Seplat and the Privilege of Dollar Earnings

In Nigeria, earning dollars while most costs and shareholders live in naira is not a small advantage. It is a seat beneath the only umbrella when the rain begins. Seplat owns that privilege, but privilege is not immunity.

The investment case

Seplat has become the most credible large, listed Nigerian upstream operator. MPNU changed it from a respectable Niger Delta producer into a materially larger offshore and onshore energy business. ANOH adds domestic gas growth. The idle-well programme offers lower-risk brownfield barrels. Most importantly, the balance sheet is being repaired quickly enough that shareholders, rather than lenders, can begin to enjoy the acquisition.

The moat is local operating competence: knowledge of ageing fields, regulators, communities, export routes and counterparties that cannot be downloaded with a consultant’s presentation. International majors can sell these assets. A new entrant still has to learn how to keep them producing on a wet Tuesday in the Niger Delta.

Why dollar earnings matter

Crude and much of Seplat’s cash generation are linked to dollars, while the NGX share price is quoted in naira. That makes the company a partial currency hedge for Nigerian investors. If the naira weakens, translated revenue and dividends rise. It is a useful quality in a market where a handsome local return can become thin soup after conversion to dollars.

But this is not a free hedge. Oil prices can fall as the naira falls. Petroleum taxes rise with profitability. Offshore operating costs, debt service and imported equipment also consume dollars. A dollar revenue line does not mean every dollar reaches the shareholder.

MPNU, ANOH and the next barrel

MPNU provides scale, infrastructure and a long inventory of restoration opportunities. Twenty-four revived wells added roughly 26,000 barrels per day of gross capacity in six months. This is attractive growth because the reservoirs and much of the infrastructure already exist. The geological risk is lower; execution and integrity risk take its place.

ANOH gives Seplat a second engine tied to Nigeria’s domestic gas shortage. The 300 MMscf/d plant can support industry and power demand, but Nigerian gas customers have a long tradition of admiring invoices from a respectful distance. Receivables, regulated pricing and counterparty credit remain part of the valuation.

Cash flow and capital allocation

Net debt fell from $898 million at the end of 2024 to $371 million by June 2026. Net leverage of roughly 0.25 times EBITDA is the clearest evidence that the acquisition is earning its keep. The proposed sale of ten percentage points in SEPNU to NNPC for $281.6 million should reduce debt further and fund a special distribution while Seplat retains operatorship and most of the upside.

The advertised 68.3 US cents of 2026 dividends deserves a clean label. Only 45 cents comes from underlying operations; 23.3 cents is transaction-funded. The headline yield is attractive, but the recurring yield is the figure that belongs in a long-term model. One-off cash should not be dressed in Sunday clothes and introduced as an annuity.

What can go wrong

• Oil prices and realised premiums normalise below the unusually strong H1 level.
• Ageing offshore infrastructure requires more repair capital and downtime than expected.
• Yoho restoration, drilling and idle-well work fail to sustain production.
• NNPC dependence, gas receivables, taxes or regulatory intervention trap cash.
• New leadership treats the repaired balance sheet as permission for another adventurous acquisition.
• Related-party dealings or weak board independence erode minority-shareholder confidence.

Verdict

Seplat is investible and deserves a core place on a Nigerian equity watchlist. The hard-currency cash flows, operating capability, gas infrastructure and improving balance sheet are real advantages. So are the invoices attached to old offshore assets and the political guests who arrive without invitation.

Own the business, but insist on a margin of safety. Below ₦9,000 the risk-reward improves. Below ₦8,000 it becomes compelling, provided production and governance remain intact. At a price already celebrating excellent execution, patience is also a position.