Savannah takes a proactive, robust approach to risk management, with the aim of protecting our stakeholders and safeguarding the interests of the Group. Our ability to identify and successfully manage risks is a critical part of ensuring the success of our business and of protecting shareholder value.
The identification and assessment of risks that threaten the Company’s business model, future performance, solvency or liquidity and the development of action plans to manage and mitigate those risks are integral parts of the Group’s business process.
Comprehensive risk registers are maintained and reviewed on a dynamic basis at the corporate and asset levels.
Set out below are the risks and uncertainties which the Directors consider particularly relevant to the Group’s business activities at the date of this report. In a changing business environment, other risks and uncertainties are assessed as part of the Group’s risk management framework and are mitigated as they arise.
Group risk management framework:
|Key risk factor||Potential impact||Mitigation|
|1. Gas payments risks||The Group’s revenues from gas production in Nigeria are derived from long-term contracts with its customers. These customers may fail to fulfil their contractual obligations, particularly in respect of the payment of invoices in accordance with the contractual terms. This could have a material impact on the Group’s cash flows and may result in the Group being unable to fulfil its obligations, particularly in respect of meeting scheduled debt service payments.||The Group has put in place credit support arrangements for all its gas sales agreements, including parastatal guarantees and investment grade letters of credit, to mitigate this risk. In particular, the Calabar gas sales agreement, which is the Group’s most material gas sales agreement representing over 65% of contracted gas sales revenues, is supported by a World Bank Partial Risk Guarantee.|
The impact of COVID-19 on the global economy, the Nigerian economy and our customers’ businesses has inevitably increased the risk of late payments in 2020 compared to last year with a consequential impact on the Group’s liquidity.
|2. Financing, liquidity and foreign exchange||The financing, liquidity and foreign exchange risk of the Group increased in 2019 as a result of the completion the Nigerian Asset acquisition. The Group now has materially higher levels of borrowing and a greater exposure to foreign exchange volatility (as described in the Financial Review). In addition, the Group is now revenue generative and is dependent on these revenues to fund operations, service its debt and generally manage its liquidity.|
Whilst the majority of revenues are received under fixed price gas contracts, the Group is exposed to fluctuations in commodity prices through its oil revenues received from Stubb Creek. The Group is also exposed to fluctuations in foreign currencies, principally the Nigerian Naira and West African CFA.
|The Group closely monitors its liquidity position and forecast cash flows to manage its risk exposures at both a Group and individual entity level.|
The Group applies appropriate mitigation tools for these risks including potential hedging of commodity and foreign exchange risk. The Group does not take any speculative hedging positions.
|3. HSSE and maintaining our social ‘licence to operate’||Due to the nature of our business and operations, there is a risk of major incidents resulting in loss of life, pollution of the environment and community and third-party claims. Therefore, HSSE risks, should they materialise, could have an adverse effect on the Company’s earnings and financial condition, in addition to operational disruption or delays.||We have standards and clear policies to help manage potential impacts. They are defined in our Health, Safety, Security, Environment and Social Management Systems. The HSSE and CSR teams provide assurance on the effectiveness of these systems to management.|
The Company has now assumed full operatorship responsibilities for the Uquo CPF giving it control over HSSE risk management for this critical operation.
The Group has comprehensive all-risk insurance in place.
|4. Producing asset integrity and operational risk of Nigerian Assets||The Group’s producing asset portfolio is currently located exclusively in Nigeria. Failure to proactively maintain the assets, comprising producing wells and flowlines, the gas processing facility and gas distribution and oil export pipeline, could lead to downtime or failure to meet contractual obligations leading to loss of revenue and other contractual implications.||The Group has a comprehensive maintenance programme in place to ensure integrity of its facilities. This include regular inspection, clearing and maintenance of pipelines and their rights of way, as well as stocking the right spares to ensure continuous operations. Additional gas wells are planned to be drilled over the coming years to maintain gas production capacity to meet contractual obligations.|
|5. Nigerian production risk||Existing or future production wells may perform below expected rates, which could impact the Group’s ability to deliver gas to customers and evacuate crude to the Qua Iboe Terminal or could result in increased field development and loss of revenue.||Savannah monitors the production data on a daily basis and has integrated subsurface/surface models for analysing well and reservoir performance against expectations and taking remedial actions.|
|6. Exploration and appraisal risks||Exploration and appraisal of oil and gas is speculative and involves a high degree of risk. The Group may not discover hydrocarbons in commercial quantities and those discovered may not be developed into profitable production.|
Drilling activities and results may be impacted by a variety of risks which are beyond the control of the Group including, but not limited to, unusual or unexpected geological formations, formation pressures and geotechnical factors.
|The Group has rigorous processes and procedures in place to assess the risks associated with its exploration and appraisal activities and engage appropriate consultants to supplement its in-house expertise. The acquisition and re-processing of seismic data and use of advanced reservoir characterisation techniques assists with the mitigation of subsurface and technical risks associated with the Group’s exploration activities.|
|7. Commercialisation of Nigerian discoveries||An inability to appraise and develop the Group’s discovered resources in Niger in a timely manner could materially reduce the value of these resources to the Group.||A feasibility study for the Company’s planned R3 East domestic-focused development has been submitted to the Ministry of Petroleum (“MEP”) in Niger, setting out detailed plans to develop the resources discovered in 2018. An MOU has also been signed with the MEP which confirms the Republic of Niger’s intention to enable the Group to access third-party infrastructure.|
|8. Country Political Risk||Disruption to our business or operations caused by political or regulatory influence in Niger and Nigeria.||Continuous, open engagement with regulators and other authorities in our countries of operation.|
Strict avoidance of any forms of political alignment, support or engagement.
Regular contact maintained with key senior Government personnel (e.g. The office of The President, Minister of Energy, Minister of Finance) and institutions (Department of Petroleum Resources).
|9. Ethical conduct||Bribery and corruption present a risk throughout the global oil and gas industry and represent an ongoing risk to any company operating in this industry. A major breach of our values, code of conduct or material contractual agreements could damage the Company’s reputation or impact our financial position.||The Group has robust compliance policies and procedures in place, employs third-party due diligence and operates a confidential whistleblowing service accessible to all employees. Staff and contractors are given regular and extensive training in these policies and procedures. A Board-level Compliance Committee convenes quarterly and on an ad-hoc basis as required. The Company’s Chief Compliance Officer and Head of Risk has responsibility for compliance matters at an executive level within the Group. |
The Group has completed full anti bribery training for all global employees and raised awareness at all levels.
|10. Retention of key employees||The ongoing growth and success of the Group will be driven by the quality of talent within the business. The recruitment and retention of key employees is therefore critical and an inability of the Group to do this could have a negative impact on plans and results.||The Group has a competitive compensation and retention package in place which is reviewed against the market regularly. Key employees participate in equity and performance-based reward schemes that contribute towards retention. Contractual arrangements for key employees have been put in place to support retention. Key employees are part of ongoing talent review processes to ensure the risk of leaving is mitigated.|