The latest report of Nigerian independent energy company Seplat Petroleum Development Company has unveiled how the firm performed in the first half of 2020.
Dividend
Seplat declared and approved a dividend of $0.05 within the first half of 2020.
Also, in line with the Finance Act 2019 which became effective on 1 February 2020, withholding tax amounting to $2.94 million was deducted from the aggregate amount of the dividend declared and approved amounting to $29.42 million.
Cash dividend amounting to $26.48 million was paid during the period.
Total revenue
Seplat recorded a 34 percent decline in total revenue which fell from $355.1 million recorded in 2019 to $233.5 million in 2020.
This decline is as a result of a 16.6 percent decline in their crude oil revenue which dropped from $216.0 million to $180.1 million in half year 2020.
Gross profit
Gross profit also declined to $37.7 million from $207.0 million recorded in the corresponding period last year.
The decline in gross profit was as a result of an increase in non-production cost which rose from $96.6 million in the previous year to $119.7 million.
Tax
Seplat’s tax position for the first half of 2020 was a credit of $35.1 million, compared to a tax expense of $1.4 million for the same period in 2019. The tax credit is made up of a deferred tax credit of $39.0 million and a current tax charge of $3.9 million.
Acquisition of properties
During the six months ended 30 June 2020, the Group acquired assets amounting to $83.5 million. In addition, the Group recognised impairment loss on its oil and gas properties amounting to $6.5 million.
Oil Hedging
Seplat hedged 1.5 million barrels at $45 for the first three quarters of 2020 and another 1.5 million at $30 for the final quarter of the year.
Seplat’s hedging policy aims at achieving significant reduction in cost from suppliers to guarantee appropriate levels of cash flow assurance in times of oil price weakness and volatility.
Cost Reduction
Seplat plans to save cost by at least 30percent by renegotiating suppliers contracts in line with government partners directives while also suspending the drilling of oil wells.
The company is reducing operating expenses, general administrative expenses as well as other non-essential operations such as IT, administrative and travel cost.
Oil Production
Despite market volatility, Seplat produced 51,177 barrels a day in the period, up slightly by 6.6 percent from 48,004 bpd, thanks to recently acquired OML 40 and Ubima assets.
Seplat completed the drilling on five oil wells such as Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji South-5, and Ohaji South-6 while Eland completed the Gbetiokun-5 well, which is producing around 5,000 bpd, while an extended well test at Ubima is running at 1,200 bpd.
Net Cash Outflow on Investment Activities
Net cash flow on investment activities which indicates how much cash has been generated or spent from various investment-related activities in a specific period, declined to $109.5 million in the first half of 2020 compared to $262.7 million last year.
Net Cash Outflow on Operating Activities
After movements in working capital, Net cash flows from operating activities which is a section of a company’s cash flow statement that explains the sources and uses of cash from ongoing regular business activities reduced to $165.8 million from $255.2 million recorded H1 2019.
OPEC’s Production Cut
Seplat plans to cut production by 20percent to 30percent in July and August 2020. The company does not expect the impact of these cut to be significant and therefore it maintains group guidance within the range of 47,000 boepd and 57,000 boepd.
Gas business Performance
Gas production fell from 145 million scf at an average selling price of $2.75million scf in 2019 to 99MMscfd in the first half of 2020 at an average selling price of $2.88.
The above development led to a 25.9 percent decline in gas sales revenue to $53.5 million from $72.2 million recorded in the corresponding period last year.
Update on Export Routes
Seplat’s goal to diversify production and reduce any over-reliance on one particular third-party operated export system created the need to establish multiple export routes.
Seplat announced the Amukpe to Escravos pipeline is set to provide a third export option for liquids production from OMLs 4, 38 and 41. However, due to the discovery of cases of COVID-19 at the terminals, the final completion of the work has not been done.
The company plans to complete the pipeline in the second half of 2020 and become fully operational.
Seplat expects the pipeline to increase production significantly and reduce the losses recorded as a result of crude theft.
Net Cash Balance
The company’s net cash balance which also refers to the amount of cash remaining after a transaction reflected a positive figure of $329.8 million despite the declining operating performance in the first half of the year.
Financial Cost
The company reflected higher debt level as there was a 71percent surge in finance cost while debt to equity ratio which is a long-term solvency ratio that indicates the soundness of long-term financial policies of a company also stood at 0.5x rising from 0.2x in the second quarter of 2019.
Sapele Gas Plant
Decommissioning of the existing gas plant reached 85percent completion in the period, with only the last producing module and associated equipment outstanding while complete decommissioning, due to be completed in the second quarter of 2020, has been delayed to the second half.
For the new plant, production of main process packages and fabrication have commenced with contracting ongoing for the balance of plant equipment.
The project is expected to be completed in the second half of 2022, with Sapele’s processing capacity increasing from 60 MMscfd to 75 MMscfd. The upgraded facility will achieve West African Gas Pipeline (WAGP) specifications.
IAS 36 impairments
Seplat’s half year 2020 report was prepared in accordance with the accounting standard IAS 34 Interim financial reporting which identified the need to revalue its assets due to the significant economic uncertainty of the coronavirus crisis.
The Company decided to book a provision of $146.0 million in Q1 2020 across its non-financial assets.
Management transition and appointment of CFO
Seplat’s founder Austin Avuru announced he will be stepping down as Chief Executive Officer on 31 July 2020 although he will remain a member of the board.
His position as CEO will be taken by Roger Brown, who has been Seplat’s Chief Financial Officer since 2013 while Emeka Onwuka who has more than 30 years’ experience in financial services within Sub-Saharan Africa will join as CFO and Board member on 1 August 2020.
Integration of Eland
The integration of Eland is progressing well. The OML40 and Ubima fields contributed around 32percent of Group oil volumes in H1 2020.
Oben Gas Plant
The Company successfully completed a 15-day turnaround maintenance for the Oben Gas Plant in March.
Gas production was affected during the maintenance period and this impact was exacerbated by third-party infrastructure downtime of 24percent due to associated condensate handling challenges.
The Oben-48 gas well, drilled in late 2019, came onstream in the first quarter of 2020.
Two gas wells planned for the year will be drilled and completed in the second half, the initial well potential for both wells combined is expected to be 75 MMscfd.
