Call option
Put option A
Put option B
Put option C
1.00
2.00
2,402
25.0
0.1
2.24
2.00
202
25.0
0.1
2.47
2.00
232
25.0
0.1
3.32
3.14
735
25.0
0.1
The movements in Level 3 instruments, measured on a recurring basis, are as follows:
Put
US$m
Call
US$m
Total
US$m
(7.3)
1.4
(5.9)
7.1
0.8
(10.9)
(1.1)
(10.0)
12.2
(1.8)
10.4
–
(7.5)
–
(2.9)
–
4.9
(0.4)
4.5
7.1
(6.7)
(10.9)
(4.0)
(10.0)
Amounts included in the profit and loss include movements in fair values and amounts taken to the income statement on expiry of options.
6.5 Borrowings
The Senior Secured Loan Notes 2016, the Senior Secured Loan Notes 2019 and the Senior Secured Loan Notes 2020 are held by the Company.
To the extent a disclosure is relevant to both the Afren Group and Company financial statements, refer to the Group financial statements.
2013
Loan notes
Bank borrowings
2012
Current
US$m
Non-current
US$m
Current
US$m
Non-current
US$m
–
–
–
847.5
–
847.5
–
–
–
779.1
49.6
828.7
Afren plc
Annual Report and Accounts 2013
149
Accounts
At 1 January 2012
Change in fair value
As at 1 January 2013
Exercised options
Expired options
New options
Change in fair value
At 31 December 2013
As per option agreement
Most relevant share price of FHN at reporting date
Days to expiry of option exercise period
Estimate for an unquoted oil and gas company
10 year US gilt rate
Accounts
Notes to the Company financial statements continued
For the year ended 31 December 2013
6.6 Trade and other receivables
Trade and other debtors
Due from subsidiary undertakings*
Due from joint ventures
2013
US$m
2012
US$m
4.3
1,161.2
0.2
1,165.7
5.0
944.6
19.4
969.0
* The amount is shown net of a provision for doubtful debt of US$33.8 million (2012: US$26.7 million).
There were no material past due not impaired receivables at either balance sheet date, nor any material bad debt provisions (other than
as disclosed above in respect of intercompany balances).
6.7 Cash and cash equivalents
The Cash flow statement on page 146 gives a breakdown of cash movements in the year. To the extent a disclosure is relevant to both the
Afren Group and Company financial statements, refer to the Group financial statements.
6.8 Trade and other payables
2013
US$m
Trade and other creditors
Accruals
Due to subsidiary undertakings
2012
US$m
45.3
3.1
46.1
48.2
41.5
312.2
132.9
363.5
6.9 Share capital, share premium and merger reserve
The allotted and issued share capital and share premium, and the merger reserve are consistent with Afren Group financial statements.
Refer to note 3.5 of the Group financial statements.
6.10 Share-based payments
Details of the Afren share option scheme are disclosed in note 5.8 of the Group financial statements.
The Company is liable for Employer’s National Insurance on the difference between the market value of the share-based payment at date
of exercise and exercise price. This expense is accrued by reference to the share price of the Company at the balance sheet date.
The share-based payments expense comprises the following three schemes:
2013
US$m
2012
US$m
Equity-settled share option scheme
0.3
Long Term Incentive Plan: Afren Performance Share Plan (equity-settled share award scheme)
Share Award Scheme (equity-settled share award scheme)
6.5
–
6.8
3.1
5.4
–
8.5
Other reserves
US$m
Total
US$m
Additional details of these schemes are disclosed in note 5.8 of the Group financial statements.
6.11 Other reserves
Share-based payment reserve
US$m
Company
At 1 January 2012
Share-based payments for services
Transfer to accumulated losses
Other movements
At 31 December 2012
28.8
15.1
(4.6)
–
39.3
–
–
–
(1.0)
(1.0)
28.8
15.1
(4.6)
(1.0)
38.3
Share-based payments for services
Transfer to accumulated losses
Other movements
At 31 December 2013
13.6
(1.5)
–
51.4
–
–
0.5
(0.5)
13.6
(1.5)
0.5
50.9
Share-based payment reserve represents the fair value of the options, share awards, warrants and LTIP granted under the Company’s
share‑based schemes.
150
Afren plc
Annual Report and Accounts 2013
6.12 Operating lease commitments
At the balance sheet date, the Company had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Within one year
In the second to fifth years
After five years
2013
US$m
2012
US$m
2.3
9.2
0.6
12.1
1.7
6.7
0.4
8.8
2013
US$m
2012
US$m
–
11.0
70.0
81.0
6.5
–
–
6.5
Operating lease expenses for the current and prior year were not material.
6.13 Contingent liabilities
The Company has the following contingent liabilities:
Indemnity in respect of FHN’s standby letter of credit
Guarantee in respect of FHN hedges
Bank guarantee in relation to Partner
6.14 Unrecognised deferred tax assets
At the balance sheet date the Company had tax losses (primarily arising in the UK) of US$176.0 million (2012: US$91.2 million) in respect of
which a deferred tax asset has not been recognised as there is insufficient evidence of future taxable profits against which these tax losses
could be recovered. Such losses can be carried forward indefinitely.
The Company had temporary differences of US$16.0 million (2012: US$5.3 million) in respect of share-based payments, property, plant and
equipment and pensions in respect of which deferred tax assets have not been recognised as there is insufficient evidence of future taxable
profits against which these tax losses could be recovered.
6.15 Related party transactions
Amounts owed by and to subsidiaries are disclosed in notes 6.6 and 6.8 respectively. Transactions between the Company and its subsidiaries,
associates and joint ventures were as follows:
2013
Net loan advances/(repayments)
Investments
Joint Ventures
US$m
494.4
286.3
Subsidiaries
US$m
(19.2)
–
Joint Ventures
US$m
448.6
(375.9)
(6.1)
–
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is disclosed in note 5.12 of the Group financial
statements. Further information about the remuneration of individual Directors, transactions with Directors and Directors’ interests is provided
in the audited part of the Directors’ remuneration report.
Trading transactions
All trading transactions between the Company and related parties are disclosed in note 5.11 of the Group financial statements.
6.16 Post balance sheet events – Company and Group
On 27 February 2014 Afren signed a new US$100 million term loan facility for OML 26. This replaces the OML 26 Facility of US$80 million that
existed as at 31 December 2013 which was repaid on 28 February 2014. The new facility has a four year term and bears an interest rate of
Libor plus 6.5%. The new facility will be used to fund ongoing capital expenditure, operational expenditure and general corporate purposes
with respect to OML 26.
Afren plc
Annual Report and Accounts 2013
151
Accounts
2012
Net loan advances/(repayments)
Investments
Subsidiaries
US$m

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