Seplat Petroleum Development Company plc

Oil is currently trading at multi-decade lows. Seplat Petroleum owns stakes in eight oil blocks in the Niger delta region. It owns 40-45% of each of them, operates four, and is a non-operating partner in the remaining four blocks.

Seplat is listed on the London stock exchange and in Nigeria.

It owns proved and probable oil reserves of 509 million barrels, which will last it till 2042 at current production levels of 47 to 57,000 barrels per day. Its production costs are a mere $6.20 per barrel giving it enormous staying power even in the current oil slump (with WTI crude at $20 today). This doesn’t factor in the hedging of all its sales to the third quarter of 2020 at $45 per barrel.

The company generated pre-tax profits over GBP 260m in the last two years though it wasn’t immune from losses during previous oil slumps (and exacerbated by militancy in the region). Net cash flows, even after acquisitions have enabled fairly consistent dividends at just under GBP 50m a year.  

It has modest net debt of GBP 330m amounting to just over 1x cash earnings. The bulk of maturity dates are in 2023 boding no real immediate threat.

The company sells for under GBP 300m in the market. This appears to be well below the ultimate value of the company on the basis of its financials. Net tangible assets as at December 31^st 2019 – the bulk comprising oil and gas properties – amount to GBP 1.4 billion implying a trading multiple of just one-fifth tangible asset value. This may be subject to substantial impairment if oil prices stay low for an extended period – but the safety margin is enormous.

Latest updates from management indicate no curtailment of production as a result of Covid-19. Even the final dividend is on course as on March 23^rd. The stock, though distressed, offers substantial value for money for the enterprising investor.