Savannah Energy revises agreement with Lafarge
Accugas, a subsidiary of Savannah Energy has entered into a revised gas sales agreement (GSA) with Lafarge Africa Plc, part of the LafargeHolcim Group, for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria. The company made this disclosure as part of an update update for the 11-month year-to-date period ended 30 November 2020.
The revised GSA sees the contract term with Lafarge extended for a further five years to January 2037, giving a remaining contract life of 17 years. The new agreement also allows for an increase in the gas sales price from 2027, with additional US-Consumer Price Index indexation from 1 January 2029.
The agreement ensures a reduction in the daily contracted quantity of gas from 38.7 MMscfpd to 24.2 MMscfpd. This reduction in the DCQ will allow Accugas to release approximately 12 MMscfpd of currently reserved gas processing capacity at the CPF, enabling Accugas to enter into additional long-term GSAs for these volumes, which will increase the business’ future revenues and cashflow potential.
“The deal with Lafarge Africa is a significant “win-win” for both parties; Accugas is receiving a higher effective gas price in the near-term years, accelerating near and medium term cashflows, 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 gas to other customers. All while Lafarge Africa is able to utilise its existing make-up gas balance,” Andrew Knott, CEO of Savannah Energy, said.
“We are looking forward to 2021 with excitement as we continue to work with our stakeholders to develop and grow our business for the benefit of all,” Mr Knott further said in a comment.
To compensate Accugas for this reduction in DCQ, the revised GSA includes an advance payment of US$20million and a prepayment structure over the period to 2027, which effectively results in a gas price of US$7.50/Mscf on take-or-pay volumes during this period.
This revised structure also allows Lafarge to utilise its accumulated make-up gas balance of approximately US$58 million, whilst we have preserved the capacity to supply higher volumes when these are required by Lafarge. Lafarge’s commitments under the revised GSA will continue to be guaranteed by an international investment grade bank guarantee.
Overall, the revised terms are expected to have a cumulative positive impact on Accugas’ cash flows over the short and medium term. Following the agreement, Accugas’ aggregate maintenance-adjusted take or pay volume will reduce from 141.4 MMscfpd to 131.8 MMscfpd.
Provifing additional update on its operation in Nigeria, the company noted that total cash collections from the Nigerian Assets year-to-date period ended 30 November 2020 were US$164.3m as compared to cash collections of US$124.2m in the same period last year, an increase of 32%. Cash generated by the Nigerian Assets has been directed to funding operating and maintenance costs and debt service.
“Taking into account the challenging market conditions in 2020, I am pleased with the way the Savannah team and the wider Group has performed. Today, we are reiterating our Total Revenues guidance, reducing our cost guidance by US$25m and are set to deliver record Nigerian cash collections and production volumes in 2020,” Mr. Knott noted.