Amid macroeconomic headwinds, Seplat Energy records strong performance in revenue

By Philemon Adedeji

Seplat Energy Plc, a leading Nigerian independent energy company listed on both the Nigerian Exchange Limited (NGX) and London Stock Exchange (LSE), in its audited results ended December 31, 2022,  reported highly impressive performance across its major business segment to keep the company maintaining its position as one of the leading energy companies in Nigeria.

In its audited financial results ended December 31, 2022, the group revenue breakdown revealed that revenue generated from oil and gas sales in 2022 stood at N403.9 billion, $951.8 million, a 29.8 per cent increase from the N293.6 billion, $733.2 million achieved in 2021.

While, Crude Oil revenue was 35.7 per cent higher than for the same period in the previous year at

N356.2 billion, $839.3 million (2021: N247.7 billion, $618. 4 million), reflecting higher average realised oil prices of N43,158/bbl, $101.7/bbl. for the period (2021: N28,334/bbl $70.5/bbl).

The increase is attributable to the impact of the conflict in Ukraine on global energy prices and the steady post-pandemic recovery in global oil demand, particularly in China and the United States. The total volume of crude lifted in the period was 8.3 MMbbls, 6.8 per cent lower than the 8.9 MMbbls lifted in 2021.

The lower volumes lifted in 2022 resulted from a drop in production output, especially in the third quarter, because of the prolonged unavailability of the export terminals. However, significant improvements were made in Q4 2022 as we began to evacuate the bulk of our crude through the newly operational Amukpe-Escravos underground pipeline. The average reconciliation loss factor for the Group was 10.7 per cent.

Gas sales revenue declined marginally by 2.1 per cent to close the year at N47.7 billion, $112.5 million from N45.9 billion, $114.8 million accounted in 2021, because of weaker average realised gas prices following price reviews conducted in the second quarter of the year, down 1.1 per cent to N1,197 /Mscf, $2.82/Mscf (2021: N1,141/Mscf, $2.85/ Mscf).

Nevertheless, gas sales volumes improved despite the effect of oil evacuation curtailments and increased 4.1 per cent to 41.0 Bscf, compared to 39.4 Bscf in 2021.

Gross profit increased significantly by 63.0 per cent to N197.2 billion, $464.7 million as of end of December 31, 2022 from N114.2 billion, $285.2 million) in prior financial year 2021 benefited from higher realised oil prices.

Non-production costs consisted primarily of N76.7 billion, $180.8 million in royalties, which was higher compared to N51.9 billion, $129.8 million in 2021 because of higher oil prices, and DD&A of N54.6 billion, $128.7 million, which was lower compared to N56.5 billion, $141.1 million in 2021, reflecting lower depletion of reserves because of decreased production compared to the prior year.

Direct operating costs, which include crudehandling fees, barging/trucking, operation and maintenance costs, amounted to N70.5 billion, $166.1 million in 2022, 3.1 per cent lower than the N68.9 billion, $172.1 million incurred in 2021.

However, on a cost-per-barrel equivalent basis, production opex was N4,371/ boe, $10.3/boe, 4.4 per cent higher than the $9.9/boe incurred in 2021, primarily because of the effect of lower produced volumes, an excess storage charge on use of the Escravos terminal, and the higher cost of crude handling on the AEP, when compared to the TFP.

The operating profit for the period was N116.6 billion, $274.7 million, an increase of 9.6 per cent, compared to N100.4 billion, $250.7 million in 2021, while cash generated from operations in 2022 was $571.2 million, 51.6 per cent higher than $376.8 million generated in 2021

The Group recognised a financial asset impairment charge of N2.9 billion, $6.4 million related to the ageing of some government receivables, which is expected to reverse once recoveries are secured. ncluded in other income was a N5.6 billion, $13.1 million loss on disposal for the sale of the Ubima field. In addition, there was an overlift charge of N11.5 billion, $27.2 million, representing 263 kbbl. and a N0.5 billion, $1.1 million loss on foreign exchange, principally due to the translation of Naira, Pounds and Euro-denominated monetary assets and liabilities.

General and administrative expenses of N58.3 billion, $137.4 million were 71.5 per cent higher than the 2021 costs of N32.1 billion, $80.1million.

The increase was driven by the impact of global inflationary trends on expenses, including travel and training costs (activities having increased following the relaxation of travel restrictions), increased spending on professional

and consulting fees associated with business growth strategies and the upward adjustments to staff salaries and emoluments to reflect the true cost of living.

After adjusting for non-cash items, which include impairment and exchange losses, the EBITDA of N176.9 billion, $416.9 million, equates to amargin of 43.8 per cent for the period N148.9 billion $371.8 million; 50.7 per cent in 2021.

Taxation 

The income tax expense of N42.3 billion, $99.7 million includes a current tax charge (cash tax) of N28.7 billion, $67.7 million and a deferred tax charge of N14 billion, $32.0 million.

The deferred tax charge is driven by the unwinding of previously unutilised capital allowances and movements in underlift/overlift in the current year. The effective tax rate for the period was 49 per cent (2021: 34%). The higher tax this year resulted from higher taxable profit due to higher oil prices.

Net result 

The profit before tax (PBT) was 15.2 per cent higher at N86.7 billion, $204.4 million from N71 billion, $177.3 million) in the corresponding period.

The profit for the year was $ 104.7 million in 2022 from N46.93 billion, $117.2 million in 2021 with a resultant basic earnings per share of N46.68, $0.11 in 2022, compared to N96.11, $0.24 per share in 2021.

STRONG BALANCE SHEET POSITION

In the audited financial results ended December 31, 2022, the group balance sheet remained well structure and resilient as total assets gained a decent 21.4 per cent to N1.58 trillion in 2022 from N1. 303 trillion in 2021, as total current assets gained a 41.5 per cent to N394.7 billion as of end of December 31, 2022 from N278.8 billion achieved as of end of December 31, 2021, while Total non-current assets gained a 16 per cent from N1.024 trillion in FY 2021 from N1.186 trillion in FY 2022

In addition, the group total liabilities reported moved from N599.7 billion in FY 2021 to N794.7 billion in FY 2022, indicating an increase of 32.5 per cent as total current liabilities increased to N267.4 billion in FY 2022 , reflecting a marginal difference of 35 per cent from N198.1 per cent in FY 2021, while Total non-current liabilities increased by 31.3 per cent to N527.4 billion in twelve months of 2022 from N401.6 billion in twelve months of 2021

Cash flows from operating activities 

Cash generated from operations in 2022 was N242.4 billion, $571.2 million, 51.6 per cent higher than N150.9 billion, $376.8 million generated in 2021. Net cash flows from operating activities were 41.6 per cent higher at N211.0 million, $497.3 million in 2022 from N141.1 billion, $352.3 million in 2021 after accounting for tax paid of N24.4 billion, $57.5 million (2021: N5.2 billion, $13.0 million) and a hedging premium of N4.4 billion, $10.3 million (2021: N3.6 billion, $9.0 million).

Cash flows from investing activities Net capital expenditure of $163.3million included $94 million invested in drilling and $64 million in oil and gas engineering projects.

Deposits for investment of $140.3million include a $128.3 million (which is refundable) deposit for the proposed acquisition announced in February 2022 of Mobil Producing Nigeria Unlimited and the $12.0 million farm-in fee for the Abiala marginal field carved out of OML 40.

Cash flows from financing activities 

The Company paid N24.9 billion, $58.8 million dividends to shareholders in the period. Other financing charges of N5.3 billion, $12.5 million reflect the commitment fee and other transaction costs on the Group’s facilities, and N26.9 billion, $63.3 million reflects interest paid on loans and borrowings.

Seplat Energy outlook 

Our financial strategy will driven by the preservation and flexibility required to realise the value of our asset base. We will continue to closely monitor the performances of the oil price, our assets and evacuation routes, and their implications on cash generation to appropriately scale and phase our capital allocation, ensuring that we have a sound financial platform from which we can build and grow further.

CONCLUSION

Speaking on the performance, Chief Executive Officer (CEO) of Seplat Energy, Roger Brown said:  “I am delighted that our strong financial performance will enable the payment of a US7.5 cent final dividend, despite the significantly disrupted production we experienced in the second half of the year. The full-year dividend of US15 cents represents a dividend yield of around 11 per cent at the current LSE share price.”

He added that, “as we enter 2023, the business is in a very healthy state, with new wells coming onstream, encouraging appraisal drilling underway at Sibiri, and alternative export routes ensuring good export performance in January and February this year.

“Our gas business continues to develop, with first gas expected from ANOH in Q4 this year, and we are now in the process of separating our Midstream Gas business from the Upstream unit to unlock new value for shareholders.”