REG - San Leon Energy PLC - Further investment in ELI and loan

San Leon EnergyAnnouncement

08/08/2023 07:00

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RNS Number : 5728I  San Leon Energy PLC  08 August 2023

 

 

 

Prior to publication, the information contained within this announcement was
deemed by the Company to constitute inside information for the purposes of
Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310.
With the publication of this announcement, this information is now considered
to be in the public domain.

 

8 August 2023

San Leon Energy plc

("San Leon" or the "Company")

 

Further investment in ELI and loan from the Company's largest shareholder

 

San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, is pleased to announce a further investment of
US$5.0 million in Energy Link Infrastructure (Malta) Limited ("ELI"), which
owns the new pipeline and the floating storage and offloading vessel for the
OML 18 oil and gas field in Nigeria ("OML 18").  This further investment in
ELI is being funded by the issue of a secured US$5.0 million loan by the
Company's largest shareholders, certain funds managed by Toscafund Asset
Management LLP.

 

Terms of the further investment in ELI

 

The Company has provided a US$5.0 million shareholder loan to ELI. The loan
carries a coupon of 17 per cent. per annum over 4 years and is repayable
quarterly following a one-year moratorium from the date of the loan being
advanced.  In addition, the loan entitles San Leon to purchase a further 4.2
per cent. of ELI's equity at nominal value in furtherance of the Company's
objectives of becoming ELI's largest shareholder.  Together with San Leon's
existing shareholding in ELI and, taking account of certain anti-dilution
provisions relating to the Company's previous investments as well as other
pending purchases, San Leon expects to increase its ownership of ELI to
approximately 16.2 per cent. following the loan being made to ELI.

 

In addition to this investment, San Leon has agreed a period of exclusivity
with ELI through to the end of August 2023 to make further investments, of up
to US$37.0 million, in ELI.  These further investments, which may be made via
a combination of cash and issuing new shares in San Leon, which would be on
the same terms as described above, and, if made, would entitle San Leon to up
to a further 30.8 per cent. of ELI, thereby becoming the largest shareholder
of ELI with approximately 46 per cent. (excluding the impact of further
proposed investments in ELI as previously announced by the Company).  If
completed in full, these further investments, which are conditional, inter
alia, on San Leon completing its alternative US$50.0 million loan financing,
would also give San Leon an aggregate shareholder loan to ELI of US$59.0
million, of which US$42.0 million would carry a 17 per cent. coupon and US$17
million would carry a 14 per cent. coupon.  As outlined by the Company on 15
February 2022, loan repayments from ELI to the Company have, to date, been
waived but interest has continued to accrue on the outstanding balance.

 

Pursuant to the construction of the Alternative Crude Oil Evacuation System
("ACOES"), as described below, ELI has incurred a number of outstanding
obligations to contractors, including a payment of US$5.0 million that is
required to be made immediately to its main pipeline contractor as part of a
series of stage payments.   The further investment now being made by San
Leon is therefore critical to the ongoing operations of ELI and, therefore,
the commissioning of the ACOES as well as preserving the value of San Leon's
investment in ELI.

 

Financing the further investment in ELI

 

The further investment in ELI is being funded by the Company taking a US$5.0
million loan (the "Loan") from funds managed by Toscafund Asset Management LLP
("Toscafund").  The Loan is available to the Company now, unlike the other
financing options being pursued by the Company (details of which are set out
below). The Loan is repayable by no later than 7 September 2023 and carries a
coupon of 10 per cent. per annum.  Subject to drawing down the Loan, San Leon
has entered into security arrangements with funds managed by Toscafund that
comprise both a debenture issued by the Company as well as assignments and
pledges over all of its group companies' loan and equity interests in ELI.
The security will be released on full repayment of the Loan.  It is an
express term of the Loan that funds advanced to the Company pursuant to it
must be fully utilised to only make the Company's further investment in ELI.

 

Under the terms of ELI's senior debt facility, ELI's senior lender has a
charge over all of ELI's assets and, as further security, each ELI shareholder
(including San Leon) has pledged their shares in ELI to the senior lender.
As the terms of the pledge are that the Company's shares in ELI cannot be
transferred or otherwise utilised without the lender's consent, the Company
has given security to the funds managed by Toscafund over the shares in San
Leon ELI Limited, the group company which holds San Leon's shares in ELI.

 

San Leon remains in advanced discussions with a third party in relation to
securing an alternative loan facility of US$50.0 million.  This proposed
alternative loan facility was reconfirmed verbally last week to the Company's
Chief Executive and the Company expects negotiations on finalising the legal
documentation to take place in the near term. Once concluded, this facility
will, amongst other things, be utilised by the Company to: (i) repay the Loan;
(ii) fund San Leon's further investments in ELI, as described above; (iii) pay
the Company's unpaid creditors (which currently stand at approximately US$13.0
million); and (iv) satisfy the Company's ongoing working capital
requirements.  The Board remains optimistic that a conclusion on the
alternative loan facility will be reached and will provide an update to
shareholders at that time.

 

The admission document published by the Company on 8 July 2022 (the "Admission
Document") included, amongst other things, details of an agreed $50.0 million
loan facility that has been made available to the Company by MM Capital
Holding Limited ("MM Capital") for the purposes of funding the Company's
working capital requirements and financing further investments in ELI (the "MM
Capital Facility").  The Board of San Leon (the "Board") has consciously
delayed drawing down on the MM Capital Facility as it believes that
alternative financing, including the proposed alternative loan facility
described above, might be available on terms that may be better aligned with
the Company's overall strategic and financing objectives.
Specifically, discussions with prospective alternative lenders have included
larger facilities, convertible loan note facilities and the possibility of
direct equity investments in San Leon. Furthermore, it is the Board's view
that drawing down on the MM Capital Facility may preclude alternative
financing options and, consequently, no draw down notice has yet been
submitted to MM Capital. The MM Capital Facility is available until the end of
this year.

 

Although the Board is cognisant of the Company's numerous outstanding
creditors and the increasing pressure a number of these creditors are applying
to the Company (including sending letters before action), it continues to
believe that the prospects of obtaining long term financing from a supportive
partner, and therefore the opportunities that this creates for San Leon,
outweighs the benefits of drawing down on the MM Capital Facility at this
time.  In light of the recent discussions with its prospective new financing
partner the Board anticipates settling all the Company's outstanding creditors
shortly upon completion of the proposed alternative $50.0 million loan
facility, as well as repaying the Loan and, as a result, releasing the
security it has granted funds managed by Toscafund over its interests in ELI
and other assets.

 

Further information on ELI

 

ELI owns the ACOES project. As previously announced, the ACOES will provide a
dedicated oil export route from the OML 18 oil and gas field and is a new
47-kilometre secure undersea pipeline from OML 18 to the FSO ELI Akaso
terminal. The ACOES pipeline component is expected to have a throughput
capability of 100,000 barrels per day (b/d) of oil, while the FSO ELI Akaso
has a storage capacity of 2 million barrels of oil. Once commissioned, the
system is expected to reduce the downtime and allocated pipeline losses
currently associated with the Nembe Creek Trunk Line ("NCTL"), to below 10 per
cent.   The ACOES pipeline is expected to be completed in the second half of
2023.

 

ELI's accounts for the year ended 31 December 2021 state that the company made
a loss before tax of approximately US$10.5 million and reported total assets
of approximately US$226.9 million.  Two of San Leon's directors are currently
appointed to ELI's board.

 

The Board believes that the ACOES will have a significant effect on the
operation of OML 18, primarily through the reduction of downtime and losses
associated with the existing export route.  ELI, through its Nigerian
subsidiary, will also earn fees for transporting and storing crude oil from
OML 18 and potential third parties.

 

Related party transaction

 

The issue of the Loan by funds managed by Toscafund (which owns over 75 per
cent. of San Leon's issued shares) is classed as a transaction with a related
party under the AIM Rules for Companies.  The Board (with the exception of
Kolapo Ademola and Joel Price who are both directors of ELI), having consulted
with the Company's nominated adviser, Allenby Capital Limited, considers that
the terms of the transaction are fair and reasonable insofar as the Company's
shareholders are concerned.

 

Oisin Fanning, Chief Executive officer, commented:  "This new investment is
an important step for both San Leon and ELI.  For us, it marks the next step
in our further investment in that company, as originally outlined in our
admission document last July but subsequently adjusted to address developments
over the past year, and protects our position and past investment in ELI.
Our agreement with ELI to provide further financial support should soon see
San Leon become ELI's largest shareholder.  For ELI, our support enables it
to address its financial obligations and continue the process of commissioning
the ACOES - once operational, this is anticipated to be a profitable and
cash-generative project from which San Leon expects substantial upside."

 

Enquiries:

 

 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)
 James Sinclair-Ford

 John Prior
 Tavistock                                             +44 20 7920 3150

 (Financial Public Relations)
 Nick Elwes

 Simon Hudson
 Plunkett Public Relations                             +353 1 230 3781
 Sharon Plunkett

 

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