Seplat Plc Q3'16 Results - Improved Outlook on Forcados Resumption


Monday, October 31, 2016/1.36pm /Vetiva Research


·         Net loss rises to $98 million in 9M’16

·         Production tracking close to our 27k boed 2016 estimate

·         Update on alternative evacuation route

·         Re-profiling of term loans to ease cash flow

·         Crude lifting from Forcados terminal

·         TP raised to N282.03 (Prev: N216.15) reflecting improved 2017 outlook

SEPLAT extended losses in 9M’16 results to $98 million as the force majeure on Forcados exports continues to constrain condensate volumes. 9M’16 revenue was down 52% y/y to $202 million with realized oil price of $42.82/bbl compared to $49.30 realized in 9M’15.

Over the 9 months, Working Interest (WI) production averaged 26k boed (in line with our average 2016 estimate of 27k boed); production was down 44% from a year ago. The performance does show improved gas production, up 22% y/y at 93 mmscfd as a result of the capacity expansion at the Oben gas processing plant and implementation of the alternative evacuation route in Warri Refinery jetty which de-constrained production.

We calculate SEPLAT’s 9M’16 production cost of $20.11/boe (9M’15: $26.49) with netback at $19.88/boe (9M’15: $29.07).  

Update of alternative evacuation route
Management says it plans to reconfigure a 3rd jetty in Warri Refinery to accommodate twin exports with a Gross volume target of 30,000 bpd over time. Although exports via the Warri Refinery at $11/bbl is more expensive under current conditions, the aim is to bring cost down to sub-$10/bbl by setting up condensate processing facilities at the evacuation site.

Furthermore, exports via Warri Refinery Jetty will not be subject to crude handling charges and reconciliation losses incurred at Forcados (10%-12% reconciliation loss). According to management, exports via Warri Refinery Jetty becomes cost competitive at $60/bbl oil price because with higher oil prices, the impact of the 10%-12% reconciliation cost at Forcados become weightier.

Current operations at the Warri Jetty involves the evacuation of crude via 3 barges from the terminal to a 500k bbls tanker moored offshore. From the 9 months results, we see that SEPLAT incurred $10 million barging cost from these operations.

Re-profiling of term loans
Management said it engaged lenders in the $700 million 7-year term facility to re-align near-term debt service obligations within the existing tenor. The arrangement will allow SEPLAT defer H2 2016 and 2017 principal repayment obligations totaling $150 million until the end of 2017, thereby reducing the company’s principal debt service obligations during this period to $57 million.

Under the terms of the agreed re-profiling, the deferred principal obligations will be repayable over a 30-month period between Q1 2018 and the end of Q2 2020, during which time principal repayments will amount to $37 million per quarter. From Q2 2020 onwards the principal payments will return to the original schedule as at the time of the refinancing.

This arrangement was as a result of the challenges with SEPLAT’s crude sales due to Forcados downtime and will ease pressure on the company.

Deconsolidation of Belema Oil
Management explained that it had agreed with Belema Oil (in which it acquired a 56.25% shareholding in 2015) after dispute about operatorship to form an Asset Management team.

The agreement provides for a discharge sum of $330 million to be paid to SEPLAT over a 6-year period, through allocation of crude oil reserves of OML 55, following which SEPLAT will cease to be a shareholder in Belema Oil. Belema Oil acquired a 40% interest in OML 55 from Chevron Nigeria Limited.

SEPLAT had prior to 30 June 2016 consolidated the accounts of Belema Oil as SEPLAT believed it exercised control over this subsidiary.

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