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NIGERIA: Seplat Provides Operational Highlights & 2021 Outlook

Operational highlights 

·      Working-interest production within guidance at 50,653 boepd, despite market volatility 

·      Liquids production of 33,327 bopd, gas production of 100 MMscfd

·      Eland OML40/Ubima assets produced 9,151 bopd, 27.5% of Group oil volumes, integration progressing well

·      TFP reconciliation losses reduced to 8.6%

·      Amukpe-Escravos Pipeline now expected operational in H2 2021

·      Low unit cost of production at US$8.73/boe, with cost-cutting initiatives ongoing, particularly at OML40/Ubima

·      ANOH project remains on track for Q4 2021 first gas, completion of financing imminent

Financial highlights

·      Strong cash balance of US$213 million after US$100 million RCF repayment, US$29 million 2019 final dividend, and US$109 million capex

·      Net debt steady at US$480 million with most maturities after 2021

·      Revenue US$388 million due to lower oil prices

·      IAS 36 COVID-19 impact assessment and IFRS 9 non-cash impairment provision of US$180 million. 

·      Provision reverses operating profit of US$100 million to operating loss of US$79 million

·      NPDC receivables further reduced to US$152 million

Interim dividend declared

·      Interim dividend of US$0.05 per share (2019: US$0.05) in line with Seplat’s normal dividend distribution timetable

Outlook for 2020

·      Full-year production guidance narrowed to 48-52 kboepd, subject to market conditions

·      Oil hedging: 1.5MMbbl at US$30/bbl and 0.5MMbbl at US$35/bbl in Q4 2020

·      Full-year capex expected to be around US$120 million (US$109 million already invested) 

Roger Brown, Chief Executive Officer, said:

“Seplat’s third-quarter performance has again demonstrated the resilience of our business in challenging times and in addition to voluntarily reducing our debt leverage by US$100 million, we are maintaining our commitment to shareholders by declaring an interim dividend of US$0.05 per share, as we have in previous years. The business continues to operate effectively despite the restraints of the COVID-19 pandemic and the recent unrest in Nigeria.

After the tragic incident on OML40 in July, we have in consultation with our government partner NPDC and the regulatory authorities in Nigeria, conducted three separate and comprehensive investigations that have led to the implementation of new and strengthened safety procedures at the joint venture.  Our thoughts and prayers remain with the affected families and friends.

We continue to hedge our oil business against further price volatility and are pursuing further cost-cutting initiatives to ensure that we will remain profitable even at lower prices experienced earlier in the year”     

Outlook for 2020

Following our performance over the first nine months of the year we are narrowing guidance to 48,000-52,000 boepd for the full year. We continue to hedge against oil price volatility and expect a higher proportion of revenues to come from long-term gas contracts at stable prices. We also continue to focus on cost savings to maintain profitability at the lower oil prices we have realised so far this year.

We have significant cash resources available and will continue to manage our finances prudently in 2020, expecting now to invest US$120 million of capital expenditure across the full year (of which US$109 million has already been invested). We remain confident that our cost-cutting initiatives and prudent management of cash will enable further reductions in debt, whilst supporting dividend payments and investment for growth.

The timely completion of the ANOH project in late 2021 remains a major priority and we expect that the debt financing will achieve financial close in the coming weeks.

Integration of Eland

The integration of Eland is progressing well. The OML40 and Ubima fields contributed around 27.5% of Group oil volumes in the nine-month period and we continue to address cost cutting at OML40, notably through reduced barging costs with the use of larger barges to evacuate liquids from Gbetiokun.

As previously indicated, the integration process is expected to take a year to complete. We have conducted detailed reviews to assess how best to combine the operations of Eland and Seplat in the most optimal manner and begun implementing several initiatives to drive this integration.

Our Aberdeen office will become Seplat’s Centre of Excellence, and will focus on training and technical support for subsurface, business development and future energy technologies. In addition, we are looking at ways to assist Elcrest implement whatever best practices may be beneficial from the wider experience of Seplat, for example in health and safety, operations management, community relations and external affairs etc.

Update on Amukpe-Escravos export route

The Amukpe-Escravos pipeline is set to provide a third and more secure underground evacuation option for liquids production from OMLs 4, 38 and 41. Once completed, we believe it will significantly improve the assets’ production uptime (77% in 9M 2020) and reduce losses from crude theft and reconciliation (8.6% in 9M 2020).

The minor completion works on the 160 kbopd pipeline are unfortunately not within Seplat’s control and have been frustratingly slower than anticipated due to a combination of access to the Escravos terminal due to COVID-19 and issues relating to ownership of pipeline. Our partner NPDC now owns a direct stake in the pipeline and we understand they are working with the other pipeline owner and their banks to facilitate the completion of the project.  We have consequently adjusted our plan and budgets to expect commencement of export of the initial permitted volume of 40 kbopd through the Escravos terminal in the second half of 2021.

Oben Gas Plant 

The Company successfully completed a 15-day turnaround maintenance for the Oben Gas Plant in March. Gas production was affected during the maintenance period and this impact was exacerbated by third-party infrastructure downtime of 23% due to associated condensate handling challenges. 

The Oben-48 gas well, drilled in late 2019, came onstream in the first quarter of 2020. Oben-49 was drilled in the third quarter with well completion activities in progress. Following the completion of Oben-49, the drilling rig will move to the location of the second planned gas well and commence drilling activities. The initial well potential for both wells combined is expected to be 75 MMscfd on a gross basis, or 33.8 MMscfd net.

Sapele Gas Plant

Decommissioning of the existing gas plant reached 85% completion in the period, with only the last producing module and associated equipment outstanding. Decommissioning of the lone producing module commenced on the 1st of October 2020 and upon conclusion will complete the abandonment activities, after which site construction works will begin.

For the new plant, we have taken delivery of the AG compressors as production of other main processing components continues. Contracting is in progress for the procurement of the remainder of the plant equipment. The project is expected to be completed in the second half of 2022, with Sapele’s processing capacity increasing from 60 MMscfd to 75 MMscfd. The upgraded facility will produce gas that meets the West African Gas Pipeline (WAGP) export specifications and the LPG module will enhance the economics of the plant as well as ensuring that any gas flaring is eliminated.

ANOH Gas Processing Plant 

The ANOH Gas Processing Plant development at OML 53 will comprise a 300 MMscfd midstream gas processing plant in its first phase.

The project is progressing as planned. Having reviewed the construction schedule and progress on the OB3 gas pipeline, as well as the effect of COVID-19 on equipment delivery, we believe the anticipated first-gas date of Q4 2021 remains on target. On the basis of this completion date, we have agreed with the upstream operator, Shell Petroleum Development Company (SPDC), to defer the initial well spud date of November 2020 to the first quarter of 2021. This will ensure the upstream first-gas target is in alignment with the midstream project delivery schedule.   

The total ANOH project cost is budgeted at US$700 million and both NGC and Seplat have fully funded their respective equity investments of US$210 million. The balance will be funded by debt and we expect to conclude the funding process in Q4 2020.

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