REG - San Leon Energy PLC - Unaudited Interim Results
30/09/2022 07:01
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RNS Number : 2530B San Leon Energy PLC 30 September 2022
Prior to publication, the information contained within this announcement was
deemed by the Company to constitute inside information for the purposes of
Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310.
With the publication of this announcement, this information is now considered
to be in the public domain.
30 September 2022
San Leon Energy Plc
("San Leon", "SLE" or "the Company")
Unaudited Interim Results
San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, today announces its unaudited interim results for
the six months ended 30 June 2022. These results include an update on its
indirect interests in OML 18, a world-class oil and gas block located onshore
in Nigeria, and Energy Link Infrastructure (Malta) Limited ("ELI"), the
company which owns the Alternative Crude Oil Evacuation System ("ACOES")
project.
Corporate
· On 8 July 2022 San Leon announced, amongst other matters, that it had
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 announced 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". The Proposed
Transactions are transformational for San Leon and once complete will:
o Consolidate and simplify the group structure;
o Increase San Leon's exposure to the world class OML 18 asset fourfold to a
44.1% initial indirect economic interest; and
o Increase San Leon's ownership of ELI to c.50% and a total of US$48.3
million loans (plus accrued interest) to ELI.
· On 27 January 2022 San Leon announced that it was proceeding with its
investment in the Oza oil field in Nigeria and upon completion it will have
the following interests in Decklar Petroleum Limited:
o A total of US$5.5 million 10% unsecured subordinated Decklar Petroleum
loan notes; and
o An equity interest in Decklar Petroleum Limited of 11%.
· On 31 January 2022 San Leon announced that it had successfully
concluded its ongoing legal proceedings with TAQA Offshore BV ("TAQA") in
relation to San Leon's legacy interest in two royalties in Block Q13A, which
is located offshore Netherlands. San Leon received payments totaling more than
€5.7 million in settlement from TAQA.
· On 15 February 2022 San Leon announced a further loan of US$2.0
million to ELI at a coupon of 14% per annum over four years which is payable
quarterly following a one-year moratorium from the date of investment. In
addition, the loan was accompanied by a transfer of a 2.0% equity interest in
ELI to San Leon which was acquired at nominal value, a consideration of
approximately US$91.
Financial
· Cash and cash equivalents as at 30 June 2022 of US$0.3 million (30
June 2021: US$12.1 million of which US$6.8 million was restricted and held in
escrow for the Oza transaction).
· As disclosed in the Company's AIM Admission Document published on 8
July 2022, a loan facility of US$50.0 million has been made available to the
Company by MM Capital Holding for the purposes of funding its working capital
requirements and financing the Further ELI Investments (otherwise known as the
New Facility). The New Facility currently remains undrawn, at San Leon's
election, as the Company is currently examining whether additional or
alternative financing might be available on terms that may be better aligned
with the Company's overall strategic and financing objectives, and San Leon is
in discussions with several counterparties in this regard. As a result of
electing not to drawdown the New Facility, the Company's current trade
creditors amount to approximately US$3.5 million (predominantly related to
advisor fees incurred in relation to the Proposed Transaction) and with
current cash resources being limited, a drawdown of funds under the New
Facility or an alternative debt financing arrangement is required to allow
trade creditor settlement. Depending on progress with the discussions on this
alternative financing, the Board intends, in the near-term, to either draw
down on the New Facility or put a different debt financing arrangement in
place which will be drawn down once it is finalised, to allow trade creditors
to be settled and the Further ELI Investments to be financed.
· In the six months ended 30 June 2022 US$0.3 million (six months to 30
June 2021: US$0.8 million) has been received by the Company in relation to
payments due to San Leon under the MLPL Loan Notes. San Leon has agreed with
MLPL, Midwestern and Martwestern to a Conditional Payment Waiver to 31
December 2022 to allow for the completion of the Proposed Transactions. As at
29 September 2022, the Conditional Payment Waiver relates to US$108.8 million,
being a principal amount due of US$82.2 million and total accrued interest due
of US$26.6 million, which will be payable 90 days after such expiry, save for,
inter alia, if there is an event of default.
· Completion of the Proposed MLPL Reorganisation (which is part of the
Proposed Transaction) is subject to a number of conditions, details of which
were set out in the Company's announcement of 8 July 2022 and in the Admission
Document. In order to acquire additional interests in OML 18 and take its
economic interest to 45% of OML 18, Eroton proposes to enter into new senior
secured reserve-based lending facilities totaling US$750 million (the "New
Eroton Debt Facilities"), to be provided to Eroton by a lending consortium
headed by Afreximbank. Whilst this process has made good progress in
September 2022, it remains a complex procedure with several interested parties
and, as a result, further additional time is needed to finalise the loan
agreements and ancillary documentation. Consequently, the condition relating
to the New Eroton Debt Facilities, which had been had already been extended to
30 September 2022, has now been extended to 31 October 2022 by agreement with
Midwestern. Aside from the extension of timing, the structure of the New
Eroton Debt Facilities remains in accordance with the description set out in
the Admission Document. In addition to the requirement to enter into the New
Eroton Debt Facilities, the MLPL Reorganisation Agreement requires the Sahara
OML 18 Acquisition Agreement (as defined in the Admission Document) to be
entered into by all parties by 30 September 2022. The Sahara OML 18
Acquisition Agreement is not expected to be entered into until after the New
Eroton Debt Facilities have been entered into and the funds are available, so
this date has also been extended to 31 October 2022 by agreement with
Midwestern.
· The board of San Leon still remains confident that the Proposed
Transactions will complete during the final quarter of this year, as
originally set out in the Admission Document.
Operational
Eroton - OML 18
· Oil delivered to the Bonny terminal for sales averaged approximately
1,130 barrels of oil per day ("bopd") in H1 2022 (6,600 bopd in H1 2021). The
figure has been affected by continued losses and downtime associated with the
use of the Nembe Creek Trunk Line ("NCTL"), and reduced operations both as a
result of the Covid-19 pandemic and also due to prudent capital discipline
ahead of the availability of the ACOES.
· Gas sales averaged 41.8 million standard cubic feet per day
("mmscf/d") in H1 2022 after downtime (17.8 mmscf/d in H1 2021).
· Production downtime of 17% in H1 2021 (3% downtime in H1 2021) was
caused by third party terminal and gathering system issues. Such issues in the
third-party export system are expected to be substantially resolved by the
implementation of the new ACOES for the purpose of transporting, storing and
evacuating crude oil from the OML 18 export pipeline.
· Pipeline losses by the Bonny Terminal operator have been markedly
higher during this year (30 June 2022: 91%; 30 June 2021: 65%). The ACOES
export Pipeline and FSO system are expected to reduce losses significantly
when operational.
ELI - ACOES pipeline
· There have been various logistical delays to the implementation of the
ACOES project in the first half of the year.
· The Floating Storage and Offloading ("FSO") vessel is now on station,
approximately 40 kilometers offshore, and is expected to be spread moored and
operational for receipt of barging cargoes in the coming weeks.
· Oil barging operations from OML 18 to the mother vessel continued
during the period. Once the mother vessel has reached its capacity of 250,000
barrels, the oil will be transferred to the FSO.
· Good progress has been made during the period on commercial
negotiations with third parties who are expected to use the FSO when it is
fully operational. Third parties will barge oil to the FSO when its operations
commence.
· The pipeline contractor has recently commenced mobilisation to site
and will recommence laying the pipeline component of the ACOES imminently. The
full ACOES which will be utilised by Eroton, including the pipeline, is now
expected to be operational in Q1 2023.
Chief Executive Officer of San Leon, Oisín Fanning, commented:
"We were delighted to have entered into a series of agreements for the
Proposed Transactions in early July 2022. We believe that this series of
transactions, when completed, will be truly transformational for the Company
and will deliver significant value to our shareholders. We are making good
progress on clearing the conditions associated with the agreements and still
expect to complete the Proposed Transactions in the fourth quarter of 2022.
"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."
Enquiries:
San Leon Energy plc +353 1291 6292
Oisín Fanning, Chief Executive
Julian Tedder, Chief Financial Officer
Allenby Capital Limited (Nominated adviser and joint broker to the Company)
+44 203 328 5656
Nick Naylor
Alex Brearley
Vivek Bhardwaj
Panmure Gordon & Co (Joint broker to the Company) +44 207 886 2500
James Sinclair-Ford
Tavistock (Financial Public Relations) +44 207 920 3150
Nick Elwes
Simon Hudson
The Interim Report and Accounts will shortly be available on the Company's
website at www.sanleonenergy.com (http://www.sanleonenergy.com) .
Chairman's statement
Our focus in the first half of 2022 was on progressing the Proposed
Transactions and I am pleased that this culminated in San Leon publishing an
Admission Document on 8 July 2022 and our shares resuming trading on AIM. The
Proposed Transactions were subsequently approved by our Shareholders at the
Extraordinary General Meeting held on 5 August 2022. We are making good
progress in satisfying the conditions required to complete the Proposed
Transactions and expect final completion to be in the fourth quarter of 2022.
On the operational side, the first half of 2022 has been as challenging for
OML 18 and the ACOES project. Oil export from OML 18 was at very low rates
during the first half of 2022 while awaiting full barging availability of the
ACOES system. Gas sales were rather healthier, at around 41.8 mmscf/d on
average during the period. Current production from OML18 is approximately
12,000 bopd and this is expected to increase further over the coming months as
operations are optimised.
Financial Review
As we announced on 8 July 2022 completion of the Proposed Transactions remains
materially uncertain and further details on going concern are included in note
1 to the financial statements.
San Leon has reported a loss after tax from continuing operations of US$8.9
million for the six months to 30 June 2022 (six months to 30 June 2021: profit
of US$8.1 million). The majority of this loss is attributable to the loss on
equity investments for the six months to 30 June 2021 of US$12.5 million (30
June 2021: loss of US$7.7 million). This loss relates to San Leon's equity
investment in MLPL. MLPL has a 100% equity investment in Martwestern Energy,
which in turn has a 98% initial economic interest in Eroton, which holds a 27%
working interest in OML 18, Nigeria and is its operator.
The share of loss on equity accounted investments comprises 40% of MLPL's
gross results being, administrative costs of US$1.0 million (30 June 2021:
US$1.1 million), net finance income of US$5.4 million (30 June 2021: US$4.1
million), a loss on investment of US$30.5 million (30 June 2021: profit of
US$21.2 million), a net loss on financial assets of US$0.2 million (30 June
2021: US$Nil) and a tax charge of US$4.8 million (30 June 2021: US$4.1
million). Although ELI recorded a loss of US$6.3 million (30 June 2021: US$2.9
million) there was no share of loss of associate recorded because the opening
investment as at 1 January 2022 had already been written down to US$Nil. The
share of loss also includes Decklar Petroleum Limited's gross loss of US0.8
million in the first half of 2022.
Revenue for the six months to 30 June 2021 was US$0.1 million (six months to
30 June 2021: US$Nil) relating to receipts in relation to royalties received
in respect of legacy interests in the Netherlands.
Administrative costs decreased to US$4.3 million for the six months to 30 June
2022 (30 June 2021: US$5.9 million).
Finance expense of US$0.1 million for the six months to 30 June 2022 (30 June
2021: US$0.1 million) relates to interest on obligations for leases.
Finance income of US$8.7 million (30 June 2021: US$8.2 million) is derived
from accrued interest income on the MLPL and ELI Loan Notes.
The Expected Credit Loss ("ECL") provision has increased by US$0.8 million (30
June 2021: US$0.8 million).
The tax charge for the six months to 30 June 2022 is US$0.6 million (30 June
2021: US$0.4 million).
Outlook
San Leon looks forward to completing the Proposed Transactions in the fourth
quarter of 2022 and working together with Eroton and ELI in 2023 to unlock the
significant value in the OML 18 and ACOES assets. The Proposed Transactions
are transformational for San Leon and are an important step in our growth
strategy.
Consolidated Income Statement
for the six months ended 30 June 2022
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Continuing operations
Revenue from contracts with customers 2 116 - 5,747
Gross profit 116 - 5,747
Share of (loss) / profit of equity accounted investments 10 (12,502) 7,728 14,532
Administrative expenses (4,301) (5,934) (12,867)
Profit on disposal of subsidiaries 4 - - 16,615
Write off of exploration and evaluation assets 9 (90) (103) (206)
Other income 3 7 526 4,560
(Loss) / profit from operating activities (16,770) 2,217 28,381
Finance expense 5 (56) (67) (129)
Finance income 6 8,749 8,242 14,599
Expected credit losses 7 (734) (789) 1,192
Fair value movements in financial assets 12 485 (1,070) (2,551)
(Loss) / profit before income tax (8,326) 8,533 41,492
Income tax expense 8 (603) (409) (775)
(Loss) / profit for the financial period (8,929) 8,124 40,717
(Loss) / profit per share (cent) - total
Basic (loss) / profit per share (1.98) 1.81 9.05
Diluted (loss) / profit per share (1.96) 1.81 8.94
Consolidated Statement of Other Comprehensive Income
for the six months ended 30 June 2022
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
(Loss) / profit for the period (8,929) 8,124 40,717
Items that may be reclassified subsequently to profit or loss
Currency translation differences - subsidiaries (182) (11) 56
Recycling of currency translation reserve on disposal of subsidiaries - - (16,615)
Total other comprehensive income (182) (11) (16,559)
Total comprehensive (loss) / profit for the period (9,111) 8,113 24,158
Consolidated Statement of Changes in Equity
for the period ended 30 June 2022
Unaudited Share Share Other un-denominated Special Currency Share based Fair value Retained Attributable to
At 30 June 2022 capital premium reserve reserve translation payment reserve earnings equity holders
reserve reserve US$'000 US$'000 reserve reserve US$'000 US$'000 in Group
US$'000 US$'000 US$'000 US$'000 US$'000
Balance as at
1 January 2022
5,157 21,077 638 5,024 9,189 12,909 (2,699) 124,923 176,218
Total comprehensive income for period
Loss for the period - - - - - - - (8,929) (8,929)
Other comprehensive income
Foreign currency translation differences - subsidiaries
- - - - (182) - - - (182)
Recycling of currency translation reserve on disposal of subsidiaries
- - - - - - - - -
Total comprehensive income for the period - - - - (182) - - (8,929) (9,111)
Balance at
30 June 2022
5,157 21,077 638 5,024 9,007 12,909 (2,699) 115,994 167,107
Unaudited Share Share Currency Share based Fair value Retained Attributable to
At 30 June 2021 capital premium translation payment reserve earnings equity holders
reserve reserve Other un-denominated reserve reserve US$'000 US$'000 in Group
US$'000 US$'000 reserve Special US$'000 US$'000 US$'000
US$'000 reserve
US$'000
Balance as at
1 January 2021
5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
Total comprehensive income for period
Profit for the period - - - - - - - 8,124 8,124
Other comprehensive income
Foreign currency translation differences - subsidiaries
- - - - (11) - - - (11)
Recycling of currency translation reserve on disposal of subsidiaries
- - - - - - - - -
Total comprehensive income for the period - - - - (11) - - 8,124 8,113
Balance at
30 June 2021
5,157 21,077 638 5,024 25,737 15,139 (2,699) 90,100 160,173
Consolidated Statement of Changes in Equity
for period ended 30 June 2022
Audited Share Share Currency Share based Fair value Retained Attributable to
At 31 December 2021 capital premium translation payment reserve earnings equity holders
reserve reserve Other un-denominated reserve reserve US$'000 US$'000 in Group
US$'000 US$'000 reserve Special US$'000 US$'000 US$'000
US$'000 reserve
US$'000
Balance as at
1 January 2021
5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
Total comprehensive income for year
Profit for the year - - - - - - - 40,717 40,717
Other comprehensive income
Foreign currency translation differences - subsidiaries
- - - - 56 - - - 56
Recycling of currency translation reserve on disposal of subsidiaries
- - - - (16,615) - - - (16,615)
Total comprehensive income for the year - - - - (16,559) - - 40,717 24,158
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Effect of options expired - - - - - (2,230) - 2,230 -
Total transactions with owners - - - - - (2,230) - 2,230 -
Balance at
31 December 2021
5,157 21,077 638 5,024 9,189 12,909 (2,699) 124,923 176,218
Consolidated Statement of Financial Position
as at 30 June 2022
Notes Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Assets
Non-current assets
Intangible assets 9 - - -
Equity accounted investments 10 46,614 51,830 58,634
Property, plant and equipment 11 2,313 2,791 2,510
Financial assets 12 16,777 14,771 10,657
65,704 69,392 71,801
Current assets
Inventory 168 183 168
Trade and other receivables 13 10,000 4,107 13,642
Financial assets 12 100,201 81,597 91,159
Cash and cash equivalents 14 267 12,102 7,592
110,636 97,989 112,561
Total assets 176,340 167,381 184,362
Equity and liabilities
Equity
Called up share capital 17 5,157 5,157 5,157
Share premium account 17 21,077 21,077 21,077
Other undenominated reserve 638 638 638
Special reserve 17 5,024 5,024 5,024
Share-based payments reserve 12,909 15,139 12,909
Currency translation reserve 9,007 25,737 9,189
Fair value reserve (2,699) (2,699) (2,699)
Retained earnings 115,994 90,100 124,923
Total equity attributable to equity shareholders 167,107 160,173 176,218
Non-current liabilities
Lease liability 20 1,848 2,372 2,054
Derivative - 9 -
Deferred tax liabilities 18 1,880 921 1,282
3,728 3,302 3,336
Notes Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Current liabilities
Trade and other payables 15 5,449 3,850 4,752
Provisions 16 56 56 56
5,505 3,906 4,808
Total liabilities 9,233 7,208 8,144
Total equity and liabilities 176,340 167,381 184,362
Oisín Fanning Julian Tedder
Director Director
29 September 2022
Consolidated Statement of Cash Flows
for the six months ended 30 June 2022
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Cash flows from operating activities
(Loss) / profit for the period - continuing operations (8,929) 8,124 40,717
Adjustments for:
Depreciation 11 197 503 1,028
Finance expense 5 56 67 129
Finance income 6 (8,749) (8,242) (14,599)
Foreign exchange (220) 68 (9)
Income tax expense 8 603 409 775
Impairment of exploration and evaluation assets - continuing operations 9 90 103 206
Expected credit losses 7 734 789 (1,192)
Profit on disposal of subsidiaries 4 - - (16,615)
Fair value movements in financial assets 12 (485) 1,070 2,551
Decrease in inventory - - 15
Decrease / (increase) in trade and other receivables 3,643 (2,266) (11,765)
Increase in trade and other payables 727 212 1,068
Share of loss / (profit) of equity-accounted investments 10 12,502 (7,728) (14,532)
Tax (refunded) / paid (7) 39 35
Net cash inflow / (outflow) from operating activities 162 (6,852) (12,188)
Cash flows from investing activities
Expenditure on exploration and evaluation assets 9 (90) (103) (206)
Lease - prepaid rental 20 - - (244)
ELI Loan Notes issued 12 (1,941) - -
Acquisition of Decklar Equity Interest 12 (482) - -
Decklar Loan Notes issued 12 (5,021)
OML 18 Loan Notes principal payments received 12 - - -
OML 18 Loan Notes interest payments received 12 300 750 2,150
Net cash (outflow) / inflow from investing activities (7,234) 647 1,700
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/22 31/12/21
US$'000 US$'000 US$'0000
Cash flows from financing activities
Repayment of lease liability - principal 20 (109) (114) (227)
Interest paid 20 (56) (67) (129)
Net cash outflow from financing activities (165) (181) (356)
Net decrease in cash and cash equivalents (7,237) (6,386) (10,844)
Effect of foreign exchange fluctuation on cash and cash equivalents (88) (22) (74)
Cash and cash equivalents at start of period 14 7,592 18,510 18,510
Cash and cash equivalents at end of period 14 267 12,102 7,592
Notes to the Interim CONSOLIDATED Financial Statements
for the six months ended 30 June 2022
1. Basis of preparation and accounting policies
1.1 Statement of compliance
These interim financial statements have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial Reporting and
should be read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 December 2021. They do
not include all of the information required for a complete set of
International Financial Reporting Standards ("IFRS") financial statements.
However, selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual financial
statements. They should be read in conjunction with the Group's annual
financial statements as at 31 December 2021 which are available on the Group's
website www.sanleonenergy.com.
These unaudited Half year results were approved by the Board of Directors on
29 September 2022.
1.2 Significant accounting policies
The accounting policies applied by the Group in the interim financial
statements are the same as those applied by the Group in its consolidated
financial statements as at and for the year ended 31 December 2021.
1.3 Estimates and judgements
In preparing these interim financial statements, management has made
judgements and estimates that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates. The significant judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those described in the last annual
report for the year ended 31 December 2021.
The Company has used draft 30 June 2022 management accounts provided by MLPL
to account for the equity accounted investment. These MLPL management accounts
have not been reviewed or audited by MLPL's auditors.
The Company has used draft 30 June 2022 management accounts provided by ELI to
account for the equity accounted investment. These ELI management accounts
have not been reviewed or audited by ELI's auditors.
The Company has used draft 30 June 2022 management accounts provided by
Decklar Petroleum Limited to account for the equity accounted investment.
These Decklar management accounts have not been reviewed or audited by
Decklar's auditors.
1.4 Going concern
As disclosed in the Company's AIM Admission Document published on 8 July 2022,
a loan facility of US$50.0 million has been made available to the Company by
MM Capital Holding for the purposes of funding its working capital
requirements and financing the Further ELI Investments (otherwise known as the
New Facility). The New Facility currently remains undrawn, at San Leon's
election, as the Company is currently examining whether additional or
alternative financing might be available on terms that may be better aligned
with the Company's overall strategic and financing objectives, and San Leon is
in discussions with several counterparties in this regard. As a result of
electing not to drawdown the New Facility, the Company's current trade
creditors amount to approximately US$3.5 million (predominantly related to
advisor fees incurred in relation to the Proposed Transaction) and with
current cash resources being limited, a drawdown of funds under the New
Facility or an alternative debt financing arrangement is required to allow
trade creditor settlement. Depending on progress with the discussions on this
alternative financing, the Board intends, in the near-term, to either draw
down on the New Facility or put a different debt financing arrangement in
place which will be drawn down once it is finalised, to allow trade creditors
to be settled and the Further ELI Investments to be financed.
The Directors have prepared a detailed cash flow forecast for the Group for
the period from 1 September 2022 to 31 December 2023.
The principal assumptions underlying the cash flow forecast and the
availability of finance to the Group are as follows:
· The proposed reorganisation to consolidate Midwestern Oil and Gas Company
Limited's ("Midwestern") shareholdings in: i) the Company; and ii) Midwestern
Leon Petroleum Limited ("MLPL") into a single shareholding in the Company (the
"Potential Transaction") completes in the second half of 2022, as announced on
8 July 2022 and approved at the Extraordinary General Meeting on 5 August
2022. The Potential Transaction also comprises, inter alia, a proposed
consolidation of Midwestern's indirect debt and equity interests in Energy
Link Infrastructure (Malta) Limited ("ELI") with those of the Company, as well
as further new debt and new and existing equity investments to be made by San
Leon in ELI ("Further ELI Investments");
· Eroton Exploration and Production Company Limited ("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;
· A loan of US$50 million is secured to finance the Potential Transaction;
· Elimination of the MLPL loan notes on completion of the Potential
Transaction;
· Under an Asset Management Agreement with Eroton, San Leon receives
US$500,000 per month for technical and financial advisory services following
completion of the Potential Transaction;
· Repayments from ELI of loan notes of US$35.5 million during the remainder
of 2022 and 2023;
· Repayment from Eroton technical services debtor of US$3m during 2022; and
· A further loan of US$2.5 million is given to Decklar Petroleum Limited in
relation to its Oza investment as per the option agreement as most recently
announced by San Leon on 3 May 2022.
Due to the Potential Transaction not having completed at the date of the
Interim financial statements there is an inherent material uncertainty that
completion will not occur as anticipated.
The Group has modelled various other scenarios assuming that the Potential
Transaction does not complete and given the Group's well understood cost base,
the principal uncertainty in the event that the Potential Transaction does not
complete relates to the quantum and timing of receipt of interest and capital
repayments on the Loan Notes with MLPL, 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 and ELI
loan notes have both been credit impaired.
In the ultimate downside scenario where no repayments are received from MLPL
and ELI, the US$50 million loan secured by the Company to fund the Potential
Transaction can be drawn to facilitate completion of the further ELI
Investments, with the remaining balance being used for general corporate
purposes. In this scenario the working capital requirements of the Group can
be met for the 12-month period from the date of approval of the financial
statements, although a reduction to administrative costs is required in 2023,
which the Directors believe is achievable and within their control.
However, while the working capital requirements of the Group can be met for
the 12-month period, the Directors believe that the continued viability of the
Group and Company into the future is dependent on the completion of the
Proposed Transaction. As such, the completion of the Proposed Transaction
creates significant uncertainty upon the Group and Company's ability to
continue as a going concern beyond the 12-month period. The Directors' have
concluded that this represents a material uncertainty which may cast
significant doubt upon the Group and Company's ability to continue as a going
concern and that, therefore, the Group may be unable to continue realising its
assets and discharging its liabilities in the normal course of business.
Having taken all the above factors into account, the directors continue to
believe it is appropriate to prepare these financial statements on a going
concern basis, noting the material uncertainty that exists on the completion
of the Potential Transaction and its impact on Group's ability to continue as
a going concern. The financial statements do not include any adjustments that
would be necessary if the group were unable to continue as a going concern.
2. Revenue and Segmental Information
Revenue and Segmental Information
30 June 2022 Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
(Unaudited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenue - - - - - 116 - - 116
Write off of exploration - - (90) - - - - - (90)
and evaluation assets
Segment profit / (loss) before income tax (150) - (90) (4,488) 485 - (28) (4,055) (8,326)
Property, plant and equipment - - - - 2,313 - - - 2,313
Equity accounted investments - - - 46,614 - - - - 46,614
Segment non-current assets - - - 58,615 7,089 - - - 65,704
Segment liabilities (50) (18) (804) (4) (4,040) - (745) (3,572) (9,233)
30 June 2021 Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
(Unaudited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Write off of exploration and evaluation assets
- - (103) - - - - - (103)
Segment (loss) / profit before income tax
313 - (103) 17,763 (1,070) - (28) (8,342) 8,533
Property, plant and equipment - - - 366 2,425 - - - 2,791
Equity accounted investments - - - 51,830 - - - - 51,830
Segment non-current assets - - - 61,195 8,197 - - - 69,392
Segment liabilities (17) (18) (804) (5) (3,165) - (748) (2,451) (7,208)
31 December 2021 Poland Morocco Albania Nigeria Ireland Netherlands Spain Unallocated# Total
(Audited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total revenue - - - 3,000 - 2,747 - - 5,747
Write off of exploration and evaluation assets
- - (206) - - - - - (206)
Segment (loss) / profit before income tax
16,439 - (206) 33,314 (2,552) 6,775 - (12,278) 41,492
Property, plant and equipment 4 - - - 2,506 - - - 2,510
Equity accounted investments - - - 58,634 - - - - 58,634
Segment non-current assets 4 - - 65,000 6,797 - - - 71,801
Segment liabilities (65) (18) (804) (4) (3,680) - (745) (2,828) (8,144)
# Unallocated expenditure and liabilities include amounts of a corporate
nature and not specifically attributable to a reportable segment.
Revenue in Nigeria in the year ended 31 December 2021 relates to the provision
of drilling services. In The Netherlands revenue relates to the settlement of
the TAQA claim in the year ended 31 December 2021 and to ongoing royalty
receipts in the six months ended 30 June 2022.
3. Other income
Unaudited Unaudited Audited
6 months ended 6 months ended Year
30/06/22 30/06/21 ended
US$'000 US$'000 31/12/21
US$'000
TAQA settlement (i) - - 4,027
Other (ii) 7 526 533
7 526 4,560
(i) TAQA settlement
In December 2021, the Group successfully concluded their ongoing legal
proceedings with TAQA Offshore B.V. ("TAQA") in relation to its legacy
interests in two royalties on Block Q13A, which is located offshore the
Netherlands (the "Amstel Oil Field"), including an Overriding Royalty
Agreement entered into with Encore Oil as part of a sale and purchase
agreement entered into in 2007 (the "Royalty Agreements").
TAQA had subsequently purchased the interest from Encore Oil. Production from
the Amstel Field started in 2014 but no royalties had been received. The
Royalty Agreements became the subject of separate legal proceedings in the
Netherlands and the UK.
The royalties will continue to be payable in accordance with the terms and
conditions of the Royalty Agreements. The Royalty Agreements represent legacy
interests and any potential net future benefit to the Group going forward from
the Amstel Oil Field on a monthly basis is not expected to be particularly
material to San Leon.
The total TAQA settlement amounted to approximately US$6.8 million of which
approximately US$2.7 million has been recognised as revenue in 2021 as this
amount had not been previously provided for by the Company.
(ii) Other
Relates to the disposal of property, plant and equipment that had been fully
impaired or depreciated to US$Nil in prior periods.
4. PROFIT on disposal of subsidiaries
Unaudited Unaudited Audited
6 months 6 months ended Year
ended 30/06/21 ended
30/06/22 US$'000 31/12/21
US$'000 US$'000
Other, recycling from equity to income statement - - 16,615
- - 16,615
In 2021 the Group liquidated certain foreign operations that held non-core
assets. The Group's investment in the assets held by the subsidiaries has been
fully impaired in prior periods. The liquidation of the foreign operations has
resulted in the realisation of cumulative foreign currency gains of US$16.6
million, that had previously been recognised in equity. The realisation of the
cumulative foreign currency gains and losses do not impact the consolidated
assets or liabilities.
5. Finance expense
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Interest on obligations for leases 56 67 129
6. Finance income
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Total finance income on Loan Notes (Note 12) 8,749 8,242 14,590
Movement in fair value of derivatives - - 9
8,749 8,242 14,599
All interest income is in respect of assets measured at amortised cost.
7. Expected credit losses
Unaudited Unaudited Audited
6 months ended 6 months Year
30/06/22 ended ended
US$'000 30/06/21 31/12/21
US$'000 US$'000
OML 18 Loan Notes - net remeasurement of loss allowance (1,051) (704) 1,447
ELI Loan Notes - net remeasurement of loss allowance 457 (85) (255)
Decklar Loan Notes - net remeasurement of loss allowance (140) - -
(734) (789) 1,192
8. Income tax
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Current tax
Current period income tax 5 6 11
Deferred tax
Origination and reversal of temporary differences (Note 18) 438 756 1,608
Deferred tax movement in Barryroe NPI (Note 18) 160 (353) (844)
Total income tax charge 603 409 775
The difference between the total tax shown above and the amount calculated by
applying the applicable standard rate of Irish corporation tax to the loss
before tax is as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended end
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Profit / (loss) before income tax (8,326) 8,533 41,492
Tax on profit / (loss) at applicable Irish corporation tax rate of 25% (2021: (2,082) 2,133 10,373
25%)
Effects of:
Tax effect at fair value adjustment 160 (86) (844)
Prior year adjustment - - (57)
Losses utilised in period - (345) (1,085)
(Income) / expenses not taxable - (2,519) (10,174)
Income tax withheld 5 6 4
Effect of different tax rates - - (701)
Adjustment for difference on overseas profit before tax - - (23)
Excess losses carried forward 2,520 1,220 3,282
Tax charge for the period 603 409 775
9. Intangible assets
Unaudited
30/06/22
US$'000
Cost and net book value
At 1 January 2021 -
Additions 206
Write off of exploration and evaluation assets (206)
At 31 December 2021 -
Additions 90
Write off of exploration and evaluation assets (90)
At 30 June 2022 -
An analysis of exploration assets by geographical area is set out below:
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Albania 90 103 206
90 103 206
The Directors considered the carrying value of capitalised costs in respect of
its exploration and evaluation assets. These assets were assessed for
impairment indicators and in particular with regard to remaining licence
terms, likelihood of licence renewal, likelihood of further expenditures and
on-going appraisals for each area. Based on internal assessments from the
latest information available, the exploration and evaluation assets remain
fully impaired in 2022.
10. Equity accounted investments
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Cost and net book value
Opening balance 58,634 44,102 44,102
Additions (ELI) 482 - -
Share of profit / (loss) of equity accounted investments (12,502) 7,728 14,532
Closing Balance 46,614 51,830 58,634
The Group's only joint venture entities and associates at 30 June 2022 were as
follows:
Name Registered office Type % held
Midwestern Leon Petroleum Limited 5(th) Floor Barkly Wharf, Le Caudan Waterfront, Joint Venture 40%
Port Louis, Republic of Mauritius
Energy Link Infrastructure (Malta) Limited 260 Triq San Albert, Griza, GZR 1150, Malta Associate 10%
Decklar Petroleum Limited St. Nicholas House, 9th Floor, Associate 11%
Catholic Mission Street, Lagos, Nigeria
A summary of the financial information of the equity investments is detailed
below.
Midwestern Leon Petroleum Limited (i) Energy Link Infrastructure (Malta) Total
Limited (ii) Decklar
Petroleum
Limited (iii)
Equity Interest 40% 10% 11%
US$'000 US$'000 US$'000 US$'000
Group's interest in net assets of investee of 1 January 2021 43,822 280 - 44,102
Share of profit / (loss) 14,812 (280) - 14,532
Group's interest in net assets of investee at 31 December 2021 58,634 - - 58,634
Additions - - 482 482
Share of (loss) (12,422) - (80) (12,502)
Group's interest in net assets of investee at 30 June 2022 46,212 - 402 46,614
(i) Midwestern Leon Petroleum Limited
During 2016 the Company acquired a 40% non-controlling interest in MLPL as
part of the OML 18 transaction. Full details of the OML 18 transaction are set
out in Note 12. The movement during 2022 reflects a share of the loss of MLPL
being administrative costs of US$1.0 million (31/12/2021: US$6.4 million),
other income of US$Nil (31/12/21: US$0.2 million), net finance income of
US$5.4 million (31/12/2021: US$8.0 million), loss on investment of US$30.5
million (31/12/2021: US$44.0 million profit), net loss on financial assets of
US$0.2 million (31/12/2021: US$1.2 million profit) and a tax charge of US$4.8
million (31/12/2021: US$10.0 million).
The above interest is accounted for as an equity accounted investment as San
Leon does not have control over the entity, which is governed under a Joint
Venture Agreement requiring the approval of both parties to the Joint Venture
Agreement in respect of all operating decisions.
The Group identified potential impairment indicators, being that MLPL is yet
to receive a dividend from Eroton, and MLPL has entered into a loan to be able
to make Loan Note repayments to the Group. To test for a potential impairment
the carrying value of the equity interest in MLPL was compared against the
fair value less cost of sale. This was estimated using a discounted cashflow
model of the expected future cashflows from MLPL's share of the underlying OML
18 asset. Future cashflows of OML 18 were estimated using the following price
assumptions of US$69/bbl in 2023 and a subsequent long term price of US$66/bbl
escalated at 2% annually, with the cashflows discounted using a post-tax
discount rate of 10%. Assumptions involved in the impairment assessment
include estimates of commercial reserves, production rates, future oil prices,
discount rates and operating and capital expenditure profiles, all of which
are inherently uncertain. This analysis identified that the carrying value of
the equity interest in MLPL is not impaired.
If the recoverable amount was estimated taking into account a reduction in the
oil price of 30% over the same period and an increase in the discount rate to
25%, then the carrying value of the equity interest in MLPL would still not be
impaired.
The Directors recognise that the future realisation of the equity accounted
investment is dependent on future successful exploration and appraisal
activities and subsequent production of oil and gas reserves.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020 the Company acquired a 10% non-controlling interest in Energy
Link Infrastructure (Malta) Limited (See Note 12(ii)).
ELI recorded a loss of US$6.3 million in 2022 consisting of sales income of
US$Nil (31/12/2021: US$1.4 million), other income of US$Nil (31/12/2021:
US$0.1 million), cost of sales of US$4.3 million (31/12/2021: US$7.4 million)
and operating expenses including administrative costs of US$2.0 million
(31/12/2021: US$3.2 million). There was no share of loss of associate recorded
in 2022 because the opening investment as at 1 January 2022 had already been
written down to US$Nil.
San Leon does not have control over the entity, however it has been determined
to have significant influence. On this basis, the above interest is recognised
as an equity accounted investment. Significant influence has been determined
based on the Company having 10% of voting rights, a board position and a
Shareholder Agreement requiring a majority, and in some instances a super
majority (meaning 70% of votes are required to pass a resolution), to approve
all operating decisions.
Under the terms of ELI's senior debt facility, the lender has a charge over
all of the company's assets and, as further security, each shareholder in ELI
(including San Leon Energy) has pledged their shares to the lender. The terms
of the pledge are that the shares cannot be transferred or otherwise utilised
without the lender's consent.
The Directors recognise that the future realisation of the equity accounted
investment is dependent on completion of the pipeline being constructed by ELI
and subsequent throughput of oil from various customers.
(iii) Decklar Petroleum Limited
In January 2022 the Company acquired a 11% non-controlling interest in Decklar
Petroleum Limited ('Decklar') (See Note 12(iv)).
San Leon does not have control over the entity however it has been determined
to have significant influence including the planning and determining the
location of the first new well to be drilled on the Oza Oil Field. The company
also has the option of one board position, which it deems will give it
significant influence. This would therefore mean than the Company's 11%
shareholding does wield significant influence over the direction of the
company and in particular policy-making processes. On this basis, the above
interest is recognised as an equity accounted investment.
The movement during 2022 reflects a share of the US$0.8 million loss of
Decklar.
11. Property, plant and equipment
Leased Plant & Office Motor Total
assets equipment equipment vehicles US$'000
US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2021 3,281 9,166 1,092 480 14,019
Additions 244 - - - 244
Disposals (231) - (9) (124) (364)
Currency translation adjustment - (513) (44) (72) (629)
At 31 December 2021 3,294 8,653 1,039 284 13,270
Currency translation adjustment - (561) (27) (13) (601)
At 30 June 2022 3,294 8,092 1,012 271 12,669
At 30 June 2021 3,281 8,989 1,074 459 13,803
Depreciation
At 1 January 2021 707 8,547 1,055 416 10,725
Charge for the period 370 619 22 17 1,028
Disposals (231) - (9) (124) (364)
Currency translation adjustment - (513) (44) (72) (629)
At 31 December 2021 846 8,653 1,024 237 10,760
Charge for the period 190 - 2 5 197
Currency translation adjustment - (561) (27) (13) (601)
At 30 June 2022 1,036 8,092 999 229 10,356
At 30 June 2021 884 8,682 1,042 404 11,012
Net book values
At 30 June 2022 2,258 - 13 42 2,313
At 30 June 2021 2,397 307 32 55 2,791
At 31 December 2021 2,448 - 15 47 2,510
12. Financial Assets
OML 18 (i) ELI (ii) Barryroe 4.5% Decklar Total
US$'000 US$'000 net profit Petroleum US$'000
interest (iii) Limited
US$'000 (iv)
US$'000
Amortised Amortised FVTPL Amortised
cost cost cost
Cost / Valuation
At 1 January 2021 68,925 15,353 6,842 - 91,120
Finance income 12,122 2,468 - - 14,590
Loan Notes receipts - principal - - - - -
Loan Notes receipts - interest (2,150) - - - (2,150)
Lifetime ECL - credit-impaired # 1,447 - - - 1,447
Fair value movement, Income statement - - (2,551) - (2,551)
At 31 December 2021 80,344 17,821 4,291 - 102,456
Loan Notes advanced - 1,941 - 5,021 6,962
Finance income 5,949 1,471 - 278 7,698
Loan Notes receipts - interest (300) - - - (300)
Fair value movement, Income statement - - 485 - 485
At 30 June 2022 85,993 21,233 4,776 5,299 117,301
Expected Credit Loss Provision
At 1 January 2021 - (385) - - (385)
New financial asset acquired * - (255) - - (255)
At 31 December 2021 - (640) - - (640)
Net remeasurement of loss allowance * ^ - 457 - (140) 317
At 30 June 2022 - (183) - (140) (323)
# See OML18 ECL table below
* See ELI ECL table below
^.Decklar ECL table below
Higher risk assets not credit impaired
Lifetime ECL
Performing US$'000 Credit impaired Lifetime ECL
Expected Credit Loss - OML 18 12-month ECL US$'000 Total
US$'000 US$'000
At 1 January 2021 - - (15,309) (15,309)
Impact of modification - - 1,503 1,503
Net remeasurement of loss allowance - - 1,447 1,447
Transfer to lifetime ECL - credit-impaired - - (3,794) (3,794)
At 31 December 2021 - - (16,153) (16,153)
Impairment - - 765 765
Effective interest on ECL - - (1,816) (1,816)
At 30 June 2022 - - (17,204) (17,204)
Higher risk assets not credit impaired
Lifetime ECL
Performing US$'000 Credit impaired Lifetime ECL
Expected Credit Loss - ELI 12-month ECL US$'000 Total
US$'000 US$'000
At 1 January 2021 (385) - - (385)
Transfer to Lifetime ECL 385 (385) - -
Net remeasurement of loss allowance - (255) - (255)
At 31 December 2021 - (640) - (640)
Net remeasurement of loss allowance - 457 - 457
At 30 June 2022 - (183) - (183)
Higher risk assets not credit impaired
Lifetime ECL
Performing US$'000 Credit impaired Lifetime ECL
Expected Credit Loss - Decklar 12-month ECL US$'000 Total
US$'000 US$'000
At 1 January 2021 - - - -
Transfer to Lifetime ECL - - - -
Net remeasurement of loss allowance - - - -
At 31 December 2021 - - - -
Net remeasurement of loss allowance (140) - - (140)
At 30 June 2022 (140) - - (140)
OML 18 (i) ELI (ii) Barryroe 4.5% Decklar Total
US$'000 US$'000 net profit Petroleum US$'000
interest (iii) Limited (iv) US$'000
US$'000
Amortised Amortised FVTPL Amortised
cost cost cost
Book value at 30 June 2022 85,993 21,050 4,776 5,159 116,978
Current 85,993 14,208 - - 100,201
Non-current - 6,842 4,776 5,159 16,777
Book value at 30 June 2021 74,540 16,056 5,772 - 96,368
Current 74,540 7,057 - - 81,597
Non-current - 8,999 5,772 - 14,771
Book value at 31 December 2021 80,344 17,181 4,291 - 101,816
Current 80,344 10,815 - - 91,159
Non-current - 6,366 4,291 - 10,657
Unquoted shares (Ardilaun Energy Limited, v) (Gemini Resources Limited, vi)
(Amedeo Resources Limited, vii) : These unquoted shares have a current nil
value.
Net Profit Interests (Poznan, viii) (Gora, ix) (Liesa, x): These NPIs have a
nil value from acquisition.
(i) OML 18
In September 2016, the Company secured an indirect economic interest in OML
18, onshore Nigeria.
The Company undertook a number of steps to effect this purchase. MLPL, a
company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%
shareholding, was established as a special purpose vehicle to complete the
transaction by purchasing all of the shares in Martwestern, a company
incorporated in Nigeria. Martwestern holds a 50% shareholding in Eroton, a
company incorporated in Nigeria and the operator of OML 18, and Martwestern
also holds an initial 98% economic interest in Eroton. The economic effect of
this structure is that San Leon has an initial indirect economic interest of
10.584% in OML 18. Shareholders will note that this is higher than the
percentage interest anticipated by San Leon at the time of the acquisition in
2016. There have been no further purchases or payments by San Leon but this
revised percentage is based on a reassessment and recalculation of the various
parties' interests in OML 18.
To partly fund the purchase of 100% of the shares of Martwestern, MLPL
borrowed US$174.5 million in incremental amounts by issuing loan notes with an
annual coupon of 17% ("Loan Notes") and effective interest rate of 25%, as
noted below. Midwestern Oil and Gas Company Limited ("Midwestern") is the 60%
shareholder of MLPL and transferred its shares in Martwestern to MLPL as part
of the full transaction. Following its placing in September 2016, San Leon
became beneficiary and holder of all Loan Notes issued by MLPL and the holder
of an indirect economic interest in OML 18. San Leon is due to be repaid the
full amount of the US$174.5 million plus the 17% coupon once certain
conditions have been met and using an agreed distribution mechanism. Through
its wholly owned subsidiary, San Leon Nigeria B.V., the Company is also a
beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in
MLPL but the Loan Notes repayments must take priority over any dividend
payments made to the MLPL shareholders.
The fair value assessment of the Loan Notes on acquisition was calculated as
follows:
Total
US$'000
Total consideration 188,419
Fair value of Loan Notes attributable to equity investment # (30,889)
Net fair value of Loan Notes 157,530
Arrangement fees (5,500)
Additions to Financial Assets in 2016 including accrued interest at date of 152,030
acquisition
# The fair value of Loan Notes attributable to the equity investment is
calculated using a discount factor of management's estimate of a market rate
of interest of 8% above the coupon rate of 17% over the term of the Loan
Notes, giving an effective interest rate of 25%.
The key information relevant to the fair value of the Loan Notes is as
follows:
Valuation technique Significant unobservable inputs Inter-relationships between the unobservable inputs and fair value
measurements
Discounted cash flows · Discount rate 25% based on a market rate of interest of 8% above the Nil
coupon rate of 17% *
· MLPL ability to generate cash flows for timely repayment *
· Loan Notes originally repayable in full by 30 September 2020
(subsequently modified to 31 December 2022)
*Day 1 and considered appropriate at the reporting dates.
The business model for the MLPL loan is to hold to collect. The Loan Notes are
accounted for at amortised cost.
The credit risk is managed via various undertakings, guarantees, a pledge over
shares and the mechanism whereby MLPL prioritises payment of sums due under
the Loan Notes. Given the size and quality of the OML 18 oil and gas asset the
main credit risk is regarded as the timing of payments by MLPL which is
dependent on dividend distributions by Eroton rather than being unable to pay
the total quantum due under the Loan Notes. To date Eroton have been unable to
make a dividend distribution. Consequently, MLPL had to enter into a loan in
2017 and subsequently, in order to be able to meet its obligations under the
Loan Notes and make payments to San Leon.
On 6 April 2020, the Company entered into an Agreement with MLPL, amending the
timing of the remaining payment of the Loan Notes Instrument. At the date of
the Agreement, the remaining outstanding balance was US$79.5 million. Under
the terms of the Agreement, US$10.0 million was due to be repaid on or before
6 October 2020, with the balance of the Loan Notes receivable payable in three
quarterly instalments, commencing in July 2021 and completing by December
2021. Following the Agreement the outstanding loan continued to have an annual
coupon rate of 17% and an effective interest rate of 25% per annum. All other
material terms of the Loan Notes Instrument remained unchanged.
On 24 June 2021 the Company announced that it had entered into preliminary
discussions with Midwestern in connection with the potential acquisition of
the shares of MLPL owned by Midwestern (the "Potential Transaction"). The
Company expects that the Potential Transaction, if agreed, would include the
elimination of the Loan Notes. In connection with these discussions, on 6 July
2021 the Company agreed a conditional payment waiver in respect of the amounts
under the Agreement that fell due in July 2021 and within 30 days of expiry of
the conditional payment waiver. Under the terms of the conditional payment
waiver amounts payable under the Agreement would fall due 90 days following
expiry. Interest continued to accrue on the outstanding principal of the Loan
Notes at 17%.
The conditional payment waiver was originally due to expire on the earlier of
31 August 2021 or the date an agreement was reached with Midwestern to effect
the Proposed Transactions. The conditional payment waiver was subsequently
extended to include payments due up to December 2021. During 2022 the
conditional payment waiver has been further extended to include payments due
up to December 2022, pending completion of the Proposed Transactions.
The conditional payment waiver granted in 2021 and the extension of the
conditional payment waiver in 2022 have each been treated as a modification of
the financial asset which did not give rise to derecognition. The amortised
cost of the Loan Notes immediately prior to the modification was US$81.1
million (2021: US$74.8 million), being a gross asset of US$98.3 million (2021:
US$92.6 million) and expected credit loss provision of US$16.5 million (2021:
17.8 million). A net modification loss of US$3.2 million (2021: US$3.2
million) was recognised in respect of the change in present value of the
revised cashflows discounted at the original face value.
During the period ended 30 June 2022 San Leon received total payments under
the Loan Notes of US$0.3 million (2021: US$0.8 million). The payments received
during 2022 represent principal of US$Nil million (2021: US$Nil million) and
interest of US$0.3 million (2021: US$0.8 million)) on the Loan Notes repaid.
As at 30 June 2022 there was US$103.2 million in principal and interest (2021:
US$96.5 million), due under the Loan Notes. As at 30 June 2022, US$2.6 million
was outstanding from the US$10.0 million due to be repaid on 6 October 2020.
Since the reporting date, US$0.3 million of the balance outstanding has been
received.
The Directors of San Leon have considered the credit risk of the Loan Notes at
30 June 2022, 31 December 2021 and 30 June 2021. Due to the inability of MLPL
to make dividend distributions, the Directors continue to consider that the
credit risk has significantly increased since initial recognition. At 31
December 2019 and subsequently a provision for the lifetime expected credit
loss of the Loan Notes had been recognised. In addition, the Directors have
reviewed the counterparty credit risk associated with measurement of the
expected credit loss. This was assessed as having increased significantly
since initial recognition.
The Loan Notes are unique assets for which there is no directly comparable
market data. Repayments of the Loan Notes are expected to be made from the
underlying cashflows that support MLPL or, if the Potential Transaction is
agreed, the Loan Notes will be taken into account and eliminated as part of
the overall structure agreed. The Directors have considered the credit risk of
MLPL, in particular the ongoing short term production issues. The Loan Notes
continue to be considered to be impaired. An impairment has been estimated
based on a forward-looking analysis where a range of outcomes has been
considered taking into account the size and timing of the contractual
cashflows, the risk of the Potential Transaction being delayed or not agreed,
risk of late payments and the risk of default leading to less than full
recovery of the amounts due in respect of the Loan Notes. The Directors have
considered the possible scenarios and used their judgement to estimate a
weighted average outcome of these scenarios. The impairment is calculated as
the difference between the present value of the weighted average of possible
outcomes (discounted at the effective interest rate of the Loan Notes) and the
present value of the contractual cashflows.
As at 30 June 2022 the Loan Notes are considered credit impaired. The expected
credit loss of US$17.2 million (2021: US$16.2 million) has been presented net
as part of the amortised cost of the Loan Notes. The expected credit loss has
been calculated with a very high probability that the Potential Transaction
will complete, and therefore the Loan Notes will extinguish, and the Company
believes that the value of the Potential Transaction is worth at least the
value of the Loan Notes.
See Subsequent events (Note 22) for further information on the Proposed
Transactions.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020, the Company acquired an indirect economic interest in the
Alternate Crude Oil Evacuation System ("ACOES") project.
The interest was acquired through the direct investment in Energy Link
Infrastructure (Malta) Limited ("ELI" or "ELI Malta"), a company incorporated
in Malta, which owns the ACOES project through its 100% owned subsidiary
Energy Link Infrastructure (Nigeria) Limited, a company incorporated in
Nigeria ("ELI Nigeria").
The investment comprises a 10% equity interest in ELI together with a US$15.0
million shareholder loan at a coupon of 14% per annum over 4 years, and
repayable quarterly following a one-year moratorium from the date of
investment (the "ELI Loan Notes"). Funds were provided to ELI in two tranches
with the first US$10.0 million tranche being paid in August, and the second
tranche of US$5.0 million on 6 October 2020, being half of the funds due from
Midwestern Leon Petroleum Limited as part of the repayment of the MLPL Loan
Notes.
The fair value assessment of the Loan Notes on acquisition was calculated as
follows:
Total
US$'000
Total consideration 15,000
Fair value of Loan Notes attributable to equity investment # (443)
Net fair value of Loan Notes 14,557
# The fair value of Loan Notes attributable to the equity investment is
calculated using a discount factor of management's estimate of a market rate
of interest of 2% above the coupon rate of 14% over the term of the Loan
Notes, giving an effective interest rate of 16%.
The key information relevant to the fair value of the ELI Loan Notes on the
date they were initially recognised is as follows:
Valuation technique Significant unobservable inputs* Inter-relationships between the unobservable inputs and fair value
measurements
Discounted cash flows · Discount rate 16% based on a market rate of interest of 2% above the Nil
coupon rate of 14%
· ELI ability to generate cash flows for timely repayment
· Loan Notes are repayable in full
by 6 October 2024
*Day 1 and considered appropriate at the reporting dates.
The intention for the ELI loan is to hold to collect.
The credit risk is managed via various undertakings, such as representations,
warranties and covenants and the ability for a preferential distribution
should some warranties be breached. Given the nature and stage of the asset
the main credit risk is regarded as the timing of payments by ELI Malta which
is dependent on dividend distributions by ELI Nigeria rather than being unable
to pay the total quantum due under the ELI Loan Notes.
The Directors of San Leon have considered the credit risk of the ELI Loan
Notes at 30 June 2022, 31 December 2021 and 30 June 2021. Both tranches of the
ELI Loan Notes were issued in H2 2020, with a one-year repayment holiday.
Quarterly repayments were due from 31 July 2021 (for the first tranche) and 6
October 2021 (second tranche). As at 30 June 2022 no repayments had been
received. As at 30 June 2022 there was US$21.2 million (31/12/21: US$17.8
million) in principal and interest due under the ELI Loan Notes.
San Leon announced on 24 June 2021 that it is considering making further debt
and equity investments in ELI and reaffirmed this intention in subsequent
announcements and an AIM Admission Document published on 8 July 2022. The
Company has agreed with ELI that, should these further investments be made,
then the First Instalment will be offset from any investment monies payable to
ELI by San Leon under certain of these new arrangements. Pending any further
investment in ELI, the First Instalment will continue to accrue interest at
14% per annum. San Leon understands that project delays have impacted the
ability of ELI to make ELI Loan Note repayments, with current projections
indicating that debt will start to be serviced in the third quarter of 2022
when barging operations commence. It is the Directors opinion that ELI will
make full repayment of the outstanding loan notes.
In February 2022 the Company provided a further loan of US$2.0 million ELI.
The Loan is a US$2.0 million shareholder loan at a coupon of 14% per annum
over four years which is repayable quarterly following a one-year moratorium
from the date of investment. The Loan will be accompanied by a transfer to
San Leon by Walstrand (Malta) Limited, ELI's largest shareholder, of shares in
ELI representing a 2.0% equity interest (the "ELI Equity Interest"), which San
Leon will acquire at nominal value, representing a consideration payable of
approximately US$91.
The US$2.0 million Loan and the ELI Equity Interest are distinct and separate
to the proposed further debt and equity investments in ELI announcement on 24
June 2021.
At 30 June 2022, the transfer of the ELI Equity Interest had not completed as
ELI is still waiting on obtaining the consent of Guaranty Trust Bank PLC.
The Directors have considered the credit risk of the ELI Loan Notes and the
counterparty credit risk as at 30 June 2022, 31 December 2021 and 30 June
2021. A guarantee from ELI Nigeria, who guarantee all payment obligations of
ELI Malta, has also been taken into account. As a result of the delay in
operations and ELI Loan Notes being overdue, the Directors have determined
that there has been a significant increase in credit risk since initial
recognition of the ELI Loan Notes, and a provision for the lifetime expected
credit loss of the ELI Loan Notes has been recognised. The ELI Loan Notes are
not considered to be credit impaired on the basis of the delays in ELI
commencing repayment of the loan notes.
An expected credit loss provision has been estimated based on a
forward-looking analysis where a range of outcomes has been considered taking
into account the size and timing of the contractual cashflows, the risk of
late payment and the risk of default leading to less than full recovery of the
amounts due in respect of the ELI Loan Notes. The Directors have considered
the possible scenarios and used their judgement to estimate a weighted average
outcome of these scenarios. The ECL provision is calculated as the difference
between the present value of the weighted average of possible outcomes
(discounted at the effective interest rate of the ELI Loan Notes) and the
present value of the contractual cashflows. This has then been compared to
publicly available macroeconomic data of default rates by geography, industry
and rating.
The Company determined that the expected credit loss provision of US$0.2
million (31/12/2021: US$0.6 million), being 0.1% (31/12/21: 3.6%) of the
outstanding balance was appropriate. The expected credit loss has been
calculated with a high probability that repayments will commence in Q3 2022.
(iii) Barryroe - 4.5% Net Profit Interest
SLE holds a 4.5% Net Profit Interest in the Barryroe ("Barryroe NPI") oil
field at fair value through profit and loss under IFRS 9. In 2019 a
market-based valuation approach was adopted, using the price of the publicly
listed shares of Providence Resources plc ("Providence") (operator and holder
of an 80% interest in the Barryroe oil field) as its basis. The Directors
believe the markets assessment of the current risks and uncertainties of the
project have been reflected within the share price of Providence at year end,
and it is therefore appropriate to use this to update their valuation.
Given the latest announcements by Providence, the Directors have reviewed the
modelling assumptions and consider it reasonable and appropriate to continue
to use a market based approach to increase the Barryroe carrying value by
US$0.6 million (31/12/2021: decrease of US$2.6 million) to US$4.8 million to
reflect their estimate of the impact of these risks to the future cash flows
on the value of the asset.
The key information relevant to the fair value of the Barryroe 4.5% net profit
interest is as follows:
Valuation technique Significant unobservable inputs Inter-relationships between the unobservable inputs and fair value
measurements
Market based approach using share price of Operator (Providence) · Estimated value of NPI as percentage of total field NPV 9.5% (2021: 9.5%) The estimated fair value would increase / (decrease) if:
· US Dollar exchange rate increased / (decreased)
(iv) Decklar Petroleum Limited
In January 2022, the Company acquired an indirect economic interest in the Oza
oil field in Nigeria.
The interest was acquired through the direct investment in Decklar Petroleum
Limited ("Decklar"), a company incorporated in Nigeria, which is the Risk
Service Provider ("RSA") to the operator of the Oza field.
The investment comprises a 11% equity interest in Decklar together with a
US$5.5 million unsecured subordinated loan at a coupon of 10% per annum over 5
years, and repayable from available funds from operations, there is a cash
sweep in San Leon's favour until the loan and interest is repaid.
Until the loan and its interest are repaid, 75% of the available funds (after
taking into account any required debt servicing payments, general and
administrative expenses, approved joint venture capital and operating costs
required to be funded by Decklar under the RSA, taxes and other statutory
payments) that can be distributed from Decklar's RSA proceeds will be paid to
San Leon in satisfaction of those payments.
The fair value assessment of the Decklar Loan Notes on acquisition was
calculated as follows:
Total
US$'000
Total consideration 5,500
Fair value of Decklar Loan Notes attributable to equity investment # (479)
Net fair value of Decklar Loan Notes 5,021
# The fair value of Decklar Loan Notes attributable to the equity investment
is calculated using a discount factor of management's estimate of a market
rate of interest of 4% above the coupon rate of 10% over the term of the
Decklar Loan Notes, giving an effective interest rate of 14%.
The key information relevant to the fair value of the Decklar Loan Notes on
the date they were initially recognised is as follows:
Significant unobservable inputs* Inter-relationships between the unobservable inputs and fair value
measurements
Discounted cash flows · Discount rate 14% based on a market rate of interest of 4% above the Nil
coupon rate of 10%
· Decklar ability to generate cash flows for timely repayment
· Decklar Loan Notes are repayable in full by 31 December 2027
*Day 1 and considered appropriate at the reporting dates.
The intention for the Decklar Loan Notes is to hold to collect.
The credit risk is managed via various undertakings, such as representations,
warranties and covenants and the ability for a preferential distribution
should some warranties be breached. Given the nature and stage of the asset
the main credit risk is regarded as the timing of payments by Decklar which is
dependent on that company's performance.
The Directors of San Leon have considered the credit risk of the Decklar Loan
Notes at 30 June 2022. During 2022 San Leon was not due any contractual
repayments of the Loan Notes. As at 30 June 2022 there was US$5.3 million
(31/12/21: US$Nil) in principal and interest due under the Decklar Loan Notes.
The Directors of San Leon have considered the credit risk of the Decklar Loan
Notes at 30 June 2022. The first repayment due is in Q3 2024, subject to
available funds, and therefore the Decklar Loan Notes are currently in good
standing. Current projections indicate that all debt will be serviced in
accordance with contract expectations. The Directors do not consider the
credit risk has significantly increased since initial recognition, and a
provision for a 12-month expected credit loss of the Decklar Loan Notes has
been recognised.
An expected credit loss provision has been estimated based on a
forward-looking analysis where a range of outcomes has been considered taking
into account the size and timing of the contractual cashflows, the risk of
late payment and the risk of default leading to less than full recovery of the
amounts due in respect of the Decklar Loan Notes. The Directors have
considered the possible scenarios and used their judgement to estimate a
weighted average outcome of these scenarios. The ECL provision is calculated
as the difference between the present value of the weighted average of
possible outcomes (discounted at the effective interest rate of the Decklar
Loan Notes) and the present value of the contractual cashflows.
The Company determined that the expected credit loss provision of US$0.1
million, being 2.6% of the outstanding balance was appropriate.
(v) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to
Ardilaun Energy Limited ("Ardilaun") in 2014 Ardilaun agreed to issue shares
equivalent to 15% of the issued share capital of Ardilaun to San Leon. The
original fair value of the 15% interest in Ardilaun was based on a market
transaction in Ardilaun shares.
The Directors considered the carrying value of this interest at 30 June 2022
and given the length of time to obtain Irish government approval for the
transaction, the Directors felt it was prudent to carry 15% of Ardilaun shares
still to be issued to San Leon at a value of US$Nil.
(vi) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources
Limited into 54,818 fully paid ordinary shares in Gemini.
The Directors considered the carrying value of this interest at 31 December
2021 to be US$Nil. This carrying value has been maintained at 30 June 2022.
(vii) Amedeo Resources Limited
At 30 June 2022, the Company holds 213,512 ordinary shares at a market value
of US$Nil. The value of the investment was written down to US$Nil in 2018 due
to the shares of Amedeo Resources plc being de-listed.
(viii) Poznan 10% Net Profit Interest
In 2016, San Leon sold its 35% interest in the Poznan assets for a
consideration of €1 plus a 10% NPI. Until active development commences a nil
value has been placed on the NPI. There has been no change in 2022.
(ix) Gora 5% Net Profit Interest
In 2018, San Leon sold its interest in the Gora assets for a consideration of
€1 plus a 5% NPI. Until active development commences a nil value has been
placed on the NPI. There has been no change in 2022.
(x) Liesa 5% Net Profit Interest
In 2018, San Leon sold its interest in the Liesa assets for a consideration of
€1 plus a 5% Net Profit Interest ("NPI"). Until active development commences
a nil value has been placed on the NPI. There has been no change in 2022.
13. Trade and other receivables
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Amounts falling due within one year:
Trade receivables 3,103 2 9,860
VAT and other taxes refundable 113 87 80
Other debtors (i) 4,481 6,241 4,429
Expected credit loss on other debtors (i) (3,630) (3,532) (3,630)
Prepayments (ii) 5,933 1,309 2,903
10,000 4,107 13,642
(i) In 2017, other debtors included US$3.6 million due from NSP Investments
Holdings Ltd for the disposal of equity accounted investments. During 2018,
the Directors fully provided for the amount.
In September 2021, Gemini Energy B. V. concluded transactions to gain 100%
ownership of these equity accounted investments. To accommodate and agree to
the transfer of the shares in the equity accounted investments from NSP to
Gemini, Gemini offered and agreed to pay San Leon:
(a) a payment of US$1.5 million by no later than the first anniversary of the
transfer of the equity accounted investments shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms of a net
profits interest agreement.
The Gemini obligations replace the amounts due from NSP and the expected
credit loss for the total amount remains.
See Related party transactions (Note 21) for further details.
The remaining other debtors consists of rent deposits and similar receivables.
(ii) Prepayments includes an amount of US$2.0 million (31/12/2021: US$2.0
million) for the conditional investment in the equity of Energy Link
Infrastructure (Malta) Limited. The equity being conditionally purchased is
existing equity interests in ELI owned by Walstrand (Malta) Limited, ELI's
largest shareholder.
Prepayments also include costs associated with the Proposed Transactions of
US$3.8 million (31/12/2021: US$Nil).
14. Cash and cash equivalents
Unaudited Unaudited Unaudited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Cash and cash equivalents 267 5,349 839
Solicitor client account (i) - 6,753 6,753
267 12,102 7,592
(i) Solicitor client account at 31 December 2021 and 30 June 2021 represents
monies held on behalf of the Company by Adepetun Caxton-Martins Agbor &
Segun in relation to the Decklar Petroleum Limited transaction.
15. Trade and other payables
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Current
Trade payables 2,068 1,020 1,286
PAYE / PRSI 131 159 223
Corporation tax 5 6 6
Payroll and pensions 156 - 750
Other creditors - 41 67
Accruals 2,777 2,291 2,080
Current portion of lease 312 333 340
5,449 3,850 4,752
Non-current
Non-current portion of lease 1,848 2,372 2,054
16. Provisions for liabilities
Decommissioning
US$'000
At 1 January 2021 56
Movement during the year -
At 31 December 2021 56
Movement during the period -
At 30 June 2022 56
Current 56
Non-current -
At 30 June 2021
56
Current 56
Non-current -
At 31 December 2021
56
Current 56
Non-current -
Decommissioning
The provision for decommissioning costs is recorded at the value of the
expenditures expected to be required to settle the Group's future obligations
on decommissioning of previously drilled wells.
17. Share capital
Number of Authorised
New Ordinary Equity
shares US$'000
€0.01 each
Authorised equity
At 1 January 2021 2,847,406,025 177,475
At 30 June 2021 2,847,406,025 177,475
At 30 June 2022 2,847,406,025 177,475
Issued, called up and fully paid:
Number of Share Share
New Ordinary capital premium
shares US$'000 US$'000
€0.01 each
At 1 January 2021 449,913,026 5,157 21,077
At 31 December 2021 449,913,026 5,157 21,077
At 30 June 2022 449,913,026 5,157 21,077
Special reserve
Pursuant to the capital reduction in 2019, the company undertook to credit
US$5,024,260 to a special reserve. This special reserve is not a distributable
reserve and must remain in place until such time as obligations in respect of
certain guarantees given by the Company have lapsed or become unenforceable.
18. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Financial assets - IFRS 9 (732) (1,063) (572)
Financial assets - other 175 175 175
Unrealised exchange difference (22) (4) (22)
Interest not taxable until received (1,301) (492) (863)
Tax losses recognised - 463 --
(1,880) (921) (1,282)
19. Commitements and contingencies
(a) Operating leases
Cash commitments under lease obligations as a lessee (Note 20) are as follows:
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
US$'000 US$'000 US$'000
Payable:
Within one year 312 369 340
Between one and five years 1,246 1,472 1,359
Over five years 987 1,534 1,246
2,545 3,375 2,945
(b) Exploration, evaluation and development activities
The Group has commitments of US$Nil (31/12/21: US$Nil) in the period ended 30
June 2022 to contribute to its share of exploration and evaluation expenditure
in respect of exploration licences and concessions held.
(c) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in aggregate of US$2.0
million in relation to the sale completed in August 2019 to Horizon Petroleum
Ltd.
The Group will receive the aggregate consideration when certain concessions
are transformed and granted to Horizon.
(d) Island Oil & Gas Limited Guarantee
The Company has a Guarantee in respect of the decommissioning liabilities of
Island (Seven Heads) Limited, a subsidiary of Island Oil & Gas Limited
("Island"). In the event that Island are unable to pay the decommissioning
liabilities, under the Guarantee, the Company could be liable for any amounts
Island does not pay.
20. LEASES
Statement of Financial Position
At
30/06/22 US$'000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January 2021 2,574
Additions 244
Depreciation charge for the period (370)
At January 2022 2,448
Depreciation charge for the period (190)
Closing net carrying amount at 30 June 2022 2,258
At
30/06/22 US$'000
Lease liability
Property leases
At 1 January 2021 2,761
Payments - principal (227)
Payments - interest (129)
Currency translation adjustment (140)
Interest 129
At 1 January 2022 2,394
Payments - principal (109)
Payments - interest (56)
Currency translation adjustment (125)
Interest 56
Closing net carrying amount at 30 June 2022 2,160
Current 312
Non-current 1,848
21. Related party transactions
The Company and Group has related party transactions with i) Directors ii)
shareholders iii) subsidiaries and iv) other entities with which it has
entered into business arrangements. Due to the influence or material interest
that these parties have in transactions with the Company or Group they are
required to be disclosed and are detailed below.
Red Cedar Energy DMCC
San Leon Energy plc and Red Cedar Energy DMCC have a common Director, Mr.
Oisín Fanning. San Leon has a consultancy agreement with Red Cedar Energy
DMCC which was paid US$588,871 for amounts due for 2022 (31/12/2021:
US$1,679,494).
Oisín Fanning Property
The Company holds an option to acquire a property at market value from Mr.
Fanning. The option is due to expire in 2026 and the option fee of US$409,000
is included in other debtors (Note 12) and is refundable when the Company
either exercises or terminates the option. Mr. Fanning was paid US$154,040
(31/12/2021: US$323,395) rent for the use of this property during the year to
31 December 2021 by the Company.
The property is available for use by all staff and consultants requiring
overnight accommodation while conducting business on behalf of the Company up
to it being used for office space in June 2021, see below.
In June 2021, the Company signed a licence with Mr. Oisín Fanning to use the
property for office space.
Greenbay Energy Resources Limited
San Leon Energy plc and Greenbay Energy Limited have a common Director, Mr.
Mutiu Sunmonu. San Leon has a consultancy agreement with Greenbay Energy
Limited which was paid US$47,905 for amounts due for 2022 (31/12/2021:
US$95,629).
In June 2019, San Leon Energy plc entered into an agreement with Caledonian
Properties Nigeria Limited ("Caledonian"), a company owned by Mr. Mutiu
Sunmonu, for the use of two properties in Lagos, Nigeria, and was extended for
a further 2 years in June 2021. Caledonian was paid US$231,000 for the period
1 July 2019 to 30 June 2021 of which US$57,750 relates to 2021. Caledonian was
also paid US$244,444 for the period 1 July 2021 to 30 June 2023 of which
US$61,111 related to the period 1 July 2021 to 31 December 2021 and US$61,111
related to the period 1 January 2022 to 30 June 2022. It is common practice to
pay such sums up-front in Nigeria.
The properties are being provided at a competitive rate and it is an arm's
length transaction.
One of the properties is used as an office and the other property is available
for use by all staff and consultants requiring accommodation while conducting
business on behalf of the Company.
Gemini Energy B. V. / Palomar Natural Resources (Netherlands) B.V. / NSP
Investments Holdings Ltd
On 18 November 2016, the Company announced the sale of its (i) 35% interest in
TSH Energy Joint Venture B.V. (TSH) and (ii) 35% interest in Poznan Energy
B.V. (Poznan) to Palomar Natural Resources (Palomar). This divested the
Company's interest in the Rawicz and Siekierki fields respectively. A 10% net
profit interest was retained in the Poznan assets. Palomar was regarded
as a related party as it already held the remaining interest in both TSH and
Poznan.
The total cash consideration due to the Company for the sale of its 35%
interest in TSH was US$9.0 million, of which US$4.5 million was received in
November 2016. The balance of US$4.5 million plus accrued interest (the
"Amount Due") was due to paid to San Leon on or before 1 October 2017. As
announced on 2 January 2018 under a novation agreement and extension agreement
dated 22 December 2017, the Amount Due was the full responsibility of NSP
Investments Holdings Ltd, a BVI registered company that holds a 35% interest
in TSH. San Leon also announced that it had received a further US$1.5 million
payment of the Amount Due. The Company was due to receive a further
US$3.6 million, including an extension fee plus any further accrued interest
on or before 1 September 2018. The Company had not received the US$3.6
million by 31 December 2018 and, provided for expected credit losses of US$3.4
million and reversed accrued interest receivable in 2018 of US$0.2 million. No
further payments were received from NSP.
In September 2021, Gemini Energy B. V. concluded transactions to gain 100%
ownership of both TSH and Poznan. To accommodate and agree to the transfer of
the TSH and Poznan shares from NSP to Gemini, Gemini offered and agreed to pay
San Leon:
(a) a payment of US$1.5 million by no later than the first anniversary of the
transfer of the TSH Shares to Gemini; and
(b) make an additional payment of US$2.1 million under the terms of a net
profits interest agreement. The Gemini obligations replace the amounts due
from NSP.
OML 18
In September 2016, the Company secured an indirect economic interest in Oil
Mining Lease 18 ("OML 18"), onshore Nigeria.
The Company undertook a number of steps to effect this purchase. MLPL, a
company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40%
shareholding, was established as a special purpose vehicle to complete the
transaction by purchasing all of the shares in Martwestern, a company
incorporated in Nigeria.
Martwestern holds a 50% shareholding in Eroton, a company incorporated in
Nigeria and the operator of OML 18, and it also holds an initial 98% economic
interest in Eroton. To partly fund the purchase of 100% of the shares of
Martwestern, MLPL borrowed US$174.5 million in incremental amounts by issuing
loan notes with a coupon of 17% ("Loan Notes"). Midwestern is the 60%
shareholder of MLPL and transferred its shares in Martwestern to MLPL as part
of the full transaction. Following its placing in September 2016, San Leon
became beneficiary and holder of all Loan Notes issued by MLPL and the holder
of an indirect economic interest in OML 18. San Leon is also a beneficiary of
any dividends that will be paid by MLPL as a 40% shareholder in MLPL but the
Loan Notes repayments and any other debt take priority over any dividend
payments made to the MLPL shareholders. The economic effect of this structure
is that San Leon has an initial indirect economic interest of 10.584%. in OML
18. Shareholders will note this is higher than the percentage interest
anticipated by San Leon at the time of the acquisition. There have been no
further purchases or payments by San Leon but this revised percentage is based
on a reassessment and recalculation of the various parties' interests in OML
18 which has resulted in Martwestern's economic interest in Eroton now
standing at 98%.
Up to 30 June 2022, San Leon has received aggregate payments under the Loan
Notes totalling US$198.0 million. An expected credit loss of US$2.0 million
was recognised at 31 December 2019. Due to uncertainty around the timing of
repayments, the Company has impaired the Loan Notes, netting the expected
credit loss of US$2.0 million against the gross amortised value and
recognising an impairment charge of US$15.3 million at 31 December 2020. At 31
December 2021 the impairment charge was increased by US$0.9 million to US$16.2
million. At 30 June 2022 the impairment charge was further increased by US$1.0
million to US$17.2 million.
To make payment of principal and interest due under the Loan Notes, MLPL is
dependent on Eroton making dividend payments to Martwestern which in turn
makes dividend payments to MLPL. MLPL will use the receipt of dividends to
make Loan Notes payments to San Leon. There are various undertakings,
guarantees and security in place with Eroton, Martwestern and Midwestern with
regard to the Loan Notes, as more fully described below, in the event that
MLPL is not in a position to pay the Loan Notes from dividends received.
The Loan Notes have been secured with undertakings by both Eroton and
Martwestern, including not to take any action within their control which
would result in default by MLPL, and to act honestly and in good faith. In
addition, to the extent practicable and subject to law, use commercially
reasonable efforts to declare dividends in order that MLPL can satisfy its
obligations under the Loan Notes instrument.
The shares held by MLPL in Martwestern have also been pledged as security to
the obligations under the Loan Notes.
Midwestern and Mart Resources Limited jointly and severally guaranteed the
payment of the Loan Notes following a default and to make immediate payment
and performance of all obligations to holders of the Loan Notes.
While San Leon is also a beneficiary of any dividends that will be paid by
MLPL as a 40% shareholder in MLPL, the Loan Notes repayments must take
priority over dividend payments made by MLPL to shareholders with a minimum
65% cash sweep of available funds for a period of four years in order to
redeem the Loan Notes.
There are shareholders agreements which govern the relationship between
Midwestern and San Leon, and Bilton and Martwestern regulating the rights and
obligations with respect to MLPL, Martwestern and Eroton. These agreements
cover the appointment of Directors and unanimous approval for major decisions.
A Master Services Agreement exists which entitles San Leon Energy Nigeria B.V.
to provide rig-related services to Eroton and Midwestern for their activities.
Separately in 2018 San Leon entered into an agreement with Eroton for the
provision of subsurface technical and management services with estimated
consideration for the services of US$6.0 million until the end of 2022 of
which US$3.0 million was recorded as revenue in 2021.
Further extensive details can be found on the Company's website which contains
a copy of the 2016 Admission Document at:
http://www.sanleonenergy.com/media/2491705/admission_document_2016.pdf
2017
As a consequence of MLPL not being in receipt of dividends in 2017, MLPL had
to enter into a loan during 2017 and subsequently in order to be able to meet
its obligations under the Loan Notes and make payments to San Leon. During
2017 San Leon received total payments under the Loan Notes totalling US$39.6
million. All payments during 2017 were received by the due date and in
accordance with the terms of the Loan Notes.
2018
During 2018 San Leon received total payments under the Loan Notes totalling
US$66.2 million. MLPL also entered into loan agreements with third parties to
enable it to make the repayments during 2018.
2019
During 2019 San Leon received total payments under the Loan Notes totalling
US$43.2 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2019.
2020
During 2020 San Leon received total payments under the Loan Notes totalling
US$46.5 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2020.
2021
During 2021 San Leon received total payments under the Loan Notes totalling
US$2.2 million. MLPL used loan agreements similar to those entered into in
2018 to continue to make the repayments during 2021.
2022
In the first six months of 2022 San Leon received total payments under the
Loan Notes totaling US$0.3 million. MLPL used loan agreements similar to those
entered into in 2018 to continue to make the repayments during 2022.
22. Subsequent events
On 8 July 2022, the Company published an AIM Admission Document describing the
Proposed Transactions that will increase its indirect economic interest in
Eroton from 39.2% to 98.0% and, taking into account the completion of the
Eroton Transaction with Sahara and Bilton, San Leon's initial indirect
economic interest in OML 18 would increase from the current 10.58% to 44.1%.
In addition to the MLPL transaction, the Company will increase its interest in
ELI to c.50% and the loans to ELI from the Company will increase to c.US$48
million. The Proposed Transactions described in the AIM Admission Document are
expected to complete in the fourth quarter of 2022 after Nigerian consents for
the transactions have been received.
On 5 August 2022, the Proposed Transactions were approved by shareholders at
an Extraordinary General Meeting.
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