Thursday 18 July 2019
BUSINESS DAY
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Analysis
Seplat: Making case at NSE for ANOH gas project Iheanyi Nwachukwu
S
eplat Petroleum Development Company Plc, a leading Nigerian indigenous oil and gas company dual-listed on the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE) hosted a capital markets event last Friday July 12, 2019 at the Nigerian Stock Exchange. The session meant for analysts and investors focused on the Assa North and Ohaji South (ANOH) Greenfield gas and condensate development project, in Nigeria. Seplat management team led by the Chief Executive Officer, Austin Avuru; Chief Finance Officer, Roger Thompson Brown; and AGPC Managing Director, Yetunde Taiwo made a presentation titled, “Stability, Performance, Growth”. ANOH gas project The ANOH gas processing project is managed by Anoh Gas Processing Company (AGPC), an incorporated joint venture (IJV) between Seplat and the Nigerian Gas Company. A final investment decision was taken by Seplat to invest in the ANOH project, as announced in the company’s 2018 full year results on March 6, 2019. In May 2019, the reconstituted Board of Directors of ANOH Gas Processing Company Limited was inaugurated. The inauguration took place at the Nigerian National Petroleum Corporation (NNPC) Towers in Abuja on Thursday May 2, and is a targeted at delivering 300 million standard cubic feet of gas per day to the Nigerian market. The ANOH gas processing plant will be the first stand-alone midstream joint venture business between the Nigerian National Petroleum Corporation (NNPC) and a company in the private sector. With the ANOH project, Seplat Petroleum Development Company Plc aims to be the largest supplier of gas to the domestic market. Key attractions of the domestic gas opportunity Nigeria has strong and growing demand for gas. This is reflected on the population as one of the largest economies in Africa with a population today in excess of 201 million. About 50percent are urban dwellers while 62percent is less than 25 years in age and 93percent is less than 55 years in age. Nigeria is projected to grow to a population of 450 million people by 2050 (highest population growth in Africa) and become the third most populated country globally (behind only China and India). This portends high demand from power industries and other commercial enterprises. Current capacity deficit in thermal power generation provides immediate headroom to place additional gas volumes (significant installed but non-operating generation capacity exists). There is 7percent royalty on gas revenues as opposed to 20percent on oil production. There is no Petroleum Profit Tax. Companies Income Tax applies at a lower rate of 30percent, this is in addition to gas utilisation incentive, three years tax holiday (renewable for another two years) or capital allowance uplift. Management views on ANOH gas processing project
L – R: Roger Brown, chief finance officer, SEPLAT Petroleum Development Co Plc; Oscar N. Onyema, OON, chief executive officer, The Nigerian Stock Exchange (NSE); Austin Avuru, chief executive officer, SEPLAT Petroleum Development Co Plc; Effiong Okon, operations director, SEPLAT Petroleum Development Co Plc and Chioma Nwachukwu, general manager, External Affairs & Corporate Communications, SEPLAT Petroleum Development Co Plc during a Closing Gong Ceremony in commemoration of Seplat Capital Markets Day at the Exchange in Lagos.
“Seplat gas business shall continue to break ground, achieving operational and financial success,” Avuru told the capital market audience. He added that the existing gas business and future growth from ANOH “can start to transform Nigeria’s energy mix”. “Market prices remain strong, long term outlook for gas in Nigeria and the regional market remains positive. Seplat’s access to gas infrastructure positions it to be the leading long term gas supplier of choice for Nigeria. Conventional diesel off-grid power generation is expected to be displaced, presenting Seplat gas business with a significant opportunity”, the CEO said. “ANOH has a competitive cost structure,” said Taiwo, who added that lean team and overheads are delivering exceptional value accretive assets in the burgeoning market. She believes the market gas price remains strong and the long term outlook for gas in Nigeria and the regional market remain strong. “Seplat has a proven track record of delivering midstream gas processing expansion projects at OBEN. First gas is targeted for first-quarter (Q1) 2021”. “It is an opportunity for Seplat to leverage repeatability gains from its experience of expanding gas processing capacity at the Oben hub. Oben Phase l expansion by 150 Million standard cubic feet per day (MMscfd) was completed in 18 months, within schedule and budget. Oben Phase ll expansion by a further 225 MMscfd was completed in 15 months, within schedule and budget,” Taiwo stated. Speaking on the project milestone and funding, Brown said the company is considering integrating project execution and funding plan that balances underlying risk with investor appetite. He said contracts are to contain milestones that permit demobilisation of works with minimal cost exposure and nominal cancellation charges prior to Phase 1 and at Phase 2. Also, project on project risk are to be closely monitored ahead of equity injection, and key milestones achieved to provide necessary comfort to Lenders and the Independent Technical Engineer (ITE) to release debt funds.
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The CFO told analysts and investors at the Nigerian Stock Exchange that AGPC a Special Purpose Company (SPC) is formed to raise $420million of equity to de-risk the project. Equity investors Seplat and NGC granted equal share 50:50 in AGPC, with optionality to sell down 30percent holding pre or post first gas. “Debt of $280million is to be arranged. GE considering a direct lend to the Senior Debt. SACE and CPD are considering supporting the project up to $60 million. Equity and debt are to be scaled in line with final project cost whilst maintain a target debt: equity ratio of 60:40. AGPC offshore structure is under consideration. It is structured to be able to repatriate US Dollar,” Brown said. Funding timeline In line with the Project’s achievable funding timeline with flexibility, Seplat has lined up local banks which include but not limited to: UBA, Zenith, Stanbic, Fidelity, FCMB, First Bank, Access, Union, and Nova; while the international lenders include but not limited to: SCB, RMB, Standard Bank, BHGE, and Nedbank. The Export Credit Agencies SACE and CDP are also considering the opportunity alongside Italian nexus. The company is also in discussion with AFC/IFC. The CFO said there is a deferred payment structure embedded into several supply contracts, adding that debt facility is expected to amortise over 5-7 years. The company has appointed independent engineer, legal and market advisors to complete due diligence. Funds are targeted before the end 2019. It has received letters of intent of up to $500million from international and local banks. Soft market sounding to date indicates significant local funding appetite of +$500 million. Pricing is expected to be competed with up to $90million of funding potentially sourced by the suppliers and export credit agencies. Seplat gas business achieved another record year 2018 with gross production of 323 MMscfd (net W.I 145 MMscfd) and Company revenue of $156 million. Seplat had announced in March the Final
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Investment Decision (FID) for the large scale ANOH gas and condensate project, adding that initial equity investment of $100 million from government received. Project to comprise a Phase One 300 MMscfd midstream gas processing development with first gas targeted for first-quarter (Q1) 2021. Avuru had following the company’s interim management statement and consolidated interim financial results for the three months ended 31 March 2019 said: “The next phase of growth for our gas business is now gathering pace following FID for the ANOH project, with governments first tranche of equity investment received. “We have continued to deleverage the balance sheet and self-fund investments into the existing portfolio from operational cash flow, while retaining the financial flexibility and available resources that will enable Seplat to capitalise on what we expect to be an increasingly busy pipeline of inorganic growth opportunities that fit our acquisition criteria.” Full year results A review of Seplat 2018 results indicates positive performance across all financial indices, confirming the Company’s position as one of the well managed indigenous oil firms in Nigeria. As at trading week ended July 12, the share price of Seplat at N530 shows its down by 17.2percent year-to-date (ytd). Seplat reported N228billion revenue in its full year 2018 financial result ended December 31, 2018. The figure represents an increase of 65 percent from the N137billion revenue the company made in the 2017. Seplat also recorded N73 billion profit before differed tax, indicating 480 percent increase from N13billion which the company made over the same period in 2017. The gross profit for the period grew by 84percent to N120billion from N65billion reported in December 2017. Operating profit stood at N95billion, representing a growth of 177percent over N34billion recorded in the corresponding period of December 2017. Seplat’s net profit after tax dipped by 45percent from N81billion recorded as at December 2017 to N45 billion in December 2018.
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