Seplat Sails Smooth: Quarterly Dividends in Foreign Currency Chart a Course for Investor Gains

Seplat Energy, a distinguished firm listed on the NGX, stands out for its distinctive practice of disbursing quarterly dividends to shareholders, providing them with the option to receive dividends in various currencies rather than Naira.

In the fiscal year 2022, the company proposed and distributed a cash dividend of $0.10 across four quarters, navigating through varying exchange rates.

Extending this trend into 2023, Seplat paid a cumulative amount of $0.09 in the first three quarters, adeptly adjusting to fluctuating exchange rates.

The company declared US 3 cents per quarter with exchange rates of N465.04, N759.86, and N996.75 to USD1 for Q1, Q2, and Q3, respectively.

The quarterly payment structure ensures that investors receive returns more frequently, offering a preferable alternative to less frequent options such as annual or semi-annual dividends.

For income-seeking investors, Seplat presents an appealing opportunity. The company adheres to a core dividend policy of 3 cents per share quarterly (equivalent to 12 cents per share annually) and contemplates an additional special dividend as part of its full-year 2023 results, as communicated by the company.

The stock, accompanied by robust share price growth, substantiates its status as a compelling investment choice.

In 2022, Seplat Energy’s stock surpassed the market, achieving a Year-to-Date return of 69.23%, compared to the NGX All-Share Index return of 19.98%.

In the current year, the stock has recorded a Year-to-Date gain of 110%, and with a current dividend yield of 4%, it presents investors with a potential total return of 114%.

Approaching the final quarter of the fiscal year, Seplat is poised to sustain its dividend distribution pattern. CEO Roger Brown expresses confidence in the company’s trajectory, emphasizing a commitment to safe operations, revenue assurance, and cost management throughout the remainder of 2023. Brown stated:

“Our focus for the rest of 2023 is on safe and reliable operations, revenue assurance, and cost management, all of which will deliver further strengthening of our cash position. This keeps us on track for an excellent year that will support the increased quarterly dividends we announced in April and allow us to continue our commitment to reward shareholders.”

However, a significant concern arises due to the volatility of oil prices, given that about 88% of Seplat’s total revenue is derived from crude oil sales.

This exposure to commodity price risk leaves the company’s financial performance vulnerable to fluctuations in oil prices, potentially impacting its bottom line and, consequently, its dividend policy.

For instance, the Q3 report highlighted the recovery in crude oil prices, which had trended downwards for most of H1 2023 due to concerns about the impact of global monetary policy normalization on economic activities.

The company’s average realized oil price in Q3 2023 was $90.3/bbl, reflecting a 19% and 10% increase from Q2 2023 and Q1 2023, respectively.

However, it represents a 21% decrease from the $114.68/bbl realized in Q3 2022. Overall YTD, the average realized oil price for Seplat was $82.76, 24% below the $108.25/bbl average realized in 9M 2022.

The volatility in oil prices, combined with lower prices, has not only impacted profitability but could have led to a decline in revenue if not for overlifts; instances where more oil was extracted from a production facility than officially allocated.

In 9M 2023, excluding overlifts, the crude oil revenue stood at $588.5 million, representing a marginal 1% decrease compared to the adjusted revenue in 9M-2022, which was $595.2 million (adjusted for underlift in the period).

The impact of lower oil prices is evident in the slight dip in crude oil revenue, but the situation is compounded by FX losses resulting from Naira devaluation and elevated G&A expenses.

These challenges collectively pose potential hurdles to sustained revenue growth, profitability, and, consequently, the dividend policy.

The outcome of these factors was reflected in the profit attributable to equity holders of the parent company, amounting to $40.5 million in the first nine months of 2023.

This resulted in basic earnings per share of $0.07 for the period, a notable decrease from the corresponding period in 2022 when basic earnings per share stood at $0.13.

However, it is reassuring to note that the company remains committed to minimizing G&A expenses, has established cost champions to identify cost pressure points, and is implementing measures to control expenditure in those areas.

Moreover, as part of its strategic approach to addressing challenges posed by oil price weakness and volatility, the company has implemented a hedging policy aimed at ensuring a reliable level of cash flow assurance and fostering a sense of optimism.

According to Seplat’s Q3 report, the company successfully hedged a total volume of 6.0 million barrels of oil in 2023.

In the fourth quarter of the same year, Seplat actively engaged in hedging activities, securing 1.5 million barrels of dated Brent deferred put options at $55 per barrel, incurring a cost of $0.73 per barrel.

Looking ahead to the first quarter of 2024, Seplat continues its hedging strategy by securing an additional 1.5 million barrels of dated Brent deferred put options at $65 per barrel, with a cost of $1.08 per barrel.

The company’s ability to manage costs, improve profitability, and sustain its positive momentum will be key to its continued future dividend performance.

The company’s anticipation of generating positive free cash flow in the final quarter of 2023, further supporting its capacity to fund the MPNU transaction and continue rewarding shareholders, is positive and reassuring.