30 September 2021

Savannah Energy PLC

("Savannah" or "the Company")

2021 Half Year Results and Outlook for the Year

Savannah Energy PLC, 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 interim results for the six months ended 30 June 2021 and outlook for the FY 2021.

Andrew Knott, CEO of Savannah Energy, said: 

"These results show just how far we have come this year, with US$116.5m of Total Revenues¹, US$91.5m of Adjusted EBITDA² and strong free cash flow. Our operational performance has been excellent which is important to all our stakeholders as we continue to play a vital role in driving economic growth and living standards in our countries of operation. This growth is set to continue as we progress discussions with ExxonMobil with respect to the proposed acquisition of its entire upstream and midstream assets in Chad and Cameroon and begin an anticipated new investment programme on our Niger assets, over which we are pleased to have agreed terms for an extension of up to 10 years.

I'd like to thank all of our shareholders and other stakeholders for their continued support as we look to capitalise on the opportunities available to us."

H1 2021 Financial Highlights

·      Total Revenues¹ of US$116.5m (up 2% on H1 2020 Total Revenues of US$114.6m), in line with 2021 guidance of over US$205m for the full year;

·      Average realised gas price of US$4.2/Mscf (H1 2020: US$3.9/Mscf) and an average realised liquids price of US$63.5/bbl (H1 2020: US$48.3/bbl);

·      Cash collections from the Nigerian Assets in H1 2021 were US$101.6m compared to US$82.1m in H1 2020;

·      Adjusted EBITDA² of US$91.5m (H1 2020: US$89.2m);

·      Adjusted EBITDA margin broadly unchanged at 79% (H1 2020: 78%);

·      Operating expenses plus administrative expenses³ of US$22.5m (H1 2020: US$22.7m) being US$1.0/Mscfe (H1 2020: US$1.1/Mscfe);

·      Profit before tax of US$7.7m (H1 2020: US$1.2m);

·      Drilling of a gas well on the Uquo field commenced in September 2021 and the non-associated gas compression project at the Accugas gas processing plant is progressing, full year capital expenditure guidance of up to US$65m maintained;

·      Net debt position as at 30 June 2021 of US$369.4m (Year-end 2020: US$408.7m) with Adjusted Leverage⁴ of 2.3x (Year-end 2020: 2.5x); and

·      Cash at bank⁵ of US$135.7m as at 30 June 2021 (Year-end 2020: US$106.0m)

H1 2021 Operational Highlights

·      Average gross daily production, of which 88.6% was gas, increased 6% during H1 2021 to 22.6 Kboepd (H1 2020: 21.3 Kboepd). This includes a 6% increase in production from the Uquo gas field compared to the same period last year, from 113.5 MMscfpd (18.9 Kboepd) to 120.2 MMscfpd (20.0 Kboepd);

·      On 5 February 2021 Accugas signed a new gas sales agreement ("GSA") with Mulak Energy Limited ("Mulak") representing Savannah's entry into Nigeria's high-growth compressed natural gas ("CNG") market;

·      On 2 June 2021, Savannah announced that the Company is in exclusive discussions with ExxonMobil Corporation with respect to the proposed acquisition of its entire upstream and midstream asset portfolio in Chad and Cameroon; and

·      On 7 June 2021, Savannah published its re-focused sustainability strategy as part of the 2020 Annual Report focusing on four key strategic pillars with the strategy anchored around the 13 most relevant UN Sustainable Development Goals where we believe Savannah can have the biggest economic, environmental, social and governance impact

Post Period Update

·      Drilling of a new gas production well in the Uquo field, Uquo 11, commenced on 21 September 2021;

·      On 29 September 2021, the Niger Ministry of Petroleum amalgamated Savannah's four licence areas (covered by the previous R1/R2 PSC and the R3/R4 PSC) into a single PSC (R1/R2/R3/R4), valid for up to a further 10 years. This lays the foundation for an anticipated new investment programme in our R3 East development in 2022;

·      On 12 August 2021 it was announced that, as a result of the Company's growth in recent years and the planned significant further expansion, the decision was taken to restructure the finance function of the Company.  As a result, Ms Isatou Semega-Janneh left, and ceased to be a Director of, the Company; and

·      On 16 August 2021 His Excellency President Muhammadu Buhari signed the Petroleum Industry Act 2021 (the "PIA") into law indicating the government of Nigeria's commitment to enhancing the governance, administrative and fiscal regimes of the domestic industry.  It is anticipated that the PIA will have a positive fiscal impact on Savannah

FY 2021 Guidance Reiterated

We reiterate our FY 2021 guidance as follows:

·      Total Revenues¹ greater than US$205.0m from upstream and midstream activities associated with the Company's three active Nigerian gas sales agreements and liquids sales from the Company's Stubb Creek and Uquo fields. Any revenues received from new additional gas sales agreements would, therefore, be incremental to this;

·      Operating expenses plus administrative expenses³ of US$55.0m to US$65.0m;

·      Depreciation, Depletion and Amortisation of US$19m fixed for infrastructure assets plus US$2.6/boe for oil and gas assets; and

·    Capital expenditure of up to US$65.0m

For further information, please refer to the Company's website www.savannah-energy.com or contact:

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

About Savannah Energy:

Savannah Energy PLC is an AIM 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 enabling over 10% of Nigeria's thermal power generation. In Niger, the Company has licence interests covering approximately 50% of 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.

H1 2021 Operational Review

Nigeria

Average gross daily production from the Nigerian Assets increased 6% in H1 2021 to an average of 22.6 Kboepd versus 21.3 Kboepd for H1 2020. This includes a 6% increase in production from the Uquo gas field compared to the same period last year, from 113.5 MMscfpd (18.9 Kboepd) to 120.2 MMscfpd (20.0 Kboepd). Uquo gas field production of 20.0 Kboepd represented 88% of total 22.6 Kboepd production in H1 2021.

Average Gross Daily Production

Gas production levels are driven by customer nominations.  During H1 2021 the Company's subsidiary, Accugas, supplied gas to the Calabar power station and the Ibom power station to generate an average of 340MW of electricity per day (H1 2020: 355 MW per day), representing 11% of the total grid-based thermal power generated in Nigeria during the period.  The peak generation from Accugas supplied gas was 497MW (H1 2020: 476MW), highlighting Accugas' continuing position as a principal gas-to-power supplier in Nigeria.

In February 2021, Savannah announced that Accugas had entered into a new GSA with Mulak. The GSA is initially for a seven-year term to supply gas produced by Savannah's majority-owned Uquo field for an initial two-year period on an interruptible basis (the "Interruptible Gas Delivery Period") starting in 2022 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. Sales under the GSA benefit from a bank guarantee arrangement from an investment grade credit rated international bank.

The Company commenced drilling of a new gas production well, Uquo 11, in the Uquo field on 21 September 2021. The Company also started ordering compression equipment for the Accugas gas processing plant during the first half of 2021. Factory Acceptance Tests for the two compressor packages have been successfully carried out, the Front End Engineering Design is in progress and we expect the Long Lead Items order to be delivered before the year end. Both the drilling and compression projects will ensure our continued ability to deliver gas at current and anticipated future increased contracted volumes to satisfy customer demand.

Niger

During H1 2021, the Company 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. Post-period reporting end on 29 September 2021, the Ministry of Petroleum amalgamated the four licence areas into a single PSC (R1/R2/R3/R4) valid for up to a further 10 years. It will enter into force following ratification in early October 2021 by the Council of Ministers and the payment of the associated fee within 30 business days. This lays the foundation for an anticipated new investment programme in our R3 East development in 2022.

Proposed Acquisition in Chad and Cameroon 

Savannah announced in June 2021 that the Company is in advanced exclusive discussions with ExxonMobil Corporation with respect to the proposed acquisition of its entire upstream and midstream asset portfolio in Chad and Cameroon (the "Proposed Acquisition"). The Proposed Acquisition would include a 40% operated interest in the Doba Oil Project, and an effective c.40% interest in the Chad-Cameroon oil transportation pipeline. For reference, in 2020 the Doba Oil Project produced an average gross 33.7 Kbopd and the Chad-Cameroon pipeline transported a gross 129.2 Kbopd.

If completed on the currently proposed terms, the Proposed Acquisition would be classified as a reverse takeover transaction in accordance with the AIM Rule 14, and accordingly, the Company's ordinary shares were suspended from trading on AIM and will remain so pending publication of an AIM admission document setting out, inter alia, details of the Proposed Acquisition, or confirmation is provided that discussions around the Proposed Acquisition have been terminated. There can be no assurance that agreement between the parties will be reached on mutually acceptable terms and that the Proposed Acquisition will complete. The Company will update shareholders as to progress made in relation to the Proposed Acquisition as appropriate.

Update on Savannah's Sustainability Strategy

In June 2021 Savannah published our re-focused sustainability strategy based on 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 ("UN SDGs"), 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 these 13 UN SDGs, 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"). Progress continues to be made in rolling out our new sustainability performance and reporting framework across the Group with a view to reporting on this from 2022 onwards.

Petroleum Industry Act ("PIA")

We are pleased to note that on 16 August 2021 His Excellency President Muhammadu Buhari signed the Petroleum Industry Act 2021 into law. The PIA is an overhaul of the administrative, regulatory and fiscal regime of the Nigerian oil and gas industry in order to create a framework to attract additional investment into the country, which is Africa's largest producer and with the continents largest oil and gas reserves.

Overall, we anticipate that the PIA will have a positive fiscal impact on Savannah, with lower gas royalties offsetting higher oil and condensate royalties and additional levies.  Furthermore, a reduction in tax rates for upstream oil operations as a result of the replacement of Petroleum Profits Tax with a combination of Corporate Income Tax and a new Hydrocarbon Tax is expected to reduce cash tax costs over the life of the assets, although the lower tax rates will reduce the carrying value of deferred tax assets on upstream oil operations. 

H1 2021 Financial Review

The Group reports Total Revenues¹ of US$116.5 million for the six months ended 30 June 2021, up 2% on H1 2020 and an Adjusted EBITDA² of US$91.5 million up 3% on H1 2020.  This performance continues to reflect the strong cash generative quality of our gas producing assets in Nigeria.

As previously highlighted, it is important to note the impact of take-or-pay accounting rules under IFRS 15 on our Income Statement as regards to revenue recognition for our gas sales agreements.  The Revenue of US$99.4 million shown in the Condensed Consolidated Statement of Comprehensive Income includes only the gas, oil and condensate that has been delivered.  The Total Revenues¹ of US$116.5 million includes the volume of gas that customers are committed to pay for under the take-or-pay terms of the gas sales agreements, which includes gas that has been delivered plus gas invoiced but yet to be delivered, plus oil and condensate revenues.

Summary of result for H1 2021

The table below provides an overview of our results for H1 2021 with a comparison for H1 2020.

Financial highlights

The Group's operating profit for the six months ended 30 June 2021 was US$54.0 million (H1 2020: US$47.9 million), a 13% improvement between periods reflecting the increased revenues in the period combined with the ongoing control of operating expenses and administrative expenses, which remained flat.

The Group's profit before tax was US$7.7 million (H1 2020: US$1.2 million) and the loss after tax was US$1.4 million (H1 2020 profit: US$1.8 million).  The increased tax charge year-on-year was primarily a result of profits generated in Nigeria.

Adjusted EBITDA², described in further detail below, for H1 2021 was US$91.5 million, up 3% on US$89.2 million for H1 2020.

Revenue

Revenue during the period was 8% higher than the prior year comparable at US$99.4 million (H1 2020: US$91.7 million) on stable overall sales volumes. The increase is a result of higher realised prices and the following tables summarise the sales volumes and prices achieved during H1 2021 and H1 2020:

Sales volumes, average prices and revenue for H1 2021

*1 boe equivalent to 6 Mscf of gas

Sales volumes, average prices and revenue for H1 2020

The gas revenue stream, which represents 92% of H1 2021 revenue (H1 2020: 91%), is insulated from fluctuations in oil price as the gas contracts are all priced independently of oil prices with escalation clauses related to US consumer price inflation.  Additionally, 95% of the gas sales are backed by investment grade credit guarantees, including a World Bank supported Partial Risk Guarantee in the case of the Calabar power station gas sales agreement.

Cost of Sales, administrative and other operating expenses

Cost of sales amounted to US$34.3 million (H1 2020: US$32.3 million) which includes US$13.8 million (H1 2020: US$11.8 million) for facility operating and maintenance costs, US$2.2 million (H1 2020: US$2.2 million) royalty expenses and US$18.3 million (H1 2020: US$18.3 million) depletion and depreciation. 

Administrative and other operating expenses for the period were US$11.8 million (H1 2020: US$11.5 million), which includes US$0.9 million (H1 2020: US$0.6 million) of depreciation.  Of the total, US$2.3 million (H1 2020: nil) were transaction costs incurred in relation to the Proposed Acquisition.

Group operating expenses plus administrative expenses³ were US$22.5 million (H1 2020: US$22.7 million), reflecting strong cost control across the Group. This amounts to a unit cost of US$1.0/Mscfe (H1 2020: US$1.1/Mscfe) which compares favourably with our average sales price of US$4.4/Mscfe (H1 2020: US$4.1/Mscfe).

EBITDA and Adjusted EBITDA²

Presented below is the calculation of EBITDA and Adjusted EBITDA². Management believes that the alternative performance measure of Adjusted EBITDA² more accurately reflects the cash generating capacity of the business.  Adjusted EBITDA² includes gas that has been invoiced under take-or-pay contracts but not yet delivered and is adjusted for transaction costs, and expected credit losses to provide a meaningful comparison between periods.

Calculation of EBITDA and Adjusted EBITDA²

Finance Costs

Finance costs of US$38.7 million (H1 2020: US$36.3 million) were partially offset by finance income of US$0.3 million (H1 2020: US$0.4 million). Of these costs US$26.8 million (H1 2020: US$32.0 million) related to bank and loan note interest.  The average interest rate was 10.3% (H1 2020: 11.9%) reflecting lower US Libor rates during 2021.  The remainder of the finance costs are primarily a number of non-cash items which are itemised in Note 8 of the financial statements. 

The interest cover ratio, on an Adjusted EBITDA² basis is 2.9 times versus 2.5 times in H1 2020.

Foreign Exchange loss

Foreign exchange losses amounted to US$10.9 million (H1 2020: US$7.1 million).

An unrealised loss of US$7.0 million (H1 2020 gain: US$1.7 million) was mainly a result of revaluation of monetary items held in Nigerian Naira following the devaluation of the Naira from approximately 380 Naira/US$ to 410 Naira/US$ in May 2021.  The realised losses of US$4.0 million (H1 2020: US$8.8 million) arise mainly from US dollar gas sales invoices which are collected 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 accesses foreign exchange at market rate and there is typically a differential between this rate and the CBN rate. The majority of these losses are recoverable through a foreign exchange "true-up" clause in the Calabar GSA.

Taxation

The tax charge of US$9.1 million (H1 2020: credit US$0.6 million) was made up of a current tax charge of US$2.2 million (H1 2020: US$1.8 million) and a deferred tax charge of US$6.9 million (H1 2020: credit US$2.3 million).  The current tax charge principally arises on Nigerian profits and the deferred tax charge is a result of utilisation of unused losses in Nigeria.

Condensed Consolidated Statement of Financial Position 

Group Assets

Total assets increased to US$1,238.2 million (31 December 2020: US$1,207.2 million) principally due to a US$29.7 million increase in cash balances held in Nigeria.

As was noted in our 2020 Annual Report & Accounts, there has been a reduction seen in foreign exchange liquidity in Nigeria since the first half of 2020. The Company anticipates that liquidity will return to the FX market in the near-term and in the meantime, Savannah has agreed with the Accugas lenders to retain a sufficient balance in Naira to cover the US$ denominated debt service amounts.  This is reflected in the Adjusted net debt figure shown in the table below.

The Group has Trade and other receivables of US$138.6 million (31 December 2020: US$122.4 million).  The trade receivables and contract assets (from sales) of US$146.3 million (31 December 2020: US$131.1 million) represent a net increase of US$15.2 million mainly due from customers in Nigeria under the GSAs in place. 

The Group has trade and other payables of US$108.9 million (31 December 2020: US$106.6 million). These amounts will be settled in the normal course of business. The increase is primarily a result of capital investment activities including the drilling of a gas well at Uquo and the compression project at the Accugas processing facility.

Debt

The Group net debt as at 30 June 2021 was US$369.4 million (31 December 2020: US$408.7 million).  During the period our leverage ratio, and our adjusted leverage ratio, both based on Adjusted EBITDA² improved as shown in the table below.

Leverage

# Adjusted EBITDA² for 6 months to 30 June 2021 and for 12 months to 31 December 2020

Cashflow

A summary of the cashflows for the period is as follows:

(a)   excludes US$31.0 million moved to debt service accounts

(b)   excludes US$0.2 million moved from restricted balances

The net cash inflow from operating activities was US$65.2 million (H1 2020: US$45.6 million) with the increase being driven by improved cash collections from customers which totalled US$101.6 million compared to US$82.1 million in H1 2020.

Net cash used in investing activities includes payments for property, plant and equipment of US$4.1 million (H1 2020: US$0.9 million) and US$1.1 million (H1 2020: US$0.1 million) incurred on exploration and evaluation assets.

Total cash balances of the Group at the end of the period increased to US$135.7m (H1 2020: US$53.3m). 

Nick Beattie

Deputy Chief Financial Officer

30 September 2021

Footnotes

[1] 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 Condensed Consolidated Statement of Comprehensive Income. A detailed explanation of the impact of IFRS 15 revenue recognition rules on our Consolidated Statement of Comprehensive Income is provided in the Financial Review section of the Savannah Annual Report and Accounts 2020.

2 Adjusted EBITDA is calculated 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 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 and transaction costs.

⁴ Adjusted Leverage is defined as Adjusted net debt/Adjusted EBITDA. Adjusted net debt is calculated as the net debt balance adjusted for the Naira held in cash for interest (as shown in the table on page 8).

5 Within cash at bank, US$1.6m is restricted cash which includes deposits and stamp duty escrow balances.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2021

All results derive from continuing operations.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2021

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2021