Seplat’s profit surges 13.5% on tax incentives despite lower production, oil price
...declares a final dividend of US$0.05 per share
Seplat Petroleum Development Company Plc, Nigeria’s largest listed Oil & Gas firm by market value, rode on a tax holiday to increase its profit by 13.5 percent despite lower production and oil price.
Despite an average oil price of $64 in 2019 compared to the $71 in the previous year and a 6.8 percent decrease in oil production, Seplat was able to increase its profit before deferred tax by 13.5 percent to N83 billion ($270 million) thanks to tax incentives.
“The financial statements have been prepared taking into consideration the impact Seplat Petroleum Development Company Plc 10 Full-year 2019 financial results of the additional tax holiday and this forms the basis for the Group’s current income taxation and deferred taxation for the year ended 31 December 2019,” Seplat’s said.
In line with sections of the Companies Income Tax Act, which provides incentives to companies that deliver gas utilisation projects, Seplat was granted a three-year tax holiday with a possible extension of two years in 2015.
Tax expense for 2019 was $29 million, compared to $117 million for 2018. Previously unrecognised deferred tax assets of $20 million from prior years’ tax losses and unutilised capital allowances were recognised, after an assessment of the relevant entity’s future profitability showed recoverability of the deferred tax assets.
This resulted in a deferred tax charge of $6 million for the year compared to $92 million in 2018.
Upon review of the performance of the business in 2018, Seplat provided a notification to the Federal Inland Revenue Service (FIRS) for the extension of claim for the additional two-year tax holiday.
Profit before tax adjustments, was $293 million, up 11 percent compared to $263 million in 2018 while Finance charges for the period were lower due to the positive impact of deleveraging in the year.
The net finance charge was $20 million, compared to $47 million in 2018 while the Net profit for 2019 was $277 million. The resultant basic Earnings Per Share (EPS) was $0.49 in 2019, compared to an EPS of $0.26 in 2018.
Operating profit for 2019 was N95.7 billion ($312 million) compared to N94.9 billion ($310 million) last year, helped by the gas-tolling revenue recognised but set against the reversal of previously recognised accrued interest of $40 million on Nigerian Petroleum Development Company Ltd (NPDC) receivables due to the settlement of these receivables.
Gross profit increased slightly to $396 million from $391 million the previous year as a result higher gas processing revenues and lower nonproduction costs primarily consisting of royalties and DD&A, which were $188 million compared to $244 million in the prior year.
Depreciation, Depletion and Amortisation (DD&A) charge for oil and gas assets decreased to $91 million during 2019 compared to $119 million last year, reflecting lower depletion of reserves because of decreased production compared to the prior year.
Direct operating costs, which include crude-handling fees, rig-related costs and operations and maintenance costs amounted to $105 million in 2019 and remained flat against $105 million in 2018.
Lower crude-handling fees offset the higher rig-related costs that mostly relate to workovers which form part of expenses for the relevant reporting period.
Concerning the impact of the coronavirus on its business and operations, Austin Avuru, Seplat’s Chief Executive Officer said has more cash on its balance sheet and is even more robust and diversified thanks to its continuing investments in gas, its long-term contracts and independence from oil price volatility.
“We are a low-cost producer and will continue to manage our finances prudently,” Avuru said.
Avuru said with the recent addition of Eland and the availability of new pipelines, Seplat’s oil business is broadening and de-risking its production fields and routes to market to assure even greater security of revenues in the future.
“In the coming year we will focus our investment only on the highest-returning projects, whilst carefully balancing our future needs with prevailing market realities,” Avuru said.
On a cost-per-barrel basis, production operating expenses were higher at $6 compared to $5.77 because of the decrease in production volumes compared to 2018. Emphasis on careful cost management led to an 11percent reduction year-on-year in general and administrative expenses, which stood at $71 million in 2019 compared to $80 million to 2018.
“The challenges before us may be significant, but we are confident that the resilience and discipline of our business will help us consolidate our position as Nigeria’s leading independent oil and gas producer,” Avuru concluded.