In dissecting Seplat Petroleum Development Company’s recent awards amid challenges presented by Covid-19 pandemic to the oil and gas industry globally, Olaoluwakitan Babatunde writes that strong corporate governance makes the future bright for the firm and its shareholders
Nigeria’s leading indigenous and independent oil and gas firm, Seplat Petroleum Development Company PLC, began year 2021 on a good note, winning the Most Profitable Company of the Year (Oil & Gas: Exploration and Production) at the Nigerian Investor Value Award (NIVA) organised by a national newspaper in conjunction with the Nigerian Exchange Limited. The firm’s Chairman, Dr. ABC Orjiako, also emerged the Board Chairman of the Year 2020.
According to the organisers, Seplat recorded the highest percentage growth in profits (year-on-year) in the upstream of the nation’s oil and gas industry, experienced faster growth compared to other players, and maintained a comparatively high operating performance.
The organisers said: “In 2020, like in previous years, Seplat has shown that its high profit margins are sustainable. Its strong profit position is not a flash in the pan, neither is it likely to be frittered away in coming years. This consistency has enabled the company to pay dividends regularly, service debts taken for recent strategic acquisitions, and underwrite new investments, while maintaining positive credit ratings”.
On why Seplat’s Chairman bagged the Chairman of the Year Award, which recognises a Non-executive Chairman or lead Director, who has demonstrated a passion for advancing the principles of good governance, the organisers added: “Dr. A.B.C. Orjiako is selected as the winner of this award for leading the Board of Directors to set a strong corporate governance culture, and support for the Executive Management team in the enhancement of economic value with drive for Nigeria’s energy transition to gas, fuelling 30 per cent of Nigeria’s electricity supply”.
Dr. Orjiako, by the organisers rating, had demonstrated the ability to objectively solve the most difficult boardroom challenges, with the proven experience to offer independent, sound guidance when the company faces hurdles and opportunities.
He supported the Board refreshment with the onboarding of Mr. Olivier de Langavant, CEO of Maurel & Prom as a Non-Executive Director, following the retirement of Mr. Michel Hochard, who also represented the interests of Maurel & Prom; appointment of highly seasoned, experienced, and sought-after hands, namely, Ms. Arunma Oteh and former London Stock Exchange (LSE) CEO, Mr. Xavier Rolet, as independent Non-executive Directors.
The Orjiako-led board-approved plan to eliminate Related-Party Transactions (RPTs), surpassing even United Kingdom regulations on RPTs.
Equally considered by the NIVA organisers was the Board’s commitment to payment of dividends despite COVID-19 and sharp drop in global energy demand.
Making progress amidst odds
That COVID-19 dealt businesses, especially the oil and gas industry, heavy blows in 2020 is no longer news. It triggered an undercut in global fuel demand, driving oil prices down to almost 20-year lows.
On April 27, 2020, the Wall Street Journal reported that an estimated 84 million barrels of Nigerian crude oil were stranded at sea, while another vessel was turned back from the US Gulf Coast and returned to the Canary Islands where other Nigerian-hired ships were idled.
The 2020 Appropriation Act projected crude sale at $57 per barrel, but emerging realities soon forced the country to cut the benchmark to $30 as early as March 2020 and further again to $20 as the year dragged on. The N8.6 trillion projected as overall inflow into the Federation Account dropped to N3.9 trillion. That was just how tough year 2020 was for the Nigerian oil industry and consequently, the nation.
But despite the daunting odds faced by the oil and gas industry in 2020, Seplat had in March put smiles on the faces of its shareholders when it declared a dividend of US$0.10 per share in the year ended December 31, 2020. This was contained in the audited Full Year 2020 Financial Report, which the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE)-listed energy firm released on March 1, 2020.
The report shows that Seplat recorded a $530.5 million revenue or N214.2 billion compared to US$697.8 Million or approximately N214.2 billion in 2019, while the company’s reported earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at $265.8 million and operating profit of $121 million (before non-cash impairments and unrealised fair value losses).
But speaking in March, Seplat’s Chief Executive Officer, Roger Brown, while admitting that “2020 was a challenging year for the company”, however, averred that “Seplat has once again shown its resilience and ability to overcome challenges and deliver production in line with guidance”.
According to Brown, from the $330 million of cash generated from operations, the company was able to increase its capital investment. It invested in ANOH and voluntarily paid down $100 million of debt, further deleveraging the balance sheet.
“Despite seeing the lowest oil prices in our 10-year history, we have continued to honour our commitment to shareholders of a regular income stream on their investment, by maintaining a total dividend of $0.10 per share for the year”, he said.
The Group’s oil operations continued despite the COVID-19 crisis and produced an average 33, 714 bopd on a working-interest basis in 2020, up 40.9% in 2019. Seplat signed a Crude Purchase Agreement (CPA) with Waltersmith Petroman Oil Limited in December 2020 for the supply of between 2,000 and 4,000 bopd to Waltersmith’s new 5,000 bopd modular refinery at Ibigwe Field, in Imo State.
“This new agreement benefits Seplat by selling its crude oil directly to Waltersmith for refining, thereby eliminating crude losses and downtime experienced along the evacuation and export route. The transaction will also boost the capacity of Waltersmith in providing its products particularly to the immediate region of our operations thereby supporting Seplat’s commitment to national energy security” the FY report adds.
Although $112.5 million or 21.2 per cent contributed by Gas to Seplat Petroleum’s 2020 revenues was short of the projected revenue due mainly to Covid-19, the energy firm continues to lead Nigeria’s transition away from spending scarce foreign currency on imported, expensive, high-emission diesel-generated electricity. Seplat’s working-interest production for year 2020 was 101 MMscfd at an average selling price of $2.87/Mscf (2019: 131 MMscfd, $2.84/Mscf).
Seplat currently supplies 30% of gas needed to power Nigeria. It supplies gas to Geregu, Azura and Sapele power, which account for a combined generation capacity of over 1000 megawatts of electricity. Also, through the Nigerian Gas Marketing Company [NGMC], Seplat has continued to supply gas to a number of factories for their independent power generation.
The firm has equally continued to show strength in cost-efficient and effective corporate governance, cutting its costs by $17 million in 2020, and targeting additional 30% in cost-saving in 2021.
A promising 2021
But in a sure-footed resurgence from the pandemic-induced challenges, Seplat Plc. has reported a profit before tax of N10.6bn ($28m) for the quarter ended March 31, 2021 compared to a loss before tax of N31.1 billion ($95.7m) in the same period in 2020, according to its unaudited financial statements released on April 29, 2021. Seplat’s revenue also rose by 16.8 per cent to hit $152.4 million.
Seplat equally announced the adoption of a quarterly dividend policy, declaring Q1 2021 dividend of $2.5 cents per share.
“We have made a progressive start to the year, delivering oil and gas production volumes of 48,239 bpd, within our guidance range. With the Gbetiokun field at OML40 now back in production, we are currently achieving average daily volumes of nearly 54 bpd so far in April and we will build on this as we add additional oil and gas wells this year.
“Our flagship ANOH gas project is proceeding as planned and was fully funded in February when our joint venture company, AGPC successfully raised $260 million of debt financing. In addition, the success of our $650 million Eurobond issuance in March demonstrates investor confidence in our prudent financial management and the exciting future ahead for the Company and its stakeholders”, Seplat’s Q1 2021 says.
Power of corporate governance
Speaking on the recent awards, Seplat’s Chairman, Dr. ABC Orjiako, attributed much of the company’s success to strong and sound corporate governance, thus confirming the consistent views of analysts.
He said: “I think everything revolves around strong corporate governance. In Seplat, one of the things that we emphasise always is that it is not just enough to comply to rules and regulations, we go over and above that and set, very high standards around what we do. And we do this through the right policy framework. Once you have the right governance in place, a lot of things will then definitely fall in place. So, what we’ve done is to make sure that when we speak about corporate governance, it is not just about ticking the boxes. It is in our DNA and everything we do in making sure that company is properly governed. This has manifested itself in the profitability of the company and how it has continued to grow upwards despite the challenges in the way.
“Our vision is to build a world-class company that focuses on stakeholders’ values. In doing that, we were very clear that we needed a very strong Board, a board that is studded with people with the right expertise, the right diversity, the right experience, both in the business we do and also in the financial world. So, our Board does not just have quite a lot of experienced people, but also members with diversity across geographies.
“We have also distinguished ourselves by the level of efficiency we brought to bear in our project delivery system, by making sure that our unit operating cost remains one of the lowest in the industry, if not the lowest. In every regard, we ensured that we grew revenue year-on-year, we grew profitability year-on-year and at the same time we ensured that total shareholder return was guaranteed.
“So overall, it’s been a combination of hard work, it’s been a combination of following focused vision and mission of the company, maintaining very high level of integrity and ethical practices is our core values. Therefore, all these, put together, have given rise to the profitability that we have enjoyed over the years. And of course, has now culminated in the award that you are seeing today.
“We are always proactive, and properly in tune with what is happening globally. Today, we speak about an energy company that provides energy solutions and going forward, we will make sure that we are completely aligned with what the global environment is looking at with respect to climate change, ESG and the rest of them”.
Pix: ABC Orjiako.jpg
