Lagos — Accugas, a subsidiary of Savannah Energy, has entered into a revised gas sales agreement, GSA, with Lafarge Africa Plc for the supply of gas to its Mfamosing cement plant in Cross River State, Nigeria.
In a statement, Savannah said the contract term with Lafarge extends for 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 January 1, 2029, adding that the deal has established a more sustainable long-term contractual position for the benefit of both parties.
The revised GSA has 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 cash flow potential.
To compensate Accugas for this reduction in DCQ, the revised GSA includes an advance payment of US$20 million 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.
Speaking on the contract, Andrew Knott, CEO of Savannah Energy, 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 utilise 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.”