Figures from Nigerian independent oil and gas company, Seplat’s 2020 audited results show how the firm performed in the year of the pandemic. Despite the impact of COVID 19 on its financial performance last year, Seplat reported strong cash position of $259 million for 2020 after $58 million dividends paid in the year, and $150 million worth of capex.
How OPEC cut affect Oil business
Seplat admitted its operations were constrained by approximately 410,000 bbls on a gross basis as a result of the Organisation of Petroleum Exporting Countries (OPEC+) production cuts implemented in the third quarter of 2020.
The Group’s oil operations continued despite the COVID-19 crisis and produced an average 33,714 bopd on a working interest basis during 2020, up 40.9percent on 2019.
This increase reflects a maiden contribution of 8,855bopd from the OML 40 and Ubima assets, as well as higher production from OML 53 compared to 2019.
Also, production output increased as a result of wells drilled earlier in the year, which has necessitated discussions with the Department of Petroleum Resources and Nigerian National Petroleum Corporation for increased quotas to reflect this uptick.
In 2020, six oil wells were drilled/completed (Sapele-35, Ovhor-6ST, Ovhor-20, Ohaji South-5, Ohaji South-6 and Gbetiokun-5), while the Extended Well Test for Ubima continued with production up to 1,200 bopd.
Gas business performance
As one of Nigeria’s major suppliers to the domestic market, Seplat’s working-interest production for 2020 stood at 101 MMscfd at an average selling price of $2.87/Mscf (2019: 131 MMscfd, $2.84/Mscf).
Gas contributed $112.5 million of Group revenues, or 21.2percent, which was lower than planned as a result of the indirect impact of COVID-19 on Nigerian businesses for most of the year, which affected bulk offtake from Oben gas well.
Delays in production from Oben-50 gas well further exacerbated the effect, following a restoration in demand in the later part of the year. An electricity tariff increase, that saw prices to consumers rise by an average of 75percent, became effective in November 2020.
“This cost-reflective tariff has improved the collection system recently implemented by the Government and is expected to improve cash flow to the power sector and therefore future invoice settlements,” Seplat said.
Cash flows from operating activities
Net cash flows from operating activities, after movements in working capital stood at $308.7 million compared to $337.8 million the previous year. An income tax payment of $10.4 million was made in the period compared to $3.5 million in 2019.
The Group received $188.1 million from the major Joint Venture towards the settlement of outstanding dollar-denominated cash calls and $154.2 million (Naira equivalent) to offset Naira cash calls totalling $342.3 million received in 2020.
This compares favourably to $179million received in 2019. The major JV receivable balance now stands at $107.0 million, down from $222.3 million at the end of 2019.
Cash flows from financing activities
In 2020, net cash outflows from financing activities stood at $217.4 million compared to $145.2million the previous year.
This reflects a further $10 million drawn from the Westport Reserve Based Lending facility, interest of $64.8 million paid on loans and dividend payments to shareholders of $58.3 million. In August 2020, the Company repaid $100 million of the revolver.
Liquidity
Seplat ended the year with gross debt of $698.4 million with most maturities in 2023, and cash at bank of $258.7 million, which includes restricted cash of $33.6 million, leaving net debt at $439.7 million.
“Refinancing all or a portion of our debt during 2021 remains a priority,” Seplat said.
Seplat admitted that the firm will continuously review its funding and maturity profile and monitor the fixed-income market to ensure that it is well positioned for any refinancing opportunities for the current debt facilities, including potentially the $350 million 9.25% 144A/Reg S bond maturing in 2023.
Denies link to a loan facility issued by Access Bank
Seplat denied any link to a loan facility issued by Access Bank to Cardinal drilling that went bad.
“Seplat is not a party to the loan agreement and did not guarantee the loan agreement,” Seplat Chief Executive Officer, Roger Brown said during a conference call monitored by BusinessDay.
Brown said Seplat had secured the release of its office complex in downtown Lagos, which had been sealed in relation to the loan dispute.
Revenue hit three-year low
The oil firm’s revenue slumped 10.7 percent to N191 billion in 2020 from N214.1 billion in 2019, the lowest in three years.
According to Seplat, the decline in the revenue from crude oil was majorly due to the global Covid-19-induced lockdowns, which resulted in a reduction in oil demand.
The Brent oil price averaged $43.21/bbl over 2020 compared to $64.04/bbl in 2019. Brent also remained volatile throughout the year, following the twin shocks of the Saudi Arabia – Russia price war trading and the pandemic
Seplat see its first loss since 2016
Seplat recorded a loss of N30.7 billion in 2020 from a profit of N85 billion in 2019. This is its first loss since 2016 when crude oil prices crashed and Nigerian economy was in a recession.
Similarly, the company made a loss before tax of N28.8 billion compared to a profit before tax of N89.9 billion made in 2019.
Impairment loss rose by 197percent
Seplat recorded an impairment loss of N41.1 billion in 2020, a 197 percent increase compared to 2019 when impairment loss stood at N14.9 billion.
“The impairment is primarily as a result of re-assessment of future cash flows from the Group’s oil and gas properties due to significant fall in oil prices,” Seplat explained.
Gross profit plunged by 63percent
The oil and gas firm’s gross profit plunged 63 percent to N44.8 billion in 2020 compared to N121.4 billion in 2019.
Seplat noted that the decline was as a result of lower oil prices and higher non-production costs primarily consisting of royalties and DD&A (Depletion, Depreciation and Amortisation) which stood at N25.8 billion compared to N29.7 billion in 2019.
Dividend
Seplat recommended a final dividend of $0.05 per share bringing the total dividend to $0.10 per share in2020 same as 2019.
Also, Earnings per share fell to a negative value of N45.72 compared to a positive N146.1 recorded last year.
Reserves
Seplat’s portfolio comprises direct interests in seven oil and gas blocks and a revenue interest in one other block. This portfolio provides the Company with a robust platform of oil and gas reserves and production capacity, together with material upside opportunities through future development.
CEO’s comment
Roger Brown, Chief Executive Officer said Seplat has once again shown its resilience and ability to overcome challenges and deliver production in line with guidance, operating with minimal incidences of COVID-19 cases.
“From the $330 million of cash generated from operations, we have increased our capital investment, invested in ANOH and voluntarily paid down $100 million of debt, further deleveraging the balance sheet,” Brown said.
He noted that Seplat is leading Nigeria’s transition away from spending scarce foreign currency on imported, expensive, high-emission diesel-generated electricity and “we believe this will provide the necessary base load for a functioning electricity grid that will allow renewable energy to take its place, as we see in the developed world.”
Outlook for 2021
For 2021, Seplat expects to produce an average of 48,000 – 55,000 boepd, taking into account the impact of OPEC+ quotas.
“We continue to hedge against oil price volatility and expect a higher proportion of revenues to come from long-term gas contracts at stable prices. We have significant cash resources and will continue to manage our finances prudently in 2021, expecting to invest $150 million of capital expenditure across the full year,” Seplat said.
Seplat remains confident that its ongoing cost-cutting initiatives and prudent management of cash will enable further reductions in debt, whilst supporting dividend payments and investment for growth.
“Although we expect some COVID-19 related delays to push completion into early 2022, following a cost optimisation programme we now expect the project to cost no more than $650 million, substantially below the $700 million budget previously stated at Final Investment Decision (FID),” Seplat concluded.
