July 30, 2018/ARM Research
Earlier today, Seplat Petroleum Development Company Plc (Seplat) published its half-year 2018 results, posting PAT of $48.5 million relative to loss after tax of $27.6 million in the corresponding period of 2017. In terms of drivers, working interest production stood at 51.1kbpod (H1 17: 26.4kbpod) on the back of higher crude oil and gas volumes of 25.3kbpd and 155MMscfd respectively. Also, average realized crude oil and gas prices stood at $69.1/bbl. And $3.04/Mscf respectively (H2 17: $45.0/bbl. and $2.97/Mscf). Net cash flow from operationsof $245 million against capex of $21 million.
Higher downtime in Q2 miffed production volumes
In the second quarter alone, volumes declined by 9.3% QoQ to 48.6kbpod reflecting lower oil (-15% QoQ to 23.3kbpd) and gas volumes (-4% QoQ to 152MMscfd). Parsing through the details reveals downtime increased to 24% (Q1 18: 16%). However, management noted that the downtime was one-off and production volumes are likely to revert to prior levels.
To add, while crude oil price contracted to $54.28/bbl. (Q1 18: $56.76/bbl.), gas prices increased to $3.27/Mscf (Q1 18: $2.75/Mscf). Consequently, while gas revenue increased 16% QoQ to $45.8 million, the decline in oil revenue (17.5% QoQ to $116.3 million), drove a 10% QoQ decline in overall revenue to $162 million. Overall, production margin contracted by 1.2pps QoQ to 50.3% reflecting the faster decline in revenue relative to cost (-8.1% QoQ to $80.6 million).
Higher expenses further compress margins Further stoking margins at the operating level was the marked increase in general and admin expenses (64% QoQ to $22.9 million) reflecting a 240% QoQ increase in other general expenses and professional fees (+23% QoQ). The foregoing alongside weaker sales drove a 7.6pps contraction in EBIT margin to 36.1%.
Lower finance charges offset weak topline
Despite the weaker margin up till operating level, net finance cost was sizably lower (-52% QoQ) to offset weak margins and drive strong growth in PAT (+36% QoQ to $28 million). In terms of the specifics, reflecting strong cash position (operating cash flow of $245 million), Seplat reported strong finance income of $2.9 million (+104% QoQ). Elsewhere, finance charges moderated by 43% QoQ to $12.1 million, mirroring the company’s refinancing plans in Q1 2018.
Management Update At the conference call this morning, management gave the following update.
- Oben Hub. Commissioning phase of the 459MW Azura-Edo IPP expected to be completed in Q3 2018 after which deliveries will move to the contracted level of 116 MMscfd under take-or-pay terms, which is expected to take contracted gas sales to a sustained level of 400 MMscfd gross.
- Escravos pipeline and ANOH project- Slower than expected progress has led to revised timeline for delivery of the Amukpe Escravos pipeline and FID at the ANOH project. Now expected in Q4 2018 (previously Q3 2018).
- Upstream Activities. OML’s 4, 38, 41 – Drilling of one new gas production well at Oben and one gas well workover. OML 53 – Re-entry and completion of two Ohaji South oil wells, one oil well workover at Jisike and flowline installation.