The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
All - please see below a link to Chariot's CFO speaking to Proactive.
https://www.proactiveinvestors.co.uk/companies/news/951005/chariot-oil--gas-announce-completion-of-acquisition-of-africa-energy-management-platform-951005.html
Proactive interview with Adonis Pouroulis, Acting CEO of Chariot. Link below:
https://www.proactiveinvestors.co.uk/companies/news/950443/chariot-oil--gas-ceo-says-117mln-fundraise-is--key-turning-point-in-the-evolution-of-the-company--950443.html
All - just saw an interview with Adonis on this morning's announcement.
https://www.brrmedia.co.uk/broadcasts-embed/604f3b8d1e24d464e23ee271/chariot-transitional-energy-building-an-african-transitional-energy-group/?popup=true
An interview with Chariot CFO, Julian Maurice-Williams, on the Gas Market MOU can be found on Proactive Investors.
https://www.proactiveinvestors.co.uk/companies/news/942668/chariot-cfo-julian-maurice-williams-on-the-gas-market-mou-with-ministry-of-industry-in-morocco-942668.html
Morning all - just in case people missed it - Julian Maurice-Williams, CFO of Chariot Oil & Gas, where he talks about the collaboration with Subsea Integration Alliance to fast track the Anchois Gas Project.
https://www.proactiveinvestors.co.uk/companies/news/941877/chariot-sign-collaboration-with-subsea-integration-alliance-to-fast-track-anchois-gas-project-941877.html
A new finnCap note out today ("2021 Best Ideas") which names Savannah Energy as finnCap's top pick in the energy sector in 2021.
In the Energy sector, our top pick for 2021 is Savannah Energy (Corp, pt 52p).
Savannah’s acquisition of a key strategic Nigerian gas asset with strong growth potential has been ignored by the market. We believe delivery of the strong free cash flow potential these assets offer will re-rate the shares, which are materially undervalued.
As part of the Nigerian acquisition, management secured a World Bank partial risk guarantee for its main gas sales contract, completely transforming the credit risk profile of the business. Its three gas sales contracts guarantee minimum take-or-pay gas volumes for more than a decade, are priced in US$, have no oil price linkage and inflate by an average 6% annually for the next few years.
They underpin and give strong visibility to contractual revenues of US$200-250m+ p.a., which we forecast will drive cash flow of US$140m+ p.a. Even accelerating debt repayments, we estimate Savannah can generate a 20%+ free cash flow yield.
Savannah’s recent financial and ops update showed continued strong progress. Cash collections to the end of November were up 32% y/y to US$164m and management reiterated its 2020 total revenues guidance of US$200m+. Admin and opex guidance has been cut by another US$25m, to US$45m. Net debt fell further, to $420m. Despite this, Savannah’s risked-NAV valuation sits at the bottom of its peer group. Continued delivery of the potential within its Nigerian gas business, should re-rate the shares materially in 2021.
Interesting to see that the Company plans to host an investor presentation (the below is taken from today's RNS):
Given recent investor interest, Woodbois will host a webcast on Wednesday 9th December at 10.30am UK. The webcast will be hosted by Paul Dolan, Chairman and CEO, and will include a brief presentation recapping on progress made during 2020 and looking ahead to 2021, followed by a Q&A session. No new material information will be provided. The session can be accessed on the Investor Meet Company platform. People wishing to join are requested to register in advance
https://www.investormeetcompany.com/woodbois-limited/register-investor
All - please see below from Mirabaud this morning.
Savannah Petroleum (SAVP LN) has announced that Accugas, its Nigerian midstream arm, has entered into a fresh gas sales agreement (GSA) with a subsidiary of Sahara Group - owner of the 180MW Afam power plant in Rivers State. Sahara is a major independent energy and infrastructure conglomerate with annual revenue of >US$10bn. The agreement is part of a broader push by SAVP's to add high quality, investment grade customers and diversify its supply base.
The GSA envisages the supply of up to 35 mmscf/d (5.8 kboepd) of gas from the Uquo field to the Afam power plant, which is linked to Accugas infrastructure via the state-owned Nigerian Gas Company's (NGC) Ikot/Obigbo network. Importantly, as no incremental capex is required to supply the gas, first deliveries can be achieved in the relatively near-term - once Sahara has finalised tariff arrangements with NGC to move the gas over its pipeline network. The gas is being supplied on an "interruptible" basis, which means SAVP can tweak deliveries dependent on demand under its existing supply arrangements. Likewise, Afam has the option to take as much or as little gas as it wishes, dependent on plant utilisation (historically ~70%). The GSA is valid for an initial one-year term (extendible by mutual consent) and has the potential to be up-sized, following completion of a 180MW expansion project at Afam (now underway). This represents a major new incremental supply opportunity. SAVP notes that the GSA "augments the weighted average profitability of the Accugas portfolio", though the sales price is undisclosed for commercial reasons.
We estimate that the Afam gas contract could be worth around US$25m annually (in post-tax CF), assuming ~70% capacity utilisation and similar margins to SAVP's base integrated gas business. To put this in perspective, our group-level FY20 post-tax CF forecast currently stands at ~US$100m, based solely on existing contracts (141 mmscf/d of Take or Pay volumes, maintenance adjusted). Accordingly, today's news is materially accretive and demonstrates the value of layering in new gas contracts.
Following completion of the Seven Energy deal last month, Savannah Petroleum (SAVP LN) has announced a welcome update on its newly acquired assets in Nigeria and fresh CPR numbers. According to reserve auditor CGG, the Nigerian assets hold 99.6 mmboe of gross 2P reserves (71.0 mmboe net to SAVP) - broadly the same as the Dec 2017 CPR (after adjusting for interim production) - worth US$957m net to SAVP's including value attached to the Accugas midstream business (under a take or pay / ToP scenario and contracted gas prices). To put this in perspective, SAVP has an EV of ~US$670m at today's share price, implying zero value for the group's promising assets in Niger (which we value at US$360m/25p risked). Meanwhile, projected FCF in Nigeria is seen climbing from US$104m in 2020 to US$141m in 2022, according to GCC, reflecting a combination of higher sales volumes and rising gas prices - not dissimilar to that envisaged last time around.
Alongside the revamped CPR, SAVP also provided a window into the performance of the Nigerian assets in 2019, which is arguably the key piece of news in today's announcement. Gross production year to date has averaged 17.3 kboepd, broadly flat on the last reported numbers for Jan-April 2019 (17.7 kboepd), but up strongly on 2018 (+33%). This includes gas production of 87.8 mmscf/d which is still some way below ToP levels (129 mmscf/d), although we expect alignment following the connection of the Alaoji power plant in Q1 2020. Importantly, SAVP continues to be paid for ToP volumes as per its gas contract terms, with the group expecting cash receipts of US$190m for 2019. On the back of strong FCF positive, we note that the business has been able to pay off meaningful amounts of debt in the past year. SAVP anticipates debt reduction of US$40m in 2019, with the Nigerian unit closing out the financial year with outstanding debt of US$511m and cash of at least US$15m. This implies net debt at the Nigeria level of US$397m to SAVP’s 80% interest, compared with own YE19 estimate of US$384m, so not markedly different to what we were hoping for.
Looking ahead, the scene is set for a ramp up in cash flow in Nigeria, in line with the group's business plan. The company expects to spend US$41.5m of capex in Nigeria in 2020 as it looks to build up production capacity behind pipe in advance of higher off-take volumes. We note that, up until SAVP assumed ownership of the Seven assets, its ability to secure new gas customers in Nigeria has been constrained and, with the shackles now removed, we see the potential for rapid progress on this front in the months ahead. Overall, today's news serves as a timely reminder of the value proposition and cash flow potential of the Nigerian assets, with the ink only just dried on deal completion.
SAVANNAH PETROLEUM (PT 41p/sh) – Nigeria reserves report publication – positive. Savannah have published an updated CPR (competent persons report) for its recently acquired Nigerian assets – the Uquo gas field, the Stubb Creek oil and gas field and the Accugas gas pipeline line network. The key points are positive: 1) Gross 2P reserves of 99.6mmboe are optically in-line with our published figure of 99.6mmboe, but in reality are higher that our figure since our number refers to an end 2018 estimate, whereas today’s published figure is as of Dec 2019. Adjusting for 2019 production, the published reserve figure of today is ~6% higher than we expected, (due in part to client underlift). 2) The reserve auditor has made an NPV10 (i.e. using a discount rate of 10%) estimate for the assets of $1.2bn on a gross basis, and $924m net to Savannah. Own calculation of $867m uses a higher discount rate (15%) and higher oil price assumption but is close enough to give us confidence that our modelling is sensible and that no major changes have occurred in the revenue, cost and capex outlook for the assets since the Dec 2017 original announcement. 3) The auditor has also provided FCF generation forecasts (for the Nigerian assets) that average $130m p.a. from 2020-23 assuming minimum contract quantity gas sales. This is consistent with our own forecasts after adjusting for our higher gas sales forecast (mid-way between min and contracted quantity) and our higher oil price assumption. 4) Gross production of 17.3kboe/d ytd in Nigeria, with 88mmscf/d of gas production, consistent with our expectations. 5) 2019 will see a $40m reduction in Nigeria level total debt and the Nigerian Assets will have at least $15m cash by year end. 6) Capex plans for Nigeria in 2020 are for $41.5m worth of gas well drilling and workover on the Uquo field, to ensure adequate deliverability is in place for an expected 1H 2020 production increase to supply a new contract at the Alaoji power station, and also to supply aspired for new smaller scale (but higher unit value) industrial customers. This is higher than we had modelled but is a clear positive for medium term gas sales. Valuation: Our 41p/sh Discovered Resource NAV is almost double the current 21p share price (using 15% WACC) and even at a more conservative $50/bbl Brent, this NAV would still be 34p/sh, with significant further upside. We think today’s CPR underscores that the newly acquired Nigerian assets are generating significant cash flows, are paying down debt and have plenty of near and medium term scope to grow volumes.
SAVANNAH PETREOLEUM (BUY, PT 41p) Completion of Seven Energy Transaction – Positive. Savannah has announced the completion of its acquisition of assets from Seven Energy this morning. As expected, SAVP has received $54m from AIIM (African Infrastructure Investment Managers) and SAVP will receive a further $20m from debt holders (in return for the 26.6m new shares issued). As discussed in detail in our initiation report (17 Sept 2019) SAVP gains control over a Nigeria ~20kboe/d integrated gas position (with oil production also) that is defensive against oil price changes and has significant growth opportunities based around leveraging its high barrier-to-entry infrastructure position that is uniquely placed to monetise large amounts of nearby onshore gas. 116.6 million new shares have been issued as part of the transaction as expected and application to AIM has been made for 90.66 million shares to start trading, which is expected to become effective on 18th Nov, with the remaining 25.9 million expected to be admitted around 21st Nov. We already include this increased diluted share count in our NAV calculations. Deep value...: Our 41p/sh Discovered Resource NAV for Savannah is still ~50% above the current share price (using 15% WACC and $75/bbl) and even at a more conservative $50/bbl, this NAV would still be 34p/sh, with significant further upside: we see material further potential valuation upside from: 1) de-risking 1bn bbls of Niger prospects (worth an estimated 115p/sh on an un-risked basis); and/or, 2) from increasing Nigeria downstream gas sales via the currently under-utilized Accugas pipeline network, worth up to another 31p/sh.
Mirabaud Research - SAVANNAH PETROLEUM: SEVEN TRANSACTION COMPLETION
In arguably its biggest achievement to date, Savannah Petroleum (SAVP LN) has announced the completion of the Seven Energy transaction in Nigeria, transforming the company into a major full cycle E&P. The principal assets acquired from Seven comprise the Uquo gas field and Accugas processing facilities & pipeline infrastructure, which are owned 80% by SAVP and 20% by AIIM, the African infrastructure fund. This substantial, integrated gas project contains ~96 mmboe of gross 2P reserves and currently delivers ~150 mmscf/d (25 kboepd) of gross gas (take or pay volume) from the wellhead to end user. On top of the Uquo field, the company also has a 51% stake in the nearby Stubb Creek field, in partnership with Sinopec. This asset is currently producing small oil volumes but has a significant untapped gas resource which will be used to backfill the Uquo field. Broadly speaking, SAVP’s strategy in Nigeria is to ramp up gas volumes under its existing contracts and add new high value industrial users which are currently burning diesel at a gas equivalent of >US$10/mcf. As the only significant gas infrastructure owner in the Calabar region the company is ideally placed to deliver on this promise.
Looking Ahead, we estimate that SAVP will generate revenue & EBITDA of US$235m & US$174m in FY20 – the first full year of Seven ownership. Nigeria FCF will be funnelled into organic growth projects and debt repayment, allowing the business to rapidly de-lever (inherited Nigeria net debt ~US$480m). Further enhancing SAVP’s liquidity position, the company has sold 20% of Uquo and Accugas for US$54m in cash to AIIM, effective on closing. It has also received US$20m in cash via an equity injection by former Seven SSN holders. Whilst part of this cash inflow will be used to satisfy Seven related costs (Frontier swap, Government transaction tax, payables etc) the company will have sufficient liquidity to restart operations in Niger where first oil and further exploration drilling is on the cards for H2 2020. In summary, the stock remains cheap – trading at less than one-third of our Total NAV (94p) – and with the Seven deal closed, we believe the scene is set for a re-rating as the business plan unfolds.
Savannah Petroleum (SAVP LN) has announced that it has completed the financial restructuring part of the Seven Energy Transaction – satisfying the last material commercial condition precedent in relation to the deal. This allows the company to commence the final transaction completion process – a purely procedural exercise which will finalise the transfer of the Seven assets into Savannah-controlled subsidiaries. The completion process includes a UK court hearing, which has been scheduled for next week (13 November). Savannah is understandably not guiding on expected timescales, however we believe that the deal is now likely to be fully wrapped up by the end of this month.
Savannah, therefore, is on the cusp of completing its evolution into a material, full-cycle E&P, which will also trigger the cash injection of US$74m into the company. Post-completion, we estimate 2020 production of c.25 kboepd, which will generate some US$174m of EBITDA. Based on DCF analysis, we calculate a Total NAV for the company of 94p/shr, which, compared to today’s 24p share price illustrates the potential upside, once the full value of its portfolio is recognised by the market.
Mirabaud note on SAVP announcement below.
Savannah Petroleum (SAVP LN) has announced the key news of the receipt of Ministerial consent for its acquisition of Seven Energy. Savannah has received a letter from the Department of Petroleum Resources, stating that President Buhari has signed off on the transfer of the Seven Assets to Savannah, giving the green light for the company to start tying up the final loose ends of the transaction.
We understand that the Savannah/Seven deal is the first major transaction to be granted approval by the new Government, speaking volumes of the significance of the deal in Nigeria, and its support at the highest level. Ministerial approval allows Savannah to start the final process of closing the transaction, which will involve legal execution of the transaction completion mechanics which were set out in the Implementation Agreement (i.e. the processes which were legally binding, but conditional on Ministerial Approval). We expect these processes to take a matter of a couple of months to complete, and expect that Savannah will provide updates on any further completion milestones in due course.
With the receipt of Ministerial consent, we believe today should mark the start of a re-rating to our fair value target price of 81p/shr. We value Savannah’s Nigeria portfolio alone at 56p/shr (risked), net of debt and other corporate items – this alone is a 4.5x multiple of the current share price. Completion of the deal will also allow for Savannah to recommence its activities in Niger following the Company’s five back-to-back discoveries made last year, with the Amdigh well test first up. The Niger portfolio is worth another 29p/shr (risked) on our numbers, illustrating the scale of upside from today’s levels. As a reminder, we expect completion of the transaction to trigger a cash inflow in the region of US$75m, followed by returns to shareholders commencing next year, either in the form of share buybacks, or a dividend programme.
SAVANNAH PETROLEUM – FY RESULTS & OPERATIONS UPDATE
Savannah Petroleum (SAVP LN) has announced an update on the Seven Energy transaction this morning, alongside publication of its FY18 results. Citing 'good progress' on all aspects of the Seven deal, the group has successfully closed the acquisition of minorities’ interests in UERL (for US$3m in cash) – the local subsidiary holding Seven's interests in the Stubb Creek oil field?. In terms of the wider Seven transaction, the company reiterated that it expects completion in Q2, subject to final Government approval. We note that, following Nigerian elections in February, President Buhari was inaugurated this week which should see Government business gradually return to normal.
The FY18 ?numbers themselves are a non-event, with the face of the P&L reflecting a mix of G&A and transaction costs, culminating in a reported loss of US$24.6m - similar to the prior year. Financially, following the US$23m equity raise in Feb 19, the company remains well funded through to transaction completion. Notably, the company reiterated its intention to return capital to shareholders in 2019, either through a dividend and/or share buy-back. Once the Seven deal has completed we expect the group to flesh out the quantum and type of distribution (prior guidance was for a maiden dividend of US$12.5m).
Operationally, the Nigerian portfolio ?is performing well. Production in 2018 averaged 13 kboepd and this has increased to 17.7 kboepd year to date, largely as a result of higher gas deliveries to the Calabar power plant. Over the course of 2019 we expect volumes to trend towards take-or-pay levels (25.3 kboepd), with the addition of gas supplies to the Alaoji power plant. In Niger, meanwhile, activity is seen ramping up in H2 2019, with first oil from Amdigh-1 and the start of a multi-well exploration programme, potentially alongside a partner. Overall plenty to look forward to over the next 6 months.
In our minds, SAVP shares have been unfairly marked down by perceived risks around the Seven transaction, creating an attractive entry point for investors. At current levels, the stock trades at a hefty 80% discount to Total NAV, with Niger alone (worth 27p/shr, risked) more than underpinning the current share price. With today's news providing comfort that the group is in the final throes ?of closing the deal, we don’t think that the shares won't stay here for long once Presidential sign off inevitably arrives.
All - please see below a link to an interview of Paul Welch, CEO of SDX Energy, and Malcolm Graham-Wood, Malcy's blog, on Core Finance TV.
https://www.youtube.com/watch?v=BoVz143iiRI&feature=youtu.be
Savannah Petroleum (SAVP LN) has announced submission of a feasibility study for its R3 East early production scheme (EPS) marking an important procedural step forward to first oil in Niger’s Agadem basin. Under the proposed plan, oil will be trucked 120km north from the Amigh-1 well to CNPC’s domestic pipeline and then onto the Zinder refinery for sale. The well test at Amigh-1 is expected to commence in mid-2019 (vs. early guidance of Q2 2019), to allow time to configure the wider 2019 E&A drilling campaign, with initial production ramping up to ~1 kbopd. As part of the second phase of the EPS, SAVP is planning to tie-in additional discoveries with a view to expanding production to ~5 kbopd (alongside construction of a dedicated pipeline link to alleviate trucking). As a rough rule of thumb, at current oil prices, every ~1 kbopd of production should generate ~US$10m of post-tax CF.
Hannam & Partners – Oil Daily Download
BUYING OPPORTUNITY - Today's news of a result in the Nigerian election, Buhari winning a second term, and the scheduling of the General Meeting to complete the final shareholder approvals of Seven deal (as above) we fully expect Savannah to continue to move to the final stages of completion of the Seven Energy deal. As a result of the new structure of the deal announced in December, we upped our risked NAV to 89p/sh.
Savannah stock trades at 50% discount to our core NAV of 55p/sh. SAVP is trading on relatively low cash flow multiples already in 2019 before substantial growth in earnings and cash flow in 2020 puts it on very low multiples (e.g. EV/EBITDA multiple of 4x in 2019, dropping to just 2.5x in 2020). We also note that the valuation of Uquo/Accugas has virtually no exposure to oil prices since contracted gas prices are escalated by some 6% p.a..
Morning all - please see below from Mirabaud this morning.
It emerged overnight that the incumbent Nigerian President Muhammadu Buharia had won a second term at the helm of the country. The elections were billed as being too close to call, however the winning margin ultimately was wide, with almost four million votes separating the two leading parties. We see the result as positive for E&Ps operating in Nigeria. A decisive victory either way is key to ensuring stability in the aftermath of Nigerian elections, and Buhari’s second term mitigates against any risk of sweeping changes to the Ministry. We therefore expect the likes of Seplat (SEPL LN), Eland (ELA LN), Lekoil (LEK LN) to react positively to the news. It is arguably Savannah Petroleum (SAVP LN), however, which will be most encouraged by the result, with its reverse takeover of Seven Energy in its final throes now effectively awaiting just Ministerial approval. Yesterday, in a largely procedural RNS, the company reaffirmed its expectation that the transaction will complete on or before the end of March, and with the election result going in Savannah’s favour, the risks to this timescale have further reduced.
Morning all - please see below Mirabaud's comment on this morning's Savannah Petroleum announcement.
Savannah Petroleum (SAVP LN) has announced that the 133m warrants issued as part of the US$125m equity raise in late 2017-18 have now expired. The 12 month warrants were issued in February 2018, and had an exercise price of 35p/shr. The company no longer has any warrants outstanding, with the only dilutive instruments being employee incentive options. In our opinion, expiry of the warrants removes a perceived overhang in the market, clearing the path for the shares to move up through 35p/shr. Furthermore, whilst there will be no cash inflow from the warrants, the company remains well funded with US$23m of fresh equity raised in Jan and a further US$90m of cash due on completion of the Seven transaction in Q1 2019.