Seplat Energy rebuilds profit with record gain in oil price

Seplat Energy has staged a turnaround so far this year from a full year loss of N31 billion in 2020 to a profit of N14 billion at the end of the third quarter operations ended September 2021. The rebound is propelled by an apparent windfall from the recovery in crude oil prices.

The oil producing company’s crude delivery price averaged $67.4/bbl over the three quarters of the year, a record increase of $28.8/bbl over the average price of $38.6/bbl in the same period in 2020.

Over the same period, the company turned around from a loss of about N34 billion to the profit it posted at the end of the third quarter.  Two years of declining sales revenue has also changed the reading to strong growth this year.

Seplat rides on the waves of oil price volatility, plunging with the drop last year and upturning with the recovery this year. Despite the return to profit, the company isn’t making the best of the oil price recovery due to output losses.

Total working-interest oil production volume for Seplat over the nine months of operations dropped from 9.1 MMbbls to 7.6 MMbbls with a total of 5.5 MMbbls crude lifted over the review period. The loss of crude oil volume resulted from export disruption caused by the suspension of exports at the Forcados terminal.

Growth in crude production volume was a major strength for the company last year, which helped to moderate the full impact of the drop in the average crude price realised.

The company’s management is hopeful that the production losses and downtime would reduce when the much awaited Amukpe-Escravos underground pipeline comes on stream.

The company’s average realised gas price declined slightly over the review period but this was more than compensated by a gain in gas sales volume. The average realised gas price for Seplat slipped from $2.88/Mscf to $2.86/Mscf at the end of September 2021.

On the other hand, gas sales volumes rose from 27.5 Bscf in the corresponding period last year to 30.8 Bscf. Earnings from gas sales therefore recovered from a drop in dollar terms last year.

The company said in its report that the gain in volume of gas sales is reflective of new gas wells it brought on stream during the period as well as restoration of full operations of Oben gas plant after turnaround maintenance in 2020.

The contribution of gas sales to group revenue declined from 21.2 percent to 19.7 percent over the review period, as crude oil revenue grew well ahead of gas earnings.

Seplat raked in total sales revenue of close to N183 billion at the end of the third quarter operations, which represents a year-on-year increase of about 35 percent or N47 billion. The company closed last year’s operations with a turnover of N191 billion.

The upturn in the company’s revenue registers clearly in dollar terms. Sales revenue amounted to $460.4 million at the end of September, rising by roughly 19 percent year-on-year. Crude oil earnings led the revenue growth at an increase of 21 percent to $369.5 million over the same period.

This is a recovery from a drop of 15.6 percent in crude oil sales revenue to N$418 million at the end of last year and from a 17 percent drop in gas earnings to $112 million in the year.

The strength for improved profit performance draws from a combination of revenue gains and cost moderation. Growing revenue and moderating cost are therefore the key ingredients of Seplat’s profit rebuilding strategy this year.

Input expenses present a major cost saving angle for the company with a moderated increase of 20 percent to N124.5 billion compared to 35 percent increase in turnover. The proportion of sales revenue claimed by cost of sales declined from 77 percent in the same period last year to 68 percent at the end of September 2021.

A major favourable development on the side of cost is in respect of impairment loss on non-financial assets, which dropped from over N55 billion in the same period last year to zero. Also, impairment loss on financial assets dropped by 64 percent to N2.7 billion over the review period.

Cost moderation however excluded finance expenses, which grew by 29 percent to over N24 billion. This reflects an increase in company borrowings from N265.5 billion at the end of last year to almost N310 billion at the end of the third quarter.

Overall, the cost and income balance were favourable for Seplat at the end of the third quarter, which enabled the company’s return to profit.

Seplat has announced a quarterly cash dividend of $2.5 cents per share for payment on or around December 9, 2021.