REG - San Leon Energy PLC - Further update on the potential transaction

San Leon EnergyAnnouncement

29/04/2022 07:00

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RNS Number : 7856J  San Leon Energy PLC  29 April 2022

 

 

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.

 

29 April 2022

San Leon Energy plc

("San Leon" or the "Company")

 

Further update on the potential transaction

 

San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, provides the following update on 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"). 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. The Potential Transaction,
if concluded, would be classified as a reverse takeover under the AIM Rules
for Companies (the "AIM Rules").

 

AIM admission document update

 

Further to the Company's announcement on 28 February 2022, the Company now
currently expects to publish an AIM admission document (the "Admission
Document") in respect of the Potential Transaction by 24 June 2022 at the
latest, following which point the Company will seek the restoration of trading
of its ordinary shares on AIM.

 

Proposed Eroton Transaction

 

On 29 November 2021, San Leon announced that, inter alia, it had been informed
that the operator of the OML 18 oil and gas block located onshore in Nigeria
("OML 18"), Eroton Exploration and Production Company Limited ("Eroton"), is
seeking to acquire an additional 18% interest in OML 18 from two of the other
partners in OML 18, subject, inter alia, to: i) agreeing documentation; ii)
finalising bank financing; and iii) receiving the relevant regulatory consents
in Nigeria, thereby taking Eroton's interest in OML 18 to 45% (the "Proposed
Eroton Transaction").

 

As previously noted in the Company's announcement of 28 February 2022,
completion of the Potential Transaction is conditional upon completion of the
Proposed Eroton Transaction. The entering into binding conditional transaction
documentation in relation to the Proposed Eroton Transaction is contingent,
inter alia, on Eroton's financing of this transaction which is expected to
form part of a refinancing of OML 18's reserve-based lending facilities.  In
that regard, it was also announced on 28 February 2022 that Eroton have
received a term sheet in relation to a reserve-based lending facility,
totaling US$750,000,000 (the "Proposed Eroton Debt Facilities"), which is
proposed to be lent by a financing syndicate led by African Export-Import Bank
("Afrexim"). San Leon has been provided with an update on the progress of the
funding for the Proposed Eroton Transaction and has been advised that
significant progress has been made with this financing syndicate, with key
milestones being achieved.

 

Further progress in relation to the Proposed Eroton Debt Facilities remains
subject to, amongst other matters, definitive documentation and ELI
successfully demonstrating the barging of oil to the floating storage and
offloading vessel ("FSO") through part of the Alternative Crude Oil Evacuation
System ("ACOES") project, to the off-taker's satisfaction which is expected to
be met in May 2022, following receipt of the necessary Nigerian regulatory
maritime approvals.  Given the level of recent activity by ELI, similar to
the loan provided to ELI by San Leon as announced on 15 February 2022, the
Board has made ELI aware that should it have financing needs in coming months
to progress critical steps in relation to the ACOES project, then the Board
are open to considering SLE making additional loans to ELI.  Should such
loans be required it is expected that these will be separate, distinct and not
conditional on the Potential Transaction.

 

Following this, San Leon understands that Eroton and the financing syndicate
intend to seek to finalise the Proposed Eroton Debt Facilities in order to
allow for binding conditional transaction documentation in relation to the
Proposed Eroton Transaction to be concluded as soon as may be practicable.
San Leon understands that the proposed binding conditional transaction
documentation is making progress toward being in agreed form.

 

Separate to the Proposed Eroton Debt Facilities, part of San Leon's potential
new debt and new equity investments in ELI are expected to require financing,
which the Board currently expects to be provided by way of a new loan to San
Leon (the "Proposed New San Leon Loan Facility").  The Company is engaging
with prospective lenders in this respect.

 

Potential Transaction update

 

As previously announced in relation to the Potential Transaction, progress has
been made by the Company and its advisers in preparing the necessary
transaction documentation in relation to the Potential Transaction, including
work on progressing the Admission Document, which is now in developed form,
given that the Potential Transaction will be classified as a reverse takeover
under the AIM Rules for Companies (the "AIM Rules").  The Company intends for
the Admission Document to include audited financial information for the three
years to 31 December 2021 in relation to MLPL and ELI and the process for
compiling this audited historical financial information is now underway, as is
the San Leon audit for the same period.

 

The draft conditional reorganisation agreement to be entered into between: (i)
the Company; (ii) Midwestern; and (iii) MLPL, to effect the acquisition of the
outstanding shares not already owned by San Leon in relation to MLPL and
Midwestern's indirect debt and equity interests in ELI, as part of the
Potential Transaction, continue to remain, inter alia, subject to finalisation
of the precise position in relation to its conditions precedent in respect of
regulatory consents in Nigeria and San Leon obtaining the requisite financing
for the Potential Transaction, pursuant to the Proposed New San Leon Loan
Facility.  The Company and Midwestern continue to receive advice in relation
to the relevant process here, in order to best reflect this in a finalised
version of this agreement.

 

As previously announced, as part of the Potential Transaction, San Leon would
increase its indirect economic interest in Eroton from 39.2% to 98.0% and,
taking into account the completion of the Proposed Eroton Transaction, San
Leon's initial indirect economic interest in OML 18 would increase from the
current 10.58% to 44.1%.

 

In accordance with Rule 14 of the AIM Rules, the Company's ordinary shares
will remain suspended from trading on AIM until such time as either the
Admission Document is published or the Company announces that the Potential
Transaction is no longer proceeding.

The announcement of binding agreements in relation to the Potential
Transaction remains subject to a number of factors, including, inter alia, the
completion of due diligence, the negotiation and the execution of binding
contractual documentation, including the Proposed New San Leon Loan Facility
and would be accompanied by the publication of the Admission Document.  Among
other things, completion of the Potential Transaction is expected to be
subject to various regulatory consents, completion of the Proposed Eroton
Transaction, including the proposed Eroton Debt Facilities, a reorganisation
of Midwestern's indirect equity and debt interests in ELI and the approval of
San Leon's shareholders. Given the need for financing, binding contractual
documentation and applicable regulatory consents, it remains the case that
there can be no guarantee at this stage that the Potential Transaction or the
Proposed Eroton Transaction will be entered into or, if entered into, will
complete.

Further extension of the Conditional Payment Waiver in relation to the MLPL
Loan Notes

In relation to the outstanding loan notes due from MLPL (the "Loan
Notes"), further to the announcement on 28 February 2022, San Leon has
agreed with MLPL, Midwestern and Martwestern (as defined below) to a further
extension of the Conditional Payment Waiver to 24 June 2022 or, if sooner, the
termination of discussions or the signing of an agreement to effect the
Potential Transaction (but otherwise on the same terms as the waiver announced
on 7 July 2021), in relation to three instalments that were originally due
to be repaid on 5 July 2021, 30 September 2021 and 31 December 2021 (the
"Extended Conditional Payment Waiver"). Interest continues to accrue on the
principal amounts waived whilst the Extended Conditional Payment Waiver is in
effect.  As at 28 April 2022, the Extended Conditional Payment Waiver
relates to US$103.8 million, being a principal amount due of US$82.2 million
and total accrued interest due of US$21.6 million, which will be payable 90
days after such expiry, save for, inter alia, if there is an event of
default.

MLPL is part of the structure through which San Leon holds its current 10.58%
indirect economic interest in OML 18.  San Leon currently has a 40% equity
interest in MLPL with the remaining interest in MLPL currently being owned by
Midwestern. Midwestern is also the guarantor of the Loan Notes.  MLPL has a
100% equity investment in Martwestern Energy Limited ("Martwestern"), which in
turn has a 98% economic interest in Eroton, which currently holds a 27%
working interest in OML 18 and is its operator.

As previously announced, it is expected that, inter alia, as part of the
Potential Transaction, the amounts owed to San Leon by MLPL pursuant to the
Loan Notes will be taken into account in the overall structure and eliminated
from the resulting structure.

Related party transaction disclosure

Midwestern and MLPL are related parties of the Company for the purposes of
the AIM Rules by virtue of Midwestern holding more than 10% of the existing
Ordinary Shares in the Company and the level of Midwestern's current interest
in MLPL. The Extended Conditional Payment Waiver is therefore a related
party transaction under the AIM Rules. The Directors of San Leon (excluding
Adekolapo Ademola who is not considered to be independent as he is a
representative of Midwestern on the Company's board) consider, having
consulted with the Company's nominated adviser, Allenby Capital Limited, that
the terms of the Extended Conditional Payment Waiver are fair and reasonable
insofar as the Company's shareholders are concerned.

 

Oisin Fanning, CEO of San Leon, commented:

"We believe that OML 18 is a world class oil and gas asset.  Our plans to
further enhance our involvement in this asset, via the Potential Transaction,
have the potential to be very significant.  A huge amount of work has been
carried out and a great deal has been achieved to progress this transaction in
the last few months.   We now currently expect to publish an admission
document in respect of our Potential Transaction in June 2022. This we believe
will deliver a transformational deal to the Company which will put San Leon in
a very strong position as a significant player in West Africa with the
potential to deliver considerable future value to all our stakeholders.  We
look forward to providing further updates in due course."

The Company will release further announcements as and when appropriate.

 

 

 

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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