REG - San Leon Energy PLC - Investment of up to US$187 million

San Leon EnergyAnnouncement

10/10/2023 07:00

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RNS Number : 4815P  San Leon Energy PLC  10 October 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.

 

10 October 2023

San Leon Energy plc

("San Leon" or the "Company")

 

Investment of up to US$187 million from a strategic investor

and

further investments into ELI

 

San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, is pleased to announce the following significant
developments:

1.    an investment of up to US$187 million by Tri Ri Asset Management
Corp. ("TRAM") into San Leon; and

2.    further investments by San Leon in Energy Link Infrastructure (Malta)
Limited ("ELI") using the proceeds of the TRAM investment, making San Leon the
largest and majority shareholder in ELI with approximately 55 per cent. of the
company.

 

Oisin Fanning, Chief Executive Officer of San Leon, commented:

"It is no secret that the past few months have been difficult for San Leon, as
they have been for many businesses, but it is testament to the determination
and commitment of our team that we have secured one of the largest
fundraisings by an AIM oil & gas company in recent years. In addition, and
in line with our announcements over the past year, we have aligned San Leon
with a strategic funding partner who has been able to commit a greater level
of support than our previous proposed lender, through an innovative investment
arrangement which includes them becoming a major shareholder of our Company.

 

"Importantly our partnership with TRAM enables us to fulfil our long-held
strategy of becoming the majority shareholder in ELI. It is no understatement
to say that the commissioning of the FSO Akaso Terminalis a game changer, not
only for OML 18 but for the entire industry in that region. We are confident
that the FSO and the ACOES pipeline will be a significantly profitable and
cash-generative project from which San Leon expects substantial upside."

 

 Asad Ali, Chief Investment Officer of Tri Ri Asset Management Corp., commented:

"We are delighted to announce this financial partnership with San Leon which we expect is the start of a long-term relationship.  We have come to know Oisin and the team well in recent weeks and their professionalism and understanding of Sub-Saharan Africa is a strong fit for our investment criteria and we are looking forward to working with them in fulfillment of their strategic objectives.  We believe that the scale of OML 18 and the efficiencies that ELI's new infrastructure will bring represents a very exciting opportunity for us and all investors in San Leon."

 

Overview and summary of the investment in San Leon by TRAM

 

The Company has entered into documentation with TRAM in relation to an
investment of up to US$187 million by TRAM into San Leon (the "Investment").
The Investment comprises of:

1.    a US$125 million convertible secured loan from TRAM to San Leon (the
"Loan").  The Loan will be fully drawn down by the Company immediately;

2.    a US$16 million subscription by TRAM for 44,991,302 new ordinary
shares of €0.005 each in the Company (the "Ordinary Shares") at 30 pence per
new Ordinary Share, which is proposed to take place before the end of October
2023 (the "Subscription"); and

3.  a potential US$46 million further investment by TRAM from the grant of
62,500,000 warrants by San Leon, exercisable at 60 pence per new Ordinary
Share, to TRAM (the "Warrants").

A.    Details of the Loan

 

The Loan has a term of three years and the Company will pay a 7.5 per cent.
fixed rate of interest per annum. The aggregate interest to be charged on the
Loan over the three-year term (being US$28.125 million) has been deducted from
the principal drawn down by the Company and the Company is also paying a
one-off arrangement fee of US$7.5 million (being 6.0 per cent of the gross
value of the Loan) to certain advisers who arranged the Investment. The
Company will therefore receive net proceeds from the Loan of US$89.375
million. There are no commissions payable on either the Subscription or the
issue/exercise of the Warrants.

 

TRAM has the right to convert the Loan at any time prior to the end of the
three-year term as follows:

1.    US$70 million of the principal value of the Loan into a one-third
shareholding in San Leon ELI Limited ("SLE ELI"), the Company's wholly owned
subsidiary which owns San Leon's shareholding in ELI; and

2.    the remaining proportion of the principal value of the Loan, being
US$55 million, into 90 million new Ordinary Shares at an effective conversion
price of 50 pence per new Ordinary Share.

 

In addition to the fixed interest described above, TRAM will be entitled to a
preferential economic return (the "PER"), equal to 50% of any dividends
directly or indirectly received by San Leon from ELI, for a period of 15 years
(provided always that SLE ELI shall not be obliged to pay any PER to TRAM from
ELI dividends received in respect of any investment that it may have in ELI at
any time that represents more than 50% of ELI). The PER will be payable to
TRAM whether the Loan is repaid in full or if TRAM exercises its conversion
rights as described above. Under the terms of the Loan, TRAM is also entitled
to co-invest with San Leon on any future investments that the Company may make
in ELI (excluding the New ELI Investments described below).

 

San Leon has granted a fixed and floating charge over the Company and its
subsidiaries, including the Company's direct and indirect investments in the
OML 18 oil and gas block in Nigeria ("OML 18") and ELI and any receivables due
to the Company. San Leon has also provided a negative pledge to TRAM in
relation to any further security over the Group's assets and certain of San
Leon's subsidiaries have provided a corporate guarantee to TRAM.

B.    Equity components of the Investment

 

TRAM intends to subscribe for 44,991,302 new Ordinary Shares in San Leon
(equivalent to 10 per cent. of the Company's existing issued share capital)
(the "Subscription Shares") on or before 31 October 2023 at a price of 30
pence per Subscription Share, which would raise gross proceeds of
approximately £13.5 million (or US$16.4 million at an exchange rate of
£1:US$1.215) for the Company.  The Company intends to seek admission of the
Subscription Shares to trading on AIM ("Admission").   A further
announcement will be made in relation to the Subscription Shares in due
course.

 

San Leon has also issued warrants to TRAM to subscribe for 62,500,000 new
Ordinary Shares at 60 pence per new Ordinary Share for a period of five years
from 6 October 2023. If exercised in full, the Warrants could generate a
further £37.5 million of equity capital (US$45.6 million) for the Company.
The Company will apply for any new Ordinary Shares issued pursuant to the
exercise of the Warrants to be admitted to trading on AIM.

 

Exercise of the Warrants and conversion of the Loan into Ordinary Shares will
be subject to approval of shareholders and San Leon expects to publish a
circular convening an extraordinary general meeting ("EGM") in due course.
Toscafund Asset Management LLP ("Toscafund"), the Company's largest
shareholder and holding 75.00 per cent. of the Ordinary Shares, has provided
the Company and TRAM with a letter of intent to vote in favour of all
necessary resolutions at the EGM.

C.    Use of proceeds

 

The Company intends to use the net proceeds from the Investment to, inter
alia:

a)    loan a further US$37 million into ELI, which owns a new pipeline and
a floating storage and offloading vessel, together with the right to subscribe
for 35 per cent. of ELI. The Board continues to believe that it is important
for San Leon to assist ELI with the funding requirements for achieving its key
project milestones;

b)    acquire a further 13.5 per cent. of ELI's existing shares from Ocean
Pearl Maritime SA ("Ocean Pearl") for US$12 million (which has been
successfully negotiated down from the indicative price of US$15 million as set
out in the Company's admission document last year); and

c)    repay the US$5 million loan from funds managed by Toscafund, which
was announced on 8 August 2023, along with its associated coupon at a rate of
10 per cent. per annum. As announced on 9 October 2023 Toscafund has provided
the Company with a redemption and release letter which sets out, inter alia,
the arrangements for the release of their security, comprising 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 redemption and
release letter includes a standstill provision by which Toscafund has agreed
not to make any demand for repayment of its loan or enforce its security
before 13 October 2023.  Following the full repayment of the loan from funds
managed by Toscafund and the release of their security the Company will grant
similar security in favour of TRAM; and

d)    settle the Company's creditors, satisfy its working capital needs and
pursue its strategy.  As previously announced, the Company has numerous
outstanding creditors (totaling around US$15 million) and these creditors have
been exerting increasing pressure on the Company (including sending letters
before action).  The Board believes that without the receipt of the proceeds
of the Investment, the Company's financial position would have become
increasingly precarious and that it would need to take steps to protect the
interests of the Company's creditors.

 

It is a condition of the Investment that San Leon advances the further US$37
million to ELI and acquires Ocean Pearl's shareholding in ELI without delay.
ELI is heavily indebted and requires an immediate injection of capital in
order to meet certain court sanctioned obligations to its main contractor for
the pipeline construction (which have not been complied with by ELI).
Without the further US$37 million loan from San Leon, the Board believes that
ELI would be unable to pursue its strategy and, in particular, would have
failed to secure customers for its pipeline. This would inevitably have been
highly detrimental to the value of San Leon's investment in ELI.  In
addition, the Board believes that, due to ELI's severe financial difficulties,
without the US$37 million loan from San Leon, ELI may be required to take
steps to protect the interests of its creditors. The Board anticipates that
part of the US$37 million loan will be applied by San Leon settling ELI's
creditors directly.

 

The purchase of Ocean Pearl's shareholding is likewise significant as it takes
San Leon's shareholding in ELI to approximately 55 per cent. in aggregate.
As the majority shareholder, San Leon is now able to exert control over ELI's
strategy and management and this is an important factor in TRAM's decision to
make the Investment. Of most importance is the conclusion of the pipeline
construction by ELI which San Leon will now be directly overseeing.

D.    Further information on TRAM

 

TRAM is a concentrated, research-intensive, fundamental value investor in the
public markets based in New York.  Since 2019, TRAM has built a portfolio of
public market and real estate investment. As of March 2023, TRAM's portfolio
is composed of US$850 million in assets under management along with US$1.2
billion in co-investments.

 

Further information on ELI

 

The Investment enables the Company to conclude its further US$42 million
investment in ELI, as originally announced on 8 August 2023, as well as
complete the acquisition from Ocean Pearl of its entire holding in ELI
(together the "New ELI Investments").  The New ELI Investments, together with
the Company's existing investments in ELI, will make San Leon the largest and
majority shareholder in ELI with approximately 55 per cent. of the company.
The Company has entered into an agreement with Ocean Pearl for the acquisition
of Ocean Pearl's 54,600 shares in ELI (representing 13.5 of ELI's existing
issued shares) for a consideration of US$12 million.  Although San Leon needs
to advance the payment to Ocean Pearl shortly, settlement of the share
transfer is subject to the consent of ELI's lender, Guaranty Trust Bank
Limited, which holds a pledge over all shares issued by ELI.

 

ELI owns the alternative crude oil evacuation system, comprising a new
undersea pipeline and the FSO ELI Akaso Terminal (the "ACOES"). The mooring of
the FSO ELI Akaso has now been completed and has been classed by Bureau
Veritas for oil storage services and will now start processing hydrocarbons
through its facilities. As previously announced, the ACOES will provide a
dedicated oil export route from the OML 18 oil and gas block 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
ACOES 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 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.  One of San Leon's directors is currently
appointed to ELI's board.  Due to its difficult financial condition
(indicated above) ELI has not yet prepared its accounts for the year ended 31
December 2022.

 

The Board believes that the ACOES pipeline 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.

 

The New ELI Investments constitute a reverse takeover under the AIM Rules for
Companies and full details will be included in a separate admission document
which will be published by the Company.  The Company's shareholders will be
asked formally to approve the New ELI Investments at a general meeting to be
convened and the Company will seek irrevocable undertakings from its three
largest shareholders to vote in favour of ratifying the New ELI Investments
prior to the readmission to trading on AIM of the Company, as enlarged by the
New ELI Investments.

 

The Board notes that Company has previously sought and obtained shareholder
approval (at an extraordinary general meeting held on 5 August 2022) for the
Company to increase its shareholding in ELI above 50%.  Notwithstanding the
Company having received approval at the extraordinary general meeting for
further investment into ELI and the Board being comfortable proceeding with
the New ELI Investments on this basis, the Company will seek ratification from
shareholders that they support the method of financing the New ELI
Investments.

 

The admission document in relation to the New ELI Investments will be in
addition to, and separate from, any admission document that may be published
in connection with the potential transaction the Company is discussing with
Midwestern Oil & Gas Company Limited ("Midwestern") following the
Company's decision to terminate the proposed transactions with Midwestern,
details of which were announced on 9 October 2023.

 

In light of the discussions with the Company's three principal shareholders
(set out below) the Board considers that it is appropriate for the Company to
enter into the New ELI Investments.

 

The Ordinary Shares will remain suspended until the Company has published an
admission document in relation to the New ELI Investments and the Company's
shareholders have ratified the actions taken by the Board.

 

Discussions with the Company's major shareholders

 

As announced on 9 October 2023 over the last couple of months, while enaging
with TRAM on the Investment, the Board has reappraised the strategic
opportunities for the Company.  The Board believe that the Company's existing
investment in ELI has potential to generate significant value for
shareholders, but it will only do so once ELI is refinanced.  This will be
achieved by the New ELI Investments.

 

As announced 9 October 2023 the Board has engaged with the Company's three
largest shareholders, being: i) funds managed by Toscafund (75.00 per cent.
shareholding in the Company); ii) Midwestern (13.18 per cent. shareholding);
and iii) Oisin Fanning, the Company's Chief Executive Officer (2.11 per cent.
shareholding) on revising the Company's strategy.  All three shareholders
(who together own 90.29 per cent. of the Company's issued shares) have
confirmed in writing that they are supportive of the Company's revised
strategy, the financing of the Company by way of the Investment and the
Company making the New ELI Investments.

 

Appointment of joint broker

 

San Leon is also pleased to announce the appointment of Fortified Securities
as joint broker to the Company with immediate effect.  Fortified Securities
introduced TRAM and assisted in the investment negotiations .

 

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
 Fortified Securities                                  +44 7493989014

 (Joint broker to the Company)
 Guy Wheatley
 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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