TIDMSAVE
RNS Number : 7346U
Savannah Energy Plc
31 July 2020
31 July 2020
Savannah Energy PLC
("Savannah" or "the Company")
FY 2019 Preliminary Annual Results
Financial and Operational Update for H1 2020 and Outlook for FY
2020
Savannah Energy PLC, the British independent energy company
focused around activities in Nigeria and Niger, is pleased to
announce its unaudited preliminary results for the year ended 31
December 2019, which include approximately six weeks of operations
in Nigeria, following the Company's successful acquisition of the
Nigerian Assets in November 2019, together with a financial and
operational update for H1 2020 and outlook for the FY 2020.
A copy of the Annual Report & Accounts will be finalised and
posted to Shareholders shortly and a separate notification made in
this regard.
Key Highlights
FY 2019 Highlights
-- FY 2019 maiden Revenues of US$17.8m comprising US$16.9m of
gas sales and US$0.9m of liquids sales;
-- Average realised gas price of US$3.64/Mscf and an average
realised liquids price of US$64.0/bbl;
-- Average gross daily production for the post Nigerian Asset
acquisition period of 17.7 Kboepd. On a full year basis production
from the Nigerian Assets for 2019 rose 32% to 17.2 Kboepd from 13.0
Kboepd in FY 2018;
-- Adjusted EBITDA[1] of US$1.8m (2018: negative US$13.4m),
Pro-forma FY 2019 adjusted EBITDA of US$91.6m;
-- Contract liabilities (or "Deferred Revenue") recognised in
the Statement of Financial Position and related to invoiced sales
in 2019 of US$13.3m, Pro-forma FY 2019 Deferred Revenue of
US$59.8m;
-- Loss after tax of US$96.8m (2018: US$24.6m)
-- Net cash inflow of US$44.5m (2018: Outflow US$13.0m);
-- Year-end cash balance of US$48.1m (2018: US$1.8m);
-- Year-end net debt of US$484.0m (2018: US$13.1m); and
-- Total Group assets amounted to US$1,145.0m at year-end (2018: US$266.0m).
H1 2020 Operational Update
Nigeria
-- H1 2020 cash collections from the Nigerian Assets of US$82.1m
compared to US$55.3m in H1 2019;
-- Average gross daily production, of which 89% was gas,
increased 18% during H1 2020 to 21.3 Kboepd (H1 2019: 18.1 Kboepd).
This includes a 22% increase in production from the Uquo gas field
compared to the same period last year, from 92.7 MMscfpd (15.4
Kboepd) to 113.5 MMscfpd (18.9 Kboepd);
-- Achievement of an all-time Nigerian Assets gas production
record of 177 MMscfpd on 30 May 2020;
-- Accugas' customers achieved an all-time record peak
contribution of 11.5% of Nigeria's electricity generation or 486MW
on 23 May 2020, with the contributed electricity being exclusively
generated from Accugas sales gas;
-- As announced on 31 January 2020, Accugas entered into the
first new gas sales agreement for the business in over five years
with First Independent Power Limited ("FIPL"), an affiliate company
of the Sahara Group, for the provision of gas to the FIPL Afam
power plant ("FIPL Afam"). Accugas is in the process of working
with FIPL to validate the third-party infrastructure required to
enable the commencement of gas sales under this contract;
-- In June 2020, Accugas signed a term sheet with a significant
new industrial gas sales customer, a subsidiary of a well-respected
international company, for an initial quantity of up to 5 MMscfpd
of gas for an initial five-year period; and
-- In addition, Accugas is progressing a project which could see
the addition of multiple new gas sales customers located within an
industrial hub area in close proximity to our existing pipeline
network.
Niger
-- Updated Competent Person's Report for the Niger assets
compiled by CGG Services (UK) Ltd was published on 1 May 2020,
certifying 35MMstb of Gross 2C Resources for the R3 East
discoveries with an additional 90MMstb of Gross Unrisked
Prospective Resources (Best case) within tie-in distance to the
planned R3 East facilities, and a 2C case economic break-even oil
price estimated at US$26/bbl;
-- As previously announced, an agreement was reached with the
Niger Ministry of Petroleum to combine the R4 area with the R1/R2
PSC Area into a new R1/R2/R4 PSC, extending the licences for a
further 10 years and retaining the full acreage position previously
covered by the R1/R2 PSC and the R3/R4 PSC, and that the R3 PSC
area will continue as a stand-alone PSC area. Ratification of these
changes is subject to Council of Minister approval and payment of
the associated fee;
-- Plans for delivering the R3 East development continue to
progress with the intention to commence installation of an Early
Production System ("EPS") within the next 18 months, market
conditions and financing permitting; and
-- Significant further potential on the Savannah PSC areas
remains, with 146 further potential exploration targets having been
identified for future drilling consideration.
H1 2020 Financial Update and Guidance for FY 2020
-- Group cash balance of US$54m as at 30 June 2020;
-- Group net debt position of US$457m as at 30 June 2020; and
-- Financial and operational guidance for FY 2020 as follows:
-- Total Revenues[2] of greater than US$200m;
-- Gross Production of 21 Kboepd to 23 Kboepd;
-- Group Administrative and Operating Costs[3] of US$68m to US$72m;
-- Group Depreciation, Depletion and Amortisation of US$25m
fixed for infrastructure assets plus US$2.6/boe, i.e. US$43m -
US$45m based on production guidance; and
-- Capital expenditure of up to US$45m.
Andrew Knott, CEO of Savannah Energy, said:
"2019 was a pivotal year for our Company. We completed the
Nigerian Asset acquisition in November 2019, which transformed
Savannah into a highly cash flow generative full cycle energy
company. Since acquiring the Nigerian Assets, we have made
significant strides in terms of operational and financial progress,
as seen with the strong production figures and robust cash
collections in H1 2020, further strengthened our leadership team
and stand poised to capitalise on the numerous opportunities that
our asset portfolio in Nigeria and Niger presents us with.
This is an exciting time for our business. In Nigeria, via
Accugas, Savannah currently supplies more than 10% of Nigeria's
power sector. We generated strong cash collections in-country, of
US$82.1m in H1 2020 and remain on track to sign further gas sales
agreements in 2020. In Niger, we aim to implement an EPS on R3 East
for near term first production and cash flow within the next 18
months, subject to market conditions and financing, and consider
future drilling in our bank of 146 exploration targets over the
course of the coming years."
Unless otherwise defined, capitalised terms are as per the
Company's Supplemental Admission Document dated 30 April 2020.
For further information, please refer to the Company's website
www.savannah-energy.com or contact:
+44 (0) 20 3817
Savannah Energy 9844
Andrew Knott, CEO
Isatou Semega-Janneh, CFO
Sally Marshak, Communications
Consultant
+44 (0) 20 7409
Strand Hanson (Nominated Adviser) 3494
James Spinney
Ritchie Balmer
Rory Murphy
+44 (0) 20 7878
Mirabaud (Corporate Broker) 3362
Peter Krens
Ed Haig-Thomas
+44 (0) 20 8434
Celicourt Communications 2754
Mark Antelme
Jimmy Lea
Ollie Mills
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.
About Savannah Energy:
Savannah Energy PLC is an AIM listed energy company with
exploration and production assets in Nigeria and Niger. In Nigeria,
the Company has controlling interests in the cash flow generative
Uquo and Stubb Creek oil and gas fields, and the Accugas midstream
business in South East Nigeria, which provides gas to over 10% of
Nigeria's available power generation capacity. In Niger, the
Company has interests in two large PSC areas located in the highly
oil prolific Agadem Rift Basin of South East Niger, where the
Company has made five oil discoveries and seismically identified a
large exploration prospect inventory, consisting of 146 exploration
targets to be considered for potential future drilling
activity.
Further information on Savannah Energy PLC can be found on the
Company's website: www.savannah-energy.com .
Chairman's Statement
2019 marked a significant milestone in the evolution of our
Company as we successfully completed the acquisition of the
Nigerian Assets, which transformed Savannah into a highly
cash-generative, full-cycle energy company, with earnings and cash
flow substantially de-coupled from oil price risk. We also made
significant progress elsewhere across the business. Indeed, on 20
April 2020, post year end, we announced the change of name to
Savannah Energy PLC to reflect the Company's increasingly
diversified asset portfolio.
We benefited from the countries in which we operate continuing
to provide stable political and fiscal frameworks for our
operations during 2019. The signing of the Niger-Benin Export
Pipeline Transportation Convention between China National Petroleum
Corporation and the Republic of Niger in September 2019 also
promises to be a game changer for Savannah, as the construction of
the pipeline will provide the first large-scale export route for
operators in the Agadem Rift Basin. It is also expected to
transform Niger into a major oil and gas producer in the
region.
In December 2019, we were pleased to appoint Antoine Richard as
the Company's Chief Operating Officer ("COO"). Antoine has a
significant amount of operational experience in the oil and gas
sector and has played, and will continue to play, a pivotal role in
helping us to integrate and optimise our Nigerian assets and
achieve first oil in Niger. I would like to thank David Clarkson
for the significant contribution he made during his time as COO.
David has since resumed his role as a Non-Executive Director,
bringing a wealth of experience with him.
The Nigerian business has now been fully integrated, and we are
already delivering material production growth. We aim this year to
expand our customer base and to increase utilisation of our
infrastructure and, to this end, we have already signed a new gas
sales agreement with a number of other agreements in the pipeline.
In Niger, our ambition is to install an early production system, to
achieve first oil flows from our discoveries over the next 18
months and to lay the groundwork to recommence further exploration
drilling in-country.
Whilst 2019 saw oil prices remain relatively stable, with Brent
crude averaging out at approximately US$64 per barrel across the
year, the oil price decline, which started in March 2020, will
likely have an impact on the industry for the duration of 2020.
However, due to the robust fundamentals of our business and the
fact that over 90% of our revenues are derived from fixed-price gas
contracts, which have no oil price linkage, we are well-placed to
manage the downturn and assess potential growth opportunities when
compared to some of our peers.
The welfare of our workforce and their families, as well as our
ability to maintain operations in the face of the global COVID-19
pandemic, is of critical importance to us. We have rigorous systems
in place to manage, monitor and respond to this unprecedented
situation. These systems set out protocols designed to instil
vigilance in our offices, sites and operational areas within our
direct control, and when dealing with our contractors and
suppliers. Our goal is to minimise the risks to our employees and
our wider business as far as reasonably practicable. We shall
continue to keep these under review and amend as appropriate as the
situation continues to develop.
Achieving best-in-class levels of corporate governance at
Savannah continues to be of paramount importance to the Company. We
have assembled a first-rate Board and senior management team who
have the necessary skills to continue to grow the business and
deliver value for shareholders. We place particular emphasis on
maintaining strong relationships with our key stakeholders,
including our people, host governments, local communities,
shareholders and lenders, as well as our customers, suppliers and
strategic partners.
Our Nigeria and Niger teams have strong connections with our
local communities and take a proactive approach to meet with
community leaders to listen and understand concerns, to provide
information on our activities and to make a positive social impact
on our host communities. In both Nigeria and Niger, our senior
management teams have strong links into the various regulatory
bodies and seek to show Savannah's values as a respectful neighbour
and valuable business partner.
We are committed to maintaining the highest environmental,
social and governance standards and, with the integration of the
Nigerian workforce, we have established strong health, safety,
security and environment values across the enlarged Group. We are
proud that we have continued to deliver first-class safety
performance with no Lost Time Incidents or adverse environmental
impact. We have commenced a review of our approach to
sustainability performance reporting in 2020, with a view to
harmonising and enhancing our approach across the enlarged
Group.
Looking ahead, we remain very optimistic about the future of the
business. The countries in which we operate both have enormous
potential, and we are proud of the work we have done to date,
exemplified by the fact that we are already supplying gas to over
10% of Nigeria's power generation capacity. We look forward to
updating shareholders on developments such as new customers in
Nigeria, both within the industrial and utilities sectors, and
progress with the Nigerien project. We also remain nimble and
opportunistic for inorganic growth opportunities that are likely to
arise in the current economic and sector environment.
In finishing, I would like to thank all of Savannah's people in
the enlarged Group for their continued hard work during the year,
without which none of Savannah's achievements would have been
possible. I would also like to thank our new and existing investors
for their continued support, and we look forward to updating all
our stakeholders on the Company's progress over the coming
months.
Steve Jenkins
Chairman
31 July 2020
CEO's 2019 Review
Dear fellow shareholders,
I have divided this year's review into four sections. The first
section is a re-cap of our journey as a listed company from a
start-up exploration business in 2014 to a full cycle energy
company expected to report Total Revenues(2) in excess of US$200
million in 2020. The second section discusses the financial
performance we expect to deliver in 2020. The third talks about
potential growth opportunities for the business that we expect to
pursue and their associated value creation potential over the
course of 2020 and 2021. The fourth section looks at our approach
to, and plans for, sustainability reporting and the hugely positive
societal impact our projects in Nigeria and Niger are
delivering.
Our journey so far
Savannah was founded in July 2013 as an African-focused oil
exploration company, listing on the AIM market of the London Stock
Exchange in August 2014 as Savannah Petroleum PLC. In 2014 and 2015
we entered into two onshore Production Sharing Contracts ("PSCs") -
R1/R2 and R3/R4 - in the Agadem Rift Basin ("ARB") region of South
East Niger. We chose to focus our initial activities on the ARB as
it is a well understood and technically low risk petroleum basin;
offers a low-cost operating environment; and benefits from large
scale "open access" planned third party oil infrastructure and a
well-established oil service industry. At the time of entry, we
assessed the R1/R2/R3/R4 project as having the potential for
hundreds of millions of barrels of oil to be commercialised in a
Foreign Direct Investment friendly country.
Since entering into the Niger PSCs, we have successfully
conducted a series of extensive work programmes. This has included
the acquisition and interpretation of new airborne geophysical
(2014/15) and 3D seismic (2016/17) surveys, the construction of an
extensive proprietary basin-wide subsurface model (2014 to date),
the discovery of five oil fields (2018) and the submission of our
initial field development plan to the Nigerien authorities (2019).
The field development plan is expected to deliver first revenues
from this project in 2021. I would also highlight that to date our
work programmes have been delivered to budget, demonstrating of the
quality of our operational team and our focus on project
execution.
It is important to note that since Savannah has been operating
in Niger, the country's oil and gas industry has developed
significantly. The other major in-country operator, China National
Petroleum Corporation ("CNPC"), commenced work in 2019 on an
estimated US$7bn upstream development and midstream pipeline
project. We expect this new Niger-Benin pipeline to provide access
to a significant new oil sales market for our crude, in addition to
the existing domestic refinery, over the course of the coming
years.
Turning to Nigeria, in November 2017 we announced the
acquisition of a large package of onshore gas-focused upstream and
midstream assets in South East Nigeria from the financially
distressed vendor Seven Energy ("Seven"), in conjunction with our
private equity partner Africa Infrastructure Investment Managers
("AIIM"). Accugas, the midstream business, supplies gas to over 10%
of Nigeria's current power generation capacity and is the principal
gas processing and distribution business in South East Nigeria.
Accugas' asset base comprises a 260km pipeline network and
200MMscfpd capacity central processing facility (the "CPF"). The
upstream assets we acquired supply gas to Accugas and comprise
interests in two world-scale onshore oil and gas fields, Uquo and
Stubb Creek, with combined remaining gross gas reserves and
resources of approximately 1.1 Tscf[4].
Our initial focus was to reach an agreement with Seven's
shareholder representative-dominated Board and with Seven's
financial creditors. This inevitably took time given Seven's
shareholders had invested approximately US$1 billion of equity in
the business, but would ultimately receive no consideration in the
transaction. From a financial stakeholder perspective, we had to
separately negotiate with Seven's extensive creditor list which
ultimately resulted in agreement being reached to reduce the debt
balance assumed in the transaction from a gross US$1.07 billion to
a gross US$532 million. We also achieved a significant
simplification of the retained debt structure, while it is
important to note that this debt remains recourse only to the
acquired assets and not the wider Savannah group.
Other key workstreams associated with the transaction saw
us:
-- Acquire operatorship of the Accugas Central Processing
Facility from a third-party operator and restructure the Uquo
Marginal Field Joint Operating Agreement to enable us to benefit
from a 100% effective economic interest and operatorship over the
gas project;
-- Acquire the remaining 37.5% ownership interest taking our
interest to 100% in Universal Energy Resources, the company which
held Seven's interest in the Stubb Creek field, from a group of 24
individual shareholders;
-- Issue an aggregate of US$148 million of new Savannah equity
to a group of primarily institutional shareholders and the
back-to-back sale of a 20% interest in the Uquo field and the
Accugas midstream business to AIIM for US$54 million;
-- Obtain the required regulatory and governmental consents for the transaction; and
-- Secure a World Bank partial risk guarantee, backed by a JP
Morgan letter of credit, for the Calabar Gas Sales Agreement to
increase the level of Accugas' investment grade credit sales from
20% to 94%[5].
Completion of these necessarily complex workstreams has led to
an outcome that is simple to understand. We have acquired 130 MMboe
of 2P reserves and 2C resources[6], together with a 200 MMscfpd gas
processing facility and an extensive 260km pipeline network with
significant spare capacity, for an aggregate cost of approximately
US$6/boe and which have been independently forecast to generate an
average of US$130 million of asset level free cashflow for the
period 2020-23. Most importantly, we have achieved operating
control[7] over all of these acquired assets.
Since announcing the acquisition in November 2017, and having
worked alongside the former Seven management team over the course
of the past three years, substantial operational improvements in
the assets have been delivered. Net production has increased from
14.0 Kboepd in 2H 2017 to 19.6 Kboepd in H1 2020 (+40%), with cash
collections increasing from US$60 million to US$82 million (+37%)
over the same period. Over the course of 2019 operating costs[8] of
the acquired Nigerian assets averaged an impressively low
US$3.7/boe. These are clearly significant achievements.
Furthermore, we see strong potential for additional unit cost
improvements over time as production levels ramp-up against our
predominantly fixed cost base.
That a business of Savannah's size was able to complete a
transformational acquisition, such as this, whilst simultaneously
restructuring the acquired business and driving through the
significant operational improvements discussed above, speaks
volumes as to the quality of people and industrial capability that
we have within our business.
Savannah Energy today
Savannah Petroleum PLC was renamed Savannah Energy PLC in April
2020. The name change reflects the journey our company has now
completed to become a cashflow generative full cycle energy
company. Throughout this journey we have retained a highly
supportive long-term orientated, primarily institutional
shareholder register. Further, we operate using a clear, unified
and strong operating platform with a well-defined,
performance-driven corporate culture.
Our combined reserve and resource base at year end 2019 was 163
MMboe and we are providing the following financial and operational
guidance for FY 2020:
-- Total Revenue(2) of greater than US$200 million
-- Gross Production of 21 Kboepd to 23 Kboepd
-- Group Administrative and Operating Costs(8) of US$68 million to US$72 million
-- Group Depreciation, Depletion and Amortisation of US$43
million - US$45 million based on production guidance
-- Capital expenditure of up to US$45 million
Over 90% of our revenues are derived from fixed price gas
contracts, which have no oil price linkage. We, therefore, have
very limited near-term financial exposure to the oil price.
New growth opportunities
There are three principal areas of growth that Savannah is
actively pursuing: increasing infrastructure capacity utilisation
and average price realisation at Accugas; the delivery of first oil
and the resumption of exploration drilling activity in Niger; and
new business development opportunities that are cashflow, Net Asset
Value and future dividend capacity enhancing.
Infrastructure capacity utilisation and price optimisation at
Accugas
The Accugas infrastructure comprises a 200 MMscfpd capacity CPF,
which if successfully de-bottlenecked could see its capacity
increased by an estimated 10 - 20%, and a 600 MMscfpd capacity
pipeline network. This compares to the 2019 gas throughput of only
94 MMscfpd and maintenance adjusted 2020 take-or-pay[9] volumes of
141 MMscfpd. Our gross upstream gas reserve and resource at
year-end 2019, all of which can be processed and distributed
through this infrastructure, was 1.1 Tscf implying a reserves and
resources life of 21 years on a maintenance adjusted take-or-pay
volume basis[10].
Given the spare CPF capacity, a low-cost opportunity exists to
increase utilisation of our existing infrastructure by targeting
customers who are either connected, or located in close proximity
to, our pipeline network. Further, it should be noted that the
industrial gas price in Nigeria is typically significantly higher
(approximately 50% to 150% dependent on location) than that paid by
power stations, which creates a significant opportunity to increase
our weighted average gas sales price over the course of the coming
years. At the time of writing, Accugas is in discussions with
multiple potential new customers, both industrial and power
stations, and I expect this to result in the addition of further
new Gas Sales Agreements over the course of 2020/21. To "size the
prize" we would estimate this opportunity to potentially represent
more than US$40 million of incremental annualised free cashflow
associated with new annualised take-or-pay cash receipts to
Accugas. To put this in context the Nigerian Assets have been
assessed by the well-respected geo-technical consultancy CGG
Services (UK) Ltd ("CGG") as being expected to generate US$130
million of near-term annualised cashflows, on a maintenance
adjusted take-or-pay basis.
A substantial longer-term opportunity to potentially transport
third party gas through the Accugas pipeline network also exists.
Given the likely third-party field development timelines involved,
coupled with the current COVID-19 and oil price driven downturn in
industrial activity and investment, I see this as a meaningful
medium-to-longer term, as opposed to nearer term, opportunity.
However, given that our pipeline network is the only network of its
type in South East Nigeria, we provide the most cost effective and,
likely, only realistic option for third party gas owners seeking a
gas-to-power monetisation solution in the region. Moreover, for
South East Nigeria to meaningfully industrialise, additional
gas-to-power development appears to be essential, providing a
strong long-term demand dynamic for Accugas' infrastructure.
Similarly, the related opportunity of acquiring additional upstream
gas resource in the region to develop and monetise through our
dominant Accugas infrastructure also exists.
Capitalising on Niger Potential
We are seeking to progress our R3 East development to deliver
first oil and to resume exploration drilling activity in 2021,
subject to finalising the appropriate funding arrangements and the
prevailing economic environment.
Our plan for the R3 East development is to first deliver up to
1.5 Kbopd in production from the existing Amdigh-1 and Eridal-1
wells and truck this 120km to the Goumeri Export Station, after
which it would be transported 90km by the pipeline to the Zinder
refinery. Successful delivery of the first phase would lead to a
second phase of development which would see production potentially
increasing to around 5.0 Kbopd and piped rather than trucked to the
Goumeri Export Station. The planned gross 28 MMstb R3 East
development has been estimated by CGG, as having a net present
value of US$132.8 million or US$5.8/bbl net to Savannah. We have
estimated each additional 20 MMstb of resources to be tied into the
R3 East development to increase the NPV by around US$100 million
net to Savannah. CGG has assessed an economic break-even oil price
of US$26/bbl for the entire R3 East Development.
We are also seeking to recommence ARB exploration activities in
2021. We view ARB exploration with reference to the basin-wide
exploration results observed over the course of the past 12 years,
whereby the average discovery has been around 30 MMstb of oil in
place and 81% of the exploration wells drilled have been successful
(i.e. 115 discoveries out of 142 wells). We believe that, from a
reasonably sized drilling campaign in our acreage, it would be
reasonable to assume similar results to those seen in the past, a
view shared by CGG in our 30 April 2020 CPR who say: " the
structural prospects in the Alternances we assessed are seen as
carrying a low exploration risk profile (i.e. we see as carrying a
similar risk profile to those drilled elsewhere in the basin to
date). " Our next campaigns are likely to continue to focus on the
R3 and R1 areas, where we have an extremely large inventory of
potential drilling targets.
Regarding the financing of the Niger project, in 2019 and early
2020 we held discussions with a variety of large potential partners
to introduce them to our PSC areas. However, the recent oil price
decline and COVID-19 associated issues have resulted in this
process being put on hold. The Company has therefore chosen to
focus on reviewing ways in which the Niger project can be
organically progressed.
We plan to update on the timing of our Niger project later in
2020.
New Projects
Since Savannah became a listed company there have been
significant changes in the financial market's attitude towards
upstream oil and gas. In the decade prior to listing, upstream oil
and gas companies, especially European upstream oil and gas
companies, typically operated with business models focused on
delivering long-term value through exploration successes, rather
than a focus on short term financial performance. This period
coincided with a rise in the oil price from an average of US$38/bbl
in 2004 to an average of US$99/bbl in 2014 and a relatively low
cost of capital for the sector. The European E&P sector
outperformed the FTSE All-Share Index by over 700% over this period
and delivered many exploration successes. However, ultimately this
"easy" access to capital led to inefficiencies with marginal
projects being pursued and a number of potentially good projects
disappointing financial investors due to material cost
overruns.(11)
More recently the external environment has changed dramatically.
The oil price has fallen from around US$100/bbl in 2014 to around
US$40/bbl at the time of writing and averaged US$63/bbl in the
period 2014-2020 versus US$95/bbl over 2008-2014. The European
E&P sector has significantly underperformed the FTSE All-share
Index. We have seen the increasing focus of both the upstream oil
and gas industry and the North American financial markets on
unconventional shale opportunities at the expense of conventional
oil and gas opportunities. We have also seen the increasing
importance of the tech sector which now constitutes around 27% of
S&P 500 versus around 19% in 2014 at the expense of the oil and
gas sector which now constitutes 3% of the S&P 500 versus 10%
in 2014. Within the oil and gas industry, we have seen an
increasing investor focus on scale, operational capability and
financial sustainability. For example, there are just eight listed
oil and gas companies in the FTSE-All Share O&G Index versus 18
companies when we listed, with the Majors BP & Shell accounting
for 98% of total market capitalisation versus 79% when we
listed[11].
We have seen self-sustaining dividend paying companies as
increasingly valued versus non-dividend payers (a reversal of the
pre-2014 investor attitude). There is also increasing investor
focus on environmental, social and governance ("ESG") issues and
the associated trend towards larger energy companies increasing
spend on renewable energy projects at the expense of conventional
oil and gas projects, despite the latter having apparently higher
investment returns. For a variety of reasons, we have seen a
remarkable acceleration in major oil companies' divestment plans,
in a push to high grade portfolios and exit non-core areas, with
many companies selling assets they would not have considered
selling just two years ago. The last major trend to highlight has
been the increased presence of private equity backed companies,
particularly in the OECD, where private equity backed companies are
now amongst some of the largest owners of production assets in the
UK North Sea.
These trends are set against global oil demand of close to 100
MMstb per day (about one third of the world's total energy demand)
and a consensus view that this number will continue to grow over
the course of the next ten years according to the International
Energy Agency. On the supply-side, it would appear likely that the
significant reduction in new project investments we have seen by
the industry over the course of the past 12 months will have
significant impact over the course of the coming years. In other
words, from a US$40/bbl oil price base, we expect a supportive
macro environment for oil and gas projects in the coming years.
From a Savannah perspective, our business development efforts
are now firmly focused around cashflow generative, or near-term
cashflow generative assets which significantly enhance our ability
to commence the payment of a progressive dividend to our
shareholders. In this context, we see the net impact of the
industrial trends I have outlined above as resulting in: a period
of significantly reduced competition levels for such assets in our
core Africa-focused area of operation; the expected return
potential of such opportunities increasing significantly as a
result; and a significant increase in the absolute number of such
assets available for sale.
I believe Savannah is well positioned to potentially take
advantage of this situation and that, in doing so, we have several
competitive advantages versus many of our peers. Firstly, we have a
strong track record of operating, and transacting, in projects of
host country strategic importance in Africa. We have an extremely
experienced senior management team which has wide operational
experience across the Continent. This enables us to demonstrate our
capabilities to vendors and regulators and to properly assess
project risk and opportunity. Secondly, we have strong and
supportive financing relationships. Our shareholder register is
primarily comprised of long-term orientated financial investors. We
have a significant corporate treasury capacity that already manages
over US$500 million of well-structured debt facilities. We have
long-held relationships, and have completed transactions with oil
trading and energy-focused private equity firms. Thirdly, as a
business, Savannah is very disciplined (note, it took us three
years to identify the Nigerian Asset transaction). We have a clear
focus on projects we would consider pursuing and the patience to
wait for the right opportunity.
I believe that this places us in a strong position to source,
execute and finance such dividend-enhancing transactions. This
said, as ever with new business transactions, it is not possible to
predict the exact timing or nature of the opportunities that we
will potentially pursue. However, in the current period of
financial distress and business model change faced by many oil and
gas companies, I believe an abundance of robust, cashflow
generative and high-quality assets will potentially become
available for acquisition over the course of the next 12
months.
All the above said, it important to stress that we have an
extremely robust existing business with significant organic growth
potential. We will also only pursue new venture opportunities to
the extent they significantly enhance the unit value per share of
our company and our ability to commence significant dividend
payments to our shareholders.
Sustainability is at the heart of what we do
Over the course of the past two years we have seen a significant
increase in investor and media focus upon ESG matters and the
societal impact and sustainability of companies' operations.
A significant part of our business, through Accugas, already
operates in accordance with the International Finance Corporation's
eight Performance Standards and the World Bank Group Environmental,
Health & Safety Guidelines for the energy sector. In
particular, our Accugas subsidiary already has an ongoing
management, monitoring and reporting framework for environmental
and social impacts, community development, stakeholder management
and health and safety key performance indicators in accordance with
the agreements between Accugas and its lenders in relation to our
projects in Akwa Ibom and Cross River States in Nigeria.
Furthermore, the International Development Agency of the World
Bank, who provide us with credit support for our principal gas
sales agreement to the Calabar Power Station requires Accugas to
provide biannual environmental and sustainability reports.
The completion of the integration of the Nigerian assets is an
opportune time for us to undertake a holistic review of our
approach to monitoring and reporting sustainability, with a view to
harmonising and enhancing our approach across the enlarged group.
This will include the development and implementation of a
group-wide ESG performance reporting framework for the group in
line with international industry best practice and related
international sector guidelines, which we then intend to publish as
part of an annual stand-alone sustainability review.
Our projects in both Nigeria and Niger make an overwhelmingly
positive impact on the socio-economic development of both
countries. In 2019 our direct socio-economic contributions in
Nigeria and Niger amounted to approximately US$42 million,
comprising payments to host governments, local suppliers and
contractors, employee salaries and social impact investment in the
local communities in which we operate. This brings our overall
socio-economic contributions in Nigeria and Niger by Savannah
subsidiary companies since 2014 to a total of US$520 million while,
during that time, we have invested US$1.6 billion in infrastructure
and facilities in our host countries[12].
Further our Nigeria and Niger business units are delivering
projects which are of material importance to our host countries and
confer major societal benefits in these countries. In Nigeria we
provide a stable and reliable supply of gas to power stations
representing over 10% of the country's available power generation
capacity. Additionally, Savannah, as one of only four energy
companies currently operating in the ARB, is poised to play a major
role in developing the country's nascent energy sector, which could
potentially increase Niger's gross domestic product by an estimated
25% as the country moves towards becoming a net exporter of
hydrocarbons within the next few years.
I hope that this review gives shareholders a clear understanding
of the quality of our business, the opportunities we face and a
"feel" for what makes Savannah so uniquely positioned for the
future. I would like to thank all of our stakeholders - the
Savannah staff, our host countries and communities, governments,
local authorities and regulators, our shareholders and lenders, and
our customers, suppliers and partners for their work and support
throughout the year and look forward to continue working with
them.
Lastly, I think it is important to state that I am extremely
optimistic for Savannah's future. As I outlined at the beginning of
this review, our Company has achieved so much since formation seven
years ago and I expect this progress to continue in the years to
come. I strongly believe that this will ultimately be reflected in
our company's share price and that the initiation of shareholder
returns will be key to this.
Andrew Knott
Chief Executive Officer
31 July 2020
Financial Review
The results for this year are dominated by the impact on both
the income statement and the balance sheet of our transformational
acquisition of the Nigerian Assets which completed on 14 November
2019. The balance sheet now consolidates the assets acquired
comprising:
-- the Accugas midstream business which owns and operates a 200
MMscfpd gas processing facility and a 260km pipeline network and
benefits from long-term gas sales agreements with three downstream
customers;
-- the Seven Uquo Gas Limited ("SUGL") upstream business which
holds a 100% economic interest in the producing Uquo gas field
located in South East Nigeria; and
-- the Universal Energy Resources Limited upstream business
which holds an operated interest in the producing Stubb Creek field
located in South East Nigeria.
The impact of this acquisition on the Statement of Financial
Position is summarised below.
US$ million
Oil and gas and infrastructure assets 618.1
------------
Other assets and liabilities and net working
capital 23.5
------------
Borrowings (531.9)
------------
Fair value of net assets acquired 109.7
------------
Refer to financial information: Note 14 "Business
Combinations"
The acquired assets have been consolidated at the assessed fair
value of the assets as at the date of acquisition in accordance
with the appropriate accounting standards; the fair value of the
consideration was US$99.5 million.
At the time of the acquisition of the Nigerian asset our private
equity partners, African Infrastructure Investment Managers,
acquired a 20% ownership interest in the Uquo and Accugas
businesses from Savannah for a total consideration of US$54
million. T his interest is shown on the Statement of Financial
Position under "non-controlling interests".
Result for the year
The Group's net loss after tax was US$96.9 million (2018: loss
US$24.6 million), a result which includes just over six weeks of
revenues and operational costs from the Nigerian Assets. The loss
also reflects a number of exceptional items related to the
acquisition totalling US$75.5 million including a fair value
adjustment of US$54.7 million and transaction expenses of US$29.7
million, offset by the gain on acquisition of US$10.2 million,
arising from the difference in fair value of the assets acquired
and the consideration paid.
We believe it is important for readers of our accounts to
understand two key Income Statement impacts to our 2019 financial
statements. Firstly, our results are impacted by significant
transaction costs related to the acquisition of the Nigerian
Assets. These costs were anticipated as part of the value
proposition associated with the Nigerian asset acquisition when it
was commercially structured, however, they have been expensed
rather than capitalised as part of the investment in these
entities, in accordance with IFRS 3. Secondly, and more
fundamentally, is the impact of take-or-pay accounting rules under
IFRS 15 as regards revenue recognition for our gas sales
agreements. Over 90% of our invoiced sales in 2019 arose from fixed
price gas contracts with take-or-pay clauses. Under take-or-pay
contracts, customers agree to buy a minimum amount of gas from us
each year. This gas is either delivered to them, or the volume not
taken, which is described as make-up gas, is effectively prepaid
for by the customer for potential delivery in future periods. In
the six week period post-acquisition, our customers had contracted
to buy more gas than they ultimately requested delivery of so there
was a significant difference between invoiced sales of US$31.1
million and revenue reported in our Income Statement of US$17.8
million, with the difference of US$13.3 million reported as an
increase in Contract Liabilities ("Deferred Revenue") in the
Statement of Financial Position. Similarly, on a pro-forma basis,
full year invoiced sales were US$192.1 million compared to
pro-forma revenue of US$132.3 million, a difference of US$59.8
million. It should be noted that had our customers requested the
make-up gas to be delivered to them in the accounting period, then
all of the invoiced sales would have been recognised as Revenue in
the Income Statement but our cash generation would have been the
same in either case (as this reflects payments from customers
regardless of whether they relate to delivered gas or make-up gas).
It should therefore be emphasised that this take-or-pay accounting
treatment is cash neutral.
In 2019, we delivered an Adjusted EBITDA of US$1.8 million for
the year (2018: Adjusted EBITDA loss of US$13.4 million), on the
basis of the revenues from the Nigerian Assets from the date of
acquisition only. For indicative purposes, if the Nigeria assets
had been owned for FY 2019, the pro-forma Adjusted EBITDA of the
Group would have been US$91.6 million. It should be noted that
Adjusted EBITDA does not include the significant increase in
Deferred Revenue discussed above.
Year ended Year ended
31 Dec 31 Dec 2019
2019 Group - pro-forma
Group US$ million
US$ million
Operating profit / (loss) (37.5) 8.2
Add back:
Depletion, Depreciation & Amortisation 9.7 53.7
EBITDA(1) (27.8) 61.9
Adjust for:
Transaction costs 29.7 29.7
Adjusted EBITDA 1.8 91.6
Difference between invoiced sales and 13.3 59.8
Revenue due to IFRS 15 take-or-pay accounting
rules.
------------- -------------------
(1) EBITDA is calculated as profit or loss before finance costs,
investment revenue, foreign exchange gains or losses, fair value
adjustments, gain on acquisition, taxes, depreciation, depletion,
and amortisation.
Sales Volumes
From 14 November 2019 to 31 December 2019, sales volumes
amounted to a total of 4.6 Bscf of gas and 14,300 bbls of oil, net
to Savannah, at an average rate of 16.3 Kboepd during the
period.
The gas produced from the Uquo field was sold to Accugas, our
midstream gas processing and transportation business which
delivered the processed gas to three customers, Calabar NIPP,
Unicem and Ibom Power. The oil sales from the Stubb Creek field and
condensate sales from the Uquo gas field were sold to a subsidiary
of ExxonMobil.
Revenue
Revenue during the period since the acquisition of the Nigerian
Assets amounted to US$17.8 million (2018: nil) of which US$16.9
million was for gas sales and US$0.9 million for oil sales.
The average realised price in 2019 for gas was US$3.64/Mscf and
for liquids was US$64.0/bbl. It is of note that the gas revenue
stream is insulated from fluctuations in oil price as the gas
contracts are all priced entirely independently of oil prices.
Additionally, 94% of the gas sales are backed by investment grade
credit guarantees, including a World Bank supported Partial Risk
Guarantee in the case of the Calabar NIPP gas sales agreement.
During this period in addition to the recognised revenue of
US$16.9 million for gas delivered, the amount due from customers
for the take-or-pay volumes in excess of gas delivered was an
additional US$13.3 million. This amount is invoiced and recorded as
deferred revenue in the Statement of Financial Position, under
Contract Liabilities. All the gas contracts are take-or-pay
contracts where, if customers take less than the take-or-pay
quantity, they are still required to pay for the minimum
contractual amount of gas (equivalent to 141 MMscfpd on a
maintenance downtime adjusted basis in 2019).
In order to provide clarity as to the cash neutrality of
take-or-pay accounting rules, a theoretical simplified worked
example is set out below:
Simplified worked Examples of IFRS 15 take-or-pay accounting
Example of the impact of Case 1: Case 2: Case 3:
take-or-pay accounting on US$80 is for US$100 is US$100 is
the Income Statement and gas that has for gas that for gas that
Statement of Financial Position: been delivered has been is due to
an invoice is raised for to the customer, delivered be delivered
US$100. and US$20 is to the customer
for gas that in the future
In all cases the cash payable is due to be under take-or-pay
is US$100 but the accounting delivered to terms
treatment differs depending the customer
on whether gas is delivered in the future
or yet to be delivered under take-or-pay
terms
US$ US$ US$
------------------- -------------- -------------------
Statement of Financial Position:
Trade receivable, or cash
received 100 100 100
------------------- -------------- -------------------
Income Statement: Revenue
for gas delivered 80 100 0
------------------- -------------- -------------------
Statement of Financial Position
: Contract Liability - gas
invoiced/ paid for (known
as make-up gas) to be delivered
in the future, when it will
be recorded as revenue 20 0 100
------------------- -------------- -------------------
Cost of Sales
Cost of sales amounted to US$11.5 million (2018: nil) which
includes US$1.5 million for facility operating and maintenance
costs, US$0.7 million royalty expenses and US$9.1 million depletion
and depreciation, of which US$3.2 million was for upstream assets
depleted on a unit of production basis and US$5.9 million for
midstream infrastructure and other assets which are depreciated on
a straight line basis over their estimated useful life.
The average cost of sales was US$2.4/Mscfe, (US$14.7/boe) of
which US$1.9/Mscfe (US$11.6/boe) was for depletion and
depreciation.
Other items in the Statement of Comprehensive Income
Administrative and other operating expenses
Administrative and other operating expenses for 2019 were
US$13.6 million (2018: US$13.4 million), which includes activity as
the Group prepared to take over operatorship of the Nigerian Assets
and, from November 2019, the employment costs of the staff who
transferred to Savannah.
Net Financing Costs
Finance costs of US$12.2 million (2018: US$1.4 million)
increased from 2018 in large part as a result of interest expense
over the period from 14 November 2019 to the end of the year on the
debt assumed with the Nigeria assets. This was offset by finance
income of US$1.4 million (2018: US$0.9 million) which arose from
interest received on a loan made to Seven which was subsequently
contributed as part of the acquisition cost.
Foreign Exchange loss
The foreign exchange loss of US$12.7 million (2018: US$0.9
million) arises mainly from the fact that US dollar denominated gas
sales receipts were collected in local currency converted at the
Central Bank of Nigeria ("CBN") official rate. In order to purchase
US dollars to service US dollar obligations, Savannah is obliged to
use the Nigerian Autonomous Foreign Exchange rate ("NAFEX"), which
is the benchmark rate for foreign exchange spot operations in the
Investors' and Exporters' foreign exchange window. During 2019 the
CBN exchange rate was approximately 306 Naira/US$ and the NAFEX
rate was approximately 360 Naira/US$, a 15% differential. This
exchange rate differential was and continues to be included in our
future planning assumptions. The foreign exchange losses are thus
not a result of sudden unexpected changes in rates, rather the fact
that two parallel rates exist which are accounted for in our
forecasting. We are encouraged by the fact that post year end, in
March 2020, the CBN adjusted the official rate which has resulted
in the differential between the CBN and NAFEX rates falling to 7%.
The Nigerian Government has indicated to the World Bank that it
will unify these two rates in the next 12 months.
These losses are in part recoverable through a foreign exchange
"true-up" clause in the Calabar NIPP GSA whereby realised foreign
exchange losses on this contract may subsequently be invoiced back
to Calabar and recovered and recognised as a reduction in foreign
exchange losses. However, there is a timing difference between when
the initial foreign exchange loss is recorded and any amount is
recovered and this resulted in an exchange loss of US$7 million in
the period to 31 December 2019.
In addition, a one-off foreign exchange loss of US$5 million was
recognised as part of the settlement agreement when Savannah took
over operatorship of the Uquo gas project and the Accugas gas
processing facility. These losses were largely accumulated foreign
exchange differences from past transactions that were closed out on
completion of transfer of operatorship of the Uquo gas project and
final settlement of gas invoices between the joint venture
partners. For the avoidance of doubt, these losses were anticipated
and "priced into" our thinking at the time of negotiating the
transaction.
Exceptional Non-Recurring Items
Transaction costs
Transaction costs of US$29.7 million were planned for when we
structured the Nigerian acquisition. The costs covered the multiple
workstreams required to complete the acquisition of the Nigerian
assets and the associated restructuring of the debt that the Group
assumed as part of the acquisition. These costs included legal,
financial and advisory fees and regulatory fees payable to the
Nigerian authorities on approval of the transaction. Costs also
covered the renegotiation of agreements by which Savannah Group
entities assumed effective operatorship of the Uquo Field Gas
Project and the Accugas Central Processing Facility.
Fair value adjustment
In February 2018 the Company acquired US$305.6 million of 10.25%
Senior Secured Notes ("the Notes") issued by the Seven Energy
Group, from the note holders for cash consideration of US$41
million and the issue of 224 million new ordinary shares in the
Company. This was the initial step in the acquisition of the
Nigerian assets. The Notes were accounted for on a basis of 'fair
value through profit or loss' which required fair value accounting
at each reporting date. On acquisition of the Nigerian assets, the
Notes were revalued using a discounted cash flow approach based on
the underlying assets upon which they were secured. The value of
the Notes was reduced by a fair value adjustment of US$54.7 million
and the remaining revalued amount of U$34.3 million was contributed
as part of the acquisition consideration.
Gain on acquisition
An overall gain on acquisition, or "bargain purchase", of
US$10.2 million is recognised, being the excess of the fair value
of net assets acquired over the fair value of consideration
transferred. For further detail in this respect refer to financial
information: Note 14 "Business C ombinations".
Loss before Tax
The resulting loss before tax including the exceptional
non-recurring items above was US$105.4 million (2018: US$24.6
million).
Loss after Tax
The loss after tax amounted to US$96.8 million (2018: US$24.6
million) of which US$4.3 million is attributable to minority
shareholder interests and US$92.6 million to equity owners of the
Company.
The tax credit of US$8.6 million (2018: nil) is made up of a
current tax charge of US$0.3 million and a deferred tax credit of
US$8.9 million. The deferred tax credit principally arises on
losses generated post acquisition of the Nigerian assets which are
expected to be utilised against future profits.
Statement of Financial Position
The acquisition of the Nigerian assets has had a material impact
on the Savannah Group and its financial position, which is
reflected in the Statement of Financial Position. Property, Plant
and Equipment increased to US$618 million (2018: US$2 million) of
which US$452 million relates to the midstream gas processing and
transportation assets in Accugas and US$164 million to the upstream
oil and gas assets. Total Group assets now amount to US$1,145
million (2018: US$266 million).
Debt
The net debt at year-end for the Group was US$484.0 million
(2018: US$13.1 million). The material increase in debt is a result
of the acquisition of the Nigerian assets during the year. At the
time of the acquisition US$532 million of debt was assumed with
these debt facilities secured solely on the Nigerian assets with no
recourse to the other assets of the Group.
The following is a summary of the key debt facilities:
-- Accugas Limited has a US$382 million term loan facility with
a final maturity date of 31 December 2025 with principal repayments
of a varying and increasing percentage every six months over the
life of the facility. This facility also has a cash sweep feature
which will trigger mandatory prepayments from free cashflow. The
interest rate on this facility is US LIBOR plus 10.49%;
-- SUGL has a US$105 million senior secured note, with an
interest rate of 8%, which matures on 31 December 2026 with
principal repayments of US$4.2 million every six months and the
balance due on maturity;
-- SUGL has a term facility of Naira 4.8 billion (US$13.2
million) with interest of NIBOR plus 5% and principal repayments of
US$0.5 million every six months and the balance due on maturity on
31 December 2026;
-- Accugas Holdings UK plc has a US$20 million senior secured
note with a cash interest rate of 6%, or a payment-in-kind interest
rate of 8%. This note can be redeemed before 14 November 2021 at a
cost of US$10 million, an amount which increases by 10% for each
year later that it is redeemed. The note is carried at an initial
fair value of US$17.9 million. This note has a final maturity in
2025;
-- Accugas Holdings UK plc also has a promissory note of US$11.5
million with an interest rate of 8% or payment-in-kind interest of
10%, with principal repayments of US$0.5 million every six months
from 30 June 2021 with the balance due on maturity on 31 December
2025; and
-- Savannah Petroleum Niger has a FCFA 7.5 billion (US$12.9
million) revolving credit facility with an interest rate of 7.5%
and a final maturity date is December 2022.
The Group enjoys strong relationships with its supportive
banking group which, apart from our lending bank in Niger, is
predominantly comprised of Nigerian banks and institutions and
their UK based subsidiaries.
In the eight-month period since the Nigerian assets were
acquired there has been a notable deleveraging with the principal
amount of debt reduced by approximately US$44 million (of which
US$24 million has been repaid in the first half of 2020).
Receivables and Payables
The Group has trade and other receivables of US$99.8 million
(2018: US$22.4 million). The trade receivables of US$49.9 million
represent amounts due from gas customers in Nigeria under the
current GSA's in place. This amount is net of an Expected Credit
Loss ("ECL") provision of US$42.2 million assumed at acquisition of
the Nigerian assets. We are required to recognise ECLs based on
historic performance according to IFRS 9. Management does however
expect customer performance to improve and believes that this
provision will be released as the legacy receivables are recovered
and invoices are settled more promptly going forward than during
the pre-acquisition period. This view is supported by the fact that
payments for gas supply to the Calabar power station are supported
by a World Bank Partial Risk Guarantee, which would only be invoked
once all other commercial avenues have been exhausted.
The Group has trade and other payables of US$133.9 million
(2018: US$23.5m). Of this total, US$103 million relates to historic
legacy issues in the Nigerian businesses, largely dating back to
the period 2014-2017. A substantial amount of these legacy payables
is expected to be settled on a non-cash basis and management is
currently working with the various counterparties to resolve these
outstanding positions. The other components of total payables are
trade payables, taxes and other similar items which are settled in
the normal course of business.
Cashflow
The cash balances at 31 December 2019 amounted to US$46.3
million (2018: US$1.8 million).
The net cash outflow from operating activities was US$12.3
million (2018: US$32.4 million) which included the transaction
costs, incurred in line with expectations, in the Nigerian assets
acquisition. These operating activities included cash inflows
during the period from 14 November 2019 to 31 December 2019 from
oil and gas sales of US$43.3 million (US$42.4 million for gas and
US$0.9 million for oil). During the year, payments for property
plant and equipment amounting to US$1.7 million (2018: US$1.4
million) were made plus US$5.7 million (2018: US$19.4 million) paid
for exploration and evaluation costs which were mostly in relation
to the Production Sharing Contract obligations in Niger. In 2019,
the Company advanced additional funds of US$11.3 million to support
Seven with its ongoing costs prior to the acquisition. This loan
along with amounts previously advanced was used to form part of the
purchase consideration on completion of the acquisition.
Financing activities during the year provided net funds of
US$65.9 million (2018: US$96.7 million), the primary constituents
being net proceeds from equity issued of US$29.9 million and funds
received from AIIM that were attributed to the acquisition of a 20%
interest in Accugas and SUGL.
At the date of completion, the acquired entities in Nigeria had
cash of US$10.5 million, which along with other Group balances and
cash collections resulted in year-end cash balances of US$46.3
million.
Brexit
Savannah's operations are primarily based in West Africa, with
its Corporate Head Office in London. The Board of Directors are of
the view that our operations are therefore unlikely to be directly
impacted in any material way by the United Kingdom's exit from the
European Union.
COVID-19
We are taking measures to mitigate the business impact
associated with the ongoing COVID-19 pandemic, which has sadly
emerged following year end. The full extent of the COVID-19
outbreak and the adverse impact this may have on our workforce and
key suppliers and its impact on the global economy and the energy
industries remains unclear at the time of writing. However, we have
witnessed some short-term impacts on our supply chain and planned
work programmes particularly where overseas vendors and contractors
are required to make visits to install and commission
equipment.
Going concern
The funding and liquidity position of the Group has
fundamentally changed over the course of 2019 and it is now a
material cash generative business. We recognise that this change in
business mix also brings risks that must be considered when looking
at the funding and liquidity position. Having reviewed the
forecasted cashflows and applied a significant range of sensitivity
analyses to these projections, the Directors consider that the
Group has sufficient resources at its disposal to continue
operating for the foreseeable future.
Isatou Semega Janneh
Chief Financial Officer & Company Secretary
31 July 2020
H1 2020 Operational Update
Average gross daily production from the Nigerian Assets
increased 18% in H1 2020 to an average of 21.3 Kboepd versus 18.1
Kboepd for H1 2019. This includes a 22% increase in production from
the Uquo gas field compared to the same period last year, from 92.7
MMscfpd (15.4 Kboepd) to 113.5 MMscfpd (18.9 Kboepd).
On 30 May 2020 Savannah achieved an all-time Nigerian Assets gas
production record of 177 MMscfpd, through a combination of
increased supply to our industrial and power station offtakers. On
23 May 2020, Accugas customers achieved an all-time record peak
contribution of 11.5% of Nigeria's electricity generation or 468MW,
with the contributed electricity being exclusively generated from
Accugas sales gas.
In H1 2020, Accugas has ramped up gas supply to the Nigeria
power sector by 35%. This is despite the challenging times when
industry-wide gas shortages have increased by 33%. Accugas
presently and consistently supplies gas to more than 10% of
Nigeria's power sector.
Nigeria Average Gross Daily Production
Stubb Creek Uquo Condensate Uquo Gas Total (Kboepd)
Oil (Kbopd) (bopd) (MMscfpd)
------------- ---------------- ----------- ---------------
FY 2018 2.3 105.0 63.5 13.0
------------- ---------------- ----------- ---------------
FY 2019 2.4 136.0 88.1 17.2
------------- ---------------- ----------- ---------------
% Increase 4% 30% 39% 32%
------------- ---------------- ----------- ---------------
1 January-30 June 2019 2.5 140.3 92.7 18.1
1 January-30 June 2020 2.3 142.9 113.5 21.3
------------- ---------------- ----------- ---------------
% Increase -11% 2% 22% 18%
------------- ---------------- ----------- ---------------
Production levels are driven by customer nomination levels,
while cash collections are largely driven by contractual
maintenance adjusted take-or-pay provisions of 141 MMscfpd in
aggregate. As announced on 31 January 2020, Accugas entered into
the first new gas sales agreement for the business in over five
years with FIPL in relation to the provision of gas sales to its
Afam power plant in Rivers State, Nigeria. FIPL is an affiliate
company of Sahara Group, a leading international energy and
infrastructure conglomerate with operations in over 38 countries
across Africa, the Middle East, Europe and Asia.
In June 2020, Accugas signed a term sheet with a significant new
industrial gas sales customer, a subsidiary of a well-respected
international company, for an initial quantity of up to 5 MMscfpd
of gas for an initial five-year period. In addition, Accugas is
progressing a project which could see the addition of multiple new
gas sales customers located within an industrial hub area in close
proximity to our existing pipeline network.
In Niger, following a successful exploration drilling programme
in 2018 on the R3 East portion of the R3/R4 PSC, an agreement was
reached with the Niger Ministry of Petroleum to combine the R4 area
with the R1/R2 PSC Area into a new R1/R2/R4 PSC, extending the
licences for a further 10 years and retaining the full acreage
position previously covered by the R1/R2 PSC and the R3/R4 PSC. The
R3 PSC area will continue as a stand-alone PSC area. Ratification
of these changes is subject to Council of Minister approval and
payment of the associated fee.
To deliver the R3 East development, Savannah intends to commence
installation of an Early Production System within the next 18
months, market conditions and financing permitting, and intends to
deliver its initial production of 1.5 Kbopd to the Zinder refinery
in Niger. Significant further potential on the Savannah PSC areas
remains, with 146 further potential exploration targets having been
identified for future drilling consideration, as per the 30 April
2020 Niger CPR.
In September 2019, the Transportation Convention was signed
between China National Petroleum Corporation ("CNPC") and the
Republic of Niger in relation to a crude oil export pipeline from
the ARB to the Atlantic coast in Benin. The Pipeline is expected to
run for approximately 2,000km from the ARB in Niger to Port Seme on
the Atlantic coast in Benin. Pipeline construction is now expected
to complete in 2022, which should further allow Savannah to
monetise the planned future ramp-up in oil production from its
discoveries.
H1 2020 Financial Update and Outlook for FY 2020
Total cash collections from the Nigerian Assets in H1 2020 were
US$82.1m compared to US$55.3m in H1 2019. As of 30 June 2020, the
Group's current cash position stood at US$54.0m with group net debt
as at 30 June 2020 of US$457m. In the eight-month period since the
Nigerian assets were acquired on 14 November 2019 there has been a
notable deleveraging with the principal debt reduced by
approximately US$44m.
We are providing the following financial and operational
guidance for FY 2020.
We expect FY 2020 Total Revenues(2) in excess of US$200m. This
is approximately 5% higher than for 2019, being to the same
customers, under the same take-or-pay arrangements, adjusted for
contractual price increases.
Gross Production is expected to be 21 Kboepd to 23 Kboepd in FY
2020.
Group Administrative and Operating Costs of US$68m to US$72m for
FY 2020, with a strong focus on cost discipline.
Group Depreciation, Depletion and Amortisation of US$25m plus
US$2.6/boe, i.e. US$43m to US$45m based on production guidance for
FY 2020.
Capital expenditure of up to US$45m for FY 2020.
Unaudited Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
Note US$'000 US$'000
Revenue 3 17,758 -
Cost of sales 4 (11,514) -
--------------------------------------------- ----- -------------------- ------------
Gross Profit 6,244 -
Administrative and other operating expenses (13,581) (13,369)
Transaction costs (29,732) (14,700)
Expected credit loss on financial assets 11 (431) -
--------------------------------------------- ----- -------------------- ------------
Operating loss (37,500) (28,069)
Finance income 1,378 869
Finance costs 5 (12,173) (1,413)
Gain on acquisition of subsidiaries 14 10,209 -
Fair value adjustment (54,664) 4,953
Foreign translation loss (12,663) (948)
--------------------------------------------- ----- -------------------- ------------
Loss before tax (105,413) (24,608)
Tax credit/(expense) 6 8,566 (5)
--------------------------------------------- ----- -------------------- ------------
Net loss and total comprehensive loss (96,847) (24,613)
Total comprehensive loss attributable
to:
Owners of the Group (92,585) (24,519)
Non-controlling interests (4,262) (94)
--------------------------------------------- ----- -------------------- ------------
(96,847) (24,613)
Earnings per share
Basic (US$) 7 (0.10) (0.03)
--------------------------------------------- ----- -------------------- ------------
Diluted (US$) 7 (0.10) (0.03)
All results in the current financial year derive from continuing
operations.
Unaudited Consolidated Statement of Financial Position
as at 31 December 2019
2019 2018
Note US$'000 US$'000
----------------------------------------------- ----- --------------- --------
Assets
Non-current assets
Property, plant and equipment 8 618,286 2,431
Exploration and evaluation assets 9 154,745 150,425
Long-term financial assets - 88,956
Deferred tax assets 209,363 -
Right-of-use assets 4,183 -
Restricted cash 1,828 -
----------------------------------------------- ----- --------------- --------
Total non-current assets 988,405 241,812
----------------------------------------------- ----- --------------- --------
Current assets
Inventory 10 4,020 -
Trade and other receivables 11 99,771 22,359
Prepayments 6,561 313
Cash and cash equivalents 12 46,256 1,750
Total current assets 156,608 24,422
----------------------------------------------- ----- --------------- --------
Total assets 1,145,013 266,234
----------------------------------------------- ----- --------------- --------
Equity and liabilities
Capital and reserves
Share capital 13 1,393 1,240
Share premium 13 61,204 -
Capital contribution 13 458 458
Share-based payment reserve 13 6,448 5,908
Other reserves 13 - (4,989)
Retained earnings 13 164,885 225,679
----------------------------------------------- ----- --------------- --------
Equity attributable to owners of the Group 234,388 228,296
Non-controlling interests (2,983) (491)
----------------------------------------------- ----- --------------- --------
Total equity 231,405 227,805
----------------------------------------------- ----- --------------- --------
Non-current liabilities
Other payables 7,500 -
Borrowings 16 460,665 -
Long term lease liabilities 4,956 -
Provisions 17 109,503 -
Contract liabilities 18 118,052 -
----------------------------------------------- ----- --------------- --------
Total non-current liabilities 700,676 -
----------------------------------------------- ----- --------------- --------
Current liabilities
Trade and other payables 15 133,899 23,522
Borrowings 16 71,387 14,871
Financial liability - 36
Tax liabilities 6 3,090 -
Short term lease liabilities 614 -
Contract liabilities 18 3,942 -
----------------------------------------------- ----- --------------- --------
Total current liabilities 212,932 38,429
----------------------------------------------- ----- --------------- --------
Total equity and liabilities 1,145,013 266,234
----------------------------------------------- ----- --------------- --------
Unaudited Consolidated Statement of Cash Flows
for the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
Note US$'000 US$'000
---------------------------------------------- ----- ------------ ------------
Cash flows from operating activities:
Net cash used in operating activities 19 (12,323) (32,446)
Cash flows from investing activities:
Payments for property, plant and equipment (1,690) (1,362)
Exploration and evaluation payments (5,719) (19,426)
Cash acquired on acquisition of a subsidiary 10,471 -
Acquisition of long-term financial asset - (40,911)
Loan to Seven Energy International Limited (12,084) (15,686)
---------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (9,022) (77,385)
---------------------------------------------- ----- ------------ ------------
Cash flows from financing activities:
Finance costs (2,055) (159)
Proceeds from issues of equity shares,
net of issue costs 28,767 95,767
Borrowing proceeds 18,650 8,000
Borrowing repayments (16,381) (6,931)
Sale of a non-controlling interest 39,000 -
Lease payments (302) -
Cash transferred to restricted cash accounts (1,828) -
---------------------------------------------- ----- ------------ ------------
Net cash provided by financing activities 65,851 96,677
---------------------------------------------- ----- ------------ ------------
Net increase/(decrease) in cash and cash
equivalents 44,506 (13,154)
Cash and cash equivalents at beginning
of year 1,750 14,904
---------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of year 12 46,256 1,750
---------------------------------------------- ----- ------------ ------------
Unaudited Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Share Share Capital Share-based Other Retained Total Non- Total
capital premium contribution payment reserves earnings US$'000 controlling US$'000
US$'000 US$'000 US$'000 reserve US$'000 US$'000 interest
US$'000 US$'000
Balance
at
1 January
2018 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
Adjustments
due to
adoption
of IFRS
16 - - - - - (450) (450) - (450)
Balance
at
1 January
2019 (adjusted) 1,240 - 458 5,908 (4,989) 225,229 227,846 (491) 227,355
Loss for
the year - - - - - (92,585) (92,585) (4,262) (96,847)
Other - - - - - - - - -
comprehensive
income
Total
comprehensive
loss for
the year - - - - - (92,585) (92,585) (4,262) (96,847)
-------- ---------- ------------- ------------ --------- --------- --------- ------------ ---------
Transactions
with
shareholders:
-------- ---------- ------------- ------------ --------- --------- --------- ------------ ---------
Equity-settled
share-based
payments - - - 540 - - 540 - 540
-------- ---------- ------------- ------------ --------- --------- --------- ------------ ---------
Issue of
ordinary
shares
to
shareholders,
net of
issue costs 153 61,204 - - - - 61,357 - 61,357
-------- ---------- ------------- ------------ --------- --------- --------- ------------ ---------
Warrants
expired - - - - 4,989 (4,989) - - -
Transactions
with equity
holders - - - - - 37,230 37,230 1,770 39,000
Balance
at
31 December
2019 1,393 61,204 458 6,448 - 164,885 234,388 (2,983) 231,405
-------- ---------- ------------- ------------ --------- --------- --------- ------------ ---------
Notes to the Financial Information
for the year ended 31 December 2019
1. Corporate information
Savannah was incorporated in the United Kingdom on 3 July 2014.
On 16 April 2020 the Company changed its name from Savannah
Petroleum PLC to Savannah Energy PLC. Savannah's sole activity
until 14 November 2019, was 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.
On 14 November 2019 Savannah acquired certain operational
entities and assets from Seven Energy International Limited and its
subsidiaries ("the Transaction"). This has resulted in a
significant expansion of the business. The principal activity of
these entities is the exploration, development and production of
crude oil and natural gas in Nigeria.
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.
All the Group's subsidiaries' functional currency is US Dollars
("US$"), and the consolidated financial statements are presented in
US Dollars and all values are rounded to the nearest thousand
(US$'000), except when otherwise stated.
No dividends have been declared or paid since incorporation.
The Company's registered address is 40 Bank Street, London E14
5NR.
2. Basis of preparation
The unaudited consolidated summary financial information of the
Group has 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 unaudited consolidated summary financial information has been
prepared under the historical cost convention.
The unaudited summary financial information set out in this
announcement does not constitute the Group's consolidated statutory
accounts for the years ended 31 December 2019 or 31 December 2018.
The results for the year ended 31 December 2019 are unaudited. The
statutory accounts for the year ended 31 December 2019 will be
finalised on the basis of the financial information presented by
the Directors in this preliminary announcement and will be
delivered to the Registrar of Companies in due course. The
statutory accounts are subject to completion of the audit and may
change should a significant adjusting event occur before the
approval of the Annual Report.
The statutory accounts for the Group for the year ended 31
December 2018 have been reported on by the Group's auditors and
delivered to the Registrar of Companies. The auditor's report on
those accounts was unqualified and did not include references to
any matter which the auditors drew attention by way of emphasis
without qualifying their report and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
The consolidated financial statements of the Group incorporate
the results for the year to 31 December 2019.
Going concern
The funding and liquidity position of the Group has
fundamentally changed during the year following the completion of
the Nigeria acquisition. The Group is now a material cash
generative business but this also brings exposure to a wider range
of risks that require to be considered when looking at the Group
funding and liquidity position. The Group has entered 2020 in a
strong financial position with cash on balance sheet of US$46.3
million and high receivables that it expects to collect from its
customers in 2020 and the Board remains satisfied with the Group's
funding and liquidity position.
The Directors have reviewed the Group's forecasted cash flows as
well as the funding requirements of the Group for the 12 months
from the date of publication of this Annual Report. The capital
expenditure and operating costs used in these forecasted cash flows
are based on the Company's approved corporate budget which includes
operating budgets for each of the operating subsidiaries and an
estimate of the corporate general and administrative costs for the
period. This corporate budget was prepared on a 'bottom up' basis
and it reflects the Company's best estimate of forecast operating
and capital expenditures, and general and administrative costs.
Management regularly monitors performance against budget and the
Directors believe it reflects a fair and realistic basis for future
performance.
As detailed in the financial statements the Group has a range of
financing arrangements in place with different groups of lenders.
Certain financing agreements contain forward-looking financial
covenants and management monitors performance against these
covenants as part of the cash flow forecasting and monitoring
processes. The Group is forecasting to meet its financial covenant
obligations.
The Directors have considered the impact on the forecasted cash
flows of the low oil price environment and potential impact on
demand resulting from the COVID-19 virus, as well as counterparty
credit risk. In reviewing the potential impact of COVID-19, the
Directors have considered a wide range of matters including: (i)
wellbeing of our staff, (ii) the overall business environment in
Niger and Nigeria, (iii) impact on operational efficiency from the
restrictions on movement of people and goods imposed by
Governments, (iv) foreign currency liquidity constraints and (v)
potential need for further currency devaluation of the Naira
following a decline in foreign currency revenues.
The Directors believe that the impact on the Group from COVID-19
virus during 2020 has been fairly limited. Most importantly, the
Group is adhering to local government regulations in each of the
countries in which it operates and has implemented various measures
to ensure that operations can continue in a safe and efficient
manner. In Nigeria, operations have continued on an uninterrupted
basis. The Group has not furloughed any staff and all office-based
staff in the UK and Nigeria are working from home, with new
protocols including social distancing implemented for all
field-based operational personnel. As detailed in the CEO's Review
the Group has seen record levels of gas delivery from the Accugas
operations during the first half of 2020 and anticipates this
strong demand will continue. Following the COVID-19 outbreak,
certain updates have been made to the base case to reflect updated
economic assumptions such as Naira devaluation which took place in
April 2020 however, given the limited impact on the business from
COVID-19, management does not consider that any material changes
are required to its base case model.
The base case model assumes that cash collections from the
Group's gas customers in Nigeria are received on a timely and
regular basis in line with the agreed contracts. The Company
anticipates that new customers will be secured which will provide
incremental revenues and cashflow, however the going concern base
case model conservatively only assumes that existing customers are
supplied and that no new contracts are entered in to. Forecast oil
revenues from Stubb Creek are based on in-house production
forecasts which are in line with the forecasts in the current
competent persons report and using an oil price based on consensus
market view of US$45/bbl for 2020 and average of US$51/bbl for
2021. The base case model assumes that all debt repayments are made
in accordance with loan agreements, and fiscal payments to
governments are made as scheduled during the period.
The Company has undertaken significant sensitivity analysis on
its cashflow forecasts during 2020 both internally and with
external advisers. The following key areas were considered in
sensitivity analysis: (i) timing and quantum of payment from
customers, (ii) commodity pricing, (iii) accelerated payment
required for accrued expenses, (iv) increased inflationary
pressures in Nigeria and (v) delays to capital projects and impact
on production volumes.
The funding and liquidity position of the Group together with
its robust business model largely mitigates the risks arising from
these sensitivities. Firstly, the Group benefits from underlying
long-term, take-or-pay gas contracts in Accugas and these contracts
are underpinned by external credit support (including the partial
risk guarantee covering payments from Calabar, and a standby letter
of credit from an investment grade bank supporting payments from
Unicem). Over 90% of the revenue base is investment grade calibre
and the risk of non-payment is considered by the Directors to be
mitigated. The Group's direct exposure to oil price is limited
given that liquids revenues account for approximately 8% of total
forecast revenues for 2020. The Company has considered
sensitivities to oil price and this is not considered to be a
material risk.
Given its high equity ownership levels and operatorship of all
key assets, the Group has significant levels of control over
capital and operating spend. The Group has only minimal committed
capital spend and in sensitivity analysis therefore the Group can
directly manage costs where necessary. The operating cashflows and
funding available to the Group are sufficient at all times during
the forecast period to meet obligations as required whilst
maintaining an appropriate level of headroom.
As a result, the Directors consider that, in a low-price
environment the Company has sufficient resources at its disposal to
continue operating for the foreseeable future. The foreseeable
future is defined as being not less than 12 months from the date of
publication of these Consolidated Financial Statements. 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.
In February 2018, the Group acquired in excess of 90% of Seven
Energy International Limited's ("SEIL") 10.25% Senior Secured Notes
("SSNs") from various bondholders via an exchange offer. This was
the initial step to acquire the relevant assets and entities from
SEIL, ("the Seven Energy Group assets and entities" or "Seven
Energy Group"). The Group confirmed at the time of the acquisition
of the SSNs that this did not confer control of the Seven Energy
Group by the Company and therefore the Group did not consolidate
Seven Energy Group's financial results in the Group financial
statements for the Year ended 31 December 2018. Control was not
conferred since the purchase of SSNs did not give the Group the
ability to direct the relevant activities of the Seven Energy
Group. Control finally passed on 14 November 2019.
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.
Employee Benefit Trust
The Group operates an Employee Benefit Trust on behalf of its
employees but has not been consolidated as it is not deemed
material.
3. Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
2019 2018
Year ended 31 December US$'000 US$'000
Gas sales 16,844 -
-------- --------
Oil sales 914 -
-------- --------
Total revenue from contracts with customers 17,758 -
-------------------------------------------- -------- --------
Revenue has been recorded from the date of acquisition of the
Nigerian entities. Gas sales represents gas deliveries made to the
Group's three customers under long term take or pay gas sale
agreements; these comprise two power stations and a cement
production facility. The Group sells oil under a sales and purchase
agreement with ExxonMobil Sales & Supply LLC (EMS&SLLC) at
prevailing market prices.
4. Cost of sales
2019 2018
Year ended 31 December US$'000 US$'000
Depreciation and depletion - oil and gas, and infrastructure 8,850 -
assets (note 8)
-------- --------
Facility operation and maintenance costs 1,505 -
-------- --------
Royalties 715 -
-------- --------
Other 444 -
-------- --------
11,514 -
------------------------------------------------------------- -------- --------
5. Finance costs
2019 2018
Year ended 31 December US$'000 US$'000
Bank charges 612 12
-------- --------
Interest on bank borrowings and loan notes 9,553 1,401
Unwinding of decommissioning discount 564 -
Other finance costs 1,443 -
-------- --------
12,173 1,413
-------------------------------------------- -------- --------
6. Income tax
The tax (credit)/expense for the Group is:
2019 2018
Year ended 31 December US$'000 US$'000
Current tax
* Current year 342
* Adjustments in respect of prior years - 5
Deferred tax
(8,907) -
* Current year
Total tax (credit)/expense for the year (8,566) 5
--------------------------------------------------- -------- --------
Corporation tax is calculated at the applicable tax rate for
each jurisdiction based on the estimated taxable profit for the
year. The Group's outstanding current tax liabilities of US$3.1
million (2018: nil) relate to the corporation tax liabilities in
Nigeria, France and the UK. As a consequence of the acquisition of
the Seven Energy Group assets and entities, the tax rate used for
2019 reconciliation is the Nigerian rate of 30%, as income
generating activities occur principally in that jurisdiction. In
2018, the UK corporation tax rate of 19% was used.
2019 2018
Year ended 31 December US$'000 US$'000
The (credit)/expense for the year can be reconciled
per the Statement of Comprehensive Income as follows:
Loss on ordinary activities before taxes (105,413) (24,608)
Loss before taxation multiplied by the tax rate
of 30.0% (2018: 19.0%) (31,624) (4,676)
---------- ---------
Tax effects of:
---------- ---------
Expenses disallowed for taxation purposes (2,871) -
---------- ---------
Other Nigerian corporate taxes (335) -
---------- ---------
Unrecognised losses in parent and other holding
company entities 24,713 2,808
---------- ---------
Other temporary differences not recognised 1,551 1,868
Adjustments in respect of prior years - 5
Tax (credit)/charge for the year (8,566) 5
-------------------------------------------------------- ---------- ---------
7. Earnings per share
Basic loss per share is calculated by dividing the loss for the
years attributable to owners of the parent by the weighted average
number of ordinary shares outstanding during the year.
Diluted loss per share is calculated by dividing the loss for
the periods attributable to owners of the parent by the weighted
average number of ordinary shares outstanding during the year, plus
the weighted average number of shares that would be issued on the
conversion of dilutive potential ordinary shares into ordinary
shares. The effect of any outstanding share options or warrants is
anti-dilutive in both years, and is therefore excluded from the
calculation of diluted loss per share.
2019 2018
Year ended 31 December US$'000 US$'000
Earnings
Loss attributable to owners of the parent (92,585) (24,519)
------------------------------------------- --------- ---------
Number Number
of of
shares shares
Basic and diluted weighted average number of
shares 889,971,159 757,050,293
---------------------------------------------- ------------ ------------
US$ US$
Loss per share
Basic and diluted (0.10) (0.03)
------------------- ------- -------
8. Property, plant and equipment
Oil and Infrastructure Other
gas
-------- --------------- -------- --------
assets assets assets Total
US$'000 US$'000 US$'000 US$'000
Cost
-------- --------------- -------- --------
Balance at 1 January 2018(2) 1,623 - 1,810 3,433
Additions 1,105 - 258 1,363
Reallocation to exploration
and evaluation assets(1) (1,140) - (413) (1,553)
Balance at 31 December
2018 1,588 - 1,655 3,243
-------- --------------- -------- --------
Additions 2,062 3,556 110 5,728
-------- --------------- -------- --------
Recognised on acquisition
of subsidiaries 164,240 453,858 1,114 619,212
-------- --------------- -------- --------
Balance at 31 December
2019 167,890 457,414 2,879 628,183
------------------------------ -------- --------------- -------- --------
Accumulated depreciation
-------- --------------- -------- --------
Balance at 1 January 2018(2) (34) - (466) (500)
Depreciation charge (56) - (256) (312)
Balance at 31 December
2018 (90) - (722) (812)
Depletion and depreciation
charge (3,179) (5,671) (235) (9,085)
Balance at 31 December
2019 (3,269) (5,671) (957) (9,897)
------------------------------ -------- --------------- -------- --------
Net book value
Balance at 31 December
2018 1,498 - 933 2,431
Balance at 31 December
2019 164,621 451,743 1,922 618,286
------------------------------ -------- --------------- -------- --------
1. Long-lead items are classified as property, plant and
equipment and transferred to exploration and evaluation assets once
utilised in exploration.
2. The prior year comparative information has been re-presented
and allocated between Upstream assets, Infrastructure assets and
Other assets to align with the categories within the acquired
Nigerian entities.
Oil and gas assets principally comprise the well and field
development costs relating to the Uquo and Stubb Creek oil and gas
fields in Nigeria. The Infrastructure assets principally comprise
the Nigerian midstream assets associated with the Group's network
of gas transportation pipelines, oil and gas processing facilities
and gas receiving facilities. Other assets typically include
vehicles, office equipment and building improvements.
9. Exploration and evaluation assets
Exploration and evaluation assets consist of acquisition costs
relating to the acquisition of exploration licences and other costs
associated directly with the discovery and pre-development of
specific oil and gas resources in the R1/R2 and R3/R4 licence area
in the Republic of Niger, under two Production Sharing Agreements
("PSCs") respectively, as described and updated below for changes
in the license position.
Total
US$'000
Balance at 1 January 2018 111,733
Additions 37,139
Reallocation from plant, property and equipment 1,553
--------
Balance at 31 December 2018 150,425
--------
Additions 4,320
Balance at 31 December 2019 154,745
------------------------------------------------- --------
The amount for 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. Included
within these assets are intangible assets such as drilling costs,
seismic data, capitalised overheads which amount to US$148.5
million (2018: US$ 144.4 million).
The initial phase of R1/R2 expired in July 2019, However, during
the first half of 2020,the Company agreed with the Ministry of
Energy and Petroleum that the R4 licence area will be combined with
the R1/R2 PSC area into a new R1/R2/R4 PSC to be issued under the
Petroleum Code 2017, thus retaining the full acreage position
previously covered by the R1/R2 PSC and the R3/R4 PSC. Ratification
of the new R1/R2/R4 PSC is subject to Council of Minister approval,
and payment of the associated fee.
10. Inventory
2019 2018
As at 31 December US$'000 US$'000
Spare parts 1,499 -
-------- --------
Crude oil 2,521 -
-------- --------
4,020 -
------------------ -------- --------
Spare parts are parts of a gas engine generator which will be
used for spares and other operations. There is no impaired
inventory at year end.
11. Trade and other receivables
2019 2018
As at 31 December US$'000 US$'000
Trade receivables 30,864 -
Contract assets 19,497
Receivables from a joint arrangement 30,321 -
-------- --------
80,682 -
Expected credit loss (431) -
-------- --------
80,251 -
VAT receivables 75 151
-------- --------
Loan to Seven Energy International
Limited - 18,319
Other receivables 19,445 3,889
99,771 22,359
-------------------------------------- -------- --------
Following the acquisition of the Seven Energy Group assets and
entities, the Group completed the restructuring of economic
interests in the Uquo Field with its partner Frontier Oil Limited.
The agreement granted economic ownership and control of 100 per
cent. of the gas operations, and its partner was granted economic
ownership and control of 100 per cent. of the oil operations at the
Uquo Field. Under the terms of the restructuring, the Group made an
advance payment of cash calls of US$20.0 million to its partner. A
further US$14.1 million of advance cash calls is payable in Naira
across three yearly instalments, with the first instalment of
US$5.0 million due by the end of 2020. The advanced cash call
amounts have been recorded within Receivables from a joint
arrangement.
Included in Other receivables at 31 December 2019, are amounts
relating to pipeline transport tariffs recoverable from one of the
Group's gas customers, crude oil processing fees and other
settlement amounts owed from joint arrangement partners. Included
in 2018 'other receivables' is a 'deemed paid up' share capital
amount of US$3.5 million.
A liquidity facility was provided to SEIL, the ultimate parent
of the Seven Energy Group for working capital purposes from 2018
until Transaction completion. Interest on this facility was charged
at an annual interest rate of 6.5%. The Group concluded that it is
appropriate to measure the liquidity facility at amortised cost, in
terms of IFRS 9, with applicable reasoning as follows:
-- the facility was agreed to be repaid in cash following
completion of the Seven Energy Group acquisition. The facility is
therefore held with the intention to collect funds from Seven
Energy Group. The "business model" test is therefore complied
with;
-- the cash received by the Group would be solely payments of
principal and interest, therefore the so-called "SPPI test" is
complied with;
-- in 2019, as part of the consideration to acquire the Seven
Energy Group assets and entities from SEIL, this amount was
de-recognised as a loan receivable and transferred to one of the
Company's holding companies where it was capitalised as part of the
Investment in subsidiaries; and
-- the final amount contributed at the acquisition date was
US$31.8 million (note 14) and this represented both the amortised
and fair value amount as these were not materially different.
Set out below is the movement in the allowance for expected
credit loss on trade receivables:
2019 2018
US$'000 US$'000
-------- --------
As at 1 January - -
Provision for expected credit loss (431) -
As at 31 December (431) -
----------------------------------- -------- --------
12. Cash and cash equivalents
2019 2018
As at 31 December US$'000 US$'000
-------- --------
Cash and cash equivalents 46,256 1,750
----------------------------- -------- --------
The Directors consider that the carrying amount of cash and cash
equivalents approximates their fair value.
Cash and cash equivalents includes US$1.381 million (2018:
US$1.374 million) of cash collateral on the Orabank revolving
facility. The cash collateral was at a value of XOF 807.1 million.
The movement between years relates wholly to foreign exchange
movement.
13. Capital and reserves
As at 31 December 2019 2018
Fully paid ordinary shares in issue (number) 996,408,412 816,969,427
Par value per share in GBP 0.001 0.001
---------------------------------------------- ------------ ------------
Share Share
Number capital premium Total
of
shares US$'000 US$'000 US$'000
At 1 January 2018 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
Shares issued 179,438,985 153 61,204 61,357
At 31 December 2019 996,408,412 1,393 61,204 62,597
------------------------------- ------------ -------- ---------- ----------
In January 2019 the Company issued 62,800,000 new ordinary
shares in an equity fund raising to the value of US$22.1 million
(net).
In November 2019 the Company issued 116,638,985 new ordinary
shares: 90,666,308 relating to shares issued with the US$20 million
SSN's and the issue of 25,972,677 additional consideration shares
for the Seven Energy Group
acquisition. The fair value of the issue of these shares amounted to US$40.4 million (gross).
In February 2018 the Company issued 505,646,256 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 US$305.6 million
worth of 10.25% Senior Secured Notes due 2021 issued by Seven
Energy Finance Limited.
The Company issued warrants along with the shares issued during
the placings in December 2017 and February 2018, being one warrant
for every two ordinary shares placed. The warrants were exercisable
at a price equal to the placing price of the Company's shares on
the date of grant. There is no vesting period. The warrants
remained unexercised after a period of one year from the date of
the second grant and therefore they expired.
Following re-admission of the Group onto the London Stock
Exchange in December 2017, the Group established an employee
benefit trust ("EBT") to facilitate the adoption of certain
management and employee incentive schemes. The EBT subscribed for
42,624,837 ordinary shares, issued as part of the second tranche
equity placing in February 2018.
In June 2018 the Company cancelled its share premium account to
ensure adequate distributable reserves were in place.
Capital Share-based Other Total
contribution payment reserves US$'000
US$'000 reserve US$'000
US$'000
At 1 January 2018 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
Share-based payments expense during
the year - 540 - 540
Warrants expired - - 4,989 4,989
At 31 December 2019 458 6,448 - 6,906
------------------------------------- -------------- ------------ ---------- ---------
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 reserves figure represents the reclassification of the
fair value of warrants granted from equity to a financial
liability, at initial grant date. These warrants expired during the
year.
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.
14. Business combinations
In 2017 the Group confirmed its intention to acquire certain
operating assets and entities from the Seven Energy Group. These
assets included interests in two Nigerian producing onshore
upstream oil and gas fields, together with a midstream gas
marketing, processing and transportation business.
These two fields - Uquo Field and Stubb Creek Field, are located
in southern Nigeria in the south east of the Niger Delta; the
interests in these fields are held by Seven Uquo Gas Limited
("SUGL") and Universal Energy Resources Limited ("UERL")
respectively. The midstream gas business is owned by Accugas
Limited, situated close by these upstream fields. More details of
these assets are set out in the Annual Review of the Annual Report.
All of these entities were wholly owned by the Seven Energy Group.
As these assets and entities are largely interdependent due to gas
supply arrangements between SUGL and Accugas, and oil processing
between SUGL and UERL with Accugas, the separable assets and
liabilities of these acquired entities have been shown as a single
'Cash Generating Unit'.
The transaction to acquire these assets involved both the equity
owners of the Seven Energy Group and a number of the Seven Energy
Group's secured creditors. On 7 February 2018, the Group finalised
an exchange offer to acquire 96.04% of the Seven Energy Group's
SSNs. These SSNs formed part of the ultimate purchase consideration
for the assets and entities to be acquired from the Seven Energy
Group as described above.
At the time of the purchase of these SSNs it was concluded that
it did not grant 'control' over the Seven Energy Group or its
management (as defined in IFRS 10), and therefore was recorded as a
Long term financial receivable in accordance with IFRS 9. These
SSNs were initially recorded at their fair value of US$88.96
million and then revalued to US$34.3 million at date of
acquisition.
Also, during 2018 to the date of acquisition, the Savannah Group
provided an interest bearing 'Liquidity facility' to Seven Energy
International Limited for its ongoing working capital requirements.
This facility was recorded within Other receivables and held at
amortised cost. Subsequently, the balance outstanding at the date
of acquisition was also contributed as part of the Group's purchase
consideration for the Seven Energy Group's assets and entities.
In addition to the above SSNs and the liquidity facility
contributed as part of the purchase consideration, the Company also
issued equity shares and promissory notes to certain secured
creditors of SEIL.
The Group issued a US$20 million senior secured note together
with 90,666,308 equity shares for a combined cash inflow of US$20
million. This senior secured note included an embedded derivative
call option and as such, the various components of the loan note,
call option, equity shares and expenses had to be separated and
fair valued on recognition. Accounting for the fair value of the
different components of the instruments issued in excess of the
cash received amounted to US$21.0 million, as follows: debt value
US$17.9 million plus value of equity US$31.2 million less US$20
million cash proceeds received, value of the call option US$7.1
million and transaction expenses of US$1.1 million. This was judged
to be related to the initial exchange offer for the SSNs as
described above. Consistent with the originally acquired SSNs that
were contributed as part of the purchase consideration for the
acquisition, this additional amount has also been included within
the purchase consideration, as "Other purchase consideration".
Additional equity consideration related to the issue of 25,972,677
shares amounted to US$9.2 million.
Set out below are the fair values of the separable assets and
liabilities of the combined acquired entities together with the
fair value of the purchase consideration.
14 November
2019
US$'000
Oil & gas and infrastructure assets 618,098
------------
Other property, plant and equipment 1,114
Non-current assets 9,685
Deferred tax assets 200,456
Inventories 4,019
Trade receivables and other current assets 98,521
Cash and cash equivalents 10,471
942,364
Trade and other payables (84,364)
Current tax payable (2,752)
Contract liabilities (108,716)
Provisions (104,925)
Borrowings (531,863)
------------
(832,620)
Total identifiable net assets at fair value 109,744
------------
Goodwill/(bargain purchase) arising on acquisition (10,209)
------------
Total fair value of consideration transferred 99,535
------------------------------------------------------ ------------
Consideration satisfied by:
14 November
2019
US$'000
------------
SSNs contributed 34,256
Loan to Seven Energy International Limited
contributed 31,781
Promissory notes 3,273
Other purchase consideration 21,025
Equity shares 9,200
------------
Total fair value of consideration transferred 99,535
------------------------------------------------- ------------
The fair values of the oil and gas assets, and infrastructure
assets were valued using an Income Approach - based upon future
income streams associated with the underlying businesses which were
then discounted at an appropriate market discount rate. Included
within these asset categories (in Property, plant and equipment
(note 8)) are the oil and gas reserves of the Uquo and Stubb Creek
fields and the infrastructure assets of the Accugas midstream
business.
The fair value of Trade receivables and contract assets acquired
at acquisition have been stated net of any expected credit losses.
Included within Provisions is an amount of US$5.1 million
recognised on acquisition for potential contingent liabilities
associated with legal claims against the acquired Seven Energy
Group entities.
Contract liabilities relate to amounts undertake-or-pay gas
contracts. These represent amounts of invoiced gas not yet
delivered to the customer. In order to fair value this liability, a
forecast was made to estimate when this gas would be delivered
based on expected customer demands, together with determining an
estimated cost and appropriate margin of supplying this gas. This
was then discounted using an incremental borrowing rate.
Overall the business combination resulted in a bargain purchase
of US$10.2 million which was principally due to the financial
distress position of SEIL and its subsidiaries as a result of a
series of loan defaults from 2016 and the requirement to
restructure all of the borrowings of the SEIL group that culminated
in the disposal of the Seven Energy Group assets and entities to
the Company, and the ongoing administration and liquidation
proceedings of the rest of the SEIL group not acquired by the
Company.
From the date of acquisition, 14 November 2019 to 31 December
2019, the acquisitions contributed the following amounts to the
overall Group result:
US$'000
---------
Revenue 17,758
Loss before tax (27,047)
---------
If the acquisition of Savannah Nigeria had taken place at the
beginning of the year, Group revenue and profit for the 2019 year
would have been as follows:
US$'000
Revenue 132,332
Loss before tax (47,055)
---------
There were no business combinations in 2018.
15. Trade and other payables
2019 2018
As at 31 December US$'000 US$'000
Trade payables 48,800 21,194
-------- --------
Accruals 58,531 1,827
-------- --------
Interest payable 13,715 -
VAT payable 5,222 -
Royalty and levies 6,317 -
Other payables 1,314 501
133,899 23,522
Other payables- non-current 7,500 -
-------- --------
141,399 23,522
----------------------------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. All amounts are
payable within one year.
Within Non-current liabilities is an amount within Other
Payables amounting to US$7.5 million (2018: nil) relating to
deferred consideration resulting from a loan note that was
initially acquired via the acquisition of the Seven Energy Group,
which was then acquired the Company for future settlement. The
amount is due to be repaid by May 2021 and is interest bearing at
8% per annum.
16. Borrowings
2019 2018
As at 31 December US$'000 US$'000
Revolving credit facility 9,914 13,795
Bank loans 388,209 -
Senior secured notes 115,833 -
Other loan notes 18,096 1,076
-------- --------
532,052 14,871
--------------------------- -------- --------
2019 2018
As at 31 December US$'000 US$'000
Current borrowings 71,387 14,871
Non-current borrowings 460,665 -
-------- --------
532,052 14,871
------------------------ -------- --------
The following borrowing arrangements are a combination of
existing facilities and those that were acquired at the time of the
acquisition of the Seven Energy Group.
In October 2019 the Company entered into a three-month loan
facility for an amount of US$5,000,000 bearing a fixed interest
charge over the life of the facility at a rate of 7% of the amount
borrowed. This facility also gave the lender the right to convert
the loan to equity shares if the amounts borrowed are not repaid at
maturity. As a conversion option, this was deemed to be an embedded
derivative and was required to be separated from the host contract
and valued. As the amount was deemed immaterial no separate
recognition was recorded. The balance as at 31 December 2019 was
US$5.2 million.
Accugas Limited has a bank loan facility amounting to US$382.1
million. Repayments of principal commenced on 31 December 2019 and
will continue semi-annually until the final maturity date of 31
December 2025. Principal repayment amounts are calculated as a
variable percentage of the facility outstanding, increasing over
the life of the facility, with 3% of the principal repayable in
2019 and a final principal repayment of 49% at final maturity in
December 2025. This facility incorporates a cash sweep to
accelerate repayments subject to certain minimum cash balances. The
facility carries an interest rate of between 10%-12%, plus 3 month
US LIBOR per annum to 31 December 2019, at which time the interest
rate increases to between 10.43%-12.43%, plus 3 month US LIBOR per
annum.
Seven Uquo Gas Limited has a term facility amounting to NGN 4.8
billion (US$13.2 million). Repayments of principal in amount of
NGN180 million (US$0.5 million) are due semi-annually from 31
December 2019 and will continue until the final maturity date of 31
December 2026 at which time all unpaid principal is due. The loan
carries an interest rate of 3 month NIBOR plus margin of 5% per
annum. Seven Uquo Gas Limited also has a senior secured note of
US$105 million. Repayments of US$4.2 million are due semi-annually
and will continue until 30 June 2026, with the remaining balance
due at the final maturity date of 31 December 2026. The loan
carries an interest rate of 8%.
Accugas Holdings UK Plc has a promissory note of US$11.5
million. Repayments of principal in the amount of US$0.5 million
will commence on 30 June 2021 and continue semi-annually until the
final maturity date of 31 December 2025, at which time all unpaid
principal is due. The loan carries a cash interest rate of 8% per
annum, with a payment-in-kind interest option of 10% per annum.
Accugas Holdings UK Plc also issued a senior secured note of
US$20 million on 14 November 2019. The term of the note is for
repayment in full by 14 November 2025. The loan carries a cash
interest rate of 6% per annum, with a payment-in-kind interest
option of 8% per annum. The note also includes a voluntary
prepayment redemption option whereby early repayment of the
principal amount will result in a discount to the contractual loan
value. Full repayment in the 12-month period from 14 November 2019
will result in a 50% redemption amount of the face value of US$20
million. The repayment amount will increase by 10% yearly, until
the maximum amount redemption option is 100% in 2024. As an
embedded derivative, this option is required to be separated from
the host contract and valued separately. Initially, the fair value
of the note without any call option was calculated by discounting
the future expected cash flows at a market yield. This resulted in
an initial amortised value of US$17.9 million with an EIR of 8.73%;
the loan accretion amount for the year amounted to US$47,000. The
call option value was estimated using a synthetic American receiver
swaption model, adjusting for additional cash repayments required
for early exercise. The value of the option was estimated to be
US$7.1 million and will be re-measured as FVTPL. The option has
been recorded within Non-current borrowings. The amount at initial
recognition and at 31 December 2019 was not material different.
In September 2018 the Company issued unsecured loan notes to the
value of GBP620,000 at 10% premium. In December 2018 an additional
premium of 25% was agreed on the loan notes. The balance at 31
December 2019 was US$1.0 million (2018: US$1.1 million).
In July 2017 the Group's Niger subsidiary, entered into a Euro
denominated revolving credit facility with Orabank SA amounting to
US$12.8 million (equivalent) bearing interest at 7.5% per annum.
The balance at 31 December 2019 was US$9.9 million (2018: US$13.8
million).
17. Provisions
2019 2018
US$'000 US$'000
Decommissioning provision 104,408 -
Other provisions 5,095 -
-------- --------
As at 31 December 109,503 -
-------------------------- -------- --------
The Group provides for the present value of estimated future
decommissioning costs for certain of its oil and gas properties in
Nigeria. These costs are updated annually based upon a review of
both inflation and discount rates. Periodically, the Group will
undertake a more detailed technical assessment by either internal
or external specialists as appropriate. The amounts shown are
expected to crystallise between 2038 and 2042.
2019 2018
Decommissioning provision US$'000 US$'000
As at 1 January - -
Provided during the year 4,014 -
Unwinding of decommissioning provision 564 -
discount (note 5)
Acquired on acquisition of subsidiaries 99,830 -
-------- --------
As at 31 December 104,408 -
---------------------------------------- -------- --------
Other provisions relate to amounts recognised on acquisition of
the Seven Energy Group assets and entities. They reflect the fair
value of expected contingent liability legal claims as required to
be valued under IFRS 3: Business Combinations, the timing and
outcomes of which remain uncertain.
18. Contract liabilities
Contract liabilities represents the value of gas supply
commitment to the Group's customers for gas not taken but invoiced
under the terms of the contracts. The amount has been analysed
between current and non-current liability, based on the customers'
expected future usage gas delivery profile. This expected usage is
updated periodically with the customer.
2019 2018
US$'000 US$'000
----------------------------------------- -------- --------
Amount due for delivery within 12 months 3,942 -
Amount due for delivery after 12 months 118,052 -
121,994 -
----------------------------------------- -------- --------
2019 2018
US$'000 US$'000
---------------------------------------- -------- --------
As at 1 January - -
Additional contract liabilities 13,278 -
Acquired on acquisition of subsidiaries 108,716 -
As at 31 December 121,994 -
---------------------------------------- -------- --------
Subsequent to the acquisition of the Seven Energy Group,
additional contract liabilities were recognised as shown above; no
amounts were utilised in the period from acquisition to the end of
the year.
19. Net cash from operating activities
Group
Year ended Year ended
31 December 31 December
------------ ------------
2019 2018
US$'000 US$'000
Net loss for the year before tax (105,413) (24,608)
------------ ------------
Adjustments for:
------------ ------------
Depreciation 801 312
------------ ------------
Depletion 8,850 -
------------ ------------
Gain on acquisition of a subsidiary (10,209) -
------------ ------------
Finance income (1,378) (869)
------------ ------------
Finance costs 12,173 1,413
------------ ------------
Fair value movement 54,664 (4,953)
Net foreign exchange gain (815) -
Share option charge 540 1,357
Expected credit loss on financial assets 431 -
------------ ------------
Operating cash flows before movements in working
capital (40,356) (27,348)
------------ ------------
Increase in other receivables and prepayments (8,458) (2,464)
------------ ------------
Increase/(decrease) in trade and other payables 22,823 (2,629)
Increase in contract liabilities 13,278 -
Decrease in other assets 390 -
Income tax paid - (5)
Net cash outflow from operating activities (12,323) (32,446)
-------------------------------------------------- ------------ ------------
Included within the Net cash outflow from operating activities
is an amount of US$15 million received from AIIM as a funding
contribution to the Company's Transaction costs associated with the
acquisition of the Seven Energy Group assets and entities. This is
in addition to the US$39 million that AIIM invested directly into
the newly acquired Seven Energy Group entities. This has been shown
within Sale of a non-controlling interest in the Consolidated
Statement of Cash Flows.
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Lease
Borrowings Liabilities Total
----------- ------------ ---------
US$'000 US$'000 US$'000
----------- ------------ ---------
At 1 January 2019 14,872 - 14,872
Adoption of IFRS 16 - 5,056 5,056
Revised 1 January 2019 14,872 5,056 19,928
Cash flows
Repayment (16,380) (302) (16,682)
Proceeds 18,650 - 18,650
----------- ------------ ---------
2,270 (302) 1,968
Non-cash adjustments
Acquisition of the Seven Energy
Group 524,361 - 524,361
Accretion of interest - 251 251
Foreign translation - 565 565
Borrowing fair value adjustments (2,366) - (2,366)
Net debt fees (7,085) - (7,085)
At 31 December 2019 532,052 5,570 537,622
----------------------------------- ----------- ------------ ---------
Borrowings Total
----------- ------------ ---------
US$'000 US$'000
----------- ------------ ---------
At 1 January 2018 12,678 12,678
Cash flows
Repayment (6,931) (6,931)
Proceeds 8,000 8,000
----------- ------------ ---------
1,069 1,069
Non-cash adjustments
Net debt fees 1,125 1,125
At 31 December 2019 14,872 14,872
----------------------------------- ----------- ------------ ---------
20. Events after the reporting period
In January 2020, the Group entered into a new interruptible gas
sales agreement ("IGSA") with First Independent Power Limited
("FIPL") in relation to the provision of gas sales to the FIPL Afam
power plant ("Afam"). FIPL is an affiliate company of Sahara Group,
a leading international energy and infrastructure conglomerate with
operations in over 42 countries across Africa, the Middle East,
Europe and Asia. Afam has a current power generation capacity of
180MW. The FIPL IGSA envisages the supply of gas for a maximum
daily nominated quantity of 35 mmscfd to Afam in order to augment
its existing gas supply on an interruptible basis for an initial
term of one year with the ability to extend upon mutual
agreement.
Post the balance sheet date, macro-economic uncertainty has
arisen due to the COVID-19 pandemic, which has generally impacted
both oil and gas pricing, in addition to significant commodity
market volatility relating to the global supply of oil. This
volatility may have an impact on the Group's future earnings and
cash flows but the Group has fixed price gas contracts and
therefore is largely unaffected from general market price
volatility for its gas contracts.
In addition, the significant estimates and judgements that will
be made in preparing future financial statements may also be
impacted if the current macro-economic uncertainty continues and
estimates of long-term commodity prices and demand decrease. In
particular, the estimated recoverable amounts of exploration and
evaluation assets and property, plant and equipment would be lower
and the headroom of recoverable amounts over respective carrying
values would reduce. Based on current forecasts, the Group does not
believe significant impairments would arise due to its focus on gas
assets, as opposed to oil which has been more heavily impacted by
the COVID-19 pandemic.
[1] EBITDA is defined as profit or loss before finance costs,
investment revenue, foreign exchange gains or losses, fair value
adjustments, gain on acquisition, taxes, depreciation, depletion,
and amortisation.
[2] Total Revenues refers to the total amount of invoiced sales
expected to be recorded in relation to the FY 2020 accounting
period. This number is seen by management as more accurately
reflecting the underlying cash generation capacity of the business
as opposed to Revenue recognised in the Income Statement. A
detailed explanation of the impact of IFRS 15 revenue recognition
rules on our Income Statement is provided in the Financial Review
section.
[3] Operating costs are defined as total cost of sales less
royalty and depletion, depreciation and amortisation.
[4] Gross 2P reserves and 2C resources as per Nigeria Competent
Person Report by CGG Services (UK) Ltd., December 2019 .
[5] Calculated by value on a maintenance adjusted take-or-pay
basis.
[6] Nigeria Competent Person Report by CGG Services (UK) Ltd.,
December 2019.
[7] W e operate the CPF, pipelines and the Stubb Creek field.
While Frontier Oil Ltd is the operator of record for the Uquo
field, the Uquo Marginal Field Joint Operating Agreement was
amended to give us a 100% economic interest. in, and operational
control over the Uquo gas project.
[8] Operating costs are defined as total cost of sales less
royalty and depletion, depreciation and amortisation.
[9] All of Accugas' gas sales agreements are structured as
take-or-pay contracts, whereby customers agree to buy and pay for a
minimum amount of gas over the course of a year, regardless of the
amount of gas they physically take delivery of. This minimum amount
is referred to as the maintenance adjusted take-or-pay volume for
each contracts.
[10] Based on current contracted volumes.
[11] The source for all data in this paragraph is Bloomberg.
[12] Overall socio-economic contributions defined as payments to
governments, local suppliers and contractors, and employee salaries
during 2014-2019 and includes contributions to Nigeria during the
period pre-acquisition of the Nigerian assets by Savannah.
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 SDDSIFESSEDW
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