Culled—-Proshare
July 27, 2017/FBNQuest Research
Event: Seplat Petroleum Development Company reports Q2 2017 results
Implications: Slightly negative to neutral reaction from the market likely
Positives: Sales of US$84.5m up 21% y/y and 79% q/q; average oil production up 86% q/q to 9,507 bpd
Negatives: Seplat recorded a loss before tax of -US$9.9m in Q2 2017 vs. -US$42.5m in Q2 2016
This morning, Seplat Petroleum Development Company (Seplat) reported Q2 2017 results. While sales of US$84.5m were up 21% y/y, Seplat posted a loss before tax of –US$9.9m and loss after tax of –US$10.2m. As expected, Seplat’s losses are receding following the resumption of the TransForcados System (TFS) in June. Seplat delivered an H1 oil production of 9,507 barrels per day (bpd), down -18% y/y but up 86% q/q, which works out to Q2 average production of around 14,000 bpd.
Gas production was up 19% y/y to 101MMscfd. Again the resumption of the TFS is primarily responsible for the rise in gas production as previously constrained volumes became available for processing.
A gross margin contraction of -1,612bps y/y to 40.8% and a significant rise in net finance costs more than offset topline growth and a double-digit decline in opex to lead to the loss before tax of –US$10m. Sequentially, as stated above, Seplat’s numbers are moving in the right direction.
Sales grew 79% q/q while the firm’s Q2 loss before tax of –US$10m compares with –US$18m delivered in Q1 2017. A combination of a 17% q/q rise in opex and a 9% increase in net finance costs only partially offset positives coming through from topline growth and a marginal gross expansion.
Compared with our estimates, while sales beat our US$60m forecast by 41%, Seplat’s loss before tax of –US$10m is slightly behind our –US$4m estimate. On an annualised basis, Seplat’s H1 sales and loss before tax are tracking behind consensus sales and PBT estimates of US$536.7m and US$85.1m respectively.
Going forward, management has reinstated production guidance due to increased output predictability. Management is guiding to H2 average oil production of between 25,000 to 29,000bpd (25-29kbpd) and an average gas production between 110 to 130MMscfd; this works out to a combined production guidance of 43,000 to 50,000 barrels of oil equivalent per day (boepd).
Full year production guidance is put at 17-19kbpd and 105-115MMscfd for oil and gas respectively or 35-38kboepd combined. Management’s assumptions are based on a production uptime range of 75% to 80% during H2 and the absence of a prolonged forced downtime during the period.
Planned works at two jetties at the Warri Refinery have been completed as planned. The upgraded jetties will enable sustained exports of c.30kbpd (gross) if required. According to management, the Amukpe-Escravos pipeline should be operational in Q1 2018. In the short term, Seplat would only be able to evacuate oil & condensate volumes of around 50kbpd. Gas business remains exciting as the firm has now achieved a combined gas processing capacity of c.500MMscfd at Oben and Sapele. Looking ahead, the firm expects that a final investment decision on the promising ANOH project on OML 53 could be reached this year. The ANOH project underpins the next phase of growth for the gas business.
Year to date, Seplat shares have gained +27.7% compared with the ASI’s 36.7%. We rate the stock Outperform.
Our estimates are under review.
Seplat Q2 2017 results: actual vs. FBNQuest Research estimates (US$ millions)
| Q2 2017 | H1 2017 | ||||||||
| Actual | Y/y | Q/q | FBNQuest est. | Act. vs FBNQuest est (%) | Actual | Y/y | FBNQuest est. | Act. vs FBNQuest est (%) | |
| Sales | 84.5 | 21.4% | 78.7% | 60 | 40.9% | 132 | -13.9% | 107 | 22.8% |
| oil sales | 55 | 10.9% | 148.2% | 35 | 57.7% | 77 | -26.9% | 57 | 35.3% |
| gas sales | 29 | 47.9% | 16.9% | 25 | 17.2% | 54 | 15.3% | 50 | 8.6% |
| cost of sales | -50 | 66.9% | 77.4% | -42 | 19.1% | -78 | -6.6% | -70 | 11.4% |
| Gross profit | 35 | -12.9% | 80.5% | 18 | 91.7% | 54 | -22.6% | 37 | 44.5% |
| -gross margin | 40.8% | -1612bps | 42bps | 30.0% | 1084bps | 40.7% | -459bps | 34.6% | 609bps |
| Operating expenses | -20 | -30.5% | 16.7% | -14 | 44.9% | -36 | -26.8% | -30 | 20.0% |
| Other operating income | -6 | -89.1% | 72.1% | 0 | n/a | -10 | -83.7% | -4 | 172.1% |
| Operating profit | 9 | n/a | n/a | 5 | 90.7% | 7 | n/a | 3 | 129.5% |
| Net int. and similar chgs | -18 | n/a | 8.9% | -9 | 112.9% | -35 | 128.1% | -26 | 38.2% |
| PBT | -9.9 | -76.7% | -45.9% | -4 | 136.8% | -28 | -50.9% | -22 | 25.4% |
| -PBT margin | -11.7% | 4940bps | 2701bps | -7.0% | -475bps | -21.4% | 1619bps | -21.0% | -44bps |
| Tax | 0 | n/a | -63.4% | 0 | n/a | -1 | -69.2% | -1 | 36.6% |
| Tax rate | -3.0% | -1224bps | -32.2% | 0.0% | -303bps | -4.0% | 235bps | -3.6% | -33bps |
| PAT ex-minorities | -10 | -73.6% | -46.7% | -4 | 144.0% | -29 | -52.0% | -23 | 25.8% |
| -PAT margin | -12.1% | 4341bps | 2839bps | -7.0% | -510bps | -22.3% | 1771bps | -21.7% | -53bps |
| minority interest | 0 | n/a | n/a | 0 | n/a | 0 | -100.0% | 0 | n/a |
| PAT | -10.2 | -71.9% | -46.7% | -4 | n/a | -29 | -53.1% | -23 | 25.8% |
Source: NSE, FBNQuest Research estimates
