(MENAFN- ProactiveInvestors)--ADDS BROKER COMMENT AND SHARE PRICE-- Savannah Petroleum (LON:SAVP) chief Andrew Knott described as 'highly encouraging' the doubling of the oil resource estimate for its licence area in Niger. He confirmed the company expects to bring in a partner to help exploit the potential of the R1/R2 area sometime in the next six months. The resource update followed on the back of work carried out by independent expert CGG Robertson which reckons the Niger licence is host to a 'gross risked' 1.19bn barrels of crude up from 573mln barrels. The figure was compiled after close scrutiny of the size and risk profile of the 14 drill-ready prospect on area R1/R2. They alone have an indicated a gross mean risked recoverable resource of 259mln barrels (mmbbls) up from 215 mmbbls. Looking at the economics CGG has set a break-even price of US$43 a barrel. Separately Savannah said it had now received authorisation to carry out drilling and seismic work on the R1/R2 prospect. It also revealed well design and seismic acquisition planning contracts have been signed and the plan is to restart exploration activity in the second half. CEO Knott told investors: 'Today's update is further cause for confidence in Savannah's future and we thank our stakeholders for the support we have been shown to date.' Savannah listed on the junior market last August raising US$50mln to de-risk and develop the R1/R2 in the Agadem Rift Basin of south-east Niger. It shelled out a fairly significant signing bonus of US$34mln to secure the acreage; this if anything reflected the confidence management has in the potential of the property. Covering an area approximately the size of North Yorkshire R1/R2 was one of those areas the China National Petroleum Corporation (CNPC) was mandatorily required to surrender under the terms of its contract with the government. These aren't worthless leftovers; rumour has it CNPC was keen to reclaim them in the last licensing round. And it is easy to see why the Chinese might be keen to hold onto as much of its original acreage for as long as possible for they've had tremendous success in Niger. They've drilled 93 discoveries from 124 exploration wells. Savannah's Knott expects to be able to replicate this near 80% hit rate when drilling begins in the second half of the year. The CEO in a recent interview said there had been 'significant interest' in R1/R2 and he told Proactive Investors: 'I'm very confident that any partner introduction will be done at a very material premium to that implied by our current share price.' Early interest in the Agadem Rift Basin by the majors which pre-dated CNPC's arrival in 2008 was dimmed when they struck out more often than they hit commercial oil. The key to CNPC's success was the use of modern 3D seismic which was transformational. Accumulations of this slightly waxy 31-degree API crude tend to be on the modest size internationally – the average find is around 11mln barrels while the largest is 60mln. But as they are numerous reasonably easy to find shallow and therefore cheap to drill the Chinese have been happy to make inroads. They have developed a 20000-barrel-a-day refinery and should complete Niger's first export pipeline (which will hook into the Chad-Cameroon pipe) by 2017. Savannah is keen to drill its first exploration well in the second half. Conservatively the costs are likely to be US$5mln. However CNPC's costs are coming in at US$4.25mln and the slowdown of the industry will undoubtedly give Knott and his team some power to hammer down costs. Shore Capital's Craig Howie described today's update as 'very consistent with our own assessment' of the company's potential as he restated his 'buy' advice. RBC Capital Markets initiated coverage with 100p a share price target (current price 39p). 'Savannah Petroleum offers the upside potential of a basin opening explorer but with less frontier risk' said analyst Al Stanton.
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