Implications: Neutral to slightly positive reaction from the market likely
Positives: Sales of US$147m up 146% y/y and 74% q/q, boosted by a significant (+292% y/y) rise in oil sales
Negatives: Net finance costs up 10% y/y to US$20m
This morning, Seplat Petroleum Development Company (Seplat) reported Q3 2017 results which, to a large extent, reflected positives from the resumption of exports via the TransForcados System (TFS). Seplat’s sales came in at US$147m, up 146% y/y, and delivered PBT and PAT of US$26m and US$24m respectively. This is the first quarter since the end of 2015 that Seplat has posted a profit.
Oil sales, driven primarily by improved production, were a big contributor to the improved perfomance, up +292% y/y to US$115m. Q3 working interest oil production, up +146% y/y to 26,351 barrels of oil per day (26.4kbpd), is line with management’s full year guidance of 17/19kbpd and compares with c.9.5kbpd delivered in H1 2017. Realised oil prices were up 9% y/y to US$46.5/b. According to management statements, uptime on the TFS in Q3 was around 84%, with average reconciliation losses below 3%, compared with a previous average of 10%. Gas sales were up by just 4% y/y to US$32m. Similar to oil production, gas output of 111MMscf/d came in firmly within management’s guidance of between 105 and 115MMscf/d, peaking at c.158MMscf/d during the period.
Overall, marked topline growth, significant gross margin expansion and a double-digit decline in operating expenses led to the improved profitability. Net finance costs which rose by 10% y/y were the only negative in these results. Sequentially, as stated above, Seplat’s numbers are moving in the right direction. Sales grew 74% q/q while the firm’s Q3 PBT and PAT of US$26m and US$24m compare with losses before and after tax of around –US$10m. The q/q trend was driven primarily by superior Q3 sales and a marked improvement in gross margin. Opex came in flattish q/q.
Compared with our estimates, while sales beat our US$130m forecast by 13%, PAT was ahead by around 7%. The earnings variation was driven by positive surprises on the topline and in net finance charges. On an annualised basis, Seplat’s 9M sales and loss before tax are tracking behind consensus sales and PBT estimates of US$469m and US$63m respectively.
Going forward, management has maintained its production guidance of 17-19kbpd and 105-115MMscfd, for oil and gas respectively, or 35-38kboepd. Although, there have been kidnappings in the Niger Delta recently, we do not anticipate a rapid escalation of disruptions to oil & gas facilities in the near term.
To our minds, there are no leading catalysts for such events. We believe that efforts made by the federal government, IOCs and indigenous companies are more than enough to curtail, for now, large scale disruptions that we witnessed last year.
Management notes also point to progress in formalising an incorporated joint venture between Seplat and the government which could see FID taken on the 300MMscf/d ANOH gas processing plant within six months. The ANOH project underpins the next phase of growth for the gas business.
We note that there have been slight delays on the delivery of the Amukpe-Escravos export pipeline, which is now expected to be commissioned in H1 2018.
Year to date, Seplat shares have gained +26.3% compared with the ASI’s 36.1%. We rate the stock Outperform.
FBN Quest estimates are under review.