Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Love him or loathe him, here’s Malcy’s take on SAVE.
This is a good update from SAVE who are producing some 54.9 Kboepd (21.6 1Q 2022), excluding Chad production it was 25.9 Kboepd up 20% on Q1 2022. Total Revenues were equally impressive with Nigerian operations delivering $71.0m ($55.0m) plus Chad upstream revenues of $76.6m. Along with this the Group had a cash balance of US$217.3m3 and net debt of US$412.2m4.
I particularly like the progress in Niger where the company has continued progressing plans for the Early Production Scheme on the approximately 35 MMstb of Gross 2C Resources R3 East oil development. With necessary kit now ordered including a work-over rig solution identified, a well test programme is expected to be carried out in Q4 2023. Following that, Savannah expects to issue a comprehensive field development plan with first oil targeted in 2024 and production expected to ramp up to a plateau rate of approximately 5 Kbopd for the initial development. The crude is expected to be evacuated via the new Niger-Benin export pipeline, which is currently under construction, reported to be 75% completed and estimated to be fully operational in Q4 2023.
Also in Niger, the wind farm project which has the potential to increase Niger’s on-grid electricity supply by over 40%, has made ‘significant progress’ with a number of key studies either completed or underway, and the company expect sanction in 2024.
Elsewhere, the company is going ahead with all that is needed to complete the RTO with Petronas in South Sudan where it expects to acquire in its entirety.
Finally, Savannah acquired an effective 41.06% indirect equity interest in the Cameroon Oil Transportation Company (“COTCo”) from ExxonMobil on 9 December 2022. COTCo owns and operates the 903km Cameroon oil export pipeline and the Kome Kribi 1 floating storage and offloading (“FSO”) unit, which transport and store oil on behalf of its customers who are in turn charged a transportation tariff.
During Q1 2023 COTCo transported an average of 128.8 Kbopd of crude oil with a total of 11 liftings conducted on behalf of its customers. Each lifting saw the safe and successful transfer of approximately 1 MMbbls of crude oil from the FSO to ocean going vessels by COTCo on behalf of its customers.
With regard to the situation in Chad, the Company notes that, ‘Disputes under the upstream conventions are subject to the jurisdiction of an ICC arbitral tribunal, seated in Paris. The Company has commenced ICC arbitral proceedings against the Government of Chad to seek full recompense for the loss that it has and will suffer as a result of the nationalisation of SCI’s assets’.
As I said this is a highly encouraging update from Savannah and excluding Chad, which will take some time, they are making solid, consistently profitable progress across its portfolio in Africa. On return from suspension in H1 2023 this should be reflected in the share price.
Savannah has released a financial and operational update for Q1 2023, which is very much in line with our existing understanding and expectations. Unaudited financial highlights in the first quarter include total revenues of c.US$148m (including Chad upstream production) and closing net debt of c.US$412m. Operational highlights include average gross daily production (excluding Chad) of c.26mboepd on a like-for-like basis - which represents a material 20% year-on-year increase and continues to be dominated by production from the Uquo gas field in Nigeria.
First quarter throughput for the Cameroon section of the Chad-Cam pipeline averaged c. 129mbod (much as we expected), with a total of 11 liftings having been undertaken via the Kome Kribi-1 floating storage and offloading unit. Similarly in line with our latest understanding, Savannah confirms today that its ownership interest in the Chad-Cam oil transportation system will be treated as an investment in an associate for accounting purposes.
At R3 East in Niger, a well test programme is scheduled for the fourth quarter of this year, ahead of first oil which is now targeted for FY24F. The new Niger-Benin export pipeline is expected to be fully operational by the end of this year and significant progress is also reported at the Parc Eolien de la Tarka wind farm project (where project sanction is expected next vear) - with Savannah expecting to announce a series of new utility-scale renewables projects over the coming months
Onshore Nigeria, a major compression project for the Uquo central processing facility is being actively progressed to maintain and grow gas production over the coming years, with Savannah having sold gas to seven customers in Q1.
As previously announced, Savannah has now commenced ICC arbitral proceedings to seek full compensation for the recent nationalisation of its upstream and midstream assets in Chad, with publication of an AIM admission document relating to the substantial South Sudanese reverse takeover transaction continuing to be anticipated in the first half of this year.
Ahead of this, we look forward to continuing our financial remodelling work and dialogue with the company and our long-standing Buy recommendation on Savannah remains under review, as do our forecasts, pending further work on the implications of the situation in Chad, and a full evaluation of the proposed South Sudanese RTO.
AA & shorecapmarkets.co.uk
‘Disputes under the upstream conventions are subject to the jurisdiction of an ICC arbitral tribunal, seated in Paris. The Company has commenced ICC arbitral proceedings against the Government of Chad to seek full recompense for the loss that it has and will suffer as a result of the nationalisation of SCI's assets.’
The way I read the above is that SAVE are wanting recompense rather than a reversal of the Chad decision to nationalise the assets.
Too long to post but here are AK’s statement which sounds promising.
Andrew Knott, CEO of Savannah Energy, said:
"This morning's update clearly demonstrates the strength and potential of our business and the positive impact we are making in our host countries: we are reporting like-for-like1 organic Total Revenues2 growth of 26% year-on-year (with like-for-like1 Total Revenues2 having now doubled since 2017); our oil and renewable energy projects in Niger are now advancing at a rapid pace; and COTCo in Cameroon continues to deliver a strong consistent financial performance. On the new ventures front, we continue to progress our planned acquisition of PETRONAS' assets in South Sudan and expect to announce a series of new utility-scale renewable power projects over the course of Q2 and Q3 2023.
At this time, I would like to express our gratitude to those who have contributed to these successes - my incredibly dedicated and passionate colleagues, our host governments, communities, local authorities and regulators, our shareholders and lenders, and our customers, suppliers and partners. Thank you all."
It’s not the first time Chad has taken on International Institutions…..and won.
The below article is dated 2010 but is an interesting read.
https://www.crisisgroup.org/africa/central-africa/chad/oil-chad-fragile-states-easy-victory-over-international-institutions
We’ve had them b4 on the 9 and 12 of Dec albeit Chad is still up in the air, so why not. It’s already been almost 4 months of silence from SAVE, I would like to think they’ve been busy on other possible acquisitions during this time, as well as dealing with the Chad debacle. I hope Accugas is still a ‘cash cow’ and has been performing well.
I would certainly like to see the future potential of SAVE reflected in its SP when it finally returns to trading.
Certainly making all the right noises in 2022, let’s hope in 2023 nothing has changed, SS can deliver the goods and get the deal across the line to the applause of all the shareholders :)
OAW - fixed that for you :)
https://adf-magazine.com/2023/03/wagner-group-targets-chad-for-sahel-expansion/
Anyone who’s interested in the current/live status of load shedding in S. Africa can download the free app from Apple store.
‘So far in 2023 we have had 2254 hours (94 days) of national load shedding’
Compared with 157 days of load shedding for the whole of 2022.
Current status -
101% Utilised
24493 MW current load
24295 MW available
Interesting app.
TL - +1. It would also be beneficial if we could get those 5 discoveries in Niger on stream or at least give us a definitive plan of action re field development, instead of kicking the can down the road.
It will be interesting to see what AK intends to do about the proposed dividend for this year. Probably get scrapped.
TL - that’s the way I read it also. Getting the SS deal over the line should be damage limitation and any future positive outcome from the Chad fiasco will/should also give a positive reaction to the SP.
However what I and the markets think are normally polar opposites :)
Following Savannah's recent announcement noting the presidential decree nationalising the company's upstream production assets in Chad, we read with interest Friday's announcement by the Chad government that the country "has nationalised the oil assets of Esso Exploration and Production Chad Inc and Esso Pipeline Investments Limited". The nationalisation, therefore, now clearly covers the portion of the pipeline running across Chadian territory in addition to the Doba upstream assets). We would, however, highlight the fact that this is by far the shortest of the two sections of pipeline and therefore only generates a relatively small proportion of total midstream revenues from the Chad-Cam energy transmission system. Conversely, our model indicates that the Cameroon portion of the pipeline generates the vast majority of Savannah's attributable revenues and profits from the ETS
Nonetheless, we will of course now need to incorporate this latest development in Chad into our model, ahead of publication of an admission document relating to Savannah's major South Sudanese reverse takeover transaction. We have yet to publish updated forecasts for the existing group following the expropriation of assets in Chad and are in contact with the company in relation to this (and the interaction of the retained section of pipeline in Cameroon with its newly-nationalised counterpart across the border). However, in broad terms, we see a material FY23F revenue impact which obviously results in reduced EPS and free cash flow. Net debt (in absolute terms and on a net debt/EBITDA basis) would nonetheless appear to remain manageable, supported by Nigerian netbacks and with the Exxon prepayment facility only accounting for a modest proportion of total gross debt. Very importantly, and consistent with Savannah's general approach to structuring deals in Africa, the Exxon facility is largely non-recourse to the PLC.
With the loss of a material producing asset, and now the Chad portion of the pipeline, clearly there will be an impact on our Risked NAV too, although we would still see meaningful upside from Savannah's pre-suspension price - with the market having arguably discounted the Chad-Cam deal execution risks to an extent before the shares were suspended again, and ICC arbitration providing scope for a substantial settlement in Savannah's favour in due course. We look forward to continuing our financial remodelling work and dialogue with the company. In the meantime, our long-standing Buy recommendation on Savannah remains under review, as do our forecasts, pending further work on the implications of the situation in Chad, and a full evaluation of the proposed South Sudanese RTO.
AA @ shorecapmarkets.co.uk