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RNS Number : 8191R San Leon Energy PLC 08 July 2022
The information communicated within this announcement is deemed to constitute inside information for the purposes of Regulation 11 of 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.
8 July 2022
San Leon Energy plc
("San Leon" or the "Company")
Proposed Midwestern Reorganisation and proposed Further ELI Investments
San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, is pleased to announce that it has entered into a
series of agreements with Midwestern Oil & Gas Company Limited
("Midwestern") to consolidate Midwestern's holdings in San Leon, Midwestern
Leon Petroleum Limited ("MLPL") and Energy Link Infrastructure (Malta) Limited
("ELI") into a single holding in San Leon (together the "Proposed Midwestern
Reorganisation"). In addition, San Leon announces further conditional
investments in ELI (together the "Further ELI Investments"). Taken together
the Proposed Midwestern Reorganisation and Further ELI Investments are
collectively referred to as the "Proposed Transactions".
Together the Proposed Transactions constitute a reverse takeover pursuant to
rule 14 of the AIM Rules for Companies. Accordingly, San Leon expects to
publish an AIM Admission Document (the "Admission Document" or "Document"),
containing an updated CPR on OML 18, later today. The Admission Document
will provide information on the Proposed Transactions and include notice of a
General Meeting to seek Shareholder approval for the Proposed Transactions and
certain resolutions. The General Meeting will be convened for 5 August 2022
at 11.30am at the Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland.
Extracts from the Admission Document and the definitions used in the Admission
Document are set out in the Schedules and appendix to this Announcement.
Highlights
Series of transformational conditional transactions entered into by San Leon
today to increase its exposure to OML 18 and the related infrastructure.
· Completion of the Proposed Transactions will consolidate and simplify
the group structure:
o San Leon's exposure to the world class OML 18 asset increases fourfold to
a 44.1% initial indirect economic interest; and
o the Proposed Transactions will increase San Leon's ownership of ELI to
c.50%. ELI is progressing the ACOES pipeline project to provide a dedicated
oil export route for OML 18, with the potential for third party fees.
· CPR on OML 18 issued today with 2P reserves of 323 mmboe net
attributable to San Leon with an economic NPV10 value of US$1.1 billion
(recent consensus long-term oil price and assuming completion of the Proposed
Transactions);
· The Company has today entered into a US$50m loan facility with MM
Capital to provide funding to San Leon; and
· Further Loan Note Waiver granted to Midwestern to allow for the
completion of the Proposed Transactions.
San Leon is proposing a capital restructuring and issue of preference shares
to San Leon Shareholders immediately prior to completion with the preference
shareholders having a preferential right to the first US$40m of future
dividends paid by San Leon.
In addition Eroton, the operator of OML 18, is seeking to undertake a series
of transactions to increase its interests in OML 18 and increase its funding
facilities. Completion of these transactions (which are yet to be entered
into) will be a condition of the Proposed Transactions.
Oisin Fanning, CEO of San Leon, commented:
"We are delighted to have entered into these agreements to effect the Proposed
Transactions. We believe that this series of transactions, when completed,
will be truly transformational for the Company and will deliver value to our
shareholders. The transactions will not only increase our initial indirect
economic interest in OML 18, a world class asset with unrealised potential,
but also our interest in ELI and the new ACOES pipeline which we have long
considered to be critical to the future success of OML 18 through the expected
reduction of pipeline losses and increase in the uptime for export that it is
expected to provide.
"Going forward these transactions will pave the way for the Company to deliver
its strategy of becoming a significant participant in the Nigerian oil and gas
market, positioning San Leon to take advantage of further transactional
opportunities to enhance and grow our business."
Overview of the Proposed Transactions (including the transactions Eroton is
seeking to undertake)
Midwestern Reorganisation
On completion of the Proposed Midwestern Reorganisation (which is expected to
occur in Q4 2022 following the Eroton OML 18 Transactions) San Leon will own a
44.1% initial indirect economic interest in OML 18 with the remaining 55%
interest being held by NNPC (the Nigerian State-owned oil company) and 0.9% by
Bilton. The Further ELI Investments will result in San Leon owning on
completion a c.50% interest in ELI (which is the owner of the ACOES which will
be utilised by OML18) and San Leon becoming a significant holder of loan
receivables from ELI.
The Proposed Midwestern Reorganisation is conditional, inter alia, on the
completion of the Eroton OML 18 Transactions and regulatory approvals and
includes the MLPL Reorganisation, the ELI Reorganisation and the entry into
certain associated documentation (summaries of which are set out below).
Further details of these transactions and agreements are summarised in
Schedule 1 and Schedule 2 to this Announcement.
The Eroton OML 18 Transactions
Eroton, the operator of the OML 18 licence, currently holds a 27% effective
economic interest in the OML 18 licence. Eroton has negotiated an agreement
with Sahara pursuant to which, when executed, it will conditionally agree to
acquire additional interests in OML 18 through the Sahara OML 18 Transaction
and the Bilton OML 18 Transaction which has been entered into today. These
Eroton OML 18 Transactions will result in the acquisition of Sahara's and
Bilton's effective economic interests in OML 18 of 16.2% and 1.8%
respectively. The MLPL Reorganisation and the ELI Reorganisation are
conditional, inter alia, upon completion of the Eroton OML 18 Transactions.
In order to fund the Sahara OML 18 Transaction and Bilton OML 18 Transaction,
Eroton proposes to enter into the New Eroton Debt Facilities which represent
senior secured reserve-based lending facilities totaling US$750 million to be
provided to Eroton by a lending consortium led by Afreximbank for the purposes
of, inter alia: (i) facilitating the Eroton OML 18 Transactions; and (ii) the
repayment of Eroton's existing financing. A credit committee approved term
sheet associated with the New Eroton Debt Facilities has been received from
the lead lender, Afreximbank, and further information is set out in the
Schedule to this Announcement. The New Eroton Debt Facilities are conditional,
amongst other things, upon definitive documentation in respect of the facility
and associated security package being entered into. Subject to completion of
the New Eroton Debt Facilities, the New Eroton Debt Facilities will replace
the Existing Eroton Debt Facility, which will be repaid in full and GTB's
security in connection with the Existing Eroton Debt Facility will be
discharged.
The MLPL Reorganisation
By virtue of the MLPL Reorganisation, Midwestern will subscribe for shares in
San Leon and San Leon will acquire from Midwestern the remaining 60% equity
interest in MLPL that it does not currently own.
The MLPL Reorganisation will be conditional on, along with the other
conditions summarised in the Schedule, the completion of the Eroton OML 18
Transactions and will be implemented immediately prior to Re-Admission by
completion of the following steps:
· the issue of 344,334,257 New Ordinary Shares by San Leon to
Midwestern pursuant to the MLPL New Shares Subscription Agreement with such
subscription consideration being paid for by way of the MLPL Reorganisation
Loan Notes; and
· the transfer by Midwestern of its equity interest in MLPL and the
benefit of the MLPL Receivable to a member of the San Leon Group in return for
the cancellation of the MLPL Loan Notes and the release of Midwestern from its
guarantee in relation the MLPL Loan Notes.
The ELI Reorganisation
San Leon and Midwestern propose to effect a further reorganisation to
consolidate Midwestern's holdings in the Company and ELI into a single holding
in the Company, with the Company holding an additional c.14% interest in ELI.
The ELI Reorganisation, which is conditional (amongst other things) upon ELI
Shareholder Consent and completion of the MLPL Reorganisation, is made up of
the following constituent parts:
· the issue of 73,782,535 New Ordinary Shares pursuant to the ELI New
Shares Subscription Agreement with such amount being left outstanding between
San Leon and for the benefit of the Company;
· the transfer by Midwestern of its 13.77% equity interest in ELI Malta
to San Leon ELI; and
· the transfer by Midwestern of its associated loan receivable of
US$15,300,000 from ELI Malta to San Leon ELI.
The Further ELI Investments
San Leon currently holds 38,998 ELI Shares representing a 10% equity interest
in ELI. As part of the ELI Reorganisation, San Leon will acquire an additional
53,700 ELI Shares, being Midwestern's indirect 13.77% equity interest in ELI.
The Company also currently has a conditional interest in 12,959 ELI Shares
representing a 3.323% equity interest in ELI as a result of a series of
transactions announced on 24 June 2021 and 12 February 2022, details of which
are contained in the Schedule.
San Leon has also today conditionally agreed to make a new loan to ELI of
US$16,000,000 at a coupon of 14% per annum over four years, and repayable
quarterly following a one-year moratorium, which will be accompanied by San
Leon subscribing for a further 48,748 new ELI Shares at nominal value, subject
to ELI Shareholder Consent.
San Leon has also today entered into an agreement for the further
conditional purchase of 52 ,647 ELI Shares currently held by Ocean Pearl for
US$15,000,000.
Upon completion of both the ELI Reorganisation and all of the Further ELI
Investments, San Leon would become the largest shareholder in ELI, with its
stake rising to 228,458 ELI Shares representing 50.64% and will be a
significant lender to ELI, holding a total of US$48.3 million of loans (plus
accrued interest) to ELI. The Further ELI Investments are not conditional upon
the ELI Reorganisation or the MLPL Reorganisation but are all conditional upon
shareholder approval as well as the conditions referred to in the Schedule.
The New Facility
The Company is also pleased to announce that it has today entered into a loan
facility agreement with MM Capital Holding Limited (as lender) (the "New
Facility") pursuant to which the lender has agreed to provide a US$50 million
secured loan facility to San Leon. The Company has entered into the New
Facility with the purposes of funding its working capital requirements and
financing the Further ELI Investments and has agreed to grant a charge over
SLE Financing as security for the loan.
Issue of Preference Shares
As part of the Proposed Transactions, subject to and upon completion of the
MLPL Reorganisation, Midwestern will be released from its obligations to
guarantee performance of the MLPL Loan Notes. In recognition of this and the
associated positive cash inflows anticipated from the increased initial
indirect economic interest in OML 18, immediately prior to Re-Admission, the
Company will, subject to shareholder approval at the EGM, issue the Preference
Shares to Shareholders on the Company's register of members immediately prior
to Re-Admission as part of the Subdivision entitling the holders to receive
the Preference Amount which is US$40,000,000.
Competent Person's Report
San Leon commissioned PetroVision Energy Services Ltd to act as San Leon's
Competent Person as defined by the rules of the London Stock Exchange and to
prepare an independent competent person's report to assist in the assessment
of the Proposed Transactions. The OML 18 development plan comprises CAPEX
costs around new wells, existing active wells, workovers (re-entries,
recompletion and/or side-tracks) and facilities estimated at $151 million for
NFA, $3,414 million for 1P and 2P reserves and $3,714 million for 3P reserves,
further details of which are available in the Schedule.
Reasons for the Proposed Transactions
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.
It is the Board's belief that the Proposed Transactions, are expected to have
the following benefits for the Company and its Shareholders:
· the consolidation of Midwestern's holdings in the Company and MLPL
into a single holding in the Company which, in conjunction with the Eroton OML
18 Transactions, allows the Company to increase its economic exposure to OML
18;
· increasing the Company's economic interests in ELI will complement
the Company's proposed 100% interest in MLPL, as the ACOES 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 for 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
participant in the Nigerian oil and gas market, 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 has
been formalised through an Asset Management Agreement.
Each of these benefits is expected to 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 MLPL Reorganisation and ELI Reorganisation, together with the Further ELI
Investments, are considered by the Directors to represent transformational
transactions for the Company. The Board appreciates that Eroton and OML 18
currently face a number of challenges, several of which are intended to be
overcome via the refinancing of the Existing Eroton Debt Facility by the New
Eroton Debt Facilities, the completion of the Eroton OML 18 Transactions and
the associated Settlement Agreement and the ACOES coming into full operation.
Further details of these key challenges can be found in paragraphs 4(b), (c)
and (d) of Part 1 below.
It is emphasised that the MLPL Reorganisation is conditional, amongst other
things, on the entry into and the utilisation of the New Eroton Debt
Facilities and the Eroton OML 18 Transactions completing and whilst the Terms
of the New Eroton Debt Facilities have been approved by the lead lender,
Afreximbank, and the terms of the Sahara OML 18 Acquisition Agreement have
been negotiated and the Bilton OML 18 Acquisition Agreement has been executed,
subject to certain conditions, they are dependent on, inter alia, the New
Eroton Debt Facilities being entered into and becoming unconditional and being
utilised. Furthermore, the New Eroton Debt Facilities have not yet been
entered into and once entered into will be subject to additional conditions to
drawdown which will have to be satisfied prior to utilisation of the
facilities and for completion of the Sahara OML 18 Transaction and the Bilton
OML 18 Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt Facilities will be
entered into or that the Eroton OML 18 Transactions will proceed or that any
of them will proceed on the currently proposed terms. Only once the Eroton OML
18 Transactions complete and the other conditions to the MLPL Reorganisation
have been satisfied will the Company be able to proceed with the MLPL
Reorganisation. There can therefore be no guarantee that the MLPL
Reorganisation will occur.
The Sahara OML 18 Acquisition Agreement has not been executed at this point
and is only expected to be executed once Eroton has funds available to it to
satisfy the consideration under the New Eroton Debt Facilities. Accordingly,
whilst the terms have been negotiated, there can be no certainty that it will
be entered into or the terms on which it will be entered into.
Whilst the Bilton OML 18 Acquisition Agreement has been executed, it is also
conditional upon the Sahara OML 18 Acquisition Agreement being entered into
completing following the New Eroton Debt Facilities proceeding. Accordingly as
there can be no certainty that the Sahara OML 18 Acquisition Agreement will be
entered into or the terms on which it will be entered into and there is no
certainty that this condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be and the Bilton
OML 18 Acquisition Agreement is subject to certain conditions before
completion can occur. In particular, the Sahara OML 18 Acquisition Agreement,
if executed will be, and the Bilton OML 18 Acquisition Agreement is
conditional on the entry into the Settlement Agreement associated with certain
litigation between Eroton, Bilton and Sahara.
The number of shares in the Company to be subscribed for by Midwestern as part
of the MLPL Reorganisation has been agreed and fixed between Midwestern and
the Company and is not subject to adjustment by reference to the market price
of the Ordinary Shares or New Ordinary Shares. Accordingly, in order for the
MLPL Reorganisation to proceed the market price of the New Ordinary Shares on
the date of allotment of the MLPL New Shares must be not greater than the
value per share shown recorded in the MLPL Valuation Report.
The Board are of the view that the Eroton OML 18 Transactions and New Eroton
Debt Facilities are important for several reasons, including:
(i) the Eroton OML 18 Transactions underpin the
valuation and rationale of the MLPL Reorganisation by delivering, indirectly,
to San Leon a far greater interest in OML 18 than is currently held by Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of
disputes that have arisen between Eroton and its OML 18 joint venture partner,
Sahara. Several of these disputes have developed into the Eroton Litigation,
although none are currently being actively pursued, and all legal actions
between Eroton and Sahara will be extinguished as part of the Sahara OML 18
Transaction via the Settlement Agreement, thereby enabling Eroton to focus on
the commercial development of OML 18 as a world class oil and gas field; and
(iii) the New Eroton Debt Facilities are a condition to and
are necessary to fund the Eroton OML 18 Transactions and also enable the
Existing Eroton Debt Facility to be refinanced.
If the New Eroton Debt Facilities are not entered into or once entered into
does not complete or the conditions to drawdown are not satisfied and/or the
Eroton OML 18 Transactions do not complete then the MLPL Reorganisation cannot
complete. The New Eroton Debt Facilities and the Eroton OML 18 Transactions
are not in the Company's control and even if shareholders approve the
Resolutions, they may not occur. In any of these cases San Leon would retain
a 40% equity interest in MLPL with Midwestern continuing to own the remaining
interest in MLPL and Eroton would retain a 27% economic interest in OML 18,
meaning that San Leon would continue to have a 10.58% initial indirect
economic interest in OML 18. The outstanding MLPL Loan Notes would become
payable by MLPL (or by Midwestern as guarantor to the MLPL Loan Notes) to San
Leon within 90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18 Transactions are also
important to the future financial condition of Eroton, and given the Company's
significant focus on OML 18 and its operator Eroton, the failure of the New
Eroton Debt Facilities and the Sahara OML 18 Transaction to complete, could
have a material and adverse effect on Eroton, with a consequent adverse effect
on Company's business, financial condition and results.
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:
(i) the Proposed Transactions complete in the second
half of 2022. The Proposed Transactions comprises, inter alia, a proposed
consolidation of Midwestern's indirect debt and equity interests in ELI Malta
with those of the Company, as well as further new debt and new and existing
equity investments to be made by San Leon pursuant to the Further ELI
Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to
finance the Proposed Transactions;
(iv) elimination of the MLPL Loan Notes on completion of the
Proposed Transactions;
(v) under the Asset Management Agreement with Eroton, San
Leon receives $500,000 per month for technical and financial advisory services
following completion of the Proposed Transactions;
(vi) repayments from ELI of loan notes of US$37.6 million
during 2022 and 2023;
(vii) repayment from Eroton under the Master Services Agreement,
of $3m during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in
relation to its Oza investment pursuant to current discussions.
Due to the Proposed Transactions not having completed at the date of the
Document there is an inherent material uncertainty that completion will not
occur as anticipated.
The Group has modelled various other scenarios assuming the Proposed
Transactions do not complete and given the Group's well understood cost base,
the principal uncertainty if the Proposed Transactions do not complete relates
to the quantum and timing of receipt of interest and capital repayments on the
MLPL Loan, 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 Loan Notes and
ELI loan notes have both been credit impaired in the annual report and
accounts of the Company for the year ended 31 December 2021.
In the ultimate downside scenario where no repayments are received from MLPL
and ELI, the New Facility can be drawn by the Company 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 Transactions
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.
Financial information on MLPL and ELI
For the 12 month period ended 31 December 2021, MLPL recorded an audited
profit before income tax of US$47,001,000 and at that date had audited total
assets of approximately US$558,807,000. Historical financial information of
MLPL can be found in Part 8B of the Admission Document.
For the 12 month period ended 31 December 2021, ELI recorded an audited loss
before income tax of US$10,494,402 and at that date had audited total assets
of approximately US$226,958,434. Historical financial information of ELI can
be found in Part 8C of the Admission Document.
Related party transactions under the AIM Rules
Midwestern is a related party of the Company for the purposes of the AIM Rules
for Companies 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 MLPL Reorganisation, and the ELI Reorganisation, are therefore
related party transactions under the AIM Rules for Companies. 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, that
the terms of the MLPL Reorganisation, and the ELI Reorganisation are fair and
reasonable insofar as the Company's shareholders are concerned.
Following publication of this Document, the Company proposes to grant awards
pursuant to the LTIP over 18,938,209 Ordinary Shares (representing 2.18 per
cent. of the Fully Enlarged Ordinary Share Capital) to certain of its
employees and the Board, details of which are set out in paragraph 6.2.16 of
Part 12 of this Document. The issuance of these awards to the Directors will
be considered to be a related party transaction under Rule 13 of the AIM Rules
for Companies and the Company will announce further details in relation to
this separately in due course once the issuance of these awards has occurred.
Unless otherwise defined herein, the capitalised defined terms used in this
announcement have the same meaning as those used in the Schedule.
The Company expects to publish the Admission Document later today.
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
Qualified Person's Statement
Pursuant to the requirements of the AIM Rules and in particular, the AIM Note
for Mining and Oil and Gas Companies, Joel Price has reviewed and approved the
technical information and resource reporting contained in this announcement.
Joel has more than 25 years' experience in the oil & gas industry and is a
member of the Society of Petroleum Engineers. He holds a BA in Natural
Sciences (Geology) from Cambridge University, an MEng in Petroleum Engineering
from Heriot-Watt University, and an MBA from Durham University. Joel is Chief
Operating Officer for San Leon Energy and is based in the United Kingdom.
Schedule
Extracts from the AIM Admission Document Expected to be published later today
PART 1 OF THE ADMISSION DOCUMENT
LETTER FROM THE CHAIRMAN
Dear Shareholder,
Proposed Midwestern Reorganisation comprising the MLPL Reorganisation and the
ELI Reorganisation
Proposed Further ELI Investments
Adoption of New Memorandum and Articles of Association
Proposed subdivision of the Existing Ordinary Shares into New Ordinary Shares
and Preference Shares
Re-Admission of the New Ordinary Shares to trading on AIM following completion
of the MLPL Reorganisation and satisfaction of conditions precedent
and
Notice of Extraordinary General Meeting
1. Introduction
San Leon currently has a 40% equity interest in MLPL with the remaining
interest in MLPL being owned by Midwestern. MLPL is part of the structure
through which San Leon holds its current 10.58% initial indirect economic
interest in OML 18, a producing oilfield located in the southern part of the
Niger Delta, of which further details are outlined in paragraph 4 below. MLPL
has a 100% equity investment in Martwestern, which in turn owns a 98% economic
interest in Eroton, which currently holds a 27% working interest in OML 18 and
is its operator.
San Leon also currently has a 10% equity interest in ELI Malta and a
conditional further 3.323% equity interest in ELI Malta as a result of a
series of transactions, announced on 24 June 2021 and 15 February 2022. San
Leon has provided a total of US$17 million of shareholder loans to ELI Malta
to date. ELI Malta is the operator and the 100% owner of the ACOES, which
includes a pipeline that will provide a dedicated oil export route from OML 18
to an offshore floating storage and offloading (FSO) vessel.
Eroton expects that once the ACOES is commissioned it will reduce the downtime
and allocated pipeline losses currently associated with reliance on the
existing pipeline, NCTL. In addition, it is anticipated that the FSO vessel
project will improve overall well uptime. Accordingly, the Directors consider
the ACOES to be important to the future success of OML 18.
Eroton is currently planning to increase its working interest in OML 18
through the Eroton OML 18 Transactions, subject, amongst other things, to the
New Eroton Debt Facilities being entered into and utilised. Subject to
completion of the Eroton OML 18 Transactions, the Company is seeking to
increase its interests in OML 18 and ELI. Following (and subject to)
completion of the MLPL Reorganisation, the ELI Reorganisation and the Further
ELI Investments, San Leon expects its initial indirect economic interest in
OML 18 to have increased from 10.58% to 44.1% and its interest in ELI to
increase to up to 50.64%. The ELI Reorganisation is not conditional upon any
of the elements of the Further ELI Investments and may proceed whether or not
some or all of the Further ELI Investments have completed.
The Company first announced that it was in negotiations for the series of
transactions described in this Document on 24 June 2021 and its Existing
Ordinary Shares have been suspended from trading on AIM since this date.
Table 1: Summary table of San Leon Energy's material assets
Licence expiry date Licence area
Asset Operator Interest (%) Status Comments
OML 18, Eroton 22.5%* Production/ Development 21 October 1,035 km2 Five fields (Cawthorne, Akaso, Alakiri, Krakama, and Awoba**) are currently in
production.
Nigeria 2038
Three fields (Orubiri, Buguma Creek and Asaritoru) are available for
production but planned for development.
Only one field (Bille) out of 9 fields in OML 18 has remained undeveloped.
Source: PetroVision Energy Services Limited CPR - Table 1-1 on page 163 of
this Document
* Represents SLE working interest after completion of the Eroton OML 18
Transactions and the MLPL Reorganisation at which point SLE will have an
initial indirect economic interest of 44.1% in OML 18. Prior to this SLE's
working interest in OML 18 as at the date of this Document is 5.4% and SLE's
initial indirect economic interest in OML 18 is 10.58%.
** Awoba field is operated by Newcross E&P, with 50% production
allocation to OML 18 concession.
2. The Proposals
On 24 June 2021, San Leon announced that the Company and Midwestern had agreed
to enter into a series of transactions, being the MLPL Reorganisation and the
ELI Reorganisation, to consolidate Midwestern's holdings in San Leon, MLPL and
ELI into a single holding in San Leon. The MLPL Reorganisation, the ELI
Reorganisation and the Further ELI Investments constitute a reverse takeover
pursuant to rule 14 of the Al M Rules for Companies and therefore the purpose
of this Document, which comprises an Admission Document prepared under the AIM
Rules for Companies, is to provide you with information on the Proposals and
to seek approval by Shareholders of the Resolutions to be proposed at the
General Meeting, which is being convened on 5 August 2022 at 11.30 am at the
Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland, notice of which is set out
at the end of this Document.
Further details of the proposed series of transactions, being the MLPL
Reorganisation and the ELI Reorganisation, are set out in Part 2 of this
Document.
Subject to and upon completion of the MLPL Reorganisation, Midwestern will be
released from its obligations to guarantee performance of the MLPL Loan Notes
by MLPL, further details of which are set out in section 6 of this Part 1.
In connection with the proposed series of transactions, the Company will,
subject to shareholder approval at the EGM, issue the Preference Shares to
Shareholders, further details of which are set out in section 13 of this Part
1.
Taking into account its current 13.18% shareholding in the Company and
assuming that no additional shares are issued, Midwestern is expected, upon
completion of the MLPL Reorganisation, to hold
50.82% of the Initially Enlarged Ordinary Share Capital and, upon completion
of the ELI Reorganisation, this is expected to increase to 55.0% of the Fully
Enlarged Ordinary Share Capital.
Eroton is seeking to enter into the New Eroton Debt Facilities and to use part
of the New Eroton Debt Facilities to acquire an additional 18% interest in OML
18, thereby taking Eroton's initial indirect economic interest in OML 18 to
45% through the Eroton OML 18 Transactions. Subject to the entry into and
utilisation of the New Eroton Debt Facilities and the Eroton OML 18
Transactions occurring, the MLPL Reorganisation will result in San Leon
increasing its indirect economic interest in Eroton from 39.2% to 98.0%
resulting in San Leon's initial indirect economic interest in OML 18
increasing from the current 10.58% to 44.1%.
It is emphasised that the MLPL Reorganisation is conditional, amongst other
things, on the entry into and the utilisation of the New Eroton Debt
Facilities and the Eroton OML 18 Transactions completing. Whilst the Terms
of the New Eroton Debt Facilities have been approved by the lead lender,
Afreximbank, and the Sahara OML 18 Acquisition Agreement has been negotiated
but is not expected to be entered into until after the New Eroton Debt
Facilities have been entered into and the funds are available and the Bilton
OML 18 Acquisition Agreement has been executed, subject to certain conditions,
they are dependent on, inter alia, the New Eroton Debt Facilities being
entered into and becoming unconditional and being utilised. Furthermore, the
New Eroton Debt Facilities have not yet been entered into and once entered
into will be subject to additional conditions to drawdown which will have to
be satisfied prior to utilisation of the facilities and for the entry into and
completion of the Sahara OML 18 Transaction and the Bilton OML 18 Transaction.
These matters are not under the Company's control. Accordingly, there is no
certainty that the New Eroton Debt Facilities will be entered into or that the
Eroton OML 18 Transactions will proceed or that any of them will proceed on
the currently proposed terms. Only once the Eroton OML 18 Transactions
complete and the other conditions to the MLPL Reorganisation have been
satisfied will the Company be able to proceed with the MLPL Reorganisation and
Re-Admission. There can therefore be no guarantee that the MLPL Reorganisation
and Re-Admission will occur.
THE POTENTIAL EFFECT ON THE COMPANY IN THE EVENT THAT THAT THE EROTON OML 18 TRANSACTIONS, THE MLPL REORGANISATION AND RE-ADMISSION DO NOT OCCUR IS SET OUT IN PARAGRAPH 3.1 OF PART 2 OF THIS DOCUMENT.
Following completion of the Eroton OML 18 Transactions (if the New Eroton Debt
Facilities and the Sahara OML 18 Transaction are entered into) and the MLPL
Reorganisation, San Leon's initial 44.1% economic interest in OML 18 will be
subject to reduction upon meeting the following conditions:
(i) from the date of repayment of the original purchase price*
plus accrued interest accrued thereon until 20 million barrels of gross OML 18
production is realised, Bilton's economic interest in Eroton will increase
from 2% to 10%, which would result in a commensurate decrease in San Leon's
economic interest in OML 18 to 40.5%; and
(ii) thereafter, when subsequent production hurdles are met,
Bilton's net economic interest in Eroton will increase incrementally until
cumulative gross OML 18 production reaches 40 million barrels, at which point
San Leon's economic interest in OML 18 would be 22.5% as Bilton and San Leon's
economic interests in Eroton shall reflect their shareholdings (50% and 50%
respectively).
* Being US$1.1 billion the price paid for the 45% interest in OML 18 in
March 2015.
Further details of the Eroton OML 18 Transactions and the MLPL Reorganisation, including details of the material contracts that shall effect the Eroton OML 18 Transactions and the MLPL Reorganisation, can be found in Part 2 of this Document.
In addition to the ELI Reorganisation, through a series of transactions the
Company proposes to further increase its interest in ELI. These Further ELI
Investments comprise the following:
1. Walstrand Acquisition and Option - On 24 June 2021, the Company
announced the further conditional purchase of an interest in ELI, namely, that
the Company will pay US$2,000,000 for 5,159 ELI Shares and receive an option
to purchase an additional stake of 16,777 ELI Shares for US$6,500,000 prior to
31 December 2022. As at the date of this Document the transfer of 5,159 ELI
Shares is pending the ELI Shareholder Consent which the Board wishes to obtain
upon completion of the Ocean Pearl ELI Acquisition or a waiver of the
requirement for consent being obtained. As at the date of this Document, the
option to acquire the additional 16,777 ELI Shares has not been exercised by
the Company but is proposed to be in Q3 2022.
2. February 2022 Loan and Subscription - In February 2022, San
Leon advanced US$2,000,000 to ELI by way of a loan and Walstrand agreed to
transfer 7,800 ELI Shares to San Leon. As at the date of this Document, the
transfer of the 7,800 ELI Shares is pending ELI Shareholder Consent which the
Board wishes to obtain upon completion of the Ocean Pearl ELI Acquisition or a
waiver of the requirement for consent being obtained.
3. New ELI Loan and New ELI Subscription - The Company has
conditionally agreed to make a new loan to ELI of US$16,000,000 at a coupon of
14% per annum over four years, and repayable quarterly following a one-year
moratorium, which will be accompanied by San Leon subscribing for a further
48,748 new ELI Shares at nominal value, subject to ELI Shareholder Consent
which the Board wishes to obtain upon completion of the Ocean Pearl ELI
Acquisition or a waiver of the requirement for consent is obtained. The
relevant documents are with the parties for signing.
4. Ocean Pearl ELI Acquisition - On 8 July 2022, the Company
announced the further conditional purchase of an interest in ELI, namely, that
the Company will pay US$15,000,000 for 52,647 ELI Shares currently held by
Ocean Pearl.
Assuming completion of the ELI Reorganisation and each of the Further ELI
Investments set out above, San Leon will become the largest shareholder in
ELI, with its stake comprising 228,548 ELI Shares representing 50.6 per cent
of ELI's issued share capital. San Leon will also become a significant lender
to ELI with a total of US$48.3 million (principal) owed by ELI to the Company.
On 8 July 2022, the Company entered into the New Facility the purposes of
funding its working capital requirements and financing the Further ELI
Investments, details of which can be found at paragraph
10.22 of Part 12 of this Document.
Whilst there are a number of conditions to the ELI Reorganisation, and whilst
the ELI Reorganisation is conditional upon the MLPL Reorganisation occurring,
the Further ELI Investments are not conditional upon each other or the
completion of the ELI Reorganisation or Re-Admission.
Further details of the Further ELI Investments can be found in Part 3 of this
Document.
3. Reasons for the Proposed Transactions and Strategy of the Company
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.
It is the Board's belief that the MLPL Reorganisation and the ELI
Reorganisation, together with the Further ELI Investments, are expected to
have the following benefits for the Company and its shareholders:
• the consolidation of Midwestern's holdings in the Company
and MLPL into a single holding in the Company in conjunction with the Eroton
OML 18 Transactions, allows the Company to increase its economic exposure to
OML 18;
• increasing the Company's economic interests in ELI will
complement the Company's proposed 100% interest in MLPL, as the ACOES 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 for 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 participant in the Nigerian oil and gas market, 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 has been formalised through the Asset Management Agreement.
Each of these benefits is expected to 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
• continuing to position the Company for further transactions.
All of the MLPL Reorganisation and ELI Reorganisation, together with the
Further ELI Investments, are considered by the Directors to represent
transformational transactions for the Company. The Board appreciates that
Eroton and OML 18 currently face a number of challenges, several of which are
intended to be overcome via the refinancing of the Existing Eroton Debt
Facility by the New Eroton Debt Facilities, the completion of the Eroton OML
18 Transactions and the associated Settlement Agreement and the ACOES coming
into full operation. Further details of these key challenges can be found in
paragraphs 4(b), (c) and (d) of this Part 1 and in Part 4 of this Document.
The Board are of the view that the Eroton OML 18 Transactions and New Eroton
Debt Facilities are important for several reasons, including:
(i) the Eroton OML 18 Transactions underpin the valuation and
rationale of the MLPL Reorganisation by delivering, indirectly, to San Leon a
far greater interest in OML 18 than is currently held by Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of disputes
that have arisen between Eroton and its OML 18 joint venture partner, Sahara.
Several of these disputes have developed into legal actions (the "Eroton
Litigation"), although none are currently being actively pursued, and all
legal actions between Eroton and Sahara will be extinguished as part of the
Sahara OML 18 Transaction, thereby enabling Eroton to focus on the commercial
development of OML 18 as a world class oil and gas field; and
(iii) the New Eroton Debt Facilities are a condition to and are
necessary to fund the Eroton OML 18 Transactions and also enable the Existing
Eroton Debt Facility with GTB to be refinanced.
If the New Eroton Debt Facilities are not entered into or once entered into do
not complete or the conditions to drawdown are not satisfied and/or the Eroton
OML 18 Transactions do not complete then the MLPL Reorganisation cannot
complete. The New Eroton Debt Facilities and the Eroton OML 18 Transactions
are not in the Company's control and even if shareholders approve the
Resolutions, they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to own the
remaining interest in MLPL and Eroton would retain a 27% economic interest in
OML 18, meaning that San Leon would continue to have a 10.58% initial indirect
economic interest in OML 18. The outstanding MLPL Loan Notes would become
payable by MLPL (or by Midwestern as guarantor of the MLPL Loan Notes) to San
Leon within 90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18 Transactions are also
important to the future financial condition of Eroton, and given the Company's
significant focus on OML 18 and its operator Eroton, the failure of the New
Eroton Debt Facilities and the Sahara OML 18 Transaction to complete, could
have a material and adverse effect on Eroton, with a consequent adverse effect
on the Company's business, financial condition and results.
Further details of the Eroton Litigation are set out in paragraph 4(d) of this Part 1 and in paragraph 3.4 of Part 2 of this Document and the risks around the Existing Eroton Debt Facility and the importance of the New Eroton Debt Facilities are described in paragraph 2.1 of Part 4 of this Document.
4. Information about OML 18
(a) Background to OML 18
The OML 18 block lies within the Eastern swamp region of the southern part of
the Niger Delta in Rivers state, Nigeria and covers an area of 1,035 km2. The
current licence will expire on 21 October 2038, having been renewed in 2018.
It cuts across the entire Cawthorne Channel and Alakiri districts and a
section of Awoba on the boundary between OML 18 and OML 24. Nine fields have
been discovered in the block to date being: Akaso, Alakiri, Asaritoru, Awoba,
Bille, Buguma Creek, Cawthorne Channel, Krakama, and Orubiri.
The Awoba field straddles the OML 18 licence boundary with OML 24, operated by
Newcross Exploration and Production Limited. Whilst Newcross operate Awoba,
50% of the field's costs and production are allocated to OML 18 based on a
'pre-unitization' agreement which was signed on 17 December 2018 between NNPC,
Eroton and Newcross.
Original In-place volumes (mid case) in the OML 18 assets are estimated at
approximately 3,804 million stb (oil and condensate) and 9,836 Bscf of gas,
which includes both associated gas (gas which is produced with oil) and
non-associated gas (produced from dedicated gas wells). To date, 155 wells
have been drilled on the OML 18 block (excluding the 'water wet' wells drilled
in Buguma South, Bakana and Minama).
(b) San Leon's interest in OML 18
The parties in the above OML 18 shareholding structure are as follows.
• NNPC: The Nigeria National Petroleum Corporation is the
state oil corporation of Nigeria.
• Eroton:
o Eroton Exploration and Production Company Limited is the current
operator of OML 18 and has a 27% interest in the OML 18 licence. Pursuant to
the Eroton OML 18 Transactions, it is anticipated that Eroton's interest in
OML 18 will rise to 45%.
o Eroton is an independent energy company based in Nigeria,
focused on the full cycle from exploration to development of oil and gas. It
was incorporated in 2013 to acquire the 45% interest in OML 18 from Shell,
Total and Eni, a transaction that was completed in March 2015. The divestment
was part of Shell's strategic review of its onshore portfolio in Nigeria and
was in line with the Government of Nigeria's aim of developing Nigerian
companies in the country's upstream oil and gas sector.
o Eroton's principal asset is its 27% economic interest in OML 18
following a transfer of an 18% economic interest to Sahara and Bilton
following the purchase in 2015. It also has a 'non operated venture
partnership' with Newcross E & P Company Limited, as the operator of the
Awoba field, which straddles OML 18 and OML 24, on a 50:50 equity ratio. NNPC
has the remaining 55% economic interest in OML 18.
o The oil from OML 18 is processed for export, whilst, in the
ordinary course, the gas from OML 18 is intended to be sold to the Nigerian
domestic gas market, with its principal customer being Notore Chemical, the
owner of a local fertiliser plant, pursuant to a long term 'take or pay'
offtake agreement. In recent years, sales of gas to Notore Chemical have not
always occurred in line with the terms of the Notore Offtake Agreement and
Notore Chemical is significantly in arrears in relation to payment. When such
sales of gas occur as contemplated these will satisfy Eroton's DSO of gas
under Nigerian law.
o The Eroton board and senior leadership team is an experienced
team led by non-executive chairman, Mr Onajite Okoloko. Mr Okoloko acts as the
Chairman of the board of Eroton, in addition to his roles as Chairman of
Midwestern and non-executive director of Notore Chemical.
o Eroton has over 150 employees, with its operations being based
in the Rivers state and its commercial headquarters being based in Lagos
state. Eroton has general memorandum of understandings with five clusters of
host communities in the area where OML 18 is based, as part of its commitment
to commodity development and a general partnership with the local communities.
o Eroton entered into the Existing Eroton Debt Facility on 18
December 2018 between Eroton (as the borrower) and GTB (as the lender, agent,
arranger and security trustee) details of which are set out in paragraph
10.24.8 of Part 12 of the Document. The Existing Eroton Debt Facility is
secured by way of an all assets debenture (including the OML 18 licence) dated
21 December 2018 between Eroton (as chargor) and GTB (as security trustee), an
deed of security assignment dated 21 December 2018 between Eroton (as chargor)
and GTB (as security trustee), an deed of share charge dated 21 December 2018
between Eroton (as borrower), Martwestern (as shareholder) and GTB (as
security trustee) and an undated deed of share charge between Eroton (as
borrower), Bilton (as shareholder) and GTB (as security trustee). The Existing
Eroton Debt Facility is governed by English law. Further details in relation
to the Existing Eroton Debt Facility can be found in section (d) of this
section 4 of Part 1.
• Sahara: OML 18 Energy Resource Limited is a Nigerian company
privately-owned by Sahara Field Production 18 Limited ("Sahara") and Sahara
Charitable Foundation. Sahara currently holds an effective 16.2% economic
interest stake in OML 18, which will be transferred in whole to Eroton via the
proposed Sahara OML 18 Transaction which has been negotiated but has not yet
been executed as the New Eroton Debt Facilities have not yet been executed.
• Bilton: Bilton Energy Limited is an indigenous company whose
entry costs into OML 18 were carried by certain partners. Mr Adekolapo
Ademola, a non-executive director of San Leon, has a 44% ownership interest in
Bilton and is a director of Bilton. Bilton has a 1.8% indirect economic
interest in OML 18 held by its 100% owned subsidiary Bilton OML 18 Limited,
which will be transferred in whole to Eroton via the Bilton OML 18
Transaction. The Bilton OML 18 Transaction has been entered into but is
subject to certain conditions including that the Sahara OML 18 Transaction
(which has been negotiated but has not been signed and is itself conditional
upon the entry into and utilisation of the Eroton New Debt Facilities) becomes
unconditional. Bilton also has a 50% voting interest in Eroton (Martwestern
holds the remaining 50%) with a 2% initial economic interest in Eroton, which
will remain unchanged by the Bilton OML 18 Transaction.
• Martwestern: Martwestern Energy Limited is a Nigerian
company 100% owned by MLPL. Martwestern owns 50% of the voting interests in
Eroton (Bilton owns the remaining 50%). Martwestern has a 98% initial economic
interest in Eroton.
• MLPL: Midwestern Leon Petroleum Limited is a
Mauritian-incorporated special purpose vehicle, which, as at the date of this
Document, is 40% owned by San Leon with the remaining 60% held by Midwestern.
Following completion of the MLPL Reorganisation, MLPL will be owned 100% by
San Leon. MLPL is the 100% shareholder of Martwestern and therefore holds the
combined OML 18 interest of both San Leon and Midwestern. MLPL is also the
borrower in respect of the MLPL Loan Notes, further information regarding
which can be found in paragraph 6 of this Part 1 and paragraph 4.2 of Part 2
of this Document.
• Midwestern:
o Midwestern is an independent Nigerian exploration and production
company with a portfolio of hydrocarbon assets. The company was established in
2001 and commenced its upstream activities in 2005.
o Midwestern is owned by Mr Onajite Okoloko, together with other
individuals and entities and the Delta State Government of Nigeria. Mr Okoloko
is the Chairman of the board of Midwestern.
It is emphasised that the MLPL Reorganisation is conditional, amongst other things, on the entry into and the utilisation of the New Eroton Debt Facilities and the Eroton OML 18 Transactions completing. Whilst the Terms of the New Eroton Debt Facilities have been approved by the lead lender, Afreximbank and the Sahara OML 18 Acquisition Agreement has been negotiated but is not expected to be entered into until after the New Eroton Debt Facilities have been entered into and the funds are available and the Bilton OML 18 Acquisition Agreement has been executed, subject to certain conditions, they are dependent on, inter alia, the New Eroton Debt Facilities being entered into and becoming unconditional and being drawn down. Furthermore, the New Eroton Debt Facilities have not yet been entered into and once entered into will be subject to additional conditions to drawdown which will have to be satisfied prior to utilisation of the facilities and for the entry into and completion of the Sahara OML 18 Transaction and the Bilton OML 18 Transaction. These matters are not under the Company's control. Accordingly, there is no certainty that the New Eroton Debt Facilities will be entered into or that the Eroton OML 18 Transactions will proceed or that they will proceed on the currently proposed terms. Only once the Eroton OML 18 Transactions complete and the other conditions to the MLPL Reorganisation have been satisfied will the Company be able to proceed with the MLPL Reorganisation and Re-Admission. There can therefore be no guarantee that the MLPL Reorganisation and Re-Admission will occur.
(c) Other OML 18 matters and background to the Eroton Sahara OML 18 Transaction
As the operator of OML 18, Eroton may incur the costs of capital expenditure
and operating expenditure in relation to OML 18 on behalf of its joint venture
partners and recover this via a cash call arrangement pursuant to the JOA
after the amounts have been reconciled. The Directors understand that Eroton's
ability to pre-fund capital expenditure and operating expenditure in relation
to OML 18 on behalf of its joint venture partners is a key requirement for
Eroton's role as operator and represents a significant component of Eroton's
working capital requirements. Funding requirements of this nature would
normally have been approved in advance as part of an annual budget or specific
work progress, although the Directors understand that Eroton has faced issues
with being able to agree the OML 18 budget with its joint venture partners.
As at 30 April 2022, Eroton had unaudited receivables of approximately
US$104.57 million from its OML 18 joint venture partners, being Sahara, Bilton
and NNPC, in relation to unpaid joint venture cash calls. No amounts in
relation to such receivables have been received since 30 April 2022 but
outstandings continue to accrue. Of this, approximately US$66.84 million
represents amounts receivable from Sahara and Bilton which are to remain
outstanding as intercompany balances (within the Enlarged Group) and
approximately US$37.72 million represents amounts receivable from NNPC, which
the Directors are informed the majority of which is expected to be recovered
from NNPC in due course after the necessary reconciliations, although there
may be instances where NNPC disagrees, disallows or requests a revision of
costs presented by Eroton.
(d) Eroton Litigation and Existing Eroton Debt Facility
The Directors understand that there are several disputes, principally between
Sahara and Eroton, which, among other things, relate to: (i) indebtedness and
delayed payments for gas under the Notore Offtake Agreement; (ii) the
agreement of budgets for the operation of OML 18; (iii) disputes in respect of
various legacy issues regarding the acquisition of OML 18 and disputes
regarding the operation of OML 18 including cash calls; and (iv) disputes in
relation to various alleged payments in relation to shares of profits from OML
18.
Notwithstanding the joint lifting arrangements in respect of OML 18 (which are
currently still in effect), the Directors understand that in 2020 Sahara
started lifting directly according to their interest in the OML 18 field.
A consequence of these disputes has been the Eroton Litigation, being a number of litigation claims and/or counterclaims and other legal actions involving Eroton, Bilton, Sahara and Notore Chemical, which are detailed in paragraph 3.4 of Part 2 of this Document, with the potential risks of these actions being considered in paragraph 2.2 of the Risk Factors laid out in Part 4 of this Document.
Given these disputes, the exit of Sahara from OML 18 has been agreed in
principle (although the Sahara OML 18 Acquisition Agreement has been
negotiated but has not yet been executed), subject to the entry into and
utilisation of the Eroton New Debt Facilities, which is intended to be
effected by the Sahara OML 18 Transaction, which is to occur in connection
with the Settlement Agreement to effect the settlement of the aforementioned
litigation and legal actions. The Directors therefore believe that completion
of the Sahara OML 18 Transaction will assist with enabling Eroton to focus on
the commercial development of OML 18.
On 18 December 2018, Eroton (as the borrower) and GTB (as the lender, agent,
arranger and security trustee) entered into the Existing Eroton Debt Facility,
a US$250,000,000 term loan facility agreement, details of which are set out in
paragraph 10.24.8 of Part 12 of this Document.
Eroton has not complied with all of the conditions in the Existing Eroton Debt Facility, including disruptions to the repayment schedule and provision of loan covenant compliance information, which could give rise to a right of GTB to call an event of default or enforce security granted to it. The potential risks of these actions are considered in paragraph 2.1 of the Risk Factors laid out in Part 4 of this Document. The Board understands that no such actions have been brought by GTB thus far, and the intention is that the Existing Eroton Debt Facility will be refinanced using some of the funds to be drawn from the New Eroton Debt Facilities, should such facilities be entered into. Subject to completion of the New Eroton Debt Facilities, the New Eroton Debt Facilities will replace the Existing Eroton Debt Facility, which will be repaid in full and GTB's security in connection with the Existing Eroton Debt Facility will be discharged.
If the New Eroton Debt Facilities are not entered into or once entered into
does not complete or the conditions to drawdown are not satisfied and/or the
Eroton OML 18 Transactions do not complete then the MLPL Reorganisation cannot
complete. The New Eroton Debt Facilities and the Eroton OML 18 Transactions
are not in the Company's control and even if shareholders approve the
Resolutions, they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to own the
remaining interest in MLPL and Eroton would retain a 27% economic interest in
OML 18, meaning that San Leon would continue to have a 10.58% initial indirect
economic interest in OML 18. The outstanding MLPL Loan Notes would become
payable by MLPL to San Leon within 90 days of termination of the MLPL
Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18 Transactions are also
important to the future financial condition of Eroton, and given the Company's
significant focus on OML 18 and its operator Eroton, the failure of the New
Eroton Debt Facilities and the Sahara OML 18 Transaction to complete, could
have a material and adverse effect on the Company's business, financial
condition and results.
Whilst the Sahara OML 18 Acquisition Agreement has been negotiated it is not expected to be entered into until after the New Eroton Debt Facilities have been entered into and the funds are available and it is therefore dependent, inter alia, on the New Eroton Debt Facilities being entered into and becoming unconditional and being drawn down. Furthermore, the New Eroton Debt Facilities have not been entered into and once entered into will be subject to additional conditions to drawdown which will have to be satisfied prior to utilisation of the facilities and for entry into and completion of the Sahara OML 18 Transaction. These matters are not under the Company's control. There can be no certainty that: i) the New Eroton Debt Facilities will be entered into; ii) or that the Sahara OML 18 Transaction will proceed; iii) or the Settlement Agreement will be entered into or the terms on which any of them will be entered into or that they will proceed on the currently proposed terms. There can therefore be no guarantee that the MLPL Reorganisation and Re-Admission will occur.
In addition, in the event that the Eroton OML 18 Transactions, the MLPL
Reorganisation and Re-Admission do not occur, the Eroton Litigation is likely
to continue (details of which is set out in paragraph 3.4 of this Part 2 and
further details of the risks around the Eroton Litigation are set out in
paragraph 2.2 of Part 4 of this Document.
Other Litigation
In addition to the Eroton Litigation, there are various claims and debt
recovery actions involving Eroton, which can be considered to generally be of
the nature usually encountered by oil exploration and production companies in
Nigeria. These broadly fall into two categories and the most material of which
summarised below:
Claims made against Eroton
A number of actions have been made against Eroton by local communities in and
around OML 18 ("Host Communities"), specifically claiming that such Host
Communities have suffered loss as a result of alleged spills. The relevant
Host Communities in these cases generally seek significant monetary
compensation for the alleged damage caused to their communities and
livelihood, e.g. fishing. Eroton considers these claims lacking in merit on
the basis that: (a) it has no record of the spills alleged to have occurred on
the specific dates and (b) the spills are alleged to have occurred in relation
to crude oil transported within the NCTL, which carries crude from a number of
oil fields and is not exclusively used by Eroton. Accordingly, Eroton is
vigorously contesting these claims.
Local Host Community Claims
Eroton has entered into various memoranda of understanding ("MoUs") with a
number of Host Communities. There are numerous cases between these Host
Communities, seeking either (a) recognition and inclusion within one of the
MoUs or (b) for Host Communities that are already part of a MoU, changes to
the sharing formulae used to divide monies paid by Eroton under such MoU (in
order to obtain a larger share of such monies). In both cases Eroton is named
as a co-defendant due to having entered into an MoU as the operator of OML 18,
so that any judgment will also be binding on Eroton. However, these cases do
not increase Eroton's exposure, they only affect the allocation of the monies
it has already agree to pay under the MoUs. Furthermore, under the PIA the law
relating to Host Community relations will change by the end of August 2022
rendering a number of these claims irrelevant.
It should be noted that the aforementioned other litigation matters will not
be prospectively remedied by the Settlement Agreement.
Environmental issues
There are certain environmental issues, relating to the expiration of
approvals and engagement with local communities that the Company has been made
aware of, in respect of Eroton and its oil exploration activities in relation
to OML 18.
Expired approvals
Eroton operates OML 18 with the benefit of certain approvals, including
Environmental Evaluation Study ("EES") approvals.
The EES approvals for OML 18 have expired. Eroton is in the process of renewing these approvals as they are a requirement under the Environmental Guidelines and Standards of the Petroleum Industry in Nigeria ("EGASPIN"). Under EGASPIN, a person or body corporate (and the management of a body corporate) operating under an OML without any such approval may have that OML revoked (as well as being at risk of criminal sanctions including imprisonment and/or liability to pay fines).
Under EGASPIN, Eroton is also required to maintain Environmental Social Impact
Assessment Report ("ESIA") approvals for the Akaso, Alakiri and Cawthorne
channel fields within OML 18.
The status of the ESIA approvals in respect of the above-mentioned fields are
as follows:
• NUPRC previously approved the ESIA report for the Akaso
field, and the approval remained valid until 3 March 2022. Accordingly, the
approval is now out of date and a new ESIA report and approval in respect of
the Akaso field is required; and
• NUPRC has not approved the ESIA reports for the Alakiri and
Cawthorne channel fields due to the expired environmental data submitted by
Eroton. Although the revalidation of the required field data has commenced and
sampling for two seasons has been planned for Q2 - Q4, 2022, the ESIA approval
for these fields is currently outstanding.
Accordingly, Eroton is required to obtain up to date ESIA report approvals for the Akaso, Alakiri and Cawthorne channel fields and a failure to do so could lead to enforcement action by the relevant authorities in Nigeria, which could result in a material adverse effect on the Eroton's business, operations, financial performance and cash flow and future prospects and the market price of the Ordinary Shares may be affected.
Local host communities
Eroton has engaged with various local communities in the area surrounding the
location in where it carries out its oil exploration activities. As a result
of the passing of the Petroleum Industry Act 2021 ("PIA") which entered into
force in Nigeria on 16 August 2021, Eroton is required to establish certain
funds for the economic benefit of such communities. A summary of those
obligations is set out below:
• Eroton is required to, and has commenced the establishment
of, a decommissioning and abandonment fund (the "Fund"). However, the
provisions of the PIA require that the Fund be set up and monies standing to
the credit of the Fund to be placed in an escrow account within 12 months of
the Effective Date of the PIA, the deadline for such action being 15 August
2022.
• Eroton is also required to establish a host community
development trust (the "Trust") within 12 months of the Effective Date of the
PIA, the deadline for such action being 15 August 2022. Eroton is still in the
process of developing a road map for establishing the Trust, however it has
made the relevant budgetary provision (3% of operating expenses) as stipulated
under the PIA to comply with the requirement of the Fund. Nonetheless, Eroton
has not yet complied with this requirement under the PIA.
Failure to comply with the provisions of the host community and decommissioning obligations under the terms of an OML and the provisions of the PIA is a ground for the revocation of the relevant OML, so if Eroton should not meet the deadline specified above it will be at risk of forfeiting its right to operate OML 18, which could result in a material adverse effect on the Eroton's business, operations, financial performance and cash flow and future prospects and the market price of the Ordinary Shares may be affected.
(f) Production Summary
Peak production levels of over 100,000 stb/d and 200 MMscf/d were achieved
from OML 18 in the early 1970s and early 1990s, respectively. Cumulative
production from the OML 18 fields (including the 50% interest in Awoba) was
approximately 1,099 MMstb (including Alakiri condensate) and 1,994 Bscf of
gas, as of 31 December 2021. Table 2 below shows a summary of the OML 18
production history by field up to the end of 2021.
Table 2: OML 18 Field Production Status & Production Summary (Gross on Licence)
Current Status/ Last Production Oil Cum (MMstb) Gas Cum (Bscf)
First Production Number of Wells Drilled
Discovered
Field Operator
Year 31-Dec-2021
Cawthorne Channel 1963 1970 Producing 52 667.0 992.9 Eroton
Akaso 1979 1980 Producing 17* 134.1 186.5 Eroton
Alakiri 1959 1970 Producing 37 112.7 588.6 Eroton
Awoba (50%)** 1981 1992 Producing 9/4*** 81.2 104.8 Newcross
Krakama 1958 1972 Producing 16 48.4 34.9 Eroton
Orubiri 1971 1973 Producing 12 33.3 35.6 Eroton
Buguma Creek 1960 1972 Dec-2000 10 18.8 47.0 Eroton
Asaritoru 1990 1992 Aug-2000 1 3.4 3.8 Eroton
Bille 1971 - - 1 - - Eroton
TOTAL 155/150 1,099 1,994
Source: PetroVision Energy Services Limited CPR - Table 1-2 on page 165 of
this Document
* Includes recently drilled Akaso-15, Akaso-16, and Akaso-17 (not tied-in
yet).
** Awoba straddles OML 18 and OML 24. 50% of the Awoba production is allocated
to OML 18 as shown in the table. The production figures are based on
production reports from the Operator and the previous operator and do not
account for any potential unreported production losses e.g., due to theft.
*** Nine wells have been drilled in Awoba but only four of them are within in
the OML 18 block area.
Average production (gross on licence) recorded in December 2021 for the OML 18
asset (including 50% of Awoba) is about 15,750 bopd (plus water at a water cut
of 42%), and about 56 MMscf/day of gas. The last period of fully active field
management of OML 18 was during Q1 2020, prior to constraints resulting from
the global COVID-19 pandemic, OPEC restrictions, preparation for the ACOES and
budgetary challenges (particularly in the face of escalating pipeline losses
on NCTL, due to crude oil theft, illegal oil bunkering, and pipeline
vandalism). As a result of these operational limitations, by January 2021
total asset production had declined to circa 34,000 bopd (pre losses).
From March 2021, even higher crude losses were being recorded on the NCTL
(80-90% of injected barrels) which encouraged Eroton to adopt a strategy of
minimising production and deferring well activities pending the completion of
the ELI owned ACOES.
This field management strategy resulted in an artificial drop in gross
production to circa 16 kbopd (pre- losses) by December 2021. Petrovision, the
competent person and author of the CPR, considers this drop in production to
be an inaccurate reflection of the full potential of the asset on which to
benchmark future performance forecasts, particularly with the potential
additional production from Akaso-17 well, which was successfully drilled
between Q4 2019/Q1 2020, with an extensive oil column, and ready to be tied-in
for production (currently estimated for Q2-2022). Petrovision has therefore
benchmarked the performance forecasts for the developed reservoirs against the
most recent period through which the fields were fully operational and under
active field management.
The performance of OML 18, in terms of average oil production measured in
bopd, improved from the point of its acquisition by Eroton up until Q1 2020,
representing a period during which the asset was being actively managed, in
full production and prior to disruptions due to community payment delays, OPEC
restrictions, ELI preparations and recent minimal production mode, which
occurred from Q2 2020 onwards.
In terms of gas production, average gas sales in FY21 were 10.8 Bscf, compared
with average gas sales of 50.0 and 32.7 Bscf in FY19 and FY20 respectively.
Although the Notore Offtake Agreement is principally a 'take or pay' offtake
agreement, the Directors understand that Eroton has not utilised the take or
pay provisions in the agreement and the agreement has not always performed in
line with the terms and the reduction in gas production was mainly customer
driven as Notore Chemical requests for gas based on the consumption profile of
its fertilizer plant. The Board understands that the significant dips observed
in gas sales is due to the shutdown of Notore Chemical's fertilizer plant and
consequently, its inability to receive gas from the field. The major decline
observed in FY21 was due to an extended shutdown of the Notore Chemical plant.
The gross receivable from Notore in relation to gas payments as at 31 December
2021 and as at 30 April 2022 was over US$40 million and has continued to
accrue since the end of April 2022.
Some of the gas produced from OML 18's Cawthorne oil wells has been flared
over previous years and this continues. Eroton's accrued net position in
respect of gas flaring penalties was US$7.2 million and US$1.3 million in FY20
and FY21 respectively.
Following completion of the MLPL Reorganisation, the Directors intend to use
San Leon's rights pursuant to the Asset Management Agreement to review
arrangements with respect to OML 18's gas production and the offtake of gas,
with a view to seeking improvements to the performance and economics of such
arrangements.
Further production details for OML 18 can be found in paragraph 1.2 and 4 of the Competent Person's Report in Part 7 of this Document.
(g) Current Crude Evacuation
OML 18 currently has four flow stations, one central gas gathering plant and
one non-associated gas plant. Oil produced from Cawthorne Channel, Akaso and
Alakiri has historically been transported to Bonny Oil terminal via the NCTL.
The current handling capacity of the existing OML 18 facilities is 180,000
bpd. The non-operated Awoba facility has a further 40,000 bpd capacity.
Optimisation of the OML 18 facilities is planned to capture additional volume,
further details of which are contained within the CPR.
Eroton had challenges evacuating crude oil due to significant NCTL downtimes
during FY19. Eroton did not lift oil volumes for six months in FY20 and two
months in FY21 partly due to NCTL downtimes.
Further details of the current crude evacuation facilities at OML 18 can be found in section 1.3 of the Competent Person's Report in Part 7 of this Document.
Further information regarding the ACOES being constructed by ELI can be found
in paragraph 5 of this Part 1 of this Document.
(h) Current Gas Evacuation
There are three gas pipelines linked to OML 18 infrastructure.
Produced gas is typically exported from the Cawthorne Channel and Alakiri to
the Notore Chemical fertilizer plant.
Associated gas from the Cawthorne Channel is compressed in the Cawthorne gas
processing plant before evacuation to the Notore Chemical fertilizer plant.
The Cawthorne gas processing plant was shut down prior to 2018, as this plant
requires a stable operating environment for oil production and cannot be run
in a manner where it comes online and offline due to the frequent shutdowns
experienced with the NCTL. The Directors understand that Eroton plans for
operations at the Cawthorne gas processing plant to resume following the ACOES
coming online.
The current gas processing capacity of the existing OML 18 facilities
(including the Cawthorne gas processing plant) is 275 MMscf/d. A proposed gas
development plan includes the undeveloped NAG reserves in Awoba, Buguma Creek
and Bille and requires expansion of the gas processing facilities, further
details of which are contained within the CPR, located in Part 7 of this
Document.
Notore Chemical currently purchases the gas under a take or pay arrangement
under the Notore Offtake Agreement, pursuant to which gas supplied to Notore
Chemical from OML 18 is priced at US$1.46/MMscf if used for fertilizer
production and US$2.50/MMscf if used for power generation at Notore Chemical's
facility. The gross receivable from Notore Chemical in relation to gas
payments as at 31 December 2021 and as at 30 April 2022 was over US$40 million
and has continued to accrue since the end of April 2022. The Notore Offtake
Agreement is intended to satisfy Eroton's 2022 DSO which requires it to
deliver a minimum of 55 MMscf/d of gas to the Strategic Sectors which if not
met incurs financial penalties.
Further details of the Notore Offtake Agreement can be found in paragraph 10.3.8 of Part 12 of this Document. Further details of the DSO are set out in paragraph 2.15 of Part 5 of this Document.
Further details of the gas evacuation facilities at OML 18 can be found in
section 2.1 of the Competent Person's Report in Part 7 of this Document.
Asset Development
Capital expenditure declined between 2019 and 2021 due to several factors,
including: Sahara's refusal to approve the 2021 budget; delays in obtaining
vendor approval from National Petroleum Investment Management Services; and
the impact of the COVID-19 pandemic on operations and high NCTL losses and the
significant reduction in volume of crude delivery to the terminal. This led to
projects not being executed, and delays in execution of work programs where
financial commitments had already been made during prior periods.
The main activities associated with the future development of OML 18 fields
include well workovers, interventions, new drilling, artificial lift and
secondary recovery via water injection (with the added benefit of the planned
infield dehydration). Three forecast sensitivities have been evaluated: Proved
(1P), Proved & Probable (2P), and Proved, Probable & Possible (3P).
A combined total of one hundred and three notional new wells have been
proposed by Eroton for full development of the OML 18 fields, including
non-associated gas NAG reservoirs. Eroton's proposed development programme
envisages a capital expenditure budget of circa US$2.9 billion over the next
10 years, for both the 1P and 2P cases. This workover programme is expected to
be predominantly financed from OML 18's future cashflows. Mobilisation of the
Hydraulic Workover Unit (HWU) is currently estimated for Q4 2022 with the
arrival of three drilling rigs anticipated in Q3 2023, Q3 2024 and Q3 2025
(for non-associated gas). An additional twelve new wells have been estimated
for the 3P case with an associated cost of about US$300 million.
The total facilities development CAPEX required for the OML 18 asset is
estimated by Petrovision at approximately US$549 million and includes the gas
capacity expansion to 500 MMscf/d, to accommodate additional gas volumes from
the Non-Associated Gas (NAG) wells, and in-field dehydration, to reduce water
handling and transport requirements.
The oil development plan presented in the CPR is anticipated to see oil
production ramp up from the current approximately 16,000 stb/d to
approximately 100,000 stb/d (gross on license and pre downtime and losses) by
2026 in the mid case (2P) scenario. The gas development is anticipated to take
OML 18 gas production levels up to 500 MMscf/d (gross on license and pre
downtime and losses) by 2032.
Based on the development activities outlined in the CPR, the forecasted 2P oil
and gas technical recoveries (TR), which do not incorporate an economic
cut-off, are approximately 660 million stb and 3,453 Bscf, respectively. This
translates to 2P ultimate recovery (EUR) from the OML 18 asset (including 50%
of Awoba) of approximately 1,759 MMstb oil (including condensate) and
approximately 5,447 Bscf of gas.
Further details of the Asset Development programme for OML 18 can be found in section 1.4 and 4 of the Competent Person's Report in Part 7 of this Document.
(i) Reserves and Resources
Reserves
Table 3 below summarises OML 18's economic reserves per field (being the
forecasted technical recoveries less deductions for production
losses/downtime, economic limits, and utility/fuel for gas). The economic
reserves are presented both as gross on license and indirect net economic
interest attributable to San Leon (i.e., before deduction for royalty). The
net attributable reserves were allocated to SLE by field on an annualised
pro-rated production basis.
Table 3: OML 18's economic reserves per field
Gross SLE net attributable*
Fields Status Operator
Proved, Probable & Possible Proved, Probable & Possible
Proved Proved & Probable Proved Proved & Probable
Oil & Liquids Reserves (million bbls)
Cawthorne Producing 163.3 233.1 295.7 49.8 64.8 76.8 Eroton
Akaso Producing 27.6 58.2 92.0 7.8 17.1 25.6 Eroton
Alakiri Producing 47.8 75.2 127.1 16.1 21.8 32.7 Eroton
Krakama Producing 61.8 87.8 114.5 19.5 24.1 29.1 Eroton
Orubiri Not producing - Available 25.2 37.1 58.6 8.4 11.1 15.5 Eroton
Buguma Creek Not producing - Available 33.3 48.3 67.3 11.3 13.7 17.2 Eroton
Asaritoru Not producing - Available 6.6 8.3 10.8 2.2 2.6 3.2 Eroton
Awoba (50%) Producing 38.0 53.4 83.9 11.7 14.0 20.1 Newcross
Bille Planned for development Eroton
Total for
Oil & Liquids 403.5 601.4 849.7 126.9 169.3 220.1
Gas Reserves (Billion scf)
Cawthorne Producing 283.7 431.8 634.3 91.4 122.9 164.5 Eroton
Akaso Producing 115.2 273.1 458.0 35.8 81.9 127.0 Eroton
Alakiri Producing 484.5 674.2 1,190.0 160.4 202.1 314.0 Eroton
Krakama Producing 285.3 354.4 468.0 89.9 97.3 116.4 Eroton
Orubiri Not producing - Available 99.4 156.1 260.6 35.6 47.8 67.7 Eroton
Buguma Creek Not producing - Available 603.0 913.7 1,378.8 181.9 225.1 323.3 Eroton
Asaritoru Not producing - Available 6.3 7.9 10.3 2.2 2.5 3.1 Eroton
Awoba (50%) Producing 268.9 453.8 914.2 78.6 112.8 210.7 Newcross
Bille Planned for development
126.4 140.6 159.9 30.6 32.1 36.0 Eroton
Total for Gas 2,272.7 3,405.6 5,474.2 706.3 924.5 1,362.9
Source: PetroVision Energy Services Limited CPR - Table 1-6 on page 168 of
this Document
* Post-completion of the MLPL Reorganisation, based upon 44.1% economic
interest in OML 18 until hurdles met.
Petrovision, the competent person and author of the CPR, considers that these
results show significant recoverable (technical) oil and gas volumes remaining
in OML 18 and the existing well stock confirms good deliverability, high
pressures and generally favourable reservoir properties.
Contingent Resources
Table 4 below summarises the estimated contingent (unrisked) oil and gas
recoverable resources, post field development plan (FDP) studies. These are
generally constituted by reservoirs with insufficient information to
appropriately characterise and quantity (well logs and/or fluid sampling
data). The contingent resources also include the recoverable volumes beyond
the forecast cut-off date (Jan-2060).
Table 4: OML 18 Oil & Gas Contingent Resources
Gross SLE net attributable*
Predominant status of Contingent Resource
Estimated Risk Factor
Field Operator
Low Estimate Best Estimate High Estimate Low Estimate Best Estimate High Estimate
Oil & Liquids Contingent Resources - Unrisked (million bbls)
Cawthorne Channel Largely development 9.5 12.2 14.0 2.1 2.7 3.2 0.7 Eroton
not viable
Akaso Largely development 9.6 11.8 13.4 2.2 2.7 3.0 0.7 Eroton
pending
Alakiri Largely development 6.2 8.8 11.6 1.4 2.0 2.6 0.7 Eroton
not viable
Krakama Largely development 0.7 1.3 1.5 0.2 0.3 0.3 0.7 Eroton
not viable
Orubiri Largely development 0.6 0.8 1.2 0.1 0.2 0.3 0.7 Eroton
not viable
Total for
Oil & Liquids 26.6 34.9 41.7 6.0 7.9 9.4
Gas Contingent Resources - Unrisked (Billion scf)
Cawthorne Channel Largely development
not viable 20.7 29.1 39.7 4.7 6.5 8.9 0.7 Eroton
Alakiri Largely development
not viable 184.7 209.7 254.5 41.6 47.2 57.3 0.7 Eroton
Krakama Largely development
not viable 1.0 1.4 1.3 0.2 0.3 0.3 0.7 Eroton
Orubiri Largely development
not viable 0.9 2.3 3.0 0.2 0.5 0.7 0.7 Eroton
Total for Gas 207.3 242.5 298.5 46.6 54.6 67.2
Source: PetroVision Energy Services Limited CPR - Table 1-7 on page 169 of
this Document
* Post-completion of the MLPL Reorganisation
Current contingent resources for Akaso are based on proved recoverable volumes
from water injection (secondary recovery) which was originally classified as
proved reserves category, but are now removed following the non-approval of
the Akaso water injection scheme by the regulatory body. However, Eroton is
actively engaging with the NUPRC to demonstrate the benefits of water
injection in the Akaso field.
Prospective and Lead Resources
Eroton has also identified thirty-nine exploration / appraisal targets,
comprising one discovery, thirty-six prospects and two leads within and/or
near existing fields on the OML 18 block that were evaluated by PetroVision as
part of the CPR. The estimated gross prospective oil and gas resources for OML
18 are shown below in Table 5. The low, best, and high cases were determined
probabilistically using range of uncertainties for each volumetric parameter,
such as GRVs, petrophysical properties, and PVT properties.
Table 5: OML 18 prospective oil/liquids resources
Gross SLE Net attributable*
Total No of Exploration / Appraisal Targets
Risk Factor
Near-field Status Operator
Low Estimate Best Estimate High Estimate Low Estimate Best Estimate High Estimate
Oil & Liquids Prospective Resources - Unrisked (million bbls)
Cawthorne
Channel 6 Prospect 22.0 92.0 268.4 5.0 20.7 60.4 0.4 Eroton
Akaso 3 Prospect 11.6 68.6 147.0 2.6 15.4 33.1 0.3 Eroton
Alakiri 6 Prospect 16.9 110.6 465.8 3.8 24.9 104.8 0.6 Eroton
Krakama 3 Prospect 23.8 112.9 366.2 5.4 25.4 82.4 0.2 Eroton
Orubiri 4 Prospect 9.6 31.5 145.0 2.2 7.1 32.6 0.3 Eroton
Asaritoru 3 Prospect 4.4 33.6 117.6 1.0 7.6 26.5 0.4 Eroton
Bakana 3 Prospect 2.5 8.6 23.4 0.6 1.9 5.3 0.2 Eroton
Buguma
East ** 1 Prospect 2.5 14.9 49.9 0.6 3.4 11.2 0.3 Eroton
Minama East 1 Prospect 3.1 21.3 95.1 0.7 4.8 21.4 0.3 Eroton
Tema 1 Appraisal+ 4.4 8.2 14.2 1.0 1.8 3.2 1.0 Eroton
Awoba ** 2 Prospect 0.0 1.0 7.0 0.0 0.2 1.6 0.2 Newcross
Bille 2 Prospect 22.9 51.0 106.4 5.2 11.5 23.9 0.2 Eroton
Calabar
River South 1 Lead 34.4 70.6 143.0 7.7 15.9 32.2 0.0 Eroton
Calabar
River SE 1 Lead 40.3 62.5 94.2 9.1 14.1 21.2 0.1 Eroton
Idama** 1 Prospect 1.5 5.9 15.9 0.3 1.3 3.6 0.3 Eroton
Isia 1 Prospect 2.4 16.5 65 0.5 3.7 14.6 0.3 Eroton
Total for Oil /
Liquids 39 202.3 709.7 2,124.1 45.5 159.7 477.9
Source: PetroVision Energy Services Limited CPR - Table 1-8 on page 170 of
this Document
* Post-completion of the MLPL Reorganisation
** OML 18 area only
+ Tema is a discovery, hence no risk associated with discovery. The field is
subject to further appraisals.
Table 6: OML 18 prospective gas resources
Gross SLE Net attributable*
Total No of Exploration / Appraisal Targets
Risk Factor
Near-field Status Operator
Low Estimate Best Estimate High Estimate Low Estimate Best Estimate High Estimate
Gas Prospective Resources - Unrisked (Billion scf)
Cawthorne
Channel 6 Prospect 89.3 371.0 1,069.8 20.1 83.5 240.7 0.4 Eroton
Akaso 3 Prospect 45.1 263.1 544.7 10.1 59.2 122.6 0.3 Eroton
Alakiri 6 Prospect 60.6 382.9 1,547.3 13.6 86.2 348.1 0.6 Eroton
Krakama 3 Prospect 85.2 401.9 1,280.6 19.2 90.4 288.1 0.2 Eroton
Orubiri 4 Prospect 32.5 106.1 505.4 7.3 23.9 113.7 0.3 Eroton
Asaritoru 3 Prospect 16.4 127.9 451.7 3.7 28.8 101.6 0.4 Eroton
Bakana 3 Prospect 7.4 26.1 70.1 1.7 5.9 15.8 0.2 Eroton
Buguma
East** 1 Prospect 7.9 47.4 154.6 1.8 10.7 34.8 0.3 Eroton
Minama
East 1 Prospect 10.2 78.2 369.7 2.3 17.6 83.2 0.3 Eroton
Tema ++ 1 Discovery 75 116.6 176.7 16.9 26.2 39.8 1.0 Eroton
Awoba ** 2 Prospect 0.2 4.0 25.3 0.0 0.9 5.7 0.2 Newcross
Bille 2 Prospect 86.0 181.9 360.9 19.4 40.9 81.2 0.2 Eroton
Calabar River
South 1 Lead 124.1 241.5 474.8 27.9 54.3 106.8 0.0 Eroton
Calabar
River SE 1 Lead 142.7 209.3 299.0 32.1 47.1 67.3 0.1 Eroton
Idama** 1 Prospect 5.9 21.7 57.4 1.3 4.9 12.9 0.3 Eroton
Isia 1 Prospect 7.3 52.7 207.4 1.6 11.9 46.7 0.3 Eroton
Total for Gas 39 795.8 2,632.3 7,595.4 179.1 592.3 1,709.0
Source: PetroVision Energy Services Limited CPR - Table 1-9 on page 171 of
this Document
* Post-completion of the MLPL Reorganisation
** OML 18 area only
++ Tema is a discovery, hence no risk associated with discovery
Petrovision considers that, as a significant portion of the contingent and
prospective resources defined are quite tangible, they will never be far from
infrastructure and many of the potential targets can easily be appraised as
part of the development drilling programme. Petrovision considers that
exploration targets could be tagged on to development wells either by
deepening certain wells or optimising trajectories to tag
exploration/appraisal blocks/zones etc. This optimisation will be factored
into the Eroton's development plan/drilling schedule with the objective of
moving some of the prospective resources into reserves without a requirement
for dedicated exploration CAPEX.
Further details of OML 18's reserves, contingent resources and prospective resources can be found in section 1.5 of the Competent Person's Report in Part 7 of this Document.
(j) Economic Evaluation
PetroVision developed a detailed economic model that estimated the net present
value (NPV) (the model runs on OML 18 and NPV were allocated by field based on
technical production) based on discounted cash flow of future net revenues at
a discount rate of 10% ("NPV10") going forward, as of 1 January 2022, to
determine the value of the indirect net economic interest attributable to San
Leon. The economic model includes the effect of Eroton's debt funding expected
downtime and significantly reduced pipeline losses. The net attributable cash
flow to SLE was allocated to SLE by field on an annualised pro-rated
production basis.
NPV10 values were calculated using base price assumptions for two cases:
i. Pre-finance, an NPV10 after tax value is calculated based on
cashflow to San Leon excluding the effects of paying RBL costs and Withholding
Tax ("WHT"), which gives the NPV10 of cash flow from SLE's interests (post
completion of the MLPL Reorganisation) without financing deductions
ii. Post-finance, an NPV10 after tax value is provided which
includes the effects of RBL and WHT, which provides a view on the NPV10 of
cash flows receivable by SLE at the MLPL level.
Table 7: NPV10 After Tax Net Cashflow (SLE Entitlement only) - post completion of the MLPL Reorganisation
NPV10 After Tax Net Cashflow (US$ million) @ Base Oil Price
Fields
Proved (1P) Proved & Probable (2P) Proved, Probable & Possible (3P)
Cawthorne Channel 401 435 472
Akaso 139 224 298
Alakiri 283 325 407
Krakama 171 172 183
Orubiri 83 92 104
Buguma Creek 168 166 163
Asaritoru 17 19 23
Awoba (50% share) 96 101 124
Bille 8 9 10
TOTAL Pre-Finance 1,366 1,543 1,784
TOTAL Post-Finance 917 1,093 1,334
Source: PetroVision Energy Services Limited CPR - Table 1-10 on page 173 of
this Document
In addition to San Leon's indirect net economic interest on OML 18 block, the
Company also has an exclusive right (subject to conditions) to provide certain
drilling-related oil field services to OML 18 under a Master Services
Agreement. Eroton's proposed development program envisages a capital
expenditure budget over the next 10 years more than US$2.9 billion, largely
funded from cash flow. San Leon has a separate contract in place to provide
management and technical services to Eroton, in addition to the Asset
Management Agreement.
Further details regarding the Economic Evaluation of OML 18 can be found in sections 1.6 and 5 of the Competent Person's Report in Part 7 of this Document.
5. Information about ELI
Corporate Background
ELI is a midstream infrastructure group, serving the oil and gas sector and
builds crude transportation and storage systems within the Niger Delta area of
Nigeria.
ELI comprises ELI Malta and its subsidiary, ELI Nigeria. ELI Malta was
incorporated on 6 September 2017, while ELI Nigeria was incorporated on 19
February 2016. ELI Malta holds 99.99% of the shares in ELI Nigeria. ELI
Malta's shareholders are currently Ocean Pearl Marine MA, San Leon ELI Limited
(a subsidiary of the Company), Umugini Pipeline Infrastructure Limited
("UPIL") and Walstrand (Malta) Limited ("Walstrand"). Midwestern has an
indirect shareholding in UPIL. Midwestern has a 68% shareholding in Midwestern
Hydrocarbon Pipeline Company Limited which in turn owns 75% of UPIL (i.e. a
51% effective interest in UPIL).
ELI is governed by a board of directors and a management team responsible for
overseeing ELI's operations. As at 31 May 2022, ELI had an eight person board
comprising seven non-executive directors and one executive director. ELI's
operations are predominantly conducted through its subsidiary, ELI Nigeria.
ELI and its subsidiary as at 31 May 2022 had seventeen full time employees and
sixteen contract staff, although both of these are increasing as ELI is
currently conducting a recruitment exercise to grow its technical personnel by
50% as it prepares for its live operations and personnel numbers are expected
to continue to increase as ELI expands its operations.
Business Model
The business model of ELI is the construction, delivery and deployment of the
ACOES at the approved location in Nigeria by ELI Malta, and will involve ELI
Malta leasing the ACOES assets through a finance lease to ELI Nigeria over the
life of the Crude Handling and Transportation Agreement. Following the
completion of the ACOES, ELI Nigeria is to be responsible for operating the
asset and handling the crude from OML 18. Eroton (the operator of the OML 18
joint venture) and ELI Nigeria have entered into a crude handling and
transportation agreement (the "Crude Handling and Transportation Agreement")
pursuant to which ELI Nigeria agreed to provide services relating to handling,
storage and transportation of crude oil produced from OML 18.
ELI's ACOES project is being constructed to provide a dedicated oil export
route from OML 18, comprising a new pipeline from OML 18 and a floating
storage and offloading vessel approximately 30 kilometres offshore. ELI
Nigeria has entered into a floating storage and offloading vessel operations
and management contract with World Carrier Offshore Services Corporation.
The NCTL is currently used as one of the main methods for the export of oil
from OML 18 to the Bonny Terminal. OML 18 has suffered from significant levels
of NCTL downtime and pipeline losses over the past five years, as can be seen
in Figure 2 below. High crude pipeline losses on the NCTL have been reported
for 2021. During Q1/Q2 2021 a crude pipeline loss of up to 90% was reported.
In Q3 2021, the pipeline loss averaged 97%. The ACOES project has been
designed to reduce the downtime and allocated pipeline losses currently
associated with OML 18's reliance on the NCTL.
Further details of the NCTL downtime and pipeline losses can be found in section 3.6 of the Competent Person's Report in Part 7 of this Document.
In 2017, ELI working with Eroton received approval from the NNPC and the
Department of Petroleum Resource to construct the ACOES at OML 18. The ACOES
is an evacuation system designed to provide alternative export channels from
the OML 18 export pipeline running from within the OML 18 acreage and down to
the open sea to a dedicated floating storage and the offloading vessel ELI
Akaso. ELI Nigeria has obtained a number of licenses to establish and operate
the ACOES pipeline and the floating storage and offloading vessel, further
details of which can be found in paragraph 5.2.5 of Part 2 of this Document.
ELI Nigeria is the first local company to receive an oil pipeline licence
alongside a terminal establishment order via Eroton.
ELI's ACOES project was financed initially in 2019 via a facility from
Petro-Gap Limited. In December 2019, ELI signed an exclusivity agreement with
Shell Trading & Supply Limited ("SWST"), whereby SWST and ELI collaborate
to ensure SWST is the exclusive off taker of crude from the ELI Akaso
terminal. ELI's current financing is provided through a combination of equity
and debt from San Leon, UPIL, Ocean Pearl and Walstrand, together with bank
debt.
The ACOES involves laying 47 km of thick wall pipe, equipped with a five-core
fibre optic cable from OML 18 17 km through the New Calabar river and then 30
km out into the open sea to the ELI Akaso floating storage and offloading
vessel. The ELI Akaso floating storage and offloading vessel has a name plate
storage capacity of two million barrels and was purchased at a cost of US$60
million. The pipeline construction is expected to complete during late 2022.
The ACOES is expected to reduce the recent downtime (predominantly a result of
NCTL downtime) and reduce high crude pipeline losses from a 2021 average of
73% (peaks of 80-90%) to around 5%. Figure 2 above shows the downtime and
crude loss over the past five years on the NCTL. High crude pipeline losses
have been reported for 2021 with up to 90% in Q1/Q2 2021 and averaged at about
97% loss in Q4 2021. The ACOES is also anticipated to reduce gas flaring
charges.
The current penalty for gas flaring in Nigeria is US$2 per thousand cubic
feet, which is treated like a royalty payment and reconciled and payable
quarterly. In addition to the ACOES, Eroton is currently planning for an
in-field dehydration (IFD) system to remove water from crude oil, thereby
reducing liquid handling cost through the ACOES by eliminating water tariffs.
Eroton has commenced the implementation of an interim evacuation programme
utilising a barge mounted production facility with storage of both water and
crude, with crude export to the ELI Akaso floating storage and offloading
vessel operated by ELI. Process testing of the barging facilities, to confirm
water separation quality and due diligence on installed equipment, was
completed in September 2021 and about 18,000 bbls of export quality crude was
successfully injected into the storage barges.
As at the date of the CPR, the OML 18 pilot project has successfully been
completed to the mother vessel and the marine spread is being deployed, after
which oil is expected to be received via barging to the FSO. Eroton now
expects to complete the approval process and commence transhipment in Q3 2022,
with transhipment at the Cawthorne flowstation in Q3 2022 while a third barge
is expected to become fully operational at Alakiri and Krakama flowstations by
the start of Q4 2022.
The full ACOES, including the pipeline, is expected by Eroton to be
operational in Q4 2022. The Board expects that the ACOES will reduce the
substantial pipeline losses and downtime which have hampered cash flow from
OML 18's production.
ELI intends for its pipeline infrastructure to eventually earn fees from third
parties for transporting and storing crude oil from the surrounding oil and
gas fields in the Eastern Niger Delta. This is considered by the Board to be
feasible as the pipeline is planned to be positioned adjacent to several other
oil mining leases. In addition, the floating storage and offloading vessel has
been designed with capacity in excess of what may be required for OML 18. In
this regard, the ACOES pipeline is ultimately intended to play a key role in
resolving the local issues with oil production losses.
In 2019, ELI entered into a pipeline development agreement with Newcross
Exploration Production Limited, the operator of the nearby OML 24 licence, in
relation to the development of a prospective pipeline that will traverse the
OML 24 corridor and ultimately connect OML 24 to the ELI Akaso FSO. Whilst
preliminary work based around the feasibility of such a pipeline has been
undertaken, the development of this is yet to commence.
ELI Malta earned US$5.7 million in revenue from a short-term vessel charter
hire to Trafigura for six months during FY20, pending receipt of necessary
approvals from the Government of Nigeria's Department of Petroleum Resources
and the Nigerian Customs.
During FY21, ELI Malta received US$1 million from Shell Western Trading
Limited as part payment of a US$3 million exclusivity fee under a sole offtake
arrangement executed with ELI in 2019, under which Shell Western Supply and
Trading Limited is to be the sole crude oil offtaker from the floating storage
and offloading vessel. The remaining US$2 million will be due from Shell
Western Trading Limited on completion of the mooring of the FSO.
From May 2020 onwards, Eroton has made quarterly payments to ELI Nigeria, as
advances under the Crude Handling and Transportation Agreement between Eroton
and ELI Nigeria. Advance payments received from Eroton in FY20 were US$43.4
million while in FY21 these were US$56.2 million.
As at the date of this Document, ELI's main debt facilities are a US$130
million senior secured term loan facility agreement from Africa Finance
Corporation and Zenith Bank Plc to replace an existing facility with GTB but
which is conditional upon the New Eroton Debt Facilities. ELI also has a
US$30.0 million mezzanine loan from Umugini Pipeline Infrastructure (UPIL) and
US$17 million of shareholder loans from San Leon (before any of the Further
ELI Investments).
The budgeted cost to completion for the ACOES is approximately US$42 million
which largely relates to unfunded capital commitments and other associated
costs for pipeline development. The Directors understand that ELI plans for
this to be funded by a cash backed stand by letter of credit of US$39.2
million from GTB, the disbursement of which is contingent upon performance and
the achievement of milestones, with the remainder being provided by San Leon
pursuant to the New ELI Investment.
Further details of the ACOES can be found in section 2.1 of the Competent Person's Report in Part 7 of this Document.
6. MLPL Loan Notes
On completion of the OML 18 Production Arrangement in 2016, the Company
received US$173.05 million of MLPL Loan Notes together with a 40% shareholding
in MLPL. The MLPL Loan Notes are also accompanied by interest payments
accruing at a fixed rate of 17% per annum on the outstanding principal at the
time. The shares held by MLPL in Martwestern have also been pledged as
security to the obligations under the MLPL Loan Notes.
Further information on the background to the MLPL Loan Notes can be found in
paragraph 4.2 of Part 2 of this Document.
Midwestern and Mart Resources Limited jointly and severally guaranteed the
payment of the MLPL Loan Notes in the event of a default and to make immediate
payment and performance of all obligations to holders of the MLPL Loan Notes.
It was originally envisaged that the MLPL Loan Note repayments due to San Leon
would be sourced by MLPL from the receipt of dividends through its indirect
interest in Eroton. The Directors understand that OML 18's performance has not
provided sufficient cash flow to allow Eroton to pay dividends, and since 2017
MLPL has borrowed from Midwestern in order to be able to make repayments to
San Leon on the MLPL Loan Notes. Midwestern has charged MLPL a 7% guarantee
fee on the outstanding balance of the MLPL Loan Notes. Pursuant to the MLPL
Reorganisation, Midwestern will assign the benefit of such receivable owed by
MLPL to San Leon Energy Nigeria.
In relation to the outstanding MLPL Loan Notes, further to the announcements
on each of 7 July 2021,
20 September 2021, 1 October, 2021, 2 November 2021, 1 December 2021, 4
January 2022,
1 February 2022, 28 February 2022, 29 April 2022 and 24 June 2022, San Leon
agreed an extension and then further extensions of the payments in relation to
three instalments that were originally due to be repaid on 5 July 2021, 30
September 2021, 31 December 2021 and 24 June 2022 until 8 July 2022, which
will be payable 90 days after such expiry, save for, inter alia, if there is
an event of default (the "Extended Conditional Payment Waivers"). Interest
continues to accrue on the principal amounts waived whilst the Extended
Conditional Payment Waivers are in effect. As at 30 June 2022, the Extended
Conditional Payment Waivers relate 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.
Pursuant to the MLPL Reorganisation Agreement, the Extended Conditional
Payment Waiver has been superseded and San Leon has agreed with MLPL,
Midwestern and Martwestern to a tenth extension of the Extended Conditional
Payment Waivers until the sooner of completion of the MLPL Reorganisation or
termination of the MLPL Reorganisation Agreement. Interest continues to accrue
on the principal amounts waived pending completion of the MLPL Reorganisation.
Upon completion of the MLPL Reorganisation, the MLPL Loan Notes will become
intra group indebtedness and pursuant to the MLPL Reorganisation Agreement,
Midwestern will be released from its obligations to guarantee performance of
the MLPL Loan Notes by MLPL.
7. Company History
San Leon is incorporated in Ireland. Its Ordinary Shares have been admitted to
trading on AIM since September 2008.
The Company has conducted a number of transactions since 2008 and previously
had interests in oil and gas assets in Poland and the Netherlands as well as
several other locations. Details of San Leon's non-core residual interests in
its legacy assets can be found in paragraph 8.
Since September 2016, the Company has been focused on oil and gas in Nigeria
and has been exiting its other investments. San Leon's exposure to the
Nigerian exploration and production segment currently is via its indirect
investments in OML 18 and the ACOES, together with its debt and equity
investment in the Oza Field, onshore Nigeria.
8. Information on the Group's non-core assets
In addition to its interests in OML18, San Leon holds certain other non-core
assets as follows:
8.1 Net Profit Interests in relation to the Group's former Polish
assets
Following a strategy of divesture in relation to San Leon's assets in Poland,
San Leon currently holds Net Profit Interests in relation to
licenses/concessions in Poland which range from 5 per cent to 10 per cent
including in the following licenses or concessions: Rawicz, Bielsko-Biala,
Cieszyn, Nowa Sol, Gora and Poznan East - 207.
8.2 Overriding Royalty Interest in relation to its former Dutch assets
San Leon is the beneficiary of the Amstel Royalty Agreements on Block Q13A,
which is located offshore the Netherlands (together the "Amstel Oil Field"),
including an overriding royalty agreement entered into with Encore Oil Limited
as part of a sale and purchase agreement entered into in 2007. TAQA Offshore
BV subsequently purchased the interest from Encore Oil Limited.
In January 2022, San Leon received payments totalling more than €5.7 million
from the legal actions relating to the Amstel Oil Field. The Amstel Royalty
Agreements represent legacy interests and any potential net future benefit to
San Leon going forward from the Amstel Oil Field on a monthly basis is not
expected to be material to San Leon.
8.3 Net Profit Interest in the SEL 1/11 (Barryroe) licence in the
North Celtic Sea, offshore Ireland
Providence, through its wholly owned subsidiary Exola DAC, holds an 80%
working interest in and is the operator of SEL 1/11 which contains the
Barryroe oil accumulation. SEL 1/11 is located in the North Celtic Sea Basin,
c. 50 km off the south coast of Ireland, being situated in circa 100 metres
water depth. SEL 1/11 expired in July 2021 in accordance with its terms.
Providence has made an application to the Department of Environment, Climate
and Communications to secure a Lease Undertaking in respect of Barryroe. A
Lease Undertaking gives the holder the right to a Petroleum Lease over that
part of the area covered by the Lease Undertaking and a Petroleum Lease would
give Providence the exclusive right to produce petroleum from the leased area.
In the past, under different operators, five wells were successfully drilled
on Barryroe. All of these wells successfully logged hydrocarbon-bearing
reservoirs with three successfully flowing oil to surface. In 2011, having
acquired new 3D seismic data, a sixth well was drilled on this field. In March
2012, the Barryroe partners announced the flow rates from this well, which
included oil rates in excess of 3,500 BOPD from a seven-metre vertical section
of reservoir. Most recently, following a strategic review by Providence and
subject to regulatory consent, Providence intends to proceed with an appraisal
well in 2023, and assuming a satisfactory outcome, to proceed to first
production in 2026, initially focused on the central area in Barryroe only.
San Leon holds a 4.5 per cent Net Profit Interest in SEL 1/11.
8.4 Loan notes and subscription in relation to the OML 11 (Oza) field
in Nigeria
San Leon has provided a total loan of US$5,500,000 to Decklar (US$750,000 was
provided in August 2020, with a further US$4,750,000 provided in January
2022), which was accompanied by an equity subscription at nominal value.
Consequently, San Leon is interested in US$5,500,000 of 10 per cent unsecured
subordinated Decklar loan notes and a 11 per cent equity interest in Decklar.
San Leon was seeking to pay a further US$2,500,000 to Decklar by 30 June 2022
which would increase its shareholding in Decklar to 15.0 per cent and increase
the unsecured subordinated loan notes to US$8,000,000, and an extension beyond
30 June 2022 is now being discussed.
Decklar is the holder of a Risk Service Agreement ("RSA") with Millennium Oil
and Gas Company Limited ("Millennium") on the Oza Field in Nigeria. The Oza
Field is a 20 square kilometres concession located onshore in the northern
part of OML 11 in Nigeria. The Oza Field is a conventional stacked sands
reservoir (12 zones) allowing for vertical drilling and horizontal development
drilling. The Oza Field has proven reserves and was formerly operated by Shell
Petroleum Development Company of Nigeria Ltd., the local subsidiary of Shell
at the time. The Oza Field had three wells and one side track drilled by Shell
between 1959 and 1974. Well tests on two wells estimated 2,000 boe/d at
35°/43° API gravity crude oil. More than one million barrels of oil were
produced from three zones.
Decklar has performed the workover of the Oza-1 well and the Directors
consider that 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 is to be involved in future development planning and
determining the location of the first new well to be drilled on the Oza Field.
More recently Decklar announced initial shipments of approximately 4,000
barrels of crude oil from the Oza-1 storage facilities.
8.5 Non-core assets being relinquished
The Company holds non-core interests in licences in Albania and Spain, which
are in the process of being relinquished.
9. Financial information
The annual reports and accounts for the Company for the financial years ending
31 December 2021, 2020 and 2019 are incorporated by reference under the
exemption set out in Rule 28 of the AIM Rules for Companies. These annual
reports and accounts are available online at the Company's website:
www.sanleonenergy.com. (http://www.sanleonenergy.com/)
The results for the financial year ended 31 December 2021 were announced on 8
July 2022.
10. Current trading and prospects
San Leon
The Directors believe that San Leon's holdings in MLPL and ELI and its MLPL
Loan Note receivables provide a mix of future income, split between loan
income expected to be received in the short-to-mid- term and equity dividend
distributions from MLPL and ELI expected to be received in the mid- to-long-
term. However, as described above in section 6 of this Part 1, upon completion
of the MLPL Reorganisation, the MLPL Loan Notes will become intra group
indebtedness and pursuant to the MLPL Reorganisation Agreement, Midwestern
will be released from its obligations to guarantee performance of the MLPL
Loan Notes.
In the year to date, the Company has only received US$0.3 million in
repayments pursuant to the MLPL Loan Notes and no income from its existing
debt or equity investments in ELI. This has been principally due to poor
trading performance in Eroton and given that discussions with Midwestern
regarding the Proposals have been taking place since 2021, has resulted in the
MLPL Loan Notes being the subject of a series of publically announced
conditional repayment waivers since July 2021. Therefore, the Company's cash
position as at 8 July 2022 was US$0.2 million. To mitigate the Company's low
cash position and provide funding for the Group's working capital requirements
and financing for the Further ELI Investments, San Leon has entered into the
New Facility for US$50 million, as described at paragraph 10.22 of Part 12 of
this Document.
ELI has not generated income to pay dividends to its shareholders, including
San Leon, and has not been in a position to repay creditors such as the
Company. This is because it has not received revenue from Eroton as the ACOES
has not yet been commissioned and therefore ELI has not yet started generating
revenues. The completion and full commissioning of the ACOES will require
further financing, including that provided within the New ELI Investments.
The Board believes that the recovery of the oil price during 2021 and into
2022 assists the business case for the Company's assets and their continued
development. The expected near-term start-up of the barging component of the
ACOES is considered to be an important step in unlocking the value in OML 18,
and the Board looks forward to the pipeline portion of the ACOES coming online
following its anticipated completion by the end of 2022.
All of the MLPL Reorganisation and ELI Reorganisation, together with the
Further ELI Investments, are considered by the Directors to represent
transformational transactions for the Company, which are expected to be cash
flow positive in the near to medium term.
The Company will continue to monitor the performance of OML 18 and its other
assets, and will consider pursuing any appropriate opportunities that may
arise in the current market.
Further details of the Board's views regarding the prospects for the Company
and ELI can be found in the Chairman's and Chief Executive's statements in the
Company's annual report and accounts for the year ending 31 December 2021,
which are incorporated into this Document by reference and are available
online at the Company's website.
ELI - additional loan from San Leon
On 15 February 2022, the Company provided a further loan of US$2.0 million
(the "Loan") to ELI Malta.
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 was accompanied by a transfer to San
Leon by Walstrand, ELI's largest shareholder, of shares in ELI which at the
time represented a 2.0% equity interest, which San Leon will acquire at
nominal value, representing a consideration payable of approximately US$91.
The Loan was to be used by ELI to facilitate a funding requirement to allow
for completion of the mooring for the FSO, which the Board considered to be a
critical step in the progression of the ACOES. 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 believed that it was important for San Leon to assist ELI
Malta with the funding requirements for achieving its key project milestones.
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 instalments totalling US$6.0 million are
now due. The Company has elected not to enforce the repayment of outstanding
amounts, 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. As announced on 9 August 2021, the Company
has previously agreed with ELI that, should the New ELI Investments in ELI be
made, then loan repayment instalments would be offset from any investment
monies payable to ELI by San Leon under these new arrangements.
Decklar - loan notes and equity interest
On 27 January 2022, the Company announced that it had lent US$4.75 million to
Decklar via 10% unsecured subordinated Decklar loan notes (bringing the total
of such loan notes to US$5.5 million), which were accompanied by a 11% equity
interest in Decklar, which was subscribed for at a nominal value. San Leon is
in discussions to provide a further loan of US$2.5 million to Decklar on
similar terms, in order to increase its shareholding in Decklar from 11% to
15%. San Leon will be entitled to one seat on the board of Decklar. In terms
of the outlook for the remainder of FY 2022, the Directors anticipate that the
export of oil from Oza will continue in 2022.
MLPL
As described above, MLPL has not recently received funds from its investment
in Eroton, and repayments to San Leon pursuant to the MLPL Loan Notes have
been the subject of a series of publicly announced conditional repayment
waivers since July 2021. The Directors expect dividend flow to MLPL once the
Proposed Transactions are completed and Eroton returns to budgeted operational
performance and the later generates distributable income, as described below.
The Company expects to continue to have technical and other input into the OML
18 asset through its shareholdings and the Asset Management Agreement signed
between San Leon Energy Nigeria and Eroton. MLPL and its subsidiary are
effectively holding companies, although MLPL is the borrower from San Leon
pursuant to the MLPL Loan Notes.
OML 18
Oil delivered from OML 18 to the Bonny terminal for sales was approximately
4,400 bopd in FY 2021 (21,100 bopd in FY 2020) and was affected by combined
losses and downtime of approximately 79%. The FY 2021 figure was also 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. 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. In the three months to 31 March 2022, oil
delivered from OML 18 to the Bonny terminal for sales was approximately 2,300
bopd as a result of similar issues to 2021.
Gas sales from OML 18 in FY 2021 averaged 29.6 million mmscf/d after downtime
(32.7 mmscf/d in FY 2020). In the three months to 31 March 2022, OML 18's gas
sales averaged approximately 41.7 mmscf/d after downtime, with the shortfall
relative to the 50 mmscf/d (being the rate that is expected within the Notore
Offtake Agreement) being due to maintenance activity at the Notore Chemical
plant.
The Directors understand that the restarting of field operations on OML 18
should occur later in 2022.
ELI
The Directors believe that ELI is positioned for strong cash flow and
potential organic growth, given its strategic positioning and proposed
offering of efficient oil export facilities in a region which has suffered
from material oil export losses and downtime. Such losses have increased
significantly in 2021 and 2022, emphasising the business case for the new
pipeline and FSO for OML 18 and third parties. Whilst there have been delays
in installation of the ACOES, principally due to Covid, and delays in mooring
the FSO, limited barging to the mother vessel has commenced in June 2022, with
fuller barging operations from OML 18 to the FSO expected by ELI to commence
during July 2022 and the pipeline being expected to be commissioned in late
2022.
The loan repayments due to San Leon from ELI were due to start in 2021 but
have been delayed due to operational readiness of the FSO and ACOES being
delayed. The Directors expect that ELI will be revenue generating in Q3 2022
with the commencement of barging operations, and while loan repayments to San
Leon have been delayed, they should commence in the second half of 2022.
The budgeted cost to completion for the ACOES is approximately US$42 million
which largely relates to the remaining unfunded capital commitments and other
associated costs for pipeline development. The Directors understand that ELI
plans for this to be funded by a cash backed stand by letter of credit of
US$39.2 million from GTB, the disbursement of which is contingent upon
performance and the achievement of milestones, with the remainder being
provided by San Leon pursuant to the New ELI Investment.
Since 31 December 2021 ELI's net liabilities and net current liabilities have
increased as ELI has continued to incur operating losses.
As stated in section 5 of this Part 1, ELI intends for its pipeline
infrastructure to eventually earn fees from third parties for transporting and
storing crude oil from the surrounding oil and gas fields in the Eastern Niger
Delta, with the ACOES pipeline ultimately being intended to play a key role in
resolving the local issues with oil production losses. ELI is in advanced
negotiations with other third-party injectors for use of its pipeline and
terminalling facilities.
Prospects for the Enlarged Group
The Directors believe that the Enlarged Group has considerable growth
opportunities, both organically and via further acquisitions or production
arrangements, and views the future with confidence. The Enlarged Group is
expected by the Directors to benefit both from increased scale in existing
projects, and also by enabling the increased application of San Leon's
managerial and technical involvement in Eroton (via its increased ownership of
MLPL, via the MLPL Reorganisation), through its Asset Management Agreement to
provide such services to Eroton, and its involvement in ELI. Further details
in relation to the Board's reasons for the Proposed Transactions and the
strategy of the Company can be found in paragraph 3 of this Part 1.
Following completion of the MLPL Reorganisation and the ELI Reorganisation, it
is the Company's intention to evaluate the potential for and benefits of, in
due course, seeking a listing of its Ordinary Shares on the Official List,
Premium Segment and the admission of those shares to the main market of the
London Stock Exchange, subject to satisfaction of all regulatory requirements
and approvals.
11. Board
The Board will not change as a consequence of Re-Admission and will therefore
consist of the following individuals:
Mutiu Olaniyi Adio Sunmonu, Non-Executive Chairman (aged 67)
Oisín Brendan Fanning, Chief Executive Officer (aged 64)
Joel David Price, Chief Operating Officer (aged 50)
Julian Lester Tedder, Chief Financial Officer (aged 52)
John Davies Brown, Independent Non-Executive Director (aged 58)
Adekolapo Ademola, Non-Executive Director (aged 55)
Further details about the Directors and their business experience are set out
in Part 6 of this Document. Adekolapo Ademola is not considered to be
independent as he is a representative of Midwestern on the Company's Board.
12. Corporate governance
The Board is committed to maintaining high standards of corporate governance
to ensure the Company is run effectively. In accordance with Rule 26 of the
AIM Rules for Companies, the Company confirms that it has adopted the QCA
Code. San Leon aims to conduct its business in an open, honest and ethical
manner. The Board is accountable to shareholders for good corporate governance
and has adopted the procedures set out below in this regard. Further details
of the QCA Code and how the Company applies the principles are set out in Part
6 of this Document.
The Company has agreed with Midwestern that it will seek to identify and
appoint an additional independent non-executive director in the 12 months
following the publication of this Document. Aside from this, the Board does
not expect for the Proposals to have a material impact on the Company's
corporate governance and the Proposals are not expected to result in future
changes in the Board and the Composition of its committees. Midwestern has the
right to appoint a director to the Board under the Relationship Agreement.
Details of the Relationship Agreement between Midwestern, Allenby Capital and
the Company which is designed to ensure that the Group's business shall be
managed for the benefit of the Shareholders as a whole and independently from
Midwestern can be found in section 15 of this Part 1 and paragraph 10.2 of
Part 12 of this Document.
13. Dividend policy
Dividend Policy
The Directors may consider the payment of dividends (or other methods of
returning funds to Shareholders in a tax efficient manner) in the future when,
in their view, the Company has sufficient distributable profits after taking
into account the working capital needs of and investment opportunities
available to the Enlarged Group. Ultimately, on that basis, the Board intends
that, once the Company's conditional obligations pursuant to the Preference
Shares have been discharged and following the commencement of payment of
dividends, 50% of free cash flows would be returned to shareholders by way of
dividends.
As a result of the Proposed Midwestern Reorganisation and the associated
positive cash inflows anticipated from the increased initial indirect economic
interest in OML 18, immediately prior to Re-Admission, the Company will,
subject to shareholder approval at the EGM, issue the Preference Shares to
Shareholders on the Company's register of members immediately prior to
Re-Admission as part of the Subdivision. The Preference Shares will entitle
the holders to receive the Preference Amount which is US$40,000,000 in
aggregate and which shall on the date falling forty-two months after the date
of issue of the Preference Shares and semi-annually thereafter, be increased
by the Shortfall Amount. The Shortfall Amount is 5% of the amount by which the
aggregate of all dividends paid to the holders of the Preference Shares is
less than the Preference Amount immediately prior to such six-month interval.
The payment by the Company of any dividends, including the Preference Amount
and the Shortfall Amount, is subject to the availability of distributable
reserves and the declaration of a dividend by the Directors and as such there
is no certainty that a dividend will be declared.
14. Share Schemes
The Company currently has two existing Share Schemes in place, being: (i) a
share based payment scheme for executives and senior employees of the Group in
place prior to 31 December 2012 (the "share based payment scheme"); and (ii) a
formal unapproved share option plan (the "formal option plan") adopted during
the first quarter of 2013. The formal option plan replaced the share based
payment scheme and since its date of adoption, has governed all awards of
share options made by the Company.
In addition, the Company has also adopted a new discretionary share plan
called the San Leon Energy Long Term Incentive Plan (the "LTIP") and a plan
for making awards to certain consultants to the Company (the "Consultant
Plan"). Awards under the LTIP and the Consultant Plan may be satisfied by new
Ordinary Shares, Ordinary Shares purchased in the market or by the transfer of
Ordinary Shares held in treasury.
Further details of the Company's incentive arrangements and proposed awards to
be granted pursuant to the LTIP on or around the date of this Document are set
out in paragraph 6.2 of Part 12 of this Document.
15. Relationship Agreement
Midwestern will hold 403,633,865 New Ordinary Shares on Re-Admission and
477,416,400 New Ordinary Shares upon completion of the ELI Reorganisation
Shares Admission, representing approximately 50.82% of the Initially Enlarged
Ordinary Share Capital and 55.0% of the Fully Enlarged Ordinary Share Capital
respectively based on the shares in issue at the date of this Document.
Midwestern has entered into the Relationship Agreement with Allenby Capital
and the Company pursuant to which it, amongst other things, undertakes to the
Company and Allenby Capital that from the date of this Document and for so
long as Midwestern, individually or together with the members of Midwestern
and its group, is interested in more than 10% of the voting rights in the
Company, it shall exercise its voting rights to procure and, in the case of
other members of Midwestern's group, holding voting rights in the Company, use
reasonable endeavours to procure, that the Group's business shall be managed
for the benefit of the Shareholders as a whole and independently from
Midwestern and members of the Midwestern's group and that all transactions and
arrangements between: (i) the Company and (ii) Midwestern and the members of
Midwestern's group will be at arm's length and on normal commercial terms.
Midwestern has also provided further undertakings as to the composition of the
Board, ensuring certain reserved matters are considered solely by Directors
independent of Midwestern. For so long as Midwestern, individually or together
with the members of Midwestern's group, is interested in more than 10% of the
voting rights in the Company, it shall be entitled under the Relationship
Agreement to nominate one non-executive Director to the Board. In addition,
the Company has agreed with Midwestern that it will seek to identify and
appoint an additional independent non- executive director in the 12 months
following publication of this Document.
Whilst at the date of this Document Funds managed by Toscafund Asset
Management LLP own
72.62 per cent. of the Existing Share Capital, there is not currently a
relationship agreement with Toscafund. Following completion of the Midwestern
Reorganisation it is expected that Funds managed by Toscafund Asset Management
LLP will own 37.64 per cent. of the issued share capital of the Company and it
is not proposed that a relationship agreement will be put in place with
Toscafund or any funds managed by them.
Further details on the Relationship Agreement are set out in paragraph 10.2 of
Part 12 of this Document.
16. Lock In Arrangements
The Locked-in Persons, being Midwestern and the Directors, have undertaken to
the Company and Allenby Capital, that they will not sell or dispose of, except
in certain limited circumstances permitted under Rule 7 of the AIM Rules for
Companies, any of their respective interests in the New Ordinary Shares and
Preference Shares, including any acquired after Re-Admission, at any time from
the date of publication of this Document until the first anniversary of
Re-Admission or, if sooner termination of the MLPL Reorganisation. In
addition, Midwestern and the Directors have further undertaken that they will
be subject to orderly market arrangements during the following twelve months
after the initial one-year lock-in period.
Midwestern entered into two all-assets debentures with GTB dated 29 July 2013 (the "2013 GTB Debenture"), and 31 December 2019 (the "2019 GTB Debenture") (together the "GTB Debentures"). Under the 2013 GTB Debenture, Midwestern has charged, by way of way of first charge, all of Midwestern's undertaking and property (both present and future), such that a fixed charge is created on all of Midwestern's undertaking, goodwill, properties and assets (present and future), and in particular, "all stocks, shares and other securities now, or in the future belonging to Midwestern together with all dividends and other". Under the 2019 GTB Debenture, Midwestern has charged, among other charges, by way of fixed charge, among other items, all present and future shares, or rights or assets relating to such shares owned by Midwestern in its Subsidiaries (as defined under section 338 of the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria, 2004). As such, Midwestern's shares in the Company are subject to the GTB Debentures and enforcement of such debentures will not be subject to the lock-in. Any receiver appointed under the GTB Debentures has broad powers, including the power to sell and or/dispose of any secured assets.
Enforcement by GTB of the GTB Debentures and subsequent sales of Midwestern's
shares in the Company could potentially have a material adverse effect on the
share price of the Company, as Midwestern's holding in the Company upon
Re-Admission will represent a very substantial amount of the Company's New
Ordinary Shares.
Further details of the lock-in and orderly market arrangements are set out in
paragraph 10.1 of Part 12 of this Document.
17. Takeovers UK Takeover Code
The Company is incorporated in Ireland and the place of central management and
control of the Company is located outside of the UK, the Channel Islands and
the Isle of Man. Accordingly, as the Company is one to which paragraph
3(a)(ii) of the introduction to the UK City Code applies, the Directors
believe that the Company is not subject to the UK City Code and Shareholders
will not be afforded any protections under the UK City Code.
If circumstances change, including if changes to the Board are made, the
Company will consult with the UK Takeover Panel to ascertain whether this will
affect the central place of management of the Company. If the UK Takeover
Panel determines that, as a result of such changes, the place of central
management of the Company is located in the UK, the Channel Islands or the
Isle of Man such that the UK City Code then becomes applicable to the Company,
an announcement will be made.
Irish Takeover Rules
The Company is subject to the Irish Takeover Rules and Shareholders are
therefore afforded protections under the Irish Takeover Rules. A summary of
these Irish Takeover Rules relating to mandatory bids is set out in paragraph
16 of Part 12 of this Document.
Waiver of the obligations to make a general offer under Rule 9 of the Irish Takeover Rules in respect of the MLPL Reorganisation and the ELI Reorganisation
Midwestern will participate in the MLPL Reorganisation and the ELI
Reorganisation (together the Proposed Midwestern Reorganisation). Following
the completion of the Proposed Midwestern Reorganisation, the maximum
shareholdings of Midwestern and the Toscafund Managed Funds and their proposed
maximum voting rights in the Initially Enlarged Ordinary Share Capital and the
Fully Enlarged Ordinary Share Capital will be as set out in table 7 below.
Table 7: maximum shareholdings of Midwestern and the Toscafund Managed Funds and their proposed maximum voting rights in the Initially Enlarged Ordinary Share Capital
and the Fully Enlarged Ordinary Share Capital
Item Current shareholding Shareholding Shareholding (being New Ordinary Shares)
(being Ordinary Shares) (being New Ordinary Shares) in the enlarged San Leon
in the enlarged San Leon share capital following
share capital following the MLPL Reorganisation
the MLPL Reorganisation and the ELI Reorganisation
assuming Midwestern is
issued its full entitlement
1.Total number of ordinary shares in issue in San Leon
449,913,026 794,247,283 868,029,818
2. Shareholding of Midwestern in San Leon - number of MLPL
New Shares issued
N/A 344,334,257 N/A
3.Shareholding of Midwestern in San Leon - number of ELI
New Shares issued
N/A N/A 73,782,535
4.Shareholding of Midwestern in San Leon - total number of New Ordinary Shares
held
59,299,608 403,633,865 477,416,400
5.Shareholding of Midwestern in San Leon - percentage of total issued ordinary
shares
13.18 %
50.82% 55.00%
6.Shareholding of the Toscafund Managed Funds in San Leon - total number of
ordinary shares held by the Toscafund Managed Funds
326,736,082 326,736,082 326,736,082
7.Shareholding of the Toscafund Managed Funds in San Leon - percentage of
total issued ordinary shares
72.62% 41.14% 37.64%
Note: the percentages in this table in each case exclude the Preference Shares
and assume that no options or other convertible securities are exercised prior
to allotment of the MLPL New Shares and the ELI New Shares.
The allotment of shares pursuant to the MLPL Reorganisation and the ELI
Reorganisation give rise to certain considerations under the Irish Takeover
Rules. Brief details of the Irish Takeover Rules and some of the protections
that they afford to Shareholders are described below.
The Irish Takeover Rules are administered by the Irish Takeover Panel. The
Irish Takeover Rules operate to ensure fair and equal treatment of
shareholders in relation to takeovers and other relevant transactions, and
also provide an orderly framework within which takeovers are conducted. The
Irish Takeover Rules apply to all takeovers and certain other transactions,
where the offeree company is, among others, an AIM-listed public limited
company incorporated in Ireland. San Leon is such a company and accordingly
its Shareholders are entitled to the protections afforded by the Irish
Takeover Rules.
For the purposes of the Irish Takeover Rules, a person or group of persons
acting in concert "controls" a relevant company that is subject to the Irish
Takeover Rules, such as San Leon where that person or group of persons acting
in concert acquires securities of the company that confer in aggregate not
less than 30 per cent, of the voting rights of that company. Under Rule 9.1 of
the Irish Takeover Rules, except with the consent of the Irish Takeover Panel,
if:
(a) any person, or any persons acting in concert, acquire control of
a relevant company that is subject to the Irish Takeover Rules, such as San
Leon; or
(b) any person, or any persons acting in concert, who control a
relevant company such as the Company acquire within any period of 12 months
additional securities of such an amount as will increase by more than 0.05 per
cent. the aggregate percentage of the voting rights in that company conferred
by the securities held by it or them,
such person or, in the case of persons acting in concert, such one or more of
those persons as the Irish Takeover Panel shall direct shall extend an offer,
in accordance with the requirements of the Irish Takeover Rules, to the
holders of each class of equity share capital of the relevant company, whether
or not such class confers voting rights, and also to the holders of each other
class of transferable voting securities of the company. This is subject to the
caveat that a single holder of securities who holds securities which confer
more than 50 per cent. of the voting rights in a relevant company may acquire
additional securities of that company without incurring an obligation under
Rule 9.1. Any such offers made by the offeror for different classes of share
capital of the relevant company shall be comparable.
Except with the consent of the Irish Takeover Panel and subject as otherwise
provided by Rule 9.4 of the Irish Takeover Rules, an offer made under Rule 9
shall in respect of each class of shares the subject of the offer be in cash,
or be accompanied by a cash alternative offer, at a price per share which
shall not be less than the highest value of the price per share paid by the
offeror or any person acting in concert with it for shares of the offeree of
that class during the period beginning 12 months prior to the announcement by
the offeror of a firm intention to make that offer and ending on the date on
which the offer closes for acceptance.
As set out in table 7 above, on the allotment of the MLPL New Shares, since
the percentage of the total Initially Enlarged Ordinary Share Capital held by
Midwestern would be not less than 30 per cent., this would oblige Midwestern
to make a mandatory offer pursuant to Rule 9 of the Irish Takeover Rules for
the remaining issued ordinary share capital of the Company not held by
Midwestern unless a waiver of such obligation were to be granted by the Irish
Takeover Panel.
Following the allotment of the MLPL New Shares on the basis set out above,
Midwestern will hold securities in the Company conferring in the aggregate
50.82 per cent. of the voting rights in the Company. As a result, Midwestern
by virtue of being a single holder of more than 50 per cent. of the voting
rights in the Company, will then be permitted under the Irish Takeover Rules
to increase its holding of securities in the Company without incurring any
obligation to make an offer under Rule 9 of the Irish Takeover Rules.
Waiver of Rule 9 obligation
The conditional waiver granted by the Irish Takeover Panel on the terms set
out in this Document of any obligation of Midwestern that may arise pursuant
to Rule 9 of the Irish Takeover Rules to make an offer for the remaining
ordinary shares and Preference Shares in the Company not already owned by
Midwestern as a result of the allotment of the MLPL New Shares to Midwestern
is referred to as the "Rule 9 Waiver".
Under Note 1 of the Notes on Possible Waivers of and Derogations from Rule 9
contained in the Irish Takeover Rules, the Irish Takeover Panel may, in
certain circumstances, waive the requirement for a general offer to be made in
accordance with Rule 9 of the Irish Takeover Rules (a "Rule 9 Offer") if,
inter alia, those shareholders who are independent of the person who would
otherwise be required to make such an offer (in this case, Midwestern) and of
any person acting in concert with that person (the "Independent
Shareholder(s)") pass an ordinary resolution on a poll at a general meeting of
the shareholders of the Company approving such a waiver (the "Rule 9 Waiver
Resolution").
Pursuant to a letter dated 29 March 2022 from the Irish Takeover Panel to
Whitney Moore LLP, the Irish Takeover Panel stated that having regard to the
very specific and exceptional circumstances of this case, it decided to grant
a waiver of Rule 9 in respect of any mandatory offer obligation which may be
acquired by Midwestern as a result of the New Ordinary Shares in the Company
being issued to it pursuant to the Proposed Midwestern Reorganisation subject
to:
(i) the Toscafund Managed Funds holding securities in the Company
conferring 50 per cent. or more of the voting rights of the Company which
would be capable of being cast on a Rule 9 Waiver Resolution confirming in
writing to the Irish Takeover Panel that they approve of the Rule 9 Waiver and
would vote in favour of any resolution to that effect at a general meeting of
the Company. In this regard, Toscafund has provided a confirmatory letter to
the Irish Takeover Panel setting this out (see below);
(ii) appropriate text being included in the Company's Re-Admission
document, to be approved in advance by the Irish Takeover Panel, setting out
the Irish Takeover Panel's decision, the basis for it and the confirmations
provided to the Irish Takeover Panel by Toscafund; and
(iii) Midwestern providing the Irish Takeover Panel with confirmation
that there are no disqualifying transactions as referred to in note 3 on the
Whitewash Guidance Note of the Irish Takeover Rules. Midwestern has provided
such a confirmation to the Irish Takeover Panel.
In deciding to grant the waiver, the Irish Takeover Panel noted inter aliathat
the Company Shareholders will be required to approve the Proposed Midwestern
Reorganisation at the EGM and will be provided in that regard with a
Re-Admission document (being this Document) containing all of the relevant
information in relation to the transactions.
Confirmations
Toscafund, on behalf of the Toscafund Managed Funds (being the holders holding
more than 50 per cent. of the Company's shares capable of being voted on a
resolution to approve a Rule 9 Waiver Resolution (the "Independent Shares"))
has confirmed the following to the Irish Takeover Panel:
1. the Toscafund Managed Funds are the beneficial owner of
326,736,082 Ordinary Shares in the issued share capital of the Company,
representing at the date hereof 72.62 per cent. of the voting rights in the
Company and has absolute discretion over the manner in which the related
shares are voted and voting rights are exercised. These shares are held free
of all liens, pledges, charges and encumbrances;
2. that: (a) there is no connection between the Toscafund Managed
Funds and Midwestern; and (b) the Toscafund Managed Funds are an Independent
Shareholder of the Company, as defined above; and
3. that, in connection with the Proposed Midwestern
Reorganisation:
a. the Toscafund Managed Funds consent to the Irish Takeover Panel
granting a waiver from the obligation for Midwestern to make a Rule 9 Offer to
the shareholders of the Company;
b. the Toscafund Managed Funds, being the Independent Shareholder
holding more than 50 per cent. of the voting rights capable of being exercised
on a Rule 9 Waiver Resolution to approve the waiver from the obligation for
Midwestern to make a Rule 9 Offer, have consented to the Irish Takeover Panel
dispensing with the requirement that the waiver
a.
from such obligation be conditional on a Rule 9 Waiver Resolution being
approved by a vote of Independent Shareholders of the Company at a general
meeting; and
c. the Toscafund Managed Funds would vote in favour of a Rule 9
Waiver Resolution to waive the obligation for Midwestern to make a Rule 9
Offer were one to be put to the Independent Shareholders of the Company at a
general meeting.
In giving the confirmations referred to above, Toscafund acknowledges:
1. that, as a result of the Tosca Managed Funds (being the
Independent Shareholder holding more than 50% of the voting rights capable of
being exercised on a Rule 9 Waiver Resolution) giving such confirmations, the
Irish Takeover Panel would grant a waiver from the obligation for Midwestern
to make a Rule 9 Offer without the requirement for the waiver to be approved
by Toscafund Managed Funds as the Independent Shareholder at a general meeting
of the shareholders of the Company; and
2. that if no Rule 9 Waiver Resolution is included in the
resolutions at the EGM to be held in connection with the Proposed Midwestern
Reorganisation, there would be no requirement for the Company either (i) to
obtain and make known to its shareholders competent independent advice under
Rule 3 of the Irish Takeover Rules on the Proposed Midwestern Reorganisation
and the waiver of the obligation for Midwestern to make a Rule 9 Offer; or
(ii) to publish a circular to shareholders of the Company in compliance with
the Whitewash Guidance Note in connection with that matter (albeit that a
shareholder circular and re-admission document would be required to be
published pursuant to the AIM Rules).
On the basis that the confirmations from Toscafund and Midwestern referred to above have been provided to the Irish Takeover Panel, all of the conditions attaching to the granting of the Rule 9 Waiver in respect of any obligation on Midwestern to make a general offer under Rule 9 as a result of the New Ordinary Shares in the Company to be issued to it pursuant to the Proposed Midwestern Reorganisation have now been satisfied.
18. Related party transactions under the AIM Rules
Midwestern is a related party of the Company for the purposes of the AIM Rules
for Companies 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 MLPL Reorganisation, and the ELI Reorganisation, are therefore
related party transactions under the AIM Rules for Companies. 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, that
the terms of the MLPL Reorganisation, and the ELI Reorganisation are fair and
reasonable insofar as the Company's shareholders are concerned.
Following publication of this Document, the Company proposes to grant awards
pursuant to the LTIP over 18,938,209 Ordinary Shares (representing 2.18 per
cent. of the Fully Enlarged Ordinary Share Capital) to certain of its
employees and the Board, details of which are set out in paragraph 6.2.16 of
Part 12 of this Document. The issuance of these awards to the Directors will
be considered to be a related party transaction under Rule 13 of the AIM Rules
for Companies and the Company will announce further details in relation to
this separately in due course once the issuance of these awards has occurred.
19. Taxation
General information relating to Irish and UK taxation with regards to
Re-Admission is summarised in Part 10 of this Document.
This Document has been prepared on the basis of current legislation, rules and
practice and the advisers' interpretation thereof. Such interpretation may not
be correct and it is always possible that legislation, rules and practice may
change. Any changes in legislation and in particular any changes to bases of
taxation, tax relief and rates of tax may affect the availability of reliefs.
A Shareholder who is in any doubt as to their personal tax position, or is subject to tax in a jurisdiction other than the UK or Ireland, should consult their own independent financial advisers immediately.
20. Nigeria country, regulatory and legislative environment
Summary information on Nigeria and its regulatory and legislative framework
for the oil and gas market is set out in Part 5 of this Document.
21. Re-Admission to AIM and dealings
The MLPL Reorganisation, the ELI Reorganisation and the Further ELI
Investments constitute a 'reverse takeover' under the AIM Rules for Companies
and are therefore dependent upon the approval of Shareholders being given at
the EGM, details of which are set out below.
Resolutions will be proposed at the EGM to approve the Proposals. If the
Resolutions are duly passed at the EGM, then upon Re-Admission, the admission
of the Company's Existing Ordinary Shares to trading on AIM will be cancelled
(immediately prior to Re-Admission) and the Initially Enlarged Ordinary Share
Capital will be admitted to trading on AIM. For uncertificated holders,
Euroclear Bank accounts, will be credited (as applicable) with New Ordinary
Shares and Preference Shares on the day of Re-Admission. For certificated
holders only, dispatch of share certificates for New Ordinary Shares and
Preference Shares should occur no later than 14 days following Re-Admission.
On Re-Admission, share certificates in respect of the Existing Ordinary Shares
will cease to be valid and they should be destroyed on receipt of the
appropriate share certificate representing the New Ordinary Shares. Transfers
between the date on which the Subdivision becomes effective and the date on
which share certificates in respect of the New Ordinary Shares are sent out
will be certified against the register if required. No temporary or
renounceable documents of title in respect of any of the New Ordinary Shares
will be issued. It is anticipated that the Company will publish a
Supplementary Admission Document ahead of Re-Admission. Re-Admission will
constitute the admission of the enlarged entity pursuant to Rule 6 and Rule 14
of the AIM Rules for Companies and will effect the completion of the reverse
takeover.
Application will be made by the Company for the Initially Enlarged Ordinary
Share Capital to be admitted to trading on AIM and it is anticipated,
following the requisite shareholder and NUPRC's Approval, Ministerial Consent,
NFCCPC Negative Clearance and the satisfaction of the other conditions
precedent of MLPL Reorganisation as set out in Part 2 of this Document that
Re-Admission will become effective and that trading in the Initially Enlarged
Ordinary Share Capital on AIM will commence in Q4 2022. It is anticipated that
the Further ELI Investments will be completed in Q3 2022.
However, if the MLPL Reorganisation is not completed, the Existing Ordinary Shares will continue to be traded on AIM, and the Subdivision will not occur and the New Ordinary Shares will not be issued or admitted to trading on AIM. San Leon would retain a 40% equity interest in MLPL with Midwestern continuing to own the remaining interest in MLPL. The outstanding MLPL Loan Notes would be payable by MLPL (or by Midwestern as guarantor of the MLPL Loan Notes) to San Leon within 90 days of termination of the MLPL Reorganisation Agreement. If the Eroton OML 18 Transactions are not completed, Eroton would retain a 27% effective economic interest in the OML 18 licence, Sahara and Bilton would retain effective economic interests in the OML 18 licence of 16.2% and 1.8% respectively and the Eroton Litigation as set out in paragraph 3.4 of Part 2 of this Document would continue.
Working Capital effect
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:
(i) the proposed reorganisation to consolidate Midwestern's
shareholdings in: i) the Company; and
ii) MLPL into a single shareholding in the Company completes in the second
half of 2022. The Proposed Transaction also comprises, inter alia, a proposed
consolidation of Midwestern's indirect debt and equity interests in ELI Malta
with those of the Company, as well as further new debt and new and existing
equity investments to be made by San Leon pursuant to the Further ELI
Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to finance the
Proposed Transaction;
(iv) elimination of the MLPL Loan Notes on completion of the Proposed
Transaction;
(v) under the Asset Management Agreement with Eroton, San Leon
receives $500,000 per month for technical and financial advisory services
following completion of the Proposed Transaction;
(vi) repayments from ELI of loan notes of US$37.6 million during 2022
and 2023;
(vii) repayment from Eroton under the Master Services Agreement of $3m
during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in relation to
its Oza investment pursuant to current discussions.
Due to the Proposed Transaction not having completed at the date of this
Document there is an inherent material uncertainty that completion will not
occur as anticipated.
The Group has modelled various other scenarios assuming the Proposed
Transaction does not complete and given the Group's well understood cost base,
the principal uncertainty if the Proposed Transaction does not complete
relates to the quantum and timing of receipt of interest and capital
repayments on the MLPL Loan, 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 Loan Notes and
ELI loan notes have both been credit impaired in the annual report and
accounts of the Company for the year ended 31 December 2021.
In the ultimate downside scenario where no repayments are received from MLPL
and ELI, the New Facility can be drawn by the Company 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.
The Risks for the Company in the event that the MLPL Reorganisation is not completed are set out in paragraph 5.1 of Part 4 of this Document.
22. Further details of the Preference Shares and the Deferred Shares
Preference Shares
In addition to the payment of the Preference Amount of US$40,000,000 and any
Shortfall Amount as detailed in paragraph 11.4 of Part 4 of this Document, the
Preference Shares confer the following rights on their holders and have the
following attributes:
(a) the right to the payment of the preference dividend in priority
to the payment of dividends or on a winding up of the Company right to the
payment of the preference dividend before the repayment of capital to the
holders of any other class or classes of shares in the Company;
(b) they may be freely transferred;
(c) they confer no right to attend, speak or vote at any general
meeting of the Company;
(d) they will not be listed or traded on any stock exchange or other
trading facility; and
(e) on the payment in full of the Preference Amount and any
Shortfall Amount, each Preference Share will automatically convert into one
Deferred Share.
Where title to Ordinary Shares is currently held in certificated (i.e. paper)
form, the title to the Preference Shares resulting from the Subdivision can
continue to be held in certificated form and paper certificates will be issued
to the holders. It is expected that the Preference Shares will be issued to
Euroclear Nominees and that the Preference Shares will be held in the
Euroclear System for underlying holders and, where such holders are not EB
Participants, as CDIs via the CREST System in the same manner as New Ordinary
Shares. The Preference Shares may be withdrawn from the Euroclear System and
holders may be entered on the register of members of the Company. Holders may
be issued with a share certificate, in which event transfer and settlement of
the Preference Shares will take place via the Company registrars by physical
delivery of paper share transfers and certificates, which may mean a delay in
effecting transfer and settlement when compared to settlement via the
Euroclear System or CREST System.
It is emphasised that there is no intention to seek a listing or admission to trading on AIM or any other stock exchange for the Preference Shares.
Deferred Shares
Following the payment of the Preference Amount, the Preference Shares will
convert into Deferred Shares. The rights attached to the Deferred Shares are
very limited in nature and they have virtually no economic or participation
rights in the Company. The most significant attributes of the Deferred Shares
are as follows:
(a) no right to participate in the profits of the Company either by
the payment of dividend or any return of capital save that it can participate
in a return of capital only after the holder of every New Ordinary Share has
received the sum of €10,000,000 on each such share;
(b) confer no right to attend, speak or vote at any general meeting
of the Company;
(c) will not be listed or traded on any stock exchange or other
trading facility;
(d) save for transmission on death or bankruptcy and save for
transfer from Euroclear may not be freely transferred;
(e) no share certificates shall be issued in respect of Deferred
Shares; and
(f) may be redeemed by the Company for an aggregate redemption price
of €1 in respect of all the Deferred Shares in issue in the Company or may
be acquired by the Company or surrendered for nil consideration.
It is emphasised that there is no intention to seek a listing or admission to
trading on AIM or any other stock exchange for the Deferred Shares.
New Memorandum and Articles of Association
A copy of the New Memorandum and Articles of Association in the form proposed
to be amended by Resolution 4 (marked to highlight the proposed changes) is
available and (will be so available until the conclusion of the EGM) on the
Company's website www.sanleonenergy.com/ (http://www.sanleonenergy.com/) and
at its registered office at 2 Shelbourne Buildings, Crampton Avenue, Dublin 4
D04 W3V6, Ireland and will also be available at the EGM for at least fifteen
minutes before, and for the duration of, the EGM. With a view to being
responsible and cautious in the light of the ongoing risk of COVID and also
with a view to prioritising the health and safety of our Shareholders and
employees, Shareholders are requested not to attend at the address above to
inspect the New Memorandum and Articles of Association but instead to inspect
them on the Company's website.
23. Euroclear Bank & Euroclear System, CREST & CREST Depository Interests
23.1 New Ordinary Shares and Preference Shares
(a) Electronic settlement of transactions in the New Ordinary Shares
or Preference Shares of the Company following Re-Admission may take place
within the Euroclear System or the CREST System. While trades may be settled
in the Euroclear System or the CREST System, holders who wish to withdraw
their shares from the Euroclear System and become registered as holders and
(in the case of the Ordinary Shares, for so long as required by law before
implementation in Ireland of the provisions of CSDR relating to
dematerialisation of traded shares) retain share certificates will be able to
do so.
(b) Under the Euroclear System, instead of holding an ordinary share
or a Preference Share a holder has a co-ownership right to a corresponding
interest in a pool of the ordinary shares or as the case may be, Preference
Shares which are registered in the name of Euroclear Nominees and admitted in
the Euroclear System. The holder's interest in such pool of ordinary shares is
governed and regulated by Belgian law and is, accordingly referred to as the
Belgian Law Rights. Further details of Belgian Law Rights are set out in
paragraph 2 of Part 11 and in the EB Rights of Participants Document.
Alternatively, a holder may hold their Belgian Law Rights through a CREST
Depository Interest (or CDI), as set out in paragraph 3 of Part 11. Settlement
of such trades takes place in the CREST System through a CDI representing the
Belgian Law Rights.
(c) Persons who hold their interests in ordinary shares as Belgian
Law Rights under the Euroclear System or as CDIs under the CREST System,
should consult with their stockbroker or other intermediary at the earliest
opportunity for further information on the processes and timelines for
submitting proxy votes for the EGM through the respective systems. For voting
services offered by custodians holding Irish corporate securities directly
with Euroclear Bank, please contact your custodian.
(d) As the Preference Shares do not confer any voting rights on their
holders, persons who hold their interests in Preference Shares as Belgian Law
Rights under the Euroclear System or as CDIs under the CREST System will not
have any ability to use the processes and mechanisms of such systems to
exercise voting rights.
(e) It is emphasised that no application will be made of the
Preference Shares to trading on AIM or any other stock exchange.
24. Valuation Report
The consideration being provided by Midwestern to San Leon in subscribing
pursuant to the MLPL New Shares Subscription for the MLPL New Shares is the
MLPL Reorganisation Loan Notes being a loan note to be issued by Midwestern in
favour of San Leon in an amount equal to the value of Midwestern's 60% equity
interest in MLPL and the benefit of a US$239.9 million receivable owed to
Midwestern by MLPL to be transferred to San Leon Energy Nigeria. To the extent
that such consideration may be deemed to be non-cash consideration under the
Irish Companies Act 2014 San Leon has commissioned BDO LLP to produce a
valuation report (the "MLPL Valuation Report") which will be required to be
sent to Midwestern, before issuing the MLPL New Shares to Midwestern. Under
section 1028 of the Irish Companies Act 2014 the MLPL Valuation Report must be
made by an independent person, being a person qualified at the time of the
report to be appointed or to continue to be the statutory auditor of San Leon.
The Irish Companies Act 2014 sets out the contents of the MLPL Valuation
Report regarding the MLPL New Shares, which are:
(a) the nominal value and the amount of any premium payable on the
shares;
(b) the description of the consideration and, as respects the
consideration that the independent person itself has valued, a description of
that part of the consideration, the method used to value it and the date of
the valuation; and
(c) the extent to which the nominal value and any premium are to be
treated as paid up by the consideration and in cash.
The MLPL Valuation Report will contain a note by the independent person:
(a) in the case of a valuation made by another person, that it
appeared to the independent person reasonable to arrange for it to be so made,
or to accept a valuation so made;
(b) irrespective of whether the valuation has been by that person or
the independent person, that the method of valuation was reasonable in all the
circumstances;
(c) that it appears to the independent person that there has been no
material change in the value of the consideration in question since the
valuation; and
(d) that on the basis of the valuation the value of the
consideration, together with any cash by which the nominal value of the shares
or any premium payable on them is to be paid up, is not less than so much of
the aggregate of the nominal value and the whole of any such premium as is
treated as paid up by the consideration and any such cash.
A copy of the MLPL Valuation Report will be obtained by San Leon during the
six months immediately preceding the date of the allotment of the MLPL New
Shares and a copy of the MLPL Valuation Report has to be sent to Midwestern
before the MLPL New Shares are issued. San Leon will deliver a copy of the
MLPL Valuation Report to the Registrar of Companies in Ireland at the same
time that it delivers to the Registrar particulars of the allotments of those
shares being within 30 days after the date of allotment.
The consideration to be provided by Midwestern in subscribing pursuant to the
ELI New Shares Subscription Agreement for the ELI New Shares is the ELI
Reorganisation Loan Notes, being a loan note issued by Midwestern in favour of
San Leon in an amount equal to the value of 13.77% of the entire issued share
capital of ELI Malta and the loan receivable of US$15,300,000 from ELI Malta
to be transferred to San Leon ELI. To the extent that such consideration may
be deemed to be non-cash consideration under the Irish Companies Act 2014 San
Leon has as a precaution commissioned BDO to produce a valuation report (the
"ELI Valuation Report") which will be required to be sent to Midwestern,
before issuing the ELI New Shares to Midwestern. As with the MLPL Valuation
Report, the ELI Valuation Report must be made by an independent person, being
a person qualified at the time of the report to be appointed or to continue to
be the statutory auditor of San Leon. The contents and the arrangements
regarding the delivery to Midwestern and the Registrar of Companies of the ELI
Valuation Report will be similar to those set out above in relation to the
MLPL Valuation Report.
The number of shares to be subscribed for by Midwestern as part of the MLPL
Reorganisation has been agreed and fixed between Midwestern and the Company
and is not subject to adjustment by reference to the market price of the
Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed, under the Irish
Companies Act 2014, the market price of the New Ordinary Shares on the date of
allotment of the MLPL New Shares must be not greater than the value per share
to be recorded in the MLPL Valuation Report. Similarly, in order for the ELI
Reorganisation to proceed, the MLPL Reorganisation must complete and the
market price of the New Ordinary Shares on the date of allotment of the ELI
New Shares must be not greater than the value per share to be recorded in the
ELI Valuation Report.
It should be noted that in the event that the value of the consideration to be
received by San Leon in consideration of the allotment of (i) the MLPL New
Shares on the date of allotment is lower than the nominal value of the MLPL
New Shares which will be EUR0.005 per share, the MLPL New Shares will not be
allotted and the MLPL Reorganisation will not complete and/or (ii)
the ELI New Shares on the date of allotment is lower than the nominal value of
the ELI New Shares which will be EUR0.005 per share, the ELI New Shares will
not be allotted and the ELI Reorganisation will not complete. This is because
under the Irish Company Act 2014 the amount of the consideration to be
received by the Company in consideration of the allotment of the shares must
exceed the nominal value of the shares.
25. Further information
This Document should be read in its entirety. Your particular attention is
drawn to:
• This Part 1, which includes background to the Proposals and
a summary of the Enlarged Group's assets;
• Part 2 of this Document which contains further information
on the Midwestern Reorganisation;
• Part 3 of this Document which contains further information
on the Further ELI Investments
• Part 4 of this Document which contains risk factors relating
to: (i) the Company; (ii) the oil and gas markets; (iii) OML 18 and Nigeria;
and Re-Admission;
• Part 5 of this Document, which contains country information
focusing on Nigeria's regulatory and legislative framework for the oil and gas
market;
• Part 6 of this Document which contains details of the Board
and the Group's corporate governance arrangements;
• Part 7 of this Document, which contains a CPR in respect of
OML 18;
• Part 8A of this Document, which contains financial
information on the Company (incorporated by reference);
• Part 8B of this Document, which contains financial
information on MLPL;
• Part 8C of this Document, which contains financial
information on ELI;
• Part 9 of this Document, which contains an 'Unaudited pro
forma net asset statement' illustrating the effect of the Proposals and the
New Facility on the net assets of the Group as if the Proposals and New
Facility had been completed on 31 December 2021;
• Part 10 of this Document, which contains a summary of Irish
and UK taxation;
• Part 11 of this Document, which includes information
regarding the settlement of the New Ordinary Shares, the Euroclear System and
CREST System;
• Part 12 of this Document, which includes additional
information on the Company and the Enlarged Group; and
• Part 13 of this Document, which contains the Notice of EGM.
26. Extraordinary General Meeting
Set out in Part 13 of this Document is a notice convening an EGM to be held at
the Herbert Park Hotel, Ballsbridge, Dublin 4, D04 R2T2, Ireland at 11:30 am
on 5 August 2022. A summary and explanation of the Resolutions is set out
below. Please note that the summary and explanation is not the full text of
the Resolutions and Shareholders should review the full text of the
Resolutions before deciding whether or not to approve them.
At the EGM of the Company to be held on 5 August 2022, authority will be
sought from Shareholders,
inter alia, to:
(i) approve the MLPL Reorganisation and ELI Reorganisation;
(ii) approve the Further ELI Investments;
(i)
(iii) sub-divide each issued Existing Ordinary Share into one New
Ordinary Share and one Preference Share;
(iv) sub-divide each of the 224,956,513 unissued Existing Ordinary
Shares into two Deferred Shares;
(v) sub-divide each of the 2,172,536,486 unissued Existing Ordinary
Shares into two New Ordinary Shares;
(vi) grant authority for the directors to allot New Ordinary Shares
(including the New Shares); and
(vii) grant authority to waive statutory pre-emption rights in respect
of, inter alia, the MLPL New Shares and the ELI New Shares.
A summary of the resolutions proposed at the EGM is as follows:
Resolution 1 - Ordinary Resolution
MLPL Reorganisation and the ELI Reorganisation
Under the AIM Rules for Companies, the MLPL Reorganisation, the ELI
Reorganisation and the Further ELI Investments constitute a reverse takeover.
An ordinary resolution will therefore be proposed in order to:
(i) authorise the proposed completion of the transfer to the
Company of 60% of the shares in MLPL and the transfer to the Company of
Midwestern's interest in ELI and to approve such transfers as
reverse-takeovers in accordance with the requirements of Rule 14 of the AIM
Rules for Companies. This will enable the Company to obtain a 44.1% initial
indirect economic interest in the OML 18 block, onshore Nigeria and a 27.093%
interest in ELI; and
Further ELI Investments
(ii) authorise the proposed completion of the Further ELI
Investments by the Company in ELI and to approve the Further ELI Investments
as a reverse-takeover in accordance with the requirements of Rule 14 of the
AIM Rules for Companies. This will enable the Company to obtain an interest of
up to 50.64% in ELI and San Leon becoming a significant holder of loans to
ELI.
Resolution 2 - Special Resolution
Approval of the subdivision and creation of the Preference Shares
A special resolution will be proposed to result in the subdivision of the
449,913,026 Existing Ordinary Shares in issue in the Company into one New
Ordinary Share and creation of one Preference Share, to subdivide each of the
224,956,513 of the unissued Existing Ordinary Shares in the Company into two
Deferred Shares, and to subdivide each of the 2,172,536,486 being the balance
of the unissued Existing Ordinary Shares in the Company into two New Ordinary
Shares, in each case subject to the rights set out in the New Memorandum and
Articles of Association.
This will result in each holder of one Existing Ordinary Share immediately
prior to the Subdivision holding one New Ordinary Share and one Preference
Share.
Resolution 3 - Special Resolution
Amendment of Share Capital Clause in the Memorandum and Articles of Association
A special resolution will be proposed to amend the capital clauses in the
Existing Memorandum and Articles of Association to provide for the share
capital to be divided into New Ordinary Shares, Preference Shares and Deferred
Shares.
Resolution 4 - Special Resolution
Adoption of New Memorandum and Articles of Association
A special resolution will be proposed that the New Memorandum and Articles of
Association in the form produced to the EGM and which have been available for
inspection at the registered office of the Company and on the Company's
website since the date of the Notice of EGM, be adopted in substitution for
the Existing Memorandum and Articles of Association of the Company. The New
Memorandum and Articles of Association will contain the rights attaching to
the Preference Shares and
the Deferred Shares as set out in paragraph 22 of this Part 1 above and the
changes to the share capital as described in Resolution 2 above.
Resolution 5 - Ordinary Resolution
Authority for the Directors to allot New Ordinary Shares.
An ordinary resolution will be proposed so as to give the Directors authority,
pursuant to section 1021 of the Irish Companies Act 2014, in place of the
existing authority granted at the AGM in 2021, to exercise all the powers of
the Company to: (i) allot the New Shares (ii) allot up to an additional amount
of €1,446,571.68 being 33% of the issued ordinary share capital of the
Company as increased by the allotment of the MLPL New Shares and the ELI New
Shares. This authority will commence immediately prior to Re-Admission on and
shall expire at the conclusion of the AGM of the Company in 2023 or, if
earlier, the date which is fifteen months from the date of the passing of this
resolution.
Resolution 6 - Special Resolution
Disapplication of statutory pre-emption rights.
A special resolution will be proposed to give the Directors power at their
discretion, in place of the existing powers granted at the AGM in 2021,
without applying statutory pre-emption rights for shareholders (i) to allot
equity securities by way of a rights issue, open offer or otherwise in favour
of ordinary shareholders and/or any persons having a right to subscribe for or
convert securities into ordinary shares in the capital of the Company
(including, without limitation, any person entitled to options under any of
the Company's shares option schemes for the time being); and (ii) to allot the
MLPL New Shares and ELI New Shares and (iii) to allot equity securities with
an aggregate nominal value of an amount up to €434,014.91 being
approximately 10% of the issued ordinary share capital of the Company
following the issue of the MLPL New Shares. The power will have effect
immediately prior to Re-Admission and will expire at the conclusion of the AGM
of the Company in 2023, or if earlier, the date which is fifteen months from
the date of passing of this resolution.
27. Action to be taken
All Shareholders on the register at the requisite time will be eligible to
vote on all the Resolutions. The full text of the Resolutions is set out in
the Notice of EGM in Part 13 of this Document.
Attendance at the EGM
The Company expects to be able to welcome shareholders to attend the EGM in
person. In the event that it becomes necessary or appropriate to make
alternative arrangements for the holding of the EGM, or it is not possible to
hold the EGM either in compliance with public health guidelines or applicable
law or where it is otherwise considered that proceeding with the EGM as
planned poses an unacceptable health and safety risk, the EGM may be adjourned
or postponed or relocated to a different time and/or venue, we will ensure
that shareholders are given as much notice as possible via RNS announcement
and the Company's website: www.sanleonenergy.com.
(http://www.sanleonenergy.com/) Should you choose not to physically attend the
EGM, we encourage Shareholders to avail of the proxy voting service to ensure
they can vote on the Resolutions proposed at the EGM and be represented at the
EGM. By submitting a proxy as soon as possible, you can ensure that your vote
on the Resolutions is cast in accordance with your wishes without attending in
person.
Voting by proxy
Should we need to change the arrangements for the holding of the EGM in this
way, it is possible that we will not be in a position to accommodate
shareholders beyond the minimum required to hold a quorate meeting. In light
of this uncertainty, we strongly encourage shareholders to submit a proxy vote
in advance of the EGM and to appoint the Chair of the EGM as their proxy,
rather than a named person who, if circumstances change, may not be permitted
to attend and vote at the EGM because of public health guidance. The process
for appointing a proxy and/or voting in connection with the Resolutions to be
proposed at the EGM depends on the manner in which you hold your shares.
Further details are set out in the notes to the Notice of EGM.
Please note that persons holding their interests in the Company through the
Euroclear Bank or CREST (CDI) systems must comply with any earlier or other
voting submission deadline imposed by those systems. Further information in
this respect is provided on page 2 of this Document and in the notes to the
Notice of EGM.
28. Recommendation
The Directors consider that the completion of the MLPL Reorganisation, the ELI
Reorganisation and the Further ELI Investments and Resolutions 1 to 6 are in
the best interests of the Company and the Shareholders as a whole.
Accordingly, the Directors unanimously recommend that you vote in favour of
Resolutions 1 to 6, as those Directors who own Existing Ordinary Shares have
irrevocably undertaken to do in respect of their entire beneficial holdings of
9,495,864 Existing Ordinary Shares (representing approximately 2.11% of the
issued ordinary share capital of the Company as at the date of this Document).
In addition, Midwestern has given an irrevocable undertaking to the Company to
vote in favour of Resolutions 1 to 6 to be proposed at the EGM in respect of
their holdings totalling, in aggregate 59,299,608 Existing Ordinary Shares,
representing approximately 13.18% of the Existing Share Capital as at the date
of this Document. Details of the irrevocable undertakings are set out in
paragraph 10.3 of Part 12 of this Document.
In total, therefore, the Company has received irrevocable undertakings to vote
in favour of Resolutions 1 to 6 to be proposed at the EGM in respect of
holdings totalling, in aggregate, 68,795,472 Existing Ordinary Shares,
representing 15.29% of the Existing Share Capital as at the date of this
Document.
Yours faithfully,
Mutiu Sunmonu
Non-Executive Chairman
PART 2
THE PROPOSED MIDWESTERN REORGANISATION
1. Introduction
The Proposed Midwestern Reorganisation is conditional on the completion of the
Eroton OML 18 Transactions and includes the MLPL Reorganisation, the ELI
Reorganisation and the entry into certain associated documentation. The
Midwestern Reorganisation will result in San Leon owning on completion a 44.1%
initial indirect economic interest in OML 18 with the remaining 55% interest
being held by NNPC and 0.9% by Bilton. The ELI Reorganisation will result in
San Leon owning on completion a 27.1% interest in ELI which is the owner of
the ACOES to be utilised by OML18 and San Leon becoming a significant holder
of loans to ELI.
2. Current Structure
The following structure chart shows the respective holdings of San Leon and
Midwestern in ELI and MLPL as at the date of this Document:
3. The Eroton OML 18 Transactions
3.1 Overview of the Eroton OML 18 Transactions
Eroton, the operator of the OML 18 licence, currently holds a 27% effective
economic interest in the OML 18 licence. Eroton has conditionally agreed, or
will conditionally agree, to acquire additional interests through the Sahara
OML 18 Transaction and the Bilton OML 18 Transaction resulting in the
acquisition of their effective economic interests in OML 18 of 16.2% and 1.8%
respectively. The MLPL Reorganisation and the ELI Reorganisation are
conditional, inter alia, upon completion of the Eroton OML 18 Transactions.
In order to fund the Sahara OML 18 Transaction and Bilton OML 18 Transaction,
Eroton proposes to enter into the New Eroton Debt Facilities which represent
senior secured reserve- based lending facilities totalling US$750,000,000 to
be provided to Eroton by a lending consortium led by Afreximbank for the
purposes of, inter alia: (i) facilitating the Eroton OML 18 Transactions; and
(ii) the repayment of Eroton's existing financing. The details of the credit
committee approved term sheet associated with the New Eroton Debt Facilities
from the lead lender, Afreximbank is set out in paragraph 3.2.5 below. The New
Eroton Debt Facilities are conditional, amongst other things, upon definitive
documentation in respect of the facility and associated security package being
entered into. Subject to completion of the New Eroton Debt Facilities, the New
Eroton Debt Facilities will replace the Existing Eroton Debt Facility, which
will be repaid in full and GTB's security in connection with the Existing
Eroton Debt Facility will be discharged.
The Sahara OML 18 Acquisition Agreement has been negotiated but has not been
executed at this point and is only expected to be executed once Eroton has
funds available to it to satisfy the consideration under the New Eroton Debt
Facilities. Accordingly, whilst the terms have been negotiated, there can be
no certainty that it will be entered into or the terms on which it will be
entered into.
Whilst the Bilton OML 18 Acquisition Agreement has been executed, it is also
conditional upon the Sahara OML 18 Acquisition Agreement being entered into
completing following the New Eroton Debt Facilities proceeding. Accordingly as
there can be no certainty that the Sahara OML 18 Acquisition Agreement will be
entered into or the terms on which it will be entered into and there is no
certainty that this condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be and the Bilton
OML 18 Acquisition Agreement is subject to certain conditions before
completion can occur, details of the key conditions are summarised in
paragraphs 3.3.1 and 3.3.2 below. In particular, the Sahara OML 18 Acquisition
Agreement, if executed will be, and the Bilton OML 18 Acquisition Agreement is
conditional on the entry into the Settlement Agreement associated with certain
litigation between Eroton, Bilton and Sahara. Further details of the
Settlement Agreement and the associated litigation are included in paragraphs
3.3.3 and
3.4 below.
It is emphasised that the MLPL Reorganisation is conditional, amongst other
things, on the entry into and the utilisation of the New Eroton Debt
Facilities and the Eroton OML 18 Transactions completing. Whilst the terms
of the New Eroton Debt Facilities have been approved by the lead lender,
Afreximbank, the Sahara OML 18 Acquisition Agreement has been negotiated it is
not expected to be entered into until after the New Eroton Debt Facilities
have been entered into and the funds are available and the Bilton OML 18
Acquisition Agreement has been executed, subject to certain conditions, they
are dependent on, inter alia, the New Eroton Debt Facilities being entered
into and becoming unconditional and being drawn down. Furthermore, the New
Eroton Debt Facilities have not been entered into and once entered into will
be subject to additional conditions to drawdown which will have to be
satisfied prior to utilisation of the facilities and for completion of the
Sahara OML 18 Transaction and the Bilton OML 18 Transaction. These matters are
not under the Company's control. Accordingly, there is no certainty that the
New Eroton Debt Facilities will be entered into or that the Eroton OML 18
Transactions will proceed or that they will proceed on the currently proposed
terms. Only once the Eroton OML 18 Transactions complete and the other
conditions to the MLPL Reorganisation have been satisfied will the Company be
able to proceed with the MLPL Reorganisation and Re-Admission. There can
therefore be no guarantee that the MLPL Reorganisation and Re-Admission will
occur.
A summary of the key risks relating to the Eroton OML 18 Transactions and
associated financing are set out in paragraph 2 of Part 4 of this Document.
The number of shares in the Company to be subscribed for by Midwestern as part
of the MLPL Reorganisation has been agreed and fixed between Midwestern and
the Company and is not subject to adjustment by reference to the market price
of the Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed the market price
of the New Ordinary Shares on the date of allotment of the MLPL New Shares
must be not greater than the value per share shown recorded in the MLPL
Valuation Report.
The Board are of the view that the Eroton OML 18 Transactions and New Eroton
Debt Facilities are important for several reasons, including:
(i) the Eroton OML 18 Transactions underpin the valuation and
rationale of the MLPL Reorganisation by delivering, indirectly, to San Leon a
far greater interest in OML 18 than is currently held by Eroton;
(ii) the Sahara OML 18 Transaction resolves a series of disputes that
have arisen between Eroton and its OML 18 joint venture partner, Sahara.
Several of these disputes have developed into the Eroton Litigation, although
none are currently being actively pursued, and all legal actions between
Eroton and Sahara will be extinguished as part of the Sahara OML 18
Transaction via the Settlement Agreement, thereby enabling Eroton to focus on
the commercial development of OML 18 as a world class oil and gas field; and
(iii) the New Eroton Debt Facilities are a condition to and are
necessary to fund the Eroton OML 18 Transactions and also enable the Existing
Eroton Debt Facility to be refinanced.
If the New Eroton Debt Facilities are not entered into or once entered into
does not complete or the conditions to drawdown are not satisfied and/or the
Eroton OML 18 Transactions do not complete then the MLPL Reorganisation cannot
complete. The New Eroton Debt Facilities and the Eroton OML 18 Transactions
are not in the Company's control and even if shareholders approve the
Resolutions, they may not occur. In any of these cases then San Leon would
retain a 40% equity interest in MLPL with Midwestern continuing to own the
remaining interest in MLPL and Eroton would retain a 27% economic interest in
OML 18, meaning that San Leon would continue to have a 10.58% initial indirect
economic interest in OML 18. The outstanding MLPL Loan Notes would become
payable by MLPL (or by Midwestern as guarantor to the MLPL Loan Notes) to San
Leon within 90 days of termination of the MLPL Reorganisation Agreement.
The New Eroton Debt Facilities and the Eroton OML 18 Transactions are also
important to the future financial condition of Eroton, and given the Company's
significant focus on OML 18 and its operator Eroton, the failure of the New
Eroton Debt Facilities and the Sahara OML 18 Transaction to complete, could
have a material and adverse effect on Eroton, with a consequent adverse effect
on Company's business, financial condition and results.
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:
(i) the Proposed Transaction completes in the second half of 2022.
The Proposed Transaction also comprises, inter alia, a proposed consolidation
of Midwestern's indirect debt and equity interests in ELI Malta with those of
the Company, as well as further new debt and new and existing equity
investments to be made by San Leon pursuant to the Further ELI Investments;
(ii) 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;
(iii) the New Facility of $50 million has been secured to finance the
Proposed Transaction;
(iv) elimination of the MLPL Loan Notes on completion of the Proposed
Transaction;
(i)
(v) under the Asset Management Agreement with Eroton, San Leon
receives $500,000 per month for technical and financial advisory services
following completion of the Potential Transaction;
(vi) repayments from ELI of loan notes of US$37.6 million during 2022
and 2023;
(vii) repayment from Eroton under the Master Services Agreement, of $3m
during 2022; and
(viii) a further loan of $2.5 million is given to Decklar in relation to its
Oza investment pursuant to current discussions.
Due to the Proposed Transaction not having completed at the date of this
Document there is an inherent material uncertainty that completion will not
occur as anticipated.
The Group has modelled various other scenarios assuming the Proposed
Transaction does not complete and given the Group's well understood cost base,
the principal uncertainty if the Proposed Transaction does not complete
relates to the quantum and timing of receipt of interest and capital
repayments on the MLPL Loan, 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 Loan Notes and
ELI loan notes have both been credit impaired in the annual report and
accounts of the Company for the year ended 31 December 2021.
In the ultimate downside scenario where no repayments are received from MLPL
and ELI, the New Facility can be drawn by the Company 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.
3.2 Ownership of OML 18 following completion of the Eroton OML 18
Transactions
Following the completion of the Eroton OML 18 Transactions, the ownership of
OML 18 (including any indirect economic interests) will be as follows:
Bilton's initial indirect economic interest in OML 18 through Eroton is,
however, subject to increase on the following hurdles being met:
(i) from the date of repayment of the original purchase price*
plus accrued interest accrued thereon until 20 million barrels of gross OML 18
production is realised, Bilton's economic interest in Eroton will increase
from 2% to 10%, which would result in a commensurate decrease in San Leon's
economic interest in OML 18 to 40.5%; and
(ii) thereafter, when subsequent production hurdles are met,
Bilton's net economic interest in Eroton will increase incrementally until
cumulative gross OML 18 production reaches 40 million barrels, at which point
San Leon's economic interest in OML 18 would be 22.5% as Bilton and San Leon's
economic interests in Eroton shall reflect their shareholdings (50% and 50%
respectively).
* Being the price of US$1.1 billion paid for the 45% interest in OML 18.
Upon Bilton's initial indirect economic interest in OML 18 through Eroton
increasing, the Company's indirect economic interest in OML18 through Eroton
will decrease.
Further details of OML 18 are set out in the Competent Persons report in Part
7 of this Document.
3.3 Material contracts in relation to the Eroton OML 18 Transactions
3.3.1 Sahara OML 18 Acquisition Agreement
Whilst it has been negotiated but not executed, the terms of a proposed
acquisition agreement proposed to be entered into between Sahara Field
Production 18 Limited ("SFP") and Sahara Charitable Foundation ("SCF")
(together, the "Sellers") and Eroton pursuant to which Eroton will purchase
the entire issued share capital of OML 18 Energy Resource Limited ("OML 18
ER") have been negotiated as between the parties. The consideration will be
US$485,000,000, comprising a cash consideration of US$410,000,000 and a
funding advance of US$75,000,000, lent by Sahara Field Production Limited to
Eroton, pursuant to part of the New Eroton Debt Facilities in order to finance
the transaction contemplated by the Sahara OML 18 Acquisition Agreement. The
Sahara OML 18 Acquisition Agreement has been negotiated but has not been
executed at this point and is not expected to be executed until after the New
Eroton Debt Facilities have been agreed and entered into.
The acquisition of OML 18 ER by Eroton is expected to be subject to a number
of conditions (the "Sahara OML 18 Conditions") including, amongst others:
(i) the release of GTB's security over the shares which are
subject to (a) a deed of share charge dated 29 November 2019 between OML 18 ER
(as the Borrower), SFP (as Shareholder) and GTB (as Security Trustee); and (b)
a deed of share charge dated 29 November 2019 between OML (as the Borrower),
SCF (as Shareholder) and GTB (as Security Trustee);
(ii) the execution of the Settlement Agreement in the negotiated
form, in full and final settlement of the litigation detailed in paragraph 3.3
below and the associated filing of the notice of withdrawal and court-approved
settlement of the lawsuits in the relevant courts; and
(iii) the written consent of the Minister (the "Minister's Consent")
or any other person or entity for the time being responsible for Petroleum
and/or related substances in the Federal Republic of Nigeria to the
transactions which are contemplated under the Sahara OML 18 Acquisition
Agreement (the "Minister's Consent Condition").
Eroton shall be responsible for paying all costs and other expenses in respect
of obtaining the Minister's Consent. If the Minister's Consent Condition has
not been satisfied on or before 5:00pm on the date falling nine months from
the execution of the Sahara OML 18 Acquisition Agreement (the "Sahara OML 18
Long Stop Date"), Eroton may extend the Long Stop Date for up to 90 Business
Days (the "Sahara OML 18 Extended Long Stop Date").
Under the terms of the Sahara OML 18 Acquisition Agreement, the Sellers
respectively agree (in the period up to completion) to procure that from
execution of the Sahara OML 18 Acquisition Agreement OML 18 ER does not
undertake any acts which is outside the ordinary course of business other than
where Eroton has consent to such acts in writing, and that certain material
actions in relation to the business of Eroton are not undertaken without the
consent of Eroton.
Under the terms of the Sahara OML 18 Acquisition Agreement, the Sellers will
provide certain warranties and indemnities to Eroton and Eroton has given
certain warranties to the Sellers. The warranties will be given at signing of
the Sahara OML 18 Acquisition Agreement and will be repeated on completion.
The warranties will be subject to matters disclosed in the disclosure letter
which is to be exchanged between the Sellers and Eroton or otherwise disclosed
during the conduct of the due diligence exercise by Eroton.
The warranties and indemnities are subject to certain limitations including
the aggregate total liability of the Sellers being limited to and shall not
exceed an amount equal to 100% of the consideration under the Sahara OML 18
Acquisition Agreement. The Sellers will not be liable for any claim under a
warranty or indemnity given by them under the Sahara OML 18 Acquisition
Agreement unless they receive from Eroton written notice in respect of a claim
for breach of either (i) the tax warranties or before the date falling on the
sixth anniversary of the completion date, or in respect of either of; (ii) the
fundamental warranties; or (iii) the general warranties, on or before the date
falling on the sixth anniversary of the completion date.
The Sahara OML 18 Acquisition Agreement once entered into may be terminated
with immediate effect if (i) the Minister's Consent Condition has not been
satisfied by 5:00 pm
on the Sahara OML 18 Long Stop Date (if this has not been extended); or (ii)
the Sahara OML 18 Conditions remain unfulfilled by 5:00 pm on the Sahara OML
18 Extended Long Stop Date, by notifying the other party of termination as a
result of the non-satisfaction of a Condition within the stipulated timeline.
Either party can terminate if the completion arrangements have not been
complied with in all material respects. The meaning of material for the
purposes of the termination provisions is set out in the Sahara OML 18
Acquisition Agreement.
The Sahara OML 18 Acquisition Agreement will be governed by English law.
The Sahara OML 18 Acquisition Agreement has been negotiated but has not been
executed at this point and is only expected to be executed once Eroton has
funds available to it to satisfy the consideration which will require the New
Eroton Debt Facilities to be entered into and the conditions precedent to draw
down to have been satisfied. Accordingly, whilst the terms have been
negotiated, there can be no certainty that they will be entered into or the
terms on which they will be entered into. There can therefore be no guarantee
that the Sahara OML 18 Acquisition Agreement will be entered into.
In the event that the Eroton OML 18 Transactions do not occur, Eroton may be
in breach of the Existing Eroton Debt Facility (details of which are set out
in paragraph 10.23.14 of Part 12 of this Document) which was proposed to be
remedied through the refinancing of such facilities through the New Eroton
Debt Facilities.
In the event that repayment of the Existing Eroton Debt Facility is
accelerated then, in the absence of alternative facilities, GTB would be
entitled to effect any of its default remedies under the Existing Eroton Debt
Facility, including the enforcement of its security.
In addition, in the event that the Eroton OML 18 Transactions do not occur,
the Eroton Litigation is likely to continue (details of which is set out in
paragraph 3.4 of this Part 2) and further details of the risks around the
Eroton Litigation are set out in paragraphs 2.2 - 2.3 of Part 4 of this
Document.
If the Eroton OML 18 Transactions are not completed and the benefits to the
Company expected to result from these transactions are not achieved this could
result in the enforcement of security by GTB and ultimately Eroton being wound
up either as part of the Eroton litigation or as a result of such default. Any
of these circumstance could result in a material adverse effect on the
Company's business, operations, financial performance and cash flow and future
prospects and the market price of the Ordinary Shares may be affected.
3.3.2 Bilton OML 18 Acquisition Agreement
An acquisition agreement has been entered into between Bilton and Bilton
Nominees Limited (together, the "Sellers") and Eroton pursuant to which Eroton
will purchase the entire issued share capital of Bilton OML 18 Limited
("Bilton OML 18"). The consideration is US$12.5 million.
The acquisition of Bilton OML 18 is subject to a number of conditions (the
"Bilton OML 18 Conditions") including, amongst others:
(i) the execution of the Sahara OML 18 Acquisition Agreement in
the agreed form;
(ii) the release of GTB's security over the shares which are subject
to an undated deed of share charge between Eroton (as the Borrower), and GTB
(as Security Trustee);
(ii) the execution of the Settlement Agreement in the agreed form,
in full and final settlement of the litigation detailed in paragraph 3.3.3
below and the associated filing of the notice of withdrawal and court-approved
settlement of the lawsuits in the relevant courts; and
(iii) the written consent of the Minister (the "Minister's Consent")
or any other person or entity for the time being responsible for Petroleum
and/or related substances in the Federal Republic of Nigeria to the
transactions which are contemplated under the Bilton OML 18 Acquisition
Agreement (the "Minister's Consent Condition").
Eroton shall be responsible for paying all costs and other expenses in respect
of obtaining the Minister's Consent. If the Minister's Consent Condition has
not been satisfied on or before 5:00pm on the date falling nine months from
the execution of the Bilton OML 18 Acquisition Agreement (the "Bilton OML 18
Long Stop Date"), Eroton may extent the Long Stop Date with up to 90 Business
Days (the "Bilton OML 18 Extended Long Stop Date").
The Sellers have respectively agreed (in the period up to completion) to
procure that Bilton OML 18 does not undertake any acts which is outside the
ordinary course of business other than where Eroton has consent to such acts
in writing, and that certain material actions in relation to the business of
Eroton is not undertaken without the consent of Eroton.
Under the terms of the Bilton OML 18 Acquisition Agreement, the Sellers have
provided certain warranties and indemnities to Eroton and Eroton has given
certain warranties to the Sellers. The warranties have been given at signing
of the Bilton OML 18 Acquisition Agreement and will be repeated on completion.
The warranties will be subject to matters disclosed in the disclosure letter
which is to be exchanged between the Sellers and Eroton or otherwise disclosed
during the conduct of the due diligence exercise by Eroton.
The warranties and indemnities are subject to certain limitations including
the aggregate total liability of the Sellers being limited to and shall not
exceed an amount equal to 100% of the consideration under the Bilton OML 18
Acquisition Agreement.
The Sellers will not be liable for any claim under a warranty or indemnity
given by them under the Bilton OML 18 Acquisition Agreement unless they
receive from Eroton written notice in respect of a claim for breach of either
(i) the tax warranties or before the date falling on the sixth anniversary of
the completion date, or in respect of either of; (ii) the fundamental
warranties; or (iii) the general warranties, on or before the date falling on
the sixth anniversary of the completion date.
The Bilton OML 18 Acquisition Agreement may be terminated with immediate
effect if (i) the Minister's Consent Condition has not been satisfied by 5:00
pm on the Bilton OML 18 Long Stop Date (if this has not been extended); or
(ii) the Bilton OML 18 Conditions remain unfulfilled by 5:00 pm on the Bilton
OML 18 Extended Long Stop Date, by notifying the other party of termination as
a result of the non-satisfaction of a Condition within the stipulated
timeline. Either party can terminate if the completion arrangements have not
been complied with in all material respects.
The Bilton OML 18 Acquisition Agreement will be governed by Nigerian law.
The Bilton OML 18 Acquisition Agreement has been entered into, subject to
conditions, but dependent on the Sahara OML 18 Acquisition Agreement being
entered into and the conditions under the Sahara OML 18 Acquisition Agreement
being satisfied. It is therefore also conditional upon the New Eroton Debt
Facilities being executed and whilst there is a credit committee approved term
sheet for these facilities from the lead lender, Afreximbank, these facilities
are at an early stage and there can be no certainty that they will be entered
into or the terms on which they will be entered into and the Company cannot
control their execution. Furthermore, once the New Eroton Debt Facilities are
entered into there will be additional conditions to drawdown which will have
to be satisfied prior to utilisation of the facilities and for completion of
the Sahara OML 18 Transaction (if entered into), and the Bilton OML 18
Transaction. Only once the Eroton OML 18 transactions complete and the other
conditions to the MLPL Reorganisation have been satisfied will the Company be
able to proceed with the MLPL Reorganisation and Re-Admission. There can
therefore be no guarantee that the MLPL Reorganisation and Re-Admission will
occur. In the event that the Eroton OML 18 Transactions do not occur, Eroton
may be in breach of the Existing Eroton Debt Facility (details of which are
set out in paragraph 10.23.14 of Part 12 of this Document) which was proposed
to be remedied through the refinancing of such facilities through the New
Eroton Debt Facilities.
In the event that repayment of the Existing Eroton Debt Facility is
accelerated then, in the absence of alternative facilities, GTB would be
entitled to effect any of its default remedies under the Existing Eroton Debt
Facility, including the enforcement of its security.
In addition, in the event that the Eroton OML 18 Transactions do not occur,
the Eroton Litigation is likely to continue (details of which is set out in
paragraph 3.4 of this Part 2 and further details of the risks around the
Eroton Litigation are set out in paragraphs 2.2 - 2.3 of Part 4 of this
Document.
If the Proposals are not completed and the benefits to the Company expected to
result from the Proposals are not achieved this could result in the
enforcement of security by GTB and ultimately Eroton being wound up either as
part of the Eroton litigation or as a result of such default. Any of these
circumstance could result in a material adverse effect on the Company's
business, operations, financial performance and cash flow and future prospects
and the market price of the Ordinary Shares may be affected.
3.3.3 Settlement Agreement
Whilst it has not been executed, the terms of a proposed settlement agreement
to be entered into between Sahara, Eroton, Bilton, Notore Chemical and Bilton
OML 18 Limited (together, the "Settling Parties") pursuant to which the
Settling Parties shall settle, or shall procure the settlement of the Eroton
Litigation has been negotiated between the parties (the "Settlement
Agreement"). Under the negotiated terms, the Settling Parties will agree to
enter into the Settlement Agreement in connection with the Eroton OML 18
Transactions, and the Sahara OML 18 Acquisition Agreement in particular.
Under the negotiated terms, the Settling Parties will agree to settle all of
the Eroton Litigation in consideration for the acquisition by Eroton of the
shares held indirectly by SFP and SCF (as the sellers under the Sahara OML 18
Acquisition Agreement) and the payment of the consideration under the Sahara
OML 18 Acquisition Agreement by Eroton shall constitute the entire
consideration for the full and final settlement of the mutual claims and
counterclaims of Sahara comprised in the Eroton Litigation and any other
claims of Sahara relating to OML 18. The performance by Sahara of its
obligations under the Sahara OML 18 Acquisition Agreement shall constitute the
entire consideration for the full and final settlement of the mutual claims
and counterclaims of Eroton, Bilton and Bilton OML 18 Limited comprised in the
Eroton Litigation and any other claims of Eroton, Bilton and Bilton OML 18
Limited relating to OML 18.
The mutual release by the Settling Parties will require each of them to
relinquish, waive, release, and forever discharge each other and any of their
successors, assigns or any third parties seeking to claim on their behalf, in
respect of all claims and actions under or in connection with the Eroton
Litigation. The settlement terms agreed when the Settlement Agreement it
executed by the Settling Parties shall be irrevocable, and they shall each
execute official terms of settlement in respect of the actions forming part of
each relevant lawsuit comprised in the Eroton Litigation, for filing with the
Nigerian courts. Execution of the Settlement Agreement does not indicate an
admission of liability by any of the Settling Parties.
The Settlement Agreement will be governed by Nigerian law.
The Settlement Agreement has been negotiated but has not been executed at this point and is only expected to be executed once Eroton has funds available to it to satisfy the consideration and the Sahara OML 18 Acquisition Agreement is entered into which will require the definitive documents for the New Eroton Debt Facilities to be entered into and there will be additional conditions to drawdown to be satisfied prior to utilisation of the facilities. Accordingly, whilst the terms have been negotiated, there can be no certainty that the Settlement Agreement will be entered into or the terms on which they will be entered into. In the event that the Settlement Agreement is not entered into the Eroton Litigation is likely to continue and details of the Eroton Litigation is set out in paragraph 3.4 of this Part 2 and further details of the risks around the Eroton Litigation are set out in paragraphs 2.2 - 2.3 of Part 4 of this Document.
,
3.3.4 New Eroton Debt Facilities
A credit committee approved term sheet was approved by board of Afreximbank in
relation to a proposed facility from amongst others, Eroton, Afreximbank,
Midwestern, Nova Merchant Bank Limited and Sahara in respect of a loan
between, amongst others, Eroton, as borrower, Afreximbank and others,
including Midwestern as lenders (together the "Lenders"), Afreximbank as
mandated lead arranger, book runner, facilities agent, security agent and
hedge coordinating agent, and OML 18 Energy Resource Limited and Bilton OML 18
Limited (together with Eroton, the "Obligors") as guarantors.
The Lenders will loan Eroton US$750 million (secured) in tranches of (i)
US$500 million ("Tranche A") and (ii) US$250 million ("Tranche B"), ranking
pari passu and with an identical security package. The draw down date for the
loan was 30 June 2022 or by such date as Eroton and the Lenders agree. On 5
July 2022, Afreximbank confirmed to Eroton their approval of their commitment.
The purpose of the loan is (i) to be used as consideration for the acquisition
of OML 18 Energy Resource Limited and Bilton OML 18 Limited (the "SPVs") (ii)
to prepay Eroton's outstanding financial indebtedness (including the Existing
Eroton Debt Facilities); and (iii) pay fees and costs related to the
transaction noted at (i).
Security will be placed over (i) Eroton's existing and future participating
interest in OML 18 and any proceeds deriving from this; (ii) the shares in and
the assets of both Eroton and the SPVs; and (iii) as well as over the accounts
which the Obligors are required to open and maintain. Eroton has agreed not to
place security over any of its present or future assets without the prior
consent of the Lenders.
The interest rate payable will be LIBOR plus (i) 8.75% per year for Tranche A
and (ii) 8.25% for Tranche B, and will accrue every third calendar month,
except in the event of a default under the loan, in which case the interest
rate will increase by 2%. A one-off participation fee of 0.75% and yearly
management fee of 0.25% will be payable.
The indicative terms may be terminated by Afreximbank if the due diligence
process is unsatisfactory or if the information provided in respect of Eroton
is materially inaccurate or incomplete, or if there is a failure to disclose
any material facts or information. Eroton may terminate the indicative terms
at any time, subject to reimbursing Afreximbank for any costs and expenses
they have incurred.
It is intended that the loan will be repaid from proceeds received from
Eroton's working interest in OML 18, and other sources of cash available to
the Obligors. It will be repayable in quarterly instalments, with the first
payment becoming due six months after signing of the loan agreement. The final
maturity date will be the earlier of (i) the date falling 84 months from
signing of the loan agreement and (ii) the reserve tail date, as to be agreed
between the parties. Prepayment is permitted in minimum amounts of US$10
million or multiples thereof, and a 1.5% prepayment fee will apply on the
outstanding loan if the entire amount is prepaid.
The loan agreement is governed by English law and Nigerian law will govern
where relevant for the security documents.
It is emphasised that whilst a credit committee approved term sheet has been approved by board of Afreximbank, the loan agreement has not yet been entered into and, if entered into, there are additional conditions to drawdown which will have to be satisfied prior to utilisation of the facilities and for completion of the Sahara OML 18 Transaction and the Bilton OML 18 Transaction to proceed. A summary of the key risks relating to the Eroton OML 18 Transactions and associated financing are set out in paragraph 2 of Part 4 of this Document.
3.4 Sahara and Bilton Litigation
Pursuant to the Settlement Agreement summarised in paragraph 3.3.3 above, the
following disputes and claims will be settled:
3.4.1 Claims by Sahara
(a) Suit Number FHC/L/CS/976/2020 - OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) v. Eroton Exploration & Production Company Limited.
Sahara is the Plaintiff and Eroton is the Defendant and the claim is related
to the recovery of a disputed debt of US$72 million arising from outstanding
legacy issues regarding the acquisition of OML 18.
Sahara alleges that by an agreement dated 14 October 2019, Eroton had agreed
to pay the sum of US$80 million in consideration of Sahara's participating
interest and contribution towards the acquisition and operation of OML 18.
Sahara alleges that Eroton has only paid US$8 million in this regard. Sahara's
total claim is for the sum of US$72 million being the alleged total balance
due to Sahara from Eroton under the agreement.
By an ex-parte application Sahara sought and obtained an interim injunction
which has restrained Eroton from dealing with certain of its bank accounts
except for "Operating Costs". Eroton contends that any dispute arising from
the Settlement Agreement must be referred to arbitration as stipulated in the
Settlement Agreement. As a result, Eroton still has restrictions on its use of
the accounts subject to the injunction, however, it can only access the said
accounts for operational costs, which are essentially the only use of the
restricted accounts. Therefore the injunction has little or no effect on
Eroton's operations.
Proceedings in the suit have been suspended temporarily in deference to
ongoing commercial settlement discussion between Eroton and Sahara.
(b) Suit Number FHC/L/CS/977/2020 - OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) v. Eroton Exploration & Production Company Limited.
This is a petition by Sahara against Eroton. Sahara is seeking an order of the
FHC to wind up Eroton on the basis of Eroton's inability to liquidate the
outstanding debt due to it.
Sahara's case is that it is entitled to the principal sum of US$47,944,072
being its alleged share of the profit oil accruing from OML 18 during the
period from March 2015 and June, 2019, being the period when Eroton held 16.2%
participating interest in trust for Sahara. Eroton made an application to stay
proceedings in favour of arbitration in the FHC. The FHC declined Eroton's
application on the ground that matters of winding up proceedings are not
arbitrable in its ruling of 9 September 2020.
Eroton has appealed the ruling of the FHC to the CA. However, the appeal and
the proceedings at the Federal High Court are currently suspended in deference
to the ongoing commercial settlement discussions.
(c) Suit Number FHC/L/CS/1232/2020 - OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) v. Bilton OML 18 Limited & 2 others.
Sahara is the Plaintiff, Bilton OML 18 Limited is the first Defendant, Bilton
is the second Defendant and Eroton is the third Defendant. Sahara is seeking
judicial interpretation of certain provisions of a financial service agreement
("Financial Service Agreement") between it and Bilton and payment of
approximately US$45 million being the sum Sahara claims was expended by Sahara
on the Bilton entities' acquisition of 1.8% interest in Eroton's OML 18.
Eroton raised a jurisdictional objection based on Sahara's claim being based
on the Financial Service Agreement challenging the FHC's jurisdiction to hear
the claim. This challenge was refused by the FHC on 25 November 2020. Eroton
has appealed this decision to the CA via a Notice of Appeal dated 4 December
2020. The claim by Sahara is now adjourned pending the determination of the
appeal. However, the appeal is not being actively pursued at the moment
because of the ongoing settlement negotiations between Eroton and Sahara.
Sahara is seeking an order of the CA, upon the determination of the questions
in the affirmative, directing the Defendants jointly and severally to pay:
(i) the sum of US$44,936,976 being the alleged sum expended by
Sahara on the first and second Defendants' acquisition cost of 1.8% interest
from Eroton in OML 18, Sahara's share of available profit of 90% and
accumulated interest of 11%; and
(ii) interest on the said sum at the rate of 25% per annum from
1July 2020 until delivery of judgment and thereafter 10% per annum until
judgment sum is liquidated cost of the action assessed at N10,000,000 per
annum.
(d) Suit Number FHC/L/CS/1231/2020 - OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) v. Eroton Exploration & Production Company Limited and Notore Chemical Industries plc.
Sahara is the Plaintiff, while Eroton and Notore Chemical are both Defendants.
The Plaintiff alleges that by a farm out agreement dated 20 March 2020 ("Farm
Out Agreement"), it is entitled to 36% of all sums received by Eroton pursuant
to the JOA, Shell Offtake Agreement and Notore Offtake Agreement. It is the
case of the Plaintiff that Eroton sold gas to Notore Chemical and accordingly,
the Plaintiff is entitled to the agreed percentage of the proceeds of the sale
of gas.
The Plaintiff is seeking relief against the Defendants as follows:
(i) the sum of N1,071,041,876.27 being the alleged outstanding sum
due to the Plaintiff for gas sold under the Farm Out Agreement;
(ii) interest on the said sum at the rate of 25% per annum from 1
July 2020 until delivery of judgment and thereafter 10% per annum until
judgment sum is liquidated; and
(iii) cost of the action assessed at N10,000,000 per annum.
However, the parties have jointly informed the court that the matter is being
settled, and the matter has been adjourned for settlement.
3.4.2 Claims by Eroton
(a) Suit Number FHC/L/CS/1107/2020 - Eroton Exploration & Production Company Limited v. Guaranty Trust Bank plc and OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited).
Eroton claims that it is the agreement of parties that where there is dispute
arising from the performance of terms of the JOA acceded to by Sahara via a
deed of accession, the parties should refer such dispute to arbitration under
the arbitration laws of Nigeria. In this regard, Eroton commenced arbitration
proceedings against Sahara for failing to liquidate its share of cash calls
and costs/expenditure incurred on the joint operations of OML 18.
The instant suit is an application for preservative orders pending the
conclusion of the arbitration proceedings. Eroton commenced this action
through an originating summons seeking the determination of several questions
and declarations/order of the FHC. Eroton is seeking preservative orders of
the FHC, upon the determination of the questions in the affirmative,
restraining the Defendants from dealing with the assets or monies of the
Sahara pending the conclusion of the arbitration proceedings commenced by
Eroton against Sahara. As such, Eroton successfully obtained a Mareva
injunction against Sahara for sums owed to Eroton for Sahara's failure to make
payments to the OML 18 joint venture.
(b) Suit Number FHC/L/CS/1080/2020 - Eroton Exploration & Production Company Limited v. OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited).
This is a petition filed by Eroton against Sahara seeking an order of the FHC
to wind up Sahara on the basis of Sahara's inability to liquidate the
outstanding debt due to Eroton.
It is the case of Eroton that it expended several sums for itself and Sahara
in respect of the costs/expenditure incurred in the joint operations and cash
calls for OML 18. Sahara is obligated but has failed to reimburse Eroton for
Sahara's share in the joint operations and cash calls.
The total outstanding debt due to Eroton is US$72,111,096.72 being the sum
paid by Eroton in respect of Sahara's participating interest in OML 18. As
part of this claim Eroton also sought and obtained an Ex Parte injunction
restraining Sahara from utilizing its bank accounts.
However, the parties have jointly informed the court that the matter is being
settled, and the matter has been adjourned for settlement.
(c) Suit Number FHC/L/CS/1377/2020 - Bilton Energy Limited v. OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited).
Bilton is the Plaintiff and Sahara is the Defendant. This claim is not a
monetary claim, but is proceedings instituted by Bilton pursuant to Order 52
Rule 15(c) of the Federal High Court (Civil Procedure) Rules 2019, to stay
further proceedings in Suit No. FHC/L/CS/1232/2020 - Sahara Field Production
Limited v. Bilton OML 18 Limited, Bilton Energy Limited and Eroton Exploration
& Production Company Limited, on the basis that the suit was instituted in
breach of the arbitration agreement contained in Clause 8.2 of the financial
services agreement between Sahara and Bilton. Sahara is resisting this as it
claims that its claim is not based on contract but on fraud and
misrepresentation which cannot be settled and resolved by arbitration.
The suit has been heard but the court reserved its judgment until a later
date, in order to await the outcome of Eroton's appeal before the CA against
the Ruling of the Federal High Court delivered on 25 November 2020 in relation
to Suit No.: FHC/L/CS/1232/2020 as referred to above.
(d) Appeal Number CA/LAG/CV/104/2021 - Eroton Exploration & Production Company Limited v. OML 18 Energy Resource Limited (formerly known as Sahara Field Production Limited) & 2 others;
Eroton is the Appellant, Sahara is the first Respondent, Bilton OML 18 Limited
is the second Respondent and Bilton is the third Respondent.
This is an appeal against the ruling of the Federal High Court (the "Lower
Court") in FHC/L/CS/1232/2020 - Sahara Field Production Limited v. 1.) Bilton
OML18 Limited 2.) Bilton Energy Limited 3.) Eroton Exploration &
Production Company Limited. The appeal is to ascertain the jurisdiction of the
lower court (being the FHC) to hear the dispute.
Consequently, the Lower Court held that it has jurisdiction over the subject
matter of Sahara's claim as the claim before it was not one for breach of a
simple contract but pertained to oil mining (OML 18) and therefore within the
jurisdiction of the FHC. As such, Eroton filed a Notice of Appeal against this
ruling of the FHC. However, the appeal is not being actively pursued at the
moment because of the ongoing settlement discussions between Eroton and
Sahara.
4. MLPL Reorganisation
4.1 Overview
By virtue of the MLPL Reorganisation, Midwestern will subscribe for shares in
San Leon and San Leon will acquire from Midwestern the remaining 60% equity
interest in MLPL it does not currently own.
The MLPL Reorganisation will be conditional on, along with the other
conditions summarised in paragraph 4.3.5 below, the completion of the Eroton
OML 18 Transactions and will be implemented immediately prior to Re-Admission
by completion of the following steps:
• the issue of 344,334,257 New Ordinary Shares by San Leon to
Midwestern pursuant to the MLPL New Shares Subscription Agreement with such
subscription consideration being paid for by way of the MLPL Reorganisation
Loan Notes; and
• the transfer by Midwestern of its equity interest in MLPL
and the benefit of the MLPL Receivable to a member of the San Leon Group in
return for the cancellation of the MLPL Loan Notes and the release of
Midwestern from its guarantee in relation the MLPL Loan Notes.
Details of the MLPL New Shares Subscription Agreement and other material
documentation to be entered into in relation to the MLPL Reorganisation are
summarised in paragraphs 4.3 below.
4.2 Information about MLPL Loan Note payments and the Preference Shares
On completion of the OML 18 Production Arrangement in September 2016, the
Company received US$173.05 million of MLPL Loan Notes together with a 40%
shareholding in MLPL. The MLPL Loan Notes are also accompanied by interest
payments accruing at a fixed rate of 17% per annum on the outstanding
principal at the time. Midwestern is the guarantor of the MLPL Loan Notes.
Further details regarding the MLPL Loan Notes are set out in paragraph 4.3.2
below.
Following payment of just over US$190 million from the MLPL Loan Notes, on 7
April 2020, the Company announced, amongst other matters, that it had entered
into an agreement dated 6 April 2020 amending the MLPL Loan Note instrument.
Under the terms of this amendment, the remaining balance payable was
approximately US$82 million. A further US$10 million was to be paid to the
Company on or before 6 October 2020, with the balance of the MLPL Loan Notes
receivable payable by December 2021. The balance was to continue to accrue
interest at a coupon of 17% per annum until repaid. All other material terms
of the MLPL Loan Note Instrument remained unchanged.
Since July 2021, San Leon, MLPL, Midwestern and Martwestern have agreed to a
series of conditional payment waivers in respect of the repayment of the MLPL
Loan Notes and interest that was to fall due, as the amounts owed to San Leon
by MLPL pursuant to the MLPL Loan Notes will be eliminated as part of the MLPL
Reorganisation.
As at the Latest Practicable Date, the balance owed to San Leon is
approximately US$105.9 million, being a principal amount due of approximately
US$82.2 million and total accrued interest due of approximately US$23.7
million.
Following the MLPL Reorganisation, MLPL will be a wholly owned subsidiary of
the Company and so any MLPL Loan Note balances will be owed to San Leon by its
wholly owned subsidiary and Midwestern will be released from its guarantee. To
in part compensate San Leon shareholders, immediately prior to MLPL
Reorganisation and the issue of the New Shares, San Leon will sub-divide each
of its existing issued Ordinary Shares of €0.01 each into a New Ordinary
Share of €0.005 and a Preference Share of €0.005. The holders of the
Preference Shares will have a preferential right to receive the first US$40
million of any distributions or dividends (including payments to redeem such
shares or loan notes) paid by San Leon following completion of the MLPL
Reorganisation. Further information on the Preference Shares is set out at
paragraph 21 of Part 1 and paragraph 5.11 of Part 12 of this Document.
In the event that the Resolutions are not passed or the MLPL Reorganisation
Agreement is terminated, the balance owed to San Leon will be payable 90 days
after such termination, or sooner, inter alia, if there is an event of
default.
4.3 Material contracts in relation to the MLPL Reorganisation
In addition to the Relationship Agreement summarised at paragraph 15 of Part 1
of this Document and paragraph 10.2 of Part 12 of this Document, the following
contracts are material contracts in relation to MLPL Reorganisation.
4.3.1 MLPL New Shares Subscription Agreement
An agreement for the subscription in New Ordinary Shares of San Leon will be
entered into between Midwestern and San Leon pursuant to which Midwestern will
apply for the allotment of the MLPL New Shares for a price per share equal to
the value set out in the MLPL Valuation Report (the "Subscription Letter").
The subscription is subject to the satisfaction of the conditions outlined in
the MLPL Reorganisation Agreement, other than the condition relating to
Re-Admission.
The consideration for the allotment of the MLPL New Shares will be the MLPL
Reorganisation Loan Notes.
The Subscription Agreement will be governed by English law.
4.3.2 MLPL Reorganisation Loan Notes
A loan note will be issued by Midwestern to San Leon evidencing a money debt
owed by Midwestern to San Leon pursuant to the Subscription Letter (the "MLPL
Reorganisation Loan Notes"). Under the terms of the MLPL Reorganisation Loan
Notes, San Leon can redeem the notes in whole or in part at any time after
completion of the MLPL Reorganisation Agreement and Midwestern can prepay the
debt due under the MLPL Reorganisation Loan Notes at any time after completion
of the MLPL Reorganisation Agreement.
The MLPL Reorganisation Loan Notes will be unsecured and will not accrue
interest. San Leon can transfer the MLPL Reorganisation Loan Notes to any
member of its group without the consent of Midwestern.
The MLPL Reorganisation Loan Notes will be governed by English law.
4.3.3. Notice of Assignment
A notice to transfer and assign the MLPL Reorganisation Loan Notes addressed
to Midwestern from San Leon, notifying Midwestern of the transfer of San
Leon's present and future rights, title, interest and benefit in, under and to
the MLPL Reorganisation Loan Notes to San Leon Energy Nigeria, pursuant to the
terms of the MLPL Reorganisation Loan Notes ("MLPL Assignment").
The MLPL Assignment will be governed by English law.
4.3.4 Asset Management Agreement
San Leon Energy Nigeria and Eroton have agreed to enter into the Asset
Management Agreement with effect from signing but with the fees payable under
the agreement payable from the date of Re-Admission. Under the agreement,
Eroton (as owner of a 27 per cent interest in OML 18) has agreed to appoint
San Leon Energy Nigeria as manager in relation to OML 18, for the purpose of
providing certain advisory services. San Leon Energy Nigeria will have
operational and technical oversight and will provide input in connection with
field development, drilling programs and operational well activity, among
other things. San Leon Energy Nigeria will also advise on financial aspects,
for example assisting with the implementation of a corporate finance strategy
for the development of OML 18 and streamlining existing organisational
processes. In order to provide the financial advisory services, Eroton has
agreed to provide certain financial information to San Leon Energy Nigeria ,
including periodic financial statements and forecasts.
An annual fee of US$6,000,000 payable by Eroton will be paid in advance, in
monthly instalments, and San Leon Energy Nigeria will be engaged to provide
the services covered by the agreement for an initial period of three years
(the "Initial Period"). The agreement shall subsequently renew automatically
on an annual basis thereafter, unless otherwise terminated by the parties.
San Leon Energy Nigeria's appointment as the manager of OML 18 shall not
affect the role of Eroton as the operator of the same, and San Leon Energy
Nigeria's maximum liability under the agreement shall be limited. Eroton has
agreed to indemnify San Leon Energy Nigeria against any liabilities and
expenses incurred specifically by reason of San Leon Energy Nigeria being
manager of OML 18, provided that San Leon Energy Nigeria shall not be so
indemnified with respect to any matter resulting from its negligence, wilful
misconduct or fraud and shall have no claim against, or recourse to, Eroton in
respect of any such matter. Each party has undertaken that it maintains
adequate policies and procedures required to comply with applicable
anti-corruption laws.
San Leon Energy Nigeria may terminate the agreement if Eroton fails to provide
the financial information required in order to provide the services. Eroton
may terminate the agreement if completion of the MLPL Reorganisation does not
occur by 31 December 2022. Either party can terminate the agreement without
notice in the event of (i) the other party committing an illegal, fraudulent
or dishonest act, (ii) the other party being in material (or non-material
recurring) breach, (iii) the other party breaching the anti-corruption
provisions or (iv) the other party suffering an insolvency event. Either party
can also terminate the agreement by providing 6 months' prior written notice,
which shall expire either at the end of the Initial Period in respect of
notice served prior to the third anniversary of the agreement; or at the end
of each subsequent 12 month period during which the agreement is automatically
renewed after the Initial Period. The agreement is governed by English law.
The services provided under the Asset Management Agreement are in addition to
those provided under the Master Services Agreement.
4.3.5 MLPL Reorganisation Agreement
The MLPL Reorganisation Agreement was entered into on 8 July 2022 pursuant to
which Midwestern will (i) transfer to San Leon Energy Nigeria its entire
shareholding in MLPL (being approximately 60% of the entire issued share
capital of MLPL) and (ii) assign to San Leon Energy Nigeria all of its
interest under the MLPL Receivable (the "MLPL Reorganisation Agreement"). The
consideration will be an amount equal to the subscription price for the MLPL
New Shares. San Leon Energy Nigeria's obligation to pay such consideration
will be set off against Midwestern's obligation to pay the amount outstanding
under the MLPL Reorganisation Loan Notes.
Completion of the MLPL Reorganisation is subject to the following conditions
(the "MLPL Conditions"):
(i) the creation of such number of Preference Shares in San Leon,
by way of the Sub- Division, as is equal to US$40,000,000 (or such amount
calculated from time to time in accordance with the New Memorandum and
Articles of Association) on the terms of the Preference Shares as set out in
the proposed New Memorandum and Articles of Association, such Preference
Shares to be held by shareholders of San Leon immediately prior to completion
of the MLPL Reorganisation (the "MLPL Preference Share Condition");
(ii) the publication of the admission document, in a form approved
(to the extent required) by the Irish Takeover Panel and in a form approved by
the Nomad, San Leon and, where relevant under the terms of the MLPL
Reorganisation Agreement, Midwestern (the "MLPL Admission Document
Condition");
(iii) the shareholders of San Leon resolving to (i) approve the MLPL
Reorganisation,
(ii) adopt the New Memorandum and Articles of Association; (iii) approve the
Subdivision; (iv) affect the receipt of shares in MLPL and ELI; (v) authorise
the issue of the New Shares to Midwestern; (vi) authorise the creation of
preference shares (the "MLPL Shareholder Approval Condition");
(iv) the re-admission to AIM of the shares in San Leon and admission
of the Existing Ordinary Shares and the MLPL New Shares, in each case to
trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules
(the "MLPL Admission Condition");
(v) the MLPL Valuation Report being delivered to Midwestern in
accordance with section 1028(c) of the Irish Companies Act 2014;
(vi) the Irish Takeover Panel having waived any obligation which might
fall on Midwestern or any person acting in concert, or deemed under the Irish
Takeover Rules to be acting in concert, with it under Rule 9 of the Irish
Takeover Rules to make a general offer for San Leon as a result of the issue
of the MLPL New Shares and where such waiver is expressed to be subject to any
conditions, such conditions having been satisfied in accordance with their
respective terms;
(vii) the (i) notification to Nigerian Upstream Petroleum Regulatory
Commission (the "NUPRC") of the intention to engage in the transaction
contemplated by the MLPL Reorganisation Agreement; and (ii) notification to,
and the approval of, the NUPRC of the identity of San Leon Energy Nigeria,
each to the extent not already obtained prior to the execution of the MLPL
Reorganisation Agreement (the "MLPL Regulatory Condition");
(viii) the written consent of the Minister for the completion by the
Parties of the Subscription Letter, the MLPL Reorganisation Agreement and the
transaction contemplated by the MLPL Reorganisation Agreement in accordance
with Applicable Law;
(ix) NFCCPC Negative Clearance (the "MLPL Antitrust Condition");
(x) the Sahara OML 18 Acquisition Agreement and the Settlement
Agreement each being entered in the agreed form (or in a form incorporating
amendments which have been approved with the prior written consent of San
Leon) by the parties thereto by 30 September 2022 (or such later date as may
be agreed in writing between San Leon and Midwestern) (the "MLPL Sahara
Condition");
(xi) the Sahara OML 18 Acquisition Agreement, the Bilton OML 18
Acquisition Agreement and the Settlement Agreement each becoming effective on
an unconditional basis and completing in accordance with their respective
terms (the "MPLP Eroton Condition");
(i)
(xii) the letter to be signed by certain ELI Shareholders consenting to
the ELI Shareholders' Agreement agreeing to remove or relax the provisions of
Clause 15.1(d) thereof (the "ELI Consent Condition");
(xiii) the agreements and ancillary documentation necessary to give effect
to the New Eroton Debt Facilities being duly executed by all the parties
thereto by 31 August 2022 (or such later date as may be agreed in writing
between San Leon and Midwestern) (the "MLPL Eroton Financing Condition")
(xiv) there being no breach by Midwestern of the interim period covenants
given by Midwestern under the MLPL Reorganisation Agreement (as described
below) which individually or together with any other such breach, results or
is reasonably likely to result in a diminishment of the net assets of the MLPL
or its group by US$10,000,000 or more in aggregate, and there being no
material breach of the warranties given by Midwestern at the time of signing
of the MLPL Reorganisation Agreement which, individually or together with any
other such breach, results or is reasonably likely to result in a diminishment
of the net assets of the MLPL or its group by US$10,000,000 or more in
aggregate) (each a "MLPL Midwestern Breach"); and
(xv) there being no breach by San Leon of: (i) its obligation to publish
a supplementary admission document (if required), (ii) its covenant not to pay
or declare dividends in the period between signing and completion of the MLPL
Reorganisation Agreement,
(iii) its covenant not to, or agree to, redeem, repurchase, reduce, waive or
repay any of its share capital, (iv) its covenant to procure that the number
of San Leon Shares which may be issued prior to Completion, or form the
subject of any award, option or other right to San Leon Shares granted before
Completion, under the San Leon Employee Incentive Plan, San Leon warrants or
any other incentive arrangement, does not exceed 44,991,302 San Leon Shares
without the prior written approval of Midwestern, (v) its covenant to procure
that the terms of the Admission Document will convene the San Leon General
Meeting for a date which is no later than the date falling 30 clear days after
the date on which the Admission Document is despatched to the San Leon
Shareholders or such other date as San Leon and Midwestern may agree in
writing; (vi) its covenant not to postpone or adjourn the San Leon General
Meeting once convened or seek to amend the San Leon Resolutions after despatch
of the Admission Document without the prior written consent of Midwestern
(other than in accordance with the exceptions to this covenant set out in the
MLPL Reorganisation Agreement); and
(xvi) there being no breach by San Leon of the warranties given by San
Leon under the MLPL Reorganisation Agreement which individually or together
with any other such breach, results or is reasonably likely to result in a
diminishment of the net assets of the Group by US$10.000,000 or more in
aggregate ("San Leon Breach").
Any of the MLPL Sahara Condition, MLPL Eroton Condition, MLPL Regulatory
Condition, ELI Consents Condition, MLPL Antitrust Condition, MLPL Eroton
Financing Condition may be waived by written agreement between San Leon and
Midwestern at any time on or before 08:00 on 31 December 2022 (or such other
date as San Leon or Midwestern agrees in writing) (the "MLPL Re-organisation
Agreement Long Stop Date"). Any material breach by San Leon or Midwestern may
be waived by the other by notice in writing at any time before 08:00 on the
MLPL Re-organisation Agreement Long Stop Date.
The MLPL Reorganisation Agreement may be terminated by San Leon or Midwestern
with immediate effect if a Condition has not been satisfied or has become
impossible to satisfy by 08:00 on the MLPL Re-organisation Agreement Long Stop
Date.
Midwestern may terminate the MLPL Reorganisation Agreement with immediate
effect if:
(i) the recommendation of the directors of San Leon is withdrawn, modified or
qualified, or no longer incorporated in the admission document, or if San Leon
publishes a statement that its directors no longer intends to make the
recommendation or intend to withdraw or modify it; (ii) there occurs a San
Leon Breach which (A) is not capable of remedy, or (B) is
capable of remedy but is not remedied to the reasonable satisfaction of
Midwestern by the earlier of (a) the date falling ten Business Days after
receipt of notice from Midwestern requiring that breach to be remedied, and
(b) the date falling ten Business Days prior to the completion of the MLPL
Reorganisation Agreement.
San Leon and/or San Leon Energy Nigeria may terminate the MLPL Reorganisation
Agreement with immediate effect if there occurs a MLPL Midwestern Breach and
such breach (A) is not capable of remedy, or (B) is capable of remedy but is
not remedied to the reasonable satisfaction of San Leon by the earlier of (a)
the date falling ten Business Days after receipt of notice from San Leon
requiring that breach to be remedied, and (b) the date falling ten Business
Days prior to completion of the MLPL Reorganisation Agreement.
Midwestern has agreed (in the period up to completion of the MLPL
Reorganisation Agreement) to use reasonable endeavours to procure that MLPL,
any subsidiary undertaking of MLPL from time to time, and Eroton will not
undertake a number of customary interim covenants such as varying its share
capital, making acquisitions or disposals, entering into joint ventures or
material agreements or commencing or settling any litigation. San Leon has
agreed to not pay or recommend for declaration any dividend, redeem,
repurchase, reduce, waive or repay any of its share capital, and to procure
that the number of San Leon Shares which may be issued prior to Completion, or
form the subject of any award, option or other right to San Leon Shares
granted before Completion, under the San Leon Employee Incentive Plan, San
Leon warrants or any other incentive arrangement, does not exceed 44,991,302
San Leon Shares without the prior written approval of Midwestern.
Midwestern shall enter into a lock-in agreement in a form set out in paragraph
16 of Part 1 of this Document prior to the date on which San Leon announces
the transaction under the MLPL Reorganisation Agreement (the "MLPL
Announcement Date").
Under the terms of the MLPL Reorganisation Agreement, Midwestern has provided
certain warranties to San Leon and San Leon Energy Nigeria, and San Leon has
given certain warranties to Midwestern. These warranties are customary for a
transaction of this type. The warranties will be given at the MLPL
Announcement Date and will be repeated on the date of this Document, the date
of any Supplementary Admission Document completion of the MLPL Reorganisation
Agreement.
Under the terms of the MLPL Reorganisation Agreement and pursuant to the terms
of a Tenth Payment Waiver, San Leon has agreed with MLPL, Midwestern and
Martwestern to a further extension of the Extended Conditional Payment Waivers
until the sooner of completion of the MLPL Reorganisation Agreement or
termination of the MLPL Reorganisation Agreement. Interest continues to accrue
on the principal amounts waived pending completion of the MLPL Reorganisation.
The MLPL Reorganisation Agreement will be governed by English law.
It is emphasised that whilst the MLPL Reorganisation Agreement has been
entered into, it is subject to a number of conditions including in relation to
the MLPL Eroton Condition. In relation to the MLPL Eroton Condition, the
Sahara OML 18 Acquisition Agreement has not been executed at this point and is
only expected to be executed once Eroton has funds available to it to satisfy
the consideration which will require the definitive documents for the New
Eroton Debt Facilities to be entered into and there will be additional
conditions to drawdown to be satisfied prior to utilisation of the facilities.
Accordingly, whilst the terms have been negotiated, there can be no certainty
that they will be entered into or the final terms on which they will be
entered into. Accordingly, there can be no certainty that the Sahara OML 18
Acquisition Agreement will be executed and become effective.
Whilst the Bilton OML 18 Acquisition Agreement has been executed, the Bilton
OML 18 Acquisition Agreement is also conditional upon the Sahara OML 18
Acquisition Agreement being entered into and completing. Accordingly as there
can be no
certainty that the Sahara OML 18 Acquisition Agreement will be entered into or
the terms on which it will be entered into and there is no certainty that this
condition will be satisfied.
The Sahara OML 18 Acquisition Agreement, if executed, will be and the Bilton
OML 18 Acquisition Agreement is subject to certain conditions before
completion can occur, details of the key conditions are summarised in
paragraphs 3.3.1 and 3.3.2 below. In particular, the Sahara OML 18 Acquisition
Agreement, if executed will be, and the Bilton OML 18 Acquisition Agreement is
conditional on the entry into the Settlement Agreements associated with
certain litigation between Eroton, Bilton and Sahara. Further details of the
Settlement Agreements and the associated litigation are included in paragraphs
3.3.3 and 3.4 below.
It is emphasised that the MLPL Reorganisation is conditional, amongst other
things, on the entry into and the utilisation of the New Eroton Debt
Facilities and the Eroton OML 18 Transactions completing. Whilst the terms of
the New Eroton Debt Facilities have been approved by the lead lender,
Afreximbank and the terms of the Sahara OML 18 Acquisition Agreement have been
negotiated and the Bilton OML 18 Acquisition Agreement has been executed,
subject to certain conditions, they are dependent on, inter alia, the New
Eroton Debt Facilities being entered into and becoming unconditional and being
drawn down. Furthermore, the New Eroton Debt Facilities have not been entered
into and once entered into will be subject to additional conditions to
drawdown which will have to be satisfied prior to utilisation of the
facilities and for completion of the Sahara OML 18 Transaction and the Bilton
OML 18 Transaction. These matters are not under the Company's control.
Accordingly, there is no certainty that the New Eroton Debt Facilities will be
entered into or that the Eroton OML 18 Transactions will proceed or that they
will proceed on the currently proposed terms. Only once the Eroton OML 18
Transactions complete and the other conditions to the MLPL Reorganisation have
been satisfied will the Company be able to proceed with the MLPL
Reorganisation and Re-Admission. There can therefore be no guarantee that the
MLPL Reorganisation and Re-Admission will occur.
The number of shares to be subscribed for by Midwestern as part of the MLPL
Reorganisation has been agreed and fixed between Midwestern and the Company
and is not subject to adjustment by reference to the market price of the
Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed the market price
of the New Ordinary Shares on the date of allotment of the MLPL New Shares
must be not greater than the value per share to be recorded in the MLPL
Valuation Report.
A summary of the key risks relating to the Eroton OML 18 Transactions and
associated financing are set out in paragraph 2 of Part 4 of this Document.
Only once the New Eroton Debt Facilities have been entered into and drawn down
and the Eroton OML 18 transactions complete and the other conditions to the
MLPL Reorganisation have been satisfied will the Company be able to proceed
with the MLPL Reorganisation and Re-Admission.
4.4 Further Information on MLPL
The Historical Financial Information for MLPL is set out in Part 8B of this
Document.
Further details of the risks surrounding the MLPL Reorganisation are set out
in Part 4 of this Document.
5 ELI Reorganisation
5.1 Overview
San Leon and Midwestern propose to effect a further reorganisation to
consolidate Midwestern's holdings in the Company and ELI into a single holding
in the Company, with the Company holding an additional c.14% interest in ELI.
The ELI Reorganisation, which is conditional (amongst other things) upon the
reorganisation of UPIL as well as ELI Shareholder Consent and completion of
the MLPL Reorganisation, is made up of the following constituent parts:
• the issue of 73,782,535 New Ordinary Shares pursuant to the
ELI New Shares Subscription Agreement with such amount being left outstanding
between San Leon and for the benefit of the Company;
• the transfer by Midwestern of its 13.77% equity interest in
ELI Malta to San Leon ELI; and
• the transfer by Midwestern of its associated loan receivable
of US$15,300,000 from ELI Malta to San Leon ELI.
Details of the ELI New Shares Subscription Agreement and other material
documentation to be entered into in relation to the ELI Reorganisation are
summarised in paragraph 5.2 below.
The ELI Reorganisation is not conditional upon any of the elements of the
Further ELI Investments and may proceed whether or not some or all of the
Further ELI Investments have completed.
The ELI Reorganisation is conditional upon, amongst other things: (i)
completion of the MLPL Reorganisation and (ii) Midwestern, which currently
holds its interest in ELI indirectly through UPIL holding all necessary rights
to transfer its 13.77% equity interest in ELI Malta and to assign the ELI
Receivable pursuant to the ELI Reorganisation which also requires UPIL
Shareholder Consent, UPIL board approval as well as ELI Shareholder Consent.
Whilst Midwestern has discussed the transfer of these assets to Midwestern
with some of the other shareholders of UPIL, no consents have been granted,
agreements executed or structure agreed at this point and the implementation
of any such structure will require the support and actions by the other
shareholders in UPIL whose actions are outside the control of Midwestern.
Accordingly there can be no certainty that the transactions necessary for
Midwestern to own the assets to be transferred pursuant to the ELI
Reorganisation will be entered into or the terms on which they will be entered
into.
Whilst the MLPL Reorganisation is not conditional upon the ELI Reorganisation,
the ELI Reorganisation will only take place once these and the other ELI
Conditions set out in the ELI Reorganisation Agreement have been satisfied.
However, completion of the ELI Reorganisation is not conditional upon
completion of the Further ELI Investments.
The number of shares to be subscribed for by Midwestern as part of the ELI
Reorganisation has been agreed and fixed between Midwestern and the Company
and is not subject to adjustment by reference to the market price of the
Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed which is a
condition to the ELI Reorganisation the market price of the New Ordinary
Shares on the date of allotment of the MLPL New Shares must be not greater
than the value per share to be recorded in the MLPL Valuation Report.
Similarly, in order for the ELI Reorganisation to proceed, the MLPL
Reorganisation must complete and the market price of the New Ordinary Shares
on the date of allotment of the ELI New Shares must be not greater than the
value per share to be recorded in the ELI Valuation Report.
5.2 Material contracts in relation to the ELI Reorganisation
5.2.1 ELI New Shares Subscription Agreement
The ELI New Share Subscription Agreement for the subscription of the ELI New
Shares to be entered into between Midwestern and San Leon whereby Midwestern
will apply for the allotment of the New ELI Shares at the value of the ELI New
Shares to be recorded in the ELI Valuation Report.
The subscription is subject to the satisfaction of the conditions outlined in
the ELI Reorganisation Agreement, other than the condition relating to the ELI
Reorganisation Shares Admission.
The consideration for the allotment of shares will be left outstanding as a
debt from Midwestern to San Leon, pursuant to the terms of the ELI
Reorganisation Loan Notes.
The ELI New Shares Subscription Agreement will be governed by English law.
The number of shares to be subscribed for by Midwestern as part of the ELI Reorganisation has been agreed and fixed between Midwestern and the Company and is not subject to adjustment by reference to the market price of the Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the ELI Reorganisation to proceed, the MLPL
Reorganisation must complete and the market price of the New Ordinary Shares
on the date of allotment of the ELI New Shares must be not greater than the
value per share to be recorded in the ELI Valuation Report.
5.2.2 ELI Reorganisation Loan Notes
The ELI Reorganisation Loan Notes to be issued by Midwestern to San Leon
evidencing a money debt owed by Midwestern to San Leon pursuant to the ELI New
Shares Subscription Agreement. Under the terms of the ELI Reorganisation Loan
Notes, San Leon can redeem the note in whole or in part at any time after
completion of the ELI Reorganisation Agreement and Midwestern can prepay the
debt due under the ELI Reorganisation Loan Notes at any time after completion
of the ELI Reorganisation Agreement.
The ELI Reorganisation Loan Notes will be unsecured and will not accrue
interest. San Leon can transfer the ELI Reorganisation Loan Notes to any
member of its group without the consent of Midwestern.
The ELI Reorganisation Loan Notes will be governed by English law.
5.2.3 ELI Reorganisation Agreement
The ELI Reorganisation Agreement to be entered into in respect of the
reorganisation of ELI between Midwestern, San Leon and San Leon ELI pursuant
to which Midwestern will direct and procure the transfer of 53,700 ELI Shares
and its associated loan receivable in the principal amount of approximately
US$15,300,000 (the "ELI Receivable") from ELI Malta to San Leon ELI. The
consideration will be an amount equal to the subscription price for the ELI
New Shares. San Leon ELI's obligation to pay the consideration will be set off
against Midwestern's obligation to pay the amount outstanding under the ELI
Reorganisation Loan Notes.
Completion of the ELI Reorganisation Agreement is subject to the following
conditions (the "ELI Conditions"):
(i) the unconditional completion of each of the following: (A)
Midwestern undertaking the necessary actions and documentation to direct or
procure transfer of the full legal and beneficial title to the ELI Shares to
San Leon ELI free from any encumbrances, subject to the ELI-GTB Share Charge,
and (ii) Midwestern holding all necessary rights in the ELI Receivable to
direct or procure the assignment of all rights and interest in the ELI
Receivable to San Leon ELI free from any encumbrances (the "UPIL Condition")
(it should be emphasised that the UPIL Condition is dependent on, amongst
other things, the approval of the other shareholders of UPIL, which is not
under the Company's control);
(ii) the release of the security granted by ELI under the ELI-GTB
Share Charge in respect of the ELI Shares has received consent (the "ELI
Shares Condition");
(iii) the completion of the MLPL Reorganisation Agreement (the "MLPL
Condition");
(iv) the admission of all of the ELI New Shares to trading on AIM
becoming effective in accordance with Rule 6 of the AIM Rules (the "ELI
Admission Condition");
(v) the release of the ELI Valuation Report to Midwestern;
(vi) the notification to, and the no-objection and approval of, the
NMDPRA, and the notification to, and the no-objection by the Maltese National
Foreign Direct Investment Screening Office of the Transaction to the
transactions which are contemplated under the ELI Reorganisation Agreement
(the "ELI Regulatory Conditions");
(vii) the letter to be signed by the ELI Shareholders, addressed to ELI
from the ELI Shareholders, consenting to the ELI Shareholders' Agreement being
amended, changed, altered or waived being executed by the ELI Shareholders;
(viii) San Leon ELI having signed and released the Deed of Accession to
ELI (the "Deed of Accession Condition") there being no breach by Midwestern of
the interim period covenants given by Midwestern under the ELI Reorganisation
Agreement (as described below) which individually or together with any other
such breach, results or is reasonably likely to result in a diminishment of
the net assets of the ELI or its group by US$10,000,000 or more, and there
being no material breach (which is unremedied) of the warranties given by
Midwestern at the time of signing of the ELI Reorganisation Agreement (each a
"ELI Midwestern Breach"); and
(ix) there being no breach by San Leon of: (i) its covenant not to pay
or declare dividends in the period between signing and completion of the ELI
Reorganisation Agreement (ii) its covenant not to, or agree to, redeem,
repurchase, reduce, waive or repay any of its share capital, (iii) its
covenant to procure that the number of San Leon Shares which may be issued
prior to Completion, or form the subject of any award, option or other right
to San Leon Shares granted before Completion, under the San Leon Employee
Incentive Plan, San Leon warrants or any other incentive arrangement, does not
exceed 44,991,302 San Leon Shares without the prior written approval of
Midwestern, or (iv) the warranties given by San Leon under the ELI
Reorganisation Agreement which, individually or together with any other such
breach, results or is reasonably likely to result in a diminishment of the net
assets of the San Leon Group by US$10,000,000 or more in aggregate (which is
unremedied) ("San Leon Breach").
San Leon shall use all reasonable endeavours to satisfy the MLPL Condition to
the extent such obligation is dependent on San Leon.
Midwestern has undertaken to use all reasonable endeavours to procure that (A)
UPIL exercises all of its rights as a shareholder of ELI to procure and that
(B) each director of ELI or its subsidiaries (together the "ELI Group
Companies" and each an "ELI Group Company") appointed by it or UPIL exercises
their powers and rights to procure (so far as it is able through the exercise
of such rights/powers) that no ELI Group Company undertakes a number of
customary interim covenants such as varying its share capital, making
acquisitions or disposals, entering into joint ventures or material agreements
or commencing or settling any litigation. San Leon has agreed to not pay or
recommend for declaration any dividend, redeem, repurchase, reduce, waive or
repay any of its share capital, and to procure that the number of San Leon
Shares which may be issued prior to Completion, or form the subject of any
award, option or other right to San Leon Shares granted before Completion,
under the San Leon Employee Incentive Plan, San Leon warrants or any other
incentive arrangement, does not exceed 44,991,302 San Leon Shares without the
prior written approval of Midwestern.
The ELI Regulatory Conditions may be waived by written agreement between San
Leon and Midwestern at any time on or before 08:00 on 31 December 2022 (or
such other date as San Leon or Midwestern agrees in writing) (the "ELI Long
Stop Date"). San Leon may waive a material breach by Midwestern and Midwestern
may waive a material breach by San Leon by written notice at any time before
08:00 on the ELI Long Stop Date.
The ELI Reorganisation Agreement may be terminated by San Leon or Midwestern
with immediate effect if an ELI Condition has not been satisfied or has become
impossible to satisfy by 08:00 on the ELI Long Stop Date.
Midwestern may terminate the ELI Reorganisation Agreement if there occurs a
San Leon Breach which (A) is not capable of remedy, or (B) is capable of
remedy but is not remedied to the reasonable satisfaction of Midwestern by the
earlier of (a) the date falling ten Business Days after receipt of notice from
Midwestern requiring that breach to be remedied, and (b) the date falling ten
Business Days prior to the completion of the ELI Reorganisation Agreement.
San Leon may terminate the ELI Reorganisation Agreement if there occurs a ELI
Midwestern Breach and such breach (A) is not capable of remedy, or (B) is
capable of remedy but is not remedied to the reasonable satisfaction of San
Leon by the earlier of (a) the date falling ten Business Days after receipt of
notice from San Leon requiring that breach to be remedied, and (b) the date
falling ten Business Days prior to completion of the ELI Reorganisation
Agreement. Midwestern may terminate the ELI Reorganisation Agreement if at any
time, a third party announces a firm intention to make an offer for the
Company pursuant to Rule 2.5 of the Irish Takeover Rules.
Under the terms of the ELI Reorganisation Agreement, Midwestern has provided
certain warranties to San Leon and San Leon Financing and San Leon have given
certain warranties to Midwestern. These warranties are customary for a
transaction of this type. The warranties will be given at the date on which
San Leon announces the transaction under the ELI Reorganisation Agreement (the
"ELI Announcement Date") and will be repeated on completion of the ELI
Reorganisation Agreement.
The ELI Reorganisation Agreement will be governed by English law.
The number of shares to be subscribed for by Midwestern as part of the ELI Reorganisation has been agreed and fixed between Midwestern and the Company and is not subject to adjustment by reference to the market price of the Ordinary Shares or New Ordinary Shares.
Accordingly, in order for the MLPL Reorganisation to proceed, which is a
condition to the ELI Reorganisation, the market price of the New Ordinary
Shares on the date of allotment of the MLPL New Shares must be not greater
than the value per share to be recorded in the MLPL Valuation Report.
Similarly, in order for the ELI Reorganisation to proceed, the MLPL
Reorganisation must complete and the market price of the New Ordinary Shares
on the date of allotment of the ELI New Shares must be not greater than the
value per share to be recorded in the ELI Valuation Report.
5.2.4 ELI/Africa Finance Corporation Facility Agreement
On 7 December 2021, ELI Nigeria (as guarantor), ELI Malta (as borrower) and
Africa Finance Corporation (as mandated lead arranger) (amongst others)
entered into a US$130,000,000 senior secured term loan facility agreement (the
"AFC Facility Agreement"). The original lenders under the AFC Facility
Agreement are Africa Finance Corporation, with a commitment of US$110,000,000
and Zenith Bank PLC, with a commitment of US$20,000,000. The purpose of the
AFC Facility Agreement, among other things, is to refinance an existing loan
agreement between (amongst others) ELI Nigeria as borrower and GTB as agent
for the financing of the costs in connection with the construction and
development of the OML 18 alternative crude oil evacuation system (ACOES). The
facility will mature at the earlier of either the date falling sixty months
after the first utilisation date under the facility or 30 September 2026.
Utilisation by ELI Malta of the AFC Facility Agreement is conditional on the
satisfaction of various conditions precedent, some of which remain
outstanding, including Africa Finance Corporation receiving evidence that the
reserve-based financing currently provided to Eroton (being the Existing
Eroton Debt Facility) has been refinanced on terms satisfactory to the lenders
under the AFC Facility Agreement and that all conditions precedent to the
effectiveness of that refinancing have been satisfied.
Under the AFC Facility Agreement, ELI Malta may, with ten business days prior
notice, cancel the whole or any part (being a minimum amount of US$5,000,000
and integral multiples of US$1,000,000) of the facility amount available to
it. ELI Nigeria may also, with ten business days' prior notice, prepay the
whole or any part of a drawdown under the facility (but, if in part, being a
minimum amount of US$5,000,000 and integral multiples of US$1,000,000). ELI
Nigeria acts as guarantor under the AFC Facility Agreement, and guarantees ELI
Malta's obligations under the facility.
ELI Malta is obliged to provide the agent under the AFC Facility Agreement
with its quarterly and yearly financial statements. The statements must
include a balance sheet, profit and loss account and cashflow statement and
must be accompanied with a compliance certificate setting out the computations
as to its compliance with the financial covenants under the facility. Under
the terms of the AFC Facility Agreement ELI Malta is not allowed to change its
accounting reference date.
Under the terms of the AFC Facility Agreement, without the agent's consent ELI
Malta cannot be a creditor or provide any form of credit to any person, it
also cannot dispose of any asset except certain assets such as obsolete or
redundant vehicles, plant and equipment. ELI Malta also cannot merge with
another company or acquire shares in another company or business other than
assets in connection with the design, construction, procurement,
commissioning, installation and operation of the ACOES.
The AFC Facility Agreement is governed by English law.
5.2.5 Licenses and permits
ELI has obtained various licences in order to establish and operate a pipeline
and Floating Storage and Offloading terminal. These include, but are not
limited to, a license giving it the right to commence construction of an ACOES
to support the OML 18 operations and the establishment of the proposed
floating storage offloading terminal project; a license for a pipeline to a
floating storage and offloading terminal located offshore on the Niger Delta;
a license giving ELI the right to take possession of and use land for
constructing, maintaining and operating an oil pipeline for a period of 20
years; a licence affirming the establishment of ELI Akaso floating storage and
offloading (FSO) oil terminal as a crude oil terminal within a safety
exclusion zone; and a license for the calibration of 17 cargo tanks on board
the floating storage and offloading vessel carried out in 2019, with the
license running to August 2024.
5.3 ELI Material Contracts
Further details of the other material contracts to which ELI is a party are
set out in paragraph
10.24 of Part 12 of this Document.
5.4 Further Information on ELI
The Historical Financial Information for ELI is set out in Part 8C of this
Document.
Further details of the risks surrounding the ELI Reorganisation are set out in
Part 4 of this Document.
PART 3
FURTHER ELI INVESTMENTS
1. Introduction
San Leon currently holds 38,998 ELI Shares representing a 10% equity interest
in ELI. As part of the ELI Reorganisation, San Leon will acquire an additional
53,700 ELI Shares, being Midwestern's indirect 13.77% equity interest in ELI.
The Company also currently has a conditional interest in 12,959 ELI Shares
representing a 3.323% equity interest in ELI as a result of a series of
transactions announced on 24 June 2021 and 12 February 2022, details of which
are contained in paragraphs 2 and 3 below.
Upon completion of both the ELI Reorganisation and all of the Further ELI
Investments, San Leon will become the largest shareholder in ELI, with its
stake rising to 228,458 ELI Shares representing 50.64% and will be a
significant lender to ELI, holding a total of US$48.3 million of loans (plus
accrued interest) to ELI. The Further ELI Investments are not conditional upon
the ELI Reorganisation or the MLPL Reorganisation but are all conditional upon
shareholder approval as well as the conditions referred to below.
2. Walstrand Acquisition and Option
On 24 June 2021, the Company announced the further conditional purchase of an
interest in ELI, namely, that the Company will pay US$2,000,000 for 5,159 ELI
Shares being 1.323% of ELI and received an option to purchase an additional
stake of 16,777 shares in ELI being 4.302% for US$6,500,000.
2.1 Walstrand Acquisition and Option Agreement
On 23 June 2021 an agreement was entered into between Walstrand and San Leon
ELI pursuant to which Walstrand agreed, subject to obtaining the consent of
GTB, to (i) make an initial transfer of 5,159 shares in ELI to San Leon ELI
for a total consideration of US$2,000,000 and (ii) grant an call option to San
Leon ELI to acquire from Walstrand an additional 16,777 shares in ELI for a
total consideration of US$6,500,000. The call option granted in the agreement
carried an expiration date of 31 December 2021, which is in the process of
being extended in light of the transactions contemplated under this Document.
The effective date of the initial transfer is stated as 23 June 2021,
irrespective of the date on which the GTB consent was obtained, and the
effective date of the transfer the subject of the call option granted by
Walstrand shall be the date on which payment of the option consideration of
US$6,500,000 is paid by San Leon on behalf of San Leon ELI. Whilst the
Walstrand Acquisition and Option Agreement was entered into on 23 June 2021,
the agreement remains conditional, including as to the consent of the other
shareholders in ELI and has not been completed. Consent of the other
shareholders is expected to be forthcoming once the Ocean Pearl ELI
Acquisition referred to below has been completed.
The agreement is governed by English law.
3. February 2022 Loan and February 2022 Purchase
In February 2022, San Leon Financing advanced US$2,000,000 to ELI by way of a
loan and Walstrand agreed to transfer 7,800 ELI Shares representing 2% of ELI
to San Leon.
3.1 February 2022 Supplemental Investment Agreement and Drawdown Request
On 14 February 2022, San Leon Financing (as lender) and ELI (as borrower)
entered into a supplemental investment agreement pursuant to which San Leon
Financing grants to ELI an additional unsecured term loan facility of a total
principal amount not exceeding US$2,000,000 for an availability period of 30
days from 14 February 2022 to 16 March 2022 for the purpose of financing the
design, construction, commissioning and operation of the ACOES and FSO by ELI.
The agreement is supplemental to the initial investment agreement entered into
by and between San Leon Financing (as lender) and ELI Malta (as borrower) on
31 July 2020. Further details of this investment agreement are set out in
paragraph 10.24.7 of Part 12 of this Document.
ELI Malta issued a drawdown request in respect of the facility on 14 February
2022. ELI Malta shall commence repayment of the facility no later than the day
falling on the first anniversary of drawdown. ELI Malta shall repay 1/13th of
the principal of the facility together with accrued interest for the 12 month
period since drawdown. The supplemental investment agreement is governed by
English law.
3.2 February 2022 Walstrand Acquisition Agreement
On 14 February 2022 an agreement was entered into between Walstrand and San
Leon ELI pursuant to which Walstrand agreed, subject inter alia to obtaining
the consent of GTB and the consent of the other shareholders in ELI, to
transfer 7,800 shares in ELI Malta to San Leon ELI at nominal value for a
total consideration of US$91.46. The shares to be transferred by Walstrand
amounted to 2% of the entire issued share capital of ELI Malta as at the
effective date.
The effective date of the transfer is stated as 14 February 2022, irrespective
of the date on which the GTB and shareholder consent is obtained.
By way of a letter of undertaking entered into on 14 February 2022 by and
between, inter alia, San Leon Financing and Walstrand, Walstrand also
undertook by way of an adjustment mechanism that, in the event of a subsequent
dilutive issue of shares by ELI Malta, it will transfer to San Leon ELI
(subject to obtaining consent from GTB and other shareholders in ELI) such
number of shares as is required to ensure that San Leon ELI maintains a
proportion of no less than 2% of the share capital in ELI Malta (being the
proportion of the issued share capital of ELI Malta transferred to San Leon
ELI by virtue of the February 2022 Walstrand Acquisition Agreement). The
transfer of any additional shares in connection with this undertaking will
also be at nominal value.
Whilst the February 2022 Walstrand Acquisition Agreement was entered into on
14 February 2022, the agreement remains conditional and has not been
completed.
The acquisition agreement and letter of undertaking are governed by English
law
4. New ELI Loan and New ELI Subscription
A new loan from San Leon to ELI of US$16,000,000 at a coupon of 14% per annum
over four years, and repayable quarterly following a one-year moratorium is in
agreed form and with the parties for signing, drawdown being conditional on
passing of Resolution 1. In addition, San Leon has agreed to a conditional
subscription at nominal value for 48,748 ELI Shares representing a 10% new
equity holding in ELI and anti-dilution shares issued to maintain its existing
13.323% interest in ELI which are also with the parties for signing.
4.1 New ELI Loan Agreement
The terms of a new loan agreement have been agreed between ELI Malta and San
Leon Energy Financing pursuant to which San Leon Energy Financing has agreed
to loan ELI Malta an unsecured sum of up to US$16,000,000. The loan is
expected to be drawn down within 30 days of the passing of Resolution 1. It is
intended that the loan will be used to finance the design, construction,
commissioning and operation of the ACOES and FSO by ELI. The loan agreement is
with the parties for signing.
The first repayment date will be a date specified by ELI Malta in their
drawdown request, falling between 6 and 18 months from the drawdown date and
the term of the loan, being a date during the 36 months following the first
repayment date. The interest is 14% per year, and interest accrues every three
months from the drawdown date.
Repayment by ELI will be on the first repayment date, in a proportion
calculated by deducting the time between the drawdown date ("B") and the first
repayment date from the term of the loan in the drawdown request ("A"),
divided by the interest period ("C"). ELI will then at the end of each
interest period repay a proportion calculated on the same basis as for the
first repayment date ((A-B)/C), plus any interest which has accrued for that
period.
ELI is required to obtain the consent of GTB, or any new senior lender should
GTB's loan be refinanced, in respect of the loan agreement within six months
of the drawdown date. Failure to obtain the consent will amount to an event of
default.
The loan will be governed by English law.
4.2 New ELI Subscription Agreement
ELI Malta and San Leon ELI have agreed to enter the terms of a share purchase
and allotment agreement pursuant to which, and conditional, amongst other
things, on passing of Resolution 1, ELI Malta shall issue and San Leon ELI
shall acquire 48,748 ELI Shares (the "Allotment Shares"), with each share
being fully paid up and to be allotted to San Leon ELI following the approval
of the shareholders of ELI Malta to increase the authorised and issued share
capital in ELI Malta. The purchase price for the Allotment Shares shall be a
consideration of US$121.95, payable in cash by the Company. The agreement will
be governed by English law. The share purchase and allotment agreement is with
the parties for signing.
5. Ocean Pearl ELI Acquisition
On 8 July 2022, the Company announced the further conditional purchase of an
interest in ELI, namely, that the Company will pay US$15,000,000 for 52,647
ELI Shares representing 11.669% of ELI (current percentage holding is 13.500%
which will be reduced upon the issue of new equity as detailed above).
5.1 Ocean Pearl ELI Acquisition Agreement
Share transfer agreement - a share transfer agreement entered into between
Ocean Pearl Maritime SA ("OPM") and San Leon ELI Limited ("San Leon ELI") on 8
July 2021 pursuant to which OPM will transfer a 52,647 ELI Shares to San Leon
ELI, for a total consideration of US$15,000,000 (paid by the parent company of
San Leon ELI, San Leon). The transfer will be effective on the date the share
transfer agreement is signed.
The transfer of the shares is conditional on passing of Resolution 1 and OPM
obtaining the consent of GTB to such transfer, and San Leon ELI will agree to
pledge the shares to GTB on the same terms as the pledge by OPM. The transfer
of the ELI Shares will be deemed null and void if consent has not been
obtained within 180 days of the effective date. Failure to obtain consent
will trigger an event of default in respect of a loan from San Leon ELI to OPM
made on the effective date.
Whilst the Ocean Pearl ELI Acquisition Agreement was entered into on 8 July
2022, the agreement remains conditional and has not been completed.
The transfer agreement is governed by English law.
6. Further Information on ELI
The Historical Financial Information for ELI is set out in Part 8C of this
Document.
Further details of the risks surrounding the Further ELI Investments are set
out in Part 4 of this Document.
DEFINITIONS
The following definitions apply throughout this Document, unless the context
otherwise requires:
"€" or "EUR"or
"euro"
Euro, the lawful currency of Ireland
"£" or "British pound sterling"or "p" pound sterling,
the lawful currency of the UK
"ACOES"
the Alternative Crude Oil Evacuation System project, which is being
constructed by ELI and comprises a pipeline and an offshore floating storage
and offloading vessel that will provide an oil export route from OML 18
"Afreximbank"
the African Export-Import Bank
"AIM"
the market of that name operated by the London Stock Exchange
"AIM Mining, Oil & Gas Companies Note" the 'AIM Note for Mining, Oil
& Gas Companies'
published by the London Stock Exchange setting out specific requirements, rule
interpretation and guidance relating to resource companies, as amended from
time to time
"AIM Rules for
Companies" the rules
(including the guidance notes thereto)
published by the London Stock Exchange governing, inter alia, admission to
trading on AIM and the continuing obligations of companies admitted to trading
on AIM, as amended from time to time
"AIM Rules for Nominated Advisers" the rules for
nominated advisers setting out the
eligibility, ongoing obligations and certain disciplinary matters in relation
to nominated advisers, published by the London Stock Exchange
"Allenby Capital" or "Nomad"
Allenby Capital Limited, a company registered in
England and Wales with company number 06706681 and having its registered
office at 5 St. Helen's Place, London EC3A 6AB, which is authorised and
regulated in the United Kingdom by the FCA, is acting as nominated adviser,
joint financial adviser and joint broker to the Company
"Amstel Oil
Field"
an oil field within Block Q13A which is located offshore the Netherlands
"Amstel Royalty Agreements"
two royalty agreements, entered into by wholly owned
subsidiaries of the Company, San Leon (Netherlands) Limited and San Leon
Energy B.V., whereby the Company is the beneficiary of two royalties on the
Amstel Oil Field from TAQA Offshore BV
"Asset Management Agreement" the
agreement dated 8 July 2022 between: (i) San
Leon Energy Nigeria; and (ii) Eroton, relating to the operation of OML 18,
details of which are set out in paragraph 4.3.4 of Part 2 of this Document
"Audit and Risk Committee"
the audit and risk committee of the Company as
constituted from time to time
"Barryroe"
the SEL 1/11 which is located in the North Celtic Sea Basin, approximately 50
km off the south coast of Ireland
"Barryroe
NPI"
the Net Profit Interest granted by Providence pursuant to the agreement dated
22 December 2011 entered into between Providence and Island Expro Limited as
amended by: (i) the NPI Novation Agreement; and (ii) the deed of transfer
dated 4 December 2015 between Island Expro Unlimited Company and San Leon
"Belgian Companies and Associations Code"
the Belgian Code on companies and associations dated 23 March 2019 as amended
or supplemented from time to time
"Belgian Law
Rights"
the fungible co-ownership rights governed by Belgian law over a pool of
book-entry interests in securities of the same issue (i.e. ISIN) which the EB
Participants will receive on or after Re-Admission, if they elect to do so,
further summary details of which are set out in section 2 of Part 11 of this
Document
"Belgium"
the Kingdom of Belgium and the word "Belgian" shall be construed accordingly
"Bilton"
Bilton Energy Limited, a company incorporated in Nigeria with registration
number 1135274 and having its registered office at 6th Floor, Keystone
Building, 1 Keystone Way, Victoria Island, Lagos, Nigeria
"Bilton OML 18 Acquisition Agreement" the conditional agreement dated 8
July 2022 made
between (i) Eroton and (ii) Bilton, to effect the Bilton OML 18 Transaction,
details of which are set out in paragraph 3.3.2 of Part 2 of this Document
"Bilton OML 18 Transaction"
the conditional acquisition by Eroton of an additional
1.8% interest in OML 18 pursuant to the Bilton OML 18 Acquisition Agreement,
details of which are set out in paragraph 3.3.2 of Part 2 of this Document
"Board"
the board of directors of the Company as at the date of this Document
"Bonny
Terminal"
the oil and gas export terminal located on Bonny Island to the Southeast of
OML 18, which is owned and operated by Shell
"Broadridge"
Broadridge Proxy Voting Service, a third-party service provider engaged by EUI
in connection with the voting service provided in respect of CDIs
"Business
Day"
a day (other than a Saturday or Sunday) on which banks are open for general
business in Dublin, London and Lagos
"CA"
the Court of Appeal of Nigeria
"Canada"
Canada, its territories and possessions, any province of Canada and all other
areas subject to the jurisdiction of Canada
"CBN"
the Central Bank of Nigeria
"certificated form" or "in certificated form" a share the subject of a
certificate as referred to in
section 99(1) of the Companies Act 2014 of Ireland
"CIT"
the Companies Income Tax of Nigeria
"CITA"
the Companies Income Tax Act (Cap. C21, LFN 2004) of Nigeria
"Companies
Acts"
the Companies Acts 1963 to 2013 of Ireland
"Company", "San Leon"or "SLE" San Leon
Energy plc, a company incorporated in
Ireland with limited liability under the Companies Acts, with registration
number 237825 and having its registered office at 2 Shelbourne Buildings,
Crampton Avenue, Dublin 4, D04W3V6, Ireland
"Consent
Guidelines"
The Guidelines and Procedures for Obtaining Minister's Consent to the
Assignment of Interest in Oil and Gas Assets, 2021
"CPR" or "Competent Person's Report" the competent person's
report as prepared by
PetroVision and which appears in Part 7 of this Document
"CREST" or "CREST System" the
system for the paperless settlement of trades in
securities and the holding of uncertificated securities operated by EUI in
accordance with the CREST Regulations
"CREST Deed
Poll"
the global deed poll made on 25 June 2001 by CREST Depository, a copy of which
is set out in the CREST International Manual
"CREST
Depository"
CREST Depository Limited, a subsidiary of EUI
"CREST Depository Interest" or "CDI" an English
law security issued by the CREST
Depository that represents a CREST member's interest in the underlying share
"CREST International Manual" the
CREST manual for the Investor CSD service
offered by EUI entitled 'CREST International Manual' dated March 2021, as may
be amended, varied, replaced or superseded from time to time
"CREST
Nominee"
CIN (Belgium) Limited, a subsidiary of CREST Depository, or any other body
appointed to act as a nominee on behalf of the CREST Depository, including the
CREST Depository itself
"CREST
Regulations"
the Uncertificated Securities Regulations 2001 (SI 2001/3755), as amended
"CREST
Requirements"
has the meaning given to it in CREST Glossary of Terms December 2020
"CSD"
a central securities depository (within the meaning of the CSD Regulation),
including Euroclear Bank
"CSD Regulation" or "CSDR"
Regulation (EU) 909/2014 of the European Parliament
and of the Council of 23 July 2014 on improving securities settlement in the
European Union and on central securities depositories and amending Directives
98/26/EC and 2014/65/EU and Regulation (EU) 236/2012 (as amended)
"Decklar"
Decklar Petroleum Limited, a company incorporated in Nigeria with registration
number 1287622 and having its registered office at 1st Floor Oladipo House
Hospital Road Lagos Island
"Deferred
Shares"
the deferred shares of €0.005 each in the share capital of the Company
following the Subdivision
"Document"
this document which constitutes an AIM Admission Document, drawn up in
accordance with the AIM Rules for Companies
"DPR"
the Department of Petroleum Resources of Nigeria (now known as the NUPRC and
NMDPRA)
"DSO"
domestic supply obligations of gas under Nigerian law
"EB Migration
Guide"
the document issued by Euroclear Bank entitled 'Euroclear Bank as Issuer CSD
for Irish corporate securities; Migration Guide' dated October 2020 as may be
amended, varied, replaced or superseded from time to time
"EB Operating
Procedures" the document
issued by Euroclear Bank entitled 'The
Operating Procedures of the Euroclear System' dated March 2022, as may be
amended, varied, replaced or superseded from time to time
"EB
Participants"
participants in Euroclear Bank, each of which has entered into an agreement to
participate in the Euroclear System subject to the Euroclear Terms and
Conditions
"EB Rights of Participants Document" the document issued
by Euroclear Bank entitled
'Rights of Participants to Securities deposited in the Euroclear System' dated
July 2017 as may be varied, amended, replaced or superseded from time to time
"EB Services
Description" the
document issued by Euroclear Bank entitled
'Euroclear Bank as Issuer CSD for Irish corporate securities' Services
Description dated November 2021, as may be amended, varied, replaced or
superseded from time to time
"EEA"
the European Economic Area
"EGM" or "Extraordinary General Meeting" the extraordinary general
meeting of the Company to be
held at the Herbert Park Hotel, Ballsbridge, Dublin 4,
D04 R2T2, Ireland at 11:30 am on 5 August 2022
"ELI"
ELI Nigeria and ELI Malta
"ELI-GTB Share
Charge" means
the charge over 100% of the ELI Shares pursuant to the deed of share charge
between GTB, ELI and Energy Link Infrastructure Limited dated 28 February 2019
"ELI
Group"
ELI Malta and ELI Nigeria
"ELI
Malta"
Energy Link Infrastructure (Malta) Limited, a company incorporated in Malta
with registration number C82452 and having its registered office at 260, Triq
San Albert,
Gzira, GZR1150, Malta
"ELI New
Shares"
the 73,782,535 New Ordinary Shares to be allotted and issued to Midwestern in
connection with the ELI Reorganisation pursuant to the ELI New Shares
Subscription Agreement
"ELI New Shares Subscription Agreement" the agreement for the subscription
by Midwestern for
the ELI New Shares
"ELI
Nigeria"
Energy Link Infrastructure Nigeria Limited, a company incorporated in Nigeria
with registration number 1316587 and having its registered office
at
11 Abimbola Awoniyi Street, Off Kasumu Ekemode Street, Victoria Island, Lagos,
Nigeria
"ELI
Reorganisation"
the issue of the ELI New Shares pursuant to the ELI New Shares Subscription
Agreement and the proposed transfer to San Leon ELI of 53,700 shares in ELI
Malta representing 13.77% of the existing equity in ELI Malta and a receivable
owing from ELI Malta to Midwestern in the principal sum of US$15,300,000 plus
accrued interest to be received pursuant to the ELI Reorganisation Agreement
"ELI Reorganisation Agreement" the
conditional agreement dated 8 July 2022 made
between: (i) the Company; (ii) Midwestern and (iii) San Leon ELI, relating to
certain parts of the ELI Reorganisation, details of which are set out in
section
5 of Part 2 and paragraph 5.2.3 of Part 2 of this Document
"ELI Reorganisation Loan Notes" the loan
note to be issued in consideration of the
subscription by Midwestern for the ELI New Shares pursuant to the ELI New
Shares Subscription Agreement
"ELI Reorganisation Shares Admission" the admission of the ELI New Shares
to trading on AIM
becoming effective in accordance with the AIM Rules for Companies
"ELI
Shares"
the ordinary shares in the capital of ELI Malta
"ELI
Shareholders"
the shareholders of ELI from time to time
"ELI Shareholder Consents"
the consent of the other shareholders of ELI from time to time
"Enlarged
Group"
the Company and its subsidiaries under its control, following completion of
the MLPL Reorganisation and any parts of the ELI Reorganisation and the
Further ELI Investments which have completed prior to that date
"Enlarged Ordinary Share Capital" the New
Ordinary Shares in issue immediately
following completion of the MLPL Reorganisation and the ELI Reorganisation
"Eroton"
Eroton Exploration and Production Company Limited, a company incorporated in
Nigeria with registration number RC 1137060 and having its registered office
at 43 Sinari Daranijo Street, Off Ligali Ayorinde Street,
Victoria Island, Nigeria
"Eroton
Litigation"
the claims and counterclaims brought by or against Eroton as set out in
paragraph 3.4 of Part 2 of this Document
"Eroton OML 18 Transactions" the
conditional acquisition by Eroton of an additional
18% interest in OML 18 pursuant to the Bilton OML 18 Transaction and the
Sahara OML 18 Transaction details of which are set out in section 3 of Part 2
of this Document
"EU"
the European Union
"EUI" or
"Euroclear"
Euroclear UK & Ireland Limited, a company incorporated in England and
Wales with company number 02878738 and having its registered office at 33
Cannon Street, London, EC4M 5SB, the operator of the CREST System
"Euroclear
Bank"
Euroclear Bank SA/NV, an international CSD incorporated in Belgium with
company number 0429875591 and having its registered office at 1 Boulevard du
Roi Albert II1210 Brussels
"Euroclear
Nominees"
Euroclear Nominees Limited, a company incorporated in England and Wales with
company number 02369969 and having its registered office at 33 Cannon Street,
London, EC4M 5SB
"Euroclear
System"
the securities settlement system operated by Euroclear Bank and governed by
Belgian law
"Euroclear Terms and Conditions" the document
issued by Euroclear Bank entitled
'Terms and Conditions governing use of Euroclear dated June 2021, as may be
amended, varied, replaced or superseded from time to time'
"Euronext
Dublin"
means The Irish Stock Exchange plc, trading as Euronext Dublin
"Existing Eroton Debt Facility"
the US$250,000,000 secured term loan facility
agreement dated 18 December 2018 between Eroton (as the borrower) and GTB (as
the lender, agent, arranger and security trustee), details of which are set
out in paragraph 10.24.13 of Part 12 of this Document
"Existing Memorandum and Articles of Association"
the memorandum and articles of association of the Company that are currently
in force as at the date of this Document
"Existing Ordinary
Shares" the ordinary
shares of €0.01 each in the Company in
issue as at the date of this Document and any such ordinary shares issued
prior to the Subdivision
"Existing Share
Capital" the
issued ordinary share capital of the Company as at the date of this Document
"FCA"
the Financial Conduct Authority of the UK, including, acting in its capacity
as competent listing authority for listing in the UK pursuant to Part VI of
FSMA
"February 2022 Loan and Subscription" the US$2,000,000 loan advanced by
San Leon Energy
Financing Limited to ELI Malta and the conditional transfer from Walstrand to
San Leon ELI Limited of 7,800 ELI Shares entered into in February 2022, as
described in more detail in paragraph 4.2 of Part 3 of this Document
"FHC"
the Federal High Court of Nigeria
"Form of
Proxy"
the form of proxy for use at the EGM that is enclosed with this Document
"FSMA"
the Financial Services and Markets Act 2000 of the UK, as amended from time to
time
"Fully Enlarged Ordinary Share Capital" the New Ordinary Shares in issue
immediately prior to
Re-Admission, together with both the MLPL New Shares and the ELI New Shares
"Further ELI
Investments" means
each of the Walstrand Acquisition and Option,
February 2022 Loan and Subscription, New ELI Investment and Ocean Pearl ELI
Acquisition
"FY19", "FY20"or
"FY21" means the
financial year ended 31 December 2019,
31 December 2020 or 31 December 2021 as the case may be
"Group"
the Company and its current direct and indirect subsidiaries as at the date of
this Document
"GTB"
Guaranty Trust Bank Plc
"H1" or
"H2"
the first or second half of a stated calendar year
"Hannam &
Partners"
H&P Advisory Ltd, a company registered in England and Wales with company
number 11120795, which is authorised and regulated in the United Kingdom by
the FCA, is acting as joint financial adviser to the Company
"IFRS"
International Financial Reporting Standards
"initial indirect economic interest" in the
context of OML 18, San Leon's indirect
economic interest in OML 18 prior to this economic interest reducing following
certain repayment based and cumulative production hurdles being met, as
described in more detail in paragraph 4 of Part 1 of this Document
"Initially Enlarged Ordinary Share Capital" the New Ordinary Shares in issue
immediately prior to
Re-Admission, together with the MLPL New Shares
"Ireland"
the Republic of Ireland
"Irish Companies Act
2014" the Companies Act
2014 of Ireland, as amended from
time to time
"Irish Takeover
Panel"
the Irish Takeover Panel, established pursuant to the Irish Takeover Panel
Act, 1997
"Irish Takeover
Rules"
Irish Takeover Panel Act, 1997, Takeover Rules 2013
"JOA"
the joint operating agreement dated 1 March 2015, as described in more detail
in paragraph 10.23.2 of Part 12 of this Document
"Latest Practicable
Date" 6 July
2022, being the latest practicable date prior to the publication of this
Document
"Live
Date"
the date appointed by Euronext Dublin pursuant to the Migration Act to be the
effective date in respect of Migration
"Local Content
Act"
Nigerian Oil and Gas Industry Content Development Act, 2010 of Nigeria
"Locked-in
Persons"
Midwestern and each of the Directors, who are subject to the lock in
arrangements described in paragraph 18 of Part 1 of this Document
"London Stock
Exchange" London
Stock Exchange plc
"Martwestern"
Martwestern Energy Limited, a company incorporated in Nigeria with
registration number RC 1135364
"Master Services Agreement"
the agreement dated 22 March 2016 between Eroton,
Midwestern and San Leon Energy Nigeria and giving San Leon Energy Nigeria the
right to provide certain drilling and workover rig services to Eroton as the
Operator, subject to certain conditions
"Memorandum of Association" the
memorandum of association of the Company
"Midwestern"
Midwestern Oil & Gas Company Limited, a company incorporated in Nigeria
with registration number RC 370639 and having its registered
office at
11 Abimbola Awoniyi Close, Off Kasumu Ekemode Street, Victoria Island, Lagos,
Nigeria
"Midwestern
Group"
the group of companies and/or other entities under common control with
Midwestern
"Migrating
Shares"
the Participating Securities in the Company on the Migration Record Date
"Migration"
the transfer of title to uncertificated securities of the Company, which were
at the Live Date Participating Securities, to Euroclear Nominees holding on
trust for Euroclear Bank with effect from the Live Date as described in the
Migration Circular and including, where the context requires, migration as
described in and as envisaged by the EB Migration Guide
"Migration
Act"
the Migration of Participating Securities Act 2019
"Migration
Circular"
the circular dated 6 January 2021 issued by the Company
"Migration Record
Date" means
7.00 p.m. on Friday 12 March 2021, which determined who were the holders of
Participating Securities which were subject to the Migration
"Minister"
the Nigerian Minister of Petroleum Resources
"Ministerial
Consent"
the consent of the Minister for the MLPL Reorganisation in accordance with the
Petroleum Act and the Consent Guidelines, further details of which are set out
in paragraph 3.3 of Part 2 of this Document
"MLPL"
Midwestern Leon Petroleum Limited, a company incorporated in Mauritius with
registration number C103713 and having its registered office at 5th Floor,
Barky Wharf, Le Caudan Waterfront, Port Louis, Mauritius
"MLPL Loan
Notes"
the loan notes issued by MLPL under the MLPL Loan Note Instrument, pursuant to
which as at 30 June 2022 a total of approximately US$103.8 million (comprising
a principal amount due of US$82.2 million and total accrued interest due of
US$21.6 million) is owed to San Leon as at the date of this Document, details
of which are set out in paragraph 4.2 of Part 2 of this Document
"MLPL Loan Note Instrument" the
secured loan note instrument dated 22 March
2016, as amended in 6 April 2020 constituting up to US$170,000,000 17% Fixed
Rate Secured Loan Notes 2020, details of which are set out in paragraph 4.2 of
Part 2 of this Document
"MLPL New
Shares"
the 344,334,257 New Ordinary Shares to be allotted and issued to Midwestern as
part of the MLPL Reorganisation, pursuant to the MLPL New Shares Subscription
Agreement
"MLPL New Shares Subscription Agreement"
the agreement for the subscription by Midwestern for the MLPL New Shares
"MLPL
Receivable"
all of Midwestern's rights and interests in the MLPL Promissory Notes
and the MLPL Shareholders'
Agreement
"MLPL Promissory
Notes" the
subordinated unsecured promissory notes granted
by MLPL to Midwestern on 30 June 2018, 31 December 2017, 31 March 2018, 30
March 2021, 22 June 2018,
5 April 2019, 30 March 2021 and 13 June 2022 in the amounts of $7,697,985.85,
$7,750,000, $8,000,000,
$19,514,802, $31,879,968, $36,564,000, $15,952,014
and $7,150,000 respectively, and the subordinated unsecured promissory notes
granted by MLPL to Midwestern maturing on 30 June 2023 and which matured
on 30 June 2022 in the amounts of
$12,000,000 and $40,000,000 respectively
"MLPL
Reorganisation"
the issue of the MLPL New Shares pursuant to the MLPL New Shares Subscription
Agreement and the proposed transfer to the Company of the outstanding shares
of MLPL not already owned by San Leon (being 60% of the shares in MLPL) from
Midwestern pursuant to the terms of the MLPL Reorganisation Agreement, details
of which are set out in paragraph 4 of Part 2 of this Document
"MLPL Reorganisation Agreement" the conditional
agreement dated 8 July 2022 made
between: (i) the Company; (ii) Midwestern; and (iii) MLPL, relating to certain
aspects of the MLPL Reorganisation details of which are set out in paragraph
4.3.5 of Part 2 of this Document
"MLPL Reorganisation Loan Notes" the loan note
to be issued in consideration of the
subscription by Midwestern for the MLPL New Shares pursuant to the MLPL New
Shares Subscription Agreement
"MLPL Shareholders' Agreement" the
shareholders' agreement entered into among
Midwestern, San Leon Energy Nigeria B.V., and Midwestern Leon Petroleum
Limited dated 22 March 2016 relating to MLPL, governing the relationship
between all parties, and regulating their rights and obligations with respect
to the MLPL
"MM Capital
Holding"
MM Capital Holding Limited, a company incorporated at Ras, al Khaimah
International Corporate Centre, United Arab Emirates with registration number
ICC20220090 whose registered office is at 415-416 Burlington Tower, Business
Bay
"MPR"
the Ministry of Petroleum Resources of Nigeria
"NGN" or
"N"
the Nigerian Naira, the lawful currency of Nigeria
"NAOC"
Nigerian Agip Oil Company Limited
"NAPIMS"
National Petroleum Investment Management Services of Nigeria, which is the
upstream arm of NNPC
"NCTL"
the Nembe Creek Trunk Line, a multiphase flowline pipeline, which connects the
Cawthorne Channel, Akaso, Krakama and Awoba fields at OML 18 to the Bonny
Terminal and is currently used as one of the methods for the export of oil
from OML 18
"Net Profit
Interest"
the 4.5% net profit interest granted by Providence to Island Expro Limited
pursuant to the agreement dated 22 December 2011 and defined as Gross Sales
minus Operating Costs by Area Factor multiplied by 0.045 where:
(i) Gross Sales to be calculated by adding Providence's gross proceeds
from sales of petroleum produced from the area in the relevant month;
(ii) Operating Costs being the normal and directly attributable
operating costs incurred by Providence as part of operations under the joint
operating agreement in respect of the area; and
(iii) Area Factor being the factor by which the economic interest of
Providence in the Area needs to be multiplied by in order to replicate the
position as if Providence held 100% of the economic interest in the area.
"Newcross"
Newcross Exploration and Production Limited, the operator of the OML 24
licence that is near OML 18
"New ELI
Investment"
the New ELI Loan together with the New ELI Subscription
"New ELI
Loan"
the proposed new loan from San Leon to ELI of US$16,000,000 at a coupon of 14%
per annum over four years, and repayable quarterly following a one-year
moratorium, details of which are set out in section 2 of Part 1 and paragraph
4 of Part 2 of this Document
"New ELI
Subscription"
the proposed subscription at nominal value by San Leon for 48,748 ELI Shares
which shall accompany the New ELI Loan, details of which are set out in
section 2 of Part 1 and paragraph 4 of Part 2 of this Document
"New Eroton Debt
Facilities" the senior
secured reserve-based lending facilities
totalling US$750,000,000 proposed to be provided to Eroton by a lending
consortium led by African Export- Import Bank for the purposes of, inter alia:
(i) facilitating the Eroton OML 18 Transactions; and (ii) the repayment of all
of Eroton's outstanding indebtedness with its existing lenders, details of
which are set out in paragraph 3.2.5 of Part 2 of this Document
"New
Facility"
the US$50 million facility proposed to be made to the Company by MM Capital
Holding pursuant to the terms of a facility agreement entered into between the
Company and MM Capital Holding dated 8 July 2022, further details of which are
set out in paragraph 10.23 of Part 12 of this Document
"New Facility Security Agreement" the charge
over the Company's shares in San Leon
Financing entered into between the Company and MM Capital Holding entered into
on 8 July 2022
"New Memorandum and Articles of Association"
the memorandum and articles of association of the Company to be adopted at the
EGM
"New Ordinary
Shares"
the ordinary shares of €0.005 each in the share capital of the Company
following the Subdivision as described in paragraph 4.3.5 of Part 1 of this
Document and Resolution 2 set out in the Notice of EGM
"New
Shares"
the total of 418,116,792 New Ordinary Shares to be allotted and issued to
Midwestern in two tranches, being the MLPL New Shares and the ELI New Shares,
pursuant to the MLPL Reorganisation Agreement and ELI Reorganisation Agreement
"NFCCPC"
the Nigerian Federal Competition and Consumer Protection Commission
"NFCCPC Negative Clearance"
NFCCPC's no-objection or negative clearance to the
MLPL Reorganisation and or written approval from them for the MLPL
Reorganisation
"NGC"
the Nigerian Gas Company Limited
"Nigeria"
the Federal Republic of Nigeria
"NMDPRA"
the Nigerian Midstream and Downstream Petroleum Regulatory Authority
"NNPC"
the Nigerian National Petroleum Corporation of Nigeria
"Nomination
Committee" the
nomination committee of the Company as constituted from time to time
"Notice of EGM" or "Notice of Extraordinary General Meeting"
the notice convening the EGM as set out in Part 13 of this Document
"Notore
Chemical"
Notore Chemical Industries Plc, which owns a fertiliser plant located at the
Onne sea port in the Niger Delta,
Nigeria
"Notore Offtake
Agreement" the amended
and restated gas sale and purchase
agreement entered into on 31 March 2016 for a period of 20 years between (i)
Eroton and (ii) Notore Chemical in respect the sale and purchase of gas
derived from OML 18
"NPI Novation
Agreement" the
novation agreement relating to the Barryroe NPI,
dated 18 November 2014 entered into between Providence Resources plc, Island
Expro Limited (since re-named Island Expro Unlimited Company) and Exola
Limited
"NUPRC"
the Nigerian Upstream Petroleum Regulatory
Commission
"NUPRC's
Approval"
the (i) notification to the NUPRC of the intention to undertake the MLPL
Reorganisation; and (ii) notification to the NUPRC and its approval of the
identity of the Company, in accordance with the Petroleum Act and the Consent
Guidelines
"Ocean Pearl ELI Acquisition"
the proposed acquisition by the Company of 52,647 in
ELI Shares representing 13.5% of the existing equity of ELI from Ocean Pearl
Maritime SA
"Official
List"
the official list maintained by the FCA
"OML"
an oil mining licence
"OML
18"
the oil mining licence in the Southern Niger Delta region of Nigeria known as
OML 18 as more fully described in Part 1 of this Document
"OML 18 Production Arrangement" the series of
transactions relating to the Company's
acquisition of a 9.72 per cent initial indirect economic interest in OML 18
including the Financial Service Agreement
"Operator"
Eroton, the operator of OML 18
"OPL"
an oil prospecting licence
"Ordinary
Shares"
the ordinary shares in the share capital of the Company from time to time
"Oza
Field"
an onshore conventional oil field, on dry terrain, in the northwestern
part of OML 11, approximately 30 kilometres southwest of Port Harcourt
in the Abia State in Nigeria
"Oza-1"
a well located within the Oza Field
"Participating
Securities" has
the meaning given to the term "relevant participating securities" in the
Migration Act which have been issued by the Company (where applicable) and
includes Ordinary Shares.
"Petroleum
Act"
Petroleum Act, CAP P10 Laws of Federation of Nigeria, 2004
"PIA"
the Petroleum Industry Act 2021
"PetroVision"
PetroVision Energy Services Ltd, a company incorporated in England and Wales
with registration number 06256836 and having its registered office at 35
Maxwell Road, London, SW6 2HT, the author of the Competent Person's Report
that forms Part 7 of this Document
"Preference
Amount"
US$40,000,000, subject to increase for the Shortfall Amount, as set out in
paragraph 4.9 of Part 12 of this Document
"Preference
Shares"
the preference shares of EUR0.005 each in the share capital of the Company in
issue following the Subdivision, which shall carry the right, inter alia, to
participate in the Company's profits, as described in paragraph 13 of Part 1
of this Document and paragraph 4.9 of Part 12 of this Document
"Proposals"
the MLPL Reorganisation, the adoption of the New Memorandum and Articles of
Association, the issue of the MLPL New Shares, the Subdivision, the creation
of the Preference Shares, the ELI Reorganisation, the issue of the ELI New
Shares and the Further ELI Investments
"Proposed Midwestern Reorganisation" together the MLPL
Reorganisation and the ELI
Reorganisation
"Proposed
Transaction"
the Proposed Midwestern Reorganisation and the Further ELI Investments
"Prospectus
Regulations" the
European Union (Prospectus) Regulations 2019
(S.I. No. 380/2019) of Ireland
"Providence"
Providence Resources Plc
"PPTA"
Petroleum Profits Tax Act Chapter 354. LFN 1990 of Nigeria
"Q1", "Q2", "Q3" or
"Q4" the first,
second, third or fourth calendar quarters of a stated year
"QCA
Code"
the Quoted Companies Alliance's Corporate Governance Code published from time
to time
"Re-Admission"
the admission of the New Ordinary Shares following the Subdivision and the
MLPL New Shares to trading on AIM becoming effective in accordance with Rule 6
of the AIM Rules for Companies, which will effect the completion of the MLPL
Reorganisation and constitute the admission of the enlarged entity pursuant to
Rule 6 and Rule 14 of the AIM Rules for Companies
"Regulatory Information Service" or "RIS" a regulatory information
services authorised by the
FCA to receive, process and disseminate regulatory information in respect of
listed companies
"Relationship
Agreement" the
agreement dated 8 July 2022 between the
Company, Midwestern and Allenby Capital, as summarised in paragraph 17 of Part
1 and paragraph
10.2 of Part 10 of this Document
"Remuneration Committee"
the remuneration committee of the Company as
constituted from time to time
"Resolutions"
the ordinary resolutions and special resolutions to be proposed at the EGM
"Sahara"
OML 18 Energy Resource Limited, a company incorporated in Nigeria with
registration number RC 1134458 (formerly known as Sahara Field Production
Limited)
"Sahara OML 18 Acquisition Agreement"
the conditional agreement to be entered into between (i) Eroton and (ii)
Sahara Field Production 18 Limited and the Sahara Charitable Foundation, to
effect the Sahara OML 18 Transaction, which has been negotiated but is not
expected to be entered into until after the New Eroton Debt Facilities have
been entered into and the funds are available, details of which are set out in
paragraph 3.2.2 of Part 2 of this Document
"Sahara OML 18 Transaction"
the conditional acquisition by Eroton of an additional
16.2% interest in OML 18 pursuant to the Sahara OML 18 Acquisition Agreement,
details of which are set out in paragraph 3.2.2 of Part 2 of this Document
"San Leon
ELI"
San Leon ELI Limited, a private company limited by shares incorporated in
England with company number 12730851, and with its registered office at 27/28
Eastcastle Street, London W1W 8DH
"San Leon Energy
Nigeria" San Leon
Energy Nigeria B.V., a private company with
limited liability, incorporated under the laws of the Netherlands with company
number 65426173, and with its registered office at De Ronge 16, 1852 XB
Heiloo, The Netherlands
"San Leon
Financing"
San Leon Energy Financing Limited, a private company limited by shares,
incorporated under the laws of Ireland with company number 671568 and a
registered office at 2 Shelbourne Buildings, Crampton Road, Dublin 4, D04
W3V6, Ireland
"Securities Clearance Account" an
account in the name of an EB Participant opened in
the books of Euroclear Bank
"SEC"
the US Securities and Exchange Commission
"SEL
1/11"
the Standard Exploration Licence 1/11 (Barryroe)
"Settlement
Agreement" the
agreement to be entered into among Sahara, Sahara Field Production 18 Limited
and Eroton, to settle, or shall procure the settlement of the Eroton
Litigation, details of which are set out in paragraph
3.3.3 of Part 2 of this Document
"Share
Schemes"
the 'formal option plan' and the 'share based payment scheme' of the Company,
details of which are set out in paragraph 16 of Part 1 and paragraph 6 of Part
10 of this Document, the LTIP and the Consultant Plan (each as defined in
paragraph 13 of Part 1, details of which are set out in paragraph 13 of Part 1
and paragraph 6.2 of Part 11 of this Document)
"Shareholders"
the holders of shares in the capital of the Company from time to time
"Shell"
Royal Dutch Shell plc
"Shell Offtake
Agreement" the sale
and purchase agreement (expressed to be
governed by English Law) between Shell Trading (as buyer) and Eroton (as
seller) for the sale of crude oil from OML 18 which is constituted by the
offtake agreement dated 10 July 2014 (as most recently amended by the tenth
addendum dated 9 June 2021, details of which are set out in paragraph 10.23.6
of Part 12 of this Document
"Shell
Trading"
Shell Western Trading & Supply Ltd or any other part of Royal Dutch Shell
Plc or its subsidiaries, as the context requires
"Shortfall
Amount"
on the date falling forty-two months after the date of issue of the Preference
Shares and on each six-month interval thereafter 5% of the amount by which the
aggregate of all dividends paid to the holders of the Preference Shares is
less than the Preference Amount until the date on which the Preference Amount
has been paid in full, the initial Preference Amount being US$40,000,000
"Significant
Shareholder" any
person who holds any legal or beneficial interest
directly or indirectly in 3% or more of the or voting rights of the Company
from time to time, as defined in the AIM Rules for Companies
"SPDC"
Shell Petroleum Development Company of Nigeria
"SRD
II"
Directive (EU) 2017/828 of the European Parliament and of the Council of 17
May 2017 amending Directive 2007/36/EC as regards the encouragement of long-
term shareholder engagement
"Subdivision"
the proposed subdivision of the Ordinary Shares into the New Ordinary Shares
and Preference Shares pursuant to Resolution 2 set out in the Notice of EGM
which will become effective immediately prior to Re-
Admission
"Suspension
Date"
24 June 2021
"Suspension
Price"
40.75 pence
"substantial
shareholder" any
person who holds any legal or beneficial interest
directly or indirectly in 10% or more of the voting rights of the Company from
time to time, as defined in the AIM Rules for Companies
"Supplementary Admission Document" a supplementary AIM admission document
that will be
published to provide an update to the information presented in this Document,
drawn up in accordance with the AIM Rules for Companies
"Toscafund"
Toscafund Asset Management LLP, a limited liability partnership incorporated
in England and Wales with registered number OC320318
"Toscafund Managed Funds"
Tosca Mid Cap, Tosca Opportunity and The Pegasus
Fund Limited, being funds managed by Toscafund and any other fund managed or
advised by Toscafund from time to time
"Total"
Total E&P Nigeria Limited
"UK Companies Act
2006" the
Companies Act 2006, as amended, of the UK "UK" or "United
Kingdom"
United Kingdom of Great Britain and Northern Ireland "UK Bribery
Act"
the UK Bribery Act 2010
"UK City
Code"
the UK City Code on Takeovers and Mergers
"UK Takeover
Panel"
the UK Panel on Takeovers and Mergers, which administers the UK City Code
"UPIL"
Umugini Pipeline Infrastructure Limited, a company incorporated in Nigeria
with registration number 954506 and having its registered office at Plot 10,
Block 12 Otunba Adedoyin Ogungbe Crescent, Lekki Phase 1, Lagos, Nigeria
"UPIL Security
Releases" the
releases of security necessary to enable the indirect interest of Midwestern
in 13.77% of the existing equity in ELI and US$19,065,700 of existing
indebtedness from ELI (principal US$15,300,000 and accrued interest of
US$3,765,700) to be transferred to San Leon ELI pursuant to the ELI
Reorganisation under the Reorganisation Agreement
"UPIL Shareholder Consent"
the consent of the other shareholders of UPIL from
time to time
"US" or "United
States" the
United States of America, its territories and possessions, any state of the
United States of America and the District of Columbia and all other areas
subject to the jurisdiction of the United States of America
"US$", "$"or
"USD"
United States Dollars, the lawful currency of the US
"VAT"
Value-added tax
"Voting
Rights"
all the voting rights attributable to the capital of a company from time to
time which are exercisable at a general meeting
"Walstrand"
Walstrand (Malta) Limited, a company incorporated and registered under the
laws of Malta with registration number C 81937 and registered office at Triq
San Albert, Gzira, GZR 1150, Malta
"Walstrand Acquisition and Option" the acquisition
by the Company of 5,159 ELI Shares
representing 1.323% of the share capital of ELI then in issue from Walstrand,
and the grant of a call option to the Company to purchase an additional 16,777
ELI Shares from Walstrand, dated 23 June 2021
Throughout this Document, other than Part 8 and Part 9, the following exchange
rates have been used: US$ to £ of 1.22:1
Notes:
(i) Unless otherwise stated in this Document, all references to statutes
or other forms of legislation shall refer to statutes or legislation of
Ireland. Any reference to any provision of any legislation shall include any
amendment, modification, re- enactment or extension thereof.
(ii) Words importing the singular shall include the plural and vice versa
and words importing the masculine gender shall include the feminine or neuter
gender.
(i)
GLOSSARY OF ABBREVIATIONS
Set below is a glossary of selected technical terms:
"ABEX" Abandonment Expenditure
"ACOES" Alternative Crude Oil Evacuation and Storage
"AG" Associated gas
"AVO" Amplitude Variation with Offset
"bbl" barrel (of oil or condensate)
"blpd" barrel of liquid per day
"boe" barrel of oil equivalent
"bopd" barrel of oil per day
"bpd" barrel per day
"bscf" billion standard cubic feet
"Bscfpd" billion standard cubic feet per day
"Bstb" Billion stock tank barrels
"BSW" Basin sediments and water
"bwpd" barrel of water per day
"CAPEX" Capital Expenditure
"Contingent Resources" Those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from known accumulations, but
where the applied project(s) are not yet considered mature enough for
commercial development due to one or more contingencies. Contingent
resources are further significant in accordance with
the level of certainty associated with the estimates and may be
sub-classified based on project maturity and/or significant by their
economic status. In the CPR, primarily refer to resources
with uncertain fluid properties and sometimes volumes likely
to be sub-economical.
"CHA" Crude Handing Agreement
"CITA" Companies Income Tax Act
"CP" Condition Precedent
"CPR" Competent Person Report
"CUMM" Cumulative production
"DLD" Delayed Liquidated Damages
"DRILLEX" Drilling Expenditure
"DSCR" Debt Service Coverage Ratio
"ELI" Energy Link Infrastructure
"EUR" Expected Ultimate Recovery
"FDP" Field Development Plan
"FLCR" Field Life Cover Ratio
"FSO" Floating Storage and Offloading
"FTO" Freedom to Operate
"FTSS" Feet subsea (unit of depth measurement)
"G&A" General and Administrative
"GDT" Gas down-to
"GIIP" Gas initially in place.
"GMOU" General Memorandum of Understanding
"GOR" Gas-Oil Ratio
"GR" Gamma Ray
"GRV" Gross rock volume
"Gross Reserves" Reserves before deduction of royalty
"GWC" Gas water contact
"HDT" Hydrocarbon down to
"HWC" Hydrocarbon water contact
"HWU" Hydraulic Workover Unit
"IFD" In-Field Dehydration
"ISPO" Irrevocable Standing Payment Order
"JOA" Joint Operating Agreement
"JV" Joint Venture
"kbopd" Thousand bbl per day
"km" kilometres
"LLCR" Loan Life Coverage Ratio
"LLI" Long Lead Items
"LNG" Liquefied Natural Gas
"LPG" Liquid Petroleum Gas
"m" Meters
"Mbbl" Thousand barrels
"Mboepd" Thousand boe per day
"Mbopd" Thousand barrel of oil per day
"MMbbl" Million barrels
"MMboe" Million barrel of oil equivalent
"MMscf/d" Million standard cubic feet per day
"MMstb" Million stock tank barrels
"NAG" Non-associated gas
"NCTL" Nembe Creek Trunk Line
"NGC" National Gas Company
"Net reserves" Portion of the gross reserves attributable to San Leon's working interests
after deducting royalties and interests owned by others
"NFA" No Further Activities
"NTG" Net to gross
"NPV" Net present value
"OML" Oil Mining Lease
"OPEX" Operating Expenditure
"PDP" Proved Developed Producing
"PDNP" Proved Developed Non-Producing
"Proved reserves" Reserves that have a 'reasonable certainty' of being recovered
"Probable reserves" Reserves that are defined as 'less likely' to be recovered than proved, but
more certain to be recovered than possible reserves
"Possible reserves" Reserves that analysis of geological and engineering data suggests are less
likely to be recoverable than probable reserves
"Prospective Resources" Resources that are those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from undiscovered accumulations by
application of future development projects. Prospective Resources have both an
associated chance of discovery and a chance of development. Prospective
Resources are further subdivided in accordance with the level of
certainty associated with recoverable estimates assuming their
discovery and development and may be sub-classified based on project
maturity
"PPT" Petroleum Production Tax
"PUD" Proved Undeveloped
"P(sat)" Saturation pressure
"ODT" Oil down-to
"OWC" Oil water contact
"rb" Reservoir barrels
"RBL" Reserve Based Lending
"Reserves" Those quantities of petroleum anticipated to
be commercially recoverable by application of development projects to
known accumulations from a given date forward under defined conditions.
Reserves must further satisfy four criteria: they must be
discovered, recoverable, commercial, and remaining (as of the
evaluation date) based on the development project(s) applied. Reserves are
further categorised in accordance with the level of certainty
associated with the estimates and may be sub-classified based
on project maturity and/or characterised by development and production
status.
"Resources" All quantities of petroleum naturally occurring on or within
the earth's crust, discovered and undiscovered (recoverable and
unrecoverable), plus those quantities already produced. Further, it
includes all types of petroleum whether currently considered "conventional" or
"unconventional"
"Undeveloped Resources" Reserves that are quantities expected to be recovered through future
investments
"STOIIP" Stock tank original oil in place
"stb" Stock tank barrels
"Tcf" Trillion cubic feet
"TR" Technical Recovery
"VSP" Vertical Seismic Profile
"WUT" Water Up-to (Shallowest water depth observed in a particular reservoir or
compartment based on well log interpretation)
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