Seplat hedges 3.69mn oil barrels at $48 in 2017

Seplat is ramping up its hedging programme for 2017 after realising gains of US$740,000 from hedging a total volume of 6 million barrels (MMbbls) in 2016 at an average strike price of US$42.75/bbl.

“We have extended the hedging programme into 2017 and as at 31 March 2017 had put in place dated Brent put options covering a volume of 3.69 MMbbls at an average strike price of US$48.38/bbl over the year,” says the company in its 2016 audited accounts.

It further states, “We continue to closely monitor prevailing oil market dynamics and will consider further measures to provide appropriate levels of cash flow assurance in times of oil price weakness and/or volatility.”

Roger Brown, Seplat’s chief financial officer in his financial review included in the report said the amount paid out during the year was US$20.3 million (with realised gains on hedging net of costs standing at US$0.74 million).

“In 2016, we carefully managed our financial position and proactively responded to the exceptional circumstances that were a direct result of force majeure at the Forcados terminal, making sure we continue to have the financial capability and flexibility that is required to realise the value of our asset base,” he said.

Seplat’s management says the operating environment necessitated the adoption of robust financial processes that carefully monitors revenues, cost of sales and admin costs to ensure continued strong profitability.

Oil price is a major influencing factor on the company’s revenue. The company is analysing hedging strategies to help mitigate exposure to oil price volatility.

Few indigenous oil companies participated in hedging at a time when international oil companies ramped up hedging activity to about 648,000 barrels per day (bpd) in the fourth quarter of 2016 according to figures from Wood Mackenzie.

“Recent disclosures reveal that producers rushed to lock in oil prices above US$50 a barrel after OPEC’s November announcement about production cuts,” says Andy McConn, research analyst at Wood Mackenzie, on why recent hedging activity will keep drilling levels buoyant during periods of low oil prices.

McConn further said, “Those producers – most of which are highly exposed to US tight oil – will use hedging gains to help plug any budget deficits caused by sub-US$50 spot prices.”

A group of 33 largest upstream companies with active hedging programmes accounted for a surge by 33 per cent in the last quarter of 2016 compared to the third quarter helping them to stave off the effect of low oil prices.

ISAAC ANYAOGU