Seplat Petroleum Development Company Plc, a leading Nigerian independent oil and gas company listed on both the London and Nigerian stock exchanges was recently admitted into the premium board of the Nigerian Stock Exchange (NSE). Dr. ABC Orjiako, Chairman of the company spoke to some journalists on the prospects and opportunities of the strategic alliance amongst other related issues. Ibrahim Apekhade Yusuf was there. Excerpts:
What Premium Board listing mean to Seplat and its investors
It is a very important milestone in taking a very long term view in our strategic vision. From the word go we knew that Seplat was going to aim very high and we are very clear in our mind that corporate governance is the base. So we continuously make sure that best practices are core in our business. We are very happy that having gone through that scrutiny when we did our listing on the London Stock Exchange ( LSE) and NSE we were sure that corporate governance, very high level best practices scrutiny was important and that is what today’s (last Monday) elevation has indeed eloquently testified.
I think the message obviously for all the investors is that it is a clear message that they are with the right company. The next point is that it is going to create the ability for many of our investors to see more liquidity happening in their securities. It is also going to mean that the securities they hold have value at the highest echelon or segment of the capital market. That is something to be very proud of.
Factors that made Premium Board listing possible
Starting with liquidity you have to have free float of shares of over 20 percent, but for us as a company our free float is closer to 50percent than 20percent already and with a company like this free float of shares can only increase, so you either tap from the market or whatever you can do in the future to dilute the shareholding of the existing shareholders and increase the free float. So, we are consciously working on that to increase the liquidity on the stock.
For market capitalisation other than liquidity two critical elements are size and governance and size is about market capitalisation. So if we continue to do the right things and for us internally, we believe that if you consciously and as a matter of culture continue to do the right things, even without prompting ultimately you will see the benefit and the benefit will come in value creation and this will translate to increase in the value of the company. So all things being equal, except for things outside our control, we expect our market capitalisation to also continuously increase and not lower than where we are now.
When we applied for listing on the Premium Board, our market capitalisation was just over N200billion, so you just saw during the introduction of our company on the floor of the Exchange that our market capitalisation was N396billion, and as at the end of trading on that day of our listing it went up to N404billion and so it doubles the minimum requirement for qualifying to be listed on the Premium Board.
For us, the most critical is governance, we have spent seven and half years building a company we believe in. If you make the best practice of corporate governance as a culture you will ultimately see the result; that is what you are seeing. We are only four years old on the Exchange and we are already in the Premium Board. In fact, we are seven and half years as a company in operations and eight years as a registered company.
We started as the company August 1, 2010. We are less than eight years old and we have come this far; this is not by chance, it has been a deliberate effort by the Board and Management team and how to create this governance culture. So what you saw today (during listing) is an attestation of the result of what we have been doing in the past seven and half years.
Growth trajectory and expansion plans
As a matter of fact when we listed on the Exchange, our market capitalisation was relatively high. Obviously because of the Foreign Exchange (forex) adjustment we would have more than that. But going forward, what we would like to do is to create very robust fundamentals for our securities so that regardless of what happens in the environment we stand out. We would make sure that our company is well governed; making sure that the effectiveness of a strong management team is maintained. We will also make sure that every message we will give to the market and investors that we do, we will not only perform but exceed their expectation. We promised the market when we came that we would be adding value growth in terms of capital growth and that we have delivered and that is what the elevation to Premium Board has shown. We promised them we would be a profitable company and we have maintained that over the years. We also promised that we are going to be a company that is well run; that we have delivered. We said we are going to grow the company organically, we promised we are going to be a profitable and dividend paying company; that we have delivered. We will acquire asset, we would grow our production, and all these we have done phenomenally. We said we would commercialise and monetise gas and we are doing that. Obviously, if you are following the trend of our performance you will see that the gas revenue is growing Year on Year (YoY).
You know our history; we started originally as a growth company. We took over asset and we consciously worked the asset and more than tripled production in about four years, from 18,000 barrels per day (bpd) to 60,000 bpd. Prices were good then until between mid-2015 and 2017. Two things happened to us simultaneously; prices dropped and production crashed because of crisis outside our control and Trans-Escravos that led to dip in our production performance, revenue generation, productivity and profitability.
In fact, in 2016 full year, we had a loss of about N166 billion. We only worked out through 2017 to turnaround the position to profitability. Let us return to corporate governance again, it is through this same corporate governance practice upon which we operate that we were able to navigate the company from this two years of treacherous condition outside our control. I hope you are aware that we raised $350million bond just last month and $300million revolver credit. So, our overall average cost of debt has gone down to by 300percent from our creditors. Our balance sheet is completely restructured. Every time I talk about governance as a matter of a culture being imperative for us to deliver long-term and sustainable good performance. We really do believe in it. It is not about priding ourselves as been in Premium Board, so when we say we are proud of ourselves because of what we really believe in which is to deliver the long-term benefit to our stakeholders.
Financial projection for 2018
As an oil and gas production company we guide for production and we don’t guide for profit, unlike banks and so on. By the time we publish our first quarter (Q1), we will guide for the rest of 2018 in terms of production and so on.
Surviving the economic meltdown
The biggest challenge to our operations is whatever impact the Niger Delta crisis could have on our production and evacuation of our products. You saw within 16 months of minimal production when the Trans-Forcados was down and how it impacted on us. That is our highest risk. We are hedging against that by having multiple avenues or routes for evacuation of our products. We are working with neighbours and other stakeholders to put the Escravos pipeline in place, to complete and commission it and we still have option in Warri refinery if we are pushed to the wall. Here we consciously established three options of evacuating our production. In the Eastern part of the country we are trying to develop our OM 53 from the scratch. We would develop this along with two other options of evacuation.
Positive fundamentals
We would give you the guide for our production in 2018 soon when our Q1 is released. In terms of the bond, we have two tranches of debts; $700 million from Nigerian banks and $300 million from foreign banks and both debts worth $1 billion. At the end of 2017, we have paid off about $400 million in capital repayment and not just interest. So both debts combined are down to $650 million, but we also have cash in hand. Our gross debt consists of $350 million of bond and $200 million that we withdrew out of the $300 million revolver. We also have cash in hand of about $350 million. So really our net debt is down to under $200 /$250 million. All of that translate to the fact that our balance sheet has been restructured from a very difficult situation. So two things will happen or two things can be enabled. We can invest more money in the business since in two years. Between 2015 and 2017 we have not drill anywhere. So we are going back to drilling and invest more on our gas business. We have cash to invest and that is one key result of this exercise of borrowing. Secondly, we will be in a good position if we see opportunity for any acquisition; we will be in a good position to participate. Where we are today is a far cry from where we were two years ago. We were first struggling to survive following the crisis in Niger Delta. Now we have a strong balance sheet.
Meeting investors’ expectations
What we said to investors when we were doing our road show for the bond is to reinstate dividend. Our intention is to reinstate dividend as a matter of policy. We suspended dividend in 2016 because of crises beyond our control. But in a normal course of business we will normally be able to pay a certain level of dividend.
Future performance
I think they are seeing what you are seeing in our company. They have seen how past performance and how we have navigated the most difficult situation in Niger Delta crisis. Many of our competitors of our size are not listed. The reason why you cannot measure how well we did in navigating ourselves from that terrible situation is because our competitors of the same size are not listed to be able to compare us. If they were listed you can be able to compare apple for apple since it is not easy to turn around within 12 months with the kind of situation we were. I think when they see our past performance like that and project that there might be no back breaking situation like we had in 2016; in future they will expect consistent growth and if you plot on any growth trajectory from where we are both in production and even if you held the price constant at $60 per barrel you will see substantial cash flow and profitability. But for us we focus on delivery on objectivity and let the market determine what our value is.
