Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.
30 September 2022
San Leon Energy Plc
("San Leon", "SLE" or "the Company")
Unaudited Interim Results
San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, today announces its unaudited interim results for the six months ended 30 June 2022. These results include an update on its indirect interests in OML 18, a world-class oil and gas block located onshore in Nigeria, and Energy Link Infrastructure (Malta) Limited ("ELI"), the company which owns the Alternative Crude Oil Evacuation System ("ACOES") project.
Corporate
· On 8 July 2022 San Leon announced, amongst other matters, that it had entered into a series of agreements with Midwestern Oil & Gas Company Limited ("Midwestern") to consolidate Midwestern's holdings in San Leon, Midwestern Leon Petroleum Limited ("MLPL") and Energy Link Infrastructure (Malta) Limited ("ELI") into a single holding in San Leon (together the "Proposed Midwestern Reorganisation"). In addition, San Leon announced further conditional investments in ELI (together the "Further ELI Investments"). Taken together the Proposed Midwestern Reorganisation and Further ELI Investments are collectively referred to as the "Proposed Transactions". The Proposed Transactions are transformational for San Leon and once complete will:
o Consolidate and simplify the group structure;
o Increase San Leon's exposure to the world class OML 18 asset fourfold to a 44.1% initial indirect economic interest; and
o Increase San Leon's ownership of ELI to c.50% and a total of US$48.3 million loans (plus accrued interest) to ELI.
· On 27 January 2022 San Leon announced that it was proceeding with its investment in the Oza oil field in Nigeria and upon completion it will have the following interests in Decklar Petroleum Limited:
o A total of US$5.5 million 10% unsecured subordinated Decklar Petroleum loan notes; and
o An equity interest in Decklar Petroleum Limited of 11%.
· On 31 January 2022 San Leon announced that it had successfully concluded its ongoing legal proceedings with TAQA Offshore BV ("TAQA") in relation to San Leon's legacy interest in two royalties in Block Q13A, which is located offshore Netherlands. San Leon received payments totaling more than €5.7 million in settlement from TAQA.
· On 15 February 2022 San Leon announced a further loan of US$2.0 million to ELI at a coupon of 14% per annum over four years which is payable quarterly following a one-year moratorium from the date of investment. In addition, the loan was accompanied by a transfer of a 2.0% equity interest in ELI to San Leon which was acquired at nominal value, a consideration of approximately US$91.
Financial
· Cash and cash equivalents as at 30 June 2022 of US$0.3 million (30 June 2021: US$12.1 million of which US$6.8 million was restricted and held in escrow for the Oza transaction).
· As disclosed in the Company's AIM Admission Document published on 8 July 2022, a loan facility of US$50.0 million has been made available to the Company by MM Capital Holding for the purposes of funding its working capital requirements and financing the Further ELI Investments (otherwise known as the New Facility). The New Facility currently remains undrawn, at San Leon's election, as the Company is currently examining whether additional or alternative financing might be available on terms that may be better aligned with the Company's overall strategic and financing objectives, and San Leon is in discussions with several counterparties in this regard. As a result of electing not to drawdown the New Facility, the Company's current trade creditors amount to approximately US$3.5 million (predominantly related to advisor fees incurred in relation to the Proposed Transaction) and with current cash resources being limited, a drawdown of funds under the New Facility or an alternative debt financing arrangement is required to allow trade creditor settlement. Depending on progress with the discussions on this alternative financing, the Board intends, in the near-term, to either draw down on the New Facility or put a different debt financing arrangement in place which will be drawn down once it is finalised, to allow trade creditors to be settled and the Further ELI Investments to be financed.
· In the six months ended 30 June 2022 US$0.3 million (six months to 30 June 2021: US$0.8 million) has been received by the Company in relation to payments due to San Leon under the MLPL Loan Notes. San Leon has agreed with MLPL, Midwestern and Martwestern to a Conditional Payment Waiver to 31 December 2022 to allow for the completion of the Proposed Transactions. As at 29 September 2022, the Conditional Payment Waiver relates to US$108.8 million, being a principal amount due of US$82.2 million and total accrued interest due of US$26.6 million, which will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.
· Completion of the Proposed MLPL Reorganisation (which is part of the Proposed Transaction) is subject to a number of conditions, details of which were set out in the Company's announcement of 8 July 2022 and in the Admission Document. In order to acquire additional interests in OML 18 and take its economic interest to 45% of OML 18, Eroton proposes to enter into new senior secured reserve-based lending facilities totaling US$750 million (the "New Eroton Debt Facilities"), to be provided to Eroton by a lending consortium headed by Afreximbank. Whilst this process has made good progress in September 2022, it remains a complex procedure with several interested parties and, as a result, further additional time is needed to finalise the loan agreements and ancillary documentation. Consequently, the condition relating to the New Eroton Debt Facilities, which had been had already been extended to 30 September 2022, has now been extended to 31 October 2022 by agreement with Midwestern. Aside from the extension of timing, the structure of the New Eroton Debt Facilities remains in accordance with the description set out in the Admission Document. In addition to the requirement to enter into the New Eroton Debt Facilities, the MLPL Reorganisation Agreement requires the Sahara OML 18 Acquisition Agreement (as defined in the Admission Document) to be entered into by all parties by 30 September 2022. The Sahara OML 18 Acquisition Agreement is not expected to be entered into until after the New Eroton Debt Facilities have been entered into and the funds are available, so this date has also been extended to 31 October 2022 by agreement with Midwestern.
· The board of San Leon still remains confident that the Proposed Transactions will complete during the final quarter of this year, as originally set out in the Admission Document.
Operational
Eroton - OML 18
· Oil delivered to the Bonny terminal for sales averaged approximately 1,130 barrels of oil per day ("bopd") in H1 2022 (6,600 bopd in H1 2021). The figure has been affected by continued losses and downtime associated with the use of the Nembe Creek Trunk Line ("NCTL"), and reduced operations both as a result of the Covid-19 pandemic and also due to prudent capital discipline ahead of the availability of the ACOES.
· Gas sales averaged 41.8 million standard cubic feet per day ("mmscf/d") in H1 2022 after downtime (17.8 mmscf/d in H1 2021).
· Production downtime of 17% in H1 2021 (3% downtime in H1 2021) was caused by third party terminal and gathering system issues. Such issues in the third-party export system are expected to be substantially resolved by the implementation of the new ACOES for the purpose of transporting, storing and evacuating crude oil from the OML 18 export pipeline.
· Pipeline losses by the Bonny Terminal operator have been markedly higher during this year (30 June 2022: 91%; 30 June 2021: 65%). The ACOES export Pipeline and FSO system are expected to reduce losses significantly when operational.
ELI - ACOES pipeline
· There have been various logistical delays to the implementation of the ACOES project in the first half of the year.
· The Floating Storage and Offloading ("FSO") vessel is now on station, approximately 40 kilometers offshore, and is expected to be spread moored and operational for receipt of barging cargoes in the coming weeks.
· Oil barging operations from OML 18 to the mother vessel continued during the period. Once the mother vessel has reached its capacity of 250,000 barrels, the oil will be transferred to the FSO.
· Good progress has been made during the period on commercial negotiations with third parties who are expected to use the FSO when it is fully operational. Third parties will barge oil to the FSO when its operations commence.
· The pipeline contractor has recently commenced mobilisation to site and will recommence laying the pipeline component of the ACOES imminently. The full ACOES which will be utilised by Eroton, including the pipeline, is now expected to be operational in Q1 2023.
Chief Executive Officer of San Leon, Oisín Fanning, commented:
"We were delighted to have entered into a series of agreements for the Proposed Transactions in early July 2022. We believe that this series of transactions, when completed, will be truly transformational for the Company and will deliver significant value to our shareholders. We are making good progress on clearing the conditions associated with the agreements and still expect to complete the Proposed Transactions in the fourth quarter of 2022.
"These transactions will pave the way for the Company to deliver its strategy of becoming a significant participant in the Nigerian oil and gas market, positioning San Leon to take advantage of further transactional opportunities to enhance and grow our business."
Enquiries:
San Leon Energy plc +353 1291 6292
Oisín Fanning, Chief Executive
Julian Tedder, Chief Financial Officer
Allenby Capital Limited (Nominated adviser and joint broker to the Company) +44 203 328 5656
Nick Naylor
Alex Brearley
Vivek Bhardwaj
Panmure Gordon & Co (Joint broker to the Company) +44 207 886 2500
James Sinclair-Ford
Tavistock (Financial Public Relations) +44 207 920 3150
Nick Elwes
Simon Hudson
The Interim Report and Accounts will shortly be available on the Company's website at www.sanleonenergy.com.
Chairman's statement
Our focus in the first half of 2022 was on progressing the Proposed Transactions and I am pleased that this culminated in San Leon publishing an Admission Document on 8 July 2022 and our shares resuming trading on AIM. The Proposed Transactions were subsequently approved by our Shareholders at the Extraordinary General Meeting held on 5 August 2022. We are making good progress in satisfying the conditions required to complete the Proposed Transactions and expect final completion to be in the fourth quarter of 2022.
On the operational side, the first half of 2022 has been as challenging for OML 18 and the ACOES project. Oil export from OML 18 was at very low rates during the first half of 2022 while awaiting full barging availability of the ACOES system. Gas sales were rather healthier, at around 41.8 mmscf/d on average during the period. Current production from OML18 is approximately 12,000 bopd and this is expected to increase further over the coming months as operations are optimised.
Financial Review
As we announced on 8 July 2022 completion of the Proposed Transactions remains materially uncertain and further details on going concern are included in note 1 to the financial statements.
San Leon has reported a loss after tax from continuing operations of US$8.9 million for the six months to 30 June 2022 (six months to 30 June 2021: profit of US$8.1 million). The majority of this loss is attributable to the loss on equity investments for the six months to 30 June 2021 of US$12.5 million (30 June 2021: loss of US$7.7 million). This loss relates to San Leon's equity investment in MLPL. MLPL has a 100% equity investment in Martwestern Energy, which in turn has a 98% initial economic interest in Eroton, which holds a 27% working interest in OML 18, Nigeria and is its operator.
The share of loss on equity accounted investments comprises 40% of MLPL's gross results being, administrative costs of US$1.0 million (30 June 2021: US$1.1 million), net finance income of US$5.4 million (30 June 2021: US$4.1 million), a loss on investment of US$30.5 million (30 June 2021: profit of US$21.2 million), a net loss on financial assets of US$0.2 million (30 June 2021: US$Nil) and a tax charge of US$4.8 million (30 June 2021: US$4.1 million). Although ELI recorded a loss of US$6.3 million (30 June 2021: US$2.9 million) there was no share of loss of associate recorded because the opening investment as at 1 January 2022 had already been written down to US$Nil. The share of loss also includes Decklar Petroleum Limited's gross loss of US0.8 million in the first half of 2022.
Revenue for the six months to 30 June 2021 was US$0.1 million (six months to 30 June 2021: US$Nil) relating to receipts in relation to royalties received in respect of legacy interests in the Netherlands.
Administrative costs decreased to US$4.3 million for the six months to 30 June 2022 (30 June 2021: US$5.9 million).
Finance expense of US$0.1 million for the six months to 30 June 2022 (30 June 2021: US$0.1 million) relates to interest on obligations for leases.
Finance income of US$8.7 million (30 June 2021: US$8.2 million) is derived from accrued interest income on the MLPL and ELI Loan Notes.
The Expected Credit Loss ("ECL") provision has increased by US$0.8 million (30 June 2021: US$0.8 million).
The tax charge for the six months to 30 June 2022 is US$0.6 million (30 June 2021: US$0.4 million).
Outlook
San Leon looks forward to completing the Proposed Transactions in the fourth quarter of 2022 and working together with Eroton and ELI in 2023 to unlock the significant value in the OML 18 and ACOES assets. The Proposed Transactions are transformational for San Leon and are an important step in our growth strategy.
Consolidated Income Statement
for the six months ended 30 June 2022
|
| Notes | Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Continuing operations |
| |
|
|
| Revenue from contracts with customers | 2 | 116 | - | 5,747 |
| Gross profit |
| 116 | - | 5,747 |
|
|
| |
|
|
| Share of (loss) / profit of equity accounted investments | 10 | (12,502) | 7,728 | 14,532 |
| Administrative expenses |
| (4,301) | (5,934) | (12,867) |
| Profit on disposal of subsidiaries | 4 | - | - | 16,615 |
| Write off of exploration and evaluation assets | 9 | (90) | (103) | (206) |
| Other income | 3 | 7 | 526 | 4,560 |
| (Loss) / profit from operating activities |
| (16,770) | 2,217 | 28,381 |
|
|
| |
|
|
| Finance expense | 5 | (56) | (67) | (129) |
| Finance income | 6 | 8,749 | 8,242 | 14,599 |
| Expected credit losses | 7 | (734) | (789) | 1,192 |
| Fair value movements in financial assets | 12 | 485 | (1,070) | (2,551) |
| (Loss) / profit before income tax |
| (8,326) | 8,533 | 41,492 |
|
|
| |
|
|
| Income tax expense | 8 | (603) | (409) | (775) |
|
|
| |
|
|
| (Loss) / profit for the financial period |
| (8,929) | 8,124 | 40,717 |
|
|
| |
|
|
| (Loss) / profit per share (cent) - total |
| |
|
|
| Basic (loss) / profit per share |
| (1.98) | 1.81 | 9.05 |
| Diluted (loss) / profit per share |
| (1.96) | 1.81 | 8.94 |
Consolidated Statement of Other Comprehensive Income
for the six months ended 30 June 2022
|
| Notes | Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| (Loss) / profit for the period |
| (8,929) | 8,124 | 40,717 |
| Items that may be reclassified subsequently to profit or loss |
| |
|
|
| Currency translation differences - subsidiaries |
| (182) | (11) | 56 |
| Recycling of currency translation reserve on disposal of subsidiaries |
| - | - | (16,615) |
| Total other comprehensive income |
| (182) | (11) | (16,559) |
|
|
| |
|
|
| Total comprehensive (loss) / profit for the period |
| (9,111) | 8,113 | 24,158 |
Consolidated Statement of Changes in Equity
for the period ended 30 June 2022
| Unaudited At 30 June 2022 | Share capital reserve US$'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 |
| Balance as at |
5,157 |
21,077 |
638 |
5,024 |
9,189 |
12,909 |
(2,699) |
124,923 |
176,218 |
|
Total comprehensive income for period | | |
|
| | | | | |
| Loss for the period | - | - | - | - | - | - | - | (8,929) | (8,929) |
|
Other comprehensive income | |
|
|
|
|
|
|
|
|
| Foreign currency translation differences - subsidiaries |
- |
- |
- |
- |
(182) |
- |
- |
- |
(182) |
| Recycling of currency translation reserve on disposal of subsidiaries |
- |
- |
- |
- |
- |
- |
- |
- |
- |
| Total comprehensive income for the period | - | - | - | - | (182) | - | - | (8,929) | (9,111) |
| Balance at |
5,157 |
21,077 |
638 |
5,024 |
9,007 |
12,909 |
(2,699) |
115,994 |
167,107 |
| Unaudited At 30 June 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$'000 |
| Balance as at |
5,157 |
21,077 |
638 |
5,024 |
25,748 |
15,139 |
(2,699) |
81,976 |
152,060 |
|
Total comprehensive income for period | |
|
|
|
|
|
|
|
|
| Profit for the period | - | - | - | - | - | - | - | 8,124 | 8,124 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
| Foreign currency translation differences - subsidiaries |
- |
- |
- |
- |
(11) |
- |
- |
- |
(11) |
| Recycling of currency translation reserve on disposal of subsidiaries |
- |
- |
- |
- |
- |
- |
- |
- |
- |
| Total comprehensive income for the period | - | - | - | - | (11) | - | - | 8,124 | 8,113 |
| Balance at |
5,157 |
21,077 |
638 |
5,024 |
25,737 |
15,139 |
(2,699) |
90,100 |
160,173 |
Consolidated Statement of Changes in Equity
for period ended 30 June 2022
| Audited At 31 December 2021 | Share capital reserve US$'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 |
| Balance as at |
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) |
| Total comprehensive income for the year | - | - | - | - | (16,559) | - | - | 40,717 | 24,158 |
|
Transactions with owners recognised directly in equity |
|
|
|
|
|
|
|
|
|
| Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
| Effect of options expired | - | - | - | - | - | (2,230) | - | 2,230 | - |
| Total transactions with owners | - | - | - | - | - | (2,230) | - | 2,230 | - |
| Balance at |
5,157 |
21,077 |
638 |
5,024 |
9,189 |
12,909 |
(2,699) |
124,923 |
176,218 |
Consolidated Statement of Financial Position
as at 30 June 2022
|
| Notes | Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Assets |
| |
|
|
| Non-current assets |
| |
|
|
| Intangible assets | 9 | - | - | - |
| Equity accounted investments | 10 | 46,614 | 51,830 | 58,634 |
| Property, plant and equipment | 11 | 2,313 | 2,791 | 2,510 |
| Financial assets | 12 | 16,777 | 14,771 | 10,657 |
|
|
| 65,704 | 69,392 | 71,801 |
| Current assets |
| |
|
|
| Inventory |
| 168 | 183 | 168 |
| Trade and other receivables | 13 | 10,000 | 4,107 | 13,642 |
| Financial assets | 12 | 100,201 | 81,597 | 91,159 |
| Cash and cash equivalents | 14 | 267 | 12,102 | 7,592 |
|
|
| 110,636 | 97,989 | 112,561 |
| Total assets |
| 176,340 | 167,381 | 184,362 |
|
|
| |
|
|
| Equity and liabilities |
| |
|
|
| Equity |
| |
|
|
| Called up share capital | 17 | 5,157 | 5,157 | 5,157 |
| Share premium account | 17 | 21,077 | 21,077 | 21,077 |
| Other undenominated reserve |
| 638 | 638 | 638 |
| Special reserve | 17 | 5,024 | 5,024 | 5,024 |
| Share-based payments reserve |
| 12,909 | 15,139 | 12,909 |
| Currency translation reserve |
| 9,007 | 25,737 | 9,189 |
| Fair value reserve |
| (2,699) | (2,699) | (2,699) |
| Retained earnings |
| 115,994 | 90,100 | 124,923 |
| Total equity attributable to equity shareholders |
| 167,107 | 160,173 | 176,218 |
| Non-current liabilities |
| |
|
|
| Lease liability | 20 | 1,848 | 2,372 | 2,054 |
| Derivative |
| - | 9 | - |
| Deferred tax liabilities | 18 | 1,880 | 921 | 1,282 |
|
|
| 3,728 | 3,302 | 3,336 |
| | Notes | Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Current liabilities |
| |
|
|
| Trade and other payables | 15 | 5,449 | 3,850 | 4,752 |
| Provisions | 16 | 56 | 56 | 56 |
|
|
| 5,505 | 3,906 | 4,808 |
| Total liabilities |
| 9,233 | 7,208 | 8,144 |
| Total equity and liabilities |
| 176,340 | 167,381 | 184,362 |
Oisín Fanning Julian Tedder
Director Director
29 September 2022
Consolidated Statement of Cash Flows
for the six months ended 30 June 2022
|
| Notes | Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Cash flows from operating activities |
| |
|
|
| (Loss) / profit for the period - continuing operations |
| (8,929) | 8,124 | 40,717 |
| Adjustments for: |
| |
|
|
| Depreciation | 11 | 197 | 503 | 1,028 |
| Finance expense | 5 | 56 | 67 | 129 |
| Finance income | 6 | (8,749) | (8,242) | (14,599) |
| Foreign exchange |
| (220) | 68 | (9) |
| Income tax expense | 8 | 603 | 409 | 775 |
| Impairment of exploration and evaluation assets - continuing operations | 9 | 90 | 103 | 206 |
| Expected credit losses | 7 | 734 | 789 | (1,192) |
| Profit on disposal of subsidiaries | 4 | - | - | (16,615) |
| Fair value movements in financial assets | 12 | (485) | 1,070 | 2,551 |
| Decrease in inventory |
| - | - | 15 |
| Decrease / (increase) in trade and other receivables |
| 3,643 | (2,266) | (11,765) |
| Increase in trade and other payables |
| 727 | 212 | 1,068 |
| Share of loss / (profit) of equity-accounted investments | 10 | 12,502 | (7,728) | (14,532) |
| Tax (refunded) / paid |
| (7) | 39 | 35 |
| Net cash inflow / (outflow) from operating activities |
| 162 | (6,852) | (12,188) |
| Cash flows from investing activities |
| |
|
|
| Expenditure on exploration and evaluation assets | 9 | (90) | (103) | (206) |
| Lease - prepaid rental | 20 | - | - | (244) |
| ELI Loan Notes issued | 12 | (1,941) | - | - |
| Acquisition of Decklar Equity Interest | 12 | (482) | - | - |
| Decklar Loan Notes issued | 12 | (5,021) |
|
|
| OML 18 Loan Notes principal payments received | 12 | - | - | - |
| OML 18 Loan Notes interest payments received | 12 | 300 | 750 | 2,150 |
| Net cash (outflow) / inflow from investing activities |
| (7,234) | 647 | 1,700 |
| | Notes | Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/22 US$'000 | Audited Year ended 31/12/21 US$'0000 |
| Cash flows from financing activities |
| |
|
|
| Repayment of lease liability - principal | 20 | (109) | (114) | (227) |
| Interest paid | 20 | (56) | (67) | (129) |
| Net cash outflow from financing activities |
| (165) | (181) | (356) |
| Net decrease in cash and cash equivalents |
| (7,237) | (6,386) | (10,844) |
| Effect of foreign exchange fluctuation on cash and cash equivalents |
| (88) | (22) | (74) |
| Cash and cash equivalents at start of period | 14 | 7,592 | 18,510 | 18,510 |
| Cash and cash equivalents at end of period | 14 | 267 | 12,102 | 7,592 |
Notes to the Interim CONSOLIDATED Financial Statements
for the six months ended 30 June 2022
1. Basis of preparation and accounting policies
1.1 Statement of compliance
These interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2021. They do not include all of the information required for a complete set of International Financial Reporting Standards ("IFRS") financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements. They should be read in conjunction with the Group's annual financial statements as at 31 December 2021 which are available on the Group's website www.sanleonenergy.com.
These unaudited Half year results were approved by the Board of Directors on 29 September 2022.
1.2 Significant accounting policies
The accounting policies applied by the Group in the interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2021.
1.3 Estimates and judgements
In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual report for the year ended 31 December 2021.
The Company has used draft 30 June 2022 management accounts provided by MLPL to account for the equity accounted investment. These MLPL management accounts have not been reviewed or audited by MLPL's auditors.
The Company has used draft 30 June 2022 management accounts provided by ELI to account for the equity accounted investment. These ELI management accounts have not been reviewed or audited by ELI's auditors.
The Company has used draft 30 June 2022 management accounts provided by Decklar Petroleum Limited to account for the equity accounted investment. These Decklar management accounts have not been reviewed or audited by Decklar's auditors.
1.4 Going concern
As disclosed in the Company's AIM Admission Document published on 8 July 2022, a loan facility of US$50.0 million has been made available to the Company by MM Capital Holding for the purposes of funding its working capital requirements and financing the Further ELI Investments (otherwise known as the New Facility). The New Facility currently remains undrawn, at San Leon's election, as the Company is currently examining whether additional or alternative financing might be available on terms that may be better aligned with the Company's overall strategic and financing objectives, and San Leon is in discussions with several counterparties in this regard. As a result of electing not to drawdown the New Facility, the Company's current trade creditors amount to approximately US$3.5 million (predominantly related to advisor fees incurred in relation to the Proposed Transaction) and with current cash resources being limited, a drawdown of funds under the New Facility or an alternative debt financing arrangement is required to allow trade creditor settlement. Depending on progress with the discussions on this alternative financing, the Board intends, in the near-term, to either draw down on the New Facility or put a different debt financing arrangement in place which will be drawn down once it is finalised, to allow trade creditors to be settled and the Further ELI Investments to be financed.
The Directors have prepared a detailed cash flow forecast for the Group for the period from 1 September 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, as announced on 8 July 2022 and approved at the Extraordinary General Meeting on 5 August 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 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$500,000 per month for technical and financial advisory services following completion of the Potential Transaction;
· Repayments from ELI of loan notes of US$35.5 million during the remainder of 2022 and 2023;
· Repayment from Eroton technical services debtor of US$3m 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 as most recently announced by San Leon on 3 May 2022.
Due to the Potential Transaction not having completed at the date of the Interim financial statements there is an inherent material uncertainty that completion will not occur as anticipated.
The Group has modelled various other scenarios assuming that the Potential Transaction does not complete and given the Group's well understood cost base, the principal uncertainty in the event that 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$50 million loan secured by the Company to fund the Potential Transaction can be drawn to facilitate completion of the further ELI Investments, with the remaining balance being used for general corporate purposes. In this scenario the working capital requirements of the Group can be met for the 12-month period from the date of approval of the financial statements, although a reduction to administrative costs is required in 2023, which the Directors believe is achievable and within their control.
However, while the working capital requirements of the Group can be met for the 12-month period, the Directors believe that the continued viability of the Group and Company into the future is dependent on the completion of the Proposed Transaction. As such, the completion of the Proposed Transaction creates significant uncertainty upon the Group and Company's ability to continue as a going concern beyond the 12-month period. The Directors' have concluded that this represents a material uncertainty which may cast significant doubt upon the Group and Company's ability to continue as a going concern and that, therefore, the Group may be unable to continue realising its assets and discharging its liabilities in the normal course of business.
Having taken all the above factors into account, the directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty that exists on the completion of the Potential Transaction and its impact on Group's ability to continue as a going concern. The financial statements do not include any adjustments that would be necessary if the group were unable to continue as a going concern.
2. Revenue and Segmental Information
Revenue and Segmental Information
| 30 June 2022 (Unaudited) | Poland US$'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 | - | - | - | - | - | 116 | - | - | 116 |
| Write off of exploration | - | - | (90) | - | - | - | - | - | (90) |
| Segment profit / (loss) before income tax | (150) | - | (90) | (4,488) | 485 | - | (28) | (4,055) | (8,326) |
| Property, plant and equipment | - | - | - | - | 2,313 | - | - | - | 2,313 |
| Equity accounted investments | - | - | - | 46,614 | - | - | - | - | 46,614 |
| Segment non-current assets | - | - | - | 58,615 | 7,089 | - | - | - | 65,704 |
| Segment liabilities | (50) | (18) | (804) | (4) | (4,040) | - | (745) | (3,572) | (9,233) |
| 30 June 2021 (Unaudited) | 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$'000 |
| Write off of exploration and evaluation assets |
- |
- |
(103) |
- |
- |
- |
- |
- |
(103) |
| Segment (loss) / profit before income tax |
313 |
- |
(103) |
17,763 |
(1,070) |
- |
(28) |
(8,342) |
8,533 |
| Property, plant and equipment | - | - | - | 366 | 2,425 | - | - | - | 2,791 |
| Equity accounted investments | - | - | - | 51,830 | - | - | - | - | 51,830 |
| Segment non-current assets | - | - | - | 61,195 | 8,197 | - | - | - | 69,392 |
| Segment liabilities | (17) | (18) | (804) | (5) | (3,165) | - | (748) | (2,451) | (7,208) |
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2021 (Audited) | Poland US$'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 |
| Write off of exploration and evaluation assets |
- |
- |
(206) |
- |
- |
- |
- |
- |
(206) |
| Segment (loss) / profit 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 in Nigeria in the year ended 31 December 2021 relates to the provision of drilling services. In The Netherlands revenue relates to the settlement of the TAQA claim in the year ended 31 December 2021 and to ongoing royalty receipts in the six months ended 30 June 2022.
|
3. Other income
|
| | Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| TAQA settlement (i) | | - | - | 4,027 |
| Other (ii) | | 7 | 526 | 533 |
|
| | 7 | 526 | 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 on disposal of subsidiaries
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Other, recycling from equity to income statement | - | - | 16,615 |
|
| - | - | 16,615 |
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$16.6 million, that had previously been recognised in equity. The realisation of the cumulative foreign currency gains and losses do not impact the consolidated assets or liabilities.
5. Finance expense
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Interest on obligations for leases | 56 | 67 | 129 |
6. Finance income
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Total finance income on Loan Notes (Note 12) | 8,749 | 8,242 | 14,590 |
| Movement in fair value of derivatives | - | - | 9 |
|
| 8,749 | 8,242 | 14,599 |
All interest income is in respect of assets measured at amortised cost.
7. Expected credit losses
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| OML 18 Loan Notes - net remeasurement of loss allowance | (1,051) | (704) | 1,447 |
| ELI Loan Notes - net remeasurement of loss allowance | 457 | (85) | (255) |
| Decklar Loan Notes - net remeasurement of loss allowance | (140) | - | - |
|
| (734) | (789) | 1,192 |
8. Income tax
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year ended 31/12/21 US$'000 |
| Current tax | |
|
|
| Current period income tax | 5 | 6 | 11 |
| Deferred tax | |
|
|
| Origination and reversal of temporary differences (Note 18) | 438 | 756 | 1,608 |
| Deferred tax movement in Barryroe NPI (Note 18) | 160 | (353) | (844) |
| Total income tax charge | 603 | 409 | 775 |
The difference between the total tax shown above and the amount calculated by applying the applicable standard rate of Irish corporation tax to the loss before tax is as follows:
|
| Unaudited 6 months ended 30/06/22 US$'000 | Unaudited 6 months ended 30/06/21 US$'000 | Audited Year end 31/12/21 US$'000 |
| Profit / (loss) before income tax | (8,326) | 8,533 | 41,492 |
| Tax on profit / (loss) at applicable Irish corporation tax rate of 25% (2021: 25%) | (2,082) | 2,133 | 10,373 |
| Effects of: | |
|
|
| Tax effect at fair value adjustment | 160 | (86) | (844) |
| Prior year adjustment | - | - | (57) |
| Losses utilised in period | - | (345) | (1,085) |
| (Income) / expenses not taxable | - | (2,519) | (10,174) |
| Income tax withheld | 5 | 6 | 4 |
| Effect of different tax rates | - | - | (701) |
| Adjustment for difference on overseas profit before tax | - | - | (23) |
| Excess losses carried forward | 2,520 | 1,220 | 3,282 |
| Tax charge for the period | 603 | 409 | 775 |
9. Intangible assets
| | Unaudited 30/06/22 US$'000 |
| Cost and net book value |
|
| At 1 January 2021 | - |
| Additions | 206 |
| Write off of exploration and evaluation assets | (206) |
| At 31 December 2021 | - |
| Additions | 90 |
| Write off of exploration and evaluation assets | (90) |
| At 30 June 2022 | - |
An analysis of exploration assets by geographical area is set out below:
|
| Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Albania | 90 | 103 | 206 |
|
| 90 | 103 | 206 |
The Directors considered the carrying value of capitalised costs in respect of its exploration and evaluation assets. These assets were assessed for impairment indicators and in particular with regard to remaining licence terms, likelihood of licence renewal, likelihood of further expenditures and on-going appraisals for each area. Based on internal assessments from the latest information available, the exploration and evaluation assets remain fully impaired in 2022.
10. Equity accounted investments
| | |
Unaudited 30/06/22 US$'000 |
Unaudited 30/06/21 US$'000 |
Audited 31/12/21 US$'000 |
| Cost and net book value | |
|
|
|
| Opening balance | | 58,634 | 44,102 | 44,102 |
| Additions (ELI) | | 482 | - | - |
| Share of profit / (loss) of equity accounted investments | | (12,502) | 7,728 | 14,532 |
| Closing Balance | | 46,614 | 51,830 | 58,634 |
The Group's only joint venture entities and associates at 30 June 2022 were as follows:
| Name | Registered office | Type | % held |
| Midwestern Leon Petroleum Limited | 5th Floor Barkly Wharf, Le Caudan Waterfront, | Joint Venture | 40% |
| Energy Link Infrastructure (Malta) Limited | 260 Triq San Albert, Griza, GZR 1150, Malta | Associate | 10% |
| Decklar Petroleum Limited | St. Nicholas House, 9th Floor, Catholic Mission Street, Lagos, Nigeria | Associate | 11% |
A summary of the financial information of the equity investments is detailed below.
|
| Midwestern Leon Petroleum Limited (i) | Energy Link Infrastructure (Malta) Limited (ii) |
Decklar Petroleum Limited (iii) | Total |
| Equity Interest | 40% | 10% | 11% | |
|
| US$'000 | US$'000 | US$'000 | US$'000 |
| Group's interest in net assets of investee of 1 January 2021 | 43,822 | 280 | - | 44,102 |
| 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 |
| Additions | - | - | 482 | 482 |
| Share of (loss) | (12,422) | - | (80) | (12,502) |
| Group's interest in net assets of investee at 30 June 2022 | 46,212 | - | 402 | 46,614 |
(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 12. The movement during 2022 reflects a share of the loss of MLPL being administrative costs of US$1.0 million (31/12/2021: US$6.4 million), other income of US$Nil (31/12/21: US$0.2 million), net finance income of US$5.4 million (31/12/2021: US$8.0 million), loss on investment of US$30.5 million (31/12/2021: US$44.0 million profit), net loss on financial assets of US$0.2 million (31/12/2021: US$1.2 million profit) and a tax charge of US$4.8 million (31/12/2021: US$10.0 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, 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 12(ii)).
ELI recorded a loss of US$6.3 million in 2022 consisting of sales income of US$Nil (31/12/2021: US$1.4 million), other income of US$Nil (31/12/2021: US$0.1 million), cost of sales of US$4.3 million (31/12/2021: US$7.4 million) and operating expenses including administrative costs of US$2.0 million (31/12/2021: US$3.2 million). There was no share of loss of associate recorded in 2022 because the opening investment as at 1 January 2022 had already been written down to US$Nil.
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 in ELI (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 being constructed by ELI and subsequent throughput of oil from various customers.
(iii) Decklar Petroleum Limited
In January 2022 the Company acquired a 11% non-controlling interest in Decklar Petroleum Limited ('Decklar') (See Note 12(iv)).
San Leon does not have control over the entity however it has been determined to have significant influence including the planning and determining the location of the first new well to be drilled on the Oza Oil Field. The company also has the option of one board position, which it deems will give it significant influence. This would therefore mean than the Company's 11% shareholding does wield significant influence over the direction of the company and in particular policy-making processes. On this basis, the above interest is recognised as an equity accounted investment.
The movement during 2022 reflects a share of the US$0.8 million loss of Decklar.
11. Property, plant and equipment
| | Leased assets US$'000 | Plant & equipment US$'000 | Office equipment US$'000 | Motor vehicles US$'000 | Total US$'000 |
| Cost |
|
|
|
|
|
| At 1 January 2021 | 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 |
| Currency translation adjustment | - | (561) | (27) | (13) | (601) |
| At 30 June 2022 | 3,294 | 8,092 | 1,012 | 271 | 12,669 |
| At 30 June 2021 | 3,281 | 8,989 | 1,074 | 459 | 13,803 |
| Depreciation |
|
|
|
|
|
| At 1 January 2021 | 707 | 8,547 | 1,055 | 416 | 10,725 |
| Charge for the period | 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 |
| Charge for the period | 190 | - | 2 | 5 | 197 |
| Currency translation adjustment | - | (561) | (27) | (13) | (601) |
| At 30 June 2022 | 1,036 | 8,092 | 999 | 229 | 10,356 |
| At 30 June 2021 | 884 | 8,682 | 1,042 | 404 | 11,012 |
| Net book values |
|
|
|
|
|
| At 30 June 2022 | 2,258 | - | 13 | 42 | 2,313 |
| At 30 June 2021 | 2,397 | 307 | 32 | 55 | 2,791 |
| At 31 December 2021 | 2,448 | - | 15 | 47 | 2,510 |
12. Financial Assets
|
| OML 18 (i) US$'000 | ELI (ii) US$'000 | Barryroe 4.5% net profit interest (iii) US$'000 | Decklar Petroleum Limited (iv) US$'000 | Total US$'000 |
|
| Amortised cost | Amortised cost | FVTPL | Amortised cost |
|
| Cost / Valuation |
|
|
|
|
|
| At 1 January 2021 | 68,925 | 15,353 | 6,842 | - | 91,120 |
| Finance income | 12,122 | 2,468 | - | - | 14,590 |
| Loan Notes receipts - principal | - | - | - | - | - |
| Loan Notes receipts - interest | (2,150) | - | - | - | (2,150) |
| Lifetime ECL - credit-impaired # | 1,447 | - | - | - | 1,447 |
| Fair value movement, Income statement | - | - | (2,551) | - | (2,551) |
| At 31 December 2021 | 80,344 | 17,821 | 4,291 | - | 102,456 |
| Loan Notes advanced | - | 1,941 | - | 5,021 | 6,962 |
| Finance income | 5,949 | 1,471 | - | 278 | 7,698 |
| Loan Notes receipts - interest | (300) | - | - | - | (300) |
| Fair value movement, Income statement | - | - | 485 | - | 485 |
| At 30 June 2022 | 85,993 | 21,233 | 4,776 | 5,299 | 117,301 |
| Expected Credit Loss Provision |
|
|
|
|
|
| At 1 January 2021 | - | (385) | - | - | (385) |
| New financial asset acquired * | - | (255) | - | - | (255) |
| At 31 December 2021 | - | (640) | - | - | (640) |
| Net remeasurement of loss allowance * ^ | - | 457 | - | (140) | 317 |
| At 30 June 2022 | - | (183) | - | (140) | (323) |
|
# See OML18 ECL table below * See ELI ECL table below ^.Decklar ECL table below |
|
|
|
|
|
|
Expected Credit Loss - OML 18 |
|
Performing 12-month ECL US$'000 |
Higher risk assets not credit impaired Lifetime ECL US$'000 |
Credit impaired Lifetime ECL US$'000 |
Total US$'000 |
| At 1 January 2021 |
| - | - | (15,309) | (15,309) |
| Impact of modification |
| - | - | 1,503 | 1,503 |
| Net remeasurement of loss allowance |
| - | - | 1,447 | 1,447 |
| Transfer to lifetime ECL - credit-impaired |
| - | - | (3,794) | (3,794) |
| At 31 December 2021 | | - | - | (16,153) | (16,153) |
| Impairment | | - | - | 765 | 765 |
| Effective interest on ECL | | - | - | (1,816) | (1,816) |
| At 30 June 2022 |
| - | - | (17,204) | (17,204) |
|
Expected Credit Loss - ELI |
|
Performing 12-month ECL US$'000 |
Higher risk assets not credit impaired Lifetime ECL US$'000 |
Credit impaired Lifetime ECL US$'000 |
Total US$'000 |
| At 1 January 2021 | | (385) | - | - | (385) |
| Transfer to Lifetime ECL | | 385 | (385) | - | - |
| Net remeasurement of loss allowance | | - | (255) | - | (255) |
| At 31 December 2021 | | - | (640) | - | (640) |
| Net remeasurement of loss allowance | | - | 457 | - | 457 |
| At 30 June 2022 |
| - | (183) | - | (183) |
|
|
|
|
|
|
|
|
Expected Credit Loss - Decklar |
|
Performing 12-month ECL US$'000 |
Higher risk assets not credit impaired Lifetime ECL US$'000 |
Credit impaired Lifetime ECL US$'000 |
Total US$'000 |
| At 1 January 2021 | | - | - | - | - |
| Transfer to Lifetime ECL | | - | - | - | - |
| Net remeasurement of loss allowance | | - | - | - | - |
| At 31 December 2021 | | - | - | - | - |
| Net remeasurement of loss allowance | | (140) | - | - | (140) |
| At 30 June 2022 |
| (140) | - | - | (140) |
|
|
|
|
|
|
|
|
| OML 18 (i) US$'000 | ELI (ii) US$'000 | Barryroe 4.5% net profit interest (iii) US$'000 | Decklar Petroleum Limited (iv) US$'000 | Total US$'000 |
|
| Amortised cost | Amortised cost | FVTPL | Amortised cost |
|
| Book value at 30 June 2022 | 85,993 | 21,050 | 4,776 | 5,159 | 116,978 |
| Current | 85,993 | 14,208 | - | - | 100,201 |
| Non-current | - | 6,842 | 4,776 | 5,159 | 16,777 |
|
|
|
|
|
|
|
| Book value at 30 June 2021 | 74,540 | 16,056 | 5,772 | - | 96,368 |
| Current | 74,540 | 7,057 | - | - | 81,597 |
| Non-current | - | 8,999 | 5,772 | - | 14,771 |
|
| | | | | |
| Book value at 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 |
Unquoted shares (Ardilaun Energy Limited, v) (Gemini Resources Limited, vi) (Amedeo Resources Limited, vii) : These unquoted shares have a current nil value.
Net Profit Interests (Poznan, viii) (Gora, ix) (Liesa, x): 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 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 originally repayable in full by 30 September 2020 (subsequently modified to 31 December 2022) | Nil |
| *Day 1 and considered appropriate at the reporting dates.
| ||
The business model for the MLPL loan is to hold to collect. The Loan Notes are accounted for at amortised cost.
The credit risk is managed via various undertakings, guarantees, a pledge over shares and the mechanism whereby MLPL prioritises payment of sums due under the Loan Notes. Given the size and quality of the OML 18 oil and gas asset the main credit risk is regarded as the timing of payments by MLPL which is dependent on dividend distributions by Eroton rather than being unable to pay the total quantum due under the Loan Notes. To date Eroton have been unable to make a dividend distribution. Consequently, MLPL had to enter into a loan in 2017 and subsequently, in order to be able to meet its obligations under the Loan Notes and make payments to San Leon.
On 6 April 2020, the Company entered into an Agreement with MLPL, amending the timing of the remaining payment of the Loan Notes Instrument. At the date of the Agreement, the remaining outstanding balance was US$79.5 million. 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.
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 Proposed Transactions. The conditional payment waiver was subsequently extended to include payments due up to December 2021. During 2022 the conditional payment waiver has been further extended to include payments due up to December 2022, pending completion of the Proposed Transactions.
The conditional payment waiver granted in 2021 and the extension of the conditional payment waiver in 2022 have each been treated 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$81.1 million (2021: US$74.8 million), being a gross asset of US$98.3 million (2021: US$92.6 million) and expected credit loss provision of US$16.5 million (2021: 17.8 million). A net modification loss of US$3.2 million (2021: US$3.2 million) was recognised in respect of the change in present value of the revised cashflows discounted at the original face value.
During the period ended 30 June 2022 San Leon received total payments under the Loan Notes of US$0.3 million (2021: US$0.8 million). The payments received during 2022 represent principal of US$Nil million (2021: US$Nil million) and interest of US$0.3 million (2021: US$0.8 million)) on the Loan Notes repaid. As at 30 June 2022 there was US$103.2 million in principal and interest (2021: US$96.5 million), due under the Loan Notes. As at 30 June 2022, US$2.6 million was outstanding from the US$10.0 million due to be repaid on 6 October 2020. Since the reporting date, US$0.3 million of the balance outstanding has been received.
The Directors of San Leon have considered the credit risk of the Loan Notes at 30 June 2022, 31 December 2021 and 30 June 2021. Due to the inability of MLPL to make dividend distributions, the Directors continue to consider that the credit risk has significantly increased since initial recognition. At 31 December 2019 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.
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 the 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 30 June 2022 the Loan Notes are considered credit impaired. The expected credit loss of US$17.2 million (2021: US$16.2 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 22) for further information on the Proposed Transactions.
(ii) Energy Link Infrastructure (Malta) Limited
In August 2020, the Company acquired an indirect economic interest in the Alternate Crude Oil Evacuation System ("ACOES") project.
The interest was acquired through the direct investment in Energy Link Infrastructure (Malta) Limited ("ELI" or "ELI Malta"), a company incorporated in Malta, which owns the ACOES project through its 100% owned subsidiary Energy Link Infrastructure (Nigeria) Limited, a company incorporated in Nigeria ("ELI Nigeria").
The investment comprises a 10% equity interest in ELI together with a US$15.0 million shareholder loan at a coupon of 14% per annum over 4 years, and repayable quarterly following a one-year moratorium from the date of investment (the "ELI Loan Notes"). Funds were provided to ELI in two tranches with the first US$10.0 million tranche being paid in August, and the second tranche of US$5.0 million on 6 October 2020, being half of the funds due from Midwestern Leon Petroleum Limited as part of the repayment of the MLPL Loan Notes.
The fair value assessment of the Loan Notes on acquisition was calculated as follows:
|
| Total US$'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 ELI 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 | Nil |
| *Day 1 and considered appropriate at the reporting dates. | ||
The intention for the ELI loan is to hold to collect.
The credit risk is managed via various undertakings, such as representations, warranties and covenants and the ability for a preferential distribution should some warranties be breached. 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 30 June 2022, 31 December 2021 and 30 June 2021. 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 30 June 2022 no repayments had been received. As at 30 June 2022 there was US$21.2 million (31/12/21: 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 this intention in subsequent announcements and an AIM Admission Document published on 8 July 2022. 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. San Leon understands that 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 third quarter of 2022 when barging operations commence. It is the Directors opinion that ELI will make full repayment of the outstanding loan notes.
In February 2022 the Company provided a further loan of US$2.0 million ELI. 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 US$2.0 million Loan and the ELI Equity Interest are distinct and separate to the proposed further debt and equity investments in ELI announcement on 24 June 2021.
At 30 June 2022, the transfer of the ELI Equity Interest had not completed as ELI is still waiting on obtaining the consent of Guaranty Trust Bank PLC.
The Directors have considered the credit risk of the ELI Loan Notes and the counterparty credit risk as at 30 June 2022, 31 December 2021 and 30 June 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$0.2 million (31/12/2021: US$0.6 million), being 0.1% (31/12/21: 3.6%) of the outstanding balance was appropriate. The expected credit loss has been calculated with a high probability that repayments will commence in Q3 2022.
(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 by Providence, the Directors have reviewed the modelling assumptions and consider it reasonable and appropriate to continue to use a market based approach to increase the Barryroe carrying value by US$0.6 million (31/12/2021: decrease of US$2.6 million) to US$4.8 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% (2021: 9.5%) | The estimated fair value would increase / (decrease) if:
· US Dollar exchange rate increased / (decreased) |
(iv) Decklar Petroleum Limited
In January 2022, the Company acquired an indirect economic interest in the Oza oil field in Nigeria.
The interest was acquired through the direct investment in Decklar Petroleum Limited ("Decklar"), a company incorporated in Nigeria, which is the Risk Service Provider ("RSA") to the operator of the Oza field.
The investment comprises a 11% equity interest in Decklar together with a US$5.5 million unsecured subordinated loan at a coupon of 10% per annum over 5 years, and repayable from available funds from operations, there is a cash sweep in San Leon's favour until the loan and interest is repaid.
Until the loan and its interest are repaid, 75% of the available funds (after taking into account any required debt servicing payments, general and administrative expenses, approved joint venture capital and operating costs required to be funded by Decklar under the RSA, taxes and other statutory payments) that can be distributed from Decklar's RSA proceeds will be paid to San Leon in satisfaction of those payments.
The fair value assessment of the Decklar Loan Notes on acquisition was calculated as follows:
|
| Total US$'000 |
| Total consideration | 5,500 |
| Fair value of Decklar Loan Notes attributable to equity investment # | (479) |
| Net fair value of Decklar Loan Notes | 5,021 |
| # The fair value of Decklar Loan Notes attributable to the equity investment is calculated using a discount factor of management's estimate of a market rate of interest of 4% above the coupon rate of 10% over the term of the Decklar Loan Notes, giving an effective interest rate of 14%. | |
The key information relevant to the fair value of the Decklar Loan Notes on the date they were initially recognised is as follows:
|
| Significant unobservable inputs* | Inter-relationships between the unobservable inputs and fair value measurements |
| Discounted cash flows | · Discount rate 14% based on a market rate of interest of 4% above the coupon rate of 10% · Decklar ability to generate cash flows for timely repayment · Decklar Loan Notes are repayable in full by 31 December 2027 | Nil |
| *Day 1 and considered appropriate at the reporting dates. | ||
The intention for the Decklar Loan Notes 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. Given the nature and stage of the asset the main credit risk is regarded as the timing of payments by Decklar which is dependent on that company's performance.
The Directors of San Leon have considered the credit risk of the Decklar Loan Notes at 30 June 2022. During 2022 San Leon was not due any contractual repayments of the Loan Notes. As at 30 June 2022 there was US$5.3 million (31/12/21: US$Nil) in principal and interest due under the Decklar Loan Notes.
The Directors of San Leon have considered the credit risk of the Decklar Loan Notes at 30 June 2022. The first repayment due is in Q3 2024, subject to available funds, and therefore the Decklar Loan Notes are currently in good standing. Current projections indicate that all debt will be serviced in accordance with contract expectations. The Directors do not consider the credit risk has significantly increased since initial recognition, and a provision for a 12-month expected credit loss of the Decklar Loan Notes has been recognised.
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 Decklar 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 Decklar Loan Notes) and the present value of the contractual cashflows.
The Company determined that the expected credit loss provision of US$0.1 million, being 2.6% of the outstanding balance was appropriate.
(v) Ardilaun Energy Limited
As part of the consideration for the sale of Island Oil & Gas Limited to Ardilaun Energy Limited ("Ardilaun") in 2014 Ardilaun agreed to issue shares equivalent to 15% of the issued share capital of Ardilaun to San Leon. The original fair value of the 15% interest in Ardilaun was based on a market transaction in Ardilaun shares.
The Directors considered the carrying value of this interest at 30 June 2022 and given the length of time to obtain Irish government approval for the transaction, the Directors felt it was prudent to carry 15% of Ardilaun shares still to be issued to San Leon at a value of US$Nil.
(vi) Gemini Resources Limited
In 2019, San Leon converted a debtor of US$192,607 due from Gemini Resources Limited into 54,818 fully paid ordinary shares in Gemini.
The Directors considered the carrying value of this interest at 31 December 2021 to be US$Nil. This carrying value has been maintained at 30 June 2022.
(vii) Amedeo Resources Limited
At 30 June 2022, the Company holds 213,512 ordinary shares at a market value of US$Nil. The value of the investment was written down to US$Nil in 2018 due to the shares of Amedeo Resources plc being de-listed.
(viii) 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 2022.
(ix) 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 2022.
(x) 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 2022.
13. Trade and other receivables
|
| Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Amounts falling due within one year: | |
|
|
| Trade receivables | 3,103 | 2 | 9,860 |
| VAT and other taxes refundable | 113 | 87 | 80 |
| Other debtors (i) | 4,481 | 6,241 | 4,429 |
| Expected credit loss on other debtors (i) | (3,630) | (3,532) | (3,630) |
| Prepayments (ii) | 5,933 | 1,309 | 2,903 |
|
| 10,000 | 4,107 | 13,642 |
(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 21) for further details.
The remaining other debtors consists of rent deposits and similar receivables.
(ii) Prepayments includes an amount of US$2.0 million (31/12/2021: US$2.0 million) for the conditional investment in the equity of Energy Link Infrastructure (Malta) Limited. The equity being conditionally purchased is existing equity interests in ELI owned by Walstrand (Malta) Limited, ELI's largest shareholder.
Prepayments also include costs associated with the Proposed Transactions of US$3.8 million (31/12/2021: US$Nil).
14. Cash and cash equivalents
|
| Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Unaudited 31/12/21 US$'000 |
| Cash and cash equivalents | 267 | 5,349 | 839 |
| Solicitor client account (i) | - | 6,753 | 6,753 |
|
| 267 | 12,102 | 7,592 |
(i) Solicitor client account at 31 December 2021 and 30 June 2021 represents monies held on behalf of the Company by Adepetun Caxton-Martins Agbor & Segun in relation to the Decklar Petroleum Limited transaction.
15. Trade and other payables
|
| Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 | |
| Current | |
|
|
|
| Trade payables | 2,068 | 1,020 | 1,286 |
|
| PAYE / PRSI | 131 | 159 | 223 |
|
| Corporation tax | 5 | 6 | 6 |
|
| Payroll and pensions | 156 | - | 750 |
|
| Other creditors | - | 41 | 67 |
|
| Accruals | 2,777 | 2,291 | 2,080 |
|
| Current portion of lease | 312 | 333 | 340 |
|
|
| 5,449 | 3,850 | 4,752 |
|
|
| | | |
|
| Non-current | |
|
|
|
| Non-current portion of lease | 1,848 | 2,372 | 2,054 |
|
16. Provisions for liabilities
|
| Decommissioning US$'000 |
| At 1 January 2021 | 56 |
| Movement during the year | - |
| At 31 December 2021 | 56 |
| Movement during the period | - |
| At 30 June 2022 | 56 |
|
|
|
| Current | 56 |
| Non-current | - |
At 30 June 2021 56
| Current | 56 |
| Non-current | - |
At 31 December 2021 56
| Current | 56 |
| Non-current | - |
Decommissioning
The provision for decommissioning costs is recorded at the value of the expenditures expected to be required to settle the Group's future obligations on decommissioning of previously drilled wells.
17. Share capital
|
| Number of New Ordinary shares €0.01 each | Authorised Equity US$'000 |
| Authorised equity |
|
|
| At 1 January 2021 | 2,847,406,025 | 177,475 |
| At 30 June 2021 | 2,847,406,025 | 177,475 |
| At 30 June 2022 | 2,847,406,025 | 177,475 |
Issued, called up and fully paid:
|
| Number of New Ordinary shares €0.01 each | Share capital US$'000 | Share premium US$'000 |
| At 1 January 2021 | 449,913,026 | 5,157 | 21,077 |
| At 31 December 2021 | 449,913,026 | 5,157 | 21,077 |
| At 30 June 2022 | 449,913,026 | 5,157 | 21,077 |
Special reserve
Pursuant to the capital reduction in 2019, the company undertook to credit US$5,024,260 to a special reserve. This special reserve is not a distributable reserve and must remain in place until such time as obligations in respect of certain guarantees given by the Company have lapsed or become unenforceable.
18. Deferred tax
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| | Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Financial assets - IFRS 9 | (732) | (1,063) | (572) |
| Financial assets - other | 175 | 175 | 175 |
| Unrealised exchange difference | (22) | (4) | (22) |
| Interest not taxable until received | (1,301) | (492) | (863) |
| Tax losses recognised | - | 463 | -- |
|
| (1,880) | (921) | (1,282) |
19. Commitements and contingencies
(a) Operating leases
Cash commitments under lease obligations as a lessee (Note 20) are as follows:
| | Unaudited 30/06/22 US$'000 | Unaudited 30/06/21 US$'000 | Audited 31/12/21 US$'000 |
| Payable: |
| |
|
| Within one year | 312 | 369 | 340 |
| Between one and five years | 1,246 | 1,472 | 1,359 |
| Over five years | 987 | 1,534 | 1,246 |
|
| 2,545 | 3,375 | 2,945 |
(b) Exploration, evaluation and development activities
The Group has commitments of US$Nil (31/12/21: US$Nil) in the period ended 30 June 2022 to contribute to its share of exploration and evaluation expenditure in respect of exploration licences and concessions held.
(c) Horizon Petroleum Ltd
The Group has a contingent asset, the consideration is in aggregate of US$2.0 million in relation to the sale completed in August 2019 to Horizon Petroleum Ltd.
The Group will receive the aggregate consideration when certain concessions are transformed and granted to Horizon.
(d) Island Oil & Gas Limited Guarantee
The Company has a Guarantee in respect of the decommissioning liabilities of Island (Seven Heads) Limited, a subsidiary of Island Oil & Gas Limited ("Island"). In the event that Island are unable to pay the decommissioning liabilities, under the Guarantee, the Company could be liable for any amounts Island does not pay.
20. LEASES
Statement of Financial Position
| |
At 30/06/22 US$'000 |
| Right of use asset (included within Property, plant and equipment) |
|
| Property leases |
|
| At 1 January 2021 | 2,574 |
| Additions | 244 |
| Depreciation charge for the period | (370) |
| At January 2022 | 2,448 |
| Depreciation charge for the period | (190) |
| Closing net carrying amount at 30 June 2022 | 2,258 |
|
|
At 30/06/22 US$'000 |
| Lease liability |
|
| Property leases |
|
| At 1 January 2021 | 2,761 |
| Payments - principal | (227) |
| Payments - interest | (129) |
| Currency translation adjustment | (140) |
| Interest | 129 |
| At 1 January 2022 | 2,394 |
| Payments - principal | (109) |
| Payments - interest | (56) |
| Currency translation adjustment | (125) |
| Interest | 56 |
| Closing net carrying amount at 30 June 2022 | 2,160 |
| Current | 312 |
| Non-current | 1,848 |
21. Related party transactions
The Company and Group has related party transactions with i) Directors ii) shareholders iii) subsidiaries and iv) other entities with which it has entered into business arrangements. Due to the influence or material interest that these parties have in transactions with the Company or Group they are required to be disclosed and are detailed below.
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$588,871 for amounts due for 2022 (31/12/2021: US$1,679,494).
Oisín Fanning 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 12) and is refundable when the Company either exercises or terminates the option. Mr. Fanning was paid US$154,040 (31/12/2021: US$323,395) rent for the use of this property during the year to 31 December 2021 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.
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$47,905 for amounts due for 2022 (31/12/2021: US$95,629).
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 and US$61,111 related to the period 1 January 2022 to 30 June 2022. 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.
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%.
Up to 30 June 2022, 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. At 30 June 2022 the impairment charge was further increased by US$1.0 million to US$17.2 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 of which US$3.0 million was recorded as revenue in 2021.
Further extensive details can be found on the Company's website which contains a copy of the 2016 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.
2022
In the first six months of 2022 San Leon received total payments under the Loan Notes totaling US$0.3 million. MLPL used loan agreements similar to those entered into in 2018 to continue to make the repayments during 2022.
22. Subsequent events
On 8 July 2022, the Company published an AIM Admission Document describing the Proposed Transactions 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.US$48 million. The Proposed Transactions described in the AIM Admission Document are expected to complete in the fourth quarter of 2022 after Nigerian consents for the transactions have been received.
On 5 August 2022, the Proposed Transactions were approved by shareholders at an Extraordinary General Meeting.
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