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Savannah Petroleum PLC: THE INVESTMENT CASE

Savannah Petroleum set for exciting times as Niger exploration campaign nears

“We are now in the process of starting to unlock the inherent value in our asset base,” said chief executive Andrew Knott.
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INVESTMENT OVERVIEW: SAVP The Big Picture
Drilling operations are coming soon for Savannah Petroleum

Excitement is building for investors in Savannah Petroleum PLC (LON:SAVP) now that a contractor has been signed up for a new exploration campaign in Niger.

Savannah Petroleum now expects to start its drill programme, of up to 9 wells, in the coming weeks and months - the company guides ‘before the end of H1’.

Specifically, it has contracted Great Wall Drilling Company (which already has a rig in the country) for three firm wells, with an option for a further six wells. The explorer’s shares shot up almost 20% after confirming the appointment of the rig contractor.

Andrew Knott, Savannah Petroleum chief executive, highlights that the contractor is seasoned and experienced in Niger’s Agadem basin having drilled 250 wells over recent years.

“We are now in the process of starting to unlock the inherent value in our asset base,” Knott said.

Details of the drilling plans, and specific targets are anticipated soon.

The drill campaign follows the completion of a 3D seismic programme, which spanned over 800 square kilometres.

Savannah told investors that the data quality is excellent and it expects the first batch of fast-track results soon (before the end of Q1).

“We look forward to further details emerging in relation to the planned drilling programme and, with a significant resource upgrade and numerous exploration targets already confirmed across Savannah’s Niger acreage, continue to believe that the commencement of an active exploration drilling programme in H1 2017 is the key milestone for investors to look forward to,” said Craig Howie, analyst at Shore Capital.

Shore Capital has a ‘buy’ recommendation, and with a 80p price target the broker sees some 135% upside to the current price.

Plug and play exploration in Niger

The thesis for Savannah’s exploration campaign is relatively simple.

In summer 2013, the explorer picked up its first piece of prime acreage that was previously held by the Chines national oil company (a parcel of land discarded due to mandatory relinquishment terms in its licence agreement with the Niger government).

CNPC has seen a great deal of success on the main part of its acreage (the part it kept) and Savannah aims to follow a similar blue-print.

Savannah’s acreage, which is about half the size of Wales, contains proven but undeveloped oil reserves - and lots of them.

The CNPC originally identified about 832mln barrels (mmbbls) of proven and probable (2P) reserves.

Savannah has since increased its prospective oil resource base for R1/R2 to 1.2bn barrels with a new independent assessment from consultant CGG Robertson. And, a subsequent acquisition of an additional area (the R3/R4 contract area) has seen the resource potential rise to 2.2bn barrels.

Historically there has been a 70 to 80% success rate with exploration wells in this region.

Threshold for commercial discovery is ‘relatively low’

Savannah chief executive Andrew Knott, in a Proactive Investors interview, explains that the low cost of doing business in Niger means the commerciality threshold is also relatively.

Not only is the criteria for a commercial discovery low the group’s present valuation, £92mln or 34p share respectively, Knott believes drilling success this summer will be significant.

“Given our current [share price] rating and given the structures we’re targeting, our view is that any discovery will ultimately prove to be material to the business,” Knott said.

He added: “So, in the first instance, what we’re simply looking to do is to prove up a series of hydrocarbon discoveries and then we’ve always said that we expect, once we start drilling, that we won’t stop.

“There’s a multitude of targets that we can target after the initial campaign, which we intend to go after.”

“One of the most exciting AIM oilers”

WH Ireland analyst Brendan Long believes the upcoming drill programme in Niger can deliver a “high hit rate”.

The apparent confidence stems from China’s National Oil Company’s track record in the region.

“Given we have a high degree of confidence in the company’s exploration assets we prefer to see more wells drilled as a broad portfolio approach that should deliver based on our understanding of the geology,” the analyst said in a note.

“Savannah has kept a low profile of late and we are delighted to see them ramping up for a catalyst rich 2017.”

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