REG - San Leon Energy PLC - Update on potential transaction

San Leon EnergyAnnouncement

24/12/2021 07:00

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RNS Number : 6919W  San Leon Energy PLC  24 December 2021

 

 

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.

 

24 December 2021

San Leon Energy plc

("San Leon" or the "Company")

 

Update on potential transaction

 

San Leon, the independent oil and gas production, development and exploration
company focused on Nigeria, provides the following update on the
proposed reorganisation to consolidate Midwestern Oil and Gas Company
Limited's ("Midwestern") shareholdings in the Company and Midwestern Leon
Petroleum Limited ("MLPL") into a single shareholding in the Company (the
"Potential Transaction").  The Potential Transaction also comprises, inter
alia, a proposed consolidation of Midwestern's indirect debt and equity
interests in Energy Link Infrastructure (Malta) Limited ("ELI") with those of
the Company, as well as further new debt and new equity investments to be made
by San Leon in ELI. The Potential Transaction, if concluded, would be
classified as a reverse takeover under the AIM Rules for Companies (the "AIM
Rules").

 

The Board of San Leon believes that the Potential Transaction (including the
Proposed Eroton Transaction, as defined below) presents an opportunity for San
Leon to:

 

·    increase its economic interest in the OML 18 oil and gas block
located onshore in Nigeria ("OML 18"); and

·    become the largest shareholder of the Alternative Crude Oil
Evacuation System ("ACOES") project which is intended to transport, store and
evacuate crude oil from the OML 18 export pipeline.  The ACOES is currently
being constructed by ELI and, once operational, is expected to significantly
reduce the pipeline losses and downtime currently applicable to OML 18's
production.

 

Potential Transaction update

 

Further to the Company's announcement on 29 November 2021, the Company
currently expects to publish an AIM admission document (the "Admission
Document") in respect of the Potential Transaction by the end of February
2022, following which point the Company will seek the restoration of trading
of the Company's ordinary shares on AIM.

 

As part of the Potential Transaction, it is proposed that new preference
shares (the "Preference Shares") will be issued to the shareholders in the
Company, immediately prior to the Potential Transaction completing. It is
intended that the Preference Shares will entitle holders to a preferential
right to any dividends declared and paid by the Company in the three years
following completion of the Potential Transaction, up to a maximum amount
equal to US$40 million in aggregate over a three-year period. To the extent
that less than US$40 million of dividends are declared and paid by the Company
during that three-year period, the right of the holders of the Preference
Shares to a preferred dividend will continue in respect of the shortfall and
the shortfall amount will increase by 10 per cent per annum until the full
amount of the shortfall has been paid.  Once the preferential right to the
dividend has been satisfied, the Preference Shares will cease to hold economic
value and will become deferred shares.  Neither the Preference Shares nor the
deferred shares will carry any voting rights at any time and neither will be
admitted to or quoted on any stock exchange.

 

As explained below, it is envisaged that the loan notes currently owed to San
Leon by MLPL (the "Loan Notes") will be eliminated pursuant to the Potential
Transaction.  The Preference Shares are therefore intended to provide a
return to existing shareholders in place of dividends on ordinary shares that
they may otherwise have anticipated receiving from San Leon following the
repayment of the Loan Notes.  Further details of the Preference Shares and
the proposed elimination of the Loan Notes will be contained in the Admission
Document, when published.

 

It is also anticipated that following completion of the Potential Transaction,
Eroton will, in return for receiving services from San Leon, pay San Leon US$6
million per annum to cover management costs in relation to OML 18, being
settled monthly in advance with the first such payment being made on such
completion.

 

Potential Transaction background

 

San Leon currently has a 40% equity interest in MLPL with the remaining equity
interest in MLPL being owned by Midwestern. MLPL has a 100% equity investment
in Martwestern Energy Limited ("Martwestern"), which in turn has a 98%
economic interest in Eroton Exploration and Production Company Limited
("Eroton").  San Leon therefore currently has an indirect economic interest
in Eroton of 39.2%.  Eroton currently has a 27% interest in OML 18 and is
also the operator of OML 18.  Accordingly, via this ownership structure, San
Leon has a current indirect economic interest in OML 18 of 10.58%.

 

On 29 November 2021, San Leon announced that, inter alia, it had been informed
that Eroton is seeking to acquire an additional 18% interest in OML 18 from
two of the other partners in OML 18, subject, inter alia, to agreeing
documentation, finalising bank financing and relevant regulatory consents in
Nigeria, thereby taking Eroton's interest in OML 18 to 45% (the "Proposed
Eroton Transaction") and that Eroton had signed a non-binding term sheet with
Africa Import Export Bank ("Afrexim") for a prospective US$750 million senior
secured reserve-based lending facility, for the purpose of, inter alia,
providing funding for the Proposed Eroton Transaction. Completion of the
Potential Transaction will be conditional upon completion of the Proposed
Eroton Transaction, the timing of which is currently uncertain.

 

As part of the Potential Transaction, San Leon would increase its indirect
economic interest in Eroton from 39.2% to 98.0% and, following completion of
the Proposed Eroton Transaction, San Leon's indirect economic interest in OML
18 would increase from the current 10.58% to 44.1%. Given that the Proposed
Eroton Transaction is to be financed through a debt facility, it is not
expected that the consideration payable in respect of the Potential
Transaction (being an issue of new shares in the Company to Midwestern), will
be impacted. As previously announced, it is expected that, inter alia, as
part of the Potential Transaction, the amounts currently owed to San Leon by
MLPL (pursuant to the Loan Notes), being approximately US$99 million as of the
date of this announcement, will be eliminated.

 

The consideration for San Leon acquiring all of the outstanding shares in MLPL
not already owned by the Company, and Midwestern's indirect debt and equity
interest in ELI, would be satisfied by the issuance of a substantial number of
new ordinary shares in San Leon to Midwestern, such that Midwestern would
become the majority shareholder of San Leon, subject amongst other things to
the approval of the Irish Takeover Panel of a waiver for Midwestern from the
requirement for it to make an offer for the Company in accordance with Rule 9
of the Irish Takeover Rules and approval of independent shareholders.

 

Given that the Potential Transaction will be classified as a reverse takeover
under the AIM Rules, in accordance with Rule 14 of the AIM Rules, the
Company's ordinary shares will remain suspended from trading on AIM until such
time as either an AIM admission document is published, or an announcement is
released in the event that the reverse takeover in contemplation is not
proceeding.

 

Midwestern currently holds more than 10% of the Company's ordinary shares.
Accordingly, Midwestern is classified as a related party under the AIM Rules
and the transactions above in which Midwestern has an interest in will
therefore be treated as transactions with a related party pursuant to Rule 13
of the AIM Rules.

 

The announcement of binding agreements in relation to the Potential
Transaction remains subject to a number of factors, including, inter alia, the
completion of due diligence, negotiation and execution of binding contractual
documentation and would be accompanied by the publication of the Admission
Document.  Completion of the Potential Transaction is expected to be subject
to regulatory consents, a "whitewash" under the Irish Takeover Rules,
completion of the Proposed Eroton Transaction, a reorganisation of
Midwestern's indirect equity and debt interests in ELI and the approval of San
Leon's shareholders. There can be no guarantee at this stage that the
Potential Transaction (including the proposed debt and equity investments by
San Leon in ELI) or the Proposed Eroton Transaction will be entered into or,
if entered into, that they will complete.

 

The Company will release further announcements as and when appropriate.

 

Oisin Fanning, CEO of San Leon Energy, commented:

"Our Potential Transaction with Midwestern is a transformational opportunity
for San Leon, achieving our twin aims of increasing our interest in OML 18 and
building our shareholding in the operator of the new ACOES pipeline project.
We have long considered OML 18 to be a world class oil and gas asset and our
plans to further enhance our involvement there could be very significant to
the Company's future growth plans.  A considerable amount of work has already
been carried out by both parties and their respective advisers. We continue to
diligently progress the transaction towards completion."

 

 

Enquiries:

 

 San Leon Energy plc                                   +353 1291 6292
 Oisin Fanning, Chief Executive

 Julian Tedder, Chief Financial Officer
 Allenby Capital Limited                               +44 20 3328 5656

 (Nominated adviser and joint broker to the Company)
 Nick Naylor

 Alex Brearley

 Vivek Bhardwaj
 Panmure Gordon & Co                                   +44 20 7886 2500

 (Joint broker to the Company)
 Nick Lovering

 James Sinclair-Ford
 Brandon Hill Capital Limited                          +44 20 3463 5000

 (Joint broker to the Company)
 Oliver Stansfield

 Jonathan Evans
 Tavistock                                             +44 20 7920 3150

 (Financial Public Relations)
 Nick Elwes

 Simon Hudson
 Plunkett Public Relations                             +353 1 230 3781
 Sharon Plunkett

 

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