U.S. markets closed

Edited Transcript of SEPLAT.LA earnings conference call or presentation 23-Mar-20 9:00am GMT

Q4 2019 Seplat Petroleum Development Company PLC Earnings Call

Apr 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Seplat Petroleum Development Company PLC earnings conference call or presentation Monday, March 23, 2020 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew Dymond

Seplat Petroleum Development Company Plc - Head of IR

* Effiong Okon

Seplat Petroleum Development Company Plc - Operations Director & Director

* Ojunekwu Augustine Avuru

Seplat Petroleum Development Company Plc - CEO, MD & Executive Director

* Roger Thompson Brown

Seplat Petroleum Development Company Plc - CFO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Alex Smith

Investec Bank plc, Research Division - Research Analyst

* Dragan Trajkov

Alternative Resource Capital, Research Division - Research Analyst

* Janet Ogunkoya

ARM Research - Analyst

* Lanre Buluro

Chapel Hill Denham Group - Director of Sales

* Michael J Alsford

Citigroup Inc, Research Division - Director

* Nikolas Stefanou

Renaissance Capital, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to the Seplat Petroleum full year results conference call. My name is Emma, and I will be the operator for your call this morning. (Operator Instructions) I will now hand you over to Austin Avuru. Please go ahead.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everybody. It's nice to know that you can manage to join this broadcast in these very difficult times. I'm Austin Avuru, CEO of Seplat, sitting here at our boardroom in Lagos. We have the Operational Director, Effi, also here in Lagos; and Roger Brown is in our office in London. You're welcome.

Let me quickly give the highlights of what we did in 2019 following some of those gaps were identified when we did half year broadcast in 2019. We worked very hard during the second half to bridge those gaps and eventually produced the results you're seeing today.

Average production -- average daily production of about 46,500 barrels equivalent, consisting of about 24,000 barrels of oil and 22,500 barrels equivalent of gas.

Revenue was quite strong, $698 million. At the end of the year, cash at bank, $333 million. Operating cash flow was $338 million. Profit went up to $277 million. Those details and the breakdown will be given by Roger very shortly.

We continue to emphasize our gas diversification, which have been about 30% -- 29% of our group revenue came from gas this time $203 million. We have, as you know, taken FID of 300 million scf ANOH gas project that's going on and Effi will give you the operations details (inaudible) in 2022 [further diversified in our revenue business].

A final dividend of $0.05 for the full year 2019, bringing the total dividend for 2019 to $0.10. Outside the [minor break-in point] 2016, 2017, we have been consistent on our dividend payout. To date, a total of $285 million have been returned to shareholders since April 2014 when we listed.

We ended the year with the landmark acquisition of Eland. That has been ratifications apart from diversifying our production base, some potential exploration upside the opportunities. More importantly, production from Eland can be taken out of the (inaudible). And the Eland acquisition also provides us a final opportunity to actually have a dedicated pipeline (inaudible) our production (inaudible) into [FPSO] for exports. That is currently work in progress and when that is finalized, probably have the financial evaluation (inaudible).

So those are the main highlights. Strong cash flow, strong cash in hand even with the cash acquisition of Eland. Volumes even though slightly less than 2018 has driven strong, profit strong, margin strong and sustainable dividend payments.

And so I will just let Roger dive straight into the financial details. And then at the end of the operations update, [we'll take the Q&A where we participate] . Thank you.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [3]

--------------------------------------------------------------------------------

Thank you, Austin.

Okay. I'm on Slide 7 for people following it. I'm just going through the 2019 financial highlights as I use the 3 by 3 matrix as we run through the various items.

So profitability has increased of $270 million versus $238 million. We do this before deferred tax because deferred tax has quite a significant impact. If we do it after deferred tax, it's $277 million versus $147 million last year. So you can see the quite significant impact of deferred tax has on the P&L.

And we have strong cash generation. We have $338 million of cash generation at an average oil price of $64, that's in the realm where we expect it to be.

EBITDA. Strong EBITDA of $457 million versus $447 million last year, which is kind of consistent.

Our operating costs are per BOE are low at $6.20, slightly down on last year -- or sorry, slightly up on last year in terms of the amount per barrel and that's largely to do with slightly lower volumes this year, but still at low operating cost, particularly relevant in this environment.

Our CapEx investment for 2019 was up 42% on last year at $125 million. That was lower than we anticipated, but we revised guidance downwards in October.

Gross debt, it's $789 million after we completed the Eland acquisition. Previously, it was $446 million.

And then also, as Austin covered the dividend, we've kept the dividend consistent from 19 -- 2018 to 2019.

Our gas revenues are $203 million, up from last year. Largely, we booked a tolling revenue going through there of $67 million. And then we're in a net debt position of $456 million against the net cash last year, largely due with, again, the Eland acquisition.

If I turn to the next slide, running through some of the financial results in some more detail. The full year revenues were $698 million versus $746 million last year, fairly close in terms of that. The oil price last year was $70 and this year was $64 -- or 2019 was $64. Then in the cost of sales and -- our gross margins are around 55% gross margins, so it's healthy.

G&A costs were in line with budget at $71 million, and slightly lower than last year of $80 million. And then we had some other costs in there, some of the revenues, largely due to the fact that we booked a gain on the gas plant. The NPDC took decision to back into the gas plant, which resulted in the tolling revenues being booked and also $101 million of additional cash coming back to the balance sheet, of which is a profit being booked there of $30 million.

If we go down through operating profit of $312 million against $310 million last year, so in line with last year. Net financing costs were slightly lower, partly due with the refinancing that's put in place last year in 2018, the effects of that coming through and some capitalization of those interest costs. Profit before deferred tax and after tax, we've talked about.

CapEx, again, covered. Cash flow from operations, $338 million versus $502 million.

NPDC receivables have gone up slightly and something that we're managing very carefully. Largely, it went up from the payable to receivable because the gas revenues we were holding, once we booked the tolling, we returned those gas revenues to government. Cash in the bank, still strong at $333 million versus $585 million.

On to the next slide, we show the cash reconciliation, the cash movement from the $581 million to the $333 million or -- so if you include the restricted cash, cash from operations, $338 million. Then obviously, we did the refinancing impact by bringing additional debt into the Eland acquisition. AGPC, we deconsolidated some of that during 2019 because it's a 50-50 JV. And you can see the $125 million of PP&E, which is obviously the CapEx. And then dividend $59 million for the year. So still a strong cash balance going into 2020.

What we thought would be useful to do is go through some of the prudent financial management analysis that's particularly relevant with these prices today. And you can see there, on the first -- top left, you can see -- the green is the gas impact coming through there in terms of the gas volumes. And you can see that investment we made back in 2012 is really then starting to generate additional gas revenues coming in, which is particularly relevant because it's obviously -- it's a counter to the oil price falls, more stable revenues because they're contracted.

You can see then our cash management strategy through 2016, 2017 where we reduced leverage into 2018. Leverage has gone up for the acquisition and we would expect to reduce that over time. But you can see there that we really have a strong cash generation, which allows us to delever the balance sheet, which we will continue to do.

Bottom left, again, you can see the revenues coming through in the green from the gas and strong from the oil as well.

And then the CapEx is -- this is very relevant for us in terms of how we're flexible with that. You can see there that in 2013, 2014, heavy CapEx. You see, dialed down in '15 due to oil price. '16 and '17, we were shut in, you recall, for about 16 months. So we stress-tested the business. We never really want to go through this, but the company has been through it before and has measures and implementation to deal with it. And therefore, 2020 CapEx guidance, we've dialed down to $100 million across all portfolio, including Eland, and we've spent about half of that to date.

If you get on to the next slide in terms of the capital structure. Again, you can see that we've covered this a little bit before. But I think I want to draw your attention to the bottom right, which shows you the debt maturity profile. You can see there that it's fairly light in '20 and '21 and then to the back end of 2022 and '23. And we will naturally be doing liability management exercises as we proceed through this year into next year.

Next slide is we just thought we put this in because it's -- we've had a number of questions around how the Eland loan structure works. And what happens is Eland has a -- we obviously bought 100% of Eland and delisted it off the market. Eland has a 100%-owned subsidiary called Westport, and that acts as a funding vehicle for Elcrest and it's funded all with Elcrest development and the amount due under that at the year-end was $414 million and there's also a $90 million RBL, which is an on -- a pass on into Elcrest as well. And so until those loans are repaid, we will consolidate all of Elcrest 100%, which is why we booked 100% of the revenues in the production. And Effi will cover the reserves -- recognized as reserves there.

And in terms of then the paydown of the Westport loan from Elcrest, you can see that on the right-hand side. And you can see there that, that starts to really pay down, starts in 2021, the end of '21, but really starts to pay down in 2022 to 2024 where it should be retired completely.

That finishes the finance update slide. I'll just hand across to Effi to cover the operations update.

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [4]

--------------------------------------------------------------------------------

Okay. Thank you, Austin. Thanks, Roger. Just on a test, can you hear me? Hello?

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [5]

--------------------------------------------------------------------------------

Yes. We can hear you, Effi.

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [6]

--------------------------------------------------------------------------------

Okay. Thanks.

So on the operations update, I'm on Slide 14. So -- but before I go to the slide, I think what's driving our operational excellence is basically if we go back 2 years back, we did share our strategy, which is build -- based on 3 modules: stabilize, build, transform. And we're very much in the build and transform phase. So strategy, delivery, execution is underpinned by very, very strong operational excellence. So for 2019, without going through all the details, I think the key learning for us is how do we respond in a very short notice. So while we're slightly below production target, it's just delays with not only contracting, and eventually, we picked that up and we have delivered some very strong volumes in terms of production capacity.

So in line with that, if you look at Slide 14, 2P reserves end-year position 2019, opening balance 2019, you see we're 481; and then we had production volumes out, 17; revisions from new drilling results and also performance review of existing asset; and then all that with the Eland acquisition then takes us up to 509. And overall, 2P, 2C, we have grown that portfolio and you can see the impact on our results base as of 1/1/2020.

On the other side of the chart, we then see the split between gas and oil, pretty much balanced in the Western asset, OML 4, 38, 41. Eland is pretty much oil, very, very prolific oil region in the Western delta Swamp Depo-belt and then OML 53 where you have the big gas asset flows as well. And then finally, it's OML 55 and 152 . So that's the position where we stand in terms of reserve base.

If I move on to Slide 15. So last year, again, average production was roughly about 46.5 given the reason why we're slightly down. Uptime was good. We also built additional capacity from the new wells we drilled. End year, we are very close to the exit production level, which we promised last year in the last notice to the market. So all is well. They now come onstream between Q4 last year and Q1 this year. And also bringing Eland in at roughly around 9,000 barrels.

So for 2020 guidance, you can see on the table, we're looking at a range of 47,000 to 57,000 barrels per day. We have a very rich portfolio. We can scale down and scale up with our new wells program or projects, so we do have that flexibility. And we're running our prioritization of all the wells based on the economic attractiveness of every well, whether the gas oil or oil well, and that's how we're able to optimize and to respond to the current challenge.

I move on to Slide 16. This slide gives an overview of -- we shared this before. The only additional update is with Eland coming in now, it gives us 5 potential export routes, which I'll quickly run through. So the first option is Amukpe to Forcardos Terminal, the Sapele terminal. We also have to Amukpe to WRPC, the barging option. We also have Amukpe to the Escravos, which is a Chevron terminal. And then the fourth one now is the connect between Opuama Eland asset to Escravos via Trans Escravos pipeline and the Amukpe link, that gives us the additional flexibility to export to the Forcardos terminal owned by Shell. And finally, the potential for offshore an FPSO/FSO terminal through interconnecting the Amukpe-Escravos pipeline and the line from Opuama. So that gives us enough diversification into 5 potential exports. So therefore, we're derisking the potential of shorting around the onshore, which is a big challenge for us here. So this is a pretty robust net in terms of export option.

I move on to Slide 17. We shared this slide before, but the key message here today is in line with our long-term ambition to build gas process capacity to 1 billion standard cubic feet of gas per day, we're working that ambition. So Oben, on its own now, can do -- will do roughly around 400 million scf of gas per day. But we have built capacity in Oben to be able process roughly around 540 million standard cubic feet of gas per day. The 5 expansion trains we did at Seplat, the 2 old trains from Shell. Also, Sapele, we're building a brand-new gas plant in Sapele, which brings in some 5 million standard cubic feet of gas per day. That then takes us to 540 million in total around the western part of the delta. If I then go to ANOH, which is on the execution now. ANOH adds 2 trains of 150 million each, that adds additional 300 million scf of gas per day. That takes us about 840 million, and the potential for additional process capacity to make up the 1 Bcf deficit.

So very, very strong in gas. We're very, very robust and also very, very bullish in terms of our belief, in terms of opening the market here on the gas side, and we're pushing the delivery of that strategy.

I'm on Slide 18 now. This just shows that, for gas, one of the few very strong advantage. Number one, gas is not impacted by oil price volatilities, not like LNG price tied to oil. We don't have that constraint here. We've got very good long-term agreements, 10 to 15 years. In terms of the fiscal, the fiscal is a very, very attractive for gas investment, either by virtue of lower royalties and also in terms of paid on gas and also lower tax rate, which applies to gas profits. There's still some dependence between oil and gas since the gas investment also leverage on some bit of upfront incentive from the oil investment. We don't have reconciliation losses. Overall, I think you can see why we strongly believe gas is also a very, very strong part of our portfolio based on those strategic advantages.

I'll hand it back now to Austin.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [7]

--------------------------------------------------------------------------------

Thank you very much, Effi and Roger.

So to summarize, outlook, we wouldn't -- do in spite of vagaries that occur from time to time, as we have now. Our outlook continues to look strong. In the short term, overall, you see that, year-on-year, we make strategic investments in critical infrastructure, add export route infrastructure, of gas processing infrastructure. And over time, you see that this has come very handy when we need it most. So over the next 2 years, we'll bring in additional gas production from the east.

The Eland acquisition, as I said earlier, wasn't just because of the volumes in terms of production result. It also, as Effi pointed out, provides also meaningful alternatives in terms of export in the next 2 years that could be completely decoupled from existing terminals, so that we'll have our own terminal.

Now what all of this does is that we now have a solid infrastructure footprint in the west, which gives us the flexibility we need, both between oil and gas and between assets (inaudible) provide acquisition opportunities. We now have a solid infrastructure or footprint that makes it quite easy for us.

In the case of the Eland acquisition, it's outside the first 2-year moratorium. What is that? The following 2 to 3 years, we have a significant opportunity for cash and cash payback from the $414 million net debt to -- that goes to Seplat-Eland today but then backing out $90 million for the bank.

So in the short term, we are, as again Roger mentioned, we are hedged first 3 quarters of this year at $45, so that takes some heat off the current crisis in terms of oil price. So in this short term, we have and continue to make those critical infrastructure investment that come very handy for us. Over the long term, long term here means just 2 years (sic) [2+ years], you begin to see the full impact of those investments, the full impact of cash payback from Eland for the infrastructure in terms of FSO and FPSO. We did bring in on the Eland acquisition, [$400 million revenues] coming out of gas from ANOH from 2022.

And so when I look at it, even at these low oil prices, we think, as what we say, we have a future that is bright, not just in terms of business opportunities and cash generation, but in fact, we are now in a position where we have competition against us, particularly in the west among our peers, which is very difficult because of the (inaudible). Thank you very much.

Yes. So it's time now for Q&A. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question today is from the line of Alex Smith with Investec.

--------------------------------------------------------------------------------

Alex Smith, Investec Bank plc, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Just a few questions for me. Understandably, it seems now the next 12 months, it looks more like protection mode rather than growth mode. You have 2019 OpEx of around $6.20 of barrel oil equivalent. Can you give any guidance on OpEx in 2020? I know the Eland assets are a bit more expensive. And how does this translate? Or how comfortable are you operating at $25 per barrel oil? And can you comment on any group breakevens?

And then following on, Roger, can you confirm any covenants on debt if oil prices do go lower?

And then, secondly, on the dividends. I guess it's a strong signal of intent, but can you give any comment on how you look at the dividend in 2020?

And one on the ANOH gas project. You mentioned in the release it's a major priority. I note a small pushback from Q1 to Q4 2021. But this is 24 months away. Can you comment on the major milestones going forward for the next 12 months? And any update on the debt funding, please?

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [3]

--------------------------------------------------------------------------------

So I start and then hand off to Roger, yes? Okay. So in terms of -- yes, you're right. We are in protection mode, keeping a close eye on our growth mode. Protection mode would be how long the loss will be decided by how long some of these current vagaries last. We intend to remain tight and prudent on our [tax per BOE] in spite of this -- in spite of this crisis. If you notice, what we normally do when in a crisis is to immediately go and tune down our CapEx. So our CapEx, now we are looking at $100 million for 2020, $50 million is already expected in Q1. So what has really happened assuming that the Q2 to Q4 CapEx, all of which will be about $50 million. If conditions continue like this, we are very, very flexible. And so that CapEx tune-down, [would be prudent] on cost generally. This is, of course, in response to the current oil price. We've done a lot of work in the past few weeks to revise our already approved projects and what program in such a way that we can react to current oil prices and try as much as possible to remain cash-neutral in terms of our spending.

Dividend in 2020, what we've always said is that we will try to pay a minimum dividend each year, minimum usually is $0.05. And as much as possible, if there's no major catastrophe, we like to maintain our current dividend policy, so at least return something to shareholders. But of course, that, as we say, we remain very prudent while we continue to pay as much as before, but in -- obviously, you will know exactly where it would be on 2020 dividend.

ANOH is going on pretty much on schedule, especially in terms of funding. Most of the major contracts already awarded. So few weeks of disruptions following what's happening -- some of the main construction has happened (inaudible) China. So you would expect a few weeks of disruption. But overall, if this crisis abate in the next 30 days, we think that whatever disruptions had cost, we can play catch up. So we are confident in 2020 globally. We are confident that our guidance for the end of 2021 remains very feasible, which is why I say we should start contributing revenue to our operations in 2022.

In terms of the funding, Roger will give you more details on that. Fortunately, we put in some equity funding upfront, which is why we moved with a little bit of delay in launching of the debt element, particularly they funding for the project, but the launch of the debt elements (inaudible). Roger, go ahead.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [4]

--------------------------------------------------------------------------------

Yes. Just okay on that one, so we were -- we would expect to launch the debt at the end of this quarter or worst case into early next quarter. We have quite significant appetite for that. We were heavily oversubscribed on uptake for the project. Obviously, gas is decoupled to oil prices. So the appetite remains in the market. And heavily, in terms of appetite, it's a lot of Nigerian institutions, but also internationals as well. So anyway, Alex, we expect to launch that imminently.

I'll cover the covenants, one specifically just around that. So you'll pick these up in [our accounts]. First of all, to say that we have complied with all our covenants. So we have no issues there. You'll see it -- there's slightly different covenants to do with the RCF and the bond. The RCF is a net financial indebtedness to annualized EBITDA of not greater than 3:1. And then the bond is a fixed charge cover issue of 3:1 as well. So we're well under that, and we have a lot more debt capacity, which we haven't utilized. We continue to monitor. Obviously, lower oil prices has a long-term impact of this. The only thing I would say is that Eland does have a reserve base lending facility at the Westport level, which is $90 million at the year-end. That will be subject to a redetermination and that redetermination will happen at the end of the second quarter this year. So really, be through July, we'll be redetermining that. Obviously, then the banks will be looking forward into oil prices going forward. And again, at this point, we don't know what will happen and what assumptions they'll make then. We just monitor very carefully.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

The next question comes from the line of Dragan Trajkov with ARC.

--------------------------------------------------------------------------------

Dragan Trajkov, Alternative Resource Capital, Research Division - Research Analyst [6]

--------------------------------------------------------------------------------

Just a couple of questions for me. On the receivables side, clearly, they're creeping up a bit. You've been there before. But can you give us a bit more color what's your thought of, going forward, how to make sure that it doesn't happen what it happened before?

And second, on the $100 million CapEx, how much of that is actually going to the Eland asset? And I'm assuming, if you can just confirm, it doesn't include the $60 million that is still to be paid for the ANOH project.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [7]

--------------------------------------------------------------------------------

Roger, go ahead.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [8]

--------------------------------------------------------------------------------

If you like, I'll cover that. Okay. Yes. So in terms of the receivables position, yes, has crept up. As we said, we're applying a lot of the gas revenues from NPDC, which was obviously turning in receivable into payable. Those were returned, and therefore, the impact of the receivable has gone up now. And NPDC has been working very carefully with us. There is -- we received some funding in the last week coming out of the Central Bank, and NPDC are looking at other options to return that.

In the past, not beyond just getting gas revenues, we've also got cargo listings before, and that's a potential mechanism that NPDC can use to repay it. There's enough willingness on the side of it. We just manage it very carefully. We're obviously still -- beyond returning those gas revenues, we're then starting to hold some back to set against it. So those will reduce that accordingly. And we're managing it very carefully. So we're not -- we've been there before. We're not going to go back to the levels we had before. We manage this very, very carefully.

In terms of -- to the CapEx question, was in terms of the $100 million -- went up to $100 million. It's not a guarantee. But $50 million of that is -- it's been spent. I think $35 million of that is Seplat and about $15 million is Eland. Eland's about -- of the $100 million, about $20 million or slightly more than $20 million. So we don't expect much more spending at Eland going forward with these low oil prices. And it doesn't include the ANOH investments. We have put in another $30 million into ANOH. So we've put in from the $60 million, we still have $30 million left. And we're just waiting to get the money -- for the government to put their money in, that $60 million, but it's not included in your -- in those CapEx numbers, but we have accounted for also in our planning.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

The next question comes from the line of Nikolas Stefanou with Renaissance Capital.

--------------------------------------------------------------------------------

Nikolas Stefanou, Renaissance Capital, Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

It's Nick Stefanou from the Renaissance Capital. So my first question is in regards to production. I was surprised to see this significant decrease in 2020 production, especially on the gas side, and then -- if you could just maybe talk a bit around that because you've got fixed price contracts on gas, then I see no reason why you would reduce production there. Or is that associated gas, the associated gas relate to some of the other projects, the oil projects?

Then my second question is on the Eland deal. Can you maybe talk a bit about your development program now? This kind of low oil price, I presume you put everything on hold. Are we going to see a step-up in development later in 2021? And then just like on the RBL question asked before, I presume -- okay, just to Eland's production, do you anticipate that you might need to put some equity into the Elcrest JV? And then finally, on foreign exchange. Will you have any devaluation of naira? Could you please let me know what kind of like impact we should expect into your cash balances?

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [11]

--------------------------------------------------------------------------------

All right, maybe I'll take the gas one first. So on the gas side, why you see a slight difference is that, this year, we have a major maintenance activity on the urban gas plant, which is made to -- which is -- during which, we'll shut down the plant and do some major maintenance activity to address regulatory requirements, its integrity, all sorts. So that's the real key reason you see a slight tick in the gas. And we've made that provision since last year for the forecast for this year. I hope that addresses your gas question. I'll leave the other one for Roger.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [12]

--------------------------------------------------------------------------------

Yes. Thanks, Effi. Let me add to that gas point. Look, we need to put some gas wells in. We have 3 in the portfolio in the west. We've held them back slightly given where oil prices are. But certainly, if we can see some visibility in the future, we will put the gas wells in first, and you'll see the gas volumes go up accordingly. And Eland deal development profile 2021 and onwards. And what we -- in the offset, we haven't had this crash, bearing in mind, this oil was 67 in January, and now we're sitting in 26 today. So obviously, as you can imagine, we have adjusted, which we can do as our portfolio quite significantly. The plan in the Eland is going to be a 4-well program. We were going to do the -- and that was 2020. We're going to do the 2 wells if that's the Oben. And we're going to go back potentially to finish off [GB 4]. Those wells generally flow between 5,000 to 6,000 barrels each well, well completion. And then we're going to do 2 wells in Opuama, which is going to bring up the production there. And then we're going to do Amobe. Amobe is the exploration asset. Now let's see where it all goes. But as soon as we get some visibility, then that's the sort of well program and exploration we will expect going forward. And we'll reinstate that at the earliest moment that we can.

In terms of do we need any more equity in Elcrest, again, what we -- we're certainly, we're not looking to put any more equity in to the extent needed. And we've cut back the development program there. But actually, what we've done is frozen it, and therefore, we're obviously not spending the CapEx. So across the board, as what every oil company is doing, we're going to do it for cost cutting. Aboard there, if successful then we shouldn't need any additional cash in -- into even -- if we do put any in, it's likely we'll put it into a loan structure, so we can then recoup it back when oil prices recover.

And then in terms of your question on the naira devaluation which happened obviously over the weekend or the resetting of the CBN rates to run with FX rates were at NGN 360. Steadily, we're not holding that much naira. The less than NGN 20 billion is about $60 million. For the naira, it means we fully expect to spend that in our operations in terms of OpEx going forward and CapEx, so we're not concerned around the devaluation. Obviously, there will be a book impact because we're obviously translate our reserves -- our balance sheet in -- at the lower rate. That's probably 20% tax, less than $50 million impact to the balance sheet is not realized loss. But going forward, what happens is the gas contract are dollar-denominated and ruled at the CBN rate. So our read is that this adjusts the CBN rate up accordingly, and so therefore, we were protected on our gas contracts.

--------------------------------------------------------------------------------

Nikolas Stefanou, Renaissance Capital, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

And then just a follow-up there. Do you expect any change in your OpEx if the naira devalues? Or are you going to increase the salaries and general structure quoted in dollars as part of the -- what was like a dollar currency?

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [14]

--------------------------------------------------------------------------------

Look, last time this happened for us is in 2016, 2017, and we were successful in driving down costs. I think the whole industry will drive down costs, particularly these oil prices, this is not workable long term. And so yes, we will push hard on that as every oil company will.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [15]

--------------------------------------------------------------------------------

Let me just quickly add. If you're talking about any cost increases solely on account of the devaluation, you know that we have expenditure both in dollars and naira and revenues both in dollars and naira. So we have that flexibility, really, to adjust to any devaluation using the mix of our currency expenditure and income.

--------------------------------------------------------------------------------

Nikolas Stefanou, Renaissance Capital, Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

No, no. I was actually referring to lower OpEx just because if naira salaries remain the same, then your OpEx to be a little bit below or maybe G&A as well.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question comes from the line of Janet Ogunkoya with ARM Security.

--------------------------------------------------------------------------------

Janet Ogunkoya, ARM Research - Analyst [18]

--------------------------------------------------------------------------------

My name is Janet. So my question really was -- okay, so I was going to ask about the gas, the lower gas guidance for next year -- for this year as well. I've heard you mention the shutdown for Oben. May I ask when that would take place? And then also, actually, if I could get some little -- some details on the open gas? I believe the sale to NPDC, like the interest -- the 55% interest given to NPDC, just a few details on that would be good.

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [19]

--------------------------------------------------------------------------------

Okay. If we go to the -- maybe if we go back to the slide, the slide I had on that, Slide 13, 14, I think. Sorry, Slide 18 shows you how the gas contracts have been set out. And so to address your first question, yes, we have successfully executed the turnaround maintenance on the plant, which is a first in the history of the company. It was very successful, on time, budget, within all the constraints which were provided, so that's gone under -- gas line is back up, running very, very well now.

So in terms of the gas fields, what you see on Slide 18 is how the contracts are structured. So you got the Sapele and the Geregu gas power plant. They take about 80 -- 50 MMscf and 80 MMscf, no take-or-pay. Then the NGC, which is very firm and what we call the interruption without variable, you then see what the volumes are there. And then the gas to power project with Azura, Luzon's. And they're all Luzon. Industrial won't have take-or-pay. So within that context. In terms of your second question, I'm not sure I'm very clear what the question's around NPDC. But this contract just shows you how our portfolio is segmented.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [20]

--------------------------------------------------------------------------------

Yes. So maybe I'll just answer that one specifically. I think that this question was around the gas plant sale or the backing in right of the NPDC of that. Yes. So we've also been -- that's been a right NPDC's had since we decided to sole risk it in the upgrade in 2015. So NPDC decided to do that this year. And the way it works is the overall back end number was $168 million. Now that's been split between previous gas tolling revenues of $67 million and a balanced payment of $101 million, of which we received about half of it. And they're going to be paying back on a monthly basis to us. Because we had a tax -- had a depreciated value of the gas plant down, then up from that $101 million, so depreciated value's about $70 million. We booked about $30 million profit in the [POL].

--------------------------------------------------------------------------------

Janet Ogunkoya, ARM Research - Analyst [21]

--------------------------------------------------------------------------------

Okay. All right. Sorry. For the lower gas guidance, one for 2020, so I can see, we're expecting about 99 million barrels or is that -- yes. So my question really about the gas -- or about Oben gas guidance for this year is why it's so low. And I believe I saw somewhere, we're expecting something to come onboard in March 2020. So why are we expecting? Like why is guidance for 2020 this low? That's where my question was.

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [22]

--------------------------------------------------------------------------------

All right. If I go back to when we built the plant, maybe I think, as Roger trying to explain that, we have made a provision for 3 gas wells for this year. And then when we went to the whole oil price scenario. We then looked at maximizing net cash flows, and on that basis, we did take out the 3 gas wells. So what you see there is basically NFA from last year and only Oben port is coming on stream this year.

And then also the turnaround maintenance impact. We're going through additional optimization, just like Roger mentioned. Since this is a very, very volatile year. We still -- we're planning to look at our portfolio again under cash position. And then we can scale up to bring in a couple of -- 1 or 2 of those gas well. So we have that flexibility in shop. The reason is just because there are no new wells coming in this year, and therefore, we're just declining the existing well stock. That's why you see the reduction in the gas volumes and the turnaround maintenance.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [23]

--------------------------------------------------------------------------------

Let me -- okay, okay. That's satisfactory. So there are 2 key things. We spent some time and resources to get the plants ready, capacity ready, which is the turnaround maintenance. And then we're planning to increase our volumes by drilling, as Roger said earlier, 3 new gas wells. Those who now be impacted by current prices, if we drill them, we go back to the volumes that -- we'll go back to the volumes originally projected.

If we don't drill them, which is the no production, that case that Effi was talking about. If we don't drill them, the guidance we have seen is what will happen. But if flexibility exists, if we drill 2 additional gas wells, and now that the gas plant is ready, yes, those volumes will go up and we can go above that guidance. But the guidance is taking into account the realities of today.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

The next question comes from the line of Michael Alsford with Citigroup.

--------------------------------------------------------------------------------

Michael J Alsford, Citigroup Inc, Research Division - Director [25]

--------------------------------------------------------------------------------

I just wondered if you could talk a little bit more broadly around the security situation in the Niger Delta. And then just from an export perspective on the oil, how we should think about sort of netbacks if you use Forcados or Escravos in terms of export facilities, or whether we should think about different costs associated with those different export routes.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [26]

--------------------------------------------------------------------------------

Okay. All of our projections on security and operability of infrastructure have been built into our guidance. So when I experienced that back in 2017, yes, we have guided on outage on Trans Forcados, possible availability of the Escravos, including, going forward, the additional export routes that we're planning. So the security situation, while difficult to predict on a long-term basis, we have used our understanding of what it does in today's load to make those guidance. So the guidance you see actually reflect our understanding of the security in the region.

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [27]

--------------------------------------------------------------------------------

Maybe then I'll add that to this sales comment was, overall, I think it's been a pretty safe year for us last year, and the delta has been very calm. There's a whole lot of work that made that possible from the different lobbying group and the different strategies that all the operators have adopted. So for now and this year as well, looking forward, the projection is still quite calm and peaceful.

On the 2 export route, Forcados, that's of AEP, just like the CEO mentioned, the different uptime assumption, the much higher uptime assumptions for the Trans Forcados Pipeline. We took about 20% downtime overall. And through the AEP, we're right at about 10% downtime. So there is a difference, and that's been built into the guidance you're seeing.

--------------------------------------------------------------------------------

Michael J Alsford, Citigroup Inc, Research Division - Director [28]

--------------------------------------------------------------------------------

And just on reconciliation losses, what should we think about there in terms of reconciliation losses going forward?

--------------------------------------------------------------------------------

Effiong Okon, Seplat Petroleum Development Company Plc - Operations Director & Director [29]

--------------------------------------------------------------------------------

So for the Trans Forcados Pipeline to Forcados terminal, we're still running with, I think, 10% reconciliation losses. And then for the AEP scenario, we're running with a much -- with about 5% reconciliation loss. That's what we're running with.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

The next question comes from the line of Lanre Buluro with Chapel Hill Denham.

--------------------------------------------------------------------------------

Lanre Buluro, Chapel Hill Denham Group - Director of Sales [31]

--------------------------------------------------------------------------------

A quick one on the ANOH debt that Roger hinted that was really fully subscribed, curious to know what kind of price and tenor for some of the facilities that you've had on that -- for ANOH. Also, what was the realized price for last year and also your guidance for price this year? I mean it's quite turbulent and volatile, and you guys have been in the industry long enough to see all kinds of cycles. Curious to know what your views are on what price would be. Assuming the whole COVID situation is resolved, where do you think price would be, say, by the end of the year?

And then also regards to Austin too. I know there are talks around retiring and Roger taking over transition. How's that been going so far? It's probably the time you can -- I don't want to say this is right or not, but given what's going on, I'm sure Roger is definitely prepared to handle the ship, so be curious to know what your feedback will be on those questions.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [32]

--------------------------------------------------------------------------------

Really, I was just starting to get round up. I don't know whether Roger will talk about oil price or ANOH debt. You volunteered some information on retiring. As you would imagine, we've got 4 years to plan this. It didn't drop on our laps, which is why we've gone through a very rigorous process within the port. What you've got -- last November was the announcement, that announcement of the result by the planning that has taken almost 4 years. So it is as smooth it can be. Roger has been CFO for about 7 years, so that's not new here. And so actually, we have, as I leave, my last day at work will be July 31. And as Roger steps in on August 1, he will have a team that's not just competent, but experienced even in running surplus. So again, the transition is something we're very proud of. I think we have managed it. You don't see a transition as smooth as this around this. This shows very often. Roger, go ahead, please.

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [33]

--------------------------------------------------------------------------------

Yes. Okay. In terms of the ANOH debt, specifically pricing, and again, I don't want to give too much because we're running -- obviously, this process is launching. And -- but to give you a steer, the margins are looking sort of 6, 7 range, thereabouts, and the tenors are sort of 5 years, 5, 6 years, thereabouts. That's plus, minus, will move around a little bit. But that gives you a sort of steer. And I think if you'd look -- I think we've probably dealt with this in the Capital Markets Day and if you want to refer back to that specifically.

In terms of oil price, again, I don't think anyone in the world predicted where we're going to be today, not even the Saudis or the Russians, at $26 oil, I think we have at the minute. So predicting it -- and actually predicting the short end of the curve has always been a problem for us. It's fluctuated so much. We tend to look at sort of the back end of the curve. And you can see it's in contango. So oil prices are trending upwards. And that's why we hedge. We hedge. And we've hedged 3 quarters this year at $45. We always hedge forward because of the volatility of the front end. I can't say I can come up with any plan. I think what we have done as a Board, however, is run $30 oil, we've run $20 oil, we've run break cases on our portfolio in case the front end is -- remains to be very volatile. We can see, obviously, the demand in the world on oil is matched with the increasing surplus is a very sort of difficult position at the minute. So we don't try to predict it too much. We just try to hedge it. We try to make sure we're protected.

--------------------------------------------------------------------------------

Lanre Buluro, Chapel Hill Denham Group - Director of Sales [34]

--------------------------------------------------------------------------------

So what's your breakeven price, if I may ask?

--------------------------------------------------------------------------------

Roger Thompson Brown, Seplat Petroleum Development Company Plc - CFO & Executive Director [35]

--------------------------------------------------------------------------------

It depends which portfolio you're looking at. I mean if you're looking in the west, obviously, there's a lot of investments that's been done in the west and at sub $20 in the west. The other assets, which are smaller NOA and the impact for us, slightly above $20. But in the west contributes so much in terms of volume. The gas, again, adds quite significant support network to the oil price. I can add anywhere probably $11 a barrel on the gas on equivalent basis. So the answer is you can get below $20 and still continue to produce, still economical. But obviously, you're not investing at that level.

Eland, in its evolution, hadn't quite got there in its optimum production numbers. So its costs are above $20 at the minute, which is why we're really managing it very carefully to get through this difficult time.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

At this time, there are no further questions, and I hand back to Austin Avuru for closing comments.

--------------------------------------------------------------------------------

Ojunekwu Augustine Avuru, Seplat Petroleum Development Company Plc - CEO, MD & Executive Director [37]

--------------------------------------------------------------------------------

Well, thank you all very much. Thank you, my colleagues, Roger and Effi and everybody. And I just wish you very safe periods this troubling times. And I hope that by the time we are speaking again, we'll be back to a very normal times and predictions will be much easier. Thank you all very much.

--------------------------------------------------------------------------------

Andrew Dymond, Seplat Petroleum Development Company Plc - Head of IR [38]

--------------------------------------------------------------------------------

Thanks, Austin. Cheers. Thanks, all.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.