Seplat: Time to grow cash amid failed MPNU acquisition

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Following the unsuccessful asset-for-asset acquisition of Mobil Producing Nigeria Unlimited, the company is now refocusing on its core business and its mission of generating positive growth in shareholder returns.

More importantly, the company needs to continue to generate sufficient cash flow from its operating profit, especially in this era of higher oil prices. So what has Seplat been up to?

This year, 2022, tThe Company has set production at 50,000 to 60,000 boepd on a working interest basis, comprising 30,000 to 35,000 liquid bopd and 116 to 150 MMscfd (20,000 to 25,000 boepd) of gas production, excluding Contribution from MPNU and ANOH Gas Plant. He also expects capex to be around $160 million.

Entering 2022, the company started strong, posting revenue growth in the first half of 2022, especially in the second quarter due to the rise in the global oil price above $100 per barrel between March and June of 2022. As a result, profit before tax in the first half of the year printed N87.2 billion against N27.9 billion a year earlier, a year-on-year increase of 212%.

In a statement, Roger Brown, CEO, said: “Seplat Energía delivered a good quarter that benefited from a higher oil price, which offset lower production due to ongoing problems with the Trans Forcados Pipeline..

Against the backdrop of elevated investor sentiment, Seplat’s share price posted a 100% gain in the first half of 2022 to date, becoming the best-performing stock in the NGX Oil and Gas sector and outperforming the NGX Oil and Gas Index with a gain of 58.86% over the same period. .

However, in the third quarter, revenue fell 36.51%, despite higher realized oil prices of $108.25/bbl. Sales of crude oil and gas fell 44.12% and 1.46%. Consequently, it posted a net loss of N1.587 billion, up from a net loss of N222 million a year ago.

The company linked poor third-quarter performance to evacuation issues across all assets and that led to deferred liquid volumes of 3.4 MMbbls, with third-quarter total liquid production averaging 12,475 bopd, up 58 % less than the previous quarter (2Q 2022: 30,338 bopd).

Given its production performance to date and current estimates for the fourth quarter of 2022, it has revised its full-year production guidance downward to 40,000 – 44,000 boepd on a working interest basis.

The company also stated that the production recovery in the fourth quarter is expected to benefit from the resumption of operations of FOT and TNP, the activation of other evacuation options and the coming online of newly drilled wells.

Perspective

Although the company posted revenue growth in the nine months of 2022 compared to the prior year, it was primarily due to the impact of the conflict in Ukraine on global energy prices and a post-pandemic recovery in global energy demand. oil and not to increased production.

Gas sales revenues decreased 7.9% to $83.7 million because the average realized gas price was less than $2.80/Mscf (9M 2021: $90.9 million / $2.86 Mscf) . These are cyclical events that are not sustainable, especially for long-term value creation.

With the acquisition in limbo, the company needs to focus on existing and future projects to achieve its stated capex outlook of $160 million for the year. As of the end of 9M 2022, the company has only spent $46.1 million on “payment for the acquisition of oil and gas properties” as indicated in its financial statements. It has another $60.4 million in deposits for investments such as the acquisition of MNPU assets ($128.3 million) and the Abiala farm-in ($12 million).

It also needs to raise another billion dollars for the MPNU acquisition, which supports why the company should stay focused on improving its cash flow. This year it has generated around $337.9 million in Ebitda, 32% more than the same period last year (9 months).

It must stay that way despite the bleak outlook for 2023. Doing this will require a robust cost-cutting strategy, especially now that the world has to deal with commodity-induced inflation. It also needs to work with security agencies and the communities where it operates to ensure that restrictions on oil production are kept to a minimum.

Are they achievable? Only time will tell.

… Seplat: Time to grow cash amid failed MPNU takeover Read more at … Naijaonpoint.

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