Seplat’s problem isn’t cash but how to spend it


March 9, 2018 | 1:55 am
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Seplat Petroleum Development Company Plc is awash with cash to fund future capital expenditure, pay dividend and reduce debt.

During the oil boom of the early seventies, former military ruler, General Yakubu Gowon once said that Nigeria’s problems aren’t money but how to spend.

Seplat will have to deploy cash at its disposal to pursue shareholder’s value after surmounting the headwinds brought on by lower oil price and disruption of gas pipeline at the forcados terminal.

However, the lifting of a force majeure in the third quarter of 2017 was a boon for the indigenous oil and gas firm as it resumed production and recorded returned to profitability.

The indigenous upstream oil and gas giant has $450 million in free cash flow in 2017, which represents a 275.75 percent surge from $119.76 million recorded as at December 2016.

Net cash flow from operating activities spiked by 161.40 percent to $447 million, from $171.59 million recorded last year.

The political turmoil in the Niger Delta region between January 2016 and February 2017 disrupted production and forced Seplat to cut down on spending as it incurred $33 million in capital expenditure in 2017.

This compares with a record spend of $321 million in 2014 when oil prices were around $100. See Chart.

“Seplat will continue to exercise discretion over spend Selectively considering production drilling opportunities in the existing portfolio with a view to reinstating a work programme designed to capture the highest cash return opportunities committed capex in 2018 is currently minimal,” said the company in its 2017 financial statement presentation.

The company has a free cash flow yield of 29.71 percent, which means it is in good financial health.

Free Cash Flow Yield is an indicator that compares free cash flow and market cap. It is a representation of the income (free cash flow) created by an investment.

A yield of 12 percent means that a company is generating 12 percent of its Market Capitalization in free cash flow yearly. Generally, higher yields are more appealing, because they indicate that investors pay less for each unit of cash flow.



March 9, 2018 | 1:55 am
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