It’s been a while since I updated my Savannah Petroleum spreadsheets. A lot has happened in the interval, including a rapidly falling oil price and a downgrading of the long-term oil price assumption.
As with most oil shares the share price has fallen in line with this fall in POO, many companies have fallen much more than the percentage decline in the oil price. In comparison Savannah has done quite well.
Savannah had a recent high of 44p and a low of 28p. Current Share Price is 32.5p at the time of writing this post.
We are now entering an exciting period in the life cycle of this company and some interesting times lie ahead starting with the next 3 months.
Lets have a look at how the company stands right now.
A screen shot of the Summary Page sets the scene.
We have 193m shares in issue following a placing that raised $38m to purchase two further blocks, R3 and R4 in the Agadem Rift Basin in Niger. The company raised this money at a premium to the then current SP.
The current market cap is 62.7m
We have around 8 million in cash and this works out at around 4p per share.
A competent persons report on the companies R1 and R2 blocks revealed 1.191 million prospective resources, a significant number.
The Chinese have achieved an 80% success rate using 3D seismic.
Savannah has in addition to 2D and 3D seismic undertaken a Full Tensor Gravimetric Survey carried out by Arkex and this has been integrated into their sub surface model, helping to identify 14 drilling prospects, which they hope to start to drill in Q4 of 2015.
They are actively looking for an industry partner willing and able to inject $150m plus into the partnership.
Lets look at the position before any farm in.
The Summary Page encapsulates all this information.
Savannah has a 95% entitlement on blocks R1 and R2 but the Niger Government has the right to a 20% back in so on success Savannah has 95 x 80 / 100 = 76%.
Without any farmin partner SAVP has a fully diluted 76% entitlement before the details of the PSC are applied. You can view this figure in column P.
The Tax Opex and Capex workbook handles Royalties etc.
Without going into detail regarding the working of the Reserves Analysis Sheet the valuation based on 8 million barrels being achieved from the first five wells comes out at £2.41
based on a $65 long term oil price assumption.
If the current oil price is applied then this reduces to £1.27
If the company decides to go it alone and raises £25 m to fund a 5 well drilling program, increasing the shares in issue by say 80m then my target reduces to £1.25 with 273m shares in issue and using the current oil price.
All these price target figures include a 25% reduction due to negative sentiment relating to the oil sector as a whole.
The management options vest at £1.14
It is quite clear that the preferred way forward is to attract a farmin partner willing and able to inject $150 – $200 million into the venture.
I’m assuming that 50% of SAVPs entitlement will be given up to secure this deal so this reduces the entitlement figure from 76% to 38% but increases the cash by say $154m or £100m. This would raise the cash per share from 4p to 56p without raising the shares in issue.
The figure would fund 25 plus wells being drilled in the Agadem Basin.
Double click on the image to see full size.
The resulting target is now £1.15 based on 8 million barrels found from the 5 wells but a cash injection of $150m would allow 25 wells to be funded with say a 40m target. This raises my initial target to £1.27 at the current SP if a long-term oil price assumption of $65 is applied this figure rises to £1.73 (see above)
This is, IMHO, an ultra conservative initial valuation. Remember over 1 billion barrels are inferred in the CPR. Effectively this valuation only allows for 40m barrels to be moved into the 2P reserves category.
My initial target, giving an upside from the current SP of around 300% is possibly on the cards remembering that when the options vest additional shares will be issued.
The Chinese had an 80% success rate when translating prospective resources into 2P reserves. My figures are using a 60% chance of success for an initial 25 well drilling campaign targeting 40m of 2P reserves. This leaves just short of a billion barrels still to be accessed!
We need only 4.39 mb of 2P reserves to cover the current SP.
The nice thing about my software is that it is simple to change the scenarios .
Please do your own research and act accordingly and good luck with your investments.
Hope that helps
Dalesmann gives no advice on buying selling and holding this, or any other stock mentioned in his posts. His posts are for education only.
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