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    Nigeria-focused Savannah Slashes Costs


The company has also reworked a gas sales deal with a key customer in Nigeria.

by: Joe Murphy

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Complimentary, Natural Gas & LNG News, Africa, Corporate, Exploration & Production, News By Country, Nigeria

Nigeria-focused Savannah Slashes Costs

West Africa-focused Savannah Energy has cut its cost guidance for 2020 by $25mn in response to difficult market conditions, it said on December 22, noting it had also renegotiated a gas sales deal in Nigeria.

"Today, we are reiterating our total revenues guidance, reducing our cost guidance by $25mn and are set to deliver record Nigerian cash collections and production volumes in 2020,'" Savannah CEO Andrew Knott said.

The London-listed company now expects administrative and operating costs to come to $43-47mn this year, instead of $68-72mn. It has also lowered its capex guidance to $8-10mn from $45mn, largely by deferring work, including the drilling of a new gas production well at the Uquo field in Nigeria. The Accugas compression project is due to start in early 2021, it said.

Gross production at Savannah's assets was up 12% year on year in January through November at 19,200 barrels of oil equivalent/day. Growth came on the back of higher production in the first half of the year, which offset lower gas offtake in the second half. Savannah reduced its full-year output guidance to 19,000-20,000 boe/d from 21,000-23,000 boe/d. Even so, take-or-pay clauses in its gas contracts mean this reduction will not affect its revenues.

Savannah was saddled with $420mn of net debt at the end of November, and had a cash balance of $95.6mn. The company collected $164.3mn in cash in Nigeria in the year up to November 30, and expects full-year revenues to exceed $200mn.

The company also revised its gas sales agreement with Lafarge Africa, covering deliveries to the latter's Mfamosing cement plant in Nigeria's Cross River State. The contract's duration has been extended for a further five years until January 2037, and it now allows for an increase in the gas price from 2027. 

However, daily contractual volumes will be reduced to 38.7mn ft3/day from 24.2mn ft3/d, freeing up supplies from Savannah's Accugas subsidiary for other customers. The cement firm will also make a $20mn advance payment to Accugas, and the gas price will be increased to $7.5/'000 ft3 from $5/'000 ft3 until 2027.

Knott said the renegotiation was a "win-win" for both parties. "Accugas is receiving a higher effective gas price in the near-term years; accelerating near and medium term cash flows, our contract with a key customer is being extended for an additional five years and significant spare capacity is being freed up, which we can sell to other customers," he said. "All while Lafarge Africa is able to utilise its existing make-up gas balance."