Since the announcement by the Company on 8 July 2022 of the proposed transactions with Midwestern Oil & Gas and the Company’s further conditional investments in Energy Link Infrastructure (Malta) Limited the Company has had continuing discussions in relation to securing an alternative US$50 million loan facility to be applied towards the Proposed Transactions and to satisfy the Company’s working capital requirements.  

As previously announced, the proposed refinancing discussions have not progressed as fast as the Board expected and, although the discussions are now at a very advanced stage, the Company has not yet been able to access the funding from such an alternative loan facility.  However, with significant progress having been made in the past weeks, the Board is still optimistic that a conclusion will be reached and expects to provide an update to shareholders in due course.

As announced on 24 March 2023 (and previously), pending completion of the proposed refinancing, the Company has received only very limited cash inflows. The Company currently has approximately US$10.5 million of unpaid creditors, including directors, employees, professional advisers and tax authorities. San Leon has sought to maintain a regular dialogue with both its creditors and major shareholders and keep them informed of the status of the proposed refinancing, but there is understandably some pressure from creditors for settlement of amounts due to them and the continuing support of creditors cannot be guaranteed indefinitely. However, the Board is confident that, following the proposed refinancing being successfully concluded, all creditors will be settled in full shortly afterwards.

Assets update

Further to the announcement by the Company on 3 April 2023, the spread mooring of the FSO (floating storage and offloading) vessel for ELI has been completed (spread mooring is a multi-point mooring system that moors vessels to the seabed using multiple mooring lines). ELI is now in the process of finalising the renewal of necessary administrative regulatory permits to commence full terminal operations. The importance of this milestone is that it places ELI, once it receives the funds from the Further ELI Investments from the Company (details of which are set out in the Admission Document), in a position to export crude oil and thereby generate near-term cashflows which, in turn, will enable it in time to repay San Leon’s investment and loans.

San Leon reminds shareholders and investors that, notwithstanding its short term cashflow constraints, the Company’s current unaudited balance sheet has a significant asset base with, inter alia, over US$115 million and US$20 million owed by Midwestern Leon Petroleum Limited (the “MLPL Loan”) and ELI respectively. Although the MLPL Loan would be extinguished as part of the Proposed Transactions (and is currently subject to a conditional payment waiver with Midwestern until the sooner of completion of the MLPL Reorganisation) it otherwise remains a valid obligation, with interest continuing to accrue on the principal amounts waived pending completion of the MLPL Reorganisation, and therefore a significant asset of the Company. 

Furthermore, the Board remains in negotiations for the proposed sale of the Company’s non-core investment in the Oza oil field in Nigeria, which had a current book value of US$5.6 million in San Leon’s unaudited interim results for the six months ended 30 June 2022, to generate near-term funding. Disappointingly the prospective buyer’s own funding has taken longer than expected to conclude, but this potential transaction remains live with discussions ongoing. 

Accounts for the year ended 31 December 2022

In light of the delay in securing the proposed refinancing referred to above, the Board has concluded that the Company will not be in a position to publish its audited accounts for the year ended 31 December 2022 before 30 June 2023. The delay is due to San Leon not yet receiving the audited financial statements for the year ended 31 December 2022 of Midwestern Leon Petroleum Limited (“MLPL”), which includes the consolidated results of both Martwestern Energy Limited and Eroton Exploration & Production Company Limited (the operator of OML 18), as well as not yet receiving the audited financial statements of ELI for the same period. Each of these are independently run companies and so San Leon has no control over their respective audit and year end processes.

This process also involves several jurisdictions, and when completed, it will be followed by a number of normal audit confirmatory and technical review matters, which when completed (following the completion of the Company’s refinancing) will then put the Company in a position to finalise and publish its audited accounts for the year ended 31 December 2022.

Although it is the Board’s intention and expectation that work will continue expeditiously on finalising its accounts, the Board expects that the Company’s shares will be suspended from trading on AIM with effect from 3 July 2023, pending publication of the Company’s accounts for the year ended 31 December 2022. 

Oisin Fanning, CEO of San Leon, commented: 
“I recognise that shareholders will be disappointed with the delays to our refinancing and publication of accounts and I, and all of the San Leon board, share that frustration.  However, based on our most recent discussions with our proposed funding partners, there is good reason to be optimistic that we are nearing a satisfactory conclusion. Once funding has been secured, we expect to progress quickly towards making our further investments in ELI and finalising our accounts. In the meantime, San Leon’s asset base, including our investment in the OML 18 oil & gas field and its prospects in the second half of this calendar year, particularly through ELI’s activities, is looking exciting.”