FSDH Initial Reaction: Seplat 3Q22 results 
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November 2, 2022/FSDH Research

Key Performance Highlights:

• Seplat Energy reported weak 3Q22 results with revenues dropping 36.5% YoY to N39.5 billion, while the net loss widened further to N1.6 billion versus N222 million in 3Q21. The oil revenue declined 44.1% YoY to N28.6 billion in 3Q22 versus N51.1 billion in 3Q21, while the gas revenue edged 1.5% lower to N10.9 billion (3Q21: N11.1 billion).
   
• It’s worth noting that Nigeria’s oil export volumes fell to less than one million barrels per day in August due to significant oil theft and pipeline vandalism. In September, Nigeria National Petroleum Company Ltd (NNPC) reported that Nigeria was losing up to 470,000 bopd. Nigerian operators have experienced unprecedented levels of crude oil theft through illegal connections to pipelines across the Niger Delta. This situation has resulted in onshore production shut-ins and terminal operators declaring force majeure arising from lower deliveries.
   
• Looking at Seplat, the company’s third-quarter production was severely affected by evacuation issues in all assets and this led to deferred liquid volumes of 3.4 MMbbls. Consequently, total liquids production in the third quarter averaged 12,475 bopd, down 58% from the previous quarter (Q2 2022: 30,338 bopd). Seplat Energy performed well despite an unusually challenging quarter for the Nigerian oil and gas industry, with key export routes being unavailable because of damage and theft. However, the company’s main export route, the Trans Forcados Pipeline, has resumed operations and it continues to increase the use of the Amukpe-Escravos Pipeline and other alternative export routes and expects that the final quarter of the year will show some improvement in volumes.
   
• Gross profit declined 81.1% YoY to N4.4 billion due to a less than proportionate decrease in the cost of sales (down 9.6% YoY). The relatively higher cost of sales was primarily due to higher royalties and increased operational & maintenance expenses. Other income for the quarter declined marginally by 2.8% YoY to N6.7 billion, resulting from an 18.7% YoY rise in underlift (shortfall of crude lifted below the share of production, which is priced at the date of lifting) to N7.5billion in 3Q22 compared to N6.3 billion in 3Q21, offset by an N2.3 billion finance fees on AGPC and the transfer of finance income to partners to Joint Venture partners. The company recorded a massive 94.3% YoY rise in general and administrative expenses to N13.9 billion in 3Q22 against N7.2 billion in 3Q21, primarily driven by rentals and other general expenses. Accordingly, the company reported an operating loss of N3.4 billion versus an operating profit of N19.9 billion in 3Q22.
   
• The net finance cost for the quarter increased by 12.8% YoY to N6.4 billion in 3Q22, resulting from interest on bank loans to N6.2 billion from N5.4 billion in 3Q21. Seplat Energy recorded an income tax credit of N8.2 billion in 3Q22, compared to the tax expense of N14.6 billion in the prior year quarter Seplat Energy reported a net loss of N1.6 billion in 3Q22, compared to N222 million in 3Q21. However, the profit attributable to shareholders of the company came in at N650 million versus N8.1 billion in 3Q21. Consequently, the basic EPS was reported at N1.11 in 3Q22, versus N13.91 in 3Q21.
   
• The company expects capital expenditure to remain at around $160 million for 2022. It expects to complete seven additional oil wells (Oben-53, OHS ITAR-1, OHS ITAR-2, Ethiope-1, Ovhor-1, Opuama-15, and Opuama16) in the fourth quarter, and the exit rate for 2022 including the completed wells is expected to be around 60,000 bopd gross. Given the year-to-date production performance and current estimates for the fourth quarter of 2022, Seplat revised the full-year production guidance downwards to 40,000 – 44,000 boepd on a working interest basis. Recovery of production in the fourth quarter is expected to benefit from the resumption of operations of the FOT and TNP, activation of other evacuation options, and the newly drilled wells coming onstream.
   
• On 30 September 2022, Seplat Energy Plc refinanced its existing $350 million revolving credit facility due in December 2023 with a new three-year $350 million revolving credit facility due in June 2025. The RCF carries an initial interest of 6% over the base rate (SOFR plus applicable credit adjustment spread), with the margin reducing to 5% after production flowing through the Amukpe-to-Escravos pipeline is stabilised at an average working interest production of at least 15,000 bopd over a 45 consecutive day period. The pricing is in line with the current RCF pricing, although it reflects a change in the base rate from LIBOR to SOFR plus the applicable credit adjustment spread.
   
• On 27 October 2022, Seplat announced an interim dividend of US$2.5 cents. The interim dividend will be paid on or around 6 December 2022, subject to appropriate withholding tax, to all shareholders registered in the company’s books at the close of business on 10 November 2022. This takes dividend payments to US$7.5 cents per share for the nine-month period, in line with the Company’s dividend policy.

Market Reaction: The investor reaction to the 3Q22 performance was subdued as the stock closed unchanged at N1,200.00 versus a 0.52% fall for the All-Share Index (27/10). Moreover, the stock remained flat on Friday (28/10) versus a 1.60% loss in the All Share Index.

Seplat Energy Earnings Highlight 3Q22

Source: Company Financials, FSDH