Annual Results for the Year Ended 31 December 2020

27 May 2021

AFENTRA PLC

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020

Afentra plc is today issuing its annual results for the year ended 31 December 2020.

OVERVIEW

Afentra plc (‘Afentra’ or the ‘Company’), together with its subsidiary undertakings (the ‘Group’), is an upstream oil and gas Company listed on the AIM market of the London Stock Exchange.

The Company has a refreshed strategy built around achieving scale through the acquisition of both operated production assets and discovered resources resulting from the accelerating energy transition in Africa, where the Company and its new management has extensive operational experience. The Company currently has the high potential onshore Odewayne exploration block that is operated by Genel Energy, where its 34% interest is fully carried.

2020 SUMMARY

Operations

•           Throughout 2020: Odewayne block, Somaliland – The Company continued to support the Operator in progressing the technical understanding of the block.

•           Afentra continued to review its technical assessment and outlook on block prospectivity.

Financial

•           Cash resources net to the Group at 31 December 2020 of $42.7 million (2019: $44.9 million).

•           The Group remains debt free and fully funded for all commitments.

•           Adjusted EBITDAX¹: loss for the Group of $761k (2019: $917k loss).

•           2020 focus on capital discipline, general and administrative overheads (‘G&A’) expenses reduced by 15% to $2.2 million (2019: $2.6 million).

Post year end

•         18 February 2021: Several institutional and high net worth investors purchased the shares sold by Waterford Finance and Investment Limited (equating to its entire 29.23% shareholding in the Company) and Mistyvale Limited (equating to its entire 15.66% shareholding in the Company).

•           16 March 2021: Paul McDade and Ian Cloke join the Board of Directors as CEO and COO respectively.

•          30 March 2021: Jeffrey MacDonald and Gavin Wilson join the Board of Directors as Independent non-executive Chairman and Independent non-executive Director respectively.

•           13 April 2021: The Company announced its intention to change its name from Sterling Energy plc to Afentra plc and adopt new articles of association. The proposed changes were approved at the General Meeting held on 30 April 2021.

•           5 May 2021: Afentra plc launched and Anastasia Deulina is appointed as Chief Financial Officer.

¹defined within the definitions and glossary of terms

Commenting, CEO Paul McDade, said:

“The last few months have been truly transformational for the Company. I speak for the whole management & Board as I express our excitement as we embark upon our updated strategy targeting scale through the implementation of a buy and build model, focused on the energy transition in Africa. In parallel to our updated strategy we continue to work with our partners in Somaliland to establish additional shareholder value from this existing early stage asset”. “I must also thank the Sterling Energy team who despite an extremely challenging year have shown resilience and have, like our shareholders, welcomed the new members to the team. We look forward to 2021 and progressing our strategy as the new Afentra team.”

For further information contact:

Afentra plc +44 (0)20 7405 4133 

Paul McDade, CEO

Ian Cloke, COO

Anastasia Deulina, CFO

Buchanan (Financial PR) +44 (0)20 7466 5000

Ben Romney

Chris Judd

James Husband

Peel Hunt LLP (Nominated Advisor and Joint Broker) +44 (0)20 7418 8900

Richard Crichton

David McKeown

Tennyson Securities (Joint Broker) +44 (0)20 7186 9033

Peter Krens

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company’s obligations under Article 17 of those Regulations.

CHAIRMAN’S STATEMENT

Dear Shareholders

I am delighted to be providing the first statement in my role as Chairman, and indeed the first statement for the Company in its new form as Afentra. Your Company has undergone a complete transformation in recent months following the arrival of the new executive team led by CEO Paul McDade. This transformation has resulted in a significant shift in the shareholder register and an ongoing restructuring of the Board. This process of change culminated in the recent General Meeting where you approved the renaming of the Company to Afentra plc which was followed by its successful relaunch.

The name Afentra, which stands for African Energy Transition, reflects the Company’s strategic imperative of capitalising on opportunities resulting from the accelerating energy transition on the African continent. Afentra has been established to support sustainable change in the African energy industry, a sector that needs further responsible, well managed, independent operators. The new Executive team have presented this very clear strategy for the Company and it is fully supported by the Board.

As detailed in the recent launch communications, the structural changes in the oil and gas industry across Africa present exciting opportunities for agile, ambitious and credible operators such as Afentra, but they also present significant risks and challenges to the environment and the socio-economic impact for the countries and people of the continent if the transition is not managed responsibly. This critical point is both the opportunity and purpose of the business. Afentra has been established to support an efficient and responsible energy transition on the continent that delivers positive outcomes for all the stakeholders, including the investors who backed Afentra to achieve these objectives. Indeed, a robust ESG agenda is embedded into the core fabric of our business model and operating structure, as it reflects our purpose and will support our ability to achieve our vision.

The energy transition globally is well documented and IOCs are changing their business models as they pivot towards lower-carbon footprints, driven by societal and investor pressure. This factor does not alter the current importance of oil and gas within the energy mix and the requirement for them to continue to be produced to meet global demand, enable transition and allow the developing countries in Africa to continue to benefit from the revenues they generate. In order to enable a responsible transition, credible operators must position themselves as appropriate acquirers of these assets, so that the assets and host governments can continue to realise the positive benefit and impact of quality operators ensuring best practice, environmental stewardship and transparent governance.

The Board is confident that it has an exceptional leadership team with a proven track record for operational excellence, value creation and stakeholder engagement across Africa. Their network amongst the target stakeholder audiences of IOCs and host governments, coupled with their experience of managing the sub-surface and above ground risks on the continent, represent the strong foundation of Afentra’s investment proposition. The Company has developed a clear, straightforward, yet impactful, strategy that we believe this team is uniquely positioned to execute.

The team are presently screening a pipeline of assets to identify opportunities that meet the strategic criteria. It is the hope of the Board that we will be able to update you on our first acquisition in the next 12 months and, rest assured, our priority will be to ensure we execute the right deal for our shareholders.

These recent changes are exciting developments for the Company and I am wholly confident that Afentra has a well-defined strategy tailored to the current and future outlook for the industry and a leadership team with the requisite experience, drive and capabilities to deliver long-term value for our shareholders and positive outcomes for all the stakeholders involved in the African energy transition.

I thank shareholders for their support through these changes and the Board looks forward to engaging with all of you as we progress our strategy.

Jeffrey MacDonald – Chairman

CHIEF EXECUTIVE OFFICER’S STATEMENT

I would like to express how pleased I am to take on the role as your new CEO and for the support that I have received from both long-term shareholders and those who have more recently invested in our Company. I am very excited about the journey we are embarking upon and the opportunities that the global energy transition combined with the changes in the African upstream environment present. We are determined to use these opportunities to transform (build) Afentra into a responsible, well managed, independent upstream operator.

The global energy transition is rightly at the forefront of global consciousness and the oil and gas industry is seeking to play its part in terms of reducing carbon footprint and transparently communicating the impact of its activities. Although climate change is rightfully the principle consideration of the global energy transition, there are other key factors that need to be considered to enable a smooth and responsible transition. We need to ensure that the continued global demand for hydrocarbons can be delivered in a responsible manner, and that the developing countries, whose socio-economic development relies on these resources, can continue to benefit from the associated revenues. This is particularly true in Africa, a continent with vast discovered resources, where the population is growing fast and yet where many hundreds of millions of people remain without access to reliable power.

As the upstream industry in Africa progresses through its natural cycle, assets will be divested by IOCs and there will be a requirement for credible operators to acquire these assets. Our vision is to establish Afentra as a leading pan-African operator with an unwavering commitment to operational and subsurface excellence, environmental stewardship, transparent governance, positive socio-economic impact, and strong sustainable shareholder returns.

To deliver this vision, Afentra has assembled a highly experienced leadership team with a proven track record of oil and gas operations across Africa. This team have witnessed previous industry transition cycles in both the North Sea and Gulf of Mexico, this provides valuable insights into how to capitalise on the African transition. A simple review of the operating landscape in the North Sea today, versus twenty years ago, demonstrates the importance of many smaller independents established specifically to capitalise on the North Sea energy transition. The African industry transition is in its early stages, but it is expected to mirror what has happened in the North Sea. I see Afentra being a key player supporting a smooth transition to ensure the desired outcomes for all stakeholders.

A key driver of our approach is to ensure the African countries can continue to benefit from the positive impact of their natural resources through this accelerating energy transition. This social aspect is not as well understood or publicised, yet it is a critical factor when considering the broader aspects of ESG and ethical investment. The environmental aspect of the global energy transition is better understood, and Afentra will strive to balance both the socio-economic and environmental implications of the energy transition. Our approach is simple, we intend to position the Company as a credible counterparty for IOCs to divest to, and a quality partner for host governments to work with to enhance the benefits from their upstream assets.

Ultimately, we are seeking to acquire quality producing assets and discovered resources that can be optimised through innovative operating techniques to enhance production, extend field life, realise hidden value and reduce their environmental impact. Through this diligent approach, Afentra can turn “legacy” producing fields and discovered resources into highly profitable assets capable of delivering strong cash flow for reinvestment and shareholder returns.

The assets we are targeting are mid to late life producing assets or discovered resources across Africa, with a particular focus on West Africa. We are seeking operated positions, but will also consider non-operated opportunities alongside credible operators with shared standards. We are largely commodity agnostic, however anticipate that oil will be the main emphasis given the opportunities we know to exist in our target markets. Our goal is to announce a transaction in the next twelve months.

In parallel to the growth strategy we will continue to appraise our existing asset in Somaliland with a view to establishing additional value on behalf of shareholders. Given the asset profile is early stage exploration we need to carefully consider its positioning within our stated strategy and ensure that we maximise the value of this asset which benefits from a full carry by our partner.

We see a clear market driver for our business model and believe we have assembled the right team, with a clear and focused strategy, capable of capitalising on this opportunity for the benefit of all stakeholders. Importantly, we remain pragmatic about the challenges that are facing the oil and gas industry and have factored these into the establishment of our business model, to ensure we mitigate risks and meet stakeholder expectations.

I’d like to thank the Sterling Energy team that have endured a very difficult 2020 due to the challenges caused by the global covid pandemic, this was combined by the uncertainties surrounding the changes within the Company. They have shown dedication and professionalism throughout this period and have been very supportive and welcoming to myself and the new members of the team. We are all looking forward to working as the new Afentra team and share our excitement about the journey we are embarking on together.

Paul McDade – Chief Executive Officer

OPERATIONS REVIEW

Since late 2015 the Company has exited non-core exploration portfolio assets and removed outstanding liabilities, to provide a simpler and rejuvenated platform for M&A led growth. The Group retains a fully carried exposure to the frontier Odewayne block in Somaliland and a clear strategy for future M&A growth.

SOMALILAND

Somaliland offers one of the last opportunities to target an undrilled onshore rift basin in Africa. The Odewayne block, with access to Berbera deepwater port less than a 100km to the north, is ideally located to commercialise any discovered hydrocarbons. A 2D geophysical survey acquired in 2017 and reprocessed in 2019, along with field data and legacy geological field studies, are the focus of the Company’s 2021 work programme to determine if a Mesozoic age sedimentary basin is present in the block and its prospectivity.

Odewayne (W.I. 34%) Exploration block

Overview

This large, unexplored, frontier acreage position covers 22,840km², the equivalent of c. 100 UK North Sea blocks. Exploration activity prior to the 2017 regional 2D seismic acquisition program has been limited to the acquisition of airborne gravity and magnetic data and surface fieldwork studies, with no wells drilled on block.

The Company’s wholly owned subsidiary, Sterling Energy (East Africa) Limited (‘SE(EA)L’), holds a 34% working interest in the PSA (fully carried by Genel Energy Somaliland Limited for its share of the costs of all exploration activities during the Third and Fourth Periods of the PSA).

The Odewayne production sharing agreement was awarded in 2005. It is in the Third Period, with a 1,000km, 10km by 10km 2D seismic grid acquired in 2017 by BGP. The Third Period has been further extended, through the 8th deed of amendment. This data was reprocessed in 2019 and is currently being reviewed after the disruption caused by Covid in 2020.

In 2H 2021 the Company will review the reprocessed 2D seismic data set in and will update its technical assessment and outlook on block prospectivity accordingly. Alongside the seismic reprocessing review, the Operator is undertaking a number of work streams and it is anticipated that these will aid the JV partnership in developing an appropriate forward work program to further evaluate the prospectivity of the licence.

Outlook on buy and build strategy

In March 2021 the Company shifted focus to support a responsible energy transition in Africa by establishing itself as a credible partner for divesting IOCs and Host Governments. The Company is specifically targeting producing assets and discovered resources in Africa. The focus will be on operated positions but will also consider non-operated positions alongside credible operators with shared standards.

FINANCIAL REVIEW

Non-IFRS measures

The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. These non-IFRS measures include capital investment, debt and adjusted EBITDAX.

Income Statement

Group G&A decreased by 15% during the year to $2.2 million (2019: $2.6 million). The reduction in the Group’s administrative overhead is in keeping with the Board’s 2020 mandate for cash preservation.

In 2020, a portion of the Group’s staff costs and associated overheads have been expensed as pre-licence expenditure ($1.2 million), or capitalised/recharged ($74k) where they are directly assigned to capital projects or recharged. This totalled $1.3 million in the year (2019: $1.4 million). 

Interest received during the year was $326k (2019: $1.1 million). The reduction year on year was as a result of the global pandemic amongst other factors including, banks increasing their liquidity levels which resulted in a reduction on deposit rates. Net finance income (finance income less finance expenses) totalled $268k in the year (2019: $1.0 million).

The loss for the year was $1.9 million (2019: loss $1.6 million):

Group adjusted EBITDAX loss totalled $761k (2019: $917k loss):

The basic loss per share was 0.9 cents per share (2019: loss 0.7 cents per share). No dividend is proposed to be paid for the year ended 31 December 2020 (2019: $nil).

Statement of financial position

At the end of 2020, non-current assets totalled $22.1 million (2019: $22.1 million) the majority of which relates to the Odewayne block ($21.2 million).

Net assets/total equity stood at $63.9 million (2019: $65.8 million).         

Net current assets reduced to $42.5 million (2019: $44.5 million). At the end of 2020 cash and cash equivalents totalled $42.7 million (2019: $44.9 million), the reduction being related to G&A overheads offset by interest received.

Cash flow

Total net decrease in cash and cash equivalents in the year was $2.2 million (2019: $1.5 million), a full reconciliation of which is provided in the Consolidated Statement of Cash Flows.

During the year there were minimal cash investments on the Odewayne Block in Somaliland due to the Group’s interest being fully carried by Genel Energy Somaliland Limited for its share of the costs during the Third and Fourth Periods of the PSA.

Accounting Standards

The Group has reported its 2020 and 2019 full year accounts in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

Cautionary statement

This financial report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Directors believe the expectation reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Group’s control or otherwise within the Group’s control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward-looking statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.       General information       

The results announcement is for the year ended 31 December 2020.

The financial information set out above does not constitute the company’s statutory accounts for the years ended 31 December 2020 or 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company’s Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The Annual Report and Accounts and the notice for the Company’s Annual General meeting, which is to be held at 10.00 a.m. on 30 June 2021, will be posted to Shareholders on 1 June 2021.

2.       Going concern

The Group business activities, together with the factors likely to affect its future development, performance and position are set out in the Operations review. The financial position of the Group and Company, its cash flows and liquidity position are described in the Financial Review.

The Group has sufficient cash resources for its working capital needs and its committed capital expenditure programme at least for the next 12 months. As a consequence, the Directors believe that both the Group and Company are well placed to manage their business risks successfully despite the ongoing pandemic and uncertain economic outlook.

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. This assessment has been made by the Directors who remain confident the Group has sufficient cash resources at the date of signing the annual report to meet its liabilities as they fall due for a period of at least 12 months from the date of signing these financial statements, and notwithstanding the impact that COVID-19 has had, and continues to have internationally. The Directors believe that the Group is in a strong position to absorb any potential impact on the Group arising from COVID-19, and thus, they continue to adopt the going concern basis of accounting in preparation of the financial statements.

3.       Operating segments

Africa operations in 2020 focused on exploration and appraisal activities in Somaliland. The UK corporate office is a technical and administrative cost centre focused on new ventures. The operating results of each segment are regularly reviewed by the Board of Directors in order to make decisions about the allocation of resources and to assess their performance.

The following tables present income, expense and certain asset and liability information regarding the Group’s operating segments for the year ended 31 December 2020 and for the year ended 31 December 2019.

4.       Intangible Exploration and Evaluation assets

Group intangible assets at the year end 2020:

Odewayne PSA, Somaliland: SE(EA)L 34%, Genel Energy Somaliland Limited 50%, Petrosoma 16%

Classified as a joint arrangement in accordance with IFRS 11.

5.       Subsequent events

Changes in major shareholdings and Board appointments

On the 18 February 2021 the Company announced that a number of institutional and high net worth investors had agreed to purchase the following shares:

Waterford Finance & Investment Limited – 64,315,517 ordinary shares in the Company (equating to its entire 29.23% shareholding in the Company); and

Mistyvale Limited – 34,467,790 ordinary shares in the Company (equating to its entire 15.66% shareholding in the Company).

The Company and Waterford were parties to a Relationship Agreement dated 10 June 2016. Following the sale of Waterford’s ordinary shares in the Company as set out above, the Relationship Agreement automatically terminated.

On the 16 March 2021 the Company announced that Paul McDade had joined as the Company’s Chief Executive Officer with Ian Cloke joining as Chief Operating Officer. The Company’s existing CEO, Mr. Tony Hawkins, stepped down from the Board.

On the 30 March 2021 the Company announced the appointments of Jeffrey MacDonald as Independent non-executive Chairman and Gavin Wilson as Independent non-executive Director. These appointments replaced the non-executive Chairman (Michael Kroupeev) and non-executive Directors (Leo Koot and Ilya Belyaev).

On the 13 April 2021 the Company announced its intention to change its name to Afentra plc and adopt new articles of association. The proposed change of name and new articles were approved at a General Meeting held on 30 April 2021.

On the 5 May 2021 Afentra plc is launched and the Company announced the appointment of Anastasia Deulina as Chief Financial Officer.

DEFINITIONS AND GLOSSARY OF TERMS