Seplat on course towards returning to profit

Seplat Petroleum Development Company made further progress in the third quarter on its journey back into profit. Revenue kept accelerating and the loss position continued to thin down, reaching close to break-even level at the end of September.

The developments are in line with management’s expectation that interim losses would continuously decline in the course of the current year and possibly move from the red into the blue at full year. The prospects for realising this expectation brightened at the end of the third quarter.

Driving the turnaround in earnings is the engagement of an enhanced operating capacity, which has seen the oil and gas producing and exporting company break free from the constraints in crude oil sales it has suffered over the past three years.

The company has seen its revenue fall continuously since 2014 and rapidly falling profits hit a big loss at the end of 2016. In the effort to address the situation, the company last year embarked upon upgrade and repair works on two jetties at the Warri refinery aimed at doubling barging volumes and stabilising exports at a gross rate of 30,000 bpd. The work has been completed on the jetties and barging operations have been re-established resulting in increased loading of cargo.

The company is presently working to create a third export route through the Amukpe to Escravos pipeline, which is 160,000 bpd facility. There is also a sustaining strong performance of gas business with gas revenue contributing 31% of the company’s turnover at the end of the third quarter. The efforts so far have enabled the company’s management to de-risk the dispatching of its oil production to the market.

These initiatives have enabled the company to rebuild the earnings force, which is reflecting in terms of rapidly growing sales revenue and sharply declining loss figures. Third quarter operations ended with a turnover of N85.19 billion, which is a year-on-year growth of 70.6%. More than one-half of the revenue figure was realised within the third quarter, indicating the accelerating force in sales, which the company’s management has been able to activate in the current year.

Revenue growth is expected to accelerate further in the final quarter. Sales revenue is revised upward from the first quarter-based projection of N57.5 billion to N133 billion for Seplat Petroleum Development Company at the end of 2017. That will be the highest revenue figure in four years, after a drop of 44% in turnover in 2016.

With increased cost efficiency, the company has shifted from operating loss to profit as from the second quarter. Sharp drops in two major cost areas that contributed largely to the loss of last year have made this possible. One is foreign exchange loss, which is insignificant at N277 million at the end of the third quarter compared to N6.91 billion in the same period last year. The other is fair value loss, which dropped by 45% year-on-year to N4.36 billion at the end of September.

Compared to an operating loss of N13.18 billion at the end of third quarter of last year, the company shifted to an operating profit of N16.28 billion at the end of September 2017. This is the major development in the company’s earning story so far this year.

Finance expenses remain large however at N17.52 billion at the end of the review period, which is more than the operating profit. This reflects equally huge balance sheet debts at over N187 billion at the end of September, a decline however from over N202 billion at the end of last year.

The company ended third quarter trading with an after tax loss of N1.62 billion, a massive cut down from a loss of over N24 billion in the same period in 2016. It was also a major drop from the loss figure of N8.43 billion at the end of the second quarter.

The company seems to have reached the bottom of its profit fall and stands at the verge of returning to profit in the final quarter. Based on the third quarter performance, the full year outlook indicates after tax profit in the region of N6 billion for Seplat Petroleum Development Company in 2017. It closed last year’s operations with a net loss of N45.38 billion, down from an after tax profit of N12.99 billion in 2015.

The company closed the third quarter with a loss per share of N2.88 while earnings per share of N10.60 is projected for the full year.