Seplat Energy Plc (SEPL) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Seplat Energy Plc Investor Call. The presentation will commence shortly. [Operator Instructions] If you have joined us via Zoom, please note this call is being live streamed to a webcast for a wider audience and will be recorded. [Operator Instructions] I would now like to hand the call over to James Thompson, Head of Investor Relations, to open the presentation.

Good day, ladies and gentlemen. Thank you very much for joining today's call to discuss the completion of the acquisition of MPNU. Today's presentation will be given by our CEO, Roger Brown; CFO, Eleanor Adaralegbe; and our COO, Samson Ezugworie. I'm also delighted that joining us today for this call from MPNU is the MD, Mr. [indiscernible]; and a Director of Production, [indiscernible]. After the presentation, we will have plenty of time to answer your questions. I draw your attention to the disclaimer on the forward-looking statements, which is at the back of the presentation. And without further ado, I'll hand you over to our CEO, Mr. Roger Brown. Roger, please go ahead.

Hello, everyone, and good afternoon. I guess before we dive into the detail of the slide deck, I would like to start by how delighted we are to have this transaction complete. I want to thank to shareholders, a lot of them on this call for your patience waiting for this truly transformational transaction. I also want to thank Seplat staff who have worked tirelessly over the years to get this deal with a line. It's a very complex transaction, and I'm really proud to be able to execute it. And then last one I want to welcome the Mobil staff that come across, obviously, now becoming Seplat Energy staff as of today. You're very welcome to Seplat Group, and we're delighted to have you on board. So if we turn now to the first slide, which is just setting the scene with regard to Nigeria's leading independent E&P. Looking at the transaction and it is a scalable transaction and it complements our existing business, which is obviously an onshore business. This obviously brings the shallow water offshore, which is a closed-loop system, all the infrastructure we need, almost minimal reliance on third parties. And I think this is really going to transform our opportunity. So it's 40% working interest in 4 of the prolific blocks. In terms of what we paid Exxon in total, it's a cash consideration of $800 million, [ $120 ] million has already been paid. And therefore, today, we transferred $672 million in completion. We've added 409 million barrels of oil equivalent, have a high quality. And when I say high quality, this is world-class base quality and reserves and a very attractive multiple. EV/2P of $2 of BOE. And in fact, if you add in the 2C as well, it's $1.2 of BOE. And so these are really very competitive moat. It's a liquid-rich asset, and we add today 71,000 barrels of oil equivalent of liquids and a competitive cost of around $11,000 per flowing barrel per day. If you then look at the balance sheet itself, and then Eleanor will go into some detail. The balance sheet has been pivotally managed as we always do at Seplat. And it really is not changing in terms of the EBITDA multiples around this -- net debt-to-EBITDA multiples. If you look at the right-hand side, you can see the scale here. So it is moving revenue up by almost 200% and pretax operating cash flow by 210%. So this is a very big scalable leap for us as a company. Massive organic opportunities and the potential to unlock greater than 1 billion barrels of resource base. If I turn to the next slide, we will just give you a snapshot of what we bought. And going to slide to change, okay. And you can see here, now Sam will run through this in his section, but we have now added 4 additional blocks. We were now 11 blocks in Nigeria, 8 of which are operated and a 2P 2C of over 1.2 billion barrels for the group. Very much a big increase in producing oil and gas fields. We bring along additional gas processing facilities. And also, we are bringing something new into Seplat Group, which is operated export terminals, which I think will be very much transformation. So Sam will go through with his section, I will move on to the next slide. And let's look at the step change in scale. Look at the key metrics. So we're giving you 4 here in production reserves, revenue and cash generation. And you can see it's 2.6x on -- in terms of production, 1.9 on reserves and then the 3x on revenue and cash generation. So it really is a scalable, and this is the existing business. This is not post the investment that we plan to make which will grow it even further. If I go into the value proposition. And again, Eleanor will run through a lot of this in her section. So I'll just summarize it here. But looking at our 2P reserves, I think there's a slight delay in the slides, apologies for this. But if you look at then in terms of the 2P reserves, with 2C upside, Seplat now against the peer group has moved up quite significantly with the pro forma of 887 2P reserves. And looking at reserves per share itself, and this is very important for investors. And you can see now that your 2P BOE per share has gone up almost 100%. And -- so it's almost gone 0.81 to 1.51. If I look at the production levels, we're reporting in excess of 120,000 barrels of oil equivalent production. And then look at the production per share BOE per share, and again, it's going from 0.03 to 0.08. So it's an uplift of 167%. But this is for the same -- there's no equity here, but this is adding these additional reserves and production per share basis to investors. Into the next slide, the MPNU's strategic benefits, we listed 5, there are more than 5. But let's just summarize then. Scale. But as we said before, this is a world-class basin, high-quality assets and we're adding an operated shallow water assets, so we operate this in a complete all infrastructures there. And this will -- you can see, generates significant cash flow at the current production levels, which we expect to grow. Second one is leadership. So Seplat always wants to lead in the front, and this has now stepped up in terms of our position as the leading indigenous energy company. And in fact, what's going to happen in Nigeria is obviously the major oil companies are going to get smaller and likes of Seplat now after this, it's got bigger. And so the dominant independent company within Nigeria. Growth. This would be short term, medium term and long term growth potential. So in the near term, we're looking at obviously short-term oil gains, et cetera, and looking at the gas solutions. Medium term is there's a massive gas potential here. We can build a very long-term gas business as we've done at Seplat Energy. So the growth is very material. In terms of portfolio diversification, yes, it's shallow water offshore, which is diversification itself. But actually, there's a 31 additional producing fields here. And Sam will run through the scale of that. But a broader thing it does is it derisks services somewhat, not wholly relying on an onshore production base. We now have a shallow water offshore production base, which has higher uptime than the onshore. And the last 1 is the resilient infrastructure. Having an ability to control pipelines, terminals, wellheads. All the bits of the chain really allows us to grow this in a very, very risk controlled way. Next slide. Setting the scene in terms of the giant oil and gas accumulations. So since 1970, there's been about 7 billion barrels produced. And this is a massive opportunity. I think it's comparable to the 40s, the North Sea, as Sverdrup in Norway. This is the sort of scale we're looking at here. We've got 12 of the 31 developed fields have produced over 250 million barrels. We think EBIT almost 1 million barrels. So lots of producing fields, lots of developed, all the infrastructure there. And again, will that meet us mix and investments. But actually, there is a potential upside, and we're probably halfway to think in terms of the real scale here. And if you look at it on the right-hand side, you can see that, do we have a CPR as part of the prospectus, that's a requirement. But we've picked up in what WoodMac's carrying here in terms of the estimates. And you can see that they're estimating on a JV basis of 0.4 billion barrels or equivalent 1.5 billion of that is liquids, and the 2.5 billion is gas. So a lot of massive accumulations, massive upside potential. I go on to the next slide and zeroing in. I think on area that Seplat has gotten so known for it's natural gas. And looking at what we have today, there's been somewhere between 80 million to 120 million scuffs of gas sold here. And with these gas resources, and the gas production data basis capability, there are multiple gas solutions here, whether it be onshore, domestic, will it be LNG, floating LNG and other places. This is something we'll be working on. So when you look at the CPR, which is looking at 3.2 Tcf of 2C, we believe it's much, much better than that. And if you -- again, we reference what WoodMac carries which are estimating over 14 Tcf of gas. So the gas play is something that we've been working with the Mobil team to really -- to categorize that and actually look at the various gas monetization sufficient. So I'm going to hand across to Sam, who's going to deal with the world-class asset base.

Thank you very much, Roger. Good morning, good afternoon, good evening, depending on where you are joining us from. I will now cover the asset dimensions. Imperatives and implications for our business. And I will end with an outlook for weak production enhancement and growth opportunities as we plan them today. So on the next slide, please. I would like to share with you the scale of these assets. First of all, I would like to underscore that this is a world-class asset of our acquirers. And if I already was from [ IK ] and [indiscernible] from Exxon, the message is we produced about 7 billion barrels of oil to date. And the other message is that we still have as much in the ground as we have produced. So this is indeed a world-class asset. And with the operatorship of these 4 blocksboxes, a complete and integrated asset and infrastructure, comprising of over 120 facilities, 200-plus producing wells and I will underscore 200-plus proposing wells because we did the asset, we have over 600 wells drilled to date, and I'll come back to that. We have over 1,500 kilometers of pipeline and production as at end of 2023, working interest is 76,000 barrels of oil equivalent combined to B2C of 270 million barrels. What is also coming and very important in this acquisition are the 3 terminals, the [indiscernible] terminal, the [indiscernible] and the [indiscernible]. And at this point, I would also like to underscore a very important point, because Roger was alluding to it. This offers us a close loop infrastructure system and gives Seplat complete control from where it had in the exports. This initial provides us some resilience and assurance of our product to the markets. If I go to the next slide. I will then, at this point, deepen the operational imperatives that we have now been the operator of the entire system end to end. We now have control of the end to end look in digital infrastructure system. And there are a few points to highlight. Viable terminal, which is common with these assets, with Nigeria's preeminent terminal with significant capacity of 600,000 barrels per day, which is sufficient to absorb future growth and loss of storage capacity. The storage capacity comes in handy as well in terms of outages, first that it becomes very crucial to assurance and resilience of our production. Another very point to note at this point is that this infrastructure is 23 miles offshore, which is not a very important positive dynamic in terms of security and assurance of our production. So with these assets, you can then see why it becomes very important for going into the future, which is going to be much brighter. I will go to the next slide, and then talk to you about the stock office, reservoir characteristics and then the production performance. From here, you can see that the subsurface is great, world-class operational in terms of reservoir quality, positive capabilities are very good. The crude quality is also live to it with low meta content. And this makes it a high demand globally. Products has also been very resilient since 2021 effective date with only 6% decline. And this, I would like to underscore, that this is despite the limited capital investment by Exxon over the transition period without replacement is at 63%. So if you sum all these parameters, you'll see that we have a very highly resource base, leading us into the future. I would like to spend some good time in the next slide, which is now looking at what our future plans do quickly advance production and grow these assets. And I would like to state upfront that we have very -- 2 very competitive advantages that filing with this asset and acquisition. First is the people. And second is the resources that would ensure that we boost production in the short to mid-term. And if I start with the resources, as I mentioned earlier, we have well over 600 wells drilled in these assets. And currently, you have a bit of over 200 of this wells producing. This implies that we have hundreds and I mean hundreds of idle well shutting at the moment. So if I just hold it that, the second competitive advantage is the people. We have well over 500 Exxon staff coming across to Seplat as part of this deal. And these individuals have technically matured these opportunities, but could not execute that due to exhaust capital allocation framework during the transition period. We have now run these opportunities in terms of the production impact and is execution in the short term, and we will be focusing our efforts in boosting our production to short-term rigless opportunities and bringing some of these idle wells that are still produceable back into production. So in 2025, we will focus on this high impact production restoration activities, which in itself are going to be very tire-efficient because they are going to be tax-efficient OpEx activity that will be delivered and Eleanor will deal more and talk more about these type benefits as our strategy in the short term in her presentation. Then in 2026, we will commence the execution of the CapEx drilling activities and further wind activities and the time frame is to offer our sufficient time for contracting [indiscernible]. So at the same time, we will be focusing on cash development as Roger highlighted. This is like Seplat's bread and butter because we have demonstrated over the years in history, but we are able to transform gas business in Nigeria through our leading operations in domestic gas operations in the Western as of the moment,being able to produce about 30% of domestic gas needs for the country and powering the country. So at this point, I hope I've given you some bit of flavor of the short-term plan that we have to push production. And at this point, I will hand over to Eleanor to take us through the financial aspects of this transaction. So Eleanor over to you.

Yes. Thank you very much, Sam. And hello, everyone, and thank you for listening in on our call today. Actually, we're very pleased that we've now gotten to this point where we can actually speak to you about this very accretive opportunity that brings incremental growth to our company. So transformational and extremely exciting. I'm going to start with my first slide and talk about the transaction very briefly. So we signed a sale and purchase agreement for the entire shallow water assets of MPNU for $1.283 billion, along with a contingent consideration of $300 million with conditions that were premised on both production volumes and also oil price. Now this transaction was backdated to the first of January 2021, and therefore, a lockbox arrangement was agreed to recognize certain adjustments and also provide for the net cash that we generated by the business until the completion. At the time that we signed the SPA, we did pay 10% of the purchase price of $128 million. And at the -- we did that at signing. And today, we have now settled and paid to Exxon on $672 million, bringing the total cash consideration at close to around $800 million. I'm going to speak a little bit about the contingent consideration. Now the effective date of that contingent consideration is the first of January 2022. Included in this final payment that we've made is $43 million out of the $300 million. Now the way to think about this is because it's premised on both production and oil price, it's going to be a function of that. Now we are going to be settling for 2024 full year, in 2025. The third year, we don't expect that the value of the contingent consideration for that third year will be any more than what we've paid for year 2, which is around $18 million, and it may be less. Now we have 2 years left of the contingent consideration that may be payable in 2026 and 2027, depending again on the oil price. Now of course, if the oil price is significantly above where it is today, then it's going to be a win-win because we benefit from positive oil price. I'll speak a little bit about the deferred amount. If you look at the chart, we're showing that there is also a deferred amount of around $257 million. Again, that's one of the -- we've agreed that with Exxon, it's deferred to December 2025. The way to think about this is these deferred payments are really cost that we've incurred in the normal course of business. So they are joint venture costs. The bulk of those costs are really tied to employee costs and also environmental costs. And therefore, they will be partially offset by the JV cash goals because the government is our 60% JV partner on this. So most of that will be partially offset by cash flows. The other bit, which will be the 40% working interest share of the MPNU, which is 40%, if you consider the after-tax impact potentially, we expect or we've estimated that the after-tax impact would be around $25 million to $35 million. Now before I get off this slide, I just want to highlight 2 other key points about the cash consideration and also the cost of this asset. Now at the cash conservation of $800 million is really below the full year EBITDA numbers of 2023, which was around $1.3 billion. So again, when you think about the cost of the deal and consider what the EBITDA numbers have been, that sort of gives you a sense of how positive or how competitive this transaction is. Another point to raise, and Roger mentioned that earlier, is really the EV to 2P at $2.9 per BOE from 2021 when we're considering the 2P reserves of 445 million barrels of oil equivalent. But considering the cash consideration today, it's around $2 per BOE on an EV basis. Now if I move to the next slide, I'll talk a little bit about the financing of the transaction. We secured a $300 million advanced payment facility. It's a 3-year advanced payment facility with ExxonMobil trading. Now what's really good about this is that the terms of that facility is very much in line with what we have on our RCF, which is plus 5%. We've now fully drawn and paid to Exxon the $350 million RCF that we had, was the balance, which is around $22 million cash. We've taken that from our existing cash reserves. If you recall, when we closed our books for 9 months, when we reported our results in October, we closed with around over $400 million in cash. So part of our cash, just $22 million of our cash has then gone to complete the cash consideration for this transaction. I think important to highlight, and Roger mentioned that as well earlier, is that we did not have to issue any new equity for this transaction. And if you think about that, what's really the balance sheet looking like. So this transaction further strengthens our statement of financial position. On a pro forma basis, we're still well within our net debt-to-EBITDA numbers. If you look at the table on the bottom right of the slide, you'll see that on a pro forma basis, as of 6 months 2024, and this information we included in our prospectus, which we shared just 2 days ago, we are around 0.7x net debt to EBITDA. On our bond covenants, we have the ability to get up to 3x net debt to EBITDA. So again, we're well within the range of our bond covenants. I think the next steps will really be that we are considering the bond refinancing to our bond will become current in April of 2025. Again, it expires in 2026, it will become current in 2025. And so we'll have an opportunity again to enhance the flexibility and then provide more information around our future capital, how we're going to deploy our capital for the business. Now I think this slide is really important because when you look at our debt structure. Our debt structure is still -- it sort of gives a sense that we're still in a no leverage space, and we do have the opportunities to still grow that. Now moving on to the next slide. I really like this slide and some of the comments on the next slide, Roger sort of spoke a little bit around that, and it's about the multiples from the existing business that Seplat has to what the pro forma business is looking like and revenue times 3, pretax cash flow cash flow from operations, times 3, adjusted EBITDA more than 4x. And this is both -- we're looking at the numbers in 2023, and it's very similar to the numbers as of 6 months. Now when you look at the post-tax cash flow from operations, we do observe that on a pro forma basis, we're seeing the growth at just 1.3x. And obviously, this speaks to the fact that there's been huge tax payments or very huge tax payments on the MPNU side. And that's really arising from the fact that there's been minimal investment in the past years. And so without building capital allowances, there hasn't really been much of a tax shield. But this is really where the opportunity lies, and I'm going to pull 2 levers here. The first 1 is picking up from what Sam was describing about the high-impact intervention, the short-term oil opportunities, rigless opportunities a lot of low-risk opportunities that are available here from a cash -- a very high cash-generative business means that Seplat wants to come into this and invest quite quickly. When you think about what we're doing in our existing business, and if you look at -- I'm going to be showing you some details around the CapEx investments over the past few years, but we've been doing around $150 million, $160 million annually in CapEx investments in 2024. We have an opportunity to invest almost $200 million. And if we're doing that, in our existing business. And if the scale -- if you consider the scale of this business that we've just acquired, is more than 2x what we have there. That tells you that we plan to scale up those investments, not just in CapEx but also in OpEx because of opportunities for workovers. And there have been some capital -- sorry, operating expenditures that have occurred in this business. I think another thing to sort of rule out very quickly is if you follow the Seplat story, you'll see that we've been sharing effective tax rates. But on a cash basis, our taxes have been around 27%, while on the MPNU side, it's been very close to the 85% tax because it's under the PPT regime. Again, just to emphasize, we do operate with the same fiscal. So we haven't yet converted to PIA, but we're in a very good place. We've made a lot of progress along with our JV partners, at least last year, we executed a PIA conversion contracts, and we're now in the final stages with the support from NUPRC. We've reached an alignment which is really the last piece on the acreage delegation. And for MPNU, the intention is to actually work with the government to try and do that conversion to PIA. But in spite of that or even with that, because like Sam had said, in 2025, there's some really exciting opportunities and some of these are going to help with the tax shield in 2025. Going to the next slide very quickly because I spent quite a bit of time on that slide. It's just to reiterate the value of this asset being very competitive, and that slide shows how we compare with our peers. And we've taken some acquisitions that have been over $1 billion, and you can see where Seplat sits, very positive, very good rates at $2 per BOE. I'm going to jump to the next slide and this slide, I'll end with. And I think what's most exciting about this deal, I mean, Sam talked about the production for that business. And if you look at the last 3 years, you'd see that there has been a decline. But when you think about the minimal CapEx that's been incurred, despite that, the production has been fairly strong. And obviously, there's been production OpEx has been sustained to preserve value and also maintain the assets considering that this is an international oil company that's very focused on safety, very focused on asset integrity. And so we are going to build on that. And maybe the final thing to say just on this slide is the 3 key things, and Sam talked about the quality of the crude, and that quality of crude is what's allowing the sale at a premium to happen. So this asset is selling the crude at a premium to data brand, which is positive. I talked about the fact that production OpEx is stable. But more than anything is even though you look at the CapEx and you see that compared to what Seplat's been doing is very minimal, that's now about to change. It's the focus on the future. We're very excited about this transaction. And in the same way that we've approached asset investments in Nigeria, we plan to continue with that model with this transaction. So on that note, I'll hand back to Roger to summarize. Thank you.

Okay. Thank you. Next slide, please. Okay. So let me just wrap up here on the slide deck. So the point I want to make here is this what's made Seplat what it is today. It's a track record of success. It's models built on buying assets from international oil companies and really working and it's been very successful. We have maximized the value of resources. We've been very conservative to the balance sheet and managing that focusing on cash flow and growth around that and then rewarding shareholders. And you can see it summarized on this page in terms of the dividends. There's no difference here. And what we have here is an even bigger opportunity for us to do all of this and a very motivated workforce that's come across that has been sitting with these blocks for quite a number of years. But with the shareholder that is fighting for capital around the world and doesn't value these reserves as much as a company that Seplat builds. So this is how we've been successful today, and it's not going to change. We will continue to do that. In the next slide, and you can see what we've done with our existing assets, we've grown in terms of invested CapEx. That's why we have a 27% effective tax rate. We've grown production. We've been active with the drill bit. And we've been maximizing the importance here, which is in June at supply chain, very critical working with the Nigerian suppliers around that. And I think this is exactly what we will continue to do, with a much, much bigger portfolio and a very capable staff. I look into the next slide. What are the priorities for -- well, '24 is pretty much over. So what are priorities for '25 and onwards? Well, again, Obviously, there's staff from across. We've committed to new job losses around that, very important. And really, our expenditure is going to be in a number of areas. One is, of course, we're going to have to do maintenance integrity work in a very systematic measured way for these assets. At the same time, I was looking at the short-term oil gains, what you call the low-hanging fruits, there's a lot of it. And if you look at your cash taxes you'd be paying, there's plenty cash here, okay? And we will get -- as Eleanor said, we will get a tax shield around that. So when you start investing, that 85% effective tax rate, which we have today with Exxon assets coming across, that will trend down to where Seplat is over time onto the PIA regime. And of course, we're going to work towards trying to get this under PIA terms as well and a government that is very much supportive of the PIA. So we can make some headway there. But in the meantime, the short-term oil gains can be offset against tax. We then to look at ESG and look at the -- getting rid of routine flares, which we will do here and then look at sort of longer-term growth, whether it be infill drilling, monetizing the gas. And exploration is a potential well into the future. And the outlook, obviously, our next reporting is going to be in the annual results at the end of February, and then we'll be doing a Capital Markets Day, we'll be able to go into a lot more detail here. So if I go to the last slide, just to wrap up. In a summary before we go to questions. So it's value-enhancing day 1, range of ways we can ramp up. And you can look at all the metrics, they're all very compelling, a number of organic growth opportunities to unlock this top quality world-class basin, high uptime. So we're confident that when we get up production, we can then monetize it and in close net system, where we control the terminal, we could -- we've got an FPSO. We've got control in the liftings. And 1 of the things that's practice, of course, is having Exxon continue to lift the oil. The multiples on -- you'll figure it yourself, but in terms of the acquisition cost, we believe this is the lowest -- sort of lowest in the world on multiple basis. Cash generation, I think we're clear here. And the tax efficiency will return that cash to the bottom line, and allow us to then to the increased dividends, et cetera. Our balance sheet is very conservative post transaction. The net debt-to-EBITDA ratio is low. And then leadership, it's important to continue to lead from the front and this is really cement Seplat as being a key player within Nigeria. At scalable, you see on London, the size will be in London, and an opportunity to grow well into the future. So thank you very much for listening. Now I'm going to hand it back to the operator for Q&A. Thank you.

[Operator Instructions] We'll take our first question from Nikolas Stefanou from REDD.

Congratulations on the transaction. That's quite a milestone. And it took a bit of time, but your persistence was short at the end of the day. So I've got 3 questions to ask. I guess all of them are difficult. Roger, I mean, one thing I was kind of like taking back was that I look at the CPR valuation. And would I notice that the 2P reserves are valued just kind of like over $0.5 billion. And I'm just wondering, I mean, how can you justify paying such a high premium compared to that number? But I presume part of it is maybe the engineering sources part, we can talk a bit about that. That's the first question. And then the second, I just want to get an understanding basically on what is the process and maybe kind of like unexpected timing for license to convert to PIA terms. I mean this PPI became low, I think it was like 3 years ago, and it's just maybe a couple of license have been converted so far. So I just want to understand the steps towards reaching that -- but the cost risk at trends because they're going to be quite more attractive than current terms. And then the final question is, I think in the past, you had said that this would be a self-funded development in terms of future investment within MPNU. I look at the CPR and comes like -- it seems that just for the 2P reserves, gross CapEx over 10 years will be around $3 billion. That doesn't -- I mean, that's not really kind of like a number that I believe can just be paid without maybe further contributions from the rest of the business. So is that still the case? Or are you kind of like thinking of maybe having other sort of like sources of funding there?

Okay. Thanks, Nikolas. Well, I'll do 1 in 3, and then Eleanor can do with the PIA. So in terms of the CPR itself, it's part of the restrictions on tax, so the acquisition of this nature is CPR. So our view of CPR has been obviously an independent report. Our view is, first of all, it has quite a lot of CapEx through there, but the effective tax rate through the life of it is by 85%. So there is no -- there's a spend in CapEx, but there's no corresponding reduction in effective tax rate. And we don't believe that's the case. And if you look at Seplat, obviously, you get capital allowances, your workover activity can be expensed in the year. So I think what will happen is once you -- once we get an opportunity to come out subsequently and show that tax shield and the planned development plans. I think the starting point in terms of production was as is, right? And I think even today, production is higher than projected and then it's declining. So I think it's a combination of all that. We don't think it reflects all the reserves here. So unfortunately, when you look at them on a valuation basis, if you're running 85% tax around this on the valuation, then you're going to see these numbers. We don't see it that way at all. And I think also the -- I think the decommissioning abandonment number was almost 2x over what NNPC and Exxon assuming through quite a detailed study. Those limitations, I won't make any more apologies than that. There's a limitation to do that, but we look to see at these the same way. Eleanor, do you want to do PIA?

Yes, very quickly. Thanks, Nik, for the question. So you're right, there has been a process because the opportunity for PIA conversion came up when they act when the act came up back in 2021. But we have now gone through a conversion process and along with our JV partners, we have completed the application and indicated that we obviously wanted to convert and there have been a number of engagements with NUPRC. We've actually started to implement some of the PIA roles, especially around the host community development fund having decent conversations around decommissioning and abandonments. And just last year, we actually signed a conversion contracts within NUPRC, and then what that does is that preserves the rights for us to actually convert. Now -- yes, notwithstanding, there's been obviously times since this has happened. We've actually put in place various conditions precedent to for this conversion and to the point around DNA and HCDF. Now but I think what's the most important thing to take away is that we're literally almost there. it was really around how much of the acreage we were keeping. We still want to keep quite a bit because we have a very huge interest in continuing to develop and grow those assets. And I think subject to NUPRC's approval, we expect to sort of close this very quickly. So we imagine that in the early part of next year, we'll have this approval. So just to highlight that we do need the approval of NUPRC has been very, very supportive to us. And so we also expect that when we come with this asset in MPNU to look at a conversion, we'll get that same level of support. So hopefully, that answers your question.

Let me deal with the CapEx one. And again -- Go Nikolas.

So just in terms of timing then from what you said to Eleanor, it sounds like this conversion could happen in '25?

Yes. That's the answer, yes.

In terms of CapEx spend, I think your question is really about is do we have to put more money into the group into this, or can we kind of self-fund the development? I'll go back to Sam's point, which is you've got 600-plus wells around 400-plus wells are shut in, okay. Now you need to a conservative 25%, 1 in 4 of those wells, that's over 100 wells. And so that will be rigorous there'd be a barge going to from platform to platform, there'll be debottlenecking at QIT this needs to be bottlenecked for water handling there. There's other short-term actions we can take to bring up the production quite materially. And again, we will -- if you look at cash taxes, in '23, it's in the prospectus is also $1 billion of payments in '23, $1.25 billion in '22 and even almost $600 million in '21. So what we see is you'll be able to offset that expenditure against your tax to get the tax shield there. Whilst you work out what we're going to do longer term, in the drilling, and we're going to be very measured. We're looking at on the gas development side, and there are many options around that. And again, it's too early to talk about it, but hopefully, the Capital Markets Day, we will lay that out to you. So we don't necessarily believe there are sort of numbers in our view. I think there's more short-term activities we can do to really get up production at a very affordable manner.

Can I ask a quick follow-on? On the refinancing, what's the current thinking there? I presume you're also going to refinance the RCF. Are you going to -- is the kind of thinking maybe 1 big bond of maybe around $1 billion? So what do you think of like different sources for refinancing?

Yes. Thanks, Nik. I mean we share more on that. But obviously, we are looking at the refinancing the bond, and I mentioned that earlier. Again, it goes current. So the whole capital structure and the balance sheet will be revisited. And when we release our results in the first quarter of next year, we'll be giving some more information. I mean, we are -- Roger talked about the Capital Markets Day that we're looking at next year as well and potentially, we'll be looking at a dividend policy. So -- on what we're going to end up doing, will we share that in more detail very soon. Thank you.

[Operator Instructions] Our next question comes from Colin Smith from Capital Access Group.

Yes, I'd just like to also congratulate you on getting the deal done. I've got a few questions as well. Just starting with the CPR, just to clarify what you're suggesting. Is it the case that you think that ERC has not modeled the tax shield on a corporate level basis? I'll leave it at that on that one. Then just thinking about how the deal may come through into the results themselves, are you expecting that the net assets as disclosed for MPNU to the fixed asset disclosed for MPNU and the prospectus that they will come through pretty much straight into your balance sheet. And then if I apply the 409 value for 2P reserves, that's also a question is that the number that you would use you would end up with DD&A somewhere between $6 and $6.50 a barrel for the new production versus the sort of $8 to $9 a barrel that Seplat currently reports. And then in a similar vein, if I look at the slowest values for cost of sales and strip out the royalty and the DD&A, and again, divide through by production numbers, I end up with about $10.30 for FY '23, which isn't dissimilar to the number that you're currently reporting. Is that the kind of number that you would expect to see? Then next question would be just on the dividends. Is there anything in the excellent facility that would limit dividend payment and more broadly within the Exxon facility, does that come with any additional strings attached. I mean, obviously, you may want ExxonMobil to continue lifting, but would you have the option of going elsewhere or there are certain limitations within that facility that apply to the way you'd be able to run it and indeed to refinance it? And I'll leave it at that at the moment.

Okay. Thank you very much for these questions. So with regards to the CPR that we have, again, that CPR was prepared on an as-is basis. We would have an opportunity to revisit that as a business to the point that Roger made earlier, it appears that the tax -- the effective tax rate in that model sort of assumes 85%. And there hasn't been an opportunity, for instance, to take the tax benefits of the cash decommissioning and abandonment payments that will be made year-on-year. So I mean, I can't speak to the correctness, but our view is that we would look at this very differently. And so we expect that there will be -- there's more value to this than has been reported. Now with regards to the net assets, so we will be consolidating the business it's a wholly-owned subsidiary, so we'll be consolidating the business. On the net asset side, yes, we'll be bringing that through but we'll be consolidating it on each of the line items on the statement of financial position. And I think the numbers you presented are correct with regards to the DD&A and also the cost per barrel at about $10 per barrel, very similar to the numbers that Seplat operates in. So again, the businesses are very similar. I think 1 advantage that MPNU comes with is that we don't have to crude handling charges, the way we have them in the onshore assets. So that brings an advantage. We also have better off time because it's in a closed unit and what we have in the onshore space is slightly different. So again, one of the things we've said is that it further diversifies our route to market. And so those costs are correct, as you said. Now with regards to the payment facility that we have, now on the -- may be I'll start with the dividend one. So we do have limitations on our existing bond with dividend. And there's a max that can be done. It's not more than $0.15 per share on the bond. And so when we refinance that bond, we will obviously be looking at that. Now with the Exxon facility, that's a prepay facility. And I mentioned earlier that the terms are very good terms. So no limitations outside the fact that it's a prepay and we have an opportunity to pay down sooner if we want and we also have an opportunity to roll it over. I think we got very, very positive and competitive terms on the on the trade agreement. And so obviously, we'll be sharing more in the coming year as we continue to run that contract with Exxon.

And Colin, maybe just add to that. Just so to be clear, there are no dividend restrictions at all on that facility. There is a de minimis volume that needs to be delivered. And once that's done, then the facility will then -- the requirement to have them as offtakers will release. And that's a bit of thing about 91 million barrels, okay? But in a way, the pricing is very good. When we obviously tender a lot of these things, there's a marketing next to it, so we can exit through marketing, which allow us to develop. And actually, very importantly for us, it's status quo. So this is been lifting through -- Exxon has been lifting for 60-odd years. There's a real benefit of having them to continue to lift. So for all those reasons, we're very comfortable with that.

That makes sense. And then just a last follow-up on the PIA. Just to be clear, did ExxonMobil actually apply to transfer to PIA status for the MPNU assets? And if not, could you just elucidate a little bit more about how that process might work for the MPNU assets, since my understanding was there was a deadline to elect for transfer, which is not entirely clear whether ExxonMobil did that or not.

Yes, you're right. I mean, look, in short, Exxon and quite a number of the IOCs didn't elect to go into PIA, okay? Whereas actually all of the indigenous companies did elect and I think Chevron elected as well. So I think the way to think about it is -- so under the strict terms, if you missed your deadline, you can't obviously apply. But the government is really trying to ensure that PIA is followed. And so there is -- that's why our confidence is there is an openness to look at this. When we got the whole transaction approved, it was actually approved under PIA guidelines with the regulator and everything else. So they're applying the guidelines -- and post this deal and as of today, going into next year, we will obviously be looking at this and talking to the regulator and the government about the conversion. But that's by specifically the majors, just look at it a slightly different way and didn't opt to convert was the indigenous companies did.

There are no further questions on the Zoom webinar. We will now address the questions submitted via the webcast page. I will now hand over to James Thompson to read out the written questions.

Thank you, operator. Please do just -- if you do have questions to ask on the phone, we're already at the hour. We've had a lot of questions come in, written questions. So we may not be able to answer these in time but we'll try to do that. Obviously, firstly, Roger, there's been a number of questions already on PIA and a lot of the written questions have been there too. Maybe broadly, could we just talk about the advantages, disadvantages for Seplat under the PIA and associated with that and linked questions here coming in, in terms of our CapEx plans, OpEx plans in the near term and how these might be able to shield from the high cash taxes that have been paid for the last couple of years?

Okay. Eleanor, do you want to pick up that specifically?

All right. Thanks, James. So yes, when we looked at our business, our existing business before obviously the MPNU deal, we have better economics moving to PIA. Obviously, the royalties will be lower and the tax rates as well are better. So we have 60% taxes compared to 85%. And so when we model this, obviously, this was better. And then, of course, you know in a JV, a joint venture partnership, and we work together with our partner and agree that this was sort of the way to move forward. And I think with regards to the equity delineation and determining what we wanted to keep. It was very important to us to look at that in detail. I sort of demonstrate that we wanted to do a lot more in that space. And so yes, it's a lot of positives there. Now with regards to the taxes, how we going to reduce the taxes in the near to medium term, I think we've talked about that already. And maybe specifically, not to try and help the audience with this. Now we talked about the fact that this business is high. It's cash generative. What we want to do is put a lot of that cash into the business via workovers. And so immediately, if you do some workovers depending on the type of workovers it is, it could be either in OpEx or CapEx, under the PTT regime, even with CapEx, you can make some claims much sooner. You can make some significant claims in the first year, depending on the type of CapEx it is, and that can reduce whatever you assessable profits are. So again, for us, its -- we're still very interested in growing taxes because the more we can inject value into the business, the more we can increase production and taxes can still be more because you could get that in royalties, and you can still get that with a hydrocarbon taxes that we will be using in the business. So again, what we've done in Seplat is what we just described as we've invested. We have about $1 billion in capital allowances that we've accumulated over the years, and we use that in our existing business to shield from excess taxes. And so as we begin to do the same in this business, we'll continue to then build the CapEx and they use that as a shield in the medium term. I think the focus is on going forward. We will have a Capital Markets Day next year and give a little more detail. Again, we're just coming into this. I mean, we do have the MPNU leadership in the room as well, and we've had some really exciting conversations about what is available to do some low-risk opportunities to attack very quickly. And so there's not -- there's going to be a focus on the asset. There's no competition around what we're going to use the money for. We're going to be putting the money into the business and creating whatever investments need to be created to grow the asset above where it is today, which we talked about the fact it's around 170,000 on a gross basis barrel of oil equivalent a day, and that potentially can grow even further.

Yes. I think it answered it. I mean again, we said it before, the tax regime today is seamless as tax regime. It's exactly the same. Okay. So if you look at what we've been able to achieve at Seplat, we've actually reduced the gain when we bought sassets from shareholders repaying an 85% tax rate. And we've shown that we can get the tax shield by investments, whether it be workover, OpEx or will it look be building the capital allowances. So even without a PIA conversion, you can actually get this much, much, much more efficient and there's plenty of cash generation to fund it, okay? Obviously, we want to go to the PIA conversion. And again, we can take your time. But Eleanor's point to be clear, you have to then delineate your assets and you have to be very clear what you're going to give up and put back in the basket, okay? In a minute, it's quite fortuitous for us that we can take our time to work out what we're going to develop and what we're prepared to get back to the basket. James?

Thank you, Roger. I just do one more question that we've had it then, then we'll pass back because I think we've got another call on the line. So we've got another question really around can we get any kind of high-level guidance plans in terms of gas monetization and thoughts around flared gas and what we might be doing there. So maybe on the gas side of things, can we talk about what the opportunity might be first? And then we'll go back to the line.

Yes, I think it's too soon to be able to put some numbers to it exactly. What we can lay out is, first of all, depending which block you're in, there is -- and particularly [ Seven's ] point and was active is ready for blood oil or the gas cap, right? So we can start to ramp that up. We are supplying gas into [ Egypt ], which is going into Nigeria LNG. And again, we've got some debottlenecking, but we can increase that in itself. But actually, if you look at the sort of scale of gas that we can get out of the blocks, it serves a number of different projects, okay? It's too early for us to sort of say, okay, here's the ranking of these projects. We have been -- there's been conversations over the years with X and players in the market. And we have set that have obviously been contacted by quite a number of players. You'll see some of the market will be floating LNG. There's plans for domestic gas plays in methanol and everything else. Nigerian LNG is under capacity at the minute of its 6 trains, and there's another one coming. And I think the answer is that it's going to be a mixture of domestic gas because it's very important you do domestic gas as well as many sort of LNG, will it be floating LNG or fixed LNG in terms of in LNG or combination of the 2. But it's too early to get sort of volumes. We indicatively said at I think at full production levels, we could be anywhere between probably 500 million cut Bcf a day. So that's sort of scale here, which if you, then augment what we're doing at the Seplat Group, the 3 gas plants, we're going to be as a group dominant mix to government, the dominant gas player, both domestically and export as well. Great.

Thank you very much, Roger. Operator, we'll go back to the line for a question.

Our next question is from Oliver Connor from Citi.

Congratulations again on getting the transaction done. I actually had a question on the gas side, which I think you've answered more broadly, but perhaps, I guess, thinking about some of the barriers to get the gas growth in Nigeria to the next level? I mean, do you think it's a combination of infrastructure? Is it more on the fiscal side? I'm just trying to get a sense because clearly, the resources are there, what the sort of the key hurdle you think is to monetizing the deep resources that you're going to have?

Yes. Thanks for that. I think when we're looking at the gas here, there are plenty of gas plays in the round up region. So we're not looking to get gas from [ Aquabona ] state up and through the rest of Nigeria because I think that would be a tall order in terms of the infrastructure restrictions there. And if you look at where it's indicated, it is very located very close to Nigeria and LNG, it is not far to the shore line obviously in equity state, and there's a lot of projects planned there. So it will be infrastructure ticket from the shallow water offshore to the onshore. There's already gas pipeline that's going into [ Agile ], which is flowing back into LNG. So those can be debottlenecked. They can also be expanded. So I think what we're saying is that the -- all the infrastructure to monetize this gas will be in a very small radius, and kind of adjacent to where these blocks are.

We'll now hand back to management for closing remarks.

Roger, do you want to wrap up the call. I think we are pretty much out of time now here. So maybe we can close just from my side before handing back to you. Thank you very much, everybody, for all the questions. We have a lot there. We couldn't address them all on the call today, but we've made a note today so we will come back to you. Thank you very much for listening. And Roger, I'll pass you back to you to close.

Okay. Thanks, everyone. We're obviously very excited today. It's a lot to chew, particularly for the investor base. There's a chunky 500-page prospectus to digest through the Christmas period. But we will be coming, obviously, with the full year results in the end of February, and again, we'll just try to be as clear as possible of how we're going to develop it. But it's a very exciting time to be at Seplat Energy Group. There's a lot of excitement here and we'll start to see the benefit of this, this is a sleeping giant in our view. And it's going to be a real transformation for the Seplat Group. So thanks very much. Good questions today, and I'll hand it back to close the call. Thank you.