July 29, 2020
By CardinalStone Research
Seplat Petroleum Development Company Plc (NGSE: SEPLAT) published its unaudited Q2’20 results and held an analysts’ call today. The company announced a $3.62 million loss in Q2’20 (vs $85 million profit in Q2’19), driven by a steep decline in revenue (-47.3% YoY) due to weaker crude oil prices.
- Total Working Interest production rose by 6.6% YoY to 51.7kboepd YoY in H1’20, reflecting the drilling of seven new wells (six oil wells and a gas well). According to management, production was not affected by the OPEC+ supply cut agreement in the first of the half of the year
- The government has advised SEPLAT to cut production by 20%-30% in July and August to support the country in its plan to compensate for exceeding OPEC+ production quota in May and June. SEPLAT expects its planned drilling of two new wells in H2’20 to offset potential passthrough from the government directive by year-end. Thus, management has guided to a FY’20 working interest production of between 47 kboepd and 57 kboepd. We, however, expect volumes to be negatively affected by the directive in Q3’20
- Despite the modest increase in production, revenue declined by 47.3% YoY to $103.1 million in Q2’20 due to weaker oil prices (-52.1% YoY) and a high base effect stoked by the one-off gain from previous gas processing for NPDC in Q2’19
- Gross margin plunged by 59.8 ppts to 4.4%, occasioned by sharp increases in “operational & maintenance expenses” (+100.1% YoY) and “depletion, depreciation and amortization” (+70.2% YoY) as well as a fresh $10.7 million incurred on trucking and barging. The company is currently renegotiating terms with suppliers and trying to load larger barges at Eland’s Gbetiokun field to reduce operating and shipping costs
- Bottomline weakness also reflected the 71.1% surge in finance costs that mostly reflected higher debt level. Debt to equity ratio stood at 0.5x in the quarter (vs 0.2x at the end of Q2’19)
- Net cash balance remained positive (at $329.8 million) despite the dwindling operating performance in the first half of the year. Having already spent 69.1% of its FY’20 planned CAPEX, we expect the firm to maintain a robust cash balance at the end of the year barring further operational shocks in the coming quarters.