SEPLAT – Expanding its Competitive Edge in Nigeria’s Energy Sector
Africa is projected to become the second fastest-growing economy in 2024 behind Asia due to significant investment in its nascent hydrocarbon industry. By 2050, Africa is also poised to account for about 25% of the world’s total population, as the population growth rate in the region is estimated at 2.42% per year for the past 30 years, which is three times more than the global average. This large population growth implies that energy demand in the region is expected to skyrocket compared to other regions as energy has rightfully been at the center of the global growth and advancement the world has experienced since the first discovery of oil. However, the lack of local expertise and infrastructure has led to the dominance of foreign and top energy firms in the region’s exploration and production of oil and gas.
Notable international energy companies like Shell, Chevron, and ExxonMobil all have a significant presence in the continent’s energy sector, especially in countries with well-established energy sectors such as Nigeria. However, amid the presence of these highly reputable brands in the global energy sector, one that stands out uniquely is Nigeria’s independent energy firm, Seplat Energy.
Overview
Seplat Energy was formed in June 2009 through the partnership of Shebah Petroleum Development Company Limited and Platform Petroleum Joint Ventures Limited to pursue upstream oil and gas opportunities in Nigeria specifically. Nigeria is Africa’s top oil producer and, unsurprisingly, hosts the presence of the top global energy firms. However, amid this competition, Seplat has remained resilient, posting an average annual growth rate of 30.06% over the past seven years.
The company’s total revenue for 9M ‘2023 was N478.1 Billion ($840.4M), representing a 31% growth from its 9M ‘2022 revenue of N258.7 Billion ($618.6M). Similarly, Seplat’s gross profit for 9M ‘2023 stood at N245.63 Billion ($416.3M), an increase of 46.9% from its N118.5 Billion ($283.4M) recorded in the same period of 2022. From our review of the company’s 9M 2023 results, the increase in earnings could be attributed to the supply cuts from Saudi Arabia and Russia and declining global crude oil inventories. The company’s shares listed on the NGX have returned 18% on a year-to-date basis, and 21.6% on a year-on-year basis.
Source: Seplat’s Annual Report
The company’s growth can be attributed to its astute expansion in the oil and gas sectors, where it has achieved remarkable output gains by making strategic acquisitions. From 2013 – 2019, the firm has carried out several acquisitions that have led to its ownership of the assets which is currently responsible for its growing topline. These include Operating Mining License (OML) 4, 38, 41, OML 53, and OML 40.
Source: Seplat’s Annual Report
Revenues in the energy sector are highly exposed to swings in oil prices; however, In Q3 2023, Seplat faced a 21% decrease in its average realised oil price, reaching $90.3/bbl, yet crude oil revenue increased by 33.9% to $716.4 million in 9M 2023 due to higher production, offsetting lower prices. Total crude lifted rose by 76.7% to 8.7 MMbbls, attributed to over-lifts totalling $127.8 million. Gas revenue saw a notable 12.3% increase to $93.9 million in 9M 2023, driven by a modest rise in gas prices and a 3.2% increase in production to 31.8 Bscf, with an average realised gas price of $2.87/Mscf.
Source: Seplat’s Annual Report
Seplat’s performance reflects strong efficiency in the firm’s operating segments and current investment by the firm in two strategic operations, notably the acquisition of ExxonMobil and investment in ANOH Gas Plants.
- Acquisition of ExxonMobil
In February 2022, the company announced that it intended to acquire the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) through a Sale and Purchase Agreement (SPA). The acquisition was valued at $1.283 billion, with the potential for an additional contingent consideration of up to $300 million, subject to adjustments at the deal’s closing.
The deal, which has ground to a halt for nearly two years, is expected to expand Seplat’s production by as much as 186%. The deal has been stalled after NNPC Limited, which owns 60 percent of the fields, initiated a legal move against MPNU and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), claiming that pre-emption rights under the joint venture gives it the exclusive privilege to discuss the acquisition with ExxonMobil initially before other suitors are considered.
Seplat has extended the share sale and purchase agreement to keep the deal alive until the legal battle is resolved and regulatory approvals are in the bag. The company’s shares are currently at an all-time high of nearly N1,900 per unit with a combined valuation of N1.1 trillion ($1.3 billion) as of October 15th, 2023.
- Investment in the ANOH Gas Plants – Cementing Seplat’s Domestic Gas Dominance
In January 2017, the Group incorporated a new subsidiary, ANOH Gas Processing Company (AGPC) Limited, a midstream gas company committed to processing gas from OML 53 for distribution to the local market. In August 2018, the group entered into a shareholder agreement with the Nigerian Gas Processing and Transportation Company (NGPTC) to subscribe to equal ownership of AGPC.
The gas processing plant, which owns a 50% stake, has the potential to be the next big thing in Nigeria’s energy space. With Nigeria’s government’s deliberate plan to move to cleaner energy, Gas has been seen as an alternative to oil due to its lower carbon emission. This helps position Seplat to profit from the transition. The ANOH gas plant will be a major supplier of the domestic gas needed for power generation to replace other less effective suppliers. This creates a large market for the company and this can significantly drive future value.
Seplat’s Impact on the Nigerian Ecosystem
Seplat Energy has consistently been a leader in accelerating Nigeria’s transition to affordable, sustainable energy, leveraging its capacities to revolutionise the economy of Africa’s biggest nation while also enhancing lives. By diversifying operations, the company capitalizes on Nigeria’s oil dependence, shifting from small-scale diesel and petrol generation to large-scale gas-to-power grid energy for increased efficiency and cost reduction.
The company also set its sights on leading Nigeria towards the most sustainable forms of energy, which will harness its abundant sunlight, wind, and the power of its rivers to benefit the people and the natural world. Furthermore, the proposed acquisition of ExxonMobil is also expected to deliver significant value for shareholders, by increasing Seplat Energy’s oil and gas reserves and production.
Disclaimer
This article is meant for informational purposes only and is not a recommendation to buy, sell, or hold a position in this stock. Migasuto Global Services will not be held liable for any investment decision taken based on the information provided in this newsletter.
