Seplat rises to 2-year high as Forcados nightmare fades

The share price of Nigeria’s largest indigenous oil and gas company, Seplat Petroleum Development Company Plc, has rallied to a two-year high, after force majeure was lifted on the Forcados export terminal.

Other indigenous exploration and production oil and gas companies linked to Forcados are likely to follow in Seplat’s steps, in what may serve as a boost for creditor banks with exposure to deteriorating oil and gas loans, and a lifeline for oil servicing companies that had been put off work while the terminal was under repairs.

Seplat cooled by less than half a percent to N466 in early trade on Tuesday. Despite the decline, shares are at their highest level since February 2015, according to data compiled by BusinessDay.

Seplat’s share price soars on the resumption of Forcados terminal 

Source: Bloomberg

“The resumption of the Forcados terminal has breathed new life into Seplat,” said Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital.

“Constrained by the shutdown of Forcados, Seplat turned to an alternative arrangement to export crude through the Warri jetty, but the capacity of the pipeline hindered Seplat from producing optimally, denting profits in the process,” Yinkere said by phone.

The Shell Petroleum Development Company of Nigeria Ltd (SPDC) lifted force majeure on its main export route, the Trans Forcados Pipeline on Wednesday, June 7, marking an end to a 16-month old break, brought on by a spate of militant attacks last year.

Following Shell’s announcement, Seplat said that the lifting of the force majeure helped it to successfully reinstate gross production at its oil mining licences (OMLs) 4, 38 and 41 to levels last seen before the terminal’s closure.

Shares went on a four day gaining streak after the disclosure.  Traders said the news raised confidence in the company’s ability to improve profitability and drove up the shares.

“In our view, the lifting of the force majeure is a positive development and we hope for a much improved top-line performance in Q2’17 for indigenous exploration & production companies,” said Damilola Lawal, an oil and gas research analyst at investment bank, Cardinal Stone Partners.

Besides Seplat’s rally and the benign outlook for other E & P oil companies, the resumption of the Forcados terminal is also positive for local banks burdened by piles of non-performing loans given to oil companies linked to the terminal, according to Yinkere.

“The oil companies that took bank loans to buy assets from Shell are in a better position to service the loans, which will help the creditor banks clean their loan books,” Yinkere said.

Seplat’s revenue for the first quarter ended 31 March 2017 dropped 43.3 per cent to $47.3 million, compared to the corresponding quarter in 2016, as performance for the period was impacted by the suspension of oil exports at the Forcados terminal.  After tax loss declined by 15 percent year-on-year, to US$19.1 million, as production setbacks crimped profit.

Austin Avuru, the company’s chief executive officer, said that the resumption of exports at the Forcados terminal has enabled the company to remove production constraints.  “Our focus now is on restoring production and cash flow momentum, whilst also establishing longer-term access to multiple export routes,” Avuru said.

“Whilst the lifting of force majeure is welcome news, we continue to monitor the situation closely and, dependent on performance in the interim period, will seek to resume formal production guidance at our half-yearly results to be released on 27 July 2017”.

Nigeria, grappling with its first recession in 25 years on the back of low oil prices and production, is expected to record increased revenue with the resumption of oil exports through Forcados.

Shell issued a loading programme for June exports that lifted planned exports from Nigeria to 1.75 million barrels of oil per day (bopd), taking it to at least a 15-month high.

Nigerian shares have rallied as more dollars have become available. Officials at the Nigeria Stock Exchange said May data showed signs that offshore investors were starting to return after a fall in their activity in April.

The main index cooled o.3 percent to 33,141 points on Tuesday, after crossing the 33,000-mark for the first time since June 2015.

 

LOLADE AKINMURELE