‘Corporate governance holds key to performance, attracting investors’

Austine Avuru


Mr. Austine Avuru, a co-founder of Seplat, was appointed Chief Executive Officer on May 1, 2010. Prior to joining Seplat, Avuru spent 12 years at NNPC, beginning in 1980, where he held various positions, including wellsite geologist, production seismologist and reservoir engineer. In 1992, he joined Allied Energy Resources in Nigeria, a pioneer deepwater operator, where he worked for the next 10 years as exploration manager and technical manager. In 2002, he established Platform Petroleum Limited and held the role of Managing Director, until 2010 when he left to take up the CEO position at Seplat. Avuru spoke to journalists on how the listing on the Nigerian Stock Exchange (NSE) premium board would impact the overall business of the company and shareholders’ value. HELEN OJI was there.

Three factors qualified your company to be listed on the Premium Board of the Nigerian Stock Exchange. How are you going to sustain these factors?
Starting with liquidity, you have to have free float of shares of over 20 per cent, but for us as a company, our free float is closer to 50 per cent, more than 20 per cent already and with a company like this, free float of shares can only increase. So, you either tap from the market or you do a merger 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 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 apply for listing on the Premium Board, our market capitalisation was just over N200 billion, so you just saw that during the introduction of our company on the floor of the Exchange, our market capitalisation was N396 billion, and as at the end of trading on that day of our listing it went up to N404 billion 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 and 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 a 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 on 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.

What does listing on the Premium Board of the NSE mean for the company and the global market?
What Premium Board listing means is that the company stands out as a long-term entity that can be trusted by investors as you were told by NSE. The Stock Exchange itself is a platform upon which investors around the world build the trust that they (NSE) present as the image of the company is true and fair. So, first, the Stock Exchange has to be trusted by investors.

So, if the Stock Exchange says that this company is listed on the Premium Board, it means that the Exchange is sending a message across the world and to investors that indeed, this is a company that can be trusted, with size, liquidity and most importantly, world class governance and that is very critical message to send out to investors on our behalf by an Exchange where we are trading our shares.

How did the company grow in its performance indicators given the short period of its existence?
We started originally as a growth company. We took over asset and we consciously worked the asset and more than triple production in about four years, from 18,000 barrels per day, bpd to 60,000 bpd. Prices were good until between mid-2015 and 2017.
 
Two things happened to us simultaneously- prices dropped and production crashed due to crisis outside our control and Trans-Escravos led the 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’s 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 $350 million bond just last month and $300 million revolver credit. So, our overall average cost of debt has gone down by 300 per cent from our creditors. Our balance sheet is completely restructured. Every time I talk about governance as a matter of a culture and 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, but when we say we are proud of ourselves, it is because of what we really believe in.

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 just keeping doing the right things as consistently as you can has taken us thus far. To us we think 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 on your business and how have you been able to hedge against it to be able 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. We try to build redundancy in evacuation to hedge against that risk.
 
The stockbrokers have said that they look unto these seven companies that are in 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 going to adopt that can impact on the market as well as shareholders?
 
Our strategy emphasizes 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 was $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 we 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, which means, any year we fail to pay dividend it will as a result of force majeure. 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 40 per cent increase in your share price. Are there things that people are not seeing that you are doing regarding your future?
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. So 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. So 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; so 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 determines 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.

In this article:
Austine Avuru
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