Member Info for komakino

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.

Hi Mr. B., that page on Doba was actually added on 14th December last year.

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.

My understanding is yes they do as they are not listed shares and qualify for Business Property Relief.

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-business-relief

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-business-relief

Thankfully my wife is younger than me so 7 years should be no problem ;-)

I'm not interested in material possessions LsT and this investment is so I can finally get rid of them by helping them move out :-)

Yes, you could be right TiL and there are certainly advantages to being on the main market viz a viz institutional investors etc, so I certainly would not be against it. Would be nice to get the Chad issues resolved and the SS over the line. Then we can look forward (hopefully!) to Niger.

Hi TiL, Agadem posted this on 22nd December last year after a chat with IR

' I was told yesterday that AK prefers to stay on AIM for a while as he likes the freedom it gives him compared to main market. Detailed prospectus required and far more scrutiny and regulation.'

Aim does have the inheritance tax incentive but personally I hope to gift away any wealth before that has an impact. My kids do too :-)

Agree SailPlane. SAVE have given guidance of H1 for publication of the admission document, and given the South Sudan investor conference in June where AK features prominently in the advertising for it then suspect we'll get the admission document some time before that. Nothing to be concerned with at all imo.

'The Company intends to publish an AIM Admission Document in H1 2023, which will contain a notice of general meeting at which shareholder approval shall be sought, and, following which publication, the Company would seek restoration to trading on AIM of its ordinary shares. '

The AEC also supported the Chad acquisition so doesn't mean to say that things will be smoother with their support. Though I agree that the SS investor conference looks positive for Savannah, with AK being on the panel on the second day, a deal signing session, and AK's photo on the front page montage. It does feel to me that things point to the news on SS in June. Porchfund (still no Porsche) posted a reply from IR that there would be news flow in February (interestingly, that post has now been removed it seems) which subsequently solely consisted of the appointment of the non-exec director, so still appears to be reasons for newsflow to be curtailed at the moment unfortunately.

As per post on Savannah's website 15th Feb, 2 changes from 12th Jan listing

Company / Total Holding / Change

Ingalls & Snyder / 135,068,193 / +5,409,893
Capital Group Companies, Inc. / 96,128,672 / -478,556

Hi noix, no there were no reductions, just the increases I listed.

This is the change between 10th November and 12th Jan (which I've just noticed), as reported on the SAVE website

Ingalls & Snyder +530,000
Capital Group Companies, Inc. +788,320
Standard Life Aberdeen plc +205,355
JO Hambro Capital Management +5,857,636

Total +6,062,991

Thanks PF, Wednesday then ;-)