That's why we also looked at the capex required the next years. More capex may lower the tax bill, but Seplat will have to pay those record levels of CAPEX. The situation may progressively improve after 2027, but without a significative increase in production, it's impact will not last long. The PIA regime is critical here.
First Seplat has to pay for the CAPEX in advance, then it will recover it over a period of years. The short-term cash flows are impacted, and those are more valuable than long-term cash flows. I'm fine with high CAPEX levels in o&g, but I'm not comfortable with the level of non-producing investment on the Prospectus that the company has ahead of it. Besides, the production forecast shows stable outputs in the next years instead of rising outputs. Seplat has included the information on the PIA on the slides since the announcement and it's evident neither Exxon nor Seplat have been allowed to transition from PPT to PIA (60% is a huge improvement over 85%, more than doubling the FCF yield).
The last three tax years will have little to no expenditure on drilling or other operations that can contribute to lessoning the tax burden so focussing your assessment on these is misleading.
That's why we also looked at the capex required the next years. More capex may lower the tax bill, but Seplat will have to pay those record levels of CAPEX. The situation may progressively improve after 2027, but without a significative increase in production, it's impact will not last long. The PIA regime is critical here.
But an increase in Capex will not decrease as much cash flows because the majority of it is being paid with the tax deductions.
First Seplat has to pay for the CAPEX in advance, then it will recover it over a period of years. The short-term cash flows are impacted, and those are more valuable than long-term cash flows. I'm fine with high CAPEX levels in o&g, but I'm not comfortable with the level of non-producing investment on the Prospectus that the company has ahead of it. Besides, the production forecast shows stable outputs in the next years instead of rising outputs. Seplat has included the information on the PIA on the slides since the announcement and it's evident neither Exxon nor Seplat have been allowed to transition from PPT to PIA (60% is a huge improvement over 85%, more than doubling the FCF yield).
The last three tax years will have little to no expenditure on drilling or other operations that can contribute to lessoning the tax burden so focussing your assessment on these is misleading.