Sun­nier out­look to light up Sa­van­nah

AIM-quoted oil firm should be able to close val­u­a­tion gap on its ri­vals

Shares - - GREAT IDEAS -

We be­lieve that is­sues which have clouded the out­look for African oil play Sa­van­nah Petroleum (SAVP:AIM) are start­ing to clear and reckon the mar­ket will switch its at­ten­tion to the com­pany’s cash gen­er­a­tion po­ten­tial.

Though this is high-risk story, which could be in­flu­enced by move­ments in a volatile oil price, we reckon there could be sig­nif­i­cant up­side on of­fer.

Sa­van­nah re-listed on AIM in Jan­uary 2018 fol­low­ing a $125m fundraise and the $280m re­verse takeover of dis­tressed peer Seven En­ergy. That deal pro­vides ac­cess to sig­nif­i­cant Nige­rian nat­u­ral gas pro­duc­tion along­side its ex­ist­ing oil as­sets in Niger.

Writ­ing in mid-Au­gust an­a­lysts at bou­tique in­vest­ment bank Han­nam & Part­ners noted the shares had, since re-list­ing, un­der­per­formed Nige­ri­an­fo­cused peers by 30% and the wider London-listed oil uni­verse by some 10%.

It at­trib­uted this to the pro­tracted com­ple­tion of the Seven deal, how­ever chief ex­ec­u­tive An­drew Knott tells Shares the com­pany was also faced with a sig­nif­i­cant share­holder forced to sell to meet re­demp­tions on its fund. Knott con­firms the com­ple­tion of the Seven En­ergy trans­ac­tion should take place be­fore the end of Septem­ber.

AC­TIVE DRILLING EF­FORT

Sa­van­nah has not been sit­ting on its hands while it waits for this deal to go through. It has en­joyed an ex­tremely suc­cess­ful drilling ef­fort in Niger which Han­nam & Part­ners reck­ons has taken the to­tal dis­cov­ered re­sources on the group’s Niger as­sets to between 50 mil­lion and 70 mil­lion bar­rels of oil.

The bank reck­ons these re­sources could be worth up to 29p per share on their own. Hav­ing main­tained a 100% suc­cess rate with its fourth well in the cam­paign on the Eri­dal prospect, the com­pany has trig­gered an op­tion on the con­tracted rig to drill the Zomo prospect.

The com­pany is look­ing to set up an early pro­duc­tion sys­tem in Niger to mon­e­tise around 5,000 bar­rels of oil per day of pro­duc­tion, bring­ing some cash into the com­pany cof­fers.

The Seven En­ergy as­sets con­sist of the Uquo and Stubb Creek fields and a 20% in­ter­est in the Ac­cu­gas pipeline busi­ness in south east Nige­ria – with lead­ing African pri­vate eq­uity in­fra­struc­ture in­vestor Africa In­fra­struc­ture In­vest­ment Man­agers taking the other 80%.

An ear­lier in­de­pen­dent au­dit sug­gested the Seven En­ergy port­fo­lio could gen­er­ate free cash flow of $88m per year between 2018 and 2022. (TS)

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