Culled—-Proshare
September 2, 2020
by FBNQuest Research
Outperform rating maintained
We forecast group sales of US$538.6m for 2020E for Seplat, implying a y/y decline of over -20%. Our estimate is driven by both lower oil and gas revenues of US$432.1m (-13% y/y) and US$106.5m (-48% y/y) respectively. We expect an average working interest production of c.113MMScfd for the year as the firm began ramping up output at the end of Q2 following a weak start to 2020. We also anticipate that gas sales will be more prominent for the group post-commissioning of the 300MMScf/d ANOH gas processing plant in Q4 2021.
For oil, we forecast working interest production of 34kbpd and a realised average oil price of US$39/b for 2020E. At the moment we believe production cuts put in place by OPEC+ and reopening of economies across the globe following covid-19 lockdowns are sufficient to hold global oil prices around US$40/b levels. On production, Seplat’s work schedule is little impacted by pandemic related restrictions. Management guides to a capex spend of US$120m in 2020E with US$86m spent in H1 on the completion of six oil wells across Sapele, Ovhor, Ohaji South and Gbetiokun fields. In H2, investment focus will be on 2 gas wells and related infrastructure.
We forecast a loss before taxes of -US$33.4m, driven primarily by an impairment of non-financial assets of c.US$145.5m posted in Q1, in line with an IAS 36 covid-19 impact assessment. Management did not provide guidance on a price range for a potential reversal on its Q2 2020 results call. Our new price target of N1,040.5 is down -16% and is driven by a more subdued pricing outlook for oil. We note that in US dollar terms the decline is higher.
The new price target represents an upside potential of +170% from current levels. Over the last 12 months, Seplat shares have shed -3%, outperforming the NSE ASI by around 5%. We have retained our Outperform recommendation on the shares.
Seplat reported a loss before taxes of -US$50m in Q2
Seplat reported a Q2 2020 loss before taxes of -US$50m. In Q2, net working interest production advanced by around 9% y/y to 53,863 barrels of oil equivalent per day (boepd) and was within management’s guidance. However, weak global oil prices and constraints on third-party infrastructure weighed on Q2 performance.
Drivers for the weaker-than-expected results were 1) oil sales which declined by -26% y/y to US$73m and 2) gas sales decline of around -69% y/y to US$30m, driven by lower working interest gas production of 110MMscf/d. Gas sales were adversely impacted by downtime on third-party infrastructure of around 24%. Compared with our forecasts, Seplat’s loss after tax of -US$4m compares with our -US$17m estimate.
