Yemisi Izuora
Savannah Energy Plc, has disclosed cash collection of $164.3 million from its Nigerian Assets as at 30 November 2020 as compared to cash collections of US$124.2 million in the same period last year, an increase of 32 per cent.
Cash generated by the Nigerian Assets has been directed to funding operating and maintenance costs and debt service.
Also, at 30 November 2020, the Group cash balance was US$95.6 million and net debt was US$419.7 million.
The Company also announced that its Accugas subsidiary has entered into a revised gas sales agreement, GSA, on favourable terms with Lafarge Africa PLC, part of the LafargeHolcim Group, for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria.
The company stated that its subsidiary Accugas entered into a revised GSA with Lafarge Africa Plc, formerly known as United Cement Company of Nigeria Limited) for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria. The revised GSA established a more sustainable long-term contractual position for the benefit of both parties.
The revised GSA sees the contract term with Lafarge extended for a further five years to January 2037, giving a remaining contract life of 17 years. The new agreement also allows for an increase in the gas sales price from 2027, with additional US-Consumer Price Index indexation from 1 January 2029.
The revised GSA has a reduction in the daily contracted quantity, DCQ, of gas from 38.7 million standard cubic feet per day MMscfpd to 24.2 MMscfpd. This reduction in the DCQ will allow Accugas to release approximately 12 MMscfpd of currently reserved gas processing capacity at the CPF, enabling Accugas to enter into additional long-term GSAs for these volumes, which will increase the business’ future revenues and cashflow potential.
To compensate Accugas for this reduction in DCQ, the revised GSA includes an advance payment of US$20million and a prepayment structure over the period to 2027, which effectively results in a gas price of US$7.50/Mscf on take-or-pay volumes during this period.
This revised structure also allows Lafarge to utilise its accumulated make-up gas balance of approximately US$58 million, whilst we have preserved the capacity to supply higher volumes when these are required by Lafarge. Lafarge’s commitments under the revised GSA will continue to be guaranteed by an international investment grade bank guarantee.
Overall, the revised terms are expected to have a cumulative positive impact on Accugas’ cash flows over the short and medium term. Following the agreement, Accugas’ aggregate maintenance-adjusted take or pay volume will reduce from 141.4 MMscfpd to 131.8 MMscfpd.
Andrew Knott, CEO of Savannah Energy, commenting on its finances said, Taking into account the challenging market conditions in 2020, I am pleased with the way the Savannah team and the wider Group has performed. Today, we are reiterating our Total Revenues guidance, reducing our cost guidance by US$25m and are set to deliver record Nigerian cash collections and production volumes in 2020. The deal with Lafarge Africa is also a significant “win-win” for both parties; Accugas is receiving a higher effective gas price in the near-term years, accelerating near and medium term cashflows, our contract with a key customer is being extended for an additional five years and significant spare capacity is being freed up, which we can sell gas to other customers. All while Lafarge Africa is able to utilise its existing make-up gas balance.
We are looking forward to 2021 with excitement as we continue to work with our stakeholders to develop and grow our business for the benefit of all.”
Giving further operational update the company said its average gross daily Nigeria production in the year-to-date period ended 30 November 2020 was 19.2 Kboepd, a 12 per cent increase on the average gross daily production of 17.1 Kboepd in same period last year.
Average gross daily production year-to-date was slightly lower than in H1 2020 (21.3 Kboepd), reflecting higher than expected maintenance downtime of our customers’ facilities, resulting in their reduced gas offtake during the period.
Following completion of the maintenance programme, offtake volumes have since normalised with average daily production for the month of November 2020 of 21.8 Kboepd. We are working with our customers to achieve improved alignment on maintenance programmes with our customers going forward to minimise disruption to gas offtake volumes.
Whilst gas production volumes are lower than previous guidance, it should be emphasised that this does not impact on 2020 Total Revenues guidance due to the take-or-pay arrangements that underpin the Group’s gas sales agreements.
Of the total average gross daily production of 19.2 Kboepd in the year-to-date period ended 30 November 2020, 87.6% was gas, including a 16% increase in production from the Uquo gas field compared to the same period last year, from 87.3 MMscfpd (14.6 Kboepd) to 100.9 MMscfpd (16.8 Kboepd). Gas production levels are driven by customer nomination levels.
Accugas also continued to progress commencement of gas sales to First Independent Power Limited, FIPL, an affiliate company of the Sahara Group, under the gas sales agreement signed on 31 January 2020 for the provision of gas to the FIPL Afam power plant. 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 addition, a new gas sales agreement is being finalised with a significant new industrial gas sales customer, a subsidiary of a well-respected international company, based on the signed term sheet which was announced in June 2020.
Planning is underway for the drilling of a new production well in the Uquo field with long lead items having been procured.
It is also finalising engineering for ordering compression equipment for the Accugas central processing facility. Both of these projects will ensure its continued ability to deliver gas at current and anticipated future increased contracted volumes to satisfy customer demand.
To offer further flexibility in its gas conditioning capabilities, mechanical refrigeration trains for the processing plant were successfully installed and commissioned in October 2020.
Savannah is further undertaking a holistic review of its approach to sustainability reporting, with a view to harmonising and enhancing its approach across the enlarged Group. Following the review, Savannah plans to develop and implement an ESG performance reporting framework for the Group which will then be published as part of an annual sustainability review.