Malcy's blog today21 Sep 2018 14:50
Savannah Petroleum
SAVP announced two strategic updates to the Seven Energy transaction yesterday, increasing its stakes in both the Uquo field and the Stubb Creek field, and also announcing that Accugas had commenced work on the Calabar pipeline extension which will open up new gas customers from H1 2020. An MOU has been signed with Frontier Oil Limited to conduct a gas for oil swap at the Uquo field increasing SUGL’s rights to gas production to 100% from the current 87.7%. Secondly, an agreement has been reached to acquire the 37.5% minority shareholders interest in Universal Energy Resources Limited, increasing the enlarged group’s interest to a 51% operated interest from the current 32%. The cost of these deals will be a payment on completion of $20m and $14m in Naira over three years – which is expected to be offset against capex which was due to be spent on the oil project.
The combination of these two deals will add 25.1 mmboe 2P reserves and 2C resources increasing reserves and resources being acquired in the transaction by c.19%. These deals will not only reduce forward capex by c.$35m but also ‘serve to secure effective control over the full gas value chain in South East Nigeria’. These deals have obviously delayed the final completion of the wider transaction, but for good reason as they leave SAVP in control of their own destiny, and the deal is now expected to complete ‘in Q4 2018’ with the Implementation agreement anticipated to be signed by the end of October 2018. Finally, right of way works have commenced in relation to the construction of the 18km pipeline extension into the Calabar Free Trade Zone and the greater Calabar area which should be able to supply new customers from H1 2020, adding another revenue and cash flow string to SAVP’s bow.
These deals are of considerable strategic significance to SAVP as they give increased operational control across the gas value train and enable the company to reduce costs at Uquo and Stubb Creek and deliver profitable growth through Accugas from the Calabar Gas Distribution Project. Combined I expect a material source of new revenue for SAVP which significantly enhances the value in the Seven assets across the board.
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