Sunnier outlook to light up Savannah
AIM-quoted oil firm should be able to close valuation gap on its rivals
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)