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Despite recording a 282 per cent growth in revenue from contracts with customers to N55.2 billion in first quarter 2018 from N14.5 billion in 2017, Seplat Petroleum Company, one of the front runners in Africa’s rapidly emerging independent oil and gas companies still remain exposed to more credit risk.
The Nigerian independent oil and gas firm, Seplat announced that the company still remain exposed to credit risk from its sale of crude oil to Mecuria.
“The off-take agreement with Mercuria runs until 31 July 2021 with a 30 day payment term. The Group is exposed to further credit risk from outstanding cash calls from Nigerian Petroleum Development Company (NPDC) and National Petroleum Investment Management Services (NAPIMS),” Seplat announced on its website.
Seplat insisted that the credit risk on cash is limited because the majority of deposits are with banks that have an acceptable credit rating assigned by an international credit agency; it also noted that its maximum exposure to credit risk due to default of the counterparty is equal to the carrying value of its financial assets.
Seplat added, “In addition, the Group is exposed to credit risk in relation to its sale of gas to Nigerian Gas Marketing Company (NGMC) Limited, a subsidiary of NNPC, its sole gas customer during the quarter.”
BusinessDay investigations in the financial books of Seplat showed NPDC receivables represent the outstanding cash calls due to Seplat from its JV partner, Nigerian Petroleum Development Company. The receivables have been discounted to reflect the impact of time value of money, and an impairment loss has been recognised in the financial statements. As at 31 March 2018, the undiscounted value of this receivable is N5 billion ($16 million), compared to N34 billion ($113 million) in 2017.
“The Group applies the IFRS 9 general model to measuring Expected Credit Losses (ECL) which uses a three-stage approach in recognising the expected loss allowance for NPDC receivables. The Group measures loss allowance at an amount equal to lifetime ECL as these assets do not contain a significant financing component,” Seplat said in its financial report.
Seplat also announced that the ECL recognised for the period is a probability-weighted estimate of credit losses discounted at the effective interest rate of the financial asset.
A report by investment banking firm, Renaissance Capital (RenCap), said Seplat’s new TP of GBP is 1.91 which implies 35 percent upside to the current market price; “we continue to use an aggressive risk factor of 30 percent on our NAV due to Niger Delta risks,”Rencap said.
“Un-risked NAV implies a fair value of GB P2.81 and potential upside of 203 percent; we see the main downside risks as disruptions to export routes caused by militants and oil price volatility.We maintain our BUY rating,” RenCap said in the May 2 report. The company earned other income of N2.6 billion as against no figure recorded for March 2017 and reduced general and administrative expenses by 17 percent to N4.3 billion from N5.1 billion.
Net gains on foreign exchange improved 8 per cent to N572 million in Q1 2018 from N529 million in first quarter 2017, as basic earnings per share increased to N10.68 in Q1 2018 from a loss per share of N10.39 in Q1 2017.
The company also reported a return to profitability as profit for the review period settled at N6.3 billion from a loss position of N5.9 billion in March 2017.
“We have made a good start to 2018; our core production base remains strong and predictable, the gas business has once again set a new record for quarterly revenue contribution and the steps we took to refinance the balance sheet have significantly strengthened our liquidity position and will allow investments to be scaled up,” Austin Avuru Chief Executive Officer of Seplat’s said.
Also Rencap said Seplat’s first quarter 2018 gas production which was up 15 percent and 66percent on a quarter on quarter and year on year basis, respectively was basically due to the beginning of the Azura gas contract to supply 52mmscf/d of gas (net).
Avuru added, “Our debut bond issuance marks another key milestone for the Company, widening our long term capital base in support of our growth strategy while also reducing overall borrowing costs.
Statement of the company’s financial position reveal net assets has improved in first quarter 2018 by 1.2 percent to N465 billion from N460 billion as at December 2017.
On the back drop of the results, the company’s directors have proposed the payment of an interim dividend of N15 per fully paid ordinary share while the aggregate amount of the proposed dividend expected to is to be paid out of retained earnings as at 31 March 2018, but not recognised as a liability at period end, is N9 billion ($29.4million) as against none proposed for 2017.
“Looking ahead we will return to drilling in the second half of the year as we re-focus our efforts on the numerous high-margin and short-cycle cash return opportunities we have in our portfolio,” Chief Executive Officer of Seplat’s said.
DIPO OLADEHINDE
