Seplat Energy Plc (SEPL) Earnings Call Transcript & Summary

Hi, ladies and gentlemen, and welcome to Seplat Energy plc Half Year Results 2024. The presentation will commence shortly. [Operator Instructions] I would now like to hand over to James Thompson, Head of Investor Relations, to open the presentation.

Thank you very much, Victoria. Hello, everybody. Good afternoon. Welcome to Seplat Energy's financial results for the first half of 2024. On the call today, we have our CEO, Roger Brown; CFO, Eleanor Adaralegbe; 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, I'd encourage you to take note of the forward-looking statement on Slide 2. And I'll now pass you over to Roger on Slide 4 to start with the overview. Roger, over to you.

Thank you. Good afternoon or good morning, from where you or perhaps good evening. Welcome, everyone, to the 2024 first half results. So, we go on Page 4 or Slide 4. We set out a couple of metrics. Obviously, our first half production is strong at 48,000 to 48,000 barrels of oil equivalent, and that is right in the middle of our guidance, slightly down on last year at 50%. We're maintaining the Q2 2024 core dividend. So, we've committed to $0.12 a year and therefore, we're paying $0.03 a share, which we paid next month. We are looking at adjusted revenue of $477 million, in line with the 6 months of last year, and that's consistent from our operations. And the final one on that slide is looking at adjusted EBITDA. So, our EBITDA is EUR 267 million, ahead of the equivalent period of 2023. It's up 13%, and this is obviously a slow on the back of a strong cost performance. So, the underlying business is robust, is strong, and this is what we've demonstrated in the cost results. If I move now into the next slide, Slide 5. We highlight some strategic growth ambitions that we have. We have some slides at the end to deal with this. But we look at the All-gas project. So, it was a very much a monumental period in the quarter over the first half when we actually had President Tinubu, inaugurate our gas canton May 2024. The Ganagas project is making progress with the sterling, the one that connects it into the newbie B3, which reached for calibration and the newbie. I'll deal with this a little bit later and give you a lot more detail around it, but it is progressing well. And looking at Mobil Producing, the acquisition, we obviously extended the SPA in May. One of the big milestones obviously is the petrol of the carton junction between NNPC and Exxon and up in June. And obviously, we're looking at back to other approvals. And again, I'll get into this in one of the later slides and give you a lot more detail. Under the core business growth, we're seeing really good progress on our breast assets with severity, which was exploration years ago. We're now into production there a little around 3,000 barrels of oil per day gross and sand pickup and some of that. Aviall, which is Mrsool we farmed into the first calls I drilled and we're on the second. And, in terms of the TMP pipeline, which is our Eastern pipeline, that's our operational gains. So, we're now starting to put some Eastern assets production through there. In terms of governance, we announced another Board Director joining us on the first vehicle, Sibiri 1 and 2 And then delighted to see Eleanor, this is our first conference call with a CFO, which she took over on the 21st of May. Final one, there is just in terms of just a separate leading the way in terms of Nigeria and corporates. We are the early adopters of IFRS 1 S1 and S2, and that really is leading the market within Nigeria. So, I will hand over to Sam who will pick up the operational performance.

Thank you very much, Roger. Good morning, good afternoon, everyone for finding a way to join the call. I will run through the operational performance for the first half of 2024. During this period, our aggregate daily working interest production closed at slightly north of 48,000 barrels of oil equivalent, split 64p both liquids and gas. Within the period, we also enjoyed high availability on our export routes to the market, especially the Western asset, with the GLP and AEP, maintaining very strong availability within the first half of the year. Also, we enjoyed significant improvement in the security on the pipelines as well, we had a pipeline loss of 3.1% within the half year period on a consideration. These are consistent improvement in those 2 areas. And what this translated to well is an improvement in the overall deferment at 24%. This is also underscored by the assumption of evacuation via the TNP as Roger highlighted earlier. At the moment, we are stabilizing, and we will get into 24-hour evacuation via the TNP by the end of this quarter. In response to the stakeholder request as well, what we have done at the bottom left chart is to introduce the cost opportunity competing to charts just to ensure that we continuously demonstrate how transparently, how efficient we run the operations. If you look at the first 6 months of this year, our operating cost is at $9.7 per barrel of oil equivalent, a little bit higher than it was in the same period of last year, but much lower than our end year 2023, where we ended $10.4 per barrel of oil equivalent in terms of cost. Just before I leave this slide, it will be nice for me also to highlight that we remain very committed to our upstream projects. We delivered Sibiri 1 and 2 wells within the period, now contributing about 3,000 barrels of oil per day, and we continue to drive our end-of alterative projects to ensure that we still are committed on our emission strategy, as we already guided to a couple of next year in terms of bringing to an end alterative project. If you go to the next slide, on Slide 8, you will see our gas business. So, in the first half of the year, we also averaged located credit gas production of 109 million squares of gas per day with an average realized price of $295,000 scores of gas. This increase is supported by higher domestic gas delivery applications, which is now at $2.42 million DTU compared to $2.18 previously. This new price regime came into effect as of 1st of April this year. And I move to ANOH, as Roger already highlighted, we made significant progress on the ANOH project within this period. We had achieved 97% completion, pre-commissioning work, project to operate activities are on track spur line achieved mechanical completion and OB3 also, we have completed tolin1.1 kilometers of the OB3, remaining 750 meters to be completed while we continue and remain positive to our Fast Gas promises. If we move to the next slide on our CapEx program continues to be on track out well. We've invested $202 million of CapEx in the first half of the year. This is split between $75 million of drilling activities at $26 million or $99 million noncash projects. Our drilling program as well, have witnessed some improvement over this period. And at the end of the half of the year, we've completed 4 wells and 4 additional are advantages of completion as we speak. And we have 5 wells for the last end of third quarter and fourth quarter of this year, with 4 active reads building across our businesses. So, we have a line of sight to delivering the 13-well program that we have for the year. As I highlighted earlier, we continue to make good progress with our end of routine flaring projects, separate our integrated gas plant as the milestone for the second half of this year, and we are on track on that while other product projects like the Sapele and the [indiscernible] projects, the sublet LPG and the [indiscernible] projects are all on track for delivery at their respective new days. At this point, I would just like then to hand over to Eleanor, who will take us through our financial performance. Eleanor, over to you.

Okay. Thank you, Sam, and hello, everyone, and thanks for joining our call. I have about 4 slides that I'll roll with you. So, if you go to the first slide, please. So, this financial performance actually demonstrates the stability of our operational environment. Sam has just run through with you. So, if you look at our adjusted revenues, it's up $477 million. We didn't indeed benefit from favorable oil prices in this first half of the year. When you compare to the same period last year, it's slightly below, but that was mainly due to sort of lower production compared to the prior period. Unit OpEx per BOE are fairly flat compared to prior periods. We do have some cost discipline that we've experienced in this first half of the year, and we believe that, that will continue. Adjusted EBITDA positive, 13% over the same period last year. And then our pretax cash flow from operations also very positive. The second quarter of this period actually have the largest contribution of our pretax cash flow from operations. Again, some of that would have been better if we had the lift in them because the lifting sort of shifted into July. It's showing lower than last year, but a lot of that recovery will happen in the coming quarters. Net debt went up, but then this is after quite a number of things that we paid for in this first half of the year, but compared to last year, not too bad. I'll explain a little bit more in the coming slides. Roger mentioned dividend in line with our policy, our quarterly dividend, we are maintaining that for the shareholders, and we'll be paying that next. In the next month, we'll be paying that, it's $0.03 per share. Two other points to highlight on this slide on ANOH, we are going to draw on an additional debt of $60 million. Again, that will for the completion of the work that we're doing at AGPC. Again, we are in a partnership with NNPC, the NTC. And so, we would be that, the funds are available for us to draw on. And then finally, on this slide, we've amended our RCF. We received all the necessary approvals needed, and we've been able to keep that facility at $350 million. That then gives us the availability to support our post-acquisition on MPNU. Next slide, please. So, the next slide is a bit more detail on the profit statement and showing the comparators in a bit more detail. And you can see the point around the old price that we benefited from, again. Oil revenue was lower again because of the liftings, partially offset by the higher oil prices. Gas revenue dipped a little bit because our volumes dropped, but obviously, we had better gas prices, as Sam had mentioned in his presentation. Lower cost of sales, we had lower costs in our food handling and some adjustments on royalties. And then we did come lower on G&A, again, the same period last year, we had a lot more costs on legal and professional fees. And so, probably lower on G&A. Again, adjusting for the under lift in this period, we had 849,000 barrels of oil that we didn't manage to let at the end of the first half, which is not unexpected to have the lift in shift period-on-period. Again, our goal is to try and have that done at the end of the quarters that we are reporting. We also reflected an exchange rate gain. Again, that's really an accounting adjustment, reversing some of the losses we reported in, in prior period, mostly from revaluation of our working capital, mostly the liabilities. So, net finance costs fairly flat compared to last period. We did see a higher tax expense. And what we were showing this period is an effective tax rate of 72% and that really is the major reason why you see sort of the profit after tax lower than where we were last year. So, we did end the period of $50 million, which translates to about $0.07 earnings per share. On the CapEx side, yes, we've spent about half of our expected CapEx for the period. So, we will likely be at the higher end of our CapEx guidance. And I already talked about the customer from operations. Next slide, please. Okay. So, a little bit more on our cash flow waterfall. So, we started the year with $450 million, generated cash flow from operations of NOK 226 million. This period, there's quite some heavy linked in on our cash and some of what we will not see in the second half of the year, but we sufficiently had enough funds to settle our capital investments again. We typically wouldn't be funding our CapEx with our cash flow from operations. And then we had some tax payments as well. Again, that's also weighted heavily in the first half. You can see the benefits of LTI and dividend that we paid. And in spite of all that, we still ended with a positive cash at $372 million, and this is a slide of the devaluation. Recall that we had Naira value at a charge of AUD 900 per dollar at the end of last year. And now it's sort of close to 1,500. We're doing well to sort of manage on naira going forward. But the impact of that is what you're seen on this cash flow waterfall. Next slide, please. So, this slide is just highlighting our balance sheet, which remains strong. Gross debt at $737 million. Again, that went down from the same period last year. We've settled some of our debt obligations. Our RBR, we've started to amortize that. And in spite of that, gross cash came in lower than sort of where we were at the end of last year. So, net debt at EUR 366 million again, I talked about the fact that we did have quite a number of cash payments that we settled in this first half. But a net debt to EBITDA is still very strong, way below our corporate policy and also very much lower than our debt covenants. So, the final thing on this slide is really to sort of fresh read to rate the point, spoken earlier around the RCF. We did get that RCF back up to 350 million this month of July. So, promised to the period end, but that just gives us the flexibility with our upcoming transactions. So, our total liquidity is really at $722 million. It was at $605 million at the end of June. The hedging, we've always hedged our accrued between 60% and about 80% of our accrued we hedge, and it's deferred premium puts. And you can see the strike prices and the volumes that we've hedged for the third and the fourth quarter. Next slide, please. Thank you. I'm going to hand back to Roger.

Thanks, Eleanor. So, let me just wrap up this presentation. So, in the next slide, we presented this before so, this is an update of where we are on the growth opportunities. I'm going to deal with an acquisition of mobile in the next slide after this one. So, just wrap up the other 4. ANOH, I think we've covered it in previous slides. Sam certainly gave us an update on where we are. And the critical thing is the OB3 crossing on that one, which is a pipeline, obviously being done with our partner, NNPC. I think we're through the difficult section of it, and it's not coming back up towards the other side of the numbers. So, it looks like there's good progress, but they're taken NPCs taking its time, rightly so, and we see that being completed next month. So, that's ANOH fast gas on Q3 2024. We'll see the impact that we've said before, we should be looking at steady state dividends of over EUR 30 million a year and quite a material item income back up to the upstream to the wet gas sales, which would probably be in excess of GBP 1 million on an annual basis. It's very, very fair material for us and we're looking forward to getting first gas and operations. We talked about the Elcrest around about 40%. What it does do is, it just extends the 2 operations there today and the infrastructure in place is to be able to produce from the [indiscernible]. So, first oil for Aviara G3, and we're on track for that severe. We actually hit first oil in Q1. So, it's really about getting in the steady state. Sapele gas plants, again, this year's gas plant and getting an operational into well, second half of this year into Q4. And what that will give us is a very long-term monetization of the Sapele gas reserves which will then mean once this operational and one's operation, we will have in our GBP 850 million so a day on process. It's very material for us. Next slide. Let me talk about mobile as much as we can talk about it. So, let's give an update. I mean, obviously, what's the latest has been the core case challenge between NNPC and Exxon that was removed in June. And obviously, now all parties are trying to get a fast-track closure of this. It is positive progress. There're some critical actions we're taking at the minute. The first one is the rectory approvals. So, we have 2 main regulators to deal with, which is the FCCPC, which is the competition commission, and that's what we can antitrust, and we need to clear that first before we can then really start to accelerate quickly. And then we have the NPRC approvals, which is the upstream regulator, and those processes are happening. That process is underway admitted there. So, we're hoping to clear the director approvals in the coming months. And then we actually have 2 other real men steps here, which is a deal the third one for us, which is the U.K. process. So, obviously, we need to go through the FCA because this is a reverse takeover. We don't see that business to be a complicated process, but there is a time line to it and should go in line with the breaker approvals under one. And then on the #2 there, which is operational readiness, this is getting ready to take to over mobile producing. And, of course, that's the bit we're talking about that we need to accelerate, but obviously, we need to get competition commission preapproval for us. In terms of the acquisition itself, just to refresh our minds, EUR 1.283 billion acquisition plus the EUR 300 million contingent element to it, there is an effective date adjustment from 1st of January 2021. And so, obviously, that then reduces the new world purchase consideration. And we paid on a $28 million deposit, and that it's ready to be implied. So, our focus then is obviously going to be beyond the steps I've highlighted is obviously in the capital for and getting the deal closed this year. So, we're looking forward to it. We've made some good progress. We all want to make it faster than they are, but I think we are really positive from what we've achieved so well. So, let me just wrap up the final slide, and it's really looking at the guidance and priorities. So, obviously, we've talked about mobile, an and Sapele. Sam's talked about the 13 wells, and we're confident that with the rigs we have in place the mine delivers the 13 wells in support production. We've committed to end of reaching faring projects by the second half next year. And therefore, this year and early into next year, we're going to deliver a number of key flows like projects at Sapele and GCK. And they're on track, we're confident we'll lose. In terms of their fiscal strength, Eleanor has talked about this, is really focused on ensuring the balance sheet is strong, with the cash to make the acquisition. Looking at G&A costs and really looking to drive down not just rate operating costs as well and then continue the dividend. And obviously, the dividend has some restrictions with the Eurobond we have. And at some point, in the future, we will be obviously looking at refinancing offices around the Eurobond. But in fact, in the short term, we're paying while up core dividend, and then we have the ability to top up with the special dividend. In terms of the governance, we will be going back to some shareholders during this quarter, looking at a secure survey as we're doing it, not just investors, but communities, government, et cetera. Final one is on the guidance items to refresh the memory, so, we are at 48.4% at the minute, right, in the middle of the guidance, and we maintain that guidance. CapEx, we are on track for EUR 170 million to 200 million. And then operating costs, we're in the $9.5 million to 1.5 million were 9.7% million. We're confident we will maintain that. So, here ends is the H1 2024 slide presentation. So, I'll hand it back to the operator for Q&A.

[Operator Instructions] We'll take our first question from Nikhil Bhat from JPMorgan.

I have a couple. First one for Roger. Just how long do you expect it to take you to complete the transaction with MPNU once you receive the regulatory approvals? Just a rough sense of an expected time line would be really helpful. And then one for Eleanor. Welcome, and thank you for your presentation. Question for you would be, do you intend to refinance the 2026 Eurobond and pay down the RCF soon after the acquisition completes or how are you thinking about the capital structure post the acquisition?

Okay. Well, I'll kick off the first one. So, look, we can run none of the actions in parallel. So, post the retry approvals, and we do believe that they will be on a fast track basis. So, not setting out exactly when we think that's going to be done. But we probably want a couple of months more than that. I would have thought we would be ready to take ownership. I want to be reiterating we have to pay a Competition Commission approval. So, we don't want to sort of second guess any of that upfront, but that actually will give you a steer.

Okay. So, on the Eurobond, yes, we do have plans to refinance the Eurobond again. We are working with our board to put forward a plan and a proposal. And so, we are looking at doing this in the beginning of next year, and we will sort of share more on this once we have all that concluded. Thank you.

We will now take our next question from Nikolas Stefanou from RenCap.

It's Nick from RenCap. I've got a couple first on ANOH then one on the West assets. So, I want to ask, what's going to be the evacuation kind of like exit for the condensates from HEPC? Are you going to take them to the refinery? Are you expecting this part like to be vague that you can use the TNT? That's the first question on ANOH. And the second one is, what's the reason you had to tap the extra EUR 60 million on the project financing? I remember a couple of years ago, you, kind of like lowered the cost on that project. Have there been any kind of like post barns that required you to could as more debt there? And then the other one on the West assets, so have you had this narrative for a number of years that the West assets are constrained by the casters in reliability? And now this doesn't seem to be the case anymore with the AEP. So, what's the kind of like longer-term outlook there? Are you, kind of like look to accelerate oil like drilling there more and potentially increase production in the next few years? So, I just want to kind of like get a sense of where production could be like from the oil side is assets.

Let me kick off on the first one, Eleanor you can do with project financing and Sam, do you want to deal with the final question. So, look at the options. Obviously, the TNP has been problematic for us. We're up and it's up and running now. I think everyone has been very cautious at the mid which is late opt daylight hours. But we're confident during this quarter, it's going to go into 24/7 operations. What we've done at the gas plant is, that's one option, obviously with the TMP that's our main option at the minute. We have loading facilities there, so we can actually track them, there's a new road we hedged towards Hardcourt. So, we can actually, as a backup is truck as well and barge volumes there. Also, we're working out routing into the brass line. So, it gives us another option there. And then longer term, there's been a lot of discussions around potentially the sort of called it refinery at the plant itself. I would say that, that has got some work to do, right? But I just like that as a potential for the future to ensure that we have real solidity in terms of monetizing the volumes coming out of this element.

Yes. So, Nick, thank you. Initially, when we presented the project cost for now, we have built in a 10% contingency. And bearing in mind that there's been a number of days on this project, I think we've actually managed to keep the cost control. So, this additional accordion is part of what we need to get to completion.

Thanks, Nick, again. And then your question on the Western asset. Yes, you're absolutely correct. So, in essence, it's around making sure that the security and the availability of both export tools are continuously viewed and improve on, as you can see in the first half of this year. So, that is the primary focus in terms of evacuation. We're also trying to build some redundancies within the asset themselves through some Boe tanks installation. That provides us with the flexibility and redundancy to continuously maximize production out of the Western asset. Now, in terms of continuous looking into the future, the Western asset in this lead life, what we also try to do is to ensure that we are a decline through building of new wells within the asset. And those are the key focus for us going forward.

And can I ask one follow-up. That's probably for Eleanor. On the tax situation, what should we expect cash tax to be going forward? It looks like there's a bit of kind of like step up from last year because of Elcrest. Should we assume kind of like a more like permanent tax rate going forward?

Yes. So, thanks, Nick. You picked it up really. So if you look at what we reported on taxes, this period, cash tax is going to be about half of what we've shown. And we expect the effective tax rate to be around the same levels that we have now to the end of the year. But cash taxes will be very similar to sort of what we had at the end of last year. Again, with these oil prices, it would probably be retained at about the same levels.

Okay. And to confirm that there is no any sort of like tax synergies if you complete the MPNU transaction because in ringfence, right?