TIDMSAVP
RNS Number : 4320B
Savannah Petroleum PLC
20 September 2018
20 September 2018
Savannah Petroleum PLC
("Savannah" or "the Company")
Seven Energy Transaction and Operational Update
Increasing operational control and maximising value through the
gas value chain
Savannah Petroleum PLC, the British independent oil and gas
company focused around oil and gas activities in Niger and Nigeria,
is pleased to provide an update on the Seven Energy Transaction
(the "Transaction") and on operations at the Seven Assets in South
East Nigeria.
Highlights
-- Memorandum of Understanding signed between Frontier Oil
Limited ("Frontier"), Seven Uquo Gas Limited ("SUGL") and Accugas
Limited ("Accugas") to conduct a gas for oil swap at the Uquo
Field, increasing SUGL's rights to gas production from the Uquo
Field to 100% from a current 87.7%;
-- Agreement reached to acquire the 37.5% minority shareholders'
interests in Universal Energy Resources Limited ("UERL"),
increasing the Enlarged Group's interest in the Stubb Creek Field
to 51% (operated) from a current c.32%;
-- Addition of a combined 25.1 mmboe 2P reserves and 2C
resources, increasing reserves and resources being acquired in the
Transaction by c.19%;
-- Reduction in planned SUGL forward oil capital expenditure of c.US$35m;
-- Uquo swap and UERL buy-out serve to secure effective control
over the full gas value chain in South East Nigeria;
-- Wider Transaction now expected to complete in Q4 2018, with
Implementation Agreement anticipated to be signed by the end of
October 2018; and
-- Right of way works commenced in relation to the construction
of the 18km pipeline extension into the Calabar Free Trade Zone and
the greater Calabar area, anticipated to be able to supply gas to
new customers from H1 2020.
Gas for Oil Swap with Frontier Oil
Savannah is pleased to announce the signature of a Memorandum of
Understanding (the "Frontier MOU") between Frontier, SUGL and
Accugas (together "the Parties"). The Frontier MOU envisages
certain amendments to the currently existing commercial
arrangements between the Parties, including:
-- a gas for oil swap (the "Swap") between SUGL and Frontier,
such that SUGL will have ownership of 100 per cent. of the gas
project at Uquo (including associated condensate production) and
Frontier will have ownership of 100 per cent. of the oil project at
Uquo;
-- SUGL taking effective operational control of the Uquo gas
project (including control of, inter alia, gas-related capital
investment projects, design and implementation of operational plans
and day to day operations at the Uquo Gas Field), thereby derisking
the Enlarged Group; and
-- the relinquishment by Frontier of operatorship of the Uquo
gas processing facility (the "Uquo CPF").
The Parties have agreed to negotiate in good faith to agree
binding long-form documentation on the terms set out above and to
use reasonable endeavours to execute such documentation within 30
business days.
Following completion of the Transaction, the Swap will increase
Savannah's reserve and resource position as follows:
Impact on Enlarged Group Uquo Reserves & Resources
Pre-Swap Post-Swap Increase/ % Increase/
(Decrease) (Decrease)
2P Gas Reserves
(bcf) 495.5 565.0 69.5 14.0%
--------- ---------- ------------ ------------
2P Liquids Reserves
(mmbbls) 6.7 0.7 (6.0) (89.6%)
--------- ---------- ------------ ------------
2P Reserves (mmboe) 89.3 94.9 5.6 6.3%
--------- ---------- ------------ ------------
2C Gas Resources
(bcf) 63.6 72.5 8.9 14.0%
--------- ---------- ------------ ------------
2C Liquids Resources
(mmbbls) 2.1 0.1 (2.0) (95.2%)
--------- ---------- ------------ ------------
2C Resources (mmboe) 12.7 12.2 (0.5) (4.1%)
--------- ---------- ------------ ------------
2P Reserves & 2C
Resources (mmboe) 102.0 107.1 5.1 5.0%
--------- ---------- ------------ ------------
Best Estimate Prospective
Gas Resources (mmboe) 84.6 96.5 11.9 14.0%
--------- ---------- ------------ ------------
Source: LR Senergy Limited Competent Person's Report on the
Seven Assets dated 21 December 2017.
As consideration for the Swap, the following sums are due to be
paid to Frontier by SUGL:
-- US$20m, payable in US dollars upon completion of the Transaction; and
-- A further US$14.13m, payable in Naira across three yearly
instalments, with the first instalment of US$5m due twelve months
following the completion of the Transaction, the second instalment
of US$5m due twenty-four months following completion of the
Transaction and the final instalment of US$4.13m due thirty-six
months following completion of the Transaction.
The Swap is expected to lead to a significant reduction in
SUGL's 2018/19 capital investment plans, where c.US$35m was
anticipated to be spent on oil related capital expenditure at the
Uquo Field following completion. The consideration of the Swap is
therefore expected to be offset against associated reductions in
capital expenditure.
Buy-Out of Universal Energy Resources Limited Minorities
Savannah is pleased to announce that terms have been agreed upon
which, subject to completion of the Transaction, the minority
shareholders in UERL (the "UERL Minorities") will be bought out
(the "Buy-Out"). UERL, the entity which holds a 51% operated
participating interest in the Stubb Creek Field, is currently a
62.5% subsidiary of the Seven Energy Group.
The UERL Minorities have agreed to receive total consideration
of c.US$3m. The Buy-Out has been approved by UERL's shareholders at
UERL's Annual General Meeting. The Buy-Out is now unconditional
subject to Transaction completion.
The Buy-Out is anticipated to materially further increase the
Enlarged Group's reserves and resources, and to provide the
Enlarged Group with control over UERL's cost structure and full
access to UERL's share of Stubb Creek cash flows.
Impact on Enlarged Group Stubb Creek Reserves &
Resources
Pre Buy-Out Post Buy-Out Increase % Increase
2P Oil Reserves
(mmbbls) 2.5 4.0 1.5 60.0%
------------ ------------- --------- -----------
2P Gas Reserves
(bcf) - - - 60.0%
------------ ------------- --------- -----------
2P Reserves (mmboe) 2.5 4.0 1.5 60.0%
------------ ------------- --------- -----------
2C Liquids Resources
(mmbbls) 0.2 0.3 0.1 60.0%
------------ ------------- --------- -----------
2C Gas Resources
(bcf) 184.3 294.9 110.6 60.0%
------------ ------------- --------- -----------
2C Resources (mmboe) 30.9 49.5 18.6 60.0%
------------ ------------- --------- -----------
2P Reserves & 2C
Resources (mmboe) 33.4 53.4 20.0 60.0%
------------ ------------- --------- -----------
Source: LR Senergy Limited Competent Person's Report on the
Seven Assets dated 21 December 2017.
Seven Energy Transaction Update
Despite the delay caused by the negotiation of the terms of the
Swap and the Buy-Out, good progress continues to be made in
relation to the satisfaction of the other relevant conditions
precedent to completion of the Transaction.
It is currently anticipated that the Implementation Agreement,
which documents the final legal terms and steps which will be taken
to effect the Transaction, will be executed by the interested
parties by the end of October 2018. As such, the Company now
expects completion in the fourth quarter of 2018, which will be
followed in due course by the publication of a Supplemental
Admission Document.
Accugas Business Growth
Accugas has now commenced work on the Calabar Gas Distribution
Project (the "CGD Project") which involves the development of a new
18km gas distribution pipeline with the capacity to supply up to
20mmscfd (which would have the ability to generate power of 80MW).
The CGD Project is intended to link the existing c.260km Accugas
pipeline network to the Calabar Free Trade Zone and the greater
Calabar area.
Power in this region is predominantly provided through diesel
generation which is priced at a significant premium (with diesel at
c.US$15/mcf equivalent) to Accugas' current average gas price
(c.US$3.50/mcf). It is therefore believed that the gas supply
opportunity that the CGD Project presents will tap into a
significant demand hub seeking a cheaper and more regular power
supply.
Accugas has signed Heads of Terms ("HoT") in relation to the
supply of gas to three new customers at an average price of
c.US$7.5/mcf, and expects to convert these HoT into full gas sales
agreements (as well as adding further new customers) as the CGD
Project progresses over the course of the next 12 - 18 months. It
is currently anticipated that the pipeline will be ready to supply
gas to new customers from H1 2020.
Outside of the CGD Project, Accugas remains focused on sourcing
additional revenue streams and several other new projects are under
consideration. Further updates are expected to be provided to the
market as and when these projects are matured.
Seven Energy Operational Update
Average daily production from the Seven Assets for the January -
August 2018 period has been 14.4 kboepd (gross). Gas production
levels have continued to be lower than that achieved in the first
quarter of the year due to the previously announced maintenance
programme at the Calabar National Integrated Power Plant ("Calabar
NIPP"), one of Accugas' three principal gas supply customers. Gas
deliveries to Calabar NIPP recommenced in August 2018, and it is
anticipated that gas production levels will ramp up to those
achieved in Q1 over the remainder of 2018.
Gas from the Uquo field is sold via Accugas to three principal
customers through gas sales agreements ("GSAs"), with gross
take-or-pay volumes under the GSAs set at 152 mmscfd (25.3 kboepd).
Gas production in the January - August 2018 period averaged 73.1
mmscfd (12.2 kboepd, gross).
Oil and condensate production from the Uquo and Stubb Creek
Fields is evacuated via ExxonMobil's Qua Iboe oil export terminal
and is sold under a crude offtake agreement with MPN (a subsidiary
of ExxonMobil). Liquids production from the Uquo and Stubb Creek
Fields in the January - August 2018 period averaged 2.2 kboepd
(gross).
Andrew Knott, CEO of Savannah Petroleum, said:
"We are extremely pleased to be able to announce that we have
reached agreement to increase our interests in two key assets, both
through the Frontier MOU at Uquo and through the Buy-Out at Stubb
Creek. The transactions are value accretive and of strategic
significance as they afford Savannah increased operational control
across the gas value chain, and are expected to enable us to
maximise value from two attractive assets that we know very well.
The work-streams around these two deals have, inevitably, had an
impact on the Seven acquisition timetable. However, completion
remains firmly on track (now expected to be in Q4 2018), and with a
more valuable proposition for investors.
We are also very pleased to report positive news relating to
Accugas, which is now making good progress with the Calabar Gas
Distribution Project. We see this as one of the major sources of
value growth for the Nigerian gas business, and expect further
growth projects to be identified as Accugas fulfils its true
potential over the course of the coming years.
We look forward to keeping all of our stakeholders appraised of
our continued progress."
Unless otherwise defined, capitalised terms are as per the
Company's Admission Document dated 22 December 2017. A glossary of
defined terms is included at the end of this release.
For further information contact:
Savannah Petroleum +44 (0) 20 3817 9844
Andrew Knott, CEO
Isatou Semega-Janneh, CFO
Jessica Ross, VP Corporate Affairs
Strand Hanson (Nominated Adviser) +44 (0) 20 7409 3494
Rory Murphy
James Spinney
Ritchie Balmer
Mirabaud (Joint Broker) +44 (0) 20 7878 3362
Peter Krens
Ed Haig-Thomas
Hannam & Partners (Joint Broker) +44 (0) 20 7907 8500
Neil Passmore
Alejandro Demichelis
Sam Merlin
Celicourt Communications +44 (0) 20 7520 9266
Mark Antelme
Jimmy Lea
The information contained within this announcement is considered
to be inside information prior to its release, as defined in
Article 7 of the Market Abuse Regulation No.596/2014, and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
Notes to Editors:
About Savannah Petroleum
Savannah Petroleum PLC is an AIM listed oil and gas company with
exploration and production assets in Niger and Nigeria. Savannah's
flagship assets include the R1/R2 and R3/R4 PSCs, which cover c.50%
of the highly prospective Agadem Rift Basin ("ARB") of South East
Niger, acquired in 2014/15. The Company is also in the process of
acquiring interests in the cash flow generative Uquo and Stubb
Creek oil and gas fields and an interest in the Accugas midstream
business in South East Nigeria from Seven Energy.
Further information on Savannah Petroleum PLC can be found on
the Company's website:
http://www.savannah-petroleum.com/en/index.php
About the Seven Assets
The Seven Assets comprise Seven Energy's interests in the
producing Uquo and Stubb Creek oil and gas fields, and a 20%
interest in the Accugas midstream business. Both the Uquo and Stubb
Creek fields are located onshore South East Nigeria in the prolific
Niger Delta petroleum system.
About Accugas
Accugas focuses on the marketing, processing, distribution and
sale of gas to the Nigerian market. The business comprises the 200
mmscfd Uquo CPF, a c.260km pipeline network and long-term gas sales
agreements with downstream customers. Accugas provides the route to
market for the gas produced at Uquo and currently supplies gas to
power station customers that comprise around 10 per cent. of
Nigeria's available power generation capacity.
Definitions:
2P reserves proven and probable reserves
2C resources denotes best estimate scenario of Contingent
Resources
-----------------------------------------------------
bcf billion standard cubic feet; 1 bscf is approximately
equal to 166,667 boe or 23,618 tonnes of
oil equivalent
-----------------------------------------------------
CPF Central Processing Facility
-----------------------------------------------------
Enlarged Group the Company and its subsidiaries immediately
following Completion
-----------------------------------------------------
EPF Early Production Facility
-----------------------------------------------------
FUN the facilities for storing, handling and
exporting crude oil from the Uquo, Stubb
Creek and Qua Ibo fields to the QIT
-----------------------------------------------------
GSA Gas Sales Agreement
-----------------------------------------------------
kboepd thousands of barrels of oil equivalent per
day
-----------------------------------------------------
mmboe millions of barrels of oil equivalent
-----------------------------------------------------
mcf thousand cubic feet of natural gas
-----------------------------------------------------
mmbbls millions of barrels of oil
-----------------------------------------------------
mmscfd millions of standard cubic feet per day
-----------------------------------------------------
Seven Assets Seven's interests in the Uquo Field and the
Stubb Creek Field, and a proposed 20 per
cent. interest in the Accugas midstream business
-----------------------------------------------------
Stubb Creek Field the Stubb Creek marginal field located in
the OML 14 block onshore Nigeria
-----------------------------------------------------
Uquo Field the Uquo marginal field located in the OML
13 block onshore Nigeria
-----------------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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