Seplat Petroleum Development Co., the largest independent exploration and production company by market capitalization, delivered its worst set of quarterly results in five years, weighted down by slump in oil demand due to Covid-19.
The company recorded a loss of N33.68 billion as at September 2020, from a profit of N55.64 billion as at September 2019.
It also recorded an operating loss of N27.74 billion in September 2020 from a profit position of N64.81 billion the previous year.
The losses were caused by a N55.33 billion impairment loss on financial assets as the oil giant identified the need to revalue its assets due to the significant economic uncertainty of the COVID-19 crisis.
Gross profit declined by 61.22 percent to N31.68 billion on the back of lower revenues and higher non-production costs primarily consisting of royalties.
The upstream oil and gas giant is grappling with huge costs that are adding to a myriad of challenges as it is spending more on input cost to produce each unit of barrels of oil a day.
Total cost of sales stood at N103.93 billion in the period under review, which is 76.15 percent of revenue, according to MoneyCentral calculations.
Seplat said it made one-off termination payments of $2.3 million to the directors of Eland Oil and Gas Plc, a company that it acquired to shore up production.
To adapt to the current market conditions, the company aims to reduce costs by at least 30 percent across the business.
It has also suspended drilling of oil wells; with all non-essential capex under review to consider only activities that can be supported in the new oil price environment.
Depletion, depreciation, and amortization costs spiked by 59.27 percent to N33.75 billion in the period under review while operational and maintenance expenses surged by 94.78 percent to N23.55 billion.
“We are confident that cost-cutting initiatives and prudent management of cash will enable further reduction debt, whilst supporting dividend payments and investment for growth,” said Roger Brown, Chief Executive Officer of the company.
In an optimistic tone, Brown added that the firm will continue to hedge its oil business against further price volatility and expects higher proportion of renewals.
Seplat realized $22 million in hedging income in the period, and it expects more receipt.
With oil prices expected to be low in the coming years due to threat from mass produced electric cars and migration to renewable/cleaner energy, the Nigerian indigenous oil major’s deteriorating earnings make it difficult for it to service interest on loans borrowed from banks.
Finance cost surged by 117.6 percent to N18.82 billion in the period under review from N8.83 billion the previous year.
Interest coverage ratio of (4.47 percent) means operating losses cannot cover the spiraling interest expense.
Total debt stood at N242.90 million as at September 2020, an 8.40 percent rise from 2019’s level.
While other oil majors across the globe have slashed dividend payment so as to conserve cash and stay afloat, Seplat has decided to reward its owners from distributable profit.
It declared interim dividend of $0.05 per share, and it aims to invest $120 million capital expenditure across the country in the full year.