BusinessDay 09 Apr 2018

Monday 09 April 2018
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BUSINESS DAY 35
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Yield curve flattens on Fiscal and
monetary policy synchronisation
FSDH sees Nigeria inflation slowing for
fourteen successive months to 13.49%
Page 36 Page 36
ECONOMY
Seplat navigates oil rebound
better than Erin, Savannah
DIPO OLADEHINDE
While Seplat,
N i g e r i a ’ s
largest indigenous
firm
rebounded
to growth on the back of improved
crude oil price, Erin
energy and Savannah Petroleum
both midsized firms
continues to gasp for breath as
it sweeps in an ocean of losses
over major assets acquired.
Seplat surmounted the
headwinds brought on by
lower oil price and political
unrest the Niger Delta region
as it recorded a profit after tax
of $265 million to end 2017
financial year from a loss of
$165 million the previous year.
On the other hand, Erin
Energy, a small oil and gas
firm recorded a 6.3 percent
increase in its loss after tax to
$151.9 million in 2017 from
$142 million in 2016 while
Savannah Petroleum, another
small player in in the industry
recorded an astronomical 178
percent increase in loss after
tax of $27.3 million in 2017
compared to $9.8 million in
2016.
The lifting of a force majeure
in the third quarter of
2017 was a boon for Seplat
as it resumed production
and recorded returned to
profitability however the two
other firms gave reasons for
their loss.
Erin Energy said they have
being investing money in the
acquisition of new assets and
shareholders will have to wait
for dividend payment while
share-buy backs could be
delayed.
“2017 had its challenges for
our industry and our company,
but Erin Energy’s perseverance
and some stabilization of
the commodity price, allowed
for good progress in many
of our efforts.” Femi Ayoade,
ceo of Erin Energy said on the
company’s official website.
Savannah Petroleum is
faced with the same dilemma
as Erin Energy; the company
acquisition of integrated gas
company, Seven Energy increases
its operating expenses
by 222 percent to $27.1 million
in 2017 from $8.4 million in
2016.
Savannah Petroleum CEO
Andrew Knott said “the acquisition
of assets from Seven
Energy creates a full cycle
exploration and production
company, capable of paying a
dividend from the cash flows
generated by its upstream
assets.”
“The increase in overall
general and administrative
expenses during the year was
as a result of exceptional business
development costs of
$18.5 million in relation to the
Seven Energy transaction,”
Knott said on the company
official website.
In 2017, Seplat recorded
a Profit before tax of $44 million
in 2017 after making a
loss after tax of $173 million
in 2016 in 2016; Erin Energy
increased its loss to $151.9
million from $142 million in
2016 while Savannah Petroleum
Plc announced a loss
of $27 million which was a
170 per cent increase from
$10million in 2016.
Jubril Kareem an energy
analyst with Ecobank Re-
search group said when oil
company assets are in exploration
phrase it’s normal to
make loss in Nigeria Oil and
Gas industry.
“Compare to International
oil companies and Seplat
which already have established
revenue stream, majority
of Erin Energy assets
are exploration and developmental
phrase so there
revenue is in the future when
these assets they are investing
in will start making profits,”
Kareem added.
BusinessDay investigation
showed at full year 2017
Seplat expanded revenue by
78 per cent to $452 million
from $254 million in 2016;
Erin Energy had an increase
of 30 per cent to 101.2 million
in 2017 from 77.8 million in
2016, while Savannah Petroleum
year-on-year operating
loss remained flat at $8m, as
the Group remained in the
pre-revenue exploration and
development phase of operations.
In 2017, Seplat shareholders
fund stood at $1.5billion,
while Erin Energy and Savannah
Energy Shareholders fund
stood at $251 million and $289
million respectively.
Investigation in net cash
flow from operating activities
showed Seplat recorded
increase of 161.40 percent
to $447 million from $171.59
million recorded last year, Erin
Energy recorded an increase
of 333 percent to $26 million
in 2017 from $6 million in 2016
while Savannah Petroleum
recorded 85 percent increase
from $8.4 million in 2016 to
$15.6 million in loss net cash
flow in 2017.
The indigenous upstream
oil and gas giant Seplat had a
$450 million in free cash flow
in 2017, which represents a
275.75 percent surge from
$119.76 million recorded as
at December 2016, while Erin
Energy and Savannah Petroleum
both have a negative
free cash flow of $26 million
and $17.4 million respectively
A negative free cash flow
from operating activities
means oil and gas firm has
been investing money in the
acquisition of new assets
albeit shareholders will have
to wait for dividend payment
while share-buy backs could
be delayed.
Further investigation revealed
Seplat has a free cash
flow yield of 0.11 percent,
while Erin Energy and Savannah
had free cash flow yield
of 3.2 percent and 7.8 percent
respectively.
The free cash flow yield is a
powerful tool, mostly because
it establishes the relationship
between the money you put
in a company compared to
the returns it generates.
The recession as well as a
slump in oil prices had many
companies on their knees in
2016. Seplat, Erin Energy and
Savannah Petroleum were
part of them, after sinking
to less than $28 in 2016; oil
prices rebounded to give vim
to the economy with oil companies
cashing in big.
The price of Brent crude,
Nigeria’s benchmark grade,
cooled 0.13 percent to $68
per barrel Friday, according
to Bloomberg data, Oil production
on the other hand
has recovered to 1.8 million
barrels as at February 2018,
according to OPEC data, from
as low as 1.2 million barrels
daily in the thick of militant
disruptions.
These factors contributed
to lifting the economy from
recession in the second quarter
of 2017, according to the
National Bureau of Statistics
(NBS). The economy has
consolidated its exit from
recession after growing 0.8
percent in 2017 compared to
a 1.6 percent contraction the
previous year.
SHORT TAKES
$1.64 million
FCMB group seeks to convert
its wholesale banking unit in
Britain, FCMB UK, into a retail
bank, as part of its push to
grow its balance sheet and tap
into non-institutional customers
in Britain.
The impact of the British strategy
would not be immediate
but would enable the lender to
achieve incremental growth.
The earnings contribution in
naira terms from the British
unit will be around 500 million
naira ($1.64 million) for 2018.
FCMB UK grew pre-tax profit
by 250 percent to 300 million
naira last year.
N3.04 billion
AIICO Insurance
Posts Full Year
Profit Before Tax of
N3.04billion compared
to N11.84
billion year ago .
While tits Full Year
ended December
2017 net premium
income was N17.50
billion naira versus
N26.69 billion naira
year ago.
15 Kobo
Caverton Offshore Support
Group announces proposed
final dividend Of 15
Kobo Per 50 Kobo ordinary
share, subject to appropriate
withholding and
approval will be paid to
shareholders whose names
appear in the Register of
members as at the close
of business on the 25th of
April, 2018 .
BusinessDay MARKETS INTELLIGENCE (Team lead: BALA AUGIE - Analyst: DIPO OLADEHINDE, ENDURANCE OKAFOR, BUNMI BAILEY Graphics: DAVID OGAR )
BMI provides in-depth analysis and data on industries, companies, stocks, currencies, fixed income/credit, economics, regulation and factors that influence investor’s decision-making
Email the BMI team patrick.atuanya@businessdayonline.com