Buoyed by their improved outlook, research analysts at Lagos-based Vetiva Capital Management Limited have raised their Target Price (TP) for Seplat Petroleum Development Company shares to N582.70 from previous: N365.54. The analysts asked investors to “Buy” Seplat shares which stood at N482 on Tuesday.
Listed on the Nigerian Stock Exchange (NSE) exploration and production subsector of the oil and gas sector, Seplat’s market capitalisation stood in excess of N271.58billion last Tuesday. The company’s shares outstanding are 563,444,561 units.
SEPLAT is an independent Oil and Gas Exploration and Production (E&P) company formed in 2009 by Shebah Petroleum and Platform Exploration & Production, following which, French exploration company Maurel & Prom (MPI) purchased a 45percent stake. In July 2010, SEPLAT acquired OMLs 4, 38 and 41 from Royal Dutch Shell’s Nigeria Division (SPDC), attaining a 45percent stake and operator status.
“For the first time since first-quarter (Q1) 2016, SEPLAT reported profit from quarterly operations – posting an earnings before interest and taxes (EBIT) of $8.6 million,” said Tominiyi Ramon-led team of equity research analysts at Vetiva Capital while reviewing Seplat’s first-half results.
“Second-quarter (Q2) 2017 performance was partly supported by the resumption of crude export at the Forcados Terminal following lifting of the force majeure on June 6. Notwithstanding, the 3-month bottom-line remained negative as in previous quarters – pressured by finance expenses,” the analysts stated.
“Supported by management’s continued cost containment (General and Administrative Expenses down 27percent y/y as at H1’17), we forecast FY’17 operating profit at $112 million (Previous: $95 million). Meanwhile, we have revised our interest expenses higher amidst the one-year extension of the Revolving Credit Facility (announced July 3) from Dec 2017 to Dec 2018; the outstanding principal balance of the facility stands at $150 million. On the back of our cautiously optimistic view on H2’17 production, we forecast FY’17 tax of $30 million (H1’17: $1.1 million). Overall, we expect SEPLAT to return to profit in FY’17 and forecast a profit after tax (PAT) of $33 million (previous: $10 million), supported by a more optimistic view on H2’17 production”, Vetiva stated.
“In line with expectation, Liquids production post-resumption rose to the pre-force majeure working interest levels of 34,000 barrels of oil equivalent per day (boed), propping Q2 average production to 9,507 barrels per day (bpd) (Q1’17: 5,112 bpd). Gas production also returned to normal levels of around 130 mcfd, improving the quarter’s average reading to 101 million cubic feet per day (mcfd) (Q1’17: 95 mcfd).
“As a whole, hydrocarbon production for the Q2’17 period rose about 53percent quarter-on-quarter (q/q) to 32k boed, bringing first-half (H1)2017 production to 26.3k boed (up 3percent y/y). However, revenue over the 6-month period was down 14percent y/y to $131 million (after adjustment for crude over-lifting) amidst mild decline in average realized selling prices – Crude oil price: down 2percent y/y to $45/bbl (20percent of H1’17 volume hedged at $47/bbl), Gas price: down 3percent y/y to $2.97/mcf.
For H2’17, SEPLAT has hedged 1.70 million bbls (about 35percent of management forecast production) at a price of $50/bbl. Barring further volume or price shocks, we believe SEPLAT is well on course to return to profit by FY’17 end.
