TIDMSAVE
RNS Number : 2634A
Savannah Energy Plc
28 May 2021
28 May 2021
Savannah Energy PLC
("Savannah" or "the Company")
FY 2020 Preliminary Annual Results
Savannah Energy PLC ("Savannah" or the "Company"), the
African-focused British independent energy company sustainably
developing high quality, high potential energy projects in Nigeria
and Niger, is pleased to announce its unaudited preliminary results
for the year ended 31 December 2020. A copy of the Annual Report
and Accounts will be finalised and posted to Shareholders shortly
and a separate notification made in this regard.
Andrew Knott, CEO of Savannah Energy, said:
"2020 represented our first full year of ownership since the
completion of the acquisition of our Nigerian assets and our
financial results show just how transformational the acquisition
has been for Savannah. Against a challenging backdrop, we recorded
a robust financial and operating performance. We beat all of our
original financial guidance metrics. Total Revenues [1] and cash
collections rose for the fifth consecutive year on a pro-forma
basis, while our Adjusted EBITDA [2] margin at 78% remained
industry leading. Operationally our daily production levels rose
14% and we achieved these results with zero recorded Lost Time
Injuries for the year. Our performance against key sustainability
metrics such as carbon intensity, senior management gender
diversity and local employees are all equally industry leading.
Further we have sown the seeds for our future growth with three
gas sales agreements ("GSAs") signed since the beginning of 2020,
two of which opened up new high-potential growth markets for our
business. Our GSA to supply the FIPL Afam power station marks our
entry into the potentially high-growth Port Harcourt Industrial
area in Nigeria, while our GSA with Mulak Energy Limited, signed in
Q1 this year, provides us with a promising opportunity in the
country's expanding compressed natural gas ("CNG") market.
We have had a strong start to 2021, with January to April 2021
production having grown 9% year-on-year to 22 Kboepd, a new
all-time high level for our assets. We are reiterating the 2021
guidance we provided on 25 January 2021. Additionally, key organic
value creation milestones for this year, not contained in our 2021
guidance, include the delivery of first gas sales to the FIPL Afam
power station, the re-financing of our US$371 million Accugas debt
facility and the continued progression of the development of our
Agadem Rift Basin oil project in Niger. We remain completely
focused on the huge opportunity set we see in Africa for both
organic and in-organic growth and I look forward to updating
stakeholders as we continue our exciting journey."
Key FY 2020 Financial Highlights
-- FY 2020 Total Revenues(1) of US$235.9m (+23% on FY 2019
pro-forma [3] Total Revenues of US$192.1m);
-- Average realised gas price of US$3.96/Mscf (+11% on the 2019
average realised pro-forma gas price of US$3.56/Mscf) and an
average realised liquids price of US$46.2/bbl (-30% compared to the
2019 average realised pro-forma liquids price of US$66.3/bbl);
-- Total cash collections from the Company's Nigerian assets of
US$187.4m (+11% on FY 2019 pro-forma cash collections of
US$168.8m);
-- FY 2020 Adjusted EBITDA of US$183.6m (+19% on 2019 pro-forma Adjusted EBITDA of US$153.8m);
-- FY 2020 Adjusted EBITDA margin remained broadly unchanged at 78%;
-- FY 2020 Group Operating expenses plus administrative expenses
[4] of US$46.4m (FY2020 initial guidance of US$68.0-72.0m);
-- FY 2020 Group Depreciation, Depletion and Amortisation of
US$36.3m (FY 2020 initial guidance of US$43.0-45.0m and 2019
pro-forma of US$53.7m);
-- Group cash balances of US$106.0m [5] as at 31 December 2020
(+121% versus FY 2019 year-end Group cash balances of
US$48.1m);
-- Group net debt of US$408.7m as at 31 December 2020 (-16%
versus FY 2019 year-end Group net debt of US$484.0m);
-- Leverage [6] was 2.2x, a 31% improvement from 2019 pro-forma
leverage of 3.2x, and an interest cover ratio [7] of 2.8x, a 33%
increase from 2019 pro-forma ratio of 2.1x; and
-- Total Group assets amounted to US$1,207.2m at year-end (2019: US$1,145.0m).
Key FY 2020 Operational Highlights
-- FY 2020 average gross daily production from the Nigerian
operations was 19.5 Kboepd, a 14% increase from the average gross
daily production of 17.2 Kboepd in FY 2019;
-- Of the FY 2020 total average gross daily production of 19.5
Kboepd, 88% was gas, including a 17% increase in production from
the Uquo gas field, from 88.1 MMscfpd (14.7 Kboepd) in FY 2019 to
102.8 MMscfpd (17.1 Kboepd) in FY 2020;
-- Achievement of an all-time gas production record from the
Nigerian assets of 177 MMscfpd on 30 May 2020;
-- All-time high peak gas contribution equivalent to 13% of the
total country-wide Nigerian average grid-based generation achieved
on 29 June 2020;
-- In January 2020 Accugas entered into the first new gas sales
agreement for the business in over five years with First
Independent Power Limited ("FIPL"), an affiliate company of the
Sahara Group, for the provision of gas to the FIPL Afam power plant
("FIPL Afam");
-- In December 2020 Accugas agreed a revised GSA with Lafarge
Africa PLC, a wholly-owned subsidiary of Lafarge Holcim and
operator of the Mfamosing cement plant in Cross River State,
Nigeria. This extended the contract tenor by five years to January
2037 and raised the average life-of-contract gas price; and
-- In February 2021, Accugas signed a new GSA with Mulak Energy
Limited ("Mulak") representing Savannah's entry into the
high-growth compressed natural gas ("CNG") market in Nigeria.
Guidance Reiterated for FY 2021
Savannah reiterates its guidance for the full year 2021 as
follows:
-- Total Revenues(1) of greater than US$205.0m from upstream and
midstream activities associated with the Company's three active
Nigerian gas sales agreements (excluding gas sales to FIPL and
Mulak) and liquids sales from the Company's Stubb Creek and Uquo
fields. Total Revenues received from gas sales to FIPL and any new
additional gas sales agreements would, therefore, be incremental to
this;
-- Group Operating expenses plus administrative expenses(8) of US$55.0m-US$65.0m;
-- Group Depreciation, depletion and amortisation of US$19m
fixed for infrastructure assets plus US$2.6/boe for oil and gas
assets; and
-- Group capital expenditure of up to US$65.0m.
Niger Update
During the first half of 2020, the Company agreed with the Niger
Ministry of Petroleum that the R4 licence area would be combined
with the R1/R2 PSC area into a new R1/R2/R4 PSC to be issued under
the Petroleum Code 2017 and that the R3 PSC would continue as a
stand-alone PSC area, thus retaining the full acreage position
previously covered by the R1/R2 PSC and the R3/R4 PSC. Ratification
of the new R1/R2/R4 PSC was subject to Council of Minister
approval, and payment of the associated fee.
The Company has subsequently agreed in principle with the
Ministry of Petroleum to amalgamate the four licence areas (covered
by the R1/R2 PSC and the R3/R4 PSC) into a single PSC rather than
the previous proposal of two PSCs. The new PSC (being a R1/R2/R3/R4
PSC) will be valid for 10 years from the date of signing the
agreement. Ratification of the new PSC is subject to Council of
Minister approval and the payment of the associated fee which is
expected to occur by the end of July 2021.
Plans for delivering the R3 East development continue to
progress with the intention to commence installation of an Early
Production Scheme by the end of FY 2021, subject to market
conditions and financing.
Update on Savannah's Sustainability Strategy
Following the acquisition of our Nigerian assets we have
conducted a thorough review of our sustainability strategy for the
enlarged group, taking into account the feedback of an extensive
consultation exercise we have conducted with our key external and
internal stakeholder groups. Following this exercise, we have
chosen to refocus our sustainability strategy around four key
strategic pillars: (1) promoting socio-economic prosperity; (2)
ensuring safe and secure operations; (3) supporting and developing
our people; and (4) respecting the environment. Our four strategic
pillars are aligned with 13 key United Nations Sustainable
Development Goals, where we believe Savannah can have the biggest
economic, environmental, social and governance impact to achieve a
better and more sustainable future for all.
While anchoring our strategy around the 13 most relevant UN SDGs
to Savannah, we have chosen to integrate six additional
sustainability reporting standards into our new performance and
reporting framework. These have been selected on the basis of those
most relevant for our sector and of most importance to our
stakeholders and include those for: the Global Reporting Index
("GRI"); the eight International Finance Corporation Performance
Standards ("IFC PS"); the International Association of Oil and Gas
Producers ("IOGP"); the International Petroleum Industry
Environmental Conservation Association ("IPIECA"); the
Sustainability Accounting Standards Board ("SASB"); and the Task
Force on Climate-related Financial Disclosures ("TCFD"). We are
rolling out our new sustainability performance and reporting
framework across the Group during the remainder of 2021 with a view
to reporting on this from 2022 onwards.
Further details of our strategy and approach to sustainability
reporting will be provided in the Sustainability Review which will
form part of our 2020 Annual Report.
For further information, please contact:
Savannah Energy +44 (0) 20 3817 9844
Andrew Knott, CEO
Isatou Semega-Janneh, CFO
Sally Marshak, Communications
Consultant
Strand Hanson (Nominated Adviser) +44 (0) 20 7409 3494
James Spinney
Ritchie Balmer
Rory Murphy
finnCap Ltd (Joint Broker)
Christopher Raggett
Tim Redfern +44 (0) 20 7220 0500
Panmure Gordon (UK) Ltd (Joint
Broker)
John Prior +44 (0) 20 7886 2500
Hugh Rich
Camarco +44 (0) 203 757 4980
Billy Clegg
Owen Roberts
Violet Wilson
About Savannah Energy:
Savannah Energy PLC is an AIM market listed African-focused
British independent energy company sustainably developing high
quality, high potential energy projects in Nigeria and Niger, with
a focus on delivering material long term returns for stakeholders.
In Nigeria, the Company has controlling interests in the cash flow
generative Uquo and Stubb Creek oil and gas fields, and the Accugas
midstream business in South East Nigeria, which provides gas
contributing to over 10% of Nigeria's daily national average
thermal power generation. In Niger, the Company has interests in
two large PSC areas located in the highly oil prolific Agadem Rift
Basin of South East Niger, where the Company has made five oil
discoveries and seismically identified a large exploration prospect
inventory, consisting of 146 exploration targets to be considered
for potential future drilling activity.
Further information on Savannah Energy PLC can be found on the
Company's website: www.savannah-energy.com.
Chairman's statement
Dear fellow shareholders
I am pleased to provide my report on 2020 which was a year of
great progress and strong performance for Savannah Energy despite
the challenges that the Covid-19 pandemic brought to all of us.
Following the completion of the Nigerian assets acquisition in
late 2019, this was our first full year of operating these assets
and we delivered significant revenue, profitability and cash flow
growth. In doing so, Savannah supplied the gas which was
responsible for generating over 10% of Nigeria's daily national
average thermal power generation in 2020, with the capacity to
supply more. Economies and society in [8] Africa need power to
develop and grow and they need growth in order to improve the lives
of their people and I am proud that we are making a significant
contribution towards this.
We have defined our corporate purpose as seeking to deliver
energy projects in the emerging world which are making meaningful
positive socio-economic contributions to our host countries.
Commodity prices during the year were as volatile as at any time
I can remember in the energy industry as a result of Covid-19.
Brent oil prices started 2020 at over US$66.25 per barrel and at
one point in April reached a low of US$19.33 per barrel, whilst WTI
prices even went into negative territory for a short time(1) .
Despite this backdrop, we recorded results significantly ahead of
expectations. We achieved year-on-year Total Revenues(a) growth
from our Nigerian assets of 23% to US$235.9 million, unaffected by
the fluctuations in the oil prices because over 90% of our revenues
are derived from long-term gas contracts with no oil price linkage.
We reported Adjusted EBITDA(c) of US$183.6 million, representing an
impressive first year return on our investment in the Nigerian
assets.
Sustainability
Maintaining a high standard of health and safety in all
operations must always be a top priority for any business engaged
in the oil and gas industry. I am pleased to report that in 2020 we
continued to deliver a year-on-year zero Lost Time Injury Rate
("LTIR") across the Savannah Group with a Total Recordable Incident
Rate ("TRIR") of 0.28 per 200,000 man-hours.
The past year has represented an important period for our
sustainability efforts as we conducted a comprehensive review of
our approach to sustainability performance and reporting, with a
view to harmonising and enhancing our approach across the Group.
This culminated in our re-focused Sustainability Strategy which is
based on four strategic pillars - promoting socio-economic
prosperity, ensuring safe and secure operations, supporting and
developing our people, and respecting the environment - which are
aligned with the United Nations Sustainable Development Goals that
are most relevant to us. These form the basis for our new
Sustainability Performance and Reporting Framework, which we are
currently rolling out across the Group.
Covid-19
It is impossible to talk about 2020 without talking about the
challenge Covid-19 presented to the world, and I am proud of the
way Savannah responded to it. Systems and procedures were put in
place rapidly at all our office and operational sites and personal
protective equipment was made available. We continued to operate
from all field locations without any Covid-19 cases being recorded
and without disruption. Covid-19 has, therefore, not reduced our
ability to perform or to manage the business.
Corporate governance and stakeholder engagement
The Board is committed to ensuring Savannah's sustainable
success for the benefit of our shareholders whilst also having
regard to all our other stakeholders' interests. Achieving
best-in-class levels of corporate governance continues to be of
paramount importance to us at Savannah. We continue to use the 2018
Quoted Companies Alliance Corporate Governance Code (the "QCA
Code") as the basis of the Group's governance framework, and the
Corporate Governance Report in our soon-to-be-published 2020 Annual
Report will explain in further detail how we applied the principles
of the QCA Code in 2020.
We continue to place particular emphasis on engaging with all
our key stakeholders, although the pandemic meant that such
engagement has had to take a somewhat different form.
We launched our new corporate website in March 2021 and have
notably increased our social media engagement, including the
regular profiling of our diverse range of employees and the launch
of a series of interviews with our senior women managers. I would
encourage shareholders to look at these in order to gain an
understanding of the strength and diversity of our people within
Savannah.
Diversity
Diversity across the workforce is a key focus for the Company
and, at the year end, women represented 14% of the Board, 35% of
senior managers and 18% across the entire Group. These are
impressive statistics given the industry and region in which we
operate, but we are not complacent, and we will continue to promote
diversity across the whole organisation.
Outlook
Savannah is a very stable, highly cash-generative, predictable
business, with embedded growth in our existing contractual
arrangements. Further potential for significant organic growth
exists through contract wins in Nigeria and our continued
development in Niger. In addition to the underlying organic growth,
and having proved our ability to execute and integrate a large and
complex acquisition, Savannah will pursue its sharp focus on
value-accretive M&A opportunities in Africa in order to further
grow the business. We anticipate many such opportunities arising
over the next few years and the Board, therefore, looks to the
future with considerable confidence.
Steve Jenkins
Chairman of the Board
Footnotes:
1. Source Bloomberg
Chief Executive Officer's review
Dear fellow shareholders
I would like to welcome you to our seventh Annual Report as a
listed company. This year's letter focuses on five key themes. The
first discusses our industry-leading performance in 2020. The
second focuses upon our value creation and capital allocation plans
for 2021 and beyond. The third highlights the importance of our
culture and operating platform to our historic and future
successes. The fourth discusses the essential role that the
hydrocarbon industry in general, and emerging market-focused
companies such as Savannah, specifically, play in human development
and poverty alleviation. The fifth discusses the key role that
socially-conscious hydrocarbon asset stewards, such as Savannah,
will need to play in the energy transition to deliver the Net Zero
2050(1) vision.
Performance delivery in 2020
The impact of the Covid-19 pandemic dominated global
socio-economic activity in 2020. Global GDP ex-China fell by
4.4%(2) , the most since 1945. In many countries, government
borrowing reached post World War II records. The energy industry
announced record financial losses and redundancies, with the seven
supermajors reporting a combined US$89 billion of net losses and
over 39,500 job cuts(3) . Global oil and gas production reduced by
8.0% year on year(4) .
Against this challenging backdrop, Savannah recorded a robust
financial and operating performance. We significantly exceeded all
of our financial guidance metrics. Total Revenues(a) and Cash
Collections rose for the fifth consecutive year on a pro-forma
basis, while our Adjusted EBITDA(c) margin at 78% remained industry
leading. Operationally, our daily production levels rose 14%. We
achieved these results safely, with a zero incident Lost Time
Injuries Rate ("LTIR") and a Total Recordable Incident Rate
("TRIR") of 0.28 per 200,000 man-hours. We did not make use of any
government supported Covid-19 loans and we did not furlough any
employees. Our performance against key sustainability metrics such
as carbon intensity (12.8kg CO(2) e/boe versus industry average
17.0kg CO(2) e/boe), senior management gender diversity (35%
female) and local employee ratios (99%) are all equally industry
leading.
We sowed the seeds for our future growth, with three gas sales
agreements ("GSAs") signed since the beginning of 2020, two of
which opened up new markets with significant growth potential. Our
GSA to supply gas to the FIPL Afam Power Station marked our entry
into the potentially high growth Port Harcourt Industrial area and
envisions the supply of up to 35MMscfpd (5.8Kboepd) on an
interruptible basis with first sales expected later this year. Our
GSA with Mulak Energy to supply gas for conversion into Compressed
Natural Gas ("CNG") is targeting first sales in 2022. This GSA
represents our entry into the CNG market where we are seeking to
enable small-scale industrial, residential and transportation
energy consumers in South East Nigeria to switch their fuel source
from diesel to CNG, which is both cheaper (40%) and cleaner (30%).
Lastly, Accugas' revised GSA with Lafarge Africa (our second
largest customer) extended the existing contract tenor by five
years to January 2037 and raised the average life-of-contract gas
price.
We ended 2020 with a 31.4-year combined reserve and resource
life and US$4.3 billion of already contracted future gas revenues
for the period 2021 to 2037. This existing revenue stream provides
great long-term stability to our business and serves as a robust
foundation from which we expect to deliver material incremental
organic (e.g. through new GSAs and additional third party pipeline
tariff revenues) and inorganic (e.g. through new asset
acquisitions) growth from over the course of the coming years.
Our value creation and shareholder return plans
We have started 2021 strongly. January to April 2021 production
has grown 9% year-on-year to 22 Kboepd, a new all-time high level
for our assets, and we are confident in the delivery of the 2021
financial guidance we issued in January. Other key organic value
creation milestones we are focused on delivering this year include:
(1) first gas sales to the FIPL Afam power station; (2) the
re-financing of our US$371 million Accugas debt facility; and (3)
the progression of the development of our Agadem Rift Basin oil
project in Niger. Each of these workstreams has the potential to
create meaningful stand-alone value for our business.
We continue to actively review new acquisition opportunities
focussed predominantly on cash generative, or near-term cash
generative, upstream and midstream assets - of which there are many
- and/or "bolt-on" assets for which there is a significant
synergistic value to our existing operations. The seven supermajors
alone have divestment programs reported to amount to over US$100
billion(5) . Their plans are "strategically" motivated by: (1)
their focus on early-life, as opposed to, mature assets; (2) their
need to raise capital to accelerate investments in the renewable
space and strengthen their balance sheets following record 2020
losses; and (3) in some cases, a strategic desire to exit certain
jurisdictions.
We believe that our proven operating platform, strong industrial
reputation, access to finance and deep regional relationships place
us in a strong position to acquire assets in this environment. We
see significant value creation potential in such deals with the
performance improvements we have delivered in our Nigerian asset
base post-acquisition as a prime example of how this can be
achieved.
It is important to reiterate my message of previous years that
our approach to business development is a patient one. Our efforts
are primarily focused on cash flow or near-cash flow generative
assets and/or "bolt-on" assets within tie-in radius of our existing
operations. In the case of the former opportunities our focus is
upon those that: (1) are being offered by vendors who are divesting
assets for "strategic" reasons; (2) would be unit value per share
accretive to Savannah; and (3) significantly enhance our ability to
commence and accelerate shareholder distributions, by way of
dividend and share buy-backs.
The commencement of a policy of delivering shareholder
distributions, by way of dividends and/or share buybacks, is a key
pillar of our strategy. As a Board and management team we will
continue to review the most appropriate time for such distributions
to commence, with key considerations around the timing of this
being: (1) our confidence in the outlook of the global economy and
impact of the ongoing Covid-19 pandemic; 2) Accugas completing the
refinancing of its existing US$371 million debt facility, into a
longer-dated debt structure which will "free-up" substantial cash
flows each year; and 3) whether we successfully acquire additional
cash flow generative assets.
The importance of our culture and operating platform
Savannah has built a strong operating platform and nurtured a
purposeful and performance-driven culture, which has been central
to the achievement of our corporate successes to date. Our purpose
is clear: we are seeking to deliver energy projects in the emerging
world which are making meaningful positive socio-economic
contributions to our host countries. The power of purpose is shown
below with an example newspaper article and the following chart
highlight our strong response to the Covid-19 pandemic in
Nigeria.
We assess performance versus targets(6) and reward our people
accordingly. We make recruitment, retention and talent development
decisions based on our views of people's belief in our purpose,
adherence to our SEE-IT values system and individual track records
of performance delivery versus objectives.
Our operating platform is organised functionally on: (1) the
delivery of continuous performance improvements in our assets and
processes; and (2) the delivery of our capital projects on time and
to budget. Evidence of the former is clearly provided in our 2020
financial performance, while the latter has been consistently shown
throughout Savannah's time as a listed company, whether we have
been operating in the contrasting environments of the Sahara Desert
of Niger or the rainy season swamps of South East Nigeria.
In particular, the strength of our culture and operating
platform gives Savannah a significant advantage in the talent
recruitment market. This is particularly important as we seek to
"scale-up" to achieve our medium and long-term growth objectives.
With this in mind, and in stark contrast to the wider industry
trend, we invested in our people counter-cyclically last year.
Savannah actually increased the size of our workforce by 25% to 211
and provided almost 4,000 hours of training to our employees in
2020. In 2021, we are expecting training hours to increase further
as we have implemented a host of new programmes to further develop
our talent and support our business growth plans.
Sustainability and the essential nature of our work
I would like to highlight what I view as critical sustainability
issues associated with Savannah's stakeholder value
proposition:
-- Economic growth and global poverty alleviation require energy
The relationship between energy consumption per capita and GDP
per capita has a strong correlation (an R2 of 74%). Energy is
therefore an essential pre-requisite to both lift people out of
poverty in the emerging world and to sustain living standards in
the developed world.
-- Hydrocarbons are an essential long-term energy source and form part of Net Zero 2050
The transition of a global energy system, from one in which
84%(7) of the current primary energy supply is from hydrocarbons,
to one which has a vastly higher degree of electrification (whilst
simultaneously decarbonising this electricity generation) is a
monumental challenge and is going to take a very long time. Despite
the many headlines implying that moving to Net Zero 2050 is easy,
the reality is that hydrocarbons currently provide energy at a much
cheaper cost than renewables and, in many cases, for purposes which
currently no proven cleaner alternative has been invented, in
locations which cleaner alternatives cannot reasonably be expected
to be used and at a level of uptime which renewables are currently
unable to replicate. The technology to address many of these issues
has either not been invented and/or used at scale. Bill Gates in
his meticulously researched book, which I would thoroughly
recommend reading, "How to Avoid a Climate Disaster", discusses
these issues at length and their applicability in an emerging-world
context. Even in the situation where we manage as a society to
achieve Net Zero 2050 (which I deeply hope we will), this will
still involve a lot of hydrocarbon production. The Net Zero 2050
visions of such diverse commentators as Bill Gates, the
International Renewable Energy Association, the World Energy
Council and BP all see hydrocarbon production as a material
component of the energy mix in 2050.
The only alternative to this would appear to be the
de-industrialisation of developed countries and/or forcing emerging
countries to remain poor. These solutions (especially the latter)
are morally incomprehensible and reflected in the commentary of
Elon Musk who has stated,
"If there was a button I could press to stop all hydrocarbon
usage today, I would not press it."
A recent quote by John Kerry, the US Climate Change Evoy, is
similarly revealing,
"You don't have to give up a quality of life to achieve some of
the things that we know we have to achieve... I am told by
scientists that 50% of the reductions we have to make to get to Net
Zero are going to come from technologies that we don't yet have.
That's just a reality."
What John Kerry is really saying is that we really, really need
hydrocarbons in our energy mix for a long time because Americans
will not agree to de-industrialisation.
-- African countries benefit most from marginal energy consumption.
Savannah's countries of operation, Nigeria and Niger, are
amongst the poorest countries in the world ranking 161 and 189,
respectively, out of 189 in the UN Human Development Index.(8) The
marginal GDP raising benefits of incremental energy production and
consumption are, therefore, many times higher in these countries
than in the developed world. It is easy to forget that many
developing nations who are blessed with natural resources have
socio-economic systems which are wholly dependent on the taxes
realised from those natural resources. For example, in Nigeria
today the hydrocarbons sector provides 65-70%(9) of fiscal
receipts, while in Niger the development of the Agadem Rift Basin
is expected to contribute 45% of fiscal receipts by 2025(10) . The
development of both countries' health and education systems is,
therefore, highly reliant on the hydrocarbons sector.
-- The onus of de-carbonisation lies outside of Africa
Much of Africa is, relatively speaking, the equivalent of being
decades, perhaps more than 50 years, behind the western world in
terms of its industrialisation. Africa contributes only 2-3%(11) of
global carbon emissions despite having 17%(12) of the world
population, while the US contributes 15%(13) , despite having
4%(12) of the global population.
The economic growth to energy consumption chart referenced above
already shows the relative economic benefits the two have derived
from their carbon emissions. While it is important that all
countries play their part in the Net Zero 2050 transition, it is
clear that the primary onus of global de-carbonisation lies outside
of Africa.
Per capita carbon emissions are estimated to be 15 times higher
per person in the US than in Africa(14) . The primary onus of
global de-carbonisation clearly therefore lies with the developed
world.
-- Technology adoption is much slower in Africa
For a host of developmental reasons (access to capital,
installed infrastructure base, education levels, etc.), Africa is a
slow technology adopter. While the examples are many, I would cite
two highly relevant ones. Firstly, wood, coal and diesel are the
key components of the African energy mix, while in the developed
world gas nuclear and renewables are the dominant components.(14)
Secondly, the roll-out of Covid-19 vaccines at the time of writing
is such that 47.6% of the US population had already received at
least one vaccination dose(15) , while the World Health
Organisation forecasts that only 20% of Africans will have received
a vaccination by the end of 2021.
Absent a material relative change in a host of key developmental
factors, it is, therefore, highly likely that the hydrocarbon
industry will be a critical quality of life-enabler in Africa for a
greater portion of her population than for the US or Europe in any
2050 Net Zero scenario.
Savannah and our people are incredibly proud of the work we do
and fundamentally believe that the social value our company is
creating is unparalleled amongst our peers. We are helping
countries to develop in a critical area for which there is limited
appetite for direct investment by international development
agencies and/or western capital markets in general. I would quote
our VP West Africa Yacine Wafy in this regard:
"It is non-negotiable that Africa is allowed to industrialise to
lift our people out of poverty. The provision of energy is the only
way to do this and scientifically this requires hydrocarbon
production. It is critical that we achieve Net Zero 2050 in a way
that does not exacerbate global income differentials further and
that climate change strategists (who nearly all appear to be based
in developed markets) recognise this reality."
The importance of the Stewardship test
As discussed above, hydrocarbon assets are essential components
of our socio-economic system and will almost certainly remain so in
the Net Zero 2050 scenario. I believe it is important for society
to recognise that when a large oil company sells an oil field, the
oil field still exists and does not "go away". Such sales,
therefore, may reduce an individual company's carbon emissions, but
they do not reduce global carbon emissions and, therefore, do not
in isolation assist in the global energy transition. In fact, if
the new assets are acquired by less transparent, operationally
capable and socially responsible companies then the opposite may
happen; hydrocarbon assets are managed less carbon efficiently and
to lower ESG standards than they are today.
Listed companies outperform private companies on ESG
A recent Financial Times article highlighted the much worse ESG
performance of private versus listed hydrocarbon companies, with,
for example, six times more gas flaring being conducted by private
companies as opposed to listed companies with similar assets.
It is, therefore, important that society focuses on the quality
of hydrocarbon asset stewardship. Given the magnitude of the major
oil companies' divestment programmes, society needs to encourage
these companies to only divest to socially responsible companies,
such as Savannah, and that we are provided with
appropriately-priced capital to complete such transactions. If this
does not happen, we will almost certainly see rising pollution
levels, de-industrialisation in the developed world and/or the
perpetuation of emerging world poverty traps in the developing
world. This would be a perverse outcome given that a large
motivator of these divestment schemes is to respond to investor
pressure seeking to deliver the exact opposite outcome.
The key questions stakeholders need to ask when hydrocarbons
assets are sold:
-- Are the new owners technically, operationally and financially capable of managing the assets?
-- Are the new owners operating the assets to international standards of HSE and human rights?
-- Are the new owners actively seek to build skills and capacity
amongst its workforce and invest in the development of their
countries of operation?
-- Are the new owners continually seeking to improve corporate
unit carbon intensity over time within the limitations of their
asset base?
-- How critical are the assets to enabling GDP growth and
poverty alleviation and/or the generation of essential service
funding tax revenues?
Our confidence in the future
I would hope that having read through the letter my reasons for
being optimistic as to the future of the business are clear.
Savannah is a purposeful organisation, doing societally essential
work with a strong and growing asset base and talented and
passionate people who have consistently demonstrated our ability to
"get things done". 2020 was a year where we particularly
differentiated ourselves, delivering significant growth at a time
when others shrank. We operate to industry-leading sustainability
metrics. My personal confidence in the company was demonstrated in
Q3 2020 when I acquired a further nine million Savannah shares and
four of my Board colleagues also acquired shares at this time
reflecting our collective confidence in the Company's future. I
truly believe that Savannah will achieve great things over the
course of the coming years and look forward to continuing this
journey with you, my fellow shareholders.
Lastly, I would like to thank my incredibly dedicated and
passionate colleagues for their stellar performance and the
contribution they made to our business in 2020. I would also like
to express my condolences to those who have suffered losses over
the course of the Covid-19 pandemic.
Andrew Knott
Chief Executive Officer
Footnotes:
1. In order to meet the 1.5degC global warming target in the
Paris Agreement, global carbon emissions should reach net zero by
2050.
2. Source: IMF World Economic Outlook.
3. Source: 2020 annual reports and results announcements for BP,
Chevron, ConocoPhillips, Eni, ExxonMobil, Royal Dutch Shell and
Total.
4. Source: World Bank.
5. Source: CNBC.
6. While also sensibly taking into account unforeseen events as they emerge throughout the year.
7. Source: BP Statistical Review of World Energy 2020.
8. Source: United Nations.
9. Source: Extractive Industries Transparency Initiative (EITI).
10. Source: Republique Du Niger, Politique Pétrolière Nationale,
December 2019.
11. Source: United Nations Factsheet on Climate Change.
12. Source: Worldometer.
13. Source: United States Environmental Protection Agency.
14. Calculated by Savannah using data from footnotes 11, 12 and
13 above.
15. Source: The Mayo Clinic.
Financial review
Savannah produced a strong financial and operational performance
in 2020, our first full year of operating our high margin,
cash-generative assets in south-east Nigeria. Our results were
significantly ahead of the original financial guidance we set for
the year and reflect a series of significant year-on-year
asset-level improvements delivered by our management team.
Full-year 2020 Full-year 2020
actuals guidance
------------------------------------------------ -------------- --------------
Total Revenues(a), US$ million 235.9 >200
------------------------------------------------ -------------- --------------
Operating expenses plus admin expenses(g),
US$ million 46.4 68-72
------------------------------------------------ -------------- --------------
Group depreciation, depletion and amortisation,
US$ million 36.3 43-45
------------------------------------------------ -------------- --------------
Capital expenditure, US$ million 11.5 Up to 45
------------------------------------------------ -------------- --------------
Performance summary
The Group's full-year 2020 results reflect a milestone year for
Savannah, demonstrating the great progress made in the business,
despite a challenging macro-economic environment and the impact of
the Covid-19 pandemic. Our continued focus in 2020 was to deliver
safe, secure and reliable operations whilst maintaining tight
financial controls throughout the business.
The table below summarises key full-year 2020 metrics as
compared to our full-year 2019 pro-forma and 2019 reported results.
Note that our 2019 reported results only included six weeks'
contribution to results from our assets in Nigeria. The full-year
2019 pro-forma column shows what our results would have been had we
owned the Nigerian assets throughout the year.
Overall, the metrics clearly demonstrate a material year-on-year
improvement in the performance of the Nigerian business with
increased deliveries, prices, revenues and cash generation as well
as improved leverage. A key result to highlight is the Total
Revenues(a) number of US$235.9 million, representing a 23%
year-on-year improvement on a pro-forma basis. We also delivered an
Adjusted EBITDA(c) of US$183.6 million (+19% year on year on a
pro-forma basis) which ensured our Adjusted EBITDA(c) margin
remained robust and broadly unchanged at 78%. These metrics
demonstrate the continued strong cash-generating capacity of the
business which we expect to provide a solid foundation to enable
our future growth plans.
On a reported basis the Group delivered a maiden Profit before
tax of US$10.9 million (2019: loss US$105.4 million) which
comprises a full year of operations in Nigeria compared to six
weeks in 2019, and also reflects a substantially improved
operational performance from the Nigerian business under Savannah's
ownership. We reported a net loss after tax of US$6.0 million for
2020 (2019: loss US$96.8 million) which included a current tax
charge of US$4.2 million and a deferred tax charge of US$12.7
million due to our first full year of operating profits in
Nigeria.
Importantly the gas revenue stream, which comprised 95% of Total
Revenues(a) in 2020, is insulated from fluctuations in the oil
price, given the fixed price long-term nature of our gas contracts,
which have a weighted average remaining contract life of 17 years
and a resulting contracted revenues stream of over US$4.3 billion.
These are take-or-pay contracts, whereby our three principal
customers have contracted to either take, or pay for, on a
maintenance-adjusted basis, 132 MMscfpd of gas.
All these figures are discussed in more detail below.
Key performance metrics summary
Full-year 2019
Full-year 2019 reported
2020 pro-forma results
------------------------------------------------------ --------- ---------- --------
Gross production, Kboepd 19.5 17.2 n/m
------------------------------------------------------ --------- ---------- --------
Total Revenues(a), US$ million 235.9 192.1 31.1
------------------------------------------------------ --------- ---------- --------
Revenue, US$ million 169.0 132.3 17.8
------------------------------------------------------ --------- ---------- --------
Average gas sales price, US$/Mscf 3.96 3.56 3.64
------------------------------------------------------ --------- ---------- --------
Average liquids sales price, US$/bbl 46.2 66.3 64.0
------------------------------------------------------ --------- ---------- --------
Normalised operating expenses plus admin expenses(g),
US$ million1 42.5 39.0 n/m
------------------------------------------------------ --------- ---------- --------
Normalised operating expenses plus admin expenses
(g), US$/Mscfe 1.1 1.2 n/m
------------------------------------------------------ --------- ---------- --------
Operating profit/(loss), US$ million 93.3 8.2 (37.5)
------------------------------------------------------ --------- ---------- --------
Closing cash balances, US$ million 106.0 48.1 48.1
------------------------------------------------------ --------- ---------- --------
Adjusted EBITDA(c), US$ million 183.6 153.8 15.1
------------------------------------------------------ --------- ---------- --------
Total assets, US$ million 1,207.2 1,145.0 1,145.0
------------------------------------------------------ --------- ---------- --------
Net debt, US$ million 408.7 484.0 484.0
------------------------------------------------------ --------- ---------- --------
Leverage (Net debt/Adjusted EBITDA(c)) 2.2x 3.2x n/m
------------------------------------------------------ --------- ---------- --------
Profit/(loss) before tax, US$ million 10.9 n/m (105.4)
------------------------------------------------------ --------- ---------- --------
Loss after tax, US$ million (6.0) n/m (96.8)
------------------------------------------------------ --------- ---------- --------
1. In order to present a like-for-like comparison of Group
operating expenses plus admin expenses(g), we have normalised the
results in 2019 and 2020 by adjusting for the one-off costs
relating to transaction and inventory adjustments.
n/m - not meaningful
Consolidated Statement of Comprehensive Income
Revenue
Revenue during the year amounted to US$169.0 million (2019 as
reported: US$17.8 million; 2019 pro-forma: US$132.3 million), of
which US$157.1 million (2019 as reported: US$16.8 million; 2019
pro-forma US$121.8 million) was for gas sales, US$11.1 million
(2019 as reported: US$0.9 million; 2019 pro-forma: US$10.5 million)
was for liquids sales and US$0.8 million (2019: US$nil) was for
processing of third-party crude oil.
Significantly, 93% of Savannah's revenue was derived from
long-term fixed price gas sales contracts. The average realised
price for gas in 2020 was US$3.96/Mscf (2019: US$3.64/Mscf). It is
important to understand that our gas revenue stream is priced
independently of oil prices and is, therefore, not subject to oil
price fluctuations. Additionally, 95% of the gas sales are backed
by investment grade(e) credit guarantees, including a World Bank
supported Partial Risk Guarantee in the case of the Calabar power
station gas sales agreement.
Savannah achieved an average sales price for liquids of
US$46.2/bbl during 2020 (2019 pro-forma: US$66.3/bbl), during a
year of high oil price volatility, with prices reaching a low point
of US$19.332 in April 2020, though showing a marked improvement
later in the year and into early 2021.
2. Source: Bloomberg
Impact of take-or-pay accounting rules under IFRS 15
Revenue recognition for our gas sales agreements is impacted by
the take-or-pay accounting rules under IFRS 15. Under take-or-pay
contracts customers agree to buy a minimum amount of gas from us
each year. This gas is either delivered to them, or the volume not
taken (which is described as make-up gas) is effectively prepaid
for by the customer for potential delivery in future periods.
During 2020 our customers had contracted to buy more gas (132
MMscfpd) than they ultimately requested delivery of (109 MMscfpd),
so there was a difference between invoiced oil and gas sales of
US$235.9 million (Total Revenues(a)) and Revenue as reported in our
Statement of Comprehensive Income of US$169.0 million. Revenue in
our Statement of Comprehensive Income of US$169.0 million only
reflects the value of oil and gas actually delivered, with the
difference of US$66.9 million reported as an increase in Contract
Liabilities ("deferred revenue") in the Statement of Financial
Position, less any make-up gas that is consumed, plus other
invoiced amounts.
A key point to highlight is the cash neutrality of the
take-or-pay accounting treatment; had our customers requested the
make-up gas to be delivered to them in the accounting year, then
all the invoiced sales would have been recognised as Revenue in the
Statement of Comprehensive Income and our cash generation would
have been the same in either case (as this reflects receipts from
customers regardless of whether they related to delivered gas or
make-up gas). The table below summarises the position for FY 2020
and shows the comparison on a pro-forma basis for 2019.
Impact of take-or-pay gas contracts Total Revenues (a) compared
to Revenue
Year ended
Year ended 31 December
31 December 2019
2020 pro-forma Percentage
US$ million US$ million change
------------------------------------- ------------ ------------ ----------
Revenue (as reported in Statement of
Comprehensive Income) 169.0 132.3 28%
Other invoiced amounts 66.9 59.8 12%
------------------------------------- ------------ ------------ ----------
Total Revenues (a) 235.9 192.1 23%
------------------------------------- ------------ ------------ ----------
In order to provide clarity on the take-or-pay accounting rules,
a theoretical simplified worked example is set out in the table
below. In the first three cases, customers are taking volumes
either less than or equal to their minimum bill quantity (or
take-or-pay quantity). In the fourth case, an example is shown in
which the customer has increased its demand for gas in excess of
minimum bill quantities and is therefore requesting delivery of gas
that has already been paid for.
Simplified worked examples of IFRS 15 take-or-pay accounting
Example of the impact of take-or-pay accounting on the Statement
of Comprehensive Income and Statement of Financial Position: an
invoice is raised for US$100.
In all cases the cash payable is US$100 but the accounting
treatment differs depending on whether gas is delivered or yet to
be delivered, or has been paid for in a prior period.
Case 1: Case 2: Case 3: Case 4:
US$80 relates to US$100 relates US$100 is for gas The customer takes
gas that has been to gas that has that is due to delivery of US$120
delivered to the been delivered be delivered to worth of gas, of
customer, and US$20 the customer in which $20 was paid
is for gas that the future under for previously
is due to be delivered take-or-pay terms
to the customer
in the future under
take-or-pay terms
----------------------- ---------------- ------------------ -------------------
(a) Statement of Financial Position: Trade receivable (a=b+c)
US$100 US$100 US$100 US$100
----------------------- ---------------- ------------------ -------------------
Statement of Comprehensive Income: Revenue for gas delivered (b)
US$80 US$100 - US$120
----------------------- ---------------- ------------------ -------------------
Statement of Financial Position: contract liability (deferred revenue)
- gas invoiced/paid for (known as make-up gas) to be delivered in
the future, at which time it is then recorded as revenue (c)
US$20 - US$100 US$(20)
----------------------- ---------------- ------------------ -------------------
Total expected cash/Total Revenues(a) (d)
US$100 US$100 US$100 US$100
----------------------- ---------------- ------------------ -------------------
During 2020 both Case 1 and Case 4 were applicable (see note 31
in the Financial Statements).
EBITDA and Adjusted EBITDA (c)
EBITDA for 2020 was US$129.6 million (2019: pro-forma: US$91.6
million) based on our reported Revenue as shown in the table. In
2019 Adjusted EBITDA(c) was defined as EDITDA adjusted for
Transaction costs. Adjusting this to include Total Revenues(a) as
described above, Adjusted EBITDA(c) , which takes account of the
gas that has been invoiced under our take-or-pay contracts, but not
yet delivered, was US$183.6 million (2019 pro-forma: US$153.8
million). Management believes that the alternative performance
measure of Adjusted EBITDA(c) more accurately reflects the
cash-generating capacity of the business.
EBITDA and Adjusted EBITDA(c)
Year ended
Year ended 31 December
31 December 2019
2020 pro-forma Percentage
US$ million US$ million change
---------------------------------------------------- ------------ ------------ ----------
Operating profit 93.3 8.2 >100%
Add back:
Depletion, depreciation and amortisation 36.3 53.7 (32)%
Adjust for transaction costs - 29.7 -
---------------------------------------------------- ------------ ------------ ----------
EBITDA 129.6 91.6 40%
Add: other invoiced amounts 66.9 59.8 -
Deduct: royalty payable on additional gas volume(1) (1.9) (1.4) -
Remove impact of expected credit loss and other
related adjustments (11.0) 3.7 -
---------------------------------------------------- ------------ ------------ ----------
Adjusted EBITDA (c) 183.6 153.8 19%
---------------------------------------------------- ------------ ------------ ----------
Cost of sales, Administrative and other operating expenses
Cost of sales includes depreciation, depletion and amortisation
("DD&A"), facility operational and maintenance costs
("Operating expenses") and royalties. Our Operating expenses plus
administrative and other operating expenses ("Administrative
expenses") for 2020 were US$46.4 million which compared to our 2020
guidance of US$68-72 million. The reduction was due to certain
planned activities not being required, including a well workover,
and other items in the work programme being deferred or cancelled
across the business.
Operating expenses comprise the expenditures associated with
running the upstream facilities, gas processing facilities, gas
receiving facilities adjacent to customers premises and the Accugas
pipeline network. Also included in Operating expenses are the
operations functional support costs of the business.
Administrative expenses cover corporate support costs incurred
in the UK, Nigeria and Niger.
Having normalised costs to account for one-off amounts relating
to transaction expenses and inventory adjustments, we had a 6%
reduction in operating expenses plus administrative expenses(g) on
a unit of production basis.
Operating expenses plus Administrative expenses(g)
Full-year
Full-year 2019 Percentage
2020 pro-forma change
--------------------------------------- --------- ---------- ----------
Operating expenses plus administrative
expenses(g) US$ million as reported 46.4 32.8 +41%
Normalised Operating expenses plus
administrative expenses(g) US$
million 42.5 39.0 +9%
Operating expenses plus administrative
expenses(g) (based on normalised
costs) US$/Mscfe 1.1 1.2 (6%)
US$/boe 6.6 7.0 (6%)
--------------------------------------- --------- ---------- ----------
DD&A amounted to US$36.3 million (2019 pro-forma: US$53.7
million), a 34% reduction, made up of US$17.6 million (2019
pro-forma: US$35.8 million) for infrastructure assets, which are
depreciated on a straight-line basis over their estimated useful
life and US$17.2 million (2019 pro-forma: US$16.9 million) for
upstream assets which are depreciated on a unit of production basis
plus US$1.5 million (2019 pro-forma: US$1.1 million) for other
assets and right-of-use assets. DD&A for the year was some 20%
below the 2020 guidance of US$43-45 million largely associated with
the independent re-assessment of the useful life of Accugas'
pipelines in Nigeria which resulted in their estimated useful life
being extended by 15 years to 40 years in line with industry
standards. This led to the DD&A costs in 2020 being
US$0.9/Mscfe, down 42% on the 2019 pro-forma cost of
US$1.6/Mscfe.
Finance costs
Finance costs for the year amounted to US$75.8 million (2019:
US$12.2 million), of which US$58.9 million (2019: US$9.6 million)
related to bank and loan note interest expense. The average
interest rate on debt for the Group was 11.0% (2019: 12.5%) due to
lower US Libor rates in 2020. The increase in finance costs
reflects the full-year impact of the debt acquired on acquisition
of the Nigerian assets in November 2019, with just six weeks,
impact in 2019.
The interest cover ratio(h) , on an Adjusted EBITDA(c) basis,
was 2.8 times versus 2.1 times for 2019, a notable improvement.
Foreign exchange losses
Foreign exchange losses amounted to US$5.4 million (2019:
US$12.7 million).
These losses arise mainly from US Dollar gas sales invoices
which are settled in local currency and then converted at the
Central Bank of Nigeria ("CBN") official rate to settle US Dollar
invoices. In order to purchase US Dollars to service US Dollar
obligations, Savannah typically accessed the Nigerian Autonomous
Foreign Exchange rate ("NAFEX"), which is the benchmark rate for
foreign exchange spot operations in the Investors' and Exporters'
foreign exchange window. The differential between these exchange
rates averaged 6% during 2020.
The majority of these losses are recoverable through a foreign
exchange "true-up" clause where possible. The overall impact of
this for Savannah in 2020 was US$4.3 million, in addition to
realised translation losses of US$0.7 million for the payments for
goods and services. The Group has an active contracting strategy to
ensure wherever possible that providers of goods and services,
locally and in particular non-Nigerian suppliers, are able to
accept payment in Naira.
Tax
The tax charge of US$16.9 million (2019: US$8.6 million credit)
is made up of a current tax charge of US$4.2 million and a deferred
tax charge of US$12.7 million. The current tax charge includes tax
on our first full year of operations in Nigeria.
The deferred tax charge principally arises on the utilisation of
unused losses, including a one-off charge of US$8.9 million
following a review of joint arrangement costs after our first full
year of operations in Nigeria.
Consolidated Statement of Financial Position
Group assets
31 December 31 December
2020 2019
US$ million US$ million
---------------------------------- ------------ ------------
Property, plant and equipment 612.7 618.3
Exploration and evaluation assets 159.6 154.7
Deferred tax asset 197.0 209.4
Other non-current assets 8.3 6.0
---------------------------------- ------------ ------------
Total non-current assets 977.5 988.4
---------------------------------- ------------ ------------
Inventory 2.9 4.0
Trade and other receivables 122.4 106.3
Cash at bank 104.4 46.3
---------------------------------- ------------ ------------
Total current assets 229.7 156.6
---------------------------------- ------------ ------------
Total assets 1,207.2 1,145.0
---------------------------------- ------------ ------------
Total Group assets now amount to US$1,207.2 million (2019:
US$1,145.0 million). The increase in Group assets is largely due to
a US$58 million increase in cash at bank.
During 2020 the Nigerian economy was negatively impacted by the
dual impact of Covid-19 and lower oil prices in the early part of
the year. This led to a notable reduction in foreign exchange
liquidity within the market (and this can be seen from the 45%
decline between 2019 and 2020 in volumes traded through the I&E
window). This trend has continued to persist into 2021. As a result
of the illiquidity seen in the FX market, Savannah agreed with the
Accugas lenders to retain a sufficient equivalent balance in Naira
to cover the US$ denominated debt service for the year. At year-end
this balance was US$78.9 million. The Company continues to explore
options for conversion of the Naira balances and intends to convert
into US$ when market conditions allow. We currently anticipate that
liquidity will return to the FX market during H2 2021 as a result
of the stronger commodity pricing environment and the actions taken
by the Central Bank of Nigeria. The Adjusted net debt amount in the
table below removes the amount of cash that is held to pay
interest.
Debt
The net debt at year end for the Group was US$408.7 million
(2019: US$484.0 million), a reduction of 16% compared to year end
2019.
During the year our leverage ratio, based on our Adjusted
EBITDA(c), has improved significantly, both as a result of the
improvement in Adjusted EBITDA(c) and the reduction in net
debt.
Leverage
2020 2019
US$ million US$ million
------------------------------------------------------------ ------------ ------------
Adjusted EBITDA(c) 183.6 153.8
Net debt 408.7 484.0
Naira held in cash to pay 2020 interest 48.0 -
------------------------------------------------------------ ------------ ------------
Adjusted Net debt(f): 456.7 484.0
Leverage (Net debt/Adjusted EBITDA(c)) 2.2 3.2
------------------------------------------------------------ ------------ ------------
Adjusted Leverage (Adjusted Net debt(f)/Adjusted EBITDA(c)) 2.5 3.2
------------------------------------------------------------ ------------ ------------
Summary of the debt facilities
Total
drawn
US$ million Maturity
--------------------------------------------------- ------------ --------
Accugas Ltd bank loan facility 370.6 2025
Savannah Energy Uquo Gas Ltd Senior Secured Note 92.4 2026
Savannah Energy Uquo Gas Ltd term facility 11.0 2026
Accugas Holdings UK plc Senior Secured Note 19.5 2024
Accugas Holdings UK plc promissory note 12.9 2025
Savannah Petroleum Niger revolving credit facility 13.0 2022
Other loan notes 5.7 2021
--------------------------------------------------- ------------ --------
Total debt facilities 525.1
Call option asset (5.4)
Unamortised debt fees (5.1)
--------------------------------------------------- ------------
Total Statement of Financial Position debt 514.7
Less: cash balances 106.0
--------------------------------------------------- ------------
Net debt 408.7
--------------------------------------------------- ------------
Receivables and payables
The Group has Trade and other receivables of US$122.4 million
(2019: US$106.3 million), of which US$131.1 million (2019: US$50.3
million) represents gross amounts due from customers in Nigeria
under the current sales agreements in place.
The receivables balance includes an Expected Credit Loss ("ECL")
provision of US$17.2 million which we are required to recognise
based on historical payment patterns and forecast customer
performance and economic conditions (see Note 23 in Financial
Statements). During 2020, a net gain of US$11.0 million was
reported in the income statement which was principally due to the
full recovery of credit impaired trade receivables acquired as part
of the Nigerian assets acquisition as a result of improved credit
control procedures.
The Group has current Trade and other payables of [US$102.0
million (2019: US$120.2 million)], which includes a substantial
amount of legacy payables relating to the Nigeria business for
which long-term settlement arrangements are still to be finalised
with the relevant counter parties but which are unlikely to have a
material impact on cash flow in the short term. All other items
will be settled in the normal course of business.
Cash flow
Full-year Full-year
2020 2019
US$ million US$ million
-------------------------------------------- ------------ ------------
Net cash generated from/(used in) operating
activities 115.6 (12.3)
Net cash used in investing activities (11.3) (9.0)
Net cash (used in)/provided by financing
activities(1) (46.6) 65.9
Impact of exchange rate changes on cash
balances 0.5 -
-------------------------------------------- ------------ ------------
Net increase in cash 58.1 44.5
-------------------------------------------- ------------ ------------
Cash at bank 104.4 46.3
Restricted cash 1.6 1.8
-------------------------------------------- ------------ ------------
Cash balances 106.0 48.1
-------------------------------------------- ------------ ------------
Amounts included within cash balances to
cover 2020 debt service 78.9 -
-------------------------------------------- ------------ ------------
Cash balances at 31 December 2020 amounted to US$106.0 million
which included US$1.6 million of restricted cash (2019: US$48.1
million, including US$1.8 million of restricted cash). Of these
cash balances US$78.9 million was set aside for debt service
purposes (of which US$48.0 million was for interest and US$30.9
million was for principal repayments) as at 31 December 2020 (2019:
US$nil).
Cash flow from operating activities amounted to US$115.6 million
(2019: US$12.3 million). The increase was driven by the robust cash
flow generated by the Nigerian assets and the fact that the 2019
figure only included cash flow from the November 2019 date of
acquisition of the Nigerian assets.
Total investing activity spend was US$11.3 million, of which
US$9.4 million was for property, plant and equipment and US$2.2
million was for exploration and evaluation activities.
Net cash used in financing activities amounted to US$46.6
million (2019: US$65.9 million inflow), of which US$21.8 million
was for interest costs and a net US$24.3 million in repayments of
borrowings.
2021 financial guidance and outlook
In 2021 we are providing the following guidance in relation to
our business:
-- Total Revenues(a) of greater than US$205.0 million from
upstream and midstream activities associated with the Group's three
active Nigerian gas sales agreements and liquids sales from the
Group's Stubb Creek and Uquo fields. Any revenues received from new
additional gas sales agreements would, therefore, be incremental to
this;
-- Group operating expenses plus administrative expenses(g) of US$55.0-US$65.0 million;
-- Group depreciation, depletion and amortisation of US$19
million fixed for infrastructure assets plus US$2.6/boe of
production; and
-- Group capital expenditure of up to US$65.0 million.
In 2021 the Group is focused on adding new gas customers in
Nigeria and assessing options to refinance the Accugas debt, with a
view to increasing tenor and reducing cost. In addition, we are
accessing capital to progress our Niger project, which we view as a
significant corporate asset, while continuing to review other
business development opportunities within our core West African
heartland.
Going concern
The Directors have adopted the going concern basis in preparing
the consolidated financial statements. Following the completion of
the Nigeria acquisition in late 2019, this year was the first full
year as an oil & gas production company and the Group is now a
material, cash generative business. This change from an
exploration/pre-production business brings a wider range of risks
into consideration and the Directors have reviewed various
scenarios when considering the adoption of a going concern basis
for the consolidated financial statements. The Group operates
primarily in emerging markets which creates inherent uncertainty
related to foreign exchange liquidity and currency convertibility.
As widely reported, during 2020 there has been an extended period
of FX illiquidity in Nigeria following the impact of Covid-19 and
lower commodity prices in early part of the year. The Group
requires access to US$ on a regular basis to fund its commitments
and this foreign exchange exposure is an important risk faced by
the Group. The Directors are encouraged by the recent announcements
from Central Bank of Nigeria around harmonising exchange rates
which provides welcome clarity to the foreign exchange market and
are assessing any impact this may have on foreign exchange
liquidity. Further details on the approach that has been adopted in
considering risks and sensitivities undertaken will be detailed in
the Annual Report.
Isatou Semega-Janneh
Chief Financial Officer
Definitions
(a) Total Revenues are defined as the total amount of invoiced
sales during the period. This number is seen by management as more
accurately reflecting the underlying cash generation capacity of
the business as opposed to Revenue recognised in the Statement of
Comprehensive Income. A detailed explanation of the impact of IFRS
15 revenue recognition rules on our Statement of Comprehensive
Income is provided in the Financial Review section on page [--].
For reference FY 2020 Revenues were US$169.0 million (up 28% on FY
2019 pro-forma Revenues of US$132.3 million). Note that Total
Revenues is not an audited number.
(b) Remaining life of contact revenues estimated on a
maintenance adjusted Take or Pay basis including contributions from
three of our customers: Calabar Generation Company Limited (owner
of the Calabar power station), Ibom Power Company Limited (owner of
the Ibom power station) and the Lafarge Africa PLC (owner of the
Lafarge Mfamosing cement plant). Note this is not an audited
number.
(c) Adjusted EBITDA is calculated as profit or loss before
finance costs, investment revenue, foreign exchange gains or loss,
fair value adjustments, gain on acquisition, taxes, transaction
costs, depreciation, depletion and amortisation and adjusted to
include deferred revenue and other invoiced amounts. Management
believes that the alternative performance measure of Adjusted
EBITDA more accurately reflects the cash-generating capacity of the
business.
(d) Total contributions to Nigeria and Niger defined as payments
to governments, employee salaries and payments to local suppliers
and contractors. Where total contributions refer to the period
2014-2020 they include contributions to Nigeria during the period
pre-acquisition of the Nigerian assets by Savannah.
(e) Investment grade rated sales are classed as sales where the
payment obligation of the customer benefits from a guarantee or
other credit support from an entity which holds an investment grade
rating from either Standard & Poor's, Moody's or Fitch
Ratings.
(f) Adjusted Net debt is defined as Net debt adjusted for
US$48.0 million equivalent held in Naira that is set aside to pay
2020 interest.
(g) Group Operating expenses plus administrative expenses are
defined as total cost of sales, administrative and other operating
expenses excluding royalty and depletion, depreciation and
amortisation are defined as total cost of sales, administrative and
other operating expenses excluding royalty and depletion,
depreciation and amortisation.
(h) Interest cover ratio is Adjusted EBITDA(c) divided by
Finance costs excluding (i) unwinding of a discount on a long-term
payable, (ii) unwind of discount on contract liabilities and (iii)
unwinding of decommissioning discount, less Interest Finance
Income.
Unaudited Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Unaudited Audited
Note US$'000 US$'000
---------------------------------------------- ----- ------------- -------------
Revenue 4 169,005 17,758
Cost of sales 5 (72,460) (11,514)
---------------------------------------------- ----- ------------- -------------
Gross profit 96,545 6,244
Administrative and other operating
expenses (14,227) (13,581)
Transaction costs - (29,732)
Expected credit loss and other related
adjustments 12 10,992 (431)
---------------------------------------------- ----- ------------- -------------
Operating profit/(loss) 93,310 (37,500)
Finance income 472 1,378
Finance costs 6 (75,796) (12,173)
Gain on acquisition of subsidiaries - 10,209
Fair value adjustment (1,682) (54,664)
Foreign translation loss (5,396) (12,663)
---------------------------------------------- ----- ------------- -------------
Profit/(loss) before tax 10,908 (105,413)
Current tax expense 7 (4,197) (341)
Deferred tax (expense)/credit 7 (12,685) 8,907
---------------------------------------------- ----- ------------- -------------
Tax (expense)/credit 7 (16,882) 8,566
---------------------------------------------- ----- ------------- -------------
Loss after tax (5,974) (96,847)
---------------------------------------------- ----- ------------- -------------
Other comprehensive income
Items not reclassified to profit or
loss:
Actuarial losses relating to post-employment
benefits (362) -
Tax relating to items not reclassified
to profit or loss 308 -
---------------------------------------------- ----- ------------- -------------
Other comprehensive loss (54) -
---------------------------------------------- ----- ------------- -------------
Total comprehensive loss (6,028) (96,847)
---------------------------------------------- ----- ------------- -------------
Profit/(loss) after tax attributable
to:
Owners of the Company (6,220) (92,585)
Non-controlling interests 246 (4,262)
---------------------------------------------- ----- ------------- -------------
(5,974) (96,847)
---------------------------------------------- ----- ------------- -------------
Total comprehensive profit/(loss)
attributable to:
Owners of the Company (6,274) (92,585)
Non-controlling interests 246 (4,262)
---------------------------------------------- ----- ------------- -------------
(6,028) (96,847)
---------------------------------------------- ----- ------------- -------------
Loss per share
Basic (US$) 8 (0.01) (0.10)
Diluted (US$) 8 (0.01) (0.10)
---------------------------------------------- ----- ------------- -------------
All results in the current financial year derive from continuing
operations.
Unaudited Consolidated Statement of Financial Position
as at 31 December 2020
2020 2019
Unaudited Audited
Note US$'000 US$'000
--------------------------------------- ----- ----------- ----------
Assets
Non-current assets
Property, plant and equipment 9 612,707 618,286
Exploration and evaluation assets 10 159,572 154,745
Deferred tax assets 196,986 209,363
Right-of-use assets 5,581 4,183
Restricted cash 1,635 1,828
Finance lease receivable 1,049 -
--------------------------------------- ----- ----------- ----------
Total non-current assets 977,530 988,405
--------------------------------------- ----- ----------- ----------
Current assets
Inventory 11 2,916 4,020
Trade and other receivables 12 122,400 106,332
Cash at bank 13 104,363 46,256
--------------------------------------- ----- ----------- ----------
Total current assets 229,679 156,608
--------------------------------------- ----- ----------- ----------
Total assets 1,207,209 1,145,013
--------------------------------------- ----- ----------- ----------
Equity and liabilities
Capital and reserves
Share capital 14 1,409 1,393
Share premium 14 62,092 61,204
Treasury shares 14 (59) -
Capital contribution 14 458 458
Share-based payment reserve 14 7,104 6,448
Retained earnings 158,670 164,885
--------------------------------------- ----- ----------- ----------
Equity attributable to owners of
the Company 229,674 234,388
Non-controlling interests (2,737) (2,983)
--------------------------------------- ----- ----------- ----------
Total equity 226,937 231,405
--------------------------------------- ----- ----------- ----------
Non-current liabilities
Other payables 15 4,648 7,500
Borrowings 16 424,667 460,665
Lease liabilities 7,057 4,956
Provisions 106,606 109,503
Contract liabilities 17 185,172 118,052
--------------------------------------- ----- ----------- ----------
Total non-current liabilities 728,150 700,676
--------------------------------------- ----- ----------- ----------
Current liabilities
Trade and other payables 15 101,975 120,184
Borrowings 16 89,995 71,387
Interest payable 51,544 13,715
Tax liabilities 7 2,539 3,090
Lease liabilities 1,004 614
Contract liabilities 17 5,065 3,942
--------------------------------------- ----- ----------- ----------
Total current liabilities 252,122 212,932
--------------------------------------- ----- ----------- ----------
Total equity and liabilities 1,207,209 1,145,013
--------------------------------------- ----- ----------- ----------
Unaudited Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 Unaudited 2019 Audited
Note S$'000 S$'000
-------------------------------------------- ----- ---------------- --------------
Cash flows from operating activities:
Net cash generated from/(used in)
operating activities 18 115,569 (12,323)
Cash flows from investing activities:
Interest received 110 -
Payments for property, plant and equipment (9,381) (1,690)
Exploration and evaluation payments (2,167) (5,719)
Lessor receipts 113 -
Cash acquired on acquisition of a
subsidiary - 10,471
Loan to Seven Energy International
Limited - (12,084)
-------------------------------------------- ----- ---------------- --------------
Net cash used in investing activities (11,325) (9,022)
-------------------------------------------- ----- ---------------- --------------
Cash flows from financing activities:
Finance costs (21,767) (2,055)
Proceeds from issues of equity shares,
net of issue costs - 28,767
Borrowing proceeds 7,213 18,650
Borrowing repayments (31,474) (16,381)
Sale of a non-controlling interest - 39,000
Lease payments (767) (302)
Cash to debt service accounts (30,105) -
Cash from/(to) restricted cash accounts 181 (1,828)
-------------------------------------------- ----- ---------------- --------------
Net cash (used in)/provided by financing
activities (76,719) 65,851
-------------------------------------------- ----- ---------------- --------------
Net increase in cash and cash equivalents 27,525 44,506
Effect of exchange rate changes on
cash and cash equivalents 477 -
Cash and cash equivalents at beginning
of year 46,256 1,750
-------------------------------------------- ----- ---------------- --------------
Cash and cash equivalents at end of
year 13 74,258 46,256
-------------------------------------------- ----- ---------------- --------------
Amounts held for debt service at end
of year 13 30,105 -
-------------------------------------------- ----- ---------------- --------------
Cash at bank at end of year as per
Statement of Financial Position 13 104,363 46,256
-------------------------------------------- ----- ---------------- --------------
Unaudited Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
Equity
attributable
to
Share-based the owners Non-
Share Share Treasury Capital payment Other Retained of controlling Total
capital premium shares contribution reserve reserves earnings the Company interest equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- -------- -------- --------- ------------- ------------ --------- --------- ------------- ------------ ---------
Balance
at 1 January
2019 (audited) 1,240 - - 458 5,908 (4,989) 225,229 227,846 (491) 227,355
Loss for
the year - - - - - - (92,585) (92,585) (4,262) (96,847)
Other
comprehensive
income - - - - - - - - - -
---------------- -------- -------- --------- ------------- ------------ --------- --------- ------------- ------------ ---------
Total
comprehensive
loss for
the year - - - - - - (92,585) (92,585) (4,262) (96,847)
Transactions
with
shareholders:
Equity-settled
share-based
payments - - - - 540 - - 540 - 540
Issue of
ordinary
shares
to
shareholders,
net of
issue costs
(note 14) 153 61,204 - - - - - 61,357 - 61,357
Warrants
expired - - - - - 4,989 (4,989) - - -
Transactions
with equity
holders - - - - - - 37,230 37,230 1,770 39,000
---------------- -------- -------- --------- ------------- ------------ --------- --------- ------------- ------------ ---------
Balance
at 31 December
2019 (audited) 1,393 61,204 - 458 6,448 - 164,885 234,388 (2,983) 231,405
(Loss)/profit
for the
year - - - - - (6,220) (6,220) 246 (5,974)
Other
comprehensive
loss - - - - - - (54) (54) - (54)
---------------- -------- -------- --------- ------------- ------------ --------- --------- ------------- ------------ ---------
Total
comprehensive
(loss)/profit
for the
year - - - - - - (6,274) (6,274) 246 (6,028)
Transactions
with
shareholders:
Equity-settled
share-based
payments - - - - 656 - - 656 - 656
Share
adjustments
(note 14) 16 888 - - - - - 904 - 904
Treasury
shares
recognition
(note 14) - - (59) - - - 59 - - -
---------------- -------- -------- --------- ------------- ------------ --------- --------- ------------- ------------ ---------
Balance
at 31 December
2020
(unaudited) 1,409 62,092 (59) 458 7,104 - 158,670 229,674 (2,737) 226,937
Notes to the unaudited Financial Statements
for the year ended 31 December 2020
1. Corporate information
The Company was incorporated in the United Kingdom on 3 July
2014. On 16 April 2020, the Company changed its name from Savannah
Petroleum PLC to Savannah Energy PLC. The Company is domiciled in
England for tax purposes and is a public company, with its shares
were listed on the Alternative Investments Market ("AIM") of the
London Stock Exchange on 1 August 2014. The Company's registered
address is 40 Bank Street, London E14 5NR.
2. Basis of preparation and presentation of financial
information
The unaudited consolidated financial statements of the Company
and its subsidiaries ("the Group") have been prepared in accordance
with International accounting standards in conformity with the
requirements of the Companies Act 2006. The unaudited consolidated
financial statements have been prepared under the historical cost
convention. The unaudited consolidated financial statements of the
Group incorporate the results for the year to 31 December 2020.
The financial information contained in this report for the year
ended 31 December 2020 does not constitute full statutory accounts
as defined in sections 435 (1) and (2) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2020 will be
finalised on the basis of the financial information presented by
the Directors in this preliminary announcement and will be
delivered to the Registrar of Companies in due course. The
statutory accounts are subject to completion of the audit and may
change before the approval of the Annual Report.
Statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies. The auditor's report on
those accounts was not qualified and did not include references to
any matter which the auditor drew attention by way of emphasis of
matter and did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006. Statutory accounts for the year ended 31
December 2020 will be delivered following the Company's annual
general meeting.
The accounting policies applied are consistent with those
adopted and disclosed in the Group's financial statements for the
year ended 31 December 2019. There have been a number of amendments
to accounting standards and new interpretations issued by the
International Accounting Standards Board which were applicable from
1 January 2020, however these have not any impact on the accounting
policies, methods of computation or presentation applied by the
Group. Further details on new International Financial Reporting
Standards adopted will be disclosed in the Annual Report and
Accounts 2020.
Going concern
The Directors have adopted the going concern basis in preparing
the consolidated financial statements. Following the completion of
the Nigeria acquisition in late 2019, this year was the first full
year as an oil & gas production company and the Group is now a
material, cash generative business. This change from an
exploration/pre-production business brings a wider range of risks
into consideration and the Directors have reviewed various
scenarios when considering the adoption of a going concern basis
for the consolidated financial statements. The Group operates
primarily in emerging markets which creates inherent uncertainty
related to foreign exchange liquidity and currency convertibility.
As widely reported, during 2020 there has been an extended period
of FX illiquidity in Nigeria following the impact of Covid-19 and
lower commodity prices in early part of the year. The Group
requires access to US$ on a regular basis to fund its commitments
and this foreign exchange exposure is an important risk faced by
the Group. The Directors are encouraged by the recent announcements
from Central Bank of Nigeria around harmonising exchange rates
which provides welcome clarity to the foreign exchange market and
are assessing any impact this may have on foreign exchange
liquidity. Further details on the approach that has been adopted in
considering risks and sensitivities undertaken will be detailed in
the Annual Report.
3. Segmental reporting
For the purposes of resource allocation and assessment of
segment performance, the operations of the Group are divided into
three segments: two geographical locations and an Unallocated
segment. The two geographical segments are Nigeria and Niger, and
their principal activities are the exploration, development and
extraction of oil and gas. These make up the total current and
future revenue -- generating operations of the Group. The
Unallocated segment's principal activities are the governance and
financing of the Group, as well as undertaking business development
opportunities. Items not included within Operating profit/(loss)
are reviewed at a Group level and therefore there is no segmental
analysis for this information. As such, the comparative segmental
reporting has been restated to remove these amounts from the
segments and show only the totals to provide better comparability
of the Group's 2020 results.
The following is an analysis of the Group's unaudited revenue
and results by reportable segment in 2020:
Nigeria Niger Unallocated Total
Unaudited Unaudited Unaudited Unaudited
US$'000 US$'000 US$'000 US$'000
------------------------------------ ----------- ----------- ------------ -----------
Revenue 169,005 - - 169,005
Cost of sales(1) (72,460) - - (72,460)
------------------------------------ ----------- ----------- ------------ -----------
Gross profit 96,545 - - 96,545
------------------------------------ ----------- ----------- ------------ -----------
Administrative and other operating
expenses (9,235) (282) (4,710) (14,227)
Expected credit loss and other
related adjustments 10,992 - - 10,992
------------------------------------ ----------- ----------- ------------ -----------
Operating profit/(loss) 98,302 (282) (4,710) 93,310
------------------------------------ ----------- ----------- ------------ -----------
Finance income 472
Finance costs (75,796)
Fair value adjustment (1,682)
Foreign translation loss (5,396)
------------------------------------ ----------- ----------- ------------ -----------
Profit before tax 10,908
------------------------------------ ----------- ----------- ------------ -----------
Segment non-current assets(2) 613,439 161,147 3,274 777,860
Segment total assets 1,039,653 161,778 5,778 1,207,209
Segment total liabilities (919,067) (30,274) (30,931) (980,272)
------------------------------------ ----------- ----------- ------------ -----------
1. Refer to note 5 for material items included within Cost of
sales.
2. Includes Property, plant and equipment. Exploration and
evaluation assets and Right-of-use assets.
For non-current asset additions in Nigeria, refer to Oil &
gas assets and Infrastructure asset additions in note 9. For non --
current asset additions in Niger, refer to additions in note 10.
For non-current asset additions in Unallocated, refer to Other
asset additions in note 9 and Right-of-use asset additions in the
year.
The following is an analysis of the Group's audited revenue and
results by reportable segment in 2019:
Nigeria Niger Unallocated Total
Audited Audited Audited Audited
US$'000 US$'000 US$'000 US$'000
------------------------------------- ---------- --------- ------------ ----------
Revenue 17,758 - - 17,758
Cost of sales(1) (11,514) - - (11,514)
------------------------------------- ---------- --------- ------------ ----------
Gross profit 6,244 - - 6,244
------------------------------------- ---------- --------- ------------ ----------
Administrative and other operating
expenses (2,121) (419) (11,041) (13,581)
Transaction costs (9,633) - (20,099) (29,732)
Expected credit loss and other
related adjustments (431) - - (431)
------------------------------------- ---------- --------- ------------ ----------
Operating loss (5,941) (419) (31,140) (37,500)
------------------------------------- ---------- --------- ------------ ----------
Finance income 1,378
Finance costs (12,173)
Gain on acquisition of subsidiaries 10,209
Fair value adjustment (54,664)
Foreign translation loss (12,663)
------------------------------------- ---------- --------- ------------ ----------
Loss before tax (105,413)
------------------------------------- ---------- --------- ------------ ----------
Segment non-current assets(2) 615,384 156,938 4,892 777,214
Segment total assets 927,737 157,785 59,491 1,145,013
Segment total liabilities (872,560) (24,968) (16,080) (913,608)
------------------------------------- ---------- --------- ------------ ----------
1. Refer to note 5 for material items included within Cost of
sales.
2. Includes Property, plant and equipment. Exploration and
evaluation assets and Right-of-use assets.
For non-current asset additions in Nigeria, refer to Oil &
gas assets and Infrastructure asset additions in note 9. For non --
current asset additions in Niger, refer to additions in note 10.
For non-current asset additions in Unallocated, refer to Other
asset additions in note 9 and Right-of-use asset additions in the
year.
4. Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
--------------------------------------------- ----------- ---------
Gas sales 157,080 16,844
Oil sales 11,925 914
--------------------------------------------- ----------- ---------
Total revenue from contracts with customers 169,005 17,758
--------------------------------------------- ----------- ---------
Gas sales represents gas deliveries made to the Group's three
customers under long-term, take-or-pay gas sale agreements; these
comprise two power stations and a cement production facility. The
Group sells oil under a sales and purchase agreement with
ExxonMobil Sales & Supply LLC ("EMS&SLLC") at prevailing
market prices.
Included within revenue is revenue of US$147.8 million (2019:
US$16.0 million) relating to the Group's customers who each
contribute more than 10% of total revenue.
5. Cost of sales
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
------------------------------------------- ----------- ---------
Depreciation and depletion - oil and gas,
and infrastructure assets (note 9) 34,789 8,850
Facility operation and maintenance costs 33,682 1,505
Royalties 3,989 715
Other - 444
------------------------------------------- ----------- ---------
72,460 11,514
------------------------------------------- ----------- ---------
6. Finance costs
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
------------------------------------------------ ----------- ---------
Interest on bank borrowings and loan notes 58,910 9,553
Amortisation of balances measured at amortised
cost(1) 11,184 348
Unwinding of decommissioning discount 1,781 564
Interest expense on lease liabilities 372 251
Bank charges 352 602
Other finance costs 3,197 856
------------------------------------------------ ----------- ---------
75,796 12,173
------------------------------------------------ ----------- ---------
1 Includes amounts due to unwinding of a discount on a long-term
payable, contract liabilities (note 17) and amortisation of debt
fees.
7. Taxation
The tax expense/(credit) recognised in the profit or loss
statement for the Group is:
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
----------------------------------------- ----------- ---------
Current tax
- Current year 2,903 341
- Adjustments in respect of prior years 1,294 -
----------------------------------------- ----------- ---------
4,197 341
Deferred tax
- Current year 3,808 (8,907)
- Adjustments in respect of prior years 8,877 -
----------------------------------------- ----------- ---------
12,685 (8,907)
----------------------------------------- ----------- ---------
Total tax expense/(credit) for the year 16,882 (8,566)
----------------------------------------- ----------- ---------
The tax credit recognised in Other comprehensive income for the
Group is:
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
------------------------------ ----------- ---------
Deferred tax
- Current year (308) -
------------------------------ ----------- ---------
Total tax credit for the year (308) -
------------------------------ ----------- ---------
7. Taxation (continued)
Corporation tax is calculated at the applicable tax rate for
each jurisdiction based on the estimated taxable profit for the
year. The Group's outstanding current tax liabilities of US$2.5
million (2019: US$3.1 million) principally relate to the
corporation tax liabilities in Nigeria.
In 2020, the Nigerian corporation tax rate of 30% (2019: 30%)
was used for the tax reconciliation.
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
----------------------------------------------------- ----------- ----------
The expense/(credit) for the year can be reconciled
per the
Statement of Comprehensive Income as follows:
Profit/(loss) on ordinary activities before
taxes 10,908 (105,413)
----------------------------------------------------- ----------- ----------
Profit/(loss) before taxation multiplied by
the tax rate of 30.0% (2019: 30.0%) 3,272 (31,624)
Tax effects of:
Withholding tax 370 -
Expenses disallowed for taxation purposes 2,422 (2,871)
Other Nigerian corporate taxes (309) (335)
Losses (utilised)/arising in the Company and
other holding company entities (3,480) 24,713
Losses on exploration activities not recognised 3,509 1,167
Unrecognised deferred tax on decommissioning
costs 1,500 384
Other temporary differences not recognised 7 -
Remeasurement of deferred tax assets (580) -
Adjustments in respect of prior years 10,171 -
----------------------------------------------------- ----------- ----------
Tax charge/(credit) for the year 16,882 (8,566)
----------------------------------------------------- ----------- ----------
8. Loss per share
Basic loss per share is calculated by dividing the loss for the
year attributable to owners of the Company by the weighted average
number of ordinary shares outstanding during the year.
Diluted loss per share is calculated by dividing the loss for
years attributable to owners of the Company by the weighted average
number of ordinary shares outstanding during the year, plus the
weighted average number of shares that would be issued on the
conversion of dilutive potential ordinary shares into ordinary
shares. As there is a loss attributable to the owners of the
Company for the year ended 31 December 2020, the diluted weighted
average number of shares would reduce the loss per share.
Therefore, the basic weighted average number of shares has been
used to calculate the diluted loss per share.
The weighted average number of shares outstanding excludes
treasury shares of 42,624,837 (2019: nil).
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
-------------------------------------------- ----------- ---------
Loss
Loss attributable to owners of the Company (6,220) (92,585)
-------------------------------------------- ----------- ---------
Unaudited Audited
number of number of
shares shares
------------------------------------------- ------------ ------------
Basic weighted average number of shares 953,783,575 889,971,159
Diluted weighted average number of shares 954,063,140 889,971,159
------------------------------------------- ------------ ------------
Unaudited Audited
US$ US$
---------------- ---------- --------
Loss per share
Basic (0.01) (0.10)
Diluted (0.01) (0.10)
---------------- ---------- --------
49,973,168 options granted under share option schemes are not
included in the calculation of diluted earnings per share because
they are antidilutive for the year ended 31 December 2020 (2019:
25,463,887). These options could potentially dilute basic earnings
per share in the future.
9. Property, plant and equipment
Oil Infrastructure Other Total
and assets assets US$'000
gas US$'000 US$'000
assets
US$'000
---------------------------------------- --------- --------------- --------- ---------
Cost
Balance at 1 January 2019 (audited) 1,588 - 1,655 3,243
Additions 2,062 3,556 110 5,728
Recognised on acquisition of
subsidiaries 164,240 453,858 1,114 619,212
---------------------------------------- --------- --------------- --------- ---------
Balance at 31 December 2019
(audited) 167,890 457,414 2,879 628,183
Additions 1,757 1,831 534 4,122
Disposals - - (59) (59)
Decommissioning remeasurement
adjustment (14,914) 10,236 - (4,678)
Transfer from Receivables from
a joint arrangement 30,844 - - 30,844
Transfers to Exploration and
evaluation assets (note 10) - (284) - (284)
Reclassification of assets(1) (1,725) 720 1,005 -
---------------------------------------- --------- --------------- --------- ---------
Balance at 31 December 2020
(unaudited) 183,852 469,917 4,359 658,128
---------------------------------------- --------- --------------- --------- ---------
Accumulated depreciation
Balance at 1 January 2019 (audited) (90) - (722) (812)
Depletion and depreciation
charge (3,179) (5,671) (235) (9,085)
---------------------------------------- --------- --------------- --------- ---------
Balance at 31 December 2019
(audited) (3,269) (5,671) (957) (9,897)
Depletion and depreciation
charge (17,234) (17,555) (751) (35,540)
Adjustment to accumulated depreciation 176 56 (216) 16
---------------------------------------- --------- --------------- --------- ---------
Balance at 31 December 2020
(unaudited) (20,327) (23,170) (1,924) (45,421)
---------------------------------------- --------- --------------- --------- ---------
Net book value
Balance at 31 December 2019
(audited) 164,621 451,743 1,922 618,286
---------------------------------------- --------- --------------- --------- ---------
Balance at 31 December 2020
(unaudited) 163,525 446,747 2,435 612,707
---------------------------------------- --------- --------------- --------- ---------
1 Certain assets have been reclassified between the various
asset classes to ensure they are reported in the most appropriate
class.
Oil and gas assets principally comprise the well and field
development costs relating to the Uquo and Stubb Creek oil and gas
fields in Nigeria. The Infrastructure assets principally comprise
the Nigerian midstream assets associated with the Group's network
of gas transportation pipelines, oil and gas processing facilities
and gas receiving facilities. Other assets typically include
vehicles, office equipment and building improvements.
Following management's assessment of the gas pipelines, the
expected useful life of these pipelines was increased from 25 to 40
years from the beginning of the year. This has had the effect of
reducing the depreciation charge for the year. This change has
resulted in a reduction in the Infrastructure assets depreciation
charge amounting to US$8.5 million, had no change in useful life
been made.
During 2020, the Group undertook a more detailed technical
assessment of the decommissioning provision cost estimates using an
independent contractor. The associated decommissioning asset has
been adjusted to reflect the new cost estimates. The new asset
value will be depreciated over the remaining life of the respective
assets.
Following the acquisition of the Nigerian assets in 2019, the
Group completed the restructuring of economic interests in the Uquo
Field with its partner, Frontier Oil Limited. The agreement granted
economic ownership and control of 100% of the gas operations, and
its partner was granted economic ownership and control of 100% of
the oil operations at the Uquo Field. Under the terms of the
restructuring, the Group made an advance payment of cash calls of
US$20.0 million to its partner. A further US$14.1 million of
advance cash calls is payable in three yearly instalments, with the
first instalment of US$5.0 million paid by the end of 2020. The
advanced cash call amounts were recorded within Receivables from a
joint arrangement in 2019. During 2020, these receivables
(amounting to US$30.8 million) were reclassified to oil and gas
assets as the substance of this agreement was determined to be a re
-- alignment of the respective parties' economic interests and
therefore similar in nature to a "signature bonus". It will be
depleted in line with similar assets.
10. Exploration and evaluation assets
Exploration and evaluation assets consist of acquisition costs
relating to the acquisition of exploration licences and other costs
associated directly with the discovery and pre-development of
specific oil and gas resources in the R1/R2 and R3/R4 licence area
in the Republic of Niger, under two Production Sharing Agreements
("PSCs") respectively, as described and updated below for changes
in the license position.
Total
US$'000
-------------------------------------------------- ---------
Balance at 1 January 2019 (audited) 150,425
Additions 4,320
-------------------------------------------------- ---------
Balance at 31 December 2019 (audited) 154,745
Transfers from Property, plant & equipment (note
9) 284
Additions 4,543
-------------------------------------------------- ---------
Balance at 31 December 2020 (unaudited) 159,572
The amount for Exploration and evaluation assets represents
active exploration projects. These will ultimately be written off
to the Statement of Comprehensive Income as exploration costs if
commercial reserves are not established but are carried forward in
the Statement of Financial Position whilst the determination
process is not yet completed and there are no indications of
impairment having regard to the indicators in IFRS 6. Included
within these assets are intangible assets such as drilling costs,
seismic data and capitalised overheads which amount to US$155.8
million (2019: US$148.5 million).
During the first half of 2020, the Company agreed with the Niger
Ministry of Petroleum that the R4 licence area will be combined
with the R1/R2 PSC area into a new R1/R2/R4 PSC to be issued under
the Petroleum Code 2017 and that the R3 PSC would continue as a
stand -- alone PSC area, thus retaining the full acreage position
previously covered by the R1/R2 PSC and the R3/R4 PSC. The Group
has subsequently agreed in principle with the Ministry of Petroleum
to combine all four licence areas into a single PSC rather than the
previous proposal of two PSCs. The new PSC will be valid for ten
years from the date of signing the agreement. Ratification of the
new PSC is subject to Council of Ministers approval and the payment
of the associated fee which is expected to occur by July 2021.
11. Inventory
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
--------------------------- ----------- ---------
Spare parts 1,557 1,499
Crude oil and condensates 1,359 2,521
2,916 4,020
Spare parts are mainly for gas facilities operations.
12. Trade and other receivables
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
-------------------------------------- ----------- ---------
Trade receivables 72,832 30,864
Contract assets 58,246 19,497
Receivables from a joint arrangement 419 30,321
Other receivables 5,548 19,445
-------------------------------------- ----------- ---------
137,045 100,127
Expected credit loss (17,213) (431)
-------------------------------------- ----------- ---------
119,832 99,696
VAT receivables 185 75
Prepayments 2,383 6,561
-------------------------------------- ----------- ---------
122,400 106,332
Movement in Receivables from a joint arrangement is described in
note 9.
Included in Other receivables at 31 December 2019 were amounts
relating to pipeline transport tariffs recoverable from one of the
Group's gas customers, crude oil processing fees and other
settlement amounts owed from joint arrangement partners. During
2020, the amount relating to pipeline transport tariffs has been
offset with an equal amount owed to the owner of the pipeline
following agreements with the counterparties.
12. Trade and other receivables (continued)
The following has been recognised in the Statement of
Comprehensive Income relating to expected credit losses:
2020 2019
Unaudited Audited
Year ended 31 December US$'000 US$'000
----------------------------------------- ----------- ---------
Provision for expected credit loss (16,782) (431)
Gain on acquired credit impaired assets 27,774 -
----------------------------------------- ----------- ---------
Expected credit loss and other related
adjustments 10,992 (431)
----------------------------------------- ----------- ---------
Details of the Trade receivables and Contract assets acquired
following the purchase of the Nigerian assets were disclosed in the
consolidated financial statements of the Group for the year ended
31 December 2019. For reporting purposes these acquired assets were
shown net of any related ECL. After the acquisition, some of these
assets have been fully recovered. Consequently, the associated ECL
has been released, with a credit of US$27.8 million (2019: US$nil)
being recognised in the Unaudited Consolidated Statement of
Comprehensive Income. The recoveries on the acquired credit
impaired assets are reflective of management's improved credit
control processes throughout the year. The remaining ECL (US$14.4
million) that was netted within the fair value of the Trade
receivables at acquisition remains netted within the trade
receivables balance and will only be released when the associated
receivables have been fully realised.
The provision for expected credit loss that has been recognised
in the year relates to an expected credit loss recognised on new
invoices raised during the year as well as changes in expected
credit loss rates because of non-payment of certain invoices. Set
out below is the movement in the allowance for expected credit loss
on trade and other receivables and contract assets:
2020 2019
Unaudited Audited
US$'000 US$'000
------------------------------------ ----------- ---------
As at 1 January 431 -
Provision for expected credit loss 16,782 431
As at 31 December 17,213 431
13. Cash at bank
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
------------------------------- ----------- ---------
Cash and cash equivalents 74,258 46,256
Amounts held for debt service 30,105 -
------------------------------- ----------- ---------
104,363 46,256
The Directors consider that the carrying amount of cash at bank
approximates their fair value.
Cash and cash equivalents includes US$1.2 million (2019: US$1.4
million) of cash collateral on the Orabank revolving facility. The
cash collateral was at a value of XOF621.7 million (2019: XOF807.1
million).
Amounts held for debt service represents Naira denominated cash
which is held by the Group for 2020 debt service, and this has been
separately disclosed from Cash and cash equivalents as at 31
December 2020. In total, approximately US$78.9 million will be paid
for the 2020 debt service from bank accounts designated as Amounts
held for debt service, and from Cash and cash equivalents.
14. Capital and reserves
2020 2019
As at 31 December Unaudited Audited
---------------------------------------------- ------------ ------------
Fully paid ordinary shares in issue (number) 996,408,412 996,408,412
Par value per share in GBP 0.001 0.001
Number Share Share
of capital premium Total
shares US$'000 US$'000 US$'000
--------------------------------- ------------ --------- --------- ---------
At 1 January 2019 (audited) 816,969,427 1,240 - 1,240
Shares issued 179,438,985 153 61,204 61,357
At 31 December 2019 (audited) 996,408,412 1,393 61,204 62,597
Shares adjustments - 16 888 904
At 31 December 2020 (unaudited) 996,408,412 1,409 62,092 63,501
14. Capital and reserves (continued)
Share adjustments includes amounts for previously issued shares
held in trust, amounting to 9,239,454 shares.
In January 2019 the Company issued 62,800,000 new ordinary
shares in an equity fund raising to the value of S$22.1 million
(net).
In November 2019 the Company issued 116,638,985 new ordinary
shares: 90,666,308 relating to shares issued with the US$20 million
SSNs and the issue of 25,972,677 additional consideration shares
for the Nigerian assets acquisition. The fair value of the issue of
these shares amounted to US$40.4 million (gross).
Share-based
Treasury Capital payment Other
shares contribution reserve reserves Total
US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------------- --------- -------------- ------------ ---------- ---------
At 1 January 2019 (audited) - 458 5,908 (4,989) 1,377
Share-based payments expense
during the year - - 540 - 540
Warrants expired - - - 4,989 4,989
--------------------------------- --------- -------------- ------------ ---------- ---------
At 31 December 2019 (audited) - 458 6,448 - 6,906
Share-based payments expense
during the year - - 656 - 656
Treasury shares recognised (59) - - - (59)
--------------------------------- --------- -------------- ------------ ---------- ---------
At 31 December 2020 (unaudited) (59) 458 7,104 - 7,503
Nature and purpose of reserves
Treasury shares
Following re -- admission of the Group onto the London Stock
Exchange in December 2017, the Group established an employee
benefit trust ("EBT") to facilitate the adoption of certain
management and employee incentive schemes. The EBT subscribed for
42,624,837 ordinary shares at a nominal value of GBP0.001 per
share, issued as part of the second tranche equity placing in
February 2018. The EBT has been consolidated within these Group
accounts from 1 January 2020, it had previously not been
consolidated due to being immaterial.
Capital contribution reserve
On 1 August 2014 a capital contribution of US$458,000 was made
by shareholders of the Group as part of the loan note
conversion.
Share-based payment reserve
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to employees,
including key management personnel, as part of their
remuneration.
Other reserves
The other reserves figure represents the reclassification of the
fair value of warrants granted from equity to a financial
liability, at initial grant date. These warrants expired during
2019.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while seeking to
maximise the return to shareholders through the optimisation of the
debt and equity balance.
15. Trade and other payables
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
------------------------------ ----------- ---------
Trade and other payables
Trade payables 40,590 48,800
Accruals 35,565 58,531
VAT and WHT payable 7,825 5,222
Royalty and levies 6,261 6,317
Employee benefits 74 376
Deferred consideration 7,500 -
Other payables 4,160 938
Trade and other payables 101,975 120,184
------------------------------ ----------- ---------
Other payables - non-current
Employee benefits 4,648 -
Deferred consideration - 7,500
------------------------------ ----------- ---------
Other payables - non-current 4,468 7,500
------------------------------ ----------- ---------
106,623 127,684
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
15. Trade and other payables (continued)
Deferred consideration amounting to US$7.5 million relates to a
loan note that was initially acquired via the acquisition of
the Nigerian assets in November 2019, which was then acquired by
the Company for future settlement. The amount is due
to be repaid by June 2021 and is interest bearing at 8% per
annum.
16. Borrowings
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
--------------------------- ----------- ---------
Revolving credit facility 12,998 9,914
Bank loans 376,509 388,209
Senior Secured Notes 106,513 115,833
Other loan notes 18,642 18,096
--------------------------- ----------- ---------
514,662 532,052
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
------------------------ ----------- ---------
Current borrowings 89,995 71,387
Non-current borrowings 424,667 460,665
------------------------ ----------- ---------
514,662 532,052
Accugas Limited has a bank loan facility amounting to US$370.6
million (2019: US$382.1 million). Repayments of principal commenced
on 31 December 2019 and amortise semi-annually until the final
maturity date of 31 December 2025. Principal repayment amounts are
calculated as a variable percentage of the facility outstanding,
increasing over the life of the facility. This facility
incorporates a cash sweep to accelerate repayments subject to
certain minimum cash balances. The facility carries a weighted
average interest rate of 10.49%, plus three-month US LIBOR per
annum.
Savannah Energy Uquo Gas Limited has a Senior Secured Note of
US$92.4 million (2019: US$105 million). Repayments of
US$4.2 million are due semi-annually and will continue until 30
June 2026, with the remaining balance due at the final maturity
date of
31 December 2026. The note carries a coupon of 8% per annum. The
subsidiary also has a term facility amounting to NGN4.26 billion
(US$10.9 million, 2019: NGN4.8 billion, US$13.2 million).
Repayments of principal in amount of NGN180 million (US$0.5
million) are due semi-annually until the final maturity date of 31
December 2026 at which time all remaining unpaid principal is due.
The loan carries an interest rate of three -- month NIBOR plus
margin of 5% per annum.
Accugas Holdings UK Plc has a promissory note of US$12.9 million
(2019: US$11.5 million). Repayments of principal in the amount of
US$0.5 million will commence on 30 June 2021 and continue
semi-annually until the final maturity date of 31 December 2025, at
which time all unpaid principal is due. The loan carries a cash
interest rate of 8% per annum, with a payment-in-kind interest
option of 10% per annum. The payment-in-kind interest option was
exercised in 2020.
Accugas Holdings UK Plc also issued a Senior Secured Note of
US$20 million on 14 November 2019. The term of the note is for
repayment in full by 14 November 2025. The loan carries a cash
interest rate of 6% per annum, with a payment-in-kind interest
option of 8% per annum. The payment-in-kind interest option was
exercised in 2020. The note also includes a voluntary prepayment
redemption option whereby early repayment of the principal amount
will result in a discount to the contractual loan value. If this
repayment option is invoked before 14 November 2021, a discount of
40% will be applied to the face value of US$20 million. The
repayment amount will increase by 10% yearly, until the maximum
amount redemption option is 100% in 2024. As an embedded
derivative, this option is required to be separated from the host
contract and valued separately. Initially, the fair value of the
note without any call option was calculated by discounting the
future expected cash flows at a market yield. This resulted in an
initial amortised value of US$17.9 million with an EIR of 8.73%;
the loan balance has increased due to accretion of interest and the
utilisation of the payment-in-kind option with a balance of US$19.5
million at 31 December 2020 (2019: US$17.9 million). The call
option value was estimated using a synthetic American receiver
swaption model, adjusting for additional cash repayments required
for early exercise. The value of the option was remeasured to an
estimated US$5.4 million (2019: US$7.1 million) with the movement
recognised as FVTPL. The option has been recorded within
non-current borrowings.
In September 2018 the Company issued unsecured loan notes with
an outstanding balance at 31 December 2020 of GBP1.2 million
(US$1.6 million, 2019: GBP0.8 million, US$1.0 million).
In October 2019, the Company entered a three-month loan facility
for an amount of US$5.0 million bearing a fixed interest charge
over the life of the facility at a rate of 7% of the amount
borrowed. This facility also gave the lender the right to convert
the loan to equity shares if the amounts borrowed were not repaid
at maturity. This facility was terminated at the Company's option
during the year without the conversion option being exercised.
In June 2020, the Company entered into a new unsecured US$5.0
million revolving credit facility. The balance as at 31 December
2020 was US$4.1 million and is due for repayment in three
instalments between March and June 2021.
16. Borrowings (continued)
In December 2016, Savannah Energy Niger SA entered into a XOF7.5
billion, three-year revolving credit facility with Orabank SA
bearing interest at 7.5% per annum. The facility was extended in
December 2019 for a further three-year tenor. The balance at 31
December 2020 was XOF6.9 billion (US$13.0 million, 2019: XOF5.8
billion, US$9.9 million).
On 30 April 2020, the Company entered into a US$15.0 million
committed finance agreement. The facility is available for use in
connection with the Group's general corporate and working capital
purposes. A redemption fee of 8% per annum accrues on any amounts
of the finance drawn down from time to time on a straight-line
basis and is payable on the date any amount of the finance is
repaid. The facility expires on 31 October 2021 and has not been
utilised to date. Subsequent to the Statement of Financial Position
date, the facility has been increased to US$20.0 million with the
expiry date extended to 31 December 2022.
17. Contract liabilities
Contract liabilities represents the value of gas supply
commitment to the Group's customers for gas not taken but invoiced
under the terms of the contracts. The amount has been analysed
between current and non-current liability, based on the customers'
expected future usage gas delivery profile. This expected usage is
updated periodically with the customer.
2020 2019
Unaudited Audited
As at 31 December US$'000 US$'000
------------------------------------------ ----------- ---------
Amount due for delivery within 12 months 5,065 3,942
Amount due for delivery after 12 months 185,172 118,052
------------------------------------------ ----------- ---------
190,237 121,994
2020 2019
Unaudited Audited
US$'000 US$'000
-------------------------------------------- ----------- ---------
As at 1 January 121,994 -
Additional contract liabilities 86,881 13,278
Contract liabilities utilised (23,632) -
Unwind of discount on contract liabilities 4,994 -
Acquired on acquisition of subsidiaries - 108,716
-------------------------------------------- ----------- ---------
As at 31 December 190,237 121,994
Following the purchase of the Nigerian assets on the 14 November
2019, the contract liabilities balance was adjusted to reflect the
fair value at the acquisition date. Discount amounting to US$5.0
million (2019 US$nil) has been unwound during the year as
make-up-gas has been delivered. The unwind has been recognised
within finance costs (note 6).
18. Cash flow reconciliations
A reconciliation of profit or loss before tax to net cash flows
from operating activities is as follows:
Year ended Year ended
31 December 31 December
2020 2019
Unaudited Audited
US$'000 US$'000
---------------------------------------------------- ------------- -------------
Profit/(loss) for the year before tax 10,908 (105,413)
Adjustments for:
Depreciation 1,492 801
Depletion 34,789 8,850
Gain on acquisition of a subsidiary - (10,209)
Finance income (388) (1,378)
Finance costs 75,796 12,173
Fair value movement 1,682 54,664
Unrealised foreign translation loss/(gain) 404 (815)
Share option charge 656 540
Expected credit loss and other related adjustments (10,992) 431
---------------------------------------------------- ------------- -------------
Operating cash flows before movements in
working capital 114,347 (40,356)
Increase in trade and other receivables
and inventory (48,177) (8,458)
(Decrease)/Increase in trade and other payables (11,626) 22,823
Increase in contract liabilities 63,247 13,278
Decrease in other assets - 390
Income tax paid (2,222) -
---------------------------------------------------- ------------- -------------
Net cash generated from/(used in) operating
activities 115,569 (12,323)
18. Cash flow reconciliations (continued)
In 2019, included within the Group and the Company's Net cash
outflow from operating activities was an amount of US$15.0 million
received from Africa Infrastructure Investment Managers ("AIIM") as
a funding contribution to the Company's Transaction costs
associated with the acquisition of the Nigerian assets. This was in
addition to the US$39.0 million that AIIM invested directly into
the newly acquired Nigerian assets. This has been shown within Sale
of a non-controlling interest in the Consolidated Statement of Cash
Flows.
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Lease
Borrowings liabilities Total
US$'000 US$'000 US$'000
At 1 January 2020 (audited) 532,052 5,570 537,622
-------------------------------------- ----------- ------------- ---------
Cash flows
Repayment (31,474) (767) (32,241)
Proceeds 7,213 - 7,213
-------------------------------------- ----------- ------------- ---------
(24,261) (767) (25,028)
Non-cash adjustments
Payment in kind adjustment/accretion
of interest 3,991 372 4,363
Lease liability additions - 3,050 3,050
Net debt fees 1,049 - 1,049
Borrowing fair value adjustments 1,682 - 1,682
Foreign translation 149 (164) (15)
-------------------------------------- ----------- ------------- ---------
At 31 December 2020 (unaudited) 514,662 8,061 522,723
Lease
Borrowings liabilities Total
US$'000 US$'000 US$'000
------------------------------------ ----------- ------------- ---------
At 1 January 2019 (audited) 14,872 - 14,872
Adoption of IFRS 16 - 5,056 5,056
------------------------------------ ----------- ------------- ---------
Revised 1 January 2019 (audited) 14,872 5,056 19,928
------------------------------------ ----------- ------------- ---------
Cash flows
Repayment (16,381) (302) (16,682)
Proceeds 18,650 - 18,650
------------------------------------ ----------- ------------- ---------
2,269 (302) 1,968
Non-cash adjustments
Acquisition of the Nigerian assets 524,361 - 524,361
Accretion of interest - 251 251
Net debt fees (7,084) - (7,085)
Borrowing fair value adjustments (2,366) - (2,366)
Foreign translation - 565 565
------------------------------------ ----------- ------------- ---------
At 31 December 2019 (audited) 532,052 5,570 537,622
19. Events after the reporting period
In February 2021 the Group entered into a new gas sales
agreement ("GSA") with Mulak Energy Limited ("Mulak"). The GSA is
initially for a seven-year term. It envisages the supply of gas for
an initial two-year period on an interruptible basis (the
"Interruptible Gas Delivery Period") and the subsequent five years
on a firm contract basis (the "Firm Delivery Period"). During the
Interruptible Gas Delivery Period, Mulak is able to nominate a
maximum daily quantity of up to 2.5 MMscfpd. Volumes in the Firm
Delivery Period will be agreed by the parties before the end of the
Interruptible Gas Delivery Period. The GSA is priced to reflect
Mulak's status as an industrial customer. Sales under the GSA
benefit from a bank guarantee arrangement from an investment grade
credit rated international bank. Sales under the GSA are expected
to commence in 2022.
Subsequent to the Statement of Financial Position date, the
Group has agreed in principle with the Ministry of Petroleum to
combine all four licence areas into a single PSC rather than the
previous proposal of two PSCs. The new PSC will be valid for 10
years from the date of signing the agreement. Ratification of the
new PSC is subject to Council of Ministers approval and the payment
of the associated fee which is expected to occur by July 2021.
In May 2021 the Group increased the US15.0 million committed
finance facility (as described in note 16) to US$20.0 million. The
facility expiry date was also extended from 31 October 2021 to 31
December 2022. No other terms of the facility were amended.
[1] Total Revenues refers to the total amount of invoiced sales
recorded in the financial year. This number is seen by management
as more accurately reflecting the underlying cash generation
capacity of the business compared to Revenue recognised in the
income statement. A detailed explanation of the impact of IFRS 15
revenue recognition rules on our income statement is provided in
the Financial Review section of our 2019 Annual Report. For
reference FY 2020 Revenues were US$169.0 million (up 28% on FY 2019
pro-forma Revenues of US$132.3 million).
[2] Adjusted EBITDA is defined as profit or loss before finance
costs, investment revenue, foreign exchange gains or losses,
expected credit loss and other related adjustments, fair value
adjustments, gain on acquisition, taxes, transaction costs,
depreciation, depletion, and amortisation and adjusted to include
deferred revenue and other invoiced amounts. Management believes
that the alternative performance measure of Adjusted EBITDA more
accurately reflects the cash generating capacity of the
business.
[3] Pro-forma amounts present 2019 results as though the
Nigerian assets had been owned by Savannah for the whole of 2019,
rather than from the acquisition completion date of 14 November
2019, to show meaningful comparatives.
[4] Group Operating expenses plus administrative expenses are
defined as total cost of sales, administrative and other operating
expenses, excluding royalty and depletion, depreciation and
amortisation.
[5] Within cash balance of US$106.0m, US$78.9m is set aside for
debt service, of which US$48.0m is for interest and US$30.9m is for
scheduled principal repayments, and US$1.6m relates to monies held
in escrow accounts for stamp duty relating to loan security
packages.
[6] Leverage is calculated as Net debt/Adjusted EBITDA
[7] Interest cover ratio is Adjusted EBITDA(2) divided by
Finance costs excluding (i) unwinding of a discount on a long-term
payable, (ii) unwind of discount on contract liabilities and (iii)
unwinding of decommissioning discount, less Interest Finance
Income
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May 28, 2021 11:40 ET (15:40 GMT)
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