Seplat Energy’s long-term rating upgraded to B2 by Moody’s

Investing.com -- Moody’s Ratings has upgraded the long-term corporate family rating (CFR) of Seplat Energy Plc (Seplat) to B2 from Caa1 today. The probability of default rating (PDR) has also been raised to B2-PD from Caa1-PD. The outlook has been changed to stable from positive.

The upgrade follows Moody’s decision on May 30, 2025, to upgrade Nigeria’s government bond rating to B3 from Caa1. The change in Nigeria’s foreign currency ceiling to B2 from Caa1 is a significant factor in this decision. Seplat’s operations are based in Nigeria, and its rating is closely linked to the country’s sovereign rating due to its exposure to the nation’s economic, political, legal, fiscal, and regulatory environment.

Seplat’s revenue is primarily in US dollars, reducing its exposure to currency convertibility risk. The company is required to repatriate its dollar proceeds from oil exports to Nigeria within 90 days of receipt. To date, no restrictions have been imposed by the Central Bank of Nigeria, and Seplat aims to have 70% of total cash balances in USD, with 70% of that in offshore accounts, maintaining a minimum balance of $150 million.

Despite recent large acquisitions and a low oil price environment, Seplat has demonstrated strong operating and financial performance. The company’s average yearly production is expected to exceed 120 thousand barrels of oil equivalent per day (kboepd), up from an average of 45 to 50 kboepd. Following the acquisition of Seplat Energy Producing Nigeria Unlimited (SEPNU), Seplat’s 2P reserves have increased to 886 million barrels of oil equivalent (mmboe) from 478 mmboe.

Moody’s projects that for 2025 and 2026, the company’s leverage will be between 1x and 1.5x, while interest coverage will remain over 7x. Seplat’s low unit production costs and low operating expenses provide a degree of protection during low oil price environments.

The B2 CFR reflects Seplat’s leading exploration and production position in Nigeria, its investment in gas projects, strong credit metrics, and good liquidity position. Constraints on the rating include the company’s exposure to Nigeria and its political, legal, fiscal, and regulatory environment, as well as oil price volatility and highly cyclical market conditions.

Seplat’s liquidity profile is strong, supported by $335 million of cash on balance sheet and a $350 million revolving credit facility due in December 2026, of which $100 million is drawn as of March 31, 2025. The company targets to maintain around 70% of its USD cash in offshore accounts for debt servicing.

The stable outlook reflects Moody’s expectation that Seplat will maintain stable credit metrics over the next 12-18 months and a good liquidity profile despite the current low oil price environment. The stable outlook is also aligned with the Government of Nigeria’s stable outlook.

An upgrade of Seplat Energy’s ratings is unlikely unless the Government of Nigeria’s rating is upgraded. A downgrade could occur if there is a downgrade of Nigeria’s rating or if there are signs of a deterioration in liquidity, adverse government-imposed measures, or a material reduction in the company’s revenue and EBITDA, average daily production levels, or reserve life.

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