SEPLAT to drill two gas wells this year as cash reserves rise to $343m

Seplat Petroleum Development Company Plc (“Seplat” or the “Company”), a leading Nigerian independent energy company listed on both the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE), has announced a cash increased to $343m despite lower revenues, for the six months ended 30 June 2020.

The Company’s full-year capex of US$120m (US$86m already invested) would also include two gas wells and related infrastructure. Revenue for the period stood at $234m amid lower oil prices and demand. Commenting on the results, which were released to the NSE and LSE on Wednesday, the Chief Executive Officer, Seplat, Mr. Austin Avuru, said: “Seplat has delivered a robust performance despite the unprecedented crises we have experienced since March. Our continued resilience is possible as a result of our financial strength, our careful management of risk and our prudent approach to capital allocation. Unlike many in our industry, we were able to protect our 2019 dividend and increase our capital investment to ensure continued growth.”

Seplat’s oil hedging strategy and gas revenues, according to Avuru, have continued to protect the business from price volatility, with the Company achieving substantial cost reductions from its suppliers while managing own costs even more carefully in this challenging period.

“Thanks to the excellent relationships we have with our Government partners and supply chain, our Nigerian Petroleum Development Company (NPDC) receivables have fallen and we are managing our payments equitably. The cash position is also robust because our careful management of debt has ensured that the majority of obligations mature in 2022 and 2023. We are operating within our covenants on all our lines of debt,” the Seplat CEO said.

Speaking on Seplat’s efforts at ameliorating the impacts of Coronavirus, the Seplat outgoing CEO said: “As part of our commitment to our host communities, we have provided medical and food assistance where needed and will continue to do whatever we can to support those upon whom we depend for our business.

“This is my final set of results as Chief Executive of the Company I helped to found ten years ago. I thank all my staff, past and present, for working to make Seplat a major force in Nigerian energy production. I hand a robust and successful company over to Roger Brown, the incoming CEO, in the confidence that he and everyone at Seplat will make its second decade even more successful than its first.”

Highlights

Operational:

• Working interest production comfortably within guidance at 51,177 boepd despite market volatility

• Eland OML40/Ubima assets produced 10,861 bopd, 32% of Group oil volumes, integration progressing well

• Low unit cost of production at US$7.60/boe, with cost-cutting initiatives ongoing, particularly at OML40/Ubima

• Liquids production of 34,117 bopd, gas production of 99 MMscfd

• ANOH project remains on track for Q4 2021 first gas, financing RFP launched

• Amukpe-Escravos Pipeline delayed due to access to the Escravos terminal, expected operational in H2 2020

Financial:

• Cash increased to US$343 million despite lower revenues, US$29 million 2019 dividend, and US$86 million capex

• Net debt steady at US$457 million with most maturities after 2021

• Revenue US$234 million

• IAS 36 impairment provision of US$146 million (non-cash) in line with IAS 36 COVID-19 impact assessment

• Business continuity and re-opening plan successfully mitigating the impact of COVID-19 lockdowns

• Oil field operations largely unaffected, 28-day rotations in force

Outlook:

• Full-year production guidance reiterated at 47-57 kboepd, subject to market conditions. We expect to narrow the guidance range in Q3

• Oil hedging: 1.5MMbbl at US$45/bbl Q3 2020, 1.5MMbbl at US$30/bbl Q4 2020, 1.0MMbbl at US$30/bbl Q1 2021

• Full-year capex of US$120 million (US$86m already invested) to include two gas wells and related infrastructure

Outlook for 2020

We maintain our previous guidance of 47,000 to 57,000 boepd and remain confident of market recovery in the coming months. The business is hedged against low oil prices using put options and a significant proportion of our revenues now come from gas, which offers additional protection from oil price volatility. The Company has low production costs and continues to focus on cost savings in line with Government partner directives to reduce costs, to maintain profitability even at the lower prices we have seen this year.

We have significant cash resources available and will continue to manage our finances prudently in 2020, expecting now to invest US$120 million of capital expenditure across the full year (of which US$86 million has already been invested), including two new gas wells to be drilled in H2. The timely completion of the ANOH project remains a major priority, despite the COVID-19 crisis and we recently launched a financing RFP that has already generated significant expressions of interest.

Seplat’s hedging policy continues to focus upon assuring appropriate levels of cash flow in times of oil price weakness and volatility. The H2 2020 hedging programme consists of put options at a strike price of US$45.0/bbl protecting a volume of 1.5 MMbbl for the third quarter of 2020, with an additional 1.5 MMbbl being hedged more recently for the final quarter at US$30/bbl.

Seplat has been tested in previous adverse conditions, including a lengthy shut-in, and we are confident that the stronger and more diverse business we operate today will be even more resilient against the unprecedented market events of 2020.