Seven Energy International Limited is an independent Nigerian integrated oil and gas development, production and gas distribution company founded in 2004. With the backing of strategic long-term investors and main offices in Lagos and London, the Group has a unique focus on the emerging Nigerian domestic gas market. The Group’s upstream assets include license interests in the Uquo Field and the Stubb Creek Field (south east Niger Delta), an indirect interest in OMLs 4, 38 & 41 through a Strategic Alliance Agreement with Nigerian Petroleum Development Company (north west Niger Delta) and a license interest in OPL 905 (Anambra Basin). Its midstream infrastructure assets, focused on south east Niger Delta, include the 200 MMcfpd Uquo Gas Processing Facility and a gas pipeline network of 260 km with distribution capacity of 600 MMcfpd.
Regardless of the macroeconomic headwinds, the company’s performance was impressive.
Improved turnover validates investment in gas.
For the period ended December 2014, the upstream oil and gas giant turnover grew by 9.56 percent to $378 million, from N345 million the same period of the corresponding year (FY) 2013.
The growth in revenue was principally due to the commencement of commercial gas deliveries to the Ibom Power power station and the Unicem cement factory, following the acquisition of East Horizon Gas Company on 31 March 2014.
Seven Energy plans to increase gas output more than fourfold to 500 million standard cubic feet (14.2 million cubic meters) per day by 2019 from 110 million.
The company’s production expenses were up by 35.67 percent to $232 million in 2014, from $171 million the previous year. The increase in production costs was largely driven by increased SAA opex and full year of southeast operations.
Depletion costs increased by 79.40 percent to $122 million in 2014, compared with $68 million the preceding year due to increased SAA entitlement, gas production & infrastructure depletion.
Growth in operating profit despite rising costs
In relation to the company’s operation, distribution and admin expenses, administration expenses were up by 37.80 percent to $58.73 million in December 2014 from $42.62 million the corresponding period of 2013. Other operating expenses surged by 929 percent while depreciation and amortisation expenses jumped by 50 percent.
Despite increased operating and input costs, the company recorded a 18.04 percent increase in operating profit to $148.41 million in December 2014, as against $125.72 million in 2013. Gross profit increased by 21.68 percent to $215.06 million in 2014 compared with $176.74 million as at December 2013. It means the company is efficient in managing direct costs attributable to projects.
Net income surged amid rising finance costs
For the year ended December 2014, Seven Energy’s profitability improved significantly despite increased gearing. Profit after tax (PAT) spiked by 41 percent to $55 million in the review period from $39 million in 2013. However, profit before tax (PBT) reduced by 9.09 percent to $80 million in 2014 compared with $88 million the previous year.
The growth at the bottom line is coming as the company grapples with increased finance costs.
Finance costs moved by 100 percent to $76 million in 2014 as against $39 million as at December 2013. Total debt in the company’s balance sheet was $767 million, representing an increase of 44.71 percent from $530 million in 2013. The increased gearing position of the company was due to the issuance $400 million, Senior Secured Loan Notes and Private Bond, the proceeds of which were used to repay the Group’s Reserve Based Lending Facility, Convertible Bond, Working Capital Facility and Discount House Loan Facility. In addition, the Group secured an Acquisition Finance Facility of up to $170 million which was used to finance the acquisition of East Horizon Gas Company.
The company debt to equity ratio (D/E) reduced to 104.07 percent in 2014 as against 133.83 percent in 2013. With a 104.07 percent debt to equity ratio, it means Seven Energy’s balance sheet is funded by lenders money.
The company maintained positive ratios a manifestation of its earnings growth in the review period. Earnings per share rose to $15.9 in 2014 from $15.1 reflecting the 41.0 percent rise in net income.
Gross profit margin (GPM) rose to 56.87 percent in the review period as against 51.37 percent the previous year. Net margin, a measure of profitability and efficiency moved to 51.37 percent in December 2013. Operating profit margin moved to 39.26 percent in 2014 compared with 36.44 percent in 2013.
However, the return on equity (ROE) reduced to 7.49 percent in 2014 from 9.84 percent in 2013. Pretax margin fell to 21.16 percent in 2014 compared with 25.50 percent in December.
Stellar performance in 2014 improves shareholders wealth
Through focus strategy, aggressive expansion and the ability to translate top line impressive performance to bottom line growth, Seven Energy was able to maximize the value of its owners.
The company recorded improvement in overall assets over liabilities. Total assets rose by 72.74 percent to $2001 billion in 2014 compared with $1.37 billion in the preceding year. Total liabilities jumped by 67.24 percent to $1.63 billion in the period under review as against $980 million last year. Expectedly, shareholder’s fund grew by 86.11 percent to $737 million in 2014, from $396 million the previous year.
Current ratio, which measures the ability of a firm in meeting short term obligation as at when due was 51 times, an improvement from 31 times recorded last year. It should be noted that the 51x current ratio is lower than the 2.1x industry average.
Aggressive expansion validates growth strategy.
Seven Energy will continue to target diversification of its customer base beyond the power generation sector and into the industrial sector to try to achieve the best price for its reserves and resources.
The company is aggressively pursuing inorganic growth strategy as it Acquired East Horizon Gas Company in March 2014. With this strategic acquisition, the company made significant additions to its gas distribution network.
Seven Energy paid a gross consideration of $250 million (net consideration $137 million) to Oando PLC to purchase East Horizon Gas Company. It processing capacity is ready to meet delivery agreements as the company completed the Uquo gas processing facility in May 2014, which brought the facility into full operational mode, doubling the Group’s processing capacity to 200 MMcfpd. Seven Energy received recognition from Nigeria’s Federal Government in August 2014 for its contribution to government’s Gas Master Plan. The presidency in a presidential visit, officially commissioned the Uquo gas processing facility.
In February 2015, the company commenced oil production from one well at the Uquo field and two wells at the Stubb Creek field. This followed completion of the FUN oil gathering manifold and its connection to ExxonMobil’s export terminal at Qua Iboe. It received our first lift of oil from this terminal in April 2015.
Seven Energy continues to create shareholder value by deriving production from six fields: Oben, Sapele, Ovhor, Amukpe, Okporhuru and Orogho. Average gross production increased from 51,600 bopd in 2013 to 52,500 bopd in 2014. Daily production rates reached 80,000 bopd toward the end of 2014, compared with 60,000 bopd during 2013, a 33% increase, with the additional production from the 24 new oil wells drilled during the year. However, with problems at the Trans Forcados pipeline, there was more downtime than during 2013, which is why there was only a small increase in average daily production, the company said on its website.
In January 2014, Seven Energy completed the acquisition of SRL 905 Holdings Limited, which holds a 40% license interest in OPL 905. In addition, following the acquisition of GTPL in 2015, the Group now holds an additional 50% license interest. “With existing seismic and two exploratory wells previously drilled, this fits our target profile of low cost access to low risk evaluation and exploration, with the aim of growing our reserve base, said company on its website. “The gross recoverable 2C resources at OPL 905 are estimated to be 337 Bcf, it said.
BALA AUGIE
