SEPLAT and Its Access Bank Nemesis - Plugging the Governance Gap


Sunday, December 06, 2020  / 02.57PM / By Proshare Governance Unit  / Header Image Credit: Scientific American Blogs


On Wednesday, December 02, 2020, the head office of Seplat Petroleum Development Company Plc, whose ordinary shares are listed on the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE) was closed to business based on a court order which permitted a receiver/manager, Messrs Kunle Ogunba & Co to enforce an ex parte motion requesting that Access Bank Plc take over SEPLAT's head office premises.


The problem appears to be related to a dispute between Access Bank and Cardinal Drilling Nigeria Ltd over a loan taken from Diamond Bank Plc (since acquired by Access Bank Plc) for which the latter has been unable to fully discharge/could not repay in line with the original terms of the facility. The loan is a legacy debt that the drilling company owed the now-defunct Diamond Bank which entered into a merger with Access Bank Plc to form the larger banking institution (acquiring the assets and liabilities of Diamond Bank Plc in 2019).


In its letter to the Nigerian Stock Exchange (NSE) on the matter, the upstream Oil and Gas (O&G) company indicated that SEPLAT was not a shareholder in Cardinal Drilling Company and therefore was not liable for its debt obligations.


The unfolding development however represents a material event that could adversely affect the company's declared earnings and dividend payouts to shareholders (beyond the debt issue as it concerns a key operating asset/related party - Cardinal Drilling Nigeria) and thus becomes an issue in need of better clarity and understanding.


As a follow up to the commentary on the Press Release by SEPLAT Plc (SEPLAT Plc Refutes Being Party to Cardinal Drilling Services Loan with Access Bank) some material observations central to the unfolding actions between parties become important.



The Eye of The Storm


Central Observations

1.       In the light of the claims and counter claims by parties, and the information available from financial returns/reports; we identified two separate strands for necessary market learning, viz:

a)    The obvious Debt Issue; and

b)    The corporate governance matters arising around disclosures made by SEPLAT Plc.


2.      While we believe that the matter(s) related to the debt issue are already in court and it would be subjudice to comment on same; we do however feel obliged to draw attention to two (2) correlated points for which attention must not be lost:


a)     The issue of recalcitrant debtors and the media cottage industry that always ensues, drowning the substantive practice and governance issues and lessons important for market and regulatory growth. This important dimension to risk management and debt collection efforts was a subject of the 2020 DebtorsAfrica report on the challenge of collection of non-performing loans (NPL's) of Nigerian banks. This current case offers yet another opportunity to interrogate the processes in place for a fair resolution of NPLs in order to improve credit administration and debt recovery practices in Nigeria; and

b)     The need to interrogate if and whether SEPLAT Plc may have solely enjoyed all the benefits of the facilities granted Cardinal Drilling (indirectly as a related party); to its advantage and wholly for the promotion and advancement of its businesses.


3.      Deriving from point 2b above, there is oftentimes the case that playing smart delivers unintended consequences and, in this case, a cul de sac. The argument upon which SEPLAT's public release is premised is that it has no relationship with Cardinal Drilling Nigeria, yet a cursory look at publicly available information and listed entity disclosures, without an attempt to lift the legal corporate viel, reveals the following:


a)     Cardinal Drilling indicated on its website the fact that it was mid-wifed by SEPLAT Plc viz: "The above innovative commercial arrangement of SEPLAT mid-wifing CARDINAL DRILLING Nigeria Limited enabled CARDINAL DRILLING Nigeria funding to be realized as Maurel & Prom through CARDINAL DRILLING SAS will contribute 40%." (see screenshot below)

b)     SEPLAT Plc has consistently disclosed in both its interim and annual reports that Cardinal Drilling is a related party.


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4.  It thus begs the question - "Which of the two statements is true - between the press release and the published reports? Both statements cannot be true at the same time. The guidance from IAS24 offers a guide here.


5.   It is this latter point that the market must address its minds to in the interim, as it goes to the heart of governance practices expected from listed entities; especially the credibility of representations made by quoted firms on public trading floors to the investing public.


We believe a clarification will be helpful here, but we must first address the debt recovery conundrum and how actions should be perceived.



Thinking Through A New Debt Recovery Paradigm


The contemporary problem in uncluttering the debt recovery process between Cardinal Drilling Nigeria, SEPLAT Plc and Access Bank Plc highlight the new recovery approach that DebtorsAfrica noted in their 2020 Report on the nature and outlook of debt recovery in Nigeria. 

On page 9 of the introduction to the report, the report writers noted the need for a new debt recovery approach.


According to the report authors:

  • "In walking through the issues of resolution of delinquent assets of lenders, both banks and their customers are going to have to enter a new era of loan initiation, disbursement, and recovery/repayment. The old paradigm is stunted and suffers from the following asset creation and management shortcomings:
  • Pre-approval assessment can take painfully long
  • Customer character assessment has been largely a hit-or-miss affair
  • Loan monitoring has been fragile and unengaged
  • Loan recovery/remediation has been adversarial rather than collaborative
  • Customers have had narrow leeway to work through loan repayment by way of restructuring and workouts"


To pursue a revitalized and forward-facing credit administration process the report writers advocated for a new approach noting that:

"The new paradigm, however, assumes greater bank customer engagement and better pre-approval assessment and monitoring. The new loan framework follows a different algorithm as represented below:

  • Credit Bureau rating review as base rate customer assessment criteria;
  • Project operating cash flow forecast that rests on base rate industry values for cost components and revenues;
  • Monte Carlo analysis of revenue risk/ project cost value at risk (VaR);
  • Industry/project SWOT analysis with detailed risk modelling of revenues and costs;
  • Milestone-based credit disbursement schedules based on scaled completion deadlines against agreed project execution plans. At this stage, the lender builds-in repayment lags and affirms critical path options and costs;
  • Loan monitoring and control involves one-on-one guidance of customer loan utilization and costs. The potential for loan diversion is reduced to a minimum as disbursements are choreographed in line with agreed repayment programmes which loan officers monitor and supervise closely;
  • Loan payback follows agreed anniversary dates but, in the event, that unexpected or unpredictable events take place (such as COVID-19), a loan resolution process is triggered immediately and a pre-agreed repayment framework is initiated at either the instance of the bank or the customer or both;
  • Rather than lenders and customers finding themselves locked in interminable arguments over repayment plans and default on repayment pledges, the pre-agreed resolution mechanism kicks-in and pulls the loan repayment process into a remedial default mode designed to restructure the Facility in a way that averts delinquency;
  • A digital library of publicly available delinquent bank debtors provides lenders insight into the character and managerial capacity of borrowers. The digital library places both a moral and business burden on delinquent borrowers as prospective lenders would use the library to fact-check the borrowing history of a loan applicant and use the history to set up a character rating index that would guide credit appraisal memorandums (CAMs) and inform acceptance or decline of credit requests; and
  • The pressure of having lenders able to review the nature of past loan facilities and repayment records of a prospective borrower creates a borrowing environment quickly and effortlessly that is sensitive to historical loan performance data and past loan resolution difficulties. The register profiles the corporate boards of borrowing entities and helps lenders assess the fitness of the company's leadership to the borrower. Leveraging the psychology of 'social proofing', the failure of a borrower to abide by the terms of a loan agreement with one lender would put other lenders on notice to decline the loan request of a previously delinquent borrower until such a time the borrower redeems the earlier facility. The soundness of the psychology has been vindicated by the numerous requests from delinquent borrowers for media houses to bring down digital stories posted online or references to earlier delinquencies associated with the companies."


Illustration 1: Lending Decision Matrix-Balancing Managerial Competence and Corporate Status

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Source: (PDF) NPLs & Bad Debtors: - The Case for a New Industry Approach - Debtors Africa, May 13, 2020



The Bank as Nemesis


The Seplat Plc, Cardinal Drilling Nigeria and Access Bank debt squabble is a case study in how banks become the nemesis of borrowers where proper housekeeping had not been done by the borrower and the borrower's corporate governance oversight may have been lax.


For example, a review of the sequence of events shows that in 2012, Cardinal Drilling Services Limited applied for and obtained a credit facility from Diamond Bank Plc (now merged with the larger current Access Bank) to buy CDS Rigs 101, 201, 202 and 203. The loan was secured by a fixed and floating Debenture over Cardinal's assets (the "Debenture"). The Cardinal Rigs were used to provide drilling services to SEPLAT.


CDS 101 and 201 were used to execute SEPLAT's 2019 work programme and all four (4) Rigs were critical to Seplat's future drilling plans and to shareholder returns by way of improved revenues and possible dividends.


Nevertheless, Cardinal Drilling was unable to service the outstanding part of the loan facility, prompting Access Bank Plc, which absorbed all the assets and liabilities of the old Diamond Bank Plc, to pursue recovery of the loan amount outstanding and accrued interests which is estimated at approx. US$86m.


Access Bank Plc has since gone to court to enforce its rights and it would appear that the entangled relationship between Seplat Plc and Cardinal Drilling, suggesting strong ties between both entities makes the separation of the entities a difficult task; and it would be up to the courts to establish same or otherwise.


This will also be helpful to the credit practice; as envisaged in the debtors report.


From an investors perspective however; and indeed from a best practice governance standpoint, the findings throws up issues that the regulators and market operators must use to clarify how related party relationships and transactions are communicated  and understood.


Without prejudice, allowing companies to acknowledge without responsibility or hide behind nebulous links with related corporate and individual third parties becomes a major hazard to good corporate governance and could adversely affect share values and independent shareholder interests.


The Access Bank Plc and Seplat Plc/Cardinal Drilling Nigeria case thus offers the market such an opportunity to review, monitor and guide new regulations surrounding the links between listed entities and their non-listed associates.



Time for a Paradigm Shift


Banks have been peppered by recalcitrant debtors and as established, old recovery models appear insufficient especially in periods where recessionary pressures or unpredictable events like the COVID-19 pandemic result in disruptions to corporate cash flows (see illustration 2 below). 


Illustration 2: Debt Recovery/Management - The Old Paradigm

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Source: (PDF) NPLs & Bad Debtors: - The Case for a New Industry Approach - Debtors Africa, May 13, 2020


The new debt management model depends on openness concerning the status of the borrower (for example, creating clarity around corporate relationships such as Seplat Plc/Cardinal Drilling Nigeria) and ensuring that a repository of credit standing is available for institutions to do pre-lending forensics on the borrowing entity. This could help in shaping the terms of the loans and define the appropriate loan structure.


The "C" of character in the five (5) Cs of credit bankers are traditionally tutored needs a framework for a proper assessment of how to derisk credits and reduce the probability of loan default (see illustration 3 below). 


Illustration 3: Debt Recovery/Management - The New Indicative Paradigm


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Source: (PDF) NPLs & Bad Debtors: - The Case for a New Industry Approach - Debtors Africa, May 13, 2020


A digital repository of debtor action as a reference for credit initiation would be a needed addition to the arsenal of banks in combatting delinquent loans. For companies listed on equity Exchanges, this would help ensure that equity prices of listed entities reflect contingent liabilities that may be off-balance sheets, and in the case of listed banks, it would help bring clarity to the character of assets on its annual statement of financial position. See


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Conclusion - Devils at Heaven's Gate


The issue of clarity and transparency in corporate governance has been highlighted by the ongoing case between Access Bank Plc and Cardinal Drilling Nigeria in which Seplat Plc has become an interested party by default in the case of a loan delinquency owed by a 'related party'.


The clarification of the nature of the relation between SEPLAT Plc and Cardinal Drilling Nigeria is considered important to establish the structure and cash flow patterns of SEPLAT's Oil & Gas business and the contingent liabilities that the company could be carrying that may adversely affect its future earnings. The letter sent by SEPLAT to the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE), with due respect, will appear inadequate under the circumstance.


To calm investor nerves, the management of Seplat Plc may consider doing the following:

  • Clarify the precise 'related party' relationship between SEPLAT Plc and Cardinal Drilling Nigeria for its investors on both the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE);
  • State which interested parties are common to both entities and at what levels this begins and stops (IAS 24 will be a useful guide here);
  • Consider unveiling the ownership No. 16A Temple Road, Ikoyi, Lagos and nature of occupancy (helpful to its cause in avoding the collateral damage by location as represented in the release/disclosure);
  • Propose a corporate governance covenant that creates an arms length relationship between SEPLAT Plc and Cardinal Drilling Nigeria recusing SEPLAT from transactional obligations involving Cardinal Drilling Nigeria (as currently available evidence suggest that SEPLAT Plc is a 'key' client of Cardinal Drilling Nigeria; and according to the drilling company's website; responsible for the midwife of the oil service company (see also the interim and audited financial statements of the SEPLAT Plc provided here below under illustrations)
  • SEPLAT Plc must work out a means of managing the operational risk posed by the debt situation Cardinal Drilling has found itself; to protect shareholders interest; especially at a challenging time like this.


Though the road to hell was paved with good intentions; corporate chincanery should not be one of the building blocks. 



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Illustrations - Related Party Disclosures:


1.     pg 226  The list of Seplat's related party transactions is outlined in Note 42 to the financial statements of the 2019 Annual Report and Accounts


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page 226; Note 42. Related party relationships and transactions

The Group is controlled by Seplat Petroleum Development Company Plc (the parent Company). The parent Company is owned 6.43% either directly or by entities controlled by A.B.C. Orjiako (SPDCL(BVI)) and members of his family and 12.19% either directly or by entities controlled by Austin Avuru (Professional Support Limited and Platform Petroleum Limited). The remaining shares in the parent Company are widely held. The goods and services provided by the related parties are disclosed below. The outstanding balances payable to/receivable from related parties are unsecured and are payable/receivable in cash. 


ii) Entities controlled by key management personnel (Contracts >$1million in 2019)


Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): Is owned by common shareholders with the parent Company. The Company provides drilling rigs and drilling services to Seplat. Transactions with this related party amounted to N2.89 billion, $9.44 million (N621 million, $2.03 million). Receivables and payables were nil in the current period (receivables in 2018: N1.49 billion, $4.87 million).  

2.    pg 35, Note 24  The 2019 Interim management statement and consolidated interim financial results For the three months ended 31 March 2019 (expressed in US Dollars and Naira) - 30 April 2019 

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page 35. Related party relationships and transactions

The Group is controlled by Seplat Petroleum Development Company Plc (the 'parent Company'). The shares in the parent Company are widely held.


24a. Related party relationships

The services provided by the related parties:

"Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): Is owned by common shareholders with the parent Company. The company provides drilling rigs and drilling services to Seplat."



3.    pg 46, Note 19 The Interim management statement and consolidated interim financial results For the nine months ended 30 September 2016 (expressed in US Dollars and Naira) - 27 October 2016


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page 46. Related party relationships and transactions

The Group is controlled by Seplat Petroleum Development Company Plc (the parent company). The parent company is owned 21.37% by Maurel & Prom (MPI), 15.19% either directly or by entities controlled by A.B.C Orjiako (Shebah Petroleum Development Company Limited) and members of his family and 13.15% either directly or by entities controlled by Austin Avuru (Professional Support Limited, Abtrust Integrated Services and Platform Petroleum Limited). The remaining shares in the parent company are widely held.


19a. Transactions

The Service provided by related parties are:

"Cardinal Drilling Services Limited (formerly Caroil Drilling Nigeria Limited): is owned by common shareholders with the parent company. The company provides drilling rigs and drilling services to Seplat."



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Related Links to Seplat's Announcement/Release

1.      Seplat twitter  Seplatpetroleum status on temple Road

2.     Seplat PressReleases 

3.     Seplat's Corporate Disclosure on the London Stock Exchange

4.     Seplat website

5.     Seplat's Corporate Disclosure on the Nigeria Stock Exchange


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Source: Screengrabs of releases direct from platforms indicated



Seplat's Related Party Relationship with Cardinal Drilling Nigeria

1.       Seplat 2019 Audited Report - Note 42, page 226

2.      Seplat Q1 2019 Interim Result - Note 24, page 35

3.      Seplat Q3 2016 Interim Result - Note 19, page 46

4.      CARDINAL DRILLING Nigeria  - Homepage

5.      SEPLAT Plc Refutes Being Party to Cardinal Drilling Services Loan with Access Bank

6.      IAS 24 - Related Party Disclosures


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Related News - Seplat Plc

1.       Visit Seplat Plc's IR Page in Proshare MARKETS

2.      View the  One Year Share Price Movement  

3.      SEPLAT Plc Refutes Being Party to Cardinal Drilling Services Loan with Access Bank

4.      Seplat appoints Mr. Emeka Onwuka as Chief Financial Officer and Executive Director with effect from August 1, 2020 - Seplat, July 10, 2020

5.      SEPLAT Declares N33.7bn Loss in Q3 2020 Results Proposes 0.05 Interim Dividend...

6.      SEPLAT Q1 2020 and Q2 2020 Results Review Weak Oil Prices Weigh on 2020E Outloo...

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9.      SEPLAT Declares N37.8bn Loss in Q2 2020 Results SP N282.00k ...

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15.   SEPLAT Notifies of 2019 FY Final Dividend Currency Exchange Rates...

16.   Seplat Petroleum Development Company Plc Q1 20 Results - Impairment Loss Drags S...


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Related Posts - Bad Debtors in Nigeria

1.      Executive Summary: NPLs & Bank Debtors - The Case for a New Industry Approach - May 14, 2020

2.     (PDF) NPLs & Bad Debtors: - The Case for a New Industry Approach - Debtors Africa, May 13, 2020

3.     Operational Guidelines on Global Standard Instruction (GSI) CBN, Jul 15, 2020

4.     Memo To AMCON: Nigerian Tax Payers are not Responsible for Repayment of Bad Debt - Jul 23, 2020

5.     AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018

6.     Key Takeaways from the CBN GSI Guidelines and the Case for a New Approach

7.     CBN Issues Operational Guidelines on GSI to Facilitate Improved Credit Repayment Culture

8.     Debtors Africa: Chike-Obi's Alternative View on AMCON & Matters Arising

9.     Debtors Africa Launches Searchable Digital Database of Recalcitrant and Delinquent Debtors

10.  Why Publishing Names of Delinquent Bank Debtors is in the Public Interest

11.   The CBN Directive on Publication of Delinquent Bank Debtors: Some Data Privacy Ramifications

12.  O and O Networks Limited and ETI Appeal Court of Appeal Judgement on Disputed Airtel Shares

13.  AMCON Takes Over Jimoh Ibrahim's Prime Assets Over N69.4bn Debt

14.  N4bn Debt: Court Grants AMCON's Request to Take Over Firm's Asset

15.  AMCON: Is There Scope for Improvement in Debt Recovery?

16.  The CBN's New GSI Policy - Dangers Ahead and Recommendations

17.  For Publishing Debtors List - Court Dismisses N5bn Libel Suit against THISDAY, Diamond Bank



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