Half-yearly results for the six months ended 30 June 2019 (expressed in Naira and US Dollars)

30 July 2019

Seplat Petroleum Development Company Plc

Consolidated financial results for the period ended 30 June 2019

Lagos and London, 30 July 2019:  Seplat Petroleum Development Company Plc ("Seplat" or the "Company"), a leading Nigerian indigenous oil and gas company listed on both the Nigerian Stock Exchange and London Stock Exchange, today announces its consolidated half-yearly financial results for the period ended 30 June 2019 and provides an operational update.  Information contained within this release is un-audited and is subject to further review. Details of the Webcast and conference call are set out on page seven of this release.

Commenting on the results Austin Avuru, Seplat's Chief Executive Officer, said:

"Today's results further emphasise the strong cash generation potential of our low-cost production base and the good progress we are making at the large scale ANOH gas and condensate development project. Our H1 work programme has been impacted owing to unforeseen delays from rig contractors as well as the need to undertake higer 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 an 2019 exit working interest production rate of 62,000 boepd and bring annualised production within the unchanged guidance range of 49,000 to 55,000 boepd. Meanwhile, we remain on an extremely solid financial footing and concentrated on furthering our growth strategy as we target both organic and inorganic opportunities to grow shareholder returns."

Half-yearly results highlights

Financial performance summary

·      Revenue of US$355 million up 4% year-on-year with gas tolling revenue of US$67 million recognised for the first time in relation to the processing of NPDC's gas through the Seplat sole risk funded Oben Gas Plant 375MMscfd expansion between June 2015 and end 2018

·      Gross profit of US$207 million represents a 58% margin (up from 51% in H1 2018) while operating profit of US$139 million is down 12% year-on-year after adjusting for a US$40 million impairment of NDPC receivables

·      Significantly lower finance costs of US$25 million (down 39% year-on-year) have kept profit before tax flat year-on-year at US$120 million with net profit from continuing operations standing at US$119 million

Robust balance sheet and cash flow generation

·      Cash at bank at 30 June 2019 US$433 million; gross debt US$350 million and net cash US$83 million with US$225 million un-drawn headroom on the four year revolving credit facility

·      Net cash flow from operations in H1 2019 stood at US$255 million against capex of US$28 million; FY 2019 capex guidance revised downwards to US$150 million 

·      FY 2019 capex guidance revised downwards to US$150 million; three planned exploration / appraisal wells targeting longer term oil and gas production together with the Oben and Sapele LPG projects have been deferred into 2020 with the current focus on shorter term oil and gas production gains

Working interest production

·      Overall working interest production in H1 across all blocks stood at 22,974 bopd and 145 MMscfd, or 48,004 boepd with production uptime of 88% in the period

·      FY 2019 guidance reiterated at 49,000 to 55,000 boepd on a working interest basis, comprising 24,000 to 27,000 bopd liquids and 146 to 164 MMscfd (25,000 to 28,000 boepd) gas production, as impact of H2 weighted work programme takes effect and drives working interest production to a planned exit rate of 34,000 bopd liquids and 162,000 MMscfd gas (or 62,000 boepd)

Gas business performance summary

·      FID taken for the large scale ANOH gas and condensate development in March and followed by capital markets days in London and Lagos (see separately released materials on the Company website); Project to comprise of a first phase 300 MMscfd midstream gas processing development with first gas targeted for Q1 2021

·     Equity investment of US$150 million from government received with US$150 million equity funding from Seplat also made into ANOH Gas Processing Company ("AGPC")

·     Gas sales of US$72 million in H1 2019 and tolling fees of US$67 million take total gas derived revenue for the period to US$139 million

Project Updates

·    Commissioning phase of the 160,000 bopd Amukpe to Escravos pipeline underway with hydro testing commencing in early July. Completion and export of oil to the permitted capacity of 40,000 boepd expected in Q4 2019

Board and Company Secretary changes

·      Non-executive director Macaulay Agbada Ofurhie retired from the Board effective 30 July 2019, replaced by Non-executive director Madame Nathalie Delapalme ; Edith Onwuchekwa appointed as Company Secretary effective 24 June 2019

Financial overview

^{(1) Profit after tax has been adjusted for US$1.3 million of non cash deferred tax asset}

OPERATIONS REVIEW

Production for the first six months ended 30 June 2019

⁽¹⁾ Liquid production volumes as measured at the LACT unit for OMLs 4, 38 and 41 and OPL 283 flow station.  Volumes stated are subject to reconciliation and will differ from sales volumes within the period.

Average working interest production during H1 2019 was 48,004 boepd (compared to 51,099 boepd in H1 2018) and comprised 22,974 bopd liquids and 145 MMscfd gas. Production uptime in the period was 88% while reconciliation losses are expected to be finalised at levels consistent with prior periods. Full year 2019 production guidance is maintained at 49,000 to 55,000 boepd on a working interest basis, comprising 24,000 to 27,000 bopd liquids and 146 to 164 MMscfd (25,000 to 28,000 boepd) gas production.  Sequencing of the 2019 work programme means the corresponding production uplift will be realised progressively throughout H2. This guidance range is predicated on there being no further prolonged force majeure event.

In H1 2019, Seplat lifted and monetised an equivalent of 266 kbbls of oil from OML55, which resulted in a receipt of US$17 million. The carrying value of the investment in the balance sheet was consequently reduced to US$150 million. 

Project updates

The Company's policy of creating multiple export routes for all of its assets has resulted in it actively pursuing alternative crude oil evacuation options for production at OMLs 4, 38 and 41 and potential strategies to further grow and diversify production in order to reduce any over-reliance on one particular third party operated export system.  To add to the Transforcados Pipeline system and the back up export via the Warri refinery, the Amukpe to Escravos 160,000 bopd capacity pipeline is set to provide a third export option for liquids production at OMLs 4, 38 and 41. The pipeline owners, NAPIMS (a 100% subsidiary of NNPC), Pan Ocean Corporation Limited (Pan Ocean) and the pipeline contractor FENOG are responsible for completion of the pipeline, which has seen delays to date.

The completion of the project is in sight. The hydro testing of the 20 inch pipeline which involves pigging to remove any debris which has accumulated in the construction, followed by flowing water under pressure from the injection point at Amukpe to the Escravos terminal commenced in early July, and the current flow rates have confirmed the integrity of the pipeline. 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 Q3 2019 with export of oil to the permitted capacity of 40,000 boepd in Q4 2019.

It is Seplat's ultimate intention to utilise all three independent export options to ensure there is adequate redundancy in evacuation routes, reducing downtime which has adversely affected the business over a number of years, significantly de-risking the distribution of production to market.  

Gas business

Alongside its oil business, the Company has also prioritised the commercialisation and development of the substantial gas reserves and resources identified at its blocks and is today a leading supplier of processed natural gas to the domestic market in Nigeria.

Oben processing hub - Western Niger Delta

With overall operated gas processing capacity standing at 525 MMscfd, the Company is actively engaged with counterparties to increase contracted gas sales with the intention of taking gross production towards the 400 MMscfd level on a consistent basis. Of the 525 MMscfd total processing capacity, 465 MMscfd is located at Oben with the remaining 60 MMscfd located at Sapele. The 375 MMscfd expansion at Oben (Phases I and II) was completed by Seplat as a 100% investment project. The gas processing capacity expansion is also designed to allow the Company to accept third party gas and receive a processing tariff.

During the period, agreement was reached with NPDC in the Operating Committee to back into their right to 55% of the gas plant expansion of 375MMscfd.  A payment of US$168 million was agreed between the parties, with US$67 million being booked in H1 2019 as gas tolling revenues.  The final balance of $101 million will be paid and reflected in the Q3 results once the transfer of NPDC's 55% interest has been concluded.

Work is on-going at the Sapele Gas Plant upgrade and which is expected to be completed in H2 2020.

ANOH processing hub (future) - Eastern Niger Delta

The ANOH gas development at OML 53 (and adjacent OML 21 with which the upstream project is unitised) is expected to underpin the next phase of growth for the gas business and Seplat's involvement positions it at the heart of one of the largest green field gas and condensate developments onshore the Niger Delta to date. Seplat is well positioned to leverage the experience gained at the Oben gas processing hub to incorporate operational and cost efficiencies. In March 2019 the Seplat Plc board took the Final Investment Decision ("FID") to proceed with the ANOH project where first gas is targeted for Q1 2021.

The project will comprise a Phase One 300 MMscfd midstream gas processing plant with accommodation space for significant future expansion.  ANOH Gas Processing Company ("AGPC"), an incorporated joint venture owned 50:50 by Seplat and the Nigerian Gas Company ("NGC"), a wholly owned subsidiary of Nigerian National Petroleum Corporation ("NNPC") is delivering the midstream development and to date have each made an equity investment of US$150 million (US$300 million combined). The total project cost is budgeted at US$700 million. Seplat and NGC will each contribute a further US$60 million equity investment (US$120 million total) over the remainder of 2019 and Q1 2020 with US$280 million of debt funding to be finalised and for which very strong demand in excess of the funding target has been indicated.

The Company held capital markets days in both London and Lagos on 26 June and 12 July respectively for investors and analysts, providing a detailed overview of Seplat's gas business and the ANOH project in particular. Presentation materials and a replay of the London event can be found on the Company's website at https://seplatpetroleum.com/investors/2019-capital-markets-day-materials/ 

Work programme

In H1 2019 it was necessary for the Company to delay drilling of the planned new oil production wells at Sapele Shallow due to requirements for the drilling contractor to undertake certian safety upgrades on the allocated 2000 HP rig.  In order to ensure adequate contracted rig capacity to execute the revised H2 drilling programme, the Company has also contracted a comparable 2000 HP rig from a different drilling contractor and has taken delivery of that rig.  Work commenced on the first Sapele Shallow well in July which will be brought onstream in Q4 2019, with the remaining three wells to be batch drilled across the remainder of the year and hooked up with production to commence in early 2020.  In addition to the four Sapele shallow wells, there will be two new oil production wells at the Ovhor field, one new gas well at Oben and one rig based re-entry of an existing oil well. 

At OML 53 the Company brought onstream two oil production wells (Ohaji South 3 & 4) at the Ohaji South oil field and commenced a work over of an oil production well (Jisike-6) at the Jisike oil field. In Q4 the company will drill a new production well at Ohaji South. Drilling at the upstream gas field at ANOH will commence in 2020 when the first wells will be spudded by the upstream unit operator Shell.

The Company continues to high grade the large inventory of production drilling opportunities within the existing portfolio with a view to scaling up the forward work programme to efficiently capture the highest cash return production opportunities.  It has now secured four rigs: two land rigs, one swamp barge and one workover rig to drill out the revised capex programme.  In addition to the drilling activites, work will continue on the related infrastructure and various gas projects.

FINANCE REVIEW

Revenue

Gross revenue for H1 2019 was US$355.1 million, a 4% increase compare to the same period in 2018 (H1 2018: US$342.7 million).  Crude revenue was US$216 million for the first six months, (H1 2018: US$257.3 million) a 16% reduction driven by lower realised oil prices and production. Gas revenue for the period, which includes gas tolling income of US$67 million, was US$139.1 million (H1 2018: US$85.3 million). Terms of tolling fees arising from NPDC's share of processed gas from the Oben Gas Expansion Project, which was financed on a sole risk basis by Seplat, were finalised in the period.

During the first six months the Group realised an average oil price of US$65.2/bbl (H1 2018: US$69.1/bbl) and an average gas price of US$2.75/Mscf(H1 2018: US$3.04/Mscf).  Gas prices in 2019 are lower than plan, as the recently negotiated gas contracts with NGC have been structured to enable NGC take more volumes on the lower priced interruptible contract, to allow Seplat sell to other customers at higher gas prices. Over time, the average gas price will correct as gas volumes are sold to other third parties in excess of US$3/Mscf.

Working interest sales volume for the period stood at 7.7 MMboe down from 8.4 MMboe during the same period in 2018. Total gas volumes sold were 26.2 Bscf (H1 2018: 28.0 Bscf), while total liquid (crude and condensate) volumes lifted during the first six months were 3.3 MMbbls (H1 2018: 3.7 MMbbls). The company suffered higher than expected reconciliation losses of an average of 16% for the six months compared to the normal 10% losses.  This was as a result of a new LACT unit installed on the TFP infrastructure by the pipeline operator which has subsequently been suspended when the Department of Petroleum Resources intervened.  We expect to recover the lost volumes during H2 2019.

Gross profit

Gross profit for the first six months was US$207 million, an increase of 19% compared to the same period in 2018 (H1 2018: US$174.3 million). The movement is primarily driven by the higher gas processing revenues. Higher unit production opex which stood at US$47 million or US$5.41/boe (H1 2018: US$41 million or US$4.50/boe) was mainly driven by higher operations and maintenance costs in the period due to higher levels of asset integrity management activities being carried out.

Operating profit

Operating profit for the first six months was US$139.1 million (H1 2018: US$158.4 million) affected by the reversal of previously recognized accrued interest of US$40.1 million on NPDC receivables due to the settlement of these receivables. G&A costs were stable year-on-year at US$42.1 million ( H1 2018 : US$38.5 million).

Profit for the period

Profit before tax for the period was US$120.4 million (H1 2018: US$121.3 million) after adjusting for net finance charges of US$18.9 million down from US$37.1 million in H1 2018. The positive impact of deleveraging has resulted in this year on year reduction in finance costs. The Group recognised non-cash corporate taxes and non-cash deferred tax of US$1.3 million in the period to record a net profit of US$122.2 million (H1 2018: US$48.5 million).

Cash flows and liquidity

Cash flows from operating activities for the first six months was US$255.2 million, up 4% compared to the same period in 2018 (H1 2018: US$245.4 million).  Capital investments in the first six months stood at US$28.0 million (H1 2018: US$21.2 million) and reflects limited development activity in the first half of 2019 due to delays in the mobilization of the drilling rig. Consequently a revised work programme is planned over the remainder of the year with the corresponding capex budget revised down from US$200 million to US$150 million. The vast majority of the Group's capital expenditures are discretionary and it has the flexibility to align spend with cash flow on a rolling basis. 

The Company has continued to receive the proceeds of gas sales from its partner NPDC in lieu of cash calls for ongoing operations.

The Group received total proceeds of US$16.7 million in the period under the revised commercial arrangement at OML 55 from partner BelemaOil for the monetisation of 266 kbbls.  US$103 million reflects Seplat's equity contribution towards the ANOH gas processing project and US$154.2 million is AGPC's cash balance deconsilidated from the Group in April 2019. Consequently, after adjusting for interest receipts of US$5.9 million, net cash outflow from investing activities for the first six months was US$262.7 million (H1 2018 : US$2.1 million).

Repayment of US$100 million on the four-year RCF returned the balance drawn to zero while retaining significant headroom in the capital structure to fund any future growth initiatives. A final dividend of US$0.05/share for the full year ended 31 December 2018 was paid in the period and in doing so returned US$29.4 million to shareholders.

Overall Seplat's indebtedness at 30 June 2019, which consists of only the senior bond stood at US$350 million and cash at bank US$433.3 million (including restricted cash of US$5.8 million) to give a net debt position of US$83 million with US$225 million undrawn headroom on the RCF facility. The Group is well capitalised and fully funded to execute its organic growth plans and also well positioned to pursue inorganic growth opportunities in line with its price disciplined approach.

Hedging

The Company had in place dated Brent puts covering a volume of 2MMbbls in H1 2019 at a strike price of US$50/bbl resulting in a realised hedging loss of US$2.6 million in the period. The Company has dated Brent puts covering a volume of 2 MMbbls in H2 2019 at a strike price of US$50/bbl.  The board and management continue to closely monitor prevailing oil market dynamics, and will consider further measures to provide appropriate levels of cash flow assurance in times of oil price weakness and volatility. 

Principal risks and uncertainties

The Board of Directors is responsible for setting the overall risk management strategy of the Company and the determination of what level of risk is acceptable for Seplat to bear. The principal risks and uncertainties facing Seplat at the year-end are detailed in the risk management section of the 2018 Annual Report and Accounts. The board has identified the principal risks for the remainder of 2019 to be:

·      Third party infrastructure downtime and the corresponding impact on oil and gas production levels

·      Niger Delta stability and geo-political risk

·      Oil price volatility

·      Successful delivery of the planned work programme

Responsibility Statement

The Directors confirm that to the best of their knowledge:

a)       The condensed set of financial statements have been prepared in accordance with lAS 34 'Interim Financial Report';

b)       The interim management report  includes  a fair review  of  the information required  by UK DTR 4.2.7R indication  of  important  events during the first  three  months and  description  of  principal risks and uncertainties for the remaining nine months of the year and 

c)       The interim management report includes a fair review of the information required by UK DTR 4.2.8R disclosure of related parties' transactions and changes therein.

The Directors of Seplat Plc are as listed in the Group's 2018 Annual Report and Accounts.  A list of current Directors is included on the company website: www.seplatpetroleum.com.

By order of the Board,

Important notice

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR"). Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

Certain statements included in these results contain forward-looking information concerning Seplat's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which Seplat operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within Seplat's control or can be predicted by Seplat. Although Seplat believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. Actual results and market conditions could differ materially from those set out in the forward-looking statements. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Seplat or any other entity, and must not be relied upon in any way in connection with any investment decision. Seplat undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Webcast and conference call

At 02:30 pm BST (London) / 02:30 pm WAT (Lagos), Austin Avuru (CEO), Effiong Okon (Operations Director) and Roger Brown (CFO) will host a webcast and conference call to discuss the Company's results.

The webcast can be accessed via the Company's website http://seplatpetroleum.com/ or at the following address:

https://secure.emincote.com/client/seplat/seplat003 

To listen to the audio commentary only, participants can use the following telephone number:

Telephone Number (UK toll free and international access): +44 (0) 203 059 5869

Conference title: Seplat Petroleum Half Yearly Results

If you are listening to the audio commentary and viewing the webcast, you may notice a slight delay to the rate the slides change on the webcast.  If this is affecting you, please download the pdf slide pack from the Company's website http://seplatpetroleum.com/

Enquiries:

Notes to editors

Seplat Petroleum Development Company Plc is a leading indigenous Nigerian oil and gas exploration and production company with a strategic focus on Nigeria, listed on the Main Market of the London Stock Exchange ("LSE") (LSE:SEPL) and Nigerian Stock Exchange ("NSE") (NSE:SEPLAT).

Seplat is pursuing a Nigeria focused growth strategy and is well-positioned to participate in future divestment programmes by the international oil companies, farm-in opportunities and future licensing rounds.  For further information please refer to the Company website, http://seplatpetroleum.com/

Report on review of interim condensed consolidated financial statements                                    

to the shareholders of Seplat Petroleum Development Company Plc

Introduction

We have reviewed the accompanying interim condensed consolidated financial statements of Seplat Petroleum Development Company Plc and its subsidiaries (the Group) as at 30 June 2019 which comprise the interim condensed consolidated statement of financial position as at 30 June 2019 and the related interim condensed consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six-month period then ended and explanatory notes.

The Company's directors are responsible for the preparation and fair presentation of these interim condensed consolidated financial statements in accordance with IAS 34 Interim Financial Reporting and in the manner required by the Companies and Allied Matters Act, CAP C20, Laws of the Federation of Nigeria 2004 and the Financial Reporting Council of Nigeria (FRCN) Act, No. 6, 2011. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditors of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Bernard Carrena, FCA

FRC/2013/ICAN/00000000670

For Ernst & Young

Lagos, Nigeria.

30 July 2019

The full Half Year Results Statement, including consolidated half year financial statements, can be found attached or via our website: https://seplatpetroleum.com/

http://www.rns-pdf.londonstockexchange.com/rns/1125H_1-2019-7-29.pdf