Seplat Petroleum Development Company Plc is a leading indigenous Nigerian oil and gas exploration and production company with a strategic focus on Nigeria, today been March 31, 2017 announces its full year 2016 financial results and provides and operational update.
Full year 2016 results overview
The report disclosed that working interest 2P reserves as assessed independently by DeGolyer and MacNaughton at 31 December 2016 stood at 461.8 MMboe, comprising 195.4 MMbbls of oil and condensate and 1,544 Bscf of natural gas. This represents a modest decrease in overall 2P reserves of 3.8% year-on-year. The main driver of the downward revision is a re-assessment of booked reserves attributed to the revision of commercial terms at OML 55 where Seplat now holds a revenue interest until a discharge sum of US$330 million has been paid to the Company.
At 31 December working interest 2C resources stood at 90.3 MMboe, comprising 46.2 MMbbls of oil and condensate and 255.9 Bscf of natural gas. Consequently the Company’s working interest 2P+2C reserves and resources stood at 552.0 MMboe at 31 December 2016, comprising 241.6 MMbbls oil and condensate and 1,800 Bscf of natural gas, it was noted.
2016 full year average working interest production stood at 25,877 boepd and represents an overall decrease of 40% year-on year. Within this liquids production was down 65% year-on-year whilst gas production was up 10% year-on-year.
The 2016 figures reflect an oil production uptime level of just 19% after the operator of the Forcados terminal, Shell Nigeria, declared force majeure at the terminal on 21 February 2016 following disruption in production and exports caused by a spill on the Forcados terminal subsea crude export pipeline. Overall reconciliation losses arising from use of third party infrastructure were around 10%. Prior to force majeure being declared at the Forcados terminal net working interest production from July 2015 to mid-February averaged over 52,000 boepd.
The increase in gas production is a result of the full-year benefit being felt in 2016 of the Oben gas processing facility Phase I expansion project (completed mid-2015 and doubling gross Company operated processing capacity to 300 MMscfd) and availability from mid-year of the alternative liquids export route via the Warri refinery jetty (to handle condensate volumes associated with gas production) which in-turn allowed for increased security of supply to the domestic market. Production guidance for 2017 will be set once force majeure is lifted at the Forcados terminal and production has returned to normalised levels.
Key points •
Results impacted by force majeure at Forcados terminal – net working interest production 25,877 boepd, revenue US$254 million; Gross profit US$72 million; net loss after tax US$166 million
Cash from operations US$172 million against capex incurred of US$52 million
3 MMbbls gross oil and condensate exported via Warri refinery route in 2016 – gross exports to stabilise at 30,000 bopd during Q2 2017; completion of the 160,000 bopd Amukpe to Escravos pipeline is prioritised by government – anticipated in H2 2017
Continued growth of the gas business – 2016 net working interest production up 10% year-on-year at 95 MMscfd (210 MMscfd gross) and gas revenue up 37% to US$105 million – all gas supplied to domestic market
Phase II Oben gas processing plant expansion takes total processing capacity to 525 MMscfd – gives headroom to increase contracted gas sales and handle 3rd party volumes in future
Continued to deleverage the balance sheet – gross debt at year end US$676 million (repaid US$324 million, or almost one third, of principal outstanding since January 2015 re-financing)
Cash at bank at year end US$160 million
Business fundamentals remain strong – working interest 2P reserves 462 MMboe, 2P + 2C volumes 552 MMboe; working interest production prior to force majeure in excess of 52,000 boepd; low unit cost of production at ca. US$9/boe
Revenues were impacted during the year due to the shut-in of the Forcados terminal after the terminal operator, Shell Nigeria, declared force majeure on 21 February following disruption in to the Forcados terminal subsea crude export pipeline. The terminal remained under force majeure for the remainder of the year. Despite this prolonged shut-in, over 1.4 MMbbls of Seplat’s equity crude (3 MMbbls gross) was successfully evacuated via the Warri refinery export route (utilising the joint venture owned and operated 100,000 bopd pipeline installed in 2014 linking the refinery to the Rapele manifold) allowing for a partial recovery in crude revenues in the period. Gas sales on the other hand were sustained throughout the year, albeit at constrained rates prior to establishment of the alternate export route owing to condensate handling limitations, and did provide a partial offset to the impact of the lower oil production. Consequently, revenue in 2016 was US$254million, a decrease of 55% from 2015 (2015: US$570 million)
Gross profit for the year was US$72 million, a decrease of 71% on the prior year (2015: US$249 million). This principally reflects the shut-in of the Forcados terminal resulting in lower production, lower oil price realisations and higher costs associated with the alternative export route to the Warri Refinery. Direct operating costs, being crude handling fees, barging costs, rig-related costs and other field expenses were US$83 million in 2016 against US$151 million in 2015. Non production costs primarily consisting of royalties and DD&A were US$99 million compared to US$171 million in the prior year. There was a reduced level of field expenditures but crude handling charges per barrel increased proportionally reflecting the higher cost of the barging operation at the Warri refinery jetty. Management is committed to the need to operate as efficiently as possible in the current low oil price and operationally disrupted environment whilst maximising the production and cash flows from existing assets
Operating loss for the year was US$158m when compared with a prior year operating profit of US$158 million. Included in the loss is a charge of US$101 million relating to unrealised foreign exchange losses principally on amounts owed by our joint venture partner NPDC.
Whilst the Company awaits the outcome of a review by the Nigerian Investment Promotion Commission on whether an extension of the pioneer tax incentive will be granted beyond the initial three-year period (which concluded at the end of 2015) the Company has prepared its 2016 financial statements excluding the effect of pioneer tax status which correspondingly forms the basis of the current and deferred taxation credit of US$6.7 million compared to a charge of US$21.5 million for the same period in 2015.
Net loss for the period was US$166 million, compared to a full year profit of US$66 million in 2015. The resultant LPS for 2016 was US$0.29 compared to an EPS in 2015 of US$0.12.
Owing to the exceptional circumstances as a direct result of force majeure events at the Forcados terminal no dividend is being declared for 2016.
Net cash flows from operating activities in 2016 stood at US$172 million (2015: US$38 million). The outstanding net NPDC receivable at year end, after offsetting NPDC’s share of gas revenues and further adjusting for crude handling charges, in addition to adjustments arising from foreign exchange differences and impairments, stood at US$229 million (2015: US$435 million).
Net cash out flows from investing activities were US$52 million (2015: US$79 million).
Net debt at the year-end was US$516 million, compared to US$573 million at December 2015. Net cash outflows from financing activities were US$283 million (2015: cash inflow US$82 million). Despite the significant interruptions to oil production the Group met all of its financing obligations during the year.
Proactive approach and management actions lead to improved performance outlook with greater diversification of export routes
Commenting on the results Austin Avuru, Seplat’s Chief Executive, said “In addition to a difficult global oil market backdrop our business has had to contend with unprecedented operational challenges due to interruptions and these are reflected in our full year results. Whilst force majeure at the Forcados terminal has materially affected our oil production, I am particularly pleased to see the growth in our gas business which in 2016 exceeded the US$100 million revenue milestone demonstrating its robustness and providing a solid base from which to grow. In addition, we have now established a longer-term alternative export route via the Warri refinery jetty and are nearing completion of upgrade works to the infrastructure enabling a doubling of barging volumes to a steady 30,000 bopd gross during Q2 2017. We are collaborating and supporting government on completion of the Amukpe to Escravos pipeline that will offer a third export route through the Escravos terminal. With multiple export routes expected to be operational during the second half of 2017, we will have significantly de-risked our route to market. Whilst the quality of our asset base remains undiminished we will continue to maintain strict financial discipline to ensure that we preserve a sufficient liquidity buffer in the current environment and at the same time retain discretion over spend in our portfolio of production opportunities.”
“Seplat is pursuing a Nigeria focused growth strategy and is well-positioned to participate in future divestment programmes by the international oil companies, other acquisition and farm-in opportunities and future licensing rounds”