80
assets in Egypt, as well as an interest in certain related bank accounts (including revenue accounts associated with the Group’s receivables in
Egypt). The Borrowing Base Facilities are expected to be repaid in full through the Refinancing, and security over these assets and accounts
to be released.
(2)
Annual interest rate indicated does not include the additional 8% annual return provided to the lenders in calculating the total number of
Ordinary Shares to be issued upon conversion.
(3)
The assets pledged to the lenders under the Arab Bank Facility include the subsidiaries operating the Group’s Block 5 assets in Yemen and
the crude oil sales agreement between Exxon Worldwide Trading Company and Jannah Hunt Oil Company Limited and the related interests.
The Arab Bank Facility is expected to be repaid in full through the Refinancing, and security on these assets to be released.
The weighted average effective interest rate of the Group’s debt as at 31 March 2014 was 10.2%. This percentage
includes the 8% additional total return provided to the lenders of the Convertible Loans in calculating the total number of
Ordinary Shares to be issued upon conversion.
Substantially all of the Group’s borrowings are denominated in US dollars and, as at 31 March 2014, 61% of the Group’s
borrowings (by drawn principal amount) bore interest at floating interest rates after taking into account the effect of
hedging. See
“—Quantitative and qualitative disclosures about market risks—Interest rate risk.”
As at 31 March 2014, the Group’s outstanding borrowings comprised (i) the Borrowing Base Facilities, (ii) the
Convertible Loans, and (iii) the Arab Bank Facility. The Borrowing Base Facilities and the Arab Bank Facility are
expected to be fully repaid and cancelled through the Refinancing. For a description of the Convertible Loans, which
will remain outstanding following the Offering, see
“Description of other indebtedness—Convertible Loans.”
Capital expenditures
The Group has incurred substantial capital expenditures and costs related to the acquisition of assets and to its
exploration, appraisal and development activities, and in the future expects to incur further significant capital
expenditures and costs as part of its strategy of increasing reserves and working interest production from existing assets
as well as growing its asset portfolio. See
“The Group’s business—Exploration, appraisal and development
programmes.”
With regard to capital expenditures in support of its exploration and appraisal programme, acquiring a new asset,
entering into a new licence, or furthering its exploration and appraisal plans, the Group assesses the exploration risks
involved and weighs those risks and costs against the potential monetary gain if initial exploration and appraisal drilling
proves successful. The Directors believe the Group has mitigated the risk of its exploration and appraisal programme by
focusing its activities in reservoirs known to be rich in hydrocarbons, enabling the Group to achieve to-date a relatively
high drilling success rate and good returns on its exploration expenditures.
With regard to capital expenditures in support of its development programme, the Group evaluates the projected cost of
new infrastructure, transport and the execution risk involved in extracting production volumes from a known reservoir,
and weighs those risks and costs against the estimated value of the future working interest production from the field in
question. The Directors believe the Group has mitigated the risk of its development programme by applying the
extensive technical and operational knowledge, expertise and experience of the Group’s management and engineering
teams, in combination with its local knowledge and a management approach that is tailored to the relevant asset and its
local context.
Under the terms of its licence obligations, the Group has substantial flexibility and discretion to modify the timing of its
projected capital expenditures. There may be circumstances where, for sound business reasons, a reallocation of funds or
strategic priorities may be necessary, for example if the results of appraisal or workover activities are unsatisfactory or
the results are not commercially viable.
As at 1 June 2014, the Group’s total exploration and development capital expenditures to satisfy the current terms of its
licences, assuming successful completion of its development plan as set out in
“The Group’s business—Exploration,
appraisal and development programmes”
in this Offering Memorandum, are projected to be approximately $377.6
million until the end of 2016. The Group plans to fund these projected capital expenditures using amounts available
under borrowings, operating cash flows resulting from production and sale of oil, natural gas and condensate and
additional capital markets funding, in the form of both equity and debt.
The following table sets out the Group’s historical capital expenditures for the periods indicated.
Year ended 31 December
Three months
ended 31 March
($ thousands)
2011
2012
2013
2013
2014
Purchase of intangible exploration and
evaluation assets .............................
31,677
35,248
78,358
39,930
8,306
