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SEPLAT PLC 9M'17 - Stable operations buoy strong Q3’17 earnings

Stable operations buoy strong Q3’17 earnings
SEPLAT reported a PAT of $22 million for its Q3’17 standalone operations to trim 9M’17 losses to $5 million (9M’16: $98 million loss) - first positive quarterly bottom-line since Q3’15. The turnaround was driven by continued stability in oil export at the Forcados Terminal following the lifting of the force majeure on June 6. Buoyed by the stability, liquids production averaged 26,351 bopd for Q3 period (H1’17: 9,507 bopd), propping up 9M’17 working interest average production to 15,183 bopd (Vetiva: 15,872 bopd). Gas production was equally impressive over the quarter, improving to 111 mcfd (H1’17: 101 mcfd) to take the 9M working interest reading to 104 mcfd, slightly behind our 110 mcfd estimate. Total 9M revenue from the hydrocarbons rose 31% y/y to $279 million, generating a gross profit of $125 million (Vetiva: $129 million).

Asides the impact of stronger crude oil price and sustained improvement in volumes on SEPLAT’s earnings, we consider more golden the ongoing exports de-risking project - the 160,000 bopd Amukpe to Escravos pipeline; project completion date now revised to H1’18 (Previous: Q1’18). We reiterate that the completion of the evacuation route, together with the existing routes (Forcados and Warri refinery jetty) provide SEPLAT with the necessary export flexibility to help mitigate against the impact of possible militancy disruption to production.

After updating our model to account for other items including the oil price hedges losses and higher interest expenses over the quarter, we revise our FY’17 PAT to $20 million (Previous: $33 million). We however raise our NAV/Target Price (considering 2P assets only) to $1.62 (Previous: $1.59) driven by lower revision to our post-FY’17 crude handling charges. At current NAFEX rate of NGN360.13/USD, our NAV translates to N585.18. We hold a BUY rating on SEPLAT.