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SEPLAT Reports Q4 2017 Results; Records Strong Recovery in Profitability

Proshare

Wednesday, February 28, 2018 / 02:08 PM / FBNQuest Research   

Event
: Seplat Petroleum Development Company reports Q4 2017 results

Implications
: Upward revisions to consensus 2018 PBT forecast likely  

Positives
: Strong recovery in profitability. Q4 sales up 318% y/y to US$174m while Q4 PBT of US$46m compares with a loss before tax of -US$85m in Q4 2016; tax credit of US$224m provided significant boost to profitability

Negatives:
No obvious negatives 

This morning, Seplat Petroleum Development Company (Seplat) reported
Q4 2017 results which, to a large extent, reflected positives from undisrupted exports via the TransForcados System (TFS). This is the second consecutive quarter that the firm is posting profits. Seplat’s sales came in at US$174m, up 318% y/y while PBT of US$46m compares with a loss before tax of -US$85m in Q4 2016. Sales growth was boosted by a recovery in oil sales which grew by over 900% y/y to US$136m. Full year oil production came within management’s guidance at 17,853 barrels of oil per day (bopd). 

According to management statements, uptime post lifting of force majeure was 81%. Additionally, average reconciliation losses are now down to just 3.5% from 10% a year ago. Gas sales which were up 36% y/y to US$38m also benefitted from incremental gas production from associated gas fields. Full year gas production came in at 114 million standard cubic feet of gas per day  (MMscfd)
, also within management’s guidance. On a y/y basis, average combined production was up 43% for FY2017 to 36,923 barrels of oil equivalent per day (boepd). While average realised oil prices were up 25% y/y to US$50.4, gas prices were flattish y/y. Other positives on the P&L include a significant expansion of gross margin to 50.5% and a -36% y/y decline in opex. 

In 2017, average production costs came in at US$6.0 per barrel compared with US$8.8/b in 2016. However, Seplat posted a PAT of US$271m
, primarily driven by a tax credit of US$224m. On a q/q basis, both sales and PBT were up, by 18% q/q and 81% q/q respectively. Similar to the y/y trends, PAT was up significantly, driven by tax credits. 

Compared with our estimates, while sales beat our US$
155m forecast by 12%, PBT was ahead by around 6%. The earnings variation was driven mainly by positive surprises on the topline, gross margin and opex lines. 

Going forward, management
is looking to deliver on its gas ambitions. Final Investment Decision (FID) on the ANOH gas and condensate development within OML 53 is expected to be made in the coming months. The ANOH project underpins the next phase of growth for the gas business. When completed, Seplat will add around 300MMscfd of gas processing capacity. 

Additionally, exports via the Amukpe-Escravos export route is likely to resume in Q3 2018, significantly de-risking production going forward. Management has also stated an intention to reinstate the firm’s drilling programme and pursue inorganic growth ambitions via possible acquisitions. We believe that efforts made by the federal government, IOCs and indigenous companies are more than enough to curtail, for now, large scale disruptions that we witnessed last year.
 

Year to date, Seplat shares have gained +5.1% compared with the ASI’s 10.6%. We rate the stock Neutral.  
 

Our estimates are under review.
 

Seplat Q4 2017 results: actual vs. FBNQuest Capital Research estimates (US$ millions)
 
Proshare Nigeria Pvt. Ltd.
Source: NSE; FBNQuest Capital estimates

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