By Yusuf Mohammed
Looking through the recently released 2019 half-year report of SEPLAT Petroleum Development Company, one would see a very notable development: gas is increasingly playing a bigger role in the operations of the oil and gas sector player; and understandably so too.
The company which was formed in June 2009 to pursue upstream oil and gas opportunities in Nigeria, and in particular, divestment opportunities arising out of the incumbent major IOC’s portfolios, commenced practical operations in July 2010 when it acquired a 45% working interest in, as well as being appointed operator of three onshore producing oil and gas leases: OMLs 4, 38 and 41.
In June 2013, a fourth field came in when Newton Energy, a SEPLAT subsidiary secured a 40% participating interest (non-operated) in OPL 283.
Two years later, SEPLAT took on a 40% participating interest in OML 53 and a revenue interest in OML 55. A most determined player had indeed been born in the Nigerian oil sector and there has literally been no stopping SEPLAT since then even as the company made more and more inroads in navigating the waters of the core crude business that has continued to be the principal cash cow within the nation’s oil and gas sector..
Gas as the new king
Business being business however, over the years, there has been growing consensus that gas was going to be the new king in the sector. After consolidating its crude interests in the first 8 years of its establishment, in January 2017, SEPLAT incorporated ANOH Gas Processing Company Limited, as a midstream gas subsidiary tasked with the processing of gas from OML 53 for distribution to the local market.
With the challenges that have beset the oil sector in recent years, this deepening of SEPLAT’s field of play to include the gas arena has come in most handy.
Even in its half-year 2019 results – where it posted overall revenues of N108.97bn – it will be seen that the outcome of SEPLAT’s gas investment was a critical component within that showing. In the words of one analyst, it is instructive here that ‘SEPLAT was able to negotiate and finally recognize USD66.89mn (NGN20.53bn) in tolling fees arising from NPDC’s share of processed gas from the Oben Gas Expansion project (from June 2015 – December 2018), which was financed on a sole risk basis by Seplat.’
The import of this ‘gas relief’ may be found in the fact that without this lifeline, SEPLAT’s gross revenue may have come in lower at NGN88.44bn. With it however, it eventually recorded a 3.98% growth over and above the NGN104.79bn it had posted in the corresponding financial period.
For many close watchers of trends in the oil and gas sector at the moment, SEPLAT’s decision to pay more attention to the gas sector makes ample sense. Says Micheal Okomu:
‘Clearly, with ongoing developments in the oil and gas industry, the advice I will give to anyone desirous of playing in or investing in the sector is that they look more closely unto the gas fields. It is here they would be able to get better margins and make greater impact,’ the petroleum sector watcher underscored.
Even as players in the overall oil and gas sector continue to take measured strides in relation to the many currents that underplay transactions in the arena, one bright hope for SEPLAT is the fact that steady progress continues to be recorded at its ANOH Gas Project
The $700m Assa North/Ohaji South gas and condensate field project is being formally managed by ANOH Gas Processing Company, a joint venture between Seplat and the Nigerian Gas Company and the goal is to develop a midstream plant that has a capacity for holding and processing 300 million standard cubic feet of gas per day.
Like was recently also witnessed with the divestment of billionaire industrialist, Femi Otedola from forte oil to concentrate his focus on energy generation at Geregu Power, several other far-sighted players in the oil and gas sector, and indeed the broader energy field are reviewing emergent data and making any adjustments they deem appropriate to ensure that they continue to hold a basic competitive edge.
While Nigeria’s gas stock has always been estimated as being among the largest national holdings in the continent and beyond, several bottlenecks had continued to delay would-be investors from making a determined pitch in the sector. Part of the challenge experienced had to do with ensuring that there was a market for the product. This was connected to poor local market development and pricing. Over time however, some of these negatives have been confronted as attested to by SEPLAT MD, Austin Avuru.
In a recent presentation, the oil and gas sector juggernaut stated that ‘Domestic Supply Obligation price has increased to commercial levels and non-DSO prices are determined on a willing buyer/willing seller basis, opening up new vista of growth for Seplat’s gas business.’
Harping in on the point about the domestic market, Avuru stated that factors like Nigeria being one of the largest economies in Africa, and one with a population that is projected to grow to a population of 450 million people by 2050 would almost inevitably ‘spur a high demand from power industries and other commercial enterprises.’
These and other related considerations are what have informed SEPLAT’s bold foray into the sector as highlighted in the promotion and establishment of the ANOH Gas Field Production Company as a special purpose vehicle that has been put together to raise $420m of equity to derisk the project.
At the last check, United Bank for Africa Plc, Zenith Nigeria Plc, First Bank of Nigeria Limited, SCB, RMB, Standard Bank, BHGE, and Nedbank were already associated with the project.
ANOH as gold-mine
Underscoring its deep resolve to hold unto and fully harness the composite benefits of its ANOH project undertaking, Seplat Petroleum Development Company Plc has not only continued to sell the Assa North-Ohaji South (ANOH) gas processing project as a bankable initiative, it is also branding it as one that has great potentials for boosting Nigeria’s domestic gas supply significantly.
As amply attested by Chief Executive Officer, Austin Avuru, who led a team to the 2019 Capital Markets Day at the London Stock Exchange, London, recently, both the market price and long-term outlook for gas in Nigeria and the broader regional market are quite strong.
Designed to process future wet gas production from the upstream unit, the ANOH gas processing plant will, upon completion, be the first stand-alone midstream joint venture business between the Nigerian National Petroleum Corporation (NNPC) and any company in the private sector.
Even beyond this, Seplat is aiming to be the largest supplier of gas to the domestic market and has also served notice that it would not be limited to the 300 Mscfd size that it is starting with. Says Avuru: “By the time we commission the ANOH project, we will be able to produce 850 Mscfd.’
“Overall, the gas business was not attractive in 2010 and some years after. Seplat, however, took a conscious decision to invest in the gas business upon the price of gas inching up as ‘willing buyer willing seller’ commercial terms became possible. The company is uniquely situated within the existing gas pipeline network and therefore leveraged on this to significantly expand its Oben gas plant. The revenues from the expanded Oben gas plant have been impressive motivating the company to seek further investment in gas.”
He explained that the company’s gas is for the domestic market, quipping that Nigeria has a notable population which is projected to continue to grow to 450 million people by 2050. “This will represent the highest population growth in Africa, and Nigeria is the third most populated country globally behind China and India. Evidently, the current capacity for electricity generation cannot be adequate,” he said.
“Thus, Seplat has strategically positioned itself ahead of that opportunity and with projected demand for gas and improved fiscal regime; there is a compelling case for gas. Displacing diesel in Nigeria’s environment is a priority for the company. Currently, Seplat gas accounts for 30 to 35 percent of the power generated and the company is determined to continue the lead in this area.”
“For Seplat, our gas business is a national project. As a result, facilitating gas to power and gas to the industry have become critical for the company.
“The market gas price remains strong and the long term outlook for gas in Nigeria and the regional market remain strong. Seplat is participating in major national development with its gas business, and the company is delighted to, through its gas business, deliver major national priority while earning revenue.”
Even before the current era, Seplat Petroleum Development Company Plc has given every indication that it was holding steady. For one, it had closed the year 2018 with a profit before tax of N73 billion that was also built on a ₦228 billion revenue showing.
That revenue figure in itself was also an increase of 65 per cent from the ₦137 billion the company had posted in the year 2017.
Still on the plane of improvements, the ₦73 billion profit before tax position in FY 2018 was a 480 per cent increase from ₦13 billion which the company had recorded in the corresponding period in 2017.
Gross profit for the period moved up by 84% to a new perch of ₦120 billion, and up from the ₦65 billion that it had posted at the close of FY 2017. Operating profit, which was now standing at ₦95 billion in FY 2018 was similarly indicating a growth trajectory as it had leapt by 177% over the ₦34 billion that had been reported in the corresponding period at the close of the 2017 business year. On the flip side however, profit after tax slumped by 45%, down from the ₦81 billion posted in December 2017 to ₦45 billion in FY 2018.
Back to the half year 2019 report, the prognosis going forward is clearly that of a large-barreled player who is taking every step to ensure that it is in the best possible position to even play for higher stakes going forward on both its traditional oil production as well as its expanding gas tick.
First is the crude sector: “Final works within the Escravos terminal are underway, which includes the tie-in of the LACT measurement unit into the Chevron control system and with commissioning expected to be completed during the third quarter of 2019 with export of oil to the permitted capacity of 40,000boepd in the fourth quarter of 2019.”
Seplat said its overall working interest production in the first half across all blocks stood at 22,974bopd and 145 million standard cubic feet per day, or 48,004boepd with production uptime of 88 per cent in the period.
From all of these, the company’s half-year profit before deferred tax rose to $121m (N37bn) from $105m (N32bn) in the first half of 2018.
The Chief Executive Officer, Seplat, Mr. Austin Avuru, said the results further emphasised the strong cash generation potential of the company’s low-cost production base and the progress being making at the Assa North/Ohaji South gas and condensate development project.
He said, “Our H1 work programme has been impacted owing to unforeseen delays from rig contractors as well as the need to undertake higher levels of maintenance and asset integrity work for longer-term benefit of the assets.
“Both have affected production during the H1 but we have now secured the necessary rig capacity for the second half to implement the revised work programme, which will drive us towards a 2019 exit working interest production rate of 62,000 barrels of oil equivalent per day and bring annualised production within the unchanged guidance range of 49,000 to 55,000boepd.”
In analyzing the company’s performance in 2018, the Chairman of Seplat Petroleum, Dr. A.B.C. Orjiako, had noted that the results clearly reflected the diversity of outcomes that the company was faced with and responded to.
Among others he referred to increased production uptime at its fields, a relatively firmer oil price regime and improved revenues from the gas business. This was even as there was also the enervating challenge of an ‘extended period of force majeure at the Forcados terminal from February 2016 to June 2017.’
He then went on to register that in line with the supervening vision to focus on the continued expansion of the gas business, 2019 was clearly set to be the year that activity would be intensified at the large scale Assa-North and Ohaji-South (ANOH) gas and condensate development.
Chief Executive Officer, Mr. Austin Avuru, was not left out of the ANOH buzz. As he corroborated at the AGM
“As Seplat continues to enhance production and revenue diversification with new wells scheduled at OML 53 in the East, the board took the Final Investment Decision to invest in the large scale ANOH gas and condensate development which will form the next phase of transformational growth for our gas business. Disciplined capital allocation continues to remain at the core of our activities evidenced by our continual deleveraging of our debt levels to the current balance of US$350m,” he added.
Currently listed on both the Nigerian Stock Exchange’s (NSE) and the London Stock Exchange, the firm enjoys Premium listing status and is indeed the first oil and gas company in Nigeria that has been migrated to the Premium Board of the NSE.
In March 2019, the Final Investment Decision was sanctioned by Seplat’s Board for the ANOH gas Project. According to the schedule, Phase 1 of the project is to comprise a 300 MMScfd gas processing plant
It was in the midst of these development as that news filtered in early in the month that SEPLAT Petroleum Development Company Plc chairman, Dr Orjiako was selling 3,500,000 units of ordinary shares indirectly held by him in the firm.
With this, Dr. Orjiako’s shares tally now comes to a direct interest in 16,151,325 ordinary shares and an indirect interest in 26,300,000 ordinary shares of the Company totaling 42,451,325 shares which equates to a voting interest of 7.21% (based on an overall Issued Share Capital of 588,444,561).
Notice of this transaction was duly and appropriately communicated to all the relevant regulatory centres with the company itself duly notifying the investing public ‘in accordance with Rule 12 of the Amendments to the Listing Rules of the Nigerian Stock Exchange and Article 19 of the EU Market abuse regulation.’
Efforts to get SEPLAT’s Spokesperson, Chioma Nwachukwu to comment on this and other related developments did not yield the desired results as both telephone and SMS efforts were yet to be responded to as at press time.