Seplat Energy Plc (SEPL) Earnings Call Transcript & Summary

Good morning, and welcome to Seplat Energy Plc's Half Year Results 2026. [Operator Instructions] I would like to remind all the participants that this call is being recorded. I will now hand over to James Thompson, Head of Investor Relations, to open the presentation. Please go ahead.

Thank you very much, John. Hello, everybody. Good afternoon. Welcome to Seplat Energy's financial results for the half year 2026. On the call today, I'm joined and for the last time, our CEO, Roger Brown. Alongside him, we are joined by Effiong Okon, who will be our CEO from August 1; as well our COO, Samson Ezugworie; and our CFO, Eleanor Adaralegbe. We'll follow the normal results process. We have a Q&A that will follow the prepared remarks. Before we start, I'd like to take you -- encourage you to take note of the forward-looking statement here on Slide 2. And now I'll pass the call over to Roger for the opening remarks. Roger, over to you.

Thanks, James. So hello, everyone. Let's run through the 6 months financial highlights. So in terms of production, you can see there we're just slightly less than 140,000 barrels of oil equivalent per day, and it's within guidance range of 135,000 to 155,000. We've had a recovery in the Q2. So you'll see a much better performance in the onshore. If you recall, Q1, we were interrupted by a shut-in of the pipeline. We see a recovery in that. And so we can now see quarter-on-quarter, we're up 15%, and we maintain our guidance. In terms of group revenue, we've obviously now benefited from a strong oil price we're 30% up on year-on-year. And you can see across NGLs, the gas to oil, they're all up in terms of percentages. And then in terms of quarter-on-quarter, again, Q2 has been a much stronger quarter for us, and we're up 16%. Looking at the EBITDA, we are approaching not far off $1 billion for the half year. So that's up last year, on last year, a 52% margin. And if I look then at the 6 months cash flow from operations pretax, again, it's almost $1 billion, up 29% year-on-year. So a very strong set of financials in terms of the P&L. And then in terms of dividends, you will see that we've -- this has been a trend for us over a while now. We're increasing our dividends, and we've increased the second quarter dividend to $0.12 a share, and that's up 161% year-on-year. That's a $72 million payment. And if you look at year-to-date, combined with Q1, we're $0.21 per share or $124 million. So we're really starting to return some value back to shareholders. With the new dividend guide, we would expect to outturn this year at $0.45 per share or $270 million, which is by 80% year-on-year. So moving then to the operational highlights. Sam will deal with most of these things, but just give you a summary. Production growth, we're up 39%. So we've added about 20,000 barrels a day quarter-on-quarter on our onshore working interest production. So we're just slightly less than 71,000 barrels. Strong performance across all the assets from East to West to Elcrest. Our commitment to lowering CO2 emissions, and we can see there that we've got a 29% decrease in CO2 emissions, and that's largely from the onshore with the flares out program. But in the offshore business, we've started to reduce CO2 emissions there as well. So in terms of Western Asset, 2% flare gas and Eastern Asset, the same, 5% gas flared with ANOH ramping up. So we would expect to be with ANOH at full production, we would expect to see those in just as routine flares. In terms of the offshore highlights, in the idle well restoration program, this is a very efficient way to bring revenues into the business. And we've added 16,000 barrels out of 15 wells. So our commitment has always been about 1,000 barrels a well. And if you look for the first half, we've added 26,000 barrels from 24 wells. If you look at what that means since inception, 73 wells have been restored and added 75,000 barrels of oil equivalent. So this is really material. That's cost us $109 million. It is about $1.5 million a well. And at these oil prices literally, these are paying back in a matter of weeks. The next point to say here in the offshore is that we have announced this morning that we have signed heads of agreement with NNPC to do the 10% sell-down. And I'll move straight on to the next slide because we have a summary of that transaction. So this is something that we highlighted to you earlier in the Capital Markets Day, and it's been something that's been in discussion for quite some time. But we've now agreed this heads of agreement, which is a legally binding document. It will then go into sale and purchase agreement to finalize it. But we are selling 25% of the acquisition we made from Exxon for $281.6 million. The effective date of that transaction is 1 April 2026. You will recall that we completed on the 12th of December 2024. And we expect to close this during this half -- second half this year, when we sign the SPA and have the regulatory approval to proceed. The observations there that we will remain operator, and that's very critical, in the JV partnership. We have alignment fully with our partner, NNPC, and we have a very strong relationship with. And the sale proceeds largely offset lower free cash flow over the plan period. In terms of the proceeds itself of $281.6 million, we're going to return half of that. We project to return half of that to investors. And the remainder, we will take down some leverage and also return some money to cash. What that means in terms of dividends is that we then with $140 million forecast, then we would expect to add that to the core dividend and the special dividend for the year and go to $410 million. That's a $0.683 per share, which is a very material return of dividends very big proportion of $1 billion that we've committed. You can see on the right-hand side, some of the metrics, the production, the CapEx, the reserves, which is about a 13% reduction in reserves. The important thing is that even at 30% working interest, we're committing to [indiscernible] over to 2030. So let me just hand across now to Sam, who can run you through the operational performance.

Thank you. Thank you very much, Roger, and good morning, good afternoon, everyone. On the operational performance, we start, as always, with safety, which is our priority and core to our sustained operations. So it's also good to underscore that within the first half of 2026, we recorded no lost time injuries across all our business units, onshore, offshore with 18.8 million man hours of work-related activities accomplished within the same period. Roger already started highlighting the key message and the achievement we are making with the End of Routine Flaring program in our environmental stewardship across our businesses and then the emission intensity reduction down to 16.4 kg CO2 BOE in our onshore business. And also the big improvement and major improvement that we're also recording in emission intensity declined 9% in our offshore business. So all these are all coming together to lay the foundation for the operational performance. And then going straight into the operational performance for the first half of the year. We saw strong performance in the second quarter following the recovery from the Trans Forcados Pipeline that was out for 38 days in the first quarter and then riding on the idle well restoration program that Roger highlighted and improved evacuation across all our assets. What you will see is a 4% growth year-on-year on our production performance compared to equivalent period in the last year. And quarter-on-quarter, you will see a 15% growth between quarter 1 and quarter 2 2026 for the real good reason that have already been highlighted. Unit production OpEx also saw some decline in the second quarter of 2026 due to improved production and lower cost, half year unit production OpEx is at 15.8 BOE and this is inclusive of Yoho restoration costs. And ex Yoho, we will be back to $14 per barrel of oil equivalent. Roger already made the strong statement around the idle well restoration program, which continues to deliver real value for the business, and we continue to drive those. We have 26 of those in this remaining second half of the year, and we are on track to deliver them. If we now go straight into our midstream business. Our midstream business also experienced significant growth and improvement in the period. Year-on-year, we are up 4% and quarter-on-quarter also some very big significant improvement in our midstream business and gas delivery. I think within the period, we have seen improved performance from AGPC, ANOH gas plant and which also promises to unlock more value in the third quarter of this year when OB3 becomes fully operational. Also to BRT Phase 1 project is also on schedule for commissioning and achieving first gas in the fourth quarter of this year. If you recall, this is one project that will deliver additional 120 million scf per day, taking our export capacity in the offshore business to 240 million scf per day by the fourth quarter of this year. Then I would end up with giving you an outlook for the third quarter and fourth quarter, the remaining half of this year. I think on the gas, I already started talking to our delivery of the Oso-BRT gas pipeline and project that is very critical to us meeting our gas program for the year. We will ramp up production out of ANOH and then commence LPG production. It's also important to highlight at this point that at the Oben gas plant, we signed a spec capacity program with a third party Gwato to bring in additional gas into the plant to maximize the utilization of the installed [ oilage ] at Oben. So that is also coming. Drilling campaign, you will see that by the next quarter, we will have a total of 8 rigs drilling across Seplat businesses. Happy to announce that we are now fully ready to start drilling offshore with the first rig coming in. And also, you would have noticed that we have signed -- fully signed this contract for a second rig that is going to commence drilling activities in our offshore business by the first quarter of next year. We will continue with the idle well restoration program targeting the remaining '26 and we will have 2 rigs in the Eastern Asset. And also of importance here is to underscore the fact that we are now drilling our next exploration well in Aku, which is coming after the last one that we drilled in Sibiri in 2022. And then the Western Asset, we have 4 rigs coming up and then 1 rig that is on continuous program in the Elcrest for the next 4 years. On the integrity and restoration program, I'm sure you would also like to hear that the long-awaited Yoho is mechanically complete, and we are now going into commissioning as we speak in the coming days. And the volumes from Yoho will come and begin to count as we go into the third quarter of this year. Single point of failure analysis continues to deliver a lot of value for us in the business. This is one program that we have significantly used to manage deferment and scheduled interruptions in the offshore business. And that is what we have also used to mitigate the delayed restoration of Yoho because we promised that we're going to restore Yoho by the end of June. And onshore department improvement continues to also get significant attention. With all this, I will now hand over to Eleanor, who will take us through the financial outcome of this first half of the year. Eleanor, over to you.

Thank you very much, Sam, and hello, everybody. Thank you for making the time to join our call. It's been a very busy half year for us, and we're very pleased to be sharing some of the details from the financials. So let me start with what has really driven our strong financial performance in this first half. First of all, as Roger already mentioned, revenues increased 30% to $1.8 billion, supported not just by the stronger realized price, but also by higher production. I think what's important that I'd like to really flag here is the realized premium to Brent, which has increased by over $7 per barrel and up significantly from $2 -- almost $2 per barrel in the prior period. I'd like to state that this premium has become a very meaningful competitive advantage for us at Seplat and continues to strengthen the quality of our revenue base. I think the second point I want to make on this slide is we are seeing much stronger earnings conversion this time. Our earnings per share has increased to almost $0.27 per share, more than 5x the level that we saw in the prior period. And I'd highlight also that beyond the commodity prices, we are also starting to see benefits from the combined business, both offshore and onshore. Some of those efficiencies that we delivered in our onshore business, we're starting to see that come through alongside some fiscal advantages that are coming from onshore assets since we converted to PIA. These factors are what has really supported a much stronger margin profile for us in our business. Finally, on this slide, I'd just like to highlight the hedging strategy, which has continued to work exactly as we have planned. Basically, simple puts. We are taking advantage of the upside and in a stronger price environment, that's also benefiting the shareholders. Going to the next slide. This slide, the key takeaway here really is it's really showing the strength of our cash generation. Our free cash flow at $526 million in the first half of the year is actually almost the same as our free cash flow from all of 2025. So that's quite significant. Yes, it reflects the higher oil prices, the strong operational performance. And also we got some benefit from receivables collection during this period. Now I would highlight as well that the CapEx was lower because we've had that more of our CapEx, you start to see in the second half. So CapEx this first half was just about 27.5% of our plan for the year. I think importantly, really is the underlying free cash flow before debt, which you can see on the slide at $632 million. This is what supported the decision that we made to accelerate the debt reduction in this period. Obviously, this has saved us interest charges and in line with our capital allocation framework. If you go to the next slide. So this is really -- the strength of our balance sheet continues to show. Our gross debt has reduced from pre-acquisition levels at $1.4 billion to around $805 million. So we've effectively returned to our debt portfolio before we made this acquisition, another very positive position for us. It's showing that we've rapidly managed our debt portfolios. And within 6 quarters, we basically paid back everything that we -- almost everything that we've spent in acquiring the asset from Exxon. So total, if you look on the top right-hand corner of the slide, you'll see our available liquidity of approximately $834 million, and that exceeds our gross debt today. So with basically near-term maturities, almost the next big ones really are in 2030. So we have significant free cash flow generation that continues to support the business and so gives us additional flexibility and to support some of our growth plans. So my final slide is on the dividend. It's usually the best slide. We usually keep it last. And Roger has really spoken to all the benefits that we have put forward as dividend. I think it's worth reiterating, it's actually highlighting the confidence the Board has in the underlying business, and this is why you saw all these announcements in dividend. Just to reiterate, for the second quarter, we've declared $0.12 per share which has taken the total distributions declared in the first half to $0.21 per share. And then we've also increased our guidance, our full year guidance to $0.45 per share. And this is after considering the potential completion of the 10% divestment. I think the second point is the additional $140 million that we have highlighted will be paid to the shareholders, subject to the completion of the transaction. This is what then takes the dividend up to the $0.68 (sic) [ $0.683 ] that Roger mentioned earlier. But I think I'll just really say that, look, we're very pleased to be making this much progress as a business. I mean, considering the target that we laid out during the Capital Markets Day of delivering a cumulative dividend of $1 billion, we've already delivered 41% of that commitment. And so really, $410 million for 2026 is very significant for shareholders. So I guess in summary, really, I'll end with just saying, the message for us is very simple, stronger earnings, exceptional cash generation, rapidly deleveraged our balance sheet and also increased returns to shareholders. What this is also showing going back to our capital allocation framework is we are delivering on all the 4 pillars while also maintaining the capacity that we need to invest for future growth. Thank you. I'd like to hand over to Roger. Thank you.

Thanks, Eleanor. Okay. So before we look on the outlook and the guidance going forward, let's just talk a little bit around the leadership changes. So we've also announced this in June. But in the room here today, we have our new Chief Executive Officer, who will take over -- Effiong Okon, who will take over from 1st of August. Of course, Effi is not new to the business. He has been here 8 years, joined in 2018 and has been very much focused on the operations of the business, more naturally in the gas business at ANOH and brought it to first gas. So Effi will take over. I'll step down on tomorrow actually, 31st and Effi will start to take over on Saturday actually, the 1st of August. And then also the other change will happen at the end of the year will be that our current Chairman, Senator Udoma Udo Udoma will step down and Mr. Tony Elumelu will take over from the 1st of January. And again, we -- he's been on the Board since 22nd of January this year. So let me hand across now to Effi to deal with the second half guidance.

All right. Thank you very much, Roger. So thanks, Roger, for 13 years in Seplat. It's quite a long time. Thanks for the legacy. Thanks for all the contributions you made to the company. I'm sure if you look back 13 years when you joined, I'm not too sure that you imagined Seplat will be where it is today. So I'm sure it's a moment of pride for you as well. I want to say thank you for that foundation. And we will build on that going forward to take Seplat to unimaginable level. Thank you. Well done. So good afternoon, everyone, again. So for the second half, and you heard from Sam, from Roger, from Eleanor, we will continue to pretty much consolidate on performance. We keep driving operational excellence. It's going to be a very busy second half of the year as we restore production at Yoho, Oso as gas to [ NLNG ] and also ramp up ANOH. So it's going to be a very exciting period. If you look back, Q1 was very challenging. Q2, we did recover. And then the second half we expect and hope to recover even better so that we can deliver strong operational performance that then drives the very strong financial performance you have from ANOH. I'm not going to read through all the slides. I think focus for us for second half is really, really driving that operational performance and then delivering world-class safety, as you heard from Sam. And then finally, if you then look at our guidance, we're very much confident that we should end up the year within our guidance. The only 2 additional slides we can see on the slide on the right side is the operating cost, which is pretty much tied to Yoho like you had from Sam and also on the cash tax as well. High oil prices, we've, of course, benefited a lot from that. Additional tax to be paid on that additional cash has come in. And that's really where we want to end up 2026. Thank you. Back to James.

Great. Thank you very much, Effi, speakers. John, on the call, I think time to open up for Q&A, please. We got anyone on the line?

[Operator Instructions] It seems that we have no questions on the conference line. I will now hand over to James Thompson to read out the written questions.

Okay. Great. So we just thought we give people time to put the hand up and ask some questions. I think we can sort of dive into things here. Thanks very much for the questions that are coming in at the moment. Maybe we can start on CapEx. So we've got a question here on guidance for 2026. One, are we actually going to be able to spend the money? Obviously, we didn't spend much in the first half. And what are the components of the second half CapEx? Maybe, Sam, do you want to pick that up?

Yes. Thank you very much for that question. If you saw my slide on drilling activities, drilling activities is actually going to be fully loaded in the second half of this year, and that is where we are pretty confident that we are going to spend our CapEx for the year. I mentioned that the drilling offshore is commencing. The rig is finalizing its operations with one of the operators in country in the first week of August and we'll be moving to the offshore location. And in the onshore space of things, we've picked up 2 additional rigs, making it a total of 7 rigs that will be operational in the last half of the year. So with that, indeed, we are going to not only fully recover but do a bit more because I also highlighted the drilling of the Aku exploration well, that was actually on our program for 2028. But with all the additional capacity we built for the second half of the year, we have now accelerated that well into 2027. And I would also like to highlight and also note that, that rig -- the well was actually spudded in the late evening of yesterday. So we are already in operations at the Aku location.

Okay. Very good. Right. Just if we got any calls, I mean, hopefully, that's been enough time for someone to put the hand up. So John, is there anyone on the line?

Yes, we do have a question from the line of Nikolas Stefanou with REDD.

I'd like to start by wishing to Roger all the best in his next chapter in his life. Will you tell us what you plan on doing Roger after this? Is that something you want to keep yourself? And then also to congratulate Effi on his step-up as CEO of the company. So guys, my first question is on maybe how the company will look going forward? I guess Roger under your sort of helm was sort of inorganic. The company did grow a lot. You did a really good job here. If you had been more of sort of operational guy kind of the person that gets things done in operations. So are you thinking of sort of deviating the strategy of the company going forward? Any specific sort of style you think going with Seplat kind of implemented under your leadership? That's the first question. The second one is on production. If you can give us a steer on what the x trade would be for this year and what we should expect in '27 production? That would be quite helpful. And the last one is for Eleanor on the capital structure. I think I ask this question on every call. But is there like an indication for you that now especially with the disposal you're going to call the notes in 2027, should that be like a fair assumption?

Okay. Thanks. Have you got those?

Yes. Maybe, I think we need to -- we missed the last question. You just broke up a bit there. Just could you repeat that one, the last one?

Yes. Following the transaction has been announced today, does it make sense to assume that you guys will call the -- sorry, the notes in 2027, the bonds?

The bonds.

The bonds.

Okay. Well, thanks very much for your kind comments. I haven't disclosed what the future of me is. But at the minute, my near term is to go on holiday and spend some time with the family. So that's what I do, but I'm sure it will come out in due course if I do something else. In terms of where the company is going, let me just say one thing is, we laid out a 5-year plan September last year. And obviously, in that plan, we then identified the 10% sell down. We didn't give any real detailed numbers, but we give some guidance numbers in terms of production going and we've given it here reiterated today here, going from 200,000 target to 170,000 target. When the deal actually closes and completes, we'll give some updated numbers at that point. But the 5-year plan is still the 5-year plan. I would leave it for Effi to get in the seat to talk about the future, but it's a bit early, I think, to talk about that. But we will have probably with the change of Chairman and everything else, I'm pretty sure that there will be a reaffirmation of the strategy going forward, and that will be put out in due course. I think it's fair to say at this point. But it's a bit early to talk about that.

I mean let me just add a few things there. I think if you look at the history of the company for 16 years, the company has consistently grown, right, from the Western Asset acquisition in 2010 to the East. And then we then pretty much did the Eland acquisition. We're always looking out for how to grow the business that MPNU came in. So that trend will continue just if you do look at the next 5, 10 years, like Roger did mention, I think at the Capital Market Day, we did lay out the 5 years plan, right? And every year we work out 5 years, 10 years plan. And I mentioned, the new Chairman comes on board in January. We're going to be working on the new strategy, and we will come out to the market when we're pretty sure about how that future is going to look like. But one thing you got to be sure is Seplat is going to grow, Seplat is going to grow to what I call unimaginable levels. I will look it out for opportunities where we're working our existing portfolio. We're going to grow way, way beyond what you see within the 5-year plan. Thank you. And then there was one on the bond, right?

Yes. Thanks, Nik. So yes, the bond does come up for -- we have an opportunity to refi. We'll look at the market at the time and also look at our existing business and see whether we want to take an opportunity to refi at the time. Thank you.

I'm sorry, I forgot to thank -- I don't know the name, thank you as well for welcoming on board just like -- I think for me, I'm super excited. I'm really delighted with this privilege opportunity provided by the shareholders and the Board of the company to stand on filling these big shoes that Roger is leaving. I've got big foot as well don't worry. Well, thank you. Thank you for that.

He also asked a question on central exit rate for 2026.

Yes. Okay. Good. Thanks, Nik, for that. I think production, you've seen the ramp-up between quarter 1 and quarter 2. We continue to drive those improvement opportunities. I think it's also important to highlight that we are pretty confident that we will exit -- our exit rate will be somewhere at the top end of our guidance, which is 155 kbd. But maybe we will come back in the third quarter again.

And would you be able to give an indication for 2027 production?

Again, it's too early at this point in time, Nik.

Usually, Nik, we will guide on '27 when we release our full year results. So that will be in February -- at the end of February next year.

[Operator Instructions] Our next question comes from the line of Phil Hallam with Canaccord Capital Markets.

Can you hear me okay?

Phil, yes.

Well done on a great first half. I've just got one question. I know we've already touched on M&A slightly, but it's just more your thoughts on how you view Nigeria versus the rest of West Africa and maybe even beyond that? What opportunities do you see within the country and in the wider area?

Yes. Maybe I start that question. So look, I think certainly we find over the years, Nigeria presents awesome opportunities, and you can see that with this acquisition, the Exxon, the Mobil producing. It's high, high-quality sands. And it's one country we know inside out and can operate in. So Nigeria is an obvious one. Now there's a lot of divestments happened. When we went through there was -- with the Exxon acquisition, there's about 4 others. So in terms of the amount of opportunities in Nigeria are less than they were previously, but that doesn't mean that there aren't a number of opportunities, and there are both onshore in the shallow water. And then ultimately, a natural step for the company in the future will be looking more in the deeper water offshore Nigeria. In terms of the other opportunities in West Africa, yes, there are some there, but you have to -- you buy them against the opportunities we see within Nigeria, and we rank them accordingly. So that's a general comment. But the company, as Effi said, is a growth company, and we still have appetite. We've delevered the balance sheet. The balance sheet is very, very low leverage. So if a quality opportunity comes across our path, we'll assess it properly, and then we'll have the financial firepower to get after it.

You want me to add, Roger? Yes, I think just to add to Roger's point, I think if you look at Nigeria, to be honest, I think the government is actually doing a lot to improve the investment climate. If you look at our rating, if you look at [ FDIs, ] it has actually gone very well within our industry. The President has actually given a lot of executive orders, which is all driving towards encouraging more investment. You've seen the NNPC ambition of 30 million barrels per day by 2030 and 12 bcf gas, that's a massive investment going to gas infrastructure by NGIC. I think for me, if I look at what NNPC is doing under Bayo's leadership, it's quite very, very encouraging and very bold in terms of the benefit of our industry. And then if I look at the Rest of Africa, apart from Cote d'Ivoire and probably Mozambique with all the big NLNG projects with Total going back to Rovuma LNG. I think Nigeria still stands quite strategic with a lot of opportunities, just like Roger mentioned. We still expect some IOCs divest, but not very clear at this point in time. But of course, as the IOCs divest, there are fewer opportunities remaining, but we are very, very, very well positioned to pretty much look at whatever comes. So I think it looks good going forward.