************* today20 Apr 2018 15:41
Given the rise in oil price that we�ve seen over the past week or so, and the highest levels that it has been at in quite some time, I�m a little surprised to see Savannah Petroleum (SAVP) still languishing at around the 12-month low. With a market cap of nearly �230 million it isn�t as likely to see such large movements as you get on the AIM micro caps, but it is still small enough that I would expect the higher commodity price to have had some impact, given that it produces significant amounts of oil already.
It also has the first of three exploration drills at the R3 portion of its R3/R4 permit in Niger underway, with Bushiya-1 having been spudded a couple of weeks back. This drill is expected to take 35-40 days to complete and I suspect that investors have got so used to drilling failures and share price collapses as a result in recent years, that many are now avoiding these types of plays altogether.
But there is plenty of upside here as the drill is targeting 36 million barrels of unrisked recoverable resources at this location, and any success across the two potential reservoirs being targeted would also help to de-risk the whole of this block, and its 1.1 billion barrels of gross risked recoverable prospective resources. Any success would then see this well suspended for further testing using a different rig, although logging will be carried out along the way.
Given that this is just the first in a three well programme, with each drill costing $6-8 million, and the company having funding in place, the risk versus reward here � given sentiment towards oil in general � looks attractive to me for anyone interested in this type of play, and is probably a safer bet than some of the smaller AIM outfits that are either drilling or are about to do so.
This part of the world has plenty of form for large discoveries, and the company also has its R1/R2 block with even more gross risked recoverable prospective resources � almost 1.7 billion barrels. Although still very early days in Niger, any discovery would still be big for the company as it would ultimately give it a second string to its bow, given that it already has producing assets in Nigeria from its acquisition of Seven Energy for the equivalent of $280 million, consisting of a mixture of cash, shares and assumed debt.
This gave the company a 40% interest in the Uquo field, 31.875% of Stubb Creek and 20% of the Accugas pipeline, and net production for 2018 is expected to be in the region of 20,000boepd. That comes from 2P reserves of 92mmboe and 2C contingent resources of 44mmboe, and given that this equates to it having paid circa $3.1/boe, that would seem to have been a good deal given the subsequent rise in oil prices, along with many predicting even higher prices to come. It is forecast that will produce average free cash flows of $88 million per annum over the next few years, but that could be even higher as the predictions
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