LAGOS, March 23 – Nigerian oil company Seplat is targeting cost cuts of at least 30% to counter a crash in crude prices, an executive told Reuters on Monday.
Chief Financial Officer Roger Brown said the cuts, which would ideally be higher in the short term, would see its drilling plans reduced to three wells from the 15-20 it had planned.
“We are cutting back on capex quite significantly and focusing on higher, more prolific oil wells,” Brown said.
Seplat has hedged 60% of its production at $45 per barrel through to the end of the third quarter. But Brown said the company needed to be prudent as oil prices, which have tumbled by more than 65% since January highs, could fall further.
“We don’t think we’ve hit the bottom of that yet,” he said of oil prices. “It’s too early for us to call that.”
In the 2019 fiscal year, Seplat spent $125 million on capital expenditures, including drilling nine development wells.
The company also concluded a £382 million purchase of Eland Oil & Gas in December, which brought nearly 9,000 barrels of oil equivalent per day (boepd).
Seplat’s full production capability is now between 47,000 and 57,000 boepd, which analysts at Investec said ensured the company had a healthy cash flow going into the oil price crash.
Brown said Seplat’s western Nigeria assets could continue producing even at oil prices below $20 per barrel, as revenues from gas help shield them from the downturn.
Other projects, such as the Gbetiokun oil field, which produced its first oil in July, would struggle to remain profitable, he said, if oil prices stay close to $25 per barrel.
“At some point, you would shut it in if the oil price stays below that level,” he said.