Savannah strikes it lucky in the Sahara
UK independent can develop its Agadem field on the back of a major funding boost and pipeline access to world markets
British independent Savannah Petroleum is preparing to complete the Seven Energy gas deal in Nigeria—a move that will equip it with the financial clout to develop its Agadem field oil assets in neighbouring Niger.
The news comes just weeks after Chinese major CNPC signed a cross-border pipeline deal with Benin and Niger that opens up Savannah’s prospects of exporting to the world market.
Since 2014, Savannah’s five exploration wells have produced five discoveries in Agadem, a remote region on the fringes of the Sahara. Funding constraints have so far delayed investment to bring these into production—but this obstacle should soon be lifted by the somewhat-delayed Seven transaction. The London AIM-listed firm’s share price has doubled since August.
The Seven deal, which secured government approval in August, involves Savannah acquiring Seven’s assets as well as the restructuring of Seven’s debt. It positions Savannah as a major supplier to the growing domestic gas market in south-east Nigeria, a region still heavily reliant on diesel for power generation.
“The completion of the Seven deal in Nigeria will allow Savannah to restart its operations in Niger, which have been capital constrained” Kapadia, Hannam & Partners
The completion of the deal will also provide the company with a $74m cash injection, from its local partner AIIM and the former shareholders in the project. This additional funding boost will be hugely welcome.
“The completion of the Seven deal in Nigeria will allow Savannah to restart its operations in Niger, which have been capital constrained as a result of the delay. Savannah will get a significant cash inflow on completion of the deal and the Nigerian assets will also be cash generative, so there will be money available to deploy into Niger,” explains Anish Kapadia, analyst at Hannam & Partners.
Niger has been a small oil producer since 2011, when CNPC began to pump oil from the Sokor and Goumeri fields in the east of the country through a new 463km pipeline to a small new refinery at Zinder. The 20,000 b/d capacity plant mainly supplies the domestic market and those of neighbouring countries.
Initially, Savannah will connect into this business model. With its new funding, explains Kapadia, the company will be able to proceed with an initial low-cost scheme to pump oil from its discoveries to the Zinder refinery as well as conduct further exploration.
90,000 bl/d Capacity of Benin-Niger pipeline
But much larger prospects are on the horizon, opened up by CNPC’s signature to agreements with the governments of Benin in August and Niger in September to construct a 2000km export pipeline to Port Seme on the Benin coast.
“The approval of the Niger-Benin pipeline is important to the medium to long-term development of Niger, as there are large volumes owned by the Chinese to be developed and Savannah will also have access to the export route for its current and future discoveries,” says Kapadia. With a planned capacity of 90,000bl/d, the pipeline should be completed by late 2021.
The UK independent certainly sees this as a key opportunity, as its chief executive Andrew Knott notes: “It provides our company with a significant additional potential route to market, alongside the existing Zinder refinery, for our existing and future discoveries in Niger,” he says.
Source: Petroleum Economist
The timing of the CNPC pipeline agreements could hardly have been more fortuitous, coinciding with Nigerian government approval of the Seven deal that will generate the extra liquidity that Savannah needs. And, as a precursor to this fillip, the company signed an unsecured loan facility, announced on 18 October, with a first $5mn available immediately.
For Niger, one of the world’s poorest countries, oil exports will be a valuable addition, complementing its income from exports of uranium—mainly to the French nuclear power sector—and livestock delivered to the big urban markets of coastal West Africa.