Once commissioned, the system is expected by the operator of
OML 18, Eroton Exploration and Production Company Limited ("Eroton"),
to reduce the downtime and allocated pipeline losses currently associated with
the Nembe Creek Trunk Line. In addition, it is anticipated that the FSO project
will improve overall well uptime at OML 18.
Oil export barging operations from OML 18 commenced in late
September 2021 (while awaiting availability of the pipeline). To date, oil volumes being barged have been
small, reflecting lower production at OML 18 and with the purpose of the
barging being primarily to test the new processes. Barging has been to smaller storage vessels
prior to offloading to the FSO. The full
ACOES, including the pipeline, is currently expected by Eroton to be fully
operational in the third quarter of 2022.
The Loan is a US$2.0 million shareholder loan at a coupon of
14% per annum over four years which is repayable quarterly following a one-year
moratorium from the date of investment.
The Loan will be accompanied by a transfer to San Leon by Walstrand
(Malta) Limited, ELI's largest shareholder, of shares in ELI representing a
2.0% equity interest (the "ELI Equity Interest"), which San Leon will
acquire at nominal value, representing a consideration payable of approximately
US$91.
The Loan will be used by ELI to facilitate a recent funding
requirement to allow for completion of the mooring for the floating storage and
offloading vessel, which the Board considers to be a critical step in the
progression of the ACOES project.
Providing loans to Nigerian oil and gas related projects,
which are often accompanied by associated equity interests, has been a key part
of San Leon's business and strategy in recent years. San Leon has had debt and equity interests in
ELI since August 2020 and, given the longer-term ongoing strategic importance
of ELI's ACOES project to OML 18, the Board believes that it is important for
San Leon to assist ELI with the funding requirements for achieving its key
project milestones on a timely basis.
Accordingly, the Loan and the ELI Equity Interest are
distinct and separate to the proposed further debt and equity investments in
ELI that are connected to the transaction as originally described by the
Company in its announcement on 24 June 2021, the progress of which was most
recently described in the Company's announcement of 24 December 2021, being the
proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited's
("Midwestern") shareholdings in the Company and Midwestern Leon
Petroleum Limited ("MLPL") into a single shareholding in the Company
(the "Potential Transaction"), which also comprises, inter alia, a
proposed consolidation of Midwestern's indirect debt and equity interests in
ELI with those of the Company, as well as further new debt and new equity
investments to be made by San Leon in ELI.
Work on the Potential Transaction, which will be classified as a reverse
takeover under the AIM Rules for Companies, is ongoing.
Taken together with San Leon's existing investment in ELI
and its conditional purchase of 1.323% of ELI (calculated prior to the
newly-issued shares of today's announcement), as announced last year, following
completion of the conditional purchase, San Leon's holding in ELI will be
13.323%. Also as announced last year, San Leon has an option to conditionally
purchase a further 4.302% of ELI for US$6.0 million. Furthermore, the effect of the Potential
Transaction will be to increase San Leon's interest in ELI further.
Consequently, the 2.0% ELI Equity Interest that San Leon is
receiving now in conjunction with the Loan is subject to anti-dilutive
protection, whereby San Leon will be issued with further shares in ELI to
maintain that percentage holding should the effect of the Potential Transaction
be to in any way dilute this tranche of shares.
San Leon has now lent a total of US$17.0 million to ELI with
a coupon of 14% per annum and from which repayment installments totaling US$6.0
million are now due.
As announced on 9 August 2021, the Company has previously
agreed with ELI that, should new investments in ELI be made, then loan
repayment installments would be offset from any investment monies payable to
ELI by San Leon under these new arrangements.
The Company has elected not to enforce this provision on
this occasion, in recognition of the fact that ELI's development is critical to
the success of OML 18 and ELI's cash balances at this time are required to
progress the overall ACOES project. San
Leon will continue to waive repayment installments due on its loans until the
ACOES project has been further progressed and outstanding installments will
continue to accrue interest at 14% per annum.
Under the terms of ELI's senior debt facility, the lender
has a charge over all of ELI's assets and, as further security, each
shareholder (including San Leon) has pledged their shares to the lender. The
ELI shares comprising the ELI Equity Interest will be subject to this
pledge. The terms of the pledge are that
the ELI shares cannot be transferred or otherwise utilised without the lender's
consent.
ELI's audited accounts for the year ended 31 December 2020
state that the company made a loss before tax of approximately US$4.4 million
on revenue of approximately US$5.7 million and reported total assets of
approximately US$198.7 million. Two of
San Leon's directors are currently appointed to ELI's board.
Oisin Fanning, CEO of San Leon Energy, commented:
"As our shareholders know, we have long considered ELI
and the new ACOES pipeline to be critical to the success of OML 18 and so it is
pleasing to be able to provide this Loan to ELI to advance an important stage
of that key project.
The fact that we have been able to make this investment
utilising cash received from our settlement in the legal proceedings with TAQA
Offshore BV is particularly beneficial, both for our cash flows and for our
risk profile, as we seek to progress our reverse takeover transaction."