ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

26 April 2022

AFENTRA PLC

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

Afentra plc (‘Afentra’ or the ‘Company’), is pleased to announce its annual results for the year ended 31 December 2021.

2021 SUMMARY

Strategic

·      Established a new Executive team and Board, introduced new institutional and high net worth shareholders.

·      Rebranded Sterling Energy to Afentra (‘African Energy Transition’) with a strategic imperative of capitalising on opportunities resulting from the accelerating energy transition on the African continent.

·      Established key focus areas with a comprehensive strategy to capture production and development assets in Africa and create value for all stakeholders.

·      Built a small, focused team with a history of identifying and acquiring high quality assets, to rapidly assess business development opportunities technically, operationally and commercially.

·      Developed a robust Governance and ESG framework to support future growth ambitions.

Operations

·      Submitted a non-binding Expression of Interest to purchase interests in Block 3/05 and Block 23 in Angola.

·      The Company continued to support the Operator of the Odewayne block, Somaliland, in progressing the technical understanding of the block; and continued to review its technical assessment and outlook on block prospectivity.

Financial Highlights

·      Cash resources net to the Group at 31 December 2021 of $37.7 million (2020: $42.7 million).

·      Adjusted EBITDAX¹: loss for the Group of $2.0 million (2020: $761k loss).

·      The Group remains debt free and fully carried for Odewayne operations (Third and the Fourth Period).

¹defined within the definitions and glossary of terms

Post year end highlights

·      In April, Afentra named preferred bidder to purchase interests in Block 3/05 and Block 23. 

·      Afentra progressing final due diligence ahead of finalising Sales and Purchase Agreement (SPA) with Sonangol.

Commenting, CEO Paul McDade, said:

“2021 was a year of transformation for Afentra. The Company underwent a significant change of strategic focus and is now extremely well placed to execute on our strategy to identify and responsibly develop African opportunities and create value for all stakeholders. Sonangol’s recent announcement of our preferred bidder status for Block 3/05 and Block 23 in Angola moved Afentra one step closer to completing its first acquisition and we look forward to moving ahead with that opportunity as we seek to underpin the Company with stable cash flow and reserves.

As we look forward to 2022, our focus remains on the implementation of our growth strategy, building scale and stakeholder value within the Energy Transition in Africa. With a strong balance sheet and an exceptional team behind us, the board and management are excited for the journey ahead and look forward to updating shareholders on our progress. “

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

Jon Krinks

Chris Judd

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

My first year as Chair of Afentra has been a period in which we have seen significant changes in the industry landscape, and a period where we have taken large strides to progress the strategic objectives outlined when the Company was first launched in May 2021.

Starting with the industry macro backdrop, as the impact of Covid abated during the second half of the year, and economies were able to re-open, we observed a commensurate rebound in global economic activity. In turn this has created a surge in global demand for oil and gas, returning to and exceeding pre-pandemic levels and leading to a considerable improvement in the commodity price environment and overall confidence in the market. The easing of travel restrictions has also enabled a better environment for deal-making as counter-parties are able to meet in person which always supports a better interaction and process for negotiating and completing deals.

The recent shocking events in Ukraine have added further upward pressure on energy prices as Russian crude is taken offline and shunned by large swathes of the Western world and its allies. Furthermore, the geopolitical uncertainty engendered by the crisis has created major volatility in energy prices. This increase and volatility in commodity prices is, however, a double edged sword. Whilst the macro factors have resulted in increased interest in the sector from the investment community it has also emphasised the importance of continued investment to secure the required supply to stabilise commodity prices as we progress through the energy transition. The price volatility has also the potential to make the difference in seller and buyers price expectations more difficult to bridge. During this time, Afentra will continue to place high importance on taking a disciplined approach to business development as we screen our opportunity pipeline to ensure we deliver long-term value for our shareholders.

Afentra was set up with a clear objective; to capitalise on opportunities presented by the energy transition on the African continent and in doing so support a responsible transfer of asset ownership that provides beneficial outcomes for all stakeholders. This current macro environment continues to provide an attractive, opportunity-rich landscape for ambitious independents like Afentra.

In the past year, we have successfully established our new Board and executive team and continued to build upon the robust governance and ESG frameworks that underpin our future growth ambitions. With regards to the Governance framework that we established, we will continue to review and update our policies and commitments in these areas to ensure that we fully meet, and, where possible, exceed our obligations, in line with our updated strategic objectives.

Vendors and host governments are increasingly seeking credible and responsible counterparties for divested assets to ensure best practice, environmental stewardship, and the highest standards of governance so that local communities and all stakeholders can continue to realise the socio-economic benefits from existing, discovered resources. With ESG considerations at the heart of Afentra’s strategy, and the Executive team’s significant experience in this area, the Company is well positioned to be an acquirer of choice.

Taken together, the strengthening of the oil price and the increasing importance of ESG considerations for both vendors and the capital markets, provide strong tailwinds for your Company in the longer term. However in the short term oil price volatility and geopolitical uncertainty may create a challenging M&A environment so we will ensure we retain a very strong focus on value creation for you our shareholders and will therefore maintain a disciplined approach to valuation, especially in this challenging environment.

Afentra’s Executive team, led by your CEO Paul McDade, have the necessary technical and commercial expertise, and industry and government networks across the African continent to capitalise on opportunities that meet the Company’s criteria, and we are convinced that over the period we have put in place the necessary foundations to deliver long-term value for all our stakeholders.

In conclusion, your Company finds itself in a strong position as we enter the second fiscal year of operation as Afentra. The market drivers that underpin the global energy transition and support our long-term strategy are gaining momentum and we are confident that we have the right team and strategy to capitalise on these opportunities for the benefit of all our stakeholders.

It only remains for me to thank you, our shareholders, for your ongoing support for the Company, the management team and our strategy. We look forward to updating you with positive news as we move through the rest of the year.

Jeffrey MacDonald – Chairman

CHIEF EXECUTIVE OFFICER’S STATEMENT

Creating a responsible new industry player

Dear Shareholders,

The year ended 31 December 2021 was a transformative period for the Company with the inception of Afentra; a new E&P business with a focused strategy tailored to the long-term structural changes taking place within the global energy markets.

As set out at our launch in May 2021, Afentra has been established as a responsible and credible independent E&P company to capitalise on the opportunities that will result from the accelerating divestment of producing assets and discoveries from International Oil Companies (‘IOCs’) and host Governments in Africa and to support an effective and just energy transition for the continent.

Our focus since launch has been on developing the appropriate corporate framework to support Afentra’s long-term growth objectives, ensuring Afentra is recognised in the region and the industry as an attractive counterparty for divestments and identify and pursue opportunities consistent with our well-defined strategy. I am pleased to report that the team has made good progress in all of these areas, as detailed below.

A tailored strategy

The oil market has changed considerably since our launch. The oil price has rallied from around $60/bbl to well above $100/bbl as a result of recovering and now growing demand, industry underinvestment and of course the impact of the terrible events that are ongoing in Ukraine. However, the market drivers that support Afentra’s growth strategy are unchanged. While the strong commodity pricing environment has impacted the urgency of vendors to divest, and the value they are seeking, the underlying market drivers for major oil companies to decarbonise and high-grade their portfolios remains.

At the outset, we adopted a highly disciplined approach to the execution of our growth strategy to ensure any acquisitions were strategically consistent with the criteria that we set ourselves. As detailed within this report, those criteria covered technical, operational and environmental considerations, and of course the commercial requirement to deliver value accretive deals to our shareholders. The latter remains a core focus in the current market, and our disciplined approach dictates that we execute the strategy with patience and in a manner that supports our longer-term objectives. We are only too aware of the volatility within our industry, with Brent trading below $30/bbl less than two years ago and therefore we prioritise cost and value discipline within our corporate mindset.

During the year there has been a steady evolution of energy market commentary, and sector dynamics, that supports the central themes upon which Afentra was built. First, the need for continued and responsible investment into the oil and gas sector to ensure the necessary supply of oil and gas to meet growing global demand as the transition to renewable energy gradually progresses around the world. Increasing commodity prices, which are translating to growing financial and social concerns about the economic impact to consumers, is a direct result of industry underinvestment alongside sustained supply and demand concerns. The growing acceptance that oil and gas will continue to play an important role in the global energy mix for the coming years and decades supports Afentra’s ambition to be a responsible producer of discovered resources.

Second, recognition of the social impact that the energy transition will have on emerging markets, and particularly on Africa, has grown. At launch, Afentra promoted the need to ensure there is a “Just transition for Africa“, a transition that recognises the need for the social impact to be balanced against the climate impact. The commentary that certain economies are reliant on hydrocarbons and should be able to capitalise on the socio-economic benefits associated with them has become more prominent and more widely acknowledged. Further strengthening this view is the fact that these emerging nations represent a small contribution to the global impact of climate change compared with more developed nations that champion the need for a speedy transition. The fact that the current gas crisis can have such an impact on western economies highlights the devastating risks and social impacts that too rapid a transition could have on the nations and people of Africa.

It is in this context that Afentra’s purpose and model is directly aligned to the creation of shared value for all stakeholders. By committing to strong environmental stewardship, responsible social impact, and strong governance, we have placed the objectives of all stakeholders at the core of our business model. Our ambition to be a credible counterparty for divesting IOCs and host governments supports our growth strategy. The proven operating track record of the team we have assembled should provide trust in our ability to safely and responsibly manage acquired assets, reducing the environmental impact through operating techniques wherever possible, while maintaining the positive socio-economic impact that any acquired assets have on the communities and countries of operation. Our proposition will increasingly meet the specific targets of the United Nations Sustainable Development Goals as we progress from acquisition through to operatorship, production and development.

Progress – strong framework to support future growth

As we reflect on our first year of existence, we are pleased with the considerable progress that we have made. We have successfully assembled a highly competent and credible team with the full suite of expertise required to execute the growth strategy. We have established the corporate framework to support the long-term growth of the Company, underpinned by robust Governance, policies and values.

Afentra’s profile is now established within the industry and our brand is recognised across our focus region of West Africa as a competent, reputable, and ambitious counterparty. On the back of this, our team has leveraged well-established relationships with IOC’s, debt providers and host governments as we seek opportunities consistent with the growth strategy, and we have been involved in ongoing market sales processes as well as proactively making approaches to acquire “off-market” assets.

In October 2021, we submitted an Expression of Interest to purchase interests in Block 3/05 and Block 23 in Angola from Sonangol, and updated in February 2022 that negotiations are ongoing as we seek to reach agreement on the detailed terms of the transaction. In April 2022 Sonangol announced that Afentra is the preferred bidder to purchase these interests. These are high quality assets, in a jurisdiction that we know well, which meet our acquisition criteria in terms of the scale of Oil in Place providing significant upside, with the potential to invest to increase reserves and production.

Afentra’s involvement in this process unfortunately resulted in the suspension of shares, in accordance with Rule 14 of the AIM Rules for Companies, however we hope to progress this process to a conclusion as soon as possible, ideally with a satisfactory outcome that sees Afentra complete its first acquisition.

Afentra has been active in the pursuit of other production assets in West Africa. The Company continues to appraise multiple acquisition opportunities that support its growth strategy in terms of acquiring assets in the region with solid low-cost production, proven reserves and significant upside.

In parallel to the above, 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 which benefits from a full carry by our partner, we need to carefully consider its positioning within our strategy and ensure that we maximise the value of this asset.

Outlook – building a platform for long-term growth

It has been an active period for your Company and we expect momentum to accelerate through 2022 as we strive to deliver our first value accretive transaction for our shareholders. Afentra’s strategy to build a material portfolio of operated and non-operated assets requires a patient approach, especially as we seek to navigate the challenges of transacting in a volatile and high oil price environment.

The market drivers that underpin the energy transition and our strategic intent continue to gather momentum and will undoubtedly evolve over the coming years, as they did in more mature operating regions such as the UK North Sea and the Gulf of Mexico. The current high oil price may have slowed down ongoing processes and deterred certain sellers to divest, given the inflated cash flows being generated by the assets, but conversely it also creates a window of opportunity to sell.

It is our responsibility to remain highly disciplined in our approach to ensure any deals delivered today stand-up to retrospective scrutiny in the years ahead. We are proactively seeking opportunities and feel confident that we have the right team and strategy to deliver our objectives. It is certainly our expectation to deliver transactions this year that provide a platform for long-term growth and value creation.

I’d like to thank all our shareholders for their support since we began this exciting journey and I look forward to updating you all with our progress through this year.

Paul McDade – Chief Executive Officer

ASSET SUMMARY

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 gravity modelling and legacy geological field studies, was 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, Afentra (East Africa) Limited (‘A(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 (as mentioned in the Licence Status, below).

In 2021 the operator carried out 2D & 3D gravity modelling and a re-interpretation of the 2D seismic grid. The data is interpreted to show fold and thrust structures beneath the interpreted Base Cretaceous Unconformity (‘BCU’). If the fold and thrust belt model is correct the petroleum system analogous to this would be of Cryogenian in age and produces about 40 kbo/d in Oman.

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

The loss from operations for 2021 was $5.0 million (2020: loss $2.2 million) for the reasons described below.

During the year, net administrative expenditure increased to $5.0 million (2020: $2.2 million) as a result of exceptional (one off) items relating to costs associated with the migration to Afentra, a change in management and an increase in contractors and advisors.

In 2021, a portion of the Group’s staff costs and associated overheads have been expensed as pre-licence expenditure ($2.4 million), or capitalised/recharged ($77k) where they are directly assigned to capital projects or recharged. This totalled $2.4 million in the year (2020: $1.3 million). 

Finance income in the year of $36k (2020: $326k) represents interest received ($13k) and foreign exchange gains ($23k) on cash held by the Group. The reduction in interest received year on year was as a result of the global pandemic amongst other factors impacting interest rates.

Finance costs during 2021 totalled $45k (2020: $58k).

The loss for the year was $5.0 million (2020: loss $1.9 million):

Group adjusted EBITDAX loss totalled $2.0 million (2020: $761k loss):

The basic loss per share was 2.3 cents per share (2020: loss 0.9 cents per share). No dividend is proposed to be paid for the year ended 31 December 2021 (2020: $nil).

Statement of financial position

At the end of 2021, non-current assets totalled $22.0 million (2020: $22.1 million) the majority of which relates to the Odewayne block ($21.3 million).

Net assets/total equity stood at $58.9 million (2020: $63.9 million).         

Net current assets reduced to $37.3 million (2020: $42.5 million).

At the end of 2021 cash and cash equivalents totalled $37.7 million (2020: $42.7 million), the reduction primarily being related to spend on G&A.

Cash flow

Total net decrease in cash and cash equivalents in the year was $4.9 million (2020: $2.2 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 2021 and 2020 full year accounts in accordance with UK adopted international accounting standards.

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.

Anastasia Deulina – Chief Financial Officer

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 2021.

The financial information set out above does not constitute the Company’s statutory accounts for the years ended 31 December 2021 or 2020, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 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 24 May 2022, will be posted to Shareholders on 29 April 2022.

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 Asset summary. 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, notwithstanding; the impact COVID-19 has had, and continues to have internationally and the current situation in Ukraine and the impact to commodity prices and foreign exchange rates. The Group currently has no unconditional, legally binding commitments in relation to the disclosed transaction in Note 5. 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 2021 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 2021 and for the year ended 31 December 2020.

4.       Intangible Exploration and Evaluation assets

Group intangible assets at the year end 2021:

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

Classified as a joint arrangement in accordance with IFRS 11.

5.       Subsequent events

On the 11 April 2022 the Company confirmed that Sonangol had announced Afentra had been selected as preferred bidder to purchase interests in Block 3/05 and Block 23. The next steps in the process have involved finalising a sale and purchase agreement that contains a number of conditions precedent that will need to be satisfied or waived before the Acquisition can be completed. In addition, a final due diligence exercise is required to be completed in connection therewith. If Afentra ultimately proceeds with the Acquisition, it would be classified as a reverse takeover transaction in accordance with Rule 14 of the AIM Rules for Companies. There is, however, no guarantee at this stage that the Acquisition will be completed.

DEFINITIONS AND GLOSSARY OF TERMS

$                                                         US dollars

Companies Act or Companies Act      the Companies Act 2006, as amended

2006                                                 

2D                                                       two dimensional

AIM                                                     AIM, a SME Growth market of the London Stock Exchange

AGM                                                    Annual General Meeting

Articles                                                the Articles of Association of the Company

Board                                                  the Board of Directors of the Company

Company                                            Afentra plc

Directors                                              the Directors of the Company

E&E                                                     exploration and evaluation assets

E&P                                                     exploration and production

EBITDAX (Adjusted)                            earnings before interest, taxation, depreciation, depletion and amortisation, impairment, share-based payments, provisions, and pre-licence expenditure

EITI                                                       Extractive Industries Transparency Initiative

Farm-in & farm-out                                a transaction under which one party (farm-out party) transfers part of its interest to a contract to another party (farm-in party) in exchange for a consideration which may comprise the obligation to pay for some of the farm-out party costs relating to the contract and a cash sum for past costs incurred by the farm-out party

G&A                                                      general and administrative

G&G                                                     geological and geophysical

GBP                                                      pounds sterling

Genel Energy                                       Genel Energy Somaliland Limited

Group                                                   the Company and its subsidiary undertakings

HSSE                                                   Health, Safety, Security and Environment

hydrocarbons                                       organic compounds of carbon and hydrogen

IAS                                                       International Accounting Standards

IFRS                                                     International Financial Reporting Standards

IOCs                                                     international oil company

JV                                                         joint venture

k                                                           thousands

km                                                        kilometre(s)

km²                                                      square kilometre(s)

KPIs                                                     key performance indicators

lead                                                      indication of a potential exploration prospect

London Stock Exchange or LSE          London Stock Exchange Plc

LTIP                                                     Long-term incentive plan

M&A                                                     mergers and acquisitions

m                                                          metre(s)

OECD                                                  Organisation for Economic Cooperation and Development

Ordinary Shares                                  ordinary shares of 10 pence each

Petroleum                                            oil, gas, condensate and natural gas liquids

Petrosoma                                           Petrosoma Limited (JV partner in Somaliland)

Prospect                                               an area of exploration in which hydrocarbons have been predicted to exist in economic quantity. A group of prospects of a similar nature constitutes a play.

PSA                                                      production sharing agreement

QCA Code                                           Corporate Governance Code for Small and Mid-Size Quoted Companies 2018

Reserves                                              reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria; they must be discovered, recoverable, commercial and remaining based on the development projects applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status

Seismic                                                data, obtained using a sound source and receiver, that is processed to provide a representation of a vertical cross-section through the subsurface layers

Shares                                                 10p ordinary shares

Shareholders                                        ordinary shareholders of 10p each in the Company

Subsidiary                                             a subsidiary undertaking as defined in the 2006 Act

United Kingdom or UK                          the United Kingdom of Great Britain and Northern Ireland

Working Interest or WI                          a Company’s equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms