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Shore Capital note on SAVP:
Savannah has released what is, in our view, another excellent result from its drilling programme in Niger, where the Zomo-1 exploration well has been declared a discovery. Zomo-1 is the fifth consecutive discovery made by Savannah in its Niger exploration campaign and, as with the previous four wells, available data at this stage includes wireline logging, fluid sampling and pressure data. These indicate that the well has encountered an estimated 5.4m of net oil bearing reservoir in the “E1” reservoir unit within the primary “Sokor Alternances” objective (with additional pay thought to potentially exist in the well, subject to further assessment). The result from Zomo-1 is very consistent with Savannah’s existing subsurface understanding and, with drilling having again been undertaken faster than previously guided, we remain impressed by Savannah’s execution on this valuable and strategically important project. With the company having now declared five discoveries from the five exploration wells drilled to date, we highlight this extremely high rate of drilling success and note Savannah’s plans (confirmed today) to now conclude its maiden exploration campaign, ahead of a new drilling campaign scheduled for commencement early next year. In the meantime, Savannah has announced that it will undertake pre-stack depth migration (PSDM) processing of the “R3 East” seismic dataset, which is intended to provide significantly enhanced subsurface definition, assist with field development planning and enhance the imaging of deeper prospects. In addition, Savannah reports that it has recently received a further 400km of 2D seismic data covering the “R3 Central” area, with the company currently in the process of incorporating this data into its subsurface model. Savannah continues to expect to perform a well test on Amdigh-1 in December 2018, with preparations for this currently underway and, as previously guided, it is anticipated that production from the company's planned early production system (EPS) will commence in early 2019. Based on the fantastic drilling results achieved to date and with good visibility having now emerged on Savannah’s early production plans in Niger, we expect to factor the positive impact of this into our forecasts shortly. Ahead of this, our last published Risked NAV estimate for Savannah stands at circa 75p/share and we firmly reiterate our BUY recommendation.
• SAVANNAH PETROLEUM (N/C) – 1H 18 results and update. SAVP made an operating loss of $19.3m in H1 18, but this of little relevance for the investment case (Niger oil production has not started yet and Seven in Nigeria is not yet consolidated – both of which will transform the company). The investment case is based upon monetising a string of successful oil discoveries in Niger, completing the Seven Energy acquisition in Nigeria and adding value to that asset. The cash position as of June 30th was $11.7m and funding has been enhanced by Savannah having secured a new US$50m facility with an oil trader, comprising an initial committed size of US$20m; the interest rate is a relatively attractive LIBOR +6% with the option to capitalise the first year’s interest. H1 cash operating costs came in at $7.3m which SAVP states points towards an enlarged group (i.e. post Seven consolidation) opex of $17.5-20m in 2018. In Niger Savannah has announced some details around a planned early production scheme (EPS), which will develop a recoverable resource base of 52mmbbls with initial production of ~1mbbls/d expected to commence as soon as 1Q 2019, and phase 2 increasing production to ~5mbbls/d in 2019. It makes sense for Savannah to bring on initial production rapidly to both provide cash-flows, and further operating information which can feed into technical studies for future work programs. This initial development will be low cost, with net capex of <US$5m to first oil, with the external financing requirement on a unit basis ~60% below the conceptual development solution announced in November 2016. Savannah expects to meet this 3rd party financing requirement through a combination of group liquidity and/or partnership with a 3rd party infrastructure finance fund. In addition to the EPS there are a further 120 mapped exploration targets for future drilling consideration in Niger; Savannah could either go after these at their current 100% interest, or perhaps, more likely, look to do a deal including a carry on future activity at some point after production start-up to accelerate exploitation of the remaining potential. In Nigeria, the Seven acquisition is expected to complete in Q4 2018, as previously announced.
Moroccan move
SDX has an attractive and growing gas business in Morocco, where it has consumers – with rising demand – a pipeline with spare capacity and a range of available wells. Speaking earlier this year to NBI , Welch said these wells could each provide around 1.5-2 bcf (42.5-56.6 mcm), with low costs. As such, a number of wells need to be drilled to meet requirements – or at least they did, until the completion of the last two wells of SDX’s campaign. These two wells were drilled on the Lalla Mimouna permit, which had previously been explored by Circle. One of these holds around 5 bcf (142 mcm), while the other contains around 10 bcf (283 mcm). Given the low cost of the work, and the resource available, in addition to follow-up prospects, this suggests a breakthrough for SDX. The Moroccan pipeline has 24 mmcf (680,000 cubic metres) per day of capacity. Currently, this is flowing at 6 mmcf (170,000 cubic metres) and it should have reached 8-10 mmcf (226,000283,000 cubic metres) by the end of this year, rising to 16 mmcf (453,000 cubic metres) by the end of 2019 and filled by the end of 2020. Part of the appeal of SDX’s Moroccan assets is that the company can drill the wells to order – as new demand lines up new contracts, it can drill the necessary holes. Demand is expected to grow in the second quarter of 2019. In July this year, the European Bank for Reconstruction and Development (EBRD) announced a loan of up to US$10 million to support SDX’s plans in Morocco, particularly through supporting infrastructure to help consumers shift from fuel oil consumption to gas. “It’s lower risk than upstream work, although a lower return, so it’s a perfect fit for debt,” Welch said. When Welch and NBI spoke earlier this year, the theme that emerged from the discussion was one of balance. SDX was working on assets in Morocco and Egypt, with these two projects balancing one another out, to provide some degree of stability. The proposed deal with BP – if it moves ahead – will throw this out. The move is a big vote of confidence in the improved outlook for Egypt and a signal that the caution driven by the downturn is no longer needed. It is a gamble, but a potentially transformative and lucrative one
...The remainder of the consideration would come from cash flows over four years, a commitment to cover 30% of decommissioning costs and various contingent payments, dependent on production and pricing. SDX did not provide details on what the asset package might be. One possibility is BP’s stake in the Gulf of Suez Oil Co. (GUPCO) joint venture, which Reuters reported in March was being shopped around. The unit produces 70,000 bpd of oil and 400 mmcf (11.3 mcm) per day of gas. At the time, Reuters’ sources said the venture was worth around US$500 million. BP has made it clear its interest in GUPCO is focused on maintaining production – a business in which SDX has experience. The super-major is focused on bigger ticket plans, such as the major gas discoveries offshore.
Managing plans
SDX already has experience in managing mature production in Egypt, where its North West Gemsa licence has peaked, in terms of output. The block is “fully developed, we’re just doing routine maintenance … it throws off cash and has low capex requirements”, Welch told NBI.
SDX expects the Meseda concession to provide growth in Egypt this year, in addition to bringing on the South Disouq concession by the end of 2018. “The Disouq facility will have 60 mmcf [1.7 mcm] per day, although we’ve guided to 50 mmcf [1.42 mcm] per day, to provide a bit of space while starting up.” Work on Meseda has focused on upgrading capacity, bringing in larger submersible pumps and adding another central processing facility (CPF) – in a demonstration of the company’s ability to work on mature assets. Given these increases, and the peaking of production from NW Gemsa, “there’s a significant increase year on year”, Welch said. The company has been focused on completing drilling at South Ramadan and Meseda, he continued, while working on a CPF and pipeline at Disouq. Furthermore, the company is working on seismic in Morocco and Egypt, Welch explained.
SDX’s drilling work at South Disouq had an 80% success rate, he continued, with the disappointment of Kelvin. “Our work has focused on structural traps and this was a stratigraphic trap. We thought the seismic was well calibrated but it has become clear we need to do additional processing,” he said, while noting that the seismic calibration in Morocco was “bang on”.
AfrOil
25 September 2018
SDX spins up in Egypt The junior has lined up a transformative deal in Egypt, writes Ed Reed
SDX Energy came out swinging for the big leagues last week when it confirmed it was in the process of working on a substantial deal in Egypt. On September 20, SDX – in response to rumours circulating in the press – said it was in talks on acquiring a “significant package of assets” in Egypt, from BP. The form of the deal would constitute a reverse takeover under AIM rules, it said, and would require shareholder approval. As such, it was suspended from trading until more clarity was available – either in the form of a new admission document or a decision that the deal was not going ahead. The announcement brings SDX back into the limelight. After a strong showing in the first half of 2018, driven by drilling successes, the company had been having a more low key time of it lately. “The second half of the year has been a bit under the radar for SDX. We’ve been working on moving assets into production and shooting seismic,” SDX’s CEO, Paul Welch, told NewsBase Intelligence (NBI) in an interview in the week before the deal was announced.
BP asset
A Bloomberg report that day, quoting people knowledgeable with the matter, said BP hoped to raise about US$1 billion from the sale of some of its Egyptian assets. This was intended to help finance a deal it was pursuing in North America, where it is buying BHP Billiton’s shale business. In order to help move the SDX sale to completion, the report said BP was offering a loan of about US$300 million, which would be secured against oil produced from the assets. Talking to NBI , Welch explained that SDX had shied away from taking on debt previously because “in a downturn it’s not easy to control one’s destiny”. The company acquired Circle Oil in January 2017. Circle had fallen prey to a squeeze stemming from low oil prices and difficulties in collecting its receivables from the Egyptian government. While Welch still sounded hesitant about taking on debt, he did seem to have warmed to the idea since his last discussion with NBI, in March of this year. The company took a first step in this direction in July, when it secured a modest facility to support infrastructure development in Morocco. The SDX official also warned that banks had been wary of lending to companies working in Egypt’s upstream, because of the receivable problem. At one point, the government is said to have owed around US$7 billion to producers. However, Cairo has made progress in paying this amount down and intends to cut it to zero by the end of 2019. A potential model for the deal is a sale made by BP in November 2017. The super-major agreed to sell some of its North Sea assets to Serica Energy. The deal was innovative in that Serica only put up GBP12.8 million (US$16.7 million) of cash. The price of the assets was set at GBP300 million (US$393 million). ....
redT video: Update on German Grid Project Funding
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Marketing efforts are also paying off. SDX has picked up French car giant Peugeot as a customer in Morocco on a ten-year gas contract, where prices have followed crude and started to edge higher.
Indeed, the only thing not to have picked up recently is the SDX share price, which has left Welch scratching his head a little.
Trading conditions in Egypt have improved markedly he says, with the issue of receivables easing notably in the first half. Money outstanding to SDX halved and authorities in the country have pencilled in a complete clearance of all money owed.
As a result of the improving conditions there is more competition in assets in Egypt as the country becomes a more attractive oil destination, SDX, though, is now looking from a position of strength.
Research house Edison expects SDX’s year-end cash to be in the order of $28.7million, but it is 2019 when the big numbers start to land.
Edison expects 2019 revenues and profit to climb by 55 per cent and 175 per cent to $86.7million and $51.1million respectively.
Net cash, meanwhile, will have risen to $56.5million even after $37million of additional capital expenditure.
That’s a lot of firepower to do deals with, even in a tightening market and SDX must have plenty of credit in the bank for the way it has developed Circle’s assets.
Edison has a share price target of 92.7p per share compared to the current SDX share price of 59.5p.
At that levels, the group’s market value is £123million or about 2.5 times 2019 cashflow.
Even if oil and gas producers are currently being rated below frontier or wildcat explorers, that looks too much of a discount.
Daily Mail Article - SDX
Circle squares the North Africa equation for oil and gas minnow SDX Energy
Even the largest of companies make mistakes with acquisitions, no matter how much due diligence is carried out.
So SDX Energy’s management must have been a little nervous when it acquired Circle Oil two years ago.
Increasingly, though, it is looking like a masterstroke for the AIM-listed oil and gas group
The acquisition was at a time when Brent crude oil prices had slumped from $100 a barrel to under $40 and there was little interest in the oil and gas sector generally, let alone in a small operator focused on Egypt and Morocco.
Trepidation was such that SDX picked up the business for $30million, which was 39 per cent of the value of its debt at the time and an amount its lenders were happy to take.
As part of the deal, SDX also acquired $18.3million of working capital - comprising $1.9million of cash, and $16.4million of ‘receivables less payables’.
Circle brought with it production assets and substantial reserves but there were issues of payment in Egypt and uncertainty over the political situation in North Africa.
But SDX was confident and said it would use the Circle assets as the base to build production up to a 25,000 to 30,000 barrels of oil equivalent daily rate of production that would put it comfortably in the middle bracket of oil producers.
Eighteen months on and those terms look especially generous, something borne out by the fact SDX has not looked back since it completed the deal.
Of course, the recovery in the Brent price back up to $70 a barrel has helped and is something the company could not have predicted, but in things it can influence SDX Energy has been energised.
Paul Welch, the firm’s chief executive, has said the first half of 2018 was exceptionally busy for exploration drilling, with the second quarter alone seeing 23 wells drilled.
Of those, 20 wells were successful and the benefits are now starting to show through in hard numbers.
Interim results to June revealed a 35 per cent rise in net revenues as output rose to 3,234 barrels of oil equivalent per day as wells drilled during 2018 started to come onstream.
Revenues were $24.4million, up from $18million in the same period a year ago, while netback or the amount that feeds back to SDX after all costs, taxes, royalties and so on jumped to $32.91 per barrel from $22.51.
As a result, earnings excluding exploration (EBITDAX) more than doubled to $16.2million.
Net cash generated from operations was also impressive. Inflows amounted to $20.3million compared to $11.1million with $25.2million in the bank at the period end.
The drilling pace will ease in the second half, which should further strengthen the balance sheet as cashflow is running currently at $3.5million-£4million per month.
Production since the half-year has risen to 4,400 barrels per day but Welch is forecasting 8,000 barrels per day attributable to SDX by
Tweets from SAVP
Savannah Petroleum would like to extend an invitation to the Westminster Africa Business Group annual reception to 5 of its retail shareholders #savp #savannahpetroleum #niger #nigeria #wabg
The event will be held in London on 10 September at the House of Commons from 7 – 10pm #savp #savannahpetroleum #niger #nigeria #wabg
Savannah’s CEO, Andrew Knott, will be the evening’s guest speaker, and the event will provide an opportunity to socialise with Savannah’s Board and management team #savp #savannahpetroleum #niger #nigeria #wabg
If you would like to attend, please email omills@celicourt.uk to register your interest. Spaces are limited and will be allocated on a first come, first served basis #savp #savannahpetroleum #niger #nigeria #wabg
Note from Hannam Partners this mornings:
SAVP announced that their Eridal well in Niger has yielded the fourth discovery (100% hit rate) in the campaign. The well hit 13 meters of net light oil pay in good quality reservoir within the primary Eocene Sokor Alternances objective. This makes Eridal the second thickest net pay encountered in the campaign so far after the Amdigh discovery.
Importantly, we estimate that this result takes total discovered resources in SAVP’s blocks to 50-70mmbbls of light oil. This is close to the P50 pre-drill estimates for the 4 prospects in the Alternances objective and enhances the commercial robustness of the project.
The wells are yet to be tested, which we expect take place over the next months. Considering the recently signed MoU with the government of Niger to establish an early production system for the discoveries, we would expect SAVP management to move quickly to try to start commercialising the discoveries before year end. The refinery has spare capacity of 5-7kb/d and SAVP aims to initially truck its production from Amdigh to the processing facilities (some 60km away from the find).
Since the re-listing if the shares (January-18), SAVP has underperformed its Nigerian-focused peers (Lekoil, Seplat & Eland) by 30% and the broader AIM/FTSE oil indices by some 10%, reflecting the protracted completion of the Seven Energy deal.
Given that over the period SAVP has discovered an estimated 50-70mmbbls of oil resources in Niger with a clear commercialisation path, we believe that this has now opened an attractive valuation gap. Assuming the conservative US$4.1/bbl NPV of generic economics for Niger indicated in the CPR based on US$60/bbl oil and trucking into Kaduna (oil prices are higher now and the commercial solution will involve access to third party infrastructure, significantly improving NPV for the project), we could see SAVP’s Niger discoveries so far being worth US$205-287m (19-27p/sh at current FX).
Given the success in the drilling campaign, unsurprisingly SAVP has triggered another rig option to drill the Zomo prospect, south of the Amdigh discovery. While Zomo appears to be an interesting prospect on its own right, we believe that it is key to test the extension of Amdigh to the south.
Meanwhile, SAVP continues to target completion for their Seven Energy deal in Nigeria this quarter. This is probably the most expected piece of newsflows from SAVP and we believe that once this is out of the way, we could see the shares reacting positively and starting to close the valuation gap.
Mirabaud note this morning:
Savannah Petroleum (SAVP LN) announced this morning that it has secured backing from the Niger Government for an Early Production Scheme (EPS) in the Agadem basin.
The company has signed a binding MoU with the Government providing a framework for the early development of oil recently discovered in the East R3 area. As part of the agreement, the Government will facilitate commercial arrangements for: (1) the sale of oil to the SORAZ (domestic) refinery in Zinder - jointly owned by CNPC (60%) and the Government (40%) - which has spare capacity of 5-7 kbopd, and (2) the use of CNPC's 463km domestic pipeline and processing facilities in the Agadem basin. Assuming implementation, this would allow Savannah to truck crude (up to 5-7 kbopd) 60km north to CNPC infrastructure where it would be processed and delivered by pipe to the refinery for a fee. Importantly, under this scheme, Savannah would look to lease much of the surface equipment (initially) - including wellhead facilities - meaning the capital costs involved would be limited to drilling and associated gathering (we estimate ~US$6-7m/well).
In our opinion, the MoU is a clear statement of intent by the Nigerien Government that it is keen to support Savannah in establishing commercial sales as quickly as practicable. We note that the MoU includes a commitment by Savannah to submit a pre-feasibility study within 90 days, followed by a request for authorisation to commence production. Understandably, at this stage SAVP hasn’t committed to timescales to first oil, however, in our opinion it would not be impossible for the first sales before the end of the year (as part of the upcoming well testing campaign). We expect initial volumes to be modest (0.5-1 kbopd) with production ramping up to 5-7 kbopd over the medium term. Assuming a ~US$25/bbl net back (at $70/bbl), our back of the envelope calculation suggests that every 1 kbopd of output might add ~US$9m of annual post-tax CF at current prices.
Today’s news has come faster than most could have expected, with the company only spudding its first well at the end of March this year. Since then it has recorded three discoveries out of three, with results from the fourth well due over the coming weeks. Despite this success, Savannah’s share price continues to languish, in our view due to the length of time that it is taking to close the Seven transaction in Nigeria. We have always maintained that the risks to completing the deal relate to timing rather than anything else, and it is encouraging to read in today’s RNS a brief comment that the transaction remains on track to complete this quarter. With Nigeria completion now in sight and Niger running ahead of expectations, we believe SAVP has all the ingredients for a material re-rate with the stock currently trading at a less than half our Total NAV (66p/shr).
NNPC Signs Agreement with Shell, Seplat, Oando, Others to Implement $3.7bn Gas Projects
https://www.thisdaylive.com/index.php/2018/07/10/nnpc-signs-agreement-with-shell-seplat-oando-others-to-implement-3-7bn-gas-projects/
Mirabaud Securities
10 July 2018
Nigeria’s state oil companies NNPC/ NPDC have sealed a flurry of agreements to develop fallow gas resources as the West African nation seeks to bridge a supply shortage to the domestic market. According to a press statement by NNPC, seven Critical Gas Developments (rumoured to be worth US$3.7bn) have been signed with a variety of Oil Majors and local independents. Interestingly, one the projects is said to involve the expansion of the Uquo gas processing facilities, owned by Accugas, which is in the process of being jointly purchased by Savannah Petroleum (SAVP LN) and PE group AIIM (African Infrastructure Investment Managers) as part of the Seven Energy deal.
The proposed project is expected to involve the development of a cluster of gas fields (containing some 5 Tcf) by NPDC in neighbouring OML13 (see map below) which would deliver incremental volumes alongside the Uquo field itself. Such a move would be in-line with Savannah’s strategy of increasing gas throughput over the Uquo facilities (we note that the cost of any expansion would be fully carried by AIIM under the terms of the Accugas deal with Savannah). It also highlight the potential strategic value of Uquo as a regional infrastructure hub, being the only major gas processing and distribution network in this part of the Niger Delta.
Positive note from Mirabaud today: Following a 6 month absence, during which it secured the RTO (reverse takeover) of assets from Seven Energy, Savannah Petroleum recently returned to trading on AIM. The company bears its old hallmarks, with the Niger exploration assets likely to take centre stage over the coming weeks. However, the business has diversified and matured through the Seven deal. Now the 8th largest London-listed E&P by production volumes, Savannah will boast over 90 mmbbls of 2P reserves, 21 kboepd of net production, and has committed to returning cash to shareholders via a dividend scheme. Lining up alongside the exploration portfolio, Savannah�s new Nigerian assets include stable, low cost oil and gas production, and a carried interest in a major strategic gas processing and distribution network in the southeast of the Niger Delta. Unlike all of Savannah�s Nigerian focussed peers, the portfolio is 90% gas with long term, secure, take or pay contracts (92% of sales are expected to be to investment grade customers). In our mind, this mitigates against the key risks of operating in-country; those being security of payments, and the threat of oil bunkering and sabotage. Crucially, Savannah�s gas sales agreements also allow for a highly predictable cash flow stream, largely insensitive to volatility in commodity prices, which clearly makes budgeting, including returning cash to shareholders, far more straightforward. Importantly, Savannah is now underpinned with cash flow, and benefits from material near term catalysts, which we believe will see the stock recover strongly (today the company is trading at a substantial 27% discount to Core (2P) NAV alone). The dust is now settling on the Seven transaction, and over the coming months trading statements and operational updates should provide confidence in the company�s ability to meet strong cash flow forecasts. On our numbers, Savannah is set to generate US$74m of EBITDAX in FY18, rising to US$125m in FY19 � more than sufficient to support a healthy dividend (a total payout of US$12.5m is intended to be announced later this year, equivalent to a 3.5% yield), as well as capex budgets with respect to production growth in Nigeria and exploration and appraisal in Niger. These filter through to net profits of US$43m in FY18, rising to US$70m in FY19. At today�s share price this is equivalent to underlying EV/EBITDAX ratios of just 4.5x and 2.7x, respectively, and P/E ratios of 9.7x falling to 5.9x, making the stock highly attractive on multiples alone, ignoring any medium term growth and exploration upside. With regards to exploration upside, the back to back drilling campaign in Niger is set to kick off before the end of March, with results due out c.30 days post spud. The campaign is centred in a sweet spot where CNPC has recorded a 93% success rate (higher than its basin wide success rate of 75%), and