FREE

SEPLAT PETROLEUM DEVELOPMENT COMPANY PLC - COVID-19 pandemic to suppress 2020 topline

Weaker oil revenue despite Eland consolidation

Seplat reported a 16% drop in oil revenue to $495 million in 2019, a reflection of lower output and weaker oil prices (average realised oil price2019: $64/bbl, 2018: $70/bbl). Due to rig mobilisation delays in the first half of 2019, oil output for the year fell to 7.7 MMbbls (down 9%). However, quarterly figures showed that the volume of oil lifted in the fourth quarter surged 55% q/q to 2.7 MMbbls—the highest output in a quarter since 2015. This was driven by improved drilling activities in H2’19, in line with the revised capex programme for 2019. Although drilling activities are expected to slow in 2020 amidst unattractive oil prices, the consolidation of Eland’s output (commencing on January 1, 2020) is projected to lift Seplat’s oil output by 64% to 12.6 MMbbls this year. Despite this sharp growth in oil output, we expect oil revenue to come in weaker at $480 million (down 3%), reflecting the plunge in oil prices (average realised oil price- 2020E: $38/bbl, 2019: $64/bbl). Meanwhile, we note that Seplat has hedged a quarterly output of 1.5 MMbbls at $45/bbl for the first three quarters of 2020. As a result, we project a gain of $39 million from these hedging contracts, which is reflected in our estimate for fair value gain on the income statement.

COVID-19 outbreak to bite gas sales to manufacturers
Like its oil business, Seplat’s gas operations posted a 13% decline in revenue to $136 million in 2019, dragged by smaller output alongside a weaker average gas price (2019: $2.84/Mscf, 2018: $2.94/Mscf). The gas projects initially scheduled for 2019 were postponed to 2020, as management prioritised oil drilling during the year, believing this would have a quicker impact on turnover. As a result, gas output declined 10% to 47.8 Bscf in 2019.