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PART 2
Finally let’s hope AK has decided to get all the bad stuff (a lot of bad luck), warts and all out in yesterdays update. If so we have a new baseline to work from as we move forward. Let’s secure debt refinance and then build on things from there. If we could complete the debt deal and bring in SS I would be a happy bunny again.
Sorry for the downbeat stuff yesterday but I did find the report very poor on my first assessments of it.
Onwards and upwards and here’s hoping for a strong Q4 and an even better 2024.
PART 1
1 In the interims we announced a $30m CAPEX reduction from $60m to $30 due to re-scheduling of projects in Niger and Nigeria. We know the Niger part will almost certainly be the 2023 Q4 well testing program but does anybody know what has been put back in nigeria?
2 We announced 676MW of renewable projects underway. I know about 450MW in Niger and 75MW in Cameroon. does anybody know what the remaining 151MW relates to?
As we move forward in to Q4, No 1 priority for me is to see the debt restructure RNS and I can’t bloody wait to read a successful outcome. In H1 2022 our average interest rate was 10.7% but due to US LIBOR rose to 13.4% in H1 2023. The difference in rates on $443m of debt is costing us about $12m pa.
Re SS M&A - I can’t really see the SS Government having any other credible options apart from ours. So I would guess it would be a binary decision for them - either they keep the status quo and don’t approve SAVE (I’m biased but that is not a very clever way for them to go) or we win. Obviously I am staying very hopeful on this but I would not want even guess a % win chance.
From what I was told, should SAVE sign an SPA for another M&A deal they would have to RNS it. Having said that they seem to be able to convince NOMAD they don’t need to update the markets on material stuff for some reason. This is a very subjective view of mine but it could possibly be linked to not wanting any info out in the public domain due to SS M&A or the 2/3 ICC cases we are involved in.
Clearly Africa is a tough continent to work in and even tougher at the moment with the political landscape in many countries. However, AK must be mightily frustrated and trying to deliver his main KPI’s for 2023:-
Close SS
Add at least 1 more hydrocarbon M&A
Refinance Accugas
Have 1GW of renewables underway (now slipped to Mid 2024)
With regards production down H1 23 vs H1 22 but revenue and EBITDA both up 8%, could this be due to contracts simply taking less under their TOP contracts but still paying for it? I don’t know how much gas we owe people under these contracts but I am very keen to know more on current throughputs on pipeline and processing and how the compression project is going. I hope none of the $30m CAPEX reduction is due to compression project being put back in the work schedule.
In the RNS it clearly states “ During the period, Savannah also received US$44.9 million from SNH in relation to the sale of a 10% interest in COTCo.” Personally, I found this very surprising and does anybody know how this can have possibly happened?
Has anybody got up to date on the progress on the $4bn Chinese Niger to Benin pipeline progress? Hopefully as Z alludes to the situation in niger will hopefully improve at some point. It seems that completely dislike the French but hopefully the Chinese and ourselves will be seen more favourably as it’s in the countries interests to see the current 100kboepd rise to 100/100kboep
Old news but just to show SAVE active on Twitter with this recent Tweet:-
“We consider Savannah’s operational performance in the first half to be strong with the company also confirming continued successful expansion of its renewables division,” comments @ShoreCapital in their research note this morning following #SAVE’s half-year 2023 results.
Read more here: bit.ly/3rvJqyW
Anyone see a pattern here on Naira devaluation? This is not new, or a one off, so to me SAVE should have mitigated this issue a long time ago:
2023 Half year:
“ Foreign Exchange loss
Foreign exchange losses amounted to US$54.0 million (H1 2022: US$0.8 million). These losses are unrealised losses which occurred following the harmonisation of the various exchange rates which was implemented by the Central Bank of Nigeria in June. The impact of this decision saw the official Naira/US$ exchange rate move from approximately 460 to 755 at 30 June 2023 and this required Savannah to revalue its Naira denominated assets and liabilities at this new rate when preparing US$ denominated financial statements.”
2022 Half Year Results
“ The interest cover ratio, on an Adjusted EBITDA(2) basis is 3.1 times (H1 2021: 2.9 times).
Foreign Exchange loss
Foreign exchange losses amounted to US$0.8 million (H1 2021: US$10.9 million). These losses were realised losses arising from US Dollar gas sales invoices which are settled in local currency, and from the translation of Naira into US Dollars to service US Dollar denominated obligations. Realised foreign exchange losses can be recovered through the "true up" mechanism in the Calabar GSA
In order to purchase US dollars to service US dollar obligations, Savannah accesses foreign exchange at market rates and there is typically a differential between this rate and the Central Bank of Nigeria exchange rate. The majority of these losses are recoverable through a foreign exchange "true-up" clause in the Calabar GSA.”
2021 Half year results
“ Foreign exchange losses amounted to US$10.9 million (H1 2020: US$7.1 million).
An unrealised loss of US$7.0 million (H1 2020 gain: US$1.7 million) was mainly a result of revaluation of monetary items held in Nigerian Naira following the devaluation of the Naira from approximately 380 Naira/US$ to 410 Naira/US$ in May 2021. The realised losses of US$4.0 million (H1 2020: US$8.8 million) arise mainly from US dollar gas sales invoices which are collected in local currency and then converted at the Central Bank of Nigeria ("CBN") official rate to settle US dollar invoices. In order to purchase US dollars to service US dollar obligations, Savannah accesses foreign exchange at market rate and there is typically a differential between this rate and the CBN rate. The majority of these losses are recoverable through a foreign exchange "true-up" clause in the Calabar GSA.”
2020 Half year results
“ Foreign Translation Loss
The net foreign exchange loss of US$7.1 million (H1 2019: nil) comprises a realised loss of US$8.8 million and an unrealised gain of US$1.7 million. The realised loss arises mainly from the fact that US dollar denominated gas sales are collected in local currency converted at the Central Bank of Nigeria ("CBN") official rate. In order to purchase US dollars to service US dollar obligations, Savannah is obliged to use the Nigerian Autonomous Fore
Apologies, for context I should have said my copied post below was in response to my joint post of the day - alongside scotpak's here - from the 20 + boards I've been on today:
From poster 'johndough' over at Zephyr BB :
Malcy “remains highly confident” & says patient buyers at this level will be amply rewarded. Exactly as he did at +7p. GLA. (zephyr closed at 2.6p today btw )
Snaffleman, I cut and paste my post just now on the Zephyr board here:
Malcy is a funny guy
Agreed Komakino - The accugas business is resilient I think most on here would agree that H2 numbers will bring the net debt number back towards the downside as the baits charge was a one off.
I guess most on here now that there is still value in this business with Nigeria alone to be greater than our suspended price.
A lot of the sentiment is frustration around going into suspension without anything to show for……………………
Also one would hope with the number of individuals that have joined the business from lawyers to geologist to corporate staff to field staff that there would be significant news flow that would correspond to the headcount build. Granted AK May be focused on closing deals. But I expect others within their business to pull their weight as well specifically in Nigeria…………………
I believe the thought process for the continued extensions are AK knows this is probably the last window of suspension he will get to bring in a significant deal in successfully. Otherwise there would be major push back to come to market without a deal and then ask for a suspension again which takes a few more months. So I believe the thought process would be to extend the current window to bring a deal home. Now we can all guess whether that’s South Sudan or another asset but I believe that’s probably the high level thinking
Scotpak a warm welcome and your early input is balanced articulate and well informed. I hope you continue and become a regular contributor and join the existing "gang" who provide so much quality research and keep us well informed
Been locked off grid most of the day. Understand the concerns but personally am chilled. Naira was a one off charge, so frustrating but no more than that. Most of the issues have been discussed and can see both sides. AK has a lot to lose if this doesn't work out and when choosing an investment the CEO is right up there as possibly the most important consideration. I'm pretty much in the Zengas camp in terms of views today, and certainly not worried long term about this investment. Back on Monday when I'll have WiFi again!
Welcome Scotpak - I concur with rocky and zengas keenly your posts coming, and brilliantly articulated
Thanks scotpak, a very well thought out and reasoned post.
Please keep your views coming.
Thanks for the kind words RR. Will try to contribute on a more frequent basis.
WOW Scotpak - a member on here for 3 years and your 1st ever post today, and what a fantastic post it was. where do you get your vast knowledge from mate - it’s awesome. Thanks for your post today and will you be helping to keep the board balanced and informed by posting a bit more and sharing your knowledge and views with us? I certainly hope so as people like you help keep people like me motivated and sane.
Yes thank you all for your analyses I’m now a little cheered up after the most recent posts. My main concern is can the Nigerian business keep up with the debt and everything else and not going bust. It sounds silly but it’s a real risk.
I completely agree if we’re trading today we’d have been in the teens. If we come back without SS and no other deal I still think we’ll be in the teens. I know a lot of you don’t agree. I don’t trade so short term price doesn’t concern me as long as the business has a bright future. Good night.
Oh and I too would delay like to hear Komakino’s views along with the highly respected Porchefund. Come on boys get on your keyboards for 10 mins this evening.
After the great posts from scotpak (welcome and fab post) and Zengas and then I’ll try to get upbeat again but it will be difficult in the short term.
So, if we are struggling to refinance Nigeria debt (and I accept all the bad luck re the peg and Naira issues) are we struggling to finance SS from debt now? In the past we have always been told a big differentiator for SAVE is our access to capital. With the risks associated with the SS deal, given the war in Sudan etc, do we still have the same pulling power with access to capital? May be not.
And if we are struggling to finance through debt, maybe we could not get a large enough placing away either. Maybe one of the key work-streams is our funding of the purchase issue.
So maybe we are dragging the deal out, hoping for elevated POO and a huge reduction to the headline figure of $1.25bn. Could we be trying to wait long enough so that the deal is paid by a huge adjustment + $xxxM paid for from future production.
Maybe this is all pie in the sky and also maybe not. If so and the SS Govermenment would be fully aware of it, maybe that is why they are sniffing around alternative options.
Yes a lot of ‘maybe’s’ in this note put I’m just throwing it out there.
Let’s all hope that a bit of luck goes our way and that we get some positive updates during Q4.
Final point here - if we had re-listed today with this update and an Ad Doc pending shareholder approval and gov sign off what do people think the SP would have been. My guess would be 5p - 10p below suspension price.
Bon soir.
Thank you Zeng. Honestly you should communicate to AK on refinancing.
I will remain invested and Accugas must be kept sound with a 45p valuation on debt reduction or more with new contracts.
Gas contracts are increasing- should lead to increased revenues.
Also what happens post compression completion - possible new gas contracts signed pre or after that ?
Transaction costs gripes - yes agree and fair enough but given the prize of an asset(s) that were non recourse debt and capable of $200m+ FCF i'm not put out by these increased costs in trying to land them. Be different if we were doing it all from the original 3 contracts and revenues we had in place but we weren't. They end when the acquisitions end and heavier when your revenue base is lower - less so if we had 1-2 successfully under our belt ie higher income.
What's the REAL negatives/dissapointment here today ?
1) A large $56m hit for the currency devalution - pushing net debt up in the short term but to compensate we have to take into account the Cotco interest.
2) No real info on S.Sudan and relisting.
3) Both only added to the Chad issue all adding up to an outpouring of negative sentiment .
--------------------
I don't expect those costs to re - occur. Keep growing the Nigerian revenue on the space we have.
News on S.Sudan should be short term.
As Chad ICC nears - SAVE wait and see outcome - then if not in our favour surely the COTCo interest is not benefically core to us - though on the remaining 31% we own supposed to give us north of $25m/yr FCF on current throughput (but currently in dispute with the Chadians though not on their territory).
So sell the interest pro-rata and reduce the net debt in turn reducing the finance costs along with the principal ?.
DON'T refinance Nigeria - pay it down on the envisaged timeline and it's own growing revenues (Sell Cotco)?. Saves us $100m/yr what could be going to us as Shareholders or a future asset. In saying that we don't know what kind of additional contracts could be being considered with the spare pipeline capacity and buying in 3rd party gas, there could be $50m -$100m+ of new business potential so we're not party to future thoughts?.
If we land an acquisiton well and good - it should be able on it's own merit to entirely repay it's own associated debt. So again - i don't see the point in refinancing Nigeria unless there are fairly significant new gas opportunities on the horizon.
Reconsider/slow the renewables if an acquisition does not come through - or seek a separate listing for it down the road when the projects are ready to be sanctioned .
Niger oil - a lot of groundwork done so absolute worst case as said last week could offload for $100m region imo and knock the n/debt down further - doubt it, but it's there and think Niger situation will resolve. But if not, i'd want a producing acquisition at some point of 20-30k bopd to replace it and bought on it's own merits and debt.
Did malky get paid for that review. I wonder if he really is aware of some of the seriousissues he fails to mention. In Niger to talk about iy being merely a delay is misleading to the point of being dishonest. I stopped reading malkys reviews years ago and although i am a SAVE holder I think the positivity of this review ignores too mant issues
Hi Guys
Like many here I'm also an investor and appreciate all the great contributions from the likes of ZENGAS, RR etc and long may that continue. Have not contributed to these forums before but felt it was justified given some of the statements I am reading today. Just some quick points from me:
1) on the Naira devaluation, this along with removal of fuel subsidies was a very important requirement which has put Nigeria on a positive fiscal path. This will allow Nigeria to reduce its fiscal deficit, boost FX reserves and as was mentioned before boost naira liquidity. On the liquidity aspect this is happening but slower than expected. The markets have also taken a positive view on these events with Nigeria USD bonds rallying hard and Nigeria CDS (insurance against default) tightening from a high of 1,250 (may ) to its current level of 757. Yes its still high, but much improved
2) Accugas gas contracts are long dated (15 years) with stable pricing which is denominated in USD. This will help with the refinancing. If you ignore all the exploration/ M&A stuff and just focus on core biz, its pretty solid stable stuff.
3) Yes the big FX loss is very frustrating and Im annoyed that such a large proportion of their cash balance was held in Naira and not all held offshore in USD, but it is what it is. This was a one-off hit and does not reflect the cashflow generating abilities of the Nigerian gas assets which continue to do well. As you will have seen, post balance sheet date, new contracts continued to be signed. EBITDA also increased by 8%
4) on the risk of refinancing. The accugas debt facility (USD denominated and majority of bank loans) matures in Dec 2025. Thus we are not quite in panic stations yet. There is still amply time to explore various finance options. If mgmt are saying they already have a termsheet prepared with a group of lenders than that is a good sign. In theory FX risk should not affect this business given contracts are USD denominated, and currently the biggest chunk of the debt is in USD. The problem arises from the requirement to accept Naira from local customers on those USD denominated gas contracts which creates a short term liquidity risk. Yes that risk hit us hard, but this huge Naira devaluation enacted by the Nigeria Central bank was a massive on-off and unlikely to be repeated.
5) yes the company has alot of debt but Net debt/EBITDA is only 1.9x. Given the long reserve life of its gas assets, stable pricing and 15yr contract length, that’s not a very high net leverage figure. When I got involved with this company in 2020, net debt/ EBITDA was closer to 6x.
6) Alot of the cashflow in H1 2023 was eaten up by adverse movements in working capital mostly related to a big increase in receivables. Results point out that this is expected to reverse in H2 which should help with free CF generation and debt reduction
Anyways chin up lads, hope ive added some decent colour. Good luck all.
Our CEO needs to lead from the front and show us that he is accountable for where we are at the moment.
When was the last time he appeared at an AGM or even gave PI’s the chance to ask live questions on a WEB cast? To the best of my recollection it was on a call about 5 years ago.
AK needs to show some accountability, deliver a WEB cast to us and allow us an hour to ask live questions. As you know I’ve written to IR and can’t do any more than this.
All I ask for is a 1 hour presentation followed by 1 hour of Q&A.
AK is on a tremendous package and needs to earn his corn by showing some respect to PI’s. I relish the opportunity should it arise and rest assured my questioning techniques will be radically different than Malcy and Justin.
Good weekend to all and let’s see what Q4 brings.
How much do these renewable projects costing us? The more I read the rns the more worried I am. Can we afford to finance all these projects from our Nigerian business alone? I know that’s the worry some posters have talked about for a while. I am super worried.
The mind boggles 🤔
This is indeed a very strong operational performance and the figures tell the story. Production was up 12% and Total Revenues and EBITDA up 8% were incredible in a highly competitive market. Add to that new and extended gas contracts with strong momentum carrying through to H2, note Notore, since extending their contract in July for another 12 months have already taken more than twice their daily average nominated amount of gas at 26.3 MMscfpd vs 10 MMscfpd, and up to 676 MW of renewable energy projects now in motion across three countries as SAVE moves quickly towards up to 1GW+ of projects in motion.
As ever there is much going on at Savannah, we have seen the first disclosure report for Sustainability Accounting Standards Board published today which ticks another important box. Also as previously announced the Company continues to advance the various workstreams required to complete the acquisition of PETRONAS International Corporation Limited’s energy business in South Sudan which should be another really valuable asset.
It is also worth mentioning the $1m investment in Fenikso, (formerly Lekoil) which has turned out to be spectacularly successful. The restructuring of the agreement has meant that Savannah will receive up to $16.3m over the course of the next nine years and have already fully recovered the initial investment with payment from Fenikso of $1.3m to date.
Savannah are continuing to do extremely well despite some current political tensions in Africa, such as in Niger where the recent coup has resulted in some delays to the well test programme. Despite this I think that CEO Andrew Knott and his team consistently deliver on the strategy and are building a substantial and important business on the continent.
https://www.malcysblog.com/
“ the Company continues to advance the various workstreams required to complete the acquisition of PETRONAS International Corporation Limited’s energy business in South Sudan”
I wonder what these various work streams are? I wonder if they will only allow approval once SAVE have refinanced their debt as SS will want reassurance that their operations will not be interrupted?
Zeng, you should email AK on that.
I’m with RR, not terribly happy, rather worried.