Savannah Petroleum enters Nigeria’s oil exploration sector

Savannah Petroleum plc, the British independent oil and gas company focused around activities in Niger Republic and Nigeria, said it had completed the acquisition of Seven Energy started in December 2017, making it the latest entrant in Nigeria’s exploration field in dire need of investments.

The transaction involves the acquisition by Savannah of Seven Assets and the restructuring of Seven Energy’s existing indebtedness of over $900 million, buy-out of minority shareholders in Universal Energy Resources Limited, acquisition of an additional 60 percent interest in Accugas, as well as the sale of a 20 percent interest in Seven Uquo Gas Limited and Accugas to African Infrastructure Investment Managers (AIIM).

At a court hearing on November 13, administrators were appointed to Seven Energy International Limited and on November 14 effected the transfer of the Seven Assets to group companies controlled by Savannah and AIIM.

Following this step, final long-form documentation with respect to the transaction was executed in accordance with the agreed steps as set out in the Implementation Agreement, and the transaction has now been completed, the company said.

Andrew Knott, CEO of Savannah Petroleum, said the deal transforms Savannah into a full-cycle E&P company in West Africa and “marks the start of a very exciting time for us”.

“We have acquired a business with great people and a strong set of exploration, appraisal, development and production assets which are expected to be highly cash flow generative for the company,” Knott said.

Following the completion of the transaction, Savannah now owns the Seven Assets, which comprise an 80 percent interest in Seven Uquo Gas Limited which in turn holds a 40 percent participating interest in the Uquo field located in South East Nigeria (with SUGL assuming responsibility for all operations of the gas project at the Uquo field following the occurrence of the Frontier Transaction).

Savannah also owns a 51 percent interest in the Stubb Creek field located in South East Nigeria through 100 percent ownership of Universal Energy Resources Limited and an 80 percent interest in the Accugas midstream business, comprising the 200 million standard cubic feet a day (mmscfd) Uquo gas processing facility, a c.260km pipeline network and long-term gas sales agreements with downstream customers.

One of Savannah’s partners in the transaction is African Infrastructure Investment Managers which, as part of the transaction completion, acquired 20 percent interests in SUGL and Accugas in return for cash consideration to Savannah of US$54 million which has now been received.

This transaction gives Savannah a material producing asset base which is expected to generate significant asset-level free cash flows, complementing the company’s prolific Niger exploration and development assets, exposure to significant upside potential, through both volume and margin uplift, through the utilisation of additional capacity within Accugas’ infrastructure and a strong platform in the well-established and high potential Nigerian oil and gas industry.

“Today marks a significant milestone in Savannah’s corporate history and elevates the Company to being a leading oil and gas producer in the London market. We can now focus on further developing the high quality, world-class assets that we have in our portfolio, which we believe this has the potential to deliver material long-term returns for our stakeholders,” Steve Jenkins, chairman of Savannah Petroleum, said.

“In Nigeria, our focus is on delivering further growth in the Company’s revenue base, and as we continue to develop in-country we see strong potential for additional resource growth over time,” he said.

Seven Energy ran into troubled waters in mid-2016 when electricity generation off-takers to the Accugas business (Calabar and Ibom Power) were unable to settle gas invoices due to the distressed state of the Nigerian power sector.

The company could not complete in time the finalisation of ancillary documentation in relation to the World Bank Partial Risk Guarantee for Calabar which guarantees certain gas supply payments to the Group, and so postponed its ability to mitigate a deferral of revenue streams from the power sector.

To complicate matters, the company’s Strategic Alliance Agreement with the Nigerian Petroleum Development Company (NPDC) and the Nigerian National Petroleum Corporation was suspended following attacks on the Forcados Terminal in 2016 which led to the declaration of force majeure. As such, it could not lift crude under the Strategic Alliance Agreement.

In January 2017, the NPDC terminated the Strategic Alliance Agreement halting any cash flow generation to Seven Energy, despite Forcados reopening in June 2017. The company went to court to reinstate the Strategic Alliance Agreement leading to a protracted legal dispute.

This piled pressure on the group’s capital structure and liquidity and it began to default on its loans. At the time Savannah came, the group had a total debt of about $900 million of which around $15 million is denominated in naira.

 

ISAAC ANYAOGU