REG - Savannah Energy Plc - Operational and Financial Update

Savannah EnergyAnnouncement

03/12/2024 07:00

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RNS Number : 5767O  Savannah Energy Plc  03 December 2024

 

3 December 2024

Savannah Energy PLC

("Savannah" or "the Company")

 

Operational and Financial Update

 

Savannah Energy PLC, the British independent energy company focused around the
delivery of Projects that Matter, provides the following financial and
operational update.

Andrew Knott, CEO of Savannah Energy, said:

"I am pleased to provide an operational and financial update which
demonstrates the continued progress we have made as a business in 2024. 2025
is clearly going to be an exciting year for our Company: we have a large
operational programme in Nigeria which is expected to enhance both our oil and
gas production levels and capacity; we intend to progress our R3 East oil
development project in Niger; we continue to pursue key acquisitions in the
upstream oil and gas space; and we expect to announce plans significantly
expanding our renewable energy business. Fundamentally, Savannah remains
unequivocally an "AND" company, seeking to deliver strong performance both for
the short AND long term across multiple fronts, and pursuing growth
opportunities in both the hydrocarbon AND renewable energy sectors."

Highlights

·      Average gross daily production of 22.7 Kboepd for 10M 2024, in
line with 10M 2023 (22.9 Kboepd);

·      US$45 million Uquo Central Processing Facility ("Uquo CPF")
compression project in Nigeria on track for completion of construction before
year-end, with commissioning taking place in Q1 2025;

·      Three gas contracts with customers agreed and extended in the
year-to-date for a total of up to 105 MMscfpd;

·      Conversion of both the Uquo Marginal Field (the "Uquo Field") and
the Stubb Creek Marginal Field (the "Stubb Creek Field") oil mining leases to
new 20-year petroleum mining leases, both effective 1 December 2023, in
accordance with the Republic of Nigeria's Petroleum Industry Act 2021;

·     Plans underway to commence a two-well drilling campaign on the
Uquo Field in H2 2025, with an additional gas development well expected to add
up to 80 MMscfpd of incremental production capability and an exploration well
targeting an Unrisked Gross gas initially in place ("GIIP") of 154 Bscf of
incremental gas resources.

·     Progress continues on the planned acquisition of Sinopec
International Petroleum Exploration and Production Company Nigeria Limited,
whose principal asset is a 49% non-operated interest in the Stubb Creek Field
(the "SIPEC Acquisition"), consolidating our interest in the field, with
regulatory approval being targeted in early 2025;

·      US$60 million reserve-based lending ("RBL") facility signed in
October 2024 with The Standard Bank of South Africa Limited and Stanbic IBTC
Bank Limited to fund the SIPEC Acquisition;

·      Up to 696 MW of renewable energy projects currently in motion,
including the up to 250 MW Parc Eolien de la Tarka wind farm project in Niger
and the up to 95 MW Bini a Warak hybrid hydroelectric and solar project in
Cameroon;

·     The Company continues to target a portfolio of up to 2 GW+ of
renewable energy projects in motion by end 2026;

·     10M 2024 Total Income(1) of US$320.3 million (10M 2023: US$231.0
million) and 10M 2024 cash collections of US$239.8 million (10M 2023: US$189.2
million). As at 31 October 2024, cash balances were US$53.4 million (31
December 2023: US$107.0 million) and net debt stood at US$568.7 million (31
December 2023: US$473.7 million);

·      Financial guidance for 2024 is reiterated at:

o  Total Revenues(2) 'greater than US$245 million';

o  Operating expenses plus administrative expenses(3) 'up to US$75 million';
and

o  Capital expenditure 'up to US$50 million'; and

·     Continuing to progress a potential alternative transaction
structure to acquire a material stake in producing oil and gas assets in South
Sudan.

 

 

Hydrocarbons Division

Nigeria Existing Business

Average gross daily production was 22.7 Kboepd for 10M 2024 (10M 2023: 22.9
Kboepd), of which 88% was gas (10M 2023: 91%).

The US$45 million compression project at the Uquo CPF is progressing on track
and on budget with construction anticipated to be completed prior to year-end
and commissioning to commence in Q1 2025. Completion of this project will
enable us to maintain and grow our gas production levels over the medium and
long-term. We would note that, however, for 2025, we do not currently
anticipate any material increase in sales volumes delivered to our customers.

We are currently working on a proposed further development programme for the
Uquo Field, which is expected to see an additional gas well drilled in H2
2025. The Uquo NE well ("Uquo NE") is forecast to provide gas volumes of 60-80
MMscfpd to supplement the production capacity of our current Uquo well stock.
An additional exploration well in the Uquo Field ("Uquo South") is also
currently under consideration, which may be drilled back-to-back with Uquo NE.
Uquo South is a well targeting an Unrisked Gross GIIP of 154 Bscf of
incremental prospective gas resources on the Uquo licence area.

During 2024 YTD, three gas contracts have been agreed and extended for a total
of up to 105 MMscfpd, including:

·     An extension of the agreement with First Independent Power Limited
("FIPL") was signed, effective January 2024, for an additional 12-month
period, whereby our Accugas subsidiary is supplying FIPL's Afam, Eleme and
Trans Amadi power stations with up to 65 MMscfpd of gas;

·      A new 24-month agreement was signed in July 2024 by our Accugas
subsidiary with Ibom Power Company Limited, owner of the Ibom power station,
to supply up to 30 MMscfpd of gas. This follows the expiration of the previous
10-year agreement; and

·     An extension of the agreement with Central Horizon Gas Company
Limited ("CHGC") was signed in August 2024 for an additional 12-month period,
whereby our Accugas subsidiary is supplying CHGC with up to 10 MMscfpd of gas.

Conversion of the Uquo Field and the Stubb Creek Field to New 20-Year
Petroleum Mining Leases

The Uquo Field and the Stubb Creek Field have been converted to petroleum
mining leases ("PMLs") in accordance with the Petroleum Industry Act 2021.
Both PMLs have been granted for a 20-year period effective from 1 December
2023.

Nigeria Proposed SIPEC Acquisition

In March 2024, we announced the proposed acquisition (via two separate
transactions) of 100% of SIPEC for a total consideration of US$61.5 million.
SIPEC's principal asset is the 49% non-operated interest in the Stubb Creek
Field. We are currently targeting receipt of regulatory consent for the
acquisition in early 2025, with completion following later in Q1 2025.

In October 2024, our subsidiary, Savannah Energy SC Limited, signed a new 4.5
year, US$60 million RBL facility arranged by The Standard Bank of South
Africa. The RBL is structured along standard terms for a facility of this
nature with amortisation commencing 12 months after drawdown and carries an
interest rate of SOFR + 8.5% (reducing to 8% once certain milestones have been
achieved).

As at year end 2023, SIPEC had an estimated 8.1 MMstb of 2P oil reserves and
227 Bscf of 2C Contingent gas resources. Following completion of the SIPEC
Acquisition, Savannah's reserve and resource base is, therefore, expected to
increase by approximately 46 MMboe from 158 MMboe to 204 MMboe (on a pro-forma
basis as at 1 January 2024). SIPEC oil production is estimated at an average
of 1.8 Kbopd for 2024.

Following completion of the SIPEC Acquisition, we plan an expansion programme
to increase the processing capacity of the Stubb Creek Field facilities. It is
anticipated that this will lead to Stubb Creek Field gross production
increasing from 2.6 Kbopd (average for 1 January - 31 October 2024) to
approximately 4.7 Kbopd. Importantly, the SIPEC Acquisition also secures
significant additional feedstock gas available for sale to our Accugas
subsidiary.

Niger

We are continuing to seek to progress the 35 MMstb (Gross 2C Resources) R3
East oil development in South-East Niger. The Niger-Benin oil export pipeline,
now fully operational, provides a potential route to international markets for
crude oil produced from the R1234 contract area of our subsidiary, Savannah
Energy Niger SA, with 90 Kbopd reportedly being transported from the China
National Petroleum Corporation-operated Agadem PSC area.

During 2024, we have sought to optimise the development plan for the R3 East
Area and, whilst there is no change to our resources estimate, we now forecast
a peak potential production of approximately 10,000 bopd (vs 5,000 bopd in the
previous plan). Management estimates of the forecast PV10 value of the R3 East
development project has also increased from US$150 million(4) to US$210
million(5).

Renewable Energy Division

We are currently seeking to develop a portfolio of up to 696 MW of wind, solar
and hydroelectric energy projects across West Africa. Of these projects our
principal focus has been on the up to 250 MW Parc Eolien de la Tarka project
in Niger and the up to 95 MW Bini a Warak hybrid hydroelectric and solar
project in Cameroon.

Niger Parc Eolien de la Tarka

Located in the Tahoua Region of southern Niger, Savannah's Parc Eolien de la
Tarka wind farm project is anticipated to be the country's first wind farm and
potentially the largest in West Africa, with a total power generation capacity
of up to 250 MW. Our subsidiary, Savannah Energy RN Limited, has signed
agreements with two leading international development finance institutions
(the International Finance Corporation, which is a member of the World Bank
Group, and the US International Development Finance Corporation, which is
America's development finance institution) to fund approximately two-thirds of
the pre-construction development costs of the project.

The project has made significant progress in the year-to-date with all key
studies now either complete or at an advanced stage. We submitted our
Environmental and Social Impact Assessment ("ESIA") scoping report to the
Government of Niger and have been continuing to progress the ESIA field work
additional studies required for the submission of the full ESIA report,
expected in 2025. We are negotiating a term sheet in relation to the project's
proposed power purchase agreement and electricity tariff and anticipate this
to be agreed in the coming months.

Parc Eolien de la Tarka is expected to produce up to 800 GWh of electricity
per year, representing approximately 24% of Niger's annual electricity demand,
based on the country's projected energy demand in 2026. The construction phase
is expected to create over 500 jobs, while the project has the potential to
reduce the cost of electricity for Nigeriens and avoid an estimated 450,000
tonnes of CO(2) emissions annually.

Cameroon Bini a Warak

We continue to progress the Bini a Warak hybrid hydroelectric and solar
project in Cameroon, following the approval of the optimisation and proposed
redesign of the project given by the Minister of Water and Energy. The
redesigned project, involving the construction of a hydroelectric dam on the
Bini River in the Northern Adamawa region of Cameroon, now incorporates
photovoltaic solar, raising its installed power generation capacity from up to
75 MW to up to 95 MW. Anticipated sanction for this project is in 2026, with
first power targeted in the 2028 to 2029 window.

Other Projects

We continue to seek to progress a large-scale solar project in Niger,
comprising two photovoltaic solar power plants of up to 100 MW each, expected
to be located within 20 km of the cities of Maradi and Zinder, for which we
signed an agreement with the Government of the Republic of Niger in May 2023.
In H1 2024, we presented preliminary commercial and technical proposals to the
Government of Niger. This project, if successfully developed, is expected to
generate reliable, affordable energy for Niger and supply up to 12% of Niger's
electricity demand, based on 2026 energy demand predictions. However, the
priority of both the Government of Niger and Savannah is to progress the Parc
Eolien de le Tarka wind farm project ahead of the solar project.

A wholly owned Savannah subsidiary has also signed an agreement with a
development partner whereby an approximate 150 MW wind farm project would be
developed on a 70:30 basis (in Savannah's favour), potentially further
expanding the Company's geographical footprint in West Africa. This project
has completed the key technical and environmental studies and has made
substantial progress in negotiating the project's power purchase agreement.
Savannah's commitments to invest will start upon signature of a power purchase
agreement for the project, the timing of which is yet to be agreed with the
country's Government and considered in the context of its wider power sector
development plans, which we understand to currently be under review.

YTD Unaudited Financial Review

The Group has performed in line with expectations YTD and guidance for the
full year is reconfirmed.

Highlights

Total Income(1) for 10M 2024 is US$320.3 million (10M 2023: US$231.0 million),
comprising Total Revenues(2) of US$207.7 million (10M 2023: US$202.1 million)
and Other operating income of US$112.6 million (10M 2023: US$28.9 million).
Other operating income primarily relates to the re-billing of foreign exchange
losses incurred through the conversion of Naira paid invoices into US dollars.

Cash collections for 10M 2024 were US$239.8 million (10M 2023: US$189.2
million). As at 31 October 2024, cash balances stood at US$53.4 million (31
December 2023: US$107.0 million) and net debt at US$568.7 million (31 December
2023: US$473.7 million).

Adjusted EBITDA(6) including Other operating income was US$257.3 million (10M
2023: US$170.8 million).

Debt Facilities

In January 2024, a new NGN 340 billion four year-term transitional facility
was signed by Accugas with a consortium of five Nigerian banks. Year to date,
NGN 279 billion of this facility has been drawn down, with the resulting funds
being converted to US$, which, along with cash held, has been used to
partially prepay the existing Accugas US$ facility. It is expected that the
NGN transitional facility will be fully drawn by end of 2024 and that a
balance of approximately US$225 million will remain outstanding at that point
under the Accugas US$ facility.

As contemplated in the documentation for the transitional facility, we have
requested an increase in the facility to enable the remaining outstanding US$
balance to be converted into Naira, allowing the remainder of the Accugas US$
facility to be fully repaid within H1 2025. This process, when complete, will
align Accugas' debt facility with the currency in which gas revenues are
received.

We also continue to advance plans for a potential long-dated domestic bond
issuance to ultimately replace the NGN transitional facility.

Chad Arbitration Update

As previously disclosed in Savannah's 2023 Annual Report, our wholly owned
subsidiary, Savannah Chad Inc ("SCI"), has commenced arbitral proceedings
against the Government of the Republic of Chad and its instrumentalities in
response to the March 2023 nationalisation of SCI's rights in the Doba fields
in Chad, and other breaches of SCI's rights. Another wholly owned subsidiary,
Savannah Midstream Investment Limited ("SMIL"), has commenced arbitral
proceedings in relation to the nationalisation of its investment in Tchad Oil
Transportation Company, the Chadian company which owns and operates the
section of the Chad-Cameroon pipeline located in Chad. SMIL has also commenced
arbitral and other legal proceedings for breaches of SMIL's rights in relation
to Cameroon Oil Transportation Company ("COTCo"), the Cameroon company which
owns and operates the section of the Chad-Cameroon pipeline located in
Cameroon.

We expect the arbitral proceedings to be concluded in the second half of 2025.
SCI and SMIL are claiming in excess of US$840 million for the nationalisation
of their rights and assets in Chad, and SMIL has a claim valued at
approximately US$380 million for breaches of its rights in relation to COTCo.
Whilst the Government of the Republic of Chad has acknowledged SCI's and
SMIL's right to compensation, no compensation has been paid or announced by
the Government of the Republic of Chad to date.

 

Savannah remains ready and willing to discuss with the Government of the
Republic of Chad an amicable solution to the disputes. However, in the absence
of such discussions, the Group intends to vigorously pursue its rights in the
arbitrations.

South Sudan

As previously announced, Savannah continues discussions with the various
stakeholders around an alternative transaction structure in relation to the
proposed acquisition of the ex-PETRONAS assets in South Sudan. Savannah
management believe that any transaction which would ultimately be completed
would be on significantly different terms to that envisioned when the
transaction was initially announced in December 2022 with the likely
involvement of multiple acquiring parties. We continue to believe that a
transaction could be potentially accretive to the Company and expect to
provide a further update on progress made by mid to late December 2024.

The assets themselves are estimated to have produced an average of 81 Kbopd on
a gross basis in 2024 to end October, reduced from approximately 150 Kbopd in
FY 2023, given the prolonged downtime experienced by the Bashayer Pipeline
Company ("BAPCO") pipeline, which exports a significant portion of the
country's oil production.

 

 

 

For further information, please refer to the Company's website
www.savannah-energy.com or contact:

 

Savannah
Energy
 
+44 (0) 20 3817 9844

Andrew Knott, CEO

Nick Beattie, CFO

Sally Marshak, Head of IR & Communications

 

Strand Hanson Limited (Nominated
Adviser)
       +44 (0) 20 7409 3494

James Spinney

Ritchie Balmer

Rob Patrick

 

Cavendish Capital Markets Ltd (Joint
Broker)
            +44 (0) 20 7220 0500

Derrick Lee

Tim Redfern

 

Panmure Liberum Limited (Joint
Broker)
           +44 (0) 20 3100 2000

Scott Mathieson

Kieron Hodgson

James Sinclair-Ford

 

Camarco
       +44 (0) 20 3757 4983

Billy Clegg

Owen Roberts

Violet Wilson

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018, as amended.

 

Dr Christophe Ribeiro, Savannah's VP Technical, has approved the technical
disclosure in this regulatory announcement in his capacity as a qualified
person under the AIM Rules. Dr Ribeiro is a qualified petroleum engineer with
over 20 years' experience in the oil and gas industry. He holds an MSc in
Geophysics from the Institut de Physique du Globe de Paris and an MSc in
Petroleum Engineering and a PhD in Reservoir Geophysics from Heriot-Watt
University. Dr Ribeiro is a member of the European Association of
Geoscientists and Engineers (EAGE) and Society of Petroleum Engineers (SPE).

 

About Savannah:

Savannah Energy PLC is a British independent energy company focused around the
delivery of Projects that Matter in Africa.

 

 

 

Footnotes

(1.) Total Income is calculated as Total Revenues(2) plus Other operating
income.

 

(2.) Total Revenues are defined as the total amount of invoiced sales during
the period. This number is seen by management as more accurately reflecting
the underlying cash generation capacity of the business as opposed to Revenue
recognised in the Condensed Consolidated Statement of Comprehensive Income.

 

(3.) Group operating expenses plus administrative expenses are defined as
total cost of sales, administrative and other operating expenses, excluding
gas purchases, royalties, depletion, depreciation and amortisation and
transaction costs.

 

(4.) Niger Competent Persons Report (2021) compiled by CGG Services (UK)
Limited.

 

(5.) Management estimate as at 31 December 2024 based on R3 East development
with peak production of 10,000 bopd vs. 5,000 bopd in the Niger Competent
Persons Report (2021) compiled by CGG Services (UK) Limited.

 

(6.) Adjusted EBITDA is calculated as profit or loss before finance costs,
investment revenue, foreign exchange gains or losses, expected credit loss and
other related adjustments, fair value adjustments, gain on acquisition, share
based payments, taxes, transaction and other related expenses, depreciation,
depletion and amortisation and adjusted to include deferred revenue and other
invoiced amounts. Management believes that the alternative performance measure
of Adjusted EBITDA more accurately reflects the cash-generating capacity of
the business.

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