Savannah Energy subsidiary enters gas sales agreement in Nigeria

Africa-focussed Savannah Energy announced on Friday that its Accugas subsidiary has entered into a new gas sales agreement with Mulak Energy.

The AIM-traded firm said the agreement was initially for a seven-year term, and envisaged the supply of gas produced by Savannah's majority-owned Uquo field for an initial two-year period on an interruptible basis, with the subsequent five years on a firm contract basis.

During the interruptible gas delivery period, Mulak would be able to nominate a maximum daily quantity of up to 2.5 million standard cubic feet per day.

Volumes in the firm delivery period would be agreed by the parties before the end of the interruptible period.

The company said the gas sales agreement was priced to reflect Mulak's status as an industrial customer, and thus Accugas expected to see its weighted average gas sales price realisation increase as a result of the contract, without the need for any incremental capital expenditure beyond its previously-announced plans.

Sales under the agreement would benefit from a bank guarantee arrangement from an investment-grade, credit-rated international bank.

Savannah noted that Mulak is a member of the Egypt-based conglomerate Mansour Group, which operates in more than 100 countries and has annual revenues exceeding $7.5bn (£5.48bn).

The agreement for the supply of gas to Mulak's Nigeria compressed natural gas (CNG) Nigerian project represented Savannah's first gas-to-CNG agreement.

Mulak was initially planning to distribute CNG to its industrial customers in Rivers State, with the CNG to be substituted for diesel in generators supplied by the Mantrac Group, which is also a member of the Mansour conglomerate and is one of the world's largest dealers in Caterpillar machinery, power systems and equipment.

Savannah said Mulak was in a “unique position” to exploit the synergies with Mantrac's business in Nigeria through the conversion of Mantrac's existing customer base of around 400MW of diesel-fuelled generators to CNG-fuelled generators.

That was expected to provide Mantrac customers with up to a 40% saving in energy costs, and a 30% reduction in their carbon footprint.

Sales under the gas sales agreement were expected to start in 2022 and, following the initial two-year period, Mulak had indicated that it was seeking to expand its CNG sales on a pan-Nigeria basis to Mantrac customers.

Accugas was continuing to make “good progress” in relation to agreeing further potential new gas sales agreements with new customers, Savannah reported, with further updates to be provided in due course.

“We are delighted to announce this new gas sales agreement with Mulak Energy and the Mansour Group,” said Savannah chief executive officer Andrew Knott.

“This recognises Accugas' status as the most reliable supplier of natural gas in Nigeria.

“Our first gas-to-CNG agreement is hugely exciting as it represents Savannah's entry into the compressed natural gas market, which we see as offering strong growth potential for our business over the course of the next decade.”

Knott said the CNG market would “significantly extend” the reach of the company’s existing 260 kilometre pipeline network into light industrial and domestic power generation, without the need for further investment in pipelines.

“For example, the Mansour Group subsidiary, Mantrac, currently has an installed customer base of approximately 400MW of diesel-fuelled power generation, which has grown every year for the last decade.”

At 1011 GMT, shares in Savannah Energy were up 3.96% at 17.05p.