Savannah Energy PLC has announced that it has entered into a revised Gas Sales Agreement (GSA), through its Accugas subsidiary, with Lafarge Africa PLC, a part of the LafargeHolcim Group, for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria.
The revised GSA is to increase the effective gas price Accugas receives from $5/Mscf to $7.50/Mscf until 2027 together with an upfront payment of $20 million to Accugas and reduce the daily contracted quantity of gas from 38.7 MMscfpd to 24.2 MMscfpd, to enable Accugas to release approximately 12 MMscfpd of currently reserved gas processing capacity at its central processing facility (“CPF”), enabling Accugas to enter into additional long-term GSAs with other customers, increasing the business’ future revenues and cash flow potential.
The agreement will allow Lafarge to utilise its accumulated make-up gas balance of approximately $58 million on an accelerated basis and for Accugas’ aggregate maintenance-adjusted take or pay volume to reduce from 141.4 MMscfpd to 131.8 MMscfpd
The revised GSA is to extend their existing deal for five years to January 2037. Lafarge’s commitments continue to be guaranteed by an international investment grade bank guarantee. The GSA is accretive to short and medium-term cashflow and Total Revenues and is Net Asset Value enhancing.
The Chief Executive Officer of Savannah Energy, Andrew Knott said, “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. The deal with Lafarge Africa is also 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 utilize its existing make-up gas balance. 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.”