Member Info for SeaTank8300

https://africaoilgasreport.com/2022/10/in-the-news/yes-seplat-doesnt-own-the-amukpe-escravos-pipeline-so-who-does/

Some good insight here on the protracted and messy operational challenges of Nigeria, in this case regarding the Ampuke Escravos pipeline. According to the article, Seplat and NDPC had to support the bankrupt entity (now under the control or partial control of AMCON (Nigeria's bad bank assets bailout company) to the tune of $90m to see the project through to completion. Smart though, as it turns out, as in return Seplat was granted minimum usage rights. The pipeline reduces downtime, theft, and efficiency (oil in and oil out can be more accurately measured, and proceeds attributed, to Seplat). Seplat is a blue chip operator in a really difficult operating environment.

ANOH will be the next big success story for their infrastructure rollout.

Just to flag the history here, theft and vandalism has been an ongoing feature of the Nigerian oil environment for years and years, at least the 15 years, but I'm pretty sure decades. Militants, regional politicians and even the Nigerian military are in on the game. Some illegal bunkering operations are on the scale of full size commercial operations.

In short, this isn't new.

Poor maintence of facilities due to logistics, skill shortages and sheer age of infrastructure is also a feature, hence shutdowns for repar of evacuation routes is also a normal occurance.

Q3 was particularly bad, but these bad quarters happen every now and then. I can't remember the last time it was so bad, but we're talking less than a handful of years. This is the operating environment. Export infrastructure is poor and probably always will be.

Don't confuse this with Seplat's ability to produce oil. The company is making steady (not exciting) progress on production capacity, but the constraint/bottle neck has been export infrastructure, not their own operations.

Hence the majors have been divesting from onshore blocks. The government should be incentivised to fix the issues and provide adequate security, but as I said the government is infiltrated by those profiteering from the status quo.

One new negative though, I didn't see any mention of a solution regarding the Bonny Terminal, which OML 53 is reliant on. This OML 53 is still a big untapped opportunity, which Seplat paid so very handsomly for in late 2019 for around £380m through purchase of Eland. To date, this acquisition has been an awful waste of cash. I've been invested since those days and feel the pain.

So putting OML 53 aside, what's the story here?

1. an otherwised diversified portfolio of assets/wells with stable production
2. A more secure pipeline (Ampuke-Escravos) now up and running that will provide a more reliable export route
3. ANOH commissioning in 1H23, which will be highly cash generative to SEPL and the cash should be passed on to shareholders in dividends according to comments made in the past by the CEO
4. M&A

Also in the full text of the Q3 results, sounds like there will be entry into dual gas-solar generation:

New Energy

At our Capital Markets Day in 2021, we revealed our intention to invest in opportunities in the new energy sector that will capture more value across the entire value chain, including renewable energy generation, on a medium to large scale. The evaluation studies have progressed well into developing an opportunities portfolio in the Midstream Gas and New Energy businesses. The Final Investment Decision for some options will be subject to technical and business evaluation assessments, Environment, Social Impact Assessment, and project licensing.

The key investment opportunities being considered include selective entry to off-grid power generation using gas-fired plants potentially integrated with solar power. Natural gas will be the mainstay of Seplat's energy transition program, to ensure the sustainability and bankability of the renewables program. We are also pursuing carbon offset possibilities on a wide range of GHG (greenhouse gas) reduction activities in various global carbon markets. The identified opportunities have considered advancement in technology, availability of resources within Nigeria and feasibility of execution.

"ANOH Gas Processing Plant

Seplat Energy continues to make progress on the ANOH gas plant project, which has achieved six million hours without lost-time injury. All equipment fabricated for the project has been delivered to the project site and over 90% installed on foundations. Piping and cable interconnection is ongoing.

The government partner NGIC, is delivering the pipelines that will take the gas from ANOH to Oben, namely the 23km spur line and the Obiafu-Obrikom-Oben (OB3) pipeline. Drilling on the 1.85km OB3 River Niger crossing encountered some technical issues on a small section of the route. Following additional geotechnical surveys, the contractor identified the principal areas of the tunnelling path requiring grouting to improve the subsurface stability to support the tunnelling operations. NGIC expects the pipe installation operations to resume after the completion of grouting.

In addition, on the separate spur line project, the milling and coating of the outstanding line pipes, undertaken in China, has been completed and shipped to arrive in Nigeria in November. The latest schedule provided by NGIC shows the completion of both OB3 and the Spur Line in Q1 2023, which would allow the Company to achieve its timeline of delivering first gas in H1 2023.

The two gas wells planned for the year - ASSN-03 and 04- which will provide feedstock for the ANOH gas plant, were completed in the quarter by the upstream operator, SPDC, and the wells are shut in until the plant is ready for commissioning next year. Drilling of the third ANOH well is expected to commence before year-end. A rig is currently on the move to the well location. The three wells will provide sufficient gas to run the plant at full capacity."

Shocking Q3 production figures. That's the operational risk of Nigeria.

Fortunately, Forcados export terminal is back up and running, and AEP is operational as well, so volumes will bounce back in Nov and Dec for a better Q4. Relief.

Sounds like Bonny Terminal for OML53 has more persistent issues though.

ANOH REMAINS ON SCHEDULE FOR 1H23! Frankly, I was expecting another delay, so this is good news.

MPNU deal remains in progress - no news is good news. :)

In all, disappointing Q3, but these things happen. Key drivers remain in place.

Seems so. Often they publish the day following board sign off, which was yesterday.

The CEO did promise some time back that they'd hike the dividend on completion of ANOH, so it should be coming.

Q3 results release tomorrow presumably. What are folks looking for?

Personally I'm mainly here for the dividend, so I want to hear a clear plan for raising it. I doubt they will provide that, with a corporate action in progress, but I'd appreciate a sign-post as to when and by how much.

Which leaves, at the every least, a positive production update + no further delays to ANOH commissioning.

When ASAI recommence dividends next year, it'll be on a chunky yield. The wait though, is excruciating.

Nigeria's finances have always been poor and the country has been junk rated forever, but last week Moody's downgraded the country again, no least because the finance minister admitted the country will need to restructure its debt. This isnt new news.

“Moody’s assessment is that these developments are partly the result of weak governance and likely to last. The steep fall in oil production in 2022 and the extension of the expensive oil subsidy have almost entirely eroded the boost to government revenue and exports that would otherwise have been anticipated from higher oil prices,” its announcement said.

My view on this, and how it impacts SEPL, is that it's already fully in the price, a long time ago. The main problem with the government fiscal position is 1. fuel subsidies and 2. tax collection/coverage. These are the two levers that can move the needle. All other efforts are around the edges. Raising taxes on oil & gas companies in Nigeria will worsen tax revenues in the long term as investment and production will continue to decline. In my view, this isn't an option. As regard to default and FX collapse, yes it will drive cost of debt higher for those that have debt (SEPL has barely any debt), but for dollar earning companies it will mean local costs in dollars falls and boost margin.

Nigeria has never been a pretty economic story, but it's still a decent place to produce oil for those able to manage the operating environment.

SBK, been any response from the company?

Don't expect any update on the MPNU acquisition at Q3 results. But I hope we have some improved production figures and a positive update on progress at ANOH. Even better would be a commitment to raise the dividend if the acquisition isn't signed off.

Sorry ****eye, what exactly are you hypothesising? I didn't follow your point all that well.

Tom, take another look at the acquisition fine print. The longer this goes on with oil around the $90 mark the cheaper the acquisition gets....to the point of actually being for free. No doubt about it, with oil at these levels there's no second thoughts.

Even with oil at $70 there'll be no second thoughts.

If these deal goes through, to the moon.

In the meantime, dividend yield of circa 8% (going to 16% next year in my opinion) is alright.

I'm still a holder - share price has been dismal but company is doing mostly the right things. It'll come right, is my wager. I've got a small fortune riding on it :o

Indeed, replenishment of the US strategic reserve is another long term bull argument for oil - Biden can't continue subsidising oil with reserve drawdown forever, indeed he might be near the limit on that very shortly

I take some comfort that oil is positive (slightly) today despite Xi Jinping doubling down on his zero covid strategy in his speech at the Party Congress yesterday. Rolling back the zero covid agenda in China was THE short term bull case for oil, and it's now looking unlikely. The fact that oil has held steady despite this news shows that the market is tight enough to handle it. Long term structural supply-demand dynamics are in our favour, I hear from most knowledgeable commentators, so the real question mark for oil is short term related to economic slowdown. With the OPEC now openly willing to cut production to maintain a floor around the $90 mark, I feel the downside is limited as any demand destruction coming should be offsetable. Russia will undoubtedly would rather see production cut further if necessary too. There is also a fair prospect of returning confidence once inflation figures peak and expectations for further Fed hikes taper off, which could trigger a new bullish positioning by traders. SEPL is in a great place right now IMHO.

I hear insiders have continued to buy. So they should.

Expect another leg up come next week, simply on the direction of Brent and solid fundamentals. Hardly anything been trading lately.

What are the catalysts for this stock?

I'm posting this again from earlier this week:

From what I hear a couple of institutionals are selling at any price - they are post-IPO investors and they need to be cleared (expect now cleared)

New CFO Steve Winters (ex WPP) has brought rigour to the budget forecast for the remainder of the year and has guided numbers he's confident to meet or beat (no second profit warning)

They have 75% visibility on 2H revenue with the rest being risk-weighted pipeline - very little speculative new business in there. 2H guidance is very likely to be met, by the sound of it. (Stabilized business)

The sales function has been re-integrated into the operating/delivery divisions with vertical heads taking responsibility for hitting revenue numbers again, which is key as most of their business is recurring client business and it is thus essential to maintain/grow ongoing relationships. Huge error to separate sales from delivery - lesson learnt at much cost! (Painful, but not to be repeated)

The business is back on an even keel it sounds like. It's safe to buy, at your own risk ;)