TIDMSAVE
RNS Number : 4463J
Savannah Energy Plc
22 December 2020
22 December 2020
Savannah Energy PLC
("Savannah" or "the Company")
Financial and Operational Update
Announcement of Revised GSA with Lafarge Africa PLC on
Favourable Terms
Savannah Energy PLC ("Savannah" or the "Company"), the
African-focused British independent energy company sustainably
developing high quality, high potential energy projects in Nigeria
and Niger, is pleased to provide a financial and operational update
for the 11-month year-to-date period ended 30 November 2020 . The
Company is also pleased to announce that its Accugas subsidiary has
entered into a revised gas sales agreement ("GSA") on favourable
terms with Lafarge Africa PLC, part of the LafargeHolcim Group, for
the supply of gas to its Mfamosing cement plant in Cross River
State, Nigeria.
Andrew Knott, CEO of Savannah Energy, said:
"Taking into account the challenging market conditions in 2020,
I am pleased with the way the Savannah team and the wider Group has
performed. Today, we are reiterating our Total Revenues guidance,
reducing our cost guidance by US$25m and are set to deliver record
Nigerian cash collections and production volumes in 2020. The deal
with Lafarge Africa is also a significant "win-win" for both
parties; Accugas is receiving a higher effective gas price in the
near-term years, accelerating near and medium term cashflows, our
contract with a key customer is being extended for an additional
five years and significant spare capacity is being freed up, which
we can sell gas to other customers. All while Lafarge Africa is
able to utilise its existing make-up gas balance.
We are looking forward to 2021 with excitement as we continue to
work with our stakeholders to develop and grow our business for the
benefit of all."
Key Highlights
Financial Highlights
-- Group cash balance of US$95.6m [1] and net debt of US$419.7m as at 30 November 2020;
-- Total cash collections from the Nigerian Assets in the
year-to-date period ended 30 November 2020 of US$164.3m
(year-to-date period ended 30 November 2019: US$124.2m);
-- We reiterate our guidance for FY 2020 Total Revenues ([2])
and Group Depreciation, Depletion and Amortisation:
o Total Revenues of greater than US$200.0m; and
o Group Depreciation, Depletion and Amortisation guidance of
US$35.0m - US$37.0m;
-- We are revising our guidance for Group Administrative and
Operating Costs and Capital Expenditure:
o Revised Group Administrative and Operating Costs [3] guidance
of US$43.0m - US$47.0m (from US$68.0m - US$72.0m) reflective of the
significant cost efficiencies and savings that have been delivered
across the business in 2020 ; and
o Revised Capital Expenditure guidance of approximately US$8.0m
- US$10.0m (from up to US$45.0m) primarily due to rescheduling of
the capital expenditure programme and the deferral of drilling a
new gas production well on the Uquo field, with the Accugas
compression project now accelerated and expected to commence in
early 2021.
Revised Lafarge GSA
-- The revised GSA with Lafarge Africa PLC is extended for a
further five years to January 2037;
-- The revised GSA increases the effective gas price Accugas
receives from US$5/Mscf to US$7.50/Mscf until 2027 together with an
upfront payment of US$20 million to Accugas;
-- The daily contracted quantity ("DCQ") of gas is reduced from
38.7 MMscfpd to 24.2 MMscfpd. The reduction in DCQ will enable
Accugas to release approximately 12 MMscfpd of currently reserved
gas processing capacity at its central processing facility ("CPF"),
enabling Accugas to enter into additional long-term GSAs with other
customers, increasing the business' future revenues and cash flow
potential;
-- The revised structure also allows Lafarge to utilise its accumulated make-up gas balance of approximately US$58 million on an accelerated basis.;
-- Lafarge's commitments under the revised agreement continue to
be guaranteed by an international investment grade bank
guarantee;
-- Accugas' aggregate maintenance-adjusted take or pay volume
will reduce from 141.4 MMscfpd to 131.8 MMscfpd; and
-- The revised GSA is accretive to short and medium term
cashflow and to Total Revenues over the term of the contract and
is, therefore, Net Asset Value enhancing.
Nigeria Operations Highlights
-- Average gross daily Nigeria production in the year-to-date
period ended 30 November 2020 was 19.2 Kboepd, a 12% increase from
the average gross daily production of 17.1 Kboepd in the same
period last year. Average gross daily production year-to-date was
slightly lower than in H1 2020 of 21.3 Kboepd, reflecting higher
than expected maintenance downtime of our customers' facilities in
H2 2020 resulting in their reduced gas offtake during the period.
Offtake volumes have since normalised and we are working with our
customers to achieve improved alignment on maintenance programmes
going forward to minimise disruption to gas offtake volumes. We
are, therefore, reducing our Gross Production guidance for 2020
from a range of 21.0 - 23.0 Kboepd to 19.0 - 20.0 Kboepd. It should
be noted this does not impact on 2020 Total Revenues guidance due
to the take-or-pay arrangements that underpin the Group's gas sales
agreements; and
-- Of the total average gross daily production of 19.2 Kboepd in
the year-to-date period, 87.6% was gas, including a 16% increase in
production from the Uquo gas field compared to the same period last
year, from 87.3 MMscfpd (14.6 Kboepd) to 100.9 MMscfpd (16.8
Kboepd).
Niger Highlights
-- Plans for delivering the R3 East development continue to
progress with the intention to commence installation of an Early
Production System by the end of FY 2021, subject to market
conditions and financing.
Financial Update
Total cash collections from the Nigerian Assets year-to-date
period ended 30 November 2020 were US$164.3m as compared to cash
collections of US$124.2m in the same period last year, an increase
of 32%. Cash generated by the Nigerian Assets has been directed to
funding operating and maintenance costs and debt service.
As at 30 November 2020, the Group cash balance was US$95.6m and
net debt was US$419.7m.
Revised Lafarge GSA
Savannah's Accugas subsidiary has entered into a revised GSA
with Lafarge Africa PLC ("Lafarge", formerly known as United Cement
Company of Nigeria Limited) for the supply of gas to its Mfamosing
cement plant in Cross River State, Nigeria. This revised GSA
establishes a more sustainable long-term contractual position for
the benefit of both parties.
The revised GSA sees the contract term with Lafarge extended for
a further five years to January 2037, giving a remaining contract
life of 17 years. The new agreement also allows for an increase in
the gas sales price from 2027, with additional US-Consumer Price
Index indexation from 1 January 2029.
The revised GSA has a reduction in the daily contracted quantity
("DCQ") of gas from 38.7 MMscfpd to 24.2 MMscfpd. This reduction in
the DCQ will allow Accugas to release approximately 12 MMscfpd of
currently reserved gas processing capacity at the CPF, enabling
Accugas to enter into additional long-term GSAs for these volumes,
which will increase the business' future revenues and cashflow
potential. To compensate Accugas for this reduction in DCQ, the
revised GSA includes an advance payment of US$20million and a
prepayment structure over the period to 2027, which effectively
results in a gas price of US$7.50/Mscf on take-or-pay volumes
during this period. This revised structure also allows Lafarge to
utilise its accumulated make-up gas balance of approximately US$58
million, whilst we have preserved the capacity to supply higher
volumes when these are required by Lafarge. Lafarge's commitments
under the revised GSA will continue to be guaranteed by an
international investment grade bank guarantee.
Overall, the revised terms are expected to have a cumulative
positive impact on Accugas' cash flows over the short and medium
term. Following the agreement, Accugas' aggregate
maintenance-adjusted take or pay volume will reduce from 141.4
MMscfpd to 131.8 MMscfpd.
Operational Update
Nigeria
Average gross daily Nigeria production in the year-to-date
period ended 30 November 2020 was 19.2 Kboepd, a 12% increase on
the average gross daily production of 17.1 Kboepd in same period
last year. Average gross daily production year-to-date was slightly
lower than in H1 2020 (21.3 Kboepd), reflecting higher than
expected maintenance downtime of our customers' facilities,
resulting in their reduced gas offtake during the period. Following
completion of the maintenance programme, offtake volumes have since
normalised with average daily production for the month of November
2020 of 21.8 Kboepd. We are working with our customers to achieve
improved alignment on maintenance programmes with our customers
going forward to minimise disruption to gas offtake volumes. Whilst
gas production volumes are lower than previous guidance, it should
be emphasised that this does not impact on 2020 Total Revenues
guidance due to the take-or-pay arrangements that underpin the
Group's gas sales agreements.
Of the total average gross daily production of 19.2 Kboepd in
the year-to-date period ended 30 November 2020, 87.6% was gas,
including a 16% increase in production from the Uquo gas field
compared to the same period last year, from 87.3 MMscfpd (14.6
Kboepd) to 100.9 MMscfpd (16.8 Kboepd). Gas production levels are
driven by customer nomination levels.
Nigeria Average Gross Daily Production
Uquo Gas Uquo Condensate Stubb Creek Total
(MMscfpd) (bopd) Oil (Kbopd) (Kboepd)
------------------ ---------------
1 January-30 November
2020 100.9 123.4 2.3 19.2
---------------- ------------------ ---------------
% of total production 87.56% 0.64% 11.80% 100.00%
---------------- --------------------- ------------------ ---------------
1 January-30 November
2019 87.3 135.3 2.4 17.1
---------------- --------------------- ------------------ ---------------
% of total production 85.15% 0.79% 14.06% 100.00%
---------------- --------------------- ------------------ ---------------
% Increase 15.58% -8.78% -5.67% 12.40%
---------------- --------------------- ------------------ ---------------
Accugas also continues to progress commencement of gas sales to
First Independent Power Limited ("FIPL"), an affiliate company of
the Sahara Group, under the gas sales agreement signed on 31
January 2020 for the provision of gas to the FIPL Afam power plant.
Accugas is in the process of working with FIPL to validate the
third-party infrastructure required to enable the commencement of
gas sales under this contract.
In addition. a new gas sales agreement is being finalised with a
significant new industrial gas sales customer, a subsidiary of a
well-respected international company, based on the signed term
sheet which was announced in June 2020.
Planning is underway for the drilling of a new production well
in the Uquo field with long lead items having been procured. We are
also finalising engineering for ordering compression equipment for
the Accugas central processing facility. Both of these projects
will ensure our continued ability to deliver gas at current and
anticipated future increased contracted volumes to satisfy customer
demand. To offer further flexibility in our gas conditioning
capabilities, mechanical refrigeration trains for the processing
plant were successfully installed and commissioned in October
2020.
Niger
To deliver the R3 East development, Savannah intends to commence
installation of an Early Production System by the end of FY 2021,
market conditions and financing permitting, and intends to deliver
its initial production of 1.5 Kbopd to the Zinder refinery in
Niger.
Subsurface work has been progressing well following the
completion of our Pre-Stack Depth Migration ("PSDM") processing of
the R3 East seismic in 2019. Savannah has now completed the seismic
interpretation of the R3 East area. The PSDM dataset shows an
overall improvement in the interpretation of faults and horizons,
supported by attributes analysis which has also improved our
structural, stratigraphic and sedimentological interpretations.
Based on the newly interpreted PSDM, 3D geocellular models have
been built for the Amdigh and Eridal discoveries. The resulting oil
in place volumes are in line with previously reported estimated
figures from the Niger CPR dated April 2020.
Significant further potential on the Savannah PSC areas remains,
with 146 further potential exploration targets having been
identified for future drilling consideration as Savannah looks to
follow up on its highly successful R3 East drilling campaign in
2018, which saw five exploration discoveries from five exploration
wells. The R3 East portfolio is currently being re-evaluated based
on the newly interpreted PSDM seismic dataset with a focus on the
deeper Cretaceous plays.
ESG Reporting Update
As mentioned during our H1 2020 results, Savannah is undertaking
a holistic review of its approach to sustainability reporting, with
a view to harmonising and enhancing our approach across the
enlarged Group. Following the review, Savannah plans to develop and
implement an ESG performance reporting framework for the Group
which will then be published as part of an annual sustainability
review.
For further information, please refer to the Company's website
www.savannah-energy.com or contact:
+44 (0) 20 3817
Savannah Energy 9844
Andrew Knott, CEO
Isatou Semega-Janneh, CFO
Sally Marshak, Communications
Consultant
+44 (0) 20 7409
Strand Hanson (Nominated Adviser) 3494
James Spinney
Ritchie Balmer
Rory Murphy
finnCap Ltd (Joint Broker)
Christopher Raggett
Kate Washington +44 (0) 20 7220
Tim Redfern 0500
Panmure Gordon (UK) Ltd (Joint
Broker) +44 (0) 20 7886
John Prior 2500
+44 (0) 20 8434
Celicourt Communications 2754
Mark Antelme
Jimmy Lea
Ollie Mills
The information contained within this announcement is considered
to be inside information prior to its release, as defined in
Article 7 of the Market Abuse Regulation No. 596/2014, and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
About Savannah Energy:
Savannah Energy PLC is an AIM market listed African-focused
British independent energy company sustainably developing high
quality, high potential energy projects in Nigeria and Niger, with
a focus on delivering material long term returns for stakeholders.
In Nigeria, the Company has controlling interests in the cash flow
generative Uquo and Stubb Creek oil and gas fields, and the Accugas
midstream business in South East Nigeria, which provides gas to
over 10% of Nigeria's available power generation capacity. In
Niger, the Company has interests in two large PSC areas located in
the highly oil prolific Agadem Rift Basin of South East Niger,
where the Company has made five oil discoveries and seismically
identified a large exploration prospect inventory, consisting of
146 exploration targets to be considered for potential future
drilling activity.
Further information on Savannah Energy PLC can be found on the
Company's website: www.savannah-energy.com .
[1] Within cash balance of US$95.6m, US$45.3m is set aside for
debt service and US$1.6m relates to monies held in escrow accounts
for stamp duty relating to loan security packages.
[2] Total Revenues is defined as the total amount of invoiced
sales during the period. This number is seen by management as more
accurately reflecting the underlying cash generation capacity of
the business as opposed to Revenue recognised in the Income
Statement. A detailed explanation of the impact of IFRS 15 revenue
recognition rules on our Income Statement is provided in the
Financial Review section of the Savannah Annual Report and Accounts
2019.
[3] Group Administrative Expenses and Operating Costs are
defined as total cost of sales, administrative and other operating
expenses excluding royalty and depletion, depreciation and
amortisation.
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END
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