FSDH Initial Reaction: Seplat 3Q23 results 
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November 6, 2023/FSDH Research

Key Performance Highlights:

• Seplat Energy reported significant top-line growth in 3Q23, with revenues growing a massive 405.6% YoY, after a mere 6.5% YoY growth in 2Q23 and a 51.1% YoY spurt in 1Q23. Moreover, the net profit shot up to N4.9 billion in 3Q23 versus a net loss of N1.6 billion in 3Q22. The 3Q23 revenue growth was primarily driven by a 518.8% YoY rise in oil revenue to N176.8 billion (3Q22: N28.6 billion). Moreover, gas revenue jumped 110.3% YoY to N23.0 billion (3Q22: N10.92 billion).
   
• It’s worth noting that the crude oil price, which trended lower for most of 1H23 on concerns around the impact of global monetary policy normalisation on economic activities, recovered sharply in 3Q23. It was further supported by supply cuts from Saudi Arabia and Russia and declining global crude oil inventories. Consequently, the average Brent crude price rose 11% to an average of $85.92/bbl in 3Q23 from $77.73/bbl in 2Q23. In the case of Seplat, Crude oil revenue was up 33.9% YoY, to $716.4 billion in 9M23 compared to 9M22, primarily due to the overlifts recorded during the period. The total volume of crude lifted during 9M23 amounted to 8.7 million barrels, a 76.7% YoY rise from the 4.9 million barrels lifted in 9M22. A reconciliation loss of 3.3% was recorded for the period. Similarly, gas revenue experienced a 12.3% YoY increase in 9M23, attributed to increased realised gas prices and a rise in sales volume. The average realised gas price rose by 2.5% to $2.87/Mscf, while gas production saw a 3.2% increase to 31.8 Bscf during the same period (compared to 30.8 Bscf in 9M22). The average realised gas price improvement reflects the impact of the higher gas price negotiated with off-takers in the period.
   
• Gross profit vaulted 112.0% YoY to N105.0 billion due to a less than proportionate rise in cost of sales (up by 170.2% YoY to N94.8 billion), which resulted in gross profit margin of 52.6% in 3Q23 (3Q22: 11.2%). The company reported other income of negative N43.5 billion in 3Q23. Moreover, the company recorded a 102.2% YoY jump in general and administrative expenses to N28.2 billion in 3Q23 against N13.9 billion in 3Q22, mainly due to higher professional and consulting fees. In 3Q23, the company’s fair value loss spiralled 72.7x YoY to N1.1 billion, compared to N15 million in 3Q22. Seplat reported operating profit of N31.1 billion in 3Q23 versus an operating loss of N3.4 billion in 3Q22. The net finance cost ballooned 80.0% YoY to N11.6 billion in 3Q23, resulting from higher interest expenses, partially offset by increased finance income. Seplat Energy reported a net profit of N4.9 billion in 3Q23 versus a net loss of N1.6 billion in 3Q22. Consequently, the basic EPS was reported at N2.98 in 3Q23 versus N1.11 in 3Q22.
   
• The company expects capital expenditure of ~$160-$180 million for 2023. Moreover, Seplat expects to generate positive free cash flow in 4Q23, further supporting its ability to fund the MPNU transaction. For the remainder of 2023, it plans to deliver 6 additional wells, including Okporhurhu-08 W/O (currently drilling), Okporhurhu-HUHA-04, Sapele-7T Workover (currently drilling), Sapele BGHC-02, Sapele-CEGX, and ASSN-06 (nearing completion) to bring the total number of delivered wells for 2023 to 14 wells. Given the year-to-date production performance and current estimates for 4Q23, Seplat has narrowed its production guidance to 46,000-50,000 boepd on a working interest basis. Moreover, the company remains confident that President Tinubu’s administration will approve the acquisition of ExxonMobil’s share capital of Mobil Producing Nigeria Unlimited (MPNU).
   
• On 30 October 2023, Seplat Energy announced an interim dividend at a rate of US3 cents (United States Three Cents) per Ordinary Share to be paid to Seplat shareholders whose names appear in the Register of Members as at the close of business on 10 November 2023.
   
• On 1 November 2023, the Board of Directors of Seplat Energy approved the appointment of Mr. Christopher John Okeke, Mr. Udoma Udo Udoma and Mr. Babs Omotowa as Independent Non-Executive Directors of the Company. Mr. Okeke and Mr. Udoma will join the Seplat Board on 1 December 2023, while Mr. Babs Omotowa will join the Board on 1 April 2024.

Market Reaction: The investor reaction to the 3Q23 performance was muted as the stock closed unchanged at N1,905.00 versus a 1.45% fall for the All-Share Index (30/10).

Seplat Energy Earnings Highlight 3Q23

Source: Company Financials, FSDH