Keeping businesses afloat in the upstream oil and gas sector has become extremely tough. An analysis into Seplat Petroleum Development Company Limited 2019 financial result reveals how the company plans to stay in business this year.
60percent of 2020 production hedged at $45
Seplat said the company has prudently managed its commodity risk and is well hedged with 60percent of 2020 production hedged at a floor price of $45/bbl up to Q3 2020.
For Nigeria’s domestic oil companies, an oil price within the range of $30 may bring another round of funding crises that might bring fears of 2016.
Indigenous firms that bought assets could no longer generate revenue at the levels expected when they agreed to loan terms, putting themselves and banks at risk as a result of the oil price slump in 2016.
It’s 2020 and the current oil price rout may mean a similar scenario is well on the cards for indigenous producers in Africa’s top oil producer.
Amukpe to Escravos pipeline expected in H1 2020
Seplat is hopeful of bringing on stream its Amukpe-to-Escravos pipeline by first half of 2020.
Amukpe-Escravos pipeline is a 160,000 bpd, 67-km 20-inch horizontal directional drilling (HDD) export line, is first of its kind in Nigeria and Africa. A burial depth of 45 -150ft makes it one of the most secured export route in the country
“We expect that the pipeline will be commissioned during the first half of 2020 and become fully operational to the initial permitted volume for the Seplat / NPDC joint venture of 40, 000 bopd,” Seplat said in its 2019 financial.
The company said the Amukpe to Escravos pipeline will provide a third export option for liquids production from OMLs 4, 38 and 41 in 2020.
Seplat noted that the completion works on the 160, 000 bopd pipeline has been slower than anticipated due to delays in the contractor delivery schedule, final activities including the installation of the LACT unit are progressing well.
Investment focus in 2020
Austin Avuru, Seplat’s Chief Executive Officer said in 2020 the company will focus its investment only on the highest-returning projects, whilst carefully balancing future needs with prevailing market realities.
Avuru noted that the company has more cash in its balance sheet which is more robust and diversified thanks to continuing investments in gas and independence from oil price volatility.
“We are a low-cost producer and will continue to manage our finances prudently. With the recent addition of Eland and the availability of new pipelines, our oil business is broadening and derisking its production fields and routes to market to assure even greater security of revenues in the future,” Avuru said.
Lower capital expenditure plan
Seplat plans to invest $100 million of capital expenditure with a target of three new wells across portfoli0 in 2020.
“We will also, continue to focus on our investments in gas and the completion of the ANOH project remains a major priority. At present we are targeting 2020 production of between 47,000 to 57,000 boepd, including Eland production of 6,000 to 10,000 bopd, subject to continuous evacuation being possible,” Seplat said in it’s 2019 financial.
In 2019, Seplat spend $125 million on drilling costs in relation to nine development wells, the Ohaji South facility expansion project and the Amukpe Liquid Treatment Facility.
Risk management
Seplat admitted that the firm is exposed to further credit risk from outstanding cash calls from Nigerian Petroleum Development Company (NPDC) and National Petroleum Investment Management Services (NAPIMS).
Also, the Group is exposed to credit risk from its sale of crude oil to Mercuria, Vitol, Eni Trading and Shell western.
Decreasing Reserves
Seplat’s working interest 2P reserves, as assessed independently by Ryder Scott at 1 January 2020, stood at 474 MMboe, comprising 216 MMbbls of oil and condensate and 1,494 Bscf of natural gas.
This represents an organic decrease in overall 2P reserves of 1.5percent year-on-year, due to production but mitigated by movements from the contingent resource category. Working interest 2C resources stood at 85 MMboe, comprising 53 MMbbls of oil and condensate and 188 Bscf of natural gas.
