Newly-listed Savannah Petroleum (SAVP:AIM) provides investors with a way into the burgeoning oil district of Niger. News on surveys of its asset in the country and a farm-out agreement ahead of drilling are likely catalysts for the shares.
Having raised £29.3 million at 56p (1 Aug), the company is funded to acquire full tensor gravity and seismic surveys over its R1/R2 production sharing contract (PSC) in the remainder of this year. The resulting data will be used to identify high grade prospects for a planned 30 well campaign in 2015 and 2016.
Chief executive officer Andrew Knott, a former analyst who headed up the global energy investment arm of hedge fund giant GLG (a subsidiary of Man (EMG)), tells Shares the group is about to go after what he describes as the ‘most prospective exploration asset I’ve seen in the last 15 years.’
Located in what Knott says are ‘benign desert conditions’ R1/R2, of which Savannah has 60%, covers half of the original Agadem permit which Chinese giant CNPC was forced to relinquish under the terms of its licence in July 2013. It is estimated by independent consultant CGG Robertson to contain 573 million barrels of oil equivalent in gross prospective resources.
Between 2009 and 2013 CNPC made an estimated 77 discoveries from 99 exploration wells on Agadem unlocking 832 million barrels of proved and probable (2P) reserves. It has also built a 20,000 barrel of oil per day (bopd) refinery in the country and there is a plan afoot to secure an export route by tying into the Chad-Cameroon pipeline.
Major oil companies exited the country in 2004 because of the low oil price but the new infrastructure means Savannah’s planned development would be economic down to $60 per barrel, according to Knott. The fiscal terms see the government taking 69% of the revenues left over after accounting for costs.
Risks include funding. A 30-well programme at a likely cost of around $5 million per well will set the company back some $150 million and a partner will be needed to share the burden of these costs. Striking such an agreement could itself boost the stock. There may also be delays and difficulties with the Cameroon export plan but, with a market cap of just £76.1 million and potentially-rich exploration assets, the risks look reflected in the valuation.