Seplat Energy Plc

Good morning, everyone. Welcome to the 2022 results conference call for Cepta Energy. So turn to slide four and run through some group highlights. So first of all, we're declaring a dividend of 7.5 cents, which is a special dividend. It's made up of a 2.5 cents final dividend, and then we've topped it up with a special dividend of 5 cents. Total production is at 16.1 million barrels of oil equivalent for the year, which is slightly down on last year, largely down to the three shut-ins that we had, and Sam will deal with that when he goes through it. The revenue is up almost 30% on last year, largely to do with the higher oil prices, and then EBITDA numbers around 418, slightly up, to 12.1%. In terms of the 2022 achievers, we continue to pursue the mobile producing acquisition. We'll deal with that later in the slide. We're looking obviously at our new energy investment plan. We announced that at our strategy day and we've made a good inroads in terms of looking at new energy opportunities and we're looking to take FID and at least one of them by the end of this year. In terms of the PIA volatility conversion, obviously the PIA went in 2021, its ability to do a volatility conversion, we've opted to do that, and we did that in February. Work is ongoing to separate the midstream gas business. Under PIA, envisage is a separation of midstream away from upstream, and working hard to deliver that. We believe that will create a lot more value for shareholders in the longer term. We're going to disclose the first climate risk report and that'll be end of March this month, or actually next month, and it'll be under TCFD guidelines. We've commenced our implementation of achieving a zero and that's largely to do with taking a look at the flares. We've had some board changes. obviously we announced earlier this year uh a new independent chairman with bazaar um and then we have another board uh member which is today which is kusum kalyan joins as an independent non-exec director this is part of the refreshing of the board um for the future okay so moving on slide it's um just a few words about facility and we have a quite a number of corporate initiatives in our scorecard, sustainability in about 15% of the scorecard in 2023. And if you combine that with the safety at 10%, one quarter of the overall scorecard is now related to safety targets and sustainability targets. And in terms of reporting, talked about just putting out this, climate risk and resilience report. You'll see that at the end of March. We'll put that on the website and it's flying with TCFG guidelines. Just some stuff on the emissions reductions and we have committed and we're still on track to delivering a flares out initiative by 2024. So beyond, we will be flared out completely, except for obviously safety flares, which we'll need. And largely a lot of that reduction is coming from the AG compression, which we've put in place at the end of last year when we were not in operations. We've also re-looked the calculators for the scope one, scope two emissions. We have been making a lot of estimates around that, actually overstating them. We now have a new calculator in place, which is much more accurate now where our carbon intensity is down 2020 and 2021 levels, 29 kilograms per BOE. Our diesel program is underway across all of our apps. And obviously our Tree for Life project is making some inroads into the first pilot project. So I'm going to now move over to operating review and hand over to Sam Morrison, the COO, and he will then picture the slides.

Thank you very much Roger and then moving on to slide number seven. Good morning, good afternoon, good evening everyone depending on where you have joined this call from. Just to highlight our personal performance in the year under review continues to follow our very strong strategic agenda focusing on maximizing cash generation through operational efficiencies. we focus on our three key strategic pillars the upstream the midstream gas and the new energy and over the next few slides i would like to take you through some of the key initiatives that we are driving to strengthen our performance along those lines but specifically just on this point i would like to highlight that we continue to diversify our export routes to continue to assure revenue generation learning from the quarter three performance of 2022 when we had very significant pipeline and terminal outages that impacted our patient performance in the year. So if you just go to straight to the next slide on slide number eight, I will lead into one of the key strategic drives where you will see how robust our reserve base is. Looking at 2022 relative to 2021, our reserves decreased by 19 million barrels. 84% of that was significantly related to production, 9 million barrels of oil and 41 BCF of gas. 12% is due to the divestment of Udima and reclassification and revisions which is our strict petroleum engineering practice leading to 4% reduction. Our 2C resource volumes also decreased by 7.3%, 17 million barrels of oil equivalent, and we are currently farming into the Abiala marginal field through our LCRES non-operated venture. And that is not yet in the books. simply because we have not completed the farming operations by the time we have audit in the year. If we go to slide number nine, you will also see our growth agenda through the exploration well that we drilled in Sibiri in quarter one 2022. Significant progress has been made with this. We have very fastly moved to extended well testing of this particular opportunity following the discovery that we made. I would like to comment that the extended wells testing is underway as we speak here with very promising results. Well is currently flowing, good API, flow rate yet to be determined. And also we are driving the. For the appraisal of the Sibiri Discovery and also we have made some very significant discoveries with this. They are flat. The flank appraisal has yielded many more positive results, including two new pay zones. Overall, we see a very clear indication that the Sibiri discovery will be in the upper margin of our in place volume estimation. We are going to quickly move into field development planning and bring this to production shortly. Speaking to slide number 10 and our overall operational performance in terms of production in the year under review, we started the year very strongly. with very good quarter one and quarter two performance. And as I stated earlier, quarter three was heavily depressed by pipeline and export line challenges. But by October last year, we recovered and we also then made a very strong recovery in the last quarter of the year, leading to an exit of 53,000 barrels of oil per day at the end of the year. And learning from this, we will continue to drive additional export route opportunities to ensure resilience as we go into the market. On terms of operational performance and resilience, and we also achieved ISO 55,001, which is also a very big one for us at CEPLAT being the first in Africa to achieve this feat. So we also feel very proud about this. And lastly, our operational performance continued to run on a very strong safety performance in the Niger Delta area of Nigeria, where we actually achieved 31 million hours of LTI-free operations over a space of three years. However, we recorded one non-operational LTI in October last year, and since then, we have also ratcheted up to two million, almost three million man hours of LTI3 operations since the last incident. So if I go quickly to how we are building resilience on slide number 11, resilience for export operations into the market, we delivered the alternative, the Ambiquit to Excavose pipeline in July last year. And following that, that in itself has opened more opportunities for three additional export routes out of there. But learning from the incident that we also had, we continue now to look at all the opportunities to bring our crew to the market in OML 40 and in OML 53. And if I go to the very last slide for me, that is also how we are driving our midstream agenda in line with our strategy. The first big ticket item there is how we utilize the installed capacity in our facilities in urban and surplus. And there you will see that we continue to export very significant volumes into the market. In the year under review, we exported over 110 million scopes of gas, our year average, achieved an average gas price of $2.82 per thousand scoffs. We also additionally signed some three new GSAs to a total volume of 86 million scoffs per day. That now brings us to eight GSAs in total with offset capacity of 390,000 million scoffs of gas per day. We are also driving ANO. ANO is also a very strategic growth opportunity and the current outlook is that we would bring ANO to our own stream by the last quarter of this year. We achieved 95% mechanical completion in the course of the year under review and we are driving and working closely with our partners to achieve the pipeline a network that will bring this gas to the market. Lastly is the supply delivery where we are having a combination of three agenda here, driving cash flow from gas sales, LPG, and then also reducing our gas flaring with this opportunity. And this is supposed to come on stream by the last quarter of 2024 in line with our end of routine flaring agenda. So on this point, I would just like to end and hand over to Emeka who will take us to the financial performance. Thank you very much.

Thank you Sam. Good morning. My name is Emeka Onka and it's CF4. I'll take you to the financial review starting from slide 14, which gives the financial highlights. You will see that total revenue will now be $1 million and EBITDA was $416 million and will end up with a very strong cash on our balance sheet of $404 million. You will also see the realized oil price at $101 per barrel and the gas price at $2.82 per million scope of gas. If you go to slide 15, we'll give more details on the financial results. You see oil revenue at $8.9 million and gas at $1.12 million. The gas revenue dropped a bit. This went to the earlier pressure we faced in 2022 on gas prices, particularly the domestic gas obligation price that came down to 265. However, during the year, we recovered in terms of a new GSS design, and we were able to build out the price of a $2.82 per million scope, like I said in the earlier slide. The cost of sale affected by the royalties given the higher oil prices for this year. The G&A went up significantly. One is increased NARA spend in 2022. Usually, there are FFM implications for that because you convert books and maintain a systemic rate of the central bank and FX rates. So when you spend NARA and convert, it has an implication in terms of the dollar reflected as the G&A cost. Also, the global inflation, which put MPARCA on the traveling side, travels and cost of imports as well. Staff emoluments increased margin during the year and we also had a prior cost of over $12 million that we had to charge this last year due to partner recovery issues. If you go to the impairments, we had On the UBIMA, we have a loss of sale of UBIMA at about $13 million on that, after the fall of that asset, like Sam already mentioned. The tax cut for this year, apart from that, that was also a defied tax cut of about $33 million, and that increased tax cut for the year. The higher oil prices meant that we need to reverse some of the fat tax obligations occurring in our books. So ended up with $104 million profit after tax for this year. The capital for this year was $3 million. And that takes us to the next slide, slide 16, where you see that we spent $123 million, $4 million of that on drilling. We did about two of that completed this year, 11 delivered in 2022. We also made part of the CAPEX also used for engineering projects and our gas plant. Also, on the drilling side, we continue to improve the cost of drilling. We're targeting $10 million in terms of average cost. And in the past two years, we've achieved about a 5% reduction in drilling costs. The details of the wells that will drill this field are also contained in page 16 of the slides. I'll take you to page 17, slide 17, which shows a very strong cash generation this past year. We opened with $324 million. I'll have $404 million cash from operations, which utilized the OBIMA receipt. That disposer will receive about $80 million during the year. And also on the MPA transaction, where the disposer wanted to get $8 million as part of our 10 10% of consideration for that effort that CBA held, which is part of adjusted on completion of the transaction. Capital for the year, $163 million, like I said in the previous slide. And we ended the year strong on liquidity of $404 million. I'll take you to the next slide. Slide 18, we showed a rubble liquidity situation of $404 million. We have debt of, they have bought out their $650 million, and Ultimately, what you have closing the year on net debt or trust is $5 million. And net debt is 0.8%. We also, on that same slide, have an indication of how we manage our capital. We are very conservative. We have our 70 by 70 and 70 by 70 in terms of Naira to dollar. We always hold about 30% of our liquidity in dollars. And also, 30% of that dollar is also held outside the contract. And for the year ended, as I said, December, I had what I want, a $3 million option. In fact, that for $9 million that came in just on the last day that we had offshore, of course, it nearly will open the next year. We'll transfer that offshore as well. We talked about debt management. Our target entirely is two times. Although our culminate is about three times EBITDA. I'll talk about our EBITDA figures earlier. We also engage in terms of capital investment, low-risk capital investment. Our third priority is to drill wells to arrest decline and also to continue to invest in midstream, which for us is a natural hedge. This last year, in terms of production for 4% was from gas and 46% of oil. This normally, for us, is a natural hedge, as I guess, fluctuates on crude oil prices. We also hedge our production. We are hedged on to the second half of 2023, about 3 million barrels at $50 a barrel. We jump back and forth with options. I'll take you to slide 19, which is on a special dividend, which Roger has spoken to. Our suppliers have consistently paid dividend in the past five years, including the dividend paid in 2022. Also, we paid about $436 million since we went to the market, where we raised $5.5 billion gross. And this year, we ended with a strong liquidity. I talked about our $404 million on the balance sheet on the back of higher oil prices. We reviewed our cash requirement for this year. including the capex or $116 million which we are going to speak about and also the MPO transaction where we're keeping funding for only pretty contribution on that transaction. All together after this review we also consider a couple of perfect things that we have in our bond covenant and the board has recommended beyond the 2.5% for for the last quarter of 2022, an additional top-up of $0.05 as well. And I'll bring it up together, $0.75 for final dividend, and for year 2022, $0.15 on the whole. I'll now hand over to Roger for the next section on Outlook.

Thank you. So slide 21, I just look forward to this year. So just looking at our CapEx, it's a similar split 20. 2022, so there are more wells going in. As you can see, the guidance for CAPEX is 160 million, and there's a split between the development, production, asset security, maintenance, and exploration, so a bit is going on in development and production. There will be 18 wells this year, and on the right-hand side of the slide, you can see where we're putting those wells, so a bulk of them in the western assets in 438, 41, three oil, three gas, water disposal, which is needed for the water that's coming through, and then one exploration well. We're trying to get more out of those assets. One in 53, we're doing five in OML 40, four oil and one appraisal. And then Abiala, which is effectively OML 40. It's a marginal field. We're putting two there, one work over well and then one oil well. And then Anno, there'll be two gas wells, the drilling for ANO. In terms of then facilitating projects, we're completing the Sapley Integrated Gas Processing Plant. And then we've talked a lot about FLIR, and that's our commitment by 2024. So this is FLIR's project at Oban, Amoopi, Sapley and GCK. And then looking at some renewable energy power opportunities as part of our sustainability drive. Final slide. which is looking at guidance. So we're guiding at 45 to 5. That range is, we've risked that range. And we will narrow it during the year, but risked it obviously with elections going on in Nigeria at the minute. And there's obviously excluded or mobile producing. Anno, first gas moved to Coote for 2023. And we have along that, explanation in the accounts, so you can look at that. But the export routes, OB3 pipeline, and the spur line are scheduled to be completed by the half year. We've further. They're not our projects we're doing, so further. And that's why we put our first gas at the end, Q4, towards the end of the year. Midstream gas, again, we're underway to make that stand-alone business. And I really genuinely do believe this will create more value. And that's in line with the PIA. The new energy talked about, we're going to see, hopefully, an FID on a power opportunity later this year. And in terms of the sustainability, that's been quite a big drive for the business. Finally, on NPN, you will be producing, we are continuing to pursue a reaffirmation of the approval from the present we received on the 8th of August, and we are still trying to push this through before he leaves office. Okay, so that wraps up our presentation. I'll hand it back for Q&A. Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by 2. When preparing to ask a question, please ensure that your phone is unmuted locally. So to confirm that, star followed by 1 to ask a question. One moment for the first question, please. Ladies and gentlemen, another reminder, if you have a question, please press star and 1 on your telephone. And our first question is from Dimitri Ivanov from Jefferies. Please go ahead.

Hello, can you hear me? Hello, can you hear me? Yes, we can hear you. Yeah, go ahead. Thank you very much for the presentation. I have a few questions. First, on this situation with... that was unavailable for almost 40 days during the period. I mean, like this kind of material event for the company. Could you provide more color on the situation? What caused this kind of force majeure? like, is there any kind of mitigants in place to hedge against this risk? Are you kind of thinking, or is there any availability of insurance against these potential events happening? This is like the first question on Farkadov's terminal incident last year. The second question would be on... this mobile asset acquisition that you still plan just to execute by May. Is it possible just to provide more color on this deal? Are we talking about the same valuation? Do you have financing secured to close this deal? And are we talking about the same financing structure as we discussed last year? when the loans will be obtained in a ring-fenced structure with no recourse to the existing perimeter. So any color on this model asset acquisition would be great. And the last question might be on operational performance of kind of assets and especially IEP pipeline throughput. Maybe if you could kind of share any color on that. operational statistics for the first two months of 2023? Do you see kind of what levels of the throughput oil lifting you see in this first month of 2023, especially when we talk about the new commissioned IEP pipeline? So thank you very much. Three questions from you.

Okay, thank you. So why don't I, I'll just start, and then Sam, you can jump in on the operational stuff. Just in terms of the Forcadis Terminal, what happened was a force majeure could largely do with an SBM. There's a loading arm and there were some integrity issues with that. And the pipeline through Rochelle took some time to fix those issues. So that largely led to the the force majeure being called there. Now, in terms of the impact, it's up and running again. And we're using that for our production. But we have identified that as a long-term route for us. We're looking alternative on that. And I'll ask Sam specifically to come in on that now before I then do other questions. Oh, I think we have some technical issues. I'll keep going. All right, this one. So what we look to do is, I mean, it's highlighted looking at the return of routes. So we want to use AP. We describe as pipeline as our main export routing. And we have an ability to put 35,000 barrels a day on that line. What we've found since we we were operational late July line is certain months, we've had extremely good results from it. So for instance, December, we had no downtime on it. So other months, we've had some downtime largely to do with the fact that in some tapping points that we've had to remove. We see this as improvement. And in terms of the downtime, We expect less than 10% downtime, lead trending to more like 5%. We're materially better for the business, and that deals with the throughput. And obviously, to the extent we can, we want to engage with Chevron and try to put more volume. The remaining volume then that we'll have from our Western assets, we're looking to barge out long term. but we need to put barging operations in place, which is what we're working on. That should then fix the Q3 situation we had here, where we had, of course, a lot of our terminals. Dealing with your NPNU question, in terms of the financing related to that, it's no change. We have committed to it from our mixture of banks and solicitors, That still is in place. And obviously, we're now just waiting for the president, who's also the minister of petroleum, to reaffirm the approval. And then we're hoping to get this transaction through either this present or, if it need be, going to the next president. But the loans and financing of that is no different. Okay, I hope that answers that.

Sorry, go ahead. To clarify, so financing is secured, so there is no change to the amount of the deal value. So the only kind of like bottleneck at the stage is the final approval of the deal. And once you have this approval, you go ahead with the deal. and there is no kind of additional due diligence revision in deal price. So just you need to get approval, formal approval.

Yeah, so obviously we have our view is, and obviously the seller's view is that we have approval, but there's a difference of view from the national NMPC around the change of that. It's holding it up. We need to resolve that. In terms of the transactions, the SPA, it's in place. The funding is largely ready to go. Obviously, you have to be, CPs have to be satisfied to fix that. But it's ready to go. So we're waiting just for the reaffirmation from the president. And we're pushing because obviously the president will be in place until the end of May. And then beyond, there'll be a new president in place through with this president, obviously we'll then be pursuing the transaction into the next president. Thank you.

Ladies and gentlemen, another reminder, if you would like to ask a question, please press star and one on your telephone. Our next question is from the line of Alex Sijev from NNIP. Please go ahead.

Hello gentlemen, thank you so much for the presentation. I'm sorry my line wasn't particularly good during part of the answer so I didn't really get the entire answer on MPNU transaction so I had to follow up on that. I'm just wondering if there is any kind of long-stop date to the agreement or it can be rolled for an indefinite period of time and if there are any milestones we're looking at be it under current president or next president and do you expect any kind of change in how the government may be looking at it under new president as opposed to how it's been going now and secondly on production I'm just wondering what's your kind of expectation and what you have in the budget for the downtime and for reconciliation losses for for this year, how do alternative routes you're putting in affect those as opposed to performance last year? Thank you.

Thank you. So the NPNU transaction, the focus is getting the transaction complete with this current president. This current president will be in office until the end of May when the new president will be sworn in. We don't see that as yet. So it's hard to say much about the new president coming in. So our focus is to get the deal of the line before the end of May. To the extent that that's not possible, then of course we will be in discussions with the incoming president. We don't know who's going to be at this point, so we don't know what requirements that will have. But let me just say one thing. In terms of the history of Nigeria, you know, these transactions have gone through and got approved, which is, you know, we obviously go back to a rate of approval from this president. Yes, there's a difference of view with the national oil company, but we just need to work our way through that. In terms of what benefits this brings to Nigeria. SEPAD is a proven contract record in terms of operating, robustness, etc. We're a big operator and big partner to the government in country. We have raised this money ourselves as a company and it's a significant amount of inward investments into Nigeria. Our ability in gas is proven and these These assets have got a lot of gas that have not been utilized. And so, therefore, our focus will obviously be to monetize that gas, obviously ramp up the production. There has been little drilling in the asset for quite a number of years now. And so, whether it's this present or the next present, our offering is still the same, that we offer a capability, indigenous capability, which is needed more within Nigeria. of more and more strong Indigenous players. So we're confident if we have to go to the next president, we'd be able to get the case across to that. But our focus is with the current president to get the deal over the line. In terms of your question of the losses, we typically project in our budget, it's between 20% and 25%. downtime assets. Sometimes it's more, you've seen that this year, obviously the Q3. The MOOC we describe as pipeline system, we're budgeting in around 10% or lower, and we believe we get this pipeline into certain 10%, probably more like 5% losses over time. We just had a couple of issues one was obviously with the there's some tap points in that pipeline which we had to remove the other thing is is within chevron it's a new off takers and uh because we have condensate in our in our oil from the gas production um that uh you know has a higher vapor pressure and and we're just dealing with terminal operator so we have to play around with the volumes you've got through it but we're confident that we'll be able to get 35,000 through that pipeline with a sub-10% downtime. And if we can get comfortable with that long-term, then maybe we'll get more volume through it. In the east, it's probably been the worst for us in terms of the Transniger pipeline, which is the pipeline that takes our eastern production into Bonney, and that's been pretty bad. But the upper section is now just opening up, So we're confident we'll be able to get our volume through there in addition to supplying a local refinery into the country. And then also OML 40, which is coming in through the Scrabbles. Sorry, it's coming past the Scrabbles into Forcadus. That was the impact by it. We are looking at a longer-term barging solution for OML 40. We're also looking to connect the Trans-Scrabbles pipeline system, which it uses into the Mucurita Scrabbles pipeline system, so we're putting a spur line in there, and then we'll be able to connect those two pipelines. Longer term, our focus is to get the downtime reduced dramatically, and I think it will go straight to the bottom line.

Thank you, thank you so much. One additional question, if I may. In Emeka's comments, I think there was mentioning of not that of two times uh that's probably like company's policy but i'm just wondering uh you're now at like 0.9 uh going to two times uh is it just uh mpnu transaction or are we looking at anything else yeah so um the policy we had i mean obviously we're well policy um and actually our governance is higher than that like three times so

Look, we are looking at our cap allocation in a minute. The NPNU transaction is a ring-fenced transaction. I think that was maybe one of your questions. It's a ring-fenced transaction, so it's aligned. The funding sits below the group, and that is then going to be serviced and paid back from the revenues from NPNU. So that doesn't really necessarily impact your leverage. as a group, because it's going to be consolidated. But over time, we're confident with the cash flow capabilities of those assets. That'll service that debt and bring the debt down accordingly. So in terms of our covenants to X, we're well under it. We'll re-look at it now, okay? We're looking at capital allocation now. And later on this year, we'll come up with some revised, you know, covenants and also some more advice direction of how we're thinking about allocating capital going forward.

Thank you.

The next question is from the line of Ayodeji Daburu from Bank Trust and Co. Please go ahead.

Thanks for the call and congrats on the results despite the difficult operating environment. I just wanted to ask, I think I heard you mention, Roger, pardon me, um barging um of western production um could you elaborate a bit more on that um maybe touching on some of the cost implications on a per barrel basis um and then lastly sorry to keep hammering on on the mobile shallow water assets acquisition but i mean just judging by the body language of of the administration um how confident are you in terms of receiving the required approval under this administration or it potentially being something to be considered by the next administration. Thank you.

Okay, thank you. So, yeah, in terms of the, by the way, we've, the line, we're in separate places. I'm in the Ameca and Sam in Lagos. So, where you're hearing my voice a lot is because of some technical issues with Lagos on the line. But just going back to the barging, so we're looking to as a long term solution because of the uncertainty of the operations of the transfer cadence pipeline. So if the TFP pipeline system is really functional, it works well, long term we can rethink this, but the main need is a certainty all of our volume can come out of the West. And particularly because we've got condensate and we have some issues around that, that's why we have, you know, it all kind of goes through and we can't describe this yet. In terms of the cost of barging, it's more expensive. So it's, you know, circa 10 bucks a barrel to barge, whereas five bucks a barrel thereabouts in pipelines. However, if you factor into downtime implications, and also losses that you particularly into the system, it more than compensates for the additional barging cost. We don't really want to be barging long term. We'd rather use pipelines, but the pipelines are not reliable. We need reliability in our exit. Going back to the mobile transaction, there were questions on it as expected. Look, our view is that the Minister of Petroleum has approved this of August. We continue to push that. So it's not an approval that has yet. What we're trying to do is push the REIA for that approval. We're confident we can get that through this administration. But we did say that to extent that we can't get it through this administration, then we will certainly be working for the next administration of this, for these assets. You know, we've been through a lot of due diligence with the seller. And what the seller is really focused on is any incoming buyer is able to operate these assets as a standalone entity, i.e. not with any support from the seller long-term or even post-completion. So the seller needs a party that could have proven track record of delivering it. And we're confident that SAPLAD is more than fit that bill, which is why they signed the SPA. So our focus is to get it over the line with this president. To the extent we have to, it will go in the next president.

So this concludes our Q&A session. And I hand back to Roger Brown for closing remarks.

OK, thank you very much. So this concludes our 2022 results presentation. Everyone have a good day. Thank you.