Seplat Energy Plc (SEPL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Seplat LNG 2023 Results Presentation. My name is Natalie, and I will be the operator for your call this morning. [Operator Instructions] The presentation is available on the webcast and can also be downloaded. And I will now hand you over to Roger Brown, CEO. Please go ahead.

Good morning, everyone, and welcome to the 2022 results conference call for Seplat Energy. So turn to Slide 4 and we'll run through some group highlights. So first of all we're declaring a dividend of $0.075, which is [indiscernible]. It's made up of a $0.025 final dividend, and then we've topped it up with a special dividend of $0.05. And total production is at 16.1 million barrels of oil equivalent for the year, which is slightly down on last year, largely on 3 shut-ins that we have, and Sam will deal with that when he goes through it. The revenue is up almost 30% on last year, largely to do with the higher oil prices. And then even numbers around 40 is lightly up to 12.1%. In terms of the 2022 achievement, we continue to pursue the mobile producing acquisition. We'll deal with it later in the slide. We're looking obviously at the -- our new energy investment plan we announced at our Strategy Day, and we've met good in rooms in terms of looking at new energy opportunities. And we're going to take FID on at least one of them by the end of this year. In terms of the PIA [indiscernible] conversion, loan the PIA went 2021 is ability to do image conversion. We've opted to do that, and we did that in February. Work is ongoing to separate midstream gas business under PIA envisages a separation of midstream or from upstream and working hard to deliver that. We believe that will create a lot more value for shareholders in the longer term. We're going to disclose the first climate risk in the report. And that the end of March, this month is actually next month, and it will be under TCFD guidelines. We've commenced our implementation of -- and that's largely to do with taking a lot of the flares. We've had some board changes. Obviously, we announced earlier this year a new independent Chairman of Basel me. And then we have another Board member, which is today, which is [indiscernible] independent non-exec director. This is sort of the refresh of the Board for the future. Okay. So moving on slide. It's just a few words about it. And we have quite a number of corporate initiatives in our scorecard, sustainability and up 15% of the scorecard in 2023. And combine that with the safety 10%, 1/4 of the overall scorecard is now related to safety targets and sustainability targets. And in terms of reporting October, just putting out this the climate risk and resilience report, you'll see that at the end of March. We'll put that on the website and line with TCFD guidelines. Just some stuff on the emissions reductions, and we have committed, and we're still on track to delivering a [indiscernible] initiative by 2024. So beyond -- we will be flared out completely or obviously safety flares, which we'll need. And largely, a lot of that reduction is coming from the AG compression, which we've put in place at the end of last year, I mean we're not in operations. We've also relooked the calculator for the Scope 1 Scope 2 emissions. We have been making a lot of estimates around that. As we overstating them. We now have a new calculator in place with much more assets than department intensity is done for 2020 and 2021 levels, 29 kilograms per BOE. Our diesel program is underway across all of our -- and obviously, our Tree4Life project is making some in [indiscernible] first pilot project -- so I'm going to now move over to operating and review and hand to Samson Chibogwu Ezugworie, will COO, and he will then picture his slides. Sam?

Thank you very much, Roger. And then moving on to Slide #7. Good morning, good afternoon, good evening, everyone, depending on where you have joined this call from. Just to highlight our personal performance in the year on that review continues to follow our very strong strategic agenda, focusing on maximizing cash generation through operational efficiencies. We focus on our 3 key strategic pillars, the upstream, the midstream gas and the new energy and over the next few slides, I would like to take you through some of the key initiatives that we are driving to strengthen our performance along those lines. But specifically, just on this point, I would like to highlight that we continue to diversify our export routes to continue to assure revenue generation, lending from the quarter 3 performance of 2022 when we had very significant pipeline and terminal outages that impacted our operational performance in the year. So if you just go to straight to the next slide, on Slide #8, I will lead into one of the key strategic drives where you will see how robust our result base is. Looking at 2022 relative to 2021, our results decreased by 19% -- 19 million barrels, 84% of that was significantly related to production, 9 million barrels of oil and 41 Bcf of gas. 12% is due to the divestment of Dima and reclassification and revisions, which is our strict petrol engineering practice, leading to 4% reduction. Our 2C resource volumes also decreased by 7.3%, 17 million barrels of oil equivalent. And we are currently funding into the Abyala marginal field through our price non-operated venture. And that is not yet in the books simply because we have not completed the [indiscernible] at the time we are as audit in the year. If we go to Slide #9, you will also see our growth agenda through the exploration well that we drilled in Sibiri in quarter 1 2022. Significant progress have been made with this. We have very fastly moved to extended well testing of this particular opportunity following the discovery that we made. I would like to comment that the extended well testing is underway as we speak here with very promising results. Well is currently flowing good API, flow rates yet to be determined. And also we are driving for the appraisal of the Sibiri discovery. And also, we have made some very significant discoveries with this. The flank appraisal has yielded many more positive results, including 2 new base zones. Overall, we see a very clear indication that the Sibiri discovery will be in the OP margin of our in-place volume estimation. We are going to quickly move into field development planning and bring this to production shortly. Speaking to Slide #10 and our overall operational performance in terms of production in the year under review -- we started the year very strongly with very good quarter 1 and quarter 2 performance. And as I stated earlier, quota 3 was heavily depressed by pipeline and export line challenges. But by October last year, we recovered and we also then made a very strong recovery in the last quarter of the year, leading to an exit of 53,000 barrels of oil per day at the end of the year. And learning from this, we will continue to drive additional export route opportunities to ensure resilience as we go into the market. In terms of operational performance and resilience and we also achieved ISO-55001, which is also a very big one for us. As Seplat being the first in Africa to achieve this set -- so we also feel very proud about this. And lastly, our operational performance continued to run on a very strong safety performance in the united data area of Nigeria, where we actually achieved 31 million hours of aerial operations over space 3 years. However, we recorded on nonoperational LTI in October last year. And since then, we have also recede up to 2 million -- almost 3 million [indiscernible] of LI operation since the last incident. So if I go quickly to how we are building resilience on Slide #11, resilience for export operations into the market. We delivered the [indiscernible] pipeline in July last year. And following that, [indiscernible] that in use has opened more opportunities for 3 additional export routes out of there. But lending from the incident that we also had, we continue now to look at other opportunities to bring our crew to the market in OML40 and November 53. And if I go to the very last slide for me, this is also how we are driving our midstream agenda in line with our strategy. The first big ticket item there is how we utilize the installed capacity in our facilities in [indiscernible] and [indiscernible]. And there, you will see that we continue to export very significant volumes into the market. In the year on-die review, we exported over 110 million squares of gas out year average and achieved an average gas price of $2.82 per thousand scores. We also additionally signed some 3 new GSAs to a total volume of 86 million squares per day. That now brings us to 8 GSA in total with offtake capacity of 390,000 million scores of gas per day. We are also driving ANNOH. ANNOH is also one very strategic growth opportunity. And the current outlook is that we would bring ANNOH to our on-stream by the last quarter of this year. We have achieved 95% mechanical completion in the cost of the year on that review, and we are driving and working closely with our partners to achieve the pipeline network that will bring the gas to the market. Lastly, is the software delivery where we are having a combination of 3 agenda here: driving cash flow from gas sales, LTG and then also reducing our gas flaring with this opportunity and this is supposed to come on stream by the last quarter of 2024, in line with our end of routine flaring agenda. So on this point, I would just like to end and hand over to Emeka who will take us through the financial performance. Thank you very much.

Thank you, Sam. Good morning. My name is Emeka Onwuka, CFO. I will take you the final review, starting from Page Slide 14, which gives the financial highlights. You will see that total revenue was $1 million and EBITDA of $46 million and we'll spend out a very strong cash on our balance sheet of $44 million. It will also see relied PA11 per barrel and a GAFA. -- million -- $2.82 per mile score of gas. If you go to Slide 15, we'll give more details on the financial results. You see oil revenue at $8.9 million and just $2 million last year. The gas revenue dropped a bit. This [indiscernible] the early appraisal we faced in 2022 on gas prices, particularly the domestic gas obligation product down to 265%. However, during the year, we recovered in terms of the new GSE we signed are able to build out the price of $2.82 the [indiscernible] in the EMEA slide. The cost of sales factor reality, given the higher oil prices for this year. The G&A went on significantly. One is increased [indiscernible] spend in 2022. Usually, there is an FX indication for that because you convert our books are maintained at [indiscernible] of Central Bank and FX rates. So when you spend that and contract, it has an indication in terms of the dollar reflected as the G&A costs. Also, the global inflation we petition side, travels and cost of imports as well. [indiscernible] increased the [indiscernible]the year and also had a prior cost of about $12 million, but we have to try [indiscernible]due to partner recovery issues. If you go to the impairments, we had [indiscernible] that we have a lot of sale of one $2 million on that. After the product of that asset, like some already mentioned. The tax are for this year, part [indiscernible] 7 million on the later also about $33 million, and that increase for the year. The oil prices -- the higher oil prices mean that we need to be some of the facts back to the gas account in our books. So we ended up with $1 million or $4 million on profit after tax for this year. The cap for it warrant is $3 million. And that takes out to the next slide, Slide 16, where you see that was $1 million to $3 million, $4 million of that on drilling. We did about a few ones. So of that completed this year, a level driver in -- we also made part of the CapEx was also used for generic projects and our gas plant. Also on the drilling side, we continue to make -- improve the cost of drilling $10 million in terms of average cost. And in the past 2 years, we see reduction in drilling costs. It is also the wells that we do the period are also contained in Page 16 of the slide. I'll take to Page 7, Slide 17, we showed our very strong hires this past year. We $24 million I have $404 million cash from operations, which utilize the [indiscernible] received in terms of that disposal, we received about $8 million during the year. And also on the NPA transaction, where those wanted to million as part of our 10% of contribution for that asset at CDH and which is part of -- adjusted on completion of the transaction. CapEx for the year was $30 million, like I said in the previous slide, we ended the year strong on liquidity of $4 million. I'll take you to the next slide of Slide 18, we show the volatility situation of $4 million. We have a debt of -- we have bought out the $650 million. And ultimately, what we have closed in the year or net debt of $5 million and tees 0.83%. We also, on that [indiscernible], spoke hybrid indication of how we manage our capital. We are very [indiscernible]. We have about 70 by 70 and 70 by 17 in terms of [indiscernible], -- we always hold about 30% of our liquidity in dollars and also 30% of the dollars also had aside the contract. For the year ended December [indiscernible] last option. In fact, that for $9 million, I came in just at the last day that we had also, of course, an open the next the year, which I find at offshore as well. We talk about debt management. Our target entire 2x. And although our comments is about 3x EBITDA. I'll talk about our EBITDA figures earlier. We also engage in terms of capital investment, low-risk capital investment. Our third priority is to drill wells to address the client and also to commit to investing in midstream, which for us is a natural hedge this last year in terms of production for 4% was from gas and for the sixth of oil. This normally for us, is a natural hedge as a guest [indiscernible] crude oil prices. And we also hedge our production. We head on to second half of 2020, about 3 million barrels at $50 barrel. We just base [indiscernible] with options. I'll take you to Slide 19, which is on a path dividend, which Roger has spoken to. Supplier constantly trade in the past 5 years, including the dividend paid 2022. Also, we paid about $60 million since we went to the market where we raised $55 million gross. And this year, we end up with a total liquidity. I talked about our $1 million or $4 million on the balance sheet on the back of higher oil prices. We reviewed our cash requirement for this year, including the CapEx of $16 million, which I will speak about. And also, the [indiscernible] transaction where we are keeping funding for any contribution on that transaction altogether. After this review, we also consider a couple of [indiscernible] bond covenant. And the Board has commented beyond the 2.5 in dividend for the last quarter of 2022, an additional top-up of $0.05 as well are lapping now together $0.75 for million and therefore, year to $22.15 on the whole. I'll now hand back to Roger for the next section of outlook.

Thank you. So Slide 21, I just look forward to this year. So looking at our CapEx, it's a similar to 2022. Those are more wells going in. And you can know that the guidance for CapEx of EUR 160 million and split between the development production activity, maintenance and exploration. So that is going on in development and production. 18 wells this year on the right-hand side of the slide, you can see we're reporting as well. So a bulk of them in the Western assets and one, 3 oil, 3 gas, water disposal, which is needed for the water that's coming through and then one exploration well. We're trying to get more out of those assets. 153, we're doing 5 in on a 40 for oil and 1 appraisal. And then [indiscernible], which is effectively [indiscernible]. It's a marginal field. We're putting on workover well and then an oil well. And then ANNOH will be 2 gas wells at fleet the drilling for ANNOH. In terms of the facility in projects, we're completing the SAP integrated gas processing plant. And then we talked a lot about flaring that our commitment by 2024. So this is flare project Ubin, [indiscernible] and GSK. And then looking at some renewable energy power opportunities as part of our sustainability drive. The final slide, which is looking at guidance. So we're guiding at 45.5%. That range is -- we've risked that range and actually that we will narrow it during the year, but restation going on idea at Nigeria [indiscernible]the minute. And there's obviously excludes our mobile producing. ANNOH First Gas moved to Q4 2023. And we have a long explanation in the clients you can look at that. But if the export routes, OB3 pipeline and the spur line are scheduled to be completed by the half year, we went further they're not our projects we're doing, to risk them further, and that's why we've put our first gas at the end of Q4 towards the end of the year. Midstream gas, again, we're underway to make that stand-alone business and regenerate I do believe this will create more value. And that's in line with the PI. The new energy talked about, we're going to obviously an FID on a power opportunity later this. And in terms of the sustainability, that's been quite a big drive to the business. Finally, on NPA, you were producing, we are continuing to pursue a reaffirmation of the approval from the present we received on the 8th of August, and we are still trying to is this through a [indiscernible] Harry before he is office. Okay. So that wraps up our presentation. I'll hand it back for Q&A.

[Operator Instructions]. And our first question is from Dmitry Ivanov from Jefferies.

Can you hear me?

Yes, we can hear you. Yes. Go ahead.

I have like a few questions. First, on this situation with for Cabos terminal that wasn't available for almost 40 days during the period. I mean, like this kind of material event for the company. And could you kind of did like provide more color on the situation? What caused this kind of force majeure? And like is there any kind of litigants in place to hedge against this risk? Are you kind of thinking or is any availability of insurance against these potential events happening is like the first question on for [indiscernible] incident last year. The second question would be on this like mobile asset acquisition that you still plan just to execute by May -- is it possible just to provide more kind of color on this deal? Like are we kind of talking about the same valuation? Do you have financing secured to close this deal? And are we talking about the same financing structure as we discussed like last year when the loans will be obtained in a like ring-fenced structure with no recourse to the existing perimeter. So any color on this modulates acquisition would be great. And the last question might be on operational performance of kind of assets and especially IP pipeline throughput. Maybe if you could kind of share any color on the operational statistics for the first 2 months of 2023, do you see kind of what levels of the throughput oil lifting you see in this first month of 2023, especially when we talk about the new commissioned AEP pipeline.

Okay. So look, why don't I start? And Sam, you can jump in on the operational stuff. Just in terms of [indiscernible] terminal, what happened is a force your largely do with the SBM there's a loading arm and there were some integrity issues of that. And the pipeline for [indiscernible] will took some time to fix those issues. So that largely led to the force majeure being called there. Now in terms of the impact, it is up and running again. And we're using that of our production, but we have identified that as a long-term route for us. We're looking at alternative in that. And I'll ask Sam specifically to come in on that now before I then do other questions. I think we have some technical issues. I'll keep going on this one. So what we look to do is -- I mean, it's highlighted looking in terms of routes. So we use AP as we discover pipeline as our mix port routing. And we have an ability to put 35,000 barrels a day on that line. What we've found since we were operational late July line is months we've had good results on it. So for instance, December, we had no downtime in it. So all the months, we've had some downtime on to do with the fact that in some tapping points that we've had to remove. We see this as an improvement. And in terms of the downturn, we expect less than 10% downtime, trending to more like 5% be [indiscernible] better for the business, and that deals with the throughput. And obviously, to the extent we can, we want to engage with Chevron and try to put more volumes. The remaining volume then that we'll have some Western assets. We'll look to we're looking the barge out long term, but we need to put barging operations in place, which is what we're working on. That should then fix the sort of the Q3 situation we have we have, for sure, across a lot of our terminals. In dealing with your MPU question, in terms of financing related to that, it's no change. We have committed thing to it from our mix of banks and some because that's still is -- and obviously, we're not waste waiting as a President who's also in the Minister of Petroleum to reaffirm the approval and then we're hoping to get this transaction through either this present or if it need be going to the next event. But the loans and nothing of that is no different. Okay. Hope we answered that. So go ahead.

To clarify. So financing is secured. So there is no change to the amount of the deal value. So the only kind of like bottleneck at the stage is the final approval of the deal. And once you have this approval, you go ahead with the deal. And there is no kind of additional like due diligence revision in deal price. So just you need to get approval -- formal approval.

Yes. Obviously, we have -- our view is -- and obviously, the seller's view is that we have approval, but there's a difference of view from the national NNPC around the tenths holding it up. We need to resolve that. In terms of transactions with NPA, it's in place. The funding is ready to go. Obviously, you have to be CPs have to be satisfied to fix that. But it's ready to go. So we're waiting just for the reaffirmation from the President. And we're pushing because the presence will be in place until the end of May. And then beyond, there will be a new President and make it through this present. And obviously, we'll then be pursuing the transaction into the next president.

[Operator Instructions] Our next question is from the line of Alex Sychev from NNIP (sic) [ Goldman Sachs ].

I'm sorry, my line wasn't particularly good during part of the answer, so I didn't really get the entire answer on MPU transaction. So I had a follow-up on that. So I'm just wondering if there is any kind of long stop date to the agreement or it can be rolled for an indefinite period of time. And if there are any milestones we're looking at, be it under current President or next President and -- do you expect any kind of change in how -- in how the government may be looking at it under new president as opposed to how it's been going now? And secondly, on production. So I'm just wondering, what's your kind of expectation and what you have in the budget for the downtime and for reconciliation losses for this year? How do alternates you're putting in effect those as opposed to performance last year...

Okay,. So on the NPN transaction, the focus is getting the transaction complete with this current President. This current President will be in office until the end of May when the new President will be sworn in, obviously that is yet. So it's hard to say much about the new coming in. So our focus is to get the deal of the line before the end of May. To the extent that's not possible. Then, of course, we will be in discussions with the incoming President. We don't know we're going to be at this point. So we don't know what requirements that will have. But let me just say one thing -- in terms of the history of Nigeria, these transactions have gone through and got approved, which is we obviously go back to a rate of approval from this President. Yes, there's a different view with the national oil company, but we just need to work our way through that. In terms of what [indiscernible] brings to Nigeria, Seplat is a proven and track record in terms of operating financial robustness, et cetera. So we're a big operator and a big partner to the government in country. We have raised this money ourselves as a company and it's a significant amount of inward investment into Nigeria. Our ability in gas is proven. And these assets have got a lot of gas that have not been utilized. And so therefore, a focus obviously to monetize that gas, obviously, ramp up the production. There has been little drilling in the asset for quite a number of years now. And so [indiscernible], whether it's this President of the next President, our offering is still the same that we offer a capability, [indiscernible] capability, which is needed more within Nigeria. -- of more and more strong indigenous players. So we're confident if we have to go the next President, we'd be able to the capabilities across that. But our focus is with the current president to get the dealer to the line. In terms of your question on the losses, look, we typically project in our budget, it's between 20% and 25% downtime assets. Sometimes it's more. You've seen that this year, obviously, the Q3, the [indiscernible] pipeline system. We're budgeting in around 10% or lower. And we believe we get this pipeline into certain 10%, probably more like 5% losses over time. We just had a couple of issues. One was obviously with -- there's some cap points in that pipeline, which we had to remove. The other thing is within Chevron, it's a new offtake we have condensate in our oil from the gas production. That has a higher vapor pressure, and we're just even the terms of the operator [indiscernible]. So we have to play around the volumes we got through it. But we're confident that we'll really get 35,000 through that pipeline with a sub-10% downtime. And if we can get comfortable with that long term, then maybe we get more volume through it. In the East, it's probably been the worst for us in terms of the Trans Niger pipeline, which is the pipeline takes for Eastern production into Bonnie. And that's been pretty bad. But the upper section is not just opening up, so we're confident we'll be able to get our volume through there in addition to supplying a local refinery into the country. And then also OML40 which is coming in through the [indiscernible] -- sorry, it's coming past the scrubbers into Forcados. That was the impact by it. We are looking at on our longer-term barging solution for OML40 -- we're also looking to connect the transit scrubber's pipeline system, which into the Mutares scrubbers pipeline system. So we're putting a line in there, and then we will to connect those to 2 pipelines. Longer term, our focus is to get the downtime reduced dramatically, and I think be strict to the bottom line.

One additional question, if I may. In [indiscernible] comments, I think there was mentioning of net debt of 2x that's probably like company's policy, but I'm just wondering, you're now at like 0.9 going to 2x. Is it just MPU transaction? Or are we looking at anything else?

Yes. So the policy we had -- I mean, obviously, we're well policy and actually our one is higher than that, I think 3x. So look, we are looking at our capital allocation minute. The new transactions are ring-fenced transaction I think this move on quite earlier questions. It's a ring-fence transaction. So it's line -- the funding sits at the north group and that then going to be serviced and paid back from the revenues from MPU. So that doesn't really necessarily impact your leverage as a group because it's going to be consolidated. But over time, we're confident with the cash flow capability of those assets that will service that debt and bring the debt down accordingly. So in terms of our covenant to 2x, we're well under -- we'll relook at it now, okay? We're looking at capital allocation now and later on this year will come one with some revised covenants and also some more advised direction of how we're thinking about allocating capital going forward.

The next question is from the line of [indiscernible] from Bank Trust & Co.

Congrats on the results despite the difficult operating environment. I just wanted to ask. I think I heard you mentioned [indiscernible], margin of Western production. Could you elaborate a bit more on that? Maybe question on some of the cost implications on a per barrel basis? And then lastly, sorry to keep hammering on the mobile shallow water assets acquisition. But I mean, just judge the body language of the administration, how confident are you in terms of receiving the required approval on that this administration or it potentially be something to be considered by the net administration?

Okay. Thank you. So yes, in terms of the -- by the way, we've -- the line and we're in separate places on [indiscernible] and Lagos. So what you hear in my voice a lot is because of some technical issues with Lagos on the line. But just going back to the barging. So we're looking to -- as a long-term solution because of the uncertainty of the operations of the Trans Forcados pipeline. So if the TFP pipeline system is really functional it works well. Long term, we can think this. But the main need is a certainly follow volume came on the West. And particularly because we've got condensate and we have some issues around that, that's why we have -- it all comes through and describe this yet. In terms of the cost of barging, it's more expensive. So it's circa $10 a barrel to bars $5 a barrel thereby in pipelines. However, if you factor into downtime, implications and also losses that -- particularly into the [indiscernible] system, it more than compensates the additional barging costs. We don't really want to be barging long term. We'd rather use pipelines, but the pipelines are not reliable, we need reliability in [indiscernible]. Going back to the mobile transaction, a lot of questions on it as expected. Look, we -- our view is that the Minister of Petroleum has approved this have all been, -- we continue to push that. So it's not an approval has yet. What we're trying to do is push the retina approval. We're confident we can get that through this administration. But we did say that to the extent that we can't get through this administration, then we will certainly be working for the next administration of this these assets. We've been through a lot of due diligence with the seller and what sellers really focused on as any incoming buyer is able to operate these assets as a stand-alone entity, i.e., not with any support from the seller long term or even post completion. So the seller needs a party that got a proven track record of delivering it, and we're confident that Seplat is more than fit that bill, which is why they signed the SPA. So our focus is to get over the line with this president to the extent we have to, we'll go present...

This concludes our Q&A session, and I hand back to Roger Brown for closing remarks.

Okay. Thank you very much. So this concludes our 2022 results presentation. Everyone, have a good day. Thank you.