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Seplat Energy ratings Upgraded to ‘B’ by Fitch, Outlook Stable

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Seplat Energy ratings Upgraded to ‘B’ by Fitch, Outlook Stable

Precious ADELOLA

LONDON, UK – Seplat Energy Plc (“Seplat Energy” or “the Company”), a leading Nigerian independent energy company listed on both the Nigerian Exchange Limited and the London Stock Exchange, has been upgraded to ‘B’ from ‘B-‘ by Fitch Ratings on its Long-Term Issuer Default Rating (IDR).

Fitch also confirms Seplat Energy’s Outlook to be ‘Stable’ and upgraded the Company’s senior unsecured rating for USD650 million senior notes due 2026 to ‘B’ from ‘B-‘, with a Recovery Rating of ‘RR4’.

The rating agency stated: “The upgrade reflects improved financial flexibility and a strong liquidity profile following debt refinancing in 2021, which in our view will help Seplat Energy survive for more than two years of force majeure without access to the Trans Forcados Pipeline (TFP). Amukpe-Escravos Pipeline (AEP), an alternative oil export route, has been completed and is undergoing commissioning, according to Seplat, but there is no certainty around when it will ship its first oil.”

The rating incorporates the small scale of Seplat Energy’s cash flows, concentration of the company’s asset base in Nigeria (B/Stable) and a historically unstable operating environment in the troubled Niger Delta, including recurring issues with the oil transportation system. The rating also reflects moderate leverage, conservative financial policies, competitive unit profitability, end-2020 2P reserve life of 27 years, and a growing domestic gas business.

Specifically, Fitch upgraded Seplat Energy’s $650m bonds to B from B-. The upgrade reflects improved financial flexibility and a strong liquidity profile following debt refinancing in 2021. Because of Seplat Energy’s prudent approach to financial management, Fitch believes the company has built a very strong balance sheet. Even if the Trans Forcados Pipeline was in force majeure for an unprecedented two years, Seplat Energy has sufficient strength to survive and service its debt interest

Fitch view is underpinned by its view of Seplat Energy’s prudent debt management, flexibility on dividends and flexibility to deploy capex. Fitch sees Seplat Energy’s gas business as having potential to enhance cash flows, particularly after ANOH comes onstream; ANOH itself is already fully funded

Fitch lauds Seplat Energy’s ESG efforts and notes deeper communication and cooperation between local communities, the government and Seplat have significantly reduced the number of attacks on oil infrastructure.  

KEY RATING DRIVERS

Resilience to Prolonged Pipeline Disruption: Seplat Energy’s debt refinancing in 2021 has resulted in no maturities in 2022 and just USD27 million of maturities in 2023. Its debt repayments are USD44 million in 2024 and USD40 million in 2025. We expect Seplat to be able to service its debt even in the extreme scenario that its export route via TFP is not operational in 2022-2023. It had USD220 million of unrestricted cash at 30 September 2021, and it should be able to generate cash flows from its eastern assets and use the expensive Warri refinery export route for its western assets if TFP is shut down.

Continued Delays with AEP: Following multiple delays since 2014, Seplat Energy’s latest guidance on AEP’s first oil flow is December 2021. Seplat also needs to agree offtake terms for the oil before shipments can begin. The start of oil deliveries though AEP remains uncertain, in our opinion. AEP will allow oil exports of 40 kb/d, reducing over-reliance on the TFP export route that had adversely affected Seplat in the past. The underground AEP should materially improve the pipeline uptime (74% in 9M21 for TFP) and shrink losses from crude theft and reconciliation (11%).

Small Nigerian E&P Company: Seplat Energy’s operations are concentrated around the Niger Delta region of Nigeria. The Nigerian oil and gas sector is characterised by high operational risks and regulatory uncertainty. Its main assets are oil mining leases (OMLs) 4, 38 and 41, which accounted for around 79% of 9M21 production and are reliant on the TFP. We expect Seplat to ramp up its daily oil and gas output to 59 thousand barrels of oil equivalent per day (kboe/d) until 2024 from 47 kboe/d in 9M21. In our view, OPEC+ cuts, which are gradually being unwound, will not hinder Seplat’s production growth.

Inorganic Growth: Fitch expects Seplat Energy’s management to actively seek opportunities for inorganic growth in Nigeria. Domestic opportunities exist as oil majors continue to streamline their portfolios, exiting Nigeria. Seplat Energy’s ability to expand through acquisitions is boosted by an undrawn USD350 million revolving credit facility (RCF). We view Seplat’s financial policies as conservative for the rating with funds from operations (FFO) net leverage averaging 1.7x in 2021-2025. Our view is underpinned by debt management, flexibility on dividends and on capex, as seen during the TFP non-availability in 2016-2017. We view large acquisitions as an event risk.

Gas Business Provides Stability: Seplat Energy’s growing footprint in the domestic gas market will enhance cash flow stability as gas sales benefit from more predictable domestic gas prices than oil. Nevertheless, regulated gas price under domestic supply obligation for power generation (around 30% of Seplat’s gas volumes) was lowered in July 2021 to USD2.18 per thousand cubic feet (kcf) from USD2.5/kcf, after having been flat through 2014-2020. Seplat sells the rest of its gas to commercial companies at contract prices averaging USD2.9/kcf. Its gas production was 19 kboe/d in 9M21, or 41% of total hydrocarbon volumes.

ANOH Plant Scheduled for 1H22: ANOH gas processing plant (GPP) – which is 50%/50%-owned by Seplat and Nigerian Gas Company Limited (NGC) – underpins the former’s effort to further expand gas operations, adding 300 kcf/d to its existing 465 kcf/d gross processing capacity. The JV partners have finalised non-recourse debt funding for the project, which is an important milestone. Seplat expects to start receiving dividends from 2023, although we conservatively do not include any contribution in our rating case. Seplat is also marginally expanding its GPP at Sapele and adding liquefied petroleum gas unit to it.

Income Tax Capital Allowance: Seplat Energy pays income tax that is reduced by its accumulated capital allowance derived from historical expenditures. We forecast its effective income tax rate on oil production to remain considerably below the nominal 85% until its USD747 million capital allowance at end-3Q21 is exhausted. We conservatively assume that Seplat will start paying significantly higher income taxes in 2025, based on our oil-price assumptions. Seplat has an option to remain in the current tax regime until its concession terms expire despite the enactment of the new tax system in 2021.

ESG – Social: Fitch has revised Seplat Energy’s ESG Relevance Score for Human Rights, Community Relations, Access & Affordability to ‘4’ from ‘5’ as deeper communication and cooperation between local communities, the government and Seplat Energy has significantly reduced the number of attacks on oil infrastructure. The uptime in recent years was 74% in 9M21, 83% in 2020, 92% in 2019 and 85% in 2018, compared with 50% in 2017.

Seplat Energy’s upstream operations focus on the troubled Niger Delta region. Historically, this area has been a high-risk environment driven by militancy, crude oil theft, pipeline sabotage, as well as environmental pollution arising from militant strikes against oil infrastructure. TFP was shut down for 305 days in 2016 and more than 182 days in 2017, adversely affecting the company’s operations.

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Energy

Dangote Partnership: MRS Urges Nigerians To Insist On N935/Litre Petrol Price Nationwide

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MRS Oil Nigeria Plc, a prominent player in the Nigerian downstream oil industry, has implemented a new petrol price of N935 per litre across all its retail service stations nationwide.

The company has also called on Nigerians to monitor and report any outlets that fail to adhere to the new price structure.

Biztellers reports that this is consequent upon an announcement by the President of Dangote Industries Limited, Aliko Dangote, that the Dangote Petroleum Refinery has partnered with MRS Oil and Gas to offer petrol at N935 per litre at retail outlets, following a reduction in the ex-depot price from N970 to N899.50 per litre.

ALSO READ: Dangote Slashes PMS Price To N899.50k

It was gathered that MRS Oil Nigeria Plc has instructed all its outlets to implement the new price immediately, setting up a digital platform and monitoring team to ensure full compliance.

In a statement on Monday night, the company declared, “Petrol is now being sold at N935 at MRS Filling Stations nationwide. If you find any station not following this price, please report it. Call 08009447853 or email: NG-FMKPMGWHISTLEBLOWING@NG.KPMG.COM

Emphasising the eco-friendly nature of its products, MRS Oil added, “We call on all petrol station owners to join MRS Oil Nigeria Plc in improving the supply chain of our beloved country, ensuring product quality and availability in every corner of Nigeria for the benefit of all Nigerians.”

In Lagos, commuters were seen queuing at MRS filling stations to purchase petrol, with many expressing their gratitude to the Dangote Petroleum Refinery and MRS Oil and Gas, urging other marketers to support the indigenous refinery rather than import off-spec products into the country.

A commuter at the MRS station at Alapere on the Lagos Ibadan Express way, Ibukun Phillips, could not hide her joy as her husband filled up their car.

“I am very happy today. This is a victory for Nigeria,” she said. “The price reduction is the best gift of the season. But beyond just the reduction, we are buying standard, eco-friendly petrol at a lower rate. My husband and I have decided we will only be using MRS from now on because we are confident in the quality of the product and supporting the economy.”

A commercial bus driver, Adio Ajibade described the price reduction as a great relief, especially during the festive season.

“The reduction is a great relief. It will reduce transportation costs and benefit Nigerians. God will continue to bless Alhaji Aliko Dangote,” he said.

A public affairs analyst and university lecturer, Dr. Tunde Akanni, said the collaboration between Dangote Petroleum Refinery and MRS Oil represents a significant step towards improving the affordability, quality, and sustainability of petroleum products in Nigeria.

According to Dr. Akanni, “this move will not only help ease the financial burden on Nigerians but also promote a more environmentally conscious approach to fuel consumption, benefitting both the economy and public health in the long term.”

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Energy

FDI: Shell To Invest Billions Of Dollars On Nigeria’s Bonga North Oil Field

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As a direct implication of the Federal Government’s Foreign Direct Investment drive, the Royal Dutch Shell has completed the final investment decision on the deep offshore Bonga North project in Nigeria.

Biztellers reports that the Bonga North will be a subsea tie-back to the Shell-operated Bonga Floating Production Storage and Offloading (FPSO) facility which Shell operates with a 55% interest.

Shell’s Integrated Gas and Upstream Director, Zoë Yujnovich, said, “This is another significant investment, which will help us to maintain stable liquids production from our advantaged Upstream portfolio”.

ALSO READ: OGUNCCIMA Commends Dangote Refinery’s Impact

It was gathered that the Bonga North project involves drilling, completing, and starting up 16 wells (8 production and 8 water injection wells), modifications to the existing Bonga Main FPSO and the installation of new subsea hardware tied back to the FPSO.

The company is optimistic that the project will sustain oil and gas production at the Bonga facility.

The Bonga North currently has an estimated recoverable resource volume of more than 300 million barrels of oil equivalent (boe) and will reach a peak production of 110,000 barrels of oil a day, with first oil anticipated by the end of the decade.

In addition, the Bonga North will help ensure Shell’s leading Integrated Gas and Upstream business continues to drive cash generation into the next decade.

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Energy

Chevron Nigeria Bags ‘Energy Company Of The Year For Environmental Sustainability And CSR

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Chevron Nigeria Limited (CNL), has received an award as “Energy company of the year (2024)” for its Environmental Sustainability and Corporate Responsibility accomplishments.

The award presented by the Nigerian News Direct newspaper, on Friday December 6, 2024, and was received by Manager Communications, Chevron Nigeria and Mid-Africa Business Unit, Victor Anyaegbudike, at a colourful event at the Grand Ballroom of the Oriental Hotel, Lagos.

ALSO READ: Stakeholders Hail NCDMB As Local Content Level Hits 56%

The organizers of the award noted that Chevron has implemented the “Protecting People and the Environment” policy, which aims at preventing injuries, illnesses, and environmental incidents. They also referenced that the company has achieved 97% gas flaring reduction in its operations in Nigeria, while implementing waste management and environmental conservation programs.

According to the media organization, Chevron Nigeria has also invested millions of dollars in community development programs, supporting education, health and economic development initiatives that have benefited thousands of people, while ensuring diversity, inclusion, and employee engagement in its business operations.

Receiving the award from the Lagos State Commissioner for Information and Strategy, Gbenga Omotosho, Anyaegbudike thanked the organizers for the honour, and reiterated Chevron’s commitment to continue to develop, affordable, reliable and ever-cleaner energy that enables human progress around the world.

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