Alpay Energi and Corporate Update

RNS Number : 7279E

San Leon Energy PLC

14 April 2014

 



14 April 2014

San Leon Energy Plc

("San Leon" or the "Company")

Alpay Energi and Corporate Update

In a continued effort to streamline operations and move San Leon towards near-term production and cash flow in Poland, and following continued due diligence and on-going technical analysis of the existing assets owned by Alpay Energi A.S. ("Alpay"), the Company has decided to modify the investment approach in Turkey, to evaluating specific project farm-ins. Consequently, the decision has been made not to proceed with the Share Purchase Agreement ("SPA") between San Leon and Alpay / Server Fatih Alpay relating to 75 per cent. of Alpay in Turkey, originally announced on 25 September 2013. The Company has determined that its capital will be better spent in Poland, particularly in the Baltic Basin where San Leon's Lewino-1G2 well shows great promise for shale gas production in the northern Baltic Basin of Poland. This decision has been made following a new round of successful deal making in Poland where Baker Hughes will be developing the Siekierki gas field and TransAtlantic will be developing the Rawicz gas field and continuing to appraise the upside of the Carboniferous Basin.

The decision on Alpay was further predicated on several critical factors including:

1.   The expiry of the SPA longstop date requiring Turkish Government approval of the transfer of the Alpay licences to San Leon by 31 March 2014;

2.   A significant amount of formation water brought into the well at Hamman-1 following a ramp-up of the existing production,  which has negatively impacted the production potential from the well;

3.   A significant loss of customer base on the existing CNG plant owned and operated by Alpay as a result of the Hamam-1 well issues;

4.   The material devaluation of the Turkish Lira against the US Dollar since the signing of the SPA.

The SPA provided for a period ending in late March 2014 for the transfer of licences from ARAR Petrol Ve Gaz Arama Uretim Pazarlama AS to Alpay, after which if such transfer had not taken place either party to the SPA could withdraw and a $4.5m payment from the Company, being held in escrow, has been returned to San Leon. The Company has chosen not to extend the period allowed for the licence transfer, and the SPA has therefore been allowed to lapse. The Company will, however, continue to evaluate the assets of Alpay for specific project farm-ins on a case-by-case basis.

Updated Targeting of Positive Cash Flow

Much has changed since September 2013 for San Leon.

·      Further to the announcement of 12 February 2014, the Company is pleased to announce significant progress has been made towards finalising commercial terms with Baker Hughes Poland Sp. z o.o. ("Baker") on the Siekierki gas field development in Poland and a joint press release is expected to be issued shortly. In parallel, technical and operational plans are being designed to enable first work-overs on the Trzek wells carried out in the summer. The Company now has permission for water disposal wells at Siekieki, further enhancing the commercial upside of the field.

·      In March 2014, TransAtlantic Petroleum Ltd. ("TransAtlantic") signed an LOI ("Letter of Intent") on various Permian/SW Carboniferous Basin assets in Poland. The work programme involves operations on six wells, at no cost to San Leon. Of immediate interest to the Company, from a cash perspective, is the $5m up-front payment and the near-term production expected from the targeted Q3 2014 spud of a production well on the Rawicz field. Rawicz has the benefit of numerous previously tested wells. Further details on the TransAtlantic agreement are set out in the Company's announcement of 27 March 2014.

·      In January 2014, we announced the results of what we regard as the most successful single vertical frack in a shale well in Europe. A horizontal well with multiple fractures is now being engineered and permitted. Considerable interest from a number of major companies has been received following these results, aided by the strong support for shale development from the Polish government, and the proposed tax holiday on shale production until 2020. The Company is in active talks regarding its concessions in the Baltic Basin.

·      The Company continues to implement cost saving measures, reducing overhead costs significantly as new partners carry operations forward on specific projects. The acquisition of Aurelian Oil & Gas brought with it personnel and office overlap. While ensuring the retention and transfer of knowledge, the Krakow and Poznan offices have now been closed, and staff numbers have been reduced. Farm out activity is expected further to dilute overhead costs.

·      NovaSeis, the Company's state-of-the-art seismic acquisition company, has largely completed its work for the Company for the time being. In Q4 2013 a commercial manager was hired to market NovaSeis externally. A number of external tenders are now in progress and marketing continues very actively. A reasonable uptime of external seismic work by NovaSeis has the potential to cover all San Leon group operating costs.

Oisin Fanning, San Leon Executive Chairman, commented:

"The main rationale for the Alpay transaction was to provide cash flow to the Company. However, subsequent deals in Poland, the Company's core operating area, have positioned Poland to deliver cash flow and production more efficiently, enabling the Group to reach its target of becoming at least break-even on a cashflow basis during 2014. Given the increased risk to achieving the projected Alpay production targets and cash flows envisaged at the signing of the SPA, the Board has taken the decision to allow the SPA to lapse. The Board no longer felt the Alpay deal was to be in the best interest of shareholders in its agreed form.

Our new joint ventures with Baker and TransAtlantic have further strengthened our projects in Poland and will allow us to realise the true upside that we have been working towards. We are now on the verge of production and cash flow in our core operating area, Poland."

For further information contact:

San Leon Energy plc  Oisin Fanning, Executive Chairman	[phone]
finnCap Ltd  Corporate Finance Matt Goode Christopher Raggett Corporate Broking Elizabeth Johnson Joanna Weaving	[phone]
Fox-Davies Capital Limited Daniel Fox-Davies Oliver Stansfield Jonathan Evans	[phone]
Macquarie Capital (Europe) Limited Steve Baldwin Nicholas Harland	[phone]
Westhouse Securities Ltd Nominated Adviser Richard Johnson Antonio Bossi	[phone]
Vigo Communications Financial Public Relations Patrick d'Ancona Chris McMahon	[phone]
Instinctif Partners Investor Relations Adviser David Simonson Catherine Wickman	[phone]
Plunkett Public Relations Sharon Plunkett	[phone]

Qualified person

Joel Price, who has reviewed this update, has 19 years' experience in the oil & gas industry and is a member of the Society of Petroleum Engineers. He holds a BA in Natural Sciences from Cambridge University, an MEng from Heriot-Watt University, and an MBA from Durham University. Joel is currently the Head of Engineering for San Leon Energy and is based in San Leon's London office.

 

END

 

 

MSCQKNDBKBKBOQD