• Friday, March 29, 2024
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BusinessDay

Seplat is spending more on investing activities, here is why

Seplat

Investors and shareholders will be bewildered on why Nigeria’s largest listed Oil & Gas firm by market value, Seplat was able to more than double its cash flow expenses in investing activities to N90 billion in nine-month 2019.

In its nine month Financials presented to the Nigerian Stock Exchange (NSE), Seplat increased its net cash used in investing activities to a deficit of N90.5 billion from a surplus of N1.2 billion in the corresponding period last year. Seplat also had a net cash inflows from operating activities of N94 billion within the same period in 2019.

Further breakdown in first nine-month 2019 revealed Seplat invested N15.4 billion in oil and gas activities compared to N8.7 billion in the related period last year, while investment in the disposal of other property plant and equipment rose to N4.1 billion compared to proceeds of just one million in nine-month 2018.

Seplat invested N31.6 billion and N47.3 billion in joint venture activities and cash on loss of control of subsidiary respectively compared to zero investment in the previous period last year.

Khalil Woli, oil and gas analyst at Lagos-based CardinalStone said the surge in maintenance, rig and other related cost are partly related to the drilling of six wells in the current year, compared the one well drilled in the preceding year.

“Given the company’s increasing disposition to growing output, these costs are likely to re-occur in the coming years. Irrespective, we remain positive on Seplat’s medium-to-long-term outlook and opine that a ramp-up in production, supported by organic and inorganic initiatives, is likely to slightly offset the impact of moderation in oil price and higher rig related costs in coming periods,” Woli said.

Finance expense fell 44 percent buoyed by a 34 percent decline in borrowings. “This reflects management’s sustained intent to deleverage its balance sheet,” Woli, said in a note sent to BusinessDay. The company is having more of equity capital than debts as its debt-to-equity ratio fell 20.2 percent from 27.8 percent.

“However, it is likely that the potential acquisition of Eland may require some debt financing. This could potentially weigh on interest costs in subsequent quarters,” Woli said.

Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers said drilling activities are likely to pick up in Q4, following the operationalisation of four new drilling rigs.

Four drilling rigs are now operating across Seplat’s portfolio to drive liquids working interest production to an expected exit rate of 30,000 bopd with three oil wells (Sapele-29, Sapele-33 and Jisike-06) been drilled and completed to date.