Member Info for SeaTank8300

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.

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.

I guess the local banks are falling over themselves to agree a financing package for phase II because it's a priority project, low risk, and there aren't many sizeable industrial projects in Morocco to push credit towards. The fact that it is a technically straight forward project shouldn't be forgotten (please correct me if I'm wrong). A financing agreement is probably closer than you think. Non-binding term sheets were received back in April according to SP Angel. A binding financing offer, underwritten by the ten year gas sales agreement with the state power company, in my view is good enough collateral, so I doubt much or any equity will be required. Vendor financing will cover a chunk of the capital cost too. FID in Q4 should be doable given the relatively basic technical needs, would have thought?

Once the financing side has been agreed contractually, I would expect a surge in the share, as I don't really see why there would be any doubt about a positive FID given the technically straight-forward project that it is. My guess is that if the share is worth at least 9p on phase II delivery in 2.5 years, then on financing and FID the discount should narrow to no more than 50% (i.e. 4.5p). That would be a 100% return, almost, from where we stand today.

Then we have a two year wait, during which interest will wane, but the share should steadily make further ground as each stage of the project completes without technical hitch. Another 100% return from 4.5p over say a two or three year period - not bad at all, but not as juicy as the short term return immediately ahead?

My view is that the risk of this project not happening is falling rapidly, with a highly attractive upwards revaluation of the share likely in the next 6 months. After that, appreciation of the share price will be more gradual over a longer time period. Thus all my chips are in today, looking for financing agreement as catalyst, with a six month view.

https://financialpost.com/commodities/energy/oil-gas/oil-is-recession-proof-on-out-of-control-demand

It's not a competition re SAVE and SEPL. Both have their unique risks. SAVE has done really very well, because the market is willing to attribute forward value to their acquisition - a lot is already in the price now post the move in the shareprice, frankly. The share has almost doubled. I bought SAVE at 24p some months ago and exited a week or so ago because I made a handsome gain and that was good enough for me. It may well go further. Good luck to SAVE shareholders. SEPL on the other hand, hasn't moved at all really. Yes as per Temple's point, it fell out of bed in Oct/Nov last year due to (as it turned out) unwarranted corp gov concerns. But it traded at around 110p in July 2021, and is now barely above that level, but the factors in its favour have multiplied. In particular, neither the increase in the oil price or probability of acquisitive growth is priced in whatsoever. The stock is dead cheap, throwing off cash, paying a regular and dependable dividend, and has plenty of optionality ahead of it. The risk-reward here is asymetic in my view. Time will deliver the shareholder returns. There's no point being emotional about it. We know why the share is slow to react: thin liquidity and a closely held shareholder register. It's a standard mispricing for an esoteric stock such as this. I'm fine with that. I feel my investment is safe here. I'm in some other not dissimilar names, such as DNO ASA and Panoro Energy. I'm looking for dirt cheap but stable O&G businesses that have a solid cash flow profile and are ramping up dividends over the coming 12 months. SEPL will at least double its dividend next year if no acquisition takes place, in my view. This weird market is a rare opportunity to pick up solid yield names such as these at basement prices, in my view. The main risk is recession ahead re oil price. Good luck all.

About the oil hedges, two things: 1. I believe they have been rolled over each quarter, so these are not new and will either need to be digested or rolled over indefinitely, and 2. On a DCF basis they are of relatively limited impact on the NPV, arguably. When you do your target multiple, perhaps subtract the cost of dealing with these hedges ($200m?). Agree SEPL needs to rid themselves of this weight, but the company has prioritised getting debt free.

About the gas production, two things: 1. Gas is long term optionality as and when the gas market in Nigeria is deregulated and becomes a meeting place of willing buyers and willing sellers, which is hopefully in the medium term, and 2. In the meantime gas makes a meagre profit but isn't the revenue and profit driver for this company so can be largely disregarded?

It's all about oil currently, not least because the oil market is international and dollars earned can be exported (returned to investors), unlike gas, which must be converted into Naira and more of an issue to repatriate. Gas is a nice to have, long term, but in my view one buys SEPL for the oil production profile.

Acquisition activity would be nice but also a red herring to some extent - SEPL doesn't need an acquisition to go to £2+ in the short term, IMHO. And the hedges are a one-off cost when SEPL choses to take the hit.

What we need is a higher share price, more liquidity, more retail and institutional buyers in the UK...hopefully a virtuous circle. A FTSE index position would be nice too.

Solid results from Kainos. Encouraging read across. Looking forward to the full year results release.

I've taken another look at broker forecasts for SEPL - they're much too low and not at all indicative of profitability at the current oil price. And SEPL itself doesn't offer any EBITDA or cash flow guidance, probably because Nigerian stock exchange regulations prevent them from doing so. But we can make an educated guess at where they stand at today's oil price.

Laster quarter's EBITDA was around $150m at an oil price of $102.
Oil is currently at $110.
When the Ampuke Escravos pipeline opens, realised yield should improve by up to 5%.
Oil production volumes should improve at least 5% in the second half too.
These three drivers should add at least another $40/quarter to EBITDA, which suggests at least $190m quarterly EBITDA by the end fo the year, which is $760m of annual EBITDA.
Then in the first half 2023 the ANOH facility commercialises, adding at least another $40m of annual EBITDA (probably a lot more at current oil prices), which takes SEPL's EBITDA to $800m annually.
That's just organic.

SEPL will be debt free by end of this year, assuming no acquisitions are made. Thus SEPL's enterprise value will be circa $900m vs EBITDA of $800m - which suggests a multiple of around 1x EV/EBITDA.

The stock has never traded this cheap in its history. A multiple of 2x has typically been as low as it goes. But when the oil price outlook is robust, that multiple expands, to 3x plus.

One can look at it either of two ways - 1. the company is deeply out of favour for whatever reason and is unlikely to re-rate much, but will pile up cash as time passes and that will have to be either distributed to shareholders or reinvested in growth and more cash generation, or 2. the stock will ultimately re-rate as the market wakes up to the prodigious cash generation.

Either way, it doesn't matter in my view. This is an asymetric risk-reward profile and patience will reap great rewards.

Unlike many similar cheap oil stocks out there (e.g. Gulf Keystone), SEPL is a genuine blue chip, with clear legal title, low cost operations, and most importantly a diversified portoflio of producing licence areas and processing facilities. Diamond in the rough.

I understand a lot of the folks on this board have found SEPL recently on the back of 1. oil being back in favour and 2. the Exxon transaction, but to give some perspective many of us have been invested in SEPL for months or even years prior to the announcement of this transaction. I do believe the transaction will be closed, ultimately, although it will likely become more messy than it's been so far, and even if it doesn't proceed there is a queue of majors looking for an exit from Nigeria so there will be alternative transactions in the wings at similar valuations, BUT...the baseline fundamentals of SEPL are enough for me, frankly.

SEPL is the only blue chip O&G organisation in the country, with as clean corporate governance credentials as one will find in a frontier market. The company has a broad portfolio of producing assets, thus operationally diversified. The intention to return capital to shareholders via a reliable dividend has been delivered in practice over many years, including 2020. The high oil price is great of course, which is now being reflected in analyst forecasts (albeit still overly conservative re forward looking oil prices, in my view). Consensus forecasts have net income showing at $253m and $275m for 2023 and 2024 respectively, placing the company on a forward PE of 2.8x, which is nothing. Capital expenditure reflects the growing business this is ($160m this year rising to $200m in 2024 as per forecasts, which corresponds to almost 25% of the market cap spent on investment annually). Two big capital projects are about to be commissioned, which are major projects in the Nigerian context and recognised so. Beyond 2023 there is huge demand for the gasification of the power system in Nigeria, which will be followed by investment in solar energy, a natural next step in Nigeria. Not to mention acquisitions in the oil space in the meantime. And by the end of this year the company will have no debt.

I've been invested in SEPL since 2019 on the basis of these fundamentals, particularly the prospect of dividend yield and growth in the dividend. I would love this transaction to complete of course, but if it doesn't I'm not going to lose sleep over it. SEPL is doing for me what I wanted back in 2019, which is steady growth of local operations with a quarterly dividend I can rely on. Fundamentals haven't altered.

Shell was presumed to be the original acquisition for SEPL. No doubt the new Chairman, who previously ran Shell in Nigeria, was chosen for a reason.

Factors to consisder: Shell and Exxon are unable to sell their assets to shell companies without a solid operational and governance reputation, purely on governance grounds themselves. They owe it to all their stakeholders, including employees, but also anti corruption agencies will be all over this. It has to be to an indigenous company, as in the national interest that profits are reinvested locally, not just run for cash. The NNPC must be confident that, operationally, these assets go to a reliable partner, as they already produce the majority of revenues and profits for NNPC as a non-operational partner. Finally, the local pension funds have a stake in this success too.

It is in the overwhelming interest of all stakeholders that these assets go to SEPL.

SEPL is the national champion with the pedigree for these assets. Nobody else. This is all a lot of noise. Not sold a cent.

Not unexpected in my view - but this doesn't mean the acquisition won't happen...far from it.

Government in Nigeria is a complex web of political agendas, tribal agendas and personal agendas, and no line of command or authority is ever clear-cut. At every level it's a hustle. As I said before somewhere, in my view the law is absolutely clear as written, which will have been crawled over by both Seplat's and Exxon's legal teams; what is more, the transaction has clearly been blessed at the highest level of government. Indeed only this last Tuesday the Minister of Petroleum and Chairman of the NPCC himself publicly stated so.

But, as ever, agendas everywhere have not been aligned, hence the recently appointed CEO of the Nigerian Upstream Regulatory Commission has rejected it. He or somebody else he's acting for wants the acquisition for themselves, or haven't felt remunerated enough to accept it quietly.

Just out on the Nigerian Stock Exchange: https://doclib.ngxgroup.com/Financial_NewsDocs/36052_SEPLAT_ENERGY_PLC%20CORPORATE_ANNOUNCEMENT_ON_AN_UPDATE_.pdf

"Under the terms of the Sale and Purchase Agreement ("SPA"), announced on 25 February 2022, which remains valid and
subsisting, the Company will further its engagement with all relevant stakeholders. 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."

More to the point, locals didn't sell the share today - the price hasn't budged:
https://ngxgroup.com/exchange/data/company-profile/?symbol=SEPLAT&directory=companydirectory&tdate=2022-05-19T00:00:00

This is just typical Nigerian farce. My view is the transaction will be signed off, once the Nigerian Upstream Regulatory Commission has been "managed". Those who exited the stock today will have to buy back in at a cost. The cost of doing business in Nigeria.

Anyway, putting the Exxon transaction aside, this company is generating FCF of at least $180m yearly at high 90s oil (my calcs), which should increase to closer to $250m once the pipeline and ANOH are commissioned, whilst concurrently investing circa $160m annually in maintaining and growing volumes. It's a diversified asset base with a dead cheap valuation and if they don't make an acquisition they'll ramp the dividend. Seems to me very little downside, a solid yield, with huge optionality. I view that as an asymmetric risk-return profile. Not selling a cent.

There's a lot of value in the long game with this company - not just the signing of Phase 2, but the E&P potential across the broader licences. That's where the most value is. Stay with it.

"He said: “I am using this opportunity to commend Seplat on their recent acquisition of the shares of Exxon Mobil companies in USA.

“Such investments, which are underpinned by responsible policies that ensure the achievement of net-zero e commendable and appreciated by the Government and the good people of Nigeria.”"

https://thenationonlineng.net/seplat-acquires-exxon-mobil-share-to-tackle-climate-change/

Here is the actual quote

I can't see this deal not being approved. The stock price is going UP...IMHO. There is no other direction for it bar a sudden and violent collapse of the oil price.

"Chief Timipre Sylva, Minister of State, Petroleum Resources has lauded Seplat Energy Plc on its recent acquisition of the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) from ExxonMobil Corporation, Delaware, United States of America.

Sylva said such investments, which were underpinned by responsible policies that could ensure achievement of net-zero carbon emission, were commendable and appreciated by the government and good people of Nigeria."

https://www.sunnewsonline.com/sylva-lauds-seplat-on-exxonmobil-shares-acquisition/

Positive signals from government on the Exxon acquisition

https://youtu.be/qcmFrOL4VQc

AGM is being livestreamed shortly - this could be interesting or v dull

SEPL's AGM is this Wednesday. What are the potential catalysts?

The company said a new independent chairman would be appointed at the AGM. It's bad form not to have announced who this will be well prior to the AGM, so that shareholders have an opportunity to consider their votes on the matter, but it's common malpractice among listed companies to spring such things on shareholders. Positively though, removing Dr Orjiako from the board will provide legal clarity in Nigeria with regard to SEPL's "unrelated party" relationship with various Orjiako companies in receivership. In the past, Nigerian banks have been known to stretch the legal framework to pin down non-related corporates for debts of creditors who share chairmanship. It's twisted and impacted Seplat last year, resulting in forced purchase of drilling rigs from Cardinal Drilling. Orjiako off the board will substantially reduce known unknown legal risks for SEPL. In my view this is/was a greater risk than any political risk concerns.

Imminent commissioning of the Ampuke Escravos pipeline, which will raise yields on oil sold through the pipeline by approximately 5%, I understand - this must be around the corner now, and I hope will be announced at the AGM...but can't get too excited yet, June was indicated already as the month of the announcement and Nigeria is always late.

Dividend increase or special dividend? Unlikely unfortunately, give the acquisitions in train and SEPL's very conservative stance to date, but this is coming sooner or later (my guess from 2023). IMHO SEPL could be paying at least 3x the dividend at current oil prices.

Great to see the steady rise in the share continue.

I replied to a similar question just now on ADVFN. Copied and pasted below:

The dividend is paid 4x per year, currently at a level of US$0.025 (2.5 cents) quarterly, of which 10% is lost to withholding tax, so the net amount is 2.25 cents quarterly, or 9 cents aggregated over 12 months. That today equates to 7.38p annually, but fluctuates with the USDGBP FX. Today's share price is 122p, which means the share has a dividend yield of 6.05%.

More pertinently, the dividend costs the company around US$59m annually in cash out, which compares to Free Cash Flow of circa $180m under the strictest definition of FCF. So the company could pay out 3x if they wanted to, at current oil prices. Post Exxon deal, FCF should triple or quadruple. It will take the company 1 or 2 years to pay down debt from the acquisition, thereafter the company will generating >$600m of FCF annually in my view, which amounts to >70% of the market cap, at current oil prices.

Note that there are other cash generative catalysts besides, such as the new pipeline about to be commissioned, and the ANOH gas to liquids facility next year.

A 70% annual yield would certainly be nice, but I don't think it'll happen, even if the oil price stays >$100; far more likely that SEPL will make further acquisitions (e.g. Shell Nigeria) or invest in new gas assets or solar assets, but the dividend will rise. I expect it will at least double when ANOH is commissioned, in 12 months time (i.e. circa $60m additional EBITDA will paid out to shareholders). Still, the company will be generating too much cash to put to work, so I would expect the dividend to triple at least, ultimately. That would be 18% yield at today's share price, twelves months from now.

This is just my expectation, based on my own speculative judgements, but I fully believe in them.

Remarkable share price resilience; basically there are few willing sellers, despite global markets on the slide. Comforting. Some of my other small/mid cap oil stocks are down 15%+ in two days. Suggests strong support for SEPL, underpinned by awaited catalysts ahead.

Rock solid so far, amongst all the turmoil. Barely any volume. Everyone's sitting tight. Knowing the extent of value to be recognised. Cheers to that. And long may it continue.

Good to see the share price stable despite all the turmoil though