Seplat Energy Plc (SEPLF) Earnings Call Transcript & Summary

Good morning, and welcome to Seplat Energy Plc's Half Year Results 2025. [Operator Instructions] I would like to remind all 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, Jon. Hello, everybody. Welcome to Seplat Energy's financial results for the first half of 2025. On the call today from Seplat, we have our CEO, Roger Brown; CFO, Eleanor Adaralegbe; and our COO, Samson Ezugworie. We'll follow a normal process with Q&A following the prepared remarks. Before we start, I just draw your attention to the disclaimer on forward-looking statements on Slide 2. And now I'll pass you over to Roger Brown for the introduction. Roger, over to you.

Thanks, James. Hello, everyone. So we start off with the 6 months highlights here, financial and operational highlights. Let me start by saying this is a record-setting results for us as a business. You can see in our working interest production at 134.5 barrels of oil equivalent per day. So that's quite sizable up obviously in prior periods. If I look at the mix between oil and gas, you can see there YoY 77% oil and NGLs and 23% gas. And that's really upper end of our guidance, which is 120 to 140. In terms of reported revenue, we are in the half year, $1.4 billion. And if you look at the split of that, the proportion is about 93% oil and NGLs and 7% gas. So it's changed mix of our portfolio in the equivalent period last year, it was 85%-15% between oil and gas. EBITDA numbers are very strong at $735 million. And if we look at the cash flow from operations of pre-tax, it's an equivalent level at $766 million. So we're generating a lot of cash and EBITDA and quite sizably up from last year. And then looking at our credit metrics as a business, we've received upgrades in the half from Moody's and Fitch. I think the most important note around that is that we have now -- we pierced the sovereign ceiling. So we're one notch above the Nigerian sovereign, and we're at B2 and sovereign is at B3. So it's quite an accolade to show that our credit metrics are now piercing sovereign ceilings. If we turn into the next slide, now we look at Q2 in a bit more detail. So in terms of just some of our -- sort of integration. We've been very active in the integration work stream. We kicked it off start of Q2. There's been a lot of work done. And it's really dimensioning how we're going to put the 2 businesses together. And lots of work streams, lots of work around synergies from combined businesses and really looking at how we're going to grow the future of the entity. So we're going to give you more information on that in September when we have our Capital Markets Day. But so far, so good. I think the cultures are working well together and the direction of the combined business should be very exciting. In terms of dividends, we're declaring another dividend for Q2, and that's $0.046 a share. And if you look at the cumulative dividends to date since our IPO, we've delivered $1.24 per share. So Seplat now is getting into a really good position of delivering dividends, and we'll look at that as we go forward. In terms of production, looking at the offshore production, you're starting to see some of the well restoration work coming through, and we have 11% increase on quarter-on-quarter. We expect that to continue through the rest of the year. Not just looking at idle well restoration and Sam will get into this in his area, but it's actually looking at the efficiency and very importantly, the reliability of those production numbers. And then CO2 emissions, again, we are committed to reducing CO2 emissions. And you can see there that we've got a 25% reduction in the quarter. So let me hand across to Sam, who will go through the operational performance in some detail. Thanks.

Thank you, Roger, and very good morning, everyone. Our upstream performance in the first half of 2025 has also been very, very strong across both onshore and offshore assets, reflecting the scale of our new business, almost 2.7x. And then the strong performance is actually aided by a number of things. In the offshore area, the idle well restoration program, the commercial operations at the SIGP that we have brought on stream, improved production from Oben gas plant following the turnaround maintenance of quarter 4 last year and continued good well performance following our drilling activities. The group production at the moment is 134.5, again, as highlighted, above the midpoint of our guidance. If you then just unpack it a little bit more in the onshore assets, we are 13% higher than the equivalent period in 2024, up 7% liquids, up 24% in gas. The offshore production also very strong, nearly 18,000 barrels of oil equivalent, 86% of which is crude and condensate, 9% gas and 5% NGLs. On the top right-hand side, you will see the continuous improvement we're making with the idle well restoration program. We delivered nearly 26,000 barrels of oil equivalent from 22 wells. And this is in line with our expectations, and we continue to drive those improvements into the second half of the year. You can see the ramp-up program from January to end of June. If you come to the bottom, you will see our unit OpEx is flat and slightly below guidance, but then we expect to pick up quite a lot of heavy activities in the second half of the year because we'll then execute the Inlet gas exchanger program at the EAP, among others. Roger already highlighted the improvement from our end of routine flaring projects in our emissions. So the intensity is down by 25%, and this is essentially aided by the commissioning of SIGP, the Sapele Gas Integrated Project. If you go to the next slide, we then begin to see our midstream business also improving at a similar scale to what we saw in our upstream business, essentially aided by consolidation of our offshore and onshore businesses and again, helped by what I mentioned earlier in the previous slide, the SIGP commercialization and improved gas production from Oben. Gas production has gone up by 62%, onshore contributing 24% and then the balance from the offshore integration. Realized gas price remained stable over the period despite the [ DTO ] price changes. And if I just come into some specifics, you will see at the top right-hand corner, we have made some significant progress with our ANOH gas plant. While NGIC continues to resolve the challenges with OB3, our focus continues to now be on monetization of the gas through offtake gas in quarter 4 this year. The ANOH gas plant has received third-party gas and commenced live hydrocarbon testing and first gas is expected by quarter 4 this year. Additionally, remember that in quarter 1, we reported to you that our first module in the Sapele Integrated Gas Plant was commissioned. We completed the reliability test and obtained license to operate of the first module. And in this second half of the year, second quarter, specifically, we also commenced the operationalization of the second module. These, they're all going to come together in this third quarter, and we will see additional improvement in our gas production into the domestic market of Nigeria. If you then go to the next slide, I would like to focus you on what are going to be our key focus areas for the second half of this year. And in our onshore -- offshore assets, in particular, we will complete the IGE replacement that is Inlet Gas Exchanger change out at the Eastern asset project. This will increase our gas production from our offshore asset. We will continue with the idle well restoration program to continue to improve our efficiency and delivery on the production numbers. And you remember that at the completion of the takeover of the asset, we had a sellers competent person report. We are now upgrading that CPR with our reserves auditors [indiscernible], and we are in the process of updating that number. The update is underway, and then we will come back to you again during the September Capital Markets Day with the final outcome of that. On the onshore side, our focus for the second half of the year will be to continue to maintain very strong production performance in both oil and gas. We would continue with our drilling activities and close out the end of routine program -- routine flaring program, the balance of the activities there, including the LPG plant in Sapele. While in the midstream gas business, we would -- we're looking forward to achieving first gas at ANOH, completing the 19-day reliability test on the second module at Sapele gas plant and then bringing the LPG plant on stream. With that, I will hand over to Eleanor, who will then take us through the financial results. Thank you.

Thank you very much, Sam, and hello, everyone, and thank you for making time to join our call this afternoon. Again, a lot of excitement on our results for the first half of the year. I think it really demonstrates the impact of the offshore business that we acquired late in December. And just in 6 months, we've demonstrated our ability to drive value for the business. And what you can see on the slide are some of the key metrics and the growth in all of these areas. I think despite the volatility that we experienced with oil price, especially in the second quarter, we still delivered very strong results in this period. If you look at the slide, we've described, again, our liftings have been more than 4x year-on-year. And also, we've maintained a really strong balance sheet. We've kept a very close eye on being prudent. And so our net debt is down 25%. And of course, we have a very strong cash flow from operations. And as Roger highlighted, the enhanced credit ratings is also a reflection of how much faith and trust there is from the capital markets on our business. Now the next slide provides a bit more detail on our financial results and is showing the comparatives with the 6 months performance in 2024. Again, in this same period last year, we just had the onshore business. And so you can see there's a huge step change in the performance for the first 6 months across almost all the areas. I think what I'd like to highlight here is the impact of, obviously, the growth not just in the offshore business, but also in the onshore, and we've seen a step change in our gas business, and that's demonstrated on the slide. Cost of sales is showing an elevated number. It's mostly driven by a focus for us maintaining the assets on the offshore business. And also we had some high numbers on DD&A, and I'll speak to that a little later in the presentation. There's also the impact of the fact that we've had higher production. So even though the costs are showing elevated numbers, they're very positive. Now on G&A, the numbers you see there on G&A reflects obviously the larger organization, and we expect these to be the similar levels for the full year, and we're largely in line with our plan for the year. We did have some under lift in the period. But again, under lift is just a function of timing. And so that would obviously adjust in the following periods. On the financing costs, the impact, obviously, of the refinancing as well as the additional debt that we used to support the acquisition of the offshore business is the reflection there. I think the slightly elevated number in the 6 months includes the -- some of the commitment fees from our financing. And again, that will start to normalize in the second half. I think the biggest number on this slide is the tax. And I'd like to just mention that though we see a very high effective tax rate in this period, again, a lot of this is a reflection of the fact that the investments have been very minimal in the offshore business. We are going to start to see those investments coming through. And once we start to do that, we'll start to build capital allowances and then provide the shield. So the high effective tax rate is really an effect of this investment. And the way the Nigerian fiscal regime is structured, it's supposed to really incentivize investments in this business. So I'll give some more details on that in the coming slides. Now we've also highlighted on this slide the CapEx investments made to date. Our drilling is going to be quite heavy in the second half of the year. So though it's sort of slightly below the -- it's sort of within the guidance, if you think about the half year, but we expect more drilling activity to happen in the second half alongside some of the repairs, the work that we're doing with the IGE replacement. Cash generated from operations very strong. Obviously, you can see compared to the same period last year, obviously, it's more than doubles what we've previously reported, again, one of our strongest performance since. Again, we've seen very stable working capital. If I move to the next slide, there's a lot more detail on our cash flow. Again, we started the year with just shy of $0.5 billion in cash. I think the most exciting bit for us is even despite the volatility in the macro, we still generated $766 million of cash from operations, driven by, of course, the liftings that we've done. And then when you consider all the payments expenditure, including the taxes, before the debt movements, we're just below $700 million. Again, the strongest results we've seen, over 200% year-on-year increases in our cash flow from operations. And you can see this slide here is very telling. Operating free cash flow of almost $400 million translates to almost $15 per barrel, again, very positive. We expect that in the second half of the year, I mean, if the oil prices again, remain at similar levels as we're seeing, certainly getting into this second half, we expect these results to be very reflective of what the full year would look like. Now just to mention here, again, working capital has been good. We did -- we are showing receivables better than where we were at the end of Q1. But just to highlight here that we have that in hand. There's a lot of good work going on there, and I'll speak to that a little later as well. So if I move to the next slide, again, this slide sort of shows the strength of our balance sheet since the acquisition. A lot of what we shared with you in the first quarter, I mean, this second quarter and this first half of the year is really -- we're just really building on the information that we have shared with you previously. So as a combined business, gross debt is just below $1.1 billion. And net debt, again, improved because we've delivered this period, and it's obviously very reflective of the cash-generative nature of our business. We continue to maintain our leverage very -- we're quite conservative on our leverage, and we are at 0.53x this period. And if you see the little chart below, it sort of shows you our net debt-to-EBITDA numbers through the cycle from the first quarter of 2022 to date. Our debt covenant says that we should be below 3x. But within our policy, we are -- we will always be below sort of 2x. That's our policy. I think the most exciting bit about this slide is really the additional flexibility that's provided with the liquidity. So now with our RCF, we've just also now repaid the $100 million on our RCF. So the $350 million RCF we have is fully undrawn as of today. If you combine that with the cash balances, you see that our total liquidity is inching up to $800 million. In addition, it is also -- as part of the work that we've done with the refinancing, we've extended maturities on our debt. And so additional flexibility, as you can see on the chart, the $650 million bond extends up to 2030 and then the advanced payment facility that we secured for the acquisition of our offshore assets is around 2027. So our final slide, I'll speak on what our focus is going to be for the second half of this year. Again, a lot of this we've already started. And maybe to speak a little bit about the taxes. I know there's quite a focus on it. I started off explaining that some of the investments that we are hoping to achieve on the offshore business is going to make a huge difference and is to understand that even for 2025, we are actually planning a CapEx investment that's almost 8x the 3-year average pre-CIC. So if you think about what was previously invested in the offshore business before we acquired it, very low investment. So already in 2025, we're ramping that up very, very quickly. So we're starting off doing that. That was start to build the capital allowances as we go through the year. And then of course in 2026 we expect this to continue to increase. We're going to be spending quite a bit of time at the CMD sharing more details on this. I think in addition to this, and Sam mentioned this very briefly, we are working on a new CPR. And so the new CPR is expected to show improved reserves, and therefore, that should also impact our DD&A numbers. So we expect in the third quarter DD&A rate to come down. And then if that comes down, then we expect the profit before tax from Q3 onwards to also come down. Thinking about the effective tax rate for the full year, we're anticipating that the 90% will drop to between 70% and 80% as we begin to meet some of these targets around the investments and get the updates from the CPR. Specifically on the cash taxes itself, you see that we've spent -- we've paid cash taxes of $214 million in this first half, and we expect that the cash taxes will broadly be in line in the second half would largely be the same as what we've paid in the first half. Again, the way we've done our taxes, we've annualized the plan so that based on what we were forecasting for the second half, so we've sort of annualized it. So hopefully, again, it's also still a reflection of oil price and obviously delivering on the CapEx program. I guess the final thing to add here is that there's still additional benefits on -- that will help us with the tax burden, and this is to do with the PIA conversion, which we are now commencing conversations on with our offshore business. While on our onshore business, we expect to sort of get the approvals this year. Again, it's dependent on the government on any PRC, but we're working very closely with them. And hopefully, we should get that sold in 2025 for the onshore business, while for the offshore business, some of the conversations have commenced, and that will be -- that will come in a little later. Now next to sort of pick up on this slide is on the cost side of things. Again, there is quite a focus on cost optimization for us. And just in this -- the last couple of months, we've started to look at our supply chain and procurement space, and we're looking to secure better rates from the larger business. We have opportunities to rationalize our fleet and look at our inventory as well. In addition to that, there's an opportunity, of course, to remove duplications in some of the corporate functions. So a lot of this is going to drive our cost downwards. Speaking to working capital, again, strong relationship with our NNPC JV partners. We've had a really good working relationship with them. I mean that has continued from even before the acquisition. We've secured approvals for some of the late cost in 2024 and also the 2025 budget. And so that approval has allowed some of the cash call payments to start to come through. We did sort of show that receivables, we had sort of higher receivables. But again, we have that in hand. A lot of it has already been approved, and now we're going to be chasing the actual cash recoveries, which we've received assurances that we will start to see coming through this quarter and into next quarter. The way we've planned our liquidity, again, we -- our RCF is undrawn. Our existing business will still -- is still robust enough to settle the deferred consideration. Again, we have some final payments to make to Exxon related to the acquisition. And even in spite of -- despite that, our liquidity is strong to ensure that we complete those payments. And then I guess, finally, part of our -- as we start to think longer term and grow oil production and increase value, the JV financing is going to be one area where we're going to be working with the NNPC to support the growth plans we have for the offshore assets. And then I guess finally is to just reiterate the way we're looking at our debt. Again, we've refinanced the bond in April. I mean that supported -- I mean, the timing was really good. And I think in addition, we provided additional flexibility around dividends. So for the second half, we are looking at a number of options around the reserve-based lending we have with Elcrest because that matures soon. So we're looking at bringing out the cost of the debt there and potentially extending maturity of the financing. And then also on the RCF as well, we're looking to see how we can create additional flexibility beyond the times that we have now. So thank you for listening. I'll now hand over to Roger.

Okay. Let me summarize then in the final slide. So just in the 6-month summary, I think the takeaway here is strong operational performance. We're really seeing the impact of the additional production, a good gas performance, both onshore and working towards the offshore production increases, et cetera. Cash generation is good, EBITDA on this and again we're deleveraging the business which is prudent management and our team maintaining the dividend. If I then look at our outlook, let's do the right-hand slide first, which is the guidance slide. So we're sitting at the upper end of the guidance. We maintain that guidance of 120 to 140. There's a lot of activities in Q3. In CapEx, again, we are slightly behind guidance in terms of the first half, but we fully expect to catch that up and be below the guidance range there. And in operating cost, I think you'll start to see operating cost below the guidance ranges there and it's likely that we will see how Q3 goes and then look to potentially tighten that in Q3. In terms of the integration, which is a big part of what we're trying to achieve this year, putting the 2 businesses together, we're on track. The cultures are aligning, and we're going to work through the second half of this year, really putting it together. So when we go into next year, it's going to be a fully combined business. In terms of operational events coming up, we talked about the CPR, which we will obviously communicate probably in 6 weeks' time at CMD. First gas at ANOH, it's been a lot of effort to get to where we are today, but we are in really in the final stages of monetizing the gas at ANOH. The gas is there now. So we're just working to supply the offtakers. And then in terms of routine flaring, again, we've committed to end routine flaring the onshore in that we're comfortable in delivering this in 2025. So finally, let me just say at the Capital Markets Day. We -- it's only 6 weeks away. We will be really looking at the next medium term, probably next 5 years for the company. And we'll be doing a deep dive on the onshore business and the offshore business, really looking at how we're going to spend capital over those 5 years, the growth, integrity maintenance, et cetera, and then looking at a really probably an enhanced or a new capital allocation policy, which will then dovetail into dividend policy, we want to see how we're going to return capital to shareholders going forward. So that's going to be an interesting time in the 18th of September, and we really look forward to talking to you all then. So I'll just hand it back now for Q&A. Thank you.

[Operator Instructions] We'll take our first question from James Carmichael with Berenberg.

Appreciate we're going to get more at the Capital Markets Day later in the year. But just when I sort of look at the balance sheet, obviously, leverage is 0.5x. That looks pretty healthy. Cash flow is strong. So I think as you sort of mentioned in there, you've got flexibility to do more. So just wondering sort of at the high level, how you think about priorities, credit rating, investment and shareholder returns? And then just interested in sort of the idle well opportunity actually. I think you mentioned sort of 50 workovers this year, including 29 restarts, if I read that right. And that's given you a pretty good bump in production so far. What's the overall sort of inventory there? Is that program going to be maintained into '26 and beyond? Yes, just interested to get any color on that would be great.

Thank you. I think probably Eleanor probably the best to handle the first question and Sam the second.

Yes. All right. Thank you very much. I think just like you said, right now, we're very focused on our work program for 2025, which we've provided the guidance on. The macro side has been fairly positive. And so we've obviously delivered strong cash and strong results but there's quite a bit of efficiency there. Getting into the Capital Markets Day, we're going to be providing a lot more around sort of medium term with a huge focus on the offshore side. And we talked a little bit about the fact that the CPR is being updated. And also at the Capital Markets Day, we'll provide more information on our capital allocation policy, potentially our dividend policy as well. So at that point, we'll sort of be able to share more. Again, there is a focus, of course, on shareholder returns, but we will give more details when we meet in September. Thank you.

Okay. Thank you. On the outdoor restoration program as well, the inventory is there. We're working the numbers. If you saw my first slide, you probably would have noticed the ramp up in the idle well restoration program. We started slow in January, then began to ramp up. And then by June, you could have then seen how the program is already ramped up. So we had an initial plan of delivering 50 for this year. We've done 29 already irrespective of the slow start. So there is a likelihood that we probably will go above the 50. The inventory is there, we're maturing them, and we're getting them ready for execution. We had 2 jack-up barges at the moment, scaling up to 3. So again, in terms of the liquidating the program, we are actually slightly ahead of the program in terms of count. And then also when you look at the returns on the wells, it is actually in line with our expectations as well. So yes, thank you very much for that question we're dealing with it.

I think to add to that, I mean the wells, it's getting the infrastructure in place, the jack-up barges to be able to access that and to do it in a very coordinated fashion. So there's a plan around it. And we'll stick to plan and where we can improve on it, we certainly will.

The next question comes from the line of Nikolas Stefanou with RenCap.

Congratulations on the strong set of results. I want to ask you about this idle well program as well. I want to get a better idea of how the production profile of such a well would look like because presumably, Exxon shut down because they were not that productive. So are we now seeing kind of like maybe some flat oil production coming out because the wells have been shut for so many years. And then we should expect maybe a very high water coming in, in the next coming like weeks or months? Or do you think that this kind of like production we're seeing now will be a bit more sustainable? That's the first question. Then the second one is about the CPR you guys are working on. I mean the most recent one has been -- it's less than a year old. So I'm just wondering what is the base of kind of like trying to work on a new one? And do you have like more -- is it incorporating some of the idle well data? Is it -- I just want to kind of like get an idea, obviously, without trying to do in the September sort of like takeaways. But what kind of like stuff should we be expecting from the new CPR? And then the final one is for Eleanor, I guess. So how do you see the capital structure going forward? And you have mentioned refinancing the RCF. But I'm just wondering about the PSF with Exxon. Is that a facility you would prefer to look to maybe refinance? Would you go for an RBL or maybe a bond? And the reason I'm asking is because I've seen some of your peers recently saying that they actually prefer offtake facilities with traders as opposed to RBL. So I just want to -- I'm just wondering what kind of like from what have looked in the market, which other options do you think are the best for Seplat at the moment?

Okay. thank you very much for that question. First, on the idle well question and expectation from the production. I kind of understand where you're coming from in terms of flash production. So indeed, what we expect -- because we know pretty well that because the well has been shut down for a number of [ wells ], you possibly will expect that initial production rates might be flash production. But what we have done in terms of planning and then what you see today is that we employ a very technical well reservoir management program to ensure that we don't take the flash production into account because that is not sustainable. So what you're seeing today in terms of well production rate is what we expect the wells to -- for sustainably produce going forward because, again, if we pull too hard at the initial time, what will happen is that you will then pull in water and then that will not be good for your liquid handling at QIT. So there are quite a few technicalities around making sure that the wells and the reservoirs are managed and produced in a very sustainable manner. So the rates you see today is a sustainable rate going forward.

Let me just answer the CPR one. If you recall, we did when the acquisition was a reverse takeover, which meant a full prospectus. We had a third-party CPR done by ERC. It's very limited in scope. And the nature of it is of the reverse takeover, you can't assume that Seplat running it. You have to assume that Exxon has continued to run it. So it's a very different setup and there's limited information. And what we committed to do post acquisition is actually to then work through the detail. Ryder Scott is a company that builds our CPR for onshore, and we're using them for the offshore business. And we also have the benefit of the team that came across, obviously, a number have been there for 25, 30 years. So they understand the subsurface. And so we are advanced stages of this. We will bring it to the Capital Markets Day for this, and we will present it as a complete position of the business going forward. Eleanor?

Yes. Thanks, Nick. I think the way to think about it is our focus is really just to maintain a low balance sheet leverage, depending on obviously, oil price and everything else. We are looking to invest quite a bit in our offshore business and grow that. And so we'll just continue to present what opportunities are available to us. I think having flexibility is quite important, which is why we're working on extending these maturities. But most importantly, is making sure that we're also optimizing the cost of debt.

And just a quick follow-up on the comment about the receivables, for the legacy receivables specifically, what -- can you give me a bit more detail about the progress there? And is it -- and do you have like a high level of confidence that you'd be able to maintain those receivables or so that you make -- give a payment to Exxon? And if not, would you be able to kind of like defer the payment to Exxon into 2026? Any comments there?

Yes. I mean I guess the answer is yes. on two sides. First of all, NNPC is very focused on growing value on these assets as well. So we're getting quite a lot of support from them. The legacy receivables has just gone through a timing process. It's mostly timing because there's a process to go through. We've already secured approval for most of the legacy stuff, and we're going to chase the cash recoveries in this quarter and the next. We're not concerned per se about this because, again, like I said, we're getting a lot of support. In fact, if one of our assets, I mean, we're fully caught up on cash call payments. So it's not an issue for us. We'll just continue to work it and continue to bring the numbers down.

Yes. And just to add to that, Nick, we don't see paying Exxon an issue, right? So we'll pay them on time. We don't want to push it later.

Your next question comes from the line of Nikhil Bhat with JPMorgan.

To this earlier, I was looking for more details in the current oil price environment, sort of how are you thinking about your next offshore drilling campaign? Are you considering sort of pushing it further out? And then second, on the deferred payments as well, you touched upon this, but do you mind giving us an update on sort of where that stands right now? How much has been spent and how much remains to be spent in the second half?

Yes. Just on the -- maybe Eleanor, you can do the second one there. But just on the oil price environment, it's something we've been watching very carefully. We obviously naturally hedge through using put options. If you look at the offshore business, a lot of our focus has been on idle well restoration and there's plenty of well stock in doing that. So that's going to keep us very busy. For the drilling campaign, we're obviously now thinking about that and really working that through. A couple of bits to it. One is ensuring that we get rig availability and we secure those rigs, and that's being worked through. The other one is subsurface. So the -- obviously, when we bought these assets from Exxon, there had been a lot of work done on the subsurface. And so all those subsurface plans, models, et cetera, are being updated as we speak. So we actually know when we start the drilling campaign where to put the drill bit. So that's underway. We'll communicate again and push it in 6 weeks from now, but we'll communicate in 6 weeks what our plans are, we'll deal with that, and we'll deal with the oil price environment. But we don't really see that holding us back necessarily from a drilling campaign. Eleanor?

So the deferred payments, so we have -- we're planning to settle $257 million in December. So that's within our liquidity plan. And the way we've structured our REIT forecast for the second half of the year, the business generates enough cash to support that payment. There are also some final reconciliations we're doing in line with the SBA to make sure that we've closed out any of the sort of pre-CIC payments that may arise. So all of that, we will be communicating sort of the final position in our third quarter results. Thank you.

Your next question comes from the line of [indiscernible] with Investec Bank.

I think my questions are mainly around the onshore business, particularly looking at the Western asset and OML 40. Could you kind of just provide more color in terms of like quantifying what the lower end and upper end of the guidance for 2025 for production for those 3 assets looks like? And then also just moving long term outside of 2025, could you -- given the fact that with the Western assets, production has been supported by drilling activities? And then now also with OML 40 with Sibiri and also Abiala expected to then be able to support production volumes. Just outside of 2025, could you kindly also provide me with more guidance around how you see production volumes for those 3 assets looking like over the next 3 to 5 years?

Okay. Thank you. That question is very good. If you look at the Western asset or our onshore business, at the global level, we -- the guidance we provided to the market is 48 to 56. And what we have done is that if you look at our production performance to date, we are somewhere actually at the top end of that production guidance. We are at 54.8 by end of first half of this year. So when you look at then the journey to the end of the year, we see ourselves actually keeping the guidance that we have given for these assets, we would relook at the longer term, again, as we come into the Capital Market Day in the next 6 weeks. That way, we would give you a layout of the entire Western asset and the combined business as well going into the future. But overall, if you look at the first half of the year performance of these assets, they've been very strong, and we continue with our drilling program as well to sustain the -- and arrest decline, first of all, and then begin to grow the asset. So if you really look back as well this equivalent period in 2024, you can see the strong operational performance of these assets onshore. Like I said, we are 13% above equivalent period in last year, which underscores the drilling activities, the restoration activities that are going on in the assets, making sure that we continue to sustain strong performance within the asset. So overall, outlook for the rest of the year is very strong for these assets, and we will bring you the longer-term view in the next 6 weeks.

Your next question comes from the line of Dimitri Ivano with Jefferies.

I have 2 quick questions, if I may. The first one, one of the previous questions around your legacy offshore receivables. Could you remind us about the amount of this legacy receivables outstanding? And given like working capital position -- given working capital outflows in the first half of the year, like it was slightly negative. How should we look at the working capital outflows in the second half of the year, given like you expect some reversal of this legacy offshore receivables? So any kind of guidance on the working capital for the second half of the year would be much appreciated. And the second quick question on the CapEx, I appreciate that you will provide like more details on your kind of longer term like medium-term drilling campaign in September. But like directionally, how do you see capital expenditures like in 2026 versus 2025, like in terms of like direction higher, lower, same amount? How do you budget it at the moment? That would be also much appreciated.

Okay. Thank you very much. So at the end of 2024, we had around $300 million of receivables that we've inherited from the offshore business. Most of that was carried forward because we're sort of waiting to secure approvals. In this period, we have secured approvals for quite a bit of it, almost 70% of it. And so we will start to see some of the payments coming through in this quarter and in the next quarter. So the working capital, it will continue to normalize. Like I said, there's also a focus from our JV partners to pay cash flows on time. The current status of the receivables, not all of it is sort of overdue. So taking like 2/3 of our receivables are really sort of what is overdue and what we're seeking to get payments for in the rest of this year. So again, just to restate or reiterate that we're not really considering this as an issue for us. The current receivables or the current cash flows are being paid promptly, within 30 to 60 days, we're getting those settled. And really, it's just now to start to drive this $300 million plus that we inherited from last year to start to bring that down. And we expect to see that sort of reduce drastically by the end of the year. I mean we do have some that we are still in discussions with our JV partner, and we expect to sort of close that out this year and start to see the payments of that last bit into 2026.

So should we expect some positive working capital release in the second half of the year, basically like on consolidated basis?

So sort of similar levels as we see now. Again, we do have a huge payment to make in December for -- to complete the acquisition cost. So that will obviously eat into that. But outside of that, really, oil price supporting the businesses remained strong as we grow the volumes, we'll start to see the cash generation build. Working capital is really around getting the cash costs paid by the partners that happens and then all we'll be doing will really be settling the final payments to Exxon in December.

And we'll see some higher CapEx numbers come through in the second half.

And any kind of on [indiscernible] direction basically?

Yes. I mean, look, we've got -- we're guiding 260 to 320. So given we are about 100 in the half year. So you would expect kind of 160 to whatever, 220 thereabouts to maintain that guidance.

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

Great. Thank you very much, John. Thanks very much for all your questions on the call so far. We do have quite a lot actually on here to get through. So we might not be able to get through them all, but I'll just start here from an investor. Assuming no changes to the oil price, can we give any expectations for free cash flow for full year '25? And then where will management allocate this cash over the next 6 months allocated to dividends or debt repayment? Anything we can say to 2025 view on cash?

Okay. So we've just now paid down the rest of our RCF. It's now fully undrawn. So some of our cash has gone to that. We do have CapEx investments to make in the second half of the year. We've already sort of spoken to that. So there will be a focus to ensure that we deliver the CapEx. We will share more around what happens with our capital allocation policy and dividend when we come to the Capital Markets Day. Thank you.

Okay. Next one, maybe for you, Sam. Seplat appears to have had about a 75% success rate in restoring production from this idle wells year-to-date. Should we assume this to be the trend for the rest of the inventory that we have? Or have we tackled for older ones first?

Yes. No, thank you very much for that question. And indeed, it's good. When you look at the number of wells we will restore 29 and then 22 of them on production, the 7 odd wells that are not on production are -- actually not on production for a few reasons, some of them actually kind of producing gas. So again, when you look at short-term oil and gas restoration activities, you actually don't expect 100% success rate. So that, again, is part of the headline that says that we would pass on again. But indeed, 75% is a bit, call it on the ballpark of what we see. But if you then piggyback on the volumes that we restore, we had planned for an average of 1,000 barrels per well. If you do 26,000 of 22,000 again, that gives you an indication of what we see in terms of restoration volume success. So I would say that, yes, the overall success rate at the moment is in alignment with what we expect given the age of these wells and the production history that we've seen.

Great. Thank you very much, Sam. A question on ANOH. Can you provide any further details on progress on the OB3 pipeline? Part 1. And then part 2 is, can we give any update on expectations for gas price realizations to Nigeria LNG versus what we are planning through the OB3 pipeline?

The OB3 pipeline is obviously a project has been done by NGIC, which is our partner in HGPC in ANOH. So our update is obviously coming directly from them. What I would say is that the River Crossing is complex. And there's quite a lot of expertise from around the world that's been brought into Nigeria to resolve it. And a new contractor coming on has been brought on board to add to the existing contractors. And there's the AKK pipeline, which has had success from River Crossing, which again is another project that NNPC is doing. So we're building -- I think what we've done is pause that. They're bringing all the learnings and expertise from the AKK. And this quarter, they're really looking at revisiting everything before they start again with the final stage River Crossing in Q4. So what we've now done is we've obviously switched our focus along with a partner to actually look at monetizing gas in the south, so not needing the OB3, we've got 2 offtakers, and we're looking to get first gas around that. So we watch the project, but it's a complex project, OB3. In terms of gas prices, again, the nature of the gas supply, particularly to Nigerian LNG from AGPC is more of a short term than a longer-term plan. Obviously, the longer-term plans to put that gas into the OB3. So the pricing will reflect that. I don't think you can correlate the 2. We've already inherited existing pricing to Nigerian LNG from the offshore. But we are looking at options to increase that production. And of course, we will then revisit the commercials around that. So I don't think they're correlated, the 2.

Okay. Brilliant. Thank you very much, Roger. Just going to the next one, dealing with the order. Can you confirm the new CPR will be finalized in the current quarter? How are any assumptions differ from that used by ERC? Perhaps you've asked a little bit about that. Do you want to address that or I should move on?

Just quickly, yes, we will bring it to our Capital Markets Day. So we are really at the final stages of it now.

Okay. And perhaps tied into earlier questions here. Given the $250 million payment that we've got coming in the fourth quarter and higher CapEx, do we have any expectations for either cash or net debt at year-end 2025 or any sort of directional guidance we can provide?

Yes. I mean net debt is, as you see it for the first half as we reported again, I've already explained that our liquidity will be impacted by some of these payments. So you will see a bit of a working capital dip in the second half as we sort of finalize the payments to Exxon and then we start to build up again into 2026.

Okay. Yes. Maybe just following on from that. The deferred consideration of 57, are there any offsets such as tax deductibles we reconfirm this will be an outflow in 4Q? And how will this impact in terms of funding CapEx in the second half?

So yes, those deferred payments are, as we had shared before are cost in line with the business. So the JV partners will pay their share and there's also -- it's also going to be tax deductible, and that's why the business is already generating the cash flow to support the payment.

Thank you. A question here in terms of PIA conversion. Given experience completing the technical work for the onshore PIA conversion on operated assets, how is that informing our expectations for offshore? Do we, at this point in time, have any kind of outline in terms of what the process might look like in terms of time line and importantly, kind of retention within the asset?

I’ll answer. The onshore PIA conversion is really advanced. I mean we're in the final stages of it. Things are speeding up with the regulator because as people convert, a lot of the questions have been answered around that. So that will then help with the offshore business. So the process for application is now very clear. It's a very visible process with the regulator. And we are working through that application, what part of delineation, what you give up and all the other application piece of application you need to complete. So we're doing that now, and we're confident that we will not see the same time line for the offshore as we've seen in the onshore and the conversations with the regulators so far has been pretty supportive for conversion.

Okay. Thank you. Question on production guidance. Obviously, done well in the first half of the year. Are we able to provide any kind of expectations or direction in terms of where we will be at the year-end and the kind of split between oil and gas?

Thank you. The guidance, I would say, at the moment, you've seen very strong performance in the first half of the year. And what we plan to do is to work this through the third quarter. When we come into the third quarter results, we will be in a position to tighten the guidance a little bit more. And the question of the split at the moment, with the integrated assets onshore, offshore, you see a liquid of 80% and a gas of 20%. So that is where we are at the moment.

Just in terms of the integration process, do we have any kind of further thoughts in terms of the cost optimization, potentially around G&A in the business and OpEx?

And maybe answer that one. Yes. I mean, look, the integration work streams are looking at that. So we are working our way through it, how we put it together. There's other synergies we can get in terms of combinations. So yes, it's quite a detailed analysis that's been done. We're looking at -- we've got comparables and other West African comparable companies. We're looking at global comparables, and we're looking at what I think the consultants call gap to potential and look to see where we can get synergistic savings on that through efficiency and also combination. So yes, it's been worked on. It's too early to give you details on it, but we will certainly, I think, in Q3, be able to give you a lot more and what that means going forward.

Just one here in terms of -- sorry, just lost that. Just in terms of hedging for 2025, oil price has been pretty volatile year-to-date. Could you just update in terms of where we're at in terms of our hedge book for 2025 and 2026?

Okay. Thank you. So we have completed our hedging program for the rest of 2025. On average around $53 per barrel, about 2/3 of our volumes. We've also now just secured about 1/3 of our Q1 2026 hedging. We'll start to -- we'll continue to update that as we go on. I mean we're ensuring that we continue to protect the downside. Thank you.

Okay. Maybe here we can wrap up with the last one just in terms of time. Just on the tax piece. Is it possible to give more color potentially on the effective tax rate throughout the investment cycle for Seplat given the investments we're now making are expected to provide a shield from the tax piece? And there was a separate question, but it kind of aligned just in terms of the moving parts to get from the effective tax rate in 1H versus the full year 70% to 80% that we have given in the update.

Yes. So the biggest one is on CapEx. So we’ll start to increase the investment in the second half of the year, that's one. Second is we will start to see improvements on our DD&A numbers. So our profit before tax, we're expecting to increase a little bit. And so that's where the drive really of that drop in ETR is really coming from the combination of our DD&A and additional investments for the business.

Brilliant. All right. We've got no more time there. So we'll have to wrap it up. Thank you very much for, everybody, for all the questions on the call. Perhaps I can just pass over to Roger to close this for the day.

Yes. Thanks, everyone. Lots of good questions there. 18th of September, has indeed we talked a lot about that. So we look forward to a deep dive in the business. And then obviously, beyond that will be our next step together will be the Q3 results towards the end of October. So thank you, everyone.