Upbeat note out by Mirabaud this morning. They have maintained their BUY recommendation on the stock, with a target price of 125p/shr, almost 5x the current share price.
Savannah Petroleum – Good vibrations
Savannah hosted an analyst site visit to Niger last week, during which it reported on recent operational progress in the Agadem basin and unveiled a strategic tie-up with the Nigerian state affiliates NNPC and NNDC. A busy few months lie ahead, with talks to sign a rig for exploration drilling expected to draw to a close in January, setting the countdown to the company’s first exploration wells. The fully funded, multi well drilling programme will likely kick off with Damissa (93 mmbbls prospective resource), which is expected to spud in late Q1 / early Q2. Meanwhile the ongoing 3D seismic programme should complete early next year, ready for analysis by the end of Q2. Talks are well advanced with regards to a new export route option to a major, under-utilised refinery in northern Nigeria, and even the possibility of trucked early production with attractive economics. The Chad Cameroon route remains on the cards, however alternative options can only help in driving forward a final decision, and, indeed may help galvanise the ongoing farm out negotiations.|
Looks like Savannah is hosting a retail call for shareholders at 11am on the 1st December.
If you would like to participate in the conference call please contact Jimmy Lea at Celicourt Communications via email at firstname.lastname@example.org|
Please see below a link to a Proactive Investors interview of Savannah's CEO, Andrew Knott.
|Hi all - Thought you might like to see Mirabaud's positive take on yesterday's releases.
After the close yesterday, Savannah Petroleum (SAVP LN) announced an upbeat operational update and separate strategic tie-up with the Nigerian Government for operations in neighbouring Nigeria. The timing of the announcement was designed to coincide with an analyst site visit and presentation that took place yesterday in Niger.
The Nigerian deal is multi-faceted. Firstly, a Memorandum of Understanding (MoU) has been signed with State-owned affiliates NNDC and NNPC to provide technical assistance to their northern exploration arm, FES (Frontier Exploration Services), in the Nigerian portion of the Central African Rift System. FES has received approval for a ~5,000km2 3D seismic programme (which is already underway) and six well drilling campaign in this area (starting in 2017) amidst a Government push to regenerate the north of the country under President Buhari. The driver for FES is that SAVP has a significant database and technical understanding of the Niger portion of the Central African Rift. Meanwhile, in exchange for its involvement, SAVP expects to earn a back in right (to be determined in further talks) in a success case, providing meaningful optionality in a new exploration frontier without any of the associated capital costs.
Secondly, in parallel with the Nigerian & Niger Governments and other stakeholders, SAVP has established a more profitable export solution for any oil discovered in its Niger licences. This will involve the export of crude (initially via truck, prior to the construction of a pipeline) from the Agadem basin to the Kaduna refinery in north-central Nigeria, located ~800km away (this option was not considered a priority under the former Goodluck Jonathon administration in Nigeria). Construction of the pipeline is expected to funded by a pipeline consortium, likely including the Governments of Nigeria and Niger, SAVP (through a separate infrastructure SPV) and other third parties. This provides an alternative export route and therefore reduces dependence on the CNPC’s sponsored Agadem-Chad export line. It also has two other key advantages for SAVP: firstly it will enable early exports via truck, potentially bringing forward production and cash flow. And secondly, it is economically more attractive. Running a long term oil price of US$60/bb (inflated at 2%) SAVP estimates a breakeven (10% IRR) of US$35/bbl for trucked crude to Kaduna and just US$26/bbl if the crude is piped. We would add that these economics have been independently verified by CGG (SAVP’s reserve auditor) and include significant capital cost savings (maximum cash draw-down to first oil now US$200m vs. US$410m before) achieved through the transfer of capex into opex (the most significant aspect of which is the inclusion of an early production facility using a material amount of rental equipment).
Turning to the operation update, SAVP continues to make solid progress on the ground in Niger with 3D acquisition underway in the R3 block and completion seen in February 2017. This ~800km2 dataset will take about four months to process and interpret, providing further definition on the 2D-defined structures in the block (numbering 12 prospects) and potentially unlocking new targets. As planned, drilling is set to commence in mid-H1 2017, most likely on the Damissa prospect in R1 (93 mmbbls of prospective resources) which already has 3D coverage, followed by Bushiya (37 mmbbls) and Kunama (35 mmbbls) in R3. A drilling contract is expected to be sealed in January 2017 and will conclude 3 firm wells and multiple optional slots. Having raised US$40m of equity over the summer the company is funded for up to 5 wells from its own cash resources with the potential to unlock considerable value. Assuming five wells targeting ~200 mmbbls on aggregate, we estimate total unrisked upside of 194p/shr – compared to the current share price of 27.5p/shr – even before factoring in the economic improvements discussed above.
Overall, yesterday’s update brings several new elements to SAVP’s story that enhance the investment case in our view. The establishment of the exploration tie-up with FES brings material optionality at low cost, whilst the new export route provides an alternative to the Chad pipeline and enhances project economics – emphasising the attractive breakeven price for Agadem crude (something that can do no harm in ongoing farm-out talks). For the market, meanwhile, confirmation of SAVP’s low risk, multi-well drilling campaign in H1 may be of more importance. Once a drilling contract is signed and the timeline is set in stone we see this as the key catalyst for a re-rating of the shares.|
|ngms .. hear what you are saying about country risk in Nigeria .. but think now that the Chinese pipe toward Chad might just drop its tariff and the breakeven of $43 by that route could therefore move down.
And as Zen points out, "pipeline risk" is now much lower as a result of having alternative routes.
It's similar to the situation of having two oil prospects that are geologically totally unconnected .. the chance of at least one of them being successful is much better than the average cos of the two fields.
It's clear that the Niger gov't is also of the view that its stake in this is best served by riding two horses.
|Lets hope you are right and they don't start sinking monies (by diluting) into the Nigerian cesspit in 2017|
|You might find that the MOUs will help with the 2nd oil route into the Nigerian refinery and there's a bigger picture to play out in making the assets attractive to a future buyer.
The basin is huge and as much again extends across the border into Nigeria so who knows what the reasons for this kind of understanding. Maybe there's much can be learned from what SAVP have carried out to date in the their basin section.
The Niger ops are going to be moving well ahead of anything in Nigeria so it's not an issue at all for me.|
|Why they just cannot concentrate on Niger I don't know. Just a mention of the word Nigeria is enough to spook me. It's probably the most corrupt place on the Planet.
Just drill and prove up resource in Niger and shareholders will be very happy, forget Nigeria.|
|Thanks Zengas, it seems reasonable to expect more news from this partnership as at the moment the Savannah team are providing expertise in the analysis of new prospects in Nigeria but I am not clear what Savannah are getting out of it. Farm in partners bringing cash to speed development would be great. Good news on a second export option, anyone with experience of Kurdish oilers will know how key that is.|
|Possible farm in partners but also looking at additional opportunities on the Nigerian side of the Agadem rift basin.
MOUs signed with NNDC and NNPC in relation to collaboration between the three parties in the Nigerian section of the Central African Rift System.
Under the terms of the MOU, the parties will establish Technical and Steering Committees to manage the process of evaluating the technical and commercial prospectivity of this materially underexplored region.
Savannah expects to enter into additional agreements over time with NNDC and NNPC and is also in discussions with its new partners in relation to the pursuit of other potential opportunities in Nigeria. Further updates will be provided as appropriate.
Dr Mazadu Bako, Group General Manager of Frontier Exploration Services NNPC, said:
"We are delighted to commence working with Savannah Petroleum in the Nigerian portion of the Central African Rift system. Savannah's technical knowledge and experience of working in the Niger section of this system is a major asset for NNPC as we look to unlock the potential of this area."
Dr Ahmed Muhammed, Group Managing Director of NNDC, said:
"We are privileged to be in a strategic partnership with NNPC and Savannah Petroleum. This partnership lays a foundation for deeper economic ties and would enable us to contribute towards the achievement of the energy security strategies of the Nigerian government. In addition, NNDC reaffirms its commitment to a successful and mutually beneficial relationship with our financial and technical partner, Savannah Petroleum."
Andrew Knott, CEO of Savannah Petroleum, said:
"Savannah is very pleased to announce its partnership with NNDC and NNPC. We very much look forward to leveraging our experience gained from working in the Niger section of Central African Rift to assist in the exploration of the Nigerian section."
The New Nigeria Development Company Limited (NNDC) http://www.nndcgroup.com.ng/content/about-nndc
The Nigerian National Petroleum Corporation (NNPC) http://nnpcgroup.com/AboutNNPC/CorporateInfo.aspx|
|From the update
Break-even price down to $26/b from previous $43/b.
Now 2 export routes against just one previously.
Expected in-ground value per barrel of $5.10.
Well drilling for a minimum of 3 wells for contract signature in January.
93 mmbls on Damissa structure on R1.
37 mmbls Bushiya structure on R3.
35 mmbls Kunama structure on R3.
Those are the recoverable estimates with Damissa and Bushiya classed as low risk in Septembers presentation.
118 exploration targets.
800km2 3D survey to be completed in February and should show up additional exploration targets (and once again increase the *recoverable* oil potential which currently stands at 2.185 billion bls).
Steve Jenkins, Chairman of Savannah Petroleum, said: "We are very pleased that this work has validated our reasons for entering the ARB in the first place, i.e. that our permit areas contain a large volume of low-risk and low cost oil structures - and are very excited to shortly be moving into the drilling phase of the project".|
|The analyst meeting is going ahead this week, investor relations contact is in Niger now, RNS update planned for this week.|
|No, assuming it is going ahead in Nov, the analysts must have already received their invitations ... at least we can be sure that if anything material is discussed, there will be an RNS just ahead of the beginning of the meeting ... it's possible there has been a delay to something important "in the pipeline" e.g. something to do with the err pipeline!|
|Does anyone know a date for the analyst meeting in November or indeed if it's going ahead ?|
|I can hardly imagine Savp financing an on site presentation to a bunch of City analysts without there being something of substance to be announced. And I'm not referring to an equity placing, though these things do get tied in sometimes.|
|Fully agreed taudelta. After the O & G Analysts return from their travelling to Niger with SAVP this November an update should be forthcoming re : the pipeline.|
|New presentation on website today very interesting ... one of the slides concerning the geology quite encouraging for gcos after 3D given trapping structures. Think the big thing for this stock will be news on the export pipeline (good that it won't involve Nigeria IMO) ... I wonder if we will hear of developments on this front in November (another slide refers to SAVP's rights to equity participation in the pipeline) .. GLA|
|Normally you would use 2D to find any interesting structures then use 3D to define structures found on 2D in greater clarity.
Many prospects are drilled on 2D alone.|
|Is it a straightforward answer that 3D seismic is always preferable to 2D seismic, even allowing for the additional costs involved? I presume SAVP would not contemplate 2D in Niger if it had the choice, which it does now in Block R3.|
|From Africa Intelligence article (subscription)
The only company active in Nigeria apart from CNPC and Sonatrach, Savannah Petroleum is winning sweeteners in its contracts with government.
The general manager of Savannah Petroleum, Andrew Knott will be flying to Niamey early this month to join with oil minister Foumakoye Gado in formally ratifying two decrees modifying the firm’s production sharing contracts. The decrees were adopted by Niger’s cabinet in early September.
The amendments reduced the work commitments of the British junior, which operates the R1, R2, R3 and R4 licenses in the Agadem basin.
Savannah is no longer obliged to start with a 2D seismic survey before moving on to 3D.
As a result, it launched a 3D survey directly at the end of September on block R3, retaining China’s BGP for the operation, and plans to start drilling early in 2017.
In addition, Savannah is expected in coming weeks to confirm an agreement with Niger’s government to buy into the Niger Oil Transportation Corp (NOTCO). The firm, set up to build and operate Niger’s section of the Niger-Chad-Cameroon pipeline, was formed in early 2015 to export crude from Agadem.
NOTCO’s shareholders include China National Petroleum Corp (55%), Chad’s government (5%) and that of Niger (15%).
Until recently the remaining 25% was owned by the private firm Niger Energie Services dropped from the project because it didn’t have enough money to pay its share.
One of NES’ stakeholders is reportedly Nigerian businessman Alhaji Dahiru Mangal who owns the oil firms Labana and Advantica Gas & Energy whose licenses in Niger were recently withdrawn.
As a partner in NOTCO, Savannah clearly hopes that work on the pipeline, conducted by CNPC Exploration & Development Co (CNODC) can get off to a quick start.
Elsewhere, Savanah is expected to win from the adoption of a new oil code the authorities are drafting by the end of this year at the behest of the World Bank.
The new legislation will allow it to obtain a two-year extension of its PSC instead of the current one year.|
|All early stage explorers lose money until such time as they actually produce sufficiently. The loss per share is miniscule for the half year.|
|Thx steelwatch, I was being lazy by copying over the earlier poster's number.
No matter, I am still perplexed by the possibility of a loss crank-up next year. I guess that's where a farm-in partner will come in very handy.|
|Divmad - Accounts stated all in US$, not £|
|What I don't get is, if SAVP lost £4.3mn in an activity-light period ending June 30th, what will be the drain on cash in 2017 when the engines get cranked up?|