Mr. Ojunekwu Augustine Avuru, managing director/CEO, Seplat Petroleum Development Company Ltd, is writing one of the most exciting corporate earning stories for stakeholders for the 2018 operations. He is sustaining a big turnaround for the company for the second year, being the reward for strategic actions engaged to deal with major operational challenges.
The company had faced constraints in crude oil sales due to major facility problems that hindered access to the export market. Avuru has tactfully led his company over these challenges and has achieved enhanced export capacity for the second year running. His strategic solution was to significantly de-risk the dispatching of oil production to the market, which has been accomplished. This is the underlying strength that is producing the impressive results the company is presently exhibiting.
It was his determination to create multiple export routes for all the company’s products. He has actively pursued the objective in the past few years, which has now opened up alternative crude oil evacuation options for the company’s production. This has saved the company from over-relying on one particular third party operated export channel.
Last year, Seplat completed upgrade and repair works on two jetties at the Warri refinery, which increased barging volumes and stabilised exports. This has since then permitted increased loading of cargo and enabled smooth dispatching of oil production to the market. The added facility can enable sustained exports of 30,000 bopd (gross) if required in the future, according to the company’s report.
Part of the resolution is the completion of the Amukpe to Escravos pipeline that has created a third export route for the company. The 160,000 bpd facility came on stream last year – all combining to place the company at a significantly increased level of in-built resilience to external shocks.
The company’s operating story in 2018 is a catalogue of good news – enhanced production volume, significant gains in average crude oil price, doubling of sales revenue and profit rebound. Gas exports are contributing impressively to revenue, there is all-round cost moderation and robust cash flow has lifted interest income and is helping to deleverage the balance sheet.
A key accomplishment in the 2018 financial year for the company is accelerated field development activities across the existing portfolio. The company recorded a nine-month working interest production of 50,834 boepd, which meets the targeted working interest production range of 48,000 to 55,000 boepd for the year. The Trans Forcados System recorded an uptime average of 80%, which is in line with the elevated budget figure for the year.
The company’s chief executive officer said improved production against firm oil price has permitted strong financial performance and profitability in 2018. He is one of the few corporate chief executives from whom impressive earnings stories can be expected as the earnings report season approaches.
The company’s earnings story for 2018 reflects a number of key strengths in operations. Surging sales revenue is a major positive event for the company in the year. The company closed the third quarter trading in September with turnover climbing a clear 103% year-on-year to N173.7 billion.
Gains in production and export volumes and average prices of oil and gas account for the strong revenue growth. There is a sustaining strong performance of the company’s gas business with gas sales contributing 22% of revenue and adding stability to revenue performance. Development of alternative product evacuation route enabled Seplat to step-up gas deliveries to the domestic market and helped to stabilise supplies.
The breakout in sales revenue growth is expected to take the company to a new earnings peak at the end of the year. Turnover was already well ahead of the 2017 closing figure of N138 billion at the end of the third quarter.
Earnings performance is reinforced by what looks like a windfall in other income of over N6 billion at the end of September that was completely absent last year. Further boost to earnings came from finance income, which multiplied more than four times to over N2 billion at the end of the third quarter.
Gains in revenue happened side by side with disciplined behaviour on the side of costs. Under the management’s strict cost rationalization, administrative cost and net fair value loss declined and finance expenses were kept flat at the end of the third quarter. The results were five times lifting of operating profit to N81 billion at the end of September and a robust cash flow that has empowered the company to cut down balance sheet borrowings and net interest expenses.
Cost of sales keeps moderating relative to sales revenue, resulting in a 145% advance in gross profit to over N93 billion at the end of September. The company has doubled gross profit margin from 27.5% at the end of 2016 to 54% at the end of the third quarter of 2018.
With swelling earnings and moderating cost, Avuru has rebuilt his company’s profit capacity. A big turnaround happened at the end of the third quarter from a pre-tax loss of N760 million in the same period in 2017 to a pre-tax tax profit of over N65 billion. That is already five times the pre-tax profit of N13.5 billion the company posted in the 2017 full year trading.
Avuru’s plan is to build on the strong performance going forward. The strategy, he said, is to step up organic development activities across the existing portfolio and also capitalise on inorganic growth opportunities as they arise.