Savannah Petroleum Share Discussion Threads

[zengas] 07/9/2019 20:45

Back in Q1 2018 Savp appointed Sir Stephen O'Brien a former African envoy for David Cameron and ex Tory MP. It was reported in 'Africa Intelligence' that we were using a "discreet" Nigerian lawyer - Muhammadu Dikko Ladan as well as Micheal Watchel head of Clyde and Company (lawyers) Oil and Gas practice.

While i have always beleived in the transaction completing re the Seven Energy assets, it's worth noting some other connections that will imo be extremely advantageous to Savp as i believe it will build out to a circa £2b+ m/cap company.
While Sir Stephen is vice chairman and M Watchel is a NED at Savp, at subsiduary level - M.D Ladan was reported as chairman of Savannah 'Nigeria'.

Katsina state borders Niger.

President Buhari is from Katsina state and a MOU was already agreed between Niger and Nigeria to build a 100-150k bopd refinery at Mashi in Katsina state. This was solely to take Niger Agadem crude. Pres Buhari/Nigeria tried to sway the chinese to supply oil from Agadem but apparently can't because it has signed committment to the Benin government on the coast for most of its oil.

For now the refinery is stalled as a 100-150k bopd refinery needs 36-55 million bls/year. It just needs a sufficient oil supply.

A Nigerian investor Ibrahim Zakari (Blak oil Energy) was in the process of securing $2b worth of funding from international investors for the Katsina refinery.
President Buhari wants the refinery project to go ahead as it will bring something like 2,500 jobs to the Mashi area in Katsina.
Meanwhile Nigers President only recently said, in in a few years they hope to be an OPEC member and producing 500,000 bopd ? Where's it coming from and where's it going to go?
Niger and Nigeria obviously need this mutually beneficial major project or as many as possiblefor Niger to produce those sort of numbers - all good for the likes of Savannah Petroleum.

Back to SAVP -The Savannah Nigeria subsidiary Chairman is lawyer Muhammadu Dikko Ladan and is from a long line of Emirs' in President Buharis home state of Katsina. Muhammadu Dikko stadium in Katsina state is the 5th largest in Nigeria. He was also appointed as an honorary consul by Niger to the UK in 2011. Imo an extremely important figure with significant connections for Savp that we have actually heard little about until i suppose the Seven Energy deal is fully ratified shortly but should prove very positive and helpful for our operations in Niger and turning Savp into a major company.

[mount teide] 07/9/2019 20:35

Some comments from Goehring & Rozencwajg's latest market commentary:

A Tight Second Half: Implications for the Oil Market - Goehring & Rozencwajg Natural Resource Market Commentary

'While it is true that Norway and Brazil will both bring on new projects in 2020, our models tell us this will not be enough to offset declining legacy production and grow anywhere near the rates the IEA is calling for.

In total, even if we make aggressive assumptions, we cannot see how conventional non-OPEC production will grow by more than 300,000 b/d next year – and this figure could disappoint.

Moreover, post-2020 major new project startups grind to a virtual standstill and we expect conventional non-OPEC production will fall dramatically.

Finally, the IEA is projecting total US production to grow by 1.7 m b/d in 2019 and 1.3 m b/d in 2020. Earlier in this letter, we explained how our new “neural network” can be used to try and project future production levels.

According to our models, this year’s growth projections may be attainable, but next year’s figures seem too aggressive. However, we should point out that so far in 2019 shale basin production has lagged both the consensus models and even the models being produced by our new neural network.

For example, for the first five months of the year, the Eagle Ford has declined by 26 k b/d while the Bakken is basically flat and the Permian has grown by 170 k b/d. This represents the slowest start to the year since production declined outright in 2016, a deceleration of 68% compared to the first five months of last year.

As a result, we believe both the IEA’s and our own projections may have to come down significantly.

While the consensus crowd remains worried about an oil glut next year, we are concerned about a market that is too tight. The backwardation that persists in both the WTI and Brent market today confirms that the physical market is very tight.

The strange apparent demand behaviour from April and May appear to have been isolated incidences and both US and OECD inventories are once again drawing relative to seasonal averages.

As inventories continue to draw in the second half, the oil price should move sharply higher. At the same time, investor sentiment is as negative as we have ever seen it. This has created unbelievable value in the space today with many names trading below their 2016 levels when oil was $26 per barrel. We rarely see opportunities like this and recommend a full allocation to oil related investments.'

[mount teide] 07/9/2019 20:34

Divmad - S&P GSCI is made up of a basket of commodities - O&G represents a massive 78.65% of the index, with Industrial Metals and Agriculture the next largest constituents.

Commodity equities in the recovery stage of the long market cycle offer a leveraged play of the underlying commodity - as mentioned previously, there has historically been a 2-3 year lag following the commencement of a new commodity market cycle(H2/2016), before the associated commodity equities started to catch a strong bid and commences a multi year bull market.

'relative attraction of Gold to industrial metals?' Not specially - they are currently bullish on both.

[divmad] 07/9/2019 19:20

Some good posts, MT Just to be clear, in the key long term relative graph you mention, is the S&P Commodity Index made up of commodity type equities, or simply a basket of the underlying commodities?Do the authors make any comments on the relative attraction of Gold to industrial metals?

[mount teide] 07/9/2019 13:54

Commodity pricing v Commodity Stocks pricing

As mentioned in previous research posts I've made over the last year on the JTC thread the identical anomaly Goehring & Rozencwajg highlight in the above post - the price action differential between commodities and commodity stocks - occurred during the recovery stage (2000 - 2008) of the last commodity/shipping market cycle, and those previous to that.

The S&P 500 during the 2000-2002 recession went down 46% and some 4 years later in 2006 was still in correction territory some 20% down. Oil, Copper and the BDI, similar to today, were in a completely counter market cycle trend to the wider economy and traded on their fundamentals.

Oil, copper and the BDI never fell at all during 2000 to 2006 and were up by 250%, 498% and 460% respectively by 2006, before reaching all-time highs during 2008 - 2010, whereupon counter to the wider market commenced a circa 7 year decline/recession phase, bottoming in 2016.

How did oil, mining and shipping equities fare during 2000 to 2006? Despite oil, copper and the BDI surging off their 2000 lows into a new bull market, there was a lag of 2-3 years before most of their equities attracted a strong bid and took off on a 6/7 year bull run peaking in 2009/10.

BHP bottomed in 1999 at £1.09, by 2006 it had reached £11.80 and, £21.58 by 2008 and topped out at £26.10 in early 2010 - giving investors a 11 bagger plus dividends over a period that saw the S&P 500 return a 20% LOSS plus dividends, and 24 bagger by the 2010 peak.

Premier oil bottomed in 2000 at 29p, by 2006 it had reached 271p before peaking at 519p in 2010/11

Clarkson Shipbroker bottom in 2000 around £0.90, by 2006 it had reached £9.00

Oil, copper and the BDI dropped by 76.4%, 56.9% and 98.2% respectively between 2009/10 and the recession low in 2016. They have since risen by 69.6%, 32.3% and 741% respectively while oil, copper and shipping stocks are mostly still less than 15% above their recession lows.

Importantly, today, oil, copper and the BDI would still have to rise by a further 154%, 73% and 372% respectively just to get back to their inflation un-adjusted 2008-2010 highs of the last market cycle.

Consequently, this could be the most important chart of 2019:



It charts the third generational low in the commodities/S&P500 equities relationship since the late 1960s. The previous 2 lows following mean reversion were eventually followed by generational highs.

Every low occurred after a general collapse in commodity prices due to excess supplies, NOT TO ECONOMIC RECESSIONS, sharply rising equity prices or a period of strengthening dollar.

After reaching the mean, commodities kept outperforming as equities completed their bear phase. In total, S&P500 equities collapsed circa 46% in both 1973-74 and 2000-02 from peaks reached 11 and 8 months prior to the official start of a recession respectively.

If it were not for the US Investment banks throwing hundreds of $billions at the US shale industry over the last decade - an industry which is still mostly unprofitable under $60 bbl and has hundreds of $billions of debt they are now mostly failing to service - oil would probably never had dropped back much below $80 bbl, its mean price since the 2008 financial crash.

The shipping, oil and industrial metal markets have largely remained tied at the hip for most of the last 50 years and counter cyclical to the wider economy - it would take a very courageous investor to bet against a material change in that close relationship.

Brent averaged $95 between 2008 and 2016 and $82 between 2008 and 2018, so today's $62 is some 25% below the level oil averaged during the decade following the global financial crash!

Despite this, Oil, and Copper and their equities have still outperformed Gold as a store of value against inflation by multiples over the last 30 years.

AIMHO/DYOR

[mount teide] 07/9/2019 13:53

Goehring & Rozencwajg - Natural Resource Investors and Fund Managers - Issued a new report today investigating the huge anomaly between the pricing of commodities and their equities.

Well worth a read.

Global Resource Anomaly: Commodities versus Commodity Stocks - Goehring & Rozencwajg

“The physical commodity markets and the natural resource equity markets are telling two drastically different stories.”

At Goehring & Rozencwajg, we are deep-value, contrarian investors. For nearly 30 years, we have been studying long, drawn-out bear markets. One of our observations over the years has been that distinct anomalies develop at or near the bottom of these protracted periods of investor negativity.

As investors become increasingly panicked, reason often gives way to strong emotional responses. As value investors, we are inclined to doubt the efficient-market hypothesis.

However, we do agree that the broad market serves as an aggregate measure of investor expectations. Therefore, whether the market is right or wrong, you would expect its views to be internally consistent. While this is true most of the time, there are distinct periods where emotion takes over entirely, and Mr. Market appears to offer contradictory advice.

We believe these periods are often associated with major market turning points and so we study them intensely. Today we would like to touch on one major anomaly currently underway that we hope is a sign we’re nearing a capitulation bottom in the commodity markets.

The largest anomaly we see today is the price action between commodities and commodity stocks.

We were quoted in Barron’s on June 28th, 2019. The article discussed how the first half of 2019 was the strongest start for commodity prices in 11 years. The Goldman Sachs Commodity Index advanced by 13% over the first six months of the year to end at 2,497, the highest first-half advance since 2008.

Since the bottom in February 2016, the index has advanced by 32%. Focusing on oil, WTI advanced by 30% during the first six months of the year, making it the second highest reading in 11 years. Oil prices are now 125% above their February 2016 lows.

An energy equity investor, however, experienced something very different. For the first six months of the year, the S&P Oil & Gas Exploration and Production Index was up only 3%, the sixth worst start to the year in the past two decades.

Since oil bottomed in February 2016, this same group is up less than 5%, lagging the commodity price by 120 percentage points. While larger capitalization energy stocks did better since the market bottomed in 2016, even the market-cap weighted natural resource stock index only returned 21% over the same period.

The discrepancy in the oil service stocks has been even more stark. For example, since the oil market bottomed in February 2016, the OSX is down 41% despite the doubling of the oil price. So far this year, it is down 3% despite the best start for the commodity markets in over a decade.

The physical commodity markets and the natural resource equity markets are telling two drastically different stories. The physical markets are telling you that chronic tightness has emerged in several commodities, while the equity market is telling you the whole sector is nearing distress.

Notably, this alleged distress is not being reflected at all in natural resource-related bond prices, often a good indicator of potential trouble. We believe this divergence is incredibly important. Rarely do the commodity markets and natural resource equity markets differ so materially. This divergence should not be ignored.

One interesting measure of global commodity demand is the BDI Baltic Exchange Dry Index. This index represents the price to ship dry bulk goods and is a composite of Capesize, Panamax and Handysize vessel day rates. While other factors, including the supply of new vessels, can certainly impact this index, it is often used as a real-time barometer of global commodity demand.

We cannot reconcile the idea that global commodity demand is slowing at the same time as the cost to ship that demand is surging at the second-fastest rate ever.
While none of these anomalies on their own prove that we are nearing a turning point, we do believe they point to a natural resource equity market that has been gripped by fear and panic.

For many investors, last fall was the final straw and we keep hearing of clients who swear never to re-enter the natural resource markets again. As contrarian value investors, these are precisely the markets we like to get involved with. We believe these anomalies are indications that equity investors are not acting rationally, but rather are extrapolating a never-ending trend. The indications are stacking up that this commodity equity bear market is living on borrowed time and that a turning point is fast approaching.'

[honestmarty] 06/9/2019 18:45

The relative slide started 105 years ago.

Why should it stop now?

[zeusfurla] 06/9/2019 18:36

Let's keep politics out of this board please. All of our political class has collectively failed us and failed to govern the country effectively. Without a new approach to politics our slide as a nation will continue.

[mount teide] 06/9/2019 17:15

HM - its nearly three weeks since the announcement of the Presidential Consent for the 7E deal, so could well be savvy short term traders taking positions ahead of the weekend in the expectation that further price sensitive news in connection with the remaining elements of the 7E Deal completion process could drop at any time.

Our beloved Democracy would be the biggest loser if the duplicitous remainer parliament failed to deliver the result of the Referendum - also bear in mind a new government could repeal the No Deal Law, so it would be wise not to underestimate the potential for a BORIS / FARAGE Pact to emerge over the weeks ahead, which would likely gain a large majority at a GE according to the latest polls and election odds.

[mount teide] 06/9/2019 16:44

Strong volume into the finish with a 24.2p UT

[sunbed44] 06/9/2019 12:57

little seller bin mugged

[sunbed44] 06/9/2019 10:50

yeah looks like the traders got there teeth in to rrl now big time dead here today roll on next week

[divmad] 06/9/2019 08:35

Nope, they're too busy scrambling to get back in after the short squeeze that never was.

[sunbed44] 06/9/2019 07:53

gonna be some big sellers dumping eco very rapidly on the open today wonder if any of there hard earned will be funnelled in to here maybe eh heres hoping

[sunbed44] 05/9/2019 13:50

yeah nearly fifty p and nearly seventy p i believe

[divmad] 05/9/2019 13:45

Not to mention the uplift required for management options to be in the money.

[mount teide] 05/9/2019 12:08

Many PI's sitting pretty compared to our fellow Savannah II's?

$50m raised at 56p / 131m shares in issue.
$36m at 38p / 175m shares in issue.
$40m at 38p / 273m shares in issue.
$125m at 35p / 817m shares in issue.
$23m at 28p / 879m shares in issue.

Savannah has raised a total of $274 million overwhelmingly from a broad range of high quality institutional investors.

It's important to bear in mind that the average price of their combined holdings acquired from these placings is 39.07p - from today the share price would have to increase by 70% JUST to get to their collective BREAK EVEN!

[mount teide] 05/9/2019 10:24

The large buyer is clearly working from the position that it's a far better investment at a 20% discount to the last placing price with the Receipt of Ministerial Consent for the 7E Transaction tucked safely away in his back pocket than to pay 28p without it.

The logic is impeccable.

[shareideas1] 05/9/2019 10:15

Sometimes boring is good after a trip from mid-20s to 12p and then back again! Long term rewards will be great for those with the patience and stomach for it!

[sunbed44] 05/9/2019 10:11

very logical and level headed post and totally agree just boring waiting for the boom and the herd

[shareideas1] 05/9/2019 09:44

Didn't mean "day trading" but rather dancing around each day and transacting off order book

[shareideas1] 05/9/2019 09:41

There is clearly both a decent size seller and buyer about dancing around it day trading off order book (and hence intra-spread)... all healthy at around the 23p level while we await the next newsflow catalyst...

[sunbed44] 05/9/2019 09:23

but twenty two point two five to sell new very strange

[sunbed44] 05/9/2019 09:22

two mill buy thats why mate