Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
To be honest I don't think we ever get anything meaningful from IR other than perhaps an indication that some update is coming in a vague timeframe. The last person to contact IR who shared their reply was PF if I recall, who posted that IR said there would be news flow in February. What did we get? An appointment of a non-exec director on the 1st and nothing else, so either they were being disingenuous or something changed. I suspect the former.
Yes, agree TiL. You would have to assume that the govt. have a plan to take some form of control away from Savannah, otherwise it would just be an empty gesture that Savannah would ignore, whilst continuing to operate the fields, receive the money and progress the case at arbitration. Would be good to hear something from SAVE but don't think we will until there is either some form of agreement or, if not, then hopefully something before we relist or later in June when we get the end of year results.
Cont...
... in any case, and while waiting to decide on the strategy to be adopted, there is an urgency for the government to operate the nationalized assets and prepare for a possible takeover by a new acquientor or consortium, and for this, it must urgently put in Implementing several actions, including a comprehensive asset evaluation, recruitment and training of qualified personnel, strengthening governance and transparency in the management of nationalized assets, but also the exploration of new strategic partnerships. It is also urgent to diversify markets and customers and think of investment solutions aimed at improving existing infrastructure. All of this will help prepare the transition, for the time when the government should hand over control of the oil assets to a new buyer or consortium, when the legal situation will be resolved... so there is work .... and it will if we are serious.. Chad gold, we know each other!
Amine Adriss is worth following on FB
https://www.facebook.com/aminidriss
Here are his latest thoughts:
... nationalisation has been acted, and as bad and stupid as it is, and assuming that the government is willing to continue straight in its boots, to limit the damage to our economy and country, it will have to quickly imagine solutions and ways out... here are three possible ones:
... First, the government can propose Savannah Energy to reform a strategic partnership, which would allow it to retain some of the oil assets and benefit from the UK company's expertise and network. The partnership could take the form of a production-sharing agreement or a joint venture, respecting Chad’s interests and rights. This type of solution was adopted by Algeria, which signed contracts with foreign companies like Total or BP after nationalizing its oil in 1971... This means renegotiation of existing conventions. Savannah, who has already invested more than $400 million in buying Esso's assets, also doesn't want to waste much time in a long, expensive lawsuits... she might take the idea of renegotiating...
... The second option is the one where the government asks Savannah Energy to pay it financial compensation for the transfer of the oil assets, which would take into account the present and future value of the resources, as well as the damage suffered by Chad, in the transfer with This. This compensation could be negotiated amicably or determined by an arbitration court, depending on applicable law. This type of solution has been adopted by Venezuela, for example, which compensated foreign companies like ExxonMobil or ConocoPhillips after nationalizing its oil. A friendly agreement at minimum is always better than a good but very long trial.
... third option, government can also decide to maintain nationalization of oil assets in the state, and look for other partners to exploit them. This is the most complex and difficult solution to consider. They could be national or regional companies, such as the SNH in Cameroon, for example, that would be willing to cooperate with Chad and comply with its requirements, within the framework of regional and community agreements such as those of CEMAC. It could also be international companies, juniors like Perenco, who would be interested in the potential of Lake Chad's sedimentary basin, in addition to Doba oil, and could be willing to take additional risks, in a rather complicated context characterized by a large trial, but with a pretty decent Return on Investment. This type of solution has been adopted by Nigeria, which created its own national company NNPC and established partnerships with companies like Shell or Chevron after nationalisation of its oil... and their prior eviction... but Nigeria's volumes and reserves were such that for majors, renegotiate was the only option to be able to remain in the country.. Doba oil gold is almost finished...
Well my take on it is that Savannah obviously do have the technical and financial capacity. The funds were available long since from the loan and they spent 6 months transferring the IT knowledge/systems from Exxon. The staff that are running the operation are previous Exxon staff , staff who the govt seem to be happy to run it on their behalf! As said previously, my view is that Exxon&Savannah will have tied this up legally and will undoubtedly win the arbitration. Can't see Chad doing this as anything as trying to leverage a brown paper bag cash settlement. A pain more than anything else imo
Savannah agreed to pay $1.25 billion for Petronas’ interests in South Sudan. The final amount will depend on completion adjustments, depending on the effective date of the transaction. This should reduce the actual amount paid quite substantially.
The company has not provided a net figure for production from Petronas’ South Sudan interests. The Malaysian company is the country’s largest producer, largely as a result of its 40% stake in Block 3 and 7.
Kelty said South Sudan was difficult, but no more so than other parts of Africa. “I don’t see it as being any more difficult – although still a challenge – in which to operate.”
The country has struggled to boost production and would be eager to secure new investments. However, it is seen as the third most corrupt country in the world.
Petronas has come under fire by a German NGO for oil spills and pollution of drinking water in the country. While there is scope to increase oil production, Savannah would need also to demonstrate its environmental bona fides.
Debt plans
Savannah said it would carry out this deal using its cash – which stood at around $193mn in late 2022 – and debt.
The company has had some success in using debt for acquisitions in the past. The company’s productive base is in Nigeria, where it acquired the former assets of Seven Energy.
It has made progress on paying down its overall debt levels. In 2019, net debt was $484mn, which fell to $408.7mn in 2020, $370mn in 2021 and $310.1mn in 2022.
Savannah has not yet published its 2022 figures. However, at the end of 2021, its Accugas debt facility stood at $371mn.
The company has been trying to refinance this, with the aim of shifting from a US dollar-denominated facility to naira-denominated, which would allow it to avoid foreign exchange pressures. Talks have been under way for some time, with Savannah hoping that it might make progress within the next three months.
Gas reliant
For now, Savannah continues to be reliant on its Nigerian assets – of which gas production accounts for 90% – for cash flow. While the company has grown a substantial position in terms of providing feedstock for gas-fired power, local sales have missed out on much of the international rise in prices.
While the company’s Chad plans have moved away, it has taken ownership of the Cameroon section of the pipeline. This around 70% of the length, around 900km, with associated infrastructure.
While Chad is signed up to arbitration at the ICC, Cameroon is also signed up to the New York Convention, giving some additional assurances against expropriation.
With Chad in the weeds, the pressure is on South Sudan to come through with the goods. The hope is that the deal will complete within the first half of the year.
Operations in South Sudan would bring their own challenges, not least around political risk, but Savannah needs to diversify its operations.
htTps://www.energyvoice.com/oilandgas/africa/ep-africa/493663/savannah-ba
The pressure has been building over the last few months. N’Djamena expelled Savannah’s eight employees in December. Savannah secured an initial arbitration ruling from the International Chamber of Commerce (ICC) in January.
Setback
A note from FinnCap said the loss of Chad was “clearly disappointing” and that the country was now essentially “uninvestable”.
Savannah had “expended huge effort and considerable monies on the transaction. It is even more disappointing given asset performance has been strong since Savannah assumed operatorship from ExxonMobil, with production up ~9% since and an investment programme initiated to significantly increase production further over coming years.”
In the first half of 2022, Savannah spent $14.6mn as a deposit for the Exxon transaction.
Chad analyst Amine Idriss described the nationalisation as a mistake. The move exposes the Chadian state to potential retaliation, he said, but also “sends an extremely negative political signal. Investing in Chad is now perceived as riskier than ever”.
He also questioned whether the government had the technical skill to manage the mature Doba fields and said it raised the prospect for more corruption.
Seeking security
In addition to raising warnings over the appeal of Chad, the country will also not benefit from Savannah’s planned renewable energy plans. The company had planned to build up to 500 MW of solar and wind power in the country.
Africa analyst Ben Hunter at Verisk Maplecroft said the nationalisation was “likely linked to President Mahamat Deby’s drive to gain more control over the country’s lucrative oil sector. Deby is attempting to achieve this via a range of a measures, from purchasing stakes owned by foreign firms to outright nationalisation.”
Part of the challenge for Deby is that his position, gained following the death of his father via a coup, is not entirely secure, Hunter said.
Deby “is likely to ignore” the ICC ruling, the analyst said. “He will view greater control over Chad’s primary income stream as more important to his political survival than respecting an international arbitration award.”
Petronas
Savannah had also struck a deal to buy out Malaysian Petronas’ assets in Chad in December 2021 for around $266mn. It announced a mutual agreement to cancel this plan in December 2022, at the same time as announcing the closure of the Exxon deal.
Petronas said, in March, that it was selling down its Chad assets – with the rumour being that Chad’s state-owned Societe des Hydrocarbures du Tchad (SHT) is the buyer. Some sources have suggested Perenco is funding SHT’s acquisition from Petronas. Petronas has not responded to a request for comment.
At the same time that Savannah was announcing the cancellation of its deal to buy the Petronas assets in Chad, it set out an even more ambitious plan with the Malaysian company.
Savannah battered by Chad, focuses on South Sudan
At the same time that Savannah was announcing the cancellation of its deal to buy the Petronas assets in Chad, it set out an even more ambitious plan with the Malaysian company.
Savannah Energy is an independent with a plan for growth, but the plan has taken some knocks with Chad nationalising its assets.
The Chad move is a “real challenge and setback” for Savannah, Panmure Gordon’s Ashley Kelty said. The company has an “extremely strong case” at the ICC tribunal, he said, but “the resolution for Savannah will take years to achieve by legal routes”.
Sources have guided an ICC ruling to be around 18-24 months.
“Consequently, the outlook in the near term is now centred around revenues from Nigeria and the Chad-Cameroon pipeline,” said the Panmure Gordon analyst.
The UK-listed independent signed a deal with ExxonMobil in December 2021 to buy the Doba oil project, which produced around 28,000 barrels per day gross in 2022. It also agreed to buy Exxon’s share of export infrastructure, in the Chad-Cameroon pipeline. This link carries Doba production to a terminal offshore Kribi.
Exxon had encountered problems with Chad in the past. Perhaps most famously, Chad attempted to levy a $74 billion fine on the US supermajor in 2016 in a dispute over royalties.
As Exxon was heading for the exit, these worries did not dissipate with Chad seeking to extract additional taxes. The company announced its withdrawal from Chad in December, with Savannah announcing the deal’s completion. Savannah valued the deal at $407 million, with Exxon providing $170mn via a pre-payment facility.
Conditions
The sale agreement came with a number of provisos, though. Savannah said it, and Exxon, agreed to waive the condition requiring ministerial consent for the deal. They also agreed to waive a requirement that Exxon’s local unit settle disputed taxes with the government.
Under the upstream and midstream contracts, Chad Minister of Petroleum and Mining Djerassem le Bemadjiel had 60 days to approve – or not – a sale, Savannah said. With no word from the minister, the buyer and seller agreed this was tacit acceptance.
Le Bemadjiel, speaking this week in Chad, defended the move to nationalise the assets. The decision to seize the fields and pipeline was, he said, to protect Chad’s heritage and natural resources.
Exxon, a local news site reported the minister as saying, had violated provisions of Article 30, paragraph 1 which requires state approval for such a transfer. Exxon decided to leave Chad unilaterally and without government approval, he continued.
Savannah “does not have the technical and financial capacity to effectively continue the management of the Chadian pipeline”, the minister said.
Exxon has not yet responded to a request for comment.
Lack of consideration for the Chadian state
For the ministers present, by acting in this way, Savannah, together with Esso – ExxonMobil, not only flouted the prerogatives of the State but also knowingly violated the right of pre-emption enjoyed by the Société des Hydrocarbures du Tchad (SHT), under its commercial agreements with Esso Exploration and Production Chad Inc.
« Beyond this act considered unacceptable by the government, Savannah and Esso – ExxonMobil have committed acts that pose serious and immediate threats to Chadian public order as well as to all actors in this economic sector crucial to the stability and development of Chad, all of which depend on pipeline services. In such a situation, the Chadian government has no choice but to take a strong decision to guarantee the sovereignty, security and general interest of our country," he said.
He recalled that in the history of the Chadian oil sector, there have been many disposals between different companies and in 2022 alone, there have been three requests for divestitures, two of which have been approved. He cited examples such as Glencore with Perenco, United Hydrocarbon with CGI, Encana with CNPCIC. And to wonder why these divestments did not pose a problem but the one between Esso – ExxonMobil and Savannah?
https://tchadinfos.com/la-chronologie-des-faits-obligeant-letat-tchadien-a-nationaliser-les-actifs-desso/?fbclid=IwAR3pV_08xt7kHA7KzkTxehY2augfX6wWG1by9AZgiv7iLZPV--sPpR5Ws8g
The government's demand for guarantees and Esso Chad's refusal
The members of the government continue that in June 2022, Esso Chad has scheduled a board of directors to co-opt Savannah Energy representatives in the two pipeline companies that are COTCO and TOTCO. "We have written again to ask for the cancellation of this board of directors because the government has not yet approved the process. And until this time, the letter requesting the suspension of the transition between Esso Chad and Savannah Energy has never been cancelled," he said.
On December 4, 2022, according to the Minister of Hydrocarbons and Energy, the CEO of Esso Chad was summoned by the Secretary General of the Presidency to let him know that they do not agree on the balance of any account. "We accept the balance of any account but the only condition, we do not want Savannah because it does not have the technical capacity to take over your assets and operate like you. Find any company that has your template and we will approve the transaction. To our surprise, on December 9, the CEO and some foreign employees who were still in Chad left the country and it was from abroad that we were informed by email that now Esso has concluded all the disposals of their assets to Savannah Energy in the Doba project as well as in the pipeline project and that the interlocutor is from the date, Savannah Energy," reports Djerassem Le Bémadjiel.
With a view to facilitating the establishment of the transport company, on 10 July 1998 Chad granted an establishment agreement to the Société de Transport d'Hydrocarbures par l'Oléoduc Tchad Oil Company (TOTCO), in which it is a shareholder. In the consortium, the Esso-ExxonMobil transport company group has played a central role in the sector, as operator of the historic Doba oil fields and the pipeline used by all oil operators in Chad, to export their production.
« Despite its dominant position in the consortium, the Esso – ExxonMobil Group notified the government in 2021 of its intention to divest Esso Exploration and Production Chad Inc. and TOTCO's shareholder Esso Pipeline Investments Limited to an English acquiring company called Savannah Energy Chad Limited ", explains Djerassem Le Bémadjiel, the beginning of the process which, today, has become the current problem of nationalization.
According to the ministers, in response to Esso's letter, the government referred to the preconditions related to the technical and financial capabilities of a potential buyer provided for in TOTCO's establishment agreements. "But without meeting these preconditions, Esso – ExxonMobil and Savannah proceeded with the sale of Esso Chad's assets. This is how Savannah seized the government to announce that it had allegedly completed the acquisition of the assets in Chad of Esso – ExxonMobil Chad, "informs the Minister of Hydrocarbons and Energy.
The Minister of Hydrocarbons and Energy, Djerassem Le Bemadjil, gave the national councillors the chronology of the events that pushed the Chadian government to take the decision, "which seems to be strong but absolutely necessary for the country".
In 1988 (Editor's note, December 19, 1988), EssoExxonMobil was part of the consortium that benefited from oil exploration and exploitation in the Doba basin, in the south of the country. On 10 May 2004, this agreement was amended. "And in the 25 years of its presence, Chad has no problem with Esso – ExxonMobil. But what we deplored was the way in which this transfer was made, "says Minister Djerassem Le Bémadjiel.
Indeed, on December 17, 2022, the Chairman and CEO of Esso Tchad, sent a letter to the Minister of Petroleum of yesteryear to indicate her desire to leave Chad and sell her share to a British company, including Savannah. "In this case, Chad has no objection to make because for the big companies, when the level of production reaches a certain threshold, they prefer to leave because economically, it is not profitable for them. Doba's production has increased from 250 thousand barrels to about 31 thousand barrels. In the 31 thousand barrels, Esso has only 10 thousand barrels a day and this is what motivated the departure of Esso. And in this case, it is small companies called junior that take over the assets to continue production, "explains the engineer at the helm of the Ministry of Hydrocarbons. And even to describe the departure of Esso as "late".
He continues that the Minister asked two questions to the CEO of Esso Chad asking for the elements that could make it possible to assess the technical and financial capacity of the Savannah company. "There is no convincing answer coming from Esso. The oil world being too small, after research, Savannah has never operated an oil field. They have an oil block in Niger and a shareholder in a small gas field in Nigeria but are not operators. The minister therefore did not give his favourable opinion, "explains the minister.
He said that after a month of taking office, he has no news of Esso Chad but has learned that the latter has transferred technical and financial data concerning the assets of Komé and pipeline to Savannah Energy. "On April 4, we sent a letter to Esso Chad asking them to suspend all transfer process with Savannah because the government has not given its consent. Esso said it takes note and that the employees of Savannah in Komé and COTCO have withdrawn and the process stopped to wait for the approval of the government, "informs Djerassem Le Bémadjiel.
4) The government must launch communication campaigns to sensitize the public on the issues surrounding the nationalisation of Esso assets and to promote the benefits of investment in Chadian oil sector.
5) To reassure investors, the state must strengthen its regulatory framework and implement measures to ensure stability and predictability of investments in the oil sector.
6) Chad must maintain and strengthen its cooperation with international organizations and bilateral partners to ensure compliance with international conventions and demonstrate its commitment to the principles of international law.
7) Government must hold conferences, forums and investment promotion missions to attract new investors into the oil sector and strengthen relationships with existing investors.
8)) It must emphasize its commitment to social and environmental responsibility in the petroleum sector, with emphasis on high standards and best practices in environmental protection, natural resource management and sustainable development.
... the government can succeed in rallying public opinion and reassuring investors that it is still in compliance with international conventions and wishes to continue to attract investors to our oil sector...
https://www.facebook.com/aminidriss
This was posted earlier by one of the prominent Chadian blogger's on his FB page:
... After analyzing the Government's speech at this morning's hearing, here are the potential issues we can face:
1) The government mentions that Chad has no objection to handing over Esso's assets to Savannah, as it is common for large companies to hand over their assets to "juniors" when production is no longer economically profitable. This indicates that the Minister recognizes the legitimacy of the assignment under the existing convention.
2) The government claims the ministry had requested elements to assess Savannah's technical and financial capacity but had not received a convincing response from Esso. However, it is unclear whether these elements are required by the convention itself or if they represent an additional government-imposed condition.
3) The government mentions that other transactions in the Chadian petroleum sector, such as those involving Glencore, Perenco, United Hydrocarbon, CGI, Encana and CNPCIC, have not posed any problems. This suggests that asset transfers are common and accepted in the Chadian oil sector, and that the transfer between Esso and Savannah should also be treated equally.
4) The convention to establish TOTCO, signed in 1998, allows Esso to operate in the Chadian oil sector. If this convention does not provide for specific restrictions or conditions for transfers of assets, it is difficult to argue that the transfer between Esso and Savannah violates the provisions of the convention.
5) The government is not providing concrete evidence to back up the claim that Savannah does not have the technical or financial capacity to take over Esso's assets. Rather, this claim appears to be based on the minister's personal research.
... in conclusion, it seems that the arguments of members of government at this level are mostly based on subjective concerns and additional conditions imposed by government rather than violations of the provisions of the convention itself. Thus, on the basis of this argument, it is hard to argue that Esso did not have the right to surrender his assets to Savannah under the convention that binds them to the Republic of Chad. In other words, the government needs to reorganize itself if it is to keep a small chance of winning this battle..
For this, it must parallel rally public opinion and reassure investors while complying with international conventions; the government can implement several communication and engagement strategies:
1) The government must be transparent about its motives and actions regarding the nationalisation of Esso's assets. He must explain clearly why he deems this action is necessary and how it is in line with existing conventions and agreements.
2) It must encourage open dialogue with stakeholders, including oil industry companies, investors, international organisations and civil society. This approach can help build confidence and dispel anxiety.
The bits I've seen on social media in Chad (mainly LinkedIn & FaceBook) seem to be weighted towards being cautious about the Nationalisation and an inherent distrust of the government. No comments about how they are being paid.
Here's a few comments as a flavour:
The liabilities remain, the CLA remains, the moral company is nationalized ??.
A bad wind blows it seems! In addition to SHT another meal for the family. Who can list a single state-owned company that has prospered over the last 3 decades. Young people born in the 90s have no comparison
I understand you and we wait for the sequel...
Is it true that the Chadians will have their share? I'm afraid that disorder will set in
Very nice decision. It will be pleasant if the government informs the population of the amount that this operation had cost the public treasury. The right to information must be self-evident.
Chad upstream assets nationalised. The President of the Republic of Chad yesterday nationalised
the upstream assets Savannah acquired from ExxonMobil last year, the deal having completed
on 9 December. The Chad-Cameroon midstream pipeline business Savannah also acquired at the
same time is not affected, although it essentially makes Chad uninvestable and we would expect
Savannah to quit its two Chad renewables projects. Savannah notes that the Republic of Chad’s
actions are in direct breach of the conventions to which Savannah Chad and the Republic of Chad
are party. It intends to pursue all of its legal rights via ICC arbitration in Paris, a process that could
take 18-24 months, and believes it has a watertight case to recover the NPV of the assets
nationalised plus additional claims/interest, which would run into the US$ hundreds-of-millions.
- As a reminder, Savannah announced the acquisition of ExxonMobil’s entire upstream and
midstream asset portfolio in Chad and Cameroon for US$407m in December 2021. The assets
acquired included a 40% interest in the Doba Oil Project in Chad and ~40% indirect interest in the
Chad-Cameroon export transportation system, which takes Chad oil production to the Cameroon
coast. The acquisition was funded via an Exxon Prepayment Facility, which is effectively nonrecourse to the PLC, and existing cash resources. Therefore, Savannah has no exposure to the loan.
- Asset performance had been strong. Savannah’s shares remain suspended until the publication of
an Admission Document in respect of its acquisition of Petronas’s South Sudan oil business
completes, expected in the coming weeks. Nevertheless, this is clearly disappointing for investors
and Savannah, which expended huge effort and considerable monies on the transaction. It is even
more disappointing given asset performance has been strong since Savannah assumed
operatorship from ExxonMobil, with production up ~9% since and an investment programme
initiated to significantly increase production further over coming years.
- Investment case remains compelling. Our forecasts and price target remain under review; however,
we have considered the impact nationalisation has on our risked NAV. Including the ExxonMobil Chad
upstream assets, we estimated Savannah’s risked NAV at 91p/sh. The removal of the Chad upstream
assets and planned renewables projects lowers this to around 70p/sh. Of note, we have not included
the ExxonMobil loan facility in our NAV as only US$34m is recourse to the PLC and we believe there is
sufficient cash at the asset level to cover this, so there should be no liquidity concern. We have also
not included any rrecovery of funds from international arbitration of the nationalised assets, which
could run into the US$ hundreds-of-millions. We need to fully review our estimates but still expect
Savannah to generate significant (>40%) FCF for debt reduction and distributions.
Yes, I agree with that, Noix. Chad have recently been receiving funds from the World Bank and you would have to expect that any further payments would be under some form of pressure from the governing bodies given that Chad have effectively reneged on their contract which comes under the jurisdiction of the ICC. So at the end of the day I am pretty sure that Save will be declared the rightful owners of these assets, just that it may take longer than we originally hope to see that reflected in the value of the sp.
Just in case you didn't know, Mystic Meg passed over to the other side recently. Not sure who she has passed her crown of foresight on to though.
I'm not worried though it's obviously frustrating that it will take a while before this gets concluded, and until then we will probably not get any value from it in the sp. Would be nice of AK could give the market a monthly revenue update from Chad so everyone can see that we are getting paid. I can't see how Chad can stop the revenues reaching SAVE accounts, so just looks like a desperate bluff to me. Pain in the ass though. Roll on a successful conclusion on SS and we can probably all relax a bit.
Unfortunately nothing exciting. Only one change since the last publication on 15th Feb, with Standard Life Assurance reducing their holding by 267k shares, everything else is the same. Presumably just a late notification from Standard Life.