Thursday, March 30, 2017 5.14 PM / FBNQuest Research
Event: Seplat Petroleum Development Company reports Q4 2016 results
Implications: Negative reaction from the market likely
Positives: Gas sales up 16% y/y to US$28m; realised gas prices also up 19% y/y to US$3.03/mmscf
Negatives: Seplat recorded a loss before tax of -US$85.1m in Q4 2016 vs. PBT of US$19m in Q4 2015
This morning, Seplat Petroleum Development Company (Seplat) reported Q4 2016 results which showed that sales declined by -66% y/y to US$52m. Seplat also posted a loss before tax of –US$85m and loss after tax of -US$64m which compare with losses before and after tax of -US$30m and -US$34m respectively in Q4 2015.
In Q4, the y/y topline decline was mainly driven by an -81% y/y decline in oil sales to US$23m which was weighed down by lower working interest oil production and realised oil prices. Oil production declined by -65% y/y to 10,091 barrels per day (bpd) due to disruptions on the third-party operated Trans Forcados System (TFS), Seplat’s major export pipeline route.
Seplat’s working interest production was around 52,000boepd prior to disruptions. We expect the TFS to resume full operations by the end of Q2. Plans to develop alternate routes are at an advanced stage. First, ongoing engineering work on the Warri Refinery Jetty evacuation route should enable guaranteed export volumes of around 30,000bpd. Seplat is targeting the month of May for the completion of work on the first jetty, while a second jetty is expected to be fully operational shortly afterwards.
Second, management is working with the federal government to complete the construction of the Amukpe-Escravos pipeline evacuation route. This pipeline has an export capacity of 160,000bpd and can evacuate all of Seplat’s export volumes. Management is yet to decide on a primary export route but guides to a decision towards the end of the year.
Besides reducing reliance on the TFS, these alternative routes reduce reconciliation losses and could potentially lower crude handling charges (in the Amukpe-Escravos scenario). In addition to lower production, realised oil prices declined by -21% y/y to US$40.4/b. During the period, gas sales continued to strengthen despite softer oil sales on the back of the Oben gas plant expansion.
Gas sales were up 16% y/y to US$28m, driven by both growth in gas production and realised gas prices. While gas production was up 10% y/y to 95mmscf/d, realised gas prices were also up by 19% y/y to US$3.03/mmscf. Management provided no production guidance for 2017, signaling that it prefers to wait for the restoration of evacuation routes. This is understandable given the very volatile Western Niger Delta environment.
The topline decline offset any benefits coming through from flattish opex and a net finance income of c.US$16m and led to Seplat posting a loss before tax of -US$85m.
Total working interest production declined by -40% y/y to 25,877boepd. From an asset perspective, OMLs 4, 38 & 41 still account for a significant (90%) proportion of production at 23,238boepd, slightly down from 92% in Q4 2015. Production from OPL 283, OML 53 and OML 55 were reported at 612boepd, 1,182boepd and 845boepd vs. 1,113boepd, 686boepd and 1,743boepd respectively in Q4 2015.
Q4 2016 sales came in 29% behind our sales forecast of US$73m. However, the magnitude of Seplat’s loss before tax surprised negatively. We had estimated a loss before tax of –US$21m. On a full year basis, sales were behind by 8%; the full year pre-tax loss of -US$173m compares with our estimate of –US$108m. Consensus had estimated a sales and loss before tax of US$275m and -US$76m respectively. As such, we expect downward revisions to consensus estimates.
A bright spot in these numbers is the continued decline in outstanding NPDC net receivables, which fell US$311m to US$229m vs. US$540m as at the start of the year. Incurred capex during the period was US$52m, significantly short of guidance for 2016.
Year to date, Seplat shares have gained +4.2%, outperforming the All Share Index by 10%. We expect the market to react negatively to the results. At current levels, on our published estimates, Seplat shares are trading on a 2017E P/E multiple of 4.6x for an EPS growth of around 28% in 2018E.
We rate the stock Outperform.
Our estimates are under review.
Seplat Q4 2016 results: actual (US$ millions)
1. SEPLAT Board Approves 2016 Full Year Financial Results
2. SEPLAT Declares N42.08 billion Loss in Q3 2016 Result,(SP:N375.00k)
3. Heads Up On Forcados Terminal
4. SEPLAT H1'16 results - Suspension of Exports at Forcados Cut Earnings
5. SEPLAT Declares N12.81 billion Loss in Q2 2016 Result SP N297.83k
6. SEPLAT Outperform Rating Maintained in Q1 2016
7. SEPLAT Confirms Dividend Currency Exchange Rates for 2015 Final Dividend
8. SEPLAT Records US 15m Loss Before Tax in Q1 16 Results Negative Market Reaction Likely
9. SEPLAT Declares N4.48 billion Loss in Q1 2016 Result,(SP:N340.00k)
10. Extension of repairs at Forcados, affects Seplat's production uptime
11. SEPLAT Issues Notice of 2015 Final Dividend Currency Exchange Rates
12. SEPLAT FY 15 earnings in line FY 16 production set back
13. Seplat Plc FY 2015 - first tax charge in 3 years drives Q4 15 loss