Seplat Energy plans to add output boost to oil price gains in 2022

Seplat Energy plans to enhance production volume for the 2022 operations to between 50,000 and 60,000 oil equivalent per day (boepd) on a working interest basis, recovering from a drop of 6.8 per cent in 2021 to 47,693 boepd. The outlook for the year comprises 30,000 to 35,000 bopd liquids and 20,000 to 25,000 boepd gas production for the year. The projections exclude possible contributions from new gas plants.

The company’s audited financial report for the 2021 operations shows that production losses hindered it from making the best out of the major oil price recovery in the year. The energy company rode on the favourable wave of the crude oil market last year to pull back from a loss of N31 billion in 2020 to an after tax profit of almost N47 billion at the end of 2021.

The performance could have improved still had it not been for the output losses that cut down working interest production from 51,183 boepd in 2020 to 47,693 boepd in 2021. The company explained in its review of the 2021 operations that the lower-than-expected oil production is primarily due to curtailment of production and suspension of export operations from the Forcados Oil Terminal due to failure of the loading buoy as well as a 12-day shut in of the flow stations.

Recovering the loss in production and raising the mark to a new high therefore constitute the energy company’s chief operating strategy this year. Its management, led by Roger Brown, is optimistic that production uptime of 90 per cent will be attained this year through its preferred export route.

This will expectedly address the loss of crude oil volume that resulted from export disruption caused by the suspension of exports at the Forcados terminal last year.

Management is focusing on engineering projects to upgrade its integrated gas processing facility as well as its liquid treatment facility – which will enable increased deliveries of dry crude. The company’s production losses and downtime are expected to be remedied by the much-awaited Amukpe-Escravos underground pipeline, which is scheduled to come on stream this year.

Backing the production recovery and growth plan of the company is a robust capital expenditure budget in the region of $160 million. The spending is planned to power an aggressive drilling programme in 2022 and sustain investments in gas assets – all geared towards addressing the production decline and support long-term production levels.

Driving output volume and exports alongside the recovery in crude oil prices, the company’s management expects a much stronger earnings performance in 2022 than achieved last year.

Last year, the price recovery in the crude oil market was significant enough to drive a huge turnaround the company recorded in the year despite the drop in production level. Crude delivery price averaged $70.54/bbl in 2021, marking a record increase of $30.59/bbl over the average price of $39.95/bbl in 2020.

The final quarter delivered the biggest gains to the company with both price and volume mark-ups from the nine-month average. Average crude oil price grew from $67.4/bbl at the end of September to $70.54/bbl at full year. Also, working interest production increased from 47,280 boepd at the end of the third quarter to 47,693 at full year.

The company’s average realised gas price declined slightly over the review period from $2.87/Mscf in 2020 to $2.85/Mscf in 2021. The price decline was however more than compensated by a gain in gas sales volume from 101 MMscfd to 107 MMscfd over the same period.

The gains in the final quarter in both price and output showed in earnings numbers, lifting after tax profit from N14 billion at the end of the third quarter to almost N47 billion at the end of the year. Sales revenue jumped from N183 billion at the end of September to N293.6 billion at the full year.

The final quarter contributed over 70 per cent of the full year profit and close to 38 per cent of the sales revenue for the year. Seplat Energy, therefore, changed the rhythm from two years of declining sales revenue to the outstanding growth of close to 54 per cent in 2021.

Gas revenue grew by 13.5 per cent to nearly N46 billion in the year, accounting for 15.7 per cent of group turnover. Crude oil earnings led revenue growth in the year at an increase of 64.6 per cent to N247.6 billion.

Other major developments on the sides of cost and income in the year include a moderated growth of 23 per cent in the cost of sales to N179 billion, which powered an upshot of 155 per cent in gross profit to over N114 billion.

Further boosts came a drop of 85 per cent in impairment loss on non-financial assets to N6 billion and an impairment reversal of nearly N30 billion on non-financial assets. A drop of 37 per cent on fair value loss to N4.4 billion added to the favourable operational developments that lifted operating results from a loss of N11.4 billion in 2020 to a profit of N100.4 billion in 2021.

Also, major developments that affected the bottom line in the year include a drop of 73 per cent in other income to N8 billion, a rise of over 68 per cent in net finance expenses to N30 billion and an upsurge in tax expenses from N1.8 billion in 2020 to N24 billion in 2021.

The company has announced a final cash dividend of 2.5 cents per share with a qualification date of May 5 and a payment date of May 25, 2022.