Savannah Petroleum
The Nigerian CPR from CGG and a Nigeria operational and trading update this morning which show what very high quality assets that have been bought and with incredibly robust numbers. The CPR confirms gross and net 2P reserves of 99.6 mmboe and 71m mmboe respectively and 2C gross and net resources of 98 mmboe and 58.6 mmboe. The Nigeria assets have a gross NPV 10 of $1.2bn gross, $957m net to SAVP.
Net free cash flow generation by the Nigerian assets assessed by CGG are as an average of $130m p.a. (20-23) with gross 2019 ytd production of 17.3 kboepd up 33% y/y. 2019 guidance for cash collection from the Nigerian assets is c.$190m leading to a $40m reduction in debt 2019/2018 in total third-party debt outstanding at the Nigerian Assets and a forecast YE’19 cash position within the Nigerian Assets of a minimum of US$15m. Finally, forecast 2020 capital expenditure at the Nigerian Assets of c.$41.5m proves the cash flow more than covers expenditure where production costs have been cut sharply.
There is no doubt that, although taking longer to complete the paperwork, SAVP have got a gem of an acquisition here making it a ‘proper company’ with substantial cash flows from a high quality asset base. As CEO Andrew Knott says ‘We continue to view these assets as a strong platform from which we will deliver further growth. In this regard, we continue to make good progress in relation to the supply of gas to potential new customers, and are investing in additional well stock to ensure anticipated future production levels are capable of being met. I look forward to providing further updates on this in the near-term.’
Make no mistake this is a very reassuring update, the CPR numbers are very much in line with expectations and the confirmation of the excellent cash flow generation puts paid to any lingering concerns in the market about the performance of the Nigerian assets. Accordingly I remain convinced that my 75p a share target for SAVP is easily achievable, indeed a starting point for what is a very good company indeed.
