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SEPLAT PLC FY'16 - Cautiously optimistic outlook

SEPLAT capped FY’16 with a loss of $166 million as the force majeure on Forcados exports took its toll on condensate volumes. Working Interest (W.I) production came in at c.26k boed, in line with Vetiva estimate. Whilst oil revenue was down 70% due to a combination of low oil prices and Forcados closure, gas revenue rose 37% to $105 million (Vetiva estimate: $104 million) on improved gas price and production. SEPLAT was able to raise gas volumes by de-constraining condensate production with alternative evacuation of crude via the Warri refinery. However, realized oil price of $40.40/bbl was below the $45/bbl we were looking for. For 2017, SEPLAT has hedged 3.69 million bbls (2016: 6.0 million bbls) at an average strike price of US$48.38/bbl.

All seems set for production recovery in H2’17 even as Forcados exports are due to return. The level of government engagement in the Niger Delta suggests to us that positive steps are being taken to ensure uninterrupted production going forward. Following from this, we hold a cautiously optimistic outlook on SEPLAT’s forward performance. Due to longer than expected return of Forcados in 2017 however, we have revised our W.I production estimate to 34k boed (Previous: 41k boed), but forecast production to hit pre-Forcados attack level of 52k boed by 2018. We are more excited by SEPLAT’s gas business with the completion of the Oben Phase II gas expansion expected in Q2’17 which would add 225 mmscfd aggregate processing capacity and raise SEPLAT’s gross capacity from 300 mmscfd to 525 mmscfd. This capacity gives headroom to increase contracted gas sales and handle 3rd party volumes in the future.

Guided by the multiple evacuation route, we have reduced the risks associated with production and raised our TP to ₦365.54 (Previous: ₦282.03) but maintain our SELL rating as we view the current market valuation price as rich.

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.