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SEPLAT PLC Company Update - Earnings recovery looking more secure

Earnings recovery looking more secure                                   

For the first time since Q1’16, SEPLAT reported profit from quarterly operations – posting an EBIT of $8.6 million. Q2’17 performance was partly supported by the resumption of crude export at the Forcados Terminal following the lifting of the force majeure on June 6. Notwithstanding, the 3-month bottom-line remained negative as in previous quarters - pressured by finance expenses. In line with expectation, Liquids production post-resumption rose to the pre-force majeure working interest levels of 34,000 bpd, propping up Q2 average production to 9,507 bpd (Q1’17: 5,112 bpd). However, revenue over the 6-month period was down 14% y/y to $131 million (after adjustment for crude over-lifting) amidst mild decline in average realized selling prices – Crude oil price: down 2% y/y to $45/bbl (20% of H1’17 volume hedged at $47/bbl), Gas price: down 3% y/y to $2.97/mcf.                     

We understand that SEPLAT has completed the upgrade and repair of its two jetties at the Warri refinery. The upgraded jetties can sustain exports of 30,000 bpd (gross), up from 15,000bpd pre-upgrade. Work is also ongoing on the 160,000 bopd Amukpe to Escravos pipeline with completion date now revised to Q1’18 (Previous: Q4’17). SEPLAT signed an MOU on 12 July with the pipeline operator Pan Ocean to work in partnership on i) completion of the pipeline, ii) negotiation with the Escravos Terminal Operator (Chevron) on crude handling and iii) operation & maintenance of the pipeline going forward. Although crude liftings via the Warri refinery jetty attracts higher costs of around US$11/bbl, this higher expense is partly offset by the fact that liftings are not subject to reconciliation losses and crude handling & transport charges that are payable when exporting via Forcados.                         

Overall, we expect SEPLAT to return to profit in FY’17 and forecast a PAT of $33 million (Previous: $10 million), weighed down by the finance interest charges. Buoyed by our improved outlook, we raise our NAV/Target Price (considering 2P assets only) to $1.59 (Previous: $1.02), translating to N582.70 going by NAFEX rate of NGN366.50/USD. We hold a BUY rating on SEPLAT.                          

SEPLAT is an independent Oil and Gas Exploration and Production (E&P) company formed in 2009 by Shebah Petroleum and Platform Exploration & Production, following which, French exploration company Maurel & Prom (MPI) purchased a 45% stake. In July 2010, SEPLAT acquired OMLs 4, 38 and 41 from Royal Dutch Shell’s Nigeria Division (SPDC), attainning a 45% stake and operator status. In April 2014, SEPLAT floated around 38% of its shares in a successful IPO on the main market of the London Stock Exchange and Nigerian Stock Exchange.