Austin Avuru is the Chief Executive Officer, Seplat Petroleum Development Company Plc. He spoke to journalists on the company’s corporate governance policy, vision and recent elevation by the Nigerian bourse. STANLEY OPARA was there
With oil prices looking up thus far this year and volumes stabilised, what should investors expect from Seplat by year end?
The culture is that as an oil and gas production company, we guide for production and we don’t guide for profit. The banks and other businesses can do that. By the time we publish our first quarter financial results, we will guide for the rest of 2018 in terms of production and so on.
What are the threats you foresee as a business?
For our operations in Nigeria, the biggest challenge is the impact any crisis in the Niger Delta could have on our production and evacuation of our products.
We saw 16 months of minimal production when the Trans-Forcados pipeline 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 east of the country, we are trying to develop our OML 53 from the scratch. We would develop this along with two other options of evacuation. We try to build redundancy in evacuation to hedge against that risk.
Seplat is currently listed on the Nigerian and London stock exchanges and had recently made it to the elite board of the NSE. What is the company’s motivation?
Originally, we started as a growth company. We took over asset and we consciously work the asset and more than tripled production in about four years, from 18,000 barrels per day to 60,000bpd. 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-Forcados 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 N166bn.
We only worked out through 2017 to turnaround the position to profitability.
Very germane to this rebound is our corporate governance stance. It is through this same corporate governance practice upon which we operate that we were able to navigate the company from the two years of treacherous condition outside our control.
We raised $350m bond just last month and $300m revolver credit. So, our overall average cost of debt has gone down by 300 per cent 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 being in Premium Board of the NSE. When we say we are proud of ourselves because of what we really believe in to deliver the long term benefit to our stakeholders, we, indeed, mean it.
How did Seplat make it to the NSE’s Premium Board?
A number of factors were responsible. Starting with liquidity, you have to have free float of shares of over 20 per cent; but for us as a company our free float is closer to 50 per cent than 20 per cent already and with a company like this free float of shares can only increase.
You either tap from the market or you do a merger 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 benefits and the benefits 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 Seplat applied for listing on the NSE Premium Board, its market capitalisation was just over N200bn, but on the day of our elevation to the Premium Board, our market capitalisation was N396bn, and as at the end of trading on that day of our listing it went up to N404bn, and so it doubled the minimum requirement for qualifying to be listed on the Premium Board.
Thus, 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 a company on 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 and still counting.
What does this elite board listing mean to Seplat, its shareholders and other stakeholders?
For us, it is a very important milestone in taking a very long term view in our strategic vision. From the outset, 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 in core of our business.
We are very happy that having gone through that scrutiny when we did our listing on the London Stock Exchange and NSE, we were sure that corporate governance, very high level best practices scrutiny was important and that is what our recent elevation has indeed eloquently testified to.
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.
What is the company’s production target for 2018?
We will be providing the guide for our production in 2018 as soon as our Q1 financial results are released.
Following the company’s recent bond issuance, what possible investments will the company be making?
For the bond, we have two tranches of debts – $700m from Nigerian banks and $300m from foreign banks and both debts were $1bn. By the end of 2017, we had paid off about $400m in capital repayment and not just interest.
So, both debts combined, we are down to $650m, but we also have cash in hand. Our gross debt consists of $350m of bond and $200m that we withdrew out of the $300m revolver. We also have cash in hand of about $350m. Really, our net debt is down to under $200m /$250m.
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 had not drilled 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 the Niger Delta. Now we have a strong balance sheet and cash flow.
How are you going to sustain this transparency culture?
Certainly, our intention is to sustain and even surpass our present performance. It takes a lot of discipline and effort to be where we are. People talk about reporting, transparency, and discipline; it looks that simple. You have to do the right things to be proud to disclose what you are doing. If you are cutting corners even before disclosure you won’t get there.
For our esteemed investors, 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, which means, any year we fail to pay dividend it will as a result of force majeure. But in a normal course of business we will normally be able to pay a certain level of dividend to our shareholders.