It was a period of mixed feelings for Nigeria’s largest listed Oil & Gas firm by market value as Seplat Energy released its financial statement for the 2022 full year, showing revenue growth of 29.8 percent (from $733 million in 2021 to $951.8 million in 2022) and a 10.6 percent decline in profit (from $117.2 million to N104.7 million).
In this article, BusinessDay pinpoints major insights about Seplat’s Energy 2022 performance and capital expenditure plans for 2023.
Export infrastructure diversification
In a bid to pursue alternative crude oil evacuation options for production at all assets, Seplat Energy successfully commenced evacuation through the Amukpe-Escravos Pipeline (AEP) export route during the third quarter of 2022.
“Crude oil production from OMLs 4, 38 and 41 is now sent via the Trans Forcados Pipeline (TFP) and AEP, with significant volumes now flowing through the latter,” Seplat Energy said.
For a third export route, Seplat Energy says it intends to establish regular exports of 10,000 bopd (gross) through the Warri Refinery jetty, from which it will be sold Free on Board to our off-taker at the jetty.
“We intend to keep this option available for the foreseeable future. All three export routes will provide significant flexibility and ensure we have adequate redundancy in evacuation routes, significantly reducing downtime to promote higher levels of revenue assurance and profitability,” Seplat Energy said.
Divestment of Ubima marginal field
Wester Ord Oil and Gas Nigeria Ltd. (WON), a wholly-owned subsidiary of Seplat Energy, agreed in first quarter of 2022 with the J.V. partner All Grace Energy Ltd. (AGEL) to divest WON’s rights in the Ubima Marginal Field for a consideration of $55.0 million.
Under the agreement, Seplat Energy received a total of $19.5 million, with $18.6 million received in 2022 and $0.9 million received in January 2023.
Gas contracts and pricing
In 2022, Seplat Energy signed short-term gas sales agreements (GSAs) with three new customers, for a combined offtake of 86 million standard cubic feet per day (MMscfd).
As a result, Seplat Energy now has a total of eight GSAs for the supply of 396 MMscfd of gas.
In addition, Seplat Energy also concluded price renegotiation with customers during the second quarter, and following the National Gas Delivery Obligation (DGDO) gas pricing revision in August 2021, the average gas price achieved was $2.82/Mscf (2021: $2.85/Mscf), which is weighted against volumes supplied to each customer in the period.
“The gas sold under the new GSAs (mentioned above) at more favourable terms offset the impact of the lower gas prices realised at the first half of the year,” Seplat Energy said.
ANOH Gas Processing project to be completed in Q2 2023
Seplat Energy announced the ANOH Gas Processing Company Limited has achieved 95 percent overall mechanical project completion at the gas plant site.
“We expect the plant to be mechanically complete in Q2 2023,” Seplat Energy said.
The upstream firm noted that its government partner, National Geosciences Information Centre, is delivering the pipelines that will take the gas from ANOH to the demand centers, namely the 23km spur line and the Obiafu-Obrikom-Oben (OB3) pipeline.
“The OB3 pipeline has been affected by the collapsing of the HDD wall in a section of the river crossing,” the company said.
It noted that experts from the UK have been brought in to ‘grout’ the section and grouting will commence in March with the drilling and pipe installation to commence thereafter.
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Revenue
Revenue from oil and gas sales in 2022 was $951.8 million, a 29.8 percent increase from the $733.2 million achieved in 2021.
A further breakdown showed the crude oil revenue was 35.8 percent higher than for the same period in the previous year at $839.5 million (2021: $618.4 million), reflecting higher average realised oil prices of $101.7/bbl. for the period (2021: $70.5/bbl.).
“The increase is attributable to the impact of the conflict in Ukraine on global energy prices and the steady post-pandemic recovery in global oil demand, particularly in China and the United States,” Seplat Energy said.
Operating profit
The company’s operating profit for the period stood at $274.7 million, an increase of 9.6 percent, compared to $250.7 million in 2021.
“The Group recognised a financial asset charge of $6.4 million related to the ageing of some government receivables, which is expected to reverse once recoveries are secured,” Seplat Energy explained in its financials.
Included in other income was a $13.1 million loss on disposal for the sale of the Ubima field, Seplat Energy said.
The company also recognised an over-lift charge of $27.2 million and a $1.1 million loss on foreign exchange, “principally due to the translation of Naira, Pounds and Euro-denominated monetary assets and liabilities”.
Administrative expenses
The company’s general and administrative expenses of $137.4 million were 71.5 percent higher than the 2021 costs of $80.1 million.
The upstream firm said the increase was driven by the impact of global inflationary trends on expenses, including travel and training costs (activities having increased following the relaxation of travel restrictions), increased spending on professional and consulting fees associated with business growth strategies and the upward adjustments to staff salaries and emoluments to reflect the true cost of living.
Taxation
Seplat Energy recorded an income tax expense of $99.7 million; this includes a current tax charge (cash tax) of $67.7 million and a deferred tax charge of $32.0 million.
“The deferred tax charge is driven by the unwinding of previously unutilised capital allowances and movements in underlift/overlift in the current year,” Seplat Energy said.
Cash flows from operating activities
Cash generated from operations in 2022 was $571.2 million, 51.6 higher than $376.8 million generated in 2021.
Net cash flows from operating activities were 41.6percent higher at $497.3 million (2021: $352.3 million) after accounting for tax paid of $57.5 million (2021: $13.0 million) and a hedging premium of $10.3 million (2021: $9.0 million).
“The Group continued to record improvements in the recovery of receivables from the major JV partner and, in 2022, received $259 million towards the settlement of cash calls,” Seplat Energy said.
“As a result, the major JV receivable balance now stands at $91 million (2021: $83.9 million); these are mainly cash calls owed within the last 60 days and are expected to be settled within Q1 2023,” it added.
As of February 2023, Seplat Energy said it received more than $70 million as part settlement of the 2022 outstanding amounts.
Cash flows from investing activities
The company’s net capital expenditure of $163.3 million included $94 million invested in drilling and $64 million in oil and gas engineering projects.
“Deposits for investment of $140.3 million include a $128.3 million (which is refundable) deposit for the proposed acquisition announced in February 2022 of Mobil Producing Nigeria Unlimited and the $12.0 million farm-in fee for the Abiala marginal field carved out of OML 40,” Seplat Energy said.
The Group received total proceeds of $10.8 million in the period under the revised OML 55 commercial arrangement with BelemaOil for the monetisation of 298.4 kbbls of crude oil.
In 2022, recovery was affected by sabotage along the Nembe Creek Trunk Line and the Trans Niger Pipeline, with theft factors ranging from 30 percent to 90 percent.
Cash flows from financing activities.
The Company paid $58.8 million dividends to shareholders in the period. Other financing charges of $12.5 million reflect the commitment fee and other transaction costs on the Group’s facilities, and $63.3 million reflects interest paid on loans and borrowings.
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