TIDMSAVP
RNS Number : 2051L
Savannah Petroleum PLC
21 December 2018
21 December 2018
Savannah Petroleum PLC
("Savannah" or "the Company")
Update on Seven Energy Transaction and Niger Operations
Acquisition of controlling interest in Accugas, sale of 25% of
SUGL for US$70m, agreement with Accugas Lenders and other
creditors
Savannah Petroleum PLC, the British independent oil and gas
company focused around oil and gas activities in Niger and Nigeria,
is pleased to announce an update on the Seven Energy Transaction
(the "Transaction") alongside an update on the Company's operations
in Niger.
Highlights
-- Acquisition of additional 55% interest in Accugas Limited
("Accugas"), resulting in the Enlarged Group owning a 75% interest
and further consolidating control over the gas value chain in South
East Nigeria;
-- Signature of MOU with a vehicle managed by African
Infrastructure Investment Managers Limited for the sale of a 25%
interest in each of Seven Uquo Gas Limited ("SUGL") and Accugas for
consideration of US$70m, broadening the existing partnership with
AIIM and providing significant additional liquidity to the Enlarged
Group;
-- Enhancement of acquired assets' NPV10 by 35%, and of the
associated forecast cash flows by an average of 58% over the 2019 -
2022 period, as reviewed by Savannah's Competent Person;
-- Term sheets agreed with lenders to Accugas (the "Accugas
Lenders") and the holder of the 10.50% Notes in relation to the
revised Transaction structure;
-- Proposed acquisition of the Creek Town to Calabar pipeline,
expected to grant control of gas delivery from Uquo until transfer
point at the Calabar power station;
-- Addition of significant new customer, the Alaoji power station, to Accugas; and
-- Implementation Agreement incorporating changes announced in
this RNS expected to be signed by the end of January 2019, with the
wider Transaction expected to complete during Q1 2019.
Following (i) this morning's announcement; (ii) the Company's
RNS of 11 October 2018 in relation to the Nigerian Department of
Petroleum Resources' completion of due diligence (and satisfaction
with) the Transaction; and (iii), the Company's RNS of 20 September
2018 in relation to the Frontier MOU and the UERL Minorities
Buy-Out, all commercial terms in relation to Transaction conditions
precedent have now been agreed. Remaining workstreams are now
mainly legal and procedural in nature.
A selection of slides summarising this morning's announcement,
along with a voiceover from Savannah Petroleum's CEO, Andrew Knott,
is available for review on the Company's website at
https://www.savannah-petroleum.com/en/videos.
Andrew Knott, CEO of Savannah Petroleum, said:
"We are delighted to announce the amendments to our Seven Energy
Transaction this morning. In aggregate, they grant control of
Accugas to Savannah, are demonstrably NPV and cashflow accretive,
release significant cash to the Company and significantly increase
the upside exposure of our South East Nigerian gas business to
rising gas volumes and prices.
The planned addition of the Alaoji power station as a new
customer to the Accugas business (alongside other new customer
discussions which are ongoing) diversifies our near-term customer
mix while also serving as the start of the roadmap we are seeking
to establish to enable a third train to be built at the Accugas
Central Processing Facility.
I would like to take the time to thank the Seven Energy creditor
group, AIIM, and our shareholders for their continued support which
has enabled us to progress this transformational acquisition. I
would also like to thank both the Savannah and Seven Energy teams
for their tireless work this year. We look forward with excitement
to 2019 as we seek to consolidate and grow the South East Nigerian
gas business and further develop and explore our high-value acreage
in Niger."
Sola Lawson, Investment Director West Africa, African
Infrastructure Investment Managers, said:
"AIIM is pleased to partner with Savannah in this new
Transaction structure which aligns our two companies' interests in
the acquisition. We see great potential in the growth of the
domestic natural gas market in Nigeria, and believe this
Transaction is a unique and exciting opportunity."
Further Information on the Transaction
Acquisition of Additional 55% Interest in Accugas Limited
("Accugas") and Sale of a 25% Interest in Seven Uquo Gas Limited
("Uquo")
Savannah is pleased to announce the signature of a Memorandum of
Understanding ("MOU") with African Infrastructure Investment Fund 3
GP Proprietary Limited, a vehicle managed by African Infrastructure
Investment Managers Limited (together, "AIIM") in relation to the
acquisition by AIIM of a 25% shareholding interest in each of SUGL
and Accugas (the "Investments") for an aggregate cash consideration
of US$70m. The Investments are intended to complete immediately
following completion of the wider Seven Energy Transaction.
Alongside this, Savannah announces its intention to acquire an
additional 55% shareholding interest in Accugas under the terms of
the Implementation Agreement, meaning post-completion of the wider
Seven Energy Transaction and Investments by AIIM, the Enlarged
Group shall be expected to have a 75% shareholding interest in
Accugas. This marks a revision from the previously announced
Transaction terms, where AIIM was intending to acquire 80% of the
Accugas business with Savannah owning the remaining 20%.
The key terms of the MOU with AIIM are as follows:
-- Initial acquisition by AIIM of a 20% shareholding interest in
each of the Uquo gas field and Accugas (the "Businesses"), through
a subscription for shares in the Savannah group companies that will
hold the Businesses, in return for cash consideration of US$54m
(without any adjustments) payable by AIIM to Savannah group
companies;
-- Further acquisition by AIIM of an additional 5% (less one
share) shareholding interest in the Businesses in return for
additional cash consideration of US$16m, subject to AIIM's
requisite corporate approvals; and
-- The Investments are conditional upon: (i) completion of the
wider Seven Energy Transaction; and (ii) completion of the
previously announced proposed transaction with Frontier Oil
Limited.
The Investments, along with the previously announced Frontier
MOU and UERL Minorities Buy-Out (as per the Company's RNS of 20
September 2018), are expected to be materially accretive to the
NPV10 of the acquired assets as well as to Savannah's share of free
cash flows generated by the acquired assets.
Summary of Interests Being Acquired by Savannah Following
Transaction Amendments[1]
December 2017 December 2018 Comment
Amended per Frontier
MOU and subsequent
Uquo Gas & Condensate 87.7% 75.0% acquisition by AIIM
-------------- -------------- ---------------------------
Uquo Oil 85.0% - Amended per Frontier
MOU
-------------- -------------- ---------------------------
UERL (Stubb Creek) 62.5% 100.0% Buy-out of UERL minorities
-------------- -------------- ---------------------------
Acquisition of further
Accugas 20.0% 75.0% 55%
-------------- -------------- ---------------------------
Acquired Assets 2P NPV10 Net to Savannah[2]
US$m December 2017 December 2018 % Change (DCQ, December 2018
CPR (DCQ) (DCQ) 2018 vs. 2017) (ToP)
NPV10 757 1,023 +35% 920
-------------- -------------- ---------------- --------------
Summary of Expected Net Asset Free Cash Flows from Acquired
Assets2(,[3])
US$m December 2017 December 2018 % Change (DCQ, December 2018
CPR (DCQ) (DCQ) 2018 vs. 2017) (ToP)
2019 78.5 115.3 +47% 103.7
-------------- -------------- ---------------- --------------
2020 97.7 153.5 +57% 120.0
-------------- -------------- ---------------- --------------
2021 102.7 164.2 +60% 131.3
-------------- -------------- ---------------- --------------
2022 102.7 172.6 +68% 138.3
-------------- -------------- ---------------- --------------
Average 95.4 151.4 +58% 123.3
-------------- -------------- ---------------- --------------
Key assumptions used in the analysis above include an oil price
of US$60/bbl (inflated at 2% p.a. from 2019), contracted gas prices
and a discount date of 1 January 2019. The December 2017 numbers
are sourced from the Nigeria CPR prepared by Lloyd's Register which
was contained in the Company's Admission Document dated 22 December
2017. It should be noted that the numbers are asset level and do
not reflect the impact of any tax shield from interest
payments.
The Company's Competent Person, CGG Services (UK) Ltd ("CGG"),
has performed a high-level review of Savannah's free cash flow and
NPV10 estimates and has assessed these to be reasonable. CGG deems
these estimates to be reasonable, assuming (i) the quoted gas sales
cases; and (ii) delivery of the Company's planned work programs and
efficiency savings.
Agreement of Restructuring Terms with Accugas Lenders
Savannah is pleased to announce the signature of term sheets
between Accugas (the "Borrower") and the Accugas Lenders under the
existing US$370,755,000 Accugas IV Term Facility (the "Accugas Term
Sheet") and the lender under the US$11,300,000 DSA Facility. The
Accugas Term Sheet has received credit committee approval from the
Accugas Lenders and remains subject to the finalisation of
long-form finance and security documentation, expected to be
completed by the end of January 2019.
The amended terms of the Accugas facility (the "Facility") see a
six-year tenor extension and a cost of debt in line with the
Facility prior to the restructuring. The key terms of the
anticipated restructured Facility as envisaged in the Accugas Term
Sheet are as follows:
-- Interest rate of USD LIBOR plus 10% up to 31 December 2019
and USD LIBOR plus 10.43% thereafter, payable quarterly;
-- Final maturity date 31 December 2025;
-- Amortisation payments due semi-annually under the Facility
(on 30 June and 31 December each year) through to final maturity as
per a pre-agreed schedule, with the first payment due on 31
December 2019;
-- Annual cash sweep to be applied against principal, commencing
30 June 2019, which would reduce Accugas' cash on balance sheet to
not less than the higher of (i) US$15m, and (ii) such amount as is
necessary to maintain at least US$15m forecast cash on the balance
sheet for working capital purposes over the 12 months following
such cash sweep;
-- Upstream gas price (for gas supplied by SUGL to Accugas) of
US$1.25/mcf in 2019, US$1.31/mcf in 2020, US$1.37/mcf in 2021, all
escalating in line with downstream contracts;
-- Facility secured over Accugas assets and shares, non-recourse to Savannah Petroleum PLC;
-- Two-year effective financial covenant moratorium.
Agreement of Restructuring Terms in relation to the 10.50%
Notes
Savannah has amended its agreement with the holder of the
existing 10.50% Notes in relation to the restructuring thereof. The
10.50% Notes are now anticipated to be reinstated at the SUGL level
with a principal amount of US$105m (the "SUGL Notes"), vs. the
previously proposed reinstatement of US$85m debt at the SUGL level
and of US$15m debt at the Accugas HoldCo level.
The SUGL Notes are intended to have a final maturity date of 31
December 2026 and to amortise US$9m p.a. All other material terms
are expected to be as per the disclosure in relation to the SUGL
Notes included in the Company's 22 December 2017 Admission
Document.
Addition of New Accugas Customer and Acquisition of Creek Town -
Calabar Pipeline
Savannah is pleased to announce that Accugas has entered into an
agreement with Calabar Generation Company Limited and Niger Delta
Power Holding Company Limited ("NDPHC") in relation to the supply
of gas to the Alaoji power station and the proposed acquisition of
the Creek Town to Calabar pipeline and associated facilities.
The Alaoji power station ("Alaoji"), like the Calabar power
station, is owned and operated by NDPHC. Alaoji is a 450MW gas
fired power station which is connected to the Accugas pipeline
network via the Ukanafun Manifold and NGC/Shell gas pipelines.
Potential gas demand from these two NDPHC power stations at full
dispatch is currently estimated to be 225 - 270 mmscfd (vs. current
Calabar DCQ volumes of 131 mmscfd), presenting Accugas with
significant long-term gas sales growth potential. In recompense for
the addition of Alaoji, Accugas has agreed to reduce the 2019
take-or-pay quantity under the Calabar GSA to 70% (from 80%) of
contracted volumes, reverting to 80% in 2020. This change is not
expected to impact 2019 production volumes, but will enable NDPHC
to access its make-up gas[4] position in an accelerated manner.
The agreement envisages Alaoji initially receiving up to 25
mmscfd gas, with deliveries expected to increase to up to 50 mmscfd
by 31 March 2019 subject to the completion of certain operational
tests. It should be noted that, under a previous gas sales
agreement, Accugas supplied Alaoji with gas during 2015 and 2016 at
average rates of approximately 30 mmscfd.
Accugas has also agreed to acquire the Creek Town - Calabar
pipeline (subject to the approval by the Nigerian Electricity
Regulatory Commission of an appropriate gas transportation tariff)
for a net consideration of US$20m, to be paid in 20 equal quarterly
instalments with the first being due on 30 September 2019. The
proposed acquisition is expected to grant the Enlarged Group
control over the delivery of gas to Calabar, Accugas' anchor
customer, and ensure that any operational issues are identifiable
and within the Enlarged Group's control.
Next Steps and Wider Transaction Timing
Following (i) this morning's announcement; (ii) the Company's
RNS of 11 October 2018 in relation to the Nigerian Department of
Petroleum Resources' completion of due diligence (and satisfaction
with) the Transaction; and (iii) the Company's RNS of 20 September
2018 in relation to the Frontier MOU and the UERL Minorities
Buy-Out, all commercial terms in relation to Transaction conditions
precedent have now been agreed. Remaining workstreams are now
mainly legal and procedural in nature.
The Implementation Agreement is being updated to incorporate the
changes to the Transaction structure announced this morning, and is
expected to be signed by the end of January 2019. The wider
Transaction, including Ministerial Consent, is expected to complete
in the first quarter of 2019. This will be followed in due course
by the publication of a supplemental admission document.
Niger Operational Update
The Company's planned Amdigh-1 well test is now expected to be
performed in mid-H1 2019, with production from Savannah's planned
Early Production System ("EPS") and a renewed exploration and
development drilling campaign commencing thereafter.
The previously announced Pre-Stack Depth Migration ("PSDM") R3
East seismic processing project is ongoing, with encouraging early
results. The PSDM is expected to be completed during Q1 2019, and
is anticipated to assist in planning development wells for the
planned EPS. Further updates on the Company's planned 2019 Niger
operations will be given in due course.
Unless otherwise defined, capitalised terms are as per the
Company's Admission Document dated 22 December 2017.
For further information contact:
Savannah Petroleum +44 (0) 20 3817 9844
Andrew Knott, CEO
Isatou Semega-Janneh, CFO
Jessica Ross, VP Corporate Affairs
Strand Hanson (Nominated Adviser) +44 (0) 20 7409 3494
Rory Murphy
James Spinney
Ritchie Balmer
Mirabaud (Joint Broker) +44 (0) 20 7878 3362
Peter Krens
Ed Haig-Thomas
Hannam & Partners (Joint Broker) +44 (0) 20 7907 8500
Neil Passmore
Alejandro Demichelis
Sam Merlin
Celicourt Communications +44 (0) 20 7520 9266
Mark Antelme
Jimmy Lea
The information contained within this announcement is considered
to be inside information prior to its release, as defined in
Article 7 of the Market Abuse Regulation No.596/2014, and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
Notes to Editors:
About Savannah Petroleum
Savannah Petroleum PLC is an AIM listed oil and gas company with
exploration and production assets in Niger and Nigeria. Savannah's
flagship assets include the R1/R2 and R3/R4 PSCs, which cover c.50%
of the highly prospective Agadem Rift Basin ("ARB") of South East
Niger, acquired in 2014/15. The Company is in the process of
acquiring interests in the cash flow generative Uquo and Stubb
Creek oil and gas fields and an interest in the Accugas midstream
business in South East Nigeria from Seven Energy.
Further information on Savannah Petroleum PLC can be found on
the Company's website:
http://www.savannah-petroleum.com/en/index.php
About the Seven Assets
The Seven Assets comprise Seven Energy's interests in the
producing Uquo and Stubb Creek oil and gas fields, the Accugas
midstream business. Both the Uquo and Stubb Creek fields are
located onshore South East Nigeria in the prolific Niger Delta
petroleum system.
About Accugas
Accugas focuses on the marketing, processing, distribution and
sale of gas to the Nigerian market. The business comprises the 200
mmscfd Uquo central processing facility ("Uquo CPF"), a c.260km
pipeline network and long-term gas sales agreements with downstream
customers. Accugas provides the route to market for the gas
produced at Uquo and currently supplies gas to power station
customers that comprise around 10 per cent. of Nigeria's available
power generation capacity.
The Uquo CPF consists of two gas processing trains, each
designed to process up to 100 mmscfd. One train has been tested at
120 mmscfd, and it is expected that, with limited optimisation,
that the Uquo CPF could operate at up to 240 mmscfd on a continuous
basis. There also exists at least 300 mmscfd spare capacity in
Accugas' pipeline network. As the principal gas processing and
transportation network in the region, and given the material
additional spare capacity available in the Uquo CPF and the
pipeline network, Accugas is well placed to benefit from increased
future demand for gas in South East Nigeria.
Summary of Accugas Gas Sales Agreements ("GSAs")
Calabar Unicem Ibom Power
Description Nigerian Federal Lafarge Cement Akwa Ibom State
Power Plant Plant Power Plant
------------------- --------------- ---------------------
Term (Remaining) 20 years (18) 20 years (13) 10 years (5)
------------------- --------------- ---------------------
Start Date September 2017 January 2012 January 2014
------------------- --------------- ---------------------
Daily Contract 131 mmscfd 38.7 mmscfd 19.7 mmscfd
Quantity
------------------- --------------- ---------------------
Take-or-Pay 80% 80% 80%
------------------- --------------- ---------------------
Gas Price US$3.29/mcf for US$5.00/mcf US$2.15/mcf (price
the first year escalation applies)
(price escalation
applies)
------------------- --------------- ---------------------
Note: DCQ and gas price defined in energy terms and have been
converted to volume in this table.
About AIIM
AIIM, a member of Old Mutual Alternative Investments, has been
investing in the African infrastructure sector since 2000 with a
track record extending across seven African infrastructure funds.
AIIM currently manages US$2.1 billion in assets across the power,
telecommunications and transport sectors with operations in 15
countries across East, West and Southern Africa. AIIM's power
portfolio extends across renewable energy and thermal power assets
with a combined generation capacity of over 3,300MW.
As a leading infrastructure manager across Africa, central to
AIIM's investment objectives and processes is its commitment to
responsible investment. AIIM is committed to fulfilling fiduciary
duties as the custodian of shareholders' and beneficiaries'
long-term interests. In this regard, the environmental, social and
governance (ESG) factors are fully integrated within AIIM's
investment process to support the pursuit of creation of positive
futures and obtaining sustainable, superior risk-adjusted returns
for its clients.
About the Alaoji Power Station
The Alaoji power station ("Alaoji") is a combined cycle gas
turbine power station located in Abia State, South East Nigeria.
Alaoji has a design capacity of 1,074 MW with 450MW currently
available. Alaoji is also linked to Accugas' pipeline network via
the Ukanafun Manifold and NGC/Shell gas pipelines. Accugas supplied
Alaoji with gas during 2015 and 2016 at average rates of
approximately 30 mmscfd, and up to maximum rates of 45 mmscfd.
About CGG
CGG Services (UK) Limited is an international upstream oil and
gas consulting company, providing innovative and integrated
products and services for new ventures, exploration, appraisal,
development and production. The present company owes its origins to
Robertson which was founded in 1961 and was until 2001 a
privately-owned British company. Effective January 2013, the
company was acquired by CGG, a fully integrated geoscience company
providing leading geological, geophysical and reservoir
capabilities to the oil and gas industry. The company has
approximately 5,300 employees working globally in 35 locations. CGG
was founded in 1931, and is listed on the Euronext and New York
stock exchanges.
Definitions:
2P reserves proven and probable reserves
2C resources denotes best estimate scenario of Contingent
Resources
-----------------------------------------------------
bcf billion standard cubic feet; 1 bscf is approximately
equal to 166,667 boe or 23,618 tonnes of
oil equivalent
-----------------------------------------------------
CPF Central Processing Facility
-----------------------------------------------------
Enlarged Group the Company and its subsidiaries immediately
following Completion
-----------------------------------------------------
FUN the facilities for storing, handling and
exporting crude oil from the Uquo, Stubb
Creek and Qua Ibo fields to the QIT
-----------------------------------------------------
GSA Gas Sales Agreement
-----------------------------------------------------
mcf thousand cubic feet of natural gas
-----------------------------------------------------
mmscfd millions of standard cubic feet per day
-----------------------------------------------------
[1] Note that December 2017 Uquo interests reflect revenue
interests, vs. December 2018 Uquo interests which reflect expected
working interests. UERL and Accugas are shareholding interests.
[2] Note that DCQ represents "Daily Contract Quantity", e.g. the
contracted gas volumes which can be nominated under Accugas' Gas
Sales Agreements ("GSAs"). ToP represents "Take or Pay", e.g. the
amount of gas that the buyer is obliged to purchase, take and pay
for (or pay for if not taken).
[3] Net asset free cash flows are defined as Savannah's economic
share of post-tax operating cash flows less capital
expenditures.
[4] Make-up gas is gas that has been paid for but not taken by a
buyer under a GSA, and which may be drawn down by the buyer in a
later month (subject to certain minimum volumes having been
delivered).
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
UPDPGGAPPUPRPWU
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