The decision by Seplat Petroleum Development Plc to acquire London- listed independent exploration company, Eland Oil & Gas, is expected to help stabilise the firm’s position as a leading independent Exploration and Production (E&P) company in Nigeria.
“This acquisition signals the next step in our journey that will underpin Seplat’s ambition to be the leading independent E&P in Nigeria,” Bryant Orjiako, Chairman of Seplat, boasted.
The acquisition could raise Seplat’s oil production by 30 percent to about 64,000bpd by 2020, according to data from Bloomberg, although the deal would not be boosting Seplat’s gas production.
As a standalone, Seplat’s production forecast prints at 33,000bpd while Eland has a working interest of 16,000 bpd including new production at the Gbetiokun field in August. However, following the acquisition, analysts from ARM Securities Limited estimate an increase in Seplat’s 2020 production level to 50,000 bpd.
On the back of the deal, Seplat will gain Eland’s 45 percent operating stake in OML 40, an onshore asset in the Niger Delta, where continuous drilling on both Opuama and Gbetiokun has led to OML 40’s average net production increasing for five consecutive half- year periods with average net production of 9,948bopd seen during the first half of 2019.
Also, Seplat is expected to takeover Eland’s 40 percent interest in the Ubima licence that is now estimated to hold 9.3 million barrels of proven and probable reserves after a resource upgrade earlier this year.
Recall, Eland is a Nigeria focused upstream oil and gas exploration company which was founded in 2009. The company in 2012, through its joint venture company, Elcrest, purchased a 45 percent interest in OML 40 and in 2014 acquired a 40 percent stake in Ubima. Its headquarters are in Aberdeen, with additional offices in London, Lagos, Benin City and Abuja.
The acquisition made possible as International Oil Companies (IOCS’) divest from onshore to offshore assets, would not result in Seplat overtaking domestic rival, Aiteo E&P, which analysts at Lagos-based Chapel Hill Denham say produces around 80,000bpd. The Eland deal would, however, be a step towards Seplat’s goal to become Nigeria’s leading E&P company.
ARM Securities Limited estimates Seplat’s 2P liquids reserves to increase by 41 million barrels to 268million barrels, with its 2P Oil Reserves and 2C Oil Reserves expected to increase by approximately 65 million barrels to 330 million barrels, bringing total oil and gas reserves to 626 million barrels of oil equivalent.
“The Acquisition, made possible by our robust operational platform and headroom in our capital structure, is in line with a key part of our established strategy which is to pursue opportunities in the onshore and offshore areas of Nigeria that offer near-term production with cash flow and reserves potential,” said Austin Avuru, CEO of Seplat.
Read also: Updated: Seplat takes lead in indigenous scramble for onshore assets
“The Acquisition reinforces Seplat’s status as one of Nigeria’s leading indigenous, independent E&PS and will create a Nigerian E& P champion with the footprint and technical capabilities to further grow and consolidate in Nigeria.”
Seplat’s new acquisition however serves as a reminder of the period between 2010 and 2018, when a number of indigenous companies including Starcrest Energy, Aiteo, Oando, Seplat, Eroton, First E&P, Neconde, Midwestern, Notore Lekoil, PanOcean, Newcross and Shoreline threw in billion-dollar cheques in their scramble for assets divested by major multinational oil firms which have recorded mixed performance.
Oando Energy Resources, a subsidiary of Oando plc, incurred a $2.5 billion debt after its 2014 acquisition of oil and gas assets from U.S. giant Conocophillips, while Seven Energy, a Nigerian company founded in 2004, ran into troubled waters after several defaults on its debt servicing obligations.
Terms of Agreement
Seplat is offering to pay 166 pence for each unit of Eland shares, a premium of 33 percent to the six-month average share price of Eland and a premium of approximately 32.7 percent to the six-month volume-weighted average price per Eland Share.
Eland Shareholders on the register at the close of business on October 18, 2019, will be entitled to receive and retain the interim dividend of a pence per Eland share to be paid on October 31, 2019, ahead of the acquisition.
While Eland Directors which have 0.28 percent stake, and Helios Natural Resources and Lombrad Odier Asset Management, which jointly own about 60 percent shareholding, have agreed to sell their stake to Seplat, a goahead from at least 75 percent of Eland’s minority shareholders is necessary to seal the deal.
Financial performance
The latest financial results from both companies in H1 2019 show that Seplat’s revenue grew 3.6 percent year-on-year to $355 million while Eland saw a 57.2 percent surge in revenue which hit $106 million. As a combined entity revenue rose 12.4 percent.
EBITDA margin, a measure of operating profit as a percentage of revenue, fell 11.6 percent points to 53.2 percent for Seplat while Eland’s declined 20.5 percent points to 56.2 percent in the period. As a combined entity EBITDA margin stands at 53.8 percent.
Profit after tax for Seplat surged 151.7 percent to $122 million but Eland pared profit 26.9 percent to $33 million. As a combined entity profit rose 66.1 percent
A closer look at Eland’s financials shows a healthy balance sheet with a net debt of $33 million and debt to capital of 16percent as at half- year 2019. This includes $65 million outstanding loans which are used to finance the 2019 $80 to $90 million CAPEX plan.
Like Seplat, Eland is in recovery from the troughs of 2016/2017 as heavy CAPEX plans have weighed on the company’s FCF which printed at -$ 24 million in H1 2019. Furthermore, while Eland’s cashflows will give some boost to Seplat’s, the lower cashflow margin from Eland’s 22 percent in half-year 2019 is expected to be a drag on Seplat’s 36 percent in the same period.
Read also: Will investors take into account Seplat’s N172bn offer for Eland Oil?
The combined asset was at $ 3.149 billion as of H1 2019, compared to Seplat’s standalone of $ 2.6 billion while total equity of both firms is $2.04 billion compared to Seplat’s $1.7 billion leaving total liabilities of the combined companies at $1.1 billion compared to Seplat’s standalone of $899 million as at H1 2019.
Corporate governance
Ojunekwu Augustine Avuru is Chief Executive Officer and Executive Director of Seplat while Ambrosie Bryant Chukwueloka Orjiako serves as the Non-executive Chairman of Seplat.
The company’s corporate governance practice is evident in its listing both on the Nigerian Stock Exchange (NSE)’S premium board for companies that meet NSE’S corporate governance practice, and also its listing on the London
Stock Exchange (LSE).
The other members on the company’s board 12 – person includes two Executive Directors, one Senior Independent Non – Executive Director, five Independent Non – Executive Director, and two Non – Executive Directors.
The board boasts of highly experienced professionals with in-depth knowledge of the domestic and international oil and gas industry.
Company history
Seplat is an independent indigenous Nigerian upstream exploration and production company which operates a portfolio of assets in the Niger Delta region of Nigeria and is listed on both the Lagos and London exchange.
The company was formed in June 2009 through the partnership of Shebah Petroleum Development Company Limited and Platform Petroleum Joint Ventures Limited to specifically pursue upstream oil and gas opportunities in Nigeria, and in particular, divestment opportunities arising out of the incumbent Major IOC’S portfolios.
In December 2009, Établissements Maurel et Prom (“MPI”) acquired a 45 percent shareholding in Seplat and was followed by other pre-ipo investors. In July 2010, the Company acquired a 45 percent working interest in and was appointed operator of, a portfolio of three onshore producing oil and gas leases: OMLS 4, 38 and 41, located in the prolific western delta basin of Edo and Delta states.
Initially, Seplat formed a JV partnership with NNPC, until NNPC transferred its 55 percent interest to its subsidiary, NPDC. Today, Seplat operates the blocks on behalf of the Seplat/npdc joint venture.
In June 2013, Newton Energy, a wholly- owned subsidiary of Seplat, reached an agreement with Pillar Oil to acquire a 40 percent participating interest (non-operated) in the Umuseti/ Igbuku fields (OPL 283).
In 2015, the Group purchased a 40 percent participating interest in OML 53, onshore northeastern Niger Delta, from Chevron Nigeria Ltd and a revenue interest in OML 55, southeastern Niger Delta.
In January 2017, the Group incorporated a new subsidiary, ANOH Gas Processing Company Limited, a midstream gas company committed to the processing of gas from OML 53 for distribution to the local market.
Seplat’s portfolio comprises six oil blocks- direct interests in five blocks in the Niger Delta area, four of which Seplat operates, and one further revenue interest.
