GCISavannah Energy earnings upgrades sends shares up 7%
Savannah Energy () financial and operational update for the 11-month year-to-date period ended 30 November 2020 (the “Period”).
The Company has also announced that its Accugas subsidiary has entered into a revised gas sales agreement ("GSA") on favourable terms with Lafarge Africa PLC for the supply of gas to its Mfamosing cement plant in Cross River State,Nigeria.
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."
Financial Highlights
As at 30 November 2020, the group has a strong cash balance of US$95.6m and net debt of US$419.7m.
Total cash collections from the Nigerian Assets in the Period of US$164.3m (2019: US$124.2m);
The Company reiterated its guidance for FY 2020 Total Revenues and Group Depreciation, Depletion and Amortisation with total revenue greater than US$200.0m; with Group Depreciation, Depletion and Amortisation guidance of US$35.0m - US$37.0m.
However, the Group also revised guidance for Administrative and Operating Costs and Capital Expenditure down approximately US$25.0m to US$43.0m - US$47.0m (from US$68.0m - US$72.0m) reflective of the significant cost efficiencies and savings that have been delivered across the business in 2020.
The Company has also revised Capex 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.
Revised Lafarge GSA
Savannah's Accugas subsidiary has entered into a revised GSA with Lafarge Africa PLC ("Lafarge", formerly known as United Cement Company of Nigeria Limited) 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.
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 from 2027, with additional US-Consumer Price Index indexation from 1 January 2029.
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.
Nigeria Operations Highlights
Average gross daily Nigeria production in the Period was 19.2 Kboepd, a 12% increase from the average gross daily production of 17.1 Kboepd in the same period last year.
Average gross daily production year-to-date was slightly lower than in H1 2020 of 21.3 Kboepd, reflecting higher than expected maintenance downtime of our customers' facilities in H2 2020 resulting in their reduced gas offtake during the period.
Offtake volumes have since normalised and we are working with our customers to achieve improved alignment on maintenance programmes going forward to minimise disruption to gas offtake volumes.
Therefore, Gross Production guidance has been revised down from 21.0 - 23.0 Kboepd to 19.0 - 20.0 Kboepd.
However, the Company stresses, this does not impact on 2020 results
Total Revenues guidance due to the take-or-pay arrangements that underpin the Group's gas sales agreements; and total average gross daily production of 19.2 Kboepd in the year-to-date period, 87.6% was gas, including a 16% increase in production from the Uquo gas field compared to the same period last year, from 87.3 MMscfpd (14.6 Kboepd) to 100.9 MMscfpd (16.8 Kboepd).
Niger Highlights
Plans for delivering the R3 East development continue to progress with the intention to commence installation of an Early Production System by the end of FY 2021, subject to market conditions and financing.
Shares in SAVE have recovered from lows of 7.67p over the past three months to over 9.6p in early morning trading post the financial and operational update.
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