Pandemic pressures put chill on Seplat numbers as FY20 revenues tumble 10.8% y/y to N190.9bn

Gross profit toppled 63.1% y/y from N121.5bn to N44.8bn in 2020 due to lower oil prices, higher non-production costs

2021 outlook places production guidance at 48-55 kboepd, subject to market conditions as firm hopes to hedge against price volatility

Charles Abuede

Seplat Petroleum Development Company, the Nigerian independent energy company that is listed on both the Nigerian and London stock exchanges, reported a -10.8 per cent year-on-year decline in its revenues from contracts and customers, after it posted N190.9 billion in 2020 full year as against the N214.2 billion posted in 2019. The company also posted weak numbers after reporting a
N30.7 billion loss in 2020 from the N85.0 billion realized in the previous year.

In its audited full-year 2020 financial statements filed to the local bourse, the company saw gross profit tumble 63.1 per cent to N44.8 billion from N121.5 billion in 2019, due to lower oil prices and higher non-production costs, primarily consisting of royalties and depletion, depreciation and amortization (DD&A), which were N82.4 billion in the year 2020, compared to N57.6 billion in the prior year.

Also, the DD&A charge for oil and gas assets rose by 64.1 per cent to N45.9 billion during 2020, reflecting higher depletion of reserves because of increased production compared to the prior year. The company’s direct operating costs, which include crude-handling fees, rig-related costs and operations and maintenance costs, rose 69 per cent year on year to N54.6 billion in the year.
A further breakdown of the company’s financials shows that Seplat’s loss before tax stood at N28.9 billion in 2020, compared to N89.9 billion in of 2019.

Also, the Group’s tax charge for 2020 was N1.8 billion when compared to N9 billion for 2019. The substantial reduction in the effective tax rate was principally due to the recognition of tax losses available for utilization against future profit.

Commenting on the results, Roger Brown, the CEO of Seplat Petroleum Development Company said: “2020 was a challenging year for the company but 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. Despite seeing the lowest oil prices in our 10-year history, we have continued to honour our commitment to shareholders of a regular income stream on their investment, by maintaining a total dividend of $0.10 per share for the year.

“Gas is the lower-carbon feedstock for affordable electricity for Nigeria’s young and rapidly-growing population. 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 baseload for a functioning electricity grid that will allow renewable energy to take its place, as we see in the developed world, which in large parts is still fuelled by coal. The energy transition in Nigeria must balance both the environmental and the social agenda,” he stated.

Following a reassessment of the business models and assumptions to establish their reasonableness and practicality, particularly in the current and expected oil price environment, the company booked a non-cash provision of N52 billion across assets in the 2020 full year. Including all adjustments, the operating loss for the year was N11.4 billion as against the operating profit
2019 which was at N95.8 billion. The loss reflects lower oil prices realised and an impairment provision of N52 billion booked in the period, which includes a non-financial asset charge of N41.2 billion and financial asset charges of N10.8 billion.

The crude oil revenue declined 1 per cent year on year to N150.4 billion, while gas revenue slipped 34.9 per cent year on year to N40.5 billion in the current period being reported. The fall in oil revenue reflects lower realised oil prices of $39.95 per barrel for the period as against the $64.4 per barrel recorded in 2019, and offset by added production primarily from the Eland assets. However, the lower gas sales volumes reflect lower-than-expected gas production due to constrained demand as a result of the pandemic's impact and delays in completing the Oben-50
gas well, following return in demand. There were no gas-processing revenues in FY20, compared with the one-off gas-processing revenue of N20.5 billion in 2019, the Oben gas plant tolling payment by NPDC.

Meanwhile, the ensuing basic loss per share was N46.42 per share in 2020, compared to an EPS of N149.35 in 2019. The reduction was mainly due to lower oil prices and impairment charges. The board recommended a final dividend of N19 for a share in line with the dividend policy, bringing the total dividend to N37.32 per share in 2020 compared to the N30.70 per share in 2019.
On the outlook, the company disclosed that it expects to produce an average of 48,000 to 55,000 boepd, taking into account the impact of OPEC+ quotas and other market conditions as it will continue to hedge against price volatility. Also in 2021, Seplat expects to make investment of $150 million in capital expenditures through the year while remaining confident of prudent
cash management which will enable it to further reduce its debts, whilst supporting dividend payments and investment for growth.

“Our flagship ANOH project, with the Nigerian Gas Company, is now fully funded and we have made excellent progress in difficult times, with major gas processing units expected to arrive in Nigeria in Q3 2021, installation to commence before the end of the year, mechanical completion and pre-commissioning in Q1 2022 and first gas flowing to customers before the end of H1 2022, at a lower expected cost of up to $650 million but substantially below the 4700 million budget initially stated at Final Investment Decision (FID). We remain committed to providing shared value for all of our stakeholders,” the CEO stated.