Seplat Petroleum Gains Strength In Q3, Yet Deep In The Red

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Seplat Petroleum Development Company Plc rekindled hopes in the third quarter with an elevated performance that sparked a rebound from two preceding quarters of losses. The company’s falling revenue sprang up a clear 29 per cent quarter-on-quarter to over N55 billion and a modest profit of N4 for the quarter is the first time it has tasted profit so far this year.

The profit for the quarter however disappeared into a huge loss the company has built over the first two quarters of the financial year. A half-year loss of N38 billion has gone down with the third-quarter profit but the petroleum marketing company is yet in deep red to the region of close to N34 billion.

Despite the strong growth in revenue in the third quarter, the profit realised represents a huge drop of 79 per cent quarter-on-quarter. This indicates a major incursion from costs on earnings, which came largely from impairment losses, input cost and finance expenses. Rapid growths in these expense lines plus other loss of close to N3 billion prevented management from converting much of the revenue generated in the quarter into profit.

On year-on-year reading, revenue losses remain the major challenge for the company in the current year. However, with the strong growth in the third quarter, the year-on-year revenue drop has slowed down sharply from 26.5 per cent at half-year to less than 11 per cent at the end of the third quarter. Seplat has faced revenue losses since last year when it suffered a drop of 6 per cent in sales revenue.

The revenue upbeat in the third quarter reflects an increase in the realised average crude oil price from $34.94/bbl at half-year to $38.60/bbl. This remains 40 per cent down from $64.20/bbl in the same period last year. The average realised gas price for the company is unchanged at $2.88/mscf from the half-year mark but stands slightly ahead of the $2.82/mscf in the same period in 2019.

The company’s chief executive officer, Mr R. T. Brown, said the company is continuing to hedge its oil business against further price volatility and is pursuing further cost-cutting initiatives to ensure that it achieves profitability even at lower prices where it made losses earlier in the year.

Seplat Petroleum closed the third quarter operations with a turnover of N135.5 billion with the third-quarter earnings accounting for 41 per cent of it. The group’s average working-interest liquids production grew by 40.8 per cent year-on-year to 33,327 bpd at the end of the third quarter, reflecting the maiden contribution of the acquired Eland assets – that account for as much as 27.5 per cent of the group’s volume.

Gas sales volume went down by 26.5 per cent to 100 mmscf at the end of the third quarter. This reflects a planned shutdown of Oben gas plant for turnaround maintenance in March as well as third party infrastructure downtime.

Reduced gas sales volumes led to a drop of about 11 per cent in gas revenue to below N29 billion at the end of the third quarter. Gas contribution to group revenue is slightly down from 23 per cent at half-year to 21 per cent at the end of the third quarter.

The company’s cost-income position remained adverse, as major costs continued to grow while revenue remained on the downside. Cost of sales maintained its high-speed growth of 47 per cent from half-year to the third quarter, consuming nearly 77 per cent of sales revenue at the end of the third quarter. That caused a drop of 61 per cent in gross profit to N31.7 billion year-on-year.

Impairment losses on financial and non-financial assets of close to N63 billion blew the pressure from costs out of proportion, leading to an operating loss of N27.7 billion at the end of the third quarter. This is, however, a big cut down from an operating loss of N38.7 billion at half-year but nevertheless a change in fortunes from an operating profit of N65 billion in the same period last year.

Net finance cost maintained its rapid growth at 117.5 per cent year-on-year to over N18 billion at the end of September 2020. The company’s interest-bearing debts remained huge at N263 billion at the end of the third quarter though a reduction from N288 billion at the end of the half-year.

The increase in finance expenses created a pre-tax loss of over N45 billion for Seplat at the end of the third quarter. A tax credit of close to N12 billion erased a good part of the loss. The group closed the third quarter operations with an after-tax loss of N33.7 billion, improving from a loss of N37.8 billion at half-year but down from an after-tax profit of N56.6 billion in the same period in 2019.

The loss again stretches all the way from operating result to the bottom line – the worst performance for the company in years. Looking forward, the company’s management expects that its cost-cutting initiatives will permit further reductions in debt while supporting dividend payments and investment for growth.

The company lost N58.07 per share at the end of the third quarter against earnings per share of N97.88 in the same period in 2019. It is paying an interim cash dividend of 5 cents per share.

 

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