Seplat Energy Plc (SEPL) Earnings Call Transcript & Summary

Hello, everybody, and welcome to Seplat Energy's Financial Results for the Full Year 2023. On the call today, we are joined by our CEO, Roger Brown, CFO; Emeka Onwuka; and our COO, Samson Ezugworie. We'll first present our business and financial highlights, followed by the outlook. And after this, we'll move to Q&A. Before we start the presentation in detail, I encourage you to take note of the forward-looking statements on Slide 2. Now I'll pass over the call to Roger. Over to you, Roger.

Thank you, James, and hello, everyone. Welcome to the full year 2023 Seplat Energy results. So you can see on the Slide 4, we have set out our 2023 highlights and underpinning that is a strong operational and fiscal performance in what was quite a challenging year for Seplat, but I'm glad to say that our policies, procedures and very important, our staff really rose to the challenge in 2023. So I set out 5 main highlights. First one narrows on our 2P reserves. We just had an upgraded CPR, and we've seen a 9% increase in our reserves, both in gas and oil. And so they've moved up to 478 million barrels of oil equivalent, which is a very good increase year-on-year. The next one, looking at the daily production then we were within guidance. We just slightly short of 48,000 barrels of oil equivalent, roughly 60% of that was oil and 40% was gas and that production is up 8% year-on-year. That's largely we saw reduced losses and lower deferments. And then importantly, in terms of operational performance, we hit mechanical completion on our very important strategic ANOH gas plant. We'll talk about that in a couple of slides time. A third one there is our 2023 revenue. And you can see that we've gone through the $1 billion of turnover, up 12% on last year and very monumentally through that $1 billion turnover milestone for us. Last 2 ones at the bottom there is the -- looking at the year-end net debt, and that is obviously decreased. Cash flow has increased through the year and Emeka when he goes through his slides, we'll pick up on that. And then the final one there is in terms of our commitments to dividends, and we are continuing our dividend payout. So we have declared a $0.06 a share of dividend split between a $0.03 core dividend, which makes it 12 for the year -- $0.12 for the year. And then we're also declaring a $0.03 special dividend, which will be paid, assuming it's approved to the AGM in -- shortly after May. So next slide. On the slide, we like to set out just some of our achievements. Obviously, this year, we're going through our 10-year anniversary of being on both the Nigerian Stock Exchange and the London Stock Exchange. And we look back through our perspectives, and we looked back at what objectives we set for ourselves in 2014 and how we actually achieved that, looking at achievements up to 2023. It's quite interesting sort of task to do this. And you can see it on the left-hand side, I'm not going to go through every single one of them, but our commitments on production, acquisition strategy, commercializing gas production, progressive dividend policy and maintain good relations and integrate with our host communities. And on the right-hand side, we talk a little bit about what we have achieved. And you can see there that we exceeded our gross production targets, which was 85%, and it's -- we -- at the end of '23, it was 106. That's gross and obviously, the working interest is less than that. Our 2P reserves have increased since inception, our reserve replacement ratio is very healthy for 2023 and then diversified evacuation routes. In terms of our acquisitions, we've been pretty active through the years. So we now have a portfolio of 7 onshore blocks. We acquired Chevron's OML 53 back in 2016, and that was a critical acquisition because it's delivered the ANOH Gas opportunity. And we see the east of the country really giving massive potential for the country and obviously, our partners and ourselves. In 2019, we acquired Eland. And when we've been spending years bedding that in, you can start to see the real improvement in results from Eland or Elcrest. And then the last one there, we signed a civil purchase agreement for MPNU, and that's gone through its 2-year anniversary, and we remain hopeful that the government will finally approve this, and we can move ahead and grow those assets. In terms of gas, which is a very big part of what we do, our processing capacity really is leading -- put us out and leading in the market next to government when we bring on stream the ANOH Gas plant and the Sapele Gas plant, which we're aiming to do this year. And then obviously, gas revenues have increased quite dramatically there. We paid back in terms of dividends, we've returned more than we raised at IPO. And I think that's quite critical, and we continue to return dividends to investors. The core dividend itself has increased and the special dividends. And look, over time, what we want to be able to do is increase our dividends subject to certain constraints around our lending and bond covenants, et cetera. And the final one there is our -- really importantly is or how we interact with our communities. Our GMOU which is a global memorandum of understanding and investment in host communities, that's approaching $60 million of investments over the years, and it's very critical that we continue that going forward. So on to the next slide, I will cover briefly just sustainability dashboard. We put sustainability right at the heart of our strategy in our 3-pillar strategy. And obviously, we'll be increasingly reporting on various metrics. We just put some up here in this dashboard for the first presentation. It's looking at it, if you look at it in terms of environment and climate, the big reduction of that is going to be our end of routine flaring. We have a number of projects underway at the minute, and they'll largely be completed this year. And we'll be -- in terms of end of routine flaring, we're now guiding the second half of 2025. Then you'll start to see those carbon intensity reduced the flaring emissions significantly reduced by over 80%. In the middle bit of dashboard, we look at what we're doing with our people, partners and communities and social spending is quite critical. It's $10 million in '23. It was $9 million at '22 million. And in terms of our employees, we -- every year, we have the Seplat people voice, employment engagement, and we actually measure ourselves against a global index, and that's 77%, that's an improvement on last year. And then in terms of governance standards, the Board independence, and we'll talk about that in a second. But obviously, we are announcing today a new chair and [ senior INED ] And you can see the independence of the board is set at 60%. And then we're obviously rated by various sustained -- well ESG ratings indexes, SUSTAINALYTICS, MSCI and other ones that are below. So just before I leave this dashboard in terms of the staff at Seplat, 27.5% of our scorecard for the entire company is related to ESG and safety. So that's how importantly we take it, almost 1/3 of comp is related to ESG metrics, et cetera. So I'm just going to stop now and pass over to Sam, who will cover our 2023 operational highlights.

Thank you very much, Roger. Good morning, good afternoon, good evening, everyone, depending on where you're joining us from. I would like to deepen on the operational highlights already presented by Roger, starting with our resource volume and our life going forward. On the bars, you will see the resource volume journey and evolution since 2013, and it demonstrates how healthy our funnel is. And coming to the end of 2023, where we ended with 478 million barrels of oil equivalent in terms of resource volumes. If you just reference this back to our end position in 2022, where we ended at 438 million barrels. This reflects a 9% growth in our resource base. The key areas where we experienced this growth are around the drilling outcome in OML 40, where we had the severity wells outcome and then also our farming into Abiala marginal fields. And last but not the least is the conversion of 2C to 2P in our OML 53. All this translates to a future life of about 25 years of production life for Seplat. If you then go to the next slide, that tries to present to you our core operational performance in the year. As already highlighted, we ended the year at nearly 48,000 barrels of oil equivalent working interest, which represents 8% -- 8.3% growth relative to 2022. The production is again split around 60%, 40%, 64 liquids, 40% for gas. And our production performance is underscored and supported by our diversification of the export routes. Our AEP continues to come very strong into our operational performance, reducing the downtime in the Western Asset. Our drilling performance also in OML 40 really helped us to deliver a very strong performance -- operational performance in the year. And our partner relationships, supply chain, security management, interface with our host communities continues to also drive higher performance in our operations. Also to highlight that our production unit OpEx went up by 1%, and this is essentially driven by higher crude handling charges. Overall, we continue to see and address the challenges that evacuation presents to our operations, especially in the Eastern Asset. But I'm also happy to say that our renewed effort working with the key stakeholders is yielding some good efforts, and we see TNP zone 6 being restated in the coming months. Going to the next slide. Our Midstream business also continued to show some great resilience. Our gas revenue reached 12% of our underlying group revenue in 2023. And while our gas is sold in -- into the domestic market, all our contracts are priced in USD and settled in Naira. And in line with our commitment to support the industry growth and foster economic growth in Nigeria, our improved -- we recorded some improved performance in our gas supply out of Oben with 114 million cost of gas averaging for the whole year 2023. This is additional 2% increase year-on-year average, while our average gas price ended at $2.90 per [ 1000 per score]. This is also a 3% increase year-on-year. By end of last year, we reported the mechanical completion of our ANOH gas and all the 4 upstream wells have been delivered as of quarter 4, 2023. We continue to work with our government partners on the OB3 and Spur line with an outlook for their completion by quarter 1, 2024. Moving on to our accelerated gas plant in Sapele. This, I will also like to report that 4 out of the -- 3 out of the 4 compressors are now commissioned and the upgrade will increase our capacity to 90 million [ cost ] per day export and with a new export module for LPG, which will bring a new product into the market. So overall, we continue to see resilience in our Midstream gas business, while we continue to explore actively additional exploration and appraisal opportunities and third party gas opportunities to ensure that we fully maximize installed capacities in our gas plants. Moving on to the next slide. Just to spend the last moment and talk about our CapEx program and CapEx performance for 2024. Happy to say that we delivered only 14-well program that we reported to you in a revised guidance as of quarter 3 last year. And our CapEx outlook for 2024 is already underway. We have already commenced the drilling of our 2024 activity program, where we have a plan to deliver 13 wells in the course of the year. So this is where I would like to hand over to Emeka, our CFO, to give you further insight into the financial performance. Thank you very much.

Thank you so much, Sam. I will now run you through our financial performance for full year 2023. On Slide 13, we present the highlights of our financial performance. We delivered a very strong financial results despite the prevailing oil price during the year following by 18% with $3.4 per barrel. However, our [ average ] gas price was 3% higher at $2.9 per score. As we renegotiated commercial agreement with some of our off-takers, while also signing on new customer during this period. Revenue performance was impressive and we record a $1 billion mark in gross revenue, growing by 12% to $1.06 billion. The group fee revenue was driven by strong lifting program, which offset weaknesses in the oil price, which I referred to earlier. This consequently drove higher profitability as adjusted EBITDA grew by 7% to $448 million. While net income grew 18% to $124 million, further added by lower tax expense during the year. Cash generation remained strong. In 2022, we had pretax cash flow from operations of $520 million and $445 million of after tax, which more than funded our CapEx program, dividend and debt payments in the year. Our overall average position -- our liquidity position continue to improve, supported by our ability to generate cash as net debt dropped by 16% to $306 million. Full year 2023 total dividend, including special dividend is maintained at $0.15 per share, more details on dividend I'll talk about in following slides. I'll take you to the next slide. We recorded growth in both gas and oil revenues on the prior year. As you can see, the cost of sales routes with high operating cost following our investment in our alternative evacuation routes. G&A has a number of one-off items. When you exclude these items, we'll be closer to $115 million, but we still work in20 24 to that G&A on a unit basis. Naira devaluation is a [ majority ] in 2023 and will continuing to be a focus in Nigeria. It drove a noncash impact of $27.5 million during this period. Net finance costs improved as we paid off $20 million of debt principal in the year given a profit before tax, unit profit before tax of $191 million, down 6% in 2022. Structure for the year benefited from deferred tax credits, given our effective tax rate of 31% and leading to reported net income of $104 million, more than covering a cash dividend during this period. I'll take you to Slide 15. On Slide 15, we're looking at our cash generation, which we started to introduce with the cash balance of $404 million and end up with $450 million, an 11% growth in cash. We can record $520 million in pretax operating cash flow. These were down 10% on prior year period. After tax and other operating cash flow items, net cash flow from operation was $445, also down by about 10% on 2022 figures, but benefiting from the strong leases achieved in course of the year. Cash flow from -- cash flow more than over $104 million of CapEx, we currently generated about $281 million -- $261 million free cash flow during this year. Further cash benefit came from [ Dobima ] disposal proceeds which continued during the year. On financial activity, we paid about $99 million in cash dividend during this calendar year, while we also paid $20 million in debt principal repayment during this period and our funding Westport RBL facility. We also paid $69 in interest on loans and borrowing. Due to devaluation of Naira, which I referenced earlier, we recorded an FX loss of $40 million in converting our Naira balances at a prevailing exchange rate. This movement led to a net increase in cash balance of $45 million during the year, bringing our year-end 2023 cash balance to $450 million. I take to the next slide, our balance sheet continues to strengthen through 2023, despite [ recovery ] prices, flowing a principal repayment of RBL facility, which I referred earlier, brought debt included amortized interest fell by 2% to $756 million, couple with growth - with gross cash balance of $450 million and net debt position fell by 16% to $306 million as at year-end. This balance sheet strength is reflected in our key leverage ratios. Our net debt to EBITDA fell by 0.7 - fell 0.7x to 2023, staying well above our debt coverage of 3.0x and our business plan benchmark of 2.0x. Our debt-to-capital ratio was 22% at our end of 2023. We continue to improve -- implement a robust hedging program derived solely of deferred premium puts for the first half of 2024. Already, we have 3 million barrels at an average price of $60 per barrel. We'll continue to add more balance for the many parts of 2024. On Slide 17, I'm focusing on liquidity and debt profile. Expanding on the balance sheet we retain adequate duration on our debt facilities with our $350 million bond maturing in 2026. We repaid the first $20 million of Westport loan I referenced earlier during the year, in line with facilitator amortization and leaving a balance of $18 million as at end of the year and a further $19.25 million will be repaid this March. We also have a fully undrawn RCF of $350 million, which begins amortized later in 2024. If you combine the RCF and a cash balance, we have available liquidity at the end of 2023 of $800 million. The primary plan usage of this strong position is to support our M&A ambition, principally in the near term because this will be used for MPNU acquisition. We manage our balance sheet with a conservative eye, reflected in our historic leverage chart, at year-end, the balance sheet was at its strongest level in recent years. Also, though not shown here, in the course of the year Elcrest [ comment ] repayment of the shareholder loan between them and Westport in 2023 alone, they repaid about $28.4 million. I'll take you to the next slide , this slide focus about reward to shareholders. In 2022, we sustained our traditional and rewarded our shareholder by returning more cash via dividend. We paid out a record $9 million in dividend in 2003, a combination of the timing of the 2022 special dividend and increased quarter dividend -- quarter dividend run rate in 2022 which we raised to 12 to $0.03 per quarter and the -- altogether, about $0.12 of core dividend for 2023. Of note in '23 distribution, both cumulative cash dividend paid to shareholders to $575 million, which is about 107% above the $575 million we raised will IPO in 2014, has also alluded to the fact that this year we'll be celebrating our 10 years of listing of both the Nigerian and the London Stock Exchange. For quarter 4 2023, the Board approved a dividend payment of $0.06 per share, moving to [indiscernible] of $0.03 per share, a special $0.03 per share, leading to total payouts as mentioned earlier to $0.15 per share for 2023. I'll now hand back to Roger to summarize and take you through our outlook for 2024.

Okay. Thanks, Emeka. Let me just conclude here by looking at the outlook and growth potential for the business. So we highlight 5 specific growth opportunities for 2024 on this quite busy slide, but we start with obviously the acquisition of MPNU. We just highlighted some of the metrics around it. Obviously, this is back in the 2020 basis. And it seem be important for us just to get an update on MNPNU. When we -- when the government approved the transaction and move forward, we have a high confidence of completion this year, and we're encouraged by the public statements, The Honorable Minister of State Petroleum Resources Oil made at the [ mid ] start of this year. So we are confident we can get this game-changing acquisition over the line. The other 4 we've highlighted here is obviously the ANOH Gas project. So it's a monumental achievement to hit mechanical completion on that project at the end of the year. It's been very challenging in the East with security, et cetera, but the team has done an extremely good job in delivering it. Now we are working with our government partner. They're delivering 2 very critical gas pipelines, the OB3 and Spur line and work is very much underway on both of those. We've maintained Q3 2024 for first gas, just to build some buffer into the estimates there, but our government partner is certainly working at an earlier completion of those projects. And the project will obviously then deliver 2 new streams of revenue. One is back to the upstream and the wet gas sales, and we're going to get a higher price than we would normally get for just dry gas. And then we're then obviously going to receive dividends out of -- from AGPC. The next 2, Abiala and Siberia relate to OML 40. And Abiala is an extension of the Gbetiokun development at OML 40. So this is a marginal field. We farmed into with a 95% equity interest. So governments and all actually in this -- in this development. And we're looking at first oil Q3 this year. It's a reasonably strip forward to tie that oil back into the Gbetiokun development where we have an export route for it. And then in Sibiri, which is an extension of Opuama development in OML 40, and again, we drilled an exploration well a couple of years ago. Now we're announcing the FTB approval in Q1, I think that's faster than we expected. And now we go into developing Sibiri. And again, we can take that back to Opuama and actually monetize other oil through pipelines. And the final one there is Sam covered anyway, which is Sapele gas plant, and this is quite a critical plant for us, 90 million scuff, and we can supply in the Sapele area, but also can tie back up into Oben and increase our gas export. So that completion is expected in the second half of '24. And critically, it's going to be LPG modules, which allow us to come in supply into LPG market. Similarly, [ Anna ] will also deliver LPG, which is obviously critical for getting a Nigeria off using firewood for cooking and you can use bottled gas. So onto the final slide, just setting out some guidance on our priorities for 2024. The key guidance items here is on production. And we're guiding 44 to 52 barrel of oil equivalent. And you can see the midpoint of that is similar to the 2023 actuals. CapEx, again, $170 million to $200 million. And again, the CapEx midpoint similar to 2023. And then operating costs, we're expecting them to reduce and therefore, we've got a 9.5 to 10.5 and guidance on that. In terms of wells, again, Sam covered this, but it's 13 new wells to deliver production and maintain output. It's quite a heavy activity in the West around that. And in terms of fiscal strength, Emeka, again highlighted this in terms of strengthening our balance sheet, which is looking very strong, optimizing our G&A costs and reducing those and continue to prioritize the shareholders' dividend for the core dividend of $0.12 a share. The third one is around strategic growth, which is delivering upstream and the midstream growth opportunities. Mature new energy project evaluation through our [ Pillar 3 ] business. and towards an FID in the power sector later this year, reducing our flaring projects at Oben, Amukpe, Sapele and Jisike and eliminating routine flaring, which is quite critical to us. And then at the minute, we're deploying renewable energy across all of the sites and actually into a lot of our communities. That's a commitment we've made, and we'll continue to do that. And finally, before I hand back to the operator for Q&A, I just want to talk about our Board changes and the other Board meeting yesterday and after that Board meeting. We had a note for the incoming Chairman. I'm delighted to announce that Udoma Udo Udoma has been elected as Chairman unanimously. And we also then voted for Mr. Bello Rabiu to be the Senior Independent Non-Executive Directors both will assume office on the 1st of April this year after Mr. Basil Omiyi and Mr. Charles Okeahalam will step down from the Board at the end of March. So that concludes our presentation. I want to hand it back to the operator for Q&A.

And there are no questions on the conference line. I will now hand over to James Thompson, Head of Investor Relations, to read out the written questions.

Great. Thank you very much, operator. We do a few written questions. But for those who are dialing in, you do have some time out to raise your hand if you want to ask a question. I'll group them together a little bit. Roger, maybe there's a few questions here on MPNU. First all, obviously, this is essentially the big event for the year. It's been on time now. Could you perhaps just revisit the key elements of the deal here, the consideration, the effective date? And there was a lockbox, is that still valid? And how much of an amount you think will be in that lockbox to lower the final consideration given the time that's passed?

Okay. Thanks, James. So just to recap on MPNU, obviously, we've signed this sale and purchase agreement in February 2022. So we've gone through the 2-year anniversary of that. In terms of the transaction itself, we -- the headline consideration is $1.283 billion for the 4 -- well, actually, we're buying the entire company, so just 4 blocks and a terminal and a lot of related infrastructure. So -- and as part of the purchase consideration, there's also a $300 million contingent payment, and that's only linked to oil price and has an effective date on the 1st of January 2021. And obviously, the sale and purchase agreement was extended last May of 2023. So in terms of the effective date adjustment, lockbox of course, the lockbox will reduce the final payment. We put a $128.3 million deposit. And so the balancing payment obviously will have reduced because of the lockbox adjustment, and it's too early to say at this stage what the quantum of that's going to be. Obviously, there's been 3 years of production coming out of it. But everyone will be aware, hopefully, that in 2022, through the dispute, NNPC took Exxon to court and also went into arbitration proceedings. And when that happened, in Q3 2022 then obviously, we have to stop all communication with Exxon around the technical details of the asset. It's a bit early to say around that. We'll be able to communicate that in due course. But anyway, remain hopeful. The transaction closing, given the statements that they made, and I think it's in everyone's best interest to get this [ del with ] the line. They're very prolific assets, but we do need to less decline in those blocks and then actually develop the oil and there's quite significant gas reserves there, contingent resources there, which we can then link into domestic gas plates and LNG export plates as well.

Thanks, Roger. There's a couple more here following up on that and MPNU. Is there any update to the legal challenge, the arbitration related to FDA for MPNU?

Yes, and again, we're not part of it. We're not joined into this, we're not joined into the court case, nor are we joined into the arbitration. The arbitration proceedings are on what -- the sort of pre-arbitration proceedings have gone through and underway around that. And the various, I think 3 judges have all been appointed. They were due to start earlier this year. I think they've been slightly delayed, but we're not really privy to the exact timetable. We're not part of that overall process. But certainly I think they are schedule for this year.

Okay. Just I've got call on the line.

We do. We've got a question from Nikhil Bhat from JPMorgan.

Morning and afternoon. Thank you for taking my question. I just have 2, one on your Eurobond. I know it's still some way away, but just wondering if you have -- what are your initial thoughts on refinancing it, especially given the potential sort of MPNU acquisition closing. And on a similar note, sorry, Part 1A, I guess, is given the healthy cash balance and liquidity that you have, are you considering buying back some of your bonds given the yield they're currently at? And then the second question was on your cash policy. I think in one of the previous conference calls, there was some mention of sort of reevaluating your -- the currency, you keep your cash in or the split of currency you keep your cash in or split of currency you keep your cash and given the Naira devaluation, I was wondering if there's any update on that. Thank you.

Thank you. I'm going to hand both of those questions over to Emeka Onwuka, our CFO. And we also have Eleanor Adaralegbe in the room and [ Lagos ] who will be taking over from Emeka later this year. Emeka?

Yes. Thank you so much, Roger. And Nikhil thank for your question. On Eurobond, we continue to watch the price of [indiscernible] majority 2026. Our special focus currently, to conclude the MPNU transaction, use our cash and then rebalance our financing. So we're looking at revolving the situation towards the end of the year. Also watching the market that's on the Eurobond. On the -- I think it's related to that. In terms of the cash balance we're holding currently, our focus is to conclude the transaction. Roger gave a view already about the pricing of that transaction and the nature of the fact that we don't know ultimately have more labor costs by the end of -- by the time we talk to that transaction. So we are taking all this in view. We definitely would have balanced the funding structure of the company as far as MPNU transaction. So we are holding to that and that a lot of evolution on that. The good thing is that we see a time I want to watch how the market is trading. Our cost rates we communicated previously is still holding. We normally keep 70% of our liquidity offshore and 30% on country. And as at the year end 2023, the offshore look at is 76, 24. About 70% of average were foreign currency held outside the country. Specifically, our narrative balance end of 2023 was about 814 billion naira, which functional dollars was about $58 million. So our policy is still holding and we'll continue to watch the market. In terms of the foreign constitution of the country and how the policies are changing. I will give the assurance [indiscernible] there's nothing in terms of the policy that is seen from CPM and that 13 acquisition in terms of [indiscernible] continue to watch I believe there in a good position on that.

We will now hand back to James for further written questions.

Okay. Thank you, and thank you very much, everyone, for the questions so keep trying in, which is great. So I'll just stick with MPNU for the minute, Roger here. Could you maybe talk about what we can say or anything we can say about the performance of the asset and linked to that, a couple of questions linked to this, something around our confidence here, timing of the transaction and urgency perhaps of the government, given the statements that were made earlier this year.

Yes. Okay. Thanks, James. It's hard for us to give any level of accuracy on the performance. We gave -- when we once the transaction, we give some working interest volumes there. I think they'll soften from that actually got a decline probably 5% to 10% decline in these assets. And if you've got to really drill the standstill here. And there hasn't been a well drilled for a number of years, so we expect some decline in it. That material will decline, we don't think, but we're pretty confident we can get in quickly and arrest that and actually grow production. In terms of it, I did say that in the oil side of it, we have quite an extensive development plan for the next 5 years, which is a mixture of infill wells and new drills. And the resource is extremely good. And then on the gas side of things, it is primed for really a gas solution, domestic and international. Exxon currently dry that gas and reinject it. And actually we see a real opportunity alongside the government partners to actually then monetize that gas. In terms of then certainty around getting the dealer to line. I think there's a genuine commitment from the government to resolve this. There has been a lot of statements from the minister around it, and I think that lines right back up to the president, who is the minister of petroleum. We did have a -- well, NNPC. There's a disagreement NNPC with Exxon and I guess us by inference, because we're coming in to buy this, we believe there's a lot of work has been done over the last 6 to 12 months to align more in that. And that's why we're given a sort of confidence here to get the deal closed out. So we can't give an exact day, month, but I think we're getting pretty close on this transaction.

Great. So I'll move off MPNU on to a few questions here. The river crossing has been pretty problematic, but appears to be some genuine progress there. Could you maybe give us a bit more detail on progress towards completion and your kind of confidence in 3Q 2024? And then alongside that, maybe around the guidance you've included ANOH in production guidance. Could you give us some color on the ramp up how long that might be? And a third one there is gas revenues made up about 12% of group in 2023 with ANOH where do we see that moving to as a percentage?

Yes, I think that's real question for Sam. Sam, you want to come in on this one?

Yes. And thank you very much for that question. On the river crossing of OB3, the river crossing has been very problematic. But I think it's important for us to now report back that the grouting process which our partners, government partners, brought in some experts from the London that built the London Underground, actually completed. And now tunneling has commenced. For some of you who follow Nigerian news, there was a release from NNPC 2 days ago just announcing the commencement of the tunneling, which is the last phase of it. So that in itself, making sure that we completed the grouting across the river crossing and to the end of the line is a major milestone. Now that we are in tunneling, that is the confident booster that completion of that process is started. So this, that's really major milestone achieved. And that kind of reinforces our confidence in the onstream date for ANOH in quarter 3 this year. Ramp up especially is expected to take 3 to 6 month period. So in terms of full blast impact of ANOH, you will see that in 2025. But in terms of guidance and what we envisage as an exit rate, we will exit hopefully. We have quite a number of opportunities in the mill, including ANOH, including the statement of TNP zone 6 and supply to a door refinery, among other production boosting opportunities. And if all of them come in place, we see ourselves closing, ending at the upper end of our guidance. So that's my long response to this question. Thank you very much. Back to you, James.

Thank you very much Sam. We can go to the operator, I think, for another question on the line.

We have a question from Alex Sychev from GSAM.

Thank you for the presentation. I have a few questions. First is a follow up to Nikhil's question. I'm afraid my line wasn't really good, so I didn't hear the number you had in naira at the end of the year. And to expand on that a bit with recent changes in cash reputation, rules from Nigeria, would it be safe to assume that going forward we should see the balance of cash you're keeping onshore grow? Or maybe you could share how you're going to deal with it. And my second question, just going through the press release, I noticed that you're talking about a new energy business again and that the gas to power development project may go into FID this year. So I presume you should have rough numbers handy. And I'm just wondering what would be the ballpark CapEx estimate for this project and how long it may take you to get it done? Thank you.

Okay, thank you. Can I bring in Emeka for the first 2 questions there, and then I'll deal with new energy.

Yes. Thank you so much, Roger. I mentioned that at a year end, our split between dollars and naira, in line with our policy of 70 30, was 76% offshore in dollars and 24% in naira. Specifically, naira was 8 billion naira. If you do, using our conversion rate, that will give you a functional dollars of $58 billion. Now, we've always operated based on the CBN circular, referring to how oil and gas company utilize their export proceeds. And under the existing circular, we are allowed to make multiple [ assembly ] in terms of interest, in terms of our debt obligations, in terms of also contractors, and up to about 10 categories of payment. We currently cover our requirement for foreign currency currently. And that circular is still important. And it's also important that c, because the oil and gas companies are likely to operate freely and give that secular in any way is compromised. Now, outside of this circular. Sometime in 2015 due, IOC had an understanding with the central bank because of pulling of cash for the head office cash management, outside of this, they can pull some cash to the head office outside of this designated or allowable expenses for oil and gas companies. Now, that is the arrangement that have been affected by the recent circular from CBN in terms of trying to bring that arrangement into some kind of control. So it does affect our current operation. That said, we are aware that foreign currency major issue for the government and for the central bank, and they continue to look at the guidelines to be able to streamline the market. We do not believe that we have any new settler that can, that will affect operation. So we are confident our ability to meet our foreign currency obligation based on foreign currency will not be impeded in any way by even future regulation changes by the central bank. So, Roger, I'll hand over on the capital designation for the new energy.

Yes, thank you. So, the new energy business, obviously, it's a new sector for us, gas to power. And we're being extremely careful how we think about it, the risk profile around it, et cetera. The currency mismatch between likely CapEx, quite a lot of it's going to be in USD and obviously in the power sector. It's a narrow base there. So it's something that we are taking our time over. We have set that target before the end of the year for FID. A little bit premature at this call to come out and set out quantum, CapEx, et cetera. Looking we have a couple of projects in mind, but it's likely the FID will be in one particular one. So I think it's a little bit early for it. We certainly will be coming up maybe later this half or maybe in the second half with some of the information.

Thanks, Roger. So we've still got quite a few questions to get through. I will try and group them. We've got a few more on the assets, then we've got some sort of more detailed financial and guidance questions and then we can wrap up on a couple of macro questions. So just closing out on the assets, TMP, we talk about resolving that in the third quarter. Could we perhaps give an update on progress to get the TMP back up and running?

Yes, Sam.

Okay, thank you very much for that question. TMP 6 we have actually advanced reinstatement of the line and we are currently doing hydro testing of the line to ensure it holds pressure with Waltersmith before we introduce hydrocarbon. So [indiscernible], we are looking at reinstating that line in a short period of time, maybe a matter of weeks maximum.

Okay, thank you very much, Sam. And then just on Sibiri, we talk about the in place resource in our update today. Could you just give the caller an indication about whether we included any of Sibiri in our 2P reserves number and potential on the timing of first oil for the field?

All right, thank you very much. Yes, indeed. The answer is yes, yes, yes. We included Sibiri in the reserve's numbers and we are quickly transiting and trying to convert the appraisal well objectives into production. So the Sibiri 1 will bring in somewhere close to 2000 barrels of oil per day potential before the end of the year. Target is to bring in the Sibiri 1 in the coming months and then the Sibiri 2. That requires a well head maybe a month after. So we are aggressively pursuing bringing in those opportunities and the range from Sibiri 1 and then Sibiri 2 is 800 barrels to 2000 barrels and then they will be coming in stages in the course of the year. Okay, thank you very much for that question.

Thanks, Sam. I'll move to a couple of more detailed financial questions. We've reported an overlift through most of the year. Could we please give an update on where we were at the year end and anything we're doing to address the overlift in 2024?

Okay, I'll take that. Most of the overlay major out of that overlift was the fact that we had an arrangement where we are selling crude from Eastern Assets to [ Erafana ] Waltersmith. Now, part of the arrangement that we have is that if the vocational route is compromised and not being used, then we can supply JV crude to Waltersmith and because the TMP have been off for a very long time. For most part of last year, we are supplying JV crude to Waltersmith and receiving the money on behalf of our partner, [ Naim ]. So we are holding that balance. We are currently discussing with them. And when we finalize the arrangement, we're going to move some of this liquidity back to them. And that will certainly reduce the overlap. And that's the major part of the overlap that you have. The rest, usual routine scheduling in terms of listing that you have.

And obviously with the TNP opening up, obviously then the partner doesn't have a supply agreement to Waltersmith, and then we'll be able to export down into the to the TNP.

Okay. Tax on tax. Tax expense was a little lower than expected in '23. Do we have more tax assets? Deferred tax assets for 2024? Sorry. Can we give any guidance on tax expense in the year ahead?

Yes, I'm not in a position. We're not able to give any guidance. However, we'll check and send certificate write up on that.

Okay, thank you. So just moving to the guidance that you've given to the market today, really around production question here from the call. The guidance here was the midpoint is similar to 2023 outturn. There were some disruptions in 2023, particularly in the middle of the year. Could we maybe talk about how much deferment we're factoring in across the assets in 2024? And I'll carry on. There's another very similar question, but could we provide a little bit more guidance on the asset by asset build up in production guidance? The expectations underpin it there.

Okay, Sam?

Okay. Thanks for that. The department that we've applied in 2024 is similar to 2023. What I tried to allude to initially is that there are a lot of opportunities that are coming in, and they are coming in towards the later part of 2024. And if you look at that, that would mean that we will have a closure on the year towards the upper end of our guidance, and then actually a much more improved exit rate. Higher, far higher than what we will have in 2024. The direct translation of that is that we will have a much higher guidance effective in 2025, because that is when all these key opportunities, including ANOH, with the full benefit of ANOH coming on stream, will be seen and felt in our business.

Thank you very much. I think we got one question coming in from the call from the lines here now. Operators, do you think we could go to the caller, please?

Yes, this call is from [ Nikolas Stefanou from REDD ].

Hi, guys, it's Nick from Red. Thank you for taking my questions. I have a couple to ask, if I may. I just want to go back to the production guidance for the year. And I would say this time kind of like looks a bit more conservative than other years. And I just want to understand especially what is going on at the waste assets, because if you are going to drill 9 wells at almost 1341 and production is going to kind of like be the same there. So I just want to understand, what am I missing if there are any sort of declines where in the portfolio. And then another one, production that's on the TMP. So I'm looking at the NNPC's numbers there. It looks like from the [ Bonny ] terminal, the output has pretty much like tripled since maybe 6 months ago. So what is going on with your side of the operations there? Because to a large extent, it seems that a large part of the TNP is actually operational. So what exactly is the problem there? And then a final question on the leverage and then NPNU deal. Can you confirm whether you consolidate NPNU after the transaction and how the covenants will be calculated, including or excluding NPNU and production and financials, et cetera. So thank you.

Okay, maybe I just start with that and then Sam, you can kick in. So in terms of the production, I think the way you think about it, yes, we are pretty active in the west. It's a time of when we're going to bring all those wells in and you're going to see them coming back in second half of the year. So you're not really getting the benefit in the productions. If you look at the sort of export bottoms we're going to see, they will grow towards the back end of the year. But it's just the timing of those wells coming in. With regard to the question you had Nick, on the TMP, and you're right, the lower sections of the TMP have been fixed. So you're starting to see those injectors really getting that volume down into Bonny, which is very, very encouraging. The upper section, zones 6 to 9, and we inject in at zone 6. They've been a lot more problematic and they've taken longer. But as Sam said, we're hydro testing zone 6 at the minute. Well, we're not, obviously the operator is at the minute, but as soon as that's successful, then we're then going to start to inject into zone 6. And we're very encouraged by the lower end of the line, which looks to be working quite well. So it's the timing of when we can get the TMP up and running. We've had to build a lot of conservatism into those sort of estimates. And with regard to MPNU and consolidation. Yes, it will be consolidated. We will own 100% off of the shares of MPNU and be consolidated into our numbers. And therefore, we'll have implications. I mean, it doesn't have implications on existing funding arrangements because obviously, they won't be part of it, be set to be funded, but obviously, we'll have to consolidate up around that. And it's a bit early for us to be able to communicate that because we have not had access to information since 2022. But we have a team ready to go, and as soon as we can get clarity from the government, get the court cases dropped and the arbitration dropped, then we're confident we can get information very quickly on it and update all our models and see what the consolidation looks like.

Okay, great. Thank you very much, Roger. Nik, did that answer your questions? Okay, great. So, Roger, we've got just a couple more here, written questions, and then we're nearly out of time there. Firstly, we've seen a big improvement or setback. Seen a big improvement in the loss factor in 2023. We talked to security improvements on the delta. Could you maybe give a little bit more color around both our, and our partner and the government's efforts to improve security and production and the potential durability of those efforts in restoring production.

I mean, Sam, do you want to come?

Thank you. I think what the major change here is the government has put a good number of security architecture on the pipeline export routes between the east and the west. And this is calling. We've seen reduced, kept and losses on the lines since this security architecture has been put in place. And I will say, coming forward to January, we've actually seen even further improvement in the losses along those lines, especially our AEP, for instance, where we've seen losses in the range of 1% to 2%, which is really a big improvement from what we used to see. So overall, there is security architecture on the lines, and we see consistent improvement going forward. So just to continue to work with the government agencies along those lines. So that is what we do. We continue to influence, because, again, this ties back to the revenue, to the country. Thank you very much.

Thanks, Sam. So we'll take one more question, and then I think we'll hand it back to Roger to close after that, if we haven't addressed your questions, or if you have more, please do not hesitate to get in touch with me in IR. So final question Roger, you know, there's been several transactions announced with the IOCs selling to indigenous partners and now all in the public domain. Could you maybe talk a little bit about how that might give us confidence that our deal or may reach a conclusion is the final question, or how does that sort of change things from your perspective?

Okay, well, first of all, I think our deal is certainly the first one to be annoyed. The sale purchase agreement 2 years ago, it's a very critical transaction for the country. It's not been a secret that the IOCs were really looking to focus their efforts in the deep water in Nigeria and certain aspects, some of the shallow water and some of the IOCs obviously will remain onshore, particularly focused around gas going into LNG, et cetera. So it's not a surprise that divestments are coming. There's 5 really have come to the forefront. I don't think it really changes our transaction necessarily, because each transaction is very specific. I think you can take confidence in the statements from the ministers and everything else that because the IOC is not leaving, they're focusing on the deepwater. There's a definite acceptance within government that these deals need to happen. And the [Technical Difficulty] Because when you're divesting, you're not investing, right. So you're not spending money decline and gas costs decline if you're not continually working them. So I think it's now got to the stage that these deals need to clear. The government understands that and there needs to be a lot of investment in on the onshore. So does it make it any more likely? I don't think it does necessarily make it any more likely than before, other than there's a lot of focus on it and we remain confident with ours specifically that I think we are ready to go. We told government what we're going to do with the blocks and we're very keen to start investing.

Okay, so I think that wraps up the presentation for today. I think 2024, we've laid out some of the stuff we're really looking at. I think there's a lot of catalysts here. I think it'd be an exciting year for the company. Real value creators, a lot of the projects been working on for years. We're very keen and looking forward to getting them complete. And I think Seplat will exit 2024 in a much stronger and a better position. So thanks everyone for listening today and I look forward to talking to at the next presentation. Back to operator. Thank you.