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Seplat: Time to grow cash amid botched MPNU acquisition

Following the botched acquisition of Mobil Producing Nigeria Unlimited’s assets by assets, the business is now back to focus on its core business and mission of delivering positive growth in shareholder returns.

More importantly, the company needs to keep generating enough cash flow from its operating profits, especially in this era of higher oil prices. So what has Seplat been up to?

This year, 2022, the Company set production at 50,000 to 60,000 boepd on a working interest basis, comprising 30,000 to 35,000 bopd liquids and 116 to 150 MMscfd (20,000 to 25,000 boepd) gas production, which excludes contribution from MPNU and the ANOH Gas Plant. It also expects capital expenditure to be around $160 million.

Coming into 2022, the company started strongly, recording growth in revenue in H1 2022, especially in Q2 due to the spike in the global oil price above $100 per barrel between March and June 2022. As a result, profit before tax in the first half of the year printed N87.2 billion up from N27.9 billion a year earlier, a 212% increase year on year.

In a statement, Roger Brown, Chief Executive Officer said: “Seplat Energy delivered a good quarter that benefited from higher oil pricing, which offset lower production owing to continuing problems with the Trans Forcados Pipeline.

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Against the backdrop of elevated investors’ sentiment, Seplat share price recorded a 100% H1’22-YTD gain, becoming the best-performing stock in NGX Oil and Gas sector and outperforming the NGX Oil and Gas index 58.86% gain for the same period.

However, in Q3, revenue fell by 36.51%, despite higher realized oil prices of $108.25/bbl.  Crude oil and gas sales fell by 44.12% and 1.46%. Consequently, it posted a net loss of N1.587 billion, up from a net loss of N222 million a year ago.

The company linked the Q3 poor performance to the evacuation issues in all assets and that led to deferred liquid volumes of 3.4 MMbbls, with total liquids production in the third quarter averaging 12,475 bopd, down 58% from the previous quarter (Q2 2022: 30,338 bopd).

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Given its year-to-date production performance and current estimates for the fourth quarter of 2022, it revised its full-year production guidance downwards to 40,000 – 44,000 boepd on a working interest basis.

The company also affirmed that recovery of production in the fourth quarter is expected to benefit from the resumption of operations of the FOT and TNP, activation of other evacuation options, and the newly drilled wells coming on stream


Though the company recorded revenue growth in 9M 2022 compared to the year before, it was primarily attributable to the impact of the conflict in Ukraine on global energy prices and a post-pandemic recovery in global oil demand and not to higher production.

Gas sales revenue decreased by 7.9% to $83.7 million because the average realized gas price was lower at $2.80/Mscf (9M 2021: $90.9 million / $2.86 Mscf). These are cyclical events that are not sustainable especially for long-term value creation.

With the acquisition in limbo, the company needs to focus on existing and future projects in order to achieve its set $160 million capital investment outlook for the year. As of the end of 9M 2022, the company has only spent $46.1 million on “payment for the acquisition of oil and gas properties” as stated in its financial statements. It has another $60.4 million in deposits for investments such as the acquisition of MNPU assets ($128.3m) & Abiala farm-in ($12m).

It also needs to raise another one billion dollars for the acquisition of MPNU buttressing why the company needs to stay focussed on improving its cash flow. This year, it has generated about $337.9 million in Ebitda a 32% increase from the same period last year (9 months).

It needs to keep this up despite a gloomy outlook for 2023. Doing this will require a robust cost-reduction strategy especially now that the world is having to deal with commodity-induced inflation. It also needs to work with security agencies and communities where it operates to ensure oil production curbs are limited to the barest minimum.

Are these achievable? Only time will tell.



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