FREE

SEPLAT PETROLEUM DEVELOPMENT COMPANY H1'20 - Oil price upticks to support turnover in H2

Last week, Seplat released its H1’20 results, reporting an after-tax loss of $110 million for the period, as the company’s performance was dragged by a pandemic-driven plunge in oil prices (average realised oil price- H1’20: $36/bbl, H1’19: $65/bbl). An assessment of Q2 figures shows that oil revenue recorded a 26% y/y decline to $73 million (Vetiva estimate: $79 million), even though Eland consolidation lifted oil output to 2.86 mbbls (Vetiva estimate: 2.82 mbbls, Q2’19: 1.40 mbbls). We highlight that Seplat’s oil business performance was largely impacted by the COVID-19 health crisis which led to a 30% slump in world oil demand in April and consequently suppressed average oil price for the company to $25/bbl (down 64% y/y) in Q2.

Seplat’s performance in Q2’20 was largely affected by the pandemic-induced slump in oil prices, coupled with cost pressures across several constituents of cost of sales. Although average Brent prices have shown some recoveries since April, it suffices to say that crude prices are still far below pre-pandemic levels of $65/bbl. Going forward, we believe the continual relaxation of social distancing measures in many countries and the growing hope of a possible COVID-19 vaccine would lift oil demand in H2 and consequently support oil prices. As such, we expect H2 average realised oil price for the company to come in at $42/bb (H1’20: $36/bbl, H2’19: $64/bbl). As per crude output, we have lowered our H2 estimate to 5.28 mbbls (H1’20: 5.01 mbbls, H2’19: 4.38 mbbls) following the directive by the government that Seplat should reduce its crude output by 20%-30% in July and August. Based on this, we have lowered our expectation for oil revenue to $221 million in H2 (H1’20: $180 million, H2’19: $279 million), bringing full year projection to $401 million (2019: $495 million). Meanwhile, we have slightly raised our 2020 forecast for gas revenue to $118 million (2019: $136 million), reflecting the miss in H1. Given the asset impairment recorded in Q1, we see Seplat reporting a loss after tax of $58 million in 2020 (2019 PAT: $264 million), which would be the second annual loss in five years.