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Hi Seatank, thanks for your input, excellent.
One thought re your FCF
Forecast Oil prices
What will the price of oil be in 10 years?
According to the latest long-term forecast, Oil price will hit $100 by the end of 2024 and then $110 by the middle of 2031. Oil will rise to $125 within the year of 2032, $140 in 2033, $150 in 2034 and $160 in 2035.
IF this came to fruition the FCF would be utterly enormous.
The Gas which SEPL plan to extract and sell to a power hungry local civil population, plus export to overseas markets will become a large standalone profit centre.
Everyone should have some SEPL in a balanced portfolio.
Final thought, when the MNPU deal is signed off and our average daily production rises to 100,000 bpd, with more upside, we will become a Bid target, especially with 25 years of reserves.
Large oil and gas fields tend to get larger as work is completed, unlocking larger reserves.
Interesting times.
All within a background of increasing dividends
I can foresee a bid price of £3bn in 18 months time.
MEM
SeaTank8300. Thanks.
As usual always very grateful for your enlightening and researched contributions on this forum.
Good chance of a further recovery in the SP this afternoon, hoping for a closing price broadly neutral change.
Then waiting for news out of Lagos re Chevron/Mobile final sign off, we must be very close after the Oil Ministers comments
These results were good. Production was solid, at the higher end of guidance, with the resumed Trans Nigeria Pipeline allowing a restart of wells at OML53 auguring well for the rest of the year. Cost of production was slightly up from last year at $9.6/boe, so, fundamentally, the business remains extremely profitable.
In addition, several positive indicators:
Firstly re ANOH, the OB3 pipeline is still anticipated for completion by end Q2, which is the first time I haven’t seen slippage in this schedule, which suggests reasonable hope that ANOH can commence production by end Q3, or at the very worst by end of the year! To give some perspective, this was originally slated for operation in 2022 and has been delayed multiple times – to see operational start around the corner is a great thing.
Secondly, fiscal incentives have been raised, as well as changes to a law concerning contracting process, and the regulator has raised domestic gas prices, which all point to the positive regulatory/governance backdrop which is supportive of investment and expansion of this industry.
Thirdly, MPNU deal close is not far off.
As Access Capital points out, MPNU will approximately halve current ratings, i.e. double profit and cash flow. Their forecast aligns with mine, which is approximately $250m in free cash flow once ANOH is contributing, doubling once MPNU is consolidated = $500m Free Cash Flow. Market cap is $1,165m.
I expect financing cost of MPNU to be around 12% but the total cost after adjustments to be around $800m (conservative guess), much lower than the $1,200m price tag, so financing expense will be around $100m annually. Therefore genuine FCF of the consolidated group will be $350m in year one = 30% FCF Yield.
At that rate of cash generation, the MPNU loan will be paid back in about two years, during which time MPNU production will have increased circa +20-30% on fresh capex. That means two years after MPNU consolidation FCF will be $600m+. Consider that in the context of today’s market cap of $1,165m.
Here's bit of the broker report....
Financial performance for the quarter was skewed by a substantial underlift, FX effects, and a high deferred tax charge, much of which should rebalance in subsequent quarters
Seplat received US$95m in April for volumes lifted in March and cash balances are expected to normalise in the second quarter
The NMDPRA increased the domestic gas price by 11% to US$2.42/mcf and there were other positive institutional developments including fiscal incentives and greater autonomy over contracting which continue to speak to the supportive attitude of the government to the oil and gas industry in Nigeria
If you haven't seen, Capital Access have published a research piece on the results. I haven't had a chance to look at them in detail yet myself, but seems that all is in good order.
https://www.capitalaccessgroup.co.uk/research-portal#/portal/capital-access-group/research/23_2024042902355766129
https://www.capitalaccessgroup.co.uk/research-portal#/portal/capital-access-group/
"Seplat delivered an encouraging operating performance in 1Q24 including
production of 49.3kboed, towards the upper end of guidance (44-52kboed). All
current guidance was maintained but good progress on the ANOH export
infrastructure and an earlier than expected resumption of exports through
Zone 6 of the Trans Niger Pipeline improve confidence that guidance will be at
least met. Financial performance for the quarter was skewed by a substantial
underlift, FX effects, and a high deferred tax charge, much of which should
rebalance in subsequent quarters; the dividend was maintained at USc 3. We
have revised our forecasts to reflect guidance and despite the strong
performance of the share price, the rating remains attractive, with debt adjusted
cash flow of under 4x for FY24 and falling rapidly. Completion of the MPNU
acquisition would approximately halve current ratings, we estimate."
I am buying as this represents a great Buying opportunity ahead of MPNU news, which must be very soon.
Large spread of 8p will narrow as the day moves on
So if the figures today were "underlifted" then the next quarter will look awesome instead, right ?
The cash position is down due to this "being paid later" which takes the position lower than the Exxon Deal requirements.
So are we looking at another 3 months waiting to get cash back up or they will just use debt facilities.
IMO no worries either way, a lower SP is good for DRIPs and possible trading to get averages lower.
Down 6% on the day, which still takes us above the recent support of early 149.
... and there is clearly a buyer in the background as they will offer above bid (they were all day friday on dummy sells and happy to take any number of shares) and for those selling today it appears the same. typically as stated below on a drop of 5 per cent plus this would go NT, not today, they will take any number of shares on a dummy sell, that is typically a sign of background buyers eager to secure .
I understand some folks confusion looking at the rns and the initial figures, however, as stated below and explained very well SEPL just gets paid laterand importantly production at current oil prices is at the upper end of guidance, MPNU awaits etc...every reason to add to holdings not sell imo ;-)
From Brave AI…
“ Overlift oil and gas refers to a situation where the amount of oil or gas produced and lifted (removed from the well or field) exceeds the amount that is entitled to a particular party or entity, such as a joint venture partner or a government agency. This can occur due to various reasons, including:
Efficient lifting arrangements: In some cases, it may be more practical for a party to lift a full tanker or a certain quantity of oil or gas, rather than a proportionate share of the total production.
Imbalances in production: When the production of oil or gas is not evenly distributed among the parties involved, overlift can occur.
In the context of oil and gas production, overlift can have financial implications, such as:
Creating a receivable for the party that is entitled to a larger share of the production
Requiring the party that is entitled to a larger share of the production to pay for the excess production
Affecting the revenue and profitability of the parties involved
For example, in a joint venture, overlift can occur when one party lifts more oil or gas than its entitlement, resulting in a receivable for the other party. Similarly, in a government’s share of profit hydrocarbons, overlift can occur when the government’s share of production exceeds its entitlement, resulting in a receivable for the joint venture parties.”
Main thing was guidance is towards upper end. We just get paid later!
‘ Production averaged 49,258 boepd, down 4.8% on prior period (3M 2023: 51,720 boepd), but 5.7% above Q4 2023 production, and towards the upper end of 2024 guidance (44,000 boepd - 52,000 boepd)“
All said I took 20% off this morning after they had had a good run. I intend to buy them back just hoping for cheaper.
Should have done Friday really as results day often disappoints but I thought just maybe after all the media news we would have had something more concrete on the divestment.
Anyways I was offered a price for 50k. It’s previously been NT to sell this time of day. So there is likely a background buyer still which should put a floor under the SP.
Usual caveats
Trek
The last week has seen a climb up, probably on people expecting a resolution to the Exxon deal. I'm expecting the price to settle back in at around 150p. Anything lower and that's a little silly as nothing has changed from what we already know. Personally I was not expecting a resolution announcement today, Seplat would announce that as soon as it happened, they certainly would wait around for results day.
Markets can be irrational at times....provides opportunity though :-)
Not the uodate I was hoping to see this morning. Looks like the SP will tell us what it thinks of that
It's because of Underlift/Overlift accounting - adjusted for this the revenues was almost unchanged:
"after adjusting for underlift and overlift oil volumes, 3M 2024 adjusted revenues of $236.3 million, against $255.6 million in 3M 2023"
Why is revenue down so much when oil price / production has broadly been maintained ?
What am I missing here..
SeaTank, thank you for the clarification, wrong choice of a word on my part. Should have read "some" and not "most". I guess, what's important is that the company has managed its naira risks very well, however small. Look forward to the update tomorrow and hopefully have a different conversation tomorrow.
Hi SeaTanks, my mistake, I shall carryout my own DD - rather than ask.
Thank you for your input.
Best policy do not assume ….. CHECK through your own DD.
Please, no. The vast majority, around 80% or is it 90%, of SEPL's revenues are from oil sales which are exported. The remainder is gas which is USD priced, paid in NGN. The naira moves are not very important to SEPL, in either direction. Please don't make statements unless you are quite certain of the mechanics. The point of this board is to share useful and well-researched information, not confuse folks.
Hi Tyler,
Happy to learn, OK understood
Thanks
MEM
MEM, Seplat's Naira income closely matches its Naira expenditure, so small risk on that front. The main risk to the company is that it sells most of its products within Nigeria and therefore, there is a receivables and credit linkage risk. A falling currency can result in the downgrade of a country’s credit rating which can then affect the credit rating of a company that receives income from the country, be it in dollars. This actually happened in February 2023! Luckily, it has reversed since then.
Tyler I think that means local work, services etc paid for in Naira is more expensive to SEPL.
However the majority of services are USD related, so a strong Naira has a small/marginal downside.
A strong Naira will improve the long term stability of the countries economy, which is a positive for everyone.
MEM
The Nigerian Naira has become the world’s best performing currency in recent weeks and may explain the recent price spike. Another tick in the box. Anticipate further analyst upgrades on the back of this and rising oil price.
https://abokifx.com/news/nigeria-s-naira-rebounds-sharply-after-bumper-interest-rate-rises-ft?type=market
Not expecting any significant news on MPNU on Monday but any update would be a bonus. GLA!
OML40: https://www.seplatenergy.com/our-company/our-operations/upstream/oml-40/
Seplat has invested in a professional IR executive, James Thomson, who has already improved communication in terms of written statements with more granular explanation, more video interviews, better format of quarterly results call, and more active direct communication with shareholders and potential shareholders. It takes time to build a following after years of underinvestment in IR.
Most importantly, a clear intention to drive the dividend has been communicated, which comes on the back of several years of dividend consistency - this is very important in raising interest in the stock.
An NYSE listing would not add any value at all, IMO.
More importantly, every step up in the dividend attracts attention and underpins step ups in the share price.
MPNU will be transformational and raise the share price and daily traded liquidity - increased traded liquidity will allow institutions to enter the name, which is key. In short, when daily traded liquidity moves towards $1m/day, there will be a natural upwards re-rate as institutions come in.
In my view, we have a pretty clear roadmap here, and it's all very positive
Hi Trek,
Hi Trek (or anyone else) May I ask what happened re the planned drill of OML 40, I know it should have been drilled but Covid got in the way.
I have just gone through almost 4 years of RNS’s and cannot see any mention of SEPL drilling this area, can you please update me, THANKS
One last question, from a EV standpoint, SEPL seems very undervalued, does the Co have a plan to try and increase our ‘visibility’ maybe a series of road shows, any talk of a NYSE listing ?
Thanks in advance
MEM