Final Results

RNS Number : 0499Q

San Leon Energy PLC

07 September 2017

 

7 September 2017

San Leon Energy Plc

("San Leon", "SLE" or "the Company")

Final Results

San Leon Energy Plc ("San Leon" or "the Company"), the AIM listed oil and gas exploration and production company focused on Africa and Europe, today announces its audited final results for the year ended 31 December 2016.

Highlights:

·     San Leon announced and completed its transformational entry into Nigerian onshore oil and gas production, in the world-class OML 18 block, securing an initial 9.72% indirect economic interest. ·     Since the acquisition constituted a reverse takeover under the AIM Rules, San Leon published an AIM readmission document and the Company's ordinary shares were subsequently readmitted to trading on AIM in September 2016.

Operational

·     Eroton is the Operator of OML 18 while San Leon has a defined partner role under the Master Services Agreement. Plans from the 2016 Competent Persons Report (by Petrovision Energy Services Limited) are being executed to optimise production using coiled tubing, electric line, and slickline. Challenges are being addressed as they arise. Such issues include: -      higher than expected pipeline loss allocation (with fiscal metering being installed during Q4 2017 to help resolve) -      higher than expected downtime (with valves to allow isolation of the upstream part of the NCTL pipelines being installed to reduce downtime) -      slower than anticipated well work, due to a combination of downhole challenges, delays in permissions being granted, and capex availability. Downhole challenges are being addressed with the appropriate technical resources ·     The Orubiri Field came online in late 2016, and the Krakama Field was brought onto production in early 2017. They are expected to be followed by the Buguma Field in Q4 2017, which will now be brought on by direct tie-back to the Krakama Field. ·     Q4 2017 is expected to see the commencement of heavy workover and new well drilling.

Corporate

·     Completed an approximately $220 million equity raise as part of the OML 18 transaction, through a placing of new ordinary shares in September 2016. ·     A new Board was put in place at the time of the closing of the OML 18 transaction, to reflect the new focus on Nigeria. This included the appointment of Mutiu Sunmonu, formerly Managing Director of Shell Petroleum Development Company and Country Chairman of Shell Companies in Nigeria, as non-executive Chairman. ·     In November 2016, San Leon monetised its position in the Rawicz gas development for a net US$9.0 million in cash (part of which is due to be received in 2017). ·     The Company reached agreement with Avobone in November 2016, which was subsequently revised in June 2017, regarding payment for Avobone's exit from the Siekierki project. The remaining amount to be paid according to the agreed repayment schedule is approximately €14.7 million as at 06 September 2017. Payments are currently up to date. ·     Just before year end, we announced the receipt of an approach from a possible offeror, which may or may not lead to an offer being made for San Leon. After the reporting period we announced that we were in discussions with a further three entities, and in June 2017 we announced a conditional offer from China Great United Petroleum (Holding) Limited. There can be no certainty that any of these discussions will lead to a firm bid, or any transaction. ·     Oisin Fanning (now Chief Executive Officer) has drawn only 20% of his salary in cash with the balance paid or accruing in San Leon shares.

Financial

·     Total comprehensive profit for the year of €10.7m (2015: loss of €213.6m). ·     Total assets increased to €346m at 31 December 2016 (2015: €132m). ·     At year end the Group had cash and cash equivalents of €0.2m (2015: €0.9m). ·     Eroton continues to accrue cash from OML 18 operations into the Debt Service Reserve Account ("DSRA") attached to its existing Reserves Based Lending ("RBL") facility. Depositing three future quarterly RBL repayments into the DSRA is one of the conditions that need to be met before the RBL lenders will allow distribution of dividends from Eroton to its shareholders. ·     As Eroton has confirmed that other conditions have already been met, cash flow from Eroton can begin once sufficient funds have accrued in the DRSA, subsequent to which the Company can initiate its capital distribution policy. ·     The Company's Irish counsel is progressing a capital reorganisation which is required to allow such distributions, which are later than originally expected, and the timing of such distributions will depend in part on the timing of distribution of dividends from Eroton. ·     The Company has various guarantees and a share pledge in place which provides security for all payments due to the Company under the MLPL Loan Notes. As of 06 September 2017 the Company had US$77.7 million in outstanding repayments. ·     An assessment of going concern highlights the importance of cash flow from Nigeria to San Leon's continued operations, particularly as receipt of cash from dividends by Eroton and loan note repayments have been delayed (Ref: Note 2 Emphasis of matter: Going concern and Note 3: Going concern). ·     Continued asset optimisation and cost reduction strategy, resulting in relinquishing certain licences.

Outlook

·     The Company has concentrated on the right asset in Nigeria, with the right partner. The three expected revenue streams (loan repayments, dividends from San Leon's indirect shareholding in OML 18 and from the provision of workover drilling and facilities services) represents a diversified approach to securing cash flow.

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Enquiries:

San Leon Energy plc	+ 353 1291 6292
Oisin Fanning, Chief Executive
SP Angel Corporate Finance LLP (Nominated adviser to the Company)	[phone]
Richard Morrison
Ewan Leggat
Soltan Tagiev
Whitman Howard Limited (Financial adviser to the Company)	[phone]
Nick Lovering
Brandon Hill Capital Limited (Joint broker to the Company)	[phone]
Oliver Stansfield
Jonathan Evans
Vigo Communications (Financial Public Relations)	[phone]
Chris McMahon
Alexandra Roper
Plunkett Public Relations	[phone]
Sharon Plunkett

CHAIRMAN'S STATEMENT

Corporate

2016 was all about the OML 18 transaction, and its €198.7 million (US$220.7 million) fund raising. The OML 18 transaction is summarised here.

A new Board was put in place by SLE on 21 September 2016 to reflect the new focus on Nigeria and cash flow.

San Leon undertook a number of steps to effect the purchase of its indirect interest in OML 18 in 2016. Midwestern Leon Petroleum Limited (MLPL), of which San Leon Nigeria BV has a 40% shareholding, purchased all of the shares in Martwestern Energy Limited (Martwestern). Martwestern holds a 50% shareholding in Eroton Exploration and Production Company Limited (Eroton), the operator of OML 18.

To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed approximately €165.6 million (at year end rate) (US$174.5 million) in incremental amounts by issuing Loan Notes under a Loan Note Instrument which attracts a coupon of 17 per cent. 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 Energy PLC purchased all of the outstanding Loan Notes issued and is therefore the beneficiary and holder of all Loan Notes issued by MLPL. SLE has to be repaid the full €165.6 million (US$174.5 million) plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism. SLE is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in MLPL, but the Loan Note repayments must take, priority over any dividend payments made to MLPL shareholders and in accordance in the terms of the shareholders agreement.

Through its 50% shareholding in Eroton and other agreements, Martwestern holds an initial 24.3 per cent. economic interest in OML 18. Through the ownership of MLPL and other commercial agreements, SLE is an indirect shareholder of Eroton, and the Company holds an initial 9.72% economic interest in OML 18.

In November 2016, San Leon sold its position in the Rawicz gas development for a net €8.5 million (US$9.0 million) in cash, and in the Siekierki field for €1 plus a Net Profit Interest of 10%. Certain San Leon liabilities on these assets were also written off, to the value of approximately €2.8 million (US$3.0 million). Thebalance of the cash payment, US$4.5 million plus interest, is due to San Leon on or before 01 October 2017. In the case of Rawicz, this transaction monetised the successful drilling over the previous two years.

The Company also reached agreement with Avobone N.V. and Avobone Poland B.V. (together "Avobone") in November 2016, which was subsequently revised in June 2017, regarding payment for Avobone's exit from the Siekierki project. The remaining amount to be paid by SLE according to the agreed repayment schedule, is approximately €14.7 million. Payments are currently up to date.

Just before year end, we announced the receipt of an approach from a possible offeror, which may or may not lead to an offer being made for San Leon. After the reporting period we announced that we were in discussions with a further three entities, and in June 2017 we announced a conditional offer from China Great United Petroleum (Holding) Limited. Following the end of the 45-day due diligence period San Leon anticipates an update from China Great United Petroleum (Holding) Limited in the near-term. While there can be no certainty that any of these discussions will lead to a firm bid, or any transaction, the Company conducts such talks with shareholders' best interests at heart, and considers the interest shown in San Leon by outside parties to be indicative of the quality of the OML 18 asset and of San Leon's strong position in it. The Company will provide further updates on these discussions as appropriate.

Operational Update

Eroton is the Operator of OML 18 while San Leon has a defined partner role. A Competent Person's Report preparedby Petrovision Energy Services Limited was published as part of the Admission Document, and provides considerable detail on plans for the asset. Those plans are being executed and, as with any major operation, are being adapted to fit opportunities and challenges as they arise. Fiscal metering is being installed on each OML 18 field to counter increased export pipeline loss allocation (expected installation is Q4 2017), and valves to allow isolation of the upstream part of the NCTL pipeline are being installed to reduce downtime.

The basis of optimising production is understanding the wells. Considerable data gathering has been carried out in the existing wells, and field activity is capitalising on that knowledge. Slickline, coiled tubing and electric line crews are involved across the OML 18 fields to optimise production and bring wells back online. Some of this work has been slower and more challenging than anticipated, so appropriate resources have been mobilised to address any issues. Some work programme delays have been caused by the slow granting of permissions, and by capex availability due to deferred receipt of cash call payments from NNPC.

The Orubiri Field came online in late 2016, and the Krakama Field was brought onto production in early 2017. They are expected to be followed by the Buguma Field in Q4 2017, which will now be brought on by direct tie-back to the Krakama Field. San Leon continues to believe in the asset, and supports the proactive measures being taken to realise that value.

Q4 2017 is expected to see the commencement of heavy workover and new well drilling, both of which target significant hikes in production rates.

Eroton continues to accrue cash from OML 18 operations into the Debt Service Reserve Account ("DSRA") attached to its existing Reserves Based Lending ("RBL") facility. While Eroton awaits Nigerian National Petroleum Corporation ("NNPC") paying the balance of its cash calls for 2015 and 2016 (which is approximately US$93 million), in a welcome move NNPC began paying current cash calls from January 2017. Depositing three future quarterly RBL repayments into the DSRA is one of the conditions that need to be met before the RBL lenders will allow distribution of dividends from Eroton to its shareholders. The cumulative amount required to fill the DSRA account varies according to the RBL amortisation schedule, but is approximately US$120 million during 2017, falling to approximately US$90 million in 2018. As of 6 September 2017, the DSRA contained approximately US$32 million (9.9 bn Naira). As Eroton has confirmed that other conditions have already been met, dividends from Eroton to its shareholders can begin once sufficient funds have accrued in the DRSA. Subsequent to which San Leon can initiate its policy of returning 50% of Nigerian free cash flow to shareholders. The Company's Irish counsel is progressing a capital reorganisation which is required to allow such distributions, which are later than originally expected for the above reasons; the timing of such distributions will depend in part on the timing of distribution of dividends from Eroton.

The Company has various guarantees and a share pledge in place which provides security for all payments due to the Company under the MLPL Loan Notes. Midwestern Oil and Gas Limited and its subsidiary, Mart Resources have guaranteed the payments. As of 6 September 2017 the Company had US$77.7 million in outstanding repayments under the MLPL Loan Notes relating to the quarterly repayments up to 1st July 2017.

Other Operations

The Company has continued in 2016, and after the reporting period in 2017, to exit a number of non-core assets (in Morocco - Sidi Moussa, in Poland - Braniewo, Gniew, Budzow, Bestwina, Wielun, Olesnica, South Prabuty, Cybinka and Torzym) to reduce costs and focus on its Nigerian assets.

To complement the Company's cost reduction efforts, which include deferring some cash payments of Directors' fees, the Company has well-established loan relationships with various terms and conditions. During 2017 additional funds have been provided to the Company using these loan relationships with a current outstanding principal of approximately €4.3 million (£4.0 million).

Further facilities are available as follows:

-   An agreement with YA Global Master SPV Ltd ("YA Global") provides the Group with a debt facility of £15 million accessible over a 30-month period from 21 May 2015 ("the facility") until November 2017. YA Global has indicated that they may be prepared to extend the term for a further period but there can be no guarantee of this.

-   A facility of up to €20 million which may be available in two tranches from a UK based institution for an 18-month period until the end of 2018 in the event that the Company should require additional working capital. This is subject to terms and conditions, to be agreed in the event that the Company wishes to use this facility.

Financial Review

Revenue for the twelve months to 31 December 2016 was €0.3 million compared with €0.1 million for the twelve months to 31 December 2015. San Leon generated a profit before tax of €5.7 million for the twelve months to 31 December 2016, compared with loss before tax of €213.4 million in the twelve months to 31 December 2015. Administration costs increased for the 12 month period to €26.4 million (2015: €17 million). Profit per share for the period is 3.42 cent per share (2015: loss per share of 506.40 cent per share). Cash and cash equivalents including restricted cash at 31 December 2016 amounted to €1.5 million (31 December 2015: €2.3 million). The directors have undertaken an assessment of going concern as detailed in the Directors' Report on page 32, and Note 1 on pages 54 and 55 , which highlights the importance of cash flow from Nigeria to San Leon's continued operations, particularly as receipt of cash from dividends by Eroton and loan note repayment has been delayed.

Outlook

The Company has concentrated on the right asset in Nigeria, with the right partner. The three expected revenue streams (loan repayments, dividends from San Leon's indirect shareholding in OML 18 and from the provision of workover drilling and facilities services) represents a diversified approach to securing cash flow.

Mr Mutiu Sunmonu

Non-Executive Chairman

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

"2016 was Year One of OML 18, Year One of the new San Leon. We are now more of a production, asset-management company, with a solid base - our indirect interest in Eroton provides us with exposure to a world-class Nigerian oil and gas block, OML 18, over one thousand square kilometres of energy resources and infrastructure, rich with production, workover and service opportunities."

I extend a very warm welcome on behalf of the Company, to Mr Mutiu Sunmonu - our new Chairman. Mr. Sunmonu brings with him a wealth of experience of the Nigerian E&P industry, and of OML 18 itself.

The OML 18 transaction is pivotal for the Company, and necessarily receives the vast majority of management's effort. Both Mr. Sunmonu and I sit on the Eroton Board, and we are appointing highly experienced personnel into technical and financial positions within Eroton. We work as partners with Eroton to help ensure the success of the project. There have been challenges, including delays in well operating, increased downtime and increased pipeline losses allocation, which have impacted on the timing of repayment of loan notes to San Leon, and of dividend payments by Eroton. However, together with Eroton, we have found solutions which are in the process of being implemented. The delays in receipt of these cash flows are reflected in the assessment of going concern undertaken by the directors as detailed in the Directors' Report on page 32, and Note 1 on pages 54 and 55.

We are well underway with setting up our Nigerian service entity, through which San Leon will benefit from providing drilling, workover and facilities services on OML 18 - supporting one of the three expected cash flow streams from Nigeria. The Company is working with an established Nigerian drilling entity to finalise securing of one or more rigs to perform this work.

Outside Nigeria we have seen an increase in business development interest in our other assets. The sale of Rawicz and Siekierki was completed, and various other assets are classified as held for sale. We have been clear for some time now, that non-core assets will be divested, and we have reduced such costs throughout the year.

I look forward very much to securing value for shareholders, whether through a corporate transaction or via our stated shareholder distribution policy on page 23.

Oisín Fanning

Chief Executive Officer

Chief Operating Officer's statement

"It is most Petroleum Engineers' wish to be in the middle of a world-class asset with an active work programme of well revitalisations and new drilling. While there have been challenges as well as successes, we have outlined to shareholders how Eroton is tackling issues as they arise, as it targets the gross field production of 100,000+ bopd shown in the CPR, albeit with some delays as announced. San Leon expects to become more actively involved in operations as its Nigerian service company begins performing drilling and workover functions, and appoints its senior technical appointee to Eroton.

OML 18 offers a strong cross-section of existing production, contingent resources, vast exploration on a block which is larger than Bahrain, existing oil and gas infrastructure, and nearby downstream offtake. Given Eroton's active community relations, value from the block is fully attainable."

Joel Price

Chief Operating Officer

POLAND

Interest in San Leon's Polish assets has picked up significantly as the oil price has recovered. These assets cover both conventional and unconventional, and both oil and gas.

As an example, in the North of Poland the Company's Gdansk W concession holds 220,000 acres of shale gas potential, with the most successful single vertical frac in Europe already well tested. The Szczawno concession includes a drilled but unfracced vertical well in a deeper formation with some natural fracturing.

With some concession having been relinquished or sold, we have reduced overhead costs. The Company looks forward to updating shareholders on monetisation of the remaining assets in due course.

IRELAND

San Leon's 4.5% Net Profit Interest (NPI) on the Barryroe oil field provides access to future revenue streams with no additional capital required. A CPR was produced by the operator in 2013, and the operator continues efforts to farm out the asset to enable the next wells to be drilled.

MOROCCO

San Leon has interests in three areas in Morocco following its exit from Sidi Moussa (offshore). These cover onshore gas appraisal (Tarfaya conventional area, with a well drilled in 2015), onshore oil shale (Tarfaya oil shale), and onshore exploration (Zag).

After the reporting period, ONHYM contacted San Leon to take control of the bank guarantee on Zag and to request a further payment for work not performed.

The Company is in discussions with ONHYM regarding the area, which it believes should be subject to Force Majeure due to the security situation.

ALBANIA

The Durresi block is an extensive offshore area with local discovered oil and gas.

San Leon has previously acquired significant 3D seismic data, and continues to work on the technical side of the block while looking for a partner to drill.

 

Consolidated Income Statement

for the year ended 31 December 2016

	Notes	2016 €'000	2015 €'000
Continuing operations
Revenue	4	345	145
Cost of sales		(128)	(1)
Gross profit		217	144
Share of profit / (loss) of equity accounted investments		12,217	(18)
Administrative expenses		(26,367)	(17,049)
Impairment of exploration and evaluation assets		(9,300)	(123,659)
Impairment of equity accounted investments		-	(43,245)
Decommissioning of wells		(274)	(4,291)
Arbitration award		(3,628)	(20,561)
Other income		29,926	-
Dissenting shareholders award		(1,125)	-
Loss on disposal of equity accounted investments		(1,954)	-
(Loss) from operating activities		(288)	(208,679)
Finance expense		(13,025)	(9,379)
Finance income		2	4
Finance income - OML 18 Production Arrangement		16,801	-
Profit / (loss) before income tax		3,490	(218,054)
Income tax		2,227	4,688
Profit / (loss) from continuing operations		5,717	(213,366)
Profit / (loss) per share (cent) - continuing operations
Basic profit / (loss) per share		3.4	(506.4)
Diluted profit / (loss) per share		3.3	(506.4)

Consolidated Statement
of Other Comprehensive Income

for the year ended 31 December 2016

	2016 €'000	2015 €'000
Profit / (loss) for the year	5,717	(213,366)
Items that may be reclassified subsequently to the income statement
Foreign currency translation differences - subsidiaries	(763)	(3,320)
Foreign currency translation differences - joint venture	4,694	-
Fair value movements in financial assets	1,545	4,658
Deferred tax on fair value movements in financial assets	(494)	(1,615)
Total comprehensive profit / (loss) for the year	10,699	(213,643)

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2016

	Share capital reserve €'000	Share premium reserve €'000	Currency translation reserve €'000	Share based payment reserve €'000	Fair value reserve €'000	Retained earnings €'000	Attributable to equity holders in Group €'000	Non-controlling interest €'000	Total €'000
2015
Balance at 1 January 2015	126,779	164,100	(571)	11,425	(77)	(50,869)	250,787	2	250,789
Other comprehensive income
Loss for the year	-	-	-	-	-	(213,366)	(213,366)	-	(213,366)
Other comprehensive income
Foreign currency translation differences - foreign operations	-	-	(3,320)	-	-	-	(3,320)	-	(3,320)
Fair value movements in financial assets	-	-	-	-	4,658	-	4,658	-	4,658
Deferred tax on fair value movements in financial assets	-	-	-	-	(1,615)	-	(1,615)	-	(1,615)
Total comprehensive income for year	-	-	(3,320)	-	3,043	(213,366)	(213,643)	-	(213,643)
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash	363	40,801	-	-	-	(6,015)	35,149	-	35,149
Issue of adviser shares	2	224	-	-	-	-	226	-	226
Share based payment	-	-	-	4,542	-	-	4,542	-	4,542
Effect of share options cancelled	-	-	-	(3,918)	-	3,918	-	-	-
Change in ownership interests
Shares issued to Realm Shareholders on conversion of exchangeable shares	1	1	-	-	-	-	2	(2)	-
Total transactions with owners	366	41,026	-	624	-	(2,097)	39,919	(2)	39,917
Balance at 31 December 2015	127,145	205,126	(3,891)	12,049	2,966	(266,332)	77,063	-	77,063

 

2016	Share capital reserve €'000	Share premium reserve €'000	Currency translation reserve €'000	Share based payment reserve €'000	Fair value reserve €'000	Retained earnings €'000	Attributable to equity holders in Group €'000	Non-controlling interest €'000	Total €'000
Balance at 1 January 2016	127,145	205,126	(3,891)	12,049	2,966	(266,332)	77,063	-	77,063
Total comprehensive income for year
Profit for the year	-	-	-	-	-	5,717	5,717	-	5,717
Other comprehensive income
Foreign currency translation differences - subsidiaries	-	-	(763)	-	-	-	(763)	-	(763)
Foreign currency translation differences - associates	-	-	4,694	-	-	-	4,694	-	4,694
Fair value movements in financial assets	-	-	-	-	1,545	-	1,545	-	1,545
Deferred tax on fair value movements in financial assets	-	-	-	-	(494)	-	(494)	-	(494)
Total comprehensive income for year	-	-	3,931	-	1,051	5,717	10,699	-	10,699
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash	3,784	194,926	-	-	-	(1,957)	196,753	-	196,753
Issue of shares in lieu of salary	28	1,451	-	(1,594)	-	-	(115)	-	(115)
Share based payment	-	-	-	9,537	-	-	9,537	-	9,537
Warrants issued on placing	-	-	-	701	-	(701)	-	-	-
Total transactions with owners	3,812	196,377	-	8,644	-	(2,658)	206,175	-	206,175
Balance at 31 December 2016	130,957	401,503	40	20,693	4,017	(263,273)	293,937	-	293,937

 

Company Statement of Changes in Equity

for the year ended 31 December 2016

	Share capital €'000	Share premium €'000	Shares to be issued €'000	Share based payment reserve €'000	Fair value reserve €'000	Retained earnings €'000	Total equity €'000
2015
Balance at 1 January 2015	126,779	164,100	2	11,425	(918)	(72,049)	229,339
Total comprehensive income
Loss for the year	-	-	-	-	-	(200,269)	(200,269)
Fair value movement in financial asset	-	-	-	-	7,583	-	7,583
Total comprehensive income for the year	-	-	-	-	7,583	(200,269)	(192,686)
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash	363	40,801	-	-	-	(6,015)	35,149
Issue of adviser shares	2	224	-	-			226
Share based payment	-	-	-	4,542	-	-	4,542
Effect of share options cancelled	-	-	-	(3,918)	-	3,918	-
Shares issued to Realm Shareholders on conversion of exchangeable shares	1	1	(2)	-	-	-	-
Total transactions with owners	366	41,026	(2)	624	-	(2,097)	39,917
Balance at 31 December 2015	127,145	205,126	-	12,049	6,665	(274,415)	76,570
2016
Balance at 1 January 2016	127,145	205,126	-	12,049	6,665	(274,415)	76,570
Total comprehensive income
Profit for the year	-	-	-	-	-	(56,892)	(56,892)
Fair value movements in financial assets	-	-	-	-	1,545	-	1,545
Deferred tax on fair value movements in financial assets	-	-	-	-	(3,075)	-	(3,075)
Total comprehensive income for the year	-	-	-	-	(1,530)	(56,892)	(58,422)
Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Issue of shares for cash	3,784	194,926	-	-	-	(1,957)	196,753
Issue of shares in lieu of salary	28	1,451	-	(1,594)	-	-	(1,594)
Share based payment	-	-	-	9,537	-	-	9,537
Warrants issued on placing	-	-	-	701	-	(701)	-
Total transactions with owners	3,812	196,377	-	8,644	-	(2,658)	206,175
Balance at 31 December 2016	130,957	401,503	-	20,693	5,135	(333,965)	224,323

 

Consolidated Statement of Financial Position

as at 31 December 2016

	2016 €'000	2015 €'000
Assets
Non-current assets
Intangible assets	44,621	47,532
Equity accounted investments	74,382	11,375
Property, plant & equipment	3,279	10,266
Financial assets	169,616	52,553
Other non-current assets	257	833
	292,155	122,559
Current assets
Inventory	253	329
Trade and other receivables	11,490	6,546
Other financial assets	1,328	1,370
Financial assets	37,727	-
Cash and cash equivalents	177	913
Assets classified as held for sale	2,553	-
	53,528	9,158
Total assets	345,683	131,717
Equity and liabilities
Equity
Called up share capital	130,957	127,145
Share premium account	401,503	205,126
Share based payments reserve	20,693	12,049
Currency translation reserve	40	(3,891)
Fair value reserve	4,017	2,966
Retained deficit	(263,273)	(266,332)
Total equity	293,937	77,063
Non-current liabilities
Provisions	1,280	24,437
Derivative	255	-
Deferred tax liabilities	7,332	9,086
	8,867	33,523
Current liabilities
Trade and other payables	11,298	14,583
Loans and borrowings	6,283	4,778
Provisions	24,298	1,770
Liabilities classified as held for sale	1,000	-
	42,879	21,131
Total liabilities	51,746	54,654
Total equity and liabilities	345,683	131,717

 

On behalf of the Board

Oisín Fanning                    Ewen Ainsworth

Director                               Director

 

Company Statement of Financial Position

as at 31 December 2016

	2016 €'000	2015 €'000
Assets
Non-current assets
Intangible assets	9,020	-
Property, plant & equipment	-	9,057
Financial assets	169,616	52,553
Financial assets - investment in subsidiaries	47,038	48,122
	225,674	109,732
Current assets
Trade and other receivables	6,027	4,108
Financial assets	37,727	-
Other financial assets	-	84
Cash and cash equivalents	1	572
	43,755	4,764
Total assets	269,429	114,496
Equity and liabilities
Equity
Called up share capital	130,957	127,145
Share premium account	401,503	205,126
Share based payments reserve	20,693	12,049
Fair value reserve	5,135	6,665
Retained deficit	(333,965)	(274,415)
Attributable to equity shareholders	224,323	76,570
Non-current liabilities
Derivative	255	-
Deferred tax liabilities	7,627	-
	7,882	-
Current liabilities
Trade and other payables	30,941	33,148
Loans and borrowings	6,283	4,778
	37,224	37,926
Total liabilities	45,106	37,926
Total equity and liabilities	269,429	114,496

On behalf of the Board

Oisín Fanning    Ewen Ainsworth

Director               Director

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2016

	Notes	2016 €'000	2015 €'000
Cash flows from operating activities
Profit / (loss) for the year - continuing operations		5,717	(213,366)
Adjustments for:
Depletion and depreciation		647	1,005
Finance expense		13,025	9,379
Finance income		(16,803)	(4)
Share based payments charge		9,537	4,278
Foreign exchange		(391)	(591)
Income tax		(2,227)	(4,688)
Impairment of exploration and evaluation assets - continuing operations		9,300	123,659
Impairment of equity accounted assets - continuing operations		-	43,245
Arbitration award		3,628	20,561
Dissenting shareholders		1,125	-
Decommissioning costs		274	4,291
Disposal of equity interest		1,954	-
Bargain purchase of MLPL		(29,926)	-
Decrease / (increase) in inventory		76	(8)
(Increase) / decrease in trade and other receivables		(784)	3,988
(Decrease) / increase in trade and other payables		(3,270)	3,490
Movement in other non-current assets		576	-
Share of profit / (loss) of equity-accounted investments		(12,217)	18
Tax paid		(4)	(112)
Net cash inflow / (outflow) from operating activities		(19,763)	(4,855)
Cash flows from investing activities
Expenditure on exploration and evaluation assets		(1,117)	(20,473)
Dissenting shareholder payment		(705)	-
Proceeds of disposal of equity-accounted investments		4,222	-
Arbitration payment		(2,231)	-
Purchase of property, plant and equipment		(2,719)	(434)
Advances to equity accounted investments		53	(2,115)
Decrease in restricted cash		84	99
Proceeds of farm out arrangement		-	2,000
Acquisition of OML 18 equity interest		(27,545)	-
OML 18 Production Arrangement loan notes	7	(136,583)	-
Proceeds of financial investments and investment income		140	-
Net cash outflow from investing activities		(166,401)	(20,923)
Cash flows from financing activities
Proceeds from issue of shares		196,753	41,390
Cost of issue of shares		-	(6,015)
Proceeds from drawdown of other loans		6,104	6,106
Repayment of other loans		(12,437)	(7,805)
Movement in Director loan		145	202
Interest and arrangement fees paid		(5,040)	(9,116)
Net cash inflow from financing activities		185,525	24,762
Net (decrease) in cash and cash equivalents		(639)	(1,016)
Effect of foreign exchange fluctuation on cash and cash equivalents		(97)	120
Cash and cash equivalents at start of year		913	1,809
Cash and cash equivalents at end of year		177	913

Company Statement of Cash Flows

for the year ended 31 December 2016

	Notes	2016 €'000	2015 €'000
Cash flows from operating activities
Loss for the year		(56,892)	(200,269)
Adjustments for:
Depletion and depreciation		33	87
Non cash dividend on Barryroe		-	(27,360)
Finance income		(16,802)	(187)
Finance expense		12,972	9,316
Share based payments charge		8,659	3,286
Impairment of investment in subsidiaries and amounts due from group undertakings		32,450	206,501
Foreign exchange		(70)	488
Income tax		4,555	9
Decrease in trade and other receivables		137	3,837
Increase / (Decrease) in trade and other payables		236	(1,131)
Tax (paid)		7	1
Net cash outflow from operating activities		(14,715)	(5,422)
Cash flows from investing activities
Purchase of property, plant and equipment		-	(514)
Advances to subsidiary companies		(7,448)	(19,840)
Decrease / (increase) in restricted cash		84	99
OML 18 Production Arrangement loan notes	7	(136,583)	-
Acquisition of OML 18 equity interest		(27,545)	-
Proceeds of financial investments and investment income		140	-
Net cash outflow from investing activities		(171,352)	(20,255)
Cash flows from financing activities
Proceeds from issue of shares		196,753	41,390
Cost of issue of shares		-	(6,015)
Proceeds from drawdown of other loans		6,104	6,106
Repayment of other loans		(12,437)	(7,805)
Movement in Director loan		145	202
Interest and arrangement fees paid		(4,988)	(9,053)
Net cash inflow from financing activities		185,577	24,825

 

Net (decrease) in cash and cash equivalents	(490)	(852)
Effect of foreign exchange fluctuation on cash and cash equivalents	(81)	(15)
Cash and cash equivalents at start of year	572	1,439
Cash and cash equivalents at end of year	1	572

Notes to the Final Results

1.    General

San Leon Energy plc ("the Company") is a company incorporated in Ireland. The Group financial statements consolidate those of the Company with those of its subsidiaries (together referred to as "the Group").

The financial information presented in this report has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as adopted by the European Union and as set out in the Group's annual financial statements in respect of the year ended 31 December 2016. The financial information herein does not include all the information and disclosures required in the annual financial statements, however the full financial statements are included within the Annual Report which are being distributed to shareholders and which are available on the Company's website www.sanleonenergy.com. It will also be filed with the Company's Annual Return in the Companies Registration Office. The financial information herein for the prior year ended 31 December 2016 represents an abbreviated version of the Group's statutory financial statements and the financial statements for the year ended 31 December 2016 have been filed with the Companies Registration Office.

2.    Extract from KPMG's Independent Auditor's Report: Opinions and conclusions, and emphasis of matter - going concern

Our opinion on the financial statements is unmodified

In our opinion:

·     the Group financial statements give a true and fair view of the assets, liabilities and financial position of the Group as at 31 December 2016 and of its profit for the year then ended;

·     the Company statement of financial position gives a true and fair view of the assets, liabilities and financial position of the Company as at 31 December 2016;

·     the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;

·     the Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2014; and

·     the Group financial statements and Company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014.

Our opinion on the financial statements is accompanied by an emphasis of matter - going concern and valuation of investment in Midwestern Leon Petroleum Limited

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in Note 1 on pages 54 & 55 of the financial statements concerning the Group and Company's ability to continue as going concerns and Notes 13(v) and 17(i) concerning the uncertainty associated with the assessment of the carrying value of the Group's investment and related loan notes due from MLPL.

The directors have acknowledged that the Group has a requirement for further funding within the 12 month period from the date of approval of these financial statements. The quantum of this additional funding is heavily dependent on the timing of cashflows due to be received relating to the Group's most significant asset, its investment in MLPL. The investment in MLPL includes both an equity investment and loan notes which have been extended to MLPL.

The timing of receipt of payment of interest and principal on the loan notes is dependent on the ability of MLPL to make repayments. MLPL in turn is dependent on the ability of the OML 18 field in Nigeria to generate sufficient cashflows to allow it to make payments upwards to MLPL. As noted in Note 17(i) [of the financial statements] certain restrictions apply on OML making the distributions necessary.

These conditions, along with the other matters noted in Note 1 on pages 54 & 55 of the financial statements, indicate the existence of material uncertainties which may cast significant doubt about the Group and Company's ability to recover the value of its loan note and equity investment in MLPL and continue as going concerns.

The financial statements do not include the adjustments that would result if the Group or Company were unable to recover their loan note and equity investment in MLPL or were unable to continue as going concerns.

3.    Accounting policies

Basis of preparation

The Group and Company financial statements are prepared on the historical cost basis, except for financial assets (net profit interests and quoted shares), which are carried at fair value, and equity settled share option awards and warrants which are measured at grant date fair value.

Going concern

The Directors have prepared a detailed cash flow forecast for the Group and Company for the period from 1 September 2017 to 31 December 2018.

The principal assumptions underlying the cash flow forecast and the availability of finance to the Group are as follows:

·     During the year the Company completed a transaction and holds €156.6 million (US$174.5 million) of Loan Notes in Midwestern Leon Petroleum Limited (MLPL), which will be repayable by MLPL to San Leon and a 40 per cent shareholding in MLPL, which gives San Leon an initial 9.72% economic interest in OML 18. The Group will receive cash flows from its initial 9.72% economic interest in OML 18 in the form of interest and capital repayments on the Loan Notes and dividend income. The model assumes that sufficient cash flows will be generated from oil and gas production on the OML 18 field from September 2017. This assumption is based on a Competent Person's Report on OML 18 and is on the basis that the OML operator will be in a position to distribute the funds generated to its shareholders.

·     The terms of the OML 18 transaction also allow the Company the right to provide oilfield services to the operator of OML 18. The projections assume that the Company will receive an income stream arising on the roll out of these services.

·     The cash outflow for the Group under the Avobone Arbitration Award as detailed in an announcement made on 5 June 2017; €8,000,000 by October 2017 and €6,694,840 by November 2017.

·     Ongoing exploration and administrative expenditure from existing activities are in line with current expectations and commitments.

·     Provision and settlement of certain loans provided to the Group. The forecast indicates a maximum loan of €20 million with an expectation of €9.1 million with either sum being repaid within the forecast period. These loans would be provided under either well established loan relationships and / or the agreement with YA Global and / or a UK-based institution detailed below.

·     Further cash inflows from the sale of certain Polish assets, the completion of the sale to Ardilaun and receipt of royalty related to an asset in Holland and contract award for the Company's NovaSeis business.

·     The cash flow forecast reflects the on-going exploration activity across the Group's exploration asset portfolio taking account of its licence commitments, technical team costs, administrative overhead, other financial commitments and its available financial resources from existing cash balances and committed facilities. The strategy of the Directors is to continue to mitigate risk on its exploration portfolio by monetising certain assets through outright/partial disposal of interests or securing farm-in partners on certain projects. The Directors are engaged in on-going discussions on a number of its assets which they expect will generate cash resources to assist in financing the Group's activities. Although there is potential for further cash inflows from monetising certain assets through outright/ partial disposal of interests or securing farm-in partners on certain projects, the cash flow projections do not include these supplemental cash inflows.

·     The Group has well established loan relationships with various parties in addition to committed financing facilities in place which may be required to help fulfil the Group's immediate cash flow requirements in the period from September 2017 to December 2018 in the event that the advance of the cash inflows from OML 18 which are forecast to flow to the Group on a quarterly basis are delayed. The facilities which may be available are as follows:

-      A Fixed Schedule Equity Funding Agreement ("FSEFA") between the Company and YA Global Master SPV Ltd ("YA Global") provides the Group with a debt facility of Stg£15 million ("the facility") accessible over a 30 month period from 21 May 2015 ("the facility"). until November 2017. YA Global has indicated that it may be prepared to extend the term for a further period but there can be no guarantee of this.

-      A facility of up to €20 million which may be available in two tranches from a UK-based institution for an 18 month period until the end of 2018 in the event that the Company should require additional working capital. This is subject to agreed terms and conditions should the Company wish to avail itself of this facility and there can be no guarantee of this.

Given the Group's well understood cost base, the principal uncertainties relate to the quantum and timing of receipt of interest and capital repayments on the OML 18 Loan Notes, and dividend income. As described in Note 32 Related party transactions of the financial statements under the OML 18 Production Arrangement Transaction the repayment of the Loan Notes in the first instance is dependent on dividends being paid by Eroton Exploration and Production Company Limited (Eroton) which is dependent on the profitability of OML 18 and meeting the conditions precedent under Eroton's RBL banking facility of which the principal outstanding requirement is to fully fund the Debt Service Reserve Account. In addition, there is further uncertainty over the award of a contract(s) for the Group's NovaSeis services business and the commencement of the provision of oilfield services to the operator of OML 18, either of which if delayed would also impact the receipt of income. If such a situation should arise, the Group has taken steps to ensure there are suitable lines of financing, from either YA Global and / or a UK-based institution as detailed above.

The directors have assumed that additional loan facilities of €12 million will be obtained in October 2017 and a further €7 million will be obtained in November 2017 to meet the Group's payment commitments.

Such financing is not expected to be required past the middle of 2018, even if the worst case scenario occurred simultaneously with significant underperformance of both services' businesses.

The directors have concluded that the combination of these circumstances represents material uncertainties 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 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 year ended 31 December 2016.

Functional and presentation currency

These consolidated financial statements are presented in Euro (€), which is the Company's functional currency and the Group's presentational currency, rounded to the nearest thousand.

Use of estimates and judgements

The preparation of financial statements in conformity with EU IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, significant areas of estimation uncertainty and critical judgements used in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements include:

·     Going concern (Note 1 of the financial statements)

·     Recoverability of intangible assets (Note 12 of the financial statements)

·     Recoverability of equity accounted investments (Note 13 of the financial statements)

·     Measurement and recovery of financial assets (Note 17 of the financial statements)

·     Measurement of share-based payments (Note 29 of the financial statements)

·     Recognition of tax losses (Note 31 of the financial statements)

·     Provision (Avobone) (Note 26 of the financial statements)

Basis of consolidation

The financial information incorporates the financial information of the Company and entities controlled by the Group (its subsidiaries). Control is defined as when the Group is exposed to or has the rights to variable returns from its investment with the entity and has the ability to affect these returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date that control ceases. Where necessary, adjustments are made to the financial information of subsidiaries to bring their accounting policies into line with those used by other members of the Group. Intra-group balances and any unrealised gains and losses or income or expenses arising from intragroup transactions are eliminated in preparing the Group financial statements.

4.    Revenue and segmental information

Operating segment information is presented on the basis of the geographical areas as detailed below, which represent the financial basis by which the Group manages its operations. The Board of Directors, which has been recognised as the Chief Operating Decision Maker (CODM), regularly receives verbal or written reports at Board meetings for each of the segments based on the captions below which management consider to be appropriate in evaluating segment performance relative to other entities that operate in the industry. As the Group is in a process of transition the segments are to be reviewed for relevance in the future.

	Poland		Morocco		Romania		Albania		Nigeria		Corporate#		Total
	2016 €'000	2015 €'000	2016 €'000	2015 €'000	2016 €'000	2015 €'000	2016 €'000	2015 €'000	2016 €'000	2015 €'000	2016 €'000	2015 €'000	2016 €'000	2015 €'000
Total revenue	345	145	-	-	-	-	-	-	-	-	-	-	345	145
Segment (loss) / profit before income tax	(5,648)	(122,830)	(6,360)	(42,087)	-	(8,025)	(27)	(6)	54,040	-	(38,515)	(45,106)	3,490	(218,054)
Exploration and evaluation assets	7,143	12,561	29,162	26,859	-	-	8,316	8,112	-	-	-	-	44,621	47,532
Impairment of exploration and evaluation assets	(2,861)	(80,654)	(6,439)	(41,657)	-	-	-	-	-	-	-	(1,348)	(9,300)	(123,659)
Equity accounted investments	-	11,375	-	-	-	-	-	-	74,382	-	-	-	74,382	11,375
Impairment of equity accounted investments	-	(35,220)	-	-	-	(8,025)	-	-	-	-	-	-	-	(43,245)
Segment non-current assets	7,677	25,089	29,162	35,881	-		8,316	8,112	192,757	-	54,243	53,477	292,155	122,559
Capital expenditure^	1,243	2,811	(330)	15,699	-	663	204	988	-	-	-	312	1,117	20,473
Segment liabilities	(1,730)	(1,671)	(1,906)	(6,212)	-	(671)	(634)	(760)	-	-	(47,476)	(45,340)	(51,746)	(54,654)

Revenue relates to the provision of seismic acquisition services in Poland in 2016 and 2015.

^              This is the net expenditure incurred by the Group excluding amounts incurred by partners on shared exploration interests. It includes assets acquired through business combinations and equity accounted investments.

#              Corporate includes head office balances and activities which are not directly attributable to any other segment.

5.    Earnings / (loss) per share

Basic earnings or loss per share is calculated by dividing the profit or loss attributed to ordinary shareholders of €5,717 (2015: €213,366 loss) by the weighted average number of shares of 167,296,403 (2015: 42,134,338) in issue during the year. The diluted earnings or loss per share is calculated by dividing the profit or loss attributed to ordinary shareholders of €5,717 (2015: €213,366 loss) by the diluted weighted average number of shares of 171,242,476 (2015: 42,134,338) in the event that share options and warrants are exercised.

6.    Equity accounted investments

During the year the Company acquired a 40% non-controlling interest in Midwestern Leon Petroleum Limited as part of the OML 18 Production Arrangement transaction. Full details of the OML 18 Production Arrangement are set out in Note 7 below (of Note 17(i) of the financial statements).

7.    Financial assets

OML18 Production Arrangement

The Company secured an initial 9.72% indirect economic interest in OML 18 Production Arrangement, onshore Nigeria for a total consideration of €169 million (US$188.4 million).

The fair value assessment of the loan notes as referred to below is calculated as follows:

	2016 €'000	2015 €'000
Total consideration (US$188.4 million)	169,032	-
Fair value of loan notes attributable to equity investment (US$30.9 million)#	(27,545)	-
Net fair value of loan notes (US$157.5 million)	141,487	-
Arrangement fees (US$5.5 million)	(4,904)	-
Additions	136,583	-
# 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.

The Company undertook a number of steps to effect the purchase of its interest in the OML 18 Production Arrangement in 2016. Midwestern Leon Petroleum Limited (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 Energy Limited (Martwestern), a company incorporated in Nigeria. Martwestern holds a 50% shareholding in Eroton Exploration and Production Company Limited (Eroton), a company incorporated in Nigeria and the operator of the OML 18 Oilfield.

To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed €156.6 million (US$174.5 million) in incremental amounts by issuing Loan Notes under a Loan Note Instrument which attracts a coupon of 17 per cent. Midwestern Oil and Gas Company Limited 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 Energy PLC purchased all of the outstanding Loan Notes issued of €103.7 million (US$115.5 million) and subscribed for further €52.9 million (US$58.9 million) of newly issued loan notes and is therefore the beneficiary and holder of all Loan Notes issued by MLPL. SLE will be repaid the full €156.6 million (US$174.5 million) plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism. SLE is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in MLPL, but the Loan Note repayments must take priority over any dividend payments made to the MLPL shareholders.

Through its 50% shareholding in Eroton and other agreements, Martwestern holds an initial indirect 24.3% economic interest in the OML 18 Production Arrangement. Through the ownership of MLPL and other commercial agreements, SLE is an indirect shareholder of Eroton, and the Company holds a 9.72% initial economic interest in OML 18.

The key information relevant to the fair value of the Loan Notes is as follows:

Valuation technique	Significant unobservable inputs	Inter-relationships between the unobservable inputs and fair value measurement
Discounted cash flows	- Discount rate 25% based on a market rate of interest of 8% above the coupon rate of 17% - MLPL profitability i.e. ability to generate cash flows for repayment - Loan Notes are repayable in full by 31 March 2020.	The estimated fair value would increase / (decrease) if: -   US Dollar exchange rate increased / (decreased)

The recoverability of the group and company's equity and loan note investments in the MLPL (OML 18 Production) arrangement is dependent on the ability of the OML 18 operator, Eroton, to make distributions. Eroton needs to meet certain conditions before its lenders will allow Eroton to make distributions to its shareholders. These distributions need to be made to enable MLPL repay interest and principal to San Leon. At the balance sheet date and at the date of approval of their financial statements these conditions have not been met by Eroton. The directors of San Leon have considered the carrying amounts of the loan notes and equity interest at 31 December 2016 and are satisfied that these are appropriate.

8.    Subsequent events

Dealing in shares

San Leon announced on the 3rd July 2017 that the Company had not been able to publish its financial statements for the year ended 31 December 2016 by 30 June 2017 as required by Rule 19 of the AIM Rules for Companies (the "AIM Rules"). Dealings in San Leon's ordinary shares were therefore temporarily suspended under AIM Rule 40 from 7.30 a.m. on the 3rd July 2017 until such time as the financial statements have been duly published in compliance with AIM Rule 19.

Exercise of options

On 17 January 2017, San Leon issued and allotted 3,000,000 new ordinary shares of EUR 0.01 each ("New Ordinary Shares") to Robin Management Services and 4,000,000 New Ordinary Shares of €0.01 each to DSA Investments Inc. in respect of options exercised relating to the OML 18 Production Arrangement. The options were exercised at a price of 30 pence per share.

Yorkville

San Leon has issued equity shares to YA II PN Ltd (formerly known as YA Global Master SPV Ltd), an investment fund managed by Yorkville Advisors Global LP ("Yorkville"), pursuant to a SEDA-Backed Loan Agreement, as amended ("SEDA"), which SEDA was entered into and initially announced on 18 April 2013. San Leon and Yorkville have agreed to vary the SEDA as follows (the "Settlement").

Under the Settlement, San Leon will issue 6,254,905 new ordinary shares in the Company to Yorkville at a price per share of 32 pence (the "Settlement Shares"), which shares will rank pari passu in all respects with the issued ordinary shares of the Company.

Following the issue of the Settlement Shares which occured on 21 June 2017, the Company's issued share capital will comprise 456,280,625 shares and the Company's ongoing liability to Yorkville, as at 21 June 2017 will be €2,670,918 (US$2,815,415). This remaining balance is to be repaid to Yorkville on or before 31 October 2017.

Morocco

The Office National des Hydrocarbures et des Mines ("ONHYM") has written to the Company regarding the non-performance of the work programme on its Zag Licence, onshore Morocco. ONHYM has assumed control of the existing bank guarantee (San Leon's share being €1,328,147 (US$1,400,000) - included in the financial statements as restricted cash), and has requested a penalty of the same amount again to be paid. The Company is in negotiations with ONHYM regarding the future of the licence, including the work programme. The Zag licence is in a geographical area which the Company believes justifies a declaration of force majeure due to the regional security situation.

Sidi Moussa

San Leon signed a letter of agreement dated 24 July 2017 to exit the Sidi Moussa offshore block in Morocco. Consequently it was decided to write down the investment in the 2016 financial statements with the total impairment being €6,439,337 (Note 12 of the financial statements).

Arbitration

As announced by San Leon on the 5 June 2017 an Extension Agreement was entered into with Avobone along with a revised payment schedule in respect of sums owed to Avobone.

A payment of €8,175,000 (inclusive of an extension fee) has been made during 2017 so far.

Further payments are due as follows:

·     During October 2017, San Leon shall pay to Avobone a further sum of €8,000,000

·     During November 2017, San Leon shall pay to Avobone, a further sum of €6,694,840

In the event that San Leon fails to make payment, Avobone shall be able, without further recourse to San Leon, immediately to execute and / or enforce a High Court Order it obtained by consent from the Commercial High Court in London, dated 16 May 2017. San Leon has also given Avobone an undertaking that if it receives payment for the sale of its shares in TSH Energy Joint Venture B.V. (being the final payment from Palomar Natural Resources for the sale by San Leon of certain assets, announced in the RNS of 18 November 2016) then San Leon, within five days of receipt of funds, shall forward such proceeds to Avobone to reduce the next payment amount due to Avobone.

Conditional offer

On 16 May 2017, the Company received a conditional offer to purchase all the entire issued and to-be-issued shares in the Company. The offeror is China Great United Petroleum (Holding) Limited ("China Great United"), which has stated that it is in the process of retaining GMP Securities as its financial advisor for the proposed transaction. China Great United signed a non-disclosure agreement on 16 May 2017 in order to discuss the Company's assets.

China Great United has proposed an indicative purchase price of approximately Stg£0.67 - Stg£0.76 per share. It states that the offer is conditional on it completing final due diligence to its satisfaction, and it expects to be in a position to make a formal offer within 45 days.

Following the end of the 45-day due diligence period San Leon anticipates an update from China Great United in the near-term. The Company will provide other updates on these discussions as appropriate.

Potential Sale of further Polish assets

Further to a Memorandum of Understanding (MoU) dated 25 April 2017 with a third party, and subject to a Sale and Purchase Agreement, which is yet to be agreed for the potential sale of certain Polish assets, the Company received an advance of €189,735 (US$200,000) during June 2017 and was used to meet various payments in relation to the Polish assets, of which €94,868 (US$100,000) is non-refundable in the event that a Sale and Purchase Agreement is not concluded.

Financing

The Company has well established loan relationships usually lasting less than a year with various terms and conditions and parties. During 2017 additional funds have been provided to the Company using these loan relationships with a current outstanding principal of approximately €4.3 million (£4.0 million). To the extent that a short-term loan(s) become due, the Directors are confident of either extending the term or establishing a new loan if required at the time.

Resignation of Non-Executive Director

On the 6th September 2017 the Company announced the resignation with immediate effect of Mr. Nick Butler as a Non-Executive Director (for further details see page 31 of the financial statements).

9.    Annual Report and Accounts and Resumption in trading in the Company's shares on AIM

Copies of the Annual Report and Accounts, together with a notice of the annual general meeting, are being posted to shareholders imminently and are available on the Investor Relations section of the Company's website www.sanleonenergy.com today. Trading in the Company's shares will resume, once the Company has notified that the annual report and accounts and notice of general meeting has been posted to shareholders.

 

END

 

 

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