Orjiako: For Us, Corporate Governance is a Given

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Seplat Petroleum Development Company Plc is among the four companies that was recently migrated to the premium board of the Nigerian Stock Exchange. Its chairman, ABC Orjiako spoke to journalists on this laudable feat. Nosa Alekhuogie presents the excerpts:

What does the Premium Board listing mean to Seplat and its investors?

It is a very important milestone in taking a very long term view in our strategic vision. From the get go we knew that Seplat was going to aim very high and we are very clear in our mind that corporate governance is the base. So we continuously make sure that best practices are core in our business. We are very happy  that having gone through that scrutiny when we did our listing on the London Stock Exchange (LSE) and NSE, we were sure that corporate governance, very high  level best practices scrutiny was important and that is what the elevation has indeed eloquently testified.

I think the message obviously for all the investors is that it is a clear message that they are with the right company. The next point is that it is going to create the ability for many of our investors to see more liquidity happening in their securities. It is also going to mean that the securities they hold have value at the highest echelon or segment of the capital market. That is something to be very proud of.

Corporate Governance is very important in this level of Premium Board listing, how are you prepared as a company to ensure this is sustained going forward?

Like I said before corporate governance for us is a given. We go beyond corporate governance and compliance. What I said on the floor of the NSE is that for us, corporate governance is a given. We take best practices as the core of our business. But going forward , having migrated to the  Premium Board index , it means that a lot more is required  of us to make sure we maintain that leadership position with respect to making sure that corporate governance paradigms are well maintained in our organisation.

 

You succeeded in doubling the value of this company within four years as a listed company from N200billion to over N400billion market capitalisation. Going forward, what do we expect in that direction?

As a matter of fact when we listed on the Exchange, our market capitalisation was relatively high. Obviously because of the Foreign Exchange (forex) adjustment, we would have more than that. But going forward, what we would like to do is to create very robust fundamentals for our securities so that regardless of what happens in the environment, we stand out. We would make sure that our company is well governed; making sure that the effectiveness of a strong management team is maintained. We will also make sure that every message we will give to the market and investors that we do, we will not only perform but exceed their expectation. We promised the market when we came that we would be adding value growth in terms of capital growth and that we have delivered and that is what the elevation to Premium Board has shown. We promised them we would be a profitable company and we have maintained that over the years. We also promised that we are going to be a company that is well run; that we have delivered.  We said we are going to grow the company organically, we promised we are going to be a profitable and dividend paying company; that we have delivered. We will acquire asset, we would grow our production, and all these we have done phenomenally. We said we would commercialise and monetised gas and we are doing that. Obviously, if you are following the trend of our performance you will see that the gas revenue is growing Year on Year (YoY).

How do you feel heading the Board of a successful company?

Obviously, we are happy to be at the helm of affairs. But beyond that is the fact that, to whom much is given, much is expected as well. One of the things we pride ourselves about the company is the level of experience we have in the Board; the diversity we have and obviously the strong experience we have in the management team. We even make sure that even through our succession programme, every of those elements count.

Three factors qualified Seplat to be listed on the Premium Board. These are liquidity around the stock, market capitalisation and corporate governance. How will your company sustain these factors?

Starting with liquidity, you have to have free float of shares of over 20percent, but for us as a company our free float is closer to 50percent than 20percent already and with a company like this free float of shares can only increase, so you either tap from the market or whatever you can do in the future to dilute the shareholding of the existing shareholders and increase the free float. So, we are consciously working on that to increase the liquidity on the stock.

For market capitalisation other than liquidity two critical elements are size and governance and size is about market capitalisation. So if we continue to do the right things and for us internally, we believe that if you consciously and as a matter of culture continue to do the right things, even without prompting ultimately you will see the benefit and the benefit will come in value creation and this will translate to increase in the value of the company. So all things being equal, except for things outside our control, we expect our market capitalisation to also continuously increase and not lower than where we are now.

When we applied for listing on the Premium Board, our market capitalisation was just over N200billion, so you just saw during the introduction of our company on the floor of the Exchange that our market capitalisation was N396billion, and as at the end of trading on that day of our listing it went up to N404billion and so it doubles the minimum requirement for qualifying to be listed on the Premium Board.

For us, the most critical is governance, we have spent seven and half years building a company we believe in. If you make the best practice of corporate governance as a culture you will ultimately see the result; that is what you are seeing. We are only four years old on the Exchange and we are already in the Premium Board. In fact, we are seven and half years as a company in operations and eight years as a registered company.

We started as the company August 1, 2010. We are less than eight years old and we have come this far; this is not by chance, it has been a deliberate effort by the Board and Management team and how to create this governance culture. So what you saw today (during listing) is an attestation of the result of what we have been doing in the past seven and half years.

How did Seplat grow in its performance indicators given the short period of its existence?

You know our history; we started originally as a growth company. We took over asset and we consciously worked the asset and more than tripled production in about four years, from 18,000 barrels per day (bpd) to 60,000 bpd. Prices were good then until between mid-2015 and 2017. Two things happened to us simultaneously; prices dropped and production crashed because of crisis outside our control and Trans-Escravos that led to dip in our production performance, revenue generation, productivity and profitability.

In fact, in 2016 full year, we had a loss of about N166 billion. We only worked out through 2017 to turnaround the position to profitability. Let us return to corporate governance again, it is through this same corporate governance practice upon which we operate that we were able to navigate the company from this two years of treacherous condition outside our control. I hope you are aware that we raised $350million bond just last month and $300million revolver credit. So, our overall average cost of debt has gone down to by 300percent from our creditors. Our balance sheet is completely restructured. Every time I talk about governance as a matter of a culture being imperative for us to deliver long-term and sustainable good performance. We really do believe in it. It is not about priding ourselves as been in Premium Board, so when we say we are proud of ourselves because of what we really believe in which is to deliver the long-term benefit to our stakeholders.

How do you hope to sustain and even surpass this performance to be able to attract more investors?

Our intention is to sustain and even surpass our present performance. It takes a lot of discipline and effort to be where we are to be in the Premium Board. People talk about reporting, transparency, and discipline; it looks that simple, you have to do the right things to be proud to discharge what you are doing. If you are cutting corners even before disclosure you won’t get there.

When we say we are proud of what has happened; this is an attestation of what we really believe in, that we needed to belong to this class of companies. For us, doing the right things as consistently as we can has taken us thus far. We have put the building blocks in place to be able to deliver sustainable performance or result in the future.

What is the company’s financial projection for 2018?

As an oil and gas production company we guide for production and we don’t guide for profit, unlike banks and so on. By the time we publish our first quarter (Q1), we will guide for the rest of 2018 in terms of production and so on.

 

How has the nation’s macroeconomic challenges impacted your business and how have you been able to hedge against it to add to shareholders’ value?

The biggest challenge to our operations is whatever impact the Niger Delta crisis could have on our production and evacuation of our products. You saw within 16 months of minimal production when the Trans-Forcados was down and how it impacted on us. That is our highest risk. We are hedging against that by having multiple avenues or routes for evacuation of our products. We are working with neighbours and other stakeholders to put the Escravos pipeline in place, to complete and commission it and we still have option in Warri refinery if we are pushed to the wall. Here we consciously established three options of evacuating our production. In the East of the country we are trying to develop our OM 53 from the scratch. We would develop this along with two other options of evacuation.

 

The stockbrokers said that they look unto the seven companies that are listed on the Premium Board to lift up the market. What that means is that if these companies cough, it will affect the market. So can you let the market know the existing long term strategy you are adopting that can impact on the market as well as shareholders?

Our strategy emphasises on sustainable growth and delivery on our promises on sustainable basis. When we release our Q1 result and Year-on-Year (YoY) we would like to meet the promises we made to our investors and deliver value in a sustainable manner. We have a strong strategic department and when you do all these; that will reflect on your share price and market capitalisation. We have seen the growth of our market capitalisation in boosting the market.

You have just raised some money from bond, what are you using the proceeds for and what is your production level and the target you have put in place?

We would give you the guide for our production in 2018 soon when our Q1 is released. In terms of the bond, we have two tranches of debts; $700 million from Nigerian banks and $300 million from foreign banks and both debts worth $1 billion. At the end of 2017, we have paid off about $400 million in capital repayment and not just interest. So both debts combined are down to $650 million, but we also have cash in hand. Our gross debt consists of $350 million of bond and $200 million that we withdrew out of the $300 million revolver. We also have cash in hand of about $350 million. So really our net debt is down to under $200 /$250 million. All of that translate to the fact that our balance sheet has been restructured from a very difficult situation.  So two things will happen or two things can be enabled. We can invest more money in the business since in two years. Between 2015 and 2017 we have not drill anywhere. So we are going back to drilling and invest more on our gas business.  We have cash to invest and that is one key result of this exercise of borrowing. Secondly, we will be in a good position if we see opportunity for any acquisition; we will be in a good position to participate. Where we are today is a far cry from where we were two years ago. We were first struggling to survive following the crisis in Niger Delta. Now we have a strong balance sheet.

What should investors expect now that you have bounced back to profitability?

What we said to investors when we were doing our road show for the bond is to reinstate dividend. Our intention is to reinstate dividend as a matter of policy. We suspended dividend in 2016 because of crises beyond our control. But in a normal course of business we will normally be able to pay a certain level of dividend.

Analysts have set price target of circa 40percent increase in your share price. Are there things that you are doing regarding your future performance which other people are not seeing?

I think they are seeing what you are seeing in our company. They have seen how past performance and how we have navigated the most difficult situation in Niger Delta crisis. Many of our competitors of our size are not listed. The reason why you cannot measure how well we did in navigating ourselves from that terrible situation is because our competitors of the same size are not listed to be able to compare us. If they were listed you can be able to compare apple for apple since it is not easy to turn around within 12 months with the kind of situation we were. I think when they see our past performance like that and project that there might be no back breaking situation like we had in 2016; in future they will expect consistent growth and if you plot on any growth trajectory from where we are both in production and even if you held the price constant at $60 per barrel you will see substantial cash flow and profitability. But for us we focus on delivery on objectivity and let the market determine what our value is.

Currently where do you sell your crude?

In Nigeria once your crude gets to the terminal it is sold already. We already have five years long term marketing agreement with international traders, selling the crude has never been an issue. No producer that will tell you he has not sold his crude. The marketers can play all the games and keep the ship somewhere hoping to get extra 20 cents or so. These are the marketers game, every producer sell its crude right there at the terminal from the day of bill of lading to when it is sold.

While other of your colleagues in the Premium Board said they will be turning in their sustainability report from time to time, but you said you have already been doing it. So how often will you let the public see this report?

As a matter of fact, now that the Exchange requires the sustainability report on annual basis we will regularly make it available to the market. So as we submit our annual report regularly we would also submit the sustainability report along with our annual report.