By JULIUS ALAGBE

Take away tax credit benefit in 2017, Seplat account would have been negative. Except for financial year 2014 and 2017, the oil exploration firm seems to have battled with low sales to profit conversion rate. In the last five years, Seplat annual sales grew from N124.377 billion to N228.391 billion at the end of 2018. What this means is that, on the average, Seplat Plc has been able to grow revenue by 13.11% annually in the last five years.
While sales trend has been consistent, profit on the other hand has over the years lagged. In the last five years, Seplat has been able to grow annual profit by 2.08%. In 2014, the oil firm did N40.481 billion in profit, which went down for two consecutive years and picked up in 2017 with more than twice the amount made in 2014 – supported by N67.7 billion tax credit. However, financial year 2018 profit then normalize to N44.867 billion.
Profit for the year in relation to revenue generated nosedived by 9.53% per annum on the average. In 2014 when the company became a listed entity, it had made 33% on gross sales. A year after, it dropped to 11% then a loss was recorded in 2016 which means assets were depleted. The company returned to profitability in 2017 – thanks to tax credit and by the end of 2018 it records 20% profit to revenue.
On the average per annum, total assets grew by 11.8% from N444.026 billion in 2016 to N775.656 billion in 2018. Meanwhile, non-current assets expanded by 22.97% per annum on the average. This signified that Seplat has been making investment that furthers its operation. Current assets have stayed within similar range signifying operations that are under control. One positive thing is that shareholders have continued investing in the company, the pattern of shareholders equity revealed. Over the period, equity has maintained stable growth trajectory.
Many analysts have not been really impressed with the performance of the Seplat and by extension its stock. But the recent trend in the company indicates that this lack of excitement would soon fizzle out as it is set to reverse the trend. Initially, Seplat was impacted by dwindling global price of oil, and hard to bite financial issues that emanated from the need to invest in earnings yielding assets.
SEPLAT is widely recognized as a leading Nigerian independent oil and gas operator. The company listed on both the London Stock Exchange and the Nigerian Stock Exchange in April 2014. Immediately following its admission into Nigerian Stock Exchange in 2014, Seplat prospectus showed that Dr. Ambrose Bryant Chukwueloka Orjiakor held 15.60% of the shares. Orjiakor’s shares rank was followed by Austin Avuru and Platform Petroleum Limited with 13.49% shareholding.
MPI S.A however hold the largest stake at 22.16%, others shareholders that were allotted less than 5% included Mercuria Capital Partners Limited (4.42%), Quantum Power International Holdings limited (3.61%), Quantum Capital Partners Fund I limited (3.68%) and Blakeney Group (2.95%).
Five years down the line, the share structure has changed or has been adjusted to accommodate series of development. Établissements Maurel & Prom SA holds 120,400,000 equity in Seplat, or 20.5% and Petrolin Trading limited has 14.4% followed by 7.81% by Dr. ABC Orjiakor in addition to 2.14% family holdings. On the list is Platform Petroleum Limited 7.5% and Allan Gray 6.1% with Augustine Avuru holding 5.16%
As at the last week, Seplat was trading at N520 per share on the average. At the peak of its performance, Seplat traded at N785 per share in March 9, 2018. Though it opened at N630 on first trading day in May 2014, the highest point where the stock had hit was N710 early June, 2018.

In the financial year 2018,
At the end of financial year 2018, Seplat’s total assets was valued at N775. 6 billion as against N799.6 billion in 2017. The indigenous oil firm deleverage its financing mix, as total liabilities receded by 16.4% from N339.9 billion to N284.2 billion. Effectively, the management scaled down the size of the balance sheet by paying off fixed interest obligations, looking at 16% decline that translated to a 3% reduction in total assets.
Although more funds were locked down in inventories in 2018 compared with 2017 on the back of 2.6% surge, but Seplat converted significant size of trade and other receivable elements into cash. This was evident in 34.3% increase in cash and cash equivalent in 2018.
Debt was paid off as the numbers show, and this reduction in financial liabilities resulted in about 32% declined in net finance cost as Seplat reset its capital structure with lower debt to equity finance. Meanwhile, the firm size of equity scaled up, signifying positive sentiments by the investors. From N459.6 billion in 2017, shareholders’ funds jerked up to N491.5 billion in 2018.

Performance
The Group’s revenue grew by as much as 65.2% from ₦138.28 billion in 2017 to ₦228.39 billion in financial year 2018. This was due to the combined effect of a 35% increase in production from both crude oil and gas. Production rose from 36,923barrel of oil equivalent (boepd) to 49,867boepd in 2018 coupled with higher crude oil prices.
Analysts at GTI Securities in their assessment said that in 2018, Seplat’s average realized crude oil price was $70.1/ barrel of oil (bbl.) compared to $50.4/bbl. in 2017. Meanwhile, activities around the company’s operation saw a massive improvement. Drivers of the improved performance include balanced sales activities, with oil sales accounted for 79.14% and gas sales contributing the rest.
Cost of sales rose 48% from N73.4 billion to N108.6 billion in 2018. The growth in cost was below growth in revenue. This resulted in about 85% uptick in gross profit from N64.9 billion in 2017 to N119.8 billion.
The oil exploration and development company’s general & administrative expenses and finance cost declined by 13.34% and 22.28% from ₦28.18billion and ₦22.28billion in 2017 to ₦24.42billion and ₦17.29 billion in FY 2018 respectively.
This boosted the firms profit before tax (PBT) which surged by 499.19% from ₦13.45billion in 2017 to ₦80.62billion in 2018. However, Profit after Tax (PAT) declined by 152.84% from ₦81.11billion in 2017 to ₦44.87billion in 2018.
This was due to income tax of ₦35.75billion recognized in 2018 as against a tax credit of ₦67.65billion recognized in 2017. Consequently, the firms EPS declined by 45.10% from ₦143.96 the preceding year to ₦79.04 in FY 2018. A dividend of $0.05 was declared, taking the total dividend paid in 2018 to $0.10 per share.

In the first quarter of 2019,
Seplat revenue was then hit with lower oil output. The results showed that oil revenue slid by 16% year on year to $118 million, and therefore underperformed according to Vetiva analysts’ by an estimated $131 million. The fall in oil revenue was largely a reflection of the slump in oil production during the quarter; as analysts at Vetiva capital noted there was an average oil production of 21.9 kb/d in the first quarter of 2019 as against 27.3 kb/d in comparable period in 2018.
It was noted that the decline in average realised oil price of $62 per barrel of oil in the first quarter 2019, compare with $66 in first quarter 2018 contributed to the tepid performance in SEPLAT’s oil business. Despite the fall in gas output during the quarter to 143 million standard cubic feet per day, MMscfd, from 158 MMscfd in the comparable period, SEPLAT’s gas operations registered modest performance in Q1’19, with gas revenue advancing 6% to $42 million. This growth witnessed in gas revenue in Q1’19 was primarily driven by the increase in realised gas price at $3.2/Mscf, compare with $2.8/Mscf in the comparable period in 2018.
Gross margin came in flat at 51% as operating margin declined to 20% as against 46% recorded in the first quarter of 2018, as the firm was less operationally efficient during the quarter. Operating margin was weakened by an over lift loss of $16 million in Q1’18: under lift gain of $9 million coupled with 27% increase in administrative expenses.
For every oil deal closed and delivered, Seplat made 52.4% in 2018 compare with 46.9% in 2017. This signals that the company was able to tame its direct operating cost structure that was fast rising. Cost of sales margin was reset to reflate gross margin in 2018. So, Seplat capital structure showed that about 28% of the oil exploration firm financing mix was borrowed funds in 2108. It was about 38% in 2017.