REG - San Leon Energy PLC - Further loan and acquisition of interest in ELI

San Leon EnergyAnnouncement

15/02/2022 07:00

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RNS Number : 6532B  San Leon Energy PLC  15 February 2022

 

 

 

The information communicated within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse (amendment) (EU Exit)
Regulations 2019/310. Upon the publication of this announcement, this inside
information is now considered to be in the public domain.

 

15 February 2022

San Leon Energy plc

("San Leon" or the "Company")

 

Further loan to, and acquisition of an equity interest in, Nigerian Oil Export
System

 

San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, is pleased to announce that it has provided a
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.

 

Oil export barging operations from OML 18 commenced in late September 2021
(while awaiting availability of the pipeline).  To date, oil volumes being
barged have been small, reflecting lower production at OML 18 and with the
purpose of the barging being primarily to test the new processes.  Barging
has been to smaller storage vessels prior to offloading to the FSO.  The full
ACOES, including the pipeline, is currently expected by Eroton to be fully
operational in the third quarter of 2022.

 

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.

 

Accordingly, the Loan and the ELI Equity Interest are distinct and separate to
the proposed further debt and equity investments in ELI that are connected to
the transaction as originally described by the Company in its announcement on
24 June 2021, the progress of which was most recently described in the
Company's announcement of 24 December 2021, being the proposed reorganisation
to consolidate Midwestern Oil and Gas Company Limited's ("Midwestern")
shareholdings in the Company and Midwestern Leon Petroleum Limited ("MLPL")
into a single shareholding in the Company (the "Potential Transaction"), which
also comprises, inter alia, a proposed consolidation of Midwestern's indirect
debt and equity interests in ELI with those of the Company, as well as further
new debt and new equity investments to be made by San Leon in ELI.  Work on
the Potential Transaction, which will be classified as a reverse takeover
under the AIM Rules for Companies, is ongoing.

 

Taken together with San Leon's existing investment in ELI and its conditional
purchase of 1.323% 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 13.323%. Also as
announced last year, San Leon has an option to conditionally purchase a
further 4.302% of ELI for US$6.0 million.  Furthermore, the effect of the
Potential Transaction will be to increase San Leon's interest in ELI further.
Consequently, the 2.0% ELI Equity Interest that San Leon is receiving now in
conjunction with the Loan is subject to anti-dilutive protection, whereby San
Leon will be issued with further shares in ELI to maintain that percentage
holding should the effect of the Potential Transaction be to in any way dilute
this tranche of shares.

 

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.

 

ELI's audited accounts for the year ended 31 December 2020 state that the
company made a loss before tax of approximately US$4.4 million on revenue of
approximately US$5.7 million and reported total assets of approximately
US$198.7 million.  Two of San Leon's directors are currently appointed to
ELI's board.

 

Oisin Fanning, CEO of San Leon Energy, commented:

 

"As our shareholders know, we have long considered ELI and the new ACOES
pipeline to be critical to the success of OML 18 and so it is pleasing to be
able to provide this Loan to ELI to advance an important stage of that key
project.  The fact that we have been able to make this investment utilising
cash received from our settlement in the legal proceedings with TAQA Offshore
BV is particularly beneficial, both for our cash flows and for our risk
profile, as we seek to progress our reverse takeover transaction."

 

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)
 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

 

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