Nigeria’s Trans-Forcados pipeline which exports the Forcados crude oil shut down on May 16 for repairs to inspect a leak is expected to resume operations within two weeks.
According to a review of Seplat Petroleum Dev Company Q4 2017 and Q1 2018 results done by FBNQuest Capital, sent to BusinessDay, the firm confirms this through conversations with the company.
“Recently, exports via the TFS have been shut following leakages. Following our conversations with the firm we expect exports via the TFS to resume within a fortnight. We understand that these leakages are due to the age of the TFS rather than by vandalism,”
The Trans-Forcados pipeline which transports about 200,000 to 240,000 barrels of crude per day, is the major trunk line in the Forcados Pipeline System. It is also the second largest network in the Niger Delta after the Bonny Oil Pipeline System.
Some of the companies affected by the shutdown include the Nigerian Petroleum Development Company (NPDC), Seplat Petroleum Development Company Plc, Shoreline Natural Resources, among others.
Seplat Petroleum Development Company’s (Seplat) Q1 2018 results were boosted by strong oil revenues which rose 534% y/y to US$141m underscoring the importance of the pipeline.
“These results did not surprise significantly due to steady output following the resumption of exports via the TransForcados System (TFS) and a recovery in global oil prices,” said a note written by Uwadiae Osadiaye, CFA, analyst at FBN Quest.
Osadiaye further said, “Given renewed confidence in predictability of exports, management is guiding to a full year average working interest production of between 48,000 and 55,000 barrels of oil equivalent per day (24,000 to 29,000 bopd liquids and 148 to 158 MMscfd gas) in 2018.”
FBN Quest believes that the TFS will continue to be a major factor in their production outlook, mainly because exports via the Warri Jetty provide only partial and relatively more expensive relief.
Unlike with previous outages, Shell Petroleum Development Company (SPDC) which operates the oil terminal and Heritage Oil who operates pipeline did not declare a force majeure after the pipeline went offline.
A force majeure is standard clause found in construction and supply contracts, it exempts the contracting parties from fulfilling their contractual obligations for causes that could not be anticipated and/or are beyond their control.
Sources told BusinessDay that the Trans Forcados trunk line is not the only one servicing the Forcados terminal hence if trunk lines like Trans Escravos and Ramos were not affected by the closure, it may not be necessary to declare force majeure.
Another possible reason, according to another source, is that declaring force majeure would be a bad signal for some of the oil operators that use the trunk line as their investors may begin to query the security of their investments.
Year-to-date, Seplat shares have gained 17.3%, outperforming the NSE ASI by around 11.6%. “Given the potential upside on the stock and our view of relatively stronger production this year, we have upgraded our recommendation on Seplat shares from Neutral to Outperform. At current levels, on our published estimates, Seplat shares are trading on a 2018E P/E multiple of 5.6x for an EPS growth of around 4% over the 2018-19E period,” said Osadiaye.
ISAAC ANYAOGU
