TIDMSLE
RNS Number : 4606N
San Leon Energy PLC
30 September 2021
Prior to publication, the information contained within this
announcement was deemed by the Company to constitute inside
information for the purposes of Regulation 11 of the Market Abuse
(Amendment) (EU Exit) Regulations 2019/310. With the publication of
this announcement, this information is now considered to be in the
public domain.
30 September 2021
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 2021.
This includes an update on its indirect interest's 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.
Highlights
Corporate
-- On 24 June 2021 San Leon announced a conditional investment
of US$2.0 million, as well as an option to conditionally invest a
further US$6.5 million, in the equity of Energy Link Infrastructure
(Malta) Limited ("ELI"), the company which owns the Alternative
Crude Oil Evacuation System ("ACOES") project. This transaction is
awaiting final conditions precedents to complete.
-- Separately and in addition to the aforementioned
announcement, on 24 June 2021, San Leon confirmed that it is in
preliminary discussions with Midwestern Oil and Gas Company Limited
("Midwestern") about acquiring Midwestern's indirect interest in
the OML 18 oil and gas block located onshore in Nigeria ("OML 18").
Any transaction would involve San Leon acquiring the outstanding
shares not already owned by San Leon in relation to Midwestern Leon
Petroleum Limited ("MLPL") from Midwestern.
o T he acquisition by San Leon of the outstanding shares in MLPL
not already owned by San Leon would constitute a reverse takeover
under rule 14 of the AIM Rules. San Leon is not contemplating
acquiring Midwestern itself.
o In accordance with rule 14 of the AIM Rules, the Company's
ordinary shares were suspended from trading on AIM on 24 June 2021.
The Company's ordinary shares will remain suspended until such time
as either an AIM admission document is published or an announcement
is released confirming that the reverse takeover in contemplation
is not proceeding.
-- On 7 July 2021 San Leon agreed with MLPL, Midwestern and
Martwestern to a conditional payment waiver in respect of the
repayment of approximately US$32 million of MLPL's Loan Notes and
interest that fell due on 5 July 2021 (the "Conditional Payment
Waiver"). The Conditional Payment Waiver expired at the end of
August 2021 or, if sooner, the termination of discussions or the
signing of an agreement to effect the Potential Transaction, and
interest will accrue on this instalment of the Loan Notes over this
period. The sums to which the Conditional Payment Waiver relates
(and those falling due within 30 days after the expiry of the
Conditional Payment Waiver) will be payable 90 days after such
expiry, save for, inter alia , if there is an event of default.
o On 20 September 2021 San Leon agreed an extension of the
Conditional Payment Waiver to the end of September 2021. The Board
is in discussions with MLPL, Midwestern and Martwestern in relation
to a further extension of the Conditional Payment Waiver.
-- On 12 July 2021 heads of terms were signed in respect of,
inter alia, the proposed reorganisation to consolidate Midwestern's
holdings in the Company and MLPL into a single holding in the
Company (the "Potential Transaction").
-- Board appointment process previously announced completed with
the appointment of John Brown as Independent Non-Executive Director
and Chair of the Audit and Risk Committee, and Adekolapo Ademola as
Non-Independent Non-Executive Director on behalf of Midwestern.
Non-Executive Directors, Mark Phillips, Bill Higgs and Linda Beal,
left the Board during 2020 and Alan Campbell has since stepped down
from the Board in 2021 as part of a board restructure.
-- On 2 August 2021 Lisa Mitchell resigned as its Chief
Financial Officer and Executive Director to take up a new role. San
Leon has commenced a search for a replacement.
Financial
-- Cash and cash equivalents as at 30 June 2021 of US$12.1
million (US$6.8 million is restricted and held in escrow for the
Oza transaction) (30 June 2020: US$35.6 million).
-- Cash and cash equivalents as at 24 September 2021 was US$10.2
million (US$6.8 million is restricted and held in escrow for the
Oza transaction).
-- Up to 30 June 2021 US$0.8 million (six months to 30 June
2020: US$41.5 million) has been received by the Company in relation
to payments due to San Leon under the MLPL Loan Notes. Since the
reporting date a further US$1.1 million of the balance outstanding
has been received.
-- Profit from continuing operations for the period ended 30
June 2021 was US$8.1 million (six months to 30 June 2020: loss of
US$20.3 million). For clarity, this figure does not reflect Loan
Notes repayments received.
Operational
-- Eroton has informed the Company that it continues to take all
appropriate precautions for its operations and people with regards
to responding to the Covid-19 pandemic.
-- Oil delivered to the Bonny terminal for sales was
approximately 6,600 barrels of oil per day ("bopd") in H1 2021
(25,200 bopd in H1 2020). The figure has been affected by continued
losses and downtime associated with the use of the Nembe Creek
Trunk Line ("NCTL"), OPEC restrictions, and reduced operations both
as a result of the Covid-19 pandemic and also due to prudent
capital discipline.
-- Gas sales averaged 17.8 million standard cubic feet per day
("mmscf/d") in H1 2021 after downtime (39.1 mmscf/d in H1
2020).
-- Production downtime of 3.3% 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.
o The ACOES pipeline will run from within the OML 18 acreage to
a dedicated Floating Storage and Offloading ("FSO") vessel in the
open sea, approximately 50 kilometres offshore.
o Oil barging operations from OML 18 to the FSO commenced in
late September 2021 (while awaiting availability of the pipeline),
with the full ACOES including the pipeline expected by Eroton to be
operational in early 2022.
-- Pipeline losses by the Bonny Terminal operator have been
markedly higher during this year due to lower pipeline throughput
(30 June 2021: 65%; 30 June 2020: 20%). The ACOES export Pipeline
and FSO system mentioned above are expected to reduce losses
significantly.
Chief Executive Officer of San Leon, Oisín Fanning,
commented:
" The Company is well-positioned either to pursue the proposed
transaction with Midwestern, or to continue with its existing
assets and strategy and await receipt of the remaining substantial
Loan Notes repayments. Whichever route is taken, the progress on
the ACOES system is expected to be of substantial benefit."
Enquiries:
San Leon Energy plc
Oisín Fanning, Chief Executive (+ 353 1291 6292)
Allenby Capital Limited (Nominated adviser and joint broker to
the Company)
Nick Naylor (+44 203 328 5656)
Alex Brearley (+44 203 328 5656)
Vivek Bhardwaj (+44 203 328 5656)
Panmure Gordon & Co (Joint broker to the Company)
Nick Lovering (+44 207 886 2500)
James Sinclair-Ford (+44 207 886 2500)
Brandon Hill Capital Limited (Joint broker to the Company)
Oliver Stansfield (+44 203 463 5000)
Jonathan Evans (+44 203 463 5000)
Tavistock (Financial Public Relations)
Nick Elwes (+44 207 920 3150)
Simon Hudson (+44 207 920 3150)
The Interim Report and Accounts are available on the Company's
website at www.sanleonenergy.com .
Chairman's statement
2021 has been an active corporate period for San Leon, with the
Company announcing preliminary discussions with its existing
partner Midwestern about acquiring their indirect interest in the
world-class OML 18 oil and gas block located onshore in Nigeria.
This is part of the Company's continued implementation of its
strategy to include the delivery of sustainable long-term returns
to shareholders and expanding our asset base.
During the period of 2021 to date, US$1.9 million of Loan Note
payments have been received. In July 2021 the Company agreed to the
conditional payment waiver in respect of the repayment of
approximately US$32 million of MLPL's Loan Notes and interest that
fell due on 5 July and this has since been extended to the end of
September 2021. The Board is in discussions with MLPL, Midwestern
and Martwestern in relation to a further extension of the
Conditional Payment Waiver. As at the end of June 2021 the balance
outstanding of the existing Loan Notes Instrument between San Leon
and MLPL was US$93.6 million of principal and interest on a cash
receipt basis. Given the discussions regarding the proposed
transaction referred to above, the timing of future cashflows will
now be dependent on the structure of the reverse takeover and also
on the transaction closing. (Please see Note 1 for details).
On the operational side, the first half of 2021 has been as
challenging for OML 18 as it has also been for the rest of the
industry. I am delighted to note that the first step of the ACOES
is now operational, barging oil from OML 18 to the FSO, while the
new oil export pipeline is awaited. The ACOES is expected to be a
highly useful tool in reducing the substantial pipeline losses and
downtime which have hampered cash flow from OML 18 production.
I am pleased to welcome John Brown, who has joined San Leon as
Independent Non-Executive Director and who will chair the Audit and
Risk Committee.
Financial Review
San Leon generated a profit after tax from continuing operations
of US$8.1 million for the six months to 30 June 2021, compared with
a loss after tax of US$20.3 million in the six months to 30 June
2020. The majority of this profit is attributable to the profit on
equity investments for the six months to 30 June 2021 of US$7.7
million (30 June 2020: loss of US$14.1 million). This profit
primarily relates to San Leon's equity investment in MLPL. MLPL has
a 100% equity investment in Martwestern Energy, which in turn has a
98% economic interest in Eroton, which holds a 27% working interest
in OML 18, Nigeria and is its operator .
The share of profit on equity accounted investments comprises
40% of MLPL's gross results being, administrative costs of US$1.1
million (30 June 2020: US$1.0 million), net finance income of
US$4.1 million (30 June 2020: US$1.0 million), a profit on
investment of US$21.2 million (30 June 2020: loss of US$31.6
million) and a tax charge of US$4.1 million (30 June 2020: US$3.7
million).
Revenue for the six months to 30 June 2021 was US$nil, compared
with US$nil for the six months to 30 June 2020.
Administrative costs decreased to US$5.9 million for the six
months to 30 June 2021 (30 June 2020: US$7.7 million).
Finance expense of US$0.1 million for the six months to 30 June
2021 (30 June 2020: US$0.1 million) relates to interest on
obligations for leases.
Finance income of US$8.2 million (30 June 2020: US$7.8 million)
is substantially interest income on the US$174.5 million Loan Notes
and ELI Loan Notes.
The Expected Credit Loss ("ECL") provision has increased by
US$0.8 million (30 June 2020: a credit of US$5.9 million).
The tax charge for the six months to 30 June 2021 is US$0.4
million (30 June 2020: US$0.8 million) predominantly relating to
the decrease in the fair value of the Barryroe Net Profit Interest
("NPI") of US$1.1 million.
Outlook
San Leon continues to believe in the value inherent in OML 18,
as evidenced by the proposed transaction with Midwestern. This
would be a significant further step in our growth strategy. The
ACOES is expected to help to unlock that strategy, and the
beginning of barging operations signals the beginning of that phase
of development.
San Leon Energy plc
Consolidated income statement
for the six months ended 30 June 2021
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
------------------------------------------- ------ ---------- ---------- ---------
Continuing operations
Revenue from contracts with customers 2 - - -
Cost of sales - - -
------------------------------------------- ------ ---------- ---------- ---------
Gross profit - - -
Share of profit / (loss) of equity
accounted investments 9 7,728 (14,145) (1,139)
Administrative expenses (5,934) (7,719) (14,918)
Loss on disposal of subsidiaries 3 - (1,044) (1,044)
Impairment / write off of exploration
and evaluation assets 8 (103) (86) (196)
Other income 526 - -
Profit / (loss) from operating activities 2,217 (22,994) (17,297)
Finance expense 4 (67) (69) (131)
Finance income 5 8,242 7,755 17,442
Expected credit losses 6 (789) (5,857) (13,692)
Fair value movements in financial assets 11 (1,070) 1,645 4,073
------------------------------------------- ------ ---------- ---------- ---------
Profit / (loss) before income tax 8,533 (19,520) (9,605)
Income tax 7 (409) (815) (2,248)
------------------------------------------- ------ ---------- ---------- ---------
Profit / (loss) for the period 8,124 (20,335) (11,853)
------------------------------------------- ------ ---------- ---------- ---------
Profit / (loss) per share (cent) -
total
Basic profit / (loss) per share 1.81 (4.51) (2.63)
Diluted profit / (loss) per share 1.81 (4.51) (2.63)
Consolidated statement of other comprehensive
income
for the six months ended 30 June 2021
----------------------------------------------- ------ ---------- ---------- ---------
Notes Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
----------------------------------------------- ------ ---------- ---------- ---------
Profit / (loss) for the period 8,124 (20,335) (11,853)
Items that may be reclassified subsequently
to profit and loss
Foreign currency translation differences (11) - 83
Recycling of currency translation reserve
on disposal of subsidiaries - 1,044 1,044
Fair value movements in financial assets 11 - - (194)
----------------------------------------------- ------ ---------- ---------- ---------
Total other comprehensive income (11) 1,044 933
----------------------------------------------- ------ ---------- ---------- ---------
Total comprehensive profit / ( loss)
for the period 8,113 (19,291) (10,920)
----------------------------------------------- ------ ---------- ---------- ---------
San Leon Energy plc
Consolidated statement of changes in equity
for the period ended 30 June 2021
Share Attribu-table
Share Share Other Currency based Fair to equity
Unaudited 30 capital premium undenomi-nated Special Trans-lation payment value Retained holders
June reserve reserve reserve reserve reserve reserve reserve earnings in Group
2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------- ------- -------- -------------- -------- ------------ -------- -------- -------- -------------
Balance 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 - - - - (11) - - - (11)
Total
comprehensive
income for
period - - - - (11) - - 8,124 8,113
-------------- ------- -------- -------------- -------- ------------ -------- -------- -------- -------------
Transactions
with
owners
recognised
directly in
equity
Contributions
by and
distributions
to owners
Share buybacks - - - - - - - - -
Dividend - - - - - - - - -
payment
Effect of - - - - - - - - -
options
extended
Total - - - - - - - - -
transactions
with owners
-------------- ------- -------- -------------- -------- ------------ -------- -------- -------- -------------
Balance at 30
June
2021 5,157 21,077 638 5,024 25,737 15,139 (2,699) 90,100 160,173
-------------- ------- -------- -------------- -------- ------------ -------- -------- -------- -------------
San Leon Energy plc
Consolidated statement of changes in equity
for the period ended 30 June 2021
Share Attributable
Share Share Other Currency based Fair to equity
capital premium undenom-inated Special Trans-lation Pay-ment value Retained holders
Unaudited 30 reserve reserve reserve reserve reserve reserve reserve earnings in Group
June 2020 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------- -------- -------- -------------- -------- ------------ -------- -------- -------- ------------
Balance at 1
January
2020 5,172 21,077 623 5,024 24,621 14,292 (2,505) 127,544 195,848
-------------- -------- -------- -------------- -------- ------------ -------- -------- -------- ------------
Total
comprehensive
income
for period
Loss for the
period - - - - - - - (20,335) (20,335)
Other
comprehensive
income
Foreign
currency
translation
differences - - - - 1,044 - - - 1,044
Total
comprehensive
income
for period - - - - 1,044 - - (20,335) (19,291)
-------------- -------- -------- -------------- -------- ------------ -------- -------- -------- ------------
Transactions
with owners
recognised
directly in
equity
Contributions
by and
distributions
to owners
Share buybacks (15) - 15 - - - - (507) (507)
Dividend
payment - - - - - - - (33,251) (33,251)
Effect of
options
extended - - - - - 150 - - 150
Total
transactions
with
owners (15) - 15 - - 150 - (33,758) (33,608)
-------------- -------- -------- -------------- -------- ------------ -------- -------- -------- ------------
Balance at 30
June 2020 5,157 21,077 638 5,024 25,665 14,442 (2,505) 73,451 142,949
-------------- -------- -------- -------------- -------- ------------ -------- -------- -------- ------------
San Leon Energy plc
Consolidated statement of changes in equity
for the period ended 30 June 2021
Share Attributable
Share Share Other Currency based Fair to equity
Audited 31 capital premium undenom-inated Special translation payment value Retained holders
December reserve reserve reserve reserve reserve reserve reserve earnings in Group
2020 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
Balance at 1
January
2020 5,172 21,077 623 5,024 24,621 14,292 (2,505) 127,544 195,848
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
Total
comprehensive
income for
year
Loss for the
year - - - - - - - (11,853) (11,853)
Other
comprehensive
income
Foreign
currency
translation
differences - - - - 83 - - - 83
Recycling of
currency
translation
reserve
on disposal
of
subsidiaries - - - - 1,044 - - - 1,044
Fair value
movements
in financial
assets - - - - - - (194) - (194)
Total
comprehensive
income for
year - - - - 1,127 - (194) (11,853) (10,920)
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
Transactions
with
owners
recognised
directly in
equity
Contributions
by and
distributions
to owners
Dividend
payment - - - - - - - (33,251) (33,251)
Share buybacks (15) - 15 - - - - (507) (507)
Share-based
payment - - - - - 417 - - 417
Effect of
share
options
modified - - - - - 473 - - 473
Effect of
options
expired - - - - - (43) - 43 -
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
Total
transactions
with owners (15) - 15 - - 847 - (33,715) (32,868)
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
Balance at 31
December 2020 5,157 21,077 638 5,024 25,748 15,139 (2,699) 81,976 152,060
-------------- -------- -------- -------------- -------- ----------- -------- -------- --------- ------------
San Leon Energy plc
Consolidated statement of financial position
as at 30 June 2021
Notes Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
------------------------------- ---- ------ ---------- ---------- ---------
Assets
Non-current assets
Intangible assets 8 - - -
Equity accounted investments 9 51,830 30,653 44,102
Property, plant and equipment 10 2,791 3,821 3,294
Financial assets 11 14,771 36,193 17,846
Deferred tax asset 17 - 906 -
69,392 71,573 65,242
Current assets
Inventory 183 180 183
Trade and other receivables 12 4,107 1,190 1,878
Financial assets 11 81,597 41,018 72,889
Cash and cash equivalents 13 12,102 35,589 18,510
97,989 77,977 93,460
---- ------ ---------- ---------- ---------
Total assets 167,381 149,550 158,702
------------------------------------- ------ ---------- ---------- ---------
Equity and liabilities
Equity
Called up share capital 16 5,157 5,157 5,157
Share premium account 16 21,077 21,077 21,077
Other undenominated reserve 638 638 638
Special reserve 16 5,024 5,024 5,024
Share based payments reserve 15,139 14,442 15,139
Currency translation reserve 25,737 25,665 25,748
Fair value reserve (2,699) (2,505) (2,699)
Retained earnings 90,100 73,451 81,976
------------------------------------- ------ ---------- ---------- ---------
Total equity attributable
to equity shareholders 160,173 142,949 152,060
Non-current liabilities
Lease liability 19 2,372 2,404 2,428
Derivative 9 128 9
Deferred tax liabilities 17 921 - 518
------------------------------------- ------ ---------- ---------- ---------
3,302 2,532 2,955
---- ------ ---------- ---------- ---------
Current liabilities
Trade and other payables 14 3,850 4,013 3,631
Provisions 15 56 56 56
3,906 4,069 3,687
---- ------ ---------- ---------- ---------
Total liabilities 7,208 6,601 6,642
------------------------------------- ------ ---------- ---------- ---------
Total equity and liabilities 167,381 149,550 158,702
------------------------------------- ------ ---------- ---------- ---------
San Leon Energy plc
Consolidated statement of cash flows
for the six months ended 30 June 2021
Notes Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
--------------------------------------------- ------ ---------- ---------- ---------
Cash flows from operating activities
Profit / (loss) for the period -
continuing operations 8,124 (20,335) (11,853)
Adjustments for:
Depletion and depreciation 10 503 515 1,028
Finance expense 4 67 69 131
Finance income 5 (8,242) (7,755) (17,442)
Share based payments charge - 150 890
Foreign exchange 68 (285) 113
Income tax 7 409 815 2,248
Impairment of exploration and evaluation
assets - continuing operations 8 103 86 196
Expected credit losses 6 789 5,857 13,692
Loss on disposal of subsidiaries 3 - 1,044 1,044
Fair value movements in financial
assets 11 1,070 (1,645) (4,073)
Decrease in inventory - - (3)
Increase in trade and other receivables (2,266) (205) (897)
Increase / (decrease) in trade and
other payables 212 (1,393) (1,778)
Share of (profit) / loss of equity
accounted investments 9 (7,728) 14,145 1,139
Tax refund received 39 - -
--------------------------------------------- ------ ---------- ---------- ---------
Net cash outflow in operating activities (6,852) (8,937) (15,565)
--------------------------------------------- ------ ---------- ---------- ---------
Cash flows from investing activities
Expenditure on exploration and evaluation
assets 8 (103) (86) (196)
Interest and investment income received 5 - 47 47
Acquisition of ELI Equity Interest - - (443)
ELI Loan Notes - - (14,557)
OML 18 Loan Notes principal payments
received 11 - 35,285 35,285
OML 18 Loan Notes interest payments
received 11 750 6,215 11,215
Net cash inflow from investing activities 647 41,461 31,351
--------------------------------------------- ------ ---------- ---------- ---------
Cash flows from financing activities
Dividends paid - (33,251) (33,251)
Share buyback 16 - (507) (507)
Repayment of lease liability - principal 19 (114) (97) (211)
Interest and arrangement fees paid 19 (67) (69) (131)
--------------------------------------------- ------ ---------- ----------
Net cash outflow from financing
activities (181) (33,924) (34,100)
--------------------------------------------- ------ ---------- ---------- ---------
Net decrease in cash and cash equivalents (6,386) (1,400) (18,314)
Effect of foreign exchange fluctuation
on cash and cash equivalents (22) 292 127
Cash and cash equivalents at start
of period 18,510 36,697 36,697
--------------------------------------------- ------ ---------- ---------- ---------
Cash and cash equivalents at end
of period 13 12,102 35,589 18,510
--------------------------------------------- ------ ---------- ---------- ---------
San Leon Energy plc
Notes to the Interim Consolidated Financial Statements
for the six months ended 30 June 2021
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 2020. 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 2020 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 2021.
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 2020.
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 2020.
The Company has used draft 30 June 2021 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 2021 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.
1.4 Going concern
The Directors have prepared a detailed cash flow forecast for
the Group and Company for the period from 1 August 2021 to 31
December 2022.
The principal assumptions underlying the cash flow forecast and
the availability of finance to the Group are as follows:
-- Following completion of a transaction in 2016, the Company
paid US$174.5 million to acquire Loan Notes in Midwestern Leon
Petroleum Limited ("MLPL"), which are repayable by MLPL to San Leon
and a 40% shareholding in MLPL. 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
0.864% 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 which has resulted in Martwestern Energy
Limited's ("Martwestern") economic interest in Eroton now standing
at 98%. The Group will receive cash flows from the Loan Notes in
the form of interest and capital repayments. This continued to be
the case during 2020 and the basis of the forecast for 2021 and
2022. On 6 April 2020, the Company entered into an agreement
amending the Loan Notes Instrument. The Amendment extends the term
of the Loan Notes to December 2021 and changes the expected loan
note repayment schedule. Up to 30 June 2021, Loan Note payments
totalling US$196.3 million of both principal and interest have been
made on behalf of MLPL. Since the reporting date, a further US$0.9
million has been received. Of the US$10.0 million due on 6 October
2020, a balance of US$3.15 million is still outstanding.
-- Quarterly repayments due to start from July 2021 have been
waived as agreed by San Leon and MLPL, Midwestern and Martwestern
as a conditional payment waiver in respect of the repayment of
approximately US$32 million of MLPL's Loan Notes and interest that
fell due on 5 July (the "Conditional Payment Waiver"). The
Conditional Payment Waiver expires at the end of September 2021 or,
if sooner, the termination of discussions or the signing of an
agreement to effect the Potential Transaction, and interest will
accrue on this instalment of the Loan Notes over this period. The
Board is in discussions with MLPL, Midwestern and Martwestern in
relation to a further extension of the Conditional Payment
Waiver.
Given the Group's well understood cost base, the principal
uncertainty relates to the quantum and timing of receipt of
interest and capital repayments on the Loan Notes with MLPL. 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 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.
Additional uncertainty regarding completion of a transaction and
timing also exists regarding the discussions with Midwestern about
acquiring Midwestern's indirect interest in the OML 18 oil and gas
block located onshore in Nigeria ("OML 18"). Any transaction would
involve San Leon acquiring the outstanding shares not already owned
by San Leon in relation to Midwestern Leon Petroleum Limited
("MLPL") (the "Proposed Transaction"). San Leon confirmed that it
is not contemplating acquiring Midwestern.
The Directors have considered the impact of the Covid-19
pandemic, the volatility in oil prices and demand, OPEC quotas, and
recent operational challenges being experienced by OML 18 upon the
Company's indirect interest in OML 18, and upon the Loan Notes. The
Directors are still confident in the operational potential and
ultimately recovering the full amount of the outstanding Loan Notes
(absent the Proposed Transaction deal completing), however due to
the above issues management recognise the uncertainty in timing of
future cashflows and for this reason the MLPL Loan Notes continue
to be credit impaired as at June 30, 2021.
The Directors have concluded, that any waived MLPL Loan Note
payments, if delayed or not received, represents an uncertainty,
which may cast significant doubt upon the Group and Company's
ability to continue as a going concern and that, therefore, the
Group and Company may be unable to continue realising its assets
and discharging its liabilities in the normal course of business.
Nevertheless, the Directors have a reasonable expectation that
receipt of any further waived MLPL Loan Note payment(s) is not
required given other expected cash inflows and mitigants
considered.
Based on its consideration of Group cash flow projections and
underlying assumptions, the Directors have a reasonable expectation
that the Group and Company will have adequate resources to continue
in operational existence and to discharge its debts as they fall
due for the foreseeable future and for a period of at least 12
months from the date of approval of the financial statements.
Accordingly, the Directors continue to adopt the going concern
basis of preparation of the financial statements for the period
ended 30 June 2021.
2. Revenue and segmental information
At 30/06/2021 Poland Morocco Albania Nigeria Ireland Spain Unalloc-ated Total
#
(Unaudited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
Total revenue - - - - - - - -
Impairment of
exploration
and evaluation
assets - - (103) - - - - (103)
Segment (loss)
/ profit before
income tax 313 - (103) 17,763 (1,070) (28) (8,342) 8,533
Property, plant
and equipment - - - 366 2,425 - - 2,791
Equity accounted
investments - - - 51,830 - - - 51,830
Segment non-current
assets - - - 61,195 8,197 - - 69,392
Segment liabilities (17) (18) (804) (5) (3,165) (748) (2,451) (7,208)
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
At 30/06/2020 Poland Morocco Albania Nigeria Ireland Spain Unalloc-ated Total
#
(Unaudited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
Total revenue - - - - - - - -
Impairment of
exploration
and evaluation
assets - - (86) - - - - (86)
Segment (loss)
/ profit before
income tax (306) - (86) (12,294) 1,388 (28) (8,194) (19,520)
Property, plant
and equipment 23 - - 1,111 2,687 - - 3,821
Equity accounted
investments - - - 30,653 - - - 30,653
Segment non-current
assets 23 - - 63,349 6,485 - 1,716 71,573
Segment liabilities (194) (268) (804) - (2,737) (739) (1,859) (6,601)
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
At 31/12/2020 Poland Morocco Albania Nigeria Ireland Spain Unalloc-ated Total
#
(Audited) US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
Total revenue - - - - - - - -
Impairment of
exploration
and evaluation
assets - - (196) - - - - (196)
Segment (loss)
/ profit before
income tax (2,093) - (196) 3,259 4,073 (59) (14,589) (9,605)
Property, plant
and equipment 11 - - 575 2,708 - - 3,294
Equity accounted
investments - - - 44,102 - - - 44,102
Segment non-current
assets - - - 55,729 9,513 - - 65,242
Segment liabilities (83) (18) (804) (4) (3,279) (748) (1,706) (6,642)
---------------------- -------- -------- -------- --------- -------- -------- ------------- ---------
# Unallocated expenditure and liabilities include amounts of a
corporate nature and not specifically attributable to a reportable
segment.
3. Profit or loss on disposal of subsidiaries
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
-------------------------------------------------- ----------- ---------- ---------
Other, recycling from equity to income statement
(i) - (1,044) (1,044)
- (1,044) (1,044)
-------------------------------------------------------------- ---------- ---------
(i) Other
In 2020 the Company 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 losses of US$nil
(31/12/20: US$1.0 million), that had previously been recognised in
equity. The realisation of the cumulative foreign currency losses
does not impact the consolidated assets or liabilities.
4. Finance expense
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
------------------------------------ ---------- ---------- ---------
Interest on obligations for leases 67 69 131
67 69 131
------------------------------------ ---------- ---------- ---------
5. Finance income
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
Finance income on Loan Notes (Note 11) 8,242 7,708 17,276
Movement in fair value of derivatives - - 119
Deposit interest received - 47 47
8,242 7,755 17,442
---------------------------------------- ---------- ---------- ---------
All interest income in respect of assets is measured at
amortised cost.
6. Expected credit losses
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
OML 18 Loan Notes - impact of modification - (5,857) (5,857)
OML 18 Loan Notes - net remeasurement of
loss allowance (704) - (7,450)
ELI Loan Notes - initial recognition (85) - (385)
-------------------------------------------- ---------- ---------- ---------
(789) (5,857) (13,692)
-------------------------------------------- ---------- ---------- ---------
7. Income tax
Unaudited Unaudited Audited
6 months 6 months Year
ended 30/06/21 ended ended
30/06/20 31/12/20
US$'000 US$'000 US$'000
--------------------------------------- ---------------- ---------- ----------
Current tax:
Current year income tax 6 3 12
Deferred tax
Origination and reversal of temporary
differences 756 269 893
Deferred tax movement in Barryroe
NPI (353) 543 1,343
Total income tax charge / (credit) 409 815 2,248
---------------------------------------- ---------------- ---------- ----------
The difference between the total tax shown above and the amount
calculated by applying the applicable standard rate of Irish
corporation tax to the loss before tax is as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
------------------------------------- ---------- ---------- ----------
Current tax:
------------------------------------- ---------- ---------- ----------
Profit / (loss) before income
tax 8,533 (19,520) (9,605)
-------------------------------------- ---------- ---------- ----------
Tax on loss at applicable Irish
corporation tax rate of 25% (2020:
25%) 2,133 (4,880) (2,401)
Effects of:
Deferred tax on fair value movement
in financial assets (86) 132 326
Effect of different tax rates - - 2
Losses utilised in period (345) (269) (690)
Expenses not deductible for tax
purposes (2,519) 4,539 2,559
Income tax withheld 6 3 13
Excess losses carried forward 1,220 1,290 2,439
Tax charge / (credit) for the
period 409 815 2,248
-------------------------------------- ---------- ---------- ----------
8. Intangible assets
Exploration and evaluation assets
Unaudited
30/06/21
US$'000
------------------------------------------------------ ----------
Cost and net book value
At 1 January 2020 -
Additions 196
Write off / impairment of exploration and evaluation
assets (196)
At 31 December 2020 -
Additions 103
Write off / impairment of exploration and evaluation
assets (103)
At 30 June 2021 -
------------------------------------------------------- ----------
An analysis of exploration assets by geographical area is set
out below:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended Ended
30/06/21 30/06/20 31/12/20
--------- ---------- ---------- ---------
Albania 103 86 196
Total 103 86 196
--------- ---------- ---------- ---------
The Directors considered the carrying value of capitalised costs
in respect of its exploration and evaluation assets. These assets
were assessed for impairment indicators and in particular with
regard to remaining licence terms, likelihood of licence renewal,
likelihood of further expenditures and on-going appraisals for each
area. Based on internal assessments from the latest information
available, the exploration and evaluation assets remain fully
impaired in 2021.
9. Equity accounted investments
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
------------------------------------ ---------- ---------- ---------
Opening balance 44,102 44,798 44,798
Additions (ELI) - - 443
Share of (loss) / profit of equity
accounted investments 7,728 (14,145) (1,139)
Closing balance 51,830 30,653 44,102
------------------------------------ ---------- ---------- ---------
The Group's only joint venture entities and associates are as
follows:
Name Registered office Type % held
--------------------------- ----------------------------------- ---------- ------
5th 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%
--------------------------- ----------------------------------- ---------- ------
2020
A summary of the financial information of the equity investments
is detailed below.
Midwestern Energy Link
Leon Petroleum Infrastructure
Limited (Malta)
(i) Limited (ii) Total
------------------------------------------- --------------- --------------- -------
Equity Interest 40% 10%
-------------------------------------------- --------------- --------------- -------
US$'000 US$'000 US$'000
------------------------------------------- --------------- --------------- -------
Group's interest in net assets of investee
at 1 January 2020 44,798 - 44,798
-------------------------------------------- --------------- --------------- -------
Additions - 443 443
Share of loss (976) (163) (1,139)
-------------------------------------------- --------------- --------------- -------
Group's interest in net assets of investee
at 31 December 2020 43,822 280 44,102
-------------------------------------------- --------------- --------------- -------
Additions - - -
Share of profit / (loss) 8,001 (273) 7,728
-------------------------------------------- ------ ----- ------
Group's interest in net assets of investee
at 30 June 2021 51,823 7 51,830
-------------------------------------------- ------ ----- ------
(i) Midwestern Leon Petroleum Limited
The Group identified potential impairment indicators, being that
MLPL is yet to receive a dividend from Eroton, US$4.2 million of a
US$10.0 million repayment due on 6 October 2020 was still
outstanding at period end, 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$54/bbl in 2021, US$57/bbl in 2022, 2023 and 2024
and a subsequent long term price US$62/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.
On 24 June 2021 it was announced that the Company is in
preliminary discussions with Midwestern about acquiring
Midwestern's indirect interest in the OML 18 oil and gas block
located onshore in Nigeria. At that stage heads of terms for such a
transaction had not been agreed. Any transaction would involve San
Leon acquiring the outstanding shares, 60%, not already owned by
San Leon in relation to Midwestern Leon Petroleum Limited.
See Subsequent events (Note 21) for further information on the
discussions with Midwestern about acquiring Midwestern's indirect
interest in the OML 18.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020 the Company acquired a 10% non-controlling
interest in Energy Link Infrastructure (Malta) Limited ("ELI") (See
Note 11(ii)).
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 (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 and subsequent throughput of oil from various
customers.
On 24 June 2021, the Company announced a conditional investment
of US$2.0 million as well as an option to conditionally invest a
further US$6.5 million in the equity of ELI. The equity being
conditionally purchased and the equity that may be purchased via
the option are existing equity interests in ELI owned by Walstrand
(Malta) Limited, ELI's largest shareholder. The conditional
investment will comprise of the Company investing US$2.0 million
for 1.323% of ELI, with San Leon simultaneously receiving an option
(the "Option") to conditionally purchase a further 4.302% of ELI
for US$6.5 million (together the "Further Investment"). The total
consideration payable should the Option be exercised in full will
therefore be US$8.5 million and will be payable by the Company in
cash. Any investment pursuant to the Further Investment will be
conditional on obtaining the consent of Guaranty Trust Bank PLC
("GTBank") who currently hold a pledge over the shares held by
Walstrand (Malta) Limited in ELI. The exercise of the Option will
be at the sole discretion of the Company, although such exercise
will be subject to the consent of GTBank.
Under the terms of ELI's senior debt facility with GTBank, the
lender has a charge over all of ELI's assets and, as further
security, each shareholder in ELI (including San Leon in relation
to its current shareholding in ELI) has pledged their shares in ELI
to the lender. The terms of the pledge are that the shares in ELI
cannot be transferred or otherwise utilised without the lender's
consent. All shares in ELI that will be acquired pursuant to the
Further Investment will be returned to this pledge.
The conditional investment of US$2.0 million is included in
Trade and other receivables pending GTBank giving consent to the
transfer of shares to San Leon (Note 12 (i)).
10. Property, plant and equipment
Leased Plant & Office Motor
assets equipment equipment vehicles Total
US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------------- --------- ----------- ----------- ---------- ---------
Cost
At 1 January 2020 3,281 9,050 1,203 495 14,029
Disposals - - (111) - (111)
Currency translation adjustment - 116 - (15) 101
--------------------------------- --------- ----------- ----------- ---------- ---------
At 31 December 2020 3,281 9,166 1,092 480 14,019
Currency translation adjustment - (177) (18) (21) (216)
--------------------------------- --------- ----------- ----------- ---------- ---------
At 30 June 2021 3,281 8,989 1,074 459 13,803
--------------------------------- --------- ----------- ----------- ---------- ---------
At 30 June 2020 3,281 9,050 1,203 495 14,029
--------------------------------- --------- ----------- ----------- ---------- ---------
Depreciation
--------------------------------- ---------
At 1 January 2020 329 7,803 1,138 415 9,685
Charge for the year 378 622 12 16 1,028
Disposals - - (111) - (111)
Currency translation adjustment - 122 16 (15) 123
--------------------------------- --------- ----------- ----------- ---------- ---------
At 31 December 2020 707 8,547 1,055 416 10,725
Charge for the period 177 312 5 9 503
Currency translation adjustment - (177) (18) (21) (216)
At 30 June 2021 884 8,682 1,042 404 11,012
--------------------------------- --------- ----------- ----------- ---------- ---------
At 30 June 2020 517 8,114 1,138 439 10,208
--------------------------------- --------- ----------- ----------- ---------- ---------
Net book values
--------------------------------- --------- ----------- ----------- ---------- ---------
At 30 June 2021 2,397 307 32 55 2,791
--------------------------------- --------- ----------- ----------- ---------- ---------
At 30 June 2020 2,764 936 65 56 3,821
--------------------------------- --------- ----------- ----------- ---------- ---------
At 31 December 2020 2,574 619 37 64 3,294
--------------------------------- --------- ----------- ----------- ---------- ---------
11. Financial assets
Barryroe
4.5%
net profit Unquoted
interest shares
OML 18 ELI (ii) (iii) (iv, Total
(i) US$'000 US$'000 v) US$'000
US$'000 US$'000
FVOCI-equity
Amortised Amortised instrument
cost cost FVTPL
Cost / Valuation
----------------------------------- ------------
At 1 January 2020 114,254 - 2,769 194 117,217
Net fair value of acquisition
of ELI Loan Notes - 14,557 - - 14,557
Finance income 16,480 796 - - 17,276
Loan Notes receipts - principal (35,285) - - - (35,285)
Loan Notes receipts - interest (11,215) - - - (11,215)
Lifetime ECL - credit-impaired
# (15,309) - - - (15,309)
Impairment of unquoted shares,
Other comprehensive income - - - (194) (194)
Fair value movement, Income
Statement - - 4,073 - 4,073
At 31 December 2020 68,925 15,353 6,842 - 91,120
Finance income 7,069 1,173 - - 8,242
Impairment - (credit-impaired
assets) # (704) - - - (704)
Loan Notes receipts - interest (750) - - - (750)
Fair value movement, Income
statement - - (1,070) - (1,070)
At 30 June 2021 74,540 16,526 5,772 - 96,838
----------------------------------- ------------ ------------- -------------- ------------- ----------
Expected Credit Loss Provision
-----------------------------------
At 1 January 2020 - - - -
New financial asset acquired
* (385) - - (385)
At 31 December 2020 (385) - - (385)
Increased in the period * (85) - - (85)
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 30 June 2021 (470) - - (470)
----------------------------------- ------------ ------------- -------------- ------------- ----------
# See OML18 ECL table below
*ELI ECL table below
Higher
risk assets
not credit Credit
Performing impaired impaired
12-month Lifetime Lifetime
Expected Credit Loss - OML ECL ECL ECL Total
18
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 31 December 2019 - (2,002) - (2,002)
Impact of modification - (5,857) - (5,857)
Net remeasurement of loss
allowance - (7,450) - (7,450)
Transfer to lifetime ECL -
credit-impaired - 15,309 (15,309) -
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 31 December 2020 - - (15,309) (15,309)
Impairment - - (704) (704)
Effective interest on ECL - - (1,791) (1,791)
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 30 June 2021 - - (17,804) (17,804)
----------------------------------- ------------ ------------- -------------- ------------- ----------
Higher
risk assets
not credit Credit
Performing impaired impaired
12-month Lifetime Lifetime
Expected Credit Loss - ELI ECL ECL ECL Total
------------- -------------- ------------- ----------
At 1 January 2019 and 31 December - - - -
2019
New financial assets originated (385) - - (385)
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 31 December 2020 (385) - - (385)
Net remeasurement of loss
allowance (85) - - (85)
----------------------------------- ------------ ------------- -------------- ------------- ----------
At 30 June 2021 (470) - - (470)
----------------------------------- ------------ ------------- -------------- ------------- ----------
Barryroe
4.5%
net profit Unquoted
interest shares
OML 18 ELI (ii) (iii) (iv, Total
(i) US$'000 US$'000 v) US$'000
US$'000 US$'000
FVOCI-equity
Amortised Amortised instrument
cost cost FVTPL
----------------------------------- ------------ ------------- -------------- ------------- ----------
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 30 June 2020 72,603 - 4,414 194 77,211
Current 41,018 - - - 41,018
Non-current 31,585 - 4,414 194 36,193
Book value at 31 December
2020 68,925 14,968 6,842 - 90,735
Current 68,925 3,964 - - 72,889
Non-current - 11,004 6,842 - 17,846
Net Profit Interests (Poznan, vi) (Gora, vii) (Liesa, viii):
These NPIs have a nil value from acquisition.
(i) OML 18 Production Arrangement
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
on the date they were initially recognised is as follows:
Inter-relationships between
Significant unobservable inputs the unobservable inputs
Valuation technique * and fair value measurements
------------------- -------------------------------- ----------------------------
Discounted cash - Discount rate 25% based Nil
flows 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 are repayable
in full by 31 December 2021
------------------- -------------------------------- ----------------------------
*Day 1 and considered appropriate at 30 June 2021.
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 on the par value was US$82.1 million (accounted
for as US$79.5 million under IFRS). 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. The outstanding loan will continue to
have an annual coupon rate of 17% and an effective interest rate of
25% per annum until repaid. All other material terms of the Loan
Notes Instrument remain unchanged. The Agreement with MLPL was
accounted for as a modification of the financial asset which did
not give rise to derecognition. A loss of US$2.5 million was
recognised in respect of the change in present value of the revised
cashflows discounted at the original effective interest rate.
Up to 30 June 2021 San Leon received total payments under the
Loan Notes of US$0.8 million (2020: US$46.5 million). The payments
received during 2021 represent principal of US$nil (2020: US$35.3
million) and interest of US$0.8 million (2020: US$11.2 million)) on
the Loan Notes repaid. As at 30 June 2021 there was US$93.6 million
in principal and interest (2020: US$84.2 million), due under the
Loan Notes. As at 30 June 2021, US$4.2 million was outstanding from
the US$10.0 million due to be repaid on 6 October 2020. Since then,
US$1.1 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 2020, 31 December 2020 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 a provision for the lifetime expected credit loss of the Loan
Notes had been recognised. In 2020, issues such as the impact of
the Covid-19 pandemic on the global economy, the volatility in oil
prices and demand, OPEC quotas, and operational challenges
experienced by OML 18 resulted in a significant loss being recorded
in MLPL at 31 December 2020. This, along with production issues at
the field has impacted the financial strength of MLPL, particularly
in respect of short term liquidity.
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, and is now considered to have increased further during
the year ended 31 December 2020 and the period ended 30 June
2021.
Management are still confident in the operational potential of
OML 18 and ultimately recovering the full amount of the outstanding
Loan Notes, however due to the above issues management are unable
to determine the timing of future cashflows and for this reason the
Loan Notes are now considered credit impaired.
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. The
Directors have considered the credit risk of MLPL, in particular in
light of the Covid-19 pandemic and the resultant impact on the oil
price and demand, as well as ongoing short term production issues.
As a result, the credit risk has been determined to have increased
since 31 December 2019 and the Loan Notes are now considered to be
impaired. In previous periods an annualised expected credit loss of
3.11% was applied to the amount outstanding on the Loan Notes. This
rate was determined on the basis of long-term historical default
rates of loans originated in similar geography and industry. A
default rate determined by reference to historical default rates
has been determined to be less appropriate in the current
environment as a result of the uncertainty created by the Covid-19
pandemic and ongoing operational issues. In addition, the change in
profile of the repayments due under the Loan Notes, arising as a
result of the amendments to the Loan Notes agreed in April 2020,
means that an expected default risk taking into account the timing
of the payments is now also appropriate. 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 late payment 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. This has then been compared to
publicly available macroeconomic data of default rates by geography
and industry.
As at 30 June 2021 the Loan Notes are considered credit
impaired. The expected credit loss of US$17.8 million (2020:
US$15.3 million) has been presented net with the amortised cost of
the Loan Notes.
On 24 June 2021 it was announced that the Company is in
preliminary discussions with Midwestern about acquiring
Midwestern's indirect interest in the OML 18 oil and gas block
located onshore in Nigeria. As at 30 June 2021 heads of terms for
such a transaction had not been agreed.
See Subsequent events (Note 21) for further information on the
discussions with Midwestern about acquiring Midwestern's indirect
interest in the OML 18.
(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$5.0 million on 6 October 2020, being half of the funds due from
Midwestern Leon Petroleum Limited as part of the repayment of the
MLPL Loan Notes.
The fair value assessment of the ELI Loan Notes on acquisition
was calculated as follows:
Total
US$'000
---------------------------------------------------- --------
Total consideration 15,000
---------------------------------------------------- --------
Fair value of ELI Loan Notes attributable to equity
investment # (443)
---------------------------------------------------- --------
Net fair value of ELI Loan Notes 14,557
---------------------------------------------------- --------
# The fair value of ELI 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 ELI
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
* ELI Loan Notes are repayable in full by 6 October
2024.
--------------------- ----------------------------------------------------------- --------------------------
*Day 1 and considered appropriate at 31 December 2020.
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. These
are described further in Note 20. 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.
As at 30 June 2021 there was US$16.5 million in principal and
interest, due under the ELI Loan Notes.
The Directors of San Leon have considered the credit risk of the
ELI Loan Notes at 30 June 2021. Both tranches of the ELI Loan Notes
were issued in H2 2020, with a one year repayment holiday. The
first repayment is due is on 31 July 2021, however San Leon
announced on 24 June 2021 that it is considering making further
debt and equity investments in ELI and reaffirmed that intention in
subsequent announcements during July 2021. 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. Therefore the ELI Loan Notes
are currently considered to be in good standing. Despite some
project delays due to the impacts of Covid-19, it is not expected
that this will impact the ability of ELI to make ELI Loan Note
repayments, with current projections indicating 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 ELI Loan Notes has been recognised.
In addition, the Directors have reviewed the counterparty credit
risk associated with measurement of the expected credit loss and,
this has been assessed as not having increased significantly since
initial recognition. A factor that has been considered to reduce
overall credit risk is a guarantee from ELI Nigeria, who guarantee
all payment obligations of ELI Malta.
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$0.5 million (2020: US$0.4 million), being 3.2% (2020: 2.6%)
of the balance at acquisition was appropriate.
(iii) Barryroe - 4.5% Net Profit Interest (NPI)
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.
The 2020 announcements by Providence in relation to Standard
Exploration Licence 1/11 which contains the Barryroe oil
accumulation indicated that a partner for the project had been
found, which had reduced project risk around both funding and
timing of the potential development of the asset.
Given the 2020 announcements, the Directors reviewed the
modelling assumptions and considered it reasonable and appropriate
to continue to use a market based approach to increase the Barryroe
carrying value by US$4.0 million to US$6.8 million to reflect their
estimate of the impact of these risks to the future cash flows on
the value of the asset.
In April 2021 Providence announced that it had terminated the
farm-out agreement with the partner and is progressing arrangements
for an alternative funding package to finance 100% of the costs of
the early development scheme.
Given the share price of Providence at 30 June 2021, under the
market-based valuation approach the Barryroe carrying value is to
be revalued downwards by US$1.1 million (2020: upwards by US$4.1
million) to a fair value of US$5.7 million (2020: US$6.8
million).
The key information relevant to the fair value of the Barryroe
4.5% net profit interest is as follows:
Inter-relationships
between the unobservable
Valuation Significant unobservable inputs and fair value
technique inputs measurements
------------ --------------------------------------------------------- ------------------------------------------------------
Market based The estimated fair
approach * Estimated value of NPI as percentage of total field value would increase
using share NPV 9.5% (2020: 9.5%) / (decrease) if:
price
of Operator * GBP exchange rate increased / (decreased)
(Providence)
* Market capitalisation of Providence increased /
decreased
------------ --------------------------------------------------------- ------------------------------------------------------
(iv) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil &
Gas Limited to Ardilaun Energy Limited ("Ardilaun") in 2014
Ardilaun agreed to issue shares equivalent to 15% of the issued
share capital of Ardilaun to San Leon. The original fair value of
the 15% interest in Ardilaun was based on a market transaction in
Ardilaun shares.
The Directors considered the carrying value of this interest at
31 December 2020 and given the length of time to obtain Irish
government approval for the transaction, the Directors felt it was
prudent to carry 15% of Ardilaun shares still to be issued to San
Leon at a value of US$nil. This carrying value has been maintained
at 30 June 2021.
(v) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from
Gemini Resources Limited into 54,818 fully paid ordinary shares in
Gemini.
The Directors considered the carrying value of this interest at
31 December 2020 to be US$nil. This carrying value has been
maintained at 30 June 2021.
(vi) 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 2021.
(vii) 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 2021.
(viii) 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 2021.
(iv) Amedeo Resources plc
As at 30 June 2021 and at 31 December 2020, the Company held
213,512 ordinary shares at a market value of US$nil. The value of
the investment was written down to nil in 2018 due to the shares of
Amedeo Resources plc being de-listed.
12. Trade and other receivables
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
-------------------------------- ---------- ---------- ---------
Amounts falling due within one
year:
Trade receivables from joint
operating partners 2 - 2
Corporation tax refundable - 49 39
VAT and other taxes refundable 87 162 88
Other debtors (i) (ii) 6,241 4,313 4,264
Expected credit loss on other
debtors (ii) (3,532) (3,532) (3,532)
Prepayments and accrued income
(iii) 1,309 198 1,017
4,107 1,190 1,878
-------------------------------- ---------- ---------- ---------
(i) Other debtors includes the US$2.0 million ELI conditional
investment, detailed in Equity accounted investments (Note 9
(ii)).
(ii) 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. There has been no change in 2021.
The remaining other debtors consists of rent deposits and
similar receivables.
(iii) Prepayments includes an amount of US$0.8m in relation to
the Oza deal, detailed in Commitments and contingencies (Note
18(b)).
13. Cash and cash equivalents
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
Cash and cash equivalents 5,349 35,089 11,757
Solicitor client account (i) 6,753 500 6,753
------------------------------- ---------- ---------- ---------
12,102 35,589 18,510
------------------------------ ---------- ---------- ---------
(i) Solicitor client account at 30 June 2021 and 31 December
2020 represents monies held on behalf of the Company by Adepetun
Caxton-Martins Agbor & Segun in relation to the Oza deal,
detailed in Commitments and contingencies (Note 18(b)) (30/06/20:
David M. Turner & Company Solicitors).
14. Trade and other payables
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
-------------------------- ---------- ---------- ---------
Current
Trade payables 1,020 1,278 719
PAYE / PRSI 159 153 295
Other creditors 41 108 36
Accruals 2,291 2,141 2,248
Current portion of lease 333 333 333
Corporation tax payable 6 - -
--------------------------
3,850 4,013 3,631
-------------------------- ---------- ---------- ---------
Non-current
Non-current portion of lease 2,372 2,404 2,428
------------------------------- ------ ------ ------
15. Provisions for liabilities
Decommissioning
US$'000
--------------------- ----------------
Cost
At 1 January 2020 56
Movement during the -
year
At 31 December 2020 56
Movement during the -
period
At 30 June 2021 56
------------------------ ----------------
Current 56
------------------------ ----------------
Non-current -
--------------------- ----------------
At 30 June 2020 56
------------------------ ----------------
Current 56
------------------------ ----------------
Non-current -
--------------------- ----------------
At 31 December 2020 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.
16. Share capital
Number of
New Ordinary Authorised
shares equity
EUR0.01 each US$'000
------------------- --------------- -------------
Authorised equity
At 1 January 2020 2,847,406,025 177,475
---------------------
At 30 June 2020 2,847,406,025 177,475
---------------------
At 30 June 2021 2,847,406,025 177,475
--------------------- --------------- -------------
Number of Share Share
New Ordinary capital premium
shares US$'000 US$'000
EUR0.01 each
---------------------------- ----- --------------- ---------- ----------
Issued called up and fully
paid:
---------------------------- -----
At 1 January 2020 451,303,014 5,172 21,077
Share buybacks (1,389,988) (15) -
------------------------------------ --------------- ---------- ----------
At 31 December 2020 and 30
June 2021 449,913,026 5,157 21,077
At 30 June 2020 449,913,026 5,157 21,077
------------------------------------ --------------- ---------- ----------
Share buyback programme
On 18 October 2019 the Company announced that, pursuant to the
shareholder resolutions passed on 27 September 2019 at the Annual
General Meeting, it planned to acquire ordinary shares of EUR 0.01
nominal value each ("Ordinary Shares"), up to a total value of
US$2.0 million (the "Buyback Programme"). In accordance with the
shareholder resolutions, the Company is proposed to acquire the
Ordinary Shares at a maximum price of the greater of (i) 105% of
the average market price of such shares for the previous five days
and (ii) the higher of the price quoted for the last independent
trade and the highest current independent bid or offer for such
shares.
Ordinary Shares acquired as a result of the Buyback Programme
were cancelled. The Buyback Programme was funded from the Company's
cash balances.
At 31 December 2019 the Company had repurchased 4,319,113
Ordinary Shares at an aggregate value of US$1.5 million. Following
cancellation of the shares repurchased to 31 December 2019, the
total number of Ordinary Shares in issue with voting rights was
451,303,014.
In January 2020, under the Buyback Programme, the Company
purchased a further 1,389,988 Ordinary Shares at an aggregate value
of US$0.5 million.
On 22 January 2020, the Company announced that it had completed
the buyback programme. Under the Buyback Programme, the Company
repurchased 5,709,101 Ordinary Shares at an aggregate value of
GBP1,570,085.49. Following cancellation of the final shares
repurchased, the total number of Ordinary Shares in issue with
voting rights was 449,913,026.
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.
Special dividend paid
In May 2020, the Company paid a special dividend to its
shareholders of GBP0.06 per share, totaling US$33.3 million
(GBP27.0 million).
17. Deferred tax asset / (liability)
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the
following:
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
---------------------------------------- ---------- ---------- ---------
Financial assets - IFRS 9 (1,063) (616) (1,416)
Financial assets - other 175 175 175
Unrealised exchange difference (4) - (4)
Interest not taxable until received (492) - (199)
Tax losses recognised 463 1,347 926
Total deferred tax asset/(liabilities) (921) 906 (518)
----------------------------------------- ---------- ---------- ---------
18. Commitments and contingencies
(a) Operating leases
Cash commitments under operating leases (Note 19) are as
follows:
Unaudited Unaudited Audited
30/06/21 30/06/20 31/12/20
US$'000 US$'000 US$'000
---------------------------- ---------- ---------- ---------
Payable:
Within one year 369 340 369
Between one and five years 1,472 1,348 1,472
Over five years 1,534 1,740 1,718
3,375 3,428 3,559
---------------------------- ---------- ---------- ---------
(b) Decklar Petroleum Limited
On 1 September 2020, the Company announced that it had
conditionally agreed to invest US$7.5 million by way of a loan to
Decklar Petroleum Limited, who is the holder of a Risk Service
Agreement with Millenium Oil and Gas Company Limited on the Oza
marginal field, carved out of OML 11, onshore Nigeria. Under the
agreements, if completed, the Company will also receive a 15%
interest in Decklar for a nominal amount paid. This transaction is
still awaiting final conditions precedents to complete.
(c) Exploration, evaluation and development activities
The Group has commitments of US$Nil (31/12/20: US$Nil) in the
period ended 30 June 2021 to contribute to its share of exploration
and evaluation expenditure in respect of exploration licences and
concessions held.
(d) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in
aggregate of US$2.0 million in relation to the sale completed in
August 2019 to Horizon Petroleum Ltd.
(e) Island Oil & Gas Limited Guarantee
The Company has a Guarantee in respect of the decommissioning
liabilities of Island (Seven Heads) Limited, a subsidiary of Island
Oil & Gas Limited ("Island"). In the event that Island are
unable to pay the decommissioning liabilities, under the Guarantee,
the Company could be liable for any amounts Island does not
pay.
19. Leases
Right-of-use asset (included within Property, plant
and equipment)
----------------------------------------------------- ---------
At
30/06/21
US$'000
----------------------------------------------------- ---------
Property leases
At 1 January 2020 2,952
Depreciation charge for the year (378)
------------------------------------------------------ ---------
At 1 January 2021 2,574
Depreciation charge for the period (177)
------------------------------------------------------ ---------
Closing net carrying amount at 30 June 2021 2,397
------------------------------------------------------ ---------
Lease liability
----------------------------------------------------- ---------
At
30/06/21
US$'000
----------------------------------------------------- ---------
Property leases
At 1 January 2020 2,834
Payments - principal (211)
Payments - interest (131)
Currency translation adjustment 138
Interest 131
------------------------------------------------------ ---------
At 1 January 2021 2,761
Payments - principal (114)
Payments - interest (67)
Currency translation adjustment 58
Interest 67
------------------------------------------------------ ---------
Closing net carrying amount at 30 June 2021 2,705
------------------------------------------------------ ---------
Current 333
------------------------------------------------------ ---------
Non-current 2,372
------------------------------------------------------ ---------
20. 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.
Property
The Company holds an option to acquire a property at market
value from Mr. Fanning. The option has a remaining life of five and
a half years and the option fee of US$409,000 is included in other
receivables (Note 12) and is refundable when the Company either
exercises or terminates the option. Mr. Fanning was paid US$162,746
(31/12/20: US$215,999) rent for the use of this property during the
period by the Company.
The property was 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. The monthly rent
payable is on average US$32,000.
Director change in Shareholding
On 11 May 2020 the Company was notified that Mr. Fanning, Chief
Executive Officer of the Company, acquired 98,000,000 ordinary
shares in the Company. Following the notification, Mr. Fanning had
an interest of 107,495,864 ordinary shares, representing 23.89% of
the issued share capital of the Company.
On 23 December 2020 the Company announced that it had been
informed that Mr. Fanning had been unable to secure the necessary
funding for the above share purchase. Consequently, settlement of
the share purchase did not occur. Following this, Mr. Fanning owns
9,495,864 ordinary shares in the Company, representing 2.1% of the
issued share capital of the Company.
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$52,080 for amounts
due for 2021 (31/12/20: US$95,181).
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, in their entirety for two years from 1 July 2019.
Caledonian was paid US$231,000 for the period 1 July 2019 to 30
June 2021 of which US$57,750 relates to 2021 (31/12/20:
US$115,500). 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.
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 is 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 is now 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. As at 30 June 2021
this position has not changed.
On 10 September 2021, Gemini Energy B.V. ("Gemini") completed
the transfer of NSP's 35% holdings of both TSH and Poznan, detailed
in Subsequent events Note 21, from NSP to Gemini.
Toscafund Asset Management LLP
Toscafund Asset Management LLP (Toscafund) is a related party on
the basis that funds managed by Toscafund hold a substantial
shareholding in San Leon Energy plc and the substantive
transactions which the parties entered into during 2016 and as more
fully described below detailing the purchase of the indirect
interest in OML 18.
On 11 May 2020 the Company was informed that funds managed by
Tosca Asset Management LLP had sold 98,000,000 ordinary shares in
the Company on 7 May 2020. On completion of the sale funds managed
by Tosca Asset Management LLP held 228,771,927 ordinary shares,
representing 50.85% of the issued share capital of the Company.
This sale was not completed and on 22 December 2020 the Company was
informed that funds managed by Tosca Asset Management LLP held
330,570,719 ordinary shares in the Company at that date.
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%.
To date, San Leon has received aggregate payments under the Loan
Notes totalling US$196.3 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 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$15.8 million at 31 December 2020. The Company further increased
the impairment charge to US$17.8 million at 30 June 2021.
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 BV to provide specific services to Eroton and
Midwestern for their activities.
During 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.
Further extensive details can be found on the Company's website
which contains a copy of the 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 2019 to continue to make the repayments
during 2020.
2021
During 2021 San Leon received total payments under the Loan
Notes totalling US$0.8 million. MLPL used loan agreements similar
to those entered into in 2020 to continue to make the repayments
during 2021.
In June 2021 San Leon announced that the Company is in
preliminary discussions with Midwestern about acquiring
Midwestern's indirect interest in the OML 18 oil and gas block
located onshore in Nigeria ("OML 18"). At 30 June 2021 heads of
terms for such a transaction have not been agreed. Any transaction
would involve San Leon acquiring the outstanding shares not already
owned by San Leon in relation to Midwestern Leon Petroleum Limited
("MLPL"). San Leon is not contemplating acquiring Midwestern. The
acquisition by San Leon of the outstanding shares in MLPL not
already owned by San Leon would constitute a reverse takeover under
rule 14 of the AIM Rules for Companies (the "AIM Rules"). MLPL is
part of the structure through which San Leon holds its current
10.58% indirect economic interest in OML 18. San Leon currently has
a 40% equity interest in MLPL. MLPL has a 100% equity investment in
Martwestern Energy Limited ("Martwestern"), which in turn has a 98%
economic interest in Eroton Exploration and Production Company
Limited ("Eroton"), which holds a 27% working interest in OML 18
and is its operator.
The consideration for this, and other matters, would be
satisfied by the issuance of a substantial number of new ordinary
shares in San Leon to Midwestern, such that Midwestern would become
the majority shareholder of San Leon.
See Note 21, Subsequent events, for further details of the
proposed transaction with Midwestern Oil and Gas Company
Limited.
21. Subsequent events
Proposed transaction with Midwestern Oil and Gas Company
Limited
On 7 July San Leon agreed with MLPL, Midwestern and Martwestern
to a conditional payment waiver in respect of the repayment of
approximately US$32 million of MLPL's Loan Notes and interest that
fell due on 5 July (the "Conditional Payment Waiver"). The
Conditional Payment Waiver expires at the end of August 2021 or, if
sooner, the termination of discussions or the signing of an
agreement to effect the Potential Transaction, and interest will
accrue on this instalment of the Loan Notes over this period. The
sums to which the Conditional Payment Waiver relates (and those
falling due within 30 days after the expiry of the Conditional
Payment Waiver) will be payable 90 days after such expiry, save
for, inter alia, if there is an event of default.
On 12 July 2021 the Company announced that heads of terms have
been signed in respect of, inter alia, the proposed reorganisation
to consolidate Midwestern Oil and Gas Company Limited's
("Midwestern") holdings in the Company and Midwestern Leon
Petroleum Limited ("MLPL") into a single holding in the Company
(the "Potential Transact ion"). Following the Potential
Transaction, the Company will own 100% of the equity in MLPL. San
Leon currently owns 40% of the equity in MLPL and Midwestern owns
the remaining 60% of the equity in MLPL.
The heads of terms, which are subject, inter alia, to due
diligence, agreement of final contracts, Nigerian regulatory
approvals and the approval of San Leon's shareholders, sets out the
structure of the Potential Transaction and includes, inter alia,
the proposed further debt and equity investments to be made by San
Leon in Energy Link Infrastructure (Malta) Limited ("ELI"). The
parties are now engaging with their respective advisers to prepare
the necessary transaction documentation (including publishing an
AIM admission document, given that the Potential Transaction will
be classified as a reverse takeover under the AIM Rules for
Companies (the "AIM Rules")) and to carry out due diligence. In
accordance with Rule 14 of the AIM Rules, the Company's ordinary
shares will remain suspended from trading on AIM until such time as
either an AIM admission document is published or an announcement is
released confirming that the reverse takeover in contemplation is
not proceeding.
On 20 September 2021, the Company announced the extension of the
Conditional Payment Waiver to 30 September 2021. The Board is in
discussions with MLPL, Midwestern and Martwestern in relation to a
further extension of the Conditional Payment Waiver.
ELI Loan Repayment
On 9 August 2021, the Company announced that it had agreed with
ELI that, should the further investments be made as described in
Note 9, then the first instalment due under the ELI Loan Notes of
approximately US$2.2 million, which became due in August 2021, 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.
Directorate Change
On 2 August 2021 the Company announced that it had accepted the
resignation of its Chief Financial
Officer and Executive Director, Lisa Mitchell, who is leaving
the Company to take up a new role. Lisa will remain in her position
and as a member of the Board for the time being while the Company
continues to progress its proposed transactions with Midwestern Oil
and Gas Company Limited and Energy Link Infrastructure (Malta)
Limited, as described in the Company's recent announcements.
Gemini Energy B.V. / NSP Investments Holdings Ltd
On 10 September 2021, Gemini completed the transfer of NSP's 35%
holdings of both TSH and Poznan, detailed in Related Party Note 20,
from NSP to Gemini.
The transfer would not have been completed without the Company's
cooperation as it held pledges over the 35% interests as security
for amounts owed to the Company by NSP. San Leon agreed to the
transfer of the shares from NSP to Gemini, when Gemini offered and
agreed to pay the Company:
(i) US$1.5 million by no later than the first anniversary of the
transfer of the TSH Shares to Gemini; and
(ii) an additional payment of US$2.1 million under the terms of
a net profits interest agreement to be entered into on and subject
to completion of the acquisition of the TSH Shares. Payments from
this net profits agreement are subject to sufficient resources
being available and other conditions.
The Company has also put new pledges in place on the 35%
interests of both TSH and Poznan as a form of security in case of
non-payment by Gemini of amounts agreed.
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END
IR FLFVAADIAFIL
(END) Dow Jones Newswires
September 30, 2021 02:00 ET (06:00 GMT)
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