Culled—Proshare

August 2, 2018/FBNQuest Capital 

Event: Seplat Petroleum Development Company (Seplat) reports Q2 2018 results 

Implications: Seplat’s Q2 numbers continued the y/y improvement following the resumption of exports via third-party operated TransForcados System (TFS). While sales of US$162m grew 53% y/y, PBT of US$63m compares with a loss before tax of –US$39m in Q2 2017. Additionally, an annualised basis, H1 PBT of US$121m is currently tracking ahead of consensus forecast of US$221m.

However, sales were down -10% q/q due to a higher production downtime of c.24% compared with a management estimate of 15% for the quarter. PBT was up +6% q/q only because of other income (up +269% q/q to US$18m) which more than offset the subdued topline and a 77% q/q rise in opex. Therefore, we expect a neutral reaction from the market as the q/q trend and surprising production downtime is likely to offset the strong y/y trend.    

Positives: Q2 sales up 53% y/y to US$162m while Q2 PBT of US$63m compares with a loss before tax of -US$39m in Q2 2017. Realised oil and gas prices were up 54% y/y and 2% y/y to US$69.1/barrel and US$3.04MMscf/d respectively. On the Q2 conference call, management stated that the firm has received a confirmation of approval from the Department of Petroleum Resources for the renewal of licenses on OMLs 4, 38 and 41 for a period of 20 years, subject to a final consent from the minister of petroleum resources. 

Negatives: Further delays in the completion of the key Amukpe-Escravos export alternative route. Management now expects the export pipeline to be completed in Q4 2018. Also, Q2 sales and PBT both came in behind our US$205m and US$80m estimates. The variance was driven primarily by a production downtime of 24% which surprised negatively.

 Year to date, Seplat shares are flattish outperforming the broad index by 4.2%. We rate the stock Outperforming.   

Our estimates are under review. 

 Seplat Q2 2018 results: actual vs. FBNQuest Capital Research estimates (US$ millions)