Nairametrics| Seplat has confirmed that Nigeria’s Trans Forcados pipeline, which was shut most of last year due to damage from militant attacks, is likely to resume production towards the end of second quarter of 2017. This is good news for the Nigerian economy and indeed Seplat who relies a lot on the export facility to sell its crude. The terminal has a capacity of 400,000 barrels per day and accounts for 90% of Seplat’s estimated 75,000 production.
The closure of Forcados since last year has severely affected Seplat’s production output over the last one year. Its production dropped to 34% year on year for the nine months period ended September 2016 compared to the corresponding period for 2015 to 26, 233 barrels per day. Crude oil revenue was $125 million, a 66% drop from 2015 figures. The company also reported a 9 month loss of about $97.7 million in 2016 as the company struggled to contain cost amidst a slow down in revenues. Seplat also dropped to as low as N240 in August 2016 as investors lost confidence in any near term recovery.
However, as rash of corporate actions seem to have improved the market’s attitude towards the stock. The share price is up to about N380 as rumours of a likely internal deal among leading shareholders spark up interest that something positive could be in the offing. Investors are also reacting positively to the outlook of the company with oil prices staging a rebound since OPEC leaders agreed a production cut late last year. But more important is the news of the return of Forcados. Investors are right to react positively but with a bit of caution.
The pipeline has a history of being repeatedly attacked by militants. The pipeline was attacked three times last year. The first attack happened in February 2016. The second attack occurred in June 2016, while repairs where still on going. The third attack occurred in November 2016. A day is a long time. Four months is much longer. Possibilities of another attack, are quite significant. The news of the resumption is thus too early to celebrate.
The long-term solution lies in the government finding a solution to the problem of militancy. The government has taken a few right steps. Initiating the Ogoni clean up. Opening dialogue with a cross-section of elders from the region. As well as reinstating amnesty payments to reformed militants in the 2017 budget. One hopes, that it will follow through its words, with bold action. For now, investors would be right to wear a cautious hat.