Seplat Petroleum Development Company (SEPLAT)’S revenue is to fall a seven year low in the face of historical demand losses and plummeting oil prices, according a report by Chapel Hill Denham Limited.
Analysts at Chapel Hill Denham led by Ebovi Wali, while revising the their forecast for top line for the indigenous oil and gas firm to $504.28 million, said the slump in sales could potentially be the steepest dip since the Trans-forcados Export Rout crises in 2016.
“Our revenue forecast is underpinned by a sharp cut of 36.9 percent in our production forecast to 45.2kboepd from 71.6kboepd previously, including Eland assets,” said the analysts.
They doubt the company’s ability to maintain current dividend policy of 5cents each as interim and final dividends, while contemporaneously adding that the devaluation of the currency by the central bank would result in huge foreign exchange losses, a similar case as 2016.
Seplat, however, in a recent statement on its website said its low production cost and benign debt position gives it the leeway to overcome the current crisis, as it intends to spend as much as $100 million of capital expenditure.
For the year ended December 2019, the company’s revenue fell by 7.57 percent to N214.15 billion, the first drop since 2017.
Read also: Coronavirus: Seplat, Waltersmith donate medical items to Imo State
Operating profit margin fell to 42.36 percernt in December 2019 from 48.19 percent the previous year ; this means the company is not generating enough profit from operations.
The largest indigenous oil and gas firm in Africa’s largest economy is grappling with deteriorating cash flows following a sharp drop in oil and gas recipient.
Cash flows from operating activities dipped by 48.06 percent to N78.73 billion in the period under review, against N151.58 billion as at December 2018, while net cash flows from operating activities fell by 48.77 percent to N77.61 billion.
The sharp drop in crude oil price due to demand impact from Covid-19 and continued oil oversupply has forced oil majors across the globe to slash output and spending plans.
Global oil demand is down as much as 30 percent because of global coronavirus lockdowns and analysts fret that could force companies to close production.
Conocophillips , of the world’s largest independent exploration and production companies, said it would voluntarily curtail output by 225,000 barrels a day.
Conoco said it would reduce output to at the surmount oil sands facility in Canada by 100,000b/d tp just 35,000 b/d by May.
Last week, Chevron announced it had sold its interests in some oilfields in Azerbaijan and a pipeline to Turkey to Mol, the Hungarian company, for about $1.6 billion.
Shale producer Continental Resources recently said it would cut production by about 30 per cent, or 50,000 b/d. Other producers have cut spending without specifying their production cuts.
Energy International Agency (EIA) said it expects global demand in 2020 to fall by 9.3 million barrels a day; just United States oil prices sank below $18 a barrel last week Friday.
Brent, the international benchmark, was also steady at $27.90 a barrel, but it has lost almost $5 last week.
Oil price continues to tumble even as OPEC+ allies have agreed to cut output by as much as 10 million barrels a day.
Analysts say if the volatility in the price of the commodity lingers, several Shale oil producers may go bust or cease to exist in the foreseeable future as they are heavily indebted.
Sepat has an attractive valuation as price multiples are 2.17 times, but the recent unprecedented global macroeconomic uncertainties could prevent investors from swooping on the company’s shares..
