Friday, April 29, 2016 1:25PM/ FBNQuest Research
Event: Seplat Petroleum Development Company reports Q1 2016 results
Implications: Negative reaction from the market likely
Positives: Gas sales up 148% y/y to US$27m; realised gas prices also up +15% y/y to US$2.98/mmscf
Negatives: Seplat recorded a loss before tax of US$15.0m in Q1 2016 vs. PBT of US$25m in corresponding period of 2015
This morning, Seplat Petroleum Development Company (Seplat) reported Q1 2016 results which showed that sales declined by -36% y/y to US$83m. Seplat also posted a loss before tax of –US$15m and loss after tax of -US$19m which compare with PBT and PAT of US$25m and US$23m respectively in Q1 2015. In Q1, the y/y topline decline was mainly driven by a -53% y/y decline in oil sales to US$56m which was weighed down by lower working interest oil production and realised oil prices.
Oil production declined by -38% y/y to 17,392 barrels per day (bpd) due to disruptions on the third-party operated Trans Forcados System (TFS), Seplat’s major export pipeline route. Management statements reveal that the operator of the TFS, Shell Nigeria, had declared a force majeure at the terminal on 21 February following disruptions to production and exports caused by a spill on the Forcados Terminal subsea crude export pipeline. Seplat’s working interest production was around 52,000boepd prior to disruptions.
On its Q4 2015 conference call, management guided to the completion of repair works in May 2016. Seplat is currently exploring alternative evacuation options in other to alleviate the firm’s reliance on the TFS. Management stated that it is in the final stages of an agreement whereby crude oil exports would be sold FOB at the Warri refinery jetty to Mercuria. Seplat is pursuing this on a trial basis in a bid to restore gas production to normalised levels pending the reopening of the TFS. Seplat posted reconciliation losses of 12% for oil evacuated via the TFS in Q1.
In addition to lower production, realised oil prices declined by -33% y/y to US$35.4/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 148% y/y to US$27m, driven by both growth in gas production and realised gas prices.
While gas production was up 113% y/y to 100.7mmscf/d realised oil prices were also up by 15% y/y to US$2.98/mmscf. Seplat has retained its full-year 2016 production guidance of 41,000 to 48,000 boepd (comprising 23,000 to 28,000 bpd liquids and 18,000 to 20,000 boepd gas) which is based on an overall uptime assumption of 67%.
A gross margin contraction of around -2,000bp y/y to 35.5% and a 16% y/y rise in net finance charges more than offset a -25% y/y reduction in opex and led to Seplat posting a loss before tax of US$5m. Similar to Q4, Seplat’s numbers exclude the effect of a pioneer tax status given that the federal government has delayed making a decision to extend the pioneer tax incentive.
Total working interest production declined by -5% y/y to 34,179boepd. From an asset perspective, OMLs 4, 38 & 41 still account for a significant (87%) proportion of production at 27,780boepd, down from 93% in Q4 2015. Production from OPL 283, OML 55 and OML 53 were reported at 962boepd, 2,292boepd and 1,145boepd vs. 1,113boepd, 686boepd and 1,743boepd respectively in Q4 2015.
Q1 2016 sales and loss before tax are both tracking well behind our unrevised full year 2016 estimates of US$719m and US$127m respectively, as well as consensus forecasts of US$534m and US$115m respectively. As such, we expect downward revisions to consensus estimates.
A bright side to these numbers is the continued decline in outstanding NPDC net receivables, which is down by US$82m to US$353m vs. US$435m as at full year 2015. Incurred capex during the period was around US$9m, with management’s full year guidance maintained at US$130m for 2016.
According to management, the Phase II of the Oben Gas Plant Expansion project remains on track. Offsite fabrication of the 3 x 75 mmscfd processing modules has been completed. The Company expects to take delivery of the new processing modules in Q3 and to complete installation and commissioning by year-end, taking the Company’s gross operated gas processing capacity to a minimum of 525mmscf/d (from the current level of 300mmscf/d) in 2017.
Year to date, Seplat shares have gained +67.5%, outperforming the All Share Index by 80%. We expect the market to react negatively to the results. At current levels, on our published estimates, Seplat shares are trading on a 2016E P/E multiple of 5.2x for an EPS growth of around 60% over the 2017-18E period.
We rate the stock Outperform.
Our estimates are under review.
Seplat Q1 2016 results: actual (US$ millions)