Nigeria’s upstream energy company, Seplat Energy Plc (NGX: Seplat and LSE: SEPL), achieved a 2021 performance that mirrored the rebound of the oil and gas sector. Analysts note the rise in oil and natural gas prices throughout the year. The 2021 performance contrasted Whereas the company recorded losses in its bottom-line figures in 2020, it enjoyed a positive run in both top and bottom-line figures in 2021.Essentially, Seplat’s total revenue increased by +53.80% Y-o-Y while cash generated from operations rose by +33.14% Y-o-Y as price increases outweigh production shortfalls.
The company’s operations produced 47,693 barrels of oil equivalent per day (boepd) on a working interest basis in 2021, down from 51,183 boepd in 2020, mainly resulting from shut-ins in Forcados oil terminal. However, the realized average price per barrel came in higher for the period at $70.54 based on the recovery of benchmark crude prices from the pandemic year low and the return of global economic activity from the Covid-19 restrictions.
Key Highlights
- Seplat’s revenue increased by +53.80% Y-o-Y from
N190.92bn in 2020 toN293.63bn in 2021. - The company’s cost of sales (CoS) increased by +22.81% Y-on-Y from
N146.09bn in 2020 toN179.41bn in 2021. - Gross profit increased by +154.73% Y-o-Y from
N44.84bn in 2020 toN114.22bn in 2021. - Operating profit rose by +979.16% Y-o-Y from a loss of
N11.42bn in 2020 toN100.40bn in 2021. - Finance cost dipped by +78.33% Y-o-Y from
N0.13bn in 2020 toN0.60bn in 2021. - Finance income increased by +63.56% Y-o-Y from
N18.66bn in 2020 toN30.52bn in 2021. - Profit before tax (PBT) increased by +346.03% Y-o-Y from a loss of
N28.87bn in 2020 to a profit ofN71.03bn in 2021. - The company’s income tax expenses grew by +1209.62% Y-o-Y from
N1.84bn in 2020 toN24.10bn in 2021. - Profit for the year (PAT) increased by +252.82% from a loss of
N30.71bn in 2020 toN46.93bn in 2021. - Total assets grew by +22.33% Y-o-Y from
N1,310.80bn in 2020 toN1,603.50bn in 2021. - Total shareholders’ equity increased by +11.23% Y-o-Y from
N632.34bn in 2020 toN703.36bn in 2021. - Earnings per share increased by +310.32% Y-o-Y from a loss per share of
N46.42 in 2020 toN97.63 per share in 2021.
Share Price Heads Up
The year-to-date (YTD) share price increased steadily in 2021. The price steadied throughout the second half of the year as it equally pushed upwards in January 2022. The company’s share price rose by 61.57% in 2021 and increased by 43.48% as of March 11, 2022.
The share price had a high and positive correlation with the NGX Oil and Gas Index at 0.95 in the year under review. But it outperformed the industry average with an average margin of about N347 (see chart 1 below).
Chart 1: Seplat Share Price Movement Vs NGX Oil and Gas Index
*Share price and NXG oil and gas index as of March 11 2022
Source: NGX
Revenue and Profit Synopsis
The company’s revenue increased by +53.80% Y-on-Y to N293.63bn in 2021 (see chart 2 below).
Chart 2: Seplat Total Revenue 2015-2021 (N’bn)
Source: Seplat Financial Statement
A revenue breakdown showed the company recorded an increase in its revenue lines. Crude oil contributed 84.34% to revenue, higher than 78.79% in 2020, while gas sales revenue contributed 15.66% to total revenue in the year under review.
Sales revenue for crude oil and gas increased while crude oil sales volumes declined and gas sales volume increased. Crude oil sales revenue increased by +64.64% Y-on-Y from N150.42bn in 2020 to N247.65bn in 2021. The higher crude oil revenue was primarily driven by the higher average oil prices at $70.54 per barrel than $39.95 per barrel realized in 2020. The lower-than-expected crude oil sales volume for the year was due to the force majeure on export operations from OMLs 4, 38, 41, and 40 after Shell Petroleum Development Company Limited (SPDC) declared a month-long force majeure at the Forcados Oil Terminal (FOT) because of a failure of the loading at the terminal.
Gas sales revenue increased mildly by +13.53% Y-on-Y from N40.50bn in 2020 to N45.98bn in 2021. The higher gas sales revenue was supported by an increase in gas sales volumes from 37.1Bscf in 2020 to 39.4Bscf in 2021 but capped by a lower average natural gas price which came in lower at $2.85 per Mscf.
Denominated in US dollar, revenue for the year also increased by +38.2% Y-o-Y from $530.5mn in 2020 to $733.2mn in 2021. The company used the CBN’s official rate to translate the currency. The depreciation of the domestic currency majorly drove the relatively lower revenue in US dollar terms.
Before taxation (PBT), the company’s profit rose significantly by +346.03% Y-on-Y from a loss of N28.87bn recorded in 2020 to N71.03bn in 2021. The higher PBT was buoyed by a substantial increase in operating profit, driven mainly by lower impairment charges than the higher impairment charges in 2020 (see chart 3 below).
Chart 3: Seplat Profit Before Taxation 2015-2021 (N’bn)
Source: Seplat Financial Statement
Operating profit increased substantially by +979.16% from an operating loss of N11.42bn in 2020 to N100.40bn in 2021.
PBT rose by 321.1% in US dollar terms, and operating profit rose by 890.9%.
Activity Ratios Remain Modest
Seplat’s current ratio grew by +11.02% Y-on-Y from 1.27 in 2020 to 1.41 in 2021. The current ratio of 1.41 in 2021 reveals the company maintained a reasonable working capital that allowed it to remain solvent in the period under review (see chart 4 below).
Chart 4: Seplat Current Ratio 2015-2021
Source: Seplat Financial Statement
Seplat’s acid-test ratio in 2021 increased more than double to 1.25 from 0.29 recorded in the previous year. However, although the company could reduce its current liabilities, its stock of inventories rose (see chart 5 below).
Chart 5: Seplat Acid-Test Ratio 2015-2021
Source: Seplat Financial Statement, Proshare Research
The company’s leverage ratio increased from 41.97% in 2020 to 44.90% in 2021 (see chart 6 below). Essentially, the company allocated about 45% of its cash flow in the year to pay off debts. A breakdown of the ratio shows that the company’s total debt rose by +18.99% Y-o-Y in 2021, while shareholders’ equity grew slightly lower by +11.23% in the same period.
Chart 6: Seplat Leverage Ratio 2015-2021 (%)
Source: Seplat Financial Statement
Kicking Efficiency Upstairs
Seplat’s asset turnover ratio rose by four basis points from 0.16 in 2020 to 0.20 in 2021. The company’s asset efficiency has fluctuated over the past seven years (see chart 7 below). The asset turnover of 0.20 indicated that for every N1m the company invested in its asset, it generated revenue of N200,000, a number analysts consider low. The low asset turnover underscores the need for the company to strengthen its asset efficiency ratio, which has averaged 0.20 over the last seven years.
Chart 7: Seplat Asset Turnover Ratio 2015-2021 (%)
Source: Seplat Financial Statement
Working capital turnover ratio, a measure of efficiency in generating sales per working capital employed, shows that the company recorded its highest turnover ratio in 2021 at 4.56 over the past seven years (see chart 8 below).
Chart 8: Seplat Working Capital Turnover Ratio 2015-2021 (%)
Source: Seplat Financial Statement
The higher working capital turnover in 2021 suggests that the company generated significant sales from its working capital as every N1 in working capital caused sales worth N4.56.
An Eye on 2022
Seplat’s 2021 result met analysts’ performance and share price forecast. Analysts had expected improved performance in the company’s full-year 2021 results and an increase in share price on the back of increased gas sales and oil flows through the Amukpe-Escravos Pipeline (AEP).
Analysts expect the company to maintain the positive run in 2022 buoyed by an increase in capital investment, soaring crude oil and natural gas prices, and the company’s hedging policy. The company’s dominance in the upstream industry gives it a vantage position to build its profitability and book value in 2022.
With crude oil prices currently above $100 per barrel compared with the realized average oil price of $70 per barrel in 2021, the price gain would more than offset any potential decline in production volume as it did in 2021. Meanwhile, the company’s heavy investment in boosting gas production and probable acquisition of the IOCs’ stakes in the country could more than support the company sales volume in 2022.
Albeit, the positive outlook for the company in 2022 would be subject to the operational implementation of the Petroleum Industry Act (PIA) 2021 and the effectiveness of the gas expansion programmes of the government. The ability of the company to underwrite assets of the IOCs would also be subject to the internal policy and politics of the state-owned oil company-NNPC limited, which holds a joint venture stake in most IOCs’ assets in the country.
