Production at OML18 has improved since last year’s difficulties with the Nembe Creek Trunk Line (NCTL) and production recently has been in the region of 10,000 barrels of oil per day (bopd) alongside gas production.

 Should the Refinancing complete and the Company makes its planned investments in ELI, the Alternative Crude Oil Evacuation System’s (ACOES) infrastructure (which comprises a 47-kilometre secure undersea pipeline from OML 18 to the floating storage and offloading unit (FSO) ELI Akaso terminal) is expected to bring a material increase to OML 18’s production.

With a throughput capability of 200,000 bopd (ACOES pipeline plus barging combined) and a storage capacity of two million barrels of oil in the FSO ELI Akaso terminal, the ACOES will enhance crude oil commercialisation for OML 18 and other regional producers, primarily through the reduction of downtime and crude losses associated with the existing export routes.

 Completion of the ACOES is anticipated to be around four months following the Company completing its further investments in ELI (which is conditional on the Refinancing completing), although barging of oil to the FSO ELI Akaso terminal could be commenced within weeks of San Leon making its further investments in ELI.

Creditor update                                 

With the ongoing delay in obtaining new funds, the Company has numerous outstanding trade creditors (around US$25 million in aggregate) and these creditors have been exerting increasing pressure on the Company including, in some cases, sending legal letters before action. San Leon continues to liaise with its creditors and the expectation of funds from the Refinancing is providing some reassurance to a number of its creditors.

A significant constituent of the overall creditors’ position is comprised by a confidential settlement agreement with the Minister for the Environment, Climate and Communications in Ireland that has been recently signed by the Company. The settlement agreement relates to certain decommissioning liabilities of Island (Seven Heads) Limited for the Seven Heads gas field disposed of by the Company in 2014, which have not been settled by Island.

 Consequently, a guarantee signed by the Company at that time has now been called upon by the Minister. The settlement totals c.US$7.7 million and is payable in instalments over the next eight months, with an initial installment of c.US$3.3 million due this month. The payment of the settlement over this period of time has been agreed with the Minister to enable San Leon to attempt to recover the entire settlement from Island, as it is entitled to do under the terms of the applicable disposal agreement.

Pending conclusion of the Refinancing, the US$5.0 million loan from funds managed by Toscafund Asset Management LLP, which was announced by San Leon on 8 August 2023, also remains outstanding and continues to accrue interest at 10 per cent. per annum. San Leon is in regular correspondence with Toscafund in relation to the timing of repayment of this loan and Toscafund continues to be supportive of the Company’s progress.

Release of the security held by Toscafund, that comprises both a debenture issued by the Company as well as assignments and pledges over all of its group companies’ loan and equity interests in ELI, will be effected once the Refinancing has been completed.

The outstanding creditor position equates to around twenty per cent. of the unaudited book value of San Leon’s financial assets, the principal amounts being US$126 million due from Midwestern Leon Petroleum Limited (guaranteed by Midwestern Oil & Gas Company Limited), US$32 million due from ELI and US$7 million due from Decklar Petroleum Limited. Notwithstanding this material asset base, the Board believes that, should the Refinancing not be completed this month, the Company’s cashflow and creditor position will become increasingly unstable and, to protect the interests of its creditors, the Company continues to manage its cost base tightly and, with the exception of efforts being made on the Refinancing, is not undertaking any new projects or incurring any new costs (aside from general running costs).

Ongoing suspension

The Company’s Ordinary Shares of €0.01 each remain suspended from trading on AIM, pending San Leon publishing: i) its audited accounts for the year ended 31 December 2022 (the “2022 Accounts”), as required by Rule 19 of the AIM Rules for Companies; ii) its unaudited interim results for the six months ended 30 June 2023, as stipulated by Rule 18 of the AIM Rules for Companies; and iii) an AIM admission document in relation to the further investment in ELI, details of which were announced by San Leon on 10 October 2023.

If, as expected, the Refinancing completes by the end of March 2024, the Company expects to publish the 2022 Accounts and the 2023 Interim Accounts around two months after receiving funds and the Admission Document around a month following the publication of these accounts. The Company has already put plans in place to progress all of these requirements following the conclusion of the Refinancing.

“The delays in receiving funds from TRAM have been a frustration for all of us at San Leon, but it is another reminder of the underlying quality of our assets that, in spite of this setback, we have continued to attract further prospective funding partners. I am confident that the difficulties of this past year will soon be behind us as our forthcoming Refinancing will enable us to fulfil our long-held strategy of becoming the majority shareholder in ELI. I have said it before but the commissioning of the FSO Akaso Terminal will be a game changer, not only for OML 18 but for the entire industry in that region. We are confident that the ACOES (comprising the FSO and the pipeline) will be a significantly profitable and cash-generative project from which San Leon expects substantial upside,” Oisin Fanning, Chief Executive Officer of San Leon, commented.