Savannah Energy “performed extremely robustly in the first half” (LON:SAVE)

Savannah Energy plc (LON:SAVE) Chief Executive Officer Andrew Knott caught up with DirectorsTalk for an exclusive interview to discuss operational highlights from interim results, how the Nigerian side of the business has performed, benefits of the Niger license amalgamation, their sustainability strategy, the Chad acquisition, and what activities we can expect to see in the coming months.

Savannah Energy is a leading African-focused British independent energy company. Current operations are in Nigeria and Niger where they’re sustainably developing high-quality, high-growth projects in both countries. The company has provided interim results for the six months ended 30th of June 2021, and an outlook for the full year. With me to discuss the news is CEO Andrew Knott.

Q1: Now as mentioned, you’ve announced your interim results, can you talk us through the operational highlights for the period?

A1: Our revenues are up 2% year-on-year to $160 million, our gas per average realised gas price increased as did our average realised liquids price, our EBITDA of $91.5 million was up versus $89.2 million the previous year and we reduced our leverage over the course of the period with our cash at bank at period end of $136 million, the leverage adjustment itself went from 2.5 times to 2.3 times.

So, a really strong solid set of results for the first half of the year.

We’re rating at full year guidance and really looking forward to delivering further growth through new customers and to look at sales to new customers over the course of the next six to 12 months, that’s within our base business.

Outside of Nigeria, in Niger, we announced that we’ve extended the PSC in Niger for a period of up to 10 years, which will allow us to go through a new significant investment phase in Niger which we’re very excited about, delivering first oil in the pipe discoveries that we’ve made and then recommencing exploration activity in the country.

Q2: Just looking at the Nigerian side of the business, how has that performed in the past six months?

A2: In terms of the past six months, we’ve grown across all our matrix, the performance, really since we announced the acquisition, over the course of the last three years, it’s really been very stark the improvement with revenue cash collection metrics having increased by large percentage amounts.

So, with that, we’re now in a position where we’ve improved production and continue to improve production and see the ability to improve production more by adding the gas customers.

We have a big infrastructure positions to increment the cost of adding new customers, it’s limited versus the very high degree of drop time from revenue to the bottom line because of that existing installed cost base and the spare capacity within the business.

So, I would say that the business has performed extremely robustly in the first half.

Q3: What benefits does the Niger license amalgamation provide the company?

A3: The principal benefit is that it extends the life of the contracts to 10 years, it puts everything under one contract, which enables us to yield synergies so if we drill well in location X, we’ll be able to recover the costs of that well against production in location Y.

It also removes any, what you would call ‘perverse incentives’ to have to drill a well in block R1, R2, R3, R4, any wells we now drill, we just drill them where the geology dictates. For those that followed the company for a longer period of time, our initial exploration activity happened in an area called R3 East, we’ve then made it very clear that our next phase of activity will be to move northwards towards R3 Central and up towards the R1 area.

That allows us to do that work programme unfettered by any artificial contractual restraints so it’s really very, very positive and it’s indicative of the very positive experience we’ve had in Niger since day one. We’ve always been able to work with the government to structure the contract, but we operate in a way which stimulates investment and enabled us to meet investments to the business and they’ve always supported us.

So, for example, we made those discoveries within a matter of months and we were able to sign an agreement in relation to selling the crude to a local refinery, which in other jurisdictions we would never have managed to achieve that in such a quick time.

So, it’s very significant, it enables us to go through another phase of investment, it should ensure that delivering cash flows from those assets and Niger is a country that we enjoy working along.

Q4: I understand that you’ve reworked your sustainability strategy. Can you tell us what that involves and why it’s important to you?

A4: I think there’s two aspects to that, I would encourage anybody that’s new to our company to read my shareholder letter , there’s a lot of discussion around our view of sustainability, our view of the importance in an African context of development, energy poverty alleviation and the benefits  that energy brings to improving life health outcomes and improving people’s incomes. So, there’s a lot of work that we’ve done on, that we’ve published on that and we’ve held seminars on that.

In terms of the sustainability strategy, that’s also outlined in the report, as is a market context section by Dr Richard Norris who is a world renowned expert on sustainability in the context of oil and gas. So, there’s three in the report that I would encourage people who are interested in sustainability to read.

In terms of the company’s sustainability strategy, as I said, there’s a 0.82 R-squared, which in laypersons terms is a very high degree of correlation, between GDP per head and energy consumption per head with countries like Niger and Nigeria being at the bottom of the scale, the USA being at the top.

Therefore, in a world where 2% of all energies provided by hydrocarbons today, it’s very, very important that as we work on moving towards Net Zero 2050, that we don’t end up in a situation where we prevent developing countries to develop in a way that the developed countries developed in the past. We need to find a way to maintain access to energy, to enable the development that will alleviate poverty and will improve health outcomes for the population of Africa.

So, with that in mind, our sustainability strategy is based on the UN Sustainable Development Goals, it’s then aligned to a series of other frameworks, given the emerging nature of ESG and the lack of a core common framework, which all stakeholder groups are seeking alignment to.

I would emphasise that really our approach to sustainability is really focused around delivering energy and poverty alleviation to the continent of Africa, that’s really our focus.

Separately, from a metric perspective, our carbon intensity is about 50% of the oil and gas industry average and has been reduced at roughly twice the rate that the industry has reduced its carbon intensity over the course of last 24 months.

Moving outside of a purely environmental realm, our diversity is industry-leading, we have 35% of our senior managers, for example, are female, and then our corporate governance has always been leading edge for the market.

I believe we screen very strongly on ESG metrics, we run the business based on our view of what is right or wrong, we recruit people based on our view of who the best people for the job and then I would say the side product of that is that we screen very well from an ESG perspective in terms of the societal contributions which we make.

I guess for those that are hearing me speak for the first time, in Nigeria, our gas fuels up to 50% of the country’s power supply, in Niger, the project we’re involved in is anticipated to increase GDP by over 24% in aggregate.

So these are really meaningful, systematically important projects that we’re doing, that will make and will continue to make a real difference to people’s lives.

Q5: Now, you have a potentially transformational acquisition in Chad, is there anything that you can say on that Andrew?

A5: For regulatory reasons, it’s a difficult thing to discuss.

I think what we’ve announced publicly around the production numbers and scale of the business so the pipeline transports over 100,000 barrels a day of crude. The Exxon development, on a gross basis, was producing in the region of 35,000 barrels a day at the last update.

So, aside from that, there’s not a lot I can say due to the regulatory issues around the acquisition, other that when we re-admit, we’ll provide a comprehensive. As we speak, I’m in Chad, I guess I can say that.

Q6: Finally, what activities can we expect to see in the coming months from Savannah Energy?

A6: New gas sales agreement to a new customer, I’m confident of that, news in terms of the acquisition, I’m confident of that, continued strong underlying performance of our base business and further details of our plans in terms of what we expect to do in Niger going forward now that the PSC has been extended. These are all key catalysts for us.

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