The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Savannah made a discovery in all five of its drilled wells at Agadem in 2018, and it is lining up a second drilling programme this year made up of both exploration and development wells.
Howie expects more detailed plans for 2019 in Niger to come soon, but given Savannah has already successfully handed over an early production system pre-feasibility study to the Niger government, he is confident the discoveries can be commercialised.
Shore's forecasts include expected first oil from Niger this year.
These is also the possibility for a farm-out in Niger, Shore's Howie continued, and he believes that sort of arrangement might be the most suitable for Savannah as it would provide the cash to accelerate exploration.
"We had been of the view delivery of deal-related milestones could provide some important event-driven catalysts for investors, and have therefore been slightly disappointed to see the muted share price response following Monday's news," said Howie.
Notwithstanding this, final Seven completion remains the main corporate event for Savannah in the shorter term and we fully anticipate a much higher share price once the deal is done and dusted."
"In the meantime, we have overhauled our models to reflect the final transaction terms and timing and confidently upgrade our risked net asset value estimate to 80p per share from 75p per share. We firmly reiterate our Buy recommendation," he concluded.
Alliance News
TAKING AIM: Savannah Petroleum Passes "Milestone" In West Africa
By George Collard
8 February 2019
Savannah Petroleum has reached a "hugely" important milestone in Nigeria, Shore Capital said on Friday, while there is also promise in Niger.
Shore Capital provides issuer sponsored research on Savannah, and was lead manager on its USD23 million placing in January.
Savannah shares were 1.6% higher on Friday afternoon at a price of 25.10 pence each. The stock is down 5.3% so far in 2019.
On Monday, Savannah announced the signing of an implementation agreement with Seven Energy, which legal aspects and provisions for Savannah's acquisition of some Nigerian assets from Seven.
An amended deal with Seven Energy, announced at the end of December, will see Savannah take 55% of midstream business Accugas, increasing its holding to 75%.
Savannah also is under the new deal to provide a facility of up to USD28 million to Seven Energy.
"In our opinion, signature of the implementation agreement is a hugely important milestone as Savannah progresses towards final completion, providing a legally binding template and securing commitments from all parties to deliver the Seven deal," said Shore's Craig Howie.
"The receipt of ministerial approval is a key next step, and we are confident this will be received timeously, highlighting the fact the ministry has already completed its due diligence and written to confirm its satisfaction with the transaction."
The deal was first announced in June 2017, and Savannah expects it to finally complete in the first quarter of 2019.
Howie, despite the long time-frame, is confident changes made to the deal during the takeover timetable are both "accretive and strategically important", meaning the delays have been for solid reasons.
"With relevant amendments now agreed and incorporated into the implementation agreement, Savannah is firmly positioned to press on with the remaining transaction workstreams, which it describes as being largely legal and procedural in nature," commented Howie.
The amendments to the deal are cash flow and net present value accretive to Savannah, Howie continued, and also grant the firm full control of Accugas.
Shore has made some changes to its forecasts on the back of both the amendments and timing of the deal, saying timing is important as Savannah will be entitled to revenue.
Shore is forecasting revenue of USD186.0 million in 2019, which would be Savannah's maiden revenue. This is expected to surge to USD344.2 million in 2020.
As a result, the broker expects Savannah to swing to a GBP30.0 million pretax profit in 2019 from a USD35.9 million forecast loss in 2018. In 2020, pretax profit is expected to surge to USD106.2 million.
These forecasts also reflect Shore's "very high hopes" for Savannah's operations in Niger, focused on the Agadem Rift basin, given discoveries made and "excellent" drilling results.
Hannam & Partnera - Savannah Petroleum
Implementation agreement signed for Seven deal
Implementation agreement: key milestone ahead of deal completion
Savannah has entered into an Implementation Agreement with Seven Energy. The Agreement is legally binding and details the legal terms and steps according to which the acquisition of the Seven Assets will be implemented and includes various agreed legal documents required to complete the Transaction. It also includes provisions which commit the parties to support and deliver the Transaction. Savannah will also increase the liquidity facility provided to Seven Energy to US$30mm from US$20mm in order to fund advisory fees that come due as a result of signing the Implementation agreement.
Transaction remains on track to close by end Q1’19
The road to the Seven deal closing now looks clear, with remaining steps being largely procedural and subject to a pre-agreed sequence of events, which will now commence. In addition, good progress has been made regarding securing the key Ministerial Consent, which Savannah expects to receive shortly. The Company continues to expect that the Seven Energy Transaction will complete during Q1 2019.
Updating our estimates to reflect recent equity raise
We have updated our model to reflect the recent placing of 62.8mm shares which raised US$23mm in gross proceeds at 28p/sh. We have also removed the dilutive impact of 132mm warrants at 35p/sh, which are now unlikely to convert before expiry. The net impact of these two things more or less cancel each other out and hence our NAV rises slightly to 90p/sh from 89p/sh.
Niger catalysts to watch for: well test and further exploration
The planned well test at the Amdigh is expected in mid-H1’19 meaning subsequent production from the Early Production system should follow in Q2’19 We carry 14p/sh in risked value for the EPS. Further exploration wells (new multi-well drilling campaign expected to commence in H1 2019) and seismic are also likely in 2019, as is the potential to bring in a partner.
Valuation: company remains on a large discount to NAV
We believe Savannah offers a combination of solid free cash flow generation funding cash returns to shareholders, growth from new developments and exploration upside. The company is trading 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 believe that stable cash flow from gas sales in Nigeria, notably underwritten by payment guarantees, including from the World Bank, will unlock material value in the share price.
Mirabaud note on SAVP below.
SAVANNAH PETROLEUM - SIGNED, SEALED, DELIVERED
In a major step forward, Savannah Petroleum (SAVP LN) has announced the signing of the Implementation Agreement with counterparties to the Seven Energy acquisition, including Seven’s main creditors. The agreement is legally binding and sets forth the legal & procedural steps required to effect the transaction – including the controlled insolvency process of Seven and the restructuring of its intra-group debt. Over the past year this agreement has taken on growing importance in the market, since it binds all parties to the transaction, removing any perceived uncertainty around deal execution. Further to signing the implementation agreement, Savannah noted today that it remains confident of completing the overall transaction in Q1 2019. The last remaining step in this hard-won acquisition is Ministerial consent which the company expects "shortly". This rubber stamping process follows extensive due diligence and earlier sign off by the Department of Petroleum Resources (DPR) in October.
Savannah Petroleum: Still an attractive concept
Stock Rating: Overweight
Industry View: Positive
Price Target: GBp 55 (from GBp 38)
Price (29-Jan-2019): GBp 26
Potential Upside/Downside: +111.5%
Tickers: SAVP LN / SAVP.L
We are updating our valuation and financial estimates to reflect the improved structure for Savannah's acquisition of upstream and midstream assets from the creditors of Seven Energy in Nigeria. Our price target increases to 55p from 38p, in line with the change in our tangible NAV that now reflects Savannah's larger stake in the Accugas midstream business – a strategic asset within the company's gas monetization plans. We continue to rate the stock Overweight, but our analysis comes with the caveat that it remains largely conceptual ahead of deal completion.
Nigeria: The acquisition from the creditors of Seven Energy was announced in November 2017. Subsequent transactions with its new partners have enhanced the value of the business being acquired, but have also contributed to a prolonged deal completion process that is now scheduled to conclude by end-Q1/19. At this stage, any analysis of the Nigerian gas business is largely conceptual – Accugas owns a regional gas pipeline distribution network and its three Gas Sales Agreements (GSAs) provide contracted demand of 1.1Tcf, which is currently being supplied by Savannah's own upstream assets (0.9Tcf of 2P+2C). Longer term, these GSAs (and new GSAs) can be supplied by the multi-Tcf uncontracted resource in the region that Savannah can seek to acquire and develop. We believe it is likely to take 6-12 months after deal completion for Savannah to begin demonstrating the cash flow generation of the existing operations and start delivering on its growth ambitions – converting Heads of Terms into new GSAs and securing additional upstream gas resources.
Niger: The current focus is on converting 2018 exploration success into a ~50mmbbl Early Production Scheme (EPS) supplying the country's Zinder refinery. Management aims to begin commercial oil sales during H2/19, ramping up to 5kb/d. Further exploration success in 2019 could support an expansion of the scheme to ~10kb/d.
Equity raise: Last week, Savannah raised gross proceeds of $23m at 28p/shr. This satisfies working capital needs arising alongside the prolonged completion schedule in Nigeria. A further ~$90m cash injection that comes with deal completion should be sufficient to fund management's 2019 investment activity in both Nigeria and Niger.
SAVANNAH PETROLEUM – A BRIDGE TO COMPLETION
Savannah Petroleum (SAVP LN) has announced a US$23m equity placing at 28p in order to boost its working capital position ahead of closing the Seven Energy transaction. Whilst a raise had not been foreseen, the level of dilution is very modest (7.7%) and, most importantly, it keeps the company on track to deliver key near term milestones. US$6.5m will be used to pay legal fees on the Seven transaction, clearing the path for the Implementation Agreement to be signed by end of January and closing by end March - once the formality of Government approval is complete (we note that all DD is complete and sign off from the Department of Petroleum Resource has already been granted). A further US$13m will be allocated to Niger including a down payment for a drilling rig for the forthcoming multi-well programme starting in Q2 2018, with the remainder (US$3.5m) set aside for working capital. We note that Directors of the company, including the CEO Andrew Knott, have subscribed to ~US$750k (equivalent to 3.3% of the gross proceeds).
?In essence, the equity raise comprises bridge funding through closing of the Seven transaction, whereupon SAVP will be in a significantly better liquidity position. Following the recent improvement of the deal terms, announced in December, SAVP will receive a cash injection of some US$90m on completion (including US$70m from partner AIIM). In addition, following the legal transfer of ownership, SAVP will assume control of Seven's cash flow stream transforming the company into a full cycle E&P with over US$170m of EBITDA in year 1 (FY19 pro-forma estimate). Far from being capital constrained, we believe that SAVP will be in a position to consider shareholder returns at this point. Indeed, the company is likely to reaffirm its intention to paying a dividend alongside its FY18 results in May (we forecast a CY19 US$12.5m dividend pay-out in, implying a yield of 3.9% at the placing price).
Mirabaud - Savannah Petroleum
GETTING MORE FOR LESS
Following news in December of further positive changes to the Seven Energy transaction we are upgrading numbers on SAVP. Our EBITDA estimates for FY19 & FY20 rise 79% & 81%, respectively, to US$173m & US308m, reflecting SAVP’s enlarged 75% share of cash flows and full consolidation of Seven into SAVP’s financial accounts. In parallel, under the revised structure, our Total NAV increases 24% to 89p/shr, suggesting fair value approaching 3x the current share price. With the Seven deal now in final form and expected to close this quarter, in our opinion, the scene is set for a material re-rating in the near-term. Accordingly, we maintain our BUY recommendation with a refreshed target price of 89p/shr – up from 72p/shr previously.
Revised terms deliver control of infrastructure and equity alignment: through a series of deal modifications agreed with PE partner African Infrastructure Investment Managers (AIIM) SAVP has recast the terms of the Seven Energy acquisition. The revised structure will see SAVP acquire an incremental 55% of Accugas and in parallel divest 25% of the Uquo gas field, resulting in SAVP owning 75% of Seven’s midstream (Accugas) and upstream (Uquo gas) units, and AIIM the remaining 25%.
Through increased ownership of Accugas (20% to 75%), SAVP gains control of a key piece of regional infrastructure which acts as the gateway to energy hungry gas customers in southeast Nigeria (see Accugas’s pipeline network in map in Figure 4, below). In our view, this is key to capturing the longer term growth opportunity around consolidating stranded gas resources (estimated at >40 tcf in the wider area), tapping into new regional power stations (such as Alaoji) and supplying high-paying industrial customers (currently burning diesel for an equivalent cost of >US$10/mcf – versus Accugas’s current weighted average sales price of US$3.5/mcf). Furthermore, equity alignment across Seven’s integrated gas business ensures the wider operation can be run as efficiently as possible.
AIIM cash consideration boosts liquidity and supports our wider valuation case: in consideration for its 25% stake in Seven’s Uquo and Accugas assets, AIIM has agreed to pay SAVP US$70m in cash on deal completion. This provides SAVP with a fresh source of liquidity coming out of the deal, bolstering the group’s finances and providing growth capital for Nigeria and/or Niger. Furthermore, by paying US$70m for 25%, AIIM has in effect franked the value of SAVP’s Accugas and Uquo stakes at US$280m/21p (including US$70m of cash receipts). This compares to SAVP’s current share price of 31.5p – implying little value for the Stubb Creek field (in Nigeria) or the potential in Niger. To put this in perspective, our aggregate NAV for the Niger portfolio and Stubb Creek field stands at 36p risked.
Link to Vox Markets interview with Andrew Knott, CEO of SAVP. Section starts at 1:16.
https://audioboom.com/posts/7124301-savannah-petroleum-savp-w-resources-wres-and-chris-bailey-on-2018-s-winners-and-losers
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All - please see below a link to an interview of Andrew Knott, CEO of SAVP, and Malcy on Core Finance TV.
https://www.youtube.com/watch?v=KCQYoeAuEww&feature=youtu.be
Bigger piece of the pie
Savannah Petroleum (SAVP LN) has published a positive update on the Seven Energy transaction, unveiling substantial improvements to the deal. As well as being materially cash flow and NAV accretive, the agreed changes deliver control of the gas value chain and a substantial cash injection upfront.
Revised structure: SAVP will acquire an additional 55% of Accugas lifting its interest in Seven’s midstream arm to 75% – from just 20% previously – for nil cash consideration. Importantly, this gives SAVP control of a key piece of regional infrastructure which acts as the gateway to energy hungry gas customers in southeast Nigeria. In conjunction, SAVP will sell 25% of the Uquo gas field and Accugas to AIIM for US$70m in cash, aligning its interests across the upstream and midstream divisions at 75%. Valuation wise, the deal franks the value of Seven’s integrated gas business at US$280m (gross) – versus SAVP’s market cap of ~US$250m – implying little if any value for the Stubb Creek field or the potential in Niger. To put this in context, our risked NAV for the Niger portfolio alone stands at US$373m.
All - please see below a link to an interview with Paul Welch, CEO of SDX Energy, and Malcolm Graham-Wood of Malcy's blog.
https://www.youtube.com/watch?v=e_rACRodxUU&feature=youtu.be
Interview with Paul Welch, CEO of SDX Energy, now up on Proactive Investors.
https://www.proactiveinvestors.co.uk/companies/stocktube/11315/sdx-energy-seeing-the-benefits-of-both-high-production-and-higher-prices--11315.html
Savannah Petroleum (SAVP LN) has announced an update on the Seven Energy transaction in Nigeria, confirming that it is seeking further positive amendments to the transaction terms following the buy-out of minority partners in the Uquo and Stubb Creek fields. These discussions are not expected to impact the final completion date - still seen in Q4 2018 - however, the Implementation Agreement will not be signed until the amendments are agreed and announced (missing the company's October target). Though the update is light on detail (for understandable reasons), SAVP notes that the amendments are in the group's immediate commercial interests and are expected to significantly enhance its competitive position in Nigeria, suggesting that shareholders will end up with a better deal than before. We understand that talks are close to being consummated with the company hoping to report progress within the next week or so.
Savannah Petroleum ↑ (SAVP.L, 31p, £253m) said that the acquisition of Seven Energy was progressing, although the company is now seeking to amend some of the terms of the deal following the recently announced deals with Frontier oil (a gas for oil swap) and buyout of Universal Energy’s minority shareholders. These amendments will be in SAVP’ favour and will improve the metrics of the transaction and position in Nigeria. Whilst the extension of the acquisition time is somewhat frustrating, we can’t fault Andrew Knott for squeezing more value out of the deal, which will ultimately add more value to SAVP. Positive
All - please see below a link to the presentation Andrew Knott, CEO of SAVP, gave at London South East last night. Andrew's section starts at 26:00.
http://www.lse.co.uk/media/london-south-east-oil-and-gas-investor-evening-malcy-echo-savannah-sdx.html
Savannah Petroleum PLC - Update on Seven Energy Transaction The Nigerian Department of Petroleum Resources, the Company is pleased to confirm that the DPR has informed Savannah that it has now completed its due diligence in relation to, and is fully satisfied with, the Transaction. Following submission of the revised terms of the Transaction detailing the additional acquisitions, as announced by the Company on 20 September 2018, to Further, the application for Ministerial Consent for the Transaction is currently being processed with the DPR for further transmission to the office of the Minister of State for Petroleum Resources for final approval. As per the announcement on 20 September 2018, the Company continues to anticipate that the Implementation Agreement will be executed by the interested parties by the end of October 2018. Savannah therefore continues to expect the Transaction, including the Ministerial Consent process, to complete during Q4 2018. This is good news for Savannah and as whilst waiting for the Seven Energy transaction to close, the market has grown impatient, leading Savannah to now trade at a ~64% discount to our risked NAV of 80p/sh. We believe the market is pricing a large discount on the closure of the Seven deal in Nigeria as we carry >40p/share of core value from Uquo, Stubb Creek and Accugas Midstream.
SAVANNAH PETROLEUM - NIGERIAN DPR SIGN OFF Savannah Petroleum (SAVP LN) has announced a positive update on the Government approval process relating to the Seven Energy transaction taking the group a step closer to completion. Following the recently announced deal changes involving the buy-out of minority stakes in Uquo and Stubb Creek, the Department of Petroleum Resources (DPR) has informed SAVP that it has completed its due diligence and is satisfied with the transaction. Accordingly, following due process, the DPR is preparing an application for consent with the Minister of State for Petroleum Resources for final approval. In our view, securing the blessing of the DPR is a clear indication of the direction of travel and we believe that ultimate sign off from the Minister is essentially a formality at this point. Alongside progress on the Government approval front, SAVP also reiterated this morning that it expects to sign the implementation agreement later this month, allowing the transaction to close in Q4, as per earlier guidance.
Barclays - Savannah Petroleum Becoming more tangible Operational progress for Savannah has accelerated recently, which we believe can kick-start the investment case centered on its exploration successes in Niger and its gas monetization strategy in Nigeria. Detailed plans for the Niger Early Production Scheme underpin its addition to our increased 43p/shr tangible NAV and price target (from 38p). In Nigeria the extended wait for completion of the Seven Energy acquisition has not prevented Savannah making progress in its search for new domestic gas customers and tidying up the ownership structure of the assets being acquired. We rate the stock Overweight and see potential for further tangible progress to help de-risk some of the upside potential in both countries and drive a 65-70% increase to our 2020-21E post tax operating cash flow estimates. Cash flow from Niger on the horizon: Savannah intends to quickly convert test production at its Amdigh-1 discovery into a commercial Early Production Scheme (EPS) selling an initial 1kb/d domestically from early 2019, rising to 5kb/d by year-end. The plan commercializes ~50mmbbls. With flow tests and regulatory approval hurdles to pass, we risk our valuation of the EPS at 67% and do not include it in our financial forecasts yet, but we estimate 5kb/d of production from late 2019 could add $55- 60m/year to our post-tax operating cash flow estimates for the company. Focusing on Nigerian domestic gas opportunities: Low-cost transactions with its partners on the Uquo and Stubb Creek fields increased Savannah’s ownership of the gas resources at both fields. This fits with the company’s pursuit of new higher-price gas demand from industrial consumers close to its current distribution network. Heads of Terms have been signed with 3 new customers in the Calabar area, which would justify a new 20Mcf/d pipeline extension that can be operational from early 2020. Such deals could accelerate the development of Savannah’s ~370Bcf of net 2C resources. Funded through 2019: We are confident that Savannah is funded through 2019 by which point it should be generating robust free cash flows from Nigeria and Niger. The new $50m 3-year debt facility provides an alternative to the $63m of gross proceeds that could come from exercise of the 35p/shr warrants that expire in February 2019.
https://audioboom.com/posts/7034462-savannah-petroleum-savp-block-energy-bloe-and-audioboom-boom