Seplat Energy Plc is steering recovery this year with gains from increased crude oil prices but losing momentum with output losses. The company’s crude delivery price averaged $67.4/bbl for the nine months of operations to September 2021, an increase of $28.8/bbl over the average price of $38.6/bbl in the same period in 2020.
The gains are good enough to drive a turnaround from a loss of about N34 billion in the same period last year to a profit of roughly N14 billion at the end of the third quarter. Oil price recovery has also powered a rebound from a drop in sales revenue for the second year in 2020 and from a full year loss of N31 billion.
However, loss of crude production volume isn’t letting the company run on the path of recovery with the expected momentum.
Its total working-interest oil production volume for the nine months of operations went down from 9.1 MMbbls to 7.6 MMbbls with a total of 5.5 MMbbls crude lifted over the review period. The loss of crude oil volume resulted from export disruption caused by suspension of exports at the Forcados terminal.
The developments are clearly in opposite directions from the records of the preceding year when the average crude oil price realised dropped but growth in production volume helped to moderate the full impact of the drop in the average crude price realised.
The company’s management expects that the effects of production losses and downtime would reduce when the much awaited Amukpe-Escravos underground pipeline comes on stream.
Revenue from gas sales recovered from a drop in dollar terms last year, reflecting increase in gas sales volumes at 30.8 Bscf compared to 27.5 Bscf in the corresponding period last year.
The gain in sales volume covered a slight decline in the average realised gas price from $2.88/Mscf in the same period last year to $2.86/Mscf at the end of September 2021.
The company disclosed that the gain in volume of gas sales is reflective of its new gas wells brought on stream during the period as well as restoration of full operations of Oben gas plant after a turnaround maintenance last year.
The contribution of gas sales to group revenue went down from 21.2 per cent to 19.7 per cent over the review period. This is explained by a stronger growth in crude oil revenue.
Seplat Energy closed the third quarter operations with sales revenue of N182.7 billion, which represents a year-on-year growth of N47 billion or about 35 per cent. This is already quite close to the company’s full year revenue of N191 billion in 2020.
In dollar reading, the company’s sales revenue amounted to $460.4 million at the end of the third quarter, which is an increase of 18.7 per cent year-on-year. Crude oil revenue recorded a stronger growth at almost 21 per cent to $369.5 million over the same period.
This is an upturn from a drop of 15.6 per cent in crude oil sales revenue to N$418 million at the end of last year and from a 17 per cent drop in gas earnings to $112 million in the year.
Unlike last year when costs grew as revenue dropped, this year costs are moderating as revenue grows. This has created room for profit recovery the company has sustained so far in the year.
At N124.5 billion, cost of sales grew at a slower pace than sales at 20 per cent compared to 35 per cent. This means the company devoted a reduced proportion of sales revenue to meet input expenses at 68 per cent compared to about 77 per cent in the same period in 2020.
The moderated cost of input spurred gross profit, which advanced by 83 per cent to N58 billion over the review period. A further boost came from other income – which surged up by 120 percent to N32.5 billion at the end of the third quarter.
All other costs slowed down, dropped or disappeared completely. The most prominent is impairment loss on non-financial assets – which was as large as over N55 billion in the same period last year but dropped to zero this year. That made the big difference between the loss of last year and the return to profit this year.
Another major cost reduction is in respect of impairment loss on financial assets, which dropped by 64 per cent to N2.7 billion over the review period.
The favourable cost and income balance for Seplat Energy overturned its operating loss of N27.7 billion at the end of the third quarter last year to an operating profit of N62.6 billion at the end of September 2021.
Finance expenses remained huge at over N24 billion, representing a year-on-year growth of almost 29 per cent. The company’s huge interest bearing debts have grown further from N265.5 billion at the end of last year to almost N310 billion at the end of September 2021.
Finance expenses claimed nearly 39 per cent of operating profit and tax expenses consumed 64 per cent of pre-tax profit. The company closed the third quarter with an after tax profit of under N14 billion, just 7.6 per cent of sales revenue but better than a loss of N33.7 billion in the same period in 2020.
Seplat earned N45.16 per share for the nine months of trading in 2021, rising from a loss per share of N35.12 in the same period last year. It has announced a quarterly cash dividend of $2.5 cents per share for payment on or around 9th December 2021.
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