Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) of Seplat Energy Plc from ’B-’ to ’B’. The outlook is stable. Additionally, Fitch has assigned a final senior unsecured rating of ’B’ to Seplat’s notes, with a Recovery Rating of ’RR4’.
The upgrade follows a similar upgrade of Nigeria’s rating (B/Stable) and a revision of its Country Ceiling to ’B’. However, Seplat’s rating is still limited by Nigeria’s Country Ceiling and the challenging operating environment.
The rating reflects Seplat’s stable credit metrics and stronger business profile after acquiring Mobil Producing Nigeria Unlimited (MPNU) for approximately $1.3 billion. The acquisition, completed on December 12, 2024, significantly increased Seplat’s production and 2P hydrocarbon reserves, diversified its business into offshore operations in Nigeria, and increased exports as a share of revenues. Fitch expects Seplat’s EBITDA net leverage to be below 1.0x over 2025-2027, despite the mix of debt and cash funding for the acquisition.
Seplat’s rating is influenced by the fact that the company sources all its production from Nigeria. According to the Central Bank of Nigeria’s regulation, export revenues must be transferred to domestic accounts within 90 days of receipt. This, along with its exposure to the operating environment in Nigeria, continues to limit the company’s rating at Nigeria’s Country Ceiling of ’B’.
The acquisition of MPNU has strengthened Seplat’s business profile due to diversification into offshore operations, the addition of 69,000 barrels of oil equivalent a day (boed) in hydrocarbons production, and 395 million barrels of oil equivalent (mmboe) of 2P reserves, of which 80% are oil reserves. Combined production in 2024 on a pro-forma basis totalled around 118,000 boed, and 2P reserves reached 886 mmboe, indicating a 2P reserve life of around 20 years pro forma as of December 2024.
Fitch expects EBITDA net leverage below 1.0x in 2025-2027, considering potential contingent payments by Seplat of up to $300 million by 2026, of which $43 million has already been settled. Further payments are subject to a minimum oil price threshold of $70/bbl, which is currently above Fitch’s oil price deck for 2025 and 2026. Fitch expects cash contribution from new assets to more than offset incremental capex and its expectations of higher dividend payments. Seplat is expected to provide more detailed guidance for its business plan in 3Q25.
Seplat’s liquidity improved with the refinancing of the $650 million bond in April 2024 with new notes due in 2030, which automatically extended the maturity of the $350 million revolving credit facility (RCF) to December 2026 from June 2025. The facility was fully drawn as of December 2024, but Fitch expects drawdown to reduce during 2025. It is also assumed that it will be re-financed by the end of the year.
Seplat’s gas production was around 18,621boed in 2024, or 36.8% of its total hydrocarbon volumes. The regulated gas price under the domestic supply obligation for power generation, which accounts for around 30% of Seplat’s gas volumes, has been revised to $2.42 per thousand cubic feet (mcf), from $2.18/mcf. Seplat sells the rest of its gas to commercial companies at higher contract prices, which offset fluctuations in regulated prices and resulted in stable realised prices of above $2.9/mcf in 2023 and $3.06/mcf in 2024.
Seplat is progressing with the delayed start of ANOH gas plant, its 50:50 joint venture with Nigerian Gas Company Limited. The plant is operationally ready but awaits completion of the Obiafu-Obrikom-Oben (OB3) pipeline to commence sales. Seplat plans to sell gas to alternative third party off-takers while OB3 is being completed. The facility has a capacity of 300mmcf/d and is planned to start in 2025. Seplat is expected to benefit from sales of wet gas and dividends from ANOH based on its net 40% working interest share.
Before the acquisition, Seplat’s operations were concentrated onshore around the Niger Delta region of Nigeria and new assets diversified its portfolio into shallow water offshore operations with associated three export terminals. The Nigerian oil and gas sector faces high operational risks and regulatory uncertainty. The addition of offshore assets is expected to help mitigate risks with oil shipment disruptions, which historically reduced deliveries from onshore assets.
Seplat’s post-acquisition production is lower than Energean plc’s (BB-/Stable) (2024:153,000boe/d) while its 2P reserve life is higher compared with about 17 years for Energean. However, the company will have higher production costs at $15/boe compared with Energean’s $9.5/boe. It is anticipated that it will maintain lower leverage than Energean in 2025-2026.
Seplat’s production is larger than Kosmos Energy Ltd (NYSE: KOS ).’s (B+/Stable) (2024:65,700boe/d) even after the latter ramps up production towards 80,000boe/d at end-2024. Kosmos’s 2P reserves of approximately 528 mmboe and reserve life of 22 years are comparable with Seplat’s. Seplat’s costs remain lower than Kosmos Energy’s $22/boe. Kosmos has a more diversified asset base and operates in a more stable environment than Seplat, which faces high exposure and concentration in areas characterised by geopolitical and security risks.
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