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"Any thesis on this temple or just purely a gut feeling ? I hope the mms get burnt on his and seplat make a surprise positive announcement ??"
The positive annoucement is the interesting bet ....
"Seplat Energy is confident that the process to obtain all approvals on the acquisition of MPNU's entire share capital is being followed and will be achieved."
Look ... 80% of revenues come from oil because of a fixed price contract with government ending 2022 I think ....
.. after this time Nigeria will be replacing Russian gas supplies ... so with all the other news on the back burner ...
... let it fall and buy in on dips .... market it selling off and taking everything down with it .. including oil because of recession fears.
https://www.theafricareport.com/215619/nigeria-seplat-seeks-to-raise-gas-production-to-match-surging-demand/
"Nigerian oil and gas producer Seplat has seen a jump in gas demand as higher diesel prices prompt a search for alternatives, director of new energy Yetunde Taiwo tells The Africa Report.
Seplat, which is listed in Nigeria and in the UK, produces about 30% of Nigeria’s gas. The outlook is “very promising” and there is “more demand than we can supply,” Taiwo says at the Africa CEO Forum in Abidjan. The company is trying to increase gas production to keep pace, she says. “There is huge potential.”"
Subscriber only access to the remainder of the report
Any thesis on this temple or just purely a gut feeling ? I hope the mms get burnt on his and seplat make a surprise positive announcement ??as always I will hold on to this roller coaster until the real value is reached. Good luck all regards H.
.. because I have a sneaking suspicion, and it is only a suspicion, the Exxon deal will go through.
;)
I agree Trek ... but I'd still like to buy a bunch of Seplat shares at 100p and 90p .... Market Makers willing and all that.
Good to keep an eye on the bigger picture here. SP is all ‘smoke and mirrors’. WTI back above 110 and Brent above 115 yet SEPL drifts.
Merger news now looks to be discounted from SP. We should track organic drivers now.
MM’s probably posted a liquidity scheme here as it’s so difficult to buy any volume. That’s why so many AT ALGO trades…
https://www.londonstockexchange.com/stock/SEPL/seplat-energy-plc/company-page
They use the ALGO’s to generate liquidity “incentive scheme” which is part of the MM’s job….
“Definition: market making incentive schemes that the Exchange is mandated to offer under Article 48(2)(b) of MiFID and Article 1 of Commission Delegated Regulation (EU) 2017/578”
Page 58 covers it and also ALGO trades.
https://docs.londonstockexchange.com/sites/default/files/documents/rules-lse.pdf
MiFID2 MM agmt tab...
https://docs.londonstockexchange.com/sites/default/files/documents/20200401%20MIT%20&%20TE%20Parameters%20version%207.2.xls
Usual caveats
Trek
At $80 oil, SEPL generates circa 500m in EBITDA annually, vs a market cap of circa $800m and shortly debt free, whilst investing around $160m annually in growth. This doesn't factor in any enhancement of realised oil price once the Ampuke Escravos pipeline becomes operational, or additional liquids output of 10,000 boe/d from ANOH from next year. These are the fundamentals. Rest easy.
Breaking news folks: despite a massive risk-off day in the markets, supposedly nowhere to hide given building recession risks, Brent Oil just broke through $121. I think that says a huge amount about the physical supply-demand situation right now, that during a day such as this, the oil price can recover losses and even rise. The risk of oil collapsing this summer are fast fading; rather, risks to the upside abound. Institutions are yet to fully accept that we've entered a super cycle bull market in oil. Only a deep global economic contraction (rather than shallow economic contraction) can tip the scales from what I read, which seems reasonably unlikely at this point in time. Oil stocks, especially those such as SEPL that are delivering FCF yields in fat double digits, remain stupidly heavily discounted for oil price downside risks that are evaporating fast. This is my view, at the current point in time, with markets across the globe cratering, with oil breaking through $121. Good lord. Who would have thought.
On a similar note, I've been scanning for tech stock opportunities across the spectrum in recent days - they're mostly still unjustifiably expensive to any rational human mind with an ounce of financial acumen, but especially in a world of rising cost of money. That the broad market still doesn't see this is truly remarkable. Our opportunity, though.
The "fair value" realized and unrealized is just a few mUSD per Q.
In Q1 -2022
Realised fair value loss on derivatives - USD 1,7
Unrealised fair value loss on derivatives - USD 2,1
Fair value loss on derivatives represents changes arising from the valuation of the crude oil economic hedge contracts
charged to profit or loss.
Agree. The free cash flow being generated at these oil prices is outstanding. I don't believe there is a quality oil company listed in London or almost anywhere generating such profit at such a low multiple. EBITDA this year might well eclipse the market cap. That's nuts. What's more, it has signifiant short term profitability drivers as well as M&A options. I'm really pleased we cleared up the hedging question marks; now there is nothing not to like.
Yes it's my understanding we are fully benefitting from the high oil price but are paying a small premium to protect from downside below strike price. We should be coining it in at these prices.
And from 2021 AR, pages 35 and 60 -
Oil prices increased in 2021 as economic recoveries resulted in global
demand rising faster than supply. The Brent spot price began the year at
around $51/bbl reaching a high of $86/bbl in late October before declining
in the final weeks of the year to close at $78/bbl. The average realised oil
price achieved by the Group in 2021 was $70.5/bbl.
The Company put in place dated Brent put options covering a volume of
8.0 MMbbls in 2021 at a strike price of $35-50/bbl. This hedging programme
has been continued in 2022 where up-front premium put options at a strike
price of $50-60/bbl were entered into, protecting a volume of 6 MMbbls
in aggregate for the first three quarters of 2022.
Outlook
The Company has historically sold most of its oil under the Forcados blend,
which has generally received a premium to the Brent market price. Once the
Amukpe to Escravos pipeline is available, we expect to sell c. 18,000 bbl/d
via the Escravos Oil Terminal at a price that will receive a premium to Brent.
Hedging
Seplat’s hedging policy aims to guarantee appropriate levels of cash flow assurance in
times of oil price weakness and volatility. For 2021, the Group had in place dated Brent put
options as follows: (i) for Q1, 1.0 MMbbls at a strike price of $30/bbl and 1.0 MMbbls at a
strike price of $35/bbl; (ii) for Q2, 2.0 MMbbls at a strike price of $35/bbl; (iii) for Q3, 1.0
MMbbls at a strike price of $35/bbl and 1.0 MMbbls at a strike price of $40/bbl; (iv) for
Q4, 1.0 MMbbls at a strike price of $45/bbl and 1.0 MMbbls at a strike price of $50/bbl.
The $11.1 million hedging costs were recognised as fair value charges in the period.
From Q1, page 9 - not an expert in the subject but for sure it´s put options.
Hedging
Seplat’s hedging policy aims to guarantee appropriate levels of cash flow assurance in times of oil price weakness and
volatility. For 2022, the Group has dated Brent put options of 6.0 MMbbls through Q3 2022 at an average premium of
$1.42/bbl as follows: (i) for Q1, 1.0 MMbbls at a strike price of $50/bbl and 1.0 MMbbls at a strike price of $55/bbl; (ii) for
Q2, 2.0 MMbbls at a strike price of $55/bbl; and (iii) for Q3, 1.0 MMbbls at a strike price of $55/bbl and 1.0mmbbls are
protected at $60/bbl. Further barrels are expected to be hedged for 2022 in the coming months in line with the approach
to target hedging two quarters in advance
SEPL no longer in the running for Shell's onshore assets:
https://www.bloomberg.com/news/articles/2022-06-08/shell-said-to-be-receiving-two-local-bids-for-nigeria-oil-fields
Let's hope they nail the Exxon assets then
If they are indeed just put options, and there is no settlement cost, then SEPL is 100% exposed to the oil price full stop, and i've been overthinking this and SEPL's fair value is that much higher. This is when a responsive Investor Relations function would come in handy.
It's my understanding that the hedges are options, not swaps, and so there's no settlement cost and no ceiling price for the oil they're selling? They just expire unused. I may be mistaken though.
Thank you Herminator, and I appreciate contributions in return.
As far as I can ascertain, these hedges are mostly the same since last year, by which I mean they have persisted each quarter, which implies that SEPL has taken an active decision to postpone settling them by extending them each quarter, thus SEPL's P&L in recent quarters has reflected market level oil prices and maximum cash generation. The reason for doing this, presumably, has been to beef up the balance sheet for sought after acquisitions.
The issue with doing this in a rising oil price environment is that the future opportunity cost of settling the hedges increases. SEPL has been deferring the P&L and cash flow cost of settling the hedges in return for better than otherwise P&L and cash inflows today.
As Temple pointed out a while back, hedges can work in a producer's favour when oil prices are falling - which was the case for SEPL back in 2020. That is why the banks demand some hedging as a condition of lending. But when oil prices are rising, it's obviously a cost, unless settlement can be deferred until the oil price falls back again.
This is the point - SEPL's outstanding hedges lower the company's sensitivity to the rising oil price, agreed, to the tune of 6.5 months of production, however beyond that, the company is fully exposed to market prices. A DCF will acknowledge this and give proper credit to the expectation of higher long term oil prices in SEPL's NPV/NAV.
In my view, this lower sensitivity to the rising oil price (indeed also lower sensitivity to a falling oil price) doesn't ultimately matter to the investment case, because the investment case ultimately lies in the long term EPS and cash generation expectations of the company that feeds into its NPV or NAV calculation, not the incidence of the relatively marginal 6.5 months of production hedges.
The hedges could remain indefinitely, extended every quarter for a small fee. But they do not undermine the investment case, in my view; more accurately, they reduce the company's NPV/NAV sensitivity to the oil price.
I suspect that SEPL will continue to defer settlement of these hedges to prioritise cash generation while there remains the prospect of value-enhancing acquisitions. Hopefully the board is being smart about this and that this tactical decision signals their continued expectation that a transformational acquisition remains likely.
Seatank firstly can I Thankyou for all your diverse info about seplat' it’s really useful, looking at the latest post are you able to estimate when these hedges finally disappear and the full value of oil to seplat shows itself, I have had a brief look and tbh I cannot find a definite answer, are you able or none else to shed some light on timescales please, as always I hope the Exxon deal comes to fruition if not I’m sure seplat will make a play for the shell assets that are going to be on offer soon, thanks and regards H.
I've been thinking more about the hedges that SEPL has been (unfortunately) extending rather than digesting upfront in order to prioritise immediate cash flow generation, presumably to reinforce the balance sheet for the acquisition pipeline. Any Exxon and Shell assets purchased should be hedge free, and will be transformational in terms of oil production for SEPL, so presumably it made much sense to the board to prioritise cash build to fund transformational acquisitions rather than satisfy the hedges first.
Even if these acquisitions don't happen, obviously a rising share price is still a big net positive to SEPL's equity valuation. A DCF is the cleanest method of showing this, but I haven't built one. In essence, 6 million barrels hedged at $55 (approx 6.5 months of production) reduces the extent of the rise in the immediate year discounted cash flow on a higher oil price, but every year discounted after year 1 is hedge free, so if your assumption is that oil stays higher for longer, which is the market assumption, the NPV of course rises considerably with a higher oil price as all years post year 1 flow 100% to the present value.
You can also look at it on a multiple basis. For example, for every $10 rise in the oil price, revenue to SEPL will rise approx $93m and EBITDA perhaps $90 (very much a guess on my part, please chip in if you have an informed view). Putting this on an EV/EBITDA multiple of 2x, which is fair in my view, should add around $180m to the EV of the company (in effect $180m to the market cap). Meanwhile the cost of the 6 million barrel hedge rises by $60m. So netting this from the $180 suggests a net rise in the market value of +$120m for every $10 move upwards of oil. SEPL's share price and market cap has been almost flat over the past year, yet oil has risen from around $70 to $120, suggesting +$500m of market value creation yet to be realised even taking account of the hedging programme.
It's not to say that the hedges aren't offputting to investors bullish on the oil price, but ultimately the NPV math bares out and can't be ignored indefinitely.
And as I pointed out, if the board believe these acquisitions will convert eventually, prioritising upfront cash flow by extending the hedges makes perfect sense. I still believe SEPL is in the running for Shell's portfolio as well.
I think patience is the only catalyst needed here; the fundamentals, without Mobil are fantastic, and at some point investors will be in a position where they can not ignore/wait on the sides if they want to enjoy a share of the SEPL cake. As discussed before, there is little of that cake available, so if you want a bite, you are going to have to pay for it.
I think if you are investing (as opposed to trading), the trajectory here is exceptional and sustainable for a long time. When investors wake up this will shoot up, maybe not exponentially SP wise, but certainly yield wise. If your patient with a medium to long term investment here, the fundamentals will out.
Marginal daily gains despite the robust oil price, but traded volumes are still minimal for a $900m mkt cap stock - if you want to pick up SEPL in volume, you need to pay up for it. That means a higher share price. Most holders won't sell to you at these farcical levels. The share price may be lagging, but shares aren't changing hands. That will have to change, presumably. I'm looking for some catalysts materialising, such as commissioning of this pipeline. And another bumper set of quarterly results.
"People Who Constantly Point Out Grammar Mistakes Are Pretty Much Jerks, Scientists Find"
"this paper, which was published in PLOS One in 2016, was actually the first time researchers were able to show that a person's personality traits can actually determine how they respond to typos and grammatical errors"
Imagine revealing one's own pedantic personality traits on social media ... and thinking one deserves to be taken seriously?
Ha Ha Ha Ha Ha
:)
nowt wrong with a MORNICator; so ironic, to post sardonic suggesting MORNIC. How catatonic!
"It's not a competition re SAVE and SEPL. "
Given the common sector and common regions of production, it should hardly be a surprise that both share price trends have a high degree of correlation save for SAVE coming out of suspension recently, and seplat taking a hit from uncertainty of the Exxon deal ... but with the limited time available the correlation across the two looks to be north of 80% ...
While:
"rather than the ****ging of individuals, that are focused on SEPL."
... is quite a mornic comment on a Seplat thread .... here is a prediction ... Chad oil workers will go back on strike demanding higher wages ... SAVE shareprice plunges, takes another plunge on the back of the Ukraine war ending, then a further plunge with another world recession in 2023 .... with Seplat following.
Dear oh dear.
raxfactor; yes, some good contributions from seatank - i'm almost identically aligned on his thinking/investment both here and in this wider arena.
Your thoughts are none too shabby either. So thanks for them , which i am also pretty much aligned with!
So refreshing to see posts on a stock BB that are there to educate our understanding, our investment decisions, rather than the ****ging of individuals, that are focused on SEPL.