APCL in the look out for farm-in partners for various licenses...

APCL in the look out for farm-in partners for various licenses in Senegal and Gambia... and have made considerable progress in negotiations with potential farm-in partners...
Malcy believes FAR might be rewarded a couple more licenses by Senegal govt... but what do I know?...

UNAUDITED FINANCIAL REPORT FOR THE QUARTER ENDED 31 DECEMBER 2016

02/28/2017 | 04:53am EST

Please find enclosed African Petroleum Corporation Limited's (the "Company" or "African Petroleum") unaudited financial report for the quarter ended 31 December 2016.
HIGHLIGHTS
- During the quarter the Company continued working with Ophir
Energy and Petroci on planning for the first exploration well
(Ayame-1X) to be drilled on the CI-513 licence (Company 45%,
Ophir Energy (Operator) 45%, Petroci 10%) in Côte d'Ivoire in
Q2 2017.
- The Ayame-1X exploration well will be targeting the Ayame
West prospect with a gross mean prospective resource of 350
million barrels (ERC Equipoise CPR).
- Post period end, Ophir Energy (Operator) signed a drilling
rig contract for the Seadrill West Saturn sixth generation
drillship with drilling of the Ayame-1X exploration well
commencing in May 2017.
- The Company is continuing discussions with the Senegalese
and Gambian governments regarding possible licence extensions
and amendments to existing and future work obligations.
Concurrently, the Company remains in farm-out negotiations
with several potential farm-in partners for certain licences
across the portfolio, including Côte d'Ivoire, The Gambia and
Senegal.
- On 23 November 2016 the Company announced that Liberian
production sharing contracts LB-08 and LB-09 had expired and
will not be extended.
- On 23 November 2016 the Company reached agreement with the
Government of Sierra Leone to proceed into the First
Extension Period of the SL-4A-10 licence and to modify the
work programme, minimum expenditure requirements and social
obligations in favour of the Company during the First
Extension Period on the licence.
- Post period end, the Company appointed BDO Audit (WA) Pty
Ltd, a member firm of BDO International Ltd, to replace Ernst
& Young as auditor of the Company.
- Post period end, at the invitation of the incoming
government a delegation from the Company travelled to The
Gambia to attend the 52nd Independence Anniversary
Celebrations and Inauguration of His Excellency Mr Adama
Barrow, President of the Republic of The Gambia, and to hold
a private meeting with President Barrow.
- Approximately US$0.2 million cash at bank as at 31 December
2016, together with US$10.9 million restricted cash.
- Post period end, the Company completed a private placement
to raise NOK 26,675,000 (approximately US$3.1 million)
(before costs) through the issue of 10,670,000 new fully paid
ordinary shares at a price of NOK 2.50 per share.
- The Company has continued to operate with a reduced running
cost base (implemented in late 2015).


COMPANY BACKGROUND
African Petroleum, listed on the Oslo Axess (APCL) and the Open Market of the Frankfurt Stock Exchange (A1C1G9), is an independent oil and gas exploration company led by an experienced Board and management team, with substantial experience in oil and gas exploration, appraisal, development and production. The Company is a significant net acreage holder in West Africa with estimated net unrisked mean prospective oil resources in excess of 7.4 billion barrels.
African Petroleum has equity interests in 8 licences across four countries offshore West Africa (Côte d'Ivoire, Senegal, The Gambia and Sierra Leone). The Company's assets are located in proven hydrocarbon basins, where several discoveries have been made in recent years, including significant discoveries by Total and Anadarko in Côte d'Ivoire, Cairn Energy in Senegal and by Kosmos Energy in Senegal and Mauritania.
The Company has acquired more than 13,400km2 of 3D seismic data on its existing licences and drilled three exploration wells in West Africa.
CEO STATEMENT
"The Company has entered 2017 with a strong momentum driven by some important corporate and operational milestones achieved last year. We have successfully rationalised our portfolio through the relinquishment of our licences in Liberia as we focus our efforts and resources on the licences where we see the most potential for value creation. In this regard, we have made considerable progress in our negotiations with the governments of Senegal and The Gambia to reach an accord on the terms and subsequent extension of our highly prospective licences in these countries. Our negotiations in The Gambia were somewhat delayed in the run- up to the country's election however we have made considerable progress in building a relationship with the new administration and are encouraged by the initial dialogue that we have had to date.
We remain in positive and progressive negotiations with several potential farm-in partners for certain licences across the portfolio, including Côte d'Ivoire, The Gambia and Senegal. Whilst we have an existing LOI in place with a highly credible industry player for our licences in The Gambia, we continue to entertain discussions with all potential partners across our entire portfolio to ensure we obtain the best possible deals on behalf of our shareholders. The general sector sentiment towards exploration activity in our region of focus improved markedly in the second half of 2016 as the oil price stabilised and we have subsequently reinitiated dialogue with a number of industry players who are once again showing strong interest in our acreage.
In May of this year, we will return to exploration drilling as we drill the first exploration well on CI-513 alongside our partner Ophir. This highly prospective well has generated a lot of industry interest and we continue to evaluate our options with regards to a potential farm-out of our equity in the licence in return for funding our share of the well. In any event, we will retain a material interest in a well that has the potential to be truly transformational for African Petroleum in the success case.
In conclusion, we are excited by the near term catalyst of the exploration well and are also highly encouraged by the continued dialogue that we are having with our host governments and potential industry partners, all against an improving sector backdrop. Whilst the pace in getting to this point has been frustratingly slow as a result of the challenges faced by the wider industry in the last couple of years, we have made significant progress in laying the foundation for growth and believe that we are well placed to achieve numerous operational and corporate objectives in the coming year."
OPERATIONAL & CORPORATE UPDATE
FARM OUT PROCESS
African Petroleum seeks to build on the success of attracting Ophir Energy plc as a partner on the CI-513 Licence in Côte d'Ivoire by forming other strategic partnerships to explore the Company's blocks in Côte d'Ivoire, Senegal, The Gambia, and Sierra Leone. The strategy, supported by detailed technical work and prospect definition, is to use the significant equity held in this prospective portfolio to fund a high impact exploration drilling campaign. The industry interest in Côte d'Ivoire, The Gambia and Senegal licences in particular, due to the regional context of hydrocarbon discoveries being made in adjacent blocks in this part of the Atlantic Margin, provides management with confidence that agreements will be concluded in due course.
Côte d'Ivoire
Further to the announcement on 16 March 2016 that the new Production Sharing Contract ("PSC") with Ophir Energy plc covering the Company's CI-513 licence area in Côte d'Ivoire became effective, the Company and Ophir Energy have been working on planning for the first exploration well to be drilled in Q2 2017. The CI-513 exploration well (Ayame-1X) will be targeting the Ayame West prospect with a gross mean prospective resource of 350 million barrels. Due to the proximity of recent discoveries made by Total and Anadarko, the short time frame to drilling and the material prospect size, the Company is in discussions with several companies who have expressed interest in farming in to the CI-513 licence.
The Gambia & Senegal
The Company is continuing meetings and discussions with the Governments of The Gambia and Senegal with a view of aligning the requirements of potential incoming partners with the respective licence terms and obligations.
Post period end, in February 2017, a delegation from the Company travelled to The Gambia to attend the 52nd Independence Anniversary Celebrations and Inauguration of His Excellency Mr Adama Barrow, President of the Republic of The Gambia, and to hold a private meeting with President Barrow.
The Company has signed a non-exclusive Letter of Intent ("LOI") with an undisclosed International E&P company with respect to Licences A1 and A4, offshore The Gambia (announced 31 August 2016). The LOI represents a non-binding commercial proposal regarding the possible acquisition of interests in Licences A1 and A4 where African Petroleumholds 100% operated working interest in both blocks. The proposal set forth within the LOI is subject to ongoing due diligence and commercial negotiations. In the meantime, the Company is in active discussions with other interested companies.
This part of the Atlantic Margin has become highly active with the recent exploration success of third party operators, namely Cairn Energy in Senegal and Kosmos Energy in Senegal and Mauritania. A significant level of activity in the region is ongoing as Cairn Energy and its partners commenced a multi-well exploration and appraisal drilling programme across their Senegal acreage in December 2015, with the first three appraisal wells SNE-2, SNE-3 and SNE-4 being announced as successful in January 2016, March 2016 and May 2016 respectively. In addition, Kosmos Energy extended their Mauritania drilling campaign further south and commenced drilling in Senegal in December 2015. This has led to a string of very successful drilling programmes by Kosmos Energy through the first half of 2016, including significant gas discoveries at Tortue, Geumbeul-1 and Ternanga-1, and the successful appraisal well at Ahmeyim-2. In December 2016 Kosmos announced a farm-out to BP for $916 million in fixed consideration and up to $2 billion in variable consideration.
Despite the challenging market conditions for exploration activity and the prolonged nature of discussions with potential partners and governments, the Company remains confident that current advanced discussions can yield farm- outs in due course. Further announcements will be made when appropriate.
LICENCE PHASES
African Petroleum is actively engaged in discussions with a number of governments regarding possible licence extensions and amendments to existing and future work obligations. The Company maintains strong relationships with host governments founded upon recognition of the Company's efforts to progress the exploration of these licences. Based on the dialogue experienced to date with the governments of Senegal, TheGambia, Côte d'Ivoire and Sierra Leone, we are confident that we will achieve outcomes that are mutually beneficial for our host countries, potential industry partners and African Petroleum.
On 23 November 2016 the Company announced that Liberian production sharing contracts LB-08 and LB-09 ("PSCs") had expired and will not be extended. The Company had been in discussions with the relevant Liberian authorities regarding the possible amendment of terms and extension of these PSCs to enable the Company additional time to attract an industry partner whilst not enduring costly work commitments; however, agreement could not be reached.
Please refer to the next section "Licence Information" for further information on specific licences.
PRIVATE PLACEMENT
Post period end, on 23 January 2017 the Company completed a private placement to certain existing and new investors to raise NOK 26,675,000 (approximately US$3.1 million) (before costs) through the issue of 10,670,000 new fully paid ordinary shares at a price of NOK 2.50 per share. Proceeds from the private placement will be used to strengthen the Company's balance sheet and liquidity position, to fund the Company's ongoing working capital and for general corporate purposes.
CHANGE IN AUDITOR
Post period end, on 19 January 2017 the Company appointed BDO Audit (WA) Pty Ltd ("BDO"), a member firm of BDO International Ltd, as auditor of the Company. BDO were selected to replace Ernst & Young as the Company's auditors for the financial year ending 31 December 2016 and subsequent financial years on the basis that BDO are more aligned to the Company's current operations and to the Company's continued strategy to reduce corporate costs.
LICENCE INFORMATION
Côte d'Ivoire: Blocks CI-509 & CI-513
In Côte d'Ivoire, African Petroleum holds:
i) 90% working interest in offshore licence CI-509, with

the remaining 10% held by Petroci, the National Oil Company of Côte d'Ivoire. The Company was awarded CI-509 in March 2012; and ii)
45% non-operated interest in offshore licence CI-513,

with a 45% operated interest held by Ophir Energy plc and the remaining 10% held by Petroci. A new PSC for CI-513 was signed in December 2015 and became effective in March 2016. The two licence interests have a combined net acreage of 1,633km2.
The current phase of licence CI-509 ended in March 2016; however, the Company has not received a formal notice of termination and the Company remains in positive dialogue regarding the proposed suspension of the licence to enable sufficient time for a regional technical study and the introduction of a new partner by the Company, at which point it is anticipated the licence will be renewed.
On 14 July 2014 the Company signed an agreement to farm-out 10% of CI-509 to Buried Hill Africa Limited, subject to certain conditions precedent. As at the date of this report the conditions precedent had not been satisfied.
Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Côte d'Ivoire licences and estimates the net unrisked mean prospective oil resources at 1,273MMStb (adjusted for Ophir Energy's 45% interest in CI-513). Senegal: Rufisque Offshore Profond & Senegal Offshore Sud Profond
In Senegal, African Petroleum Senegal Limited holds a 90% operated working interest in exploration blocks Rufisque Offshore Profond ("ROP") and Senegal Offshore Sud Profond ("SOSP"). The National Oil Company Petrosen, holds the remaining 10% equity. The Company's Senegallicences are located offshore southern and central Senegal, with a net acreage of 14,216km2.
The current phase of the ROP licence ended in October 2015; however, the Company has lodged a request for an extension with the Government of Senegal and remains in positive dialogue regarding this extension request.
The Company was required to elect whether to continue with the current phase of the SOSP licence in June 2016 by committing to the drilling of an exploration well; however, the Company has not elected to commit to the drilling of the exploration well and has entered into dialogue regarding the possible amendment of this licence commitment.
Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Senegal Licences and estimates the net unrisked mean prospective oil resources at 1,779MMStb.
The Gambia: Blocks A1 & A4
African Petroleum holds a 100% operated working interest in offshore licences A1 and A4, with a combined net acreage of 2,672km2. The Company has completed a 3D seismic survey with data covering 2,500km2 and has found a number of analogous leads and prospects in its acreage to that of the recent SNE-1 and FAN-1 discoveries and the SNE-2, SNE-3 and SNE-4 successful appraisal wells drilled by Cairn Energy in Senegal.
The current phase of the A1 and A4 licences required the Company to drill an exploration well on either of the licences no later than 1 September 2016. The Company was unable to meet this drilling commitment and is in positive dialogue with the Government of The Gambia regarding the transfer of the outstanding drilling commitment into the next phase and entry into the next phase of the licences.
Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Gambian Licences and estimates the net unrisked mean prospective oil resources at 3,079MMStb.
Sierra Leone: Blocks SL-03 & SL-4A-10
In Sierra Leone, the Company holds a 100% operated working interest in offshore licences SL-03 and SL-4A-10. African Petroleum was awarded a 100% interest in SL-03 in April 2010, while licence SL-4A-10 was awarded as part of Sierra Leone's third offshore licencing round in 2012. The Company's Sierra Leone licences cover a combined net acreage of 3,925km2 and are located to the south of Freetown, offshore Sierra Leone.
On 4 August 2016 the Company received formal ratification from the authorities in Sierra Leone for the entry into the First Extension Period on the SL-03 licence. As previously announced in December 2015, the Petroleum Directorate agreed to modify the work programme, minimum expenditure requirements and social obligations in favour of the Company during the First Extension Period on the licence. The current phase of the SL-4A-10 licence ended in September 2015, having fulfilled the commitment to acquire 3D seismic over the licence. On 23 November 2016the Company reached agreement with the Government of Sierra Leone to proceed into the First Extension Period of the SL-4A-10 licence and to modify the work programme, minimum expenditure requirements and social obligations in favour of the Company during the First Extension Period on the licence.
Independent petroleum consultant ERC Equipoise prepared an assessment of prospective oil resources attributable to the Company's Sierra Leone licences and estimates the net unrisked mean prospective oil resources at 1,354MMStb.
Liberia: Blocks LB-08 & LB-09
African Petroleum, through its wholly owned subsidiary European Hydrocarbons Limited, held a 100% working interest in production sharing contracts LB-08 and LB-09 ("PSCs").
On 23 November 2016 the Company announced that the PSCs had expired and will not be extended. The Company had been in discussions with the relevant Liberian authorities regarding the possible amendment of terms and extension of these PSCs to enable the Company additional time to attract an industry partner whilst not enduring costly work commitments; however, agreement could not be reached.
HEALTH, SAFETY, ENVIRONMENT AND SECURITY
As an operator of offshore concessions, it is the duty of African Petroleumto provide a safe working environment and minimize any adverse impact on the environment. Health, safety, environment and security policies are embedded throughout all of the Company's core operations. In this regard, we strive for continuous improvement as lessons learnt from past operations are incorporated into business practices going forward.
PRINCIPAL RISKS AND UNCERTAINTIES
As an exploration company in the oil and gas industry, the Company operates in an inherently risky sector. Oil and gas prices are subject to volatile price changes from a variety of factors, including international economic and political trends, expectation of inflation, global and regional demand, currency exchange fluctuations, interest rates and global or regional consumption patterns. These factors are beyond control of the Company and may affect the marketability of oil and gas discovered. In addition, the Company is subject to a number of risk factors inherent in the oil and gas upstream industry, including operational and technical risks, reserve and resource estimates, risks of operating in a foreign country (including economic, political, social and environmental risks) and available resources. We recognise these risks and manage our operations in order to minimise our exposure.
OUTLOOK
African Petroleum is entering an exciting period as we count down to the drilling of our exploration well on licence CI- 513 in Côte d'Ivoire in May. This highly prospective well, which lies in close proximity to large commercial discoveries, continues to attract industry interest and as a result the Company is considering a number of options with regards to potentially farming down further equity in the licence in return for funding our share of the well. In the event of a further farm-out, we will retain an appropriate level of exposure to ensure a transformational impact in the success case.
The general sector outlook has improved dramatically since the oil price rebounded from a low of US$27 per barrel in early 2016 and stabilised at a level where the industry is becoming more active in exploration. Based on the dialogue that we are having with industry players, many of whom have recently reinitiated dialogue as a result of the improving climate, we are witnessing an increased appetite for exploration activity in our region of focus. As such, we are optimistic that our discussions with host governments and potential industry partners will culminate in a positive outcome for the Company in the near future.
STATEMENT OF RESPONSIBILITY
We confirm that, to the best of our knowledge, the condensed set of financial statements for the fourth quarter of 2016, which has been prepared in accordance with IAS34 Interim Financial Statements, provides a true and fair view of the Company's consolidated assets, liabilities, financial position and results of operations, and that the management report includes a fair review of the information required under the Norwegian Securities Trading Act section 5-6 fourth paragraph.
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