TIDMSAVP
RNS Number : 6797A
Savannah Petroleum PLC
31 May 2019
31 May 2019
Savannah Petroleum PLC
("Savannah" or "The Company")
2018 Audited Annual Results
Savannah Petroleum PLC is pleased to announce its full year
audited results for the period ending 31 December 2018.
Highlights
Niger
-- Safe and successful completion of the Company's maiden
exploration drilling campaign in Niger, delivering five discoveries
from five wells on the R3 East portion of the R3/R4 PSC;
-- Confirmation of Savannah's intent to develop a
domestic-focused early production system ("EPS") utilising
resources discovered on R3 East, with oil expected to be sold into
the Société de Raffinage de Zinder ("SORAZ") refinery, which is
connected to the ARB via the third party owned 463km Agadem-Zinder
crude oil transportation pipeline;
-- Net capital expenditure to first oil expected to be less than
US$5m, with external financing requirement 60% lower vs. the
Company's conceptual development solution announced in November
2016; and
-- Signature of a Memorandum of Understanding ("MOU") between
Savannah's Niger subsidiary and the Ministry of Energy and
Petroleum ("MEP") in Niger in relation to the planned EPS, setting
out the MEP's commitment to support Savannah's EPS by facilitating
infrastructure access agreements between Savannah Niger and
third-party oil processing and transportation infrastructure.
Seven Energy Transaction
-- Successful completion of US$125m placing in February 2018 to
fund, inter alia, the acquisition by Savannah of certain assets
from Seven Energy International Limited ("Seven") ("the
Transaction" or "the Seven Energy Transaction") and including the
acquisition of Seven's 10.25% Senior Secured Notes ("SSNs") by way
of an Exchange Offer;
-- 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 right 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%;
-- Acquisition of additional 55-60% interest in Accugas Limited
("Accugas"), resulting in the Enlarged Group owning a 75-80%
interest and further consolidating control over the gas value chain
in South East Nigeria;
-- Signature of MOU with a vehicle managed by African
Infrastructure Investment Managers Limited ("AIIM") for the sale of
a 20-25% interest in each of Seven Uquo Gas Limited ("SUGL") and
Accugas for consideration of US$54-70m, broadening the existing
partnership with AIIM and providing significant additional
liquidity to the Enlarged Group; and
-- Enhancement of acquired assets' NPV10 by 35%, and of the
associated forecast cash flows by an average of 58% over the 2019 -
2022 period, as reviewed by Savannah's Competent Person[1].
Financial
-- Five well drilling campaign in Niger delivered within budgeted time;
-- Completion of the second tranche of a US$125m equity placing,
resulting in a cash inflow of US$99m; and
-- Completion of Exchange Offer in relation to Seven Energy's
10.25% Senior Secured Notes ("SSNs").
Post-Period Highlights
-- Successful completion of US$23m equity raise to fund working
capital needs of the Company ahead of Seven Energy Transaction
completion;
-- Submission of feasibility study to the Ministry of Energy and
Petroleum in Niger in relation to the planned R3 East EPS; and
-- Signature of Implementation Agreement in relation to the
Seven Energy Transaction, a legally binding agreement between
Savannah, Seven and certain of Seven's creditors which details the
legal terms and steps according to which the Transaction will be
implemented.
Andrew Knott, CEO of Savannah Petroleum, said:
"I am very pleased with the progress we made as a Company in
2018. During the year we executed a highly successful drilling
campaign in Niger, that saw us deliver five discoveries from five
wells, a 100% exploration success record. With this achievement, we
have proven that the geology is low-risk, and therefore that
similar success is expected to be repeatable elsewhere on our
acreage. We have also consistently demonstrated our ability to
operate safely and within budgeted time in the ARB. Our focus for
the remainder of the year in Niger will be to deliver first oil
from our R3 East EPS and to recommence exploration drilling in H2,
potentially with a partner on the licence.
In Nigeria, we shortly expect to complete the Seven Energy
Transaction and our guidance remains that this will complete in Q2
2019. We continue to see Nigeria as a high-potential jurisdiction
for Savannah and believe we will be able to significantly grow our
business and generate returns for our stakeholders through
maximising the cash flow generation potential of the Seven Assets
as well as through accessing new growth opportunities. I look
forward to updating all Savannah stakeholders on the progress made
across our portfolio during the remainder of 2019."
Unless otherwise defined, capitalised terms are as per the
Company's AIM Admission Document dated 22 December 2017 and per the
Company's RNS announcements dated 20 September 2018 (specifically
relating to the gas for oil swap with Frontier Oil Limited and the
buy-out of minority shareholders in Universal Energy Resources
Limited) and 21 December 2018 (specifically relating to the
acquisition of an additional 55% interest in Accugas as well as the
sale of a 25% (less one share) interest in SUGL and Accugas to
AIIM).
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
Hamish Clegg
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.
Chairman's Statement
2018 was a transformational year for our Company, which saw us
achieve a 100% success rate in Niger with five discoveries from
five wells. As a geologist, I have been highly encouraged that our
drilling results provide validation for our original thesis for
entering the Agadem Rift Basin: being that significant portions of
Savannah's acreage are analogous to that of the neighbouring Agadem
PSC area, which has proven so prolific for the joint venture
partnership led by China National Petroleum Corporation. In
Nigeria, we also delivered material enhancements to our landmark
Seven Energy Transaction, which we expect to complete in short
order.
Macroeconomic and commodity price conditions improved during the
period, with a resurgence in oil prices leading to renewed optimism
and greater levels of investment across the oil and gas industry.
Whilst there has been a certain amount of volatility in the market
in the last twelve months, oil prices remain above US$60 per barrel
and appear to have settled within a narrower trading range. We have
also benefited from ongoing stability in both Niger and Nigeria,
where post period-end we saw President Buhari elected to his second
term in office in Nigeria.
As the only British oil and gas company operating in Niger, we
take great pride in our relationship with the Niger Government and
the local communities we engage with. We have built a strong
reputation in-country and are proud of the achievements we have
made in the region to date. Similarly, in Nigeria Seven Energy has
prioritised building strong ties with their stakeholders. We look
forward to supplementing these relationships with those of our own
as we complete the Transaction, integrate the Seven Assets and
continue to grow our activities in country. We are optimistic about
the potential of the Seven Energy assets, and our entry into the
growing Nigerian gas market, as well as the positive economic and
social contribution our ongoing operations and investments in the
country are expected to make.
The Company continues to place the highest level of importance
on its corporate governance, health, safety, security and
environment, and Corporate Social Responsibility ("CSR")
procedures. During 2018 the Company maintained safe and reliable
operations in Niger, incurring zero Lost Time Incidents ("LTIs"),
and delivering these operations within budgeted time. We firmly
believe in the operational capabilities of our Nigerien workforce
and will continue to focus on achieving the highest standards of
operational excellence in-country. Savannah places the utmost
importance on the welfare of its employees and contractors and
takes every precaution necessary to ensure that the highest levels
of safe working practices are attained. In addition, the Company
continued to drive a number of important CSR initiatives, including
the drilling of water wells, a livestock vaccination campaign and
the construction of a pharmacy and provision of medical supplies
for the communities who live around our operations on R3 East.
These initiatives were developed in close collaboration with the
local communities and are clear examples of our commitment to
making a long-term, sustainable commitment to the areas where we
operate.
As a Company we are committed to generating value for all our
stakeholders, including the host countries we operate in. We
champion West Africa as an oil and gas producing region and to
demonstrate that Niger and Nigeria are best-in-class territories
for international companies like ours to operate in. We are fully
aligned with the growth ambitions of these countries, with both
economies and populations set to increase significantly over the
coming decades. We are focused on delivering first oil for Savannah
in Niger in 2019 and on delivering production and cash flows from
the Seven Assets, both of which are expected to generate long-term,
material returns for our stakeholders. Our track record of
achieving best-in-class operations, whilst maintaining a strict
focus on capital discipline, is something we are determined to
maintain, as we believe this is a key differentiator for Savannah
versus our peers.
At Savannah, we recognise that a strong corporate culture is of
paramount importance to the success of the business. The Board is
focused on ensuring we have the right people and processes to
ensure our business values flow through the Company, at all levels
of the organisation. We strive to make Savannah a stimulating
organisation to work within, and that our employees are engaged and
motivated to drive the business forward and achieve the high
standards we set for ourselves.
I would like to thank all of our shareholders for their
continued support. Following our successes in 2018, we expect to
deliver first oil from Niger in 2019 and we are poised to begin
reaping the rewards of our strategy in Nigeria upon completion of
the Seven Energy Transaction. I would also like to offer my
gratitude to the governments of Niger and Nigeria for their ongoing
co-operation and support during what has been a landmark year in
Savannah's corporate history. Finally, I would like to thank all of
the Savannah and Seven teams, as well as our advisers, for their
tireless efforts and dedication during the year. Without their
endeavours our considerable achievements during 2018 would not have
been possible. I look forward to updating our stakeholders on our
progress during the course of the coming year.
Steve Jenkins
Chairman
30 May 2019
CEO's 2018 Review
Dear fellow shareholders
Savannah's 2018 was dominated by three key themes: (1) our
repeated exploration successes in Niger; (2) the value enhancing
amendments we secured in relation to the Seven Energy Transaction;
and (3) ensuring that we have additional resources and processes in
place to enable us to deliver the growth we see in our enlarged
asset base. In this letter I will discuss each of these themes, as
well as our plans to realise the further potential of our existing
assets, future growth opportunities and the equity market as it
relates to Savannah.
Niger
At a high level, our stated business model for our Niger PSCs is
that we are seeking to discover material oil resources for a low
finding cost relative to the expected net present value per barrel
of the cashflows we ultimately expect to yield from these
discoveries. Our assessment of the historic Agadem Rift Basin
("ARB") finding cost is c.US$1/bbl versus an expected net present
value of c.US$5/bbl[2] for a generic discovery. This business model
is underpinned by three core views, being that:
(1) Our PSC areas are technically low risk: We believe that
large portions of our Niger PSC areas are analogous to that of the
neighbouring Agadem PSC area, which has seen 95 oil discoveries
from 129 exploration wells drilled on it to date (a 74% success
rate) and that therefore, to quote our Chairman Steve Jenkins, our
acreage contains "all of the necessary ingredients for repeatable
exploration success"[3]
(2) The ARB is an established oil and gas jurisdiction conducive
to successful operations: The ARB operating environment is proven,
with established logistics and service company networks, giving us
confidence to deliver exploration, development and production
projects. For example, the established service companies in the ARB
have acquired over 30,000km 2D and 13,000km(2) 3D seismic, drilled
over 200 wells and built production, pipeline and refinery
facilities.
(3) Commercialisation of ARB discoveries is relatively
straightforward: The ARB has existing downstream infrastructure in
place and the country has plans for export infrastructure to be
installed over the coming years. First oil was delivered on the
neighbouring Agadem PSC from a standing start three years from
license award (including the construction of a new 463km pipeline
and associated refinery). Further, an appropriate legal framework
for sharing third party infrastructure exists in Niger.
2018 was a year of validation for our Niger business model. Our
exploration campaign, expanded during the year to five wells from
three initially planned, resulted in the discovery of five new oil
fields - Bushiya, Amdigh, Kunama, Eridal and Zomo - delivering a
100% exploration success rate and confirming our belief that our
PSC areas are technically low-risk. Similarly, we utilised the
ARB's proven oil service providers and infrastructure networks to
deliver our enlarged campaign ahead of budgeted time, further
confirming our views in relation to the straightforward operating
environment. Lastly, we made strong progress towards
commercialising our discoveries, having signed an agreement in
August 2018 with Niger's Ministry of Energy and Petroleum (the
"Ministry") in relation to the implementation of an Early
Production Scheme ("EPS"), with plans to sell crude oil to the
Société de Raffinage de Zinder refinery. In March 2019 we formally
submitted our Field Development Plan for the EPS to the Ministry
for approval and, at the time of writing, anticipate delivering
first oil from our discoveries in 2019, an industry-leading time
from discovery to development. Over the course of 2020 we believe
that these discoveries have the potential to deliver meaningful
cashflows to our company.
Our focus in Niger in 2019 will be on testing the Amdigh-1
discovery, delivering first oil from our R3 East EPS, and
commencing a further exploration programme in the second half of
the year, potentially with a partner. We expect this process to be
one that adds significant value for all of our stakeholders.
Nigeria
In Nigeria, I would first like to remind readers why we chose to
originally enter the country and why we see such strong potential
in the Seven Assets, before going onto discuss the impact of the
amendments to the Transaction that we announced during 2018.
Nigeria is one of the largest petroleum jurisdictions in the
world (average oil production of 1,988 kbopd[4]) and is estimated
to contribute 16% of the upstream cashflows of the major
international oil companies present in country[5]. We believe that
the Nigerian oil and gas industry is in the early stages of a
process (similar for example to the UK North Sea in the
1990s/early 2000s), whereby the larger players will accelerate
their divestment of non-core assets to mid-size companies for whom
the assets are: (1) material; and (2) offer focused management
teams the potential to generate significant returns. In other
words, we see Nigeria as a high-potential jurisdiction for a
medium-size company to build a business.
In November 2017 we announced our intention to acquire interests
in two large-scale oil and gas fields (Uquo and Stubb Creek)
alongside a 20% interest in the Accugas midstream gas business from
Seven Energy at a price equating to c.36% of invested capital.
Seven became distressed over the course of 2016 due to issues
including an unsustainable c.US$0.9bn of borrowing and delay in
ramp up in gas volumes. During the acquisition process, a World
Bank Partial Risk Guarantee (effectively a bank payment guarantee)
was put in place to cover Seven's main gas sales agreement, meaning
that 92% of the forward revenue stream is now expected to come from
investment grade equivalent customers.
Over the course of 2018, we took advantage of opportunities to
amend the original terms of the Transaction through:
(1) the acquisition of an additional 55-60% controlling economic
interest in Accugas;
(2) acquiring effective operational control over the Uquo gas
field through a Memorandum of Understanding ("MOU") with Frontier
Oil; and
(3) selling a 20-25% interest in Uquo to Africa Infrastructure
Investment Managers ("AIIM") for US$54-70m.
Our Board and management team took the decision to make these
amendments while recognising that they would result in a delay to
the completion of the Transaction, given the material positives
they represent for the Enlarged Group going forward. As I said at
the time they were announced: "In aggregate, they grant control of
Accugas [and Uquo] to Savannah, are demonstrably NPV and cashflow
accretive, release significant cash to the Company and
significantly increase the upside exposure of our South East
Nigerian gas business to rising gas volumes and prices."
The table below summarises the aggregate impact of the "new
deal" versus the original deal:
Summary of interests being acquired by Savannah following
Transaction amendments[6]
December December Comment
2017 2018
--------------- --------- --------- ---------------------
Amended per Frontier
MOU and subsequent
Uquo Gas acquisition by
& Condensate 87.7% 75.0% AIIM
Uquo Oil 85.0% - Amended per Frontier
MOU
UERL (Stubb Buy-out of UERL
Creek) 62.5% 100.0% minorities
Acquisition of
Accugas 20.0% 75.0% further 55%
--------------- --------- --------- ---------------------
Acquired assets 2P NPV10 net to Savannah[7]
US$m December December % Change December
2017 2018 (DCQ, 2018
CPR (DCQ) (DCQ) 2018 vs. (ToP)
2017)
------- ---------- --------- --------- ---------
NPV10 757 1,023 +35% 920
------- ---------- --------- --------- ---------
Summary of expected net asset cash flows from acquired
assets[8]
US$m December December % Change December
2017 2018 (DCQ 2018
CPR (DCQ) (DCQ) 2018 (ToP)
vs. 2017)
--------- ---------- --------- ------------ ---------
2019 78.5 115.3 +47% 103.7
2020 97.7 153.5 +57% 120.0
2021 102.7 164.2 +60% 131.3
2022 102.7 172.6 +68% 138.3
--------- ---------- --------- ------------ ---------
Average 95.4 151.4 +58% 123.3
--------- ---------- --------- ------------ ---------
The execution of the Transaction has required us to reach
agreements with 14 different financial stakeholders in Seven
Energy. The ability of the Savannah and Seven Energy teams to
deliver this as well as to implement the World Bank PRG, is a
strong testament to the Enlarged Group's commercial capabilities
and our core cultural value of "making things happen".
At the time of writing, we shortly expect to complete the
Transaction (on the revised and improved terms) and I strongly
believe that this will prove to have been worth the wait. Following
this, Savannah's focus will be on maximising the cash flow
generation potential of the Seven Assets. The Accugas
infrastructure has significant spare capacity and is the only major
infrastructure of its type in South East Nigeria; we therefore see
strong growth potential going forward through the acquisition of
new gas fields and customers. Outside of the Seven Assets, we also
see strong potential to access new oil-focused growth opportunities
in Nigeria over the medium term, however additional assets will
only be introduced into the portfolio if they present an
appropriate return on invested capital profile.
Corporate
Over 2018 we maintained our focus on ensuring that our Company
has the correct resources in place to deliver on our business plan
for existing assets as well as to enable us to deliver our
strategic growth aspirations. Key hires over the year included the
appointment of a Chief Operating Officer, a Chief Compliance
Officer and a Group Head of Human Resources.
Despite the obvious value accretion of the Seven Energy
Transaction and the exploration success we have enjoyed in Niger,
since announcement of the Transaction our shares have
underperformed the wider index. This followed the period prior to
the announcement of the Transaction during which our shares had
outperformed our peers[9].
This underperformance came despite management holding in excess
of 120 meetings with investors and providing regular corporate
updates through a variety of media, and appears to have been driven
by an enhanced perception of Transaction completion risk. This
comes despite the fact that the extended completion timetable is a
result of the positive amendments to the Transaction discussed
earlier in this letter. We hope and expect that, following
completion, we will be able to demonstrate the full potential of
our enlarged asset base and our share price will then perform
accordingly.
We are fortunate that both of the core projects we are pursuing
have the potential to make material contributions to the countries
in which we operate. In Niger, our ARB project has the potential to
make a material impact on the country's economic growth rate over
the course of the next decade, while in Nigeria the assets that we
are acquiring have the potential to supply approximately 10% of the
country's power generation requirements. I am proud we have built a
business which is working (and delivering) on such projects, and am
very excited about the outlook for Savannah in 2019 and beyond. I
look forward to sharing updates on our business with fellow
shareholders over the course of the coming years.
Finally, I would like to add to our Chairman's comments, and
thank our host country stakeholders, both governmental and local
community, in Niger and Nigeria for their ongoing support for our
projects. I would also like to thank all of the Savannah and Seven
Energy staff for their continued dedication and hard work.
Andrew Knott
Chief Executive Officer
30 May 2019
Financial Review
Our focus in the year was to progress the Seven Energy
Transaction and to undertake our maiden exploration drilling
campaign in Niger. To this end, the Group raised a total of US$125
million in a two-tranche fundraise occurring in December 2017 and
February 2018. The use of proceeds from this fundraise were
directed to the acquisition of Seven Energy's 10.25% Senior Secured
Notes as part of the Transaction (in cash and shares) and to the
Niger drilling campaign.
During the year, the Group undertook a successful drilling
campaign which was completed within budgeted time and resulted in
five oil discoveries from five wells. As a result of the initial
success of this campaign, we elected to expand the campaign to five
wells (versus three initially planned), and our success has enabled
the Group to move forward with plans to develop an Early Production
Scheme.
The Group's loss after tax for the year was US$24.6m (2017: loss
US$27.4m). This loss was predominantly driven by the accounting
treatment of certain ongoing transaction costs as well as increased
corporate activity as we prepared to integrate the Seven Assets and
provide for an enlarged group structure.
In 2019, we expect to complete the Transaction, the integration
of the Seven Assets into our business and to deliver first oil in
Niger. Following delivery of these key business milestones, our
principal financial priorities will include:
-- the refinancing of the existing Seven Energy debt facilities;
-- a strong focus on revenue collection across the Enlarged Group; and
-- ensuring continued strong cost discipline across the Enlarged
Group as the Seven Assets and staff are integrated in an efficient
manner.
Achieving these financial priorities and goals is expected to
lead to the generation of material and sustainable free cash flows
in the coming years which can be directed to support and deliver
the Enlarged Group's long-term strategy.
Analysis of key line items
Income statement
The Group reported a loss after tax for the year of US$24.6m
(2017: loss after tax US$27.4m). The loss for the year was
principally driven by ongoing Seven Energy Transaction costs and
increased operating expenses.
The loss for the year includes administration expenses for the
Group of US$13.4m (2017: US$8m), net of exceptional business
development costs. The increase in administration expenses relates
to ramp-up costs incurred as the Group prepares to operate as an
enlarged operation following completion of the Transaction.
Finance income of US$0.9m (2017: US$0.3m) is primarily
associated with interest income on the Liquidity Facility issued by
the Group to Seven Energy for working capital purposes.
Finance costs of US$2.4m (2017: US$0.6m) include interest
expense of US$1.4m (2017: US$0.4m) largely in relation to the
Orabank revolving credit facility, as well as foreign exchange
losses of US$0.9m.
The Group's loss was offset by a fair value adjustment of
US$4.9m in relation to warrants which were issued alongside the
second tranche of the US$125m equity placing announced in December
2017. The warrants were exercisable at the placing price of
35p/share and have now expired. Further details on the warrants are
included in Note 23 of the Annual Report and Accounts.
Balance sheet
Exploration expenditure and property, plant and equipment
During the year, exploration and evaluation assets increased by
US$38.7m, associated with the successful five-well drilling
programme in Niger. Included in the increase, is drilling equipment
of US$1.6m which was used during the drilling campaign was
reclassified from property, plant and equipment to exploration and
evaluation assets.
Through the Exchange Offer which completed in February 2018, the
Group acquired Seven Energy's 10.25% Senior Secured Notes which are
reflected in long-term financial assets at fair value of
US$89m.
Receivables of US$22.7m primarily reflect the Liquidity Facility
provided by the Group to Seven Energy for working capital
purposes.
Cash and debt
The Group had cash and cash equivalents at 31 December 2018 of
US$1.8m (2017: US$14.9m). During the year the Group completed the
second tranche of the placing and received cash of US$95.8m (2017:
US$15m), net of share issue costs.
As at December 2018, the Group reported an increase of US$5.6m
in trade and other payables (2018: US$23.5m, 2017: US$17.9m). This
increase is associated with Niger drilling payables offset by lower
Transaction costs. In addition, the Group reflected borrowings of
US$14.9m (2017: US$12.7m) largely in relation to the Orabank
revolving credit facility which was drawn over the year.
Cash flow
Net cash outflow from operating activities of US$32.4m (2017:
US$15.7m) increased largely due to the increase in the level of
corporate activity through the year and settlement of transaction
related fees. This included ongoing Transaction costs, additional
work undertaken as the Group prepares to operate as a larger
entity, as well as expenditure associated with the Niger drilling
programme.
Acquisition of the long-term financial assets of US$40.9m
constitutes the cash element of the acquisition of the 10.25%
Senior Secured Notes.
The net cash provided by financing activities was US$96.7m
(2017: US$27.1m), reflecting cash from the second tranche of the
placing in February and net cash from the Orabank revolving credit
facility.
Accounting policies
The Group's significant accounting policies are disclosed within
the notes to the consolidated financial statements.
Liquidity risk management and going concern
The Group manages liquidity by regularly reviewing cash
requirements by reference to short-term cash flow forecasts and
medium-term projections prepared by management.
The Group has reviewed these cash flow forecasts and associated
capital projections for the next twelve months. Based on an
assessment of these forecasts and projections (see details of going
concern disclosure in Note 2), the Group has a reasonable
expectation that it can access adequate resources to continue
operating for the foreseeable future. The Group continues to adopt
the going concern basis in preparing its financial statements.
Isatou Semega-Janneh
Chief Financial Officer
30 May 2019
Consolidated Statement of Comprehensive Year ended Year ended
Income 31 December 31 December
2018 2017
Note US$'000 US$'000
----------------------------------------- ----- ------------- -------------
Operating expenses (28,069) (27,091)
Operating loss (28,069) (27,091)
Finance income 869 283
Finance costs (2,361) (561)
Fair value adjustment 4,953 -
Loss before tax (24,608) (27,369)
Tax expense (5) (13)
Net loss and total comprehensive loss (24,613) (27,382)
Total comprehensive loss attributable
to:
Owners of the group (24,519) (27,350)
Non-controlling interests (94) (32)
----------------------------------------- ----- ------------- -------------
(24,613) (27,382)
Loss per share
Basic (US$) 3 (0.03) (0.10)
Diluted (US$) 3 (0.03) (0.10)
----------------------------------------- ----- ------------- -------------
All results in the current financial period derive from
continuing operations.
Consolidated Statement of Financial Position
As at 31 December 2018 2017
Note US$'000 US$'000
--------------------------------------- ---- --------- --------
Assets
Non-current assets
Property, plant and equipment 2,431 2,933
Exploration and evaluation assets 4 150,425 111,733
Long-term financial assets 5 88,956 -
Total non-current assets 241,812 114,666
--------------------------------------- ---- --------- --------
Current assets
Receivables and prepayments 22,672 3,999
Cash and cash equivalents 1,750 14,904
--------------------------------------- ---- --------- --------
Total current assets 24,422 18,903
--------------------------------------- ---- --------- --------
Total assets 266,234 133,569
--------------------------------------- ---- --------- --------
Equity and liabilities
Capital and reserves
Share capital 6 1,240 520
Share premium 6 - 157,188
Capital contribution 7 458 458
Share based payment reserve 7 5,908 4,551
Other reserves 7 (4,989) -
Accumulated surplus/(deficit) 225,679 (59,317)
--------------------------------------- ---- --------- --------
Equity attributable to owners of the
Group 228,296 103,400
Non-controlling interests (491) (397)
Total equity 227,805 103,003
--------------------------------------- ---- --------- --------
Current liabilities
Trade and other payables 23,522 17,888
Borrowings 14,871 12,678
Financial liability 36 -
Total current liabilities 38,429 30,566
--------------------------------------- ---- --------- --------
Total equity and liabilities 266,234 133,569
--------------------------------------- ---- --------- --------
Consolidated Statement of Cash Flows
Year ended Year ended
31 December 31 December
2018 2017
Note US$'000 US$'000
------------------------------------------- ---- ------------ ------------
Operating activities:
Net cash used in operating activities 8 (32,446) (15,677)
Investing activities
Payments for property, plant and equipment (1,362) (2,253)
Exploration and evaluation costs paid (19,426) (17,313)
Acquisition of long-term financial
asset (40,911) -
Loan to Seven Energy (15,686) -
------------------------------------------- ---- ------------ ------------
Net cash used in investing activities (77,385) (19,566)
------------------------------------------- ---- ------------ ------------
Financing activities
Finance costs (159) (221)
Proceeds from issues of equity shares,
net of issue costs 95,767 14,966
Borrowing proceeds 8,000 12,341
Borrowing repayment (6,931) -
Net cash from financing activities 96,677 27,086
------------------------------------------- ---- ------------ ------------
Net decrease in cash and cash equivalents (13,154) (8,157)
Cash and cash equivalents at beginning
of year 14,904 23,061
Cash and cash equivalents at end of
year 1,750 14,904
------------------------------------------- ---- ------------ ------------
Consolidated Statement of Changes in Equity
Share
based
Share Share Capital payment Other Retained Non-controlling
capital premium contribution reserve reserves earnings Total interest Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 01
January 2017 483 146,892 458 2,938 - (31,967) 118,804 (365) 118,439
Loss for the
year - - - - - (27,350) (27,350) (32) (27,382)
Total
comprehensive
loss for the
year - - - - - (27,350) (27,350) (32) (27,382)
Transactions
with
shareholders:
Equity settled
share based
payments - - - 1,613 - - 1,613 - 1,613
Issue of
ordinary
shares to
shareholders,
net of issue
costs 37 10,296 - - - - 10,333 - 10,333
Balance at 31
December 2017 520 157,188 458 4,551 - (59,317) 103,400 (397) 103,003
Loss for the
year - - - - - (24,519) (24,519) (94) (24,613)
Other -
comprehensive
income - - - - - - - -
-------------- --------- --------- ------------ -------- -------- --------- -------- --------------- --------
Total
comprehensive
loss for the
year - - - - - (24,519) (24,519) (94) (24,613)
Transactions
with
shareholders:
Equity settled
share-based
payments - - - 1,357 - - 1,357 - 1,357
Issue of
ordinary
shares to
shareholders,
net of issue
costs 720 152,385 - - - (58) 153,047 - 153,047
Issue of
warrants - - - - (4,989) - (4,989) - (4,989)
Cancellation
of share
premium - (309,573) - - - 309,573 - - -
-------------- --------- --------- ------------ -------- -------- --------- -------- --------------- --------
Balance at 31
December 2018 1,240 - 458 5,908 (4,989) 225,679 228,296 (491) 227,805
1. Corporate information
The consolidated financial statements of Savannah Petroleum Plc
("Savannah" or the "Company") and its subsidiaries (together the
"Group") for the year to 31 December 2018 were authorised for issue
in accordance with a resolution of the Board of Directors on 30 May
2019.
Savannah was incorporated in the United Kingdom on 3 July 2014.
Savannah's principal activity is the management of its investment
in Savannah Petroleum 1 Limited ("SP1"). SP1 was incorporated in
Scotland on 3 July 2013. SP1's principal activity is the management
of its investment in Savannah Petroleum 2 Limited ("SP2"), and the
provision of services to other companies within the Group. SP2 has
a 95% interest in Savannah Petroleum Niger R1/R2 S.A. ("Savannah
Niger") whose principal activity is the exploration of hydrocarbons
in the Republic of Niger.
The Company is domiciled in the UK for tax purposes and its
shares were listed on the Alternative Investments Market ("AIM") of
the London Stock Exchange on 1 August 2014.
The Company's registered address is 40 Bank Street, London, E14
5NR.
The Group's functional currency is US dollars ("US$").
No dividends have been declared or paid since incorporation.
2. Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("IFRSs as adopted by
the EU"), IFRIC interpretations and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS. The
consolidated financial statements have been prepared under the
historical cost convention.
The consolidated financial statements of the Group incorporate
the results for the year to 31 December 2018.
Publication of non-statutory accounts
The financial information set out in this announcement does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006.
The consolidated statement of financial position, the
consolidated statement of cash flows and the consolidated statement
of changes in equity as at 31 December 2018 and the consolidated
statement of comprehensive income for the period ended 31 December
2018, together with the associated notes, have been extracted from
the Group's 2018 financial statements upon which the auditor's
opinion is unqualified and does not include any statement under
Section 498 of the Companies Act 2006.
Going concern
The Directors have reviewed the budgets and forecasts as well as
the funding requirements of the business for the next 12 months.
The financial position of the Group, its cash flows and liquidity
position are described in the Financial Review. In addition, note
24 of the Group Financial Statements includes the Group's
objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial
instruments; and its exposures to credit risk and liquidity
risk.
Ahead of completion of the Seven Energy Transaction and delivery
of first oil from the Niger EPS, the Group has no current source of
operating revenue, and obtains working capital primarily through
equity and debt financing. During the year, the Group received
funds from the second tranche of the US$125m equity placing which
was announced in December 2017 as part of the Seven Energy
Transaction, amounting to US$99m, net of issue costs. The net
proceeds were used to fund the following key activities;
I. The cash element of the acquisition of the 10.25% Senior
Secured Notes as part of the Seven Energy Transaction;
II. Successful five well drilling campaign; and
III. Group working capital and ongoing transaction costs.
As at December 2018, the Group's net current liabilities stood
at US$14m and the Group held cash of US$1.8m. Immediately following
the year-end, the Group successfully raised US$23m equity in order
to provide additional working capital for the Group. Upon
completion of the Seven Energy Transaction, the Group expects a
significant cash inflow of up to US$90m (including US$20m from
certain Seven Energy SSN holders as part of the "new money"
investment and US$54-70m investment from AIIM to acquire a 20-25%
interest in the Uquo and Accugas businesses). Following completion,
the Group will also have access to cash flows generated by the
Seven Energy Assets.
Following the signature of the Implementation Agreement in
February 2019, the Transaction is currently at an advanced stage of
legal documentation and final approvals. The Directors currently
have a reasonable expectation that the Transaction will complete
with the necessary approvals during 2Q 2019. However, although
material progress has been achieved on the Transaction (including
signature of the Implementation Agreement in February 2019), the
directors recognise that there remains uncertainty around the
timing for the completion of the transaction which could lead to a
liquidity shortfall and the need for the company to access
additional funding.
The Directors have a reasonable and strong expectation that the
Group will be able to access adequate resources to continue
operating for the foreseeable future in the event of potential
completion delays and subject to the Enlarged Group's business
performance. On this basis the Directors continue to adopt the
going concern basis in preparing the consolidated financial
statements.
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has:
-- Power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee);
-- Exposure, or rights, to variable returns from its involvement with the investee; and
-- The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- The contractual arrangement with the other vote holders of the investee;
-- Rights arising from other contractual arrangements; and
-- The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income
are attributed to the equity holders of the parent of the Group and
to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance.
Transactions eliminated upon consolidation
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group. All intra-group
transactions, balances, income and expenses are eliminated in full
on consolidation.
3. Earnings per share
Basic loss per share amounts are calculated by dividing the loss
for the period attributable to owners of the parent by the weighted
average number of ordinary shares outstanding during the
period.
Diluted loss per share amounts are calculated by dividing the
loss for the periods attributable to owners of the parent by the
weighted average number of ordinary shares outstanding during the
period, plus the weighted average number of shares that would be
issued on the conversion of dilutive potential ordinary shares into
ordinary shares. The effect of share options and warrants are
therefore excluded from the calculation of diluted loss per
share.
Year ended 31 December 2018 2017
US$'000 US$'000
---------------------------------------------- ----------- -----------
Earnings
Net loss attributable to owners of the parent (24,519) (27,350)
---------------------------------------------- ----------- -----------
Number of Number of
shares shares
Basic and diluted weighted average number
of shares 757,050,293 274,922,400
Loss per share US$ US$
Basic and diluted (0.03) (0.10)
In February 2018 the Company issued 514,885,980 new ordinary
shares as part of an equity fund raising to the value of US$117
million (gross). 224,021,689 of the new ordinary shares were
allotted as consideration for the acquisition of $305,623,124 worth
of 10.25% Senior Secure Notes due 2021 issued by Seven Energy
Finance Limited.
The Company issued warrants along with the shares issued during
the placings in December 2017 and February 2018, being one warrant
for every two ordinary shares placed. The warrants are exercisable
at a price equal to the placing price of the Company's shares on
the date of grant. There is no vesting period. If the warrants
remain unexercised after a period of one year from the date of the
second grant, the warrants expire.
4. Exploration and evaluation assets
Exploration and evaluation assets consist of acquisition costs
relating to the acquisition of exploration licenses and other costs
associated directly with the discovery and development of specific
oil and gas reserves in the R1/R2 and R3/R4 licence area in the
Republic of Niger.
Total
US$'000
------------------------------------------------ ---------
Balance at 01 January 2017 96,913
Additions 14,820
-------------------------------------------------- ---------
Balance at 31 December 2017 111,733
Additions 37,139
Reallocation from plant, property and equipment 1,553
Balance at 31 December 2018 150,425
-------------------------------------------------- ---------
The amount for intangible exploration and evaluation assets
represents active exploration projects. These will ultimately be
written off to the statement of comprehensive income as exploration
costs if commercial reserves are not established but are carried
forward in the statement of financial position whilst the
determination process is not yet completed and there are no
indications of impairment having regard to the indicators in IFRS
6.
5. Long-term financial assets
Group Company Group Company
As at 31 December 2018 2018 2017 2017
US$'000 US$'000 US$'000 US$'000
----------------------------------- ------- ------- ------- ---------------
10.25% Senior Secured Noted
* Cash consideration 40,910 40,910 - -
* Equity consideration 48,046 48,046 - -
88,956 88,956 - -
----------------------------------- ------- ------- ------- ---------------
On 7 February 2018 the Group completed an exchange offer on the
10.25% Senior Secured Notes (SSN's) and Savannah had received valid
exchange instructions in respect of US$305,623,123 in principal
amount of outstanding 10.25% SSN's, representing 96.04% of the
outstanding 10.25% SSN's.
For IFRS 9 purposes, the SSN's are not held within a business
model whose objective is to hold financial assets in order to
collect contractual cash flows. They are rather expected to
ultimately form part of the consideration of the relevant assets in
the Seven Energy Group, upon completion of the Transaction. The
Group is therefore required to measure the SSN's at fair value
through profit and loss.
In determining the fair value of the SSN's, management carefully
considered the use of a 'level 1' active market value (in terms of
IFRS 13), however the lack of an active trading market for the
SSN's led management to conclude that any publicly quoted values
are not a reasonable presentation of their fair value. Management
therefore sought alternative observable means to reasonably
calculate the fair value of the SSN's.
To this end, an 'income approach' was applied, whereby the
discounted cash flow of assets within certain entities over which
the SSN's are secured were calculated, together with considering
the overall fair net asset value of these entities. Management
considered this to be a reliable 'level 3' input for the valuing of
the SSN's. The results of this approach led management to conclude
that there has been no material fluctuation in the value of the
SSN's since their acquisition in February 2018.
The discount rate applied in the discounted cash flow of the
applicable assets was 16%. At a discount rate of 15%, this fair
value would have been $95.6m and at 17% this would have been
$83.9m.
6. Share capital
As at 31 December 2018 2017
--------------------------------------------- ----------- -----------
Fully paid ordinary Shares in issue (number) 816,969,427 301,793,177
Called up ordinary Shares in issue (number) - 290,270
Par value per share in GBP 0.001 0.001
--------------------------------------------- ----------- -----------
Number of
Shares Share Capital Share Premium Total
US$'000 US$'000 US$'000
------------------------------ ----------- ------------- ------------- ---------
At 01 January 2017 274,621,447 483 146,892 147,375
Shares issued 27,462,000 37 10,296 10,333
At 31 December 2017 302,083,447 520 157,188 157,708
Shares issued 514,885,980 720 152,385 153,105
Cancellation of share premium - - (309,573) (309,573)
At 31 December 2018 816,969,427 1,240 - 1,240
------------------------------ ----------- ------------- ------------- ---------
In February 2018 the Company issued 514,885,980 new ordinary
shares as part of an equity fund raising to the value of US$117
million (gross). 224,021,689 of the new ordinary shares were
allotted as consideration for the acquisition of $305,623,124 worth
of 10.25% Senior Secure Notes due 2021 issued by Seven Energy
Finance Limited.
As part of the equity raise in February 2018, 7,459,000 shares
were issued at a value of $3.5m, the amount for which is deemed to
be paid up in accordance with section 583 of the Companies Act
2006.
In June 2018 the Company cancelled its share premium account to
ensure adequate distributable reserves were in place. This was
effected to enable Savannah to prospectively declare dividends.
7. Other reserves
Share based
Capital contribution payment reserve Other reserves Total
US$'000 US$'000 US$'000 US$'000
------------------------------ -------------------- ---------------- -------------- -------
At 01 January 2017 458 2,938 - 3,396
Share based payments expense
during the year - 1,613 - 1,613
At 31 December 2017 458 4,551 - 5,009
Share based payments expense
during the year - 1,357 - 1,357
Warrants issued at fair value - - (4,989) (4,989)
------------------------------ -------------------- ---------------- -------------- -------
At 31 December 2018 458 5,908 (4,989) 1,377
------------------------------ -------------------- ---------------- -------------- -------
Nature and purpose of reserves
Capital contribution reserve
On 1 August 2014 a capital contribution of US$458,000 was made
by shareholders of the Group as part of the loan note
conversion.
Share based payment reserve
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to employees,
including key management personnel, as part of their
remuneration.
Other reserves
The other reserve figure represents the reclassification of the
fair value of warrants granted from equity to a financial
liability, at initial grant date.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while seeking to
maximise the return to shareholders through the optimisation of the
debt and equity balance.
Details of the Group's capital structure can be found in the
capital accounting policy.
The proceeds are used to finance the Group's ongoing
development, appraisal of its exploration and evaluation assets,
inorganic acquisitions and other business development in line with
the Group's strategy.
8. Notes to the consolidated statement of cash flows
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
-------------------------------------------- ------------- -------------
Loss for the period before tax (24,608) (27,369)
Adjustments for:
Depreciation and amortisation 312 274
Finance income (869) 561
Finance costs 1,413 (2)
Fair value movement (4,953) -
Share option charge 1,357 1,613
Operating cash flows before movements in
working capital (27,348) (24,923)
Decrease / (Increase) in other receivables
and prepayments (2,464) (2,560)
(Decrease) / Increase in trade and other
payables (2,629) 12,604
Income tax paid (5) (798)
Net cash outflow from operating activities (32,446) (15,677)
9. Subsequent events (post balance sheet)
On 23 January 2019, the Company announced its intention to raise
approximately US$23,000,000 through a placing of new ordinary
shares to fund general working capital (the "Placing"). The Placing
was completed on 24 January 2019 with the issue of 62,800,000 new
ordinary shares at a price of GBP0.28 per share. Certain directors
of the Board (being Andrew Knott, Isatou Semega-Janneh, David
Clarkson, Steve Jenkins and Mark Iannotti) participated in the
Placing and in aggregate, subscribed for 2,101,000 shares.
On 4 February 2019, as part of the Company's proposal to acquire
the Seven Assets the Company signed an Implementation Agreement
with Seven Energy International Limited, certain other subsidiaries
of Seven Energy and certain creditors of the Seven Group. The
Implementation Agreement is legally binding and details the legal
terms and steps according to which the acquisition of the Seven
Assets will be implemented. The Implementation Agreement includes
various agreed legal documents required to complete the
Transaction, and also includes provisions which commit the parties
to support and deliver the Transaction (including the restructuring
of Seven Group intra-group debt and triggering the controlled
insolvency process in the Seven Group). As a result of signing the
Implementation Agreement, Savannah agreed to provide further
liquidity to the Seven Group during the restructuring period by way
of an increase in the size of the super senior secured revolving
credit Liquidity Facility to up to US$28m.
None of the warrants issued in February 2018 were exercised
before their expiry date 12 months later (February 2019), by which
stage all warrants have either lapsed or been forfeited.
[1] Impact on NPV and cash flows assumes Savannah and AIIM own
75% and 25% respectively of SUGL and Accugas.
[2] As per Savannah analyst consensus.
[3] Savannah 23 April 2018 Bushiya-1 oil discovery
announcement.
[4] BP Statistical Review of World Energy 2018.
[5] Wood Mackenzie, upstream data tool 2017-q3. Majors include
Chevron, Eni, ExxonMobil, Shell and Total.
[6] Note that December 2017 Uquo interests reflect revenue
interests, vs. December 2018 Uquo interests which reflect expected
working interests. UERL and Accugas are shareholding interests.
[7] Note that DCQ represents "Daily Contract Quantity", e.g. the
contracted gas volumes which can be nominated under Accugas' Gas
Sales Agreements. ToP represents "Take or Pay", e.g. the amount of
gas that the buyer is obliged to purchase, take and pay for (or pay
for if not taken).
[8] Net asset free cash flows are defined as Savannah's economic
share of post-tax operating cash flows less capital
expenditures.
[9] Savannah Petroleum share price performance since IPO versus
the AIM Oil & Gas Index.
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
FR KMGFKMGNGLZZ
(END) Dow Jones Newswires
May 31, 2019 02:00 ET (06:00 GMT)
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