REG - Seplat Energy PLC - 3rd Quarter Results - Ended 30 September 2023

Seplat EnergyAnnouncement

30/10/2023 07:15

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RNS Number : 6206R  Seplat Energy PLC  30 October 2023

Please see the Full Audited Results in attached PDF

 

http://www.rns-pdf.londonstockexchange.com/rns/6206R_1-2023-10-29.pdf (http://www.rns-pdf.londonstockexchange.com/rns/6206R_1-2023-10-29.pdf)

 

Unaudited results for the nine months ended

30 September 2023

 

30 October 2023

 

Lagos and London, 30 October 2023: Seplat Energy PLC ("Seplat Energy" or "the
Company"), a leading Nigerian independent energy company listed on both the
Nigerian Exchange and the London Stock Exchange, announces its unaudited
results for the nine months ended 30 September 2023.

Summary

9M 2023 production averaged 48,152 boepd, up 11% on 9M 2022, with liquids
production up 17%. Operations benefited from improved uptime at Forcados Oil
Terminal and availability of the Amukpe-Escravos pipeline, supporting strong
revenue, modestly offset by higher costs. Robust cash generation, further
strengthening our balance sheet.

Financial highlights
 ·         Revenue up 31.0% to $810.4 million (including an overlift of $127.8 million)
           from $618.6m in 9M 2022 (including an underlift of $60.3 million). Adjusted
           revenue was flat YoY as improved production mitigated lower oil price
           realisations.
 ·         Average realised oil price $82.76/bbl (9M 2022: $108.25/bbl); average gas
           price improved to $2.87/Mscf (9M 2022: $2.80/Mscf).
 ·         Unit production opex of $9.7/boe, (9M 2022: $9.3/boe).
 ·         Cash generation of $365.1 million, flat YoY, funding capex of $125.4 million.
 ·         Balance sheet strengthened in the quarter, $391.0 million cash at bank (9M
           2022: $305 million), $128 million MPNU cash deposit not included.
 ·         Net debt at end September fell to $347.6 million (9M 2022: $452.2 million), a
           further $11 million of RBL borrowings were repaid in 3Q 2023 ($22 million
           YTD). Net Debt to TTM EBITDA improved to 0.9x.
 ·         Q3 2023 dividend declared of US3 cents per share, in line with higher core
           annual dividend of US 12 cents.

Operational highlights

 ·         Production increased to 48,152 boepd, up 11% (9M 2022: 43,337 boepd), slightly
           down on 6M 2023 given outages on export infrastructure in 3Q. Group production
           deferment at 31% down from 37% in the same period last year.
 ·         Issues with the Antan-Ebocha line were resolved allowing production to resume
           at the Jisike field (OML53) in August.
 ·         ANOH first gas now expected in 3Q-2024. Further delays during construction of
           the project, particularly the two critical infrastructure projects managed by
           third parties: OB3 pipeline and Spur line.
 ·         Carbon emissions intensity: 26.0 kg CO2/boe. Three of four Sapele AG
           compressors have now been commissioned.
 ·         Achieved more than 6.4 million hours without Lost Time Injury (LTI) at
           Seplat-operated assets.

Corporate updates

 ·         Full year production guidance narrowed to 46-50 kboepd, inside the original
           guidance range of 45-55 kboepd.
 ·         Full year capex guidance narrowed to $160-180 million, run rate capex in 4Q23
           is expected to be modestly higher than the prior quarter due to project
           milestone payments.
 ·         Increasing confidence that President Tinubu's administration will approve our
           acquisition of ExxonMobil's share capital of Mobil Producing Nigeria Unlimited
           (MPNU).

Roger Brown, Chief Executive Officer, said:

"Seplat Energy's operational performance was strong in the third quarter,
particularly September which mitigated some of the outages experienced on
third party infrastructure and supported production growth of 11% on the same
period in 2022.

Our balance sheet remains strong and thanks to higher commodity pricing and
our proactive approach to cash management, we have generated more than $170m
in free cash flow year to date. Our focus for the rest of 2023 is on safe and
reliable operations, revenue assurance and cost management, all of which will
deliver further strengthening of our cash position. This keeps us on track for
an excellent year that will support the increased quarterly dividends we
announced in April and allow us to continue our commitment to reward
shareholders.

Following the serious incident on the Depthwize Majestic rig, which resulted
in the tragic loss of life, we have provided significant support to Depthwize,
its owner, in its recovery operation. Our own investigations are ongoing, but
I can assure all stakeholders of our unwavering commitment to safety on all of
our operations.

Ongoing third-party delays to ANOH's export infrastructure remain a source of
frustration, but we are confident that the quality of the project will support
dividend growth for Seplat in the coming years as we diversify the business
and deliver on our strategy to provide more affordable energy for Nigeria.

We remain confident that we can conclude our transformational acquisition of
MPNU. We wholly align with and support President Tinubu's efforts to make
Nigeria a more attractive place to invest, and we will play our part by
delivering affordable and reliable energy that will support our nation's
growth."

Summary of performance
                                      $ million                             ₦ billion
                                      9M 2023  9M 2022  % Change      9M 2023       9M 2022
 Revenue *                            810.4    618.6    31.0%         478.1         258.7
 Gross profit                         416.3    283.4    46.9%         245.6         118.5
 EBITDA **                            306.4    337.9    (9.3%)        180.8         141.3
 Operating profit (loss)              154.8    235.9    (34.4%)       91.3          98.6
 Profit (loss) before tax             106.5    185.2    (42.5%)       62.9          77.5
 Cash generated from operations       365.1    368.1    (0.8%)        215.4         154.0
 Working interest production (boepd)  48,152   43,337   11.1%
 Volumes lifted (MMbbls) ***          8.7      4.9      77.6%
 Average realised oil price ($/bbl.)  $82.76   $108.25  (23.5%)
 Average realised gas price ($/Mscf)  $2.87    $2.80    2.5%
 LTIF                                 0        0
 CO2 emissions intensity              26.0     22.8     14.0%

 from operated assets, kg/boe

* 9M 2023 revenue includes an overlift of $127.8m, 9M22 revenue includes an
underlift of $60.3m

** Adjusted for non-cash items

*** Volumes lifted in 9M 2023 includes 1.28 MMbbls of overlift

Responsibility for publication

This announcement has been authorised for publication on behalf of Seplat
Energy by Emeka Onwuka, Chief Financial Officer, Seplat Energy PLC.

Signed:

 

 

Emeka Onwuka

Chief Financial Officer

 Important notice

 The information contained within this announcement is unaudited and deemed by
 the Company to constitute inside information as stipulated under Market Abuse
 Regulations. Upon the publication of this announcement via Regulatory
 Information Services, this inside information is now considered to be in the
 public domain.

 Certain statements included in these results contain forward-looking
 information concerning Seplat Energy's strategy, operations, financial
 performance or condition, outlook, growth opportunities or circumstances in
 the countries, sectors, or markets in which Seplat Energy operates. By their
 nature, forward-looking statements involve uncertainty because they depend on
 future circumstances and relate to events of which not all are within Seplat
 Energy's control or can be predicted by Seplat Energy. Although Seplat Energy
 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 Energy or any
 other entity and must not be relied upon in any way in connection with any
 investment decision. Seplat Energy undertakes no obligation to update any
 forward-looking statements, whether because of new information, future events
 or otherwise, except to the extent legally required.

 

Enquiries:
 Seplat Energy Plc
 Emeka Onwuka, Chief Financial Officer                        +234 1 277 0400
 Eleanor Adaralegbe, CFO Designate
 James Thompson, Head of Investor Relations
 Ayeesha Aliyu, Investor Relations
 Chioma Afe, Director, External Affairs & Sustainability

 FTI Consulting
 Ben Brewerton / Christopher Laing                            +44 203 727 1000

                                                              seplatenergy@fticonsulting.com

 Citigroup Global Markets Limited
 Luke Spells / Peter Catterall                                +44 207 986 4000

 Investec Bank plc
 Chris Sim / Charles Craven                                   +44 207 597 4000

About Seplat Energy

Seplat Energy PLC (Seplat) is Nigeria's leading indigenous energy company.
Listed on the Nigerian Exchange Limited (NGX: SEPLAT) and the Main Market of
the London Stock Exchange (LSE: SEPL), we are pursuing a Nigeria-focused
growth strategy in oil and gas, as well as developing a Power & New Energy
business to lead Nigeria's energy transition.

Seplat's energy portfolio consists of seven oil and gas blocks in the prolific
Niger Delta region of Nigeria, which we operate with partners including the
Nigerian Government and other oil producers. We also have a revenue interest
in OML 55. We operate a 465MMscfd gas processing plant at Oben, in OML4, and
are building the 300MMscfd ANOH Gas Processing Plant in OML53 and a new
85MMscfd gas processing plant at Sapele in OML41, to augment our position as a
leading supplier of gas to the domestic power generation market.
https://www.seplatenergy.com/ (https://www.seplatenergy.com/)

Operating review

Group production performance

Working interest production for the nine months ended 30 September 2023

 

                                       9M 2023                                        9M 2022
                      Liquids  Gas    Total                                  Liquids  Gas   Total
                      Seplat %        bopd                   MMscfd  boepd                  bopd    MMscfd  boepd
 OMLs 4, 38 & 41      45%      15,206                        116.5   35,289                 14,710  112.8   34,157
 OML 40               45%      10,169                        -       10,169                 6,316   -       6,316
 OML 53               40%      1,154                         -       1,154                  1,806   -       1,806
 OPL 283              40%      1,540                         -       1,540                  1,058   -       1,058
 Total                         28,069                        116.5   48,152           23,890        112.8   43,337

Liquid production volumes as measured at the LACT (Lease Automatic Custody
Transfer) unit for OMLs 4, 38 and 41; OML 40 and OPL 283 flow station.

Gas conversion factor of 5.8 boe per scf.

Volumes stated are subject to reconciliation and may differ from sales volumes
within the period.

 

During the first nine months of 2023, the total working interest production
was within guidance and increased by 11.1% to 48,152 boepd (9M 2022: 43,337
boepd); the oil & gas mix was 58% and 42% respectively. Within this, oil
working interest production increased by 17.5% while gas working interest
production rose 3.3%. Total production deferment in the period was 31% (9M
2022: 37%), a significant improvement on prior year performance.

2023 working interest production by quarter

 

 

                                    Q3
2023                          Q2 2023
                            Q1 2023

                                Liquids  Gas     Total       Liquids  Gas     Total       Liquids  Gas     Total
                      Seplat %  bopd     MMscfd  boepd       bopd     MMscfd  boepd       bopd     MMscfd  boepd
 OMLs 4, 38 & 41      45%       12,595   110.8   31,693      15,466   114.8   35,254      17,613   124.1   39,003
 OML 40               45%       8,922    -       8,922       12,025           12,025      9,568    -       9,568
 OML 53               40%       1,133    -       1,133       1,049            1,049       1,280    -       1,280
 OPL 283              40%       1,159    -       1,159       1,584            1,584       1,885    -       1,885
 Total                          23,809   110.8   42,907      30,124   114.8   49,912      30,346   124.1   51,735

Liquid production volumes as measured at the LACT (Lease Automatic Custody
Transfer) unit for OMLs 4, 38 and 41; OML 40 and OPL 283 flow station.

Gas conversion factor of 5.8 boe per scf.

Volumes stated are subject to reconciliation and may differ from sales volumes
within the period.

Upstream business performance

Total liquids production increased by 17.9% to 7.7 MMbbls in 9M 2023, compared
to 6.5 MMbbls in 9M 2022. The higher production during the period was
supported by the improved availability of the Forcados Oil Terminal that
supports export for the majority of our assets; a contrast to its prolonged
unavailability in 3Q 2022.

In OMLs 4, 38, & 41, working interest liquids production improved 3.4% to
15,206 bopd (9M 2022: 14,710 bopd). In the third quarter production was
supported by the availability of the AEP pipeline which provided a reliable
alternate evacuation route, helping to offset the impact of 44 days downtime
for the TFP evacuation route. The main cause of the outage was the time taken
to repair the Single Point Mooring (SPM) system at the Forcados Oil Terminal.
Production was also impacted by delays to the delivery of new well stock
planned on the asset in 2023.

Our operations at OML 40 contributed the most significant growth in the
period. Working interest production from the asset grew by 61.0% to 10,169
bopd in 9M 2023 (9M 2022: 6,316 bopd). The strong growth in OML 40 volumes was
because of higher production uptime   (driven by improved pipeline
availability) and the successful delivery of the 2023 wells campaign.

On the Eastern operations in OML 53, daily working interest production fell
36.1% to 1,154 bopd in 9M 2023, with the evacuation of these volumes
principally to the nearby Waltersmith Refinery from our Ohaji operations. The
issues with the Antan-Ebocha delivery line were resolved in August allowing us
to resume production from our Jisike operations. This is expected to improve
output from OML53 in the coming months. However, the Trans Niger Pipeline
(TNP) remains unavailable, constraining production volumes from Ohaji.

We are actively working towards solutions for the third-party evacuation
issues on our Eastern assets and are in final discussions with the Edo
Refinery regarding an alternative evacuation option. The plan entails
supplying c.600 bopd of JV crude from Ohaji to the Edo Refinery.

We remain committed to resolving current evacuation issues, developing
alternative solutions and optimising production across our operations.

Majestic Rig Incident

On 15th August 2023, Seplat Energy announced the occurrence of a serious
incident on the "Majestic" swamp drilling rig owned by Depthwize Nigeria
Limited, a drilling services provider. Seplat contracted the rig as the
operator of the SEPLAT/NNPCL joint venture, and Depthwize was in the process
of moving the rig to its planned drilling location at Ovhor in OML 41 when it
capsized.

The tragic incident, which resulted in the loss of life of two of the rig crew
while the remaining two are still missing, occurred prior to Seplat accepting
the rig onto its well location. Our thoughts and prayers are with the families
of the crew members who tragically lost their lives in the incident. Seplat
commends the effort of all parties in the rescue mission including several
Seplat staff who provided strong Emergency Response support to Depthwize
during the incident.

Depthwize has conducted its own investigation into the incident and will not
be able to fully determine the cause of the capsize until the rig is salvaged
from the site, which is currently underway. While Depthwize was fully
responsible for the move, Seplat in line with its policies and procedures has
also performed its own independent investigation and has shared the findings
with the Nigerian regulator (Nigerian Upstream Petroleum Regulatory
Commission) and Depthwize.  Seplat will continue to cooperate fully with the
regulator in its review of the incident and we continue to offer Depthwize our
full support where we can. Our main concern is for the impacted families and
to ensure they are properly supported and compensated for their loss.

Drilling

During the 9-month period, our drilling program has successfully delivered
eight (8) wells including Opuama-17, Sibiri-2, Gbetiokun-4 W/O, Gbetiokun-10,
and Gbetiokun-11 in our OML 40 operations; Orogho-8 in our OML 4, 38, 41
operations; ASSN-05 and OHS_9 in our OML 53 operations. The five (5) wells
delivered in our OML 40 operations have been streamed at a gross rate of
c.11,600 bopd (100% JV), providing a significant uplift to production from OML
40.

As communicated in Q2 2023, our drilling program is moderately behind plan. To
address the delays, we initiated a drilling recovery plan early in Q3 2023,
and are now operating three land rigs in the Western Asset which will
partially compensate for the 6 swamp wells - Ovhor DKFW-01 well, Abiala-1 W/O,
Abiala-B, Ovhor DNFT-02, Ovhor DMFU-01, and Ovhor DFFW-01 which were moved out
of the sequence due to a combination of the Majestic Rig incident and delays
to the drilling program.  We expect most of the delayed swamp wells to be
drilled in 2024.

For the remainder of 2023, we plan to deliver six (6) additional wells
including Okporhurhu-08 W/O (currently drilling), Okporhurhu-HUHA-04,
Sapele-7T Workover (currently drilling), Sapele BGHC-02, Sapele-CEGX, and
ASSN-06 (nearing completion). This would bring the total number of delivered
wells for 2023 to 14 wells.

Midstream Gas business performance

During the period, the average working interest gas volumes grew 3.3% to reach
116.5 MMscfd, showing improvement compared to 112.8 MMscfd in 9M 2022. This
increase is attributed to enhanced well performance and the availability of
condensate evacuation routes. Total gas sales for the period were 31.8 Bcf (9M
2022: 30.8 Bcf), contributing 42% of the group's volumes and 12% of total
revenue.

In the quarter we have successfully entered into a new Gas Sales Agreement
(GSA) with a bulk gas supplier for a volume of 50 MMscfd. All the necessary
conditions precedent were met by the new customer, and we will commence gas
supply under this agreement in Q4 2023. The execution of additional GSAs is
part of our strategy to optimise the capacity of the Oben gas plant. We are
also actively working on securing third-party gas to feed both the Oben and
Sapele gas plants.

 

Midstream business separation update

The plan for separating the midstream business from upstream operations has
progressed according to schedule. We have completed the internal transfer of
midstream assets to Seplat Midstream Company (SMC) and the license to operate
the Oben Gas Plant has been issued to SMC by the regulator NMDPRA (Nigerian
Midstream Downstream Petroleum Regulatory Authority). Additionally, we have
issued notices to our joint venture partners and relevant regulators to inform
them of these developments. We will continue to keep the market updated on the
progress of this separation process.

ANOH Gas Processing Plant

We outlined four key steps to first gas in our 6M23 results: AGPC plant
mechanical completion, Upstream wells drill and hook up, OB3 pipeline river
crossing and the completion of the spur line connecting the OB3 pipeline to
the ANOH gas plant.

During the quarter, there were further delays in construction of the critical
infrastructure required to complete the ANOH gas project. The plant has also
progressed slower than expected. Overall, progress was hampered by a
deterioration in the security situation, poor weather, and contractor
performance.

We are pleased to report that overall completion continued to progress on the
AGPC plant, reaching 95%, and we continue to expect mechanical completion by
year end 2023. AGPC's safety record continued to remain strong during the
quarter, achieving 10 million manhours without LTI on the project, which given
the significant challenges encountered, is a highly commendable effort.

In terms of upstream development, the drilling of the third well (ASSN-05) was
completed in 1H23. Drilling of the fourth well (ASSN-06) by the upstream unit
operator, SPDC is substantially progressed and is expected to be completed
shortly. Additionally, work on surface facilities required to deliver wet gas
to the AGPC plant is ongoing and expected to be completed by the upstream unit
operator, SPDC, in the current quarter.

Our government partner, NGIC, is responsible for delivering the pipelines
required to transport the gas from ANOH to the demand centres, including the
23km spur line and the Obiafu-Obrikom-Oben (OB3) pipeline.

With respect to OB3 pipeline, further progress has been made in completion of
grouting operations at the river Niger crossing, with two barges currently in
operation. After a challenging initial period, documented in prior quarters,
approaching half the 1,850m river crossing is now prepared to a point of being
ready to tunnel. Tunnelling operations, paused as grouting works were
prioritised, are expected to resume soon as necessary personnel and equipment
arrive back on site. That said, progress has been slower than expected
progress, and our government partner has revised its expected completion time
for installation of the pipe to the end of 2023.

Regarding the Spur Line project, all line pipes required for all 23.3km spur
line sections are in country and have been delivered to the project site. The
first phase of the spur line (5.5km length) in Rivers State has been
completed. Of the remaining 9.9km in Rivers State, a section of c.4.5km is
near completion and currently being tied in. The remaining 7.9km in Imo State
is clearing ground in preparation for pipe laying. In the quarter, the project
was delayed by unfavourable weather conditions and deteriorating security
concerns, which led to three weeks of movement restrictions in September.
Overall completion of the Spur Line project today is at 70%, with our
government partner maintaining an expected completion date of end 2023.

Based on the progress to date, we believe that Q1 2024 is more likely for a
revised completion date. As we have done previously, we believe it is also
prudent to allow for an additional margin of error in our planning assumptions
of approximately six months. As such we are revising our first gas target to
Q3 2024.

Despite slower than expected progress to project completion, ANOH remains an
important strategic project for Seplat, and we are focused on the path to
first gas. Once completed, ANOH will provide two income streams for Seplat:
wet gas sales from OML 53 to the plant and dividends from the joint venture
ANOH Gas Processing Company, which will operate the plant.

Given further delay to first gas we provide an update on our base assumptions
for the ANOH gas project. Our Eastern assets have recently faced higher than
usual deferments due to the unavailability of the Trans-Niger Pipeline (TNP),
and we factor this into our conservative planning assumptions for ANOH. Our
base assumptions include a more conservative view on deferments than on our
Western assets, a wet gas purchase price modestly below current realisations
on the rest of our gas portfolio and our business planning oil price
assumption of $60/bbl. We anticipate c.6 month ramp up to plateau production
after first gas, during which period AGPC will establish plant stability and
offtake performance. Incorporating these elements, we estimate that AGPC
should provide a dividend stream net to Seplat of c.$30m per annum. The
dividends are expected to begin approximately 12-18months after first gas.

We note that a $10/bbl change in the oil price would change the expected
dividend by c.$5m, while a 1% change in production deferment changes the
expected dividend by c.$1m, both figures are net to Seplat.

New Energy Business

Strategic growth investment opportunities are being pursued for the New Energy
Business, with a particular focus on entry into off-grid power generation.
Such projects will increase the reliability, lower the cost, and reduce the
carbon intensity of existing Nigerian electricity consumption. We have
identified power project opportunities for investment, and we continue to work
through technical and commercial due diligence to evaluate these investment
opportunities.

HSE Performance

The Company has achieved a total of 6.4 million hours (2.2 million hours in Q3
2023) without any Lost Time Injury (LTI) on its operated assets, which
reflects the Company's strong focus on safety and the dedication of its
workforce to maintaining a secure work environment. In addition, TRIR was 0.63
with no major injuries were reported during this period. There was one Tier 2
Process Safety Loss of Primary Containment (LOPC) incident from a section of
the Amukpe-Rapele Trunkline that resulted in 95bbls of oil spilled.

Training sessions on Incident Management (Tripod Beta methodology) were held
to enhance incident investigation and prevention with 44 participants at the
Lagos and Sapele locations. Also, Process Safety Management Training for
Operations, Engineering, Maintenance, Wells, and HSE Team members to prevent
process-related incidents was conducted with 63 participants.

The company is on a path to achieve ISO 45001 and 14001 certifications,
demonstrating its commitment to top-tier safety and environmental performance.
These certifications are globally acknowledged benchmarks for occupational
health and safety management systems and environmental management systems,
respectively.

Reducing carbon intensity is crucial for the Company, and the flares-out
roadmap, which includes measures to minimise greenhouse gas emissions and
improve overall energy efficiency, is being implemented to eliminate routine
flares by Q4 2024. The carbon intensity recorded for the period was 26.0
kg/boe, higher than the 22.8 kg/boe recorded in 9M 2022 because of higher
production. The Sapele Flow Station contributed significantly to the higher
carbon intensity recorded YTD. However, the commissioning of the Sapele AG
compressors puts us in a position to materially reduce absolute emissions (by
approximately 40%) once gas offtake begins. The other project for completion
in 2023 is at the Jisike Flow Station, and the gas compression project is
expected to capture another 9% of emissions in 2023.

 

Proposed acquisition of MPNU

On 24 May 2023, we announced that we have extended with Mobil Development
Nigeria Inc. and Mobil Exploration Nigeria Inc. (ExxonMobil) the Share Sale
and Purchase Agreement (SSPA) for the acquisition of ExxonMobil's share
capital of Mobil Producing Nigeria Unlimited (MPNU) to preserve the
transaction pending the resolution of certain legal proceedings and receipt of
applicable regulatory approvals.

The Board remains confident that the transaction will be approved, and all
associated legal issues will be resolved. We continue to work with all parties
to achieve a successful outcome, including our financiers who remain
supportive, and have been encouraged by the recent drive of the Tinubu
administration to promote investment in country. We will provide further
updates as appropriate.

Intra-group transfer of OML 53 from Seplat Energy to Seplat East Onshore
Company Limited

During the quarter, Seplat completed the internal transfer of the business
activities and assets of OML 53 from the Holding Company to its wholly owned
subsidiary Seplat East Onshore Limited having obtained regulatory and partner
approvals. This Intra-Group transfer will not result in any change to the
current business strategy for the assets nor will it affect how the Seplat
Group commercially operates. Therefore, the operatorship of the asset remains
with Seplat under the Joint Operating Agreement ("JOA"), as the transfer to an
affiliate of Seplat under the terms of the JOA is permitted.

The new structure of the Seplat Group is consistent with Seplat's efforts to
simplify its structure and is designed towards segregating the businesses of
the Group more efficiently thereby reducing risk, cost, and complexity. This
is also expected to result in a simplified management and reporting framework
for the Seplat Group.

The outcome of the transfer will not, in any way, result in a loss of tax
revenue to the Government or an extinguishment of liabilities. Similarly, it
will not diminish shareholder value in (and returns from) Seplat as a listed
company.

Shareholder actions

The Company had previously communicated a series of lawsuits brought by
minority shareholders holding less than 0.005% of the Company's issued shares
(details were included in the H1 2023 release
(https://www.seplatenergy.com/media/1rwb3u00/seplat-energy-6m-2023-results-release-final.pdf)
). The company continues to be successful in its defense against these
lawsuits and remains confident that the courts will appropriately address the
outstanding frivolous litigations.  Seplat, as a responsible corporate
citizen, will continue to engage all its stakeholders in accordance with
applicable law and established corporate governance best practices.

 

Outlook

Group production performance has improved in 2023, thanks to well performance
on OML40 and reduced losses on our Western Asset. We have no significant
planned turnaround activity in 4Q23, as such we can narrow our production
guidance to a range of 46,000-50,000 boepd, within our original guidance
range. Our guidance does not include any contribution from MPNU or ANOH.

Our capital expenditure guidance for 2023 is narrowed to a range of $160-180
million. Reduced well count modestly lowers total expenditure on drilling,
while we also anticipate making some project milestone payments in the final
quarter of the year. The focus on recovery of our drilling program continues.
We are actively looking to contract a new swamp rig, that will increase rigs
on our Western Asset to four.

We expect to generate positive free cash flow in the final quarter of 2023,
further supporting our ability to fund the MPNU transaction and underpinning
managements desire to continue to reward shareholders. The company maintains a
policy of a core dividend of 3c per share payable quarterly (12c per share
annually), and an additional special dividend. The special dividend will be
considered by the board as part of the full year 2023 results.

Financial review

Revenue

Crude oil price, which trended downwards for most of 1H 2023, on concerns
around the impact of global monetary policy normalisation on economic
activities, recovered sharply in Q3 2023. This was supported by supply cuts
from Saudi Arabia and Russia, and declining global crude oil inventories. As a
result, average Brent crude price in the period rose 11% to average $85.92/bbl
in Q3 2023, from $77.73/bbl in Q2 2023. That said, 9M 2023 average Brent crude
price remained 20% lower than average price over the same period in 2022.

For Seplat, our average realised oil price was $90.3/bbl in Q3 2023. This was
19% and 10% higher than realised oil prices in Q2 2023 and Q1 2023,
respectively, helped by the favourable timing of crude oil liftings, but down
21% from $114.68/bbl realised in Q3 2022.

YTD, average realised oil price for Seplat is $82.76, 24% below the
$108.25/bbl average realised in 9M 2022.

Crude oil revenue rose 33.9% to $716.4 million in 9M 2023, from $534.9 million
in 9M 2022. The YoY growth in Crude oil revenue can be attributed primarily to
the overlifts recorded during the period. Total overlifts for 9M 2023 stood at
$127.8 million (equivalent to 1.28 MMbbls) and is adjusted for in other
income. Excluding overlifts, crude oil revenue was $588.5 million, c.1% lower
than adjusted revenue in 9M-2022's $595.2 million (adjusted for underlift in
the period). Higher production in the period fully mitigated the effect of
lower realised oil prices. Total crude lifted during the period rose 76.7% to
8.7 MMbbls (9M 2022: 4.9 MMbbls). The average pipeline loss factor for the
group was 3.3%.

Gas revenue experienced a 12.3% increase, reaching $93.9 million in 9M 2023
(compared to $83.7 million in 9M 2022). This growth is attributed to a
combination of a modest increase in realised gas prices and a rise in sales
volume. The average realised gas price rose by 2.5% to $2.87/Mscf, while gas
production saw a 3.2% increase to 31.8 Bscf during the same period (compared
to 30.8 Bscf in 9M 2022). The average realised gas price improvement reflects
the impact of higher gas price negotiated with off-takers in the period.

Overall, Oil and Gas sales for 9M 2023 rose 31.0% to $810.4 million, from
$618.6 million in 9M 2022. Adjusting for overlifts, total Oil & Gas sales
were $682.5 million.

Gross profit

During the period, gross profit rose 46.9% to $416.3m, from the $283.4m
recorded in 9M 2022. Non-production costs primarily included $141.2 million in
royalties and $116.9 million in depreciation, depletion, and amortisation
(DD&A), contrasting with $132.2 million in royalties and $88.4 million in
DD&A in the previous year. The difference is largely due to higher
production in 2023.

 

Direct operating costs, which encompass expenses related to crude-handling
charges (CHC), barging/trucking, operations and maintenance, amounted to $94.9
million in 9M 2023, marking a 41.0% increase from the $67.3 million incurred
in 9M 2022.  This rise in direct operating costs is attributed to the
increase in produced volumes in 2023 by about 1.2mmbbls and higher CHC from
using alternative evacuation routes secured by Seplat to minimise reliance
from a single evacuation route resulting in lower outages and third-party
infrastructure downtime.

Considering the cost per barrel equivalent basis, production operating
expenses (opex) were $9.7/boe in 9M 2023, compared to $9.3/boe in 9M 2022.

Operating profit

During the period under review, operating profit decreased by 34.4% to $154.8
million, from $235.9 million achieved in 9M 2022. This decline in operating
profit was attributed to a combination of lower oil prices, foreign exchange
(FX) losses due to Naira devaluation, and higher General and Administrative
(G&A) expenses.

G&A expenses amounted to $104.5 million, 31.6% higher than the G&A
costs of $79.4 million incurred in 9M 2022. This increase in G&A costs was
mainly due to professional fees associated with the litigation costs in
response to the unprecedented and intense period of minority shareholder
actions through the Courts; it also includes costs associated with the MPNU
transaction. Excluding these exceptional items, G&A costs would have
closed relatively flat compared to the previous year. Nevertheless, Seplat
remains committed to minimising G&A expenses and has established cost
champions to identify cost pressure points, and we are implementing measures
to control expenditure in those areas.

During the period, there was a significant adjustment in the exchange rate
between the Nigerian Naira and US Dollar, following CBN guidelines to unify
multiple exchange rate windows to the Nigerian Autonomous Foreign Exchange
Market (NAFEM). The closing rate for September 2023 was NGN832.08/USD1,
representing a notable difference from the rates in May 2023 of
NGN461.28/USD1, before the new guidelines were implemented. The revaluation of
the Group's financial assets arising from the exchange rate difference
resulted a net (non-cash) loss (please refer to the H12023 results
(https://www.seplatenergy.com/media/1rwb3u00/seplat-energy-6m-2023-results-release-final.pdf)
for more details). As a result, the company implemented several measures to
control the impact of the Naira devaluation on financial performance including
exhausting avenues to cover costs in Naira and ensuring utilisation of Naira
excess cash balances. As a result, YTD FX losses are $27.8 million, following
FX gains offset of $6.8 million recorded in Q3 2023.

After adjusting for non-cash items such as impairment, fair value, and
exchange losses, the adjusted EBITDA for the period was $306.4 million (9M
2022: $337.9 million), resulting in a margin of 37.8% (9M 2022: 54.6%).

Taxation

The income tax expense of $27.0 million includes a current tax charge of $54.3
million and a deferred tax credit of $27.3 million. The deferred tax credit
recorded during the period was due to change in applicable tax rate on our
Elcrest assets which impacted deferred tax asset balance brought forward from
prior years. The effective tax rate for the period was 25% (9M 2022: 60%).

 Effective tax rate analysis    Income tax expense          Tax rate
 Profit before tax ($'million)  Current  Deferred  Total    ETR                    Current

                                                            (Effective Tax Rate)   Tax rate
 106.5                          54.3     (27.3)    27.0     25%                    51%

 

Net result

Profit before tax declined by 42.5%, amounting to $106.5 million, compared to
$185.2 million in 9M 2022. However, the lower taxation in the current period,
resulted in a closing profit of $79.5 million, as opposed to $73.9 million in
9M 2022.

 

The profit attributable to equity holders of the parent company, representing
shareholders, was $40.5 million in 9M 2023, which resulted in basic earnings
per share of $0.07 for the period (9M 2022: $0.13/share).

Cash flows from operating activities

During the period, the Company generated $365.1 million in cash from its
operations, a small decrease from the $368.1 million generated in 9M 2022.

Net cash flow from operating activities amounted to $296.3 million in 9M 2023,
compared to $317.4 million in 9M 2022. This figure includes higher tax
payments of $60.5 million and a hedging premium of $3.9 million during the
current period, while in the previous year, tax payments were $43.1 million,
and the hedging premium paid was $7.6 million.

The Company received $174 million in the first nine months of 2023 towards
settling cash calls from the major JV Partner NEPL. Another $32 million was
received after the period; this progress led to the reduction of the
receivables balance, which now stands at $72 million. Receivables outstanding
from our JV partner on OML 53 as of September 2023 are $32 million. The
amounts increased over the period because the partner has been impacted by
prolonged crude evacuation challenges, where Seplat has lifted through the
Waltersmith Refinery since early 2022. As such, the overlift volume stood at
over 1 MMbbls as of September 2023. In view of this, we are in discussions
with NUIMS management and expected to come to a resolution within this
quarter.

Cash flows from investing activities

In the first nine months of 2023, the total net cash outflow from investing
activities was $110.4 million, which decreased from the $232.9 million (a
figure which includes $140 million in acquisition costs, of which the deposit
for investment in MPNU transaction was $128.3 million) recorded in 9M 2022.

The capital expenditure on oil & gas assets during the period was $122.7
million, including $85.8 million invested in drilling activities and $36.9
million invested in engineering projects. Total capex (including other fixed
assets) was $125.4 million.

The Company received $8.7 million from All Grace Energy regarding the
divestment from the Ubima field, the sum of $27.3 million has been received to
date leaving an outstanding of $27.7 million. An extension of the payment
period by 18 months has been agreed, with the final payment now due in
Oct-2024.

Cash flows from financing activities

Net cash outflows from financing activities were $168.6 million, which
increased from the $110.9 million recorded in 9M 2022.

These outflows included $58.1 million for interest on loans and borrowings,
reflecting the cost of servicing the Company's debt obligations. Additionally,
a commitment fee and associated transaction cost of $8.5 million was incurred
on our credit facilities. The loan repayments of $22.0 million, in two $11m
tranches, during the period represent the first principal repayments of the
Eland Senior RBL Facility.

 

During the period, shareholders were paid dividends amounting to $76.1 million
(9M 2022: $44.1 million paid).

Liquidity

The balance sheet continues to remain healthy with a solid liquidity position.

 Net debt reconciliation                                   $ million*  Coupon           Maturity
 30 September 2023
 Senior notes*                                             641.0       7.75%            April 2026
 Westport RBL*                                             88.0        SOFR rate+8%     March 2026
 Off-take facility*                                        9.6         SOFR rate+10.5%  April 2027
 Total borrowings                                          738.6
 Cash and cash equivalents (exclusive of restricted cash)  391.0
 Net debt                                                  347.6

* Including amortised interest

Seplat Energy ended the first quarter with gross debt of $738.6 million (with
maturities in 2026 and 2027) and cash at bank of $391.0 million, leaving net
debt at $347.6 million. The restricted cash balance of $21.2 million includes
$8.1 million and $11.4 million set aside in the stamping reserve and debt
service reserve accounts for the revolving credit facility.

As the Company continuously reviews its funding and maturity profile, it
continues to monitor the market in ensuring that it is well positioned for any
refinancing and or buy back opportunities for the current debt facilities -
including potentially the $650 million 7.75% 144A/Reg S bond maturing in 2026.

Dividend

The board has approved a Q3 2023 dividend of US3.0 cents per share (subject to
appropriate WHT) to be paid to shareholders whose names appear in the Register
of Members as at the close of business on 10 November 2023. This takes
dividend payments to US9.0 cents per share for the 2023 financial year to
date, in line with the Company's dividend policy.

Hedging

Seplat's hedging policy aims to guarantee appropriate levels of cash flow
assurance in times of oil price weakness and volatility. Total volumes hedged
in 2023 amount to 6.0 MMbbls. For Q4 2023, Seplat hedged 1.5 MMbbls of dated
Brent deferred put options at $55/bbl (at a cost of $0.73/bbl); and for Q1
2024, Seplat hedged 1.5 MMbbls dated Brent deferred put options at $65/bbl (at
a cost of $1.08/bbl).

 Oil put options         Q4 2023  Q1 2024
 Volume hedged (MMbbls)  1.5      1.5
 Price hedged ($/bbl.)   55       65

Additional barrels are expected to be hedged for the second quarter of 2024,
in line with the approach to target hedging two quarters in advance. The Board
and management team 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.

Petroleum Industry Act (PIA) Implementation Status

Since submitting the conditional application to convert all our assets to the
PIA regime in February 2023, our multi-disciplinary team has been diligently
preparing the Company for full compliance with the various aspects of the PIA
and anchor regulations as they impact Seplat. Meanwhile, the regulator is
finalising the guidelines for the conversion and has shared concession
contracts with converting companies to enable a thorough review and
understanding of the contractual terms and obligations that will be applicable
under the new PIA regime. The long-stop date for the fulfilment of the
conditions precedent, which was extended to September 30, 2023, has expired;
we expect that a new date will be communicated.

Share dealing policy

We confirm that, to the best of our knowledge, there has been compliance with
the Company's share dealing policy during the period.

Free float

The Company's free float on 30 September 2023 was 29%.

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