AIM-quoted oil and gas play Savannah Petroleum (SAVP:AIM) is poised to complete a deal which will give it access to significant natural gas production in Nigeria. This is expected to provide it with plenty of cash flow to develop its assets in Niger and potentially pay dividends.

Savannah is acquiring assets held by financially distressed operator Seven Energy in a $280m reverse takeover and it expects the transaction to go through in April 2018.

In December 2017 the company completed a $125m fundraise to help finance the deal and to underpin future spending on both the projects in Nigeria and Niger.

WHAT IS SAVANNAH BUYING?

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 independent audit suggests this portfolio should generate free cash flow of $88m per year between 2018 and 2022. The company plans to pay out $12.5m in dividends from this cash flow in 2018.

Problems with an oil pipeline and with getting paid for its gas meant Seven Energy was unable to service its debt or fund capital expenditure.

Savannah chief executive Andrew Knott tells Shares this enabled his firm to acquire fields where all the heavy lifting had already been done at an attractive price (calculated as $3.10 per barrel of oil equivalent).

He says the oil business which was hit by infrastructure issues is not being acquired as part of the deal, and the company has a World Bank guarantee on the gas it provides to its main customer, the Calabar power station.

Knott adds that the company will consider other opportunities to acquire assets in Nigeria, which he says is blessed with an established industry, strong historic cash returns and where major oil companies are selling assets and other operators are financially distressed.

WHAT IS HAPPENING IN NIGER?

The company is about to commence a three well drilling programme on its R3 licence in Niger with Knott noting the net present value of each well could boost the company’s valuation by £100m in
a success case.

The wells are expected to take around a month to drill with 10 to 15 days to move the rig between each drilling location. (TS)

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