FSDH Initial Reaction: Seplat FY23 results 
Kindly click here to download the report

March 1, 2024/FSDH Research

Key Performance Highlights:

• Seplat published robust FY23 results, with production increasing 8% YoY. During the year, Seplat’s revenue exhibited a 72.5% YoY increase, amounting to N696.9 billion, up from N403.9 billion in FY22. This growth was driven by higher production, reduced pipeline losses and overlift, which collectively offset the impact of lower realised oil prices. The Crude oil revenue showcased a remarkable rise of 72.9% YoY, reaching N615.9 billion, despite the average crude oil price falling 17% YoY to $82.15/bbl from $98.95/bbl in FY22 (average realised oil price fell 18.0% YoY to $83.39/bbl). A moderate rise in realised gas prices (FY23: $2.90/Mscf Vs. FY22: $2.82/Mscf) and higher sales volumes elevated the Gas revenues by 69.7% YoY, amounting to N81.0 billion in FY23. The Company experienced higher revenue growth across nearly all its geographical markets except Switzerland. The Bahamas and Italy saw the most revenue growth in percentage terms.
   
• Seplat Energy PLC achieved an 8.3% increase in its average daily working interest production, reaching 47,758 barrels of oil equivalent per day (boepd) in FY23, up from 44,104 (boepd) in FY22. This higher production was supported by new well stock (Drilled and completed 14 wells in 2023, of which six were completed in 4Q 2023), the availability of the Amukpe-Escravos Pipeline (AEP) and the improved operational performance of the Forcados Oil Terminal (FOT) Vs. FY22.
   
• Gross Profit soared 77.1% YoY to N349.3 billion in FY23, and Gross margin expanded by 130 bps YoY to 50.1%, despite direct operating costs increasing on account of higher production volumes and Crude-handling charges. Operating profit was up 40.4% YoY to N163.7 billion, driven by higher revenues, partially offset mainly by higher overlift and general and administration expenses. Moreover, the increase in the operating profit of the Oil segment was partly offset by a decline in the Gas segment’s Operating Profit. Note that during FY23, the Company experienced foreign exchange (FX) losses due to the Naira devaluation Vs. the Dollar, leading to a 9.2% YoY decline in Operating profit in dollar terms, to $249.4 million. Further, the Operating margin saw a 537 bps YoY reduction (in Naira terms) to 23.5%.
   
• Seplat’s Finance Costs substantially increased primarily due to higher interest on bank loans, surpassing the rise in Finance Income. Consequently, the Net Finance Costs increased to N39.2 billion, Vs. N28.4 billion in FY22. Income Tax expense (Naira terms) moderately increased, while the effective tax rate reduced to 35% from 49% in FY22. Subsequently, the Profit for the year surged 83.0% YoY to N81.3 billion, driven mainly by higher revenues from increased production, partially offset by the lower oil prices, higher direct operating expenses and general and administrative expenses. Further, the Company’s Diluted Earnings per share rose to N92.75 from N45.0 in FY22. At FYE23, Net Debt (in dollar terms) decreased to $755.7 million from $770.2 million in FY22, with the net debt-to-EBITDA ratio declining to 0.68x from 0.88x in FY22.
   
• During 4Q23, revenues climbed by 50.6% YoY to N218.7 billion. The Company witnessed higher profitability during the quarter, with Gross Profit meaningfully increasing by 31.8% YoY to N103.7 billion and Operating Profit surging to N72.4 billion from N17.9 billion in 4Q22. However, the Gross margin declined 677bps YoY to 47.4% on account of the high cost of Sales during 4Q23. Despite the rise in Finance costs and Income Tax expenses, Seplat managed to generate a Profit of N34.4 billion, compared to N10.6 billion a year ago.
   
• Seplat’s Board recommended a special dividend of US 3 cents per share, bringing the total dividend declared for 2023 to US 15.0 cents per share (FY22: US 15 cents per share), with a record date of April 26, 2024.
   
• The Company assessed various investment opportunities focused on increasing energy supply and reliability, lowering costs, and reducing the carbon intensity of Nigeria’s electricity consumption. Given this, Seplat high-graded a gas-to-power development project, which has the potential to reach a Final Investment Decision (FID) in 2024, subject to Board approval. In addition, Seplat is reviewing two other potential acquisition opportunities in the Compressed Natural Gas (CNG) and Renewable Power Generation markets. In FY24, production is expected to be between 44-52 kboepd and Capex between $170-200 million. In February 2024, the Company received regulatory approval for the full lifecycle Field development plan (FDP) for the Sibiri oil discovery on OML40. The management remains confident that President Tinubu’s administration will approve its acquisition of Exxon Mobil’s share capital of MPNU.
   
• Mr. Udoma Udo Udoma was elected as Chairman of the Board and will assume office on April 1, 2024, when he succeeds Mr. Basil Omiyi. Further, Mr. Bello Rabiu was elected Senior Independent Non-Executive Director (SINED) and will succeed Dr. Charles Okeahalam effective April 1, 2024.

Market Reaction: The investor reaction to the FY23 performance was muted as the stock closed unchanged at N3,370.00 versus a 0.72% uptick in the All-Share Index (29/2).

Seplat Energy Earnings Highlight FY23

Source: Company Financials, FSDH