WTI $74.83 -46c, Brent $78.64 -45c, Diff -$3.81 +6c, NG $5.42 -40c, UKNG 323.78p +22.78p

Oil price

It’s the last day of the month and the quarter and some window dressing is in order, it is also expiry day for the November Brent contract which has drifted against WTI in trade today. With Opec+ next week there are no prizes for sticking ones neck out although I’m not expecting any change in policy there.

The EIA inventory stats were slightly odd but that is oil coming back from Ida disruption I think, crude built 4.6m barrels which is still 7% below the 5 year average. With refinery rates up to 88.1% that meant that gasoline added just the 0.2m b’s and distillates 0.4m b’s.

That it is the last day of the month did not go unnoticed by UK quoted companies who have had just the three months to prepare their interims but just the 16 companies left it until the last day…..

Savannah Energy

Savannah announce 2021 Half Year Results and Outlook for the Year this morning . Total Revenues1 of US$116.5m (up 2% on H1 2020 Total Revenues of US$114.6m), in line with 2021 guidance of over US$205m for the full year. Average realised gas price of US$4.2/Mscf (H1 2020: US$3.9/Mscf) and an average realised liquids price of US$63.5/bbl (H1 2020: US$48.3/bbl), cash collections from the Nigerian Assets in H1 2021 were US$101.6m compared to US$82.1m in H1 2020 and adjusted EBITDA2 of US$91.5m (H1 2020: US$89.2m).

Adjusted EBITDA margin broadly unchanged at 79% (H1 2020: 78%), operating expenses plus administrative expenses3 of US$22.5m (H1 2020: US$22.7m) being US$1.0/Mscfe (H1 2020: US$1.1/Mscfe) and profit before tax of US$7.7m (H1 2020: US$1.2m).

Drilling of a gas well on the Uquo field commenced in September 2021 and the non-associated gas compression project at the Accugas gas processing plant is progressing, full year capital expenditure guidance of up to US$65m maintained. Net debt position as at 30 June 2021 of US$369.4m (Year-end 2020: US$408.7m) with Adjusted Leverage4 of 2.3x (Year-end 2020: 2.5x); and cash at bank5 of US$135.7m as at 30 June 2021 (Year-end 2020: US$106.0m).

Average gross daily production, of which 88.6% was gas, increased 6% during H1 2021 to 22.6 Kboepd (H1 2020: 21.3 Kboepd). This includes a 6% increase in production from the Uquo gas field compared to the same period last year, from 113.5 MMscfpd (18.9 Kboepd) to 120.2 MMscfpd (20.0 Kboepd).

On 5 February 2021 Accugas signed a new gas sales agreement (“GSA”) with Mulak Energy Limited (“Mulak”) representing Savannah’s entry into Nigeria’s high-growth compressed natural gas (“CNG”) market;

On 2 June 2021, Savannah announced that the Company is in exclusive discussions with ExxonMobil Corporation with respect to the proposed acquisition of its entire upstream and midstream asset portfolio in Chad and Cameroon; and

On 7 June 2021, Savannah published its re-focused sustainability strategy as part of the 2020 Annual Report focusing on four key strategic pillars with the strategy anchored around the 13 most relevant UN Sustainable Development Goals where Savannah believes it can have the biggest economic, environmental, social and governance impact.

Post the period end drilling of a new gas production well in the Uquo field, Uquo 11, commenced on 21 September 2021.

On 29 September 2021, the Niger Ministry of Petroleum amalgamated Savannah’s four licence areas (covered by the previous R1/R2 PSC and the R3/R4 PSC) into a single PSC (R1/R2/R3/R4), valid for up to a further 10 years. This lays the foundation for an anticipated new investment programme in our R3 East development in 2022.

On 16 August 2021 His Excellency President Muhammadu Buhari signed the Petroleum Industry Act 2021 (the “PIA”) into law indicating the government of Nigeria’s commitment to enhancing the governance, administrative and fiscal regimes of the domestic industry.  It is anticipated that the PIA will have a positive fiscal impact on Savannah.

The company reiterated FY 2021 guidance as follows:

Total Revenues1 greater than US$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;

Operating expenses plus administrative expenses3 of US$55.0m to US$65.0m; Depreciation, Depletion and Amortisation of US$19m fixed for infrastructure assets plus US$2.6/boe for oil and gas assets; and Capital expenditure of up to US$65.0m.

Andrew Knott, CEO of Savannah Energy, said:

“These results show just how far we have come this year, with US$116.5m of Total Revenues1, US$91.5m of Adjusted EBITDA2 and strong free cash flow. Our operational performance has been excellent which is important to all our stakeholders as we continue to play a vital role in driving economic growth and living standards in our countries of operation. This growth is set to continue as we progress discussions with ExxonMobil with respect to the proposed acquisition of its entire upstream and midstream assets in Chad and Cameroon and begin an anticipated new investment programme on our Niger assets, over which we are pleased to have agreed terms for an extension of up to 10 years.

I’d like to thank all of our shareholders and other stakeholders for their continued support as we look to capitalise on the opportunities available to us.”

Savannah continues to deliver on their unique Total Revenues deck, adjusted EBITDA and obvious strong free cash flow. The fact that there is so much to potentially excite shareholders in Nigeria where operational performance is strong for such a crucial and pivotal area and of course with the new PSC amalgamation valid for up to a further 10 years and planned investment programme in Niger offering significant upside. Add to that the news from Chad which is in progress and Savannah has the look of a much bigger company which is how it will progress in due course.

Sirocco Energy

Scirocco has announced its unaudited interim results for the six months ended 30 June 2021, activities in the period included its proposed investment into Energy Acquisitions Group Ltd (“EAG”), a specialist acquisition and operating vehicle in the sustainable energy sector signalling the Company’s first investment as part of the Company’s revised strategy that targets opportunities within the sustainable energy and circular economy markets in Europe.

Investing in EAG allows Scirocco Energy to leverage EAG’s strong network and industry leading expertise to gain access to a series of already identified acquisition opportunities within the Anaerobic Digestion (“AD”) sector totalling c.£30 million in value.

SCIR Provided initial investment for EAG which will be used to acquire 100% of Greenan Generation Limited (“GGL”) and associated 0.5 MWe AD plant located in County Londonderry, Northern Ireland. AD is a process that creates biogas, a renewable energy source that will help the UK deliver on its decarbonisation commitments.

The initial investment of £1.2 million will be funded from current cash resources, Scirocco and EAG will jointly explore further opportunities; and GGL is a cash generative, operational AD plant and EAG has identified steps to optimize and enhance EBITDA margins and free cash flow.

The Company made progress on its Tanzanian asset sales process, which is key to delivering its broader strategy; Amended the financing facility, announced to the market on 29 June 2020, with Prolific Basins LLC which ensures that the Company is able to fund its near-term commitments. As a result of the amendment, Scirocco’s access to the potential investment of up to US$1,000,000 (to be provided at the option of the Subscriber) has been extended until 31 December 2021.

The Company partially exited its shareholding in Helium One realizing c. £3.3 million in proceeds during the period, continued the Company’s focus on cost discipline and cash preservation; and held group cash at 30 June 2021 of £2.3million.

After the period the Company announced that the operator of the Ruvuma joint venture, ARA Petroleum Tanzania Limited, secured a two-year extension to its licence under the Ruvuma PSA from the Ministry of Energy of Tanzania which will run from 15 August 2021. The extension allows for the completion of the following, acquisition of 200 km2(surface coverage) of 3D seismic data, drilling of the Chikumbi-1 well; and conclusion of negotiations of the Gas Terms for the Ruvuma PSA.

 The joint venture completed the tender for the acquisition of 3D seismic and awarded the seismic acquisition contract to Africa Geophysical Services Limited (“AGS”). The operator secured a Lumpsum contract considerably below the joint venture’s expected budget for the activity. AGS intends to commence activities in the Ntorya location within the Ruvuma PSA area from October 2021. 

The acquisition will consist of approximately 338 km² of 3D seismic data focusing on the area of primary interest. AGS will mobilise, weather permitting, and focus on the proposed location for the Chikumbi-1 well  to acquire as much data as possible before the start of the rainy season with the programme re-commencing after that with no additional cost to the JV partners.

The Company announced that following technical work by APT earlier this year, their revised mapping and internal management estimates suggest a mean risked gas initially in place for the Ntorya accumulation of 3,024 Bcf, in multiple lobes to be tested and a mean risked recoverable gas resource of 1,990 Bcf, which will be appraised by the planned seismic and drilling programme.

The company announced a new investment policy – focusing on asset opportunities within the European sustainable energy and circular economy markets – which was approved by Shareholders at the Company’s AGM on 9 July 2021.

Sale of Helium One shares held by the Company continued realising a further c. £0.2 million in proceeds after the end of the period

Commenting on the Interim Results, Alastair Ferguson, Non-Executive Chairman said:

 “Since we emerged from 2020 the board of directors has implemented a change of investment policy which targets assets within the European sustainable energy and circular economy markets.  This policy will see Scirocco allocating capital in assets which support the energy transition and offer a stable, growing source of cash flow going forward.

Scirocco is itself in transition and I was delighted to see the Company taking the first concrete steps under the new investment policy with its investment in EAG. Although a small initial investment this is strategically very significant as it creates a platform for a series of acquisitions.

We have also seen concrete progress in our most significant legacy asset at Ruvuma with the award of a two-year licence extension and the much-awaited seismic acquisition project being kicked off with the award of a contract to AGS. We expect this work programme to be an important catalyst for value as the project is better defined and de-risked.

With the pivot to investment in assets within the sustainable energy and circular economy we have set out our stall that we intend to recycle value delivered from Scirocco’s legacy assets to fund new investment. The funding of the initial investment in EAG predominantly from proceeds delivered by the sale of Helium One shares is an excellent demonstration of this. From a funding perspective, we were also pleased to see continued support from Prolific Basins with the extension and amendment of the facility.

We now look forward to growing the portfolio and the team are working hard to deliver this.”

Scirocco have used their second bite at the cherry with some success and even the sales of Helium One are looking smart with 20:20 hindsight. I have remained positive on the Scirocco board since they assembled and whilst have had some setbacks I think they would be worth following through this investment process.

Finally there are encouraging signs from on the ground at Ruvuma and any success here which is not in the market would be a significant bonus.

San Leon Energy

San Leon has announce its unaudited interim results for the six months ended 30 June 2021. This includes an update on its indirect interest’s in OML 18, a world-class oil and gas block located onshore in Nigeria and Energy Link Infrastructure (Malta) Limited (“ELI”)the company which owns the Alternative Crude Oil Evacuation System (“ACOES”) project.

 Cash and cash equivalents as at 30 June 2021 of US$12.1 million (US$6.8 million is restricted and held in escrow for the Oza transaction) (30 June 2020: US$35.6 million). Cash and cash equivalents as at 24 September 2021 was US$10.2 million (US$6.8 million is restricted and held in escrow for the Oza transaction).

Up to 30 June 2021 US$0.8 million (six months to 30 June 2020: US$41.5 million) has been received by the Company in relation to payments due to San Leon under the MLPL Loan Notes. Since the reporting date a further US$1.1 million of the balance outstanding has been received.

Profit from continuing operations for the period ended 30 June 2021 was US$8.1 million (six months to 30 June 2020: loss of US$20.3 million). For clarity, this figure does not reflect Loan Notes repayments received.

On 24 June 2021 San Leon announced a conditional investment of US$2.0 million, as well as an option to conditionally invest a further US$6.5 million, in the equity of Energy Link Infrastructure (Malta) Limited (“ELI”), the company which owns the Alternative Crude Oil Evacuation System (“ACOES”) project. This transaction is awaiting final conditions precedents to complete.

Separately and in addition to the aforementioned announcement, on 24 June 2021, San Leon confirmed that it is in preliminary discussions with Midwestern Oil and Gas Company Limited  about acquiring Midwestern’s indirect interest in the OML 18 oil and gas block located onshore in Nigeria. Any transaction would involve San Leon acquiring the outstanding shares not already owned by San Leon in relation to Midwestern Leon Petroleum Limited from Midwestern. 

The acquisition by San Leon of the outstanding shares in MLPL not already owned by San Leon would constitute a reverse takeover under rule 14 of the AIM Rules. San Leon is not contemplating acquiring Midwestern itself.

In accordance with rule 14 of the AIM Rules, the Company’s ordinary shares were suspended from trading on AIM on 24 June 2021. The Company’s ordinary shares will remain suspended until such time as either an AIM admission document is published or an announcement is released confirming that the reverse takeover in contemplation is not proceeding.

On 7 July 2021 San Leon agreed with MLPL, Midwestern and Martwestern to a conditional payment waiver in respect of the repayment of approximately US$32 million of MLPL’s Loan Notes and interest that fell due on 5 July 2021 (the “Conditional Payment Waiver”). The Conditional Payment Waiver expired at the end of August 2021 or, if sooner, the termination of discussions or the signing of an agreement to effect the Potential Transaction, and interest will accrue on this instalment of the Loan Notes over this period. The sums to which the Conditional Payment Waiver relates (and those falling due within 30 days after the expiry of the Conditional Payment Waiver) will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.

On 20 September 2021 San Leon agreed an extension of the Conditional Payment Waiver to the end of September 2021. The Board is in discussions with MLPL, Midwestern and Martwestern in relation to a further extension of the Conditional Payment Waiver.

On 12 July 2021 heads of terms were signed in respect of, inter alia, the proposed reorganisation to consolidate Midwestern’s holdings in the Company and MLPL into a single holding in the Company (the “Potential Transaction”).

The Board appointment process previously announced completed with the appointment of John Brown as Independent Non-Executive Director and Chair of the Audit and Risk Committee, and Adekolapo Ademola as Non-Independent Non-Executive Director on behalf of Midwestern. Non-Executive Directors, Mark Phillips, Bill Higgs and Linda Beal, left the Board during 2020 and Alan Campbell has since stepped down from the Board in 2021 as part of a board restructure.

On 2 August 2021 Lisa Mitchell resigned as its Chief Financial Officer and Executive Director to take up a new role. San Leon has commenced a search for a replacement.

Eroton has informed the Company that it continues to take all appropriate precautions for its operations and people with regards to responding to the Covid-19 pandemic.

Oil delivered to the Bonny terminal for sales was approximately 6,600 barrels of oil per day  in H1 2021 (25,200 bopd in H1 2020). The figure has been affected by continued losses and downtime associated with the use of the Nembe Creek Trunk Line, OPEC restrictions, and reduced operations both as a result of the Covid-19 pandemic and also due to prudent capital discipline.

Gas sales averaged 17.8 million standard cubic feet per day in H1 2021 after downtime (39.1 mmscf/d in H1 2020).

Production downtime of 3.3% in H1 2021 was caused by third party terminal and gathering system issues. Such issues in the third-party export system are expected to be substantially resolved by the implementation of the new ACOES for the purpose of transporting, storing and evacuating crude oil from the OML 18 export pipeline.

The ACOES pipeline will run from within the OML 18 acreage to a dedicated Floating Storage and Offloading vessel in the open sea, approximately 50 kilometres offshore.

Oil barging operations from OML 18 to the FSO commenced in late September 2021 (while awaiting availability of the pipeline), with the full ACOES including the pipeline expected by Eroton to be operational in early 2022.

Pipeline losses by the Bonny Terminal operator have been markedly higher during this year due to lower pipeline throughput (30 June 2021: 65%; 30 June 2020: 20%). The ACOES export Pipeline and FSO system mentioned above are expected to reduce losses significantly.

Chief Executive Officer of San Leon, Oisín Fanning, commented:

 The Company is well-positioned either to pursue the proposed transaction with Midwestern, or to continue with its existing assets and strategy and await receipt of the remaining substantial Loan Notes repayments. Whichever route is taken, the progress on the ACOES system is expected to be of substantial benefit.”

 Whilst the various options seem complicated and out of their hands, the final resolution as the CEO says above would be good for shareholders either way. The shares continue to do well and offer significant value through yield offered by the passing on of incoming loan repayments etc. 

Longboat Energy

I had a chance to meet and talk to Helge Hammer on Core Finance today, I am a huge fan of this team and the interview will give substantial confidence to investors. I think that the portfolio that they have assembled will deliver and potentially very high numbers, on any timescale I think that these shares will motor.

The link to the interview is below.

Core Finance CEO interview: Helge Hammer of Longboat Energy

And finally…

Last night in the Champions League was like the old days at the Theatre of Dreams as Ronaldo scored the winner in Fergie time and the guvnor was up in the stands to watch. Chelski lost 1-0 at Juve.

Tonight its the Boropa Cup with the Foxes at Legia Warsaw, the Hammers hosting Rapid Vienna, Rangers at Sparta Prague and Celtic host Bayer Leverkusen.