July 30, 2018/ARM Research
Earlier today, Seplat Petroleum Development Company Plc (Seplat) published its half-year 2018 results, posting PAT of $48.5 million relative to loss after tax of $27.6 million in the corresponding period of 2017. In terms of drivers, working interest production stood at 51.1kbpod (H1 17: 26.4kbpod) on the back of higher crude oil and gas volumes of 25.3kbpd and 155MMscfd respectively. Also, average realized crude oil and gas prices stood at $69.1/bbl. And $3.04/Mscf respectively (H2 17: $45.0/bbl. and $2.97/Mscf). Net cash flow from operationsof $245 million against capex of $21 million.
Higher downtime in Q2 miffed production volumes
In the second quarter alone, volumes declined by 9.3% QoQ to 48.6kbpod reflecting lower oil (-15% QoQ to 23.3kbpd) and gas volumes (-4% QoQ to 152MMscfd). Parsing through the details reveals downtime increased to 24% (Q1 18: 16%). However, management noted that the downtime was one-off and production volumes are likely to revert to prior levels.
To add, while crude oil price contracted to $54.28/bbl. (Q1 18: $56.76/bbl.), gas prices increased to $3.27/Mscf (Q1 18: $2.75/Mscf). Consequently, while gas revenue increased 16% QoQ to $45.8 million, the decline in oil revenue (17.5% QoQ to $116.3 million), drove a 10% QoQ decline in overall revenue to $162 million. Overall, production margin contracted by 1.2pps QoQ to 50.3% reflecting the faster decline in revenue relative to cost (-8.1% QoQ to $80.6 million).
Proshare Nigeria Pvt. Ltd.
Higher expenses further compress margins Further stoking margins at the operating level was the marked increase in general and admin expenses (64% QoQ to $22.9 million) reflecting a 240% QoQ increase in other general expenses and professional fees (+23% QoQ). The foregoing alongside weaker sales drove a 7.6pps contraction in EBIT margin to 36.1%.
Lower finance charges offset weak topline
Despite the weaker margin up till operating level, net finance cost was sizably lower (-52% QoQ) to offset weak margins and drive strong growth in PAT (+36% QoQ to $28 million). In terms of the specifics, reflecting strong cash position (operating cash flow of $245 million), Seplat reported strong finance income of $2.9 million (+104% QoQ). Elsewhere, finance charges moderated by 43% QoQ to $12.1 million, mirroring the company’s refinancing plans in Q1 2018.
Management Update At the conference call this morning, management gave the following update.
Oben Hub. Commissioning phase of the 459MW Azura-Edo IPP expected to be completed in Q3 2018 after which deliveries will move to the contracted level of 116 MMscfd under take-or-pay terms, which is expected to take contracted gas sales to a sustained level of 400 MMscfd gross.
Escravos pipeline and ANOH project- Slower than expected progress has led to revised timeline for delivery of the Amukpe Escravos pipeline and FID at the ANOH project. Now expected in Q4 2018 (previously Q3 2018).
Upstream Activities. OML’s 4, 38, 41 – Drilling of one new gas production well at Oben and one gas well workover. OML 53 – Re-entry and completion of two Ohaji South oil wells, one oil well workover at Jisike and flowline installation.
