SEPLAT PETROLEUM DEVELOPMENT COMPANY PLC 9M'19 Earnings - Increased drilling boosts oil output q/q

In its 9M’19 results, SEPLAT’s turnover slid 13% y/y to $495 million (Vetiva estimate: $493 million), as the nine-month period was dragged by smaller crude output (9M’19: 47.2 kboepd vs. 9M’18: 50.8 kboepd) and weaker realised oil prices (9M’19: $64/bbl vs. 9M’18: $71/bbl). Nonetheless, Seplat’s 9M’19 after-tax earnings doubled y/y to $185 million (Vetiva estimate: $155 million), majorly driven by a lower tax expense of $3 millon (9M’18: $121 million).

Although average realised oil price moderated 10% q/q in Q3’19, Seplat’s oil revenue climbed 9% q/q to $107 million, as the volume of oil lifted in the quarter jumped 23% q/q to 1.7 million bbls; this was, however, lower than the 1.9 million bbls lifted in Q1’19. As the firm continues its drive to revert oil output to pre-2019 levels, we foresee further improvement in oil production in subsequent quarters. Specifically, management announced that the company had drilled and completed three oil wells so far in 2019, with two additional oil wells expected to be drilled before year end and completed in early 2020. That said, we expect oil output to come in at 1.9 million bbls in Q4’19, translating to an oil revenue of $114 million (+6% q/q), which subdues the effect of an anticipated weaker realised oil price of $60/bbl (Q3’19: $62/bbl).        

In Q3, Seplat’s gas operations posted a 39% q/q plunge in output to 8.1 Bscf, as production from two Oben gas wells was constrained during the quarter. Nonetheless, gas revenue grew 8% q/q to $33 million, as Q3 average realised gas price surged to $4.06/Mscf (+78% q/q). The spike witnessed in average gas price was mainly supported by improved gas supplies to non-electricity producers—a market where there is no regulated pricing for gas sales. In Q4’19, we expect gas output to inch up to 8.5 Bscf, resulting in a 5% q/q rise in gas revenue to $36 million, summing up to a FY’19 gas turnover of $141 million (-10% y/y).