Member Info for ZENGAS

From the recent Save 'Cash Machine' note

"As management delivers on the potential contained within its Nigerian gas business, we expect the shares to re-rate materially. Management will be in a hurry to drive this process too. A lot of acquisition oportunities are emerging in Africa either via the majors non core disposal programmes or distressed companies, with little competition for the assets. This is a strong and ambitious management team that wil want to be part of this M&A wave. To participate, especially if it uses equity, Savannah needs to improve its rating."

By the end of next year the expectation is that they will have reduced net debt by some $200m - an overall reduction of nearly $300m since the actual Accugas deal. This is based only on the 3 existing contracts so if the additional contracts kick in it will significantly improve this figure.

I beleive they will target production assets that will be cash producing from the outset and capable of servicing any possible debt (like the Accugas deal). There's the possibility to add material production and reserves. Anyone thats followed my posts - i've said before we could more than match some of the biggest producers but be one of the very lowest in terms of debt and have much better material growth prospects.
Kosmos has recovered to £800m m/cap with some 60-65,000 boepd and $2b of net debt.

We are doing $200m+ via Accugas and some 20,000 boepd and potential to double/triple over the longer term with electricity growth (Actual p/line capacity is 100,000 boepd).
Niger phase 1-2 is expected at 5,000 bopd.
Pipeline export should be a minimum 10,000 bopd.
Quite possisble that like the Accugas deal they could pick up 10-20,000 boepd of new production.

Like it or not, that's their strategy so don't say you aren't aware of it or taken by surprise when they announce an acquisition. A marginal field imo doesn't entirely fit that bill. There's expected to be many major divestments both in Nigeria and eleswhere. They've been looking at opportunities and were reported as in the running for Occidental's Ghana assets.

"There are three principal areas of growth that Savannah is actively pursuing:

increasing infrastructure capacity utilisation and average price realisation at Accugas;

the delivery of first oil and the resumption of exploration drilling activity in Niger;

and new business development opportunities that are cashflow, Net Asset Value and future dividend capacity enhancing."

29 December 2020
Nigeria: NDPHC Prepares to Boost Grid Power With 2,000mw From 4 NIPP Plants.
In pursuit of its quick intervention mandate, the Niger Delta Power Holding Company (NDPHC) recently announced that it was taking steps to complete four of its power plants, namely Alaoji, Egbema, Omoku and Gbarain power stations which have a combined capacity of about 2,000MW of electricity to add to the grid.
LEADERSHIP learnt from a statement issued that Works on the plants which were originally awarded to Rockson Engineering Company Limited have stalled, leading to the cancellation of the contracts by NDPHC.
Speaking shortly after an inspection visit to the project sites, the new Executive Director, Generation, NDPHC, Engr Kassim Abdullahi, said the company was making effort to engage new Engineering, Procurement and Construction (EPC) contractors to complete the plants and make them available to the National Grid.
He said, "In the short term, we will engage the right EPC contractors to make sure we complete them, have a thorough follow up on all the key issues concerning these power plants and make them operational.
Speaking at the 1,074 mw Alaoji plant in Abia State, Abdullahi noted that while some parts have been completed and are operational, a lot of work still needed to done to complete the project.
https://allafrica.com/stories/202012290206.html

From the adm doc 6 months ago -
"The Company announced on 21 December 2018 that Accugas had entered into an agreement with Calabar Generation Company Limited and NDPHC in relation to the supply of gas to the Alaoji power station (which, like Calabar NIPP, is owned by NDPHC). Alaoji is a 504MW gas fired power station which is connected to the Accugas pipeline network via the Ukanafun Manifold and NGC/Shell gas pipelines. Potential gas demand from the two NDPHC power stations at full dispatch is currently estimated to be 225 – 270 mmcf/d presenting Accugas with significant long-term gas sales growth potential."

Add that to Ibom, Lafarge plus the upcoming Afam contract and there is some 75 mmcf/d potential.

Another industrial customer up to 5 mmcf/d indicated, as well as speaking to multiple other potential customers.

While we are supplying about 10% of Nigerias power - the power demand is set to grow by multiples if the infrastructure can be delivered to get power to where it matters for economic stimulus and growth as well as eradicating a large portion of it's highly polluting and costly diesel power generation. If we want to solely just maintain supplying about 10% of the countrys power, then over the longer term gas revenues could be 3-4 X of where they are now - the example being what Calabar and Alaoji alone could do for Savannah, never mind other industrial clusters or the mega deep sea port project which has a priority to complete.

I mentioned the Port potential back in late August in 396/7 Adfn-v, but little discussion on it but the opportunity is absolutely huge whatever the timescale and some of the potential will open up at different stages and also that they were unlikely to limit themselves at the 240 mmcf/d limit of the current CPF.

The biggest market opportunity is the absolute here and now of displacing just a fraction of the extremely expensive, noisy and pollutiing diesel reliance - Up to a reported 25 GW.

Let's face it we are at 131.8 mmcf/d TOP with 240 mmcf/d possible on debottle necking the CPF and on the back of the latest news release - the FC risked price target last week has risen to 52p based solely on the THREE (3) existing gas contracts. There is a further 34p tied up in net debt of $442m = 86p.

Save are demonstrating net debt is falling faster than anticipated. FC now project it to improve by $200m to just $243.9m net debt in the next 24 months (Based ON THE 3 existing gas contracts). Therefore that would lift the 52p target by another 15p to 67p just on steady debt reduction alone, doing nothing more than supplying the 3 customers under contract over the next 24 months.
The IFAM contract yet to kick in as will the 2nd contract of up to 5 mmcf/d with an industrial customer. Nothing is factored in for either of those and as most of the costs are fixed a lot more of the cash goes to the bottom line.
AK said the industrial contracts in the west are mostly around $7.50/mcf as was Lafarge. There's possibly 100 mmcf/d spare capacity. Selling 20 mmcf/d at $7.50/mcf is another $55m/yr.
AK said they were talking to multiple customers not one or two. There is transformational potential in the making. There is $1.5b invested in Accugas for infrastructure.
I firmly beleive a lot of people have not understood the Accugas potential and pulling their teeth out over not getting on with Niger as being the only reason to invest in SAVE. Do the maths on the above and with new additional contracts, this has the possibility for going over 100p with continued patience regardless of Niger. It cost us 35p to buy it, so hardly a stonking return for just 100p - think about that if you think 100p is pie in the sky given the valautions set out on the 3 TOP contracts, the debt portion falling/or cash building ie net debt - and the effects of those new contracts that will come through.
Save are treating both Niger and Accugas as two standalone businesses.
Niger when we get round to it = 18p target for every 76 mmbls oil and currently 2.6 billion bls risked with one of the best COS rates anywhere as already demonstrated with 5 out of 5 and the chinese booking over 1 billion analogue bls to warrant the pipeline construction.

I listened again to AKs last interview with Malcy. One thing i thought significant was AK saying that the industrial gas price in the west of the country was predominantly at the $7.50/mcf level.

Today Save announces the new Lafarge contract at $7.50/mcf (previously $5/mcf) to at least 2027. By the way i think this incorporates the $20m compensation/pre-payment in arriving at that price.
In total the maintenance adjusted take or pay volumes across all 3 contracts falls by just 9.6 mmcf/d from 141.4 to 131.8 mmcf/d.
The previous average was $3.90/mcf for 141.8 mmcf/d so worth just under $202m revenue. with the reduction of 9.6 mmcf/d it means about $3.5m/yr reduction given the new price structure (see my earlier post) so gas revenue should still be about $198.5m from those 3 contracts but frees up almost 12 mmcf/d for higher pricing. This isn't counting the Stubb Creek oil revenue.
With 131.8 mmcf/d TOP for the existing 3 contracts - that leaves 68.2 mmcf/d spare at current CPF capacity. When debottle-necked to 240 mmcf/d it would increase the spare capacity to 108 mmcf/d.

I think Ifams contract is up to 35 mmcf/d so maybe 80% TOP would mean off take of 28 mmcf/d. This was set at under $3/mcf if i recall plus transport but if this amount was used it would still leave some 40 mmcf/d spare or 80 mmcf/d when debottle-necked. Even 20 mmcf/d going to Ifam at $2.80/mcf is worth over $20m of new revenue.

Back to AKs last recent interview - if the sales price for industrial customers go through at $7.50/mcf as at Lafarge, then to generate $50m of further revenue it would mean gaining industrial contracts for a total of just 18 mmcf/d with what appears to be up to 5 mmcf/d being inked and still further spare capacity.

Given the large savings on opex & admin of $25m, improvement in net debt reduction, will we see a maiden dividend for 2021 ?

Shore Capital have $3m dividend set aside for that period in their top E&P pick for 2021.

Lafarge old contract 38.7 DCQ = 30.96 TOP,
Reduced to 24.2 DCQ = 19.36 TOP.

Previous 30.96 TOP @ $5/MCF = $154,800/DAY
New 19.36 TOP @ effective $7.50/MCF = $145,200/DAY into 2027.
Reduced by $9600/day or $3.5m/yr.
Taking the reduction at $3.5m/yr - it frees up 11.6 mmcf/d.

If that 11.6 mmcf/d was sold at the old $5/mcf it gives a net $58,000/day or $21m/yr.
If sold at $7.50/mcf then worth $87,000/day or $31.7m/yr.

In the short-medium term to 2027 it might make better use of SAVEs maximum debottlenecked 240 mmcf/d processing without having to spend on additional processing.
To mke up the reduction of $9,600/day needs replacing by selling 1250 - 1920 mcf/d but in real terms from 2027 onwards.

Lafarge appear to make their saving from 2027 onwards that they were negotiating with SAVE on, as reported in the adm doc in late April this year.

In short it looks like the freed up gas under the new contract could actually be worth $17.5m - $28m per year more to Save when new customers contracted (at either $5 or $7.50/mcf) without having to worry about going beyond the available processing limit at the expected 240 mmcf/d which ultimately would require more capex.

To me it looks like a win win and ties up Lafarge for an additional 5 years to 2037, removes sticking point in the adm document and might help clear the way on one issue that may have constrained debt refinancing.

From my post yesterday -
"From a net debt position of around $500m at the outset, it had fallen to $460.5m at 30/6/20 and by the end of this month is forecast to have fallen to $462.9m. From FinnCaps recent note this $462.9m net debt represents 36.2p.
In the next 12 months it is forecast to fall to $408m, then in 2022 to $296m and in 2023 down to $173m net debt.
The above forecast is based soley on the 3 existing contracts at TOP level only (page 32)."
-------------------------
Net debt now down to $419.7m and continuing to fall
They now have net debt almost at FinnCaps end of 2021 projection - a year earlier.
Admin & Opex reduced by $25m for the year - if this replicates for the next few years, expect a huge improvement in net debt.
Capex also reduced by about $33-$35m
Lafarge now amicably sorted in respect of listing doc back in late April. Save compensated, longer contract to 2037 instead of 2031 and frees up 12 mmcf/d that can be sold at a 50% premium to the previous $5/mcf.

All done with 2 new contracts still to kick in and more to follow.

From a net debt position of around $500m at the outset, it had fallen to $460.5m at 30/6/20 and by the end of this month is forecast to have fallen to $462.9m. From FinnCaps recent note this $462.9m net debt represents 36.2p.

In the next 12 months it is forecast to fall to $408m, then in 2022 to $296m and in 2023 down to $173m net debt.

The above forecast is based soley on the 3 existing contracts at TOP level only (page 32).

The onus is on the company to deliver on further contracts as anything added will make a material positive difference. Ifam and the recent industrial customer are not included as are any of the new customers that are expected to be won in an additional $40m+ of FCF.

If they can get these delivered it would materially dent those figures above in reducing or eliminating debt altogether (though we know AK is keen to replace the existing debt with a longer tenure and at much improved interest rates ).

The current price target is 49p with a further 36.2p tied up on the $462.9m debt figure - so an overall risked 85p.

The unrisked grows to 111p with the debt and includes finding just an additional 76 mmbls net from the 2.7 billion bls risked figure. If they could find 33 mmbls net (possibility of it being worth circa 100 mbls re Amdigh pressure communication) imo they can certianly find a further 76 mmbls from such a huge already risked figure given the low risk/high chance of success profile.

2021

https://total-market-solutions.com/2020/12/malcy-bucket-list/

10:20 Savannah Energy

From AEI 3/12/2020

Buhari to finally announce marginal field winners

According to our sources, the Nigerian president Muhammadu Buhari, who is also in charge of the oil portfolio, has finally appended his signature to the document listing the local and international partner companies chosen to operate one of the blocks covered by the tender call issued in June. Up for grabs were a total of 52 marginal deposits that were previously in the hands of the majors Shell, Chevron, Total and ENI. The official announcement of the winners is expected at the end of this week or the beginning of next.
The Department of Petroleum Resources (DPR), which oversaw the call for tenders, has taken its time to select a blend of financially robust companies with the necessary technical expertise and firms that are more "government-compatible". The DPR also paid particular attention to the profile of the shareholders in the bidding companies. Buhari's priority was to avoid a situation - frequent in Nigeria - where the overwhelming majority of the winning firms were from the north of the country. Several businessmen from the south, and especially from the oil-producing Niger Delta region, were therefore favoured in a geopolitical effort to share out resources equitably. Putting an end of the over-representation of northern entrepreneurs in the Nigerian oil sector has been one of the major goals of pressure groups (some of them with separatist tendencies) from the oil-producing region.

"The Non-Executive Directors were appointed under letters of appointment which can be terminated by three months’ written notice by either side. Under the terms of their letters of appointment, Subject to continued satisfactory performance, the Board does not think it appropriate to limit the term of appointment of the Non-Executive Directors.

Rather, the Board recognises the value of regular refreshing of its composition and remains committed to ensuring that it has the right mix of skills and experience that are aligned with the evolution and strategic plans of the Company, while maintaining its independence of character and judgement. The Directors believe that the value brought through continuity and experience of Directors with longer periods of service is desirable for a company such as Savannah. With an objective to deliver long-term and consistent returns to the shareholders it is important that the Board is able effectively to maintain its long-term perspective, supported by some corporate memory, but with the regular challenge provided by fresh thinking. "

"...gas production record of 177 MMscf/d on 30 May 2020. While Accugas’ customers achieved an all-time record peak contribution of 11.5% of Nigeria’s electricity generation or 486MW on 23 May 2020 .."

The 11.5% supply equalling 486 MW would have meant around 4.2 GW generated.

With a target of 25GW and around 20 at least from gas plus diesel displacement there's a great longer term opportunity for growth.

Save being one of the top 4 gas suppliers, over the coming years as hopefully the infrastructure catches up, on that basis it could mean an increase of a factor of just over 4 to 700 mmcf/d to meet demand and just to maintain its 10% supply position.

NNPC to provide free conversion services to motorists to switch from PMS to autogas
The NNPC has revealed plans to help motorists switch from Premium Motor Spirit (PMS) to Autogas.
Published 51 mins ago on December 1, 2020

https://nairametrics.com/2020/12/01/nnpc-to-provide-free-conversion-services-to-motorists-to-switch-from-pms-to-autogas/

The forecast growth in gas demand over the next six years in the previous post is from 1.5 bcf/day to 7.4 bcf/day or in barrel terms 250,000 boepd to almost 1.25 million boepd.

London — Nigeria has started the roll out of compressed natural gas (CNG) as a key transport fuel as part of the government's strategy to gradually wean the nation off the high-sulfur gasoline it normally runs its cars with.
The government launched its National Gas Expansion Programme (NGEP) on Dec. 1, focusing on the distribution of autogas (CNG) and liquefied petroleum gas (LPG) across gas stations operated by state energy company Nigerian National Petroleum Corporation (NNPC).
"The [Muhammadu] Buhari administration is focused on developing the country's natural gas resources, as part of the government bid to key into the global shift from crude oil to gas," the country's oil minister said in a statement. "The plan to develop CNG into alternative automobile fuel will also afford Nigerians cheaper, cleaner and additional fuel."
The government hopes to get up to 1 million vehicles converted from gasoline to CNG by the end of 2021.
Gas focus
Nigeria is keen to grow its domestic gas supply to take advantage of its abundant resources.
"The rollout is the culmination of [the government] deepening domestic usage of natural gas in its various forms. It is also in line with the government's plan to make gas the first choice of cheaper and cleaner energy for Nigerian's personal and industrial endeavors," the oil ministry said in a separate statement.
This move is much needed for Africa's largest oil producer, which still lags behind many of its continental peers in implementing lower sulfur fuel requirements either for imports or from its domestic refineries.
"The need to switch from petrol [gasoline] to gas was necessitated by the deregulation of petrol by the government, which has led to increment in the domestic pump prices in recent times".
Gasoline displacement
Nigeria is one of the leading consumers of road fuels in Africa, typically using around 1 million-1.25 million mt of gasoline per month.
Platts Analytics said the success of this program will depend on the low cost of installation of conversion units, the cost competitiveness of autogas/CNG fuel against gasoline and easy accessibility of refueling stations.
"Since autogas and CNG are price-competitive versus gasoline, this could provide a sufficient incentive to kickstart conversion efforts," it added.
This program is also part of the government's policy to drive LPG demand and reduce demand for kerosene and wood as a cooking fuel.
Push for cleaner fuels
Nigeria has struggled to effect gasoline fuel specification change, which would see the sulfur content of up to 1,000 ppm dropped to 150 ppm, even though it previously fixed July 1, 2017, as the implementation date.
Africa's biggest oil producer, however, believes it could use its huge gas resources to achieve its goal of cleaner fuel supply while aiming to complete a full gasoline fuel specification change by 2021.
NNPC estimates domestic demand for natural gas rising from current levels pf 1.5 Bcf/d to 7.4bcf/d by 2027.

Edit 4) should say leaves 59 mmcf/d not 39 mmcf/d in previous post

1) The value for Accugas is based only on its three existing contracts.

2) The NAV if reduced from 10% to 8% would raise the price target from 49p to 58p.

3) The price target is based only on the TOP not the DCQ. With more electricity demand and productivity one would think the gap could close to the DCQ level given the power sectors spare capacity and as more infrastucture comes on stream, enables more generation supply - the full DCQ level on the 3 contracts could be worth 82p/share.

4) Those price targets don't include for any new contracts. The DCQ level is 181 mmcf. That leaves 39 mmcf/d or 33% upside if they debottleneck the gas plant to process 240 mmcf/d. The average price for the three existing contracts is $3.90/mcf. The expected price for industrial customers is much higher so while there is 33% upside on capacity - with the much greater expected price differential, it should be worth 40%+ on those price targets.

Beyond that -

5) Tarriff transport of 3rd party gas (600 mmcf/d pipeline capacity).

6) Already said they will add further processing as opporunities arise - so could well go beyond the limitations of the current planned 240 mmcf/d CPF.

This from Shore Capitals comprehensive coverage - "All else being equal, reducing our discount rate from 10% to 8% would raise our Accugas NPV by 12% to US$739m (58p/sh). If Savannah can also continue to grow gas supply to the full DCQ level, our valuation rises to US$1.0bn (82p/sh).This valuation does not include any incremental gas sales beyond the three existing contracts. However, with a largely fixed cost base and minimal capital to hook up additional customers, any additional volumes will be highly profitable."
--------------------------------

As for Niger
For 76 mmbls net in Niger phase 2 exploration is 18.8p (page 11).
This would imply to get 100p value from Niger they would need 400 mmbls whereas there is more than 5 times this in the estimated 'risked' recoverable at circa 2.7 billion bls gross.

Imo the assets in either country offer more than 100p each in potential against the current 9p.

When they make a further acquisition is anyones guess but they've made it clear that's their strategy. While possible there'd be some dilution it would and should be counter balanced by the effect of any new asset.

Mentioned this when picked up on earlier in the year and management were clearly excited about Amdigh and that the overall 33mmbo 2C was only the initial call for now. Potential upside to a very large field highlighted by FinnCap yesterday and a development game changer.

Amdigh: "This is the largest of the five discoveries, with gross 2C contingent resources estimated at 18.4 mmbbls. The upside case could be as high as 84 mmbbls if a northern extension to the discovery is in pressure communication."

Also deeper potential of 25.4 mmbls in the Amdigh, Eridal and Bushiya fields.

From the initial 33 mmbo net attributed 2C, the cluster of existing fields have the potential for 120 mmbls.

"It would not be unreasonable to assume a lower discount rate for these infrastructure assets that are backed by long-term contractual revenues. One catalyst to encourage this could be delivered next year, when Savannah will start to look at refinancing thedebt associated with this asset. All else being equal, reducing our discount rate from 10% to 8% would raise our Accugas NPV by 12% to US$739m (58p/sh). If Savannah can also continue to grow gas supply to the full DCQ level, our valuation rises to US$1.0bn (82p/sh).This valuation does not include any incremental gas sales beyond the three existing contracts. However, with a largely fixed cost base and minimal capital to hook up additional customers, any additional volumes will be highly profitable."

For me, the above paragraph reafirms the potential for my own 200p target (including an implied 100p for just 400 mmbls of 2.3 billion bl risked recoverable Niger Oil).

Re the Finncap buy note and not dissimilar from Shore Capital.

FinnCap -
Risked 49p +36p debt = 85p.
Unrisked 75p (including phase 2 Niger exploration) + 36p debt = 111p.

They assume long term oil price of $50/b.

For 76 mmbls net in Niger phase 2, 10 well exploration is 18.8p (page 11).

This would imply to get 100p value from Niger they would need 400 mmbls whereas there is more than 5 times this in the estimated risked recoverable.

They haven't factored for any growth in the gas business.