TIDMSLE
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 EUR5.7 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.
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
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
Notes US$'000 US$'000 US$'000
------------------------------------------------ ------ --------- --------- ---------
(Loss) / profit for the period (8,929) 8,124 40,717
-------------------------------------------------------- --------- --------- ---------
Items that may be reclassified subsequently
to profit or loss
------------------------------------------------ ------ --------- --------- ---------
Currency translation differences - subsidiaries (182) (11) 56
-------------------------------------------------------- --------- --------- ---------
Recycling of currency translation reserve
on disposal of subsidiaries - - (16,615)
-------------------------------------------------------- --------- --------- ---------
Total other comprehensive income (182) (11) (16,559)
-------------------------------------------------------- --------- --------- ---------
Total comprehensive (loss) / profit for
the period (9,111) 8,113 24,158
-------------------------------------------------------- --------- --------- ---------
Consolidated Statement of Changes in Equity
for the period ended 30 June 2022
Attributable
Share to
Share Share Other Currency based Fair equity
capital premium un-denominated Special translation payment value Retained holders
Unaudited reserve reserve reserve reserve reserve reserve reserve earnings in Group
At 30 June 2022 US$'000 US$'000 US$'000 US$'000 US$'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
-------------- ------- -------- ----- ------- ------- -------- --------- --------- ---------
Other Special Attributable
un-denominated reserve Share to
Share Share reserve US$'000 Currency based Fair equity
capital premium US$'000 translation payment value Retained holders
Unaudited reserve reserve reserve reserve reserve earnings in Group
At 30 June 2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Balance as at
1 January 2021 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Total
comprehensive
income
for period
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Profit for the
period - - - - - - - 8,124 8,124
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Other
comprehensive
income
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Foreign
currency
translation
differences -
subsidiaries - - - - (11) - - - (11)
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Recycling of - - - - - - - - -
currency
translation
reserve on
disposal of
subsidiaries
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Total
comprehensive
income
for the period - - - - (11) - - 8,124 8,113
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Balance at
30 June 2021 5,157 21,077 638 5,024 25,737 15,139 (2,699) 90,100 160,173
--------------- ------- -------- --------------- -------- ----------- -------- --------- -------- ------------
Consolidated Statement of Changes in Equity
for period ended 30 June 2022
Other Special Attributable
un-denominated reserve Share to
Share Share reserve US$'000 Currency based Fair equity
Audited capital premium US$'000 translation payment value Retained holders
At 31 December reserve reserve reserve reserve reserve earnings in Group
2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'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
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
Notes 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
------------------------------------------------- ----- --------- --------- ---------
Unaudited Unaudited Audited
30/06/22 30/06/21 31/12/21
Notes 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
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
Notes 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
---------------------------------------------- ----- --------- --------- ---------
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/22 31/12/21
US$'000 US$'000 US$'000
Notes 0
------------------------------------------- ----- --------- --------- ---------
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
and evaluation
assets - - (90) - - - - - (90)
--------------------- -------- -------- -------- -------- -------- ----------- -------- ------------ --------
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 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'000 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 Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 US$'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$'000
--------------------------------------------- --------- --------- ---------
Total finance income on Loan Notes (Note 12) 8,749 8,242 14,590
--------------------------------------------- --------- --------- ---------
Movement in fair value of derivatives - - 9
--------------------------------------------- --------- --------- ---------
8,749 8,242 14,599
--------------------------------------------- --------- --------- ---------
All interest income is in respect of assets measured at
amortised cost.
7. Expected credit losses
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/22 30/06/21 31/12/21
US$'000 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: 25%) (2,082) 2,133 10,373
--------------------------------------------- --------- --------- ---------
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 30/06/21 Audited
30/06/22 US$'000 31/12/21
US$'000 US$'000
--------------------------------------------- ----------- ---------- ----------
Cost and net book value
--------------------------------------------- ----------- ---------- ----------
Opening balance 58,634 44,102 44,102
---------------------------------------------- ----------- ---------- ----------
Additions (ELI) 482 - -
---------------------------------------------- ----------- ---------- ----------
Share of profit / (loss) of equity accounted
investments (12,502) 7,728 14,532
---------------------------------------------- ----------- ---------- ----------
Closing Balance 46,614 51,830 58,634
---------------------------------------------- ----------- ---------- ----------
The Group's only joint venture entities and associates at 30
June 2022 were as follows:
Name Registered office Type % held
--------------------------- ----------------------------------- ---------- ------
5(th) Floor Barkly Wharf, Le
Midwestern Leon Petroleum Caudan Waterfront, Joint
Limited Port Louis, Republic of Mauritius Venture 40%
--------------------------- ----------------------------------- ---------- ------
Energy Link Infrastructure 260 Triq San Albert, Griza,
(Malta) Limited GZR 1150, Malta Associate 10%
--------------------------- ----------------------------------- ---------- ------
St. Nicholas House, 9th Floor,
Catholic Mission Street, Lagos,
Decklar Petroleum Limited Nigeria Associate 11%
--------------------------- ----------------------------------- ---------- ------
A summary of the financial information of the equity investments
is detailed below.
Midwestern Energy
Leon Petroleum Link Infrastructure Decklar
Limited (Malta) Petroleum
(i) Limited Limited
(ii) (iii) Total
------------------------------------------- --------------- -------------------- ----------- --------
Equity Interest 40% 10% 11%
------------------------------------------- --------------- -------------------- ----------- --------
US$'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$0.8 million
loss of Decklar.
11. Property, plant and equipment
Plant
Leased & Office Motor
assets equipment equipment vehicles Total
US$'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
Barryroe
4.5% Decklar
net profit Petroleum
OML 18 interest Limited
(i) ELI (ii) (iii) (iv) Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------------- --------- ------------ ------------- ---------- ---------
Amortised Amortised Amortised
cost cost FVTPL 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
Performing not credit Credit
Expected Credit Loss - OML 18 12-month impaired impaired Total
ECL Lifetime Lifetime US$'000
US$'000 ECL ECL
US$'000 US$'000
------------------------------------------- --------- ------------ ------------- ---------- ---------
At 1 January 2021 - - (15,309) (15,309)
------------------------------------------- --------- ------------ ------------- ---------- ---------
Impact of modification - - 1,503 1,503
------------------------------------------- --------- ------------ ------------- ---------- ---------
Net remeasurement of loss allowance - - 1,447 1,447
------------------------------------------- --------- ------------ ------------- ---------- ---------
Transfer to lifetime ECL - credit-impaired - - (3,794) (3,794)
------------------------------------------- --------- ------------ ------------- ---------- ---------
At 31 December 2021 - - (16,153) (16,153)
------------------------------------------- --------- ------------ ------------- ---------- ---------
Impairment - - 765 765
------------------------------------------- --------- ------------ ------------- ---------- ---------
Effective interest on ECL - - (1,816) (1,816)
------------------------------------------- --------- ------------ ------------- ---------- ---------
At 30 June 2022 - - (17,204) (17,204)
------------------------------------------- --------- ------------ ------------- ---------- ---------
Higher
risk assets
Performing not credit Credit
Expected Credit Loss - ELI 12-month impaired impaired Total
ECL Lifetime Lifetime US$'000
US$'000 ECL ECL
US$'000 US$'000
------------------------------------ --------- ------------ ------------- ------------- ---------
At 1 January 2021 (385) - - (385)
------------------------------------ --------- ------------ ------------- ------------- ---------
Transfer to Lifetime ECL 385 (385) - -
------------------------------------ --------- ------------ ------------- ------------- ---------
Net remeasurement of loss allowance - (255) - (255)
------------------------------------ --------- ------------ ------------- ------------- ---------
At 31 December 2021 - (640) - (640)
------------------------------------ --------- ------------ ------------- ------------- ---------
Net remeasurement of loss allowance - 457 - 457
------------------------------------ --------- ------------ ------------- ------------- ---------
At 30 June 2022 - (183) - (183)
------------------------------------ --------- ------------ ------------- ------------- ---------
Higher
risk assets
Performing not credit Credit
Expected Credit Loss - Decklar 12-month impaired impaired Total
ECL Lifetime Lifetime US$'000
US$'000 ECL ECL
US$'000 US$'000
------------------------------------ --------- ------------ ------------- ------------- ---------
At 1 January 2021 - - - -
------------------------------------ --------- ------------ ------------- ------------- ---------
Transfer to Lifetime ECL - - - -
------------------------------------ --------- ------------ ------------- ------------- ---------
Net remeasurement of loss allowance - - - -
------------------------------------ --------- ------------ ------------- ------------- ---------
At 31 December 2021 - - - -
------------------------------------ --------- ------------ ------------- ------------- ---------
Net remeasurement of loss allowance (140) - - (140)
------------------------------------ --------- ------------ ------------- ------------- ---------
At 30 June 2022 (140) - - (140)
------------------------------------ --------- ------------ ------------- ------------- ---------
Barryroe
4.5%
net profit Decklar
OML 18 interest Petroleum
(i) ELI (ii) (iii) Limited Total
US$'000 US$'000 US$'000 (iv) US$'000 US$'000
------------------------------------ --------- ------------ ------------- ------------- ---------
Amortised Amortised Amortised
cost cost FVTPL 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 acquisition 152,030
----------------------------------------------------------- --------
# 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:
Inter-relationships between
Significant unobservable the unobservable inputs
Valuation technique inputs and fair value measurements
--------------------- ----------------------------------------------------------- -----------------------------
Discounted cash flows Nil
* Discount rate 25% based on a market rate of interest
of 8% above the 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:
Inter-relationships
between the unobservable
Significant unobservable inputs and fair value
Valuation technique inputs* measurements
--------------------- ----------------------------------------------------------- --------------------------
Discounted cash flows Nil
* Discount rate 16% based on a market rate of interest
of 2% above the 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:
Inter-relationships
between the unobservable
Valuation Significant unobservable inputs and fair value
technique inputs measurements
------------ --------------------------------------------------------- ------------------------------------------------------
Market based The estimated fair
approach * Estimated value of NPI as percentage of total field value would increase
using share NPV 9.5% (2021: 9.5%) / (decrease) if:
price
of Operator * US Dollar exchange rate increased / (decreased)
(Providence)
------------ --------------------------------------------------------- ------------------------------------------------------
(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:
Inter-relationships
between the unobservable
Significant unobservable inputs and fair value
inputs* measurements
--------------------- ----------------------------------------------------------- --------------------------
Discounted cash flows Nil
* Discount rate 14% based on a market rate of interest
of 4% above the 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 EUR1 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 EUR1 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 EUR1 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$'000
--------------------------- ---------------
At 1 January 2021 56
--------------------------- ---------------
Movement during the year -
--------------------------- ---------------
At 31 December 2021 56
--------------------------- ---------------
Movement during the period -
--------------------------- ---------------
At 30 June 2022 56
--------------------------- ---------------
Current 56
--------------------------- ---------------
Non-current -
--------------------------- ---------------
At 30 June 2021
56
Current 56
------------
Non-current -
------------
At 31 December 2021
56
Current 56
------------
Non-current -
------------
Decommissioning
The provision for decommissioning costs is recorded at the value
of the expenditures expected to be required to settle the Group's
future obligations on decommissioning of previously drilled
wells.
17. Share capital
Number of
New Ordinary Authorised
shares Equity
EUR0.01 each US$'000
------------------ ------------- ----------
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
New Ordinary Share Share
shares capital premium
EUR0.01 each US$'000 US$'000
-------------------- ------------- -------- --------
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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END
IR FLFETAEIAFIF
(END) Dow Jones Newswires
September 30, 2022 02:00 ET (06:00 GMT)
San Leon Energy (AQSE:SLE.GB)
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