WTI $47.74 -$1.36, Brent $50.91 -$1.35, Diff -$3.17 +1c, NG $2.70 n/c

Oil price

Nothing much to report as markets start to move into pre-Christmas mode, oil fell after the Covid variant made its presence felt but the dollar remains weak.

Retail gasoline in the US are rallying ahead of the holiday, the average price across the continent is $2.224 a gallon which is up 6.6c w/w, 12.2c m/m but down 30.8c y/y. Given that it looks like Americans are travelling by air this Christmas there is some decent pick up in jet fuel.

Savannah Energy

A financial and operational update from Savannah this morning. Group cash balance of US$95.6m and net debt of US$419.7m as at 30 November 2020 with total cash collections from the Nigerian Assets in the year-to-date period ended 30 November 2020 of US$164.3m (year-to-date period ended 30 November 2019: US$124.2m).

SAVE  reiterate guidance for FY 2020 Total Revenues of greater than US$200.0m and Group Depreciation, Depletion and Amortisation guidance of US$35.0m – US$37.0m.

The company are also revising guidance for Group Administrative and Operating Costs and Capital Expenditure such that revised Group Administrative and Operating Costs guidance of US$43.0m – US$47.0m (from US$68.0m – US$72.0m) are reflective of the significant cost efficiencies and savings that have been delivered across the business in 2020. In addition, revised Capital Expenditure guidance of approximately US$8.0m – US$10.0m (from up to US$45.0m) primarily due to rescheduling of the capital expenditure programme and the deferral of drilling a new gas production well on the Uquo field, with the Accugas compression project now accelerated and expected to commence in early 2021.

In addition, Savannah’s Accugas subsidiary has entered into a revised GSA with Lafarge Africa PLC for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria. This revised GSA establishes a more sustainable long-term contractual position for the benefit of both parties and importantly the revised GSA sees the contract term with Lafarge extended for a further five years to January 2037, giving a remaining contract life of 17 years.  The new agreement also allows for an increase in the gas sales price until 2027, with additional US-Consumer Price Index indexation from 1 January 2029.

‘The revised GSA has a reduction in the daily contracted quantity (“DCQ”) of gas from 38.7 MMscfpd to 24.2 MMscfpd. This reduction in the DCQ will allow Accugas to release approximately 12 MMscfpd of currently reserved gas processing capacity at the CPF, enabling Accugas to enter into additional long-term GSAs for these volumes, which will increase the business’ future revenues and cashflow potential. To compensate Accugas for this reduction in DCQ, the revised GSA includes an advance payment of US$20million and a prepayment structure over the period to 2027, which effectively results in an increased gas price of US$7.50/Mscf (compared to the previous US$5.0/Mscf) on take-or-pay volumes during this period.  This revised structure also allows Lafarge to utilise its accumulated make-up gas balance of approximately US$58 million, whilst we have preserved the capacity to supply higher volumes when these are required by Lafarge. Lafarge’s commitments under the revised GSA will continue to be guaranteed by an international investment grade bank guarantee’.

Overall, the revised terms are expected to have a cumulative positive impact on Accugas’ cash flows over the short and medium term. Following the agreement, Accugas’ aggregate maintenance-adjusted take or pay volume will reduce from 141.4 MMscfpd to 131.8 MMscfpd.

In Niger, to deliver the R3 East development, Savannah intends to commence installation of an Early Production System by the end of FY 2021, market conditions and financing permitting, and intends to deliver its initial production of 1.5 Kbopd to the Zinder refinery in Niger.

Subsurface work has been progressing well following the completion of the company’s Pre-Stack Depth Migration processing of the R3 East seismic in 2019. Savannah has now completed the seismic interpretation of the R3 East area. The PSDM dataset shows an overall improvement in the interpretation of faults and horizons, supported by attributes analysis which has also improved Savannah’s structural, stratigraphic and sedimentological interpretations. Based on the newly interpreted PSDM, 3D geocellular models have been built for the Amdigh and Eridal discoveries. The resulting oil in place volumes are in line with previously reported estimated figures from the Niger CPR dated April 2020.

Significant further potential on the Savannah PSC areas remains, with 146 further potential exploration targets having been identified for future drilling consideration as Savannah looks to follow up on its highly successful R3 East drilling campaign in 2018, which saw five exploration discoveries from five exploration wells. The R3 East portfolio is currently being re-evaluated based on the newly interpreted PSDM seismic dataset with a focus on the deeper Cretaceous plays.

Andrew Knott, CEO of Savannah Energy, said:
“Taking into account the challenging market conditions in 2020, I am pleased with the way the Savannah team and the wider Group has performed. Today, we are reiterating our Total Revenues guidance, reducing our cost guidance by US$25m and are set to deliver record Nigerian cash collections and production volumes in 2020. The deal with Lafarge Africa is also a significant “win-win” for both parties; Accugas is receiving a higher effective gas price in the near-term years, accelerating near and medium term cashflows, our contract with a key customer is being extended for an additional five years and significant spare capacity is being freed up, which we can sell gas to other customers. All while Lafarge Africa is able to utilise its existing make-up gas balance.

We are looking forward to 2021 with excitement as we continue to work with our stakeholders to develop and grow our business for the benefit of all.”

SAVE continues to deliver the goods with maintained guidance on Total Revenues and reduced costs, in addition the Lafarge deal is genuinely very positive. Combine that with news on Niger coming back into the picture should prove a realistic chance of a significant rise in the share price next year.

I have Savannah in the 2021 Bucket List for good reasons, the shares are way too cheap on any analysis and this update shows just how well the company is performing. There is no reason why investors should not target nearer 50p than the current change from 10p giving realistic chances of a 5 bagger or more.

Angus Energy

Following their recent modest raise and after a busy year I was able to catch up yesterday with George Lucan, CEO of Angus Energy. Despite Covid it has been a  busy year and the company are well placed to go into 2021 with much to look forward to. Here is the link to the interview.

Core Finance CEO interview: George Lucan of Angus Energy

President Energy

President has announced that a new treatment plant is to be built in Rio Negro with a projected completion of August 2021, it will eliminate third party treatment costs with total savings estimated at $2.5 million per year.

The $5 million aggregate cost of project is to be funded by a favourable new Peso based, medium term loan provided by Banco Hipotecario. Of the US$3.7 million bank loan outstanding at the half year, US$2.2 million has already been repaid.

The Paraguay farm-out negotiations materially advanced and negotiations with a substantial and reputable National Oil Company in relation to a farm out of the Pirity Concession, Paraguay have materially advanced recently with the next step to negotiate and agree legal documentation which follow the form of the AIPN international precedent documentation for operating and farm out agreements.

‘President’s principal focus has been on a contribution to well costs and finding a partner with sympathetic aims and ambitions. Inter alia under the terms of the deal under discussion, President will remain operator and retain a 50% interest in the relevant Concession’.

Peter Levine, Chairman, commented,
“The new plant will materially reduce opex and produce improved cash flow and bottom line profits.

“The benefits are enhanced by the funding terms which are projected to have a zero or even negative interest rate thanks to the Government’s initiative for which President is appreciative. President is likewise grateful to the Province of Rio Negro and its partner EDHIPSA for their continued support and encouragement.

“The funding underlines the debt capacity and good credit standing of President and the project demonstrates the commitment of the Company to constantly find ways to improve its margins and profits.

“As to Paraguay, in relation to the farm out, it is still very much a matter of step by step with each step bringing one closer to a positive outcome. In this regard although patience is required and whilst there can be no guarantees, we are encouraged by the progress to date and are cautiously optimistic as to a successful conclusion.”