WTI $52.27 -86c, Brent $55.41 -69c, Diff -$3.14 +17c, NG $2.45 -4c, UKNG 62.5p +4.5p

Oil price

Oil was virtually unchanged on the week, WTI down 9 cents whilst Brent eked out a 31 cent rise. The rally in the oil price had the sting taken out of it by the re-emergence of Covid in China, only a day or so before that had been the better GDP figures.

The EIA stats were mixed but the fall on Friday was also down to a build in crude of some 4.4m barrels more than expected. Finally, the rig count showed a rise of 5 units overall to 378 but only up 2 in oil to 289.

Savannah Energy

A full year 2020 trading update and issuance of 2021 guidance from SAVE this morning after what the company describes as being ‘a milestone year’.

FY 2020 Total Revenues of $235.9m (up 23% on FY 2019 pro-forma Total Revenues of $192.1m) which are ahead of the Company’s previously issued FY 2020 guidance of ‘Total Revenues of greater than $200.0m’. Group cash balance of $106.0m (up 121% versus FY 2019 year-end Group cash balance of $48.1m) and net debt of $408.7m (down 16% versus FY 2019 year-end Group net debt of $484.0) as at 31 December 2020.

Total cash collections from the Company’s Nigerian assets rose 11% year-on-year to $187.4m (FY2019 pro-forma cash collections of $168.8m); and the Company reiterates guidance on the remaining items to report for FY 2020.

Group Depreciation, Depletion and Amortisation guidance of $35.0m – $37.0m with Group Administrative and Operating Costs guidance of $43.0m – $47.0m and FY 2020 Capital Expenditure guidance is modified to less than $13m from $8.0-10.0m, primarily due to the acceleration of previously assumed 2021 expenditure into 2020 for commercial reasons.

There is a change in the capex profile – SAVE have brought the well compression project at Accugas forward which means that additional wells do not need to be drilled until later (they drill wells or need compression in order to maintain the gas pressure). It should be seen as a positive as it reduces the capex spend by 13% across the four years to 2023, which improving the project economics.

Operationally the FY 2020 highlights from Nigeria were an average gross daily production of 19.5 Kboepd, a 13.5% increase from the average gross daily production of 17.2 Kboepd in FY 2019, and at the mid-point of the Gross Production guidance range for FY 2020 of 19.0 – 20.0 Kboepd. Of the FY 2020 total average gross daily production of 19.5 Kboepd, 88% was gas, including a 16.6% increase in production from the Uquo gas field compared to last year, from 88.1 MMscfpd (14.7 Kboepd) to 102.8 MMscfpd (17.1 Kboepd)

Savannah is issuing guidance for the full year 2021 as follows, Total Revenues of greater than $205.0m from upstream and midstream activities associated with the Company’s three active Nigerian gas sales agreements and liquids sales from the Company’s Stubb Creek and Uquo fields. Any revenues received from new additional gas sales agreements would, therefore, be incremental to this.

Total Revenues are defined as the total amount of invoiced sales during the period. This number is seen by management as more accurately reflecting the underlying cash generation capacity of the business as opposed to Revenue recognised in the Income Statement. A detailed explanation of the impact of IFRS 15 revenue recognition rules on our Income Statement is provided in the Financial Review section on page 67 of the Savannah Annual Report and Accounts 2019. For reference FY 2020 Revenues were US$169.0m (up 28% on FY 2019 pro-forma revenues of US$132.3).

Group Administrative and Operating Costs of $55.0m – $65.0m, Group Depreciation, Depletion and Amortisation of US$19m fixed for infrastructure assets plus $2.6/boe and Group capital expenditure of up to US$65.0m.

Finally, plans for delivering the R3 East development continue to progress with the intention to commence installation of an Early Production Scheme by the end of FY 2021, subject to market conditions and financing.

Andrew Knott, CEO of Savannah Energy, said:

 “As this FY 2020 trading update demonstrates, despite the challenging headwinds, 2020 was a milestone year for Savannah Energy. It was our first full year of operating the high margin assets we acquired in Nigeria and I am delighted to report that we have significantly exceeded all of the original financial guidance we presented to the market this year, as laid out in our corporate Key Performance Indicator statement published within our FY 2019 Annual Report. In 2020 we grew revenues, reduced our underlying cost base and continued to provide gas contributing to over 10% of Nigeria’s daily national average power generation, highlighting the resilience of the business.

 Looking forward to 2021, we are providing guidance for the year for continued strong revenue generation, investments in key drilling and compression projects and an increased level of maintenance project activity versus 2020.  Overall we have reduced our cost estimate for our indicative 2020–23 capital expenditure programme by around 13%, versus our previous indications and are guiding that we expect our underlying operating costs (which include maintenance expenditures) to track levels consistent with 2020 (in real terms) over the medium term. It should also be noted that our 2021 guidance excludes contributions from any new gas sales agreements or any contribution from the R3 East development project in Niger, which would be incremental to this.

 I am excited around the potential for our business to grow further over the coming years, especially given the opportunity-rich West African environment in which we operate, and look forward to keeping our stakeholders up to date on the progress we make.”

Savannah continues to benefit from the construction of a very solid energy business in Nigeria, a market that offers them significant, profitable growth in market share, revenues and profitability. This is taken together with costs across the board being made despite what the company describes as ‘headwinds’. The upside is visible in both building the gas business in Nigeria and in due course exploration in Niger. Much credit is due to the management for their perseverance and farsightedness which is now beginning to show very decent returns which are improving all the time.

Zephyr Energy

A Corporate Update today from Zephyr with the State 16-2 well successfully plugged for future re-entry, data evaluation ongoing, planning and permitting underway for a potential horizontal lateral and, a corporate outlook regarding the new U.S. Administration.

The Cane Creek core and overlying reservoir sidewall cores have been transported to a laboratory in Houston for detailed analysis.  Zephyr expects to receive detailed results from this analysis of reservoir data over the coming weeks and plans to give an initial report to Shareholders later this week as outlined above.

A decision on whether to drill the side track lateral will be made after Zephyr has full results from all of the data acquired, and the Board currently expects to make a decision by the end of March.

In order to assist and expedite that decision, Zephyr’s team has commenced the related detailed well design and planning work.  The Company has also contracted to retain the services of the same experienced drilling operations team which successfully completed the vertical portion of the well. A draft Authorization for Expenditure for the lateral well has been prepared, with total costs forecast at $3.5 million – this total includes both drilling costs and costs to equip the well for production. On a related front, over the coming weeks the Company will evaluate a number of possible funding sources for the lateral well, with alternatives that include strategic and industry partnerships.

Updated for current commodity prices and reduced drilling costs as demonstrated by the State 16-2 well, the Company’s Paradox acreage is estimated to hold the following, Net 2C contingent recoverable resources of over 12 million barrels of oil equivalent from 30 wells and Net present value of approximately $93 million (pre-Federal Income Tax), using a flat oil price of $50 per barrel and a ten percent discount rate (“NPV -10”).

One of the reasons I have been so confident that Zephyr is hugely undervalued is the following piece taken from today’s statement. I am confident that the 16-2 well will deliver in spades and investors will reap the rewards of following this excellent management team.

‘A potential side track lateral on the State 16-2 well is individually forecast to have strong economics as a standalone investment. Utilising production profiles generated from Gaffney Cline’s CPR, and updated with a $50 per barrel oil price and reduced capital expenditure estimates, the Board estimates the lateral side track could generate the following on a 2C basis’:

Initial gross oil production rate:  780 barrels of oil per day

Estimated Ultimate Recovery:     550,000 barrels of oil and 1.8 billion cubic feet of gas

Return on Invested Capital:          169%

Single well net NPV-10:                 $4.6 million

‘The Board further believes that the overall Paradox project has potential to be a project of considerable scale versus Zephyr’s current market capitalisation, and the drilling of the State 16-2LN-CC side track lateral would be a major step forward as Zephyr seeks to unlock the considerable potential value of the project.

The Company notes the Biden Administration’s new directive to grant temporary decision-making powers for federal land leasing and permitting decisions to senior personnel within the Department of Interior.

Zephyr has long anticipated the potential for a slowdown on federal lease sales and permitting under a new Administration, and welcomes the Biden Administration’s efforts to undertake a responsible review of current practices.  The Board believes Zephyr’s core mission – to develop resources economically and responsibly, with the utmost care and minimal environmental impact – is well aligned with the aims of the new Administration.

Colin Harrington, Zephyr’s Chief Executive, said “We are thrilled with the results of the State 16-2 drilling campaign, and we eagerly await more detailed analysis from the data acquired.  We expect to receive multiple rounds of reservoir information, and we look forward to updating Shareholders with our initial findings later this week.

“In the meantime, in order to maintain our significant momentum, we are moving full steam ahead with preparations for the potential horizontal lateral.  Detailed planning and permitting is well underway – and in the event we elect to undertake the next phase of drilling, we will be well positioned to move forward on an expedited basis.

“Finally, I’d like to again reiterate my thanks to our partners, and for the incredible collaboration between our federal, state, academic and industry project teams.  We very much look forward to the continuation of our joint efforts to unlock the significant economic value of the Paradox Basin while always minimising the impact on the environment in which we work.”

Zephyr are up substantially again today and I am sure that this is only the beginning of a long, profitable journey for investors who have taken to the opportunity Colin Harrington and his team have offered. I have no hesitation in adding the link below to the interview I did with him last week in case potential investors need another tweak.

Core Finance CEO Interview: Colin Harrington, Zephyr Energy PLC

PetroTal Corp

PTAL has announced that Gran Tierra has sold 109m shares which have been bought by ‘multiple entities’ and they now hold 16.8% of the PetroTal equity. I’m not sure where that leaves Remus but they are certainly not going anywhere anytime soon.

Angus Energy

Angus has appointed lawyers and legal and corporate due diligence is being conducted in parallel with the drafting of the loan facility and security agreements, with the objective of concluding the documentation in the coming two to three weeks, with drawdown shortly thereafter following the satisfaction of the conditions precedent, standard for a facility of this nature.

At Salfleetby, to date almost all elements of the procurement and engineering schedule have been advanced even prior the availability of the full facility.  In particular, deposits have been made on the Compressors, two Generators and the Flare Stack, whilst integration engineering is in progress on the Analysis Equipment and the Metering Skid, and most conceptual and some detailed design work is completed.  Additionally, final quotations, including delivery times, have been received for elements of the Condensate Stabilisation Package, a Joule Thomson Valve and a passive dehydration unit. 

George Lucan, Angus CEO, comments: “We are pleased to be moving forward with the Aleph Facility and the planned re-start of the Saltfleetby Gas Field, which in conjunction with the developments in the associated renewables projects, we hope will provide a major move forward for Angus as a disruptive Energy Transition company with production assets.  We will also look forward to providing an update on the Company’s progress on other assets in due course.”

It is good to see that all the moving parts are working for Angus and the final pieces of the financing agreement appear to be moving ahead as promised. The shares have doubled in recent months but it is easy enough to see them rising more and challenging and even beating previous highs.

And finally…

England wrapped up the series in Sri Lanka this morning after bowling out the hosts cheaply and chasing down a tricky 164. Next stop 4 tests in India who are without doubt the best team in the world right now.

In the FA Cup this weekend most results went as expected, Chelski, the Foxes, Burnley, the Toffees, the Blades, the Seagulls, the Hammers, the Noisy Neighbours and Wolves all won from the Prem. I note that an excellent result gave Bristol City a tie against the Blades and Swansea looked sharp too. To finish the weekend the Red Devils beat Liverpool, both sides now go on to play the Hammers by chance, Utd in the Cup, Liverpool in the Prem on Sunday. And the Gooners, holders of the trophy went out to the Saints…

After only beating the Hatters 3-1 Chelsea have sacked Frank Lampard which I don’t get, he was told he had time and hadn’t even been able to buy the players he wanted…

The Tampa Bay Buccaneers will become the first team to play in a Super Bowl in their home stadium after they overcame Aaron Rodgers and the Green Bay Packers in a thrilling game at Lambeau Field. A brilliant first half from 103 year old Tom Brady gave the Buccs enough of a lead at half time as they held on to record a remarkable win against the heavily favoured Packers. They will face Kansas City after Patrick Mahomes led the Chiefs to victory against a brave Bills side.