Seplat Q1’20 Results – Impairment loss drags SEPLAT into red zone

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CardinalStone Research

Seplat Petroleum Development Company Plc (SEPLAT: NGSE) reported a $106.6 million loss in its unaudited Q1’20 result. The loss was mainly driven by a $145.5 million impairment loss (vs. gain of $.14.0 million in Q1’19) charged on its oil and gas assets during the period.
Highlights:
  • Q1’20 revenue declined by 18.2% YoY, reflecting the 19.1% YoY and 10.8% YoY deteriorations in average realized crude and gas prices apiece. While working interest liquid production (+ 52.4% YoY) was bolstered by the integration of Eland Oil fields to the group’s portfolio, lower realized prices combined with weaker gas output to weigh on revenue. Notably, the company attributed the 38.5% decline in gas production to a 15-day maintenance exercise carried out in its Oben Gas Plant and a 22.0% downtime on the Trans Forcados Pipeline (TFP) during the period
  • COGS rose by 24.7% YoY, leading to a 25.7 ppts plunge in gross profit margin to 25.37%. Notably, cost pressures were linked to production-related expenses such as royalties (+18.9% YoY), depletion, depreciation and amortization (+21.5% YoY), and crude handling fees (+39.2% YoY) possibly due to the integration of Eland. We also note that the Eland production is not as cost-efficient as that of SEPLAT
  • Similarly, general and administrative expenses increased by a staggering 56.5% in the period, with significant pressures from one-off director-retirement payments and general expenses. However, administrative pressures related to greater staff strength and wider office presence are likely to subsist for the rest of the year
  • The company recorded an impairment charge of $145.5 million (vs. gain of $.14.0 million in Q1’19) on its oil & gas properties as a result of re-assessment of expected future cash flows from these assets due to significant fall in crude oil prices.
  • Earnings were further weighed by the 55.1% YoY rise in finance costs to N20.3 billion, which was mostly driven by the $350.0 million revolving credit facility drawn down in December 2019 to finance the Eland Oil acquisition
  • Despite the weak operating performance, net cash flow from operating activities printed positive at $64.5 million (vs. $79.5 million in Q1’19) underlined by the addition of non-cash impairment charge and efficient working capital management
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Seplat Q1'20 Results - Impairment loss drags SEPLAT into red zone - Brand Spur

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