REG - San Leon Energy PLC - Final results
08/07/2022 08:15
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RNS Number : 7694R San Leon Energy PLC 08 July 2022
8 July 2022
San Leon Energy plc
("San Leon" or the "Company")
Final results
San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, is pleased to announce its audited final results
for the year ended 31 December 2021. The full annual report for the year to
31 December 2021 is available on the Company's website (www.sanleonenergy.com
(http://www.sanleonenergy.com/) ) and will be posted to shareholders in the
coming days.
Corporate and financial highlights
Corporate
• Negotiated and announced on 24 June 2021 the proposed Midwestern
Reorganisation, which is described in full in the Company's Admission
Document, which is being published later today.
• On 24 June 2021 announced the conditional purchase from Walstrand
(Malta) Ltd of 1.323% of ELI shares for US$2 million, together with an option
to purchase a further 4.302% in ELI for an additional US$6.5 million.
• On 7 July 2021 announced conditional payment waivers (subsequently
extended) regarding the approximately US$99.3 million (par value) of payments
due from Midwestern Leon Petroleum Limited ("MLPL") to San Leon during the
second half of 2021, since the repayable amounts form part of the proposed
Midwestern Reorganisation. Payment waivers remain in place at the date of this
announcement pending completion of the transactions.
• In January 2022, the Company announced that some of its subsidiaries
had successfully concluded their ongoing legal proceedings with TAQA Offshore
BV ("TAQA") in relation to San Leon's legacy interests in two royalties on
Block Q13A, which is located offshore the Netherlands (the "Amstel Oil
Field"). Payments totaling more than €5.9 million for royalties receivable
up to November 2021 including a payment in respect of its legal costs, have
been received in 2022. From December 2021, the royalties will continue to be
payable in accordance with the terms and conditions of the Royalty Agreements,
and payments and are not expected to be material.
• On 15 February 2022, the Company announced a further loan of US$2
million to ELI, also enabling the Company to conditionally purchase a further
2% shareholding of ELI for a nominal sum.
• In February 2022, the Company completed its US$5.5 million investment
in Decklar Petroleum Limited ("Decklar"), related to the Oza field onshore
Nigeria, repayable to the Company as a loan through a cash sweep. The Company
also holds 11% equity stake in Decklar.
• Board appointment process previously announced completed with
appointment of John Brown as Independent Non-Executive Director and Chair of
the Audit and Risk Committee. Alan Campbell resigned from the Board in 2021 as
part of a board restructure. Lisa Mitchell left the Company as CFO and
Executive Director in October 2021 and Julian Tedder was appointed as CFO and
Executive Director in December 2021.
Financial
• Included within the basis of preparation note of the financial
statements and Independent Auditor's report are details regarding material
uncertainty related to going concern. This is uncertainty is mitigated by the
transactions announced today. Cash and cash equivalents as at 31 December 2021
were US$7.6 million (includes US$6.8 million restricted and held in escrow for
the Oza transaction) (31 December 2020: US$18.5 million including US$6.8
million restricted and held in escrow for the Oza transaction).
• In 2021, US$2.2 million (31 December 2020: US$46.5 million) in
principal and interest payments has been received under the MLPL Loan Notes.
• Outstanding amounts due under the MLPL Loan Notes are now
approximately US$105.6 million (par value), which are subject to current
repayment waivers pending the completion of the proposed Midwestern
Reorganisation, and would be extinguished as part of the consideration if the
transaction were to complete.
Operational
An update on OML 18 activity during 2021 is provided below:
• Oil delivered to the Bonny terminal for sales was approximately 4,400
barrels of oil per day ("bopd") in 2021 (21,100 bopd in 2020) and has been
affected by combined losses and downtime of approximately 79%. The 2021 figure
has also been affected by OPEC oil production quota restrictions, and some
Covid-related delays. Field operations to boost production were largely put on
hold, pending the start-up of the ACOES barging system. Together, the losses,
downtime, OPEC restrictions and Covid-related delays have caused the majority
of the difference between gross production when there is minimal disruption to
production, and oil is received at Bonny terminal for sales.
• Gas sales averaged 29.6 million standard cubic feet per day ("mmscf/d")
in 2021 after downtime (32.7 mmscf/d in 2020).
• Production downtime of 9% in 2021 was caused by third party terminal and
gathering system issues. This relates to days when oil production was entirely
shut down at OML 18. Historical issues in the third-party export system are
expected to be substantially resolved by the implementation of the new ACOES
for the purpose of transporting, storing and evacuating crude oil from OML 18
export Pipeline. The pipeline will run from within the OML 18 acreage to a
dedicated FSO vessel in the open sea, approximately 50 kilometres offshore.
Barging of oil from OML 18 to the FSO is expected to commence in July 2022,
with trials already having been completed. Expected timing for the completion
of the pipeline component of ACOES is late 2022.
• Pipeline losses by the Bonny Terminal operator have increased markedly
over the past year (31 December 2021: 70%; 31 December 2020: 28%), largely due
to lower pipeline throughput as a result of OPEC quota restrictions and
Covid-related issues. In the medium term, the ACOES is expected to reduce
losses significantly.
• Eroton has taken all appropriate precautions for its operations and
people, with regards to Covid-19.
· An update on ELI is as follows:
o Whilst there have been some delays to ACOES principally due to Covid,
barging operations from OML 18 to the ELI Akaso FSO are now expected by ELI to
commence during July 2022.
o ELI is in advanced negotiations with other third-party injectors for use
of its pipeline and terminalling facilities.
o Construction of the pipeline continues to progress and hook up with ELI
Akaso is expected to take place in late 2022.
Outlook for 2022
• Fuller barging operations from OML 18 to the FSO to commence in
July2022.
• Completion of the proposed transactions with Midwestern and ELI
expected later in 2022.
• The commissioning of the ACOES pipeline.
• Restarting of field operations on OML 18.
• Export of oil from Oza.
• Continuing to position the Company for further transactions.
On 8 July 2022, the Company entered into the new facility for the purposes of
funding its working capital requirements and for financing the Further ELI
Investments, details of which can be found in the Admission Document. The new
facility is for US$50 million.
Oisin Fanning, CEO of San Leon, Commented:
"The last year has been the most significant year in the Company's
development. We embarked upon and announced today a transaction which we
believe will create a significant West African oil and gas entity which is
ideally placed to take advantage of the opportunities available to it and to
deliver considerable future value to all our shareholders."
San Leon Energy plc +353 1291 6292
Oisin Fanning, Chief Executive
Julian Tedder, Chief Financial Officer
Allenby Capital Limited +44 20 3328 5656
(Nominated adviser and joint broker to the Company)
Nick Naylor
Alex Brearley
Vivek Bhardwaj
Panmure Gordon & Co +44 20 7886 2500
(Joint broker to the Company)
Nick Lovering
James Sinclair-Ford
Tavistock +44 20 7920 3150
(Financial Public Relations)
Nick Elwes
Simon Hudson
Plunkett Public Relations +353 1 230 3781
Sharon Plunkett
Chairman's Statement
Whilst the Covid-19 pandemic continued to provide industry challenges during
2021, the recovery in oil price during the year and since, has enabled the
Company to approach its portfolio with increased confidence. As a result, San
Leon has proposed a major scaling up of its interests in OML 18 and ELI.
The Company was proud to announce in June 2021 the proposed transaction to
increase its position in OML 18 and ELI significantly, and today we will
publish an Admission Document in this respect. I view the proposal as a
milestone in San Leon's growth aspirations, and an integral part of our
strategy.
The Proposed Transaction
San Leon is committed to the long-term development of its Nigerian assets,
with a focus of delivering value to Shareholders. This is driven by its
technical expertise and operational capabilities, secured by the close links
it forges with governments, joint venture partners and the local communities
in which it operates.
The MLPL Reorganisation and the ELI Reorganisation together with the Further
ELI Investments would result in San Leon's initial indirect interest in OML 18
increasing from 10.58% to 44.1%, while the MLPL Loan Notes would fall away. In
additional transactions, the Company's interest in ELI would increase to
approximately 50%, as well as having approximately US$50 million of loan notes
receivable from ELI. The transaction is also expected to have the following
benefits:
• increasing the Company's economic interest in ELI will complement the
Company's proposed 100% interest in MLPL, as the ACOES project is being
constructed to provide a dedicated oil export route from OML 18 and therefore
for the benefit of MLPL, including the expected reduction of pipeline losses
and increasing the uptime of export;
• San Leon's larger presence by virtue of its activities, resources and
commitments, will pave the way for the Company to become a significant market
participant in Nigeria, thereby better positioning the Company to deliver
value for shareholders; and
• increasing the Company's technical and management involvement in the
OML 18 asset, serving to help optimise the development of the asset. This will
be formalised through an Asset Management Agreement.
Each of these benefits will contribute to the Company's main objectives which
are to:
• use the Company's interest in OML 18 as a platform to become a
leading independent production and exploration company focused on Nigeria and
West Africa - by securing and developing further high potential asset
opportunities that yield value for shareholders;
• use the Company's technical and operational expertise in securing
production and near-term operating cash flow which will yield value to
shareholders whilst continuing to forge close links with governments, partners
and the local communities that it operates in; and
• continue to position the Company for further transactions.
The Company's financial position also enabled it to increase its stake in ELI
during 2021 and early 2022 to 13.323% with a loan note receivable of US$17
million (par value), and during 2021 and early 2022 to complete an investment
of US$5.5 million in Decklar (related to the Oza field). The Company has an
option to invest a further US$2.5 million in Decklar by the end of June 2022.
Decklar performed a workover and well testing on the Oza-1 well during 2021,
and results are discussed in more detail in the CEO's report.
Last year I anticipated that the new oil export system, ACOES, was expected to
be operational during H2 2021. While the timing on this has slipped, I am
pleased to report that barging operations to the FSO are expected by ELI to
commence during the second half of 2022, and that ELI expects to have the
pipeline completed to the FSO at the end of 2022.
As discussed in my statement last year, the issues with NCTL export system,
Covid-19 delays, infield operational deferrals, and increased production
downtime have continued to affect production during 2021 and have some natural
delay in achieving future production increases from new well drilling.
Alongside the revival in oil prices, and with ACOES becoming operational, I
expect Eroton to start to examine restarting well operations with an aim to
boosting production on what we consider to be a world-class asset.
West Africa, focusing on Nigeria, is where San Leon's activities and resources
will continue to be concentrated, and we expect this focus to continue to
deliver value for shareholders.
Our increased investment in ELI, and the further proposed increases, are
expected to yield attractive returns to the Company from its loan plus equity
components.
The Company still retains two non-Nigerian, non-core interests. These are the
Durresi block offshore Albania, for which the Company is seeking to enter the
Appraisal phase of the licence and a farm out is being sought, and the
Company's Net Profit Interest ("NPI") in the Barryroe field, offshore Ireland,
where the operator, Providence Resources plc, continues to work on a funding
solution to progress development of the field.
The Company has nearly completed its exit from Poland, with the small amount
of remaining activity being administrative. The Company continues to hold
certain NPIs in relation to Polish licences.
Staff welfare is of utmost importance to us and as such at San Leon Energy plc
we have also been working remotely whenever possible since March 2020 as
previously mandated by the different governments in the countries in which we
have a presence. All employees and consultants have continued to be actively
engaged regardless of the home working conditions. The Company has now started
to reduce the proportion of home working, in line with general industry
practice.
As at 8 July 2022 San Leon had cash on hand of US$0.2 million. The Midwestern
transactions will be transformational for the Company and are expected to be
cash flow positive in the near term.
As part of the proposed transactions, the Loan Notes would no longer be in
place, and the Company will instead utilise its significantly increased
portfolio of other expected cash flow sources.
During 2021, the Company made two Board appointments.
During May, John Brown joined the Board on as an independent Non-Executive
Director. Mr Brown has more than 20 years of international experience in oil
and gas and related industries, including over nine years of experience with
operations in West Africa. He is a Chartered Accountant (ICAS) and was Chief
Financial Officer or Group Finance Director for numerous UK listed companies
within the oil and gas sector including Gulf Marine Services plc, Bowleven plc
and Pittencrieff Resources plc. Mr Brown chairs the audit and risk committee
and is a member of the nomination and remuneration committees.
During December 2021 Julian Tedder was appointed as Chief Financial Officer
and Executive Director of the Company. Julian is a Chartered Accountant and
previously served as Chief Financial Officer of IGas Energy plc and General
Manager, Finance of Tullow Oil plc, ad brings with him a wealth of finance and
industry experience.
I am delighted to welcome both to the Company. I would also like to thank Lisa
Mitchell, who left the Company as previous CFO, in November 2021, for all of
her contributions. I am also grateful to Alan Campbell for all of his
invaluable work as a Director of the Company since 2016, and who stepped down
from the Board in May 2021. Alan has continued as Company Secretary and has
remained a key part of the Company's commercial successes and business
development.
In 2021, San Leon's Board continued to seek ways to improve its Environment,
Social and Governance ("ESG") impact. Covid-19 increased the challenges in
meeting objectives but the Company was still very proud to deliver on several
initiatives during the course of 2021 in Nigeria including the provision of
educational support for disadvantaged children, the building of two new
schools in Kogi State, and the provision of water infrastructure to villages
in Benue and Kogi States. This was in addition to our ongoing support of
women-led small enterprises and the supply of much needed basic supplies such
as food, clothing and medical care to some highly disadvantaged people.
As part of our ESG strategy, we will continue ongoing engagement with all
stakeholders and governments to ensure that we operate our business in a way
that is sustainable and benefits the local communities in which we have a
presence.
With the improved oil price, the proposed substantial increase in its indirect
equity stake in OML 18, the proposed further investments in ELI, and its
position in Oza, we believe that San Leon is well placed to continue to
realise value for shareholders from Nigeria. Our technical and management
expertise in the industry, will be put to work more than ever in these assets.
As a result of the near-term expected startup of barging as part of ACOES, and
anticipated pipeline completion to ACOES at the end of this year, we
anticipate short-term improvements in OML 18 sales.
Our strategy continues to include the delivery of sustainable long-term
returns to shareholders. We aim to achieve this through a combination of
returns to shareholders and also growth in our asset base.
I look forward with confidence to updating shareholders on the achievement of
these aims.
Mutiu Sunmonu
Chairman
8 July 2022
Chief Executive's Statement
2021 heralded the announcement of the intended scaling up of the Company's
operations in Nigeria. Macroeconomic factors eased during the year, paving the
way for growth on OML 18.
San Leon has long believed in the ability for OML 18 to generate value for its
shareholders, and 2021 saw the opportunity for the Company to position itself
for a significant scaling up of its interests there. Indeed, the company is
today publishing its Admission Document, relating to that proposed
transaction. The Chairman's Statement outlines the benefits of the transaction
as anticipated by the Company, and the impact this is expected by the
Directors to have upon cash flow and growth.
Eroton had a necessarily quiet year, given the continued effects of the
Covid-19 pandemic, and operationally the large losses of any oil export using
the NCTL. Eroton has been awaiting the availability of the ACOES system, which
it expects to significantly reduce the downtime and allocated production
losses currently associated with the NCTL. In addition, it is anticipated that
the ACOES project will greatly improve overall well uptime. ELI anticipates
that the FSO will be officially commissioned and barging operations will begin
from OML 18 to the FSO during July 2022, finally providing the new export
route for much of OML 18's oil production. It is anticipated that the pipeline
component of ACOES will be completed at the end of 2022.
Both gross production at the wellhead and sales oil volumes were lower than
expected. This was due to downtime; allocated pipeline losses associated with
the use of the NCTL; Covid-related operational delays; prudent reduced
operational expenditure and capital expenditure spending as a result of lower
oil price; and also, OPEC production quota restrictions. Gross oil production,
taking out the effect of NCTL downtime, (but after reductions for OPEC quota
production restrictions), was around 21,100 bopd. Sales oil, including the
effects of downtime and allocated losses, and of OPEC quota production
restrictions, was around 4,400 bopd.
The proposed transaction is expected by San Leon to enable it further to
increase its involvement with the subsurface technical input into OML 18, and
the Company would have a paid contract to do so. We continue to believe that
OML 18 is a world class asset and one that we look forward to developing
further with our partners.
Additions to our asset base
I am pleased that our Company was in a position to enhance its portfolio of
assets within Nigeria during 2021, in addition to the proposed OML 18
transaction. We had already started to invest in ELI during 2020, and that was
augmented with a further US$4 million of investment during 2021 and early
2022. As part of the proposed transaction, we also intend to invest another
US$37.5 million to bring our equity holding to approximately 50%, and loan
note receipts of US$50 million. I expect ELI to be a value-adding and
cash-generative asset, both in the near term and for many years to come.
In February 2022, San Leon completed US$5.5 million of its proposed US$7.5
million investment into Decklar during 2021 and in the first months of 2022,
given the 11% equity in Decklar, together with US$5.5 million of loan notes
receivables. This transaction involves Decklar, as Risk Service Provider to
the operator of the Oza field, performing workover and new well drilling to
develop the reserves and contingent resources on what is a proven producing
field with existing infrastructure. Under the terms of the financing, SLE have
rights to a cash sweep until the loan coupon is repaid. During 2021, Decklar
performed the anticipated workover on the Oza-1 well, and successfully flow
tested all three target zones. The well has been configured to flow from the
uppermost zone, and export of oil produced during the well testing recently
began. The Company now has the option to invest a further US$2.5 million to
increase its equity holding in Decklar to 15%, and to receive an additional
US$2.5 million in loan note receivables with a cash sweep. The option to
purchase an additional 15% equity has been relinquished.
Cashflow
The Company has a number of anticipated sources of cash flow, as it builds
its portfolio in line with its stated strategy. As of 31 December 2021, cash
receipts totaling US$198 million have come from the repayment of MLPL Loan
Notes, including interest. The outstanding balance payable as of 24 June 2022
is US$105.6 million at par value (US$102.2 million under IFRS), which
continues to accrue interest.
Final payment of the MLPL Loan Notes was anticipated by the end of 2021,
however due to issues around Covid-19, volatility in the oil price and demand
as well as short-term production issues on OML 18, the Company believes this
date is unlikely to be met. The Company is still confident in receiving all
repayments and late payment interest, however in line with our accounting
policy we have recognised a credit impairment to reflect the uncertainty
around timing of repayments. The anticipated transaction described in the
Admission Document, would result in the ending of the existing MLPL Loan
Notes. Future anticipated cash flow is from loan notes receipts from ELI,
dividends from equity holdings in ELI, dividends from Eroton via MLPL (once
OML 18 is generating sufficient free cash flow), loan repayments from Decklar
(in relation to the Oza field), and equity income from Oza.
ESG
As discussed in the Chairman's statement ESG is an area of increasing
importance. This is an area in which San Leon is committed to meeting high
standards of ESG practices across all aspects of the business. The Company is
committed to the countries in which it operates and is dedicated to promoting
sustainable growth as well as providing support to local communities in
Nigeria. The Company firmly believes that by providing the younger generation
with the valuable skills and education needed to succeed, the whole country
will benefit from growth and prosperity. In 2021 we continued to support
health and education in the communities in which we operate and delivered many
sustainable projects that have a direct and positive impact on the
environment.
Dematerialisation of company shares by 1 January 2023
The company would like to remind shareholders that the impending EU wide
dematerialisation of shares is an upcoming event, which will effectively mean,
based on current expectations, that share certificates will no longer be
accepted as prima facie evidence of ownership from 1 January 2023.
As noted in our circular dated 6 January 2021, pursuant to EU regulations
requiring dematerialisation (which means that shares will be registered in
book entry form, without share certificates), Irish registered listed public
companies are required to convert all holdings to uncertificated form by
January 2023 (new issues) and January 2025 (all other securities). However, it
is currently expected that a legislative change will be implemented to allow
for dematerialisation both in respect of existing shares and new issues from 1
January 2023.
As a consequence, the market is planning to replace its existing
infrastructure (where certificated shares are used) by Registrars and other
market stakeholders with a dematerialised model, where only book entry will be
used. While there will be a cost to the Company, shareholders are not
anticipated to be required to have to take any action, unless further
legislation is enacted that requires such. The Company will inform
shareholders when any legislation is enacted, which is expected in Q4 2022,
and will inform shareholders if expectations change and they need to take any
action.
Outlook
Recovery of the oil price during 2021 and into 2022 clearly assists the
business case for the Company's assets and their continued development. The
expected near-term startup of the barging component of the ACOES system is an
important step in unlocking the value in OML 18, and we look forward to the
pipeline portion of ACOES coming online following anticipated completion at
the end of 2022. The proposed transaction is expected by the Company to yield
material stakes in both OML 18 and ELI, enabling us to help carve out strategy
for these important assets, which of course benefit from each other.
The Company has cash in hand as at 8 July 2022 of US$0.2 million, and
anticipates near-term cash flow from ELI loan notes repayments and from its
technical management contract with Eroton, while awaiting equity income from
its asset portfolio. The Company continues to monitor the performance of OML
18 and its other assets, and is ready to pursue any appropriate opportunities
that may arise in the current market.
I look forward to updating shareholders with news of the impact of the ACOES
on OML 18, plans for operations on OML 18 and Oza, and how our various
expected cash flow streams are performing. The Company is in a good position,
with a variety of future cash streams, and together with its professional
relationships and people, I believe is well-positioned to grow and add further
value to shareholders. I expect to look back on the proposed transaction as
being transformational for the Company.
Oisín Fanning
CEO
8 July 2022
Consolidated Income Statement
for the year ended 31 December 2021
Notes 2021 2020
US$'000 US$'000
Continuing operations
Revenue from contracts with customers 2 5,747 -
Gross profit 5,747 -
Share of profit / (loss) of equity accounted investments 13 14,532 (1,139)
Administrative expenses (12,867) (14,918)
Profit / (loss) on disposal of subsidiaries 4 16,615 (1,044)
Impairment / write off of exploration and evaluation assets 12 (206) (196)
Other income 3 4,560 -
Profit / (loss) from operating activities 28,381 (17,297)
Finance expense 6 (129) (131)
Finance income 7 14,599 17,442
Expected credit losses 8 1,192 (13,692)
Fair value movements in financial assets 15 (2,551) 4,073
Profit / (loss) before income tax 41,492 (9,605)
Income tax expense 10 (775) (2,248)
Profit / (loss) for the financial year 40,717 (11,853)
Profit/ (loss) per share (cent) - total
Basic profit / (loss) per share 11 9.05 (2.63)
Diluted profit/ (loss) per share 11 8.94 (2.63)
The accompanying notes form an integral part of these financial statements.
Consolidated Statement of
Other Comprehensive Income
for the year ended 31 December 2021
Notes 2021 2020
US$'000 US$'000
Profit / (loss) for the year 40,717 (11,853)
Items that may be reclassified subsequently to profit or loss
Currency translation differences - subsidiaries 24 56 83
Recycling of currency translation reserve on disposal of subsidiaries 24 (16,615) 1,044
Fair value movements in financial assets 15 - (194)
Total other comprehensive income (16,559) 933
Total comprehensive profit / (loss) for the year 24,158 (10,920)
The accompanying notes form an integral part of these financial statements.
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2021
Share Share Other un-denominated Special Currency Share based Fair value Retained Attributable to
capital premium reserve reserve translation payment reserve earnings equity holders
reserve reserve US$'000 US$'000 reserve reserve US$'000 US$'000 in Group
US$'000 US$'000 US$'000 US$'000 US$'000
2020
Balance as at 5,172 21,077 623 5,024 24,621 14,292 (2,505) 127,544 195,848
1 January 2020
Total comprehensive income for year
Loss for the year - - - - - - - (11,853) (11,853)
Other comprehensive income
Foreign currency translation differences - subsidiaries - - - - 83 - - - 83
Recycling of currency translation reserve on disposal of subsidiaries - - - - 1,044 - - - 1,044
Fair value movements in financial assets - - - - - - (194) - (194)
Total comprehensive income for year - - - - 1,127 - (194) (11,853) (10,920)
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Dividend payment (Note 23) - - - - - - - (33,251) (33,251)
Share buybacks (Note 22) (15) - 15 - - - - (507) (507)
Share-based payment - - - - - 417 - - 417
Effect of share options modified - - - - - 473 - - 473
Effect of options expired - - - - - (43) - 43 -
Total transactions with owners (15) - 15 - - 847 - (33,715) (32,868)
Balance at 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
31 December 2020
The accompanying notes form an integral part of these financial statements.
Share Share Currency Share based Fair value Retained Attributable to
capital premium Other un-denominated Special translation payment reserve earnings equity holders
reserve reserve reserve reserve reserve reserve US$'000 US$'000 in Group
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2021
Balance as at 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
1 January 2021
Total comprehensive income for year
Profit for the year - - - - - - - 40,717 40,717
Other comprehensive income
Foreign currency translation differences - subsidiaries - - - - 56 - - - 56
Recycling of currency translation reserve on disposal of subsidiaries - - - - (16,615) - - - (16,615)
Fair value movements in financial assets - - - - - - - - -
Total comprehensive income for year - - - - (16,559) - - 40,717 24,158
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Dividend payment (Note 23) - - - - - - - - -
Share buybacks (Note 22) - - - - - - - - -
Share-based payment - - - - - - - - -
Effect of share options modified - - - - - - - - -
Effect of options expired - - - - - (2,230) - 2,230 -
Total transactions with owners - - - - - (2,230) - 2,230 -
Balance at 5,157 21,077 638 5,024 9,189 12,909 (2,699) 124,923 176,218
31 December 2021
The accompanying notes form an integral part of these financial statements.
Consolidated Statement
of Financial Position
as at 31 December 2021
Notes
2021 2020
US$'000 US$'000
Assets
Non-current assets
Intangible assets 12 - -
Equity accounted investments 13 58,634 44,102
Property, plant and equipment 14 2,510 3,294
Financial assets 15 10,657 17,846
71,801 65,242
Current assets
Inventory 16 168 183
Trade and other receivables 17 13,642 1,878
Financial assets 15 91,159 72,889
Cash and cash equivalents 18 7,592 18,510
112,561 93,460
Total assets 184,362 158,702
Equity and liabilities
Equity
Called up share capital 22 5,157 5,157
Share premium account 22 21,077 21,077
Other undenominated reserve 638 638
Special reserve 24 5,024 5,024
Share-based payments reserve 24 / 25 12,909 15,139
Currency translation reserve 24 9,189 25,748
Fair value reserve 24 (2,699) (2,699)
Retained earnings 124,923 81,976
Total equity attributable to equity shareholders 176,218 152,060
Non-current liabilities
Lease liability 28 2,054 2,428
Derivative 20 - 9
Deferred tax liabilities 27 1,282 518
3,336 2,955
Notes 2020
2021 US$'000
US$'000
Current liabilities
Trade and other payables 19 4,752 3,631
Provisions 21 56 56
4,808 3,687
Total liabilities 8,144 6,642
Total equity and liabilities 184,362 158,702
The accompanying notes form an integral part of these financial statements.
Oisín Fanning Julian Tedder
Director Director
8 July 2022
Consolidated Statement
of Cash Flows
for the year ended 31 December 2021
Notes
2021 2020
US$'000 US$'000
Cash flows from operating activities
Profit / (loss) for the year - continuing operations 40,717 (11,853)
Adjustments for:
Depreciation 14 1,028 1,028
Finance expense 6 129 131
Finance income 7 (14,599) (17,442)
Share-based payments charge - 890
Foreign exchange (9) 113
Income tax expense 10 775 2,248
Impairment of exploration and evaluation assets - continuing operations 12 206 196
Expected credit losses 8 (1,192) 13,692
(Profit) / loss on disposal of subsidiaries 4 (16,615) 1,044
Fair value movements in financial assets 15 2,551 (4,073)
Decrease / (increase) in inventory 16 15 (3)
Increase in trade and other receivables (11,765) (897)
Increase / (decrease) in trade and other payables 1,068 (1,778)
Share of (profit) / loss of equity-accounted investments 13 (14,532) 1,139
Tax paid 35 -
Net cash outflow from operating activities (12,188) (15,565)
Cash flows from investing activities
Expenditure on exploration and evaluation assets 12 (206) (196)
Lease - prepaid rental 28 (244) -
Interest and investment income received 7 - 47
Acquisition of ELI Equity Interest 13 / 15 - (443)
ELI Loan Notes issued 15 - (14,557)
OML 18 Loan Notes principal payments received 15 - 35,285
OML 18 Loan Notes interest payments received 15 2,150 11,215
Net cash inflow from investing activities 1,700 31,351
Notes
2021 2020
US$'000 US$'000
Cash flows from financing activities
Dividends paid 23 - (33,251)
Share buybacks - (507)
Repayment of lease liability - principal 28 (227) (211)
Interest paid 6 (129) (131)
Net cash outflow from financing activities (356) (34,100)
Net decrease in cash and cash equivalents (10,844) (18,314)
Effect of foreign exchange fluctuation on cash and cash equivalents (74) 127
Cash and cash equivalents at start of year 18 18,510 36,697
Cash and cash equivalents at end of year 18 7,592 18,510
The accompanying notes form an integral part of these financial statements.
Notes to the GROUP Financial Statements
for the year ended 31 December 2021
1. Accounting Policies
San Leon Energy plc ("the Company") is a company incorporated and domiciled in
the Republic of Ireland. The Company's ordinary shares are admitted to trading
on the AIM Market of the London Stock Exchange. The Group financial statements
consolidate those of the Company and its subsidiaries (together referred to as
the "Group"). The registered office address is 2 Shelbourne Buildings,
Crampton Avenue, Shelbourne Road, Ballsbridge, Dublin 4.
Statement of compliance
As required by AIM rules and permitted by Company Law, the Group financial
statements have been prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the EU. The IFRS adopted by the EU
as applied by the Group in the preparation of these financial statements are
those that were effective for accounting periods commencing on or before
1 January 2021 or were early adopted as indicated below.
New standards required by EU companies for the year ended 31 December 2021
The following new standards and amendments were adopted by the Group for the
first time in the current financial reporting period.
New standards and interpretations effective that were adopted
Standard IASB effective date EU effective date
COVID-19 Related Rent Concessions (Amendment to IFRS 16) 1 June 2020 1 June 2020
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 1 January 2021 1 January 2021
7, IFRS 4 and IFRS 16)
The standards listed above, are effective from 1 January 2021 but they do not
have a material effect on the Group's financial statements.
New standards and amendments issued by the IASB but not yet effective
There are a number of new standards, amendments to standards and
interpretations that are not yet effective and have not been applied in
preparing these consolidated financial statements. These new standards,
amendments to standards and interpretations are either not expected to have a
material impact on the Group financial statements or are still under
assessment by the Group.
The principal new standards, amendments to standards and interpretations are
as follows:
Standard IASB effective date EU effective date
COVID-19-Related Rent Concessions beyond 30 June 01 April 2021 01 April 2021
2021 (Amendment to IFRS 16)
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) 1 January 2022 1 January 2022
Annual Improvements to IFRS Standards 2018 - 2020 1 January 2022 1 January 2022
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 1 January 2022 1 January 2022
16)
Reference to the Conceptual Framework (Amendments to IFRS 3) 1 January 2022 1 January 2022
Classification of Liabilities as Current or Non-current (Amendments to IAS 1) 1 January 2023 1 January 2023
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts 1 January 2023 1 January 2023
Disclosure of Accounting Policies (Amendments to IAS 1 1 January 2023 1 January 2023
and IFRS Practice Statement 2)
Definition of Accounting Estimate (Amendments to IAS 8) 1 January 2023 1 January 2023
Deferred Tax Related to Assets and Liabilities Arising from 1 January 2023 1 January 2023
a Single Transaction _ Amendments to IAS 12 Income
Taxes
Sale or Contribution of Assets between an Investor and its Associate or Joint Effective date deferred indefinitely Effective date deferred indefinitely
Venture (Amendments to IFRS 10 and IAS 28)
New standards that came into effect on 1 January 2022 will be applied in the
year ending 31 December 2021 first reporting to include these will be for the
period ending 30 June 2022. The Directors do not believe that any of these
standards will have a significant impact on Group reporting.
Basis of preparation
The Group financial statements are prepared on the historical cost basis,
except for financial assets (net profit interests, quoted shares and unquoted
shares), which are carried at fair value, and equity settled share option
awards and warrants which are measured at grant date fair value.
Going concern
The Directors have prepared a detailed cash flow forecast for the Group for
the period from 1 June 2022 to 31 December 2023.
The principal assumptions underlying the cash flow forecast and the
availability of finance to the Group are as follows:
• The proposed reorganisation to consolidate
Midwestern Oil and Gas Company Limited's ("Midwestern") shareholdings in: i)
the Company; and ii) Midwestern Leon Petroleum Limited ("MLPL") into a single
shareholding in the Company (the "Potential Transaction") completes in the
second half of 2022. The Potential Transaction also comprises, inter alia, a
proposed consolidation of Midwestern's indirect debt and equity interests in
Energy Link Infrastructure (Malta) Limited ("ELI") with those of the Company,
as well as further new debt and new and existing equity investments to be made
by San Leon in ELI ("Further ELI Investments");
• Eroton Exploration and Production Company
Limited ("Eroton") acquires an additional 18% interest in OML 18 from two of
the other partners in OML 18, thereby taking Eroton's interest in OML 18 to
45%. This is subject, inter alia, to: i) agreeing documentation; ii)
finalising bank financing; and iii) receiving the relevant regulatory consents
in Nigeria;
• A loan of US$50.0 million is secured to
finance the Potential Transaction;
• Elimination of the MLPL loan notes on
completion of the Potential Transaction;
• Under an Asset Management Agreement with
Eroton, San Leon receives US$0.5 per month for technical and financial
advisory services following completion of the Potential Transaction;
• Repayments from ELI of loan notes of US$37.6
million during 2022 and 2023;
• Repayment from Eroton of a debt from the
provision of services under a technical services contract of US$3.0 million
during 2022; and
• A further loan of US$2.5 million is given to
Decklar Petroleum Limited in relation to its Oza investment as per the option
agreement.
Due to the Potential Transaction not having completed at the date of the
Annual Report there is an inherent material uncertainty that completion will
not occur as anticipated.
The Group has modelled various other scenarios assuming the Potential
Transaction does not complete and given the Group's well understood cost base,
the principal uncertainty if the Potential Transaction does not complete
relates to the quantum and timing of receipt of interest and capital
repayments on the Loan Notes with MLPL, which would remain in place, and the
loan Notes with ELI.
It was originally envisaged that the MLPL Loan Note payments due to the Group
would be sourced by MLPL from the receipt of dividends through its indirect
interest in Eroton via Martwestern. These dividends have not been received to
date and consequently MLPL has entered into loan arrangements in order to be
able to make Loan Note payments to the Company. In the absence of the dividend
payments, MLPL will be reliant on further advances under the loan arrangement
and in turn being able to make Loan Note payments to the Company. The Company
has no obligation arising from the loan arrangements entered into by MLPL.
The loan repayments due from ELI were due to start in 2021 but have been
delayed due to operational readiness of the FSO and ACOES project being
delayed. The Directors have a reasonable expectation that ELI will be revenue
generating imminently with the commencement of barging operations, and while
loan repayments have been delayed, they should commence in the second half of
2022.
Due to the uncertainty on timing of future cashflows the MLPL and ELI loan
notes have both been credit impaired.
In the ultimate downside scenario where no repayments are received from MLPL
and ELI, the US$50.0 million loan secured by the Company to fund the Potential
Transaction can be drawn to facilitate completion of the further ELI
Investments, with the remaining balance being used for general corporate
purposes. In this scenario the working capital requirements of the Group can
be met for the 12-month period from the date of approval of the financial
statements, although a reduction to administrative costs is required in 2023,
which the Directors believe is achievable and within their control.
However, while the working capital requirements of the Group can be met for
the 12-month period, the Directors believe that the continued viability of the
Group and Company into the future is dependent on the completion of the
Proposed Transaction. As such, the completion of the Proposed Transaction
creates significant uncertainty upon the Group and Company's ability to
continue as a going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may cast
significant doubt upon the Group and Company's ability to continue as a going
concern and that, therefore, the Group and Company may be unable to continue
realising its assets and discharging its liabilities in the normal course of
business.
Having taken all the above factors into account, the directors continue to
believe it is appropriate to prepare
these financial statements on a going concern basis, noting the material
uncertainty that exists on the completion of the Potential Transaction and its
impact on the Company and Group's ability to continue as a going concern. The
financial statements do not include any adjustments that would be necessary if
the group were unable to continue as a going concern.
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). These consolidated financial
statements are presented in US Dollars (US$), which is the Group's
presentational currency, rounded to the nearest thousand.
Use of estimates and judgements
The preparation of financial statements, in conformity with EU IFRS, requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. Actual results may differ from these estimates. The estimates
and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected. In particular,
significant areas of estimation uncertainty and critical judgements used in
applying accounting policies that have the most significant effect on the
amounts recognised in the financial statements include:
Judgements
Going concern (Note 1)
Classification of finance income (Note 7)
Impairment of investment in subsidiary (Note B)
Recoverability of equity accounted investments (Note 13)
Recoverability of financial assets (Note 15)
Estimates
Measurement of equity accounted investments (Note 13)
Measurement of financial assets (Note 15)
Measurement of share-based payments (Note 25)
Recognition of deferred tax asset for tax losses (Note 27)
Basis of consolidation
The financial information incorporates the financial information of the Group.
Control is defined as when the Group is exposed to or has the rights to
variable returns from its investment with the entity and has the ability to
affect these returns through its power over the entity. The financial
statements of subsidiaries are included in the consolidated financial
statements from the date control commences until the date that control
ceases. Where necessary, adjustments are made to the financial information of
subsidiaries to bring their accounting policies into line with those used by
other members of the Group. Intra-group balances and any unrealised gains and
losses or income or expenses arising from intragroup transactions are
eliminated in preparing the Group financial statements.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the
acquisition date, which is the date on which control is transferred to the
Group. Control is defined as when the Group have the rights to variable
returns from its investment with the entity and have the ability to affect
these returns through its power over the entity. In assessing control, the
Group takes into consideration potential voting rights that currently are
substantive.
Acquisitions
The Group measures goodwill at the acquisition date as:
• the fair value of the consideration
transferred; plus
• the recognised amount of any non-controlling
interests in the acquiree; plus, if the business combination is achieved in
stages, the fair value of the existing equity interest in the acquiree; less
• the net recognised amount (generally fair
value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately
in profit or loss.
Costs related to the acquisition, other than those associated with the issue
of debt or equity securities, that the Group incurs in connection with a
business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the
acquisition date. If the contingent consideration is classified as equity, it
is not re-measured and settlement is accounted for within equity. Otherwise,
subsequent changes to the fair value of the contingent consideration are
recognised in profit or loss.
Intangible assets - exploration and evaluation assets
Expenditure incurred prior to obtaining the legal rights to explore an area is
recognised in profit or loss as incurred. All other expenditure relating to
licence acquisition, exploration, evaluation and appraisal of oil and gas
interests, including an appropriate share of directly attributable overheads,
is capitalised on a licence by licence basis.
Exploration and evaluation assets are carried at cost until the exploration
phase is complete or commercial reserves have been discovered. The Group
regularly review the carrying amount of exploration and evaluation assets for
indicators of impairment and capitalised costs are written off where the
carrying amount of assets may not be recoverable. Where commercial reserves
have been established and development is approved by the Board, the relevant
expenditure is transferred to oil and gas properties following assessment of
impairment.
Impairment of non-financial assets
The carrying amounts of the Group's assets are reviewed at each reporting date
and, if there is any indication that an asset may be impaired, its
recoverable amount is estimated. The recoverable amount is the higher of its
fair value less costs to sell and its value in use.
Estimates of impairment are limited to an assessment by the Directors of any
events or changes in circumstance that would indicate that the carrying
amount of the asset may not be recoverable.
Any impairment loss arising from the review is recognised in profit or loss to
the extent the carrying amount of the asset exceeds its recoverable amount. An
impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been
recognised.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is provided at rates calculated to write off the
cost less residual value of each asset over its expected useful life. The
residual value is the estimated amount that would currently be obtained from
disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life. The annual rate of
depreciation for each class of depreciable asset is:
Office equipment 25% Straight line
Motor vehicles 20% Reducing balance
Plant and equipment 20% - 33% Straight line
Leased assets Shorter of the term of lease
or useful life of the asset as defined under IFRS 16
Inventories
Inventories are valued at the lower of cost and net realisable value.
Joint ventures
The Group has also entered into a joint venture arrangement which is operated
through a joint venture. The Group accounts for its interest in this entity on
an equity basis, with Group share of profit or loss after tax recognised in
the Income Statement and its share of Other Comprehensive Income ("OCI") of
the joint venture recognised in OCI.
Financial assets and financial liabilities
i. Recognition and initial measurement
Financial assets are classified at initial recognition and subsequently
measured at amortised cost, Fair Value through Other Comprehensive Income
("FVOCI") or Fair Value Through Profit or Loss ("FVTPL"). The classification
of financial assets is determined by the contractual cash flows and where
applicable the business model for managing the financial assets.
A financial asset or financial liability is initially measured at fair value
plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition or issue.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at:
amortised cost; FVOCI - debt investment; FVOCI - equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition
unless the Group changes its business model for managing financial assets.
A financial asset is measured at amortised cost if the objective of the
business model is to hold the financial asset in order to collect contractual
cash flows and the contractual terms give rise to cash flows that are solely
payments of principal and interest. Subsequently the financial asset is
measured using the effective interest method less any impairment. The
amortised cost is reduced by impairment losses in accordance with Group policy
set out below. Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or loss on derecognition
is recognised in profit or loss.
The business model in which a financial asset is held is assessed at an
individual asset level for assets that are individually material, and
otherwise at a portfolio level. Financial assets that are held as part of a
long-term strategic investment are considered within a business model to
collect contractual cash flows.
In assessing whether the contractual cash flows are solely payments of
principal and interest, the Group considers the contractual terms of the
instrument. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition.
On initial recognition of an equity investment that is not held for trading,
the Group may irrevocably elect to present subsequent changes in the
investment's fair value in OCI (FVOCI - equity investment). This election is
made on an investment‑by‑investment basis. These assets are subsequently
measured at fair value. Dividends are recognised as income in profit or loss
unless the dividend clearly represents a recovery of part of the cost of the
investment. Other net gains and losses are recognised in OCI and are never
reclassified to profit or loss.
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL. This includes all derivative financial
assets. These assets are subsequently measured at fair value. Net gains and
losses, including any interest or dividend income, are recognised in profit or
loss.
On initial recognition, the Group may irrevocably designate a financial asset
that otherwise meets the requirements to be measured at amortised cost or at
FVOCI as at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. A
financial liability is classified as at FVTPL if it is classified as
held‑for‑trading, it is a derivative or it is designated as such on
initial recognition. Financial liabilities at FVTPL are measured at fair value
and net gains and losses, including any interest expense, are recognised in
profit or loss. Other financial liabilities are subsequently measured at
amortised cost using the effective interest method. Interest expense and
foreign exchange gains and losses are recognised in profit or loss. Any gain
or loss on derecognition is also recognised in profit or loss.
iii. Impairment (including receivables)
The Group recognises loss allowances for expected credit losses ("ECL's") on
financial assets measured at amortised cost.
A provision for 12-month ECL is recognised in respect of low risk assets. A
provision for the lifetime ECL is recognised in respect of higher risk assets
that are not credit impaired. If an asset is credit impaired, the carrying
amount of the asset is reduced by its lifetime ECL.
The 12-month ECL represents the weighted average of credit losses that result
from default events on a financial instrument that are possible within the 12
months after the reporting date. This requires a number of outcomes to be
considered, a probability assigned to each, and a resulting credit loss
applied to each. ECLs are discounted at the effective interest rate of the
financial asset.
12-month ECL is determined based on forward looking analysis where a range of
outcomes have been considered taking into account the size and timing of the
contractual cashflows, the risk of late payment and the risk of default
leading to less than full recovery of the amounts due. Lifetime ECL is
calculated the same way, but over the relevant period.
At each reporting date, the Group assesses whether financial assets carried at
amortised cost are credit‑impaired. A financial asset is 'credit‑impaired'
when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred. The Group considers a
financial asset to be in default and presumed credit impaired when contractual
payments are outstanding 90 days after their due date, unless there is
reasonable information that amounts will be recovered; or when the borrower is
unlikely to pay its credit obligations to the Group in full, without recourse
by the Group to actions such as realising security including guarantees (if
any is held).
The Group has determined that MLPL is likely to meet its credit obligations as
evidenced by the preparation of a Competent Persons Report in relation to San
Leon's interest in OML 18, however are uncertain of the timing of when these
obligations will be met. The Group has therefore credit impaired the asset.
The Group has determined that ELI is likely to meet its credit obligations as
evidenced by recent management information in relation to San Leon's interest
in ELI.
Write-off
The gross carrying amount of a financial asset is written off when the Group
has no reasonable expectations of recovering a financial asset in its entirety
or a portion thereof. The Group expects no significant recovery from the
amount written off. However, financial assets that are written off could still
be subject to enforcement activities in order to comply with the Group's
procedures for recovery of amounts due.
iv. Derecognition
The Group derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire.
The Group derecognises a financial liability when its contractual obligations
are discharged or cancelled or expire.
On derecognition of a financial asset or financial liability, the difference
between the carrying amount removed or extinguished and the consideration
received or paid is recognised in profit or loss.
Decommissioning provision
A provision is made for decommissioning of oil and gas wells. The cost of
decommissioning is determined through discounting the amounts expected to be
payable to their present value at the date the provision is recognised and
reassessed at each reporting date. This amount is regarded as part of the
total investment to gain access to economic benefits and consequently
capitalised as part of the cost of the asset and the liability is recognised
in provisions. Such cost is depleted over the life of the asset on the basis
of proven and probable reserves and charged to the Income Statement. The
unwinding of the discount is reflected as a finance cost in the Income
Statement over the life of the field or well.
Taxation
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the Consolidated Income Statement except to the extent that it
relates to items recognised directly in Other Comprehensive Income or equity,
in which case it is recognised in Other Comprehensive Income or equity.
i. Current tax
Current tax comprises the expected tax payable or receivable on the taxable
income or loss for the year and any adjustment to the tax payable or
receivable in respect of previous years. The amount of current tax payable or
receivable is the best estimate of the tax amount expected to be paid or
received that reflects uncertainty relates to income taxes, if any. It is
measured using tax rates enacted or substantively enacted at the reporting
date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are
met.
ii. Deferred tax
Deferred tax is recognised using the liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the
initial recognition of goodwill, the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to
investments in subsidiaries to the extent that they are controlled and
probably will not reverse in the foreseeable future. Deferred tax is measured
at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that
future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Unrecognised deferred tax assets are reassessed as each reporting date and
recognised to the extent that it has become probable that future taxable
profits will be available against which they can be used.
Deferred tax assets and liabilities are offset only if certain criteria are
met.
Foreign currencies
Transactions in foreign currencies are initially translated to the respective
functional currencies of Group entities at the exchange rates at the dates of
the transactions. Monetary assets and liabilities denominated in foreign
currencies are retranslated to the functional currency at the exchange rates
ruling at the reporting date with gains or losses recognised in profit or
loss. Non-monetary items are translated using the exchange rates ruling as at
the date of the initial transaction.
Foreign currency differences are generally recognised in profit or loss and
presented within finance costs. However, foreign currency differences arising
from the translation of the following items are recognised in OCI:
· an investment in equity securities designated as at FVOCI (except
on impairment, in which case foreign currency differences that have been
recognised in OCI are reclassified to profit or loss);
· a financial liability designated as a hedge of the net investment
in a foreign operation to the extent that the hedge is effective; and
· qualifying cash flow hedges to the extent that the hedges are
effective.
Foreign operations
The assets and liabilities of foreign operations are translated into US
Dollars at the exchange rate at the reporting date and the income and expenses
of foreign operations are translated at the actual exchange rates at the date
of the transaction or at average exchange rates for the year where this
approximates to the actual rate. Exchange differences arising on translation
are recognised in Other Comprehensive Income and presented in the foreign
currency translation reserve in equity. Details of exchange rates used are set
out in Note 30.
Revenue recognition
For the year ended 31 December 2021 the Group used the five-step model as
prescribed under IFRS 15 on the Group's revenue transactions. This included
the identification of the contract, identification of the performance
obligations under same, determination of the transaction price, allocation of
the transaction price to performance obligations and recognition of revenue.
The point of recognition arises when the Group satisfies a performance
obligation by transferring control of promised drilling services and royalty
income to the customer, which could occur over time.
Finance income and expenses
Interest income is accrued on a time basis by reference to the principal on
deposit and the effective interest rate applicable.
The 'effective interest rate' is the rate that at initial recognition exactly
discounts estimated future cash payments or receipts through the expected life
of the financial instrument to:
the gross carrying amount of the financial asset; or
the amortised cost of the financial liability.
In calculating interest income and expense, the effective interest rate is
applied to the gross carrying amount of the asset (when the asset is not
credit‑impaired) or to the amortised cost of the liability. However, for
financial assets that have become credit‑impaired subsequent to initial
recognition, interest income is calculated by applying the effective interest
rate to the amortised cost of the financial asset net of impairment provision.
If the asset is no longer credit‑impaired, then the calculation of interest
income reverts to the gross basis.
Finance expenses comprise interest or finance costs on borrowings and
unwinding of any discount on provisions using the effective interest rate.
Share capital
Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity.
Share based payments
The Group has applied the requirements of IFRS 2 'share based payments'. The
Group issues share options as an incentive to certain key management and
staff (including Directors), which are classified as equity settled share
based payment awards. The grant date fair value of share options granted to
Directors and employees under the Group's share option scheme is recognised as
an expense over the vesting period with a corresponding credit to the
share-based payments reserve. The fair value is measured at grant date and
spread over the period during which the awards vest.
The options issued by the Group are subject to both market-based and
non-market based vesting conditions. Market conditions are included in the
calculation of fair value at the date of the grant. Non-market vesting
conditions are not taken into account when estimating the fair value of awards
as at grant date; such conditions are taken into account through adjusting the
number of the equity instruments that are expected to vest.
The proceeds received will be credited to share capital (nominal value) and
share premium when options are converted into ordinary shares.
Where the terms of an equity-settled transaction are modified, an additional
expense is recognised for any modification that increases the total fair value
of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested
on the date of cancellation, and any expense not yet recognised for the award
is recognised immediately. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were
a modification of the original award, as described in the previous paragraph.
Dividends
The Group has elected to classify cashflows from dividends paid as financing
activities.
Earnings per share
The Group present basic and diluted earnings per share ("EPS") data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to equity shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is
determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding
for the effects of all dilutive potential ordinary shares, which comprise
convertible notes, share options granted to employees and warrants.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand on demand.
Leases:
As a lessee
The Group recognises right-of-use assets representing its right to use the
underlying assets and lease liabilities representing its obligation to make
lease payments at the lease commencement date. The right-of-use assets are
initially measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset
or to restore the site on which it is located, less any lease incentives
received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the end of the lease term, unless the
lease transfers ownership of the underlying asset to the Group by the end of
the lease term or the cost of the right-of-use asset reflects that the Group
will exercise a purchase option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group uses
its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest
rates from various external financing sources and makes certain adjustments to
reflect the terms of the lease and type of the asset leased.
- Lease payments included in the measurement of the lease liability
comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or rate, initially
measured using the index or rate as at the commencement date;
- amounts expected to be payable under a residual value guarantee;
and
- the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option, and
penalties for early termination of a lease unless the Group is reasonably
certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in the Group's estimate of the
amount expected to be payable under a residual value guarantee, if the Group
changes its assessment of whether it will exercise a purchase, extension or
termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The Group presents right-of-use assets that do not meet the definition of
investment property in 'property, plant and equipment' and lease liabilities
in 'loans and borrowings' in the Statement of Financial Position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for leases of low-value assets and short-term leases, including IT
equipment. The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
Segmental reporting
A segment is a distinguishable component of the Group that is engaged in
business activities from which it may earn revenues and incur expenses which
is subject to risks and rewards that are different from those of other
segments and for which discrete financial information is available.
All operating segments and results are regularly reviewed by the Board of
Directors to make decisions about resources to be allocated to each segment
and to assess its performance.
Full details of the Group's operating segments all of which are involved in
oil and gas exploration and production are set out in Note 2 to the financial
statements.
Fair value movement
The Group has an established process with respect to the measurement of fair
values. The finance team regularly reviews significant unobservable inputs and
valuation adjustments. If third party information, such as broker quotes or
pricing services, is used to measure fair values, then the valuation team
assesses the evidence obtained from the third parties to support the
conclusion that such valuations meet the requirements of IFRS, including the
level in the fair value hierarchy in which such valuations should be
classified.
Significant valuation issues are reported to the Board.
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
For further detail on assumptions made in measuring Level 3 fair values see
the following notes:
• Note 15 Financial Assets
• Note 20 Derivative
Assets and liabilities measured at fair value
In accordance with IFRS 13, the Group discloses its assets and liabilities
held at fair value after initial recognition in the following categories:
FVOCI - equity instrument and FVTPL.
With the exception of shares held in quoted entities, which are classified as
Level 1 items under the fair value hierarchy, all assets and liabilities held
at fair value are measured on the basis of inputs classified as Level 3 under
the fair value hierarchy on the basis that the inputs underpinning the
valuations are not based on observable market data as defined in IFRS 13.
Where derivatives are traded either on exchanges or liquid over-the-counter
markets, the Group uses the closing price at the reporting date. Normally, the
derivatives entered into by the Group are not traded in active markets. The
fair values of these contracts are estimated using a valuation technique that
maximises the use of observable market inputs, e.g. market exchange and
interest rates. All derivatives entered into by the Group are included in
Level 3 and consist of share warrants issued.
2. Revenue and Segmental Information
Operating segment information is presented on the basis of the geographical
areas as detailed below, which represent the financial basis by which the
Group manages its operations. The Board of Directors, which has been
recognised as the Chief Operating Decision Maker ("CODM"), regularly receive
verbal or written reports at board meetings for each of the segments based on
the below criteria which management consider to be appropriate in evaluating
segment performance relative to other entities that operate in the industry.
Revenue and Segmental Information
2021 Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenue - - - 3,000 - 2,747 - - 5,747
Impairment of exploration - - (206) - - - - - (206)
and evaluation assets
Segment profit / (loss) before income tax 16,439 - (206) 33,314 (2,552) 6,775 - (12,278) 41,492
Property, plant and equipment 4 - - - 2,506 - - - 2,510
Equity accounted investments - - - 58,634 - - - - 58,634
Segment non-current assets 4 - - 65,000 6,797 - - - 71,801
Segment liabilities (65) (18) (804) (4) (3,680) - (745) (2,828) (8,144)
# Unallocated expenditure and liabilities include amounts of a corporate
nature and not specifically attributable to a reportable segment.
Revenue relates to the provision of drilling services in Nigeria. It also
relates to the settlement of the TAQA claim, please see Other income (Note 3).
2020 Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenue - - - - - - - - -
Impairment of exploration and evaluation assets
- - (196) - - - - - (196)
Segment (loss) / profit before income tax
(2,093) - (196) 3,259 4,073 - (59) (14,589) (9,605)
Property, plant and equipment 11 - - 575 2,708 - - - 3,294
Equity accounted investments - - - 44,102 - - - - 44,102
Segment non-current assets 11 - - 55,729 9,502 - - - 65,242
Segment liabilities (83) (18) (804) (4) (3,279) - (748) (1,706) (6,642)
# Unallocated expenditure and liabilities include amounts of a corporate
nature and not specifically attributable to a reportable segment.
3. Other income
2021 2020
US$'000 US$'000
TAQA settlement (i) 4,027 -
Other (ii) 533 -
4,560 -
(i) TAQA settlement
In December 2021, the Group successfully concluded their ongoing legal
proceedings with TAQA Offshore B.V. ("TAQA") in relation to its legacy
interests in two royalties on Block Q13A , which is located offshore the
Netherlands (the "Amstel Oil Field"), including an Overriding Royalty
Agreement entered into with Encore Oil as part of a sale and purchase
agreement entered into in 2007 (the "Royalty Agreements").
TAQA had subsequently purchased the interest from Encore Oil. Production from
the Amstel Field started in 2014 but no royalties had been received. The
Royalty Agreements became the subject of separate legal proceedings in the
Netherlands and the UK.
The royalties will continue to be payable in accordance with the terms and
conditions of the Royalty Agreements. The Royalty Agreements represent legacy
interests and any potential net future benefit to the Group going forward from
the Amstel Oil Field on a monthly basis is not expected to be particularly
material to San Leon.
The total TAQA settlement amounted to approximately US$6.8 million of which
approximately US$2.7 million has been recognised as revenue in 2021 as this
amount had not been previously provided for by the Company.
(ii) Other
Relates to the disposal of property, plant and equipment that had been fully
impaired or depreciated to US$Nil in prior periods.
4. PROFIT / (LOSS) on disposal of subsidiaries
2021 2020
US$'000 US$'000
Other, recycling from equity to income statement (i) 16,615 (1,044)
16,615 (1,044)
(i) Other
In 2021 the Group liquidated certain foreign operations that held non-core
assets. The Group's investment in the assets held by the subsidiaries has been
fully impaired in prior periods. The liquidation of the foreign operations has
resulted in the realisation of cumulative foreign currency gains of US$16.6
million (2020: losses of US$1.0 million), that had previously been recognised
in equity. The realisation of the cumulative foreign currency gains and losses
do not impact the consolidated assets or liabilities.
5. Statutory information
2021 2020
US$'000 US$'000
The profit / (loss) for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment 1,028 1,028
Gain / (loss) on foreign currencies 9 (113)
Impairment of exploration and evaluation assets 206 196
Share based payment charge - 890
During the year, the Group (including its overseas subsidiaries) obtained the
following services from KPMG, the Group Auditor:
Auditor's remuneration
2021 2020
US$'000 US$'000
Fees paid to lead audit firm:
Audit of the Group financial statements 260 238
Audit of the subsidiary financial statements 69 69
Total 329 307
During the year, the Group (including its equity accounted investment)
obtained the following audit services, excluding the Group Auditor, KPMG:
2021 2020
US$'000 US$'000
Fees paid to other firms:
Audit of equity accounted investments 48 48
Total 48 48
6. Finance expense
2021 2020
US$'000 US$'000
Interest on obligations for leases 129 131
7. Finance income
2021 2020
US$'000 US$'000
Total finance income on Loan Notes (Note 15) 14,590 17,276
Movement in fair value of derivatives (Note 20) 9 119
Deposit interest received - 47
14,599 17,442
All interest income is in respect of assets measured at amortised cost.
8. Expected credit losses
2021 2020
US$'000 US$'000
OML 18 Loan Notes - impact of modification (Note 15) - (5,857)
OML 18 Loan Notes - net remeasurement of loss allowance (Note 15) 1,447 (7,450)
ELI Loan Notes - initial recognition (Note 15) - (385)
ELI Loan Notes - net remeasurement of loss allowance (Note 15) (255) -
1,192 (13,692)
9. Personnel expenses
Number of employees
The average monthly number of employees (including the Directors) during the
year was:
2021 2020
Number Number
Directors 6 8
Administration 8 10
Technical 1 1
Seismic crew 1 1
16 20
Employment costs (including Directors)
2021 2020
US$'000 US$'000
Wages and salaries (excluding Directors) 1,659 1,437
Directors' salaries 2,413 2,678
Directors' bonuses 490 1,172
Social welfare costs 381 428
Directors' fees and consultancy costs 500 607
Share based payment charge for options issued to Directors - 418
Employees' pension 197 71
Benefits (including Directors) 99 59
Directors' pension 331 99
6,070 6,969
The Group contributes to a defined contribution pension scheme for certain
Executive Directors and employees. The scheme is administered by trustees and
is independent of the Group finances. Total contributions by the Group to the
pension scheme, including contributions for Directors amounted to US$0.5
million (2020: US$0.2 million).
10. Income tax
2021 2020
US$'000 US$'000
Current tax
Current year income tax 11 12
Deferred tax
Origination and reversal of temporary differences (Note 27) 1,608 893
Deferred tax movement in Barryroe NPI (Note 27) (844) 1,343
Total income tax charge 775 2,248
Deferred tax relating to items charged/credited to equity
Deferred tax movement on fair value of other financial assets, Unquoted shares - -
Total income tax charge - -
The difference between the total tax shown above and the amount calculated by
applying the applicable standard rate of Irish corporation tax to the loss
before tax is as follows:
2021 2020
US$'000 US$'000
Profit / (loss) before income tax 41,492 (9,605)
Tax on profit / (loss) at applicable Irish corporation tax rate of 25% (2020: 10,373 (2,401)
25%)
Effects of:
Tax effect at fair value adjustment (844) 326
Prior year adjustment (57) -
Losses utilised in year (1,085) (690)
(Income) / expenses not taxable (10,174) 2,559
Income tax withheld 4 13
Effect of different tax rates (701) 2
Adjustment for difference on overseas profit before tax (23) -
Excess losses carried forward 3,282 2,439
Tax charge for the year 775 2,248
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years. Liabilities for
uncertain tax treatments are recognised in accordance with IFRIC 23 and are
measured using either the most likely amount method or the expected value
method - whichever better predicts the resolution of the uncertainty.
11. PROFIT / (LOSS) per share
Basic profit / (loss) per share
Basic loss per share is calculated by dividing the loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the year as follows:
2021 2020
US$'000 US$'000
Profit / (loss) for the year 40,717 (11,853)
The weighted average number of shares in issue is calculated as follows:
2021 2020
Number Number
of shares of shares
In issue at start of year (Note 22) 449,913,026 451,303,014
Effect of tender offer and buybacks in the year - (1,332,865)
Weighted average number of ordinary shares in issue (basic) 449,913,026 449,970,149
Basic profit / (loss) per ordinary share (cent) 9.05 (2.63)
Diluted profit / (loss) per share
Diluted loss per share is calculated by dividing the loss attributable to
equity holders of the Company by the weighted average number of ordinary
shares outstanding after adjustment for effects of all dilutive potential
ordinary shares as follows:
2021 2020
US$'000 US$'000
Profit / (loss) for the year 40,717 (11,853)
The diluted weighted average number of shares in issue is calculated as
follows:
2021 2020
Number Number
of shares of shares
Basic weighted average number of shares in issue during the year 449,913,026 449,970,149
Effect of share options and warrants in issue 5,700,841 -
455,613,867 449,970,149
Diluted profit / (loss) per ordinary share (cent) 8.94 (2.63)
The number of options which are anti-dilutive and have therefore not been
included in the above calculations is 21,161,627 (2020: 41,221,627).
12. Intangible assets
Exploration
and
evaluation
assets
US$'000
Cost and net book value
At 1 January 2020 -
Additions (ii) 196
Write off / impairment of exploration and evaluation assets (196)
At 31 December 2020 -
Additions (ii) 206
Write off / impairment of exploration and evaluation assets (206)
At 31 December 2021 -
(i) The following geographical exploration areas in the Group were impaired /
written off during the year:
2021 2021
US$'000 US$'000
Albania 206 196
206 196
(ii) This is the net amount incurred by San Leon Energy and excludes amounts
attributable to joint operating partners of US$Nil in 2021 (2020: US$Nil).
The Directors have considered the carrying value at 31 December 2021 of
capitalised costs in respect of its exploration and evaluation assets. These
assets have been assessed for impairment indicators and in particular with
regard to remaining licence terms, likelihood of licence renewal, likelihood
of further expenditures and on-going appraisals for each area. Based on
internal assessments from the latest information available, the Directors
fully impaired the exploration and evaluation assets in 2021.
13. Equity accounted investments
2021 2020
US$'000 US$'000
Cost and net book value
At 1 January 44,102 44,798
Additions (ELI) - 443
Share of profit / (loss) of equity accounted investments 14,532 (1,139)
At 31 December 58,634 44,102
The Group's only joint venture entities and associates at 31 December 2021
were as follows:
Name Registered office Type % held
Midwestern Leon Petroleum Limited 5(th) Floor Barkly Wharf, Le Caudan Waterfront, Joint Venture 40%
Port Louis, Republic of Mauritius
Energy Link Infrastructure (Malta) Limited 260 Triq San Albert, Griza, GZR 1150, Malta Associate 10%
2021
A summary of the financial information of the equity investments is detailed
below.
Midwestern Leon Petroleum Limited (i) Energy Link Infrastructure (Malta) Total
Limited (ii)
Equity Interest 40% 10%
US$'000 US$'000 US$'000
Profit / (loss) from continuing operations 37,030 (9,109) 27,921
Total comprehensive profit / (loss) 37,030 (9,109) 27,921
Non-current assets 242,555 191,207 433,762
Current assets (excluding cash) 316,252 650 316,902
Cash - 35,102 35,102
Non-current liabilities - (55,790) (55,790)
Current liabilities (412,222) (175,496) (587,718)
Net assets / (liabilities) 146,585 (4,327) 142,258
Group's interest in net assets of investee at 1 January 2021 43,822 280 44,102
Additions - - -
Share of profit / (loss) 14,812 (280) 14,532
Group's interest in net assets of investee at 31 December 2021 58,634 - 58,634
2020
A summary of the financial information of the equity investments is detailed
below.
Midwestern Leon Petroleum Limited (i) Energy Link Infrastructure (Malta) Total
Limited (ii)
Equity Interest 40% 10%
US$'000 US$'000 US$'000
Loss from continuing operations (2,440) (2,804) (5,244)
Total comprehensive loss (2,440) (2,804) (5,244)
Non-current assets 198,948 147,922 346,870
Current assets (excluding cash) 286,687 167 286,854
Cash - 46,334 46,334
Non-current liabilities - (141,458) (141,458)
Current liabilities (376,082) (47,214) (423,296)
Net assets 109,553 5,751 115,304
Group's interest in net assets of investee at 1 January 2020 44,798 - 44,798
Additions - 443 443
Share of loss (976) (163) (1,139)
Group's interest in net assets of investee at 31 December 2020 43,822 280 44,102
(i) Midwestern Leon Petroleum Limited
During 2016 the Company acquired a 40% non-controlling interest in MLPL as
part of the OML 18 transaction. Full details of the OML 18 transaction are
set out in Note 15(i). The movement during 2021 reflects a share of the
profit of MLPL being administrative costs of US$6.4 million (2020: US$9.7
million), other income of US$0.2 million (2020: US$Nil), net finance income of
US$8.0 million (2020: US$3.3 million), profit on investment of US$44.0
million (2020: US$12.2 million loss), net profits on financial assets of
US$1.2 million (2020: US$0.3 million losses) and a tax charge of US$10.0
million (2020: US$7.9 million).
The above interest is accounted for as an equity accounted investment as San
Leon does not have control over the entity, which is governed under a Joint
Venture Agreement requiring the approval of both parties to the Joint Venture
Agreement in respect of all operating decisions.
The Group identified potential impairment indicators, being that MLPL is yet
to receive a dividend from Eroton, US$2.9 million of a US$10.0 million
repayment due on 6 October 2020 was still outstanding at year end, and MLPL
has entered into a loan to be able to make Loan Note repayments to the Group.
To test for a potential impairment the carrying value of the equity interest
in MLPL was compared against the fair value less cost of sale. This was
estimated using a discounted cashflow model of the expected future cashflows
from MLPL's share of the underlying OML 18 asset. Future cashflows of OML 18
were estimated using the following price assumptions of US$69/bbl in 2023 and
a subsequent long term price of US$66/bbl escalated at 2% annually, with the
cashflows discounted using a post-tax discount rate of 10%. Assumptions
involved in the impairment assessment include estimates of commercial
reserves, production rates, future oil prices, discount rates and operating
and capital expenditure profiles, all of which are inherently uncertain. This
analysis identified that the carrying value of the equity interest in MLPL is
not impaired.
If the recoverable amount was estimated taking into account a reduction in the
oil price of 30% over the same period and an increase in the discount rate to
25%, then the carrying value of the equity interest in MLPL would still not be
impaired.
The Directors recognise that the future realisation of the equity accounted
investment is dependent on future successful exploration and appraisal
activities and subsequent production of oil and gas reserves.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020 the Company acquired a 10% non-controlling interest in Energy
Link Infrastructure (Malta) Limited (See Note 15(ii)). The movement during
2021 reflects a share of the loss of ELI being sales income of US$1.4 million
(2020: US$5.7 million), other income of US$0.1 million (2020: US$0.1 million),
cost of sales of US$7.4 million (2020: US$4.9 million) and operating expenses
including administrative costs of US$3.2 million (2020: US$3.7 million).
San Leon does not have control over the entity, however it has been determined
to have significant influence. On this basis, the above interest is recognised
as an equity accounted investment. Significant influence has been determined
based on the Company having 10% of voting rights, a board position and a
Shareholder Agreement requiring a majority, and in some instances a super
majority (meaning 70% of votes are required to pass a resolution), to approve
all operating decisions.
Under the terms of ELI's senior debt facility, the lender has a charge over
all of the company's assets and, as further security, each shareholder
(including San Leon Energy) has pledged their shares to the lender. The terms
of the pledge are that the shares cannot be transferred or otherwise utilised
without the lender's consent.
The Directors recognise that the future realisation of the equity accounted
investment is dependent on completion of the pipeline and subsequent
throughput of oil from various customers.
14. Property, plant and equipment
Leased Plant & Office Motor Total
assets equipment equipment vehicles US$'000
US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2020 3,281 9,050 1,203 495 14,029
Disposals - - (111) - (111)
Currency translation adjustment - 116 - (15) 101
At 31 December 2020 3,281 9,166 1,092 480 14,019
Additions 244 - - - 244
Disposals (231) - (9) (124) (364)
Currency translation adjustment - (513) (44) (72) (629)
At 31 December 2021 3,294 8,653 1,039 284 13,270
Depreciation
At 1 January 2020 329 7,803 1,138 415 9,685
Charge for the year 378 622 12 16 1,028
Disposals - - (111) - (111)
Currency translation adjustment - 122 16 (15) 123
At 31 December 2020 707 8,547 1,055 416 10,725
Charge for the year 370 619 22 17 1,028
Disposals (231) - (9) (124) (364)
Currency translation adjustment - (513) (44) (72) (629)
At 31 December 2021 846 8,653 1,024 237 10,760
Net book values
At 31 December 2021 2,448 - 15 47 2,510
At 31 December 2020 2,574 619 37 64 3,294
15. Financial Assets
OML 18 (i) ELI (ii) Barryroe 4.5% Unquoted Total
US$'000 US$'000 net profit shares US$'000
interest (iii) (iv) (viii) US$'000
US$'000
Amortised Amortised FVTPL FVOCI -
cost cost equity
instrument
Cost / Valuation
At 1 January 2020 114,254 - 2,769 194 117,217
Net fair value of acquisition of ELI Loan Notes - 14,557 - - 14,557
Finance income 16,480 796 - - 17,276
Loan Notes receipts - principal (35,285) - - - (35,285)
Loan Notes receipts - interest (11,215) - - - (11,215)
Lifetime ECL - credit-impaired # (15,309) - - - (15,309)
Impairment of unquoted shares, Other comprehensive income - - - (194) (194)
Fair value movement, Income statement - - 4,073 - 4,073
At 31 December 2020 68,925 15,353 6,842 - 91,120
Finance income 12,122 2,468 - - 14,590
Loan Notes receipts - principal - - - - -
Loan Notes receipts - interest (2,150) - - - (2,150)
Impairment reversal - (credit-impaired assets) # 1,447 - - - 1,447
Fair value movement, Income statement - - (2,551) - (2,551)
At 31 December 2021 80,344 17,821 4,291 - 102,456
Expected Credit Loss Provision
At 1 January 2020 - - - -
New financial asset acquired * (385) - - (385)
At 31 December 2020 (385) - - (385)
Net remeasurement of loss allowance (255) - - (255)
At 31 December 2021 (640) - - (640)
# See OML18 ECL table below
* See ELI ECL table below
Higher risk assets not credit impaired
Lifetime ECL
Expected Credit Loss - OML 18 Performing Credit impaired Lifetime ECL
12-month ECL Total
At 1 January 2020 - (2,002) - (2,002)
Impact of modification - (5,857) - (5,857)
Net remeasurement of loss allowance - (7,450) - (7,450)
Transfer to lifetime ECL - credit-impaired - 15,309 (15,309) -
At 31 December 2020 - - (15,309) (15,309)
Impact of modification - - 1,503 1,503
Net remeasurement of loss allowance - - 1,447 1,447
Effective interest on ECL - - (3,794) (3,794)
At 31 December 2021 - - (16,153) (16,153)
Expected Credit Loss - ELI Higher risk assets not credit impaired
Lifetime ECL
Performing Credit impaired Lifetime ECL
12-month ECL Total
At 1 January 2020 - - - -
New financial asset acquired * (385) - - (385)
At 31 December 2020 (385) - - (385)
Transfer to Lifetime ECL 385 (385) - -
Net remeasurement of loss allowance - (255) - (255)
At 31 December 2021 - (640) - (640)
OML 18 (i) ELI (ii) Barryroe 4.5% Unquoted Total
US$'000 US$'000 net profit shares US$'000
interest (iii) (iv) (viii) US$'000
US$'000
Amortised Amortised FVTPL FVOCI -
cost cost equity
instrument
Book value at 31 December 2021 80,344 17,181 4,291 - 101,816
Current 80,344 10,815 - - 91,159
Non-current - 6,366 4,291 - 10,657
Book value at 31 December 2020 68,925 14,968 6,842 - 90,735
Current 68,925 3,964 - - 72,889
Non-current - 11,004 6,842 - 17,846
Net Profit Interests (Poznan, v) (Gora, vi) (Liesa, vii): These NPIs have a
nil value from acquisition.
(i) OML 18
In September 2016, the Company secured an indirect economic interest in OML
18, onshore Nigeria.
The Company undertook a number of steps to effect this purchase. MLPL, a
company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%
shareholding, was established as a special purpose vehicle to complete the
transaction by purchasing all of the shares in Martwestern, a company
incorporated in Nigeria. Martwestern holds a 50% shareholding in Eroton, a
company incorporated in Nigeria and the operator of OML 18, and Martwestern
also holds an initial 98% economic interest in Eroton. The economic effect of
this structure is that San Leon has an initial indirect economic interest of
10.584% in OML 18. Shareholders will note that this is higher than the
percentage interest anticipated by San Leon at the time of the acquisition in
2016. There have been no further purchases or payments by San Leon but this
revised percentage is based on a reassessment and recalculation of the various
parties' interests in OML 18.
To partly fund the purchase of 100% of the shares of Martwestern, MLPL
borrowed US$174.5 million in incremental amounts by issuing loan notes with an
annual coupon of 17% ("Loan Notes") and effective interest rate of 25%, as
noted below. Midwestern Oil and Gas Company Limited ("Midwestern") is the 60%
shareholder of MLPL and transferred its shares in Martwestern to MLPL as part
of the full transaction. Following its placing in September 2016, San Leon
became beneficiary and holder of all Loan Notes issued by MLPL and the holder
of an indirect economic interest in OML 18. San Leon is due to be repaid the
full amount of the US$174.5 million plus the 17% coupon once certain
conditions have been met and using an agreed distribution mechanism. Through
its wholly owned subsidiary, San Leon Nigeria B.V., the Company is also a
beneficiary of any dividends that will be paid by MLPL as a 40% shareholder
in MLPL but the Loan Notes repayments must take priority over any dividend
payments made to the MLPL shareholders.
The fair value assessment of the Loan Notes on acquisition was calculated as
follows:
Total
US$'000
Total consideration 188,419
Fair value of Loan Notes attributable to equity investment # (30,889)
Net fair value of Loan Notes 157,530
Arrangement fees (5,500)
Additions to Financial Assets in 2016 including accrued interest 152,030
at date of acquisition
# The fair value of Loan Notes attributable to the equity investment is
calculated using a discount factor of management's estimate of a market rate
of interest of 8% above the coupon rate of 17% over the term of the Loan
Notes, giving an effective interest rate of 25%.
The key information relevant to the fair value of the Loan Notes on the date
they were initially recognised is as follows:
Valuation technique Significant unobservable inputs* Inter-relationships between the unobservable inputs and fair value
measurements
• Discount rate 25% based on a market rate of interest of 8%
above the coupon rate of 17%
Discounted cash flows
Nil
• MLPL ability to generate cash flows for timely repayment
• Loan Notes are repayable in full
by 31 December 2021 (2020: 31 December 2021).
* On initial recognition. Under the conditional payment waiver the Loan Notes
are expected to fall due on 30 June 2022. Other
unobservable inputs are considered appropriate at 31 December 2021.
The business model for the MLPL loan is to hold to collect. The Loan Notes are
accounted for at amortised cost.
The credit risk is managed via various undertakings, guarantees, a pledge over
shares and the mechanism whereby MLPL prioritises payment of sums due under
the Loan Notes. These are described further in Note 29. Given the size and
quality of the OML 18 oil and gas asset the main credit risk is regarded as
the timing of payments by MLPL which is dependent on dividend distributions by
Eroton rather than being unable to pay the total quantum due under the Loan
Notes. To date Eroton have been unable to make a dividend distribution.
Consequently, MLPL had to enter into a loan in 2017 and subsequently, in order
to be able to meet its obligations under the Loan Notes and make payments to
San Leon.
On 6 April 2020, the Company entered into an Agreement with MLPL, amending the
timing of the remaining payment of the Loan Notes Instrument. At the date of
the Agreement, the remaining outstanding balance on the par value was US$82.1
million (accounted for as US$79.5 million under IFRS). Under the terms of the
Agreement, US$10.0 million was due to be repaid on or before 6 October 2020,
with the balance of the Loan Notes receivable payable in three quarterly
instalments, commencing in July 2021 and completing by December 2021.
Following the Agreement the outstanding loan continued to have an annual
coupon rate of 17% and an effective interest rate of 25% per annum. All other
material terms of the Loan Notes Instrument remained unchanged. The Agreement
with MLPL was accounted for as a modification of the financial asset which did
not give rise to derecognition. A loss of US$2.5 million was recognised in
respect of the change in present value of the revised cashflows discounted at
the original effective interest rate.
On 24 June 2021 the Company announced that it had entered into preliminary
discussions with Midwestern in connection with the potential acquisition of
the shares of MLPL owned by Midwestern (the "Potential Transaction"). The
Company expects that the Potential Transaction, if agreed, would include the
elimination of the Loan Notes. In connection with these discussions, on 6 July
2021 the Company agreed a conditional payment waiver in respect of the amounts
under the Agreement that fell due in July 2021 and within 30 days of expiry of
the conditional payment waiver. Under the terms of the conditional payment
waiver amounts payable under the Agreement would fall due 90 days following
expiry. Interest continued to accrue on the outstanding principal of the Loan
Notes at 17%.
The conditional payment waiver was originally due to expire on the earlier of
31 August 2021 or the date an agreement was reached with Midwestern to effect
the Potential Transaction. The conditional payment waiver was subsequently
extended to include payments due up to December 2021.
The conditional payment waiver was accounted for as a modification of the
financial asset which did not give rise to derecognition. The amortised cost
of the Loan Notes immediately prior to the modification was US$74.8 million
(being a gross asset of US$92.6 million and expected credit loss provision of
US$17.8 million. A net modification loss of US$3.2 million was recognised in
respect of the change in present value of the revised cashflows discounted at
the original effective interest rate.
During 2021 San Leon received total payments under the Loan Notes of US$2.2
million (2020: US$46.5 million). The payments received during 2021 represent
principal of US$Nil (2020: US$35.3 million) and interest of US$2.2 million
(2020: US$11.2 million) on the Loan Notes repaid. As at 31 December 2021 there
was US$96.5 million in principal and interest (2020: US$84.2 million) due
under the Loan Notes. As at 31 December 2021, US$2.9 million was outstanding
from the US$10.0 million due to be repaid on 6 October 2020.
The Directors of San Leon have considered the credit risk of the Loan Notes at
31 December 2021 and 31 December 2020. Due to the inability of MLPL to make
dividend distributions, the Directors continue to consider that the credit
risk has significantly increased since initial recognition. At 31 December
2019 and subsequently a provision for the lifetime expected credit loss of the
Loan Notes had been recognised.
In addition, the Directors have reviewed the counterparty credit risk
associated with measurement of the expected credit loss. This was assessed as
having increased significantly since initial recognition.
Management are still confident in the operational potential of OML 18 and
ultimately recovering the full amount of the outstanding Loan Notes, however
due to the above issues management are unable to determine the timing of
future cashflows and for this reason the Loan Notes are now considered credit
impaired.
The Loan Notes are unique assets for which there is no directly comparable
market data. Repayments of the Loan Notes are expected to be made from the
underlying cashflows that support MLPL or, if the Potential Transaction is
agreed, the Loan Notes will be taken into account and eliminated as part of
the overall structure agreed. The Directors have considered the credit risk of
MLPL, in particular in light of the Covid-19 pandemic and the resultant impact
on the oil price and demand, as well as ongoing short term production issues.
The Loan Notes continue to be considered to be impaired. An impairment has
been estimated based on a forward-looking analysis where a range of outcomes
has been considered taking into account the size and timing of the contractual
cashflows, the risk of the Potential Transaction being delayed or not agreed,
risk of late payments and the risk of default leading to less than full
recovery of the amounts due in respect of the Loan Notes. The Directors have
considered the possible scenarios and used their judgement to estimate a
weighted average outcome of these scenarios. The impairment is calculated as
the difference between the present value of the weighted average of possible
outcomes (discounted at the effective interest rate of the Loan Notes) and the
present value of the contractual cashflows.
As at 31 December 2021 the Loan Notes are considered credit impaired. The
expected credit loss of US$16.2 million (2020: US$15.3 million) has been
presented net as part of the amortised cost of the Loan Notes. The expected
credit loss has been calculated with a very high probability that the
Potential Transaction will complete, and therefore the Loan Notes will
extinguish, and the Company believes that the value of the Potential
Transaction is worth at least the value of the Loan Notes.
See Subsequent events (Note 31) for further information on the discussions
with Midwestern about acquiring Midwestern's indirect interest in the OML 18.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020, the Company acquired an indirect economic interest in the
Alternate Crude Oil Evacuation System ("ACOES") project.
The initial interest was acquired through the direct investment in Energy Link
Infrastructure (Malta) Limited ("ELI" or "ELI Malta"), a company incorporated
in Malta, which owns the ACOES project through its 100% owned subsidiary
Energy Link Infrastructure (Nigeria) Limited, a company incorporated in
Nigeria ("ELI Nigeria").
The investment comprises a 10% equity interest in ELI together with a US$15.0
million shareholder loan at a coupon of 14% per annum over 4 years, and
repayable quarterly following a one year moratorium from the date of
investment (the "ELI Loan Notes"). Funds were provided to ELI in two tranches
with the first US$10.0 million tranche being paid in August, and the second
tranche of US$5.0 million on 6 October 2020, being half of the funds due from
Midwestern Leon Petroleum Limited as part of the repayment of the MLPL Loan
Notes.
The fair value assessment of the Loan Notes on acquisition was calculated as
follows:
Total
US$'000
Total consideration 15,000
Fair value of Loan Notes attributable to equity investment # (443)
Net fair value of Loan Notes 14,557
# The fair value of Loan Notes attributable to the equity investment is
calculated using a discount factor of management's estimate of a market rate
of interest of 2% above the coupon rate of 14% over the term of the Loan
Notes, giving an effective interest rate of 16%.
The key information relevant to the fair value of the Loan Notes on the date
they were initially recognised is as follows:
Valuation technique Significant unobservable inputs* Inter-relationships between the unobservable inputs and fair value
measurements
• Discount rate 16% based on a market rate of interest of 2% above the
coupon rate of 14%
Discounted cash flows
Nil
• ELI ability to generate cash flows for timely repayment
• Loan Notes are repayable in full
by 6 October 2024.
*Day 1 and considered appropriate at 31 December 2021 and 31 December 2020.
The business model applicable to the ELI loan is to hold to collect.
The credit risk is managed via various undertakings, such as representations,
warranties and covenants and the ability for a preferential distribution
should some warranties be breached. These are described further in Note 29.
Given the nature and stage of the asset the main credit risk is regarded as
the timing of payments by ELI Malta which is dependent on dividend
distributions by ELI Nigeria rather than being unable to pay the total quantum
due under the ELI Loan Notes.
The Directors of San Leon have considered the credit risk of the ELI Loan
Notes at 31 December 2021 and 31 December 2020. Both tranches of the ELI Loan
Notes were issued in H2 2020, with a one-year repayment holiday. Quarterly
repayments were due from 31 July 2021 (for the first tranche) and 6 October
2021 (second tranche). As at 31 December 2021 no repayments had been received.
As at 31 December 2021 there was US$17.8 million in principal and interest due
under the ELI Loan Notes.
San Leon announced on 24 June 2021 that it is considering making further debt
and equity investments in ELI and reaffirmed that intention in subsequent
announcements. The Company has agreed with ELI that, should these further
investments be made, then the First Instalment will be offset from any
investment monies payable to ELI by San Leon under certain of these new
arrangements. Pending any further investment in ELI, the First Instalment will
continue to accrue interest at 14% per annum. Project delays have impacted the
ability of ELI to make ELI Loan Note repayments, with current projections
indicating that debt will start to be serviced in the second half of 2022 when
barging operations commence. It is the Directors opinion that ELI will make
full repayment of the outstanding loan notes.
The Directors have considered the credit risk of the ELI Loan Notes and the
counterparty credit risk as at 31 December 2021. A guarantee from ELI Nigeria,
who guarantee all payment obligations of ELI Malta, has also been taken into
account. As a result of the delay in operations and ELI Loan Notes being
overdue, the Directors have determined that there has been a significant
increase in credit risk since initial recognition of the ELI Loan Notes, and a
provision for the lifetime expected credit loss of the ELI Loan Notes has been
recognised. The ELI Loan Notes are not considered to be credit impaired on the
basis of the delays in ELI commencing repayment of the loan notes.
An expected credit loss provision has been estimated based on a
forward-looking analysis where a range of outcomes has been considered taking
into account the size and timing of the contractual cashflows, the risk of
late payment and the risk of default leading to less than full recovery of the
amounts due in respect of the ELI Loan Notes. The Directors have considered
the possible scenarios and used their judgement to estimate a weighted average
outcome of these scenarios. The ECL provision is calculated as the difference
between the present value of the weighted average of possible outcomes
(discounted at the effective interest rate of the ELI Loan Notes) and the
present value of the contractual cashflows. This has then been compared to
publicly available macroeconomic data of default rates by geography, industry
and rating.
The Company determined that the expected credit loss provision of US$0.6
million (2020: US$0.4 million), being 3.6% (2020: 2.5%) of the outstanding
balance was appropriate.
(iii) Barryroe - 4.5% Net Profit Interest
SLE holds a 4.5% Net Profit Interest in the Barryroe ("Barryroe NPI") oil
field at fair value through profit and loss under IFRS 9. In 2019 a
market-based valuation approach was adopted, using the price of the publicly
listed shares of Providence Resources plc ("Providence") (operator and holder
of an 80% interest in the Barryroe oil field) as its basis. The Directors
believe the markets assessment of the current risks and uncertainties of the
project have been reflected within the share price of Providence at year end,
and it is therefore appropriate to use this to update their valuation.
Given the latest announcements, the Directors have reviewed the modelling
assumptions and consider it reasonable and appropriate to continue to use a
market based approach to decrease the Barryroe carrying value by US$2.6
million (2020: gain of US$4.0 million) to US$4.2 million to reflect their
estimate of the impact of these risks to the future cash flows on the value of
the asset.
The key information relevant to the fair value of the Barryroe 4.5% net profit
interest is as follows:
Valuation technique Significant unobservable inputs Inter-relationships between the unobservable inputs and fair value
measurements
• Estimated value of NPI as percentage of total field NPV 9.5%
(2020: 9.5%)
Market based approach using share price of Operator (Providence) The estimated fair value would increase / (decrease) if:
• US Dollar exchange rate increased / (decreased)
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to
Ardilaun Energy Limited ("Ardilaun") in 2014 Ardilaun agreed to issue shares
equivalent to 15% of the issued share capital of Ardilaun to San Leon. The
original fair value of the 15% interest in Ardilaun was based on a market
transaction in Ardilaun shares.
The Directors have considered the carrying value of this interest at 31
December 2021 and given the length of time to obtain Irish government approval
for the transaction, the Directors feel it is prudent to continue to carry the
15% of Ardilaun shares still to be issued to San Leon at a value of US$Nil
(2020: US$Nil).
(v) Poznan 10% Net Profit Interest
In 2016, San Leon sold its 35% interest in the Poznan assets for a
consideration of €1 plus a 10% NPI. Until active development commences a nil
value has been placed on the NPI. There has been no change in 2021.
(vi) Gora 5% Net Profit Interest
In 2018, San Leon sold its interest in the Gora assets for a consideration of
€1 plus a 5% NPI. Until active development commences a nil value has been
placed on the NPI. There has been no change in 2021.
(vii) Liesa 5% Net Profit Interest
In 2018, San Leon sold its interest in the Liesa assets for a consideration of
€1 plus a 5% Net Profit Interest ("NPI"). Until active development commences
a nil value has been placed on the NPI. There has been no change in 2021.
(viii) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources
Limited ("Gemini") into 54,818 fully paid ordinary shares in Gemini.
The Directors considered the carrying value of this interest at 31 December
2021 to be US$Nil.
(ix) Amedeo Resources plc
At 31 December 2021, the Company holds 213,512 ordinary shares at a market
value of US$Nil (2020: US$Nil). The value of the investment was written down
to nil in 2018 due to the shares of Amedeo Resources plc being de-listed.
16. Inventory
2021 2020
US$'000 US$'000
Spare parts and consumables 168 183
Spare parts include drilling equipment and consumables utilised by the Group's
seismic services company.
17. Trade and other receivables
2021 2020
US$'000 US$'000
Amounts falling due within one year:
Trade receivables 9,860 2
Corporation tax refundable - 39
VAT and other taxes refundable 80 88
Other debtors (i) 4,429 4,264
Expected credit loss on other debtors (i) (3,630) (3,532)
Prepayments (ii) 2,903 1,017
13,642 1,878
(i) In 2017, other debtors included US$3.6 million due from NSP Investments
Holdings Ltd for the disposal of equity accounted investments. During 2018,
the Directors fully provided for the amount.
In September 2021, Gemini Energy B. V. concluded transactions to gain 100%
ownership of these equity accounted investments. To accommodate and agree to
the transfer of the shares in the equity accounted investments from NSP to
Gemini, Gemini offered and agreed to pay San Leon:
(a) a payment of US$1.5 million by no later than the first anniversary of the
transfer of the equity accounted investments shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms of a net
profits interest agreement.
The Gemini obligations replace the amounts due from NSP and the expected
credit loss for the total amount remains.
See Related party transactions (Note 29) for further details.
The remaining other debtors consists of rent deposits and similar receivables.
(ii) Prepayments includes an amount of US$0.8 million (2020: US$0.8 million)
in relation to the Oza deal and US$2.0 million (2020: US$Nil) in relation to
the ELI conditional investment, detailed in Subsequent Events (Note 31).
18. Cash and cash equivalents
2021 2020
US$'000 US$'000
Cash and cash equivalents 839 11,757
Solicitor client account (i) 6,753 6,753
7,592 18,510
(i) Solicitor client account at 31 December 2021 represents monies held on
behalf of the Company by Dentons ACAS-Law in relation to the Oza deal,
detailed in Subsequent Events (Note 31)
19. Trade and other payables
2021 2020
US$'000 US$'000
Current
Trade payables 1,286 719
PAYE / PRSI 223 295
Corporation tax 6 -
Payroll and pensions 750 -
Other creditors 67 36
Accruals 2,080 2,248
Current portion of lease 340 333
4,752 3,631
20. Derivative
2021 2020
US$'000 US$'000
Non-current
Derivative - 9
- 9
The key inputs into the valuation model are as follows:
Valuation technique Significant unobservable inputs Inter-relationships between
the unobservable inputs and
fair value measurement
Black-Scholes model Option strike price: £0.30 to £0.45 up to date options expired in the year The estimated fair value would increase / (decrease) if:
(2020: £0.30 to £0.45)
The share price increased / (decreased)
Average maturity: 0 to 1 year up to date options expired in the year
(2020: 0 to 1 year)
Sterling exchange rate increased / (decreased)
Risk-free interest rate: 0.055% up to date options expired in the year
(2020: 0.055%) The risk free interest rate increased / (decreased)
Share price volatility: 62% up to date options expired in the year
(2020: 62%)
The derivative was in relation to options and warrants that were issued in
connection with financing provided to the Company between 2016 and 2018.
21. Provisions for liabilities
Decommissioning
US$'000
At 1 January 2020 56
At 31 December 2020 56
At 31 December 2021 56
Current 56
Non-current -
Decommissioning
The provision for decommissioning costs is recorded at the value of the
expenditures expected to be required to settle the Group's future obligations
on decommissioning of previously drilled wells.
22. Share capital
Rights and obligations attaching to the Ordinary Shares
The Company has no securities in issue conferring special rights with regards
control of the Company. All Ordinary Shares rank pari passu, and the rights
attaching to the Ordinary Shares (including as to voting and transfer) are as
set out in the Company's Articles of Association ("Articles").
Number of Number of Authorised
New Ordinary Deferred Equity
shares Ordinary shares US$'000
€0.01 each €0.0001 each
Authorised equity
At 1 January 2020 2,847,406,025 - 177,475
At 31 December 2020 2,847,406,025 - 177,475
At 31 December 2021 2,847,406,025 - 177,475
Issued, called up and fully paid:
Number of Number of Share Share
New Ordinary Deferred capital premium
shares Ordinary shares US$'000 US$'000
€0.01 each €0.0001 each
At 1 January 2020 451,303,014 - 5,172 21,077
Share buybacks (1,389,988) - (15) -
At 31 December 2020 449,913,026 - 5,157 21,077
At 31 December 2021 449,913,026 - 5,157 21,077
See Consolidated Statements of Changes in Equity
Share buyback programme
On 22 January 2020 the Company announced that it had completed the buyback
programme. Under the Buyback Programme, the Company repurchased 5,709,101
Ordinary Shares at an aggregate value of £1,570,085.49. Following
cancellation of the final shares repurchased, the total number of Ordinary
Shares in issue with voting rights was 449,913,026.
23. DIVIDENDS PAID
No dividends were declared in 2021. In May 2020, the Company returned a
special dividend to its shareholders of £0.06 per share, totalling US$33.3
million (£27.0 million).
24. Reserves
The Statement of Changes in Equity outlines the movement in reserves during
the year. Further details of these reserves are set out below:
Currency translation reserve
The currency translation reserve comprises all foreign currency differences
arising from the translation of the financial statements of foreign
operations.
The recycling of the currency translation reserve of US$16.6 million (2020:
US$1.0 million) relates to the realisation of the cumulative foreign currency
gains and lossed on the disposal or liquidation of non-core assets.
Share based payments reserve
The share-based payments reserve comprises the fair value of all share options
which have been charged over the vesting period, net of the amount relating to
share options which have expired, been cancelled and have vested.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value
of financial assets measured at Fair Value through Other Comprehensive Income
until the assets are derecognised.
Special reserve
Pursuant to a capital reduction in 2019 the Company undertook to credit
US$5,024,260 to a special reserve. This special reserve is not a distributable
reserve and must remain in place until such time as obligations in respect of
certain guarantees given by the company have lapsed or become unenforceable.
25. Share based payments
Prior to 31 December 2012, the Group had one share-based payment scheme for
executives and senior employees of the Group. In accordance with the
provisions of the plan, as approved by shareholders at a previous general
meeting, executives and senior employees may be granted options to purchase
ordinary shares.
Each share option converts into one ordinary share of San Leon Energy plc on
exercise and options do not carry rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of
their expiry. The options vest in tranches subject to the achievement of
certain service and non-market performance conditions. Market conditions in
relation to the achievement of share price trading levels also apply in the
case of certain options granted to the Directors, further details of which are
set out in the Directors' Report.
During the first quarter of 2013, this scheme was replaced by a more formal
Share Option Plan, which governs all future awards of share options made by
San Leon. All employees, and certain Directors and consultants, may from time
to time be eligible to receive a discretionary bonus to be awarded in the
form of options over San Leon Ordinary shares. Historic options in respect of
San Leon shares will continue to be governed by the terms and conditions set
out in the historic share-based payments scheme.
The Group's equity share options are equity settled share-based payments as
defined in IFRS 2: Share Based Payments. The total share-based payment charge
for the year has been calculated based on grant date fair value obtained using
an option pricing model with a discount for market conditions applied based on
a Monte Carlo simulator analysis where appropriate. The charge for the year is
US$Nil (2020: US$891,263) includes the charge for options issued to the
Directors of US$Nil (2020: US$418,048) and shares to be issued to Directors of
US$Nil (2020: US$Nil).
The movement on outstanding share options and warrants during the year was as
follows:
2021 2020
Number Weighted Number Weighted
of options / average of options / average
warrants exercise warrants exercise
price price
Balance at beginning of the financial year 41,221,627 £0.397 40,559,075 £0.400
Granted during the financial year - - 1,000,000 £0.450
Modified during the financial year * - - - £0.393
Expired or cancelled during the financial year (8,560,000) £0.445 (337,448) £0.592
Exercised during the financial year - - - -
Balance at end of the financial year 32,661,627 £0.412 41,221,627 £0.397
Exercisable at end of the financial year 32,661,627 £0.412 41,221,627 £0.397
The range of exercise prices of outstanding options/warrants at year end is
£0.25 to £0.45 (2020: £0.25 to £0.45).
* On 26 February 2020 the Company repriced 1,500,000 options from £0.45 to
£0.35, the expiry date of these options was also extended from 26 February
2020 by 4 years to 26 February 2024. The resulting charge for the year was
US$326,581.
* On 2 October 2020 the Company extended the expiry date of 2,222,222 options
by 5 years to 2 October 2025. This resulted in a charge for the year of
US$146,635.
The weighted average remaining contractual life for options / warrants
outstanding at 31 December 2021 is 1.79 years (2020: 2.94 years).
During the current year no options were exercised (2020: Nil).
The following table illustrates the number, exercise price and expiry date of
share options and warrants remaining at year end.
Type Number Exercise price Year of expiration
Options 6,250,000 £0.45 2022
Options 6,625,000 £0.45 2023
Warrants 10,000,000 £0.25 2023
Warrants 4,939,405 £0.45 2023
Options 1,500,000 £0.35 2024
Options 125,000 £0.45 2024
Options 2,222,222 £0.45 2025
Options 1,000,000 £0.45 2028
Total 32,661,627
The following table lists the fair value of options granted and the inputs to
the models used to calculate the grant date fair values of awards granted in
2021 and 2020:
2021 2020
Weighted average fair value of options granted during year N/a £0.25
Weighted average share price of options at date of grant N/a £0.39
Dividend yield N/a 0.00%
Exercise price N/a £0.45
Expected volatility N/a 72%
Risk-free interest rate N/a 0.55%
Expected option life N/a 7 years
Expected early exercise % N/a 0%
Model used N/a Black-Scholes
The expected life used in the model is based on the expectation of management
attaching to the option and behavioural considerations and is not necessarily
indicative of exercise patterns that may occur. Expected volatility is based
on an analysis of the historical volatility of San Leon Energy plc shares and
comparable listed entities. The fair value is measured at the date of grant.
There are no conditions attached to the options.
26. Commitments and contingencies
(a) Lease obligation commitments
Cash commitments under lease obligations as a lessee (Note 28) are as follows:
Total Total
2021 2020
US$'000 US$'000
Payable:
Within one year 340 369
Between one and five years 1,359 1,472
Over five years 1,246 1,718
2,945 3,559
(b) Decklar Petroleum Limited
On 1 September 2020, the Company announced that it had conditionally agreed to
invest US$7.5 million by way of a loan to Decklar Petroleum Limited, who is
the holder of a Risk Service Agreement with Millenium Oil and Gas Company
Limited on the Oza marginal field, carved out of OML 11, onshore Nigeria.
Under the agreements, if completed, the Company will also receive a 15%
interest in Decklar for a nominal amount paid. This transaction is still
awaiting final conditions precedents to complete. See Note 31 for further
detail.
(c) Exploration, evaluation and development activities
The Group has commitments of US$Nil (2020: US$Nil) in the year ended 31
December 2021 to contribute to its share of exploration and evaluation
expenditure in respect of exploration licences and concessions held.
(d) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in aggregate of US$2.0
million in relation to the sale completed in August 2019 to Horizon Petroleum
Ltd.
The Group will receive the aggregate consideration when certain concessions
are transformed and granted to Horizon.
(e) Island Oil & Gas Limited Guarantee
The Company has a Guarantee in respect of the decommissioning liabilities of
Island (Seven Heads) Limited, a subsidiary of Island Oil & Gas Limited
("Island"). In the event that Island are unable to pay the decommissioning
liabilities, under the Guarantee, the Company could be liable for any amounts
Island does not pay.
27. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2021 2020 2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial assets - IFRS 9 - - (572) (1,416) (572) (1,416)
Financial assets - other 175 175 - - 175 175
Unrealised exchange difference - - (22) (4) (22) (4)
Interest not taxable until received - - (863) (199) (863) (199)
Tax losses recognised - 926 - - - 926
175 1,101 (1,457) (1,619) (1,282) (518)
2021 2020
US$'000 US$'000
At 1 January (518) 1,718
Deferred tax on fair value movements in financial assets IFRS 9, Barryroe NPI 844 (1,343)
(Note 10)
Origination and reversal of temporary differences (Note 10) (1,608) (893)
At 31 December (1,282) (518)
Unrecognised deferred tax assets
2021 2020
US$'000 US$'000
Tax losses 5,036 8,631
Capitalised expenditure 358 33,101
5,394 41,732
Deferred tax assets have not been recognised in respect of the above items
because it is not probable that future taxable profits will be available
against which the Group can utilise these losses.
28. LEASES
Statement of Financial Position
2021 US$'000 2020 US$'000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January 2,574 2,952
Additions 244 -
Depreciation charge for the period (370) (378)
Closing net carrying amount 2,448 2,574
Lease liability
Property leases
At 1 January 2,761 2,834
Payments - principal (227) (211)
Payments - interest (129) (131)
Currency translation adjustment (140) 138
Interest 129 131
Closing net carrying amount 2,394 2,761
Current 340 333
Non-current 2,054 2,428
Income Statement
2021 2020 US$'000
US$'000
Right of use asset (included within Property, plant and equipment)
Property leases
Depreciation charge 139 378
Interest expense 129 131
Total 268 509
29. Related party transactions
The Group has related party transactions with i) Directors ii) shareholders
iii) subsidiaries and iv) other entities with which it has entered into
business arrangements. Due to the influence or material interest that
these parties have in transactions with the Group they are required to be
disclosed and are detailed below.
Red Cedar Energy DMCC
San Leon Energy plc and Red Cedar Energy DMCC have a common Director, Mr.
Oisín Fanning. San Leon has a consultancy agreement with Red Cedar Energy
DMCC which was paid US$1,679,494 for amounts due for 2021 (2020: US$Nil).
Property
The Company holds an option to acquire a property at market value from Mr.
Fanning. The option is due to expire in 2026 and the option fee of US$409,000
is included in other debtors (Note 17) and is refundable when the Company
either exercises or terminates the option. Mr. Fanning was paid US$323,395
(2020: US$215,999) rent for the use of this property during the year by the
Company.
The property is available for use by all staff and consultants requiring
overnight accommodation while conducting business on behalf of the Company up
to it being used for office space in June 2021, see below.
In June 2021, the Company signed a licence with Mr. Oisín Fanning to use the
property for office space.
Director change in Shareholding
On 11 May 2020 the Company was notified that Mr. Fanning, Chief Executive
Officer of the Company, acquired 98,000,000 ordinary shares in the Company.
Following the notification, Mr. Fanning had an interest of 107,495,864
ordinary shares, representing 23.89% of the issued share capital of the
Company.
On 23 December 2020 the Company announced that it had been informed that Mr.
Fanning had been unable to secure the necessary funding for the above share
purchase. Consequently, settlement of the share purchase did not occur.
Following this, Mr. Fanning owns 9,495,864 ordinary shares in the Company,
representing 2.1% of the issued share capital of the Company.
Greenbay Energy Resources Limited
San Leon Energy plc and Greenbay Energy Limited have a common Director, Mr.
Mutiu Sunmonu. San Leon has a consultancy agreement with Greenbay Energy
Limited which was paid US$95,629 for amounts due for 2021 (2020: US$95,181
In June 2019, San Leon Energy plc entered into an agreement with Caledonian
Properties Nigeria Limited ("Caledonian"), a company owned by Mr. Mutiu
Sunmonu, for the use of two properties in Lagos, Nigeria, and was extended for
a further 2 years in June 2021. Caledonian was paid US$231,000 for the period
1 July 2019 to 30 June 2021 of which US$57,750 relates to 2021. Caledonian was
also paid US$244,444 for the period 1 July 2021 to 30 June 2023 of which
US$61,111 related to the period 1 July 2021 to 31 December 2021. It is common
practice to pay such sums up-front in Nigeria.
The properties are being provided at a competitive rate and it is an arm's
length transaction.
One of the properties is used as an office and the other property is available
for use by all staff and consultants requiring accommodation while conducting
business on behalf of the Company.
Gemini Energy B. V. / Palomar Natural Resources (Netherlands) B.V. / NSP
Investments Holdings Ltd
On 18 November 2016, the Company announced the sale of its (i) 35% interest in
TSH Energy Joint Venture B.V. (TSH) and (ii) 35% interest in Poznan Energy
B.V. (Poznan) to Palomar Natural Resources (Palomar). This divested the
Company's interest in the Rawicz and Siekierki fields respectively. A 10% net
profit interest was retained in the Poznan assets. Palomar was regarded
as a related party as it already held the remaining interest in both TSH and
Poznan.
The total cash consideration due to the Company for the sale of its 35%
interest in TSH was US$9.0 million, of which US$4.5 million was received in
November 2016. The balance of US$4.5 million plus accrued interest (the
"Amount Due") was due to paid to San Leon on or before 1 October 2017. As
announced on 2 January 2018 under a novation agreement and extension agreement
dated 22 December 2017, the Amount Due was the full responsibility of NSP
Investments Holdings Ltd, a BVI registered company that holds a 35% interest
in TSH. San Leon also announced that it had received a further US$1.5 million
payment of the Amount Due. The Company was due to receive a further
US$3.6 million, including an extension fee plus any further accrued interest
on or before 1 September 2018. The Company had not received the US$3.6
million by 31 December 2018 and, provided for expected credit losses of US$3.4
million and reversed accrued interest receivable in 2018 of US$0.2 million. No
further payments were received from NSP.
In September 2021, Gemini Energy B. V. concluded transactions to gain 100%
ownership of both TSH and Poznan. To accommodate and agree to the transfer of
the TSH and Poznan shares from NSP to Gemini, Gemini offered and agreed to pay
San Leon:
(a) a payment of US$1.5 million by no later than the first anniversary of the
transfer of the TSH Shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms of a net
profits interest agreement. The Gemini obligations replace the amounts due
from NSP.
Toscafund Asset Management LLP
Toscafund Asset Management LLP (Toscafund) is a related party on the basis
that funds managed by Toscafund hold a substantial shareholding in San Leon
Energy plc and the substantive transactions which the parties entered into
during 2016 and as more fully described below detailing the purchase of the
indirect interest in OML 18.
On 11 May 2020 the Company was informed that funds managed by Tosca Asset
Management LLP had sold 98,000,000 ordinary shares in the Company on 7 May
2020. On completion of the sale funds managed by Tosca Asset Management LLP
held 228,771,927 ordinary shares, representing 50.85% of the issued share
capital of the Company. This sale was not completed and on 22 December 2020
the Company was informed that funds managed by Tosca Asset Management LLP held
330,570,719 ordinary shares in the Company at that date.
OML 18
In September 2016, the Company secured an indirect economic interest in Oil
Mining Lease 18 ("OML 18"), onshore Nigeria.
The Company undertook a number of steps to effect this purchase. MLPL, a
company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%
shareholding, was established as a special purpose vehicle to complete the
transaction by purchasing all of the shares in Martwestern, a company
incorporated in Nigeria.
Martwestern holds a 50% shareholding in Eroton, a company incorporated in
Nigeria and the operator of OML 18, and it also holds an initial 98% economic
interest in Eroton. To partly fund the purchase of 100% of the shares of
Martwestern, MLPL borrowed US$174.5 million in incremental amounts by issuing
loan notes with a coupon of 17% ("Loan Notes"). Midwestern is the 60%
shareholder of MLPL and transferred its shares in Martwestern to MLPL as part
of the full transaction. Following its placing in September 2016, San Leon
became beneficiary and holder of all Loan Notes issued by MLPL and the holder
of an indirect economic interest in OML 18. San Leon is also a beneficiary of
any dividends that will be paid by MLPL as a 40% shareholder in MLPL but the
Loan Notes repayments and any other debt take priority over any dividend
payments made to the MLPL shareholders. The economic effect of this structure
is that San Leon has an initial indirect economic interest of 10.584%. in OML
18. Shareholders will note this is higher than the percentage interest
anticipated by San Leon at the time of the acquisition. There have been no
further purchases or payments by San Leon but this revised percentage is based
on a reassessment and recalculation of the various parties' interests in OML
18 which has resulted in Martwestern's economic interest in Eroton now
standing at 98%.
To date, San Leon has received aggregate payments under the Loan Notes
totalling US$198.0 million. An expected credit loss of US$2.0 million was
recognised at 31 December 2019. Due to uncertainty around the timing of
repayments, the Company has impaired the Loan Notes, netting the expected
credit loss of US$2.0 million against the gross amortised value and
recognising an impairment charge of US$15.3 million at 31 December 2020. At 31
December 2021 the impairment charge was increased by US$0.9 million to US$16.2
million.
To make payment of principal and interest due under the Loan Notes, MLPL is
dependent on Eroton making dividend payments to Martwestern which in turn
makes dividend payments to MLPL. MLPL will use the receipt of dividends to
make Loan Notes payments to San Leon. There are various undertakings,
guarantees and security in place with Eroton, Martwestern and Midwestern with
regard to the Loan Notes, as more fully described below, in the event that
MLPL is not in a position to pay the Loan Notes from dividends received.
The Loan Notes have been secured with undertakings by both Eroton and
Martwestern, including not to take any action within their control which
would result in default by MLPL, and to act honestly and in good faith. In
addition, to the extent practicable and subject to law, use commercially
reasonable efforts to declare dividends in order that MLPL can satisfy its
obligations under the Loan Notes instrument.
The shares held by MLPL in Martwestern have also been pledged as security to
the obligations under the Loan Notes.
Midwestern and Mart Resources Limited jointly and severally guaranteed the
payment of the Loan Notes following a default and to make immediate payment
and performance of all obligations to holders of the Loan Notes.
While San Leon is also a beneficiary of any dividends that will be paid by
MLPL as a 40% shareholder in MLPL, the Loan Notes repayments must take
priority over dividend payments made by MLPL to shareholders with a minimum
65% cash sweep of available funds for a period of four years in order to
redeem the Loan Notes.
There are shareholders agreements which govern the relationship between
Midwestern and San Leon, and Bilton and Martwestern regulating the rights and
obligations with respect to MLPL, Martwestern and Eroton. These agreements
cover the appointment of Directors and unanimous approval for major decisions.
A Master Services Agreement exists which entitles San Leon Energy Nigeria B.V.
to provide rig-related services to Eroton and Midwestern for their activities.
Separately in 2018 San Leon entered into an agreement with Eroton for the
provision of subsurface technical and management services with estimated
consideration for the services of US$6.0 million until the end of 2022.
Further extensive details can be found on the Company's website which contains
a copy of the Admission Document at:
http://www.sanleonenergy.com/media/2491705/admission_document_2016.pdf
2017
As a consequence of MLPL not being in receipt of dividends in 2017, MLPL had
to enter into a loan during 2017 and subsequently in order to be able to meet
its obligations under the Loan Notes and make payments to San Leon. During
2017 San Leon received total payments under the Loan Notes totalling US$39.6
million. All payments during 2017 were received by the due date and in
accordance with the terms of the Loan Notes.
2018
During 2018 San Leon received total payments under the Loan Notes totalling
US$66.2 million. MLPL also entered into loan agreements with third parties to
enable it to make the repayments during 2018.
2019
During 2019 San Leon received total payments under the Loan Notes totalling
US$43.2 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2019.
2020
During 2020 San Leon received total payments under the Loan Notes totalling
US$46.5 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2020.
2021
During 2021 San Leon received total payments under the Loan Notes totalling
US$2.2 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2021.
Key management
Key management is deemed to comprise the Board of Directors. The total
remuneration paid to key management was as follows:
2021 2020
US$'000 US$'000
Salary and emoluments 2,413 2,678
Bonuses 490 1,172
Social welfare costs 205 282
Fees and consulting services 500 607
Pension 331 99
Benefits 50 44
Share based payment expense - 418
3,989 5,300
30. Financial Instruments and Financial Risk Management
The Group's principal financial instruments comprise trade receivables, other
financial assets, trade payables and cash and cash equivalents.
The main purpose of these financial instruments is to provide finance for the
Group's operations.
The Group's financial assets and liabilities are classified as:
Financial liabilities: Amortised costs - trade and other payables as described
in Note 19;
Financial assets: Amortised cost - Financial assets as described in Note 15
and Trade and other receivables as described in Note 17;
Financial assets: FVTPL - net profit interest as described in Note 15;
Financial assets: FVOCI - equity instrument - unquoted investments
as described in Note 15;
The main risks arising from the Group's financial instruments are foreign
currency risk, credit risk, liquidity risk, interest rate risk and capital
management. Management reviews and agrees policies for managing each of these
risks in a non-speculative manner which are summarised below.
(a) Currency risk
The Group is exposed to foreign currency risk on transactions denominated in a
currency other than the relevant functional currency of the entities of the
Group which consist of US Dollars, Euro, Sterling and Polish Zloty. The US
Dollar is the presentation currency for financial reporting and budgeting. The
Group manages its exposure by matching receipts and payments in the same
currency and monitoring the residual net cash position. During the years ended
31 December 2021 and 2020, the Group did not utilise either forward currency
contracts or other derivatives to manage foreign currency risk.
At 31 December 2021, the Group's principal exposure to foreign currency risk
was as follows:
Denominated Denominated Denominated
in GBP£ in EUR€ in PLN
US$'000 US$'000 US$'000
Trade and other receivables 597 7,226 49
Trade and other payables (1,266) (2,243) (10)
Provisions - (56) -
Cash and cash equivalents 672 50 102
Total 2021 3 4,977 141
At 31 December 2020, the Group's principal exposure to foreign currency risk
was as follows:
Denominated Denominated Denominated
in GBP£ in EUR€ in PLN
US$'000 US$'000 US$'000
Trade and other receivables 810 261 30
Trade and other payables (427) (1,861) (27)
Provisions - (56) -
Cash and cash equivalents 1,332 208 115
Total 2020 1,715 (1,448) 118
The US Dollar exchange rates used in the preparation of the financial
statements were as follows:
2021 2021 2020 2020
Average rate Closing rate Average rate Closing rate
Sterling 0.727078 0.741904 0.778085 0.732646
Euro 0.845794 0.882924 0.873668 0.814930
Polish Zloty 3.862468 4.058714 3.887568 3.715834
Sensitivity analysis
If the US Dollar increased by 1% in value against the above currencies, the
Group's profit for the year would decrease and equity at year end would
decrease by US$50,668. If the US Dollar decreased by 1% in value against the
above currencies, the Group's profit for the year would increase and equity at
year end would increase by US$51,175.
(b) Credit risk
Credit risk refers to the risk that any counter-party will default on its
contractual obligations resulting in financial loss to the Group.
The Group's financial assets excluding 'Financial assets - Net Profit
Interest', see (f) 'Fair values' comprise trade and other receivables, cash
and cash equivalents, OML 18 and ELI.
The maximum financial exposure due to credit risk on the Group's financial
assets not subject to impairment of IFRS 9, representing the sum of cash and
cash equivalents, trade and other receivables and other current assets, as at
31 December 2021 was US$21.2 million (2020: US$20.4 million).
Trade and other receivables
Within trade and other receivables there is no significant exposure to credit
risk. The credit risk on amounts receivable from joint operating partners is
managed by agreeing budgets in advance with partners and where appropriate
collecting any material share of exploration costs from partners in advance of
completing the exploration work programme. Amounts in trade and other
receivables impaired during 2021 are explained in Note 17 and management
believes that the existing sums are still collectable.
OML 18
The OML 18 transaction comprised the US$174.5 million Loan Notes as detailed
in Note 15. The credit risk is managed via various undertakings, guarantees, a
pledge over shares and the mechanism whereby MLPL prioritises payment of sums
due under the Loan Notes. Given the size and quality of the OML 18 oil and gas
asset the main credit risk is regarded as the timing of payments by MLPL which
is dependent on dividend distributions by Eroton rather than being unable to
pay the total quantum due under the Loan Notes. To date Eroton have been
unable to make a dividend distribution. Consequently, MLPL had to enter into a
loan in 2017 and further loan subsequently, in order to be able to meet its
obligations under the Loan Notes and make payments to San Leon.
The credit risk associated with the MLPL Loan Notes is regarded as high and
despite quarterly payments being largely received previously to date, however
not always on time, and given other considerations, this has led the Company
to determine that providing for a loss over the lifetime of the loan is
appropriate. The expected credit loss has been calculated with a very high
probability that the Potential Transaction will complete, and therefore the
Loan Notes will extinguish, and the Company believes that the value of the
Potential Transaction is worth at least the value of the Loan Notes.
Establishing an expected credit loss over the lifetime of the loan for a
single receivable requires significant judgement, as there is limited relevant
historical data in the Company, and no obvious reliable market data to
benchmark. The factors that were considered in coming to the conclusion of a
lifetime expected credit loss provision are explained as follows.
The credit risk of the instrument needs to be evaluated without consideration
of collateral. Financial instruments are not considered to have low credit
risk because that risk is mitigated by collateral.
MLPL is expected to repay all interest and principal due under the loan
agreement, however it is currently experiencing short term cashflow issues
which makes it challenging to predict when repayments will be made. The
increase in credit risk is due to the uncertainty in timing of when Loan Note
repayments are received. It does not change the prevailing expectation that
the loan will be recovered in full.
In addition, the Directors have reviewed the counterparty credit risk
associated with measurement of the credit impairment. This risk has previously
been assessed as having increased significantly since initial recognition, and
is considered to have increased further during the year ended 31 December 2020
and continued at this level of risk in 2021.
As the asset is determined to be credit-impaired, the lifetime expected credit
loss has been presented net against the gross carrying value of the Loan Notes
balance on the Statement of Financial Position and remeasured at each
reporting date. The MLPL loan asset will continue to be held using the
effective interest rate method.
The consideration of credit impairment for this asset is set out in Note 15.
The Directors have considered the impact of Covid-19, the impact on oil price
and demand and short term production issues on the Loan Notes and associated
credit risk, all of which are tied to the performance of the OML 18 asset. The
short term production issues are expected to delay Eroton's ability to return
to full production and benefit from the recovery in the oil price, with the
overall effect likely to be short term cashflow issues resulting in a delay in
receiving distributions from Eroton via MLPL. The Directors have therefore
concluded that the risk profile of the Loan Notes has increased.
In the opinion of the Directors there is currently no difference between the
carrying amount of the MLPL loan net of the provision and its fair value.
The following table provides information about the exposure to credit risk and
expected credit losses of the OML 18 Loan Notes as at 31 December 2021.
Equivalent to Moody's credit rating Weighted average loss rate Gross carrying amount Impairment loss allowance Credit impaired
US$000 US$000
Lower than BBB 16.74% 96,497 16,153 Yes
The following table provides information about the exposure to credit risk and
expected credit losses of the OML 18 Loan Notes as at 31 December 2020.
Equivalent to Moody's credit rating Weighted average loss rate Gross carrying amount Impairment loss allowance Credit impaired
US$000 US$000
Lower than BBB 18.17% 84,234 15,309 Yes
ELI
The ELI transaction comprises a US$15.0 million shareholder loan as detailed
in Note 15. The credit risk is managed via various undertakings, such as
representations, warranties and covenants and the ability for a preferential
distribution should some warranties be breached. Given the nature and stage of
the asset the main credit risk is regarded as the timing of payments by ELI
Malta which is dependent on dividend distributions by ELI Nigeria rather than
being unable to pay the total quantum due under the Loan Notes. Currently the
Loan Notes are in good standing with the first repayment due before 30 June
2022.
As a result of the delay in operations and ELI Loan Notes being overdue, the
Directors have determined that there has been a significant increase in credit
risk since initial recognition of the ELI Loan Notes, and a provision for the
lifetime expected credit loss of the ELI Loan Notes has been recognised. The
ELI Loan Notes are not considered to be credit impaired on the basis of the
delays in ELI commencing repayment of the loan notes. Establishing an expected
credit loss over the lifetime of the loan for a single receivable requires
significant judgement, as there is limited relevant historical data in the
Company, and no obvious reliable market data to benchmark. The factors that
were considered in coming to the conclusion of a lifetime expected credit loss
provision are explained as follows.
The credit risk of the instrument needs to be evaluated without consideration
of collateral. Financial instruments are not considered to have low credit
risk because that risk is mitigated by collateral.
ELI is not considered to be in financial difficulty and is expected to repay
all interest and principal due under the loan agreement.
In addition, the Directors have reviewed the counterparty credit risk
associated with measurement of the expected credit loss and, this has been
assessed as having not increased significantly since initial recognition.
As the asset is not credit-impaired, a lifetime expected credit loss is
recorded as a separate provision on the Statement of Financial Position and
remeasured at each reporting date. The ELI loan asset will continue to be held
using the effective interest rate method.
The consideration of expected credit losses for this asset is set out in Note
15.
The Directors have considered the impact of Covid-19 on the Loan Notes and
associated credit risk, and although this has slightly delayed the completion
of the pipeline, the Directors do not expect a material effect on the risk
profile of the Loan Notes.
In the opinion of the Directors there is no difference between the carrying
amount of the MLPL loan and its fair value.
The following table provides information about the exposure to credit risk and
expected credit losses of the ELI Loan Notes as at 31 December 2021.
Equivalent to Moody's credit rating Weighted average loss rate Gross carrying amount Impairment loss allowance Credit impaired
US$000 US$000
Lower than BBB 3.59% 17,821 640 No
The following table provides information about the exposure to credit risk and
expected credit losses of the ELI Loan Notes as at 31 December 2020.
Equivalent to Moody's credit rating Weighted average loss rate Gross carrying amount Impairment loss allowance Credit impaired
US$000 US$000
Lower than BBB 2.51% 15,353 385 No
Cash and cash equivalents
The credit risk on cash and cash equivalents held in the Group's bank accounts
is considered limited because the counterparties are banks with high
credit-ratings assigned by international credit rating agencies. The Group
also holds limited funds for day to day operational purposes with Irish
banking institutions which are subject to guarantee by the Irish government.
The Group's maximum exposure to credit risk is equal to the carrying amount of
cash and cash equivalents in its consolidated statement of financial position.
The Group does not expect any counterparty to fail to meet its obligations.
Details of the Group's cash deposits, which are all for terms of one month or
less are as follows:
2021 2020
US$'000 US$'000
Euro 50 208
Sterling 672 1,332
US Dollar 6,767 16,855
Polish Zloty 102 114
Others 1 1
7,592 18,510
(c) Liquidity risk management
Liquidity risk is the risk that the Group will not have sufficient funds to
meet liabilities as they fall due. The Group manages liquidity risk by
maintaining adequate cash reserves and by continuously monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets and
liabilities. Cash forecasts are produced to identify the liquidity
requirements of the Group. Surplus cash is placed on deposit in accordance
with limits and counterparties agreed by the Board, with the objective to
maximise return on funds whilst ensuring that the short-term cash requirements
of the Group are maintained.
All cash and cash equivalents held in the Group's bank accounts are due on
demand. All trade and other receivables and trade and other payables are due
within one month.
The Group's financial liabilities at 31 December 2021 are as follows:
Less than One to Two to Greater than Total
1 year two years five years five years US$'000
US$'000 US$'000 US$'000 US$'000
Trade and other payables, excluding leases (Note 19) 4,412 - - - 4,412
Lease liability (Note 26) 340 340 1,019 1,246 2,945
Derivative (Note 20) - - - - -
4,752 340 1,019 1,246 7,357
The Group's financial liabilities at 31 December 2020 are as follows:
Less than One to Two to Greater than Total
1 year two years five years five years US$'000
US$'000 US$'000 US$'000 US$'000
Trade and other payables, excluding leases (Note 19) 3,298 - - - 3,298
Lease liability (Note 26) 369 369 1,103 1,718 3,559
Derivative (Note 20) 9 - - - 9
3,676 369 1,103 1,718 6,866
The contractual cashflows are equal to the carrying value for trade and other
payables. Contractual cash flows from lease liabilities once discounted at the
incremental borrowing rate (Note 28) will then equate to the carrying value.
The impact of the Covid-19 pandemic, the volatility in oil prices and demand,
OPEC quotas, and recent operational challenges being experienced by OML 18
could potentially have an impact on the Company's indirect interest in OML 18
and receipt of Loan Note repayments. However, San Leon is still confident in
the operational potential of OML 18 and ultimately recovering the full amount
of the outstanding Loan Notes. Any impact on the Company's liquidity risk is
expected to be short term and mitigated by the receipt of cash from other
sources, such as Loan Note repayments from ELI and services income.
(d) Interest rate risk
The Group and Company's exposure to the risk of changes in market interest
rates relates primarily to the Group and Company's holdings of cash and
short-term deposits.
It is the Group's policy to place surplus funds on short term deposit in order
to maximise interest earned whilst maintaining adequate short-term liquidity
for operational requirements.
The OML 18 Loan Notes attract a 17% fixed rate of contractual interest and the
ELI Loan Notes attract a 14% fixed rate of contractual interest, both referred
to in Note 15, and as a consequence there is no interest rate exposure.
(e) Capital management risk
The Group manage its capital to ensure that entities in the Group will be able
to continue as a going concern while maximising the return to shareholders
through the optimisation of the debt and equity balance. The Group manages its
capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust its capital structure, the Group may adjust
or issue new shares or raise debt. The capital structure of the Group consists
of equity attributable to equity holders of the parent, comprising issued
capital, reserves and retained earnings as disclosed in the consolidated
statement of changes in equity.
The Group net debt and equity, and the net debt to equity ratio at 31 December
2021 was as follows:
2021 2019
US$'000 US$'000
Total Liabilities 8,144 6,642
Less: cash and cash equivalents 7,592 18,510
Adjusted net debt 552 (11,868)
Total equity 176,218 152,060
Adjusted net debt to equity ratio - (0.08)
(f) Financial assets and liabilities by category
The following table sets out the carrying value of all the financial assets
and liabilities held at 31 December 2021:
Fair value Carrying Level 1 Level 2 Level 3^
31 December amount 31 December 31 December 31 December
2021 31 December 2021 2021 2021
US$'000 2021 US$'000 US$'000 US$'000
US$'000
Financial assets
OML 18# (Note 15) 80,344 80,344 - - 80,344
ELI (Note 15) 17,181 17,181 - - 17,181
Barryroe NPI (Note 15) 4,291 4,291 - - 4,291
Unquoted shares (Note 15) - - - - -
Trade receivables * (Note 17) 9,860 9,860 - - -
Cash and cash equivalents (Note 18) 7,592 7,592 - - -
Other debtors * (Note 17) 799 799 - - -
Financial liabilities
Trade payables * (Note 19) (1,286) (1,286) - - -
Other creditors * (Note 19) (67) (67) - - -
Derivative (Note 20) - - - - -
At 31 December 2021 118,714 118,714 - - 101,816
# The credit risk of the OML 18 loan has been assessed as having significantly
increased since initial recognition, affecting the underlying determination of
the fair value. Therefore, the carrying amount arising from the application of
the effective interest rate method is greater than the fair value.
* The Group has not disclosed the fair value of financial instruments such as
short-term receivables and payables, as it is considered that their carrying
amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures
see the note referenced above.
During the period ended 31 December 2021, there were no significant changes in
the business or economic circumstances that affect the fair value of
financial assets and liabilities, no reclassifications and no transfers
between levels of the fair value hierarchy used in measuring the fair value
of the financial instruments.
The following table sets out the carrying value of all the financial assets
and liabilities held at 31 December 2020:
Fair value Carrying Level 1 Level 2 Level 3^
31 December amount 31 December 31 December 31 December
2020 31 December 2020 2020 2020
US$'000 2020 US$'000 US$'000 US$'000
US$'000
Financial assets
OML 18 (Note 15) 68,925 68,925 - - 68,925
Barryroe NPI (Note 15) 14,968 14,968 - - 14,968
Unquoted shares (Note 15) 6,842 6,842 - - 6,842
Trade receivables* (Note 17) 2 2 - - -
Cash and cash equivalents (Note 18) 18,510 18,510 - - -
Other debtors* (Note 17) 732 732 - - -
Financial liabilities
Trade payables* (Note 19) (719) (719) - - -
Other creditors* (Note 19) (36) (36) - - -
Derivative (Note 20) (9) (9) - - (9)
At 31 December 2020 109,215 109,215 - - 90,726
* The Group has not disclosed the fair value of financial instruments such as
short-term receivables and payables, as it is considered that their carrying
amounts are a reasonable approximation of their fair values.
^ For detailed disclosures on the valuation techniques of level 3 disclosures
see the note referenced above.
During the period ended 31 December 2020, there were no significant changes in
the business or economic circumstances that affect the fair value of financial
assets and liabilities, no reclassifications and no transfers between levels
of the fair value hierarchy used in measuring the fair value of the financial
instruments.
(g) Hedging
At 31 December 2021 and 31 December 2020, the Group had no outstanding
contracts designated as hedges.
31. Subsequent events
Change of Advisor
On 31 January 2022, it was announced that Brandon Hill is no longer acting as
the Company's broker.
Amendment to investment in the Oza field, Nigeria
On 1 September 2020, the Company announced that it had conditionally agreed to
provide a US$7.5 million loan to Decklar Resources Limited ("Decklar"), via
10% per annum unsecured subordinated loan notes of Decklar. Decklar is the
holder of a Risk Service Agreement with Millenium Oil and Gas Company Limited
in relation to Oza. The Company also announced that it would conditionally
subscribe for a 15% equity interest in Decklar at nominal value.
San Leon's proposed investment (US$6.75 million) remained in escrow and was to
be released upon satisfaction (or waiver) of certain conditions precedent.
Despite delays to concluding the transaction documents, Decklar has performed
the workover of the Oza-1 well, the results of which have already been
announced by San Leon. In summary, the Oza-1 well test has indicated
positive oil results from the lowermost zone, encountered gas in the middle
zone and oil in the uppermost zone. San Leon has evaluated these results and
the San Leon Board has recommended that it proceeds with an investment in Oza.
Decklar is in agreement with that strategy and also to fully involve San Leon
in future development planning and determining the location of the first new
well to be drilled on the Oza Oil Field.
On 27 January 2022, the Company announced it had entered into an amendment to
its original agreement with Decklar, the principal terms of which are:
1) San Leon has agreed to proceed with its investment in Oza, waiving
the remaining conditions precedent.
2) Of the US$6.75 million of funds held in escrow, US$4.75 million has
now been released to Decklar and US$2.0 million has been returned to San Leon
pending final completion. San Leon is obliged to either provide a further loan
of US$2.0 million to Decklar by 30 April 2022 or, alternatively, accept a pro
rata reduction in its shareholding in Decklar.
3) San Leon has agreed to waive its option to invest an additional
US$7.5 million in Decklar.
The transactions contemplated by the Subscription Agreement and Binding LOI
are subject to final approval by the TSX Venture Exchange.
The Company has previously advanced US$750,000 to Decklar as an initial
deposit. As a consequence of the above transactions, upon completion San Leon
will be interested in US$5,500,000 of 10% unsecured subordinated Decklar loan
notes and a 11.5% equity interest in Decklar, which will be subscribed for at
a nominal value of 1,294,118 Nigerian Naira (approximately US$3,400). The key
terms of the loan notes remain unchanged from those described in the Company's
announcement of 1 September 2020.
In its audited accounts for the year ended 31 December 2020, Decklar reported
a loss before tax of US$5.1 million and total assets of US$6.0 million. San
Leon will be entitled to one seat on the board of Decklar.
ELI - additional loan
On 15 February 2022, the Company provided further loan of US$2.0 million (the
"Loan") to Energy Link Infrastructure (Malta) Limited ("ELI"), the company
which owns the Alternative Crude Oil Evacuation System ("ACOES") project. As
previously announced, the ACOES is being constructed to provide a dedicated
oil export route from the OML 18 oil and gas block located onshore in Nigeria
("OML 18"), comprising a new pipeline from OML 18 and a floating storage and
offloading vessel ("FSO"). Once commissioned, the system is expected by the
operator of OML 18, Eroton Exploration and Production Company Limited
("Eroton"), to reduce the downtime and allocated pipeline losses currently
associated with the Nembe Creek Trunk Line. In addition, it is anticipated
that the FSO project will improve overall well uptime at OML 18.
The Loan is a US$2.0 million shareholder loan at a coupon of 14% per annum
over four years which is repayable quarterly following a one-year moratorium
from the date of investment. The Loan will be accompanied by a transfer to
San Leon by Walstrand (Malta) Limited, ELI's largest shareholder, of shares in
ELI representing a 2.0% equity interest (the "ELI Equity Interest"), which San
Leon will acquire at nominal value, representing a consideration payable of
approximately US$91.
The Loan will be used by ELI to facilitate a recent funding requirement to
allow for completion of the mooring for the floating storage and offloading
vessel, which the Board considers to be a critical step in the progression of
the ACOES project. Providing loans to Nigerian oil and gas related projects,
which are often accompanied by associated equity interests, has been a key
part of San Leon's business and strategy in recent years. San Leon has had
debt and equity interests in ELI since August 2020 and, given the longer-term
ongoing strategic importance of ELI's ACOES project to OML 18, the Board
believes that it is important for San Leon to assist ELI with the funding
requirements for achieving its key project milestones on a timely basis.
Taken together with San Leon's existing investment in ELI and its conditional
purchase of 1.32% of ELI (calculated prior to the newly-issued shares of
today's announcement), as announced last year, following completion of the
conditional purchase, San Leon's holding in ELI will be 13.32%.
San Leon has now lent a total of US$17.0 million to ELI with a coupon of 14%
per annum and from which repayment installments totaling US$6.0 million are
now due. As announced on 9 August 2021, the Company has previously agreed
with ELI that, should new investments in ELI be made, then loan repayment
installments would be offset from any investment monies payable to ELI by San
Leon under these new arrangements. The Company has elected not to enforce
this provision on this occasion, in recognition of the fact that ELI's
development is critical to the success of OML 18 and ELI's cash balances at
this time are required to progress the overall ACOES project. San Leon will
continue to waive repayment installments due on its loans until the ACOES
project has been further progressed and outstanding installments will continue
to accrue interest at 14% per annum.
Under the terms of ELI's senior debt facility, the lender has a charge over
all of ELI's assets and, as further security, each shareholder (including San
Leon) has pledged their shares to the lender. The ELI shares comprising
the ELI Equity Interest will be subject to this pledge. The terms of the
pledge are that the ELI shares cannot be transferred or otherwise utilised
without the lender's consent.
Proposed transactions and Suspension of San Leon shares
On 24 June 2021, the Company announced that it was is in preliminary
discussions with Midwestern about acquiring Midwestern's interest in the OML
18 oil and gas block located onshore in Nigeria. At this date, heads of terms
for the transaction had not been agreed. The transaction would involve San
Leon acquiring the outstanding shares not already owned by San Leon in
relation to MLPL. San Leon is not contemplating acquiring Midwestern. San
Leon currently owns 40% of MLPL with Midwestern owning the other 60%. In
addition, the Company was considering making further debt and equity
investments in ELI.
On 8 July 2022, the Company issued an Admission document describing the
proposed transaction that will increase its indirect economic interest in
Eroton from 39.2% to 98.0% and, taking into account the completion of the
Eroton Transaction with Sahara and Bilton, San Leon's initial indirect
economic interest in OML 18 would increase from the current 10.58% to
44.1%. In addition to the MLPL transaction, the Company will increase its
interest in ELI to c.50% and the loans to ELI from the Company will increase
to c.$48 million. The transactions described in the Admission Document are
expected to complete in September 2022 after Nigerian consents for the
transactions have been received.
Related party
Midwestern currently holds more than 10% of the Company's ordinary shares.
Accordingly, Midwestern is classified as a related party under the AIM Rules
and the transactions above in which Midwestern has an interest will therefore
be treated as transactions with a related party pursuant to rule 13 of the AIM
Rules.
Glossary
3P Proven
plus Probable plus Possible Reserves
AIM The London
Stock Exchange's AIM market
AIM Rules AIM Rules for Companies
Bilton Bilton Energy
Limited
B.V. Dutch
private limited company
BVI British
Virgin Islands
Eroton Eroton Exploration
and Production Company Limited
US$'000 United States
Dollars, thousands
FSO Floating
Storage and Offloading
Group San Leon and its
subsidiaries
LLP Limited
liability partnership
Loan Notes $174.5 million principal
amount of 17% fixed rate loan notes acquired by San Leon pursuant to the
amended and restated loan note instrument dated September 30, 2016 executed
and issued by Midwestern Leon Petroleum Limited
Ltd or limited A private limited company
incorporated under the laws of England and Wales, Scotland, certain
Commonwealth countries and Ireland
m Metres
Martwestern Martwestern Energy Limited
Midwestern Midwestern Oil and Gas
Company Limited
MLPL Midwestern Leon
Petroleum Limited
MSA Master Services
Agreement
NPI Net Profit
Interest
PLC A publicly
held company
San Leon or the Company San Leon Energy PLC
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