SEPLAT PETROLEUM DEVELOPMENT COMPANY PLC Q1'19 - Gas Operations Support Earnings In Q1

Lower oil output weighs on top line

SEPLAT’s Q1’19 results show that oil revenue slid 16% y/y to $118 million, underperforming our estimate of $131 million. The fall in oil revenue was largely a reflection of the slump in oil production during the quarter; average oil production of 21.9 kb/d in Q1’19 vs 27.3 kb/d in Q1’18. We also note that the decline in average realised oil price (Q1’19: $62/bbl, Q1’18: $66/bbl) contributed to the tepid performance in SEPLAT’s oil business.

Meanwhile, despite the fall in gas output during the quarter to 143 MMscfd (Q1’18: 158 MMscfd, Vetiva estimate: 145 MMscfd), SEPLAT’s gas operations registered modest performance in Q1’19, with gas revenue advancing 6% y/y to $42 million (Vetiva estimate: $39 million). The growth witnessed in gas revenue in Q1’19 was primarily driven by the increase in realised gas price (Q1’19: $3.2/Mscf, Q1’18: $2.8/Mscf).

Tax credit cushions earnings                                                           

While gross margin came in flat at 51%, operating margin declined to 20% (Q1’18: 46%), as the firm was less operationally efficient during the quarter. Operating margin was weakened by an overlift loss of $16 million (Q1’18: underlift gain of $9 million) coupled with higher administrative expenses (+27% y/y). We also highlight that SEPLAT recorded a charge of $12 million in relation to the firm’s oil price hedges. Despite the decline in operating margin, net margin came in stronger at 20%, as profit after tax was bolstered by a net tax credit of $13 million. In Q1’19, SEPLAT’s oil business made a loss before tax of $16 million and consequently got a net tax credit that brought the after-tax loss from the oil segment to $3 million. Meanwhile, SEPLAT’s gas operations recorded an after-tax profit of $36 million in Q1’19, accounting for the firm’s profitability during the quarter. All in, SEPLAT made an after-tax profit of $33 million in Q1’19, indicating a 59% y/y growth.