Lower oil price, shut down at Forcados terminals sting Seplat

The effects of a lower of oil price and the shutdown of the Forcados terminals as a re­sult of the militant attacks on pipe lines have stung Seplat Petroleum Develop­ment Company Plc as the company posted a huge loss in its third quarter financials.

The leading Nigerian oil and gas company posted a loss after tax of N29.82 bil­lion ($97.77 million) from a loss of N11.16 billion ($36.60 million) the previous year. This loss was a result of a significant drop in sales by 51.72 percent to N61.81 bil­lion ($202.15 million).

Of the N61.81 billion total sales, crude oil sales dropped by 69.44 percent to N26.34 billion ($86.36 million) in

the period under review while gas sales increased by 46.65 percent to N23.60 billion ($77.39 million) as the com­pany attributes the growth in gas sales to step up change in gas production and higher pricing.

A N91.62 billion (30.04 million) loss on foreign ex­change as a result of the de­valuation of the naira also dealt a blow on Seplat’s bot­tom line.

“Average total working in­terest production for the first nine months stood at 26,233 boepd, down 34 percent year-on –year (2015: 40,012 boepd) due to the shut -in and sus­pension of oil exports at the Forcados terminal from mid- February to mid-October as a result of damage to pipeline infrastructure at the loading arm,” the company said on page 2 of its third quarter financial statement.

“However, working inter­est gas production was up 22 percent year-on -year at 93 MMscfdas a result of the ca­pacity expansion at the Oben gas processing plant,” said the company.

The company said av­erage oil price realisation of US$42.82/bbl (2015: US$49.30/bbl) and an aver­age gas price of US$3.03/Mscf (2015: US$2.53/Mscf ).

Oil majors in the upstream oil and gas industry had cash flows battered as a result of a 50 percent drop oil price in mid 2014 that saw most them cut down on expansion plans.

To exacerbate the already anaemic position of these firms is the sudden attack by a militant group called the Niger Delta Avengers on oil facilities that witnessed the loss of significant revenues.

The combinations of po­litical instability and system­atic risks hindered firms from meeting obligations to banks as cash flows couldn’t cover interest expense. 

Seplat’s finance costs of N17.74 billion ($58.08 million) and N17.29 billion ($56.70 million) operating loss resulted in a interest cover of -97 times earnings, which means cash flows can’t cover interest expense.

The company’s total inter­est bearing loans and borrow­ings stood at N306.75 billion as at September 2016.

Experts expect the return to production at the Forcados terminals on the back of rela­tive calm in the Niger Delta region to bolster Seplat’s cash flows.

“This is positive for them and we have also seen some uptick in Seplat’s share price,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited, in a recent interview at the Guardian TV.