Final results

RNS Number : 7694R

San Leon Energy PLC

08 July 2022

 

8 July 2022

San Leon Energy plc

("San Leon" or the "Company")

Final results

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, is pleased to announce its audited final results for the year ended 31 December 2021.  The full annual report for the year to 31 December 2021 is available on the Company's website (www.sanleonenergy.com) and will be posted to shareholders in the coming days.

Corporate and financial highlights

Corporate

•    Negotiated and announced on 24 June 2021 the proposed Midwestern Reorganisation, which is described in full in the Company's Admission Document, which is being published later today.

•    On 24 June 2021 announced the conditional purchase from Walstrand (Malta) Ltd of 1.323% of ELI shares for US$2 million, together with an option to purchase a further 4.302% in ELI for an additional US$6.5 million.

•    On 7 July 2021 announced conditional payment waivers (subsequently extended) regarding the approximately US$99.3 million (par value) of payments due from Midwestern Leon Petroleum Limited ("MLPL") to San Leon during the second half of 2021, since the repayable amounts form part of the proposed Midwestern Reorganisation. Payment waivers remain in place at the date of this announcement pending completion of the transactions.

•    In January 2022, the Company announced that some of its subsidiaries had successfully concluded their ongoing legal proceedings with TAQA Offshore BV ("TAQA") in relation to San Leon's legacy interests in two royalties on Block Q13A, which is located offshore the Netherlands (the "Amstel Oil Field"). Payments totaling more than €5.9 million for royalties receivable up to November 2021 including a payment in respect of its legal costs, have been received in 2022. From December 2021, the royalties will continue to be payable in accordance with the terms and conditions of the Royalty Agreements, and payments and are not expected to be material.

•    On 15 February 2022, the Company announced a further loan of US$2 million to ELI, also enabling the Company to conditionally purchase a further 2% shareholding of ELI for a nominal sum.

•    In February 2022, the Company completed its US$5.5 million investment in Decklar Petroleum Limited ("Decklar"), related to the Oza field onshore Nigeria, repayable to the Company as a loan through a cash sweep. The Company also holds 11% equity stake in Decklar.

•    Board appointment process previously announced completed with appointment of John Brown as Independent Non-Executive Director and Chair of the Audit and Risk Committee. Alan Campbell resigned from the Board in 2021 as part of a board restructure. Lisa Mitchell left the Company as CFO and Executive Director in October 2021 and Julian Tedder was appointed as CFO and Executive Director in December 2021.

Financial

•    Included within the basis of preparation note of the financial statements and Independent Auditor's report are details regarding material uncertainty related to going concern. This is uncertainty is mitigated by the transactions announced today. Cash and cash equivalents as at 31 December 2021 were US$7.6 million (includes US$6.8 million restricted and held in escrow for the Oza transaction) (31 December 2020: US$18.5 million including US$6.8 million restricted and held in escrow for the Oza transaction).

•    In 2021, US$2.2 million (31 December 2020: US$46.5 million) in principal and interest payments has been received under the MLPL Loan Notes.

•    Outstanding amounts due under the MLPL Loan Notes are now approximately US$105.6 million (par value), which are subject to current repayment waivers pending the completion of the proposed Midwestern Reorganisation, and would be extinguished as part of the consideration if the transaction were to complete.

Operational

An update on OML 18 activity during 2021 is provided below:

•  Oil delivered to the Bonny terminal for sales was approximately 4,400 barrels of oil per day ("bopd") in 2021 (21,100 bopd in 2020) and has been affected by combined losses and downtime of approximately 79%. The 2021 figure has also been affected by OPEC oil production quota restrictions, and some Covid-related delays. Field operations to boost production were largely put on hold, pending the start-up of the ACOES barging system. Together, the losses, downtime, OPEC restrictions and Covid-related delays have caused the majority of the difference between gross production when there is minimal disruption to production, and oil is received at Bonny terminal for sales.

•  Gas sales averaged 29.6 million standard cubic feet per day ("mmscf/d") in 2021 after downtime (32.7 mmscf/d in 2020).

•  Production downtime of 9% in 2021 was caused by third party terminal and gathering system issues. This relates to days when oil production was entirely shut down at OML 18. Historical 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 OML 18 export Pipeline. The pipeline will run from within the OML 18 acreage to a dedicated FSO vessel in the open sea, approximately 50 kilometres offshore. Barging of oil from OML 18 to the FSO is expected to commence in July 2022, with trials already having been completed. Expected timing for the completion of the pipeline component of ACOES is late 2022.

•  Pipeline losses by the Bonny Terminal operator have increased markedly over the past year (31 December 2021: 70%; 31 December 2020: 28%), largely due to lower pipeline throughput as a result of OPEC quota restrictions and Covid-related issues. In the medium term, the ACOES is expected to reduce losses significantly.

•  Eroton has taken all appropriate precautions for its operations and people, with regards to Covid-19.

·   An update on ELI is as follows:

o  Whilst there have been some delays to ACOES principally due to Covid, barging operations from OML 18 to the ELI Akaso FSO are now expected by ELI to commence during July 2022.

o  ELI is in advanced negotiations with other third-party injectors for use of its pipeline and terminalling facilities.

o  Construction of the pipeline continues to progress and hook up with ELI Akaso is expected to take place in late 2022.

Outlook for 2022

•    Fuller barging operations from OML 18 to the FSO to commence in July2022.

•    Completion of the proposed transactions with Midwestern and ELI expected later in 2022.

•    The commissioning of the ACOES pipeline.

•    Restarting of field operations on OML 18.

•    Export of oil from Oza.

•    Continuing to position the Company for further transactions.

On 8 July 2022, the Company entered into the new facility for the purposes of funding its working capital requirements and for financing the Further ELI Investments, details of which can be found in the Admission Document. The new facility is for US$50 million.

Oisin Fanning, CEO of San Leon, Commented:

"The last year has been the most significant year in the Company's development.  We embarked upon and announced today a transaction which we believe will create a significant West African oil and gas entity which is ideally placed to take advantage of the opportunities available to it and to deliver considerable future value to all our shareholders."

San Leon Energy plc	[phone]
Oisin Fanning, Chief Executive Julian Tedder, Chief Financial Officer
Allenby Capital Limited (Nominated adviser and joint broker to the Company)	[phone]
Nick Naylor Alex Brearley Vivek Bhardwaj
Panmure Gordon & Co (Joint broker to the Company)	[phone]
Nick Lovering James Sinclair-Ford
Tavistock (Financial Public Relations)	[phone]
Nick Elwes Simon Hudson
Plunkett Public Relations	[phone]
Sharon Plunkett

Chairman's Statement

Whilst the Covid-19 pandemic continued to provide industry challenges during 2021, the recovery in oil price during the year and since, has enabled the Company to approach its portfolio with increased confidence. As a result, San Leon has proposed a major scaling up of its interests in OML 18 and ELI.

The Company was proud to announce in June 2021 the proposed transaction to increase its position in OML 18 and ELI significantly, and today we will publish an Admission Document in this respect. I view the proposal as a milestone in San Leon's growth aspirations, and an integral part of our strategy.

The Proposed Transaction

San Leon is committed to the long-term development of its Nigerian assets, with a focus of delivering value to Shareholders. This is driven by its technical expertise and operational capabilities, secured by the close links it forges with governments, joint venture partners and the local communities in which it operates.

The MLPL Reorganisation and the ELI Reorganisation together with the Further ELI Investments would result in San Leon's initial indirect interest in OML 18 increasing from 10.58% to 44.1%, while the MLPL Loan Notes would fall away. In additional transactions, the Company's interest in ELI would increase to approximately 50%, as well as having approximately US$50 million of loan notes receivable from ELI. The transaction is also expected to have the following benefits:

•    increasing the Company's economic interest in ELI will complement the Company's proposed 100% interest in MLPL, as the ACOES project is being constructed to provide a dedicated oil export route from OML 18 and therefore for the benefit of MLPL, including the expected reduction of pipeline losses and increasing the uptime of export;

•    San Leon's larger presence by virtue of its activities, resources and commitments, will pave the way for the Company to become a significant market participant in Nigeria, thereby better positioning the Company to deliver value for shareholders; and

•    increasing the Company's technical and management involvement in the OML 18 asset, serving to help optimise the development of the asset. This will be formalised through an Asset Management Agreement.

Each of these benefits will contribute to the Company's main objectives which are to:

•    use the Company's interest in OML 18 as a platform to become a leading independent production and exploration company focused on Nigeria and West Africa - by securing and developing further high potential asset opportunities that yield value for shareholders;

•    use the Company's technical and operational expertise in securing production and near-term operating cash flow which will yield value to shareholders whilst continuing to forge close links with governments, partners and the local communities that it operates in; and

•    continue to position the Company for further transactions.

The Company's financial position also enabled it to increase its stake in ELI during 2021 and early 2022 to 13.323% with a loan note receivable of US$17 million (par value), and during 2021 and early 2022 to complete an investment of US$5.5 million in Decklar (related to the Oza field). The Company has an option to invest a further US$2.5 million in Decklar by the end of June 2022. Decklar performed a workover and well testing on the Oza-1 well during 2021, and results are discussed in more detail in the CEO's report.

Last year I anticipated that the new oil export system, ACOES, was expected to be operational during H2 2021. While the timing on this has slipped, I am pleased to report that barging operations to the FSO are expected by ELI to commence during the second half of 2022, and that ELI expects to have the pipeline completed to the FSO at the end of 2022.

As discussed in my statement last year, the issues with NCTL export system, Covid-19 delays, infield operational deferrals, and increased production downtime have continued to affect production during 2021 and have some natural delay in achieving future production increases from new well drilling. Alongside the revival in oil prices, and with ACOES becoming operational, I expect Eroton to start to examine restarting well operations with an aim to boosting production on what we consider to be a world-class asset.

West Africa, focusing on Nigeria, is where San Leon's activities and resources will continue to be concentrated, and we expect this focus to continue to deliver value for shareholders.

Our increased investment in ELI, and the further proposed increases, are expected to yield attractive returns to the Company from its loan plus equity components.

The Company still retains two non-Nigerian, non-core interests. These are the Durresi block offshore Albania, for which the Company is seeking to enter the Appraisal phase of the licence and a farm out is being sought, and the Company's Net Profit Interest ("NPI") in the Barryroe field, offshore Ireland, where the operator, Providence Resources plc, continues to work on a funding solution to progress development of the field.

The Company has nearly completed its exit from Poland, with the small amount of remaining activity being administrative. The Company continues to hold certain NPIs in relation to Polish licences.

Staff welfare is of utmost importance to us and as such at San Leon Energy plc we have also been working remotely whenever possible since March 2020 as previously mandated by the different governments in the countries in which we have a presence. All employees and consultants have continued to be actively engaged regardless of the home working conditions. The Company has now started to reduce the proportion of home working, in line with general industry practice.

As at 8 July 2022 San Leon had cash on hand of US$0.2 million. The Midwestern transactions will be transformational for the Company and are expected to be cash flow positive in the near term.

As part of the proposed transactions, the Loan Notes would no longer be in place, and the Company will instead utilise its significantly increased portfolio of other expected cash flow sources.

During 2021, the Company made two Board appointments.

During May, John Brown joined the Board on as an independent Non-Executive Director. Mr Brown has more than 20 years of international experience in oil and gas and related industries, including over nine years of experience with operations in West Africa. He is a Chartered Accountant (ICAS) and was Chief Financial Officer or Group Finance Director for numerous UK listed companies within the oil and gas sector including Gulf Marine Services plc, Bowleven plc and Pittencrieff Resources plc. Mr Brown chairs the audit and risk committee and is a member of the nomination and remuneration committees.

During December 2021 Julian Tedder was appointed as Chief Financial Officer and Executive Director of the Company. Julian is a Chartered Accountant and previously served as Chief Financial Officer of IGas Energy plc and General Manager, Finance of Tullow Oil plc, ad brings with him a wealth of finance and industry experience.

I am delighted to welcome both to the Company. I would also like to thank Lisa Mitchell, who left the Company as previous CFO, in November 2021, for all of her contributions. I am also grateful to Alan Campbell for all of his invaluable work as a Director of the Company since 2016, and who stepped down from the Board in May 2021. Alan has continued as Company Secretary and has remained a key part of the Company's commercial successes and business development.

In 2021, San Leon's Board continued to seek ways to improve its Environment, Social and Governance ("ESG") impact. Covid-19 increased the challenges in meeting objectives but the Company was still very proud to deliver on several initiatives during the course of 2021 in Nigeria including the provision of educational support for disadvantaged children, the building of two new schools in Kogi State, and the provision of water infrastructure to villages in Benue and Kogi States. This was in addition to our ongoing support of women-led small enterprises and the supply of much needed basic supplies such as food, clothing and medical care to some highly disadvantaged people.

As part of our ESG strategy, we will continue ongoing engagement with all stakeholders and governments to ensure that we operate our business in a way that is sustainable and benefits the local communities in which we have a presence.

With the improved oil price, the proposed substantial increase in its indirect equity stake in OML 18, the proposed further investments in ELI, and its position in Oza, we believe that San Leon is well placed to continue to realise value for shareholders from Nigeria. Our technical and management expertise in the industry, will be put to work more than ever in these assets. As a result of the near-term expected startup of barging as part of ACOES, and anticipated pipeline completion to ACOES at the end of this year, we anticipate short-term improvements in OML 18 sales.

Our strategy continues to include the delivery of sustainable long-term returns to shareholders. We aim to achieve this through a combination of returns to shareholders and also growth in our asset base.

I look forward with confidence to updating shareholders on the achievement of these aims.

Mutiu Sunmonu

Chairman

8 July 2022

Chief Executive's Statement

2021 heralded the announcement of the intended scaling up of the Company's operations in Nigeria. Macroeconomic factors eased during the year, paving the way for growth on OML 18.

San Leon has long believed in the ability for OML 18 to generate value for its shareholders, and 2021 saw the opportunity for the Company to position itself for a significant scaling up of its interests there. Indeed, the company is today publishing its Admission Document, relating to that proposed transaction. The Chairman's Statement outlines the benefits of the transaction as anticipated by the Company, and the impact this is expected by the Directors to have upon cash flow and growth.

Eroton had a necessarily quiet year, given the continued effects of the Covid-19 pandemic, and operationally the large losses of any oil export using the NCTL. Eroton has been awaiting the availability of the ACOES system, which it expects to significantly reduce the downtime and allocated production losses currently associated with the NCTL. In addition, it is anticipated that the ACOES project will greatly improve overall well uptime. ELI anticipates that the FSO will be officially commissioned and barging operations will begin from OML 18 to the FSO during July 2022, finally providing the new export route for much of OML 18's oil production. It is anticipated that the pipeline component of ACOES will be completed at the end of 2022.

Both gross production at the wellhead and sales oil volumes were lower than expected. This was due to downtime; allocated pipeline losses associated with the use of the NCTL; Covid-related operational delays; prudent reduced operational expenditure and capital expenditure spending as a result of lower oil price; and also, OPEC production quota restrictions. Gross oil production, taking out the effect of NCTL downtime, (but after reductions for OPEC quota production restrictions), was around 21,100 bopd. Sales oil, including the effects of downtime and allocated losses, and of OPEC quota production restrictions, was around 4,400 bopd.

The proposed transaction is expected by San Leon to enable it further to increase its involvement with the subsurface technical input into OML 18, and the Company would have a paid contract to do so. We continue to believe that OML 18 is a world class asset and one that we look forward to developing further with our partners.

Additions to our asset base

I am pleased that our Company was in a position to enhance its portfolio of assets within Nigeria during 2021, in addition to the proposed OML 18 transaction. We had already started to invest in ELI during 2020, and that was augmented with a further US$4 million of investment during 2021 and early 2022. As part of the proposed transaction, we also intend to invest another US$37.5 million to bring our equity holding to approximately 50%, and loan note receipts of US$50 million. I expect ELI to be a value-adding and cash-generative asset, both in the near term and for many years to come.

In February 2022, San Leon completed US$5.5 million of its proposed US$7.5 million investment into Decklar during 2021 and in the first months of 2022, given the 11% equity in Decklar, together with US$5.5 million of loan notes receivables. This transaction involves Decklar, as Risk Service Provider to the operator of the Oza field, performing workover and new well drilling to develop the reserves and contingent resources on what is a proven producing field with existing infrastructure. Under the terms of the financing, SLE have rights to a cash sweep until the loan coupon is repaid. During 2021, Decklar performed the anticipated workover on the Oza-1 well, and successfully flow tested all three target zones. The well has been configured to flow from the uppermost zone, and export of oil produced during the well testing recently began. The Company now has the option to invest a further US$2.5 million to increase its equity holding in Decklar to 15%, and to receive an additional US$2.5 million in loan note receivables with a cash sweep. The option to purchase an additional 15% equity has been relinquished.

Cashflow

The Company has a number of anticipated sources of cash flow, as it builds its portfolio in line with its stated strategy. As of 31 December 2021, cash receipts totaling US$198 million have come from the repayment of MLPL Loan Notes, including interest. The outstanding balance payable as of 24 June 2022 is US$105.6 million at par value (US$102.2 million under IFRS), which continues to accrue interest.

Final payment of the MLPL Loan Notes was anticipated by the end of 2021, however due to issues around Covid-19, volatility in the oil price and demand as well as short-term production issues on OML 18, the Company believes this date is unlikely to be met. The Company is still confident in receiving all repayments and late payment interest, however in line with our accounting policy we have recognised a credit impairment to reflect the uncertainty around timing of repayments. The anticipated transaction described in the Admission Document, would result in the ending of the existing MLPL Loan Notes. Future anticipated cash flow is from loan notes receipts from ELI, dividends from equity holdings in ELI, dividends from Eroton via MLPL (once OML 18 is generating sufficient free cash flow), loan repayments from Decklar (in relation to the Oza field), and equity income from Oza.

ESG

As discussed in the Chairman's statement ESG is an area of increasing importance. This is an area in which San Leon is committed to meeting high standards of ESG practices across all aspects of the business. The Company is committed to the countries in which it operates and is dedicated to promoting sustainable growth as well as providing support to local communities in Nigeria. The Company firmly believes that by providing the younger generation with the valuable skills and education needed to succeed, the whole country will benefit from growth and prosperity. In 2021 we continued to support health and education in the communities in which we operate and delivered many sustainable projects that have a direct and positive impact on the environment.

Dematerialisation of company shares by 1 January 2023

The company would like to remind shareholders that the impending EU wide dematerialisation of shares is an upcoming event, which will effectively mean, based on current expectations, that share certificates will no longer be accepted as prima facie evidence of ownership from 1 January 2023.

As noted in our circular dated 6 January 2021, pursuant to EU regulations requiring dematerialisation (which means that shares will be registered in book entry form, without share certificates), Irish registered listed public companies are required to convert all holdings to uncertificated form by January 2023 (new issues) and January 2025 (all other securities). However, it is currently expected that a legislative change will be implemented to allow for dematerialisation both in respect of existing shares and new issues from 1 January 2023.

As a consequence, the market is planning to replace its existing infrastructure (where certificated shares are used) by Registrars and other market stakeholders with a dematerialised model, where only book entry will be used. While there will be a cost to the Company, shareholders are not anticipated to be required to have to take any action, unless further legislation is enacted that requires such. The Company will inform shareholders when any legislation is enacted, which is expected in Q4 2022, and will inform shareholders if expectations change and they need to take any action.

Outlook

Recovery of the oil price during 2021 and into 2022 clearly assists the business case for the Company's assets and their continued development. The expected near-term startup of the barging component of the ACOES system is an important step in unlocking the value in OML 18, and we look forward to the pipeline portion of ACOES coming online following anticipated completion at the end of 2022. The proposed transaction is expected by the Company to yield material stakes in both OML 18 and ELI, enabling us to help carve out strategy for these important assets, which of course benefit from each other.

The Company has cash in hand as at 8 July 2022 of US$0.2 million, and anticipates near-term cash flow from ELI loan notes repayments and from its technical management contract with Eroton, while awaiting equity income from its asset portfolio. The Company continues to monitor the performance of OML 18 and its other assets, and is ready to pursue any appropriate opportunities that may arise in the current market.

I look forward to updating shareholders with news of the impact of the ACOES on OML 18, plans for operations on OML 18 and Oza, and how our various expected cash flow streams are performing. The Company is in a good position, with a variety of future cash streams, and together with its professional relationships and people, I believe is well-positioned to grow and add further value to shareholders. I expect to look back on the proposed transaction as being transformational for the Company.

Oisín Fanning

CEO

8 July 2022

Consolidated Income Statement

for the year ended 31 December 2021

	Notes	2021 US$'000	2020 US$'000
Continuing operations
Revenue from contracts with customers	2	5,747	-
Gross profit		5,747	-
Share of profit / (loss) of equity accounted investments	13	14,532	(1,139)
Administrative expenses		(12,867)	(14,918)
Profit / (loss) on disposal of subsidiaries	4	16,615	(1,044)
Impairment / write off of exploration and evaluation assets	12	(206)	(196)
Other income	3	4,560	-
Profit / (loss) from operating activities		28,381	(17,297)
Finance expense	6	(129)	(131)
Finance income	7	14,599	17,442
Expected credit losses	8	1,192	(13,692)
Fair value movements in financial assets	15	(2,551)	4,073
Profit / (loss) before income tax		41,492	(9,605)
Income tax expense	10	(775)	(2,248)
Profit / (loss) for the financial year		40,717	(11,853)
Profit/ (loss) per share (cent) - total
Basic profit / (loss) per share	11	9.05	(2.63)
Diluted profit/ (loss) per share	11	8.94	(2.63)

The accompanying notes form an integral part of these financial statements.

Consolidated Statement of
Other Comprehensive Income

for the year ended 31 December 2021

	Notes	2021 US$'000	2020 US$'000
Profit / (loss) for the year		40,717	(11,853)
Items that may be reclassified subsequently to profit or loss
Currency translation differences - subsidiaries	24	56	83
Recycling of currency translation reserve on disposal of subsidiaries	24	(16,615)	1,044
Fair value movements in financial assets	15	-	(194)
Total other comprehensive income		(16,559)	933
Total comprehensive profit / (loss) for the year		24,158	(10,920)

The accompanying notes form an integral part of these financial statements.

Consolidated Statement
of Changes in Equity

for the year ended 31 December 2021

	Share capital reserve US$'000	Share premium reserve US$'000	Other un-denominated reserve US$'000	Special reserve US$'000	Currency  translation reserve US$'000	Share based payment reserve US$'000	Fair value reserve US$'000	Retained earnings US$'000	Attributable to equity holders in Group US$'000
2020
Balance as 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 - subsidiaries	-	-	-	-	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 (Note 23)	-	-	-	-	-	-	-	(33,251)	(33,251)
Share buybacks (Note 22)	(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

The accompanying notes form an integral part of these financial statements.

	Share capital reserve US$'000		Share premium reserve US$'000	Other un-denominated reserve US$'000	Special reserve US$'000	Currency  translation reserve US$'000	Share based payment reserve US$'000	Fair value reserve US$'000	Retained earnings US$'000	Attributable to equity holders in Group US$'000
2021
Balance as at 1 January 2021		5,157	21,077	638	5,024	25,748	15,139	(2,699)	81,976	152,060
Total comprehensive income for year
Profit for the year	-		-	-	-	-	-	-	40,717	40,717
Other comprehensive income
Foreign currency translation differences - subsidiaries	-		-	-	-	56	-	-	-	56
Recycling of currency translation reserve on disposal of subsidiaries	-		-	-	-	(16,615)	-	-	-	(16,615)
Fair value movements in financial assets	-		-	-	-	-	-	-	-	-
Total comprehensive income for year	-		-	-	-	(16,559)	-	-	40,717	24,158

Transactions with owners recognised directly in equity
Contributions by and distributions to owners
Dividend payment (Note 23)	-	-	-	-	-	-	-	-	-
Share buybacks (Note 22)	-	-	-	-	-	-	-	-	-
Share-based payment	-	-	-	-	-	-	-	-	-
Effect of share options modified	-	-	-	-	-	-	-	-	-
Effect of options expired	-	-	-	-	-	(2,230)	-	2,230	-
Total transactions with owners	-	-	-	-	-	(2,230)	-	2,230	-
Balance at 31 December 2021	5,157	21,077	638	5,024	9,189	12,909	(2,699)	124,923	176,218

The accompanying notes form an integral part of these financial statements.

Consolidated Statement
of Financial Position

as at 31 December 2021

	Notes	2021 US$'000	2020 US$'000
Assets
Non-current assets
Intangible assets	12	-	-
Equity accounted investments	13	58,634	44,102
Property, plant and equipment	14	2,510	3,294
Financial assets	15	10,657	17,846
		71,801	65,242
Current assets
Inventory	16	168	183
Trade and other receivables	17	13,642	1,878
Financial assets	15	91,159	72,889
Cash and cash equivalents	18	7,592	18,510
		112,561	93,460
Total assets		184,362	158,702
Equity and liabilities
Equity
Called up share capital	22	5,157	5,157
Share premium account	22	21,077	21,077
Other undenominated reserve		638	638
Special reserve	24	5,024	5,024
Share-based payments reserve	24 / 25	12,909	15,139
Currency translation reserve	24	9,189	25,748
Fair value reserve	24	(2,699)	(2,699)
Retained earnings		124,923	81,976
Total equity attributable to equity shareholders		176,218	152,060
Non-current liabilities
Lease liability	28	2,054	2,428
Derivative	20	-	9
Deferred tax liabilities	27	1,282	518
		3,336	2,955

	Notes	2021 US$'000	2020 US$'000
Current liabilities
Trade and other payables	19	4,752	3,631
Provisions	21	56	56
		4,808	3,687
Total liabilities		8,144	6,642
Total equity and liabilities		184,362	158,702

The accompanying notes form an integral part of these financial statements.

Oisín Fanning                       Julian Tedder

Director                                  Director

8 July 2022

Consolidated Statement
of Cash Flows

for the year ended 31 December 2021

	Notes	2021 US$'000	2020 US$'000
Cash flows from operating activities
Profit / (loss) for the year - continuing operations		40,717	(11,853)
Adjustments for:
Depreciation	14	1,028	1,028
Finance expense	6	129	131
Finance income	7	(14,599)	(17,442)
Share-based payments charge		-	890
Foreign exchange		(9)	113
Income tax expense	10	775	2,248
Impairment of exploration and evaluation assets - continuing operations	12	206	196
Expected credit losses	8	(1,192)	13,692
(Profit) / loss on disposal of subsidiaries	4	(16,615)	1,044
Fair value movements in financial assets	15	2,551	(4,073)
Decrease / (increase) in inventory	16	15	(3)
Increase in trade and other receivables		(11,765)	(897)
Increase / (decrease) in trade and other payables		1,068	(1,778)
Share of (profit) / loss of equity-accounted investments	13	(14,532)	1,139
Tax paid		35	-
Net cash outflow from operating activities		(12,188)	(15,565)
Cash flows from investing activities
Expenditure on exploration and evaluation assets	12	(206)	(196)
Lease - prepaid rental	28	(244)	-
Interest and investment income received	7	-	47
Acquisition of ELI Equity Interest	13 / 15	-	(443)
ELI Loan Notes issued	15	-	(14,557)
OML 18 Loan Notes principal payments received	15	-	35,285
OML 18 Loan Notes interest payments received	15	2,150	11,215
Net cash inflow from investing activities		1,700	31,351

	Notes	2021 US$'000	2020 US$'000
Cash flows from financing activities
Dividends paid	23	-	(33,251)
Share buybacks		-	(507)
Repayment of lease liability - principal	28	(227)	(211)
Interest paid	6	(129)	(131)
Net cash outflow from financing activities		(356)	(34,100)
Net decrease in cash and cash equivalents		(10,844)	(18,314)
Effect of foreign exchange fluctuation on cash and cash equivalents		(74)	127
Cash and cash equivalents at start of year	18	18,510	36,697
Cash and cash equivalents at end of year	18	7,592	18,510

The accompanying notes form an integral part of these financial statements.

Notes to the GROUP Financial Statements

for the year ended 31 December 2021

1. Accounting Policies

San Leon Energy plc ("the Company") is a company incorporated and domiciled in the Republic of Ireland. The Company's ordinary shares are admitted to trading on the AIM Market of the London Stock Exchange. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The registered office address is 2 Shelbourne Buildings, Crampton Avenue, Shelbourne Road, Ballsbridge, Dublin 4.

Statement of compliance

As required by AIM rules and permitted by Company Law, the Group financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The IFRS adopted by the EU as applied by the Group in the preparation of these financial statements are those that were effective for accounting periods commencing on or before 1 January 2021 or were early adopted as indicated below.

New standards required by EU companies for the year ended 31 December 2021

The following new standards and amendments were adopted by the Group for the first time in the current financial reporting period.

New standards and interpretations effective that were adopted

Standard	IASB effective date	EU effective date
COVID-19 Related Rent Concessions (Amendment to IFRS 16)	1 June 2020	1 June 2020
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)	1 January 2021	1 January 2021

The standards listed above, are effective from 1 January 2021 but they do not have a material effect on the Group's financial statements.

New standards and amendments issued by the IASB but not yet effective

There are a number of new standards, amendments to standards and interpretations that are not yet effective and have not been applied in preparing these consolidated financial statements. These new standards, amendments to standards and interpretations are either not expected to have a material impact on the Group financial statements or are still under assessment by the Group.

The principal new standards, amendments to standards and interpretations are as follows:

Standard	IASB effective date	EU effective date
COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)	01 April 2021	01 April 2021
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)	1 January 2022	1 January 2022
Annual Improvements to IFRS Standards 2018 - 2020	1 January 2022	1 January 2022
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)	1 January 2022	1 January 2022
Reference to the Conceptual Framework (Amendments to IFRS 3)	1 January 2022	1 January 2022
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)	1 January 2023	1 January 2023
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts	1 January 2023	1 January 2023
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)	1 January 2023	1 January 2023
Definition of Accounting Estimate (Amendments to IAS 8)	1 January 2023	1 January 2023
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction _ Amendments to IAS 12 Income Taxes	1 January 2023	1 January 2023
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)	Effective date deferred indefinitely	Effective date deferred indefinitely

New standards that came into effect on 1 January 2022 will be applied in the year ending 31 December 2021 first reporting to include these will be for the period ending 30 June 2022. The Directors do not believe that any of these standards will have a significant impact on Group reporting.

Basis of preparation

The Group financial statements are prepared on the historical cost basis, except for financial assets (net profit interests, quoted shares and unquoted 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 for the period from 1 June 2022 to 31 December 2023.

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

•                   The proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited's ("Midwestern") shareholdings in: i) the Company; and ii) Midwestern Leon Petroleum Limited ("MLPL") into a single shareholding in the Company (the "Potential Transaction") completes in the second half of 2022. The Potential Transaction also comprises, inter alia, a proposed consolidation of Midwestern's indirect debt and equity interests in Energy Link Infrastructure (Malta) Limited ("ELI") with those of the Company, as well as further new debt and new and existing equity investments to be made by San Leon in ELI ("Further ELI Investments");

•                     Eroton Exploration and Production Company Limited ("Eroton") acquires an additional 18% interest in OML 18 from two of the other partners in OML 18, thereby taking Eroton's interest in OML 18 to 45%. This is subject, inter alia, to: i) agreeing documentation; ii) finalising bank financing; and iii) receiving the relevant regulatory consents in Nigeria;

•                     A loan of US$50.0 million is secured to finance the Potential Transaction;

•                     Elimination of the MLPL loan notes on completion of the Potential Transaction;

•                     Under an Asset Management Agreement with Eroton, San Leon receives US$0.5 per month for technical and financial advisory services following completion of the Potential Transaction;

•                     Repayments from ELI of loan notes of US$37.6 million during 2022 and 2023;

•                     Repayment from Eroton of a debt from the provision of services under a technical services contract of US$3.0 million during 2022; and

•                   A further loan of US$2.5 million is given to Decklar Petroleum Limited in relation to its Oza investment as per the option agreement.

Due to the Potential Transaction not having completed at the date of the Annual Report there is an inherent material uncertainty that completion will not occur as anticipated.

The Group has modelled various other scenarios assuming the Potential Transaction does not complete and given the Group's well understood cost base, the principal uncertainty if the Potential Transaction does not complete relates to the quantum and timing of receipt of interest and capital repayments on the Loan Notes with MLPL, which would remain in place, and the loan Notes with ELI.

It was originally envisaged that the MLPL Loan Note payments due to the Group would be sourced by MLPL from the receipt of dividends through its indirect interest in Eroton via Martwestern. These dividends have not been received to date and consequently MLPL has entered into loan arrangements in order to be able to make Loan Note payments to the Company. In the absence of the dividend payments, MLPL will be reliant on further advances under the loan arrangement and in turn being able to make Loan Note payments to the Company. The Company has no obligation arising from the loan arrangements entered into by MLPL.

The loan repayments due from ELI were due to start in 2021 but have been delayed due to operational readiness of the FSO and ACOES project being delayed. The Directors have a reasonable expectation that ELI will be revenue generating imminently with the commencement of barging operations, and while loan repayments have been delayed, they should commence in the second half of 2022.

Due to the uncertainty on timing of future cashflows the MLPL and ELI loan notes have both been credit impaired.

In the ultimate downside scenario where no repayments are received from MLPL and ELI, the US$50.0 million loan secured by the Company to fund the Potential Transaction can be drawn to facilitate completion of the further ELI Investments, with the remaining balance being used for general corporate purposes. In this scenario the working capital requirements of the Group can be met for the 12-month period from the date of approval of the financial statements, although a reduction to administrative costs is required in 2023, which the Directors believe is achievable and within their control.

However, while the working capital requirements of the Group can be met for the 12-month period, the Directors believe that the continued viability of the Group and Company into the future is dependent on the completion of the Proposed Transaction. As such, the completion of the Proposed Transaction creates significant uncertainty upon the Group and Company's ability to continue as a going concern beyond the 12-month period.  The Directors' have concluded that this represents a material uncertainty which may cast significant doubt upon the Group and Company's ability to continue as a going concern and that, therefore, the Group and Company may be unable to continue realising its assets and discharging its liabilities in the normal course of business.

Having taken all the above factors into account, the directors continue to believe it is appropriate to prepare

these financial statements on a going concern basis, noting the material uncertainty that exists on the completion of the Potential Transaction and its impact on the Company and Group's ability to continue as a going concern. The financial statements do not include any adjustments that would be necessary if the group were unable to continue as a going concern.

Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). These consolidated financial statements are presented in US Dollars (US$), which is 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:

Judgements

Going concern (Note 1)

Classification of finance income (Note 7)

Impairment of investment in subsidiary (Note B)

Recoverability of equity accounted investments (Note 13)

Recoverability of financial assets (Note 15)

Estimates

Measurement of equity accounted investments (Note 13)

Measurement of financial assets (Note 15)

Measurement of share-based payments (Note 25)

Recognition of deferred tax asset for tax losses (Note 27)

Basis of consolidation

The financial information incorporates the financial information of the Group. 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.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is defined as when the Group have the rights to variable returns from its investment with the entity and have the ability to affect these returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that currently are substantive.

Acquisitions

The Group measures goodwill at the acquisition date as:

•                     the fair value of the consideration transferred; plus

•                     the recognised amount of any non-controlling interests in the acquiree; plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

•                     the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

Intangible assets - exploration and evaluation assets

Expenditure incurred prior to obtaining the legal rights to explore an area is recognised in profit or loss as incurred. All other expenditure relating to licence acquisition, exploration, evaluation and appraisal of oil and gas interests, including an appropriate share of directly attributable overheads, is capitalised on a licence by licence basis.

Exploration and evaluation assets are carried at cost until the exploration phase is complete or commercial reserves have been discovered. The Group regularly review the carrying amount of exploration and evaluation assets for indicators of impairment and capitalised costs are written off where the carrying amount of assets may not be recoverable. Where commercial reserves have been established and development is approved by the Board, the relevant expenditure is transferred to oil and gas properties following assessment of impairment.

Impairment of non-financial assets

The carrying amounts of the Group's assets are reviewed at each reporting date and, if there is any indication that an asset may be impaired, its recoverable amount is estimated. The recoverable amount is the higher of its fair value less costs to sell and its value in use.

Estimates of impairment are limited to an assessment by the Directors of any events or changes in circumstance that would indicate that the carrying amount of the asset may not be recoverable.

Any impairment loss arising from the review is recognised in profit or loss to the extent the carrying amount of the asset exceeds its recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life. The annual rate of depreciation for each class of depreciable asset is:

Office equipment                   25% Straight line

Motor vehicles                       20% Reducing balance

Plant and equipment             20% - 33% Straight line

Leased assets                        Shorter of the term of lease or useful life of the asset as defined under IFRS 16

Inventories

Inventories are valued at the lower of cost and net realisable value.

Joint ventures

The Group has also entered into a joint venture arrangement which is operated through a joint venture. The Group accounts for its interest in this entity on an equity basis, with Group share of profit or loss after tax recognised in the Income Statement and its share of Other Comprehensive Income ("OCI") of the joint venture recognised in OCI.

Financial assets and financial liabilities

i. Recognition and initial measurement

Financial assets are classified at initial recognition and subsequently measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") or Fair Value Through Profit or Loss ("FVTPL"). The classification of financial assets is determined by the contractual cash flows and where applicable the business model for managing the financial assets.

A financial asset or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue.

ii. Classification and subsequent measurement

Financial assets

On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI - debt investment; FVOCI - equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets.

A financial asset is measured at amortised cost if the objective of the business model is to hold the financial asset in order to collect contractual cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest. Subsequently the financial asset is measured using the effective interest method less any impairment. The amortised cost is reduced by impairment losses in accordance with Group policy set out below. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

The business model in which a financial asset is held is assessed at an individual asset level for assets that are individually material, and otherwise at a portfolio level. Financial assets that are held as part of a long-term strategic investment are considered within a business model to collect contractual cash flows.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI (FVOCI - equity investment). This election is made on an investment ‑ by ‑ investment basis. These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held ‑ for ‑ trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

iii. Impairment (including receivables)

The Group recognises loss allowances for expected credit losses ("ECL's") on financial assets measured at amortised cost.

A provision for 12-month ECL is recognised in respect of low risk assets. A provision for the lifetime ECL is recognised in respect of higher risk assets that are not credit impaired. If an asset is credit impaired, the carrying amount of the asset is reduced by its lifetime ECL.

The 12-month ECL represents the weighted average of credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date. This requires a number of outcomes to be considered, a probability assigned to each, and a resulting credit loss applied to each. ECLs are discounted at the effective interest rate of the financial asset.

12-month ECL is determined based on forward looking analysis where a range of outcomes have 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. Lifetime ECL is calculated the same way, but over the relevant period.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit ‑ impaired. A financial asset is 'credit ‑ impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The Group considers a financial asset to be in default and presumed credit impaired when contractual payments are outstanding 90 days after their due date, unless there is reasonable information that amounts will be recovered; or when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security including guarantees (if any is held).

The Group has determined that MLPL is likely to meet its credit obligations as evidenced by the preparation of a Competent Persons Report in relation to San Leon's interest in OML 18, however are uncertain of the timing of when these obligations will be met. The Group has therefore credit impaired the asset.

The Group has determined that ELI is likely to meet its credit obligations as evidenced by recent management information in relation to San Leon's interest in ELI.

Write-off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.

iv. Derecognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

On derecognition of a financial asset or financial liability, the difference between the carrying amount removed or extinguished and the consideration received or paid is recognised in profit or loss.

Decommissioning provision

A provision is made for decommissioning of oil and gas wells. The cost of decommissioning is determined through discounting the amounts expected to be payable to their present value at the date the provision is recognised and reassessed at each reporting date. This amount is regarded as part of the total investment to gain access to economic benefits and consequently capitalised as part of the cost of the asset and the liability is recognised in provisions. Such cost is depleted over the life of the asset on the basis of proven and probable reserves and charged to the Income Statement. The unwinding of the discount is reflected as a finance cost in the Income Statement over the life of the field or well.

Taxation

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in Other Comprehensive Income or equity, in which case it is recognised in Other Comprehensive Income or equity.

i. Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty relates to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Current tax assets and liabilities are offset only if certain criteria are met.

ii. Deferred tax

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they are controlled and probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Unrecognised deferred tax assets are reassessed as each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax assets and liabilities are offset only if certain criteria are met.

Foreign currencies

Transactions in foreign currencies are initially translated to the respective functional currencies of Group entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rates ruling at the reporting date with gains or losses recognised in profit or loss. Non-monetary items are translated using the exchange rates ruling as at the date of the initial transaction.

Foreign currency differences are generally recognised in profit or loss and presented within finance costs. However, foreign currency differences arising from the translation of the following items are recognised in OCI:

·     an investment in equity securities designated as at FVOCI (except on impairment, in which case foreign currency differences that have been recognised in OCI are reclassified to profit or loss);

·     a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and

·     qualifying cash flow hedges to the extent that the hedges are effective.

Foreign operations

The assets and liabilities of foreign operations are translated into US Dollars at the exchange rate at the reporting date and the income and expenses of foreign operations are translated at the actual exchange rates at the date of the transaction or at average exchange rates for the year where this approximates to the actual rate. Exchange differences arising on translation are recognised in Other Comprehensive Income and presented in the foreign currency translation reserve in equity. Details of exchange rates used are set out in Note 30.

Revenue recognition

For the year ended 31 December 2021 the Group used the five-step model as prescribed under IFRS 15 on the Group's revenue transactions. This included the identification of the contract, identification of the performance obligations under same, determination of the transaction price, allocation of the transaction price to performance obligations and recognition of revenue. The point of recognition arises when the Group satisfies a performance obligation by transferring control of promised drilling services and royalty income to the customer, which could occur over time.

Finance income and expenses

Interest income is accrued on a time basis by reference to the principal on deposit and the effective interest rate applicable.

The 'effective interest rate' is the rate that at initial recognition exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

the gross carrying amount of the financial asset; or

the amortised cost of the financial liability.

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit ‑ impaired) or to the amortised cost of the liability. However, for financial assets that have become credit ‑ impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset net of impairment provision. If the asset is no longer credit ‑ impaired, then the calculation of interest income reverts to the gross basis.

Finance expenses comprise interest or finance costs on borrowings and unwinding of any discount on provisions using the effective interest rate.

Share capital

Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

Share based payments

The Group has applied the requirements of IFRS 2 'share based payments'. The Group issues share options as an incentive to certain key management and staff (including Directors), which are classified as equity settled share based payment awards. The grant date fair value of share options granted to Directors and employees under the Group's share option scheme is recognised as an expense over the vesting period with a corresponding credit to the share-based payments reserve. The fair value is measured at grant date and spread over the period during which the awards vest.

The options issued by the Group are subject to both market-based and non-market based vesting conditions. Market conditions are included in the calculation of fair value at the date of the grant. Non-market vesting conditions are not taken into account when estimating the fair value of awards as at grant date; such conditions are taken into account through adjusting the number of the equity instruments that are expected to vest.

The proceeds received will be credited to share capital (nominal value) and share premium when options are converted into ordinary shares.

Where the terms of an equity-settled transaction are modified, an additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Dividends

The Group has elected to classify cashflows from dividends paid as financing activities.

Earnings per share

The Group present basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes, share options granted to employees and warrants.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand on demand.

Leases:

As a lessee

The Group recognises right-of-use assets representing its right to use the underlying assets and lease liabilities representing its obligation to make lease payments at the lease commencement date. The right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or to restore the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

-       Lease payments included in the measurement of the lease liability comprise the following:

-       fixed payments, including in-substance fixed payments;

-       variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date;

-       amounts expected to be payable under a residual value guarantee; and

-       the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Group presents right-of-use assets that do not meet the definition of investment property in 'property, plant and equipment' and lease liabilities in 'loans and borrowings' in the Statement of Financial Position.

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Segmental reporting

A segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses which is subject to risks and rewards that are different from those of other segments and for which discrete financial information is available.

All operating segments and results are regularly reviewed by the Board of Directors to make decisions about resources to be allocated to each segment and to assess its performance.

Full details of the Group's operating segments all of which are involved in oil and gas exploration and production are set out in Note 2 to the financial statements.

Fair value movement

The Group has an established process with respect to the measurement of fair values. The finance team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Board.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

For further detail on assumptions made in measuring Level 3 fair values see the following notes:

•         Note 15 Financial Assets

•         Note 20 Derivative

Assets and liabilities measured at fair value

In accordance with IFRS 13, the Group discloses its assets and liabilities held at fair value after initial recognition in the following categories: FVOCI - equity instrument and FVTPL.

With the exception of shares held in quoted entities, which are classified as Level 1 items under the fair value hierarchy, all assets and liabilities held at fair value are measured on the basis of inputs classified as Level 3 under the fair value hierarchy on the basis that the inputs underpinning the valuations are not based on observable market data as defined in IFRS 13.

Where derivatives are traded either on exchanges or liquid over-the-counter markets, the Group uses the closing price at the reporting date. Normally, the derivatives entered into by the Group are not traded in active markets. The fair values of these contracts are estimated using a valuation technique that maximises the use of observable market inputs, e.g. market exchange and interest rates. All derivatives entered into by the Group are included in Level 3 and consist of share warrants issued.

2. 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 receive verbal or written reports at board meetings for each of the segments based on the below criteria which management consider to be appropriate in evaluating segment performance relative to other entities that operate in the industry.

Revenue and Segmental Information

2021			Poland US$'000	Morocco US$'000	Albania US$'000	Nigeria US$'000	Ireland US$'000	Netherlands US$'000	Spain US$'000	Unallocated# US$'000	Total US$'000
Total revenue			-	-	-	3,000	-	2,747	-	-	5,747
Impairment of exploration and evaluation assets			-	-	(206)	-	-	-	-	-	(206)
Segment profit / (loss) before income tax			16,439	-	(206)	33,314	(2,552)	6,775	-	(12,278)	41,492
Property, plant and equipment			4	-	-	-	2,506	-	-	-	2,510
Equity accounted investments			-	-	-	58,634	-	-	-	-	58,634
Segment non-current assets			4	-	-	65,000	6,797	-	-	-	71,801
Segment liabilities			(65)	(18)	(804)	(4)	(3,680)	-	(745)	(2,828)	(8,144)
		# Unallocated expenditure and liabilities include amounts of a corporate nature and not specifically attributable to a reportable segment.

Revenue relates to the provision of drilling services in Nigeria. It also relates to the settlement of the TAQA claim, please see Other income (Note 3).

2020			Poland US$'000	Morocco US$'000	Albania US$'000	Nigeria US$'000	Ireland US$'000	Netherlands US$'000	Spain US$'000	Unallocated# US$'000	Total 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			11	-	-	55,729	9,502	-	-	-	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. Other income

		2021 US$'000	2020 US$'000
TAQA settlement (i)		4,027	-
Other (ii)		533	-
		4,560	-

(i) TAQA settlement

In December 2021, the Group successfully concluded their ongoing legal proceedings with TAQA Offshore B.V. ("TAQA") in relation to its legacy interests in two royalties on Block Q13A , which is located offshore the Netherlands (the "Amstel Oil Field"), including an Overriding Royalty Agreement entered into with Encore Oil as part of a sale and purchase agreement entered into in 2007 (the "Royalty Agreements").

TAQA had subsequently purchased the interest from Encore Oil. Production from the Amstel Field started in 2014 but no royalties had been received. The Royalty Agreements became the subject of separate legal proceedings in the Netherlands and the UK.

The royalties will continue to be payable in accordance with the terms and conditions of the Royalty Agreements. The Royalty Agreements represent legacy interests and any potential net future benefit to the Group going forward from the Amstel Oil Field on a monthly basis is not expected to be particularly material to San Leon .

The total TAQA settlement amounted to approximately US$6.8 million of which approximately US$2.7 million has been recognised as revenue in 2021 as this amount had not been previously provided for by the Company.

(ii) Other

Relates to the disposal of property, plant and equipment that had been fully impaired or depreciated to US$Nil in prior periods.

4. PROFIT / (LOSS) on disposal of subsidiaries

	2021 US$'000	2020 US$'000
Other, recycling from equity to income statement (i)	16,615	(1,044)
	16,615	(1,044)

(i) Other

In 2021 the Group liquidated certain foreign operations that held non-core assets. The Group's investment in the assets held by the subsidiaries has been fully impaired in prior periods. The liquidation of the foreign operations has resulted in the realisation of cumulative foreign currency gains of US$16.6 million (2020: losses of US$1.0 million), that had previously been recognised in equity. The realisation of the cumulative foreign currency gains and losses do not impact the consolidated assets or liabilities.

5. Statutory information

	2021 US$'000	2020 US$'000
The profit / (loss) for the financial year is stated after charging:
Depreciation of property, plant, machinery and equipment	1,028	1,028
Gain / (loss) on foreign currencies	9	(113)
Impairment of exploration and evaluation assets	206	196
Share based payment charge	-	890

During the year, the Group (including its overseas subsidiaries) obtained the following services from KPMG, the Group Auditor:

Auditor's remuneration

	2021 US$'000	2020 US$'000
Fees paid to lead audit firm:
Audit of the Group financial statements	260	238
Audit of the subsidiary financial statements	69	69
Total	329	307

During the year, the Group (including its equity accounted investment) obtained the following audit services, excluding the Group Auditor, KPMG:

	2021 US$'000	2020 US$'000
Fees paid to other firms:
Audit of equity accounted investments	48	48
Total	48	48

6. Finance expense

	2021 US$'000	2020 US$'000
Interest on obligations for leases	129	131

7. Finance income  

	2021 US$'000	2020 US$'000
Total finance income on Loan Notes (Note 15)	14,590	17,276
Movement in fair value of derivatives (Note 20)	9	119
Deposit interest received	-	47
	14,599	17,442

All interest income is in respect of assets measured at amortised cost.

8. Expected credit losses

	2021 US$'000	2020 US$'000
OML 18 Loan Notes - impact of modification (Note 15)	-	(5,857)
OML 18 Loan Notes - net remeasurement of loss allowance (Note 15)	1,447	(7,450)
ELI Loan Notes - initial recognition (Note 15)	-	(385)
ELI Loan Notes - net remeasurement of loss allowance (Note 15)	(255)	-
	1,192	(13,692)

9. Personnel expenses

Number of employees

The average monthly number of employees (including the Directors) during the year was:

	2021 Number	2020 Number
Directors	6	8
Administration	8	10
Technical	1	1
Seismic crew	1	1
	16	20

Employment costs (including Directors)        

	2021 US$'000	2020 US$'000
Wages and salaries (excluding Directors)	1,659	1,437
Directors' salaries	2,413	2,678
Directors' bonuses	490	1,172
Social welfare costs	381	428
Directors' fees and consultancy costs	500	607
Share based payment charge for options issued to Directors	-	418
Employees' pension	197	71
Benefits (including Directors)	99	59
Directors' pension	331	99
	6,070	6,969

The Group contributes to a defined contribution pension scheme for certain Executive Directors and employees. The scheme is administered by trustees and is independent of the Group finances. Total contributions by the Group to the pension scheme, including contributions for Directors amounted to US$0.5 million (2020: US$0.2 million).

10. Income tax

	2021 US$'000	2020 US$'000
Current tax
Current year income tax	11	12
Deferred tax
Origination and reversal of temporary differences (Note 27)	1,608	893
Deferred tax movement in Barryroe NPI (Note 27)	(844)	1,343
Total income tax charge	775	2,248

Deferred tax relating to items charged/credited to equity
Deferred tax movement on fair value of other financial assets, Unquoted shares	-	-
Total income tax charge	-	-

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:

	2021 US$'000	2020 US$'000
Profit / (loss) before income tax	41,492	(9,605)
Tax on profit / (loss) at applicable Irish corporation tax rate of 25% (2020: 25%)	10,373	(2,401)
Effects of:
Tax effect at fair value adjustment	(844)	326
Prior year adjustment	(57)	-
Losses utilised in year	(1,085)	(690)
(Income) / expenses not taxable	(10,174)	2,559
Income tax withheld	4	13
Effect of different  tax rates	(701)	2
Adjustment for difference on overseas profit before tax	(23)	-
Excess losses carried forward	3,282	2,439
Tax charge for the year	775	2,248

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Liabilities for uncertain tax treatments are recognised in accordance with IFRIC 23 and are measured using either the most likely amount method or the expected value method - whichever better predicts the resolution of the uncertainty.

11. PROFIT / (LOSS) per share

Basic profit / (loss) per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year as follows:

	2021 US$'000	2020 US$'000
Profit / (loss) for the year	40,717	(11,853)

The weighted average number of shares in issue is calculated as follows:

	2021 Number of shares	2020 Number of shares
In issue at start of year (Note 22)	449,913,026	451,303,014
Effect of tender offer and buybacks in the year	-	(1,332,865)
Weighted average number of ordinary shares in issue (basic)	449,913,026	449,970,149
Basic profit / (loss) per ordinary share (cent)	9.05	(2.63)

Diluted profit / (loss) per share

Diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding after adjustment for effects of all dilutive potential ordinary shares as follows:

	2021 US$'000	2020 US$'000
Profit / (loss) for the year	40,717	(11,853)

The diluted weighted average number of shares in issue is calculated as follows:

	2021 Number of shares	2020 Number of shares
Basic weighted average number of shares in issue during the year	449,913,026	449,970,149
Effect of share options and warrants in issue	5,700,841	-
	455,613,867	449,970,149
Diluted profit / (loss) per ordinary share (cent)	8.94	(2.63)

The number of options which are anti-dilutive and have therefore not been included in the above calculations is 21,161,627 (2020: 41,221,627).

12. Intangible assets

	Exploration and  evaluation  assets US$'000
Cost and net book value
At 1 January 2020	-
Additions (ii)	196
Write off / impairment of exploration and evaluation assets	(196)
At 31 December 2020	-
Additions (ii)	206
Write off / impairment of exploration and evaluation assets	(206)
At 31 December 2021	-

(i) The following geographical exploration areas in the Group were impaired / written off during the year:

	2021 US$'000	2021 US$'000
Albania	206	196
	206	196

(ii) This is the net amount incurred by San Leon Energy and excludes amounts attributable to joint operating partners of US$Nil in 2021 (2020: US$Nil).

The Directors have considered the carrying value at 31 December 2021 of capitalised costs in respect of its exploration and evaluation assets. These assets have been 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 Directors fully impaired the exploration and evaluation assets in 2021.

13. Equity accounted investments

		2021 US$'000	2020 US$'000
Cost and net book value
At 1 January		44,102	44,798
Additions (ELI)		-	443
Share of profit / (loss) of equity accounted investments		14,532	(1,139)
At 31 December		58,634	44,102

The Group's only joint venture entities and associates at 31 December 2021 were as follows:  

Name	Registered office	Type	% held
Midwestern Leon Petroleum Limited	5th Floor Barkly Wharf, Le Caudan Waterfront, Port Louis, Republic of Mauritius	Joint Venture	40%
Energy Link Infrastructure (Malta) Limited	260 Triq San Albert, Griza, GZR 1150, Malta	Associate	10%

2021

A summary of the financial information of the equity investments is detailed below.

		Midwestern Leon Petroleum Limited (i)	Energy Link Infrastructure (Malta) Limited (ii)	Total
Equity Interest		40%	10%
		US$'000	US$'000	US$'000
Profit / (loss) from continuing operations		37,030	(9,109)	27,921
Total comprehensive profit / (loss)		37,030	(9,109)	27,921
Non-current assets		242,555	191,207	433,762
Current assets (excluding cash)		316,252	650	316,902
Cash		-	35,102	35,102
Non-current liabilities		-	(55,790)	(55,790)
Current liabilities		(412,222)	(175,496)	(587,718)
Net assets / (liabilities)		146,585	(4,327)	142,258
Group's interest in net assets of investee at 1 January 2021		43,822	280	44,102
Additions		-	-	-
Share of profit / (loss)		14,812	(280)	14,532
Group's interest in net assets of investee at 31 December 2021		58,634	-	58,634

2020 A summary of the financial information of the equity investments is detailed below.
		Midwestern Leon Petroleum Limited (i)	Energy Link Infrastructure (Malta) Limited (ii)	Total
Equity Interest		40%	10%
		US$'000	US$'000	US$'000
Loss from continuing operations		(2,440)	(2,804)	(5,244)
Total comprehensive loss		(2,440)	(2,804)	(5,244)
Non-current assets		198,948	147,922	346,870
Current assets (excluding cash)		286,687	167	286,854
Cash		-	46,334	46,334
Non-current liabilities		-	(141,458)	(141,458)
Current liabilities		(376,082)	(47,214)	(423,296)
Net assets		109,553	5,751	115,304
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

(i) Midwestern Leon Petroleum Limited

During 2016 the Company acquired a 40% non-controlling interest in MLPL as part of the OML 18 transaction. Full details of the OML 18 transaction are set out in Note 15(i). The movement during 2021 reflects a share of the profit of MLPL being administrative costs of US$6.4 million (2020: US$9.7 million), other income of US$0.2 million (2020: US$Nil), net finance income of US$8.0 million (2020: US$3.3 million), profit on investment of US$44.0 million (2020: US$12.2 million loss), net profits on financial assets of US$1.2 million (2020: US$0.3 million losses) and a tax charge of US$10.0 million (2020: US$7.9 million).

The above interest is accounted for as an equity accounted investment as San Leon does not have control over the entity, which is governed under a Joint Venture Agreement requiring the approval of both parties to the Joint Venture Agreement in respect of all operating decisions.

The Group identified potential impairment indicators, being that MLPL is yet to receive a dividend from Eroton, US$2.9 million of a US$10.0 million repayment due on 6 October 2020 was still outstanding at year 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$69/bbl in 2023 and a subsequent long term price of US$66/bbl escalated at 2% annually, with the cashflows discounted using a post-tax discount rate of 10%. Assumptions involved in the impairment assessment include estimates of commercial reserves, production rates, future oil prices, discount rates and operating and capital expenditure profiles, all of which are inherently uncertain. This analysis identified that the carrying value of the equity interest in MLPL is not impaired.

If the recoverable amount was estimated taking into account a reduction in the oil price of 30% over the same period and an increase in the discount rate to 25%, then the carrying value of the equity interest in MLPL would still not be impaired.

The Directors recognise that the future realisation of the equity accounted investment is dependent on future successful exploration and appraisal activities and subsequent production of oil and gas reserves.

(ii) Energy Link Infrastructure (Malta) Limited

In August 2020 the Company acquired a 10% non-controlling interest in Energy Link Infrastructure (Malta) Limited (See Note 15(ii)). The movement during 2021 reflects a share of the loss of ELI being sales income of US$1.4 million (2020: US$5.7 million), other income of US$0.1 million (2020: US$0.1 million), cost of sales of US$7.4 million (2020: US$4.9 million) and operating expenses including administrative costs of US$3.2 million (2020: US$3.7 million).

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.

14. Property, plant and equipment

	Leased assets US$'000	Plant & equipment US$'000	Office equipment US$'000	Motor vehicles US$'000	Total 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
Additions	244	-	-	-	244
Disposals	(231)	-	(9)	(124)	(364)
Currency translation adjustment	-	(513)	(44)	(72)	(629)
At 31 December 2021	3,294	8,653	1,039	284	13,270
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 year	370	619	22	17	1,028
Disposals	(231)	-	(9)	(124)	(364)
Currency translation adjustment	-	(513)	(44)	(72)	(629)
At 31 December 2021	846	8,653	1,024	237	10,760

Net book values
At 31 December 2021	2,448	-	15	47	2,510
At 31 December 2020	2,574	619	37	64	3,294

15. Financial Assets

	OML 18 (i) US$'000	ELI (ii) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) (viii) US$'000	Total US$'000
	Amortised cost	Amortised cost	FVTPL	FVOCI - equity  instrument
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	12,122	2,468	-	-	14,590
Loan Notes receipts - principal	-	-	-	-	-
Loan Notes receipts - interest	(2,150)	-	-	-	(2,150)
Impairment reversal - (credit-impaired assets) #	1,447	-	-	-	1,447
Fair value movement, Income statement	-	-	(2,551)	-	(2,551)
At 31 December 2021	80,344	17,821	4,291	-	102,456
Expected Credit Loss Provision
At 1 January 2020		-	-	-	-
New financial asset acquired *		(385)	-	-	(385)
At 31 December 2020		(385)	-	-	(385)
Net remeasurement of loss allowance		(255)	-	-	(255)
At 31 December 2021		(640)	-	-	(640)
# See OML18 ECL table below * See ELI ECL table below
Expected Credit Loss - OML 18		Performing 12-month ECL	Higher risk assets not credit impaired Lifetime ECL	Credit impaired Lifetime ECL	Total
At 1 January 2020		-	(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)
Impact of modification		-	-	1,503	1,503
Net remeasurement of loss allowance		-	-	1,447	1,447
Effective interest on ECL		-	-	(3,794)	(3,794)
At 31 December 2021		-	-	(16,153)	(16,153)
Expected Credit Loss - ELI		Performing 12-month ECL	Higher risk assets not credit impaired Lifetime ECL	Credit impaired Lifetime ECL	Total
At 1 January 2020		-	-	-	-
New financial asset acquired *		(385)	-	-	(385)
At 31 December 2020		(385)	-	-	(385)
Transfer to Lifetime ECL		385	(385)	-	-
Net remeasurement of loss allowance		-	(255)	-	(255)
At 31 December 2021		-	(640)	-	(640)
	OML 18 (i) US$'000	ELI (ii) US$'000	Barryroe 4.5% net profit interest (iii) US$'000	Unquoted shares (iv) (viii) US$'000	Total US$'000
	Amortised cost	Amortised cost	FVTPL	FVOCI - equity  instrument
Book value at 31 December 2021	80,344	17,181	4,291	-	101,816
Current	80,344	10,815	-	-	91,159
Non-current	-	6,366	4,291	-	10,657
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, v) (Gora, vi) (Liesa, vii): These NPIs have a nil value from acquisition.

(i) OML 18

In September 2016, the Company secured an indirect economic interest in OML 18, onshore Nigeria.

The Company undertook a number of steps to effect this purchase. MLPL, a company incorporated in Mauritius of which San Leon Nigeria B.V. has a 40% shareholding, was established as a special purpose vehicle to complete the transaction by purchasing all of the shares in Martwestern, a company incorporated in Nigeria. Martwestern holds a 50% shareholding in Eroton, a company incorporated in Nigeria and the operator of OML 18, and Martwestern also holds an initial 98% economic interest in Eroton. The economic effect of this structure is that San Leon has an initial indirect economic interest of 10.584% in OML 18. Shareholders will note that this is higher than the percentage interest anticipated by San Leon at the time of the acquisition in 2016. There have been no further purchases or payments by San Leon but this revised percentage is based on a reassessment and recalculation of the various parties' interests in OML 18.

To partly fund the purchase of 100% of the shares of Martwestern, MLPL borrowed US$174.5 million in incremental amounts by issuing loan notes with an annual coupon of 17% ("Loan Notes") and effective interest rate of 25%, as noted below. Midwestern Oil and Gas Company Limited ("Midwestern") is the 60% shareholder of MLPL and transferred its shares in Martwestern to MLPL as part of the full transaction. Following its placing in September 2016, San Leon became beneficiary and holder of all Loan Notes issued by MLPL and the holder of an indirect economic interest in OML 18. San Leon is due to be repaid the full amount of the US$174.5 million plus the 17% coupon once certain conditions have been met and using an agreed distribution mechanism. Through its wholly owned subsidiary, San Leon Nigeria B.V., the Company is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in MLPL but the Loan Notes repayments must take priority over any dividend payments made to the MLPL shareholders.

The fair value assessment of the Loan Notes on acquisition was calculated as follows:

	Total US$'000
Total consideration	188,419
Fair value of Loan Notes attributable to equity investment #	(30,889)
Net fair value of Loan Notes	157,530
Arrangement fees	(5,500)
Additions to Financial Assets in 2016 including accrued interest at date of acquisition	152,030
# The fair value of Loan Notes attributable to the equity investment is calculated using a discount factor of management's estimate of a market rate of interest of 8% above the coupon rate of 17% over the term of the Loan Notes, giving an effective interest rate of 25%.

The key information relevant to the fair value of the Loan Notes on the date they were initially recognised is as follows:

Valuation technique	Significant unobservable inputs*	Inter-relationships between the unobservable inputs and fair value measurements
Discounted cash flows	•         Discount rate 25% based on a market rate of interest of 8% above the coupon rate of 17% •         MLPL ability to generate cash flows for timely repayment •         Loan Notes are repayable in full by 31 December 2021 (2020: 31 December 2021).	Nil
* On initial recognition. Under the conditional payment waiver the Loan Notes are expected to fall due on 30 June 2022. Other unobservable inputs are considered appropriate at 31 December 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. These are described further in Note 29. 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. Following the Agreement the outstanding loan continued to have an annual coupon rate of 17% and an effective interest rate of 25% per annum. All other material terms of the Loan Notes Instrument remained unchanged. 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.

On 24 June 2021 the Company announced that it had entered into preliminary discussions with Midwestern in connection with the potential acquisition of the shares of MLPL owned by Midwestern (the "Potential Transaction"). The Company expects that the Potential Transaction, if agreed, would include the elimination of the Loan Notes. In connection with these discussions, on 6 July 2021 the Company agreed a conditional payment waiver in respect of the amounts under the Agreement that fell due in July 2021 and within 30 days of expiry of the conditional payment waiver. Under the terms of the conditional payment waiver amounts payable under the Agreement would fall due 90 days following expiry. Interest continued to accrue on the outstanding principal of the Loan Notes at 17%.

The conditional payment waiver was originally due to expire on the earlier of 31 August 2021 or the date an agreement was reached with Midwestern to effect the Potential Transaction. The conditional payment waiver was subsequently extended to include payments due up to December 2021.

The conditional payment waiver was accounted for as a modification of the financial asset which did not give rise to derecognition. The amortised cost of the Loan Notes immediately prior to the modification was US$74.8 million (being a gross asset of US$92.6 million and expected credit loss provision of US$17.8 million. A net modification loss of US$3.2 million was recognised in respect of the change in present value of the revised cashflows discounted at the original effective interest rate.

During 2021 San Leon received total payments under the Loan Notes of US$2.2 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$2.2 million (2020: US$11.2 million) on the Loan Notes repaid. As at 31 December 2021 there was US$96.5 million in principal and interest (2020: US$84.2 million) due under the Loan Notes. As at 31 December 2021, US$2.9 million was outstanding from the US$10.0 million due to be repaid on 6 October 2020.

The Directors of San Leon have considered the credit risk of the Loan Notes at 31 December 2021 and 31 December 2020. Due to the inability of MLPL to make dividend distributions, the Directors continue to consider that the credit risk has significantly increased since initial recognition. At 31 December 2019 and subsequently a provision for the lifetime expected credit loss of the Loan Notes had been recognised.

In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss. This was assessed as having increased significantly since initial recognition.

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 or, if the Potential Transaction is agreed, the Loan Notes will be taken into account and eliminated as part of the overall structure agreed. The Directors have considered the credit risk of MLPL, in particular 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. The Loan Notes continue to be  considered to be impaired. An impairment has been estimated based on a forward-looking analysis where a range of outcomes has been considered taking into account the size and timing of the contractual cashflows, the risk of the Potential Transaction being delayed or not agreed, risk of late payments and the risk of default leading to less than full recovery of the amounts due in respect of the Loan Notes. The Directors have considered the possible scenarios and used their judgement to estimate a weighted average outcome of these scenarios. The impairment is calculated as the difference between the present value of the weighted average of possible outcomes (discounted at the effective interest rate of the Loan Notes) and the present value of the contractual cashflows.

As at 31 December 2021 the Loan Notes are considered credit impaired. The expected credit loss of US$16.2 million (2020: US$15.3 million) has been presented net as part of the amortised cost of the Loan Notes. The expected credit loss has been calculated with a very high probability that the Potential Transaction will complete, and therefore the Loan Notes will extinguish, and the Company believes that the value of the Potential Transaction is worth at least the value of the Loan Notes.

See Subsequent events (Note 31) 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 initial interest was acquired through the direct investment in Energy Link Infrastructure (Malta) Limited ("ELI" or "ELI Malta"), a company incorporated in Malta, which owns the ACOES project through its 100% owned subsidiary Energy Link Infrastructure (Nigeria) Limited, a company incorporated in Nigeria ("ELI Nigeria"). 

The investment comprises a 10% equity interest in ELI together with a US$15.0 million shareholder loan at a coupon of 14% per annum over 4 years, and repayable quarterly following a one year moratorium from the date of investment (the "ELI Loan Notes"). Funds were provided to ELI in two tranches with the first US$10.0 million tranche being paid in August, and the second tranche of US$5.0 million on 6 October 2020, being half of the funds due from Midwestern Leon Petroleum Limited as part of the repayment of the MLPL Loan Notes.

The fair value assessment of the Loan Notes on acquisition was calculated as follows:

	Total US$'000
Total consideration	15,000
Fair value of Loan Notes attributable to equity investment #	(443)
Net fair value of Loan Notes	14,557
# The fair value of Loan Notes attributable to the equity investment is calculated using a discount factor of management's estimate of a market rate of interest of 2% above the coupon rate of 14% over the term of the Loan Notes, giving an effective interest rate of 16%.

The key information relevant to the fair value of the Loan Notes on the date they were initially recognised is as follows:

Valuation technique	Significant unobservable inputs*	Inter-relationships between the unobservable inputs and fair value measurements
Discounted cash flows	•   Discount rate 16% based on a market rate of interest of 2% above the coupon rate of 14% •   ELI ability to generate cash flows for timely repayment •   Loan Notes are repayable in full by 6 October 2024.	Nil
*Day 1 and considered appropriate at 31 December 2021 and 31 December 2020.

The business model applicable to 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 29. Given the nature and stage of the asset the main credit risk is regarded as the timing of payments by ELI Malta which is dependent on dividend distributions by ELI Nigeria rather than being unable to pay the total quantum due under the ELI Loan Notes.

The Directors of San Leon have considered the credit risk of the ELI Loan Notes at 31 December 2021 and 31 December 2020. Both tranches of the ELI Loan Notes were issued in H2 2020, with a one-year repayment holiday. Quarterly repayments were due from 31 July 2021 (for the first tranche) and 6 October 2021 (second tranche). As at 31 December 2021 no repayments had been received. As at 31 December 2021 there was US$17.8 million in principal and interest due under the ELI Loan Notes.

San Leon announced on 24 June 2021 that it is considering making further debt and equity investments in ELI and reaffirmed that intention in subsequent announcements. 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. Project delays have impacted the ability of ELI to make ELI Loan Note repayments, with current projections indicating that debt will start to be serviced in the second half of 2022 when barging operations commence. It is the Directors opinion that ELI will make full repayment of the outstanding loan notes.

The Directors have considered the credit risk of the ELI Loan Notes and the counterparty credit risk as at 31 December 2021. A guarantee from ELI Nigeria, who guarantee all payment obligations of ELI Malta, has also been taken into account.  As a result of the delay in operations and ELI Loan Notes being overdue, the Directors have determined that there has been a significant increase in credit risk since initial recognition of the ELI Loan Notes, and a provision for the lifetime expected credit loss of the ELI Loan Notes has been recognised. The ELI Loan Notes are not considered to be credit impaired on the basis of the delays in ELI commencing repayment of the loan notes.

An expected credit loss provision has been estimated based on a forward-looking analysis where a range of outcomes has been considered taking into account the size and timing of the contractual cashflows, the risk of late payment and the risk of default leading to less than full recovery of the amounts due in respect of the ELI Loan Notes. The Directors have considered the possible scenarios and used their judgement to estimate a weighted average outcome of these scenarios. The ECL provision is calculated as the difference between the present value of the weighted average of possible outcomes (discounted at the effective interest rate of the ELI Loan Notes) and the present value of the contractual cashflows. This has then been compared to publicly available macroeconomic data of default rates by geography, industry and rating.

The Company determined that the expected credit loss provision of US$0.6 million (2020: US$0.4 million), being 3.6% (2020: 2.5%) of the outstanding balance was appropriate.

(iii) Barryroe - 4.5% Net Profit Interest

SLE holds a 4.5% Net Profit Interest in the Barryroe ("Barryroe NPI") oil field at fair value through profit and loss under IFRS 9. In 2019 a market-based valuation approach was adopted, using the price of the publicly listed shares of Providence Resources plc ("Providence") (operator and holder of an 80% interest in the Barryroe oil field) as its basis. The Directors believe the markets assessment of the current risks and uncertainties of the project have been reflected within the share price of Providence at year end, and it is therefore appropriate to use this to update their valuation.

Given the latest announcements, the Directors have reviewed the modelling assumptions and consider it reasonable and appropriate to continue to use a market based approach to decrease the Barryroe carrying value by US$2.6 million (2020: gain of US$4.0 million) to US$4.2 million to reflect their estimate of the impact of these risks to the future cash flows on the value of the asset.

The key information relevant to the fair value of the Barryroe 4.5% net profit interest is as follows:

Valuation technique	Significant unobservable inputs	Inter-relationships between the unobservable inputs and fair value measurements
Market based approach using share price of Operator (Providence)	•         Estimated value of NPI as percentage of total field NPV 9.5% (2020: 9.5%)	The estimated fair value would increase / (decrease) if: •         US Dollar exchange rate 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 have considered the carrying value of this interest at 31 December 2021 and given the length of time to obtain Irish government approval for the transaction, the Directors feel it is prudent to continue to carry the 15% of Ardilaun shares still to be issued to San Leon at a value of US$Nil (2020: US$Nil).

(v) Poznan 10% Net Profit Interest

In 2016, San Leon sold its 35% interest in the Poznan assets for a consideration of €1 plus a 10% NPI. Until active development commences a nil value has been placed on the NPI. There has been no change in 2021.

(vi) Gora 5% Net Profit Interest

In 2018, San Leon sold its interest in the Gora assets for a consideration of €1 plus a 5% NPI. Until active development commences a nil value has been placed on the NPI. There has been no change in 2021.

(vii) Liesa 5% Net Profit Interest

In 2018, San Leon sold its interest in the Liesa assets for a consideration of €1 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.

(viii) Gemini Resources Limited

In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources Limited ("Gemini") into 54,818 fully paid ordinary shares in Gemini.

The Directors considered the carrying value of this interest at 31 December 2021 to be US$Nil.

(ix) Amedeo Resources plc

At 31 December 2021, the Company holds 213,512 ordinary shares at a market value of US$Nil (2020: US$Nil). The value of the investment was written down to nil in 2018 due to the shares of Amedeo Resources plc being de-listed.

16. Inventory          

	2021 US$'000	2020 US$'000
Spare parts and consumables	168	183

Spare parts include drilling equipment and consumables utilised by the Group's seismic services company.

17. Trade and other receivables

	2021 US$'000	2020 US$'000
Amounts falling due within one year:
Trade receivables	9,860	2
Corporation tax refundable	-	39
VAT and other taxes refundable	80	88
Other debtors (i)	4,429	4,264
Expected credit loss on other debtors (i)	(3,630)	(3,532)
Prepayments (ii)	2,903	1,017
	13,642	1,878

(i) In 2017, other debtors included US$3.6 million due from NSP Investments Holdings Ltd for the disposal of equity accounted investments. During 2018, the Directors fully provided for the amount.

In September 2021, Gemini Energy B. V. concluded transactions to gain 100% ownership of these equity accounted investments. To accommodate and agree to the transfer of the shares in the equity accounted investments from NSP to Gemini, Gemini offered and agreed to pay San Leon:

(a) a payment of US$1.5 million by no later than the first anniversary of the transfer of the equity accounted investments shares to Gemini; and

(b) make an additional payment of US$2.1 million under the terms of a net profits interest agreement.

The Gemini obligations replace the amounts due from NSP and the expected credit loss for the total amount remains.

See Related party transactions (Note 29) for further details.

The remaining other debtors consists of rent deposits and similar receivables.

(ii) Prepayments includes an amount of US$0.8 million (2020: US$0.8 million) in relation to the Oza deal and US$2.0 million (2020: US$Nil) in relation to the ELI conditional investment, detailed in Subsequent Events (Note 31).

18. Cash and cash equivalents

	2021 US$'000	2020 US$'000
Cash and cash equivalents	839	11,757
Solicitor client account (i)	6,753	6,753
	7,592	18,510

(i) Solicitor client account at 31 December 2021 represents monies held on behalf of the Company by Dentons ACAS-Law in relation to the Oza deal, detailed in Subsequent Events (Note 31)

19. Trade and other payables

	2021 US$'000	2020 US$'000
Current
Trade payables	1,286	719
PAYE / PRSI	223	295
Corporation tax	6	-
Payroll and pensions	750	-
Other creditors	67	36
Accruals	2,080	2,248
Current portion of lease	340	333
	4,752	3,631

20. Derivative

	2021 US$'000	2020 US$'000
Non-current
Derivative	-	9
	-	9

The key inputs into the valuation model are as follows:

Valuation technique	Significant unobservable inputs	Inter-relationships between the unobservable inputs and fair value measurement
Black-Scholes model	Option strike price: £0.30 to £0.45 up to date options expired in the year (2020: £0.30 to £0.45) Average maturity: 0 to 1 year up to date options expired in the year (2020: 0 to 1 year) Risk-free interest rate: 0.055% up to date options expired in the year (2020: 0.055%) Share price volatility: 62% up to date options expired in the year (2020: 62%)	The estimated fair value would increase / (decrease) if: The share price increased / (decreased) Sterling exchange rate increased / (decreased) The risk free interest rate increased / (decreased)

The derivative was in relation to options and warrants that were issued in connection with financing provided to the Company between 2016 and 2018.

21. Provisions for liabilities

	Decommissioning US$'000
At 1 January 2020	56
At 31 December 2020	56
At 31 December 2021	56
Current	56
Non-current	-

Decommissioning

The provision for decommissioning costs is recorded at the value of the expenditures expected to be required to settle the Group's future obligations on decommissioning of previously drilled wells.

22. Share capital

Rights and obligations attaching to the Ordinary Shares

The Company has no securities in issue conferring special rights with regards control of the Company. All Ordinary Shares rank pari passu, and the rights attaching to the Ordinary Shares (including as to voting and transfer) are as set out in the Company's Articles of Association ("Articles").

	Number of New Ordinary shares €0.01 each	Number of Deferred Ordinary shares €0.0001 each	Authorised Equity US$'000
Authorised equity
At 1 January 2020	2,847,406,025	-	177,475
At 31 December 2020	2,847,406,025	-	177,475
At 31 December 2021	2,847,406,025	-	177,475

Issued, called up and fully paid:

	Number of New Ordinary shares €0.01 each	Number of Deferred Ordinary shares €0.0001 each	Share capital US$'000	Share premium US$'000
At 1 January 2020	451,303,014	-	5,172	21,077
Share buybacks	(1,389,988)	-	(15)	-
At 31 December 2020	449,913,026	-	5,157	21,077
At 31 December 2021	449,913,026	-	5,157	21,077

See Consolidated Statements of Changes in Equity

Share buyback programme

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 £1,570,085.49. Following cancellation of the final shares repurchased, the total number of Ordinary Shares in issue with voting rights was 449,913,026.

23. DIVIDENDS PAID

No dividends were declared in 2021. In May 2020, the Company returned a special dividend to its shareholders of £0.06 per share, totalling US$33.3 million (£27.0 million).

24. Reserves

The Statement of Changes in Equity outlines the movement in reserves during the year. Further details of these reserves are set out below:

Currency translation reserve

The currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

The recycling of the currency translation reserve of US$16.6 million (2020: US$1.0 million) relates to the realisation of the cumulative foreign currency gains and lossed on the disposal or liquidation of non-core assets.

Share based payments reserve

The share-based payments reserve comprises the fair value of all share options which have been charged over the vesting period, net of the amount relating to share options which have expired, been cancelled and have vested.

Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of financial assets measured at Fair Value through Other Comprehensive Income until the assets are derecognised.

Special reserve

Pursuant to a 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.

25. Share based payments

Prior to 31 December 2012, the Group had one share-based payment scheme for executives and senior employees of the Group. In accordance with the provisions of the plan, as approved by shareholders at a previous general meeting, executives and senior employees may be granted options to purchase ordinary shares.

Each share option converts into one ordinary share of San Leon Energy plc on exercise and options do not carry rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The options vest in tranches subject to the achievement of certain service and non-market performance conditions. Market conditions in relation to the achievement of share price trading levels also apply in the case of certain options granted to the Directors, further details of which are set out in the Directors' Report.

During the first quarter of 2013, this scheme was replaced by a more formal Share Option Plan, which governs all future awards of share options made by San Leon. All employees, and certain Directors and consultants, may from time to time be eligible to receive a discretionary bonus to be awarded in the form of options over San Leon Ordinary shares. Historic options in respect of San Leon shares will continue to be governed by the terms and conditions set out in the historic share-based payments scheme.

The Group's equity share options are equity settled share-based payments as defined in IFRS 2: Share Based Payments. The total share-based payment charge for the year has been calculated based on grant date fair value obtained using an option pricing model with a discount for market conditions applied based on a Monte Carlo simulator analysis where appropriate. The charge for the year is US$Nil (2020: US$891,263) includes the charge for options issued to the Directors of US$Nil (2020: US$418,048) and shares to be issued to Directors of US$Nil (2020: US$Nil).

The movement on outstanding share options and warrants during the year was as follows:

	2021		2020
	Number of options / warrants	Weighted average exercise price	Number of options / warrants	Weighted average exercise price
Balance at beginning of the financial year	41,221,627	£0.397	40,559,075	£0.400
Granted during the financial year	-	-	1,000,000	£0.450
Modified during the financial year *	-	-	-	£0.393
Expired or cancelled during the financial year	(8,560,000)	£0.445	(337,448)	£0.592
Exercised during the financial year	-	-	-	-
Balance at end of the financial year	32,661,627	£0.412	41,221,627	£0.397
Exercisable at end of the financial year	32,661,627	£0.412	41,221,627	£0.397

The range of exercise prices of outstanding options/warrants at year end is £0.25 to £0.45 (2020: £0.25 to £0.45).

* On 26 February 2020 the Company repriced 1,500,000 options from £0.45 to £0.35, the expiry date of these options was also extended from 26 February 2020 by 4 years to 26 February 2024. The resulting charge for the year was US$326,581.

* On 2 October 2020 the Company extended the expiry date of 2,222,222 options by 5 years to 2 October 2025. This resulted in a charge for the year of US$146,635.

The weighted average remaining contractual life for options / warrants outstanding at 31 December 2021 is 1.79 years (2020: 2.94 years).

During the current year no options were exercised (2020: Nil).

The following table illustrates the number, exercise price and expiry date of share options and warrants remaining at year end.

Type	Number	Exercise price	Year of expiration
Options	6,250,000	£0.45	2022
Options	6,625,000	£0.45	2023
Warrants	10,000,000	£0.25	2023
Warrants	4,939,405	£0.45	2023
Options	1,500,000	£0.35	2024
Options	125,000	£0.45	2024
Options	2,222,222	£0.45	2025
Options	1,000,000	£0.45	2028
Total	32,661,627

The following table lists the fair value of options granted and the inputs to the models used to calculate the grant date fair values of awards granted in 2021 and 2020:

	2021	2020
Weighted average fair value of options granted during year	N/a	£0.25
Weighted average share price of options at date of grant	N/a	£0.39
Dividend yield	N/a	0.00%
Exercise price	N/a	£0.45
Expected volatility	N/a	72%
Risk-free interest rate	N/a	0.55%
Expected option life	N/a	7 years
Expected early exercise %	N/a	0%
Model used	N/a	Black-Scholes

The expected life used in the model is based on the expectation of management attaching to the option and behavioural considerations and is not necessarily indicative of exercise patterns that may occur. Expected volatility is based on an analysis of the historical volatility of San Leon Energy plc shares and comparable listed entities. The fair value is measured at the date of grant. There are no conditions attached to the options.

26. Commitments and contingencies

(a) Lease obligation commitments

Cash commitments under lease obligations as a lessee (Note 28) are as follows:

		Total 2021 US$'000	Total 2020 US$'000
Payable:
Within one year		340	369
Between one and five years		1,359	1,472
Over five years		1,246	1,718
		2,945	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. See Note 31 for further detail.

(c) Exploration, evaluation and development activities

The Group has commitments of US$Nil (2020: US$Nil) in the year ended 31 December 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.

The Group will receive the aggregate consideration when certain concessions are transformed and granted to Horizon.

(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.

27. Deferred tax

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2021 US$'000	2020 US$'000	2021 US$'000	2020 US$'000	2021 US$'000	2020 US$'000
Financial assets - IFRS 9	-	-	(572)	(1,416)	(572)	(1,416)
Financial assets - other	175	175	-	-	175	175
Unrealised exchange difference	-	-	(22)	(4)	(22)	(4)
Interest not taxable until received	-	-	(863)	(199)	(863)	(199)
Tax losses recognised	-	926	-	-	-	926
	175	1,101	(1,457)	(1,619)	(1,282)	(518)

	2021 US$'000	2020 US$'000
At 1 January	(518)	1,718
Deferred tax on fair value movements in financial assets IFRS 9, Barryroe NPI (Note 10)	844	(1,343)
Origination and reversal of temporary differences (Note 10)	(1,608)	(893)
At 31 December	(1,282)	(518)

Unrecognised deferred tax assets

	2021 US$'000	2020 US$'000
Tax losses	5,036	8,631
Capitalised expenditure	358	33,101
	5,394	41,732

Deferred tax assets have not been recognised in respect of the above items because it is not probable that future taxable profits will be available against which the Group can utilise these losses.

28. LEASES

Statement of Financial Position

	2021 US$'000	2020 US$'000
Right of use asset (included within Property, plant and equipment)
Property leases
At 1 January	2,574	2,952
Additions	244	-
Depreciation charge for the period	(370)	(378)
Closing net carrying amount	2,448	2,574
Lease liability
Property leases
At 1 January	2,761	2,834
Payments - principal	(227)	(211)
Payments - interest	(129)	(131)
Currency translation adjustment	(140)	138
Interest	129	131
Closing net carrying amount	2,394	2,761
Current	340	333
Non-current	2,054	2,428

Income Statement

	2021 US$'000	2020 US$'000
Right of use asset (included within Property, plant and equipment)
Property leases
Depreciation charge	139	378
Interest expense	129	131
Total	268	509

29. Related party transactions

The 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 Group they are required to be disclosed and are detailed below.

Red Cedar Energy DMCC

San Leon Energy plc and Red Cedar Energy DMCC have a common Director, Mr. Oisín Fanning. San Leon has a consultancy agreement with Red Cedar Energy DMCC which was paid US$1,679,494 for amounts due for 2021 (2020: US$Nil).

Property

The Company holds an option to acquire a property at market value from Mr. Fanning. The option is due to expire in 2026 and the option fee of US$409,000 is included in other debtors (Note 17) and is refundable when the Company either exercises or terminates the option. Mr. Fanning was paid US$323,395 (2020: US$215,999) rent for the use of this property during the year by the Company.

The property is available for use by all staff and consultants requiring overnight accommodation while conducting business on behalf of the Company up to it being used for office space in June 2021, see below.

In June 2021, the Company signed a licence with Mr. Oisín Fanning to use the property for office space.

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$95,629 for amounts due for 2021 (2020: 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, and was extended for a further 2 years in June 2021. Caledonian was paid US$231,000 for the period 1 July 2019 to 30 June 2021 of which US$57,750 relates to 2021. Caledonian was also paid US$244,444 for the period 1 July 2021 to 30 June 2023 of which US$61,111 related to the period 1 July 2021 to 31 December 2021. It is common practice to pay such sums up-front in Nigeria.

The properties are being provided at a competitive rate and it is an arm's length transaction.

One of the properties is used as an office and the other property is available for use by all staff and consultants requiring accommodation while conducting business on behalf of the Company.

Gemini Energy B. V. / Palomar Natural Resources (Netherlands) B.V. / NSP Investments Holdings Ltd

On 18 November 2016, the Company announced the sale of its (i) 35% interest in TSH Energy Joint Venture B.V. (TSH) and (ii) 35% interest in Poznan Energy B.V. (Poznan) to Palomar Natural Resources (Palomar). This divested the Company's interest in the Rawicz and Siekierki fields respectively. A 10% net profit interest was retained in the Poznan assets. Palomar was regarded as a related party as it already held the remaining interest in both TSH and Poznan.

The total cash consideration due to the Company for the sale of its 35% interest in TSH was US$9.0 million, of which US$4.5 million was received in November 2016. The balance of US$4.5 million plus accrued interest (the "Amount Due") was due to paid to San Leon on or before 1 October 2017. As announced on 2 January 2018 under a novation agreement and extension agreement dated 22 December 2017, the Amount Due was the full responsibility of NSP Investments Holdings Ltd, a BVI registered company that holds a 35% interest in TSH. San Leon also announced that it had received a further US$1.5 million payment of the Amount Due. The Company was due to receive a further US$3.6 million, including an extension fee plus any further accrued interest on or before 1 September 2018. The Company had not received the US$3.6 million by 31 December 2018 and, provided for expected credit losses of US$3.4 million and reversed accrued interest receivable in 2018 of US$0.2 million. No further payments were received from NSP.

In September 2021, Gemini Energy B. V. concluded transactions to gain 100% ownership of both TSH and Poznan. To accommodate and agree to the transfer of the TSH and Poznan shares from NSP to Gemini, Gemini offered and agreed to pay San Leon:

(a) a payment of US$1.5 million by no later than the first anniversary of the transfer of the TSH Shares to Gemini; and

(b) make an additional payment of US$2.1 million under the terms of a net profits interest agreement. The Gemini obligations replace the amounts due from NSP.

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$198.0 million. An expected credit loss of US$2.0 million was recognised at 31 December 2019. Due to uncertainty around the timing of repayments, the Company has impaired the Loan Notes, netting the expected credit loss of US$2.0 million against the gross amortised value and recognising an impairment charge of US$15.3 million at 31 December 2020. At 31 December 2021 the impairment charge was increased by US$0.9 million to US$16.2 million.

To make payment of principal and interest due under the Loan Notes, MLPL is dependent on Eroton making dividend payments to Martwestern which in turn makes dividend payments to MLPL. MLPL will use the receipt of dividends to make Loan Notes payments to San Leon. There are various undertakings, guarantees and security in place with Eroton, Martwestern and Midwestern with regard to the Loan Notes, as more fully described below, in the event that MLPL is not in a position to pay the Loan Notes from dividends received.

The Loan Notes have been secured with undertakings by both Eroton and Martwestern, including not to take any action within their control which would result in default by MLPL, and to act honestly and in good faith. In addition, to the extent practicable and subject to law, use commercially reasonable efforts to declare dividends in order that MLPL can satisfy its obligations under the Loan Notes instrument.

The shares held by MLPL in Martwestern have also been pledged as security to the obligations under the Loan Notes.

Midwestern and Mart Resources Limited jointly and severally guaranteed the payment of the Loan Notes following a default and to make immediate payment and performance of all obligations to holders of the Loan Notes.

While San Leon is also a beneficiary of any dividends that will be paid by MLPL as a 40% shareholder in MLPL, the Loan Notes repayments must take priority over dividend payments made by MLPL to shareholders with a minimum 65% cash sweep of available funds for a period of four years in order to redeem the Loan Notes.

There are shareholders agreements which govern the relationship between Midwestern and San Leon, and Bilton and Martwestern regulating the rights and obligations with respect to MLPL, Martwestern and Eroton. These agreements cover the appointment of Directors and unanimous approval for major decisions.

A Master Services Agreement exists which entitles San Leon Energy Nigeria B.V. to provide rig-related services to Eroton and Midwestern for their activities.

Separately in 2018 San Leon entered into an agreement with Eroton for the provision of subsurface technical and management services with estimated consideration for the services of US$6.0 million until the end of 2022.

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 2018 to continue to make the repayments during 2020.

2021

During 2021 San Leon received total payments under the Loan Notes totalling US$2.2 million. MLPL used loan agreements similar to those entered into in 2018 to continue to make the repayments during 2021.

Key management

Key management is deemed to comprise the Board of Directors. The total remuneration paid to key management was as follows:

	2021 US$'000	2020 US$'000
Salary and emoluments	2,413	2,678
Bonuses	490	1,172
Social welfare costs	205	282
Fees and consulting services	500	607
Pension	331	99
Benefits	50	44
Share based payment expense	-	418
	3,989	5,300

30. Financial Instruments and Financial Risk Management

The Group's principal financial instruments comprise trade receivables, other financial assets, trade payables and cash and cash equivalents.

The main purpose of these financial instruments is to provide finance for the Group's operations.

The Group's financial assets and liabilities are classified as:

Financial liabilities: Amortised costs - trade and other payables as described in Note 19;

Financial assets: Amortised cost - Financial assets as described in Note 15 and Trade and other receivables as described in Note 17;

Financial assets: FVTPL - net profit interest as described in Note 15;

Financial assets: FVOCI - equity instrument - unquoted investments as described in Note 15;

The main risks arising from the Group's financial instruments are foreign currency risk, credit risk, liquidity risk, interest rate risk and capital management. Management reviews and agrees policies for managing each of these risks in a non-speculative manner which are summarised below.

(a) Currency risk

The Group is exposed to foreign currency risk on transactions denominated in a currency other than the relevant functional currency of the entities of the Group which consist of US Dollars, Euro, Sterling and Polish Zloty. The US Dollar is the presentation currency for financial reporting and budgeting. The Group manages its exposure by matching receipts and payments in the same currency and monitoring the residual net cash position. During the years ended 31 December 2021 and 2020, the Group did not utilise either forward currency contracts or other derivatives to manage foreign currency risk.

At 31 December 2021, the Group's principal exposure to foreign currency risk was as follows:

			Denominated in GBP£ US$'000	Denominated in EUR€ US$'000	Denominated in PLN US$'000
Trade and other receivables			597	7,226	49
Trade and other payables			(1,266)	(2,243)	(10)
Provisions			-	(56)	-
Cash and cash equivalents			672	50	102
Total 2021			3	4,977	141

At 31 December 2020, the Group's principal exposure to foreign currency risk was as follows:

			Denominated in GBP£ US$'000	Denominated in EUR€ US$'000	Denominated in PLN US$'000
Trade and other receivables			810	261	30
Trade and other payables			(427)	(1,861)	(27)
Provisions			-	(56)	-
Cash and cash equivalents			1,332	208	115
Total 2020			1,715	(1,448)	118

The US Dollar exchange rates used in the preparation of the financial statements were as follows:

	2021 Average rate	2021 Closing rate	2020 Average rate	2020 Closing rate
Sterling	0.727078	0.741904	0.778085	0.732646
Euro	0.845794	0.882924	0.873668	0.814930
Polish Zloty	3.862468	4.058714	3.887568	3.715834

Sensitivity analysis

If the US Dollar increased by 1% in value against the above currencies, the Group's profit for the year would decrease and equity at year end would decrease by US$50,668. If the US Dollar decreased by 1% in value against the above currencies, the Group's profit for the year would increase and equity at year end would increase by US$51,175.

(b) Credit risk

Credit risk refers to the risk that any counter-party will default on its contractual obligations resulting in financial loss to the Group.

The Group's financial assets excluding 'Financial assets - Net Profit Interest', see (f) 'Fair values' comprise trade and other receivables, cash and cash equivalents, OML 18 and ELI.

The maximum financial exposure due to credit risk on the Group's financial assets not subject to impairment of IFRS 9, representing the sum of cash and cash equivalents, trade and other receivables and other current assets, as at 31 December 2021 was US$21.2 million (2020: US$20.4 million).

Trade and other receivables

Within trade and other receivables there is no significant exposure to credit risk. The credit risk on amounts receivable from joint operating partners is managed by agreeing budgets in advance with partners and where appropriate collecting any material share of exploration costs from partners in advance of completing the exploration work programme. Amounts in trade and other receivables impaired during 2021 are explained in Note 17 and management believes that the existing sums are still collectable.

OML 18

The OML 18 transaction comprised the US$174.5 million Loan Notes as detailed in Note 15. 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 further loan subsequently, in order to be able to meet its obligations under the Loan Notes and make payments to San Leon.

The credit risk associated with the MLPL Loan Notes is regarded as high and despite quarterly payments being largely received previously to date, however not always on time, and given other considerations, this has led the Company to determine that providing for a loss over the lifetime of the loan is appropriate. The expected credit loss has been calculated with a very high probability that the Potential Transaction will complete, and therefore the Loan Notes will extinguish, and the Company believes that the value of the Potential Transaction is worth at least the value of the Loan Notes. Establishing an expected credit loss over the lifetime of the loan for a single receivable requires significant judgement, as there is limited relevant historical data in the Company, and no obvious reliable market data to benchmark. The factors that were considered in coming to the conclusion of a lifetime expected credit loss provision are explained as follows.

The credit risk of the instrument needs to be evaluated without consideration of collateral. Financial instruments are not considered to have low credit risk because that risk is mitigated by collateral.

MLPL is expected to repay all interest and principal due under the loan agreement, however it is currently experiencing short term cashflow issues which makes it challenging to predict when repayments will be made. The increase in credit risk is due to the uncertainty in timing of when Loan Note repayments are received. It does not change the prevailing expectation that the loan will be recovered in full.

In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the credit impairment. This risk has previously been assessed as having increased significantly since initial recognition, and is considered to have increased further during the year ended 31 December 2020 and continued at this level of risk in 2021.

As the asset is determined to be credit-impaired, the lifetime expected credit loss has been presented net against the gross carrying value of the Loan Notes balance on the Statement of Financial Position and remeasured at each reporting date. The MLPL loan asset will continue to be held using the effective interest rate method.

The consideration of credit impairment for this asset is set out in Note 15.

The Directors have considered the impact of Covid-19, the impact on oil price and demand and short term production issues on the Loan Notes and associated credit risk, all of which are tied to the performance of the OML 18 asset. The short term production issues are expected to delay Eroton's ability to return to full production and benefit from the recovery in the oil price, with the overall effect likely to be short term cashflow issues resulting in a delay in receiving distributions from Eroton via MLPL. The Directors have therefore concluded that the risk profile of the Loan Notes has increased.

In the opinion of the Directors there is currently no difference between the carrying amount of the MLPL loan net of the provision and its fair value.

The following table provides information about the exposure to credit risk and expected credit losses of the OML 18 Loan Notes as at 31 December 2021.

Equivalent to Moody's credit rating	Weighted average loss rate	Gross carrying amount US$000	Impairment loss allowance US$000	Credit impaired
Lower than BBB	16.74%	96,497	16,153	Yes

The following table provides information about the exposure to credit risk and expected credit losses of the OML 18 Loan Notes as at 31 December 2020.

Equivalent to Moody's credit rating	Weighted average loss rate	Gross carrying amount US$000	Impairment loss allowance US$000	Credit impaired
Lower than BBB	18.17%	84,234	15,309	Yes

ELI

The ELI transaction comprises a US$15.0 million shareholder loan as detailed in Note 15. The credit risk is managed via various undertakings, such as representations, warranties and covenants and the ability for a preferential distribution should some warranties be breached. Given the nature and stage of the asset the main credit risk is regarded as the timing of payments by ELI Malta which is dependent on dividend distributions by ELI Nigeria rather than being unable to pay the total quantum due under the Loan Notes. Currently the Loan Notes are in good standing with the first repayment due before 30 June 2022.

As a result of the delay in operations and ELI Loan Notes being overdue, the Directors have determined that there has been a significant increase in credit risk since initial recognition of the ELI Loan Notes, and a provision for the lifetime expected credit loss of the ELI Loan Notes has been recognised. The ELI Loan Notes are not considered to be credit impaired on the basis of the delays in ELI commencing repayment of the loan notes. Establishing an expected credit loss over the lifetime of the loan for a single receivable requires significant judgement, as there is limited relevant historical data in the Company, and no obvious reliable market data to benchmark. The factors that were considered in coming to the conclusion of a lifetime expected credit loss provision are explained as follows.

The credit risk of the instrument needs to be evaluated without consideration of collateral. Financial instruments are not considered to have low credit risk because that risk is mitigated by collateral.

ELI is not considered to be in financial difficulty and is expected to repay all interest and principal due under the loan agreement.

In addition, the Directors have reviewed the counterparty credit risk associated with measurement of the expected credit loss and, this has been assessed as having not increased significantly since initial recognition.

As the asset is not credit-impaired, a lifetime expected credit loss is recorded as a separate provision on the Statement of Financial Position and remeasured at each reporting date. The ELI loan asset will continue to be held using the effective interest rate method.

The consideration of expected credit losses for this asset is set out in Note 15.

The Directors have considered the impact of Covid-19 on the Loan Notes and associated credit risk, and although this has slightly delayed the completion of the pipeline, the Directors do not expect a material effect on the risk profile of the Loan Notes.

In the opinion of the Directors there is no difference between the carrying amount of the MLPL loan and its fair value.

The following table provides information about the exposure to credit risk and expected credit losses of the ELI Loan Notes as at 31 December 2021.

Equivalent to Moody's credit rating	Weighted average loss rate	Gross carrying amount US$000	Impairment loss allowance US$000	Credit impaired
Lower than BBB	3.59%	17,821	640	No

The following table provides information about the exposure to credit risk and expected credit losses of the ELI Loan Notes as at 31 December 2020.

Equivalent to Moody's credit rating	Weighted average loss rate	Gross carrying amount US$000	Impairment loss allowance US$000	Credit impaired
Lower than BBB	2.51%	15,353	385	No

Cash and cash equivalents

The credit risk on cash and cash equivalents held in the Group's bank accounts is considered limited because the counterparties are banks with high credit-ratings assigned by international credit rating agencies. The Group also holds limited funds for day to day operational purposes with Irish banking institutions which are subject to guarantee by the Irish government. The Group's maximum exposure to credit risk is equal to the carrying amount of cash and cash equivalents in its consolidated statement of financial position. The Group does not expect any counterparty to fail to meet its obligations.

Details of the Group's cash deposits, which are all for terms of one month or less are as follows:

	2021 US$'000	2020 US$'000
Euro	50	208
Sterling	672	1,332
US Dollar	6,767	16,855
Polish Zloty	102	114
Others	1	1
	7,592	18,510

(c) Liquidity risk management

Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Cash forecasts are produced to identify the liquidity requirements of the Group. Surplus cash is placed on deposit in accordance with limits and counterparties agreed by the Board, with the objective to maximise return on funds whilst ensuring that the short-term cash requirements of the Group are maintained.

All cash and cash equivalents held in the Group's bank accounts are due on demand. All trade and other receivables and trade and other payables are due within one month.

The Group's financial liabilities at 31 December 2021 are as follows:

	Less than 1 year US$'000	One to two years US$'000	Two to five years US$'000	Greater than five years US$'000	Total US$'000
Trade and other payables, excluding leases (Note 19)	4,412	-	-	-	4,412
Lease liability (Note 26)	340	340	1,019	1,246	2,945
Derivative (Note 20)	-	-	-	-	-
	4,752	340	1,019	1,246	7,357

The Group's financial liabilities at 31 December 2020 are as follows:

	Less than 1 year US$'000	One to two years US$'000	Two to five years US$'000	Greater than five years US$'000	Total US$'000
Trade and other payables, excluding leases (Note 19)	3,298	-	-	-	3,298
Lease liability (Note 26)	369	369	1,103	1,718	3,559
Derivative (Note 20)	9	-	-	-	9
	3,676	369	1,103	1,718	6,866

The contractual cashflows are equal to the carrying value for trade and other payables. Contractual cash flows from lease liabilities once discounted at the incremental borrowing rate (Note 28) will then equate to the carrying value.

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 could potentially have an impact on the Company's indirect interest in OML 18 and receipt of Loan Note repayments. However, San Leon is still confident in the operational potential of OML 18 and ultimately recovering the full amount of the outstanding Loan Notes. Any impact on the Company's liquidity risk is expected to be short term and mitigated by the receipt of cash from other sources, such as Loan Note repayments from ELI and services income.

(d) Interest rate risk

The Group and Company's exposure to the risk of changes in market interest rates relates primarily to the Group and Company's holdings of cash and short-term deposits.

It is the Group's policy to place surplus funds on short term deposit in order to maximise interest earned whilst maintaining adequate short-term liquidity for operational requirements.

The OML 18 Loan Notes attract a 17% fixed rate of contractual interest and the ELI Loan Notes attract a 14% fixed rate of contractual interest, both referred to in Note 15, and as a consequence there is no interest rate exposure.

(e) Capital management risk

The Group manage its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust its capital structure, the Group may adjust or issue new shares or raise debt. The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity.

The Group net debt and equity, and the net debt to equity ratio at 31 December 2021 was as follows:

	2021 US$'000	2019 US$'000
Total Liabilities	8,144	6,642
Less: cash and cash equivalents	7,592	18,510
Adjusted net debt	552	(11,868)
Total equity	176,218	152,060
Adjusted net debt to equity ratio	-	(0.08)

(f) Financial assets and liabilities by category

The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2021:

	Fair value 31 December 2021 US$'000	Carrying amount  31 December 2021 US$'000	Level 1 31 December 2021 US$'000	Level 2 31 December 2021 US$'000	Level 3^ 31 December 2021 US$'000
Financial assets
OML 18# (Note 15)	80,344	80,344	-	-	80,344
ELI (Note 15)	17,181	17,181	-	-	17,181
Barryroe NPI (Note 15)	4,291	4,291	-	-	4,291
Unquoted shares (Note 15)	-	-	-	-	-
Trade receivables * (Note 17)	9,860	9,860	-	-	-
Cash and cash equivalents  (Note 18)	7,592	7,592	-	-	-
Other debtors * (Note 17)	799	799	-	-	-
Financial liabilities
Trade payables * (Note 19)	(1,286)	(1,286)	-	-	-
Other creditors * (Note 19)	(67)	(67)	-	-	-
Derivative (Note 20)	-	-	-	-	-
At 31 December 2021	118,714	118,714	-	-	101,816
# The credit risk of the OML 18 loan has been assessed as having significantly increased since initial recognition, affecting the underlying determination of the fair value. Therefore, the carrying amount arising from the application of the effective interest rate method is greater than the fair value. * The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that their carrying amounts are a reasonable approximation of their fair values. ^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.

During the period ended 31 December 2021, there were no significant changes in the business or economic circumstances that affect the fair value of financial assets and liabilities, no reclassifications and no transfers between levels of the fair value hierarchy used in measuring the fair value of the financial instruments.

The following table sets out the carrying value of all the financial assets and liabilities held at 31 December 2020:

	Fair value 31 December 2020 US$'000	Carrying amount  31 December 2020 US$'000	Level 1 31 December 2020 US$'000	Level 2 31 December 2020 US$'000	Level 3^ 31 December 2020 US$'000
Financial assets
OML 18 (Note 15)	68,925	68,925	-	-	68,925
Barryroe NPI (Note 15)	14,968	14,968	-	-	14,968
Unquoted shares (Note 15)	6,842	6,842	-	-	6,842
Trade receivables* (Note 17)	2	2	-	-	-
Cash and cash equivalents (Note 18)	18,510	18,510	-	-	-
Other debtors* (Note 17)	732	732	-	-	-
Financial liabilities
Trade payables* (Note 19)	(719)	(719)	-	-	-
Other creditors* (Note 19)	(36)	(36)	-	-	-
Derivative (Note 20)	(9)	(9)	-	-	(9)
At 31 December 2020	109,215	109,215	-	-	90,726
* The Group has not disclosed the fair value of financial instruments such as short-term receivables and payables, as it is considered that their carrying amounts are a reasonable approximation of their fair values. ^ For detailed disclosures on the valuation techniques of level 3 disclosures see the note referenced above.

During the period ended 31 December 2020, there were no significant changes in the business or economic circumstances that affect the fair value of financial assets and liabilities, no reclassifications and no transfers between levels of the fair value hierarchy used in measuring the fair value of the financial instruments.

(g) Hedging

At 31 December 2021 and 31 December 2020, the Group had no outstanding contracts designated as hedges.

31. Subsequent events

Change of Advisor

On 31 January 2022, it was announced that Brandon Hill is no longer acting as the Company's broker.

Amendment to investment in the Oza field, Nigeria

On 1 September 2020, the Company announced that it had conditionally agreed to provide a US$7.5 million loan to Decklar Resources Limited ("Decklar"), via 10% per annum unsecured subordinated loan notes of Decklar. Decklar is the holder of a Risk Service Agreement with Millenium Oil and Gas Company Limited in relation to Oza. The Company also announced that it would conditionally subscribe for a 15% equity interest in Decklar at nominal value.

San Leon's proposed investment (US$6.75 million) remained in escrow and was to be released upon satisfaction (or waiver) of certain conditions precedent. Despite delays to concluding the transaction documents, Decklar has performed the workover of the Oza-1 well, the results of which have already been announced by San Leon.  In summary, the Oza-1 well test has indicated positive oil results from the lowermost zone, encountered gas in the middle zone and oil in the uppermost zone. San Leon has evaluated these results and the San Leon Board has recommended that it proceeds with an investment in Oza. Decklar is in agreement with that strategy and also to fully involve San Leon in future development planning and determining the location of the first new well to be drilled on the Oza Oil Field.

On 27 January 2022, the Company announced it had entered into an amendment to its original agreement with Decklar, the principal terms of which are:

1)     San Leon has agreed to proceed with its investment in Oza, waiving the remaining conditions precedent.

2)     Of the US$6.75 million of funds held in escrow, US$4.75 million has now been released to Decklar and US$2.0 million has been returned to San Leon pending final completion. San Leon is obliged to either provide a further loan of US$2.0 million to Decklar by 30 April 2022 or, alternatively, accept a pro rata reduction in its shareholding in Decklar.

3)     San Leon has agreed to waive its option to invest an additional US$7.5 million in Decklar.

The transactions contemplated by the Subscription Agreement and Binding LOI are subject to final approval by the TSX Venture Exchange.

The Company has previously advanced US$750,000 to Decklar as an initial deposit. As a consequence of the above transactions, upon completion San Leon will be interested in US$5,500,000 of 10% unsecured subordinated Decklar loan notes and a 11.5% equity interest in Decklar, which will be subscribed for at a nominal value of 1,294,118 Nigerian Naira (approximately US$3,400). The key terms of the loan notes remain unchanged from those described in the Company's announcement of 1 September 2020.

In its audited accounts for the year ended 31 December 2020, Decklar reported a loss before tax of US$5.1 million and total assets of US$6.0 million.  San Leon will be entitled to one seat on the board of Decklar.

ELI - additional loan

On 15 February 2022, the Company provided f urther loan of US$2.0 million (the "Loan") to Energy Link Infrastructure (Malta) Limited ("ELI"), the company which owns the Alternative Crude Oil Evacuation System ("ACOES") project. As previously announced, the ACOES is being constructed to provide a dedicated oil export route from the OML 18 oil and gas block located onshore in Nigeria ("OML 18"), comprising a new pipeline from OML 18 and a floating storage and offloading vessel ("FSO"). 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. 

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.

Taken together with San Leon's existing investment in ELI and its conditional purchase of 1.32% 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 13.32%.

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.

Proposed transactions and Suspension of San Leon shares

On 24 June 2021, the Company announced that it was is in preliminary discussions with Midwestern about acquiring Midwestern's interest in the OML 18 oil and gas block located onshore in Nigeria. At this date, heads of terms for the transaction had not been agreed. The transaction would involve San Leon acquiring the outstanding shares not already owned by San Leon in relation to MLPL. San Leon is not contemplating acquiring Midwestern. San Leon currently owns 40% of MLPL with Midwestern owning the other 60%. In addition, the Company was considering making further debt and equity investments in ELI.

On 8 July 2022, the Company issued an Admission document describing the proposed transaction that will increase its indirect economic interest in Eroton from 39.2% to 98.0% and, taking into account the completion of the Eroton Transaction with Sahara and Bilton, San Leon's initial indirect economic interest in OML 18 would increase from the current 10.58% to 44.1%. In addition to the MLPL transaction, the Company will increase its interest in ELI to c.50% and the loans to ELI from the Company will increase to c.$48 million. The transactions described in the Admission Document are expected to complete in September 2022 after Nigerian consents for the transactions have been received.

Related party

Midwestern currently holds more than 10% of the Company's ordinary shares. Accordingly, Midwestern is classified as a related party under the AIM Rules and the transactions above in which Midwestern has an interest will therefore be treated as transactions with a related party pursuant to rule 13 of the AIM Rules.

Glossary

3P                                             Proven plus Probable plus Possible Reserves

AIM                                          The London Stock Exchange's AIM market

AIM Rules                               AIM Rules for Companies

Bilton                                      Bilton Energy Limited

B.V.                                          Dutch private limited company

BVI                                           British Virgin Islands

Eroton                                   Eroton Exploration and Production Company Limited

US$'000                                  United States Dollars, thousands

FSO                                       Floating Storage and Offloading

Group                                     San Leon and its subsidiaries

LLP                                         Limited liability partnership

Loan Notes                             $174.5 million principal amount of 17% fixed rate loan notes acquired by San Leon pursuant to the amended and restated loan note instrument dated September 30, 2016 executed and issued by Midwestern Leon Petroleum Limited

Ltd or limited                         A private limited company incorporated under the laws of England and Wales, Scotland, certain Commonwealth countries and Ireland

m                                              Metres

Martwestern                         Martwestern Energy Limited

Midwestern                             Midwestern Oil and Gas Company Limited

MLPL                                       Midwestern Leon Petroleum Limited

MSA                                         Master Services Agreement

NPI                                           Net Profit Interest

PLC                                         A publicly held company

San Leon or the Company   San Leon Energy PLC

 

END

 

 

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