Re: SAVP Reserves and outlook - Numis Broker note
SAVANNAH PETROLEUM (PT 41p/share)
Nigeria reserves report publication – positive.
Savannah have published an updated CPR (competent persons report) for its recently acquired Nigerian assets – the Uquo gas field, the Stubb Creek oil and gas field and the Accugas gas pipeline line network.
The key points are positive:
1) Gross 2P reserves of 99.6mmboe are optically in-line with our published figure of 99.6mmboe, but in reality are higher that our figure since our number refers to an end 2018 estimate, whereas today’s published figure is as of Dec 2019. Adjusting for 2019 production, the published reserve figure of today is ~6% higher than we expected, (due in part to client underlift).
2) The reserve auditor has made an NPV10 (i.e. using a discount rate of 10%) estimate for the assets of $1.2bn on a gross basis, and $924m net to Savannah. Own calculation of $867m uses a higher discount rate (15%) and higher oil price assumption but is close enough to give us confidence that our modelling is sensible and that no major changes have occurred in the revenue, cost and capex outlook for the assets since the Dec 2017 original announcement.
3) The auditor has also provided FCF generation forecasts (for the Nigerian assets) that average $130m p.a. from 2020-23 assuming minimum contract quantity gas sales. This is consistent with our own forecasts after adjusting for our higher gas sales forecast (mid-way between min and contracted quantity) and our higher oil price assumption.
4) Gross production of 17.3kboe/d ytd in Nigeria, with 88mmscf/d of gas production, consistent with our expectations.
5) 2019 will see a $40m reduction in Nigeria level total debt and the Nigerian Assets will have at least $15m cash by year end.
6) Capex plans for Nigeria in 2020 are for $41.5m worth of gas well drilling and workover on the Uquo field, to ensure adequate deliverability is in place for an expected 1H 2020 production increase to supply a new contract at the Alaoji power station, and also to supply aspired for new smaller scale (but higher unit value) industrial customers. This is higher than we had modelled but is a clear positive for medium term gas sales.
Valuation: Our 41p/share Discovered Resource NAV is almost double the current 21p share price (using 15% WACC) and even at a more conservative $50/bbl Brent, this NAV would still be 34p/sh, with significant further upside. We think today’s CPR underscores that the newly acquired Nigerian assets are generating significant cash flows, are paying down debt and have plenty of near and medium term scope to grow volumes.
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|249||Re: SAVP Reserves and outlook - Numis Broker note||tigris72poo||0||12/11/2019 6:33:03 PM|