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SEPLAT PETROLEUM DEVELOPMENT COMPANY PLC FY'20 - Oil price recovery to propel 2021 earnings

In its recently released FY’20 results, Seplat reported a loss of $85 million for the year, as impairment losses worth $144 million dragged profitability to the red zone. As expected, oil revenue declined 16% y/y to $418 million following weaker oil prices witnessed during the year, especially in Q2 when the pandemic-induced supply glut dragged Brent prices to as low as $10/bbl. A similar downtrend played out in Seplat’s gas operations which posted an 18% y/y output decline, taking gas revenue 17% lower y/y to $113 million (Vetiva estimate: $112 million).

Going into 2021, we see some positives for Seplat. Firstly, we expect the impact of the recent rally in crude prices to outweigh the effect of the cap OPEC+ has placed on oil output. In our view, we see Q4’20 run rate for oil volumes being sustained through 2021, taking total output to 10.3 mbbls (down 1% y/y). With an estimate of $60/bbl for average realised oil price, we project that oil revenue would come in stronger at $618 million (up 48% y/y) in 2021. As per gas operations, we expect to see sizable improvement in demand, given the expectation of continual upticks in overall business activities. Furthermore, a capex budget of $150 million has been proposed for 2021, with a primary focus on gas projects and an exploration well. While this may not translate to significant quicker gains in 2021, we expect to see output surge in 2022 and beyond. All in, we see Seplat’s gas output coming in at 44 Bscf (2020: 39 Bscf), taking gas revenue to $128 million (2020: $113 million). Our revised projections for Seplat equate to an after-tax profit of $128 million and net operating cash inflows of $343 million (2020: $309 million).