Seplat Able to Withstand Low Oil Prices

By Modupe Gbadeyanka

The ability of Seplat Petroleum Development Company Plc to remain strong in the face of falling crude oil prices at the global oil market has been reaffirmed.

Seplat is a company listed on both the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE).

In recent times, the price of the company’s stock at the NSE had been declining, causing some shareholders to fret over it.

Prices of crude oil have not been too positive this year due to the coronavirus disease pandemic, which caused decline in demand for the commodity.

In April 2020, members of the Organisation of the Petroleum Exporting Countries (OPEC), as part of moves to make prices of crude oil remain green, agreed to cut global supply of the product by 9.7 million barrels per day in May and June.

This decision has helped prices to remain above $40 per barrel as at last week and on Saturday, they agreed to extend the cut to July before relaxing it in August.

Last week, one of the rating agencies in the world, Moody’s Investors Service, announced the completion of a periodic review of ratings of Seplat.

In a press statement, the agency said the Nigerian oil giant has the ability to withstand low oil prices in the near term.

According to Moody’s, this is supported by short term oil hedges and contracted gas revenue representing 29 percent of 2019 revenue.

It said in addition, Seplat’s moderately positioned credit metrics and sizable unrestricted cash balances, provide a buffer against a decline in its operating cash flow from lower oil prices over the next 18 months.

The rating organisation stressed that the leading exploration and production (E&P) firm has long-term oil and gas field licensing agreements that can make it remain stronger despite the challenges.

However, Moody’s said, “The ratings are constrained by the company’s exposure to volatile oil prices; small scale of production; concentration to a single asset block, Oil Mining Licences (OML) 4, 38 and 41 which account for 70 percent of the company’s working interest production; and operational concentration to a single country, Nigeria (B2 negative) with reliance on Nigerian government-owned entities for the timely payment of capital cash calls.

“Moody’s also note that there are significant uncertainties related to the impact of the coronavirus on the company’s credit metrics and liquidity as well as the shape of a future recovery of crude oil prices.”

Few days ago, Seplat paid over N30 as dividend to shareholders of the company for the 2019 financial year. The firm has been consistent in rewarding its investors.

Business Post reports that as at Monday afternoon, share price of the company was down by N47.60 or 9.99 percent to N428.80 per share.