London, Lagos, 4 January 2017: Seven Energy International Limited (“Seven Energy” or the “Group”), the leading integrated gas company in south east Nigeria, with upstream oil and gas interests in the region, and its wholly owned subsidiary, Accugas Limited (“Accugas”), today provides a liquidity update and announces it has entered into a US$50 million debt service guarantee facility with GuarantCo Ltd (“GuarantCo”) on 29 December 2016 (the “DSA Facility”).
During 2016, Seven Energy made significant progress towards its stated objective of establishing and operating a leading gas supply network, meeting the needs of the power sector and other commercial and industrial customers in Nigeria. During the development of this network, Seven Energy has been relying on oil production cash flow generated under its Strategic Alliance Agreement (“SAA”) to support its transition to a utility business profile.
A major milestone was achieved in the last quarter of 2016 with the completion and commissioning of the 69 km Uquo – Creek Town pipeline enabling full supply against all existing take or pay contracts, including the 560 MW NIPP Calabar power plant, an important part of the Nigerian Government’s “Gas to Power” strategy.
Notwithstanding this positive development, the Group’s liquidity has been, and continues to be, severely affected by a range of external factors, including:
- the loss of material cash flow from the SAA, as recurrent militant activity at the Forcados terminal has prevented any ‘lifts’ during 2016 of oil production from the Group’s interest in OMLs 4, 38 and 41, with no certainty as to when this terminal will become operational again;
- a significant backlog of unpaid invoices relating to the supply of gas to Nigerian state owned power stations;
- delay in finalisation of ancillary documentation in relation to the World Bank Partial Risk Guarantee (PRG), which will guarantee payment to Seven Energy for up to US$112 million (c.9 months) of gas supply invoices; and,
- a severely restricted ability to convert Nigerian Naira into US Dollars.
The combination of these adverse external factors has resulted in continued significant pressure on the Group’s liquidity, with proceeds from the US$100 million equity raise at the beginning of 2016 now being almost fully deployed.
In an effort to address these challenges Seven Energy has taken steps to reduce its debt servicing burden, including successfully negotiating:
- the deferment of amortisation on the bank loans underpinning the gas business: and
- the accrual of interest on the bond securities supported by the SAA.
Seven Energy has also significantly reduced annual operating costs and instituted changes to the organisational structure to better reflect its transition to a utility business profile.
In addition to the above steps, given the continued liquidity pressure the Group has;
- entered into, and drawn on, a debt service guarantee facility (“DSA Facility”) with GuarantCo; and,
- initiated discussions with potential investors to provide additional liquidity through new debt or equity.
In the event of liquidity constraints the DSA Facility enables Accugas to meet up to US$50 million of its debt service obligations in respect of the US$385 million senior secured term facility dated 23 June 2015 (the “Term Facility”). The DSA Facility also eliminates the requirement under the Term Facility to maintain a debt service reserve account (“DSRA”), thereby releasing the c.US$5 million currently held in the DSRA which will provide further liquidity to the Group.
With the consent of GuarantCo and the Accugas lenders, it was agreed that Accugas would draw the full US$11 million immediately available under the DSA Facility in order to make the interest and principal repayment due on the Term Facility on 31 December 2016.
To further address the current liquidity challenge; Ernst & Young has been appointed by the Group to advise on broader capital restructuring and other strategic options that may be available to the Group; and the Group has initiated discussions with potential investors relating to initiatives that will preserve and enhance the Group’s near-term liquidity.
For further enquiries, please contact:
Seven Energy International Limited
Phillip Ihenacho, CEO
Bruce Burrows, CFO
Joe Kaye, Group Head, Finance
John Arthur, Planning and Performance Manager
|+44 20 7518 3850
|+44 20 7404 5959
|+234 809 996 1007
About Seven Energy
Seven Energy, founded in 2004, is the leading integrated gas company in south east Nigeria, with upstream oil and gas interests in the region. With a deep understanding of the domestic Nigerian gas market, supplying gas to the power generation and manufacturing industries, principally through its own integrated processing and pipeline infrastructure, and the backing of strategic long-term investors, the Group has a unique focus on the emerging Nigerian domestic gas market. The Group’s midstream gas infrastructure assets, focused in the south east Niger Delta, include the 200 MMcfpd Uquo gas processing facility and a gas pipeline network of 260 km with distribution capacity of 600 MMcfpd. Its upstream assets include licence interests in the Uquo Field and the Stubb Creek Field (south east Niger Delta), an indirect interest in OMLs 4, 38 & 41 through a Strategic Alliance Agreement with Nigerian Petroleum Development Company (north west Niger Delta) and a licence interest in OPLs 905, 907 and 917 (Anambra Basin). The Group has its main offices located in Lagos and London.
Seven Energy Finance Limited is a wholly owned subsidiary of Seven Energy International Limited incorporated in the British Virgin Islands. The Company is the issuer of US$300 million 10.25% Senior Secured Loan Notes due 2021 and the US$100 million 10.50% Senior Secured Notes due 2021, both of which are listed on the Irish Stock Exchange.
For more information on Seven Energy please visit www.sevenenergy.com