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Published On: Fri, May 5th, 2017

SEPLAT Looks To Exploit Local Gas Market To Reverse Losses

The SEPLAT stock got a fair amount of knocks as did the stock market when the economy slipped into recession last year, dipping between August and September 2016 but it has been on the rise ever since save for the brief dip occasioned by the losses of the First Quarter ending March 2017.
Investors believe the uninspiring first quarter run is but a temporary setback as the share price of the indigenous oil company listed on the London Stock Exchange (LSE) continues to soar. The stock has delivered 20 percent returns to shareholders in the last twelve months compared to the less than one percent delivered by the market.
Revenues where almost halved in the quarter to $47.3 million from $83.42 million from itches in the companies supply jetties in Warri, a situation the company says is but temporary as repair works are under way. Once this is complete, management is confident it would give revenues 30,000 barrels per day boost. In addition, the completion of the Amukpe/Escravos pipeline is expected to significantly bolster export sales.
According to Austin Avuru, Seplat’s Chief Executive Office, “the first quarter of 2017 is a transitionary period for Seplat in which our oil sales have been constrained whilst we electively undertook the necessary upgrade and repair work on two jetties at the Warri refinery to give us the future benefit of doubling barging volumes and stabilising exports via that route at a gross rate of 30,000 bopd. Alongside this we are collaborating with and supporting government on completion of the Amukpe to Escravos pipeline that will offer a third export route to Seplat and help to significantly de-risk the distribution of our oil production to market. These proactive management actions, combined with the consistently strong performance of our gas business and continued strict financial discipline to preserve a liquidity buffer, should lead to a much improved performance outlook over the remainder of 2017 and beyond, with a much greater level of in-built resilience to such external shocks”.
In the 2015 financial year, the company indicated prioritising the commercialisation and development of its gas reserves as it seeks to tap into growing domestic demand. Avuru had said that “Our gas business takes on additional importance by providing a continuous revenue stream that is de-linked to the oil price and our enlarged portfolio offers us scope for greater diversification.

The gas strategy will help cushion the impact of the recent shut-in of the company’s Focados Terminal towards a better showing in 2016, Avuru said.
The assurance by Avuru influenced analysts’ opinion to the effect that they advised investors to hold the company stock. According to the Financial times, “as of Apr 28, 2017, the consensus forecast amongst 7 polled investment analysts covering Seplat Petroleum Development Company PLC advises investors to hold their position in the company. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Sep 01, 2016. The previous consensus forecast advised that Seplat Petroleum Development Company PLC would outperform the market”.
Though analysts have not provided a price forecast, the effective implementation of the local gas strategy and resurgence of oil prices in the world market after the OPEC output cut suggest that the company stock prices are likely to continue to rise.
In a flash note, the company said that “expansion (in gas) of gross processing capacity to 525 MMscfd provides headroom to increase contracted gas sales (actively engaged with counterparties) and handle 3rd party volumes
Meanwhile, thinning revenue gave hard knocks to bottom line, leading to $19.14 million losses even if it is less than the $22.5 million loss of the equivalent quarter. Thinning losses gives weight to Avurus’s promise of better performance deep into the year.
But the drop in operating losses in the period indicates a better control of variable costs, a 73 percent improvement to $1.4 million from $4.95 million. In this regard, the company managed to put a leach around administrative expenses relative to the equivalent quarter. The same goes for forex losses and finance costs which receded 29 and 24 percent respectively. Not even a 578 percent fair value loss from hedging gone awry eroded operating profits.
Although the company managed to deliver a higher gross margin from a tempered cost of sales, it suffered bruises from heightened marginal pre-tax and marginal net losses. Gross profit margin was up to 40.4 percent from 35.2 percent and marginal pre-tax losses was 38.73 percent compared to 17.97 percent while marginal net loss was 40.5 percent compared to 27 percent lost in the equivalent period in 2016.
A downside on the company’s balance sheet is the high level of leverage which the company says t is making spirited efforts to reschedule. “Gross debt at 31 March stood at US$643 million (down from US$676 million at 31 December 2016) and net debt US$487 million (down from US$516 million at 31 December 2016),” the company says.

This analysis first appeared in Independent Newspaper

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