Despite the jump in crude output, Seplat’s turnover fell 22% to $388 million (Vetiva estimate: $373 million) in 9M’20, as average realised oil price declined 40% y/y to $39/bbl. Additionally, an asset impairment expense of $158 million dragged the indigenous oil producer to a loss of $96 million for the nine-month period. A major highlight of the 9M results was the net income of $14 million (Vetiva estimate: $10 million) reported in Q3, implying an improvement from losses recorded in the previous quarters of the year.
A review of Seplat’s Q3 figures revealed that oil revenue climbed 18% y/y to $126 million, mainly lifted by additional output from Eland. We note that in Q3, Seplat’s crude production surged 70% y/y to a record high of 2.9 mbbls. However, the gains from higher crude output were tempered by adverse volatilities in the oil market, which saw realised oil price from crude sales drop 31% y/y to $43/bbl in Q3. For gas operations, a 12% y/y decline in output to 10.0 Bscf (Vetiva estimate: $11.1 Bscf) led to a 13% y/y fall in Q3 gas revenue, as average realised gas price was relatively flat at $2.9/Mscf.
Coronavirus second wave may bite Q4 turnover
While we witnessed significant recoveries in oil prices in Q3 relative to Q2, the emergence of a second wave of the coronavirus, especially in Europe and North America, has dealt a big blow to global oil demand, with Brent prices falling to $37/bbl as at the time of writing. As such, we see Q4 oil revenue dropping 12% q/q to $110 million, as we expect Q4 average realised oil price to come in weaker at $38/bbl (Q3: $43/bbl), translating to an oil revenue of $416 million (down 16% y/y) in 2020.
Meanwhile, we have adjusted our 2020 estimate for gas revenue to account for the miss in Q3, taking our 2020 projection for total revenue to $528 million (2019: $698 million). Having seen Seplat reduce its debt balance to $693 million (H1’20: $799 million), we have lowered our forecast for finance expenses to $65 million in 2020. All in, we expect Seplat to turn in an after-tax loss of $51 million for the full year, dragged by Q1 non-cash impairment charge of $145 million. Our revised valuation of Seplat equates to a 12-month target price of ₦632.65 (BUY).