WTI $76.75 +81c, Brent $79.70 +81c, Diff -$2.95 u/c, NG $4.79 -28c, UKNG 212.0p -4.08p

Oil price – SPR – WIGIG

Rarely has the expression about closing stable doors been more appropriate, after an 8 dollar fall in the price of oil then the US decide to start selling oil from its strategic reserves which I seem to remember were built for times of emergency. To add insult to injury the US has been roping in a gang of like minded consumers such as Japan, China, India and South Korea to also sell their own stocks. The USA will sell 18m bbls and loan another 32m and India have chipped in with 5m b’s.

Opec+ will be groaning with laughter, next Thursday they meet  to decide whether to continue to add another 400/- b/d into the market and the emphasis from them will be what it should be, ie what is demand going to do particularly in this current Covid round? The difference of course is that whilst US energy policy is to get the price of gasoline down at the same time as closing pipelines and federal drilling sites, Opec+ will decide how to really change the market. And of course they are selling production not reserves, the gang of 5 will need to buy back that oil at some stage, hopefully not just before the 2022 driving season…Now what is 55m barrels as a %age of current world demand of c.100m b/d….? The words ‘you couldn’t make it up’ come to mind.

As it happens the retail gasoline prices were out this morning, at $3.395 per gallon oil is virtually unchanged over a week and a month but still $1.293 higher than this time last year, as I said the horse has well and truly bolted.

Savannah Energy

Savannah has announced the publication of an updated Competent Person’s Report covering the Company’s assets in Nigeria, whereby Gross 2P Reserves increased 27%, together with a financial and operational update for the year to date. The CPR was compiled by CGG Services (UK) Ltd (“CGG”), a well-known independent third-party reserves auditor.

The updated Competent Persons Report for Nigeria includes certification by CGG of 108.6 MMboe 2P Reserves (2019 CPR1: 85.5MMboe) with additional 99.7 MMboe 2C Contingent Resources (2019 CPR1: 98.0MMboe);
Significant 27% increase to Gross Uquo 2P Reserves driven by the new Pre-Stack Depth Migration re-processing/re-interpretation of the Uquo 3D seismic survey and better than prognosis from the newly drilled Uquo-11 well; and Nigerian Assets gross NPV10 of US$1.2bn assessed by CGG (NPV10 net to Savannah of US$954m).

In financial Highlights announced today Total Revenues3 up 7% y-o-y to US$192.5m for the 10 months ended 31 October 2021 (year-to-date period ended 31 October 2020: US$180.2m);
• Group cash balance of US$130.8m4 and net debt of US$382.7m as at 31 October 2021 (as at 31 October
2020: US$80.7m and US$433.3m respectively);

Total cash collections from the Nigerian Assets up 6% to US$149.2m for the 10 months ended 31 October
2021(year-to-date period ended 31 October 2020: US$141.1m);
• We reiterate our FY 2021 guidance for the following: Total Revenues3 of 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;

Group Administrative and Operating Costs5 of US$55.0m – US$65.0m; Group capital expenditure of up to US$65.0m; and
• We are revising our Group Depreciation, Depletion and Amortisation guidance from US$19m fixed for
infrastructure assets plus US$2.6/boe, to US$20m fixed for infrastructure assets plus US$2.3/boe primarily
as a result of the reserves increase at the Uquo field.

Savannah also issued an ESG Reporting Update in which it said that progress continues to be made in rolling out our new sustainability performance and reporting framework across the Group with a view to reporting on this from 2022 onwards. This reporting framework was presented in our refocused sustainability strategy published in June 2021 which is based on four key strategic pillars: (1) promoting socio-economic prosperity; (2) ensuring safe and secure operations; (3) supporting and developing our people; and (4) respecting the environment.

These four strategic pillars are aligned with 13 key United Nations Sustainable Development Goals (“UN SDGs”), where we believe Savannah can have the biggest economic, environmental, social and governance impact to achieve a better and more sustainable future for all. While anchoring our strategy around these 13 UN SDGs, we have chosen to integrate six additional sustainability reporting standards into our new performance and reporting framework. These have been selected on the basis of those most relevant for our sector and of most importance to our stakeholders and include those for: the Global Reporting Index (“GRI”); the eight International Finance Corporation Performance Standards (“IFC PS”); the International Association of Oil and Gas Producers (“IOGP”); the International Petroleum Industry Environmental Conservation Association (“IPIECA”); the Sustainability Accounting Standards Board (“SASB”); and the Task Force on Climate-related Financial Disclosures

[1] 2019 CPR Reserves adjusted for production for the period between the updated and 2019 CPRs.

[2] Nigerian assets defined as the interest in the Uquo Gas Project owned by SEUGL, the interest in the Stubb Creek Field owned by Universal Energy Resources and the interest in the Accugas Midstream Business owned by Accugas Limited.

[3] 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 Condensed Consolidated Statement of Comprehensive Income. A detailed explanation of the impact of IFRS 15 revenue recognition rules on our Consolidated Statement of Comprehensive Income is provided in the Financial Review section of the Savannah Annual Report and Accounts 2020.

[4] The cash balance of US$130.8m includes US$80.7m set aside to cover interest due and US$1.6m held in escrow accounts for stamp duty relating to loan security packages.

5Group operating expenses plus administrative expenses are defined as total cost of sales, administrative and other operating expenses excluding royalty and depletion, depreciation and amortisation and transaction costs.

Andrew Knott, CEO of Savannah Energy, said:

”I am extremely pleased to announce the publication of our updated CPR covering the Company’s asset in Nigeria,
showing a 27% organic increase in Group 2P reserves. This progression shown in the heart of our business has
been replicated in our financials as we maintain a positive year of growth with total revenues up 7% against the
same period last year as we reiterate guidance for 2021. Operationally we have successfully drilled and completed
the Uquo-11 gas production well, below budget and at a significantly lower cost than previous Uquo wells drilled by
our subsidiary company. We look forward to continuing our positive progress through the rest of the year and we
expect to update shareholders as to progress made in relation to the Proposed Acquisition (as defined below) when
appropriate. We remain confident in our Company’s outlook.”

As always Savannah is providing better numbers on its asset base and to go with it very solid financials backed by a reiteration of guidance for Total Revenues, Group Administrative and Operating Costs and Group capital expenditure and robust operational economics. Clearly we can expect only so much information on the business whilst the proposed acquisition of Exxon Mobil’s upstream and midstream assets in Niger and Chad is still awaiting completion. 

The company is at the forefront of energy transition and its sustainability is very important in the fight against energy poverty in the areas it operates in in Africa. Growth continues in Nigeria where it supplies gas enabling over 10% of the country’s thermal power generation and even from here there is considerable upside. 

For me SAVE ticks a lot of boxes and particularly in its leading stance on ESG; their team was highly visible in Glasgow at COP 26 while Savannah was also shortlisted for the Charted Governance Institute’s “ESG Initiative of the Year” Award 2021. I expect to see further news before long in Niger where once it gets under way expect it to make a significant difference to GDP there and especially if the ExxonMobil deal completes.

Finally I have always said that the management team at Savannah is a differentiating factor, it has made it clear that it is in there for the long haul and I expect that to benefit patient shareholders when the listing returns hopefully before long. 

Trinity Exploration & Production

Trinity confirmed yesterday that, further to its announcement on 4 May 2021, it has now received all the approvals necessary to complete the acquisition of a 100% interest in the PS-4 Block Lease Operatorship Sub-Licence, onshore Trinidad, with an effective date of 1 December 2021.

The initial cash consideration for the Acquisition was US$3.5 million, subject to potential closing adjustments and a contingent consideration of up to US$0.5 million. The final cash consideration (inclusive of contingent consideration and the initial deposit payment of US$0.7 million) totalled US$3.85 million and has been fully funded from the Company’s existing cash resources.

Contiguous to Trinity’s largest and most prolific onshore Block, WD-5/6, with 80% of the PS-4 block covered by the 3D seismic survey acquired in Q1 2021 Immediate benefit from applying the Group’s 3D seismic sequence stratigraphic framework across the new acreage offering a significant opportunity to add reserves and production on a meaningful scale.

A programme of workovers, reactivations, recompletions, and at least two new infill wells, expected to increase production from 65 bopd currently to over 200 bopd by the end of 2022 Provides substantial synergies from a financial, operational and technical perspective Funded from existing cash resources and immediately accretive to operating and free cash flow

The increase in acreage and location of the Block (being contiguous to WD-5/6) will enable the Company to integrate the PS-4 area seamlessly into its ongoing subsurface evaluation process – offering the potential to high grade existing drilling candidates and identify new ones across the larger area.

The Company is focused on growing production and reserves, and the integration of PS-4 into the wider portfolio provides Trinity greater scope to do so. Following a full 3D seismic interpretation, and the re-mapping and integration of all historical wells and production data, the Company will update the market on reserves and forward plans for the Block.

Jeremy Bridglalsingh, Chief Executive Officer, commented:

“We are delighted to be in a position to complete, with an effective date of 1st December 2021, the acquisition of the PS-4 Block, which fits in our broader growth strategy, with the contiguous location meaning that our 3D seismic interpretation will have even greater benefit. Beyond the technical synergies, with our largest field WD-5/6 now able to act as an operational hub to the nearby WD-2 and PS-4 fields, we foresee meaningful operational efficiencies as well.

We have a portfolio of assets offering a number of opportunities to increase production and cash generation, while our commitment to partnerships to access new opportunities further augments our ambitious growth plans.”


And finally…

It’s the Champions League tonight and manager-less Red Devils  visit Villareal and Chelski host Juve.