Savannah Energy PLC, the African-focused British independent energy company sustainably developing high quality, high potential energy projects in Nigeria and Niger, is pleased to announce its unaudited interim results for the six months ended 30 June 2021 and outlook for the FY 2021.
Andrew Knott, CEO of Savannah Energy, said: “These results show just how far we have come this year, with US$116.5m of Total Revenues1, US$91.5m of Adjusted EBITDA2 and strong free cash flow. Our operational performance has been excellent which is important to all our stakeholders as we continue to play a vital role in driving economic growth and living standards in our countries of operation. This growth is set to continue as we progress discussions with ExxonMobil with respect to the proposed acquisition of its entire upstream and midstream assets in Chad and Cameroon and begin an anticipated new investment programme on our Niger assets, over which we are pleased to have agreed terms for an extension of up to 10 years.
I’d like to thank all of our shareholders and other stakeholders for their continued support as we look to capitalise on the opportunities available to us.”
H1 2021 Financial Highlights
• Total Revenues1 of US$116.5m (up 2% on H1 2020 Total Revenues of US$114.6m), in line with 2021 guidance of over US$205m for the full year;
• Average realised gas price of US$4.2/Mscf (H1 2020: US$3.9/Mscf) and an average realised liquids price of US$63.5/bbl (H1 2020: US$48.3/bbl);
• Cash collections from the Nigerian Assets in H1 2021 were US$101.6m compared to US$82.1m in H1 2020;
• Adjusted EBITDA2 of US$91.5m (H1 2020: US$89.2m);
• Adjusted EBITDA margin broadly unchanged at 79% (H1 2020: 78%);
• Operating expenses plus administrative expenses3 of US$22.5m (H1 2020: US$22.7m) being US$1.0/Mscfe (H1 2020: US$1.1/Mscfe);
• Profit before tax of US$7.7m (H1 2020: US$1.2m);
• Drilling of a gas well on the Uquo field commenced in September 2021 and the non-associated gas compression project at the Accugas gas processing plant is progressing, full year capital expenditure guidance of up to US$65m maintained;
• Net debt position as at 30 June 2021 of US$369.4m (Year-end 2020: US$408.7m) with Adjusted Leverage4 of 2.3x (Year-end 2020: 2.5x); and
• Cash at bank5 of US$135.7m as at 30 June 2021 (Year-end 2020: US$106.0m)
H1 2021 Operational Highlights
• Average gross daily production, of which 88.6% was gas, increased 6% during H1 2021 to 22.6 Kboepd (H1 2020: 21.3 Kboepd). This includes a 6% increase in production from the Uquo gas field compared to the same period last year, from 113.5 MMscfpd (18.9 Kboepd) to 120.2 MMscfpd (20.0 Kboepd);
• On 5 February 2021 Accugas signed a new gas sales agreement (“GSA”) with Mulak Energy Limited (“Mulak”) representing Savannah’s entry into Nigeria’s high-growth compressed natural gas (“CNG”) market;
• On 2 June 2021, Savannah announced that the Company is in exclusive discussions with ExxonMobil Corporation with respect to the proposed acquisition of its entire upstream and midstream asset portfolio in Chad and Cameroon; and
• On 7 June 2021, Savannah published its re-focused sustainability strategy as part of the 2020 Annual Report focusing on four key strategic pillars with the strategy anchored around the 13 most relevant UN Sustainable Development Goals where we believe Savannah can have the biggest economic, environmental, social and governance impact
Post Period Update
• Drilling of a new gas production well in the Uquo field, Uquo 11, commenced on 21 September 2021;
• On 29 September 2021, the Niger Ministry of Petroleum amalgamated Savannah’s four licence areas (covered by the previous R1/R2 PSC and the R3/R4 PSC) into a single PSC (R1/R2/R3/R4), valid for up to a further 10 years. This lays the foundation for an anticipated new investment programme in our R3 East development in 2022;
• On 12 August 2021 it was announced that, as a result of the Company’s growth in recent years and the planned significant further expansion, the decision was taken to restructure the finance function of the Company. As a result, Ms Isatou Semega-Janneh left, and ceased to be a Director of, the Company; and
• On 16 August 2021 His Excellency President Muhammadu Buhari signed the Petroleum Industry Act 2021 (the “PIA”) into law indicating the government of Nigeria’s commitment to enhancing the governance, administrative and fiscal regimes of the domestic industry. It is anticipated that the PIA will have a positive fiscal impact on Savannah
FY 2021 Guidance Reiterated
We reiterate our FY 2021 guidance as follows:
• Total Revenues1 greater than US$205.0m from upstream and midstream activities associated with the Company’s three active Nigerian gas sales agreements and liquids sales from the Company’s Stubb Creek and Uquo fields. Any revenues received from new additional gas sales agreements would, therefore, be incremental to this;
• Operating expenses plus administrative expenses3 of US$55.0m to US$65.0m;
• Depreciation, Depletion and Amortisation of US$19m fixed for infrastructure assets plus US$2.6/boe for oil and gas assets; and
• Capital expenditure of up to US$65.0m
Savannah Energy PLC is an AIM listed African-focused British independent energy company sustainably developing high quality, high potential energy projects in Nigeria and Niger, with a focus on delivering material long term returns for stakeholders. In Nigeria, the Company has controlling interests in the cash flow generative Uquo and Stubb Creek oil and gas fields, and the Accugas midstream business in South East Nigeria, which provides gas enabling over 10% of Nigeria’s thermal power generation. In Niger, the Company has licence interests covering approximately 50% of the highly oil prolific Agadem Rift Basin of South East Niger, where the Company has made five oil discoveries and seismically identified a large exploration prospect inventory consisting of 146 exploration targets to be considered for potential future drilling activity.
Nigeria
Average gross daily production from the Nigerian Assets increased 6% in H1 2021 to an average of 22.6 Kboepd versus 21.3 Kboepd for H1 2020. This includes a 6% increase in production from the Uquo gas field compared to the same period last year, from 113.5 MMscfpd (18.9 Kboepd) to 120.2 MMscfpd (20.0 Kboepd). Uquo gas field production of 20.0 Kboepd represented 88% of total 22.6 Kboepd production in H1 2021.
Average Gross Daily Production
Uquo Gas (MMscfpd) Uquo Condensate (bopd) Stubb Creek Oil (Kbopd) Total (Kboepd)
1 January-30 June 2021 120.2 110.4 2.5 22.6
% of total production 88% 1% 11% 100%
1 January-30 June 2020 113.5 142.9 2.3 21.3
% of total production 88% 1% 11% 100%
% Increase/ (Decrease) 6% (23) % 9% 6%
Gas production levels are driven by customer nominations. During H1 2021 the Company’s subsidiary, Accugas, supplied gas to the Calabar power station and the Ibom power station to generate an average of 340MW of electricity per day (H1 2020: 355 MW per day), representing 11% of the total grid-based thermal power generated in Nigeria during the period. The peak generation from Accugas supplied gas was 497MW (H1 2020: 476MW), highlighting Accugas’ continuing position as a principal gas-to-power supplier in Nigeria.
In February 2021, Savannah announced that Accugas had entered into a new GSA with Mulak. The GSA is initially for a seven-year term to supply gas produced by Savannah’s majority-owned Uquo field for an initial two-year period on an interruptible basis (the “Interruptible Gas Delivery Period”) starting in 2022 and the subsequent five years on a firm contract basis (the “Firm Delivery Period”). During the Interruptible Gas Delivery Period, Mulak is able to nominate a maximum daily quantity of up to 2.5 MMscfpd. Volumes in the Firm Delivery Period will be agreed by the parties before the end of the Interruptible Gas Delivery Period. Sales under the GSA benefit from a bank guarantee arrangement from an investment grade credit rated international bank.
The Company commenced drilling of a new gas production well, Uquo 11, in the Uquo field on 21 September 2021. The Company also started ordering compression equipment for the Accugas gas processing plant during the first half of 2021. Factory Acceptance Tests for the two compressor packages have been successfully carried out, the Front End Engineering Design is in progress and we expect the Long Lead Items order to be delivered before the year end. Both the drilling and compression projects will ensure our continued ability to deliver gas at current and anticipated future increased contracted volumes to satisfy customer demand.
Proposed Acquisition in Chad and Cameroon
Savannah announced in June 2021 that the Company is in advanced exclusive discussions with ExxonMobil Corporation with respect to the proposed acquisition of its entire upstream and midstream asset portfolio in Chad and Cameroon (the “Proposed Acquisition”). The Proposed Acquisition would include a 40% operated interest in the Doba Oil Project, and an effective c.40% interest in the Chad-Cameroon oil transportation pipeline. For reference, in 2020 the
Doba Oil Project produced an average gross 33.7 Kbopd and the Chad-Cameroon pipeline transported a gross 129.2 Kbopd.
If completed on the currently proposed terms, the Proposed Acquisition would be classified as a reverse takeover transaction in accordance with the AIM Rule 14, and accordingly, the Company’s ordinary shares were suspended from trading on AIM and will remain so pending publication of an AIM admission document setting out, inter alia, details of the Proposed Acquisition, or confirmation is provided that discussions around the Proposed Acquisition have been terminated. There can be no assurance that agreement between the parties will be reached on mutually acceptable terms and that the Proposed Acquisition will complete. The Company will update shareholders as to progress made in relation to the Proposed Acquisition as appropriate.
Update on Savannah’s Sustainability Strategy
In June 2021 Savannah published our re-focused sustainability strategy based on four key strategic pillars: (1) promoting socio-economic prosperity; (2) ensuring safe and secure operations; (3) supporting and developing our people; and (4) respecting the environment. Our four strategic pillars are aligned with 13 key United Nations Sustainable Development Goals (“UN SDGs”), where we believe Savannah can have the biggest economic, environmental, social and governance impact to achieve a better and more sustainable future for all. While anchoring our strategy around these 13 UN SDGs, we have chosen to integrate six additional sustainability reporting standards into our new performance and reporting framework. These have been selected on the basis of those most relevant for our sector and of most importance to our stakeholders and include those for: the Global Reporting Index (“GRI”); the eight International Finance Corporation Performance Standards (“IFC PS”); the International Association of Oil and Gas Producers (“IOGP”); the International Petroleum Industry Environmental Conservation Association (“IPIECA”); the Sustainability Accounting Standards Board (“SASB”); and the Task Force on Climate-related Financial Disclosures (“TCFD”). Progress continues to be made in rolling out our new sustainability performance and reporting framework across the Group with a view to reporting on this from 2022 onwards.
Petroleum Industry Act (“PIA”)
We are pleased to note that on 16 August 2021 His Excellency President Muhammadu Buhari signed the Petroleum Industry Act 2021 into law. The PIA is an overhaul of the administrative, regulatory and fiscal regime of the Nigerian oil and gas industry in order to create a framework to attract additional investment into the country, which is Africa’s largest producer and with the continent’s largest oil and gas reserves.
Overall, we anticipate that the PIA will have a positive fiscal impact on Savannah, with lower gas royalties offsetting higher oil and condensate royalties and additional levies. Furthermore, a reduction in tax rates for upstream oil operations as a result of the replacement of Petroleum Profits Tax with a combination of Corporate Income Tax and a new Hydrocarbon Tax is expected to reduce cash tax costs over the life of the assets, although the lower tax rates will reduce the carrying value of deferred tax assets on upstream oil operations.
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