SEPL Seplat Energy Plc

TIDMSEPL

RNS Number : 6206R

Seplat Energy PLC

30 October 2023

Please see the Full Audited Results in attached PDF

http://www.rns-pdf.londonstockexchange.com/rns/6206R_1-2023-10-29.pdf

Unaudited results for the nine months ended

30 September 2023

30 October 2023

Lagos and London, 30 October 2023: Seplat Energy PLC ("Seplat Energy" or "the Company"), a leading Nigerian independent energy company listed on both the Nigerian Exchange and the London Stock Exchange, announces its unaudited results for the nine months ended 30 September 2023.

Summary

9M 2023 production averaged 48,152 boepd, up 11% on 9M 2022, with liquids production up 17%. Operations benefited from improved uptime at Forcados Oil Terminal and availability of the Amukpe-Escravos pipeline, supporting strong revenue, modestly offset by higher costs. Robust cash generation, further strengthening our balance sheet.

Financial highlights

 
 --   Revenue up 31.0% to $810.4 million (including an overlift of 
       $127.8 million) from $618.6m in 9M 2022 (including an underlift 
       of $60.3 million). Adjusted revenue was flat YoY as improved 
       production mitigated lower oil price realisations. 
 --   Average realised oil price $82.76/bbl (9M 2022: $108.25/bbl); 
       average gas price improved to $2.87/Mscf (9M 2022: $2.80/Mscf). 
 --   Unit production opex of $9.7/boe, (9M 2022: $9.3/boe). 
 --   Cash generation of $365.1 million, flat YoY, funding capex of 
       $125.4 million. 
 --   Balance sheet strengthened in the quarter, $391.0 million cash 
       at bank (9M 2022: $305 million), $128 million MPNU cash deposit 
       not included. 
 --   Net debt at end September fell to $347.6 million (9M 2022: $452.2 
       million), a further $11 million of RBL borrowings were repaid 
       in 3Q 2023 ($22 million YTD). Net Debt to TTM EBITDA improved 
       to 0.9x. 
 --   Q3 2023 dividend declared of US3 cents per share, in line with 
       higher core annual dividend of US 12 cents . 
 

Operational highlights

 
 --   Production increased to 48,152 boepd, up 11% (9M 2022: 43,337 
       boepd), slightly down on 6M 2023 given outages on export infrastructure 
       in 3Q. Group production deferment at 31% down from 37% in the 
       same period last year. 
 --   Issues with the Antan-Ebocha line were resolved allowing production 
       to resume at the Jisike field (OML53) in August. 
 --   ANOH first gas now expected in 3Q-2024. Further delays during 
       construction of the project, particularly the two critical infrastructure 
       projects managed by third parties: OB3 pipeline and Spur line. 
 --   Carbon emissions intensity: 26.0 kg CO2/boe. Three of four Sapele 
       AG compressors have now been commissioned. 
 --   Achieved more than 6.4 million hours without Lost Time Injury 
       (LTI) at Seplat-operated assets. 
 

Corporate updates

 
 --   Full year production guidance narrowed to 46-50 kboepd, inside 
       the original guidance range of 45-55 kboepd. 
 --   Full year capex guidance narrowed to $160-180 million, run rate 
       capex in 4Q23 is expected to be modestly higher than the prior 
       quarter due to project milestone payments. 
 --   Increasing confidence that President Tinubu's administration 
       will approve our acquisition of ExxonMobil's share capital of 
       Mobil Producing Nigeria Unlimited (MPNU). 
 

Roger Brown, Chief Executive Officer, said:

"Seplat Energy's operational performance was strong in the third quarter, particularly September which mitigated some of the outages experienced on third party infrastructure and supported production growth of 11% on the same period in 2022.

Our balance sheet remains strong and thanks to higher commodity pricing and our proactive approach to cash management, we have generated more than $170m in free cash flow year to date. Our focus for the rest of 2023 is on safe and reliable operations, revenue assurance and cost management, all of which will deliver further strengthening of our cash position. This keeps us on track for an excellent year that will support the increased quarterly dividends we announced in April and allow us to continue our commitment to reward shareholders.

Following the serious incident on the Depthwize Majestic rig, which resulted in the tragic loss of life, we have provided significant support to Depthwize, its owner, in its recovery operation. Our own investigations are ongoing, but I can assure all stakeholders of our unwavering commitment to safety on all of our operations.

Ongoing third-party delays to ANOH's export infrastructure remain a source of frustration, but we are confident that the quality of the project will support dividend growth for Seplat in the coming years as we diversify the business and deliver on our strategy to provide more affordable energy for Nigeria.

We remain confident that we can conclude our transformational acquisition of MPNU. We wholly align with and support President Tinubu's efforts to make Nigeria a more attractive place to invest, and we will play our part by delivering affordable and reliable energy that will support our nation's growth."

Summary of performance

 
                                            $ million                        billion 
                                        9 M 2023   9M 2022   % Change   9 M 2023   9M 2022 
 Revenue *                                 810.4     618.6      31.0%      478.1     258.7 
 Gross profit                              416.3     283.4      46.9%      245.6     118.5 
 EBITDA **                                 306.4     337.9   ( 9.3 %)     1 80.8     141.3 
 Operating profit (loss)                   154.8     235.9    (34.4%)       91.3      98.6 
 Profit (loss) before tax                  106.5     185.2    (42.5%)       62.9      77.5 
 Cash generated from operations            365.1     368.1     (0.8%)      215.4     154.0 
 Working interest production (boepd)      48,152    43,337      11.1% 
 Volumes lifted (MMbbls) ***                 8.7       4.9      77.6% 
 Average realised oil price ($/bbl.)      $82.76   $108.25    (23.5%) 
 Average realised gas price ($/Mscf)       $2.87     $2.80       2.5% 
 LTIF                                          0         0 
 CO2 emissions intensity 
  from operated assets, kg/boe              26.0      22.8      14.0% 
=====================================  =========  ========  =========  =========  ======== 
 
 

* 9M 2023 revenue includes an overlift of $127.8m, 9M22 revenue includes an underlift of $60.3m

** Adjusted for non-cash items

*** Volumes lifted in 9M 2023 includes 1.28 MMbbls of overlift

Responsibility for publication

This announcement has been authorised for publication on behalf of Seplat Energy by Emeka Onwuka, Chief Financial Officer, Seplat Energy PLC.

Signed:

Emeka Onwuka

Chief Financial Officer

 
  Important notice 
   The information contained within this announcement is unaudited and deemed by the Company 
   to constitute inside information as stipulated under Market Abuse Regulations. Upon the publication 
   of this announcement via Regulatory Information Services, this inside information is now considered 
   to be in the public domain. 
   Certain statements included in these results contain forward-looking information concerning 
   Seplat Energy's strategy, operations, financial performance or condition, outlook, growth 
   opportunities or circumstances in the countries, sectors, or markets in which Seplat Energy 
   operates. By their nature, forward-looking statements involve uncertainty because they depend 
   on future circumstances and relate to events of which not all are within Seplat Energy's control 
   or can be predicted by Seplat Energy. Although Seplat Energy believes that the expectations 
   and opinions reflected in such forward-looking statements are reasonable, no assurance can 
   be given that such expectations and opinions will prove to have been correct. Actual results 
   and market conditions could differ materially from those set out in the forward-looking statements. 
   No part of these results constitutes, or shall be taken to constitute, an invitation or inducement 
   to invest in Seplat Energy or any other entity and must not be relied upon in any way in connection 
   with any investment decision. Seplat Energy undertakes no obligation to update any forward-looking 
   statements, whether because of new information, future events or otherwise, except to the 
   extent legally required. 
 

Enquiries:

 
 Seplat Energy Plc 
 Emeka Onwuka, Chief Financial Officer                      +234 1 277 0400 
 Eleanor Adaralegbe, CFO Designate 
 James Thompson, Head of Investor Relations 
 Ayeesha Aliyu, Investor Relations 
 Chioma Afe, Director, External Affairs & Sustainability 
=========================================================  ================================ 
 
 FTI Consulting 
 Ben Brewerton / Christopher Laing                          +44 203 727 1000 
                                                             seplatenergy@fticonsulting.com 
=========================================================  ================================ 
 
 Citigroup Global Markets Limited 
 Luke Spells / Peter Catterall                              +44 207 986 4000 
=========================================================  ================================ 
 
 Investec Bank plc 
 Chris Sim / Charles Craven                                 +44 207 597 4000 
=========================================================  ================================ 
 

About Seplat Energy

Seplat Energy PLC (Seplat) is Nigeria's leading indigenous energy company. Listed on the Nigerian Exchange Limited (NGX: SEPLAT) and the Main Market of the London Stock Exchange (LSE: SEPL), we are pursuing a Nigeria-focused growth strategy in oil and gas, as well as developing a Power & New Energy business to lead Nigeria's energy transition.

Seplat's energy portfolio consists of seven oil and gas blocks in the prolific Niger Delta region of Nigeria, which we operate with partners including the Nigerian Government and other oil producers. We also have a revenue interest in OML 55. We operate a 465MMscfd gas processing plant at Oben, in OML4, and are building the 300MMscfd ANOH Gas Processing Plant in OML53 and a new 85MMscfd gas processing plant at Sapele in OML41, to augment our position as a leading supplier of gas to the domestic power generation market. https://www.seplatenergy.com/

Operating review

Group production performance

Working interest production for the nine months ended 30 September 2023

 
                               9M 2023                     9M 2022 
                      Liquids    Gas     Total     Liquids    Gas     Total 
             Seplat      bopd   MMscfd    boepd       bopd   MMscfd    boepd 
                % 
==========  =======  ========  =======  =======   ========  =======  ======= 
 OMLs 4, 
  38 & 41     45%      15,206    116.5   35,289     14,710    112.8   34,157 
 OML 40       45%      10,169        -   10,169      6,316        -    6,316 
 OML 53       40%       1,154        -    1,154      1,806        -    1,806 
 OPL 283      40%       1,540        -    1,540      1,058        -    1,058 
 Total                 28,069    116.5   48,152     23,890    112.8   43,337 
 
 

Liquid production volumes as measured at the LACT (Lease Automatic Custody Transfer) unit for OMLs 4, 38 and 41; OML 40 and OPL 283 flow station.

Gas conversion factor of 5.8 boe per scf.

Volumes stated are subject to reconciliation and may differ from sales volumes within the period.

During the first nine months of 2023, the total working interest production was within guidance and increased by 11.1% to 48,152 boepd (9M 2022: 43,337 boepd); the oil & gas mix was 58% and 42% respectively. Within this, oil working interest production increased by 17.5% while gas working interest production rose 3.3%. Total production deferment in the period was 31% (9M 2022: 37%), a significant improvement on prior year performance.

2023 working interest production by quarter

                                       Q3 2023                          Q2 2023                             Q1 2023 
 
                               Liquids   Gas      Total    Liquids   Gas      Total    Liquids   Gas      Total 
=================  =========  ========  =======  =======  ========  =======  =======  ========  =======  ======= 
                    Seplat %   bopd      MMscfd   boepd    bopd      MMscfd   boepd    bopd      MMscfd   boepd 
=================  =========  ========  =======  =======  ========  =======  =======  ========  =======  ======= 
 OMLs 4, 38 & 41      45%       12,595    110.8   31,693    15,466    114.8   35,254    17,613    124.1   39,003 
 OML 40               45%        8,922        -    8,922    12,025            12,025     9,568        -    9,568 
 OML 53               40%        1,133        -    1,133     1,049             1,049     1,280        -    1,280 
 OPL 283              40%        1,159        -    1,159     1,584             1,584     1,885        -    1,885 
 Total                          23,809    110.8   42,907    30,124    114.8   49,912    30,346    124.1   51,735 
 

Liquid production volumes as measured at the LACT (Lease Automatic Custody Transfer) unit for OMLs 4, 38 and 41; OML 40 and OPL 283 flow station.

Gas conversion factor of 5.8 boe per scf.

Volumes stated are subject to reconciliation and may differ from sales volumes within the period.

Upstream business performance

Total liquids production increased by 17.9% to 7.7 MMbbls in 9M 2023, compared to 6.5 MMbbls in 9M 2022. The higher production during the period was supported by the improved availability of the Forcados Oil Terminal that supports export for the majority of our assets; a contrast to its prolonged unavailability in 3Q 2022.

In OMLs 4, 38, & 41, working interest liquids production improved 3.4% to 15,206 bopd (9M 2022: 14,710 bopd). In the third quarter production was supported by the availability of the AEP pipeline which provided a reliable alternate evacuation route, helping to offset the impact of 44 days downtime for the TFP evacuation route. The main cause of the outage was the time taken to repair the Single Point Mooring (SPM) system at the Forcados Oil Terminal. Production was also impacted by delays to the delivery of new well stock planned on the asset in 2023.

Our operations at OML 40 contributed the most significant growth in the period. Working interest production from the asset grew by 61.0% to 10,169 bopd in 9M 2023 (9M 2022: 6,316 bopd). The strong growth in OML 40 volumes was because of higher production uptime (driven by improved pipeline availability) and the successful delivery of the 2023 wells campaign.

On the Eastern operations in OML 53, daily working interest production fell 36.1% to 1,154 bopd in 9M 2023, with the evacuation of these volumes principally to the nearby Waltersmith Refinery from our Ohaji operations. The issues with the Antan-Ebocha delivery line were resolved in August allowing us to resume production from our Jisike operations. This is expected to improve output from OML53 in the coming months. However, the Trans Niger Pipeline (TNP) remains unavailable, constraining production volumes from Ohaji.

We are actively working towards solutions for the third-party evacuation issues on our Eastern assets and are in final discussions with the Edo Refinery regarding an alternative evacuation option. The plan entails supplying c.600 bopd of JV crude from Ohaji to the Edo Refinery.

We remain committed to resolving current evacuation issues, developing alternative solutions and optimising production across our operations.

Majestic Rig Incident

On 15th August 2023, Seplat Energy announced the occurrence of a serious incident on the "Majestic" swamp drilling rig owned by Depthwize Nigeria Limited, a drilling services provider. Seplat contracted the rig as the operator of the SEPLAT/NNPCL joint venture, and Depthwize was in the process of moving the rig to its planned drilling location at Ovhor in OML 41 when it capsized.

The tragic incident, which resulted in the loss of life of two of the rig crew while the remaining two are still missing, occurred prior to Seplat accepting the rig onto its well location. Our thoughts and prayers are with the families of the crew members who tragically lost their lives in the incident. Seplat commends the effort of all parties in the rescue mission including several Seplat staff who provided strong Emergency Response support to Depthwize during the incident.

Depthwize has conducted its own investigation into the incident and will not be able to fully determine the cause of the capsize until the rig is salvaged from the site, which is currently underway. While Depthwize was fully responsible for the move, Seplat in line with its policies and procedures has also performed its own independent investigation and has shared the findings with the Nigerian regulator (Nigerian Upstream Petroleum Regulatory Commission) and Depthwize. Seplat will continue to cooperate fully with the regulator in its review of the incident and we continue to offer Depthwize our full support where we can. Our main concern is for the impacted families and to ensure they are properly supported and compensated for their loss.

Drilling

During the 9-month period, our drilling program has successfully delivered eight (8) wells including Opuama-17, Sibiri-2, Gbetiokun-4 W/O, Gbetiokun-10, and Gbetiokun-11 in our OML 40 operations; Orogho-8 in our OML 4, 38, 41 operations; ASSN-05 and OHS_9 in our OML 53 operations. The five (5) wells delivered in our OML 40 operations have been streamed at a gross rate of c.11,600 bopd (100% JV), providing a significant uplift to production from OML 40.

As communicated in Q2 2023, our drilling program is moderately behind plan. To address the delays, we initiated a drilling recovery plan early in Q3 2023, and are now operating three land rigs in the Western Asset which will partially compensate for the 6 swamp wells - Ovhor DKFW-01 well, Abiala-1 W/O, Abiala-B, Ovhor DNFT-02, Ovhor DMFU-01, and Ovhor DFFW-01 which were moved out of the sequence due to a combination of the Majestic Rig incident and delays to the drilling program. We expect most of the delayed swamp wells to be drilled in 2024.

For the remainder of 2023, we plan to deliver six (6) additional wells including Okporhurhu-08 W/O (currently drilling), Okporhurhu-HUHA-04, Sapele-7T Workover (currently drilling), Sapele BGHC-02, Sapele-CEGX, and ASSN-06 (nearing completion). This would bring the total number of delivered wells for 2023 to 14 wells.

Midstream Gas business performance

During the period, the average working interest gas volumes grew 3.3% to reach 116.5 MMscfd, showing improvement compared to 112.8 MMscfd in 9M 2022. This increase is attributed to enhanced well performance and the availability of condensate evacuation routes. Total gas sales for the period were 31.8 Bcf (9M 2022: 30.8 Bcf), contributing 42% of the group's volumes and 12% of total revenue.

In the quarter we have successfully entered into a new Gas Sales Agreement (GSA) with a bulk gas supplier for a volume of 50 MMscfd. All the necessary conditions precedent were met by the new customer, and we will commence gas supply under this agreement in Q4 2023. The execution of additional GSAs is part of our strategy to optimise the capacity of the Oben gas plant. We are also actively working on securing third-party gas to feed both the Oben and Sapele gas plants.

Midstream business separation update

The plan for separating the midstream business from upstream operations has progressed according to schedule. We have completed the internal transfer of midstream assets to Seplat Midstream Company (SMC) and the license to operate the Oben Gas Plant has been issued to SMC by the regulator NMDPRA (Nigerian Midstream Downstream Petroleum Regulatory Authority). Additionally, we have issued notices to our joint venture partners and relevant regulators to inform them of these developments. We will continue to keep the market updated on the progress of this separation process.

ANOH Gas Processing Plant

We outlined four key steps to first gas in our 6M23 results: AGPC plant mechanical completion, Upstream wells drill and hook up, OB3 pipeline river crossing and the completion of the spur line connecting the OB3 pipeline to the ANOH gas plant.

During the quarter, there were further delays in construction of the critical infrastructure required to complete the ANOH gas project. The plant has also progressed slower than expected. Overall, progress was hampered by a deterioration in the security situation, poor weather, and contractor performance.

We are pleased to report that overall completion continued to progress on the AGPC plant, reaching 95%, and we continue to expect mechanical completion by year end 2023. AGPC's safety record continued to remain strong during the quarter, achieving 10 million manhours without LTI on the project, which given the significant challenges encountered, is a highly commendable effort.

In terms of upstream development, the drilling of the third well (ASSN-05) was completed in 1H23. Drilling of the fourth well (ASSN-06) by the upstream unit operator, SPDC is substantially progressed and is expected to be completed shortly. Additionally, work on surface facilities required to deliver wet gas to the AGPC plant is ongoing and expected to be completed by the upstream unit operator, SPDC, in the current quarter.

Our government partner, NGIC, is responsible for delivering the pipelines required to transport the gas from ANOH to the demand centres, including the 23km spur line and the Obiafu-Obrikom-Oben (OB3) pipeline.

With respect to OB3 pipeline, further progress has been made in completion of grouting operations at the river Niger crossing, with two barges currently in operation. After a challenging initial period, documented in prior quarters, approaching half the 1,850m river crossing is now prepared to a point of being ready to tunnel. Tunnelling operations, paused as grouting works were prioritised, are expected to resume soon as necessary personnel and equipment arrive back on site. That said, progress has been slower than expected progress, and our government partner has revised its expected completion time for installation of the pipe to the end of 2023.

Regarding the Spur Line project, all line pipes required for all 23.3km spur line sections are in country and have been delivered to the project site. The first phase of the spur line (5.5km length) in Rivers State has been completed. Of the remaining 9.9km in Rivers State, a section of c.4.5km is near completion and currently being tied in. The remaining 7.9km in Imo State is clearing ground in preparation for pipe laying. In the quarter, the project was delayed by unfavourable weather conditions and deteriorating security concerns, which led to three weeks of movement restrictions in September. Overall completion of the Spur Line project today is at 70%, with our government partner maintaining an expected completion date of end 2023.

Based on the progress to date, we believe that Q1 2024 is more likely for a revised completion date. As we have done previously, we believe it is also prudent to allow for an additional margin of error in our planning assumptions of approximately six months. As such we are revising our first gas target to Q3 2024.

Despite slower than expected progress to project completion, ANOH remains an important strategic project for Seplat, and we are focused on the path to first gas. Once completed, ANOH will provide two income streams for Seplat: wet gas sales from OML 53 to the plant and dividends from the joint venture ANOH Gas Processing Company, which will operate the plant.

Given further delay to first gas we provide an update on our base assumptions for the ANOH gas project. Our Eastern assets have recently faced higher than usual deferments due to the unavailability of the Trans-Niger Pipeline (TNP), and we factor this into our conservative planning assumptions for ANOH. Our base assumptions include a more conservative view on deferments than on our Western assets, a wet gas purchase price modestly below current realisations on the rest of our gas portfolio and our business planning oil price assumption of $60/bbl. We anticipate c.6 month ramp up to plateau production after first gas, during which period AGPC will establish plant stability and offtake performance. Incorporating these elements, we estimate that AGPC should provide a dividend stream net to Seplat of c.$30m per annum. The dividends are expected to begin approximately 12-18months after first gas.

We note that a $10/bbl change in the oil price would change the expected dividend by c.$5m, while a 1% change in production deferment changes the expected dividend by c.$1m, both figures are net to Seplat.

New Energy Business

Strategic growth investment opportunities are being pursued for the New Energy Business, with a particular focus on entry into off-grid power generation. Such projects will increase the reliability, lower the cost, and reduce the carbon intensity of existing Nigerian electricity consumption. We have identified power project opportunities for investment, and we continue to work through technical and commercial due diligence to evaluate these investment opportunities.

HSE Performance

The Company has achieved a total of 6.4 million hours (2.2 million hours in Q3 2023) without any Lost Time Injury (LTI) on its operated assets, which reflects the Company's strong focus on safety and the dedication of its workforce to maintaining a secure work environment. In addition, TRIR was 0.63 with no major injuries were reported during this period. There was one Tier 2 Process Safety Loss of Primary Containment (LOPC) incident from a section of the Amukpe-Rapele Trunkline that resulted in 95bbls of oil spilled.

Training sessions on Incident Management (Tripod Beta methodology) were held to enhance incident investigation and prevention with 44 participants at the Lagos and Sapele locations. Also, Process Safety Management Training for Operations, Engineering, Maintenance, Wells, and HSE Team members to prevent process-related incidents was conducted with 63 participants.

The company is on a path to achieve ISO 45001 and 14001 certifications, demonstrating its commitment to top-tier safety and environmental performance. These certifications are globally acknowledged benchmarks for occupational health and safety management systems and environmental management systems, respectively.

Reducing carbon intensity is crucial for the Company, and the flares-out roadmap, which includes measures to minimise greenhouse gas emissions and improve overall energy efficiency, is being implemented to eliminate routine flares by Q4 2024. The carbon intensity recorded for the period was 26.0 kg/boe, higher than the 22.8 kg/boe recorded in 9M 2022 because of higher production. The Sapele Flow Station contributed significantly to the higher carbon intensity recorded YTD. However, the commissioning of the Sapele AG compressors puts us in a position to materially reduce absolute emissions (by approximately 40%) once gas offtake begins. The other project for completion in 2023 is at the Jisike Flow Station, and the gas compression project is expected to capture another 9% of emissions in 2023.

Proposed acquisition of MPNU

On 24 May 2023, we announced that we have extended with Mobil Development Nigeria Inc. and Mobil Exploration Nigeria Inc. (ExxonMobil) the Share Sale and Purchase Agreement (SSPA) for the acquisition of ExxonMobil's share capital of Mobil Producing Nigeria Unlimited (MPNU) to preserve the transaction pending the resolution of certain legal proceedings and receipt of applicable regulatory approvals.

The Board remains confident that the transaction will be approved, and all associated legal issues will be resolved. We continue to work with all parties to achieve a successful outcome, including our financiers who remain supportive, and have been encouraged by the recent drive of the Tinubu administration to promote investment in country. We will provide further updates as appropriate.

Intra-group transfer of OML 53 from Seplat Energy to Seplat East Onshore Company Limited

During the quarter, Seplat completed the internal transfer of the business activities and assets of OML 53 from the Holding Company to its wholly owned subsidiary Seplat East Onshore Limited having obtained regulatory and partner approvals. This Intra-Group transfer will not result in any change to the current business strategy for the assets nor will it affect how the Seplat Group commercially operates. Therefore, the operatorship of the asset remains with Seplat under the Joint Operating Agreement ("JOA"), as the transfer to an affiliate of Seplat under the terms of the JOA is permitted.

The new structure of the Seplat Group is consistent with Seplat's efforts to simplify its structure and is designed towards segregating the businesses of the Group more efficiently thereby reducing risk, cost, and complexity. This is also expected to result in a simplified management and reporting framework for the Seplat Group.

The outcome of the transfer will not, in any way, result in a loss of tax revenue to the Government or an extinguishment of liabilities. Similarly, it will not diminish shareholder value in (and returns from) Seplat as a listed company .

Shareholder actions

The Company had previously communicated a series of lawsuits brought by minority shareholders holding less than 0.005% of the Company's issued shares (details were included in the H1 2023 release ). The company continues to be successful in its defense against these lawsuits and remains confident that the courts will appropriately address the outstanding frivolous litigations. Seplat, as a responsible corporate citizen, will continue to engage all its stakeholders in accordance with applicable law and established corporate governance best practices.

Outlook

Group production performance has improved in 2023, thanks to well performance on OML40 and reduced losses on our Western Asset. We have no significant planned turnaround activity in 4Q23, as such we can narrow our production guidance to a range of 46,000-50,000 boepd, within our original guidance range. Our guidance does not include any contribution from MPNU or ANOH.

Our capital expenditure guidance for 2023 is narrowed to a range of $160-180 million. Reduced well count modestly lowers total expenditure on drilling, while we also anticipate making some project milestone payments in the final quarter of the year. The focus on recovery of our drilling program continues. We are actively looking to contract a new swamp rig, that will increase rigs on our Western Asset to four.

We expect to generate positive free cash flow in the final quarter of 2023, further supporting our ability to fund the MPNU transaction and underpinning managements desire to continue to reward shareholders. The company maintains a policy of a core dividend of 3c per share payable quarterly (12c per share annually), and an additional special dividend. The special dividend will be considered by the board as part of the full year 2023 results .

Financial review

Revenue

Crude oil price, which trended downwards for most of 1H 2023, on concerns around the impact of global monetary policy normalisation on economic activities, recovered sharply in Q3 2023. This was supported by supply cuts from Saudi Arabia and Russia, and declining global crude oil inventories. As a result, average Brent crude price in the period rose 11% to average $85.92/bbl in Q3 2023, from $77.73/bbl in Q2 2023. That said, 9M 2023 average Brent crude price remained 20% lower than average price over the same period in 2022.

For Seplat, our average realised oil price was $90.3/bbl in Q3 2023. This was 19% and 10% higher than realised oil prices in Q2 2023 and Q1 2023, respectively, helped by the favourable timing of crude oil liftings, but down 21% from $114.68/bbl realised in Q3 2022.

YTD, average realised oil price for Seplat is $82.76, 24% below the $108.25/bbl average realised in 9M 2022.

Crude oil revenue rose 33.9% to $716.4 million in 9M 2023, from $534.9 million in 9M 2022. The YoY growth in Crude oil revenue can be attributed primarily to the overlifts recorded during the period. Total overlifts for 9M 2023 stood at $127.8 million (equivalent to 1.28 MMbbls) and is adjusted for in other income. Excluding overlifts, crude oil revenue was $588.5 million, c.1% lower than adjusted revenue in 9M-2022's $595.2 million (adjusted for underlift in the period). Higher production in the period fully mitigated the effect of lower realised oil prices. Total crude lifted during the period rose 76.7% to 8.7 MMbbls (9M 2022: 4.9 MMbbls). The average pipeline loss factor for the group was 3.3%.

Gas revenue experienced a 12.3% increase, reaching $93.9 million in 9M 2023 (compared to $83.7 million in 9M 2022). This growth is attributed to a combination of a modest increase in realised gas prices and a rise in sales volume. The average realised gas price rose by 2.5% to $2.87/Mscf, while gas production saw a 3.2% increase to 31.8 Bscf during the same period (compared to 30.8 Bscf in 9M 2022). The average realised gas price improvement reflects the impact of higher gas price negotiated with off-takers in the period.

Overall, Oil and Gas sales for 9M 2023 rose 31.0% to $810.4 million, from $618.6 million in 9M 2022. Adjusting for overlifts, total Oil & Gas sales were $682.5 million.

Gross profit

During the period, gross profit rose 46.9% to $416.3m, from the $283.4m recorded in 9M 2022. Non-production costs primarily included $141.2 million in royalties and $116.9 million in depreciation, depletion, and amortisation (DD&A), contrasting with $132.2 million in royalties and $88.4 million in DD&A in the previous year. The difference is largely due to higher production in 2023.

Direct operating costs, which encompass expenses related to crude-handling charges (CHC), barging/trucking, operations and maintenance, amounted to $94.9 million in 9M 2023, marking a 41.0% increase from the $67.3 million incurred in 9M 2022. This rise in direct operating costs is attributed to the increase in produced volumes in 2023 by about 1.2mmbbls and higher CHC from using alternative evacuation routes secured by Seplat to minimise reliance from a single evacuation route resulting in lower outages and third-party infrastructure downtime.

Considering the cost per barrel equivalent basis, production operating expenses (opex) were $9.7/boe in 9M 2023, compared to $9.3/boe in 9M 2022.

Operating profit

During the period under review, operating profit decreased by 34.4% to $154.8 million, from $235.9 million achieved in 9M 2022. This decline in operating profit was attributed to a combination of lower oil prices, foreign exchange (FX) losses due to Naira devaluation, and higher General and Administrative (G&A) expenses.

G&A expenses amounted to $104.5 million, 31.6% higher than the G&A costs of $79.4 million incurred in 9M 2022. This increase in G&A costs was mainly due to professional fees associated with the litigation costs in response to the unprecedented and intense period of minority shareholder actions through the Courts; it also includes costs associated with the MPNU transaction. Excluding these exceptional items, G&A costs would have closed relatively flat compared to the previous year. Nevertheless, Seplat remains committed to minimising G&A expenses and has established cost champions to identify cost pressure points, and we are implementing measures to control expenditure in those areas.

During the period, there was a significant adjustment in the exchange rate between the Nigerian Naira and US Dollar, following CBN guidelines to unify multiple exchange rate windows to the Nigerian Autonomous Foreign Exchange Market (NAFEM). The closing rate for September 2023 was NGN832.08/USD1, representing a notable difference from the rates in May 2023 of NGN461.28/USD1, before the new guidelines were implemented. The revaluation of the Group's financial assets arising from the exchange rate difference resulted a net (non-cash) loss (please refer to the H12023 results for more details). As a result, the company implemented several measures to control the impact of the Naira devaluation on financial performance including exhausting avenues to cover costs in Naira and ensuring utilisation of Naira excess cash balances. As a result, YTD FX losses are $27.8 million, following FX gains offset of $6.8 million recorded in Q3 2023.

After adjusting for non-cash items such as impairment, fair value, and exchange losses, the adjusted EBITDA for the period was $306.4 million (9M 2022: $337.9 million), resulting in a margin of 37.8% (9M 2022: 54.6%).

Taxation

The income tax expense of $27.0 million includes a current tax charge of $54.3 million and a deferred tax credit of $27.3 million. The deferred tax credit recorded during the period was due to change in applicable tax rate on our Elcrest assets which impacted deferred tax asset balance brought forward from prior years. The effective tax rate for the period was 25% (9M 2022: 60%).

 
 Effective tax rate analysis         Income tax expense              Tax rate 
 Profit before tax ($'million)   Current   Deferred   Total           ETR     Current 
                                                               (Effective    Tax rate 
                                                                Tax Rate) 
 106.5                              54.3     (27.3)    27.0           25%         51% 
 

Net result

Profit before tax declined by 42.5%, amounting to $106.5 million, compared to $185.2 million in 9M 2022. However, the lower taxation in the current period, resulted in a closing profit of $79.5 million, as opposed to $73.9 million in 9M 2022.

The profit attributable to equity holders of the parent company, representing shareholders, was $40.5 million in 9M 2023, which resulted in basic earnings per share of $0.07 for the period (9M 2022: $0.13/share).

Cash flows from operating activities

During the period, the Company generated $365.1 million in cash from its operations, a small decrease from the $368.1 million generated in 9M 2022.

Net cash flow from operating activities amounted to $296.3 million in 9M 2023, compared to $317.4 million in 9M 2022. This figure includes higher tax payments of $60.5 million and a hedging premium of $3.9 million during the current period, while in the previous year, tax payments were $43.1 million, and the hedging premium paid was $7.6 million.

The Company received $174 million in the first nine months of 2023 towards settling cash calls from the major JV Partner NEPL. Another $32 million was received after the period; this progress led to the reduction of the receivables balance, which now stands at $72 million. Receivables outstanding from our JV partner on OML 53 as of September 2023 are $32 million. The amounts increased over the period because the partner has been impacted by prolonged crude evacuation challenges, where Seplat has lifted through the Waltersmith Refinery since early 2022. As such, the overlift volume stood at over 1 MMbbls as of September 2023. In view of this, we are in discussions with NUIMS management and expected to come to a resolution within this quarter .

Cash flows from investing activities

In the first nine months of 2023, the total net cash outflow from investing activities was $110.4 million, which decreased from the $232.9 million (a figure which includes $140 million in acquisition costs, of which the deposit for investment in MPNU transaction was $128.3 million) recorded in 9M 2022.

The capital expenditure on oil & gas assets during the period was $122.7 million, including $85.8 million invested in drilling activities and $36.9 million invested in engineering projects. Total capex (including other fixed assets) was $125.4 million.

The Company received $8.7 million from All Grace Energy regarding the divestment from the Ubima field, the sum of $27.3 million has been received to date leaving an outstanding of $27.7 million. An extension of the payment period by 18 months has been agreed, with the final payment now due in Oct-2024.

Cash flows from financing activities

Net cash outflows from financing activities were $168.6 million, which increased from the $110.9 million recorded in 9M 2022.

These outflows included $58.1 million for interest on loans and borrowings, reflecting the cost of servicing the Company's debt obligations. Additionally, a commitment fee and associated transaction cost of $8.5 million was incurred on our credit facilities. The loan repayments of $22.0 million, in two $11m tranches, during the period represent the first principal repayments of the Eland Senior RBL Facility.

During the period, shareholders were paid dividends amounting to $76.1 million (9M 2022: $44.1 million paid).

Liquidity

The balance sheet continues to remain healthy with a solid liquidity position.

 
 Net debt reconciliation                 $ million*            Coupon     Maturity 
  30 September 2023 
 Senior notes*                                641.0             7.75%   April 2026 
 Westport RBL*                                 88.0      SOFR rate+8%   March 2026 
 Off-take facility*                             9.6   SOFR rate+10.5%   April 2027 
 Total borrowings                             738.6 
 Cash and cash equivalents (exclusive 
  of restricted cash)                         391.0 
 Net debt                                    34 7.6 
 

* Including amortised interest

Seplat Energy ended the first quarter with gross debt of $738.6 million (with maturities in 2026 and 2027) and cash at bank of $391.0 million, leaving net debt at $347.6 million. The restricted cash balance of $21.2 million includes $8.1 million and $11.4 million set aside in the stamping reserve and debt service reserve accounts for the revolving credit facility.

As the Company continuously reviews its funding and maturity profile, it continues to monitor the market in ensuring that it is well positioned for any refinancing and or buy back opportunities for the current debt facilities - including potentially the $650 million 7.75% 144A/Reg S bond maturing in 2026.

Dividend

The board has approved a Q3 2023 dividend of US3.0 cents per share (subject to appropriate WHT) to be paid to shareholders whose names appear in the Register of Members as at the close of business on 10 November 2023. This takes dividend payments to US9.0 cents per share for the 2023 financial year to date, in line with the Company's dividend policy.

Hedging

Seplat's hedging policy aims to guarantee appropriate levels of cash flow assurance in times of oil price weakness and volatility. Total volumes hedged in 2023 amount to 6.0 MMbbls. For Q4 2023, Seplat hedged 1.5 MMbbls of dated Brent deferred put options at $55/bbl (at a cost of $0.73/bbl); and for Q1 2024, Seplat hedged 1.5 MMbbls dated Brent deferred put options at $65/bbl (at a cost of $1.08/bbl).

 
 Oil put options           Q4 2023   Q1 2024 
 Volume hedged (MMbbls)      1.5       1.5 
 Price hedged ($/bbl.)       55        65 
 

Additional barrels are expected to be hedged for the second quarter of 2024, in line with the approach to target hedging two quarters in advance. The Board and management team closely monitor prevailing oil market dynamics and will consider further measures to provide appropriate levels of cash flow assurance in times of oil price weakness and volatility.

Petroleum Industry Act (PIA) Implementation Status

Since submitting the conditional application to convert all our assets to the PIA regime in February 2023, our multi-disciplinary team has been diligently preparing the Company for full compliance with the various aspects of the PIA and anchor regulations as they impact Seplat. Meanwhile, the regulator is finalising the guidelines for the conversion and has shared concession contracts with converting companies to enable a thorough review and understanding of the contractual terms and obligations that will be applicable under the new PIA regime. The long-stop date for the fulfilment of the conditions precedent, which was extended to September 30, 2023, has expired; we expect that a new date will be communicated.

Share dealing policy

We confirm that, to the best of our knowledge, there has been compliance with the Company's share dealing policy during the period.

Free float

The Company's free float on 30 September 2023 was 29%.

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October 30, 2023 03:00 ET (07:00 GMT)