Nigeria holds 37 per cent of total proved gas reserves in Africa, the largest by any country within the continent. With current estimated population of above 200 million and projected population of 450 million over the next three decades, Nigeria is Africa’s largest market. While government has focused considerably on power in recent years, there exists huge deficit in power demand and supply. High demand for gas by power companies and other companies as well as increasing domestic use of gas by the general populace provide almost an unrivalled perfect opportunity for the gas business in Nigeria. Nigerian businesses are estimated to spend some $30 billion annually on diesel generators to supplement inadequate national grid supply. Federal Government’s gas development framework seeks to harness the domestic gas advantage for national economic growth. Government seeks to use gas as an enabler to achieve many national goals including energy sufficiency, industrial growth, sustainable environmental development, employment and improved social and living standards. To incentivize investors, government places seven per cent royalty on gas revenues as opposed to 20 per cent on oil production. Gas companies will not pay any petroleum profit tax and are only required to pay the general companies income tax of 30 per cent. There is also a three-year tax holiday, which is renewable for another two years.
It was in this context that the Federal Government, represented by the Nigerian National Petroleum Corporation (NNPC) and Nigeria’s leading independent exploration and production company, Seplat Petroleum Development Company Plc, signed on to the development of the Assa North /Ohaji South (ANOH) gas and condensate field project. Seplat, first upstream company to be quoted on both the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE), brings multiple stakeholders to the project including domestic and foreign investors, Nigerian local content policy and national security among others.
Gas for development
The $700 million ANOH gas and condensate field project is expected to contribute significantly in addressing Nigeria’s deficit in thermal power delivery. The project straddles Seplat’s OML 53 and Shell Joint Venture’s OML 21. Seplat is the operator and has 40 per cent working interest in OML 53. The ANOH gas processing project is managed by Anoh Gas Processing Company (AGPC), an incorporated joint venture (IJV) between Seplat and the Nigerian Gas Company (NGC). AGPC shall develop a 300 Mscfd midstream plant on OML 53 to process future wet gas production from the upstream unit.
With final investment decision on the project taken by Seplat, the project has attracted several domestic and foreign financiers including leading banks such as United Bank for Africa (UBA), Zenith Bank, Stanbic IBTC, Fidelity Bank, FCMB Group, First Bank of Nigeria, Access Bank, Union Bank of NIgeria and Nova Merchant Bank. International lenders already on board the project included SCB, RMB, Standard Bank, BHGE and Nedbank. At its capital market day at the NSE, Seplat, which is quoted on the premium board of the NSE, widened the investment opportunity to Nigerian investors with a comprehensive presentation on the company’s existing gas business, market outlook and anticipated ANOH growth trajectory.
Chief Executive Officer, Seplat Petroleum Development Company (Seplat) Plc, Mr. Austin Avuru said the $700 million ANOH gas project would deliver its first gas by first quarter, 2021. He said the project would enable the company to produce 800 million scuff of gas per day, which will ultimately account for 40 per cent domestic gas production in Nigeria. He noted that gas business opens up a new vista of growth for Seplat, pointing out that domestic supply obligation (DSO) price has increased to commercial levels while non- DSO prices are determined on a willing buyer-willing seller basis.
According to him, the current capacity deficit in thermal power generation provides immediate headroom to place additional gas volumes, backed by existing significant installed but non-operating generation capacity.
He noted that the market prices remain strong while long term outlook for gas in Nigeria and the regional market remains positive, assuring that Seplat’s access to gas infrastructure positions it to be the lending long-term gas supplier of choice for Nigeria.
He pointed out that the conventional diesel off-grid power generation is expected to be displaced gradually, presenting Seplat’s gas business with a significant opportunity.
Avuru had noted that the company’s core assets in the West, OMLs 4, 38 and 41, the extension of the license to 2038 means that the company can confidently plan and invest long into the future to realise the full potential of those blocks.
He outlined that as the company continues to enhance production and revenue diversification with new wells scheduled at OML 53 in the East, the ANOH gas and condensate development will form the next phase of transformational growth for the company’s gas business.
Strong foundation
Seplat already has a thriving gas business. It achieved another record year in 2018 with gross production of 323 MMscfd and gas revenue rising from $124 million in 2017 to $156 million in 2018. It had in mid-year 2015 successfully completed and commissioned its Oben gas plant phase I expansion, which saw the company’s overall gross processing capacity double to 300 MMscfd. The Oben gas plant phase II expansion was also completed in 2017, raising gross processing capacity to minimum level of 525 MMscfd. The gas business’s earnings before interest, tax, depreciation and amortization (EBITDA) jumped by 62.4 per cent from $85 million in 2017 to $138 million in 2018, with the gas business making considerable contribution to overall dividend paid by the group for the 2018 business year. Oben is already well-positioned with access to both the Abuja and Lagos axis, covering the country’s main demand centres. ANOH will connect large scale gas reserves in the Eastern Delta into Nigeria’s main demand centres through Oben hub. With its experience, Seplat will derive considerable repeatability gains and optimal configuration in the new project.
Managing Director, Anoh Gas Processing Company (AGPC), Mrs Yetunde Taiwo, explained that AGPC schedules synchronize with Seplat upstream development plan.
She noted that the timing of the upstream development, which is the source to the plant, has been very much planned as a unit and it has been factored in such that the well are going to be ready by the time the ANOH plant will be ready.
“ANOH is unitized 50:50 across the two blocks. Shell is the operator of the upstream unit. AGPC shall deliver a 300 MMscfd midstream plant on OML 53 to process future wet gas production from the upstream unit,” Taiwo said. The OML 21 JV will separately develop its midstream plant.
She added that the Seplat model of partnership and proactive engagement with host communities and other stakeholders will also impact positively on the new project, ensuring minimum downtime on installations and facilities.
According to her, the company has continued to work with all stakeholders to ensure effective company-community relations governance structure while there is ongoing needs assessment to ensure future corporate social responsibility projects further reflect community aspirations.
Chief Finance Officer, Seplat Petroleum Development Company (Seplat) Plc, Mr. Roger Brown, pointed out that Seplat and NGC will contribute $210 million each to AGPC while equity and debt are to be scaled in line with final project cost whilst maintaining a target debt: equity ratio of 60:40.
He said the company was mindful to correlate its funding model and business model citing the company’s proactive pay back of its equity debt in the early years as a good example
According to him, besides Nigerian banks and international financiers, export credit agencies such as SACE and CPD are considering the ANOH opportunity while the company is also in discussion with Africa Finance Corporation (AFC) and International Finance Corporation (IFC).
Brown explained that the company has many built-in strategies to optimise its funding plan including amortization of debt facility over a period of between five to seven years and inclusion of deferred debt payment into several supply contracts. AGPC will scale up on its viability and will not have any recourse to Seplat and NGC beyond the initial $420 million equity contribution.
He said AGPC could generate total revenue of $500 million per annum by its first gas and subsequently build up to $556 million per annum over the mid-term and stabilise at $490 million per annum over the long-term. EBITDA by first gas is estimated at $207 million per annum and subsequently to $225 million and $194 million over the mid and long term respectively.
Stock to watch
Analysts believe Seplat is a stock to watch for capital gain and dividend growth. Analysts at Afrinvest Securities Limited said Seplat has potential to deliver high returns. In a review of Nigerian upstream oil and gas industry, Afrinvest outlined positive outlook for Seplat noting that the company’s growth history and industry outlook make it a desirable stock for investors.
“We are positive about the company’s prospects going forward. Over our forecast period, we expect Seplat’s revenues and overall profitability to be impacted by three major factors over our forecast period; stable oil production and an improvement in uptime to an average of 80.0 per cent, the success of the company’s diversification in its export route and stability in oil prices above US$50.0/barrel and persistent improvement in gas production,” Afrinvest stated.
A review of Seplat 2018 results indicated positive performance across most financial indices. Key extracts of the audited report and accounts for the year ended December 31, 2018 showed that Seplat posted N228 billion turnover in 2018, 65 per cent growth on N137 billion recorded in the 2017. Profit before differed tax stood at N73 billion, indicating 480 per cent increase on N13 billion recorded in 2017. Gross profit had grown by 84 per cent to N120 billion in 2018 from N65 billion reported in 2017. Operating profit stood at N95 billion, representing a growth of 177 per cent on N34 billion recorded in 2017. However, with taxes of N35.75 billion paid in 2018 as against tax gain of N67.66 billion in 2017, profit after tax dropped to N44.87 billion in 2018 compared with N81.11 billion in 2017. Earnings per share thus dropped from N143.96 in 2017 to N79.04 in 2018. Seplat paid a final dividend of $0.05 per share to all its shareholders. Seplat was adjudged 2018 overall winner of PEARL Awards organised by the well-acclaimed PEARL Awards Nigeria. PEARL Awards recognise and reward quoted companies for outstanding operational and stock performance based on verifiable facts and figures rather than elements of subjectivity.
