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As ever , thanks Zengas for bringing a welcome dose of rationale to the forum.
Thanks Caution and Zen and Porsche for pointing out the fact we bought accugas from insolvency, i personally believe this is a great asset massively undervalued , (lets say we are in 2027 and SS is throwing off 65k a day, Niger 20k a day, we have been paid £200m for Chad settlement, we have 2 other oil plays at 50k a day and the renewables are all in play, AK decides to sell Acugas, i don't believe it would fetch less than $1.5-2B cash)
Shore Capitals guidance for full year 2022 (Nigeria only)
Revenue estimate $295m versus Save actual $290.4m.
Net debt estimate was $441.3m versus Save actual $404.9m.
-------------------------------------------------------------
The 5th June 2023 coverage from Shore Capital includes only Nigeria and COTCo in Cameroon -
For this year end 2023
Revenue $361.6m and Net debt of $257.9m.
Net debt falls by around $130m/yr so over the next 24 months should be net cash positive.
As i said it will be interesting to see the effect of all past new gas contracts over a full years production in 2023 instead of cutting in at various times November 2021 and then further contracts starting production at various times in 2022.
Personally expecting net debt to be around $275m this year end in my previous post and any improvement on that i would be pleased if in line with Shore Capital at $257.9m.
South Sudan at $1250m could be down to $600m by 30/9/23 or less if it goes through. If all goes well, it should be cash positive/paid for by yr end 2025 .
Personally i wouldn't want SAVE to sell (if ever) Nigeria until at near full capacity. Over the following 24 months and by then net cash positive and worth at a minimum $800m net - barely 20% premium to what it cost us.
$2b worth of debt free assets in the next 24 months ?.
45p Nigeria. 68p South Sudan = 113p anyone ?
Not to mention much increased profits/cash on a debt free basis and possibility for very substantial divs of $50m+ yr at $65/b oil.
In light of all the ups/downs (more downs) recently - maybe a fair case to be made for just improving ESG on the assets rather than building out too quickly on renewables which in itself don't really come into play until 2025 and when we would assume to be virtually debt free/net cash positive before using the excess cash to fund those renewables - regardless of the huge market opportunity.
Regardless - i think there is much more to be positive about than negative and i can't see the rational case for 15p or less.
Thanks Zengas. I would also add that as Accugas was an insolvency induced distressed sale to SAVE, the relative value growth curve, based on production and customer sales having reached and passed through critical mass, should be exponential rather than linear.
I believe that once Accugas’ debt servicing ability is proven to the market, value will out.
$885m was paid for the Nigerian assets in debt and shares with 20% being sold to AIIM.
Net debt was to be $275m end of this year.
When we entered the deal - gas sales were 63.5 mmcf/d gross - last year they were 144 mmcf/d and new customers since joining and revenue substantially up.
I expect it will be worth a NET $800m minimum given there was also a hike by about 23% in reserves allowing for production and the investment in the compression facilities on track for completion.
On the basis of 1.312b shares using £1/$1.30 ex rate = £615m value = 46.8p.
If the 101.1m warrants are excercised it brings in £23.7m = £638.75m. Over a fully diluted 1.413b shares it is 45.2p.
Net debt was decreasing and still in line with the asset since it was bought which was to be $275m this year end and moving to a net cash position (or debt free) within the next 24 months leaving the asset basically paid for. I expect at least a 20% upside over the original purchase price given the additional contracts, upgraded facilities plus a substantial hike in reserves and now the sale and movement of 3rd party gas since purchased.
The current y/end net debt of $257m relative to Nigeria is the equivalent of 14p - so fair value right now for Nigeria shouldn't be less than 31p. I'm basing that also on the recent £1.6m of 6m odd shares at 26.25p by the new Chairman in underpinning a core value.
As that net debt position reduces/closes it will add on incremental value in steps relative to the full 14p to get it to 45p in total - ie $800m.
Although new contracts were signed 2020/21 (i think and stand to be corrected) the first new gas sales above the 3 original contracts didn't actually start until November 2021 with the rest coming on throughout last year at various times - so it will be interesting to see the FULL picture for all of 2023.
There's still considerable upside capacity for new contracts to add material upside/improve the net debt position a little faster over the next 24 months to the original plan.
I would personally have thought that they could at least increase the overall value of the Nigerian assets by 50% since purchased allowing for a further 24 months of activity to fill out further gas sales/transport versus my 20% upside case since purchase.
Rocky, to continue:
Chad and Cameroon upstream production and midstream throughput net to Savannah for the Exxon deal were disclosed in the Dec 2021 presentation. That's my starting point. I agree though; Chad does look a bit rich - I'll have another look. I haven't included and erosion of production nor any increase. One could argue that production will go down as not workovers will be undertaken, but in that case I can drop all the capex numbers from the Chad model.
Throughput is constant in my model too. Cameroon is based on 41% effectively, cos it's the net throughput expected in 2022 for the Savannah share which was 41% at the time.
SS: debt starts at $1.25b and then 2022 estimated profit (after tax) is deducted, as is 2023 assuming a 30 Sep 23 closure and a 1 Jan 2022 effective date. This is probably the punchiest part of the model, tbf.
Uses actual brent prices, adjusted down by $10 for a Dar blend discount. No dilution factored in to model, just includes my estimates of Savannah share of the bbls.
Delist: highly unlikely, I agree...but not impossible. I just thought I'd cheekily throw it in to see what others might think.
EOY 2023 debt for Nigeria and Niger is $448m. I guess I'd deduct the NGN cash balance from that (by now used to pay off the USD loan, I assume) and add another $50m for FX loss (I may be totally wrong on that point, of course...and on allllllll this!)
Renewables....nothing (not even the costs of staff).
I think the Fenikso number was about $14m - it's in the RNS if I remember right.
I hope all this is clear and answers your questions. Your posts are great - keep them coming, please!
Best wishes
Hi Rocky!
I'll try to answer your points - hope it's clear!
Nigeria production: based on 2022 MMscfpd from the financials in 2022 and our 80% Uquo interest. Then incremented at 1.5% per quarter. No inflation in gas prices or midstream revenue included (despite inclusion of the capex for the compression project which may well add to the later, if not the former).
Corporate overhead USD35m p.a. based on segmental reporting from FY22 financials. No inflation or further increase included (perhaps it should be!) FTEs not included as an input.
Niger: 1,500 bopd from Q4 2024, 5,000 bopd from Q4 25. Capex total $48m to Q4 2025. A bit brutal, perhaps, but intended to reflect building pipeline, tie-in, overall establishment of operations from...sand.
No 2Ps in the model at all: it's only a cashflow model. A 2P alternative model would be interesting. I guess given where we're operating, a barrel of 2P might not be particularly highly prized by the market (sorry for cynicism).
Chad and Cameroon: I've made the assumption that we get an award based on the actual cashflows to expropriation date and estimates based on estimated production and pipeline throughput (flexed for crude pricing circumstances) thereafter. So they're done pretty much in the same way as the other segments. Capex, opex, admin, interest, tax, discounted at 15%.
Second post follows...
Ah ok, thanks cyb
Thanks for that, komakino: good to know as the AGM dial-in failed for me so I missed the meeting.
Any fx loss actually isn't in my model: one reason Nigeria looks so lowly is because all the unattributable central costs have to go somewhere so I decided to lump them in with the only business with ongoing revenue-generation.
Cyb - very helpful insight and thank you. You clearly have a detailed model that you run in the background and I commend you for that as these types of models are extremely difficult to put together. I think the best I’ve ever seen were from a true gent who wend under the name of Dalesman but alas I don’t know what happened to that chap.
A few follow ups if I may? Could you please give us brief commentaries as to how you get to each of your prices, copied below. I guess specifically a few areas of main interest to me are inserted below each of your lines:-
Nigeria (including central corporate overhead) 9.4p
(What production and gas prices have you based this on)
(What number have you used for the corporate overhead and what FTE number have you used)
Niger -2.4p
(What cost have you included for our tie-in pipeline and production, if any have you used)
(Have you included our 35m boe as a 2P number in your calculations)
Chad 16.2p
(As Doba and TOTCO have been Nationalised, how do you get to this number? 16.2p seems very high to me as things currently stand)
Cameroon 9.1p
(Is this with 41.06% + dividend or 31.06% + $44.9m + reduced dividend?)
South Sudan 54.8p
(What debt number and 2P number have you used in this calculation and are you factoring in any dilution in your model)
Re de-list from AIM, do you really think this could even be the remotest of possibilities, especially with AK holding 48m shares and 60% ish owned bBy II’s?
Excluding SS, what net debt figure at EOY 2023 are you working on?
Do you have any valuations built in for renewables?
What payment are you expecting in the interims for Lekoil?
Sincere thanks and good luck
Thanks cyb, interesting observations as usual. Regarding the Naira peg removal, AK didn't mention hedging per se, but he said the removal of the peg was a positive and because of the true-up clause in the Accugas contract there would be no loss of revenue to Savannah, so I think your 9.4p for Nigeria is probably very conservative.
Re point number 3 in my list, CNPC isn't in block 5A, of course. We'd be majority there.
8. If we have to relist absent SS, or another major hydrocarbon deal, then the company may stop looking like a growth stock. The market may be more inclined to value the company based on the financials as none of the inorganic growth plays seem to be coming off. That is likely to leave us back at perhaps 15 pence. That said, if IIs stay loyal, support may come via expectation of a CC settlement and the company’s reassurances that there’re other attractive deals to be struck.
9. CC and SS confidentiality (and in my opinion the Dec 21 presentation which has turned into a bit of hostage to fortune) seem to have caused corporate comms to go to ground in 2022 and 2023. That cannot be allowed to continue. The next update needs to focus on actual operations and initiatives as well as “why we do what we do”.
These posts are just my own thoughts and assessments, not based on anything mot in the public domain. DYOR, or course.
That's it.
Best wishes
4. Goodness knows if SS ever gets over the line, but I suspect outstanding receivables and governance of the OCs going forward may well be playing into the delays as well as (perhaps) a government approval. All this assumes that our funding (Petronas PXF or otherwise) for the project is standing by patiently as global yields continue to march ever higher.
5. I suspect that the timing of the Niger coup and the completion of the pipeline to Benin may not be entirely unrelated. Not read this anywhere, but it’s possible. Hopefully the company now does sufficient to fulfil its contractual obligations in Niger in order to continue to secure the R1234 concession, but doesn’t spend a fortune in the process. My model has Niger as less than worthless in the short-to-medium term.
6. For those expecting something approaching $1bn on the Chad ruling, I’d direct you to the Dec 21 company presentation showing 9-year asset-level average FCF of $76.6m p.a.: this includes Cameroon too. NPV10 was estimated at $533.7m: again, that’s the sum for Exxon’s share of both countries. NPV15 looks a bit more relevant than NPV10 in today’s environment. I’d expect a ruling about 12 months from now.
7. The interims, due end of September, are going to be ugly. Nigeria has progress on take-or-pay gas and we will probably see the payment come through on the Lekoil deal. But we now have:
Interest on debt nearer 15% than last year’s 12%
A hefty FX loss associated with Naira peg removal - I know AK said some was hedged out, but I’m finding it difficult to believe that we got $200m of NGN hedged out just prior to the float.
Transactional and legal fees associated with CC and SS to be booked.
Increased staff numbers and the resultant increased cost base.
One positive may be that the NGN float should have allowed us to pay down some of the USD debt in Nigeria using the NGN cash balance brought forward, thus reducing the interest expense going forward.
Of course, it’ll be interesting to see what revenue is booked for Chad prior to expropriation. And will Cameroon revenue be booked given the dispute over opco governance? Will payment of Cameroon dividends (or non-payment of same) be disclosed?
Some other thoughts:
1. I think the most likely outcome in the short-term is that SS gets pushed further down the road. Whether the only hold is government approval, we don’t know (thanks, Rocky, for recent insights here which I understand are via the Nomad). If it does get approved and an RNS in this respect were to come on 29 September, then I think that’s purely coincidental. It gets done when it gets done (or not!)
2. If the Nomad says that the company has to relist absent deal completion, then does management simply delist? I doubt it. It’s an extreme move and it would need the tacit blessing of IIs, which would be highly unlikely to be granted. This with a view to a relisting on an exchange that isn’t quite so NVG (not very good). This is highly unlikely and conjecture…but perhaps not impossible. Could the exchange force it? I doubt that they would, but still…
3. As recently as 2018, Petronas was apparently considering investing in further blocks in SS. See here: https://www.worldoil.com/news/2018/9/11/petronas-may-invest-in-south-sudan-oil-blocks-presidency-says Something changed. I wonder what.
ONGC Videsh recently received an arbitral ruling in its favour re (North) Sudan receivables outstanding: https://www.moneycontrol.com/news/companies-2/ongc-videsh-wins-190-million-arbitration-awards-against-sudan-10377401.html I believe they claimed considerably more, but am having difficulty piecing together the entire story. So I wonder if part of the delay is horse-trading around who owes what to whom.
ONGC’s most recent reporting makes it clear that the SS blocks are operated between the parties involved by joint operating companies, so I suspect we are involved in addressing the governance of those going forward. https://ongcindia.com/web/eng/about-ongc/subsidiaries/ongc-videsh-limited This doesn’t look like a non-operating interest to me. I imagine the Chinese are leading (has this been made clear anywhere?)
It’s all gone very quiet from the company.
My model shows the following valuation.
Nigeria (including central corporate overhead) 9.4p
Niger -2.4p
Chad 16.2p
Cameroon 9.1p
South Sudan 54.8p
Total 87.2p
It’s a discounted cashflow model. Here are some of the inputs.
All cashflows cease on 1 January 2029.
Interest rate on debt 15%
Discount factor on future cashflows 15%
Crude price USD80/bbl
Direct cost USD40/bbl
South Sudan closes effective 1 Jan 2022
Nigerian gas sales grow at 6% p.a.
All renewables ignored.
There’re a range of other assumptions around capex and costs. I have, where possible, based these on the FY22 financials and the presentation which AK made on New Years Eve 2021 when CC was announced. The latter has subsequently been removed from the website, I believe.
Clearly there’s huge margin for playing with inputs here. And huge margin for error. I believe I have been reasonably conservative (except perhaps wrt the SS close date).
TL thanks for this, definitely worth a listen. I have been following Dr Anas Alhajji on Twitter for several years and he is a class act with great insight into the energy markets. He is one of the reasons I am so bullish on SAVE as oil and gas isn't going away any time soon despite what the green targets are.
For anyone interested in looking into Energy outlook I highly recommended watching this it's 1 hour long but so informative and driven by factual information by Dr Anas Alhajji who is mostly brilliant in articulating and talking about all things energy.
https://www.youtube.com/watch?v=xD31cxbQcRQ
Thanks Sailplane. Exactly what Chad did and we know what happened there. so won't be putting too much faith in that particular promise.
The Niger military ruler, General Abdourahamane Tchiani, who seized power in a coup, has proposed a return to democracy within three years.
https://www.devdiscourse.com/article/international/2564177-nigers-military-ruler-general-tchiani-proposes-return-to-democracy-within-three-years
The SS deal could possibly be done with Government sign-off. As the admission document needs a FULL audit before it can be issued, the auditors may be working on it now. We know the 1H 23 accounts need full audit too and AK’s preferred way forward is to have the Ad Doc and 1H as part of the same process. This saves a lot of time and money.
So maybe we are getting close to deal completion now but I definitely don’t expect to see any updates on these 2 pieces of work prior to 29/9. So do we just need auditor approvals and then shareholders to rubber stamp everything 2 to 3 weeks into October.
Now - c’mon England…
Bit of a bloodbath out there at the moment with some O&G stocks having a very tough time, AXL i3E JSE PRD PXEN TXP and ZEPHR to name a few. Maybe it’s not too bad a time to be suspended as I’m sure we’d be very volatile at the moment and probably not in a good way.
in our favour big time are our fixed rate GSA’s for our gas at Accugas and i thin these are inflation linked per annum too. This takes out all the volatility of commodity pricing which is swinging all over the place at the mo with gas particularly weak. Oil seems stronger and every day that goes by our settlement figure for SS is reducing very nicely, thank you very much.
Also with things probably slowing down at the moment in Niger, are we not spending as much of our $60m guidance 23FY CAPEX? If we are saving here, will we be able to put more cash to SS final payment or pay down existing debt more quickly?
At FY22 I think our net debt was $404m / 1.275 fx / 1.1312bn shares = 24p to add to the SP if paid in full. I’m sure that we will reduce bed t by at least $100m this year which adds 6p to the SP. So all things being equal and without SS completing we could see 26.35p suspended price which was virtually end of 2022 +6p for debt reduction = 32.65p. There is nothing in this for Niger and nothing for TOTCO for which I think we should definitely see something from. We will be seeing the dividend from our 41.06% stake in TOTCO until we get paid our $44.9m and then our dividend will reduce to 31.06%.
Clearly Accugas is still the jewel in the crown and god knows how much more we have added with existing customers there. I guess the bigger we get, the bigger any news has to be before it’s classified as material and an RNS issued. Definitely seems that AK is not keen to let us know anything at all which is disappointing for us shareholders.
I still think we will come back to market one way or the other on Monday 2nd October at 8.00am and hopefully with a fully completed deal. If we do not have Government sign off by then and that’s the last thing that we need (apart of course from the obligatory GM shareholder approval), I don’t think the NOMAD will, or should allow a further extension to the 3 months they’ve approved as asking for Government sign-off in these types of countries is like guessing the length of a piece of string.
My revised return prices FWIW are 26p to 30p without a deal (or with a NONE Gov signed return) and 50p+ with Government approved deal.
So six weeks maximum to go before our next news and hopefully a few crumbs in some sort of RNS in the interim.
Not enjoying the journey so much at the moment but will be all worth it if we eventually get to a very good destination.
I much appreciate the investigative journalism by those on the site, but surely some news the company can put out about current operations. Share price suspension isn't an excuse to cut out the comms. Possibly one of Strand Hanson's biggest gigs so maybe getting away with more than they should, and presumably picking up their monthly retainer for doing very little. I think if Panmure were Nomad, maybe they wouldn't have had such an easy ride.
ADVFN pointer to an article about South Sudan, from last month, that I'd not seen:
I rather like the line:
"... South Sudan's authorities are reevaluating their strategy. Their long-term goal is to attract investors and raise oil production to 450,000 b/d, supporting the state's oil policy."
Let's hope such words bode well for Savannah's future in SS.
https://www.ecofinagency.com/public-management/1807-44739-south-sudan-operational-challenges-hamper-daily-output-increase-plans
Not 100% certain but doesn’t Sudan produce around 55k bopd with the refinery using up to 95k bopd ??? So some supply from S Sudan ?
Also might be some skewing of the numbers due to timing of liftings as Port Sudan has about 2.5 mmbls storage.
There were oil field floods in Feb- March but disclosed that production had fallen to 140k bopd in S Sudan and now back close to 158k day. I seriously doubt daily production would have been that low. There can of course be reasons to periodically do pipeline maintenance but none of this is mentioned or available in any press that I can find.