FULLTEXT DEL 2 AV 2
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
RISK FACTORS - CONTINUED
RISKS INHERENT IN OIL AND GAS EXPLORATION, DEVELOPMENT, AND PRODUCTION
Oil and gas operations involve many risks, which, even with the combination of experience, knowledge and careful evaluation may not
be able to overcome. The long-term commercial success of Africa Oil depends on its ability to find, acquire, develop and commercially
produce oil and gas reserves. No assurance can be given that the Company will be able to locate satisfactory properties for acquisition
or participation. Moreover, if such acquisitions or participations are identified, the Company may determine that current markets, terms
of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. It is difficult to project
the costs of implementing an exploratory, appraisal or development drilling program due to the inherent uncertainties of drilling in
unknown formations, the costs associated with encountering various drilling conditions such as over pressured zones, tools lost in the
hole, equipment failures or malfunctions and changes in drilling plans and locations as a result of prior exploratory wells or additional
seismic data and interpretations thereof. Without the continual addition of new reserves, any existing reserves associated with the
Company’s oil and gas assets at any particular time, and the production therefrom, could decline over time as such existing reserves
are exploited. There is a risk that additional commercial quantities of oil and gas may not be discovered or acquired by the Company.
Africa Oil’s business is subject to all the risks and hazards inherent in businesses involved in the exploration for, and the acquisition,
development, production and marketing of, oil and gas, many of which cannot be overcome even with a combination of experience
and knowledge and careful evaluation. The risks and hazards typically associated with oil and gas operations include fire, explosion,
blowouts, sour gas releases, pipeline ruptures and oil spills, each of which could result in substantial damage to oil and gas wells,
production facilities, other property, the environment or personal injury, and such damages may not be fully insurable.
RESERVES AND RESOURCES VOLUMES
There are many uncertainties inherent in estimating quantities of oil and natural gas reserves and resources (contingent and prospective)
and the future cash flows attributed to such reserves and resources. The actual production, revenues, taxes and development and
operating expenditures with respect to the reserves and resources associated with the Company’s assets will vary from estimates
thereof and such variations could be material. Estimates of reserves that may be developed and produced in the future are often based
upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. There is uncertainty
that it will be commercially viable to produce any portion of the contingent resources. Actual future net cash flows will be affected by
other factors, such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by
oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.
GOVERNMENT REGULATIONS AND TAX RISK
The Company may be adversely affected by changes to applicable laws to which it is subject, and its host governments may implement
new applicable laws, modify existing ones, or interpret them in a manner that is detrimental to the Company. Such changes to the laws
to which the Company is subject could, amongst other things, result in a windfall tax, an increase in existing tax rates or the imposition
of new ones or the Company may be subject to tax assessments, all of which on their own or taken together could have a material
adverse effect on the Company’s business, financial condition, results of operations and prospects of the Company’s oil and gas assets.
As has become customary in Nigeria since 2019, the annual budget for Nigeria has been accompanied by a proposed finance bill that
supports the revenue needs indicated in the annual budget. This bill could include changes to tax laws, including laws that can affect
directly or indirectly the oil and gas industry.
INVESTMENTS IN ASSOCIATES AND INVESTMENTS IN JOINT VENTURES
The Company has invested in other frontier oil and gas exploration companies that face similar risks and uncertainties, which could
have a material adverse effect on their businesses, prospects and results of operations. Such risks include, without limitation, equity
risk, liquidity risk, commodity price risk, credit risk, currency risk, foreign investment risk, and changes in environmental regulations,
economic, political or market conditions, or the regulatory environment in the countries in which they operate. The associates or joint
ventures are entities in which the Company has some influence, including through its representation on their boards, but given its
equal or minority interest, no or limited control over their decisions, including, without limitation, financial and operational policies, the
Company has no or limited control over outcomes, performance and governance. The Company’s access to information is subject to
the contractual provisions of shareholder agreements. The Company is reliant on the information provided by investments and may
not have the ability to independently verify such information. The Company’s investments are not diversified over different types of
investments and industries, rather, they are concentrated in one type of investment. If an associated company or jointly controlled entity
in which the Company has invested fails, liquidates, or becomes bankrupt, the Company could face the potential risk of loss of some,
or all, of its investments, and may be unable to recover any of its investments.
The Company’s share price performance is subject to timely communication of financial and operational results. The Company is reliant
on its associates and joint ventures for timely and accurate disclosures of material updates. Although the Company has procedures in
place to maximise its oversight of such disclosures, including representation on the boards of its investee companies, failure to mitigate
delays and/or inaccuracies in such disclosures could expose the Company to regulatory sanctions and shareholder legal action that
could adversely impact the Company’s finances and reputation.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
INTERNATIONAL OPERATIONS
The Company participates in oil and gas projects located in emerging markets, primarily in Africa. Oil and gas exploration, development
and production activities in these emerging markets are subject to significant political, economic, and other uncertainties that may
adversely affect the Company’s operations. The Company could be adversely affected by changes in applicable laws and policies
in the countries where the Company has interests. Additional uncertainties include, but are not limited to, the risk of war, terrorism,
expropriation, civil unrest, nationalization, renegotiation or nullification of existing or future concessions and contracts, the imposition
of international sanctions, a change in crude oil or gas pricing policies, changes to taxation laws and policies, assessments and audits
(including income tax) against the Company by regulatory authorities, difficulty or delays in obtaining necessary regulatory approvals,
risks associated with potential future legal proceedings, and the imposition of currency controls. These uncertainties, all of which are
beyond the Company’s control, could have a material adverse effect on the Company’s business, prospects and results of operations.
In addition, if legal disputes arise related to oil and gas concessions acquired by the Company, they could be subject to the jurisdiction
of courts other than those of Canada. The Company’s recourse may be very limited in the event of a breach by a government or
government authority of an agreement governing a concession in which the Company acquires an interest. The Company may require
licenses or permits from various governmental authorities to carry out future exploration, development and production activities. There
can be no assurance that the Company will be able to obtain all necessary licenses and permits when required.
DIFFERENT LEGAL SYSTEM AND LITIGATION
The Company’s exploration, development and production activities are located in countries with legal systems that in various degrees
differ from that of Canada. Rules, regulations and legal principles may differ in respect of matters of substantive law and of such matters
as court procedure and enforcement. Almost all material exploration and production rights and related contracts of the Company are
subject to the national or local laws and jurisdiction of the respective countries in which the operations are carried out. This means that
the Company’s ability to exercise or enforce its rights and obligations may differ between different countries and also from what would
have been the case if such rights and obligations were subject to Canadian law and jurisdiction.
The Company’s operations are, to a large extent, subject to various complex laws and regulations as well as detailed provisions in
concessions, licenses and agreements that often involve several parties. If the Company was to become involved in legal disputes
in order to defend or enforce any of its rights or obligations under such concessions, licenses, and agreements or otherwise, such
disputes or related litigation could be costly, time consuming and the outcome would be highly uncertain. Even if the Company
ultimately prevailed, such disputes and litigation may still have a substantially negative effect on the Company’s business, assets,
financial conditions, and its operations.
BRIBERY, CORRUPTION AND FRAUD
The Company is subject to various laws which aim to combat bribery, corruption and fraud, including the Corruption of Foreign Public
Officials Act (Canada) and the Bribery Act 2010 (United Kingdom) and the Economic Crime and Corporate Transparency Act 2023
(United Kingdom). Failure to comply with such laws could subject the Company to, among other things, civil and criminal penalties,
other remedial measures and legal expenses and reputational damage, each of which could adversely affect the Company’s business,
results in operations, and financial condition. Weaknesses in the anti-corruption legal and judicial system of certain countries may
undermine the Company’s or a host government’s capacity to effectively detect, prevent and sanction corruption and fraud. To mitigate
this risk, the Company has implemented an anti-corruption compliance and onboarding program for anyone that does business with
the Company, anti-corruption training initiatives for its personnel and consultants, and an anti-corruption policy for its personnel, and
consultants. However, the Company cannot guarantee that its personnel, contractors, or business partners have not in the past or will
not in the future engage in conduct undetected by the onboarding processes and procedures adopted by the Company, and it is
possible that the Company, its personnel or contractors, could be subject to investigations or charges related to bribery, corruption or
fraud as a result of actions of its personnel or contractors.
SHARED OWNERSHIP AND DEPENDENCY ON JV PARTIES
The Company’s operations are primarily conducted together with one or more JV parties through contractual arrangements, including
unincorporated associations. In such instances, the Company may be dependent on, or affected by, the due performance and financial
strength of its JV parties. If a JV party fails to perform or becomes insolvent, the Company may, among other things, risk losing rights or
revenues or incur additional obligations or costs, experience delays, or be required to perform such obligations in place of its JV party.
The Company and its JV parties may also, from time to time, have different opinions on how to conduct certain operations or on what
their respective rights and obligations are under a certain agreement. If a dispute were to arise with one or more JV parties relating to
a project, such dispute may have material adverse effect on the Company’s or investee company’s operations relating to such project.
RISKS RELATING TO CONCESSIONS, LICENSES AND CONTRACTS
Africa Oil’s operations are based on a relatively limited number of concession agreements, licenses and contracts. The rights and
obligations under such concessions, licenses and contracts may be subject to interpretation and could also be affected by, among other
things, matters outside the control of Africa Oil. In case of a dispute, it cannot be certain that the view of the Company would prevail
or that the Company otherwise could effectively enforce its rights which, in turn, could have significantly negative effects on Africa Oil.
Also, if the Company or any of its JV parties were found to have failed to comply with their obligations or liabilities under a concession,
license or contract, including record-keeping, budgeting, and time scheduling requirements, the Company’s or JV parties rights under
such concession, license or contract may be terminated or otherwise relinquished in whole or in part. The Company cannot guarantee
that requirements are adequately met by its JV parties, which could bring an increased risk of impairment and reduced future cash flow.
In May 2023, the Company submitted notices to withdraw from its concessions on Blocks 10BB, 13T and 10BA in Kenya. The Company’s
withdrawal from the concessions is subject to approvals from the Kenyan authorities and, while the Company is working with its JV
parties and the authorities to effect a smooth withdrawal process, there can be no certainty that such approvals will be forthcoming on
terms acceptable to all parties.
RISK FACTORS - CONTINUED
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
RISKS RELATING TO INFRASTRUCTURE
Africa Oil is dependent on having available and functioning infrastructure relating to the properties and licenses on which it operates,
such as roads, power and water supplies, pipelines and gathering systems, supply bases and associated services.
The amount of oil and gas that the Company can produce, and sell is subject to accessibility, availability, proximity and capacity of
gathering, processing and pipeline systems. The lack of availability of capacity or a failure in any of the gathering, processing and
pipeline systems, and in particular the processing facilities could result in the Company’s inability to realize the full economic potential
of its production or in a reduction of the price offered for the Company’s production. Any significant change in market factors, terms
of use or other conditions affecting these infrastructure systems and facilities, as well as any delays in constructing new infrastructure
systems and facilities could harm the Company’s business financial condition, results of operations, cash flows and future prospects.
In Nigeria, gas export relies on the continued safe operations at the Nigeria LNG facility. Gas export restrictions could have an adverse
effect on oil production, due to reductions in overall facility production to minimise flaring of associated gas. The supply chain for
offshore is dependent upon existing ports and onshore infrastructure. Several factors, including social unrest onshore, have the
potential to disrupt both the gas processing facilities and the upstream supply chain which could have detrimental impacts on Prime’s
cashflow and subsequent dividend payments to Africa Oil.
In Equatorial Guinea, exploration efforts in Block EG-31 are targeting gas prospects located close to existing gas export and processing
facilities. In the event of a discovery, the discovered fluids may not be compatible with the existing processing facilities resulting in
additional cost which may result in the potential discovery being non-commercial. There may also be insufficient ullage in the facilities
to accept additional capacity and without appropriate commercial arrangements it may not be possible to produce any potential
discovery.
INSURANCE
The Company’s involvement in oil and gas operations may result in the Company becoming subject to liability for pollution, blow-outs,
property damage, personal injury or other hazards. While the Company obtains insurance in accordance with industry standards to
address such risks, the nature of the risks facing the oil and gas industry is such that liabilities might exceed policy limits, the liabilities
and hazards might not be insurable, or the Company might elect not to insure itself against such liabilities due to high premium costs
or other reasons. The payment of such uninsured liabilities would reduce the funds available to the Company. The occurrence of a
significant event that the Company is not fully insured against, or the insolvency of an insurer, could have a material adverse effect on
the Company’s business, financial condition and results of operations. There can be no assurance that insurance will be available in the
future.
CLIMATE RISKS
MARKET RISKS
Changing consumer preferences for low carbon sources of energy, transport and products and services may erode demand for oil
and gas as alternatives come to market and gain scale. Reduced demand for oil and gas may result in stranded reserves or resources
and negatively impact the Company’s valuation and share price. In addition to limiting the Company’s ability to sell into the market,
these trends could lead to lower commodity prices in the medium and long-term, putting further pressure on revenues. In the short-
term, unbalanced investment in traditional vs. new energy technologies and sources, combined with uncertain demand dynamics, may
lead to commodity price volatility. Supply chains may also become constrained, as suppliers adjust their strategies and product mix in
response to the energy transition, resulting in increasing costs for some goods and services.
The Company has conducted scenario analysis, which suggests the current portfolio remains competitive in a low demand environment.
We update our analysis on a regular basis and ahead of new project sanction to minimize the risk of stranded assets. In order to
remain resilient in an uncertain and volatile future commodity environment, the Company works with and through its parties to reduce
operational costs as much as possible without sacrificing health and safety or longer-term efficiency and environmental or strategic
goals. Additionally, the Company will maintain a prudent budget and financial strategy, including hedging as appropriate, to manage
medium term oil price volatility ensure the business remains resilient in a low oil price environment.
LITIGATION RISKS
Climate-related litigation is a rapidly evolving and increasingly important issue for our industry. The risk of legal challenges could rise
as the costs of climate change mitigation and adaptation increase, and as more climate laws and agreements are put in place. Climate-
related litigation could result in liabilities or loss of license related to current or historical activities’ contribution to global emissions.
We do not consider Africa Oil at immediate risk of climate litigation but are monitoring developments closely. Even if the Company
is not directly targeted by litigation, operations may be indirectly impacted by outcomes in related cases involving other oil and gas
companies in jurisdictions where we operate. The Company will seek legal counsel as required to remain abreast of potential legal
action and its implications for our business.
RISK FACTORS - CONTINUED
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
REGULATORY RISKS
Since the Paris Agreement was signed in 2015, countries have steadily enacted policies to enable the transition to a low carbon future and
meet their Nationally Determined Contributions (NDCs). This includes the governments of countries where Africa Oil conducts business.
These policies may directly or indirectly increase the cost of doing business in these countries or potentially restrict the Company’s
ability to operate. Africa Oil regularly monitors the evolving regulatory landscape, both globally and in the Company’s countries of
operation, to anticipate the impact of new climate-related measures and ensure the Company remains compliant. Additionally, the
Company is developing a comprehensive energy transition strategy, including measures to minimize operational emissions in line with
Paris Agreement objectives, which should help the Company to remain aligned with evolving regulatory requirements and minimize
negative impacts.
REPUTATIONAL RISK
Increased scrutiny, pressure and action by environmental activists, non-governmental organizations and other stakeholders may result
in disruption to operations or loss of license to operate. Such disruption may negatively impact cash flows, returns or the value of our
portfolio. Similarly, companies within the sector and our supply chain may make emissions performance and climate risk management
explicit in partner or contract decisions. The Company has not been directly targeted by environmental activists but could be targeted
in the future. To mitigate this risk, Africa Oil proactively engages with the communities and other stakeholders where the Company
operates to keep them informed about the impact of our operations on the environment and their livelihoods. The Company also
ensures proper security is in place to minimize the impact of any potential disruptions and prevent harm to staff, bystanders and assets.
In addition to environmental activists, numerous banks and large institutional investors have communicated an intention to divest from
or limit future exposure to fossil fuels, including oil and gas. Increasing investor and lender concerns regarding climate resilience could
limit access to capital, increase the cost of that capital via higher interest rates or result in direct costs associated with new measures
to meet investor expectations. Since 2020, Africa Oil has published public climate disclosures aligned with the Taskforce for Climate-
Related Financial Disclosures (TCFD) recommendations to proactively address investor and other stakeholder concerns regarding
climate risk exposure. In addition, Africa Oil regularly engages with investors and lenders to understand their climate policies and
requirements and to inform them about the steps the Company is taking to manage climate risks. This includes development of a
strategy to minimize operational emissions.
PHYSICAL RISKS
Climate change has already resulted in significant shifts in global weather patterns, including an increase in the number and severity
of heat waves, cold spells, droughts and storms, including hurricanes and tropical cyclones. Longer term, climate change may also
result in rising sea levels due to melting polar ice caps. The physical effects of climate change have the potential to directly impact the
Company’s assets and operations. In 2022, the Company contracted a global climate risk analytics company to perform a quantified
assessment of the physical climate risks facing the Company’s assets under three IPCC climate scenarios: SSP1-2.6 (consistent with 1.8°C
warming), SSP2-4.5 (consistent with 2.7°C warming) and SSP5-8.5 (consistent with 4.4°C warming). That analysis suggests exposure to
future changes in physical climate hazards is relatively minimal compared to the historical baseline across all three scenarios. We will
continue to monitor our assets’ exposure to physical climate risks as our portfolio and the global scientific community’s understanding
of changing climate patterns evolves.
OTHER ENVIRONMENTAL RISKS
The regulatory frameworks in the Company’s countries of operation extend beyond emissions to include broader areas of environmental
concern, including water management, waste handling, soil pollution and biodiversity protection. These regulations typically include
environmental licensing and permitting subject to the conduct of Environmental and Social Impact Assessments prior to any new
exploration or development activity, as well as ongoing monitoring and reporting.
Non-compliance with environmental regulations can result in fines or permits being revoked, both of which could materially impact the
Company’s financial position or license to operate. Breaches could also lead to civil or criminal litigation, particularly in cases resulting
in significant environmental damage.
The Company is committed to minimizing the broader environmental impact of its activities. The Company acts in compliance with the
applicable environmental laws and regulations of its countries of operation and manages activities according to good international
practice. This includes taking a rigorous approach to operational planning, including identifying potential environmental or social
risks and impacts of operations, and obtaining and maintaining all necessary permits and licenses. The Company also consults with
stakeholders on environmental issues that may affect them, investigates any environmental incidents, and maintains emergency
response procedures for protection of the environment.
The Company assesses and puts measures in place to minimize impact on biodiversity and ecosystem services in line with the
mitigation hierarchy to ensure that activities lead to no net loss of natural habitats. Where the Company is not the operator, it monitors
environmental risk management via regular reports from JV parties and operators and participation in quarterly operating and technical
committee meetings.
Though the Company endeavors to engage all relevant stakeholders proactively and early in the project planning process, environmental
activism is increasing, and in some cases has resulted in delays or disruptions to activities, including delays to permitting where activists
have challenged permits in courts. Africa Oil has not to date suffered impacts to operations due to environmental activism. However,
such delays could affect project economics by incurring additional costs or delaying forecast production and revenues.
The Company does not currently face any environmental fines or charges. However, accidents can occur and the unexpected nature of
these events makes the timing and scope challenging to quantify with respect to financial impacts.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
FORWARD-LOOKING STATEMENTS
Certain statements in this document may constitute forward-looking information or forward-looking statements under applicable
Canadian securities law (collectively “forward-looking statements”). Forward-looking statements are statements that relate to future
events, including the Company’s future performance, opportunities or business prospects. All statements other than statements of
historical fact may be forward-looking statements. Statements concerning proven and probable reserves and resource estimates
may also be deemed to constitute forward-looking statements and reflect conclusions that are based on certain assumptions that the
reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to expectations,
forecasts, assumptions, objectives, beliefs, projections, plans, guidance, predictions, future events or performance (often, but not always,
identified by words such as “believes” , “seeks” , “anticipates” , “expects” , “continues” , “may” , “projects” , “estimates” , “forecasts” , “pending” ,
“intends” , “plans” , “could” , “might” , “should” , “will” , “would have” or similar words suggesting future outcomes) are not statements of
historical fact and may be forward-looking statements.
By their nature, forward-looking statements involve assumptions, inherent risks and uncertainties, many of which are difficult to predict,
and are usually beyond the control of management, that could cause actual results to be materially different from those expressed by
such forward-looking statements. Undue reliance should not be placed on these forward-looking statements because the Company
cannot assure that the forward-looking statements will prove to be correct. As forward-looking information address future conditions
and events, they could involve risks and uncertainties including, but are not limited to, risk with respect to macro-economic conditions
and their impact on operations, regulations and taxes, civil unrest, corporate restructuring and related costs, capital and operating
expenses, pricing and availability of financing and currency exchange rate fluctuations. Readers are cautioned that the assumptions
used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise
and, as such, undue reliance should not be placed on forward-looking statements.
Forward-looking statements include, but are not limited to, statements concerning:
• A change to the shareholder capital return program including the implementation of share buy-backs;
• The completion and timing of proposed transactions;
• Planned exploration, appraisal and development activity including both expected drilling, and geological and geophysical related
activities;
• Potential for an improved economic environment;
• Proposed development plans;
• Future development costs and the funding thereof;
• Expected funding and development costs;
• Anticipated future financing requirements;
• Future sources of funding for the Company’s capital program;
• Future capital expenditures and their allocation to exploration and development activities;
• Expected operating costs;
• Future sources of liquidity, ability to fully fund the Company’s expenditures from cash flows, and borrowing capacity;
• Availability of potential farmout partners/ parties;
• Government or other regulatory consent for exploration, development, farmout, or acquisition activities;
• Future production levels;
• Future crude oil or natural gas prices;
• Future earnings;
• The Company’s ability to deliver further growth and expectations regarding free-cash flow;
• Future asset acquisitions or dispositions and the anticipated strategic and financial benefits of those transactions;
• Future debt levels;
• Availability of committed credit facilities, including existing credit facilities, on terms and timing acceptable to the Company;
• Possible commerciality;
• Development plans or capacity expansions;
• Future ability to execute dispositions of assets or businesses;
• Future drilling of new wells;
• Ultimate recoverability of current and long-term assets;
• Ultimate recoverability of reserves or resources;
• The sustainability of the Company across oil and gas price cycles;
• Future foreign currency exchange rates;
• Future market interest rates;
• Future expenditures and future allowances relating to environmental matters;
• Dates by which certain areas will be explored or developed or will come on stream or reach expected operating capacity;
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
• The Company’s ability to comply with future legislation or regulations;
• Future staffing level requirements; and
• Changes in any of the foregoing.
Statements relating to “reserves” or “resources” are forward-looking statements, as they involve the implied assessment, based on
estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be
profitably produced in the future.
These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, which may cause actual
results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include,
among others:
• Market prices for oil and gas;
• Uncertainty of estimates and projections relating to reserves, resources, production, revenues, costs and expenses;
• Changes in exploration or development project plans or capital expenditures;
• The Company’s ability to explore, develop, produce and transport crude oil and natural gas to markets;
• Production and development costs and capital expenditures;
• The imprecise nature of reserve estimates and estimates of recoverable quantities of oil, natural gas and liquids;
• Changes in oil prices;
• Availability of financing;
• Uninsured risks;
• Changes in interest rates and foreign-currency exchange rates;
• Regulatory changes;
• Changes in the social climate in the regions in which the Company operates;
• Health, safety and environmental risks;
• Climate change legislation and regulation changes;
• Defects in title;
• Availability of materials and equipment;
• Timelines of government or other regulatory approvals;
• Ultimate effectiveness of design or design modification to facilities;
• The results of exploration, appraisal and development drilling and related activities;
• Short-term well test results on exploration and appraisal wells do not necessarily indicate the long-term performance or ultimate
recovery that may be expected from a well;
• Pipeline or delivery constraints;
• Volatility in energy trading markets;
• Incorrect assessments of value when making acquisitions;
• Economic conditions in the countries and regions in which the Company carries on business;
• Governmental actions including changes to taxes or royalties, and changes in environmental and other laws and regulations;
• The Company’s treatment under governmental regulatory regimes and tax laws;
• Renegotiations of contracts;
• Results of litigation, arbitration or regulatory proceedings;
• Political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict; and
• Internal conflicts within states or regions.
The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these
factors are interdependent, and management’s future course of action would depend on its assessment of all available information
at that time. Although management believes that the expectations conveyed by the forward-looking statements are reasonable
based on the information available to it on the date such forward-looking statements were made, no assurances can be given that
such expectations will prove to be correct, and such forward-looking statements included in, or incorporated by reference into, this
document should not be unduly relied upon.
The forward-looking statements are made as of the date hereof or as of the date specified in the documents incorporated by reference
into this document, as the case may be, and except as required by law, the Company undertakes no obligation to update publicly,
re-issue, or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This cautionary
statement expressly qualifies the forward-looking statements contained herein.
FORWARD-LOOKING STATEMENTS - CONTINUED
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
(Expressed in millions of United States dollars)
CONSOLIDATED
BALANCE SHEETS
As at Note
December 31,
2024
December 31,
2023
ASSETS
Current assets
Cash and cash equivalents 4 61.4 232.0
Loan to associated company 19 4.3 -
Accounts receivable and prepaid expenses 4.0 5.1
Investment held for sale 7 7.0 -
76.7 237.1
Long-term assets
Equity investment in joint venture 5 328.4 572.5
Equity investments in associates 6 177.6 134.7
Intangible exploration assets 8 29.3 19.1
Other tangible fixed assets 9 3.2 -
Loan to associated company 19 - 2.8
538.5 729.1
Total assets 615.2 966.2
LIABILITIES AND EQUITY
Current liabilities
Financial liabilities 9 0.7 -
Accounts payable and liabilities 10 9.7 14.2
Share-based compensation liability 17 4.2 8.2
14.6 22.4
Long-term liabilities
Financial liabilities 9 2.6 -
Share-based compensation liability 17 3.1 5.9
Provision for contingent consideration 14 40.4 37.8
Provision for site restoration 11 5.7 5.5
51.8 49.2
Total liabilities 66.4 71.6
Equity attributable to common shareholders
Share capital 13(B) 1,195.8 1,265.3
Contributed surplus 87.4 61.6
Treasury share account (0.4) -
Deficit (734.0) (432.3)
Total equity attributable to common shareholders 548.8 894.6
Total liabilities and equity attributable to common shareholders 615.2 966.2
The notes are an integral part of the consolidated financial statements.
Approved on behalf of the Board:
“ANDREW BARTLETT” “ROGER TUCKER”
ANDREW BARTLETT, DIRECTOR ROGER TUCKER, DIRECTOR
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
(Expressed in millions of United States dollars)
CONSOLIDATED STATEMENT OF NET (LOSS)/ INCOME
AND COMPREHENSIVE (LOSS)/ INCOME
For the years ended Note
December 31,
2024
December 31,
2023
Operating (loss)/ income
Share of profit from investment in joint venture 5 226.0 228.0
Share of loss from investments in associates 6 (38.7) (47.0)
Total operating income 187.3 181.0
Operating expenses
General and administrative expenses (32.4) (31.9)
Impairment of investment in joint venture 5 (436.7) -
Impairment of intangible exploration assets 8 - (62.2)
Total operating expense (469.1) (94.1)
Net operating (loss)/ income (281.8) 86.9
Finance income 15 7.6 7.8
Finance expense 15 (4.9) (7.6)
Net (loss)/income attributable to common shareholders (279.1) 87.1
Total comprehensive (loss)/ income (279.1) 87.1
Net (loss)/income attributable to common shareholders
per share
Basic 16 (0.62) 0.19
Diluted 16 (0.62) 0.18
Weighted average number of shares outstanding for the purpose
of calculating earnings per share
Basic 16 449,431,803 462,231,061
Diluted 16 449,431,803 472,942,487
The notes are an integral part of the consolidated financial statements.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
(Expressed in millions of United States dollars)
CONSOLIDATED
STATEMENTS OF EQUITY
For the years ended Note
December 31,
2024
December 31,
2023
Share capital: 13(B)
Balance, beginning of the year 1,265.3 1,267.7
Exercise of Share Options 13/ 17 0.5 1.4
Settlement of Restricted Share Units 13/ 17 0.5 1.1
Settlement of Performance Share Units 13/ 17 1.1 3.5
Weighted average value of shares cancelled 13 (71.6) (8.4)
Balance, end of the year 1,195.8 1,265.3
Contributed surplus:
Balance, beginning of the year 61.6 59.2
Excess of weighted value of shares cancelled 13 25.8 2.4
Balance, end of the year 87.4 61.6
Treasury account:
Balance, beginning of the year - -
Shares purchased 13 (46.2) (6.0)
Shares cancelled 13 45.8 6.0
Balance, end of the year (0.4) -
Deficit:
Balance, beginning of the year (432.3) (496.3)
Dividends paid 13 (22.6) (23.1)
Net income attributable to common shareholders (279.1) 87.1
Balance, end of the year (734.0) (432.3)
Total equity attributable to common shareholders
Balance, end of the year 548.8 894.6
The notes are an integral part of the consolidated financial statements.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed in millions of United States dollars)
For the years ended Note
December 31,
2024
December 31,
2023
Cash flows generated by/ (used in):
Operations:
Net (loss)/ income for the year (279.1) 87.1
Adjustments for:
Share of profit from investment in joint venture 5 (226.0) (228.0)
Share of loss from investments in associates 6 38.7 47.0
Share-based compensation 17 1.5 11.3
Impairment of investment in joint venture 5 436.7 -
Impairment of intangible exploration asset 8 - 62.2
Other 2.1 (4.1)
Net cash used in operating activities before working capital (26.1) (24.5)
Changes in working capital (14.8) (28.8)
Net cash used in operating activities (40.9) (53.3)
Investing:
Intangible exploration expenditures 8 (7.7) (15.4)
Equity investment in associates 6 (88.6) (44.4)
Dividends received from joint venture 5 36.0 175.0
Loan provided to associated company 19 (1.0) (0.5)
Net cash (used) / generated in investing activities (61.3) 114.7
Financing:
Repayment of principal portion of lease commitments 9 (0.5) -
Dividends paid to shareholders 13 (22.6) (23.1)
Repurchase of share capital 13 (45.3) (6.0)
Net cash used in financing activities (68.4) (29.1)
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currency - -
(Decrease)/ increase in cash and cash equivalents (170.6) 32.3
Cash and cash equivalents, beginning of the year 4 232.0 199.7
Cash and cash equivalents, end of the year 4 61.4 232.0
The notes are an integral part of the consolidated financial statements.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2024, and December 31, 2023
(Expressed in millions of United States dollars unless otherwise indicated)
1. Incorporation and nature of business:
Africa Oil Corp. (collectively with its subsidiaries, “AOC” or the “Company”) was incorporated on March 29, 1993, under the laws of
British Columbia and is an international oil and gas exploration and production company based in Canada with oil and gas interests in
Africa. The Company’s registered address is 25th Floor, 666 Burrard Street, Vancouver, B.C., Canada V6C 2X8.
2. Basis of preparation:
A. Statement of compliance:
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (“IFRS Accounting Standards”). The policies applied in these consolidated financial
statements are based on IFRS Accounting Standards issued and outstanding as at February 27, 2025, the date the Board of Directors
approved the statements.
B. Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis. Where there are assets and liabilities calculated
on a different basis, this fact is disclosed in the material accounting policies.
C. Functional and presentation currency:
These consolidated financial statements are presented in United States (US) dollars. The functional currencies of the Company’s
individual entities are US dollars which represents the currency of the primary economic environment in which the entities operate.
The consolidated financial statements are expressed in millions of US dollars unless otherwise indicated.
D. Use of estimates and judgements:
The preparation of financial statements in conformity with IFRS Accounting Standards requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Information about significant areas of estimation and critical judgements in applying accounting policies that have the most significant
effect on the amounts recognized in the consolidated financial statements are noted below, with further details of the assumptions
contained in the relevant note. The Company has a 50% interest in Prime, which is a key asset for the Company. Information about
Prime’s reserve and resource estimates has been included.
i. Exploration and evaluation costs:
Exploration and evaluation costs are initially capitalized as intangible exploration assets with the intent to establish commercially viable
reserves. The Company is required to make significant estimates and judgements about the future events and circumstances regarding
whether the carrying amount of intangible exploration assets exceeds its recoverable amount (see note 8).
The carrying amounts of the Company’s exploration and evaluation costs are reviewed at each reporting date to determine whether
there is any indication of impairment. Exploration and evaluation assets are assessed for impairment if facts and circumstances suggest
that the carrying amount exceeds the recoverable amount. Should the carrying amount exceed the recoverable amount, an impairment
loss is recognized.
Significant assumptions developed by management used to determine the recoverable amount of the cash generating unit (“CGU”)
include estimates for the quantity of contingent resources, future commodity prices, production forecasts, operating expenses,
development costs, the likelihood of a successful farm out process, the timing of financial investment decision (“FID”) and the discount
rate. The contingent resources and production rates are prepared by the Company’s independent petroleum engineers (management’s
experts). CGU’s are assets that are grouped together into the smallest group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets.
Exploration and evaluation assets are assessed if facts and circumstances suggest that an impairment loss recognized in prior periods
may no longer exist or may have decreased. An impairment reversal is recognized if there has been an increase in the asset’s recoverable
amount since the last impairment loss was recognized.
The changing worldwide demand for energy and the global advancement of alternative sources of energy could result in a change in
the assumptions used to determine the recoverable amount and could affect estimating the future cash flows which could impact the
carrying amount of the Company’s intangible exploration assets. The timing of when global energy markets transition from carbon-
based sources to alternative energy sources is highly uncertain. Environmental considerations are built into our estimates through the
use of significant assumptions in estimating fair value including future commodity prices and discount rates. The energy transition
could impact the future prices of commodities and discount rates used to appraise oil and gas projects. Pricing assumptions used in the
determination of recoverable amounts incorporate market expectations and the evolving worldwide demand for energy.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ii. Share based compensation:
Charges for share purchase options are based on the fair value at the date of the award. Share purchase options are valued using
the Black-Scholes model, and inputs to the model include assumptions on share price volatility, discount rates and expected life
outstanding (see note 17).
The estimated fair value of Performance share units (“PSUs”) is calculated based on non-market performance conditions set by the
Company which are initially determined at the time of grant. The Company assesses the progress of reaching the individual performance
conditions during each reporting period. PSUs cliff vest three years from the date of grant, at which time the Board of Directors will
assign a performance multiple ranging from nil to 200% to determine the ultimate vested number of PSUs. The awards are revalued
every quarter based on the Company’s share price and an estimate of the performance conditions at the quarter end. It is anticipated
that PSU settlements will be made by issuing shares from treasury or cash, at the discretion of the Board of Directors (see note 17).
The estimated fair value of the Restricted share units (“RSUs”) is initially determined at the time of grant. The awards are revalued every
quarter based on the Company’s share price. RSUs may be settled in shares issued from treasury or cash, at the discretion of the Board
of Directors (see note 17).
iii. Consolidation of entities:
When assessing control over a subsidiary, the Company is required to consider the nature of its relationship with the subsidiary, and
whether strategic and operating decisions made by the subsidiary are made independently without the significant influence or control
of the Company. Factors considered when assessing for control include share ownership, board composition and management
involvement in the business. The determination of whether strategic and operating decisions made by the Company’s subsidiaries (see
note 20) are made independently without the significant influence or control of the Company requires judgement.
iv. Valuation of investments:
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes
an associate or a joint venture. Investments in associates or joint ventures are initially recorded at cost. On acquisition of the investment
in an associate or a joint venture, any excess of the cost of the investment over the share of the net fair value of the identifiable assets and
liabilities of the investee is recognized as notional goodwill, which is included within the carrying amount of the investment. Significant
assumptions developed by management used to determine the fair value of the non-current assets include estimates for the quantity
of proved and probable petroleum reserves, future commodity prices, operating and capital costs as well as discount rates. The proved
and probable petroleum reserves are prepared by the investee’s independent petroleum engineers (management’s experts).
Where contingent consideration has been recognized in an investment in an associate or joint venture, any revisions to the contingent
consideration estimates after the date of acquisition, which have been considered as changes in estimates in accordance with IAS 8,
are accounted for on a prospective basis. Any change in the liability as a result of the revised cash flows is adjusted to the cost of the
asset and, in accordance with paragraph 37 of IAS 8, recognized as part of the associate or joint venture carrying amount rather than
in profit or loss.
v. Impairment of joint ventures and associates:
The amounts for investments in joint ventures and associates represents the Company’s equity interest in other entities, where there
is either joint control or significant influence. The Company assesses investments in associates for impairment whenever changes
in circumstances or events indicate that the carrying value may not be recoverable. The process of determining whether there is an
objective evidence of impairment considering circumstances or events which indicate that the carrying value may not be recoverable
or calculating the recoverable amount requires judgement.
An area in which the Company has applied judgement in the prior year relates to the investment in Prime. On acquisition, judgements and
estimates were used in determining fair values on acquisition for the purposes of the notional purchase price allocation. Subsequently,
in assessing whether there are any indicators of impairment the Company has considered any effects of Prime’s forward sales, the loan
facility, and any operational and contractual implications on the future dividend stream when assessing for impairment indicators.
An area in which the Company has applied judgement in the year relates to the equity investments in associates. In assessing whether
there are any indicators of impairment the Company considered the movements in share price of the associates listed on public
markets, the results of exploration and appraisal activities and future plans for the operations.
vi. Deferred tax asset:
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is probable that
the related tax benefit will no longer be realized.
vii. Contingencies:
Contingencies are subject to measurement uncertainty as the related financial impact will only be confirmed by the outcome of a future
event. The assessment of contingencies requires the application of judgements and estimates including the determination of whether
a present obligation exists, and the reliable estimation of the timing and amount of cash flows required to settle the contingencies.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
viii. Hydrocarbon reserve and resource estimates:
Oil and gas production assets, including facilities, are depreciated on a units-of-production (“UoP”) basis at a rate calculated by
reference to total proved and probable oil and gas reserves (“2P”) determined in accordance with the principles contained in the SPE
Petroleum Resources Management Reporting System (“PRMS”) framework.
Prime estimates its 2P reserves based on information provided by reputable independent petroleum engineers, through the information
provided by the respective operators. This information from reputable independent petroleum engineers concerns, amongst others,
the geological and technical data on the size, depth, shape and grade of the hydrocarbon body and suitable production techniques
and recovery rates.
2P reserves are determined using estimates of oil and gas in place, recovery factors, operating expenses, future development costs
and future commodity prices; the latter having an impact on the total amount of recoverable reserves and the proportion of the gross
reserves which are attributable to the host government under the terms of the Production-Sharing Agreements.
The current long-term Brent oil price assumption used in the estimation of proved and probable reserves is based on the long-term oil
price forward curve of Bloomberg L.P .
As the economic assumptions used may change and, as additional geological information is obtained during the operation of a field,
estimates of recoverable reserves may change.
ix. Provision for site restoration:
Amounts used in recording a provision for site restoration are based on current legal and constructure requirements and current
technology and price levels for the removal of facilities and plugging and abandoning of wells. Due to changes in relation to these
items, the future cash outflows in relation to the site decommissioning and restoration can be difficult. To reflect the effects due to
changes in legislation requirements, technology and price levels, the carrying amounts of site restoration provisions are reviewed on
a regular basis.
On fields where the Group is required to contribute to site restoration costs, a provision is recorded to recognize the future commitment.
An asset is created, as part of oil and gas interests, to represent the discounted value of the anticipated site restoration liability and
depleted over the life of the field on a unit of production basis. The corresponding accounting entry to the creation of the asset
recognizes the discounted value of the future liability. The discount applied to the anticipated site restoration liability is subsequently
released over the life of the field and is charged to finance expense. Changes in site restoration costs and reserves are treated
prospectively and consistent with the treatment applied upon initial recognition (see note 11).
3. Material accounting policies:
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements
and have been applied consistently by the Company and its subsidiaries.
A. Basis of consolidation:
i. Subsidiaries:
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently
exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from
the date that control commences until the date that control ceases.
The acquisition method of accounting is used to account for acquisitions of subsidiaries and assets that meet the definition of a business
under IFRS Accounting Standards. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued,
and liabilities incurred or assumed at the date of exchange.
ii. Jointly controlled operations and jointly controlled assets:
Many of the Company’s oil and natural gas activities involve jointly controlled assets. The consolidated financial statements include the
Company’s share of these jointly controlled assets and liabilities and a proportionate share of the relevant revenue and related costs.
iii. Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are
eliminated in preparing the consolidated financial statements.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B. Equity method:
Investments in joint ventures and associates are accounted for using the equity method. Investments of this nature are recorded at
original cost. Investments in joint ventures or associates which arise from a loss in control of a subsidiary are recorded at fair value on
the date of the loss of control. The investment is adjusted at each reporting date for the Company's share of the profit or loss of the
investment after the date of acquisition. The investor's share of the profit or loss of the investee is also recognized in the Company's
Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income. Distributions received reduce the carrying amount of the
investment.
The Company assesses its investments in joint ventures and associates for an objective evidence of impairment considering
circumstances or events which indicate that the carrying value may not be recoverable. If such circumstances or events exist, the
carrying amount of the investment is compared to its recoverable amount. The recoverable amount is the higher of the investment’s
fair value less costs to dispose and its value in use. The investment is written down to its recoverable amount when its carrying amount
exceeds the recoverable amount.
As at December 31, 2024, the Company had a 50% interest in Prime which is a key asset for the Company. The material accounting
policies for Prime are as follows:
i. Sales of crude oil and natural gas:
Revenue from the sale of crude oil and natural gas is recognized when control of the goods transfers to the customer. The transfer
of control of the crude oil and natural gas sold by Prime usually coincides with title passing to the customer and the customer taking
physical possession. This generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism.
Crude oil transaction prices under forward contracts are based on the agreed contract price plus or minus a premium based on an
arithmetical average of the mean in quoted market prices for the previous month of the bill of lading. The performance obligation
is satisfied and payment is due upon delivery, FOB, to the buyer. At this point in time, at the bill of lading date, a trade receivable is
recognized and there are generally 30 days between revenue recognition and payment. There are no obligations for returns, refunds,
warranties nor other obligations when control has been transferred.
Prime principally satisfies its performance obligations at a point in time and the amounts of revenue recognized relating to performance
obligations satisfied over time are not significant.
Revenue from crude oil transactions not covered under forward contracts, arises from the production and lifting of crude oil on an
'entitlements' basis. Under the entitlements method, revenue reflects Prime’s share of production under the terms of the relevant
production sharing contracts, regardless of which participant has actually made the sale and invoiced the production. This is achieved
by applying the following approach in dealing with imbalances between actual sales and entitlements.
Crude oil entitlement underlifts are recognized at the market price of oil at the balance sheet date. The excess of product sold during
the period over the participant’s ownership share of production is recognized by Prime (acting as underlifter) as an asset in trade and
other receivables with a corresponding credit to cost of sales. Prime’s underlift receivable is the right to receive additional oil from
future production without the obligation to fund the production of that additional oil.
Crude oil entitlement overlifts are treated as a purchase of crude oil by the overlifter from the underlifter and are also recognized at the
market price of oil at the balance sheet date. The excess of product purchased during the period over the participant’s ownership share
of production is recognized by Prime (acting as overlifter) as a liability in trade and other payables with a corresponding charge to cost
of sales. An overlift liability is the obligation to deliver oil out of Prime’s equity share of future production.
Revenues resulting from the production of oil under Production Sharing Contracts (“PSCs”) are recognized for those amounts relating to
Prime’s cost recoveries and Prime’s share of the remaining production. Sales between group companies are based on prices generally
equivalent to commercially available prices.
ii. Tax oil revenue:
According to the Production Sharing Agreements (“PSAs”), the share of the profit oil (“PPT”) to which the government is entitled in any
calendar year, in accordance with the PSA, is deemed to include a portion representing the corporate income tax imposed upon and
due by Prime. As the tax oil lifted by the operator on behalf of Prime is sold to 3rd party customers and proceeds are used to settle Prime’s
tax liabilities, this share of PPT is considered to be within the scope of IFRS 15, ‘Revenue from contracts with customers’. Consequently,
this portion of income tax and revenue is presented gross in revenue and offset in current income tax expense. Investment tax credit
utilized is recognized as ‘Other operating income’.
From May 2022, Prime has been lifting its share of tax oil and paying tax revenue in cash for PMLs 2, 3 and 4 and PPL 261. For PML
52, the operator was paying the tax on behalf of Prime to July 2023 and from August 2023, following conversion to the terms of the
Petroleum Industry Act 2021 retrospectively from March 2023, Prime has been lifting its share of tax oil and paying tax revenue in cash.
As the Group’s income taxes meet the criteria to be treated as an income tax under IAS 12, these are recorded as a single line item in
profit and loss.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
iii. Depreciation/amortization:
Oil and gas properties are depreciated/amortized from the commencement of production, on a UoP basis, which is the ratio of oil and
gas production in the period to the estimated quantities of the 2P reserves at the end of the period plus the production in the period,
on a field-by-field basis. Facilities included in oil and gas production assets are depreciated on a UoP basis over the economic useful
life of the field concerned. Costs used in the UoP calculation comprise the net carrying amount of capitalized costs plus the estimated
future field development costs. Changes in the estimates of reserves or future field development costs are dealt with prospectively.
Oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction
points at the outlet valve on the field storage tank. Rights and concessions are depleted on the UoP basis over the total proved and
probable reserves of the relevant area.
iv. Recoverability of oil and gas properties:
Prime assesses each asset or cash generating unit (CGU) (excluding goodwill, which is assessed annually regardless of indicators) each
reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, with reference to
total proved and risk-adjusted probable reserves ('2P'), a formal estimate of the recoverable amount is made, which is considered to
be the higher of the fair value less costs to dispose and value in use. The assessments require the use of estimates and assumptions
such as long-term oil prices (considering current and historical prices, price trends and related factors), discount rates, operating costs,
future capital requirements, decommissioning costs, exploration potential, reserves (see Hydrocarbon reserve and resource estimates
above) and operating performance (which includes production and sales volumes). These estimates and assumptions are subject to
risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the
recoverable amount of assets and/or CGUs.
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction between
knowledgeable and willing parties. Fair value for oil and gas properties is generally determined as the present value of estimated
future cash flows arising from the continued use of the assets, which includes estimates such as the cost of future expansion plans and
eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset/CGU.
C. Long-term debt:
Long-term debt is initially measured at fair value less transaction costs that are directly attributable to the acquisition or issue of the
debt. Subsequently, long-term debt is measured at amortized cost using the effective interest method. Long-term debt is classified as
current if the liability is due to be settled within twelve months from the reporting date. All other debt is classified as non-current.
D. Foreign currency:
Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at exchange rates prevailing at the
balance sheet date and non-monetary assets and liabilities are translated at rates in effect on the date of the transaction. Revenues and
expenses are translated at exchange rates at the date of transaction. Exchange gains or losses arising from translation are included in
the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income.
E. Intangible exploration assets:
i. Pre-exploration expenditures:
Costs incurred prior to obtaining the legal rights to explore an area are recognized in the Statement of Net (Loss)/ Income and
Comprehensive (Loss)/ Income as incurred.
ii. Exploration expenditures:
Exploration expenditures include costs associated with the acquisition of a license interest, directly attributable general and
administrative costs, expenditures incurred in the process of determining oil and gas exploration targets, and exploration drilling
costs. All exploration expenditures with common geological structures and shared infrastructure are accumulated together within
intangible exploration assets. The Company does not aggregate exploration expenditures above the segment level for the purpose of
impairment testing. Costs are not depleted until such time as the exploration phases on the license area are complete, the license area
is relinquished, or commercially viable reserves have been discovered and extraction of those reserves is determined to be technically
feasible.
If commercial reserves are established and technical feasibility for extraction demonstrated, then the related capitalized intangible
exploration costs are transferred into a CGU within oil and gas interests subsequent to determining that the assets are not impaired (see
“Impairment” below). Where results of exploration drilling indicate the presence of hydrocarbons which are ultimately not considered
commercially viable, all related costs are recognized in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income.
Net proceeds from any disposal or farmout of an intangible exploration asset are recorded as a reduction in intangible exploration
assets.
iii. Development and production costs:
All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons has been demonstrated are
capitalized within oil and gas interests on a CGU basis. Subsequent expenditures are capitalized only where it either enhances the
economic benefits of the development/producing asset or replaces part of the existing development/producing asset. Any remaining
costs associated with the part replaced are expensed in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income.
Net proceeds from any disposal of oil and gas interests are recorded as a gain or loss on disposal recognized in the Statement of Net
(Loss)/ Income and Comprehensive (Loss)/ Income to the extent that the net proceeds exceed or are less than the appropriate portion
of the net capitalized costs of the asset.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F. Impairment:
i. Financial assets carried at amortized cost:
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial
asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated
future cash flows of that asset.
The Company recognizes loss allowances for expected credit losses (“ECLs”) on its financial assets measured at amortized cost. Due to
the nature of its financial assets, the Company measures loss allowances at an amount equal to expected lifetime ECLs.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics.
All impairment losses are recognized in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized.
For financial assets measured at amortized cost the reversal is recognized in the Statement of Net (Loss)/ Income and Comprehensive
(Loss)/ Income.
ii. Non-financial assets:
The carrying amounts of the Company’s non-financial assets, including the Company’s equity investments, other than intangible
exploration assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of
impairment or reversals of impairment. Intangible exploration assets are assessed for impairment when they are reclassified to property
and equipment, as oil and gas interests, and also if facts and circumstances suggest that the carrying amount exceeds the recoverable
amount. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and other intangible assets that
have indefinite lives or that are not yet available for use, an impairment test is completed each reporting period.
For the purpose of impairment testing, assets are grouped together into a CGU. The recoverable amount of an asset or a CGU is the
greater of its value in use and its fair value less costs to dispose.
In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. Value in use is generally computed
by reference to the present value of the future cash flows expected to be derived from production of 2P reserves. In determining fair
value less costs to dispose, recent market transactions are taken into account, if available, and a post-tax discount rate is applied. In the
absence of such transactions, an appropriate valuation model is used.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses are recognized in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income. Impairment losses recognized in
respect of CGU’s are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro rata basis.
If there is an indicator that a previous impairment may no longer exist or may have decreased, the recoverable amount of the relevant
asset or its CGU is calculated and compared against the carrying amount. The impairment is reversed to the extent that the asset or
its CGU’s recoverable amount does not exceed the carrying amount that would have been determined if no impairment had been
recognized. An impairment reversal is recognized in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income.
G. Other tangible fixed assets and lease liabilities (IFRS 16)
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• Leases of low value assets; and
• Leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount
rate determined by reference to the Company's incremental borrowing rate on commencement of the lease is used. Variable lease
payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease
payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the Company if it is reasonably certain to assess that option;
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being
exercised.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased
for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognized where the Company is contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding
and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the
lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Company revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the
payments to make over the revised term, which are discounted using a revised discount rate. In this case an equivalent adjustment is
made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised)
lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.
H. Performance share units (“PSUs”):
The Company has a long-term incentive plan (see note 17). Eligible plan participants may be granted PSUs. PSUs are accounted for
as cash-based awards and recorded as a liability. The estimated fair value of the awards is initially determined at the time of grant. The
awards are revalued every quarter based on the Company’s share price and the change is recorded as share-based compensation in
the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income. The estimated fair value of the awards is calculated based on
non-market performance conditions set by the Company which are initially determined at the time of grant. The Company assesses the
progress of reaching the individual performance conditions during each reporting period. PSUs cliff vest three years from the date of
grant and the estimated fair value of the grant will be expensed evenly throughout the remaining vesting period. PSUs may be settled
in shares issued from treasury or cash, at the discretion of the Board of Directors.
I. Restricted share units (“RSUs”):
The Company has a long-term incentive plan (see note 17). Eligible plan participants may be granted RSUs. RSUs are accounted for
as cash-based awards and recorded as a liability. The estimated fair value of the awards is initially determined at the time of grant. The
awards are revalued every quarter based on the Company’s share price and the change is recorded as share-based compensation in
the Statement of Net (Loss)/ Income and Comprehensive (Loss)/ Income. RSUs granted to Non-Executive Directors cliff vest three years
from the date of grant. The estimated fair value of RSUs are expensed evenly throughout the remaining vesting period. RSUs may be
settled in shares issued from treasury or cash, at the discretion of the Board of Directors.
J. Finance income and expenses:
Finance income and expenses are recognized as they accrue in the Statement of Net (Loss)/ Income and Comprehensive (Loss)/
Income, using the effective interest method.
K. Income tax:
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the Statement of Net (Loss)/ Income and
Comprehensive (Loss)/ Income except to the extent that it relates to items recognized directly in equity, in which case it is recognized
in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the
initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for
taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and
assets on a net basis, or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
On May 23, 2023, the International Accounting Standards Board (IASB) issued an amendment to IAS 12 Income Taxes in response to
International Tax Reform and specifically the Pillar Two Global Anti-Base Erosion Rules (“Pillar Two Rules”) published by the Organization
for Economic Co-operation and Development (“OECD”). The Amendments introduce a mandatory temporary exception to the
accounting for deferred taxes arising from the jurisdictional implementation of the Pillar Two model rules; and disclosure requirements
for affected entities to help users of the financial statements better understand an entity’s exposure to Pillar Two income taxes arising
from that legislation, particularly before its effective date. The Company adopted the mandatory temporary exception immediately. The
remaining disclosure requirements have no effect on the Company’s consolidated financial statements.
===== SIDA 66 =====
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
L. Earnings per share:
Basic earnings per share is calculated by dividing net income/(loss) attributable to the common shareholders by the weighted average
number of Common Shares outstanding during the year. Diluted earnings per share is determined by adjusting the net income/
(loss) attributable to the common shareholders and the weighted average number of Common Shares outstanding for the effects of
dilutive instruments such as options and LTIP’s granted to employees. The weighted average number of diluted shares is calculated
in accordance with the treasury stock method. The treasury stock method assumes that the proceeds received from the exercise of all
potentially dilutive instruments are used to repurchase Common Shares at the average market price. The PSUs are considered to be
contingently issuable and are included in the calculation of diluted EPS as if the conditions of the contingency are deemed to have
been met based on the information available at the end of the reporting period. PSUs are only included in the diluted EPS calculation
if the effect is dilutive. RSUs are included in full in the diluted EPS calculation only if the effect is dilutive.
M. Financial instruments:
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount
is reported in the Balance Sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to
settle on a net basis or realize the asset and settle the liability simultaneously.
At initial recognition, the Company classifies its financial instruments either as fair value through profit and loss, fair value through other
comprehensive income or at amortized cost depending on the purpose for which the instruments were acquired. The Company only
has instruments recognized at amortized cost.
Financial assets and liabilities at amortized cost:
Financial assets and liabilities at amortized cost include accounts receivable, loans receivable, accounts payables and debt and are
initially recognized at the amount required to be received or paid, less, when material, a discount to reduce the receivables or payables
to fair value. Subsequently, these assets and liabilities are measured at amortized cost using the effective interest method. Financial
assets and liabilities are classified as current assets and liabilities if payment is due within twelve months. Otherwise, they are presented
as non-current assets and liabilities.
N. Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the liability. Provisions are not recognized for future operating losses.
i. Contingent Consideration:
Contingent consideration formed part of the overall consideration for the acquisition of Prime. At the date of acquisition, an estimate
of the contingent consideration is determined and included as part of the cost of the acquisition.
Subsequent to acquisition, contingent consideration can be treated using two acceptable methods, the cost-based approach and
the fair value-based approach. The Company have determined the cost-based approach to give the best estimate of the value of the
contingent consideration. Any revisions to the contingent consideration estimates after the date of acquisition, are accounted for as
changes in estimates in accordance with IAS 8, to be accounted for on a prospective basis. The change in the liability, as a result of the
revised cash flows, would be adjusted to the cost of the investment and, in accordance with paragraph 37 of IAS 8, recognized as part
of the investment’s carrying amount rather than in profit or loss.
The estimates involved in assessing the value of the contingent consideration include the expected timing of payments, the expected
settlement value, the likelihood of settlement and the probability of the assessed outcomes occurring. There is significant judgement
used in the determination of these estimates.
ii. Provision for site restoration:
On fields where the Group is required to contribute to site restoration costs, a provision is recorded to recognize the future commitment.
An asset is created, as part of oil and gas interests, to represent the discounted value of the anticipated site restoration liability and
depleted over the life of the field on a unit of production basis. The corresponding accounting entry to the creation of the asset
recognizes the discounted value of the future liability. The discount applied to the anticipated site restoration liability is subsequently
released over the life of the field and is charged to finance expense. Changes in site restoration costs and reserves are treated
prospectively and consistent with the treatment applied upon initial recognition.
O. Investments held for sale
Investments held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the
incremental costs directly attributable to the disposal of an asset. The criteria for held for sale classification is regarded as met only
when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. The Company
has committed to the plan to dispose of the asset and the disposal is expected to be completed within one year from the date of the
classification
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
P. New and amended standards adopted by the Company:
The Company has applied the following standards and amendments for the first time for its annual reporting period commencing
January 1, 2024:
• Classification of Liabilities as Current or Non-current and Non-current liabilities with covenants – Amendments to IAS 1;
• Lease Liability in Sale and Leaseback – Amendments to IFRS 16; and
• Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7.
The amendments listed above did not have any material impact on the amounts recognized in prior periods and are not expected to
significantly affect the current or future periods.
Q. New standards and interpretations not yet adopted:
Certain new accounting standards and amendments to accounting standards have been published that are not mandatory for
December 31, 2024, reporting periods and have not been early adopted by the Company. The Company’s assessment of the impact of
these new standards and amendments is set out below:
(a.) Amendments to IAS 21 -- Lack of Exchangeability (effective for annual periods beginning on or after 1 January 2025)
In August 2023, the IASB amended IAS 21 to help entities to determine whether a currency is exchangeable into another currency, and
which spot exchange rate to use when it is not.
(b.) Amendments to the Classification and Measurement of Financial Instruments – Amendments to IFRS 9 and IFRS 7 (effective for
annual periods beginning on or after 1 January 2026)
On 30 May 2024, the IASB issued targeted amendments to IFRS 9 and IFRS 7 to respond to recent questions arising in practice, and to
include new requirements not only for financial institutions but also for corporate entities. These amendments:
• clarify the date of recognition and derecognition of some financial assets and liabilities, with a new exception for some financial
liabilities settled through an electronic cash transfer system;
• clarify and add further guidance for assessing whether a financial asset meets the solely payments of principal and interest (SPPI)
criterion;
• add new disclosures for certain instruments with contractual terms that can change cash flows (such as some financial instruments
with features linked to the achievement of environment, social and governance targets); and
• update the disclosures for equity instruments designated at fair value through other comprehensive income (FVOCI).
(c.) IFRS 19 Subsidiaries without Public Accountability: Disclosures (effective for annual periods beginning on or after 1 January 2027)
Issued in May 2024, IFRS 19 allows for certain eligible subsidiaries of parent entities that report under IFRS Accounting Standards to
apply reduced disclosure requirements.
(d.) IFRS 18 Presentation and Disclosure in Financial Statements (effective for annual periods beginning on or after 1 January 2027)
IFRS 18 will replace IAS 1 Presentation of financial statements, introducing new requirements that will help to achieve comparability
of the financial performance of similar entities and provide more relevant information and transparency to users. Even though IFRS
18 will not impact the recognition or measurement of items in the financial statements, its impacts on presentation and disclosure are
expected to be pervasive, in particular those related to the statement of financial performance and providing management-defined
performance measures within the financial statements.
Management is currently assessing the detailed implications of applying the new standard on the group’s consolidated financial
statements.
The group will apply the new standard from its mandatory effective date of 1 January 2027. Retrospective application is required, and
so the comparative information for the financial year ending 31 December 2026 will be restated in accordance with IFRS 18.
The group is in the process of evaluating the impact of IFRS 18 on the group’s financial statements.
The other amendments are not expected to have a material impact on the entity in the current or future reporting periods and on
foreseeable future transactions.
4. Cash and cash equivalents:
Cash equivalents include short-term deposits made for varying periods of between one day and three months, depending on the
immediate cash requirements of the Group, and earn interest at varying rates.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. Equity investment in joint venture:
Prime Oil and Gas Coöperatief U.A. (“Prime”):
On January 14, 2020, the Company completed the acquisition of a 50% ownership interest in Prime. BTG Pactual Holding S.à.r.l., a
private limited liability company governed and existing under the laws of the Grand Duchy of Luxembourg (“BTG”) continues to own
the remaining 50% of Prime. The Company accounts for the acquisition as a joint venture as there is joint control. On June 24, 2024,
the Company announced that it had reached an agreement with BTG to acquire the remaining 50% interest in Prime in exchange
for 239,828,655 newly to be issued common shares in Africa Oil (the “Proposed Reorganization”). Completion of the Proposed
Reorganization is expected on or about March 7, 2025. Prime will be fully consolidated from completion of this transaction.
As at December 31, 2024, management determined there was an objective evidence of impairment in relation to the Company’s
existing shareholding in Prime as a result of the significant decrease in the Africa Oil share price between June 24, 2024, when the
Company announced the Proposed Reorganization and December 31, 2024. The fair value of the existing 50% shareholding in Prime
decreased as the fair value considers the number of Africa Oil shares that were agreed in relation to the purchase of the additional
interest in Prime and the trading value of Africa Oil shares, as this is an observable fair value input under IFRS Accounting Standards. As
at December 31, 2024, the fair value of the Company’s existing shareholding in Prime was calculated to be $328.4 million based on the
implied value of the Proposed Reorganization, resulting in a non-cash impairment loss on the investment in Prime of $436.7 million for
the year ended December 31, 2024. The fair value has been calculated based on the Africa Oil share price of CAD 1.97 as of December
31, 2024, and the USD/CAD exchange rate of 1.4384 as of December 31, 2024. The consideration under the Proposed Reorganization
will be based on the share price and exchange rate as of the date of completion of the Proposed Reorganization and may therefore
change materially compared to the fair value of $328.4 million as at December 31, 2024. This might therefore result in the recognition
of additional impairment charges or the reversal of previously recognized impairment charges in future reporting periods based on
the movements in the Africa Oil share price and the USD/CAD exchange rate between December 31, 2024, and the closing date of
the transaction. The Company is not entitled to any of the earnings related to the additional 50% interest in Prime until closing of the
Proposed Reorganization.
Prime is incorporated in the Netherlands and its principal place of business is Nigeria. The primary assets of Prime are an indirect 8%
interest in Petroleum Mining License ("PML") 52 and an indirect 16% interest in PMLs 2, 3 and 4 as well as Petroleum Prospecting License
("PPL") 261. PML 52 is operated by affiliates of Chevron and covers part of the producing Agbami field. PMLs 2, 3 and 4 and PPL 261
are operated by affiliates of TotalEnergies and contain the producing Akpo and Egina fields.
In the year ended December 31, 2024, Prime made two dividend payments of $72.0 million gross, with a net payment to the Company
of $36.0 million. In the year ended December 31, 2023, Prime made three dividend payments totaling $350.0 million gross, with a
net payment to the Company of $175.0 million. The timing and payment of the dividends is discretionary. There are no restrictions on
the ability of Prime to pay dividends to its members, subject to distributable reserves being positive and working capital or business
requirements.
The following table shows the Company’s carrying value of the investment in Prime as at December 31, 2024, and December 31, 2023.
December 31,
2024
December 31,
2023
Balance, beginning of the year 572.5 513.7
Share of joint venture profit 226.0 228.0
Dividends received from Prime (36.0) (175.0)
Revaluation of contingent consideration 2.6 5.8
Impairment (436.7) -
Balance, end of the year 328.4 572.5
In the year ended December 31, 2024, the Company recognized an income of $226.0 million, relating to its investment in Prime (year
ended December 31, 2023 - $228.0 million).
On June 25, 2021, Prime signed a Securitization Agreement with two of the unit parties, Equinor and Chevron, whereby Equinor agreed
to pay a security deposit to the two other JV parties to secure future payments due under that Securitization Agreement, pending a
comprehensive resolution being reached among all unit parties in respect of the tract participation in the Agbami field by December
27, 2024. In accordance with the Securitization Agreement, on June 29, 2021, Prime received from Equinor its portion of the security
deposit in the form of a cash payment of $305.3 million. A provision for the full cash payment had been recorded within Prime to
reflect the mechanism pursuant to which any such imbalance payments due from Equinor to Prime under the terms of any future
agreement among the Agbami parties would be set-off against this security deposit. Given no comprehensive resolution was reached
by December 27, 2024, Prime released the provision for the original cash payment and recognized an additional receivable of $24.4
million pursuant to the Securitization Agreement with this additional payment received on January 31, 2025. The Agbami unit parties
will continue ongoing discussions to seek final resolution of the formal redetermination of the Agbami tract participation, however
there is no certainty that such ongoing discussions will result in a final resolution.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As at December 31, 2023, the Company determined that there was an objective evidence of impairment in relation to its investment
in Prime arising from an impairment recognized by Prime. The impairment recognized by Prime arose mainly from an increase in the
discount rate and from changes in the technical assumptions in PMLs 2, 3 and 4 and PPL 261. The Company determined the recoverable
amount of its investment in Prime by calculating the value in use derived from the discounted cash flow forecast of the dividend stream
to be received from Prime. The results of the impairment test indicated that the recoverable amount was in excess of the carrying value
and therefore no impairment was recognized.
The following tables summarizes Prime’s financial information as at December 31, 2024, and December 31, 2023, and for the years
ended December 31, 2024, and December 31, 2023.
Prime’s Balance Sheet
As at
December 31,
2024
December 31,
2023
Cash and cash equivalents included in current assets (1) 399.5 152.2
Other current assets 316.3 351.5
Non-current assets (2) 1,580.1 2,752.3
Loans and borrowings included in current liabilities (3) (283.7) (91.5)
Other current liabilities (215.8) (234.4)
Loans and borrowings included in non-current liabilities (3) (466.3) (658.5)
Deferred income tax liabilities included in non-current liabilities (403.4) (484.4)
Other non-current liabilities (4) (269.9) (642.2)
Net assets of Prime 656.8 1,145.0
Percentage ownership 50% 50%
Proportionate share of Prime’s net assets 328.4 572.5
(1) See Prime’s Statement of Cash Flows for additional information on movements in cash and cash equivalents.
(2) As at December 31, 2024, the carrying value of non-current assets included a fair value adjustment of $(213.5) million (at December 31,
2023 - $654.7 million).
(3) In the year ended December 31, 2024, $250.0 million of the commitments under Prime’s RBL facility were cancelled, reducing the principal
amount from $1,050.0 million to $800.0 million. The facility has a 6-year tenor of which $750.0 million has been drawn as at December 31,
2024 (at December 31, 2023 - $750.0 million).
(4) In the year ended December 31, 2024, Prime released the previously recognized provision in relation to the $305.3 million security deposit
received from Equinor during 2021 under the Securitization Agreement as no comprehensive resolution was reached among all unit parties
in respect of the tract participation in the Agbami field by December 27, 2024.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Prime’s Statement of Net Income and Other Comprehensive Income
For the years ended
December 31,
2024
December 31,
2023
Revenue 782.7 1,162.2
Depreciation, depletion and amortization (372.0) (361.7)
Production costs (146.1) (151.0)
Movement in underlift/overlift (1) 171.2 (23.6)
Royalties (70.3) (61.7)
Cost of sales (417.2) (598.0)
Gross profit 365.5 564.2
Other operating income (2) 329.7 24.7
Exploration expenses (3.1) (2.3)
Impairment - (263.3)
Other operating costs (3,7) (28.2) (30.0)
Finance income (4) 6.4 6.8
Finance costs (5) (97.8) (89.5)
Profit before tax 572.5 210.6
Tax (6,7) (120.5) 245.4
Total profit and comprehensive income for the year 452.0 456.0
Proportionate share of Prime’s profit and comprehensive income
for the year 226.0 228.0
Proportionate share of Prime’s net income 226.0 228.0
(1) As at December 31, 2024, Prime was in a net underlift position, from a net overlift position at December 31, 2023. This resulted in a profit
of $171.2 million in the Statement of Net Income and Other Comprehensive Income for the year ended December 31, 2024 (year ended
December 31, 2023 – loss of $23.6 million).
(2) Other operating income primarily relates to the release of the previously recognized $305.3 million provision for the security deposit
received from Equinor during 2021 and the recognition of an additional $24.4 million receivable pursuant to the Securitization Agreement.
(3) Other operating costs mainly include Prime’s administrative costs, sales costs and the NDDC Levy, which concerns the Niger Delta
Development Commission Levy imposed to fund the sustainable development of the Niger Delta region.
(4) Finance income for the year ended December 31, 2024, also included a $1.4 million accounting gain on an Asian Dated Brent Collar (year
ended December 31, 2023 – gain on Asian put option of $1.0 million).
(5) Finance costs are primarily made up of interest expenses incurred on external facilities and accretion expenses incurred on the
decommissioning liability. Finance costs for the year ended December 31, 2024, also included a $7.1 million accounting loss on purchased
Asian put options (year ended December 31, 2023 – nil).
(6) In the year ended December 31, 2024, there is a tax charge of $120.5 million (year ended December 31, 2023 - tax income of $248.6
million). Other operating income of $329.7 million in 2024 is subject to ten percent Capital Gains Tax in Nigeria lowering the effective tax
rate for the year. The income in 2023 was mainly from Prime voluntarily converting the OML 127 license to operate under the new Petroleum
Industry Act and from renewing the OML 130 license to operate under the new Petroleum Industry Act. Prime voluntarily converted the
OML 127 license to operate under the new Petroleum Industry Act from March 1, 2023, which resulted in the award of one new petroleum
mining lease, PML 52. The renewal of the OML 130 license resulted in the award of three new petroleum mining leases and one petroleum
prospecting license. These cover some of the areas previously covered by OML 130, with some of the areas also relinquished. These are PML
2 (Akpo field), PML 3 (Egina), PML 4 (Preowei) and PPL 261 (South Egina). PMLs 2, 3 and 4 and PPL 261 operate under the terms of the new
Petroleum Industry Act as from June 1, 2023. Under these terms, PMLs 2, 3, 4 and 52 and PPL 261 are subject to a 30% Corporate Income
Tax regime compared to the previous 50% PPT regime which resulted in the release of $62.0 million of deferred income tax liabilities in
the year ended December 31, 2023, for OML 127 and the release of $346.0 million of deferred income tax liabilities during the year ended
June 30, 2023, for OML 130.
(7) The National Agency for Science and Engineering Infrastructure (NASENI) Levy in the comparative period has been reclassified from other
operating costs to tax expenses as per IAS 12.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Supplementary information: Prime’s Statement of Cash Flows
For the years ended
December 31,
2024
December 31,
2023
Profit before tax 572.5 210.6
Adjustments for:
Depreciation, depletion and amortization 372.0 361.7
Impairment - 263.3
Finance costs, net 91.4 82.7
Change in provisions (304.0) (1.1)
Interest income received 5.1 5.8
Taxes (201.4) (322.3)
Cash generated from operating activities before working capital 535.6 600.7
Changes in working capital
Changes in trade and other receivables 156.7 (31.9)
Changes in over/underlift balances (171.2) 23.6
Changes in other working capital balances 26.1 (116.6)
Total changes in working capital 11.6 (124.9)
Net cash generated from operating activities 547.2 475.8
Expenditures on oil and gas properties (1) (152.5) (177.5)
Net cash used in investing activities (152.5) (177.5)
Payment of dividends to shareholders (72.0) (350.0)
Interest expense paid (71.9) (90.0)
Derivatives (3.2) (5.3)
Drawdown of RBL facility - 750.0
Repayment of loans and borrowings - (782.3)
Net cash used in financing activities (147.1) (477.6)
Foreign exchange variation on cash and cash equivalents (0.3) (0.2)
Total cash flow 247.3 (179.5)
Cash and cash equivalents, beginning of the year 152.2 331.7
Cash and cash equivalents, end of the year 399.5 152.2
(1) Expenditures on oil and gas properties for the year ended December 31, 2024, includes the PML 52 license renewal fee. Expenditures on oil
and gas properties for the year ended December 31, 2023, includes the PMLs 2, 3 and 4 and PPL 261 license renewal fee.
===== SIDA 72 =====
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. Equity investments in associates:
The Company holds the following equity investments in associates:
Africa Energy
Corp.
Eco (Atlantic)
Oil and Gas Ltd
Impact Oil
and Gas Ltd Total
Shares held at December 31, 2024 276,982,414 54,941,744 449,464,396
Ownership at December 31, 2024 19.67% 14.84% 39.46%
At January 1, 2023 46.6 14.7 76.0 137.3
Share of loss from equity investments (1.7) (0.6) (19.1) (21.4)
Gain on dilution of equity investment - - 1.0 1.0
Impairment of equity investments (20.1) (6.5) - (26.6)
Additional investment through private placement - - 44.4 44.4
At December 31, 2023 24.8 7.6 102.3 134.7
Share of loss from equity investments (42.1) (0.6) (16.1) (58.8)
Reversal of impairment of equity investments 20.1 - - 20.1
Additional investments - - 88.6 88.6
Reclassification to Investment held for sale - (7.0) - (7.0)
At December 31, 2024 2.8 - 174.8 177.6
In the year ended December 31, 2024, the Company recognized a total loss of $38.7 million (year ended December 31, 2023 – $47.0
million).
During the year ended December 31, 2024, the Company determined that there was an indicator for reversal of impairment in respect
of its investment in Africa Energy following the recognition of a significant share in the loss of Africa Energy. The Company recognized
an impairment in respect of its investment in Africa Energy during 2023 as a result of the significant decline in market value compared
to its carrying value. As a result of the recognized loss during the year ended December 31, 2024, the full impairment recognized
during 2023 has been reversed.
The Company determined that there was no indicator of impairment for its investment in Eco (Atlantic) Oil and Gas Ltd and also for its
investment in Impact Oil and Gas Ltd.
A. Africa Energy Corp. (“Africa Energy”):
Africa Energy is an oil and gas exploration company with an interest in South Africa.
As at December 31, 2024, the market value of the Company’s investment in Africa Energy was $5.8 million based on the share price
of CAD 0.03 (as at December 31, 2023 - $19.8 million). The carrying value is less than the market value from significant impairments
recognized by Africa Energy.
B. Eco (Atlantic) Oil and Gas Ltd. (“Eco”):
Eco is an oil and gas exploration company with interests in Guyana, Namibia and South Africa.
On July 26, 2024, the Company signed an agreement with Eco to acquire an additional 1.0% interest in Block 3B/4B from Azinam
Limited, Eco’s wholly owned subsidiary, in exchange for all common shares and warrants over common shares held by the Company in
Eco. Following the announcement of this transaction, the investment in Eco was reclassified to an investment held for sale (see note 7).
On January 13, 2025, the Company announced that it had completed this transaction.
C. Impact Oil and Gas Ltd (“Impact”):
Impact is an oil and gas exploration company with interests in Namibia and South Africa.
On January 10, 2024, the Company announced a strategic farmout agreement between its investee company Impact, and TotalEnergies,
that allows the Company to continue its participation in the Venus oil development project and the follow-on exploration and appraisal
campaign on Blocks 2913B and 2912 with no upfront costs. As announced on November 1, 2024, this farmout closed following the
receipt of the final approval from Government of Namibia. At the date hereof, Impact has a 9.5% interest in Blocks 2912 and 2913B
that is fully carried for all joint venture costs, with no cap, through to first commercial production. Impact has also received a cash
reimbursement of approximately $99.0 million for its share of the net past costs incurred on the Blocks net to the farm out interests. This
agreement provides Impact with a full interest-free carry loan over all of Impact’s remaining development, appraisal and exploration
costs on the Blocks from January 1, 2024 (“Effective Date”), until the date on which Impact receives the first sales proceeds from oil
production on the Blocks (“First Oil Date”). On and from the First Oil Date, the carry is repayable to TotalEnergies in kind from 60%
of Impact’s after-tax cash flow, net of all joint venture costs, including capital expenditures. During the repayment of the carry, Impact
will pool its entitlement barrels with those of TotalEnergies for more regular off-takes and a more stable cashflow profile and will also
benefit from TotalEnergies’ marketing and sales capabilities.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In the year ended December 31, 2024, the Company acquired an additional 105,918,737 shares from various parties. The total cost for
these purchases was approximately $88.6 million.
After these transactions the Company’s shareholding in Impact increased to approximately 39.5%.
The following tables summarize Impact’s financial information for the years ended December 31, 2024, and December 31, 2023.
The Company is not aware of any material changes to the financial information.
Balance Sheet
As at
December 31,
2024
December 31,
2023
Cash and cash equivalents included in current assets 125.1 76.1
Other current assets 1.7 0.7
Non-current assets (1) 316.5 295.4
Current liabilities (0.8) (43.3)
Non-current liabilities - -
Net assets of Impact 442.5 328.9
Percentage ownership (2) 39.5% 31.1%
Proportionate share of Impact's net assets 174.8 102.3
Statement of Net Loss and Comprehensive Loss from continuing operations
For the years ended
December 31,
2024
December 31,
2023
Net loss and comprehensive loss from continuing operations (40.8) (61.4)
Proportionate share of Impact’s loss (16.1) (19.1)
(1) As at December 31, 2024, the carrying value of non-current assets included a fair value adjustment of $96.4 million (as at December 31,
2023 - $40.9 million).
(2) In the year ended December 31, 2024, the Company’s ownership in Impact changed from 31.1% to 39.5% (year ended December 31, 2023
– changed from 30.9% to 31.1% through the year).
7. Investment held for sale
On July 26, 2024, the Company signed an agreement with Eco to acquire an additional 1.0% interest in Block 3B/4B from Azinam
Limited, Eco’s wholly owned subsidiary, in exchange for all common shares and warrants over common shares held by the Company in
Eco. Following the announcement of this transaction, the investment in Eco was reclassified to an investment held for sale. On January
13, 2025, the Company announced that it had completed this transaction with the result that the Company is no longer a shareholder
in Eco.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. Intangible exploration assets:
December 31,
2024
December 31,
2023
Net carrying amount, beginning of the year 19.1 63.6
Intangible exploration expenditures 10.2 17.7
Impairment of intangible exploration assets - (62.2)
Net carrying amount, end of the year 29.3 19.1
Intangible exploration expenditures and impairments:
As at December 31, 2024, $29.3 million of expenditures have been capitalized as intangible exploration assets (as at December 31,
2023 - $19.1 million). These expenditures relate to the Company’s share of exploration and appraisal stage projects which are pending
the determination of proved and probable petroleum reserves.
As at December 31, 2024, no intangible exploration assets have been transferred to oil and gas interests as commercial reserves have
not been established and technical feasibility for extraction has not been demonstrated. Capitalized intangible exploration assets relate
to various countries as summarized in the following table:
December 31,
2024
December 31,
2023
Equatorial Guinea 17.9 13.4
South Africa 11.4 5.7
Net carrying amount, end of the year 29.3 19.1
Equatorial Guinea:
As at December 31, 2024, the carrying amount of the Company’s intangible exploration assets for its 80% interest in Blocks EG-18 and
EG-31, located offshore Equatorial Guinea, was $17.9 million (as at December 31, 2023 – $13.4 million). In the year ended December
31, 2024, expenditure of $4.5 million was incurred (year ended December 31, 2023 - $13.4 million).
South Africa:
As at December 31, 2024, the carrying amount of the Company’s intangible exploration assets for its 17.0% (as at December 31, 2023
– 20.0%) participating interest in the Block 3B/4B Exploration Right, located in South Africa, was $11.4 million (as at December 31, 2023
- $5.7 million). In the year ended December 31, 2024, expenditure of $5.7 million was incurred (year ended December 31, 2023 - $0.6
million) which included $9.0 million payments to Azinam Limited, a wholly owned subsidiary of Eco, for the increase of the Company’s
operated interest in Block 3B/4B by 6.25% (see also note 19B). Government approval was obtained on January 19, 2024, resulting in
payment of the second tranche of $2.5 million to Azinam and a farm-out deal with a third party was completed on August 28, 2024,
resulting in the payment of the third tranche of $4.0 million to Azinam. The first tranche of $2.5 million was paid during 2023 and was
reclassified from prepayments to intangible exploration assets following government approval. There is one final tranche to be paid of
$1.5 million when the first exploration well has been spudded on the Block.
On August 28, 2024, the Company announced the completion of the strategic farm down agreement with TotalEnergies and QatarEnergy
for the Block 3B/4B Exploration Right, located in South Africa. The Company retained a 17.0% interest in Block 3B/4B and operatorship
was transferred to TotalEnergies. The Company will receive, subject to achieving certain milestones as defined in the agreement,
staged cash payments for a total amount of $10.0 million of which $3.3 million was received at closing of the transaction with the
remaining balance to be received in two successive payments conditional upon achieving key operational and regulatory milestones.
The Company will also be fully carried for all joint venture costs, up to a cap, that is repayable to TotalEnergies and QatarEnergy from
future production, and which is expected to be adequate to fund the Company’s share of drilling for up to two wells on the licence.
On July 26, 2024, the Company signed an agreement with Eco to acquire an additional 1.0% interest in Block 3B/4B from Azinam
Limited, Eco’s wholly owned subsidiary, in exchange for all common shares and warrants over common shares held by the Company
in Eco. On January 13, 2025, the Company announced that it had completed this transaction. The Company’s interest in Block 3B/4B
increased by 1.0% to 18.0% and the Company ceased to be a shareholder in Eco. Africa Oil will benefit from the carry agreed between
Eco, TotalEnergies and QatarEnergy for this incremental interest.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. Other tangible fixed assets:
Other tangible fixed assets mainly relate to the lease of an office building for a period of 5 years that meets the criteria for recognition as
right-of-use asset as per IFRS 16 and the Company recognized a corresponding financial liability. The long-term portion of the liability
as at December 31, 2024, amounted to $2.6 million and the short term portion of the liability as at December 31, 2024, amounted to
$0.7 million (as at December 31, 2023 – nil).
During the year ended December 31, 2024, the Company recognized depreciation charges for the right-of-use asset of $0.6 million
(year ended December 31, 2023 – nil) and recognized interest expenses on the lease liability of $0.4 million (year ended December
31, 2023 – nil).
10. Accounts payable and accrued liabilities:
Accounts payable and accrued liabilities includes liabilities and exit costs associated with the withdrawal from Kenya. In accordance
with the JOA and PSC, the Company retains economic participation for activities prior to June 30, 2023, which might result in additional
costs for the Company. The remaining balance primarily contains working capital related liabilities and accruals.
11. Provision for site restoration:
December 31,
2024
December 31,
2023
Balance, beginning of the year 5.5 5.3
Unwinding of discount 0.2 0.2
Balance, end of the year 5.7 5.5
The fair value of the provision for site restoration was based on the estimated future cash flows to decommission the exploration and
development properties at the end of their useful life. The discount rate used to determine the net present value of the decommissioning
obligation was 3.5% (as at December 31, 2023 – 3.5%) based on a risk-free rate with a similar maturity to that of the timing of the
expected cash flows and a long-term inflation rate of 2% (as at December 31, 2023 – 2%).
The undiscounted costs at December 31, 2024, are estimated to be $7.9 million, net to the Company, and include the costs of physical
well abandonment and site remediation. The costs are estimated to be incurred in approximately 25 years. At December 31, 2024, the
total provision is $5.7 million (as at December 31, 2023 – $5.5 million).
12. Debt:
On May 21, 2024, the Company amended its existing Corporate Facility. At any point before Prime refinances its debt, the availability
under the Corporate Facility will now be $65.0 million until June 30, 2025, $43.0 million from July 1, 2025, until June 30, 2026, and
$22.0 million from July 1, 2026, to May 21, 2027, i.e. its new final maturity date. After Prime refinances its debt, the availability under
the Corporate Facility will be $125.0 million until June 30, 2026, and $63.0 million from July 1, 2026, until May 21, 2027. Commitment
fees of 40% of the margin are payable on the undrawn available portion of the Corporate Facility and commitment fees of 15% of the
margin are payable on the unavailable portion of the Corporate Facility. The Corporate Facility carries interest of 1 month-SOFR plus a
margin of 6.5% in the first year from May 21, 2024, 7.0% in the second year and 7.5% in the third year.
Any loan repayments are calculated to be protective of the Company’s liquidity position. Prior to maturity, repayments under the loan
are made in the month a dividend is received from Prime. The Company’s loan repayments reduce commensurately with any reduction
in dividends from Prime. If drawn, the loan principal would be repaid by the lesser of 100% of the dividends received from Prime,
and of an amount that ensures the Company holds a minimum projected consolidated cash balance in the six months following the
repayment.
The Company provided security in respect of the Corporate Facility mainly in the form of a share pledge over the shares of PetroVida
(which holds 50% of Prime), and a charge over the bank account into which the Prime dividends are paid.
The Corporate Facility is subject to financial and liquidity covenants. The Company shall ensure that total net debt to adjusted EBITDAX
on June 30 and December 31 of each year is no greater than 3.0:1, the FLCR ratio on March 31 and September 30 of each year is not
less than 1.1:1 and that from March 31 and September 30 of each year during each of the four successive quarters there are or will be
sufficient funds available to the group to meet all relevant expenditure to be incurred in each of these four successive quarters as they
fall due. The Company has been in compliance with the covenants in the year ended December 31, 2024.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. Share capital:
A. The Company is authorized to issue an unlimited number of common shares with no par value.
B. Issued:
December 31,
2024
December 31,
2023
Shares Amount Shares Amount
Balance, beginning of the year 463,831,871 1,265.3 462,790,680 1,267.7
Settlement of Performance Share Units 577,968 1.1 1,700,042 3.5
Settlement of Restricted Share Units 271,063 0.5 546,332 1.1
Exercise of Share Options 647,000 0.5 1,882,000 1.4
Cancellation of shares repurchased (26,249,732) (71.6) (3,087,183) (8.4)
Balance, end of the year 439,078,170 1,195.8 463,831,871 1,265.3
The Company launched a Normal Course Issuer Bid (share buyback) program on September 27, 2022, that ended on September 26,
2023. During the year ended December 31, 2023, a total of 3.1 million Africa Oil common shares were repurchased and cancelled
and across the entire share buyback program, a total of 20.5 million Africa Oil common shares were repurchased and cancelled. The
Company launched a new share buyback program on December 6, 2023, that ended on December 5, 2024. During the year ended
December 31, 2024, a total of 24.0 million Africa Oil common shares were repurchased and cancelled under this share buyback
program. The Company launched a new share buyback program on December 6, 2024, under which 2.5 million Africa Oil common
shares were repurchased, of which 2.2 million Africa Oil common shares were cancelled during the year ended December 31, 2024. In
the year ended December 31, 2024, a total of 26.5 million Africa Oil common shares were repurchased of which 26.2 million Africa Oil
common shares had been cancelled as at December 31, 2024.
The balance of share capital has been reduced by determining the average per-share amounts in the share capital account, before
cancellation of shares repurchased, and applying this to the numbers of shares cancelled. The difference between the reduction in
share capital and the amount paid for shares repurchased has been added to the balance of contributed surplus.
In the year ended December 31, 2024, the Board of Directors approved two dividends of $0.025 per share which were declared and
paid in March and September 2024 for a total amount of $22.6 million.
14. Commitments and contingencies:
A. Investment in Prime:
Under the Prime Sale and Purchase Agreement completed on January 14, 2020, a deferred payment of $118.0 million, subject to
adjustment, may be due to the seller contingent upon the timing of the final PML 52 tract participation in the Agbami field. The signing
of the Securitization Agreement by Prime in 2021 led to the Company reassessing its view of the likelihood of making a contingent
consideration payment to the seller. The signing of the Securitization Agreement by Prime does not constitute a redetermination of the
tract participation and therefore does not trigger the payment of a contingent consideration under the Sale and Purchase Agreement
but, at the Company’s discretion, could trigger discussions with the seller. The outcome of this process is uncertain. In 2021, the
Company recorded $32.0 million as contingent consideration and increased this to $37.8 million in the year ended December 31,
2023, and to $40.4 million in the year ended December 31, 2024, increasing the Company’s investment in Prime.
B. Withdrawal from Kenya:
On May 23, 2023, the Kenya entities along with TotalEnergies submitted withdrawal notices to the remaining joint venture party on
Blocks 10BB, 13T and 10BA in Kenya, to unconditionally and irrevocably, withdraw from the entirety of the JOAs and PSCs for these
concessions. The Company concurrently submitted notices to Ministry of Energy and Petroleum, requesting the government’s consent
to transfer all of its rights and future obligations under the PSCs to its remaining joint venture party. Government consent to the transfer
remained outstanding as at December 31, 2024. In accordance with the JOA and PSC the Company retains economic participation for
activities prior to June 30, 2023, which might result in additional costs for the Company. The Company continues to monitor the claim
made against the operator by local communities in relation to past operations which may relate to the period prior to June 30, 2023.
No provision has been recognized for this as at December 31, 2024.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. Finance income and expense:
Finance income and expense for the years ended December 31, 2024, and December 31, 2023, is comprised of the following:
For the years ended
December 31,
2024
December 31,
2023
Finance income 7.6 7.8
Finance expense (4.9) (7.6)
Finance income includes interest earned on both cash in bank accounts and short-term deposits.
Finance expense includes interest and fees incurred on the Corporate Facility (see note 12).
16. Net (loss)/ income per share:
For the years ended December 31,
2024
December 31,
2023
Weighted Average
Weighted Average
Net loss
Number of
shares
Per share
amounts
Net
income
Number of
shares
Per share
amounts
Basic (loss)/ income per share
Net (loss)/ income attributable to
common shareholders (279.1) 449,431,803 (0.62) 87.1 462,231,061 0.19
Effect of dilutive securities - - - - 10,711,426 -
Dilutive (loss)/ income per share (279.1) 449,431,803 (0.62) 87.1 472,942,487 0.18
In the year ended December 31, 2024, the Company made a loss and therefore all potential dilutive shares are considered antidilutive.
In the year ended December 31, 2023, the Company used an average market price of CAD $2.79 per share to calculate the dilutive
effect of share purchase options. Dilutive securities include share purchase options, RSUs and PSUs as the inclusion of these reduces
the net income per share. In the year ended December 31, 2024, 200,336 options, 1,174,553 RSUs and 5,655,586 PSUs were anti-
dilutive and were not included in the calculation of dilutive income per share (year ended December 31, 2023, 473,549 options were
anti-dilutive). PSU’s are awarded a performance multiple ranging from nil to 200% which leads to an increase in the dilutive and anti-
dilutive potential of these instruments.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
17. Share-based compensation:
In the year ended December 31, 2024, the Company recognized a total of $1.5 million in share-based compensation expense relating
to the Long-Term Incentive Plan (“LTIP”) and Stock Option Plan (year ended December 31, 2023 – $11.3 million).
A. Share purchase options:
At the 2019 Annual General Meeting, held on April 18, 2019, the Company’s shareholders approved the terms of the stock option plan
(the “Plan”). The Plan provides that an aggregate number of Common Shares which may be reserved for issuance as incentive share
purchase options shall not exceed 3.5% of the Common Shares outstanding, and option exercise prices will reflect current trading
values of the Company’s shares. The term of any option granted under the Plan will be fixed by the Board of Directors and may not
exceed five years from the date of grant. Vesting periods are determined by the Board of Directors and no optionee shall be entitled
to a grant of more than 5% of the Company’s outstanding issued shares. The Board no longer grants share purchase options under the
Plan and instead only awards PSUs to executives and staff.
The Company’s outstanding share purchase options are as follows:
December 31,
2024
December 31,
2023
Weighted average Weighted average
Number of
options
Exercise price
(CAD$)
Number of
options
Exercise price
(CAD$)
Outstanding, beginning of the year 1,104,616 1.20 3,000,616 1.16
Forfeited - - (14,000) 1.21
Exercised (647,000) 1.17 (1,882,000) 1.15
Balance, end of the year 457,616 1.23 1,104,616 1.20
The following table summarizes information regarding the Company’s share purchase options outstanding and exercisable at
December 31, 2024:
Weighted Average
Exercise price (CAD$/share)
Number
outstanding
Number
exercisable
Weighted average remaining
contractual life in years
1.21 435,000 435,000 0.95
1.61 22,616 22,616 1.63
457,616 457,616
In the year ended December 31, 2024, the Company did not recognize a share based payment expense (year ended December 31,
2023 - nil), related to share purchase options.
B. Performance share units (“PSUs”):
On April 19, 2016, the shareholders of the Company approved a new LTIP . Under the terms of the LTIP , eligible plan participants may be
granted PSUs and RSUs. The LTIP provides that an aggregate number of Common Shares which may be reserved for issuance in respect
of grants of RSUs and PSUs shall not exceed 28,256,682 shares, which represents approximately 6% of the issued and outstanding
Common Shares of the Company as at December 31, 2024. PSUs are notional share instruments which track the value of the Common
Shares and are subject to non-market performance conditions related to key strategic, financial and operational milestones. PSUs cliff
vest three years from the date of grant, at which time the Board of Directors will assign a performance multiple ranging from nil to 200%
to determine the ultimate vested number of PSUs. PSUs are awarded to executives and from 2022 are awarded to staff, replacing share
options. They may be settled in shares issued from treasury or cash, at the discretion of the Board of Directors.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company’s PSUs outstanding are as follows:
December 31,
2024
December 31,
2023
Number of PSUs Number of PSUs
Outstanding, beginning of the year 7,122,839 7,641,886
Granted 3,968,993 3,448,710
Cancelled - (572,935)
Vested (3,482,143) (3,394,822)
Balance, end of the year 7,609,689 7,122,839
In July 2024, 3,482,143 PSUs vested in which 2,904,175 PSUs were settled for a cash payment of $5.3 million and the remaining were
settled via the issuance of Common Shares of the Company.
The Company accounts for PSUs as share-based awards whereby the estimated fair value of the grant is expensed evenly throughout the
remaining vesting period. In the year ended December 31, 2024, the Company recognized $0.9 million in share-based compensation
expenses relating to the PSUs (year ended December 31, 2023 - $10.3 million) with the decrease mainly caused by a lower Africa Oil
share price in combination with changes in the expected outcome of performance multiples.
C. Restricted share units (“RSUs”):
RSUs granted to Non-Executive Directors cliff vest three years from the date of grant. The estimated fair value of RSUs are expensed
evenly throughout the remaining vesting period. RSUs are no longer awarded to executives, and only PSU’s are awarded. RSUs may be
settled in shares issued from treasury or cash, at the discretion of the Board of Directors.
The Company’s RSUs outstanding are as follows:
December 31,
2024
December 31,
2023
Number of RSUs Number of RSUs
Outstanding, beginning of the year 1,278,318 2,066,248
Granted 541,621 296,211
Vested (645,386) (1,084,141)
Balance, end of the year 1,174,553 1,278,318
In March 2024, 645,386 RSUs vested with 374,324 being settled for a cash payment of $0.6 million and the remaining were settled via
the issuance of Common Shares of the Company.
The Company accounts for RSUs as share-based awards whereby the estimated fair value of the grant is expensed evenly throughout the
remaining vesting period. In the year ended December 31, 2024, the Company recognized $0.6 million in share-based compensation
relating to the RSUs (year ended December 31, 2022 - $1.0 million) with the decrease mainly caused by a lower Africa Oil share price.
18. Capital management:
The Company’s objective when managing capital structure is to maintain balance sheet strength in order to ensure the Company’s
strategic exploration, appraisal and business development objectives are met while providing an appropriate return to shareholders
relative to the risk of the Company’s underlying assets.
The Company manages its capital structure and makes adjustments to it based on changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue additional shares,
issue debt, execute working interest farm-out arrangements and revise its capital expenditures program. In addition, the Company
manages its cash and cash equivalents balances based on forecasted capital outlays and foreign exchange risks in order to ensure that
the risk of negative foreign exchange effects are minimized while ensuring that interest yields on account balances are appropriate.
The Company considers its capital structure to include shareholder’s equity, debt and working capital. The Company does not have
externally imposed capital requirements.
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
19. Related party transactions:
A. Transactions with Africa Energy:
On December 19, 2022, Africa Energy announced that it had secured a $5.0 million promissory note of which $2.0 million was provided
by the Company and the remaining by other parties. On November 7, 2023, the promissory note provided by the Company and other
parties to Africa Energy was increased by $3.3 million with $1.5 million of the increase to be provided by the Company of which $1.0
million was provided in the year ended December 31, 2024, and $0.5 million was provided in the year ended December 31, 2023. The
note is unsecured and matures on March 31, 2025, when the principal and accrued interest are due in full. The note carries an annual
interest rate of 15%. The note is repayable pro rata any time before maturity without penalty. In the year ended December 31, 2024,
interest on the note amounted to $0.5 million (year ended December 31, 2023 - $0.3 million).
The Company has technical and administrative cost sharing agreements with Africa Energy totaling $0.5 million in the year ended
December 31, 2024 (year ended December 31, 2023 - $0.6 million).
B. Transactions with Eco:
During the year ended December 31, 2023, Africa Oil SA Corp. signed a legally binding Assignment and Transfer agreement with
Azinam Limited (“Azinam”), a wholly owned subsidiary of Eco, to acquire an additional 6.25% interest in Block 3B/4B for a total cash
consideration of up to $10.5 million, to be paid in tranches on the following milestones:
• $2.5 million within 30 business days after July 10, 2023;
• $2.5 million upon the SA government’s approval for the transfer of the 6.25% interest to Africa Oil SA Corp.;
• $4.0 million upon the completion of a farm-out deal to a third party; and
• $1.5 million upon spudding of the first exploration well on the Block.
The first tranche was paid during 2023, the second and third tranches were paid during 2024. On July 26, 2024, the Company signed
an agreement with Eco to acquire an additional 1.0% interest in Block 3B/4B from Azinam Limited, Eco’s wholly owned subsidiary, in
exchange for all common shares and warrants over common shares held by the Company in Eco. On January 13, 2025, the Company
announced that it had completed this transaction. The Company’s interest in Block 3B/4B increased by 1.0% to 18.0% and the Company
ceased to be a shareholder in Eco. Africa Oil will benefit from the carry agreed between Eco, TotalEnergies and QatarEnergy for this
incremental interest.
C. Transactions with Impact:
On March 24, 2023, the Company subscribed for 39,455,741 shares in Impact for $31.4 million, payable in two tranches, and directly
following the transaction the Company held 31.1% of the enlarged share capital in Impact. The first tranche of $14.9 million was paid
on April 21, 2023, and the final tranche of $16.5 million was paid on July 21, 2023.
On October 6, 2023, the Company subscribed for 16,524,058 shares in Impact for $13.0 million and directly following the transaction
the Company continued to hold 31.1% of the enlarged share capital in Impact.
D. Transaction with Director:
On November 23, 2023, the Company entered into an arm’s length agreement with Andrew Bartlett to acquire 106,500 shares in
Impact at a price of £0.65 per share for a total amount of £69,225. This amount was paid during 2023 and the transaction completed
on January 16, 2024.
E. Remuneration of Directors and Senior Management:
Remuneration of Non-Executive Directors and Senior Management includes all amounts earned and awarded to the Company’s
Board of Directors and Senior Management. Senior Management includes the Company’s President and Chief Executive Officer, Chief
Financial Officer, Chief Commercial Officer, Chief Operating Officer, Chief Technical Officer and the Chief Legal Officer.
Directors’ fees include Board and Committee Chair retainers. Management’s short-term wages and benefits include salary, benefits,
bonuses and any other cash-based compensation earned or awarded during the year. Share-based compensation includes expenses
related to the Company’s share purchase option plan as well as the Long-Term Incentive Plan.
For the years ended
December 31,
2024
December 31,
2023
Non-Executive Directors' fees 0.5 0.5
Non-Executive Directors' share-based compensation 0.6 1.1
Managements’ short-term wages and benefits 7.3 5.4
Managements’ share-based compensation 0.5 6.5
8.9 13.5
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Report to Shareholders | December 31, 2024 Africa Oil Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
20. Subsidiaries:
The Company has the following wholly owned subsidiaries; Africa Oil Holdings B.V. (Netherlands), Africa Oil Turkana B.V. (Netherlands),
Africa Oil Kenya B.V. (Netherlands), PetroVida Holding B.V. (Netherlands), Africa Oil Alpha B.V (Netherlands), Africa Oil Beta B.V
(Netherlands), Africa Oil Gamma B.V (Netherlands), Africa Oil Turkana Ltd. (Kenya), Centric Energy (Kenya) Ltd. (Kenya), Africa Oil UK
Limited (United Kingdom), Africa Oil Papa Corp. (British Columbia) and Africa Oil SA Corp. (British Columbia).
21. Financial risk management:
The Company’s activities expose it to a variety of financial risks that arise as a result of its exploration, appraisal and financing activities
such as:
• credit risk;
• liquidity risk; and
• market risk.
This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and
processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included
throughout these consolidated financial statements.
A. Credit risk:
Credit risk is the risk of loss if counterparties do not fulfill their contractual obligations. The majority of the Company’s credit exposure
relates to amounts due from the Company’s joint venture parties and a credit facility with Africa Energy. The risk of the Company’s
joint venture parties defaulting on their obligations per their respective joint operating and farmout agreements is mitigated as there
are contractual provisions allowing the Company to default joint venture parties who are non-performing and reacquire any previous
farmed out working interests. The maximum exposure for the Company is equal to the sum of its cash and accounts receivable. As at
December 31, 2024, the Company held $1.1 million (as at December 31, 2023 - $2.6 million) of cash in financial institutions outside
of Canada, the Netherlands, Sweden and the UK. The Company also held $20.9 million (as at December 31, 2023 – $30.2 million) in
short-term deposits in countries outside of Canada, the Netherlands and the UK with lending banks in the Corporate Facility with stable
credit ratings.
B. Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. Liquidity describes a
company’s ability to access cash. Companies operating in the upstream oil and gas industry, during the exploration and development
phase, require sufficient cash in order to fulfill their work commitments in accordance with contractual obligations, deliver stated
shareholder returns, and to be able to potentially acquire strategic oil and gas assets.
The Company will potentially issue equity and debt and enter into farmout agreements with joint venture parties to ensure the Company
has sufficient available funds to meet current and foreseeable financial requirements. The Company actively monitors its liquidity to
ensure that its cash flows and working capital are adequate to support these financial obligations and the Company’s capital programs.
The Company’s primary source of cash flow relates to dividends received from Prime. A significant reduction in or infrequent distributions
could have an adverse effect on the Company’s ability to meet its commitments. The Company has senior members sitting on Prime’s
Supervisory Board and Audit Committee, monitoring cash forecasts and setting financial and risk management policies to manage
Prime’s dividend forecasts.
At the date of this report, the Company has $65.0 million of the Corporate Facility available which improves the Company’s access
to liquidity to fund operations and acquisitions as required. Any loan repayments are calculated to be protective of the Company’s
liquidity position and if drawn, the Corporate Facility would be repaid from the proceeds of dividends received from Prime, while
ensuring the Company preserves a sufficient minimum cash balance to conduct operations. The Corporate Facility is available until May
21, 2027, and has a maturity of May 21, 2027 (see note 12).
The Company will also adjust the pace of its exploration and appraisal activities to manage its liquidity position. The existing cash
balance, the undrawn amount of the Corporate Facility and expected dividends from its investment in Prime, are sufficient to fund the
Company’s obligations as they become due.
The Company has no maturities of its material contractual financial liabilities in excess of six months as at December 31, 2024, apart
from the lease liability as mentioned in note 9 (as at December 31, 2023 – no maturities of its material contractual liabilities in excess
of six months).
C. Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and share prices,
will affect the Company’s income or the value of the financial instruments.
i. Foreign currency exchange rate risk:
The Company is exposed to changes in foreign exchange rates as expenses in international subsidiaries, oil and gas expenditures, or
financial instruments may fluctuate due to changes in rates. The Company’s exposure to foreign currency exchange risk is mitigated by
the fact that the Company sources the majority of its capital projects and expenditures in US dollars. The Company has not entered into
any instruments to manage foreign exchange risk.
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ii. Interest rate risk:
The Corporate Facility has a variable interest rate, that is referenced to SOFR and will expose the Company to interest rate risk over the
term of the loan if drawn.
iii. Commodity price risk:
The Company has an equity holding in Prime (see note 5), which has three producing fields within PMLs 2, 3 and 52, all with significant
levels of production. A change in commodity prices may affect the dividends received from this investment. Prime employs a crude
marketing strategy that maintains the 50% - 70% coverage target for the next 12-months’ scheduled cargoes. These contracts are with
counterparties including oil supermajors. The counterparties are part of groups with investment grade credit ratings.
iv. Share price risk:
The Company has shareholdings in Africa Energy and Eco, which are entities listed on Canadian and European Stock Exchanges. The
share price of these investments can be volatile and a change in share price may affect the amount that the Company can realize for
these investments.
22. Financial instruments:
As at December 31, 2024, and December 31, 2023, assets and liabilities that are measured at fair value are classified into levels
reflecting the method used to make the measurements. Fair values of assets and liabilities included in Level 1 are determined by
reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using
inputs other than quoted prices for which all significant inputs are observable, either directly or indirectly. Level 3 valuations are based
on inputs that are unobservable and significant to the overall fair value measurement.
The investment in Prime has been measured at fair value using Level 1 valuation methods. In 2023, the investment in Prime was fair
valued using Level 3 valuation methods.
The provision for contingent consideration has been measured at fair value using Level 2 valuation methods.
The Company’s cash and cash equivalents, accounts receivable and prepaid expenses, loan to associate company, accounts payable
and liabilities are recorded at amortized cost. The fair value of cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate their carrying value due to the short-term maturity of these instruments. Assessment of the significance
of a particular input to the fair value measurement requires judgement and may affect the placement within the fair value hierarchy
level.
23. Income taxes:
The tax rate consists of the combined federal and provincial statutory tax rates for the Company for the years ended December 31,
2024, and December 31, 2023. Substantially all of the differences between actual income tax expense and the expected Canadian
federal and provincial statutory corporate income tax expense/ (recovery) related to losses not recognized.
The following table reconciles the expected tax (recovery)/ expense calculated at the Canadian statutory rate with the actual tax recovery.
For the years ended
December 31,
2024
December 31,
2023
Net (loss)/ profit and comprehensive(loss)/ profit (279.1) 87.1
Combined federal and provincial statutory income tax rate 27.0% 27.0%
Expected (recovery)/ expense (75.4) 23.5
Foreign rate differences 0.1 (0.1)
Permanent differences 0.1 0.2
Share-based compensation 0.4 2.8
Equity earnings 67.4 (48.9)
Non-taxable expense items - 16.8
Unrecognized tax losses 7.4 5.7
Tax charge - -
The Company has estimated non-capital losses carried forward of $151.1 million in Canada which expire from 2025 through 2044.
The Company has estimated capital losses carried forward of $12.9 million in Canada. The Company has estimated deductible
temporary differences of $132.6 million in Canada.
No deferred tax asset or liability is recognized at December 31, 2024.
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24. Supplementary information:
The following table reconciles the changes in non-cash working capital as disclosed in the consolidated statement of cash flows:
For the years ended
December 31,
2024
December 31,
2023
Relating to
Changes in current assets (1.5) (4.2)
Changes in current liabilities (13.3) (24.6)
Changes in non-cash working capital (14.8) (28.8)
Relating to:
Operating activities (9.9) (30.8)
Investing activities (4.9) 2.0
Changes in non-cash working capital (14.8) (28.8)
25. Subsequent events:
On January 13, 2025, the Company announced it completed a transaction with Eco and Azinam, a subsidiary of Eco, whereby Azinam
has transferred a 1.0% interest in Block 3B/4B to Africa Oil. In consideration, Africa Oil has exchanged the shares and warrants that it
held in Eco for cancellation.
On January 22, 2025, Impact announced it would be paying a dividend of $0.0702 per share to its shareholders totalling approximately
$80.0 million. On January 29, 2025, the dividend payment net to the Company’s shareholding of $31.6 million was received.
From January 1, 2025, to February 21, 2025, a total of 5,023,853 Africa Oil Common Shares have been repurchased under the Normal
Course Issuer Bid, for an amount of approximately $6.9 million and 2,475,600 shares have been cancelled.
On February 27, 2025, the Company announced its intention to declare the first quarterly dividend, under its proposed new dividend
policy, of $25 million or approximately $0.037 per share, on the closing of the Proposed Reorganization. This and other future dividend
distributions are subject to customary board approval and consents.
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