As Seplat Heads to the Market--Ijeoma Nwogwugwu

History is about to be made in the oil and gas and financial services industries. On April 4, the ordinary shares of Seplat Petroleum Development Company Plc, a fast-growing indigenous oil and gas company, will be listed simultaneously on the London and Nigerian Stock Exchanges.

Through the initial public offer (IPO), Seplat seeks to raise at least $500 million that would be used to repay in full its shareholders’ loan of $48 million to Maurel et Prom of France, while the balance of most of the net proceeds of the global offer would be utilised by Seplat for acquiring and developing new acquisitions of oil acreages, and/or pay down any additional debt raised in connection therewith of both onshore and shallow offshore acreages, assets or joint venture farm-ins.

For those wondering what the big deal is about the dual listing, Seplat would be first Nigerian company operating strictly in the upstream oil and gas sector that would be listed on the main board of the London Stock Exchange (LSE) as well as the Nigerian Stock Exchange (NSE). Others before Seplat such as Afren, whose shares are currently listed solely on the main board of the LSE, is a UK registered company with operations in Nigeria and other African oil producing countries. Another firm, Lekoil, is Nigerian but its shares are listed on the Alternative Investment Market (AIM), which is the LSE’s international market for smaller growing companies.

Another notable milestone about Seplat’s dual listing is that this could open the floodgates for other oil and gas companies – independents and oil majors alike – which the management of the NSE has been wooing for sometime to get listed on the Nigerian bourse, and also for other sub-Saharan companies seeking to raise capital from international markets.

Other than the rigorous scrutiny Seplat’s corporate governance structures, its perceived ability to operate to international standards, board of directors as well as its management team had to undergo for six months to get the green light from the UK’s Financial Conduct Authority (FCA) for the London listing, the company’s story has indeed been remarkable.

First registered in 2009 as an indigenous exploration and production (E&P) company with a focus on Nigeria and other African markets, Seplat, in the short period of its existence, has grown to become the largest indigenous independent operating in the local environment. Its growth trajectory was helped by two main factors: the first is the quality and pedigree of its shareholders comprising Maurel et Prom, France’s second largest oil and gas company after Total, which holds a 30.1 per cent stake in Seplat (at the outset it owned 45 per cent of the Nigerian firm); Shebah E&P (31 percent); Platform Petroleum (24 per cent); international commodity trader, Mercuria (6 per cent); Blakney (4 per cent); and Quantum Power (4.9 per cent).

The second stems from Seplat’s organic and acquisition growth strategy, starting from its 2010 acquisition of a 45 per cent stake in oil mining leases (OMLs) 4, 38 and 41. The 45 per cent was previously held by Shell, Total and Agip, before the oil majors commenced their divestment programme from onshore and shallow water acreages in the Niger Delta. Nigerian Petroleum Development Company (NPDC), the E&P subsidiary of the Nigerian National Petroleum Corporation (NNPC), holds the rest of the equity.

Being the first indigenous operator to takeover the oil blocks that were sold by the oil majors to third parties, Seplat was able to lock in an agreement that gave it the operatorship of the three leases. Other indigenous operators such as Neconde, Elcrest, ND Western, Afren and Heritage Oil that came after it, were not as fortunate, as operatorship was transferred to NPDC. NPDC in turn was to enter into separate funding arrangements under a Strategic Alliance Agreement (SSA) with Atlantic Energy Concepts Limited and Taleveras.
By holding on to the operatorship of the three oil blocks, Seplat was able to ramp up oil output from 14,000 barrels per day (bpd) in August 2010 to the current level 60,000bpd. Similarly, it supplies 130 million standard cubic feet of gas daily (mmscf/d) from its Oben plant in OML 4 to the Nigerian Gas Company (NGC) under its domestic gas supply obligations (DGSO).

Just as critical, in the five-year period since Seplat acquired the blocks, it has grown proven oil and condensates reserves (2P) by 47 per cent to 248 million barrels of oil equivalent (mboe) and 578 billion cubic feet (bcf) of proven gas reserves. Also, with the installation of a liquid custody transfer unit for the Crude Handling Agreement (CHA) it has with Shell, Seplat has halved its losses on the quantity of crude oil injected into the Forcados oil terminal operated by the Anglo/Dutch multinational, from 20 per cent to 10 per cent.

Owing to the hike in its production and reserves portfolio as well as a reduction of losses, Seplat has seen its total assets grow over a three-year period from $312.8 billion as at December 31, 2011 to $1.318 billion by December 31, 2013 (sourced from management accounts), while revenue has grown from $451 million to $880 million in the same period. Its operating profit has also risen from $179 million to $478.6 million during the same period under review, while EBITDA more than doubled in three years from $243 million to $$529 million. It is also noteworthy to add that Seplat has maintained a conservative gearing ratio relative to industry norms, which has provided significant scope for acquisition financing.

However, the company is not resting on its laurels. It intends to increase oil output from OMLs 4, 38 and 41 to 85,000bpd and gas to 350mscf/d by 2016. Funding for the incremental output from the fields will be largely sourced from internal funds, the company’s Managing Director/CEO, Mr. Austin Avuru, informed this writer.

In addition to its part ownership of the first three acreages, Seplat in June last year entered into a farm-in arrangement with Pillar Oil Limited for a 40 per cent interest in the Umuseti and Igbuku marginal oil fields in Oil Prospecting Lease (OPL) 283. Its goal is to increase production from the current 2,500bpd to 10,000bpd by the second quarter of 2015. Other price disciplined acquisitions Seplat has set its sights on include Shell’s prolific oil block in Bayelsa State – OML 29 – whose output peaked at 62,000bpd and holds reserves of 2.2 billion barrels of oil equivalent, as well as Chevron’s OML 53, which has been the subject of litigation fostered on the transaction by another Nigerian operator, Brittania-U.

From the above, it is obvious that Seplat makes a compelling investment proposition for institutional investors and high networth individuals as the company heads for the market in a few days time. Yet, like any other oil and gas company operating in the Niger Delta, Seplat is not immune to the challenges of the operating environment, as it is already part owner of oil leases once operated by Shell. It is also interested in acquiring more leases from Shell and Chevron. This means that the company will be subjected to the same disruptions arising from vandalism of oil facilities, crude oil theft and irate communities that have forced the oil majors to divert focus from onshore and shallow water production to deep offshore acreages.

In addition, Seplat cannot at this juncture guaranty that the operatorship of OMLs 53 and 29 (should it acquire the latter) would be transferred to it. This is key for any operator entering into a joint venture with NPDC and is desirous of increasing shareholder value. The likes of Neconde and others, which were not accorded the operatorship status, continue to agonise over their investments and declining production figures.

Just as important is the delay in the passage of the Petroleum Industry Bill (PIB) and the threat of shale gas discoveries by the United States of America and the other countries. The latter has already dampened appetite for Nigeria’s crude oil by the world’s largest energy consumer, while the former has slowed down investments in the oil and gas sector, as oil companies await the new fiscal terms and regulatory regime in the bill.

On these issues, the Chairman of Seplat, Dr. ABC Orjiako and Avuru remained undeterred. During discussions with this writer, they said indigenous oil companies with a much more limited footprint in the Niger Delta have suffered much fewer disruptions to their operations than the international oil companies (IOCs). To buttress this position, Avuru revealed that the number of incidents in Seplat’s oil acreages due to third party sabotage or theft fell from six in 2011 to four in 2012 and zero last year.

He attributed the drop to the Global Memorandum of Understanding Seplat entered into with its host and impacted communities where it operates. The agreement reached with the communities, he said, is a departure from the era of tokenism typified by oil companies in the past, to the implementation of programmes that are inclusive and recognises the communities as partners who should be worked with.
“We do this through the expansion of the local economy and job creation that have provided a disincentive for illicit oil bunkering amongst youths in the host communities. We adopt and implement projects for the people to actually benefit and feel our presence,” he pointed out.

On the issue of operatorship, Orjiako and Avuru are hopeful that NNPC and the Ministry of Petroleum Resources will be more flexible as more acreage is sold by the IOCs. They believe that there are lessons to be learnt from the concluded sale of oil assets between 2011 and 2012, which should inform which party should be allowed to operate them if NPDC is focused on growing its output and reserves.

With respect to the threat posed by shale gas, Avuru was of the view that the discovery of unconventional oil and gas by the US has served as a stabilising factor for what could have been a disaster. Original forecasts, he observed, had already indicated that global oil production would plateau between 2010 and 2015, before it starts declining. According to him, had unconventional oil discoveries not be made, the price of crude oil would have started inching up to $200 to $250 per barrel by 2015. Shale gas, he added, would account for 15 per cent of total global supply by 2020, while shale oil would account for 11 per cent of total supply. This, in his view, this would just be enough to stabilise supply and prevent a glut that could depress the price of oil.

Both men are particularly gung ho about the company they jointly founded alongside Maurel et Prom. They are extremely proud of Seplat’s accomplishments and confident about its future prospects. It is for this reason that they have made a clear departure from the past whereby the owner/managers of viable companies tended to hug their companies to themselves. It is a forward-looking strategy certain to pay off for existing and prospective shareholders of the company, and would guaranty the longevity of Seplat.

Ijeoma writes on her Column Behind the Figures on ThisDayLive 

Email- ijeoma.nwogwugwu@thisdaylive.com