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Heirs Oil, Seplat in the Money as Crude Nears $100 Per Barrel

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Domestic oil and gas producers such as Heirs Oil and Gas and Seplat Energy are in the money as oil prices close in on $100 per barrel.

Heirs Holding’s in January acquired the strategic OML 17 from Shell, ENI and Total.

The transaction is one of the largest oil and gas financings in Africa in more than a decade, with a financing component of $1.1 billion, provided by a consortium of global and regional banks and investors.

OML 17 had a production capacity of 27,000 barrels of oil equivalent per day at the time and, according to estimates, 2P reserves of 1.2 billion barrels of oil equivalent, with an additional 1 billion barrels of oil equivalent resources of further exploration potential.

However, sources tell MoneyCentral that production has ramped up since then to more than double to over 50,000 barrels a day meaning Heirs Oil is already recouping some of its money as oil prices surge.

Seplat Energy Plc could take advantage of stronger energy prices to try to attract new investors through a hike in dividend payouts as free cash flow has significantly improved, which signals a sturdy balance sheet.

The company’s free cash flow was $125.97 million in the second quarter of 2021, according to a statement by the company.

That compares with a negative figure of $120.92 million the corresponding period of last year that saw global energy prices capitulate to the coronavirus pandemic.

The largest upstream oil and gas firms posted revenue of $308.77 million in June 2021, while earnings before interest taxation and amortization (EBITDA) rose by 55.56 percent to $178.90 million in the period under review.

Gross profit surged by 136.10 percent to $88.90 million in June 2021 from $37.65 million the previous year.

“There has been an optimization of assets by the multinationals on the back of the precipitous drop in crude oil prices. The good tidings are that profit will be retained by Nigerians,” Bismarck Rewane, an economist and MD of Financial Derivatives Company said.

Oil prices climbed to multi-year highs shortly after OPEC+ a group of some of the world’s most powerful oil producers opted against a big supply boost.

Now energy analysts believe crude prices could be poised to rally toward $100 a barrel.

OPEC+ said it had “reconfirmed the production adjustment plan” in a statement published online shortly after relatively swift ministerial talks held this week.

This referred to its previously agreed decision to add 400,000 barrels per day to the market for the month of November.

The group’s decision on production policy had been widely expected, although some had hoped pressure from the U.S. and India to tame soaring oil prices might have been enough to persuade the group to offer more supply.

International benchmark Brent crude futures traded at $81.74 a barrel on Tuesday morning, up more than 0.5% for the session, while U.S. West Texas Intermediate futures stood at $77.92, roughly 0.4% higher.

Brent futures gained 2.5% to close at $81.26 on Monday, notching its highest settle for three years. WTI rose 2.3% to end the previous session at $77.62, reaching its highest settle in almost seven years.

Both oil contracts are up around 60% since the start of the year.

The recovery in global oil demand from the coronavirus pandemic has been quicker than many expected, while global supply has been disrupted by hurricane outages and low investment.

Last month, analysts at Bank of America Global Research said that the bank could bring forward its $100 per barrel oil price target if temperatures are colder than expected during the winter, according to Reuters. This prospect, the analysts reportedly said, could drive a surge in demand and widen a supply deficit.

Separately, analysts at Goldman Sachs recently upgraded their year-end Brent price forecast to $90 a barrel, up from $80, citing a faster than anticipated recovery in global demand.

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