Seplat’s Q2 performance was largely dragged by the steep drop in oil prices, despite the surge in crude output. In Q3, we see crude output slowing 8% q/q to 2.6 mbbls, as the company was advised to cut output by 20%-30% across its assets in July and August, in a bid to comply with OPEC+ cuts.
However, we expect the demand-induced improvement in oil prices (realised oil price: Q3’20E: $41/bbI, Q2’20: $25/bbI) to lift Q3 oil revenue to $108 million (up 48% q/q).
On the gas front, we see output increasing 5% q/q to 11.1 Bscf, supported by improved demand from industrial manufacturers — a result of softer lockdown measures. As such, we expect gas revenue to come in at $32 million (up 5% q/q) in Q3, with average price remaining flat q/q at $2.9/Mscf.
Meanwhile, we project a 32% y/y surge in finance charges to $15 million in Q3, although flat q/q. The anticipated y/y jump in finance expenses is largely a reflection of the $350 million revolving credit facility the company raised in December for Eland acquisition, which lifted the company’s total debt to $790 million.
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All in, we expect Seplat to turn in a net income of $10 million in Q3, an improvement from a loss after tax reported in the first two quarters of the year.