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Tuesday, March 28, 2023

Seplat Regains Swagger With Largest Profit in Years 

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Seplat Energy Plc profit is back a year after a coronavirus induced loss, boosting the share price, and medium term prospects.

The upstream oil and gas giant reported operating profit of N100.40 billion in 2021 from a loss of N11.41 billion in the first year of the pandemic.

Also, it posted net income of N46.93 billion in 2021 from a loss of N30.71 billion as at December 2020.

The company share prices have been rallying on the back of a bullish run in the oil market which recently broke the $90/barrel this year, as investors swooped on shares on the optimism of the momentum at the international oil market.

Interestingly, the operating profit was the highest since 2014, when crude oil prices last traded above $100 a barrel.

It must be noted that the firm posted a loss in 2016 as the propitious drop in oil price and the attack on the Trans Forcados pipeline dealt a great blow on cash flows.

There has been a significant reduction in impairment loss on financial assets that dipped by 70.63 percent to N15.25 billion as at December 2021.

The company has enough ammunition in its arsenal and it is not burdened by interest expense and there are no threats to its going concerns.

It has an interest coverage ratio of 3.32 times operating income, a figure that is higher than the 1.50 generally accepted benchmark.

“Seplat Energy announced a major acquisition last week and despite a challenging year for Nigerian oil and gas, the robust results delivered today clearly show how our increasing financial strength has made such an acquisition possible, without the need to dilute shareholders, by giving international financial partners the confidence to invest in our vision,” said Roger Brown, Chief Executive Officer.

Brown said the company’s 2021 performance was affected by outages at Forcados Terminal, however he is sanguine that such situations will never occur again because there are plans to switch to the new Amukpe-Escravos Pipeline, which will be launched in March.

“This is part of our strategy to diversify and derisk routes to market, assuring higher revenues from significantly better uptime and lower reconciliation losses,” he adds.

The company is planning more capital spending to take advantage of the recent oil rally caused by the war in Eastern Europe as Russia invaded Ukraine in what could result in another cold war.

Brent Crude Oil, the benchmark for Nigeria’s black gold, now stands at $102.50 a barrel while West Texas Intermediate sells for $95.61 a barrel.

The company generated strong cash of $394 million against capex of $137 million (excluding cost of rig acquisitions).

Analysts at Chapel Hill Denham in a note to clients wagered Seplat’s earnings will start to reflect higher oil price as the launch of Amukpe-Escravos export route helps to curb unplanned downtime.

However, they said downside risks to their positive prognosis is a further delay in Amukpe-Escravos route, a substantial pipeline downtime on the Trans Forcados axis, and oil price reversal.

The firm is rewarding shareholders by way of dividend payment as its directors have recommended and paid to members quarterly interim dividend of US2.5cents per share declared.

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