Nigeria’s main upstream oil firm, Seplat Petroleum reported it took an impairment lack of N41.1 billion ($114.4 million) from its curiosity in OML 55, a contentious Oil block it presently shares with Belemaoil underneath a administration contract signed in 2017.
The losses contributed considerably to the corporate’s full-year lack of N30.7 billion in 2020, one in all its highest on document and solely topped within the final 5 years by the N45.3 billion incurred in 2016.
The corporate defined the impairment loss was “primarily on account of re-assessment of future money flows from the Group’s oil and gasoline properties attributable to vital fall in oil costs” through the yr. This was contained in notes 12.2 of its 2020 audited accounts which it not too long ago launched.
Seplat obtained complete proceeds of $4.8 million underneath the “revised OML55 business association with Belemaoil for the monetization of 67.5 kbbls” a part of the settlement it reached with the Rivers State-based Belemaoil. It claimed the restoration was “impacted by OPEC+ manufacturing cuts and low oil costs” resulting in an impairment of $114.4 million.
In 2015, Seplat introduced it had entered an settlement with Balemaoil to amass about 56.25% of the share capital of Belemaoil Producing Restricted. This was after Belemaoil accomplished the acquisition of a 40 % curiosity in OML 55 from Chevron Nigeria Restricted. NNPC holds the remaining 60 % curiosity in OML 55.
Seplat on the time claimed its “efficient working curiosity in OML 55 on account of the Acquisition is 22.5 %” a declare that can be disputed years later by Belemaoil.
Seplat additionally claimed it paid $132.2 million to amass the 22.5% “efficient working curiosity in OML 55” and in addition revealed it “superior sure loans of $132.9 million to the opposite shareholders of Belemaoil to fulfill their share of investments and prices related to Belemaoil” bringing the entire up-front money outlay after changes to about $265.1 million.
Seplat additionally introduced the next when it acquired the asset:
“The changes to the up-front acquisition value embrace a deferred cost of $20.6 million contingent on oil costs averaging $90 a barrel or above for 12 consecutive months over the following 5 years. Beneath the agreed phrases Seplat will get better the loaned quantities, along with an uplift premium of $20.6 million and annual curiosity of 10 %, from 80 % of the opposite shareholders’ oil lifting entitlements.
The Firm estimates internet recoverable hydrocarbon volumes attributable to its 22.5 % efficient working curiosity to be roughly 20 million barrels of oil and condensate and 156 Bscf of gasoline (complete 46 MMboe). Present gross manufacturing at OML 55 is roughly 8,000 bopd (1,800 bopd on a 22.5 % working curiosity foundation). Pursuant to the Joint Working Mannequin authorized by the Honorable Nigerian Minister of Petroleum Sources, Seplat has been designated operator of OML 55. The Firm may even act as technical providers supplier to Belemaoil.”
These claims ended up being disputed by Belemaoil till the NNPC/NAPIMS waded in to attain a truce in 2017. Earlier than the truce, Belamaoil claimed Seplat didn’t meet its dedication by not finishing “sure agreed cost” which was required to buy 40% stake in OML 55 then owned by Chevron.
Losses mount regardless of the settlement
Regardless of the settlement reached with Balema, Seplat had no selection however to make provisions for the N41 billion losses in its 2020 monetary yr. They supplied the next clarification;
“In accordance with the revised business association that was agreed in July 2016, which gives for a discharge sum of $330 million to be paid to Seplat over a six-year interval by way of allocation of crude oil volumes produced from OML 55, Seplat obtained funds amounting to $4.8 million in 2020. Complete funds obtained from inception to the top of 2020 stood at $124.8 million and the excellent discharge sum to be paid to Seplat is $205.2 million. Restoration through the yr was impacted by OPEC+ manufacturing cuts and low oil costs.”
Seplat additionally defined that it has put plans in movement to handle different points affecting manufacturing from the oil block.
“In a bid to maintain manufacturing from this block, Seplat’s Asset Administration Staff has obtained the sphere knowledge for technical analysis to resolve manufacturing challenges which have delayed goal restoration of the funding. In 2021, Seplat will proceed to monetize liftings in direction of full restoration of the $330 million discharge sum.”
Why this issues
An working OML 55 can be strategic to Seplat in 2021 and will decide how nicely it recovers from the losses of 2020. Their share value may skyrocket by the top of the yr if the asset produces as anticipated.